View:
Download DOC
Download PDF
Download XLS
Download XBRL
Rayonier 2014 10K


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2014
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
225 WATER STREET, SUITE 1400
JACKSONVILLE, FL 32202
(Principal Executive Office)
Telephone Number: (904) 357-9100
Securities registered pursuant to Section 12(b) of the Exchange Act,
all of which are registered on the New York Stock Exchange:
Common Shares
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES x        NO  o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.        
YES o       NO  x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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

The aggregate market value of the Common Shares of the registrant held by non-affiliates at the close of business on June 30, 2014 was $4,494,036,477 based on the closing sale price as reported on the New York Stock Exchange.

As of February 20, 2015, there were outstanding 126,799,090 Common Shares of the registrant.

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the 2015 annual meeting of the shareholders of the registrant scheduled to be held May 14, 2015, are incorporated by reference in Part III hereof.



TABLE OF CONTENTS
 
Item
  
Page
 
 
PART I
 
1.
 
1A.
 
1B.
 
2.
 
3.
 
4.
 
 
 
PART II
 
5.
 
6.
 
7.
 
7A.
 
8.
 
9.
 
9A.
 
9B.
 
 
 
PART III
 
10.
 
11.
 
12.
 
13.
 
14.
 
 
 
PART IV
 
15.
 
 


i


INDEX TO FINANCIAL STATEMENTS
 
 
Page
 
 
 
 
INDEX TO FINANCIAL STATEMENT SCHEDULES
 
All other financial statement schedules have been omitted because they are not applicable, the required matter is not present, or the required information has been otherwise supplied in the financial statements or the notes thereto.
 
 
 



ii


PART I
When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier,” we mean Rayonier Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Rayonier Inc. included in Item 8 of this Report.

Note About Forward-Looking Statements
Certain statements in this document regarding anticipated financial outcomes including Rayonier’s earnings guidance, if any, business and market conditions, outlook, expected dividend rate, Rayonier’s realigned business strategy, including expected harvest schedules, timberland acquisitions and sales of non-strategic timberlands, the anticipated benefits of Rayonier’s realigned business strategy, and other similar statements relating to Rayonier’s future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in this Annual Report on Form 10-K, among others, could cause actual results or events to differ materially from the Company’s historical experience and those expressed in forward-looking statements made in this document.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward- looking statements except as required by law. You are advised, however, to review any further disclosures the Company makes on related subjects in our subsequent Forms 10-K, Forms 10-Q and Forms 8-K, any amendments thereto, and other reports filed with the SEC.
Item 1.
BUSINESS
General
We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive timber growing regions in the U.S. and New Zealand. The focus of our business is to invest in timberlands and to actively manage such assets to provide current income and attractive long-term returns to our shareholders. As of December 31, 2014, we owned, leased or managed approximately 2.7 million acres of timberlands located in the U.S. South (1.9 million acres), U.S. Pacific Northwest (372,000 acres) and New Zealand (451,000 gross acres, or 309,000 net plantable acres). In addition, we engage in the trading of logs from New Zealand and Australia to Pacific Rim markets, primarily to support our New Zealand export operations. We have an added focus to optimize the value of our land portfolio by pursuing higher and better use (“HBU”) land sales opportunities.
We originated as the Rainier Pulp & Paper Company founded in Shelton, Washington in 1926. On June 27, 2014, Rayonier completed the tax-free spin-off of its Performance Fibers manufacturing business from its timberland and real estate operations, thereby becoming a “pure-play” timberland REIT.
Under our REIT structure, we are generally not required to pay U.S. federal income taxes on our earnings from timber harvest operations and other REIT-qualifying activities contingent upon meeting applicable distribution, income, asset, shareholder and other tests. As of December 31, 2014 and as of the date of the filing of this Annual Report on Form 10-K, we believe the Company is in compliance with all REIT tests.
Our U.S. and New Zealand timber operations are primarily conducted by our wholly-owned and majority-owned REIT subsidiaries, respectively. Our non-REIT qualifying operations, which are subject to corporate-level tax, are held by various taxable REIT subsidiaries. These operations include our log trading business and certain real estate activities, such as the sale and entitlement of development HBU properties.
Our shares are publicly traded on the NYSE under the symbol RYN. We are a North Carolina corporation with executive offices located at 225 Water Street, Jacksonville, Florida 32202. Our telephone number is (904) 357-9100.
For information on sales and operating income by reportable segment and geographic region, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 — Segment and Geographical Information.


1


Our Competitive Strengths
We believe that we distinguish ourselves from other timberland owners and managers through the following competitive strengths:
•
Leading Pure-Play Timberland REIT. We are differentiated from other publicly-traded timberland REITs in that we are invested exclusively in timberlands and do not own any pulp, paper or wood products manufacturing assets. We are the largest publicly-traded “pure-play” timberland REIT, which provides our investors with a focused, large-scale timberland investment alternative without taking on the risks inherent in direct ownership of forest products manufacturing assets.
•
Located in Premier Growing Regions with Access to Strong Markets. Our geographically diverse timberland holdings are strategically located in core softwood producing regions, including the U.S. South, U.S. Pacific Northwest and New Zealand. Our most significant timberland holdings are strategically located in the U.S. South, in close proximity to a variety of established pulp, paper and wood products manufacturing facilities, which provide a steady source of competitive demand for both pulpwood and higher-value sawtimber products. Our Pacific Northwest and New Zealand timberlands benefit from strong domestic sawmilling markets and are strategically positioned near ports to capitalize on export markets serving the Pacific Rim.
•
Sophisticated Log Marketing Capabilities Serving Various Pacific Rim Markets. We conduct a log trading operation based in New Zealand that serves timberland owners in New Zealand and Australia, providing access to key export markets in China, South Korea and India. This operation provides us with superior market intelligence and economies of scale, both of which add value to our New Zealand timber portfolio. It also contributes to the Company’s earnings and cash flows, with minimal investment.
•
Attractive Land Portfolio with High HBU Potential. We own approximately 200,000 acres of timberlands located in the vicinity of Interstate 95 primarily north of Daytona Beach, FL and south of Savannah, GA, of which approximately 39,000 acres currently have land-use entitlements and are well positioned to capture higher sales values per acre as real estate markets strengthen. These properties provide us with opportunities to selectively add value to our portfolio through additional land-use entitlements and infrastructure improvements, which we believe will allow us to periodically sell parcels of such land at favorable valuations relative to timberland values through one of our taxable REIT subsidiaries.
•
Dedicated HBU Platform with Established Track Record. We have a dedicated HBU platform led by an experienced team with an established track record of selling rural and development HBU properties throughout our U.S. South holdings at strong premiums to timberland values. We maintain a detailed land classification analysis of our portfolio, which allows us to identify the highest-value use of our lands and then capitalize on identified HBU opportunities through strategies uniquely tailored to maximize value, including selectively pursuing land-use entitlements and infrastructure improvements.
•
Advantageous Structure and Capitalization. Under our REIT structure, we are generally not required to pay federal income taxes on our earnings from timber harvest operations and other REIT-qualifying activities, which allows us to optimize the value of our portfolio in a tax efficient manner. We also maintain a strong credit profile and have an investment grade debt rating. As of December 31, 2014, our net debt to enterprise value was 14%. We believe that our advantageous REIT structure and conservative capitalization provide us with a competitive cost of capital and significant financial flexibility to pursue growth initiatives relative to other owners, managers and buyers of timberlands.
Our Strategy
Our business strategy consists of the following key elements:
•
Manage our Timberlands on a Sustainable Yield Basis for Long-term Results. We generate recurring income and cash flow from the harvest and sale of timber and intend to actively manage our timberlands to maximize net present value over the long term by achieving an optimal balance among biological timber growth, generation of cash flow from harvesting activities, and responsible environmental stewardship. Our harvesting strategy is designed to produce a long-term, sustainable yield, although we may adjust harvest levels periodically to capitalize on then-current economic conditions in our markets.
•
Apply Advanced Silviculture to Increase the Productivity of our Timberlands. We use our forestry expertise and disciplined financial approach to determine the appropriate silviculture programs and investments to maximize returns. This includes re-planting a significant portion of our harvested acres with improved seedlings we have developed through many years of research and cultivation. Over time, we expect these improved seedlings will result in higher volumes per acre and a higher value product mix.


2


•
Increase the Size and Quality of our Timberland Holdings through Acquisitions. We intend to selectively pursue timberland acquisition opportunities that improve the average productivity of our timberland holdings and support cash flow generation from our annual harvesting activities. We expect there will be an ample supply of attractive timberlands available for sale as a result of anticipated sales from a number of Timberland Investment Management Organizations (“TIMOs”). This acquisition strategy requires a disciplined approach and rigorous adherence to strategic and financial metrics. Generally, we expect to focus our acquisition efforts on the most commercially desirable timber-producing regions of the U.S. South and U.S. Pacific Northwest, particularly on timberlands with an age class profile that complements the age class profile of our existing timberland holdings. We acquired 62,000 acres of timberland in 2014, 17,000 acres in 2013, and 88,000 acres in 2012.
•
Optimize our Portfolio Value. We continuously assess potential alternative uses of our timberlands, as some of our properties may become more valuable for development, residential, recreation or other purposes. We intend to capitalize on the value of our portfolio by opportunistically monetizing such HBU properties. While the majority of our HBU sales involve rural and recreational land, we also selectively pursue various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value potential of such properties. For selected development properties, we also invest in infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties. We generally expect that sales of HBU property (i.e., rural HBU and development HBU) will comprise approximately 1% of our Southern timberland holdings on an annual basis.
•
Focus on Timberland Operations to Support Cash Flow Generation. As described above, we rely primarily on annual harvesting activities and ongoing sales of rural and development HBU to generate cash flow from our timberland holdings. However, we also periodically generate income and cash flow from the sale of non-strategic (i.e., non-HBU) timberlands, in particular as we seek to optimize our portfolio by disposing of less desirable properties. Our strategy is to limit reliance on planned sales of non-HBU timberlands to augment cash flow generation and instead rely primarily on supporting cash flow from the operation, rather than sale, of our timberlands. We believe this strategy will support the sustainability of our harvesting activities over the long term.
•
Promote Best-in-Class Disclosure and Responsible Stewardship. We intend to be an industry leader in transparent disclosure, particularly relating to our timberland holdings, harvest schedules, inventory and age-class profiles. In addition, we are committed to responsible stewardship and environmentally and economically sustainable forestry. We believe our continued commitment to transparency and the stewardship of our assets and capital will allow us to maintain our timberlands’ productivity, more effectively attract and deploy capital and enhance our reputation as a preferred timber supplier.
Segment Information
We previously reported our financial results in three segments — Forest Resources, Real Estate and Other Operations. Effective with the fourth quarter of 2014, the Company realigned its segment reporting into five segments to reflect the way management now assesses the performance of the Company's business units. As part of this realignment, the previously reported Forest Resources segment has been disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. These three segments reflect all activities related to the harvesting of timber and other value-added activities, such as recreational leases, within each respective geography. The New Zealand Timber segment also reflects any land sales that occur within our New Zealand portfolio. Our Real Estate segment continues to reflect all U.S. land sales; however, within our Real Estate segment we have realigned our sales categories. In particular, conservation sales previously reported as Rural are now reported within the Non-Strategic / Timberlands sales category, while Development sales are now reported as Development Improved and Development Unimproved. Our final segment, Trading, reflects the log trading activities conducted by our New Zealand JV, which were previously reported in Other Operations. All prior period amounts previously reported have been reclassified to reflect the realigned segments.
Discussion of Timber Inventory and Sustainable Yield
We define gross timber inventory as an estimate of all standing timber volume beyond the specified age at which we commence calculating our timber inventory for inclusion in our inventory tracking systems. The age at which we commence calculating our timber inventory is 10 years for our Southern timberlands, 20 years for our Pacific Northwest timberlands, and 20 years for our New Zealand timberlands. Our estimate of gross timber inventory is based on an inventory system that involves periodic statistical sampling and growth modeling. Periodic adjustments are made on the basis of growth estimates, harvest information, and environmental and operational restrictions. Gross timber inventory includes certain timber that we do not deem to be of a merchantable age as well as certain timber located in restricted, environmentally sensitive or economically inaccessible areas.


3


We define merchantable timber inventory as an estimate of timber volume beyond a specified age that approximates such timber’s earliest economically harvestable age. Our estimate includes certain timber located in restricted or environmentally sensitive areas based on an estimate of lawfully recoverable volumes from such areas. The estimate does not include volumes in restricted or environmentally sensitive areas that may not be lawfully harvested or volumes located in economically inaccessible areas. The merchantable age (i.e., the age at which timber moves from pre-merchantable to merchantable) is 15 years for our Southern timberlands, with the exception of Oklahoma which is 17 years, 35 years for our Pacific Northwest timberlands, and 20 years for radiata pine in our New Zealand timberlands. Our estimated merchantable timber inventory changes over time as timber is harvested, as pre-merchantable timber converts to merchantable timber, as existing merchantable timber inventory grows, and as we periodically update our statistical sampling and growth and yield models. We estimate our merchantable timber inventory annually for purposes of calculating a per unit depletion rate.
Timber inventory is generally measured and expressed in short green tons (SGT) in our Southern Timberlands, in thousand board feet (MBF) or million board feet (MMBF) in our Pacific Northwest Timberlands, and in cubic meters (m3) in our New Zealand Timberlands. For conversion purposes, one MBF and one m3 is equal to approximately 8.0 and 1.13 short green tons, respectively. For comparison purposes, we provide inventory estimates for our Pacific Northwest and New Zealand timberlands in MBF and cubic meters, respectively, as well as in short green tons.
The following table sets forth the estimated volumes of merchantable timber inventory by location in short green tons as of September 30, 2014 for the South and Pacific Northwest and as of December 31, 2014 for New Zealand: 
(in thousands of short green tons)
 
 
 
Location
Merchantable Inventory (a)
 
%
South
64,241
 
75
Pacific Northwest
6,323
 
7
New Zealand
15,123
 
18
 
85,687
 
100
 
 
 
 
 
(a)
Depletion rate calculations for the upcoming year are based on estimated volumes of merchantable inventory at December 31, 2014 for all regions.
We define sustainable yield as the average harvest level that can be sustained into perpetuity based on our estimates of biological growth and the expected productivity resulting from our reforestation and silvicultural efforts. Our estimated sustainable yield may change over time based on changes in silvicultural techniques and resulting timber yields, changes in environmental laws and restrictions, changes in the statistical sampling and estimates of our merchantable timber inventory, acquisitions and dispositions of timberlands, the expiration or renewal of timberland leases, casualty losses, and other factors. Moreover, our harvest level in any given year may deviate from our estimated sustainable yield due to variations in the age class of our timberlands, the product mix of our harvest (i.e., pulpwood versus sawtimber), our deliberate acceleration or deferral of harvest in response to market conditions, our thinning activity (in which we periodically remove smaller trees to enhance long-term sawtimber potential), or other factors.
We manage our U.S. timberlands in accordance with the requirements of the Sustainable Forestry Initiative® (“SFI”) program, a comprehensive system of environmental principles, objectives and performance measures that combines the perpetual growing and harvesting of trees with the protection of wildlife, plants, soil and water quality. Through application of our site-specific silvicultural expertise and financial discipline, we manage timber in a way that is designed to optimize site preparation, tree species selection, competition control, fertilization, timing of thinning and final harvest. We also have a genetic seedling improvement program to enhance the productivity and quality of our timberlands and overall forest health. In addition, non-timber income opportunities associated with our timberlands such as recreational leases, as well as considerations for the future higher and better uses of the land, are integral parts of our site-specific management philosophy. All these activities are designed to maximize value while complying with SFI requirements.
The timberland holdings of the Matariki Forestry Group, a joint venture (“New Zealand JV”) are certified under the Forest Stewardship Certification® (“FSC”) program. FSC provides an internationally recognized standard for responsible forest management.


4


Southern Timber
As of December 31, 2014, our Southern timberlands acreage consisted of approximately 1.9 million acres (including approximately 273,000 acres of leased lands) located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. Approximately two-thirds of this land supports intensively managed plantations of predominantly loblolly and slash pine. The other one-third of this land is too wet to support pine plantations, but supports productive natural stands primarily consisting of a variety of hardwood species. In the Southern region, rotation ages range from 21 to 28 years for pine plantations and from 35 to 60 years for natural hardwood stands. Key consumers of our timber include pulp, paper, wood products and biomass facilities.
We estimate that the gross timber inventory and merchantable timber inventory of our Southern timberlands was 82 million tons and 64 million tons, respectively, as of September 30, 2014. We estimate that the sustainable yield of our Southern timberlands, including both pine and hardwoods, is approximately 5.4 to 5.7 million tons annually. We expect that the average annual harvest volume of our Southern timberlands over the next five years (2015 to 2019) will be at or near the lower end of this range. For additional information, see Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield.
In 2014, we acquired approximately 62,000 acres of U.S. timberlands located almost exclusively in the South. For additional information, see Note 8 — Timberland Acquisitions.
The following table provides a breakdown of our Southern timberlands acreage and timber inventory by product as of September 30, 2014 (inventory volumes are estimated at December 31 to calculate a depletion rate for the upcoming year):
(volumes in thousands of SGT)
 
 
 
 
 
 
 
 
 
 
 
 
Age Class
 
Acres
(000’s)
 
Pine Pulpwood
 
Pine Sawtimber
 
Hardwood Pulpwood
 
Hardwood Sawtimber
 
Total
Pine Plantation
 
 
 
 
 
 
 
 
 
 
 
 
 
0 to 4 years
 
228
 
—

 
—

 
—

 
—

 
—

 
5 to 9 years
 
244
 
—

 
—

 
—

 
—

 
—

 
10 to 14 years
 
269
 
8,707
 
999
 
50
 
1
 
9,757
 
15 to 19 years
 
249
 
12,193
 
5,614
 
74
 
2
 
17,883
 
20 to 24 years
 
134
 
5,259
 
5,625
 
82
 
3
 
10,969
 
25 to 29 years
 
64
 
1,978
 
4,076
 
92
 
4
 
6,150
 
30 + years
 
27
 
730
 
1,925
 
74
 
8
 
2,737
Total Pine Plantation
 
1,215
 
28,867
 
18,239
 
372
 
18
 
47,496
Natural Pine (Plantable) (a)
 
71
 
899
 
1,963
 
1,519
 
301
 
4,682
Natural Mixed Pine/Hardwood (b)
 
544
 
4,200
 
6,631
 
15,359
 
4,065
 
30,255
Forested Acres and Gross Inventory
 
1,830
 
33,966
 
26,833
 
17,250
 
4,384
 
82,433
Plus: Non-Forested Acres (c)
 
71
 
 
 
 
 
 
 
 
 
 
Gross Acres
 
1,901
 
 
 
 
 
 
 
 
 
 
Less: Pre-Merchantable Age Class Inventory (d)
 

 

 

 

 

 
(10,165)
Less: Volume in Environmentally
Sensitive/Legally Restricted Areas
 
 
 
 
 
 
 
 
 
 
 
(8,027)
Merchantable Timber Inventory
 

 

 

 

 

 
64,241
 
 
 
 
 
(a)
Consists of natural stands that are convertible to pine plantation once harvested.
(b)
Consists of all non-plantable natural stands, including those that are in environmentally sensitive or economically inaccessible areas.
(c)
Includes roads, rights of way and all other non-forested areas.
(d)
Includes inventory that is less than 15 years old or less than 17 years old in Oklahoma.


5


Pacific Northwest Timber
As of December 31, 2014, our Pacific Northwest timberlands consisted of approximately 372,000 acres located in the state of Washington, of which approximately 286,000 acres were designated as productive acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. These timberlands primarily comprise second and third rotation western hemlock and Douglas-fir, as well as a small amount of of other softwood species, such as western red cedar. A small percentage also consists of natural hardwood stands of predominantly red alder. In the Pacific Northwest, rotation ages range from 35 to 50 years. Our product mix in the Pacific Northwest is heavily weighted to sawtimber, which is sold to domestic wood products facilities as well as into exports markets primarily serving the Pacific Rim.
We estimate that the gross timber inventory and merchantable timber inventory of our Pacific Northwest timberlands was 2,005 MMBF and 791 MMBF, respectively, as of September 30, 2014.We estimate that the sustainable yield of our Pacific Northwest timberlands is approximately 160 MMBF (or 1.3 million tons) annually. However, due to historical harvesting in excess of our sustainable yield in this region, we anticipate reducing the harvest level in our Pacific Northwest timberlands to 125 MMBF (or 1.0 million tons) by 2017 and maintaining that level for approximately five to ten years thereafter in order to allow for inventory replenishment and age class smoothing. We expect to gradually reach our long-term sustainable yield of 160 MMBF (or 1.3 million tons) during the course of the next full rotation cycle. We expect that the average annual harvest volume of our Pacific Northwest timberlands over the next five years (2015 to 2019) will be approximately 140 MMBF (or 1.1 million tons). For additional information, see Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield.
The following table provides a breakdown of our Pacific Northwest timberlands acreage and timber inventory by product and age class as of September 30, 2014 (inventory volumes are estimated at December 31 to calculate a depletion rate for the upcoming year):
(volumes in MBF)
 
 
 
 
 
 
 
 
 
Age Class
 
Acres (000’s)
 
Softwood
Pulpwood (a)
 
Softwood
Sawtimber (a)
 
Total
Commercial Forest
 
 
 
 
 
 
 
 
 
0 to 4 years
 
44
 
—

 
—

 
—

 
5 to 9 years
 
52
 
—

 
—

 
—

 
10 to 14 years
 
32
 
—

 
—

 
—

 
15 to 19 years
 
20
 
—

 
—

 
—

 
20 to 24 years
 
28
 
34,974
 
96,611
 
131,585
 
25 to 29 years
 
43
 
61,521
 
375,052
 
436,573
 
30 to 34 years
 
29
 
54,272
 
398,964
 
453,236
 
35 to 39 years
 
17
 
33,433
 
289,245
 
322,678
 
40 to 44 years
 
7
 
15,740
 
145,454
 
161,194
 
45 to 49 years
 
2
 
5,524
 
51,583
 
57,107
 
50+ years
 
7
 
18,908
 
200,483
 
219,391
Total Commercial Forest
 
281
 
224,372
 
1,557,392
 
1,781,764
Non-Commercial Forest (b)
 
5
 
3,830
 
42,089
 
45,919
Productive Forested Acres
 
286
 

 

 

Restricted Forest (c)
 
27
 
15,029
 
162,048
 
177,077
Total Forested Acres and Gross Inventory
 
313
 
243,231
 
1,761,529
 
2,004,760
Plus: Non-Forested Acres (d)
 
59
 
 
 
 
 
 
Gross Acres
 
372
 
 
 
 
 
 
Less: Pre-Merchantable Age Class Inventory (e)
 

 

 

 
(1,022,433)
Less: Volume in Environmentally
Sensitive/Legally Restricted Areas
 
 
 
 
 
 
 
(190,919)
Merchantable Timber Inventory (MBF)
 

 

 

 
791,408
Conversion factor for MBF to SGT
 
 
 
 
 
 
 
7.99
Merchantable Timber Inventory (SGT)
 
 
 

 

 
6,323,350
 
 
 
 
 
(a)
Includes a negligible amount of red alder hardwood.
(b)
Includes non-commercial forests with limited productivity.
(c)
Includes significant portions of riparian management zones, legally restricted forests, and environmentally sensitive areas.
(d)
Includes core riparian management zones, roads, rights of way, and all other non-forested areas.
(e)
Includes commercial forest and non-commercial forest inventory that is less than 35 years old.


6


New Zealand Timber
As of December 31, 2014, our New Zealand timberlands consisted of approximately 451,000 acres (including approximately 266,000 acres of leased lands), of which approximately 309,000 acres (including approximately 174,000 acres of leased lands) were designated as productive or plantation acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. The leased acres are generally leased through long-term arrangements including Crown Forest Licenses (“CFLs”), forestry rights and other leases. Rayonier’s wholly owned subsidiary, Rayonier New Zealand Limited (“RNZ”) serves as the manager of the New Zealand JV timberlands. Our New Zealand timberlands serve a domestic sawmilling market and also export logs to Pacific Rim markets. For additional information, see Note 4 — Joint Venture Investment.
In April 2013, we acquired an additional 39 percent interest in the New Zealand JV, bringing our total ownership to 65 percent. As a result, the New Zealand JV’s results of operations have been consolidated and comprise the New Zealand Timber segment. The minority owner’s interest in the New Zealand JV and its earnings are reported as noncontrolling interest in our financial statements.
We estimate that the gross timber inventory and merchantable timber inventory of our New Zealand timberlands was 13.4 million cubic meters as of December 31, 2014. We estimate that the sustainable yield of our New Zealand timberlands is approximately 2 million cubic meters (or 2.3 million tons) annually. We expect that the average annual harvest volume of our New Zealand timberlands over the next five years (2015 to 2019) will be generally in line with our sustainable yield. For additional information, see Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield.
The following table provides a breakdown of our New Zealand timberlands acreage and merchantable timber inventory by age class estimated as of December 31, 2014 (inventory volumes at December 31 are used to calculate a depletion rate for the upcoming year):
(volumes in M m3)
 
 
 
 
 
 
Age Class
 
Acres (000’s)
 
Pulpwood
 
Sawtimber
 
Total
Radiata Pine
 
 
 
 
 
 
 
 
 
0 to 4 years
 
61
 
—

 
—

 
—

 
5 to 9 years
 
44
 
—

 
—

 
—

 
10 to 14 years
 
53
 
—

 
—

 
—

 
15 to 19 years
 
52
 
—

 
—

 
—

 
20 to 24 years
 
31
 
1,326
 
4,198
 
5,524
 
25 to 29 years
 
21
 
1,274
 
3,023
 
4,297
 
30 + years
 
6
 
400
 
861
 
1,261
 
Total Radiata Pine
 
268
 
3,000
 
8,082
 
11,082
Other (a)
 
41
 
1,204
 
1,097
 
2,301
Forested Acres and Merchantable Timber Inventory
 
309
 
4,204
 
9,179
 
13,383
Conversion factor for m3 to SGT
 
 
 
 
 
 
 
1.13
Total Merchantable Timber (thousands of SGT)
 
 
 
 
 
 
 
15,123
Plus: Non-Productive Acres (b)
 
142
 
 
 
 
 
 
Gross Acres
 
451
 
 
 
 
 
 
 
 
 
 
 
(a)
Includes primarily Douglas-fir age 30 and over.
(b)
Includes natural forest and other non-planted acres.


7


Real Estate
All of our U.S. land sales, including HBU and non-HBU, are reported in our Real Estate segment. Beginning in the fourth quarter of 2014, we realigned our Real Estate sales categories to include four types of property sales: Unimproved Development, Improved Development, Rural and Non-Strategic / Timberlands. Sales categories for 2014 and for prior periods presented have been reclassified to conform to these new category definitions.
The Improved Development category comprises properties sold for development for which Rayonier, through a taxable REIT subsidiary, has invested in site improvements such as infrastructure, roadways, utilities, amenities and/or other improvements designed to enhance marketability and create parcels, pads and/or lots for sale. The Unimproved Development category comprises properties sold for development, which Rayonier has not invested in site improvements such as infrastructure.
The Rural category comprises properties sold in rural markets to buyers interested in the property for rural residential or recreational use. Previously, Rural included sales of properties for conservation purposes; however, under the new sales category definitions, conservation sales are now included with Non-Strategic / Timberland sales.
The Non-Strategic / Timberland category includes: 1) sales of non-core timberlands that do not meet our strategic criteria, 2) sales of core timberlands for which we obtain attractive values, and 3) sales of properties to conservation interests that wish to preserve the land for habitat, public recreation, natural growth, buffer zones or other environmental purposes.
We maintain a detailed land classification analysis for all of our timberland and HBU acres. The vast majority of our HBU properties are managed as timberland and generate cash flow from timber operations prior to their sale or, in the case of Improved Development properties, prior to improvement.
Trading
Our Trading segment reflects log trading activities in New Zealand and Australia conducted by our New Zealand JV. Our Trading segment complements the New Zealand Timber segment by providing added market intelligence, increasing the scale of export operations and achieving cost savings that directly benefit the New Zealand Timber segment.
Trading activities are broadly categorized as either managed export services or procured logs. For managed export services, the New Zealand JV does not take title to the log cargo but arranges sales, shipping and export documentation services for other forest owners for an agreed commission. For procured logs, the New Zealand JV buys logs directly from other forest owners at New Zealand ports and exports them in its own name. Income from this business is generated by achieving a sales margin over the purchase price of the procured logs. The Trading segment generally utilizes a managed export service arrangement for logs sourced from third parties outside of New Zealand, and generally utilizes a procured log arrangement for logs sourced from third parties within New Zealand. For managed export services, Trading segment revenues reflect only the commission earned on the sale. For procured logs sales, Trading segment revenues reflect the full sales price of the logs.
In 2014, Trading volume was approximately 1.7 million cubic meters of logs. Approximately 1.0 million cubic meters of logs were sourced from outside New Zealand, primarily Australia, of which over 98 percent were undertaken through managed export service arrangements. Approximately 0.7 million cubic meters of logs were purchased directly from third parties in New Zealand through procured log arrangements, with 54 percent purchased from two key suppliers. Approximately 61 percent of third-party purchases in New Zealand were purchased at spot prices, with the New Zealand JV thereby assuming some price risk on subsequent resale. The remaining 39 percent were purchased on a fixed margin basis, with the New Zealand JV thereby earning a spread on the resale price irrespective of subsequent price fluctuations. The New Zealand JV generally seeks to mitigate its risk of loss on procured logs by securing export orders prior to or concurrent with its spot purchases of logs.
Discontinued Operations and Dispositions
In June 2014, we completed the tax-free spin-off of our Performance Fibers business. The spin-off resulted in two independent, publicly-traded companies, with the Performance Fibers business being spun off to Rayonier shareholders as a newly formed public company named Rayonier Advanced Materials Inc. ("Rayonier Advanced Materials"). On June 27, 2014, the shareholders of record received one share of Rayonier Advanced Materials common stock for every three common shares of Rayonier held as of the close of business on the record date of June 18, 2014. In March 2013, the Company sold its Wood Products business to International Forest Products Limited for $80 million plus a working capital adjustment. Accordingly, the operating results of the Performance Fibers and Wood Products business segments are reported 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 businesses that remained with Rayonier are reported in continuing operations.


8


The December 31, 2014 Consolidated Balance Sheet reports only continuing operations and reflects the contribution of approximately $1.2 billion of assets and corresponding liabilities and equity to Rayonier Advanced Materials in connection with the spin-off of the Performance Fibers business. The December 31, 2013 Consolidated Balance Sheet includes the Performance Fibers business.
The Consolidated Statements of Cash Flows for 2014, 2013 and 2012 have not been restated to exclude Performance Fibers and Wood Products cash flows. Cash flows for the year ended December 31, 2014 also reflect transactions related to the Performance Fibers spin-off, including borrowings to arrange the capital structure prior to the separation, proceeds received upon the spin-off and the use of proceeds to pay down debt and pay a special dividend.
See Note 3 — Discontinued Operations for additional information regarding the spin-off of the Performance Fibers business and sale of the Wood Products business.
The December 31, 2013 Consolidated Balance Sheet includes environmental liabilities relating to prior dispositions and discontinued operations, including a former dissolving pulp mill site, former wood treating sites and other miscellaneous environmentally-impacted sites. In connection with the spin-off of the Performance Fibers business, all prior dispositions and discontinued operations were contributed to Rayonier Advanced Materials. As part of the separation agreement, Rayonier has been indemnified, released and discharged from any liability related to these sites. See Note 17 — Liabilities for Dispositions and Discontinued Operations for additional information.
Foreign Sales and Operations
Sales from non-U.S. operations originate from our New Zealand Timber and Trading operations and comprised approximately 47 percent of consolidated 2014 sales. See Note 5 — Segment and Geographical Information for additional information.
Competition
Timber
Timber markets in our Southern and Pacific Northwest regions are relatively fragmented. In the Southern region, we compete with Plum Creek Timber Company, Weyerhaeuser Company and TIMOs such as Hancock Timber Resource Group, Resource Management Service, Forest Investment Associates and Campbell Global, as well as numerous other large and small privately held timber companies. In the Pacific Northwest region, we compete with Weyerhaeuser Company, Hancock Timber Resource Group, Green Diamond Resource Company, Campbell Global, Port Blakely Tree Farms, Pope Resources, the State of Washington Department of Natural Resources and the Bureau of Indian Affairs. Other competition in the Pacific Northwest region consists of log imports from Canada. In all markets, price is the principal method of competition.
In New Zealand, there are four major private timberland owners — Hancock Natural Resources Group, Kaingaroa Timberlands, Matariki Forests (our New Zealand JV) and Ernslaw One. These owners account for approximately 39 percent of New Zealand planted forests. The New Zealand JV competes with these and other smaller New Zealand timber companies for supply into New Zealand domestic and export markets, predominantly China, South Korea and India. Logs supplied into Asian markets compete with export supply from both Russia and North America.
Real Estate
In our Real Estate business, we compete with other owners of entitled and unentitled properties. Each property has unique attributes, but overall quantity of supply and price for residential, commercial, industrial and rural properties in the geographic areas in which we operate are the most significant competitive drivers.
Trading
Our log trading operations are based out of New Zealand and performed by our New Zealand JV. The New Zealand market remains very competitive with over 20 entities competing for export log supply at different ports across the country. We are one of the larger log trading companies in the region with access to multiple export ports and a range of different export markets.
Customers
On a post-spin basis, no individual customer (or group of customers under common control) represented 10 percent or more of 2014 consolidated sales. As such, there is not a risk that the loss of one customer would have a material adverse effect on our results of operations.



9


Seasonality
Our Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading segments’ results are normally not impacted by seasonal changes. However, particularly wet weather in areas of our Southern Timber operations can hinder access for harvesting, thereby temporarily reducing supply in the affected areas and generally strengthening prices. Conversely, extended dry weather in an area tends to suppress prices as timber is more accessible for harvesting.
Environmental Matters
See Item 1A — Risk Factors and Note 17 — Liabilities for Dispositions and Discontinued Operations.
Research and Development
The research and development activities of our timber operations include genetic seedling improvement, growth and yield modeling, and applied silvicultural programs to identify management practices that will improve financial returns from our timberlands. We also contribute to research cooperatives that undertake forestry research and development.
Employee Relations
We currently employ approximately 320 people, of which approximately 240 are in the United States. We believe relations with our employees are satisfactory.
Availability of Reports and Other Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Sections 13(a) or 14 of the Securities Exchange Act of 1934 are made available to the public free of charge in the Investor Relations section of our website www.rayonier.com, shortly after we electronically file such material with, or furnish them to, the Securities and Exchange Commission (“SEC”). Our corporate governance guidelines and charters of all committees of our board of directors are also available on our website. The information on the Company’s website is not incorporated by reference into this annual report on Form 10-K.



10


Item 1A.
Risk Factors
Our operations are subject to a number of risks. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in this Annual Report on Form 10-K. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected.
We are exposed to the cyclicality of the markets in which we operate and other factors beyond our control, which could adversely affect our results of operations.
Some of the industries in which our end-use customers participate, such as the construction and home building industries, the global pulp and paper industries and the real estate industry, are cyclical in nature, exposing us to risks beyond our control, including general macroeconomic conditions, both in the U.S. and globally, as well as local economic conditions.
In our Timber segments, the level of new residential construction activity and, to a lesser extent, home repair and remodeling activity, is the primary driver of sawtimber demand. In addition, demand for logs can be affected by the demand for wood chips in the pulp and paper and engineered wood products markets, as well as the bio-energy production markets. The ongoing level of activity in these markets is subject to fluctuation due to future changes in economic conditions, interest rates, credit availability, population growth, weather conditions and other factors. Changes in global economic conditions, such as new timber supply sources and changes in currency exchange rates, foreign interest rates and foreign and domestic trade policies, can also negatively impact demand for our timber and logs. In addition, the industries in which these customers participate are highly competitive and may experience overcapacity or reductions in demand, all of which may affect demand for and pricing of our products. For example, the supply of timber and logs has historically increased during favorable pricing environments, which then causes downward pressure on prices, which can have an adverse effect on our business.
In our Real Estate segment, our inability to sell our HBU properties at attractive prices could have a significant effect on our results of operations. Demand for real estate can be affected by the availability of capital, changes in interest rates, availability and terms of financing governmental agencies, developers, conservation organizations, individuals and others seeking to purchase our timberlands, our ability to obtain land use entitlements and other permits necessary for our development activities, local real estate market economic conditions, competition from other sellers of land and real estate developers, the relative illiquidity of real estate investments, employment rates, new housing starts, population growth, demographics and federal, state and local land use, zoning and environmental protections laws or regulations (including any changes in laws or regulations). In addition, changes in investor interest in purchasing timberlands could reduce our ability to execute sales of non-strategic timberlands.
These macroeconomic and cyclical factors impacting our operations are beyond our control and, if such conditions deteriorate or do not continue to improve, could have an adverse effect on our business.
Weather and other natural conditions may limit our timber harvest and sales.
Weather conditions and extreme events, timber growth cycles and restrictions on access (for example, due to prolonged wet conditions) and other factors, including damage by fire, insect infestation, disease, prolonged drought and natural disasters such as wind storms and hurricanes, may limit harvesting of our timberlands. The volume and value of timber that can be harvested from our timberlands may be reduced by any such fire, insect infestation, disease, severe weather, prolonged drought, natural disasters and other causes beyond our control. As is typical in the forestry industry, we do not maintain insurance for any loss to our timber, including losses due to fire and these other causes. These and other factors beyond our control could reduce our timber inventory and accordingly, our sustainable yield, thereby adversely affecting our financial results and cash flows.
Entitlement and development of real estate entail a lengthy, uncertain and costly approval process, which could adversely affect our ability to grow the businesses in our Real Estate segment.
Entitlement and development of real estate entail extensive approval processes involving multiple regulatory jurisdictions. It is common for a project to require multiple approvals, permits and consents from U.S. federal, state and local governing and regulatory bodies. For example, in Florida, real estate projects must generally comply with the provisions of the Community Planning Act and local land use, zoning and development regulations. In addition, development projects in Florida that exceed certain specified regulatory thresholds (and are not located in a jurisdiction classified as a dense urban land area) require approval of a comprehensive Development of Regional Impact (“DRI”) application. Compliance with these and other regulations and the DRI process is usually lengthy and costly, and significant conditions can be imposed on a developer with respect to a particular project. In addition, development of properties containing delineated wetlands may require one or more permits from the U.S. federal government and/or state and local governmental agencies. Any of these issues can materially affect the cost, timing and economic viability of our real estate projects.


11


The real estate entitlement process is frequently a political one, which involves uncertainty and often extensive negotiation and concessions in order to secure the necessary approvals and permits. In the U.S., a significant amount of our development property is located in counties in which local governments face challenging issues relating to growth and development, including zoning and future land use, public services, water availability, transportation and other infrastructure, and funding for same, and the requirements of state law, especially in the case of Florida under the Community Planning Act and DRI process. In addition, anti-development groups are active, especially in Florida, in filing litigation to oppose particular entitlement activities and development projects, and in seeking legislation and other anti-development limitations on real estate development activities. We expect this type of anti-development activity to continue in the future.
Issues affecting real estate development also include the availability of potable water for new development projects. For example, the Georgia Legislature enacted the Comprehensive Statewide Watershed Management Planning Act, which, among other things, created a governmental entity called the Georgia Water Council which was charged with preparing a comprehensive water management plan for the state and presenting it to the Georgia Legislature. It is unclear at this time how the plan will affect the cost and timing of real estate development along the southern Georgia coast, where the Company has significant timberland holdings with downstream real estate development potential. Concerns about the availability of potable water also exist in certain Florida counties, which could impact future growth opportunities.
Changes in the laws, or interpretation or enforcement thereof, regarding the use and development of real estate, changes in the political composition of state and local governmental bodies, and the identification of new facts regarding our properties could lead to new or greater costs and delays and liabilities that could materially adversely affect our business, profitability or financial condition.
Changes in energy and fuel costs could affect our results of operations and financial condition.
Energy costs are a significant operating expense for our logging and hauling contractors and for the contractors who support the customers of our standing timber. Energy costs can be volatile and are susceptible to rapid and substantial increases or decreases due to factors beyond our control, such as changing economic conditions, political unrest, instability in energy-producing nations, and supply and demand considerations. Although the price of oil has recently decreased, increases in the price of oil could adversely affect our business, financial condition and results of operations. In addition, an increase in fuel costs, and its impact on the cost and availability of transportation for our products, both domestically and internationally, and the cost and availability of third party logging and hauling contractors, could have a material adverse effect on the operating costs of our contractors and our standing timber customers, as well as in defining economically accessible timber stands. Such factors could in turn have a material adverse effect on our business, financial condition and results of operations, particularly in our Timber segments and Trading segment.
We depend on third parties for logging and transportation services and increases in the costs or decreases in the availability of quality service providers could adversely affect our business.
Our Timber segments depend on logging and transportation services provided by third parties, both domestically and internationally, including by railroad, trucks, or ships. If any of our transportation providers were to fail to deliver timber supply or logs to our customers in a timely manner, or were to damage timber supply or logs during transport, we may be unable to sell it at full value, or at all. During the global financial crisis and subsequent downturn in U.S. housing starts, timber harvest volumes declined significantly. As a result, many logging contractors, particularly cable logging operators in the U.S. West, permanently shut down their operations. As harvest levels have returned to higher levels with the recovery in U.S. housing starts, this shortage of logging contractors has resulted in sharp increases in logging costs and in the availability of logging contractors. It is expected that the supply of qualified logging contractors will be impacted by the availability of debt financing for equipment purchases as well as a sufficient supply of adequately trained loggers. As housing starts continue to recover, harvest levels are expected to increase, placing more pressure on the existing supply of logging contractors. Any significant failure or unavailability of third-party logging or transportation providers, or increases in transportation rates or fuel costs, may result in higher logging costs or the inability to capitalize on stronger log prices to the extent logging contractors cannot be secured at a competitive cost. Such events could harm our reputation, negatively affect our customer relationships and adversely affect our business.


12


We are subject to risks associated with doing business outside of the U.S.
Although the majority of our customers are in the U.S., a portion of our sales are to end markets outside of the U.S., including China, South Korea, Japan, Taiwan, India and New Zealand. The export of our products into international markets results in risks inherent in conducting business pursuant to international laws, regulations and customs. We expect that international sales will continue to contribute to future growth. The risks associated with our business outside the U.S. include:
•
changes in and reinterpretations of the laws, regulations and enforcement priorities of the countries in which our products are sold;
•
responsibility to comply with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;
•
trade protection laws, policies and measures and other regulatory requirements affecting trade and investment, including loss or modification of exemptions for taxes and tariffs, imposition of new tariffs and duties and import and export licensing requirements;
•
difficulty in establishing, staffing and managing non-U.S. operations;
•
product damage or losses incurred during shipping;
•
potentially negative consequences from changes in or interpretations of tax laws;
•
economic or political instability, inflation, recessions and interest rate and exchange rate fluctuations; and
•
uncertainties regarding non-U.S. judicial systems, rules and procedures.
These risks could adversely affect our business, financial condition and results of operations.
We and certain of our current and former officers and directors have been named as parties to various lawsuits relating to matters arising out of our previously announced internal review and the restatement of our consolidated financial statements, and may be named in further litigation or become subject to regulatory proceedings or government enforcement actions.
The matters that led to our internal review and the restatement of our consolidated financial statements have exposed us to greater risks associated with litigation, regulatory proceedings and government enforcement actions. We and certain of our current and former officers and directors are the subjects of a number of purported class action lawsuits and demand letters. In addition, we are currently the subject of an ongoing private SEC inquiry. These actions arise from our announcement on November 10, 2014 regarding the results of our internal review and the restatement of our consolidated financial statements for the first and second quarters of 2014. We and our current and former officers and directors may, in the future, be subject to additional private and governmental actions relating to such matters. We cannot predict the duration, outcome or impact of these pending matters, but the lawsuits could result in judgments against us and officers and directors who are now or may become named as defendants. In addition, subject to certain limitations, we are obligated to indemnify and advance expenses for our current and former officers and directors in connection with such lawsuits and regulatory proceedings or government enforcement actions and any related litigation or settlements amounts.
Regardless of the outcome, these lawsuits, and any other litigation, regulatory proceedings, or government enforcement actions that may be brought against us or our current or former officers and directors, could be time-consuming, result in significant expense, and divert the attention and resources of our management and other key employees. Our legal expenses incurred in defending the lawsuits and responding to any government inquiries could be significant. In addition, an unfavorable outcome in any of these matters could exceed coverage provided under potentially applicable insurance policies, which is limited. Any such unfavorable outcomes could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, we could be required to pay damages or additional penalties, or have other remedies imposed against us, or our current or former directors or officers, which could harm our reputation, business, financial condition, results of operations or cash flows.


13


Our estimates of timber inventories and growth rates may be inaccurate, include risks inherent to such estimates and may impair our ability to realize expected revenues.
We rely upon estimates of merchantable timber inventories (which include judgments regarding inventories that may be lawfully and economically harvested), timber growth rates and end-product yields when acquiring and managing working forests. These estimates, which are inherently inexact and uncertain in nature, are central to forecasting our anticipated timber revenues and expected cash flows. Growth rates and end-product yield estimates are developed using statistical sampling and growth and yield modeling in conjunction with industry research cooperatives and by in-house forest biometricians using measurements of trees in research plots spread across our timberland holdings. The growth equations predict the rate of height and diameter growth of trees so that foresters can estimate the volume of timber that may be present in the tree stand at a given age. Tree growth varies by soil type, geographic area, and climate. Inappropriate application of growth equations in forest management planning may lead to inaccurate estimates of future volumes. If the assumptions we rely upon change or these estimates are inaccurate, our ability to manage our timberlands in a sustainable or profitable manner may be diminished, which may cause our results of operations and our stock price to be adversely affected.
Our businesses are subject to extensive environmental laws and regulations that may restrict or adversely affect our ability to conduct our business.
Environmental laws and regulations are constantly changing and are generally becoming more restrictive. Laws, regulations and related judicial decisions and administrative interpretations affecting our business are subject to change, and new laws and regulations are frequently enacted. These changes may adversely affect our ability to harvest and sell timber, remediate contaminated properties and/or entitle real estate. These laws and regulations may relate to, among other things, the protection of timberlands and endangered species, recreation and aesthetics, protection and restoration of natural resources, wastewater discharges, receiving water quality, timber harvesting practices, and remedial standards for contaminated property and groundwater. Over time, the complexity and stringency of these laws and regulations have increased and the enforcement of these laws and regulations has intensified. Moreover, environmental policies of the current U.S. administration are more restrictive in the aggregate for industry and landowners than those of the previous administration. For example, the U.S. Environmental Protection Agency (“EPA”) has pursued a number of initiatives that, if implemented, could impose additional operational and pollution control obligations on industrial facilities like those of Rayonier’s customers, especially in the area of air emissions and wastewater and stormwater control. In addition, as a result of certain judicial rulings and EPA initiatives, including some that would require timberland operators to obtain permits to conduct certain ordinary course forestry activities, silvicultural practices on our timberlands could be impacted in the future. Environmental laws and regulations will likely continue to become more restrictive and over time could adversely affect our business, financial condition and results of operations.
If regulatory and environmental permits are delayed, restricted or rejected, a variety of our operations could be adversely affected. We are required to seek permission from government agencies in the states and countries in which we operate to perform certain activities related to our properties. Any of these agencies could delay review of, or reject, any of our filings. In our Southern Timber, Pacific Northwest Timber and New Zealand Timber segments, any delay associated with a filing could result in a delay or restriction in replanting, thinning, insect control, fire control or harvesting, any of which could have an adverse effect on our operating results. For example, in Washington State, we are required to file a Forest Practice Application for each unit of timberland to be harvested. These applications may be denied, conditioned or restricted by the regulatory agency. Actions by the regulatory agencies could delay or restrict timber harvest activities pursuant to these permits. Delays or harvest restrictions on a significant number of applications could have an adverse effect on our operating results. Delays in obtaining these environmental permits could have an adverse effect on our results of operations.
Environmental groups and interested individuals may seek to delay or prevent a variety of operations. We expect that environmental groups and interested individuals will intervene with increasing frequency in the regulatory processes in the states and countries where we own, lease or manage timberlands. For example, in Washington State, environmental groups and interested individuals may appeal individual forest practice applications or file petitions with the Forest Practices Board to challenge the regulations under which forest practices are approved. These and other challenges could materially delay or prevent operations on our properties. For example, interveners at times may bring legal action in Florida in opposition to entitlement and change of use of timberlands to commercial, industrial or residential use. Delays or restrictions due to the intervention of environmental groups or interested individuals could adversely affect our operating results. In addition to intervention in regulatory proceedings, interested groups and individuals may file or threaten to file lawsuits that seek to prevent us from obtaining permits, implementing capital improvements or pursuing operating plans. Any threatened or actual lawsuit could delay harvesting on our timberlands, affect how we operate or limit our ability to modify or invest in our real estate. Among the remedies that could be enforced in a lawsuit is a judgment preventing or restricting harvesting on a portion of our timberlands.


14


The impact of existing regulatory restrictions on future harvesting activities may be significant. U.S. federal, state and local laws and regulations, as well as those of other countries, which are intended to protect threatened and endangered species, as well as waterways and wetlands, limit and may prevent timber harvesting, road building and other activities on our timberlands. Restrictions relating to threatened and endangered species apply to activities that would adversely impact a protected species or significantly degrade its habitat. The size of the restricted area varies depending on the protected species, the time of year and other factors, but can range from less than one acre to several thousand acres. A number of species that naturally live on or near our timberlands, including, among others, the northern spotted owl, marbled murrelet, several species of salmon and trout in the Pacific Northwest, and the red cockaded woodpecker, Red Hills salamander and flatwoods salamander in the Southeast, are protected under the Federal Endangered Species Act (the “ESA”) or similar U.S. federal and state laws. A significant number of other species, such as the gopher tortoise and long-eared bat are currently under review for possible protection under the ESA. As we gain additional information regarding the presence of threatened or endangered species on our timberlands, or if other regulations, such as those that require buffers to protect water bodies, become more restrictive, the amount of our timberlands subject to harvest restrictions could increase.
We formerly owned or operated or may own or acquire timberlands or properties that may require environmental remediation or otherwise be subject to environmental and other liabilities. We owned or operated manufacturing facilities and discontinued operations that we do not currently own, and we may currently own or may acquire timberlands and other properties in the future that are subject to environmental liabilities, such as remediation of soil, sediment and groundwater contamination and other existing or potential liabilities. In connection with the spin-off of our Performance Fibers business, and pursuant to the related Separation and Distribution Agreement between us and Rayonier Advanced Materials, Rayonier Advanced Materials has assumed any environmental liability of ours in connection with the manufacturing facilities and discontinued operations related to the Performance Fibers business and has agreed to indemnify and hold us harmless in connection with such environmental liabilities. However, in the event we seek indemnification from Rayonier Advanced Materials, we cannot provide any assurance that a court will enforce our indemnification right if challenged by Rayonier Advanced Materials or that Rayonier Advanced Materials will be able to fund any amounts for indemnification owed to us. In addition, the cost of investigation and remediation of contaminated timberlands and properties that we currently own or acquire in the future could increase operating costs and adversely affect financial results. We could also incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting our operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), clean-up and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations related to such timberlands or properties.
The industries in which we operate are highly competitive.
The markets in which we operate are highly competitive, and we compete with companies that have substantially greater financial resources that we do in each of these businesses. The competitive pressures relating to our Timber segments are primarily driven by quantity of product supply and quality of the timber offered by competitors in the domestic and export markets, each of which may impact pricing. With respect to our Real Estate segment, we compete with other owners of entitled and unentitled properties. Each property has unique attributes, but overall quantity of supply and price for residential, commercial, industrial and rural properties in the geographic areas in which we operate are the most significant competitive drivers. The market in which our Trading segment operates remains very competitive with over 20 entities competing for export log supply at different ports across New Zealand.
Our business will be adversely affected if we are unable to make future acquisitions.
We have pursued, and intend to continue to pursue, acquisitions of timberland and real estate properties that meet our investment criteria and achieve our strategic goals of growing the size and average quality of our land base. The ability to grow through acquisitions or other investments depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions or joint venture partnerships. In addition, the discount rate we use in our acquisition underwriting has to meet our internal hurdle rate while also being competitive with that of other timberland REITs and TIMOs. In particular, our future success and growth depend upon our ability to make acquisitions that increase merchantable timber inventory and complement the existing age class structure of our ownership. If we are unable to make acquisitions on acceptable terms or that do not support our strategic goals, our revenues and cash flows may stagnate or decline.


15


Our inability to access the capital markets could adversely affect our business and competitive position.
Due to the REIT income distribution requirements, we rely significantly on external sources of capital to finance growth and acquisitions. Both our ability to obtain financing and the related costs of borrowing are affected by a number of factors, many of which are outside of our control, including a decline in general market conditions, decreased market liquidity, a downgrade to our public debt rating, increases in interest rates, an unfavorable market perception of our growth potential, a decrease in our current or estimated future earnings or a decrease in the market price of our common stock. If capital is not available when needed, or is available only on unfavorable terms relative to other timberland REITs or TIMOs, or not at all, we may be unable to complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures. In July 2014, Standard & Poor’s Ratings Services (S&P) lowered our credit ratings, including our corporate credit rating, to “BBB” from “BBB+.” In November 2014, S&P further lowered our credit ratings to “BBB-.” As of December 31, 2014, our credit ratings from S&P and Moody’s Investors Service (Moody’s) were BBB- and Baa2, respectively. Any combination of the factors described above, including our failure to maintain our investment grade credit rating, could prevent us from obtaining the capital we require on terms that are acceptable to us, or at all, which could adversely affect our business, liquidity and competitive position.
Increases in market interest rates may adversely affect the price of our common shares.
One of the factors that may influence the price of our common shares is our annual dividend yield as compared to yields on other financial instruments. Thus, an increase in market interest rates will result in higher yields on other financial instruments, which could adversely affect relative attractiveness of an investment in the Company and, accordingly, the price of our common shares.
There are risks to the Company associated with the recently completed spin-off of our Performance Fibers business.
The Company faces a number of risks related to the spin-off of our Performance Fibers business on June 27, 2014, including the following:
•
We may not achieve the expected benefits from the spin-off. After the spin-off, we believe that we will be able to, among other things, better focus our financial and operational resources, and design and implement corporate strategies and policies targeted toward our specific businesses, growth profile and strategic priorities, implement and maintain a capital structure designed to meet our specific needs and more effectively respond to industry dynamics. However, the Company may not achieve some or all of the expected benefits of the spin-off, and the spin-off could lead to disruption of our operations, loss of, or inability to recruit or retain, and key personnel needed to operate and grow our business. If we fail to achieve some or all of the benefits that we expect to achieve as a standalone company, or do not achieve them in a timely or cost-effective manner, our business, financial condition and results of operations could be materially and adversely affected.
•
Our business is less diversified. Our operational and financial profile has changed as a result of the spin-off of the Performance Fibers business. As a result, our diversification of revenue sources has diminished without the revenue previously generated by the Performance Fibers business, and it is possible that our results of operations, cash flows, working capital and financing requirements may be subject to increased volatility related to the timber business and the markets we serve. If we are unable to manage that volatility, our business, financial condition and results of operations could be materially and adversely affected.
Investment returns on pension assets may be lower than expected or interest rates may decline, requiring us to make significant additional cash contributions to our benefit plans.
We sponsor defined benefit pension plans, which cover a portion of our salaried and hourly employees. The Federal Pension Protection Act of 2006 requires that certain capitalization levels be maintained in each of these benefit plans. At December 31, 2014, our qualified plan was underfunded by $32 million, but we are not subject to any pension contribution requirements in 2015. Because it is unknown what the investment return on pension assets will be in future years or what interest rates may be at any point in time, we cannot provide any assurance that applicable law will not require us to make future material plan contributions. Any such contributions could adversely affect our financial condition. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Use of Estimates for additional information about these plans, including funding status.


16


The impacts of climate-related initiatives, at the international, U.S. federal and state levels, remain uncertain at this time.
There continue to be numerous international, U.S. federal and state-level initiatives and proposals to address domestic and global climate issues. Within the U.S., most of these proposals would regulate and/or tax the production of carbon dioxide and other “greenhouse gases” to facilitate the reduction of carbon compound emissions into the atmosphere, and provide tax and other incentives to produce and use “cleaner” energy.
In late 2009, the EPA issued an “endangerment finding” under the Clean Air Act with respect to certain greenhouse gases, leading to the regulation of carbon dioxide as a pollutant under the Clean Air Act and having significant ramifications for Rayonier and the industry in general. In this regard, the EPA has published various regulations, affecting the operation of existing and new industrial facilities that emit carbon dioxide. As a result of the EPA’s decision to regulate greenhouse gases under the Clean Air Act, states will now have to consider them in permitting new or modified facilities.
Overall, it is reasonably likely that legislative and regulatory activity in this area will in some way affect Rayonier and the U.S. customers of our Southern Timber and Pacific Northwest Timber segments, but it is unclear at this time what the nature of the impact will be. We continue to monitor political and regulatory developments in this area, but their overall impact on Rayonier, from a cost, benefit and financial performance standpoint remains uncertain at this time. In addition, the EPA has yet to finalize the treatment of biomass under greenhouse gas regulatory schemes leaving Rayonier’s biomass customers in a position of uncertainty.
REIT and Tax-Related Risks
If we fail to remain qualified as a REIT, we will have reduced funds available for distribution to our shareholders because our REIT income will be subject to taxation.
We intend to continue to operate in accordance with REIT requirements pursuant to the Internal Revenue Code of 1986, as amended (the “Code”), and related U.S. Treasury regulations and administrative guidance. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, which are subject to change, perhaps retroactively, and which are not within our control. We cannot assure that we will remain qualified as a REIT or that new legislation, U.S. Treasury regulations, administrative interpretations or court decisions will not significantly affect our ability to remain qualified as a REIT or the U.S. federal income tax consequences of such qualification.
We continually monitor and test our compliance with all REIT requirements. In particular, we regularly test our compliance with the REIT “asset tests,” which require generally that, at the close of each calendar quarter, (1) at least 75 percent of the market value of our total assets must consist of REIT-qualifying interests in real property (such as timberlands), including leaseholds and options to acquire real property and leaseholds, as well as cash and cash items and certain other specified assets and (2) no more than 25 percent of the market value of our total assets may consist of the securities of one or more “taxable REIT subsidiaries” or other assets that are not qualifying assets for purposes of the 75 percent test in clause (1) above.
If in any taxable year we fail to qualify as a REIT, we will not be allowed a deduction for dividends paid to shareholders in computing our taxable income and we will be subject to U.S. federal income tax on our taxable income. In addition, we will be disqualified from treatment as a REIT for the four taxable years following the year during which the qualification was lost, unless we are entitled to relief under certain provisions of the Code. As a result, our net income and the cash available for distribution to our shareholders could be reduced for up to five years or longer.
As of December 31, 2014, Rayonier is in compliance with the asset tests described above. A failure to comply with the asset tests ultimately could cause us to fail to qualify as a REIT and to lose the associated benefits of REIT status, which could have a material adverse effect on our financial condition.
If we fail to remain qualified as a REIT, we may need to borrow funds or liquidate some investments or assets to pay any resulting additional tax liability. Accordingly, cash available for distribution to our shareholders would be reduced.
Certain of our business activities are potentially subject to prohibited transactions tax.
As a REIT, we will be subject to a 100 percent tax on any net income from “prohibited transactions.” In general, prohibited transactions are sales or other dispositions of property to customers in the ordinary course of business. Sales of logs, and dealer sales of timberlands or other real estate, constitute prohibited transactions.


17


We intend to avoid the 100 percent prohibited transactions tax by conducting activities that would otherwise be prohibited transactions through one or more taxable REIT subsidiaries. We may not, however, always be able to identify timberland properties that become part of our “dealer” real estate sales business. Therefore, if we sell timberlands which we incorrectly identify as property not held for sale to customers in the ordinary course of business or which subsequently become properties held for sale to customers in the ordinary course of business, we may be subject to the 100 percent prohibited transactions tax.
Our cash dividends are not guaranteed and may fluctuate.
Generally, REITs are required to distribute 90 percent of their ordinary taxable income, but not their net capital gains income. Accordingly, we do not generally believe that we are required to distribute material amounts of cash since substantially all of our taxable income is generally treated as capital gains income. However, a REIT must pay corporate level tax on its undistributed taxable income and capital gains.
Our Board of Directors, in its sole discretion, determines the amount of quarterly dividends to be paid to our shareholders based on consideration of a number of factors. These factors include, but are not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity and other factors, including debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures, harvest levels, changes in the price and demand for our products and general market demand for timberlands, including those timberland properties that have higher and better uses. Consequently, our dividend levels may fluctuate.
Lack of shareholder ownership and transfer restrictions in our articles of incorporation may affect our ability to qualify as a REIT.
In order to qualify as a REIT, an entity cannot have five or fewer individuals who own, directly or indirectly after applying attribution of ownership rules, 50 percent or more of the value of its outstanding shares during the last six months in each calendar year. Although it is not required by law or the REIT provisions of the Code, almost all REITs have adopted ownership and transfer restrictions in their articles of incorporation or organizational documents which seek to assure compliance with that rule. While we are not in violation of the ownership rules, we do not have, nor do we have any current plans to adopt, share ownership and transfer restrictions. As such, the possibility exists that five or fewer individuals could acquire 50 percent or more of the value of our outstanding shares, which could result in our disqualification as a REIT.


18


Item 1B.
UNRESOLVED STAFF COMMENTS
None.

Item 2.
PROPERTIES

The following table provides a breakdown of our timberland holdings as of September 30, 2014 and December 31, 2014:
(acres in 000s)
As of September 30, 2014
 
As of December 31, 2014
 
Owned
 
Leased
 
Total
 
Owned
 
Leased
 
Total
Southern
 
 
 
 
 
 
 
 
 
 
 
Alabama
294

 
24

 
318

 
309

 
24

 
333

Arkansas
—

 
19

 
19

 
—

 
18

 
18

Florida
282

 
105

 
387

 
281

 
105

 
386

Georgia
576

 
129

 
705

 
575

 
125

 
700

Louisiana
127

 
1

 
128

 
126

 
1

 
127

Mississippi
92

 
—

 
92

 
91

 
—

 
91

Oklahoma
92

 
—

 
92

 
92

 
—

 
92

Tennessee
1

 
—

 
1

 
1

 
—

 
1

Texas
159

 
—

 
159

 
158

 
—

 
158

 
1,623

 
278

 
1,901

 
1,633

 
273

 
1,906

 
 
 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
 
 
Washington
371

 
1

 
372

 
371

 
1

 
372

 
 
 
 
 
 
 
 
 
 
 
 
New Zealand (a)
188

 
266

 
454

 
185

 
266

 
451

Total
2,182

 
545

 
2,727

 
2,189

 
540

 
2,729

 
 
 
 
 
(a)
Represents legal acres owned and leased by the New Zealand JV, in which Rayonier owns a 65 percent interest. As of December 31, 2014, legal acres in New Zealand were comprised of 309,000 plantable acres and 142,000 non-productive acres. We have historically reported only net plantable acres for our New Zealand timberland holdings, which resulted in total timberland holdings of 2.6 million acres versus the 2.7 million acres shown above.


19


The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2013 to December 31, 2014:
(acres in 000s)
Acres Owned
 
December 31, 2013
 
Acquisitions
 
Sales
 
Other (a)
 
December 31, 2014
Southern
 
 
 
 
 
 
 
 
 
Alabama
295

 
19

 
(5
)
 
—

 
309

Florida
292

 
15

 
(26
)
 
—

 
281

Georgia
566

 
17

 
(8
)
 
—

 
575

Louisiana
128

 
—

 
(2
)
 
—

 
126

Mississippi
92

 
—

 
(1
)
 
—

 
91

Oklahoma
92

 
—

 
—

 
—

 
92

Tennessee
1

 
—

 
—

 
—

 
1

Texas
149

 
11

 
(2
)
 
—

 
158

 
1,615

 
62

 
(44
)
 
—

 
1,633

 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
Washington
371

 
—

 
—

 
—

 
371

 
 
 
 
 
 
 
 
 
 
New Zealand (b)
188

 
—

 
(2
)
 
(1
)
 
185

Total
2,174

 
62

 
(46
)
 
(1
)
 
2,189

 
 
 
 
 
(a)
Includes changes in classifications between acres owned and leased.
(b)
Represents legal acres owned by the New Zealand JV, in which Rayonier has a 65 percent interest.
(acres in 000s)
Acres Leased
 
December 31, 2013
 
New Leases
 
Expired Leases (a)
 
Other (b)
 
December 31, 2014
Southern
 
 
 
 
 
 
 
 
 
Alabama
24

 
—

 
—

 
—

 
24

Arkansas
18

 
—

 
—

 
—

 
18

Florida
105

 
—

 
—

 
—

 
105

Georgia
130

 
—

 
(4
)
 
(1
)
 
125

Louisiana
1

 
—

 
—

 
—

 
1

 
278

 
—

 
(4
)
 
(1
)
 
273

 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
Washington
1

 
—

 
—

 
—

 
1

 
 
 
 
 
 
 
 
 
 
New Zealand (c)
267

 
—

 
(2
)
 
1

 
266

Total
546

 
—

 
(6
)
 
—

 
540

 
 
 
 
 
(a)
Includes acres previously under lease that have been harvested.
(b)
Includes activity for the purchase of leased acres and changes in classification between owned and leased acres.
(c)
Represents legal acres leased by the New Zealand JV, in which Rayonier has a 65 percent interest.


20


U.S. leases typically have initial terms of approximately 30 to 65 years, with renewal provisions in some cases. New Zealand timberland lease terms range between 30 and 99 years. Such leases are generally non-cancellable and require minimum annual rental payments. The New Zealand JV also has a number of CFLs with the New Zealand government. A CFL consists of a license to use public or government owned land to operate a commercial forest. The CFLs extend indefinitely and may only be terminated upon a 35 year termination notice from the government. If no termination notice is given, the CFLs renew automatically each year for a one year term.
As of December 31, 2014, the New Zealand JV has four CFLs (18,000 acres) under termination notice, terminating in 2034, 2046 and 2049 and two fixed term CFLs (2,000 acres) expiring in 2062. The following table details the Company’s acres under lease as of December 31, 2014 by type of lease and lease expiration:
(acres in 000s)
 
 
 
 
 
 
 
 
 
 
 
 
Location
 
Type of Lease
 
Total
 
2015 - 2024
 
2025 - 2034
 
2035 - 2044
 
Thereafter
Southern U.S.
 
Fixed Term
 
244

 
151

 
47

 
40

 
6

 
 
Fixed Term with Renewal Option
 
29

 
28

 
1

 
—

 
—

Pacific Northwest
 
Fixed Term
 
1

 
1

 
—

 
—

 
—

New Zealand (a)
 
CFL - Perpetual
 
95

 
64

 
—

 
—

 
31

 
 
CFL - Fixed Term
 
2

 
—

 
—

 
—

 
2

 
 
CFL - Terminating
 
18

 
—

 
2

 
—

 
16

 
 
Forestry Right
 
135

 
58

 
5

 
53

 
19

 
 
Fixed Term
 
16

 
—

 
—

 
—

 
16

Total Acres under Long-term Leases
 
540

 
302

 
55

 
93

 
90

 
 
 
 
 
(a)
Represents all legal acres leased by the New Zealand JV, in which Rayonier has a 65 percent interest.
In addition to our timberland holdings, we lease properties for our office locations. Our significant leased properties include our corporate headquarters in Jacksonville, Florida; our Southern Timber and Real Estate operations in Fernandina Beach, Florida and Lufkin, Texas; our Pacific Northwest Timber operations in Hoquiam, Washington and our New Zealand Timber and Trading headquarters in Auckland, New Zealand.

Item 3.
LEGAL PROCEEDINGS

The information set forth under “Contingencies” in Note 18 in the notes to the consolidated financial statements under Item 15 of Part IV of this report “Exhibits, Financial Statement Schedules,” is incorporated herein by reference. 

Item 4.
MINE SAFETY DISCLOSURES
Not applicable.


21


PART II


Item 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Prices of our Common Shares; Dividends
The table below reflects, for the quarters indicated, the dividends declared per share and the range of market prices of our common shares as reported in the consolidated transaction reporting system of the NYSE, the only exchange on which our shares are listed, under the trading symbol RYN.
On June 27, 2014, we spun off our Performance Fibers business to our shareholders as a newly formed publicly traded company named Rayonier Advanced Materials. On June 27, 2014, the shareholders of record received one share of Rayonier Advanced Materials common stock for every three common shares of Rayonier held as of the close of business on the record date of June 18, 2014. The low end of the second quarter 2014 range as well as the third and fourth quarter 2014 ranges in the following table reflect post-spin market price information and therefore are not comparable to pre-spin share prices from earlier periods.
 
High
 
Low
 
Dividends
 
2014
 
 
 
 
 
 
Fourth Quarter
$34.04
 
$25.87
 
$0.25
 
Third Quarter
$35.79
 
$30.46
 
$0.80
(a)
Second Quarter
$48.82
 
$34.76
 
$0.49
 
First Quarter
$47.29
 
$40.81
 
$0.49
 
2013
 
 
 
 
 
 
Fourth Quarter
$58.84
 
$39.49
 
$0.49
 
Third Quarter
$59.87
 
$53.84
 
$0.49
 
Second Quarter
$60.62
 
$51.04
 
$0.44
 
First Quarter
$59.72
 
$52.17
 
$0.44
 
 
 
 
 
 
(a)
Third quarter 2014 dividends include a $0.50 per share special dividend related to restricted cash proceeds received from Rayonier Advanced Materials in connection with the spin-off.
In February 2012, we filed a universal shelf registration giving us the ability to issue and sell an indeterminate amount of various types of debt and equity securities. In March 2012, we issued $325 million of 3.75% Senior Notes due 2022 under the universal shelf registration statement. In May 2004, we completed a Form S-4 acquisition shelf registration to offer and issue 7.0 million common shares for the acquisition of other businesses, assets or properties. As of December 31, 2014, no common shares have been offered or issued under the Form S-4 shelf registration.
See Note 21 — Incentive Stock Plans for information on securities that are authorized for issuance under The Rayonier Incentive Stock Plan (“the Stock Plan”).
On March 2, 2015, the Company announced a first quarter dividend of 25 cents per share payable March 31, 2015, to shareholders of record on March 17, 2015. There were approximately 7,237 shareholders of record of our Common Shares on February 20, 2015.


22


Issuer Repurchases
In 1996, we began a Common Share repurchase program (the “anti-dilutive program”) to minimize the dilutive effect of our employee incentive stock plans on earnings per share. This program limits the number of shares that may be purchased each year to the greater of 1.5 percent of outstanding shares at the beginning of the year or the number of incentive shares issued to employees during the year. In October 2000, July 2003 and October 2011, our board of directors authorized the purchase of additional shares totaling 2.1 million. These shares were authorized separately from the anti-dilutive program, and do not have expiration dates. In 2014, there were no shares repurchased under these plans. As of December 31, 2014, there were 3,828,927 shares available for repurchase under these plans.
The following table provides information regarding our purchases of Rayonier common stock during the quarter ended December 31, 2014:
Period
 
Total Number of Shares Purchased (a)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October 1 to October 31
—

 
—

 
—

 
3,828,927
November 1 to November 30
—

 
—

 
—

 
3,828,927
December 1 to December 31
684
 
$27.94
 
—

 
3,828,927
 
Total
684
 
 
 
—

 
3,828,927
 
 
 
 
 
(a)
Repurchased to satisfy the minimum tax withholding requirements related to the vesting of restricted shares under the Rayonier Incentive Stock Plan.



23


Stock Performance Graph
The following graph compares the performance of Rayonier’s Common Shares (assuming reinvestment of dividends) with a broad-based market index (Standard & Poor’s (“S&P”) 500), and two industry-specific indices (the Financial Times Stock Exchange (“FTSE”) National Association of Real Estate Investment Trusts (“NAREIT”) All Equity REITs Index and the S&P 1500 Paper and Forest Products Index). This graph represents a mix of Rayonier’s stock price before the June 27, 2014 spin-off of the Performance Fibers business and its stock price post-spin. The graph has not been adjusted to reflect the value of the spin-off of the Performance Fibers business and thus the post-spin share price is not comparable to pre-spin share prices from earlier periods.
The table and related information shall not be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
The data in the following table was used to create the above graph as of December 31:
 
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Rayonier Inc.
$100
 
$130
 
$172
 
$207
 
$174
 
$164
S&P 500®
100
 
115
 
117
 
136
 
180
 
205
FTSE NAREIT All Equity REITs
100
 
128
 
139
 
166
 
171
 
218
S&P© 1500 Paper & Forest Products Index
100
 
108
 
118
 
155
 
199
 
216


24


Item 6.
SELECTED FINANCIAL DATA
The following financial data should be read in conjunction with our Consolidated Financial Statements.
 
 
At or For the Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
 
(dollar amounts in millions, except per share data)
Profitability:
 
 
 
 
 
 
 
 
 
Sales (a)
$604
 
$660
 
$379
 
$391
 
$355
Operating income (a)(b)
98
 
109
 
32
 
55
 
55
Income from continuing operations attributable to Rayonier Inc. (a)(b)
56
 
104
 
17
 
58
 
49
Diluted earnings per common share from continuing operations
0.43
 
0.80
 
0.13
 
0.47
 
0.40
 
 
 
 
 
 
 
 
 
 
Financial Condition:
 
 
 
 
 
 
 
 
 
Total assets (a)
$2,453
 
$3,686
 
$3,123
 
$2,569
 
$2,364
Total debt (a)(c)
752
 
1,574
 
1,270
 
847
 
768
Shareholders’ equity
1,575
 
1,755
 
1,438
 
1,323
 
1,252
Shareholders’ equity — per share
12.51
 
13.90
 
11.66
 
10.84
 
10.34
 
 
 
 
 
 
 
 
 
 
Cash Flows:
 
 
 
 
 
 
 
 
 
Cash provided by operating activities (d)
$317
 
$545
 
$446
 
$432
 
$495
Cash used for investing activities
193
 
469
 
473
 
489
 
143
Cash used for (provided by) financing activities
161
 
157
 
(229)
 
215
 
78
Depreciation, depletion and amortization
120
 
117
 
85
 
77
 
82
Cash dividends paid
258
 
237
 
207
 
185
 
164
Dividends paid — per share
$2.03
 
$1.86
 
$1.68
 
$1.52
 
$1.36
 
 
 
 
 
 
 
 
 
 
Non-GAAP Financial Measures:
 
 
 
 
 
 
 
 
 
Adjusted EBITDA (e)
 
 
 
 
 
 
 
 
 
Southern Timber
$98
 
$87
 
$76
 
$56
 
$70
Pacific Northwest Timber
51
 
54
 
43
 
48
 
26
New Zealand Timber
45
 
38
 
2
 
4
 
—

Real Estate
70
 
84
 
45
 
63
 
82
Trading
2
 
2
 
—

 
1
 
1
Corporate and other
(31)
 
(45)
 
(44)
 
(36)
 
(47)
Total Adjusted EBITDA (e)
$235
 
$220
 
$122
 
$136
 
$132
 
 
 
 
 
 
 
 
 
 
Other:
 
 
 
 
 
 
 
 
 
Timberland and real estate acres — owned, leased, or managed, in millions of acres
2.7
 
2.7
 
2.7
 
2.7
 
2.4


25


 
For the Years Ended December 31,
 
2014
 
2013
 
2012
 
2011
 
2010
Selected Operating Data:
 
 
 
 
 
 
 
 
 
Timber
 
 
 
 
 
 
 
 
 
Sales volume (thousands of tons)
 
 
 
 
 
 
 
 
 
Southern
5,296
 
5,292
 
5,322
 
4,741
 
4,930
Pacific Northwest (f)
1,664
 
1,979
 
1,947
 
1,665
 
1,369
New Zealand Domestic (g)
1,463
 
1,271
 
—

 
—

 
—

New Zealand Export (g)
897
 
651
 
—

 
—

 
—

Total
9,320
 
9,193
 
7,269
 
6,406
 
6,299
Real Estate — acres sold
 
 
 
 
 
 
 
 
 
Development (Unimproved)
852
 
281
 
261
 
606
 
472
Development (Improved)
—

 
45
 
—

 
—

 
—

Rural
18,077
 
13,833
 
13,307
 
10,880
 
7,911
Non-Strategic / Timberlands (h)
25,919
 
162,788
 
17,355
 
16,132
 
52,514
Total Acres Sold
44,848
 
176,947
 
30,923
 
27,618
 
60,897
 
 
 
 
 
(a)
On April 4, 2013, the Company increased its interest in the New Zealand JV to 65 percent and began consolidating the New Zealand JV's results of operations and balance sheet.
(b)
The 2013 results included a $16 million gain related to the consolidation of the New Zealand JV. The 2010 results included a gain of $12 million from the sale of a portion of the Company’s interest in its New Zealand JV.
(c)
2011 included $105 million of notes assumed in a timberland acquisition.
(d)
The 2010 results included a cash refund from the IRS of $189 million related to the Alternative Fuel Mixture Credit (“AFMC”).
(e)
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of real estate sold (excluding strategic divestitures), the gain related to the consolidation of the New Zealand joint venture, discontinued operations, separation costs related to Performance Fibers spin-off and internal review and restatement costs.
(f)
2013 and prior results include sales volumes from New York timberlands.
(g)
New Zealand sales volume for 2013 includes volumes sold subsequent to the April 2013 consolidation.
(h)
The 2013 results included a fourth quarter sale of approximately 128,000 acres of New York timberlands.



26


Reconciliation of Operating Income (Loss) by Segment to Adjusted EBITDA by Segment
(dollars in millions)
 
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate
and
other
 
Total
2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
$46
 
$30
 
$9
 
$48
 
$2
 
$(37)
 
$98
Add:
Depreciation, depletion and amortization
52
 
21
 
32
 
13
 
—

 
2
 
120
Add:
Non-cash cost of land sold
—

 
—

 
4

 
9
 
—

 
—

 
13
Add:
Internal review and restatement costs
—

 
—

 
—

 
—

 
—

 
4
 
4
Adjusted EBITDA (a)
$98
 
$51
 
$45
 
$70
 
$2
 
$(31)
 
$235
2013
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (b)
$38
 
$33
 
$10
 
$56
 
$2
 
$(30)
 
$109
Add:
Depreciation, depletion and amortization
49
 
21
 
28
 
18
 
—

 
1
 
117
Add:
Non-cash cost of land sold
—

 
—

 
—

 
10
 
—

 
—

 
10
Less:
Gain related to consolidation of New Zealand JV
—

 
—

 
—

 
—

 
—

 
(16)
 
(16)
Adjusted EBITDA (a)
$87
 
$54
 
$38
 
$84
 
$2
 
$(45)
 
$220
2012
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)
$23
 
$21
 
$2
 
$32
 
—

 
$(46)
 
$32
Add:
Depreciation, depletion and amortization
53
 
22
 
—

 
8
 
—

 
2
 
85
Add:
Non-cash cost of land sold
—

 
—

 
—

 
5
 
—

 
—

 
5
Adjusted EBITDA (a)
$76
 
$43
 
$2
 
$45
 
—

 
$(44)
 
$122
2011
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
$13
 
$29
 
$4
 
$47
 
$1
 
$(39)
 
$55
Add:
Depreciation, depletion and amortization
43
 
19
 
—

 
12
 
—

 
3
 
77
Add:
Non-cash cost of land sold
—

 
—

 
—

 
4
 
—

 
—

 
4
Adjusted EBITDA (a)
$56
 
$48
 
$4
 
$63
 
$1
 
$(36)
 
$136
2010
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (c)
$29
 
$8
 
—

 
$53
 
$1
 
$(36)
 
$55
Add:
Depreciation, depletion and amortization
41
 
18
 
—

 
22
 
—

 
1
 
82
Add:
Non-cash cost of land sold
—

 
—

 
—

 
7
 
—

 
—

 
7
Less:
Gain on sale of portion of New Zealand JV interest
—

 
—

 
—

 
—

 
—

 
(12)
 
(12)
Adjusted EBITDA (a)
$70
 
$26
 
—

 
$82
 
$1
 
$(47)
 
$132
 
 

 
 
(a)
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of real estate sold (excluding strategic divestitures), the gain related to the consolidation of the New Zealand joint venture, discontinued operations, separation costs related to Performance Fibers spin-off and internal review and restatement costs.
(b)
Corporate and other included a $16 million gain related to the consolidation of the New Zealand JV.
(c)
Corporate and other included a gain of $12 million from the sale of a portion of the Company’s interest in the New Zealand JV.




27


Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Summary
Our Company
We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive timber growing regions in the U.S. and New Zealand. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. We own or lease under long-term agreements approximately 2.3 million acres of timberland and real estate in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee, Texas and Washington. We also have a 65 percent ownership interest in Matariki Forestry Group, a joint venture (“New Zealand JV”), that owns or leases approximately 0.4 million gross acres (0.3 million net plantable acres) of New Zealand timberlands.
Across our timberland management segments, we sell standing timber (primarily at auction to third parties) and delivered logs. Sales from these segments also include all activities related to the harvesting of timber and other value-added activities such as the leasing of properties for hunting, mineral extraction and cell towers. We believe we are the third largest publicly-traded timberland REIT and the seventh largest private landowner in the United States. Our Real Estate business manages all property sales and seeks to maximize the value of our properties that are more valuable for development, recreational or residential uses than for growing timber, and opportunistically sells non-strategic timberlands. Our Trading segment, also part of the New Zealand JV, markets and sells timber owned or acquired from third parties in New Zealand and Australia.
Current Year Developments
On June 27, 2014, we spun off our Performance Fibers business to our shareholders as a newly formed publicly-traded company, Rayonier Advanced Materials. Following the spin-off, new management conducted a review of our operations and business strategies and identified issues related to our historical timber harvest levels, our estimate of merchantable timber inventory and the effect of such estimate on our calculation of depletion expense. At the direction of our Board of Directors, management conducted an internal review into these matters with the assistance of independent counsel, forensic accountants and financial advisors. The results of this internal review were previously disclosed in Item 2 — Management Discussion and Analysis — Overview — Background in Form 10-Q for the quarter ended September 30, 2014, as filed with the SEC on November 14, 2014. For additional information, see Note 23 — Quarterly Results for 2014 and 2013 (Unaudited).
Industry and Market Conditions
In 2014, we benefited from improved pricing in the South due to modest improvements in the U.S. economy and housing market. We anticipate that U.S. housing will continue its gradual recovery in 2015 and sawlog prices will continue to strengthen. In our New Zealand Timber segment, we experienced increased domestic demand in the first half of 2014 that leveled off later in the year. After a strong first quarter, both New Zealand and the Pacific Northwest were negatively impacted by weaker demand from China. While we expect the demand for logs in Asia to be strong over the long term, the devaluation of the Russian ruble is expected to increase Russia’s share of the China log export market, which will likely impact demand and pricing in our Pacific Northwest segment and, to a lesser extent, our New Zealand Timber segment.
In Real Estate, we expect the demand for development property to slowly return with the modestly improving housing market and overall economic climate. There is stronger development interest in some local markets, particularly around our properties in St. Johns County, Florida. All of our properties in north St. Johns County are now under contract with staggered closings scheduled in 2015 and continuing through 2018. Activity in the rural market is strong; however, there is increased price competition in Alabama and Georgia coming from strong timberland markets. Prices are steady in Texas and Louisiana but we are seeing decreased activity, possibly due to uncertainty in the region caused by lower oil prices.


28


Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to establish accounting policies and make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our Annual Report on Form 10-K. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates.
Merchantable inventory and depletion costs as determined by forestry timber harvest models
Timber is stated at the lower of cost or market value. Costs related to acquiring, planting and growing timber including real estate taxes, lease rental payments, site preparation and direct support costs relating to facilities, vehicles and supplies are capitalized. Payroll and other employee benefit costs are capitalized only for time spent on these activities, while interest or any other intangible costs aside from those mentioned above are not capitalized.
An annual depletion rate is established for each particular region by dividing merchantable inventory book cost by standing merchantable inventory volume. Pre-merchantable records are maintained for each planted year age class, recording acres planted, stems per acre and costs of planting and tending.
Significant assumptions and estimates are used in recording of timber inventory and depletion costs. Factors that can impact timber volume include weather changes, losses due to natural causes, differences in actual versus estimated growth rates and changes in the age when timber is considered merchantable. A three percent company-wide change in estimated standing merchantable inventory would cause annual depletion expense to change by approximately $3 million.
Merchantable standing timber inventory is estimated by our land information services group annually, using industry-standard computer software. The inventory calculation takes into account growth, in-growth (annual transfer of oldest pre-merchantable age class into merchantable inventory), timberland sales and the annual harvest specific to each business unit. The age at which timber is considered merchantable is reviewed periodically and updated for changing harvest practices, future harvest age profiles and biological growth factors.
Acquisitions of timberland can also affect the depletion rate. Upon the acquisition of timberland, we make a determination whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new separate pool. The determination is based on the geographic location of the new timber, the customers/markets that will be served and species mix. During 2014, we acquired approximately 62,000 acres of timberlands primarily in Alabama, Florida, Georgia and Texas. These acquisitions increased 2014 depletion expense by $1.8 million and are expected to increase 2015 depletion expense by approximately $4.8 million.
Revenue recognition for timber sales
Revenue from the sale of timber is recognized when title passes to the buyer. We utilize two primary methods or sales channels for the sale of timber, a stumpage, or standing timber, model and delivered logs. Under the stumpage model, standing timber is sold generally under pay-as-cut contracts, with specified duration (typically one year or less) and fixed prices, whereby revenue is recognized as timber is severed and the sales volume is determined. We also sell stumpage under lump-sum contracts where the Company receives cash for the full agreed value of the timber prior to harvest and title and risk of loss pass to the buyer upon signing the contract. Any uncut timber remaining at the end of the contract period reverts to the Company. We recognize revenue for lump-sum timber sales when cash is received, the contract is signed and title and risk of loss pass to the buyer. A third type of stumpage sale is an agreed-volume sale whereby revenue is recognized as periodic physical observations are made of the percentage of acreage harvested.
In delivered log sales, the Company hires third-party loggers and haulers to harvest timber and deliver it to a buyer. Revenue is recognized when the logs are delivered and title and risk of loss transfer to the buyer. Sales of delivered logs generally do not require an initial payment and are made to third-party customers on open credit terms. The sales method the Company employs depends upon local market conditions and which method management believes will provide the best overall margins.
In the Trading business, revenue on sales of logs is recognized when title and risk of loss passes to the buyer. For domestic log sales, title and risk are considered passed to the buyer as the logs are delivered to the customer. For export log sales, title and risk are considered passed to the buyer at the time the ship leaves the port.
Non-timber income included in “Other Operating Income, Net” primarily comprises hunting and recreational leases. Lease income is recognized ratably over the period of the lease.


29


Revenue recognition for real estate sales
The Company recognizes revenue on sales of real estate generally when cash has been received, the sale has closed, and title and risk of loss have passed to the buyer. Cost of sales associated with real estate sold comprises the cost of the land, the cost of any timber on the property that was conveyed to the buyer, and any closing costs including sales commissions that may be borne by the Company. Costs incurred to obtain land use entitlements or for infrastructure such as utilities, roads or other improvements are allocated ratably to the acres benefiting from such expenditures and charged to cost of sales as the acres are sold. Sales of improved or entitled land have been limited but the Company expects such sales to increase in future years.
Determining the adequacy of pension and other postretirement benefit assets and liabilities
During the first half of 2014, we had four qualified benefit plans covering most of our U.S. workforce and an unfunded plan to provide benefits in excess of amounts allowable under current tax law to certain participants in the qualified plans. In connection with the June 27, 2014 spin-off of the Performance Fibers business, Rayonier Advanced Materials employees no longer participate in benefit plans sponsored or maintained by Rayonier. Upon separation, we transferred assets and obligations related to all Rayonier Advanced Materials employees to the Rayonier Advanced Materials Pension Plans, resulting in a net decrease in sponsored pension plan obligations of $100 million after a revaluation of plan obligations using a 4.0 percent discount rate. We now have one qualified non-contributory defined benefit pension plan covering a portion of our employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plan. The qualified plan is closed to new participants.
In the first half of 2014, prior to the spin-off, pension and postretirement expense for all plans was $6 million. In the second half of 2014, we recognized $2 million of pension and postretirement expense. Numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements. The key assumptions include discount rate, return on assets, salary increases, health care cost trends, mortality rates, longevity and service lives of employees. Although there is authoritative guidance on how to select most of the assumptions, some degree of judgment is exercised in selecting these assumptions based on input from our actuary. Different assumptions, as well as actual versus expected results, would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements. See Note 22 — Employee Benefit Plans for additional information.
Realizability of both recorded and unrecorded tax assets and tax liabilities
The Timber and Real Estate operations conducted within our REIT are generally not subject to U.S. income taxation. Prior to the June 27, 2014 spin-off of Rayonier Advanced Materials, our taxable REIT subsidiary operations included the Performance Fibers business. As such, during 2014 and prior periods, our income taxes varied significantly. Therefore, our projection of estimated income tax for the year and our provision for quarterly income taxes, in accordance with generally accepted accounting principles, may have varied significantly. Going forward, we do not expect significant variability in our effective tax rate and the amount of cash taxes to be paid as the majority of our business operations are conducted within our REIT. However, the assessment of the ability to realize certain deferred tax assets, or estimate deferred tax liabilities, remains subjective. See Note 10 — Income Taxes for additional information about our unrecognized tax benefits.



30


Summary of our results of operations for the three years ended December 31:
Financial Information (in millions)
2014
 
2013
 
2012
Sales
 
 
 
 
 
Southern Timber
$142
 
$124
 
$109
Pacific Northwest Timber
102
 
110
 
110
New Zealand Timber (a)
182
 
148
 
11
Real Estate
 
 
 
 
 
Development (Unimproved)
5
 
3
 
2
Development (Improved)
—

 
2
 
—

Rural
41
 
27
 
32
Non-Strategic / Timberlands (b)
31
 
117
 
23
Total Real Estate
77
 
149
 
57
Trading
104
 
132
 
94
Intersegment Eliminations
(3)
 
(3)
 
(2)
Total Sales
$604
 
$660
 
$379
 
 
 
 
 
 
Operating Income
 
 
 
 
 
Southern Timber
$46
 
$38
 
$23
Pacific Northwest Timber
30
 
33
 
21
New Zealand Timber (a)
9
 
10
 
2
Real Estate
48
 
56
 
32
Trading
2
 
2
 
—

Corporate and other (c)
(37)
 
(30)
 
(46)
Operating Income
98
 
109
 
32
Interest Expense
(44)
 
(41)
 
(43)
Interest/Other (Expense) Income
(10)
 
2
 
1
Income Tax Benefit
10
 
36
 
27
Income from Continuing Operations
54
 
106
 
17
Discontinued Operations, Net
44
 
268
 
262
Net Income
98
 
374
 
279
Less: Net Income Attributable to Noncontrolling Interest
(1)
 
2
 
—

Net Income Attributable to Rayonier Inc.
$99
 
$372
 
$279
 
 
 
 
 
 
Adjusted EBITDA (d)
 
 
 
 
 
Southern Timber
$98
 
$87
 
$76
Pacific Northwest Timber
51
 
54
 
43
New Zealand Timber (a)
45
 
38
 
2
Real Estate
70
 
84
 
45
Trading
2
 
2
 
—

Corporate and other
(31)
 
(45)
 
(44)
Total Adjusted EBITDA (d)
$235
 
$220
 
$122
 
 
 
 
 
(a)
2012 sales, operating income and Adjusted EBITDA reflect a 26% minority interest in the New Zealand JV. 2013 included $146 million in sales from the consolidation of the New Zealand JV.
(b)
The 2013 results included a fourth quarter sale of approximately 128,000 acres of New York timberland holdings for $57 million.
(c)
The 2013 results included a $16 million gain related to the consolidation of the New Zealand JV.
(d)
Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data.



31


Southern Timber Overview
2014
 
2013
 
2012
Sales Volume (in thousands of tons)
 
 
 
 
 
Pine Pulpwood
3,284
 
3,181
 
3,450
Pine Sawtimber
1,701
 
1,676
 
1,455
Total Pine Volume
4,985
 
4,857
 
4,905
Hardwood
311
 
435
 
417
Total Volume
5,296
 
5,292
 
5,322
 
 
 
 
 
 
Percentage Delivered Sales
33
%
 
28
%
 
24
%
Percentage Stumpage Sales
67
%