Rayonier 2015 10Q 2Q2015
Table of Contents




UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
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

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

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

As of July 31, 2015, there were outstanding 125,941,960 Common Shares of the registrant.


















Table of Contents

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

i


Table of Contents

PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
AND COMPREHENSIVE (LOSS) INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
SALES

$115,801

 

$163,145

 

$256,106

 

$306,332

Costs and Expenses
 
 
 
 
 
 
 
Cost of sales
103,689

 
123,096

 
210,923

 
238,995

Selling and general expenses
12,727

 
13,861

 
23,626

 
27,098

Other operating income, net (Note 17)
(7,138
)
 
(11,389
)
 
(12,713
)
 
(11,764
)
 
109,278

 
125,568

 
221,836

 
254,329

OPERATING INCOME
6,523

 
37,577

 
34,270

 
52,003

Interest expense
(8,483
)
 
(15,612
)
 
(17,027
)
 
(26,286
)
Interest income and miscellaneous expense, net
(1,196
)
 
(4,385
)
 
(2,691
)
 
(5,397
)
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(3,156
)
 
17,580

 
14,552

 
20,320

Income tax benefit (expense)
296

 
(13,556
)
 
768

 
(5,961
)
(LOSS) INCOME FROM CONTINUING OPERATIONS
(2,860
)
 
4,024

 
15,320

 
14,359

DISCONTINUED OPERATIONS, NET (Note 2)
 
 
 
 
 
 
 
Income from discontinued operations, net of income tax expense of $0, $5,966, $0 and $21,231

 
12,084

 

 
43,092

NET (LOSS) INCOME
(2,860
)
 
16,108

 
15,320

 
57,451

Less: Net loss attributable to noncontrolling interest
(1,324
)
 
(245
)
 
(891
)
 
(328
)
NET (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.
(1,536
)
 
16,353

 
16,211

 
57,779

OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax expense of $732, $0, $1,074 and $0
(25,395
)
 
3,517

 
(39,717
)
 
21,320

New Zealand joint venture cash flow hedges, net of income tax benefit (expense) of $1,133, $401, $1,501 and ($100)
(2,917
)
 
(920
)
 
(3,863
)
 
791

Amortization of pension and postretirement plans, net of income tax expense of $179, $35,944, $337 and $36,875
743

 
58,873

 
1,524

 
60,970

Total other comprehensive (loss) income
(27,569
)
 
61,470

 
(42,056
)
 
83,081

COMPREHENSIVE (LOSS) INCOME
(30,429
)
 
77,578

 
(26,736
)
 
140,532

Less: Comprehensive (loss) income attributable to noncontrolling interest
(9,731
)
 
297

 
(13,522
)
 
5,722

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.

($20,698
)
 

$77,281

 

($13,214
)
 

$134,810

(LOSS) EARNINGS PER COMMON SHARE (Note 3)
 
 
 
 
 
 
 
BASIC (LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO RAYONIER INC.
 
 
 
 
 
 
 
Continuing Operations

($0.01
)
 

$0.03

 

$0.13

 

$0.12

Discontinued Operations

 
0.10

 

 
0.34

Net (Loss) Income

($0.01
)
 

$0.13

 

$0.13

 

$0.46

DILUTED (LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO RAYONIER INC.
 
 
 
 
 
 
 
Continuing Operations

($0.01
)
 

$0.03

 

$0.13

 

$0.11

Discontinued Operations

 
0.09

 

 
0.33

Net (Loss) Income

($0.01
)
 

$0.12

 

$0.13

 

$0.44

 
 
 
 
 
 
 
 
Dividends declared per share

$0.25

 

$0.49

 

$0.50

 

$0.98


See Notes to Consolidated Financial Statements.

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Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
June 30, 2015
 
December 31, 2014
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents

$91,632

 

$161,558

Accounts receivable, less allowance for doubtful accounts of $42 and $42
19,444

 
24,018

Inventory (Note 14)
13,362

 
8,383

Prepaid and other current assets
21,222

 
19,745

Total current assets
145,660

 
213,704

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
2,086,729

 
2,088,501

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT
     COSTS (NOTE 5)
69,726

 
77,433

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
1,833

 
1,833

Buildings
8,977

 
8,961

Machinery and equipment
3,388

 
3,503

Construction in progress
772

 
579

Total property, plant and equipment, gross
14,970

 
14,876

Less — accumulated depreciation
(8,536
)
 
(8,170
)
Total property, plant and equipment, net
6,434

 
6,706

OTHER ASSETS
57,772

 
66,771

TOTAL ASSETS

$2,366,321

 

$2,453,115

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable

$22,396

 

$20,211

Current maturities of long-term debt
30,000

 
129,706

Accrued taxes
15,811

 
11,405

Accrued payroll and benefits
4,596

 
6,390

Accrued interest
8,043

 
8,433

Other current liabilities
31,614

 
25,857

Total current liabilities
112,460

 
202,002

LONG-TERM DEBT
722,353

 
621,849

PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 13)
33,396

 
33,477

OTHER NON-CURRENT LIABILITIES
20,840

 
20,636

COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 shares authorized, 126,492,061 and 126,773,097 shares issued and outstanding
694,835

 
702,598

Retained earnings
743,528

 
790,697

Accumulated other comprehensive loss
(34,250
)
 
(4,825
)
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,404,113

 
1,488,470

Noncontrolling interest
73,159

 
86,681

TOTAL SHAREHOLDERS’ EQUITY
1,477,272

 
1,575,151

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$2,366,321

 

$2,453,115


See Notes to Consolidated Financial Statements.

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Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
Six Months Ended June 30,
 
2015
 
2014
OPERATING ACTIVITIES
 
 
 
Net income

$15,320

 

$57,451

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
53,826

 
56,316

Non-cash cost of land sold and real estate development costs recovered upon sale
4,938

 
5,398

Stock-based incentive compensation expense
2,588

 
5,980

Deferred income taxes
(1,322
)
 
10,103

Depreciation and amortization from discontinued operations

 
37,985

Amortization of losses from pension and postretirement plans
1,861

 
5,896

Other
944

 
(43
)
Changes in operating assets and liabilities:
 
 
 
Receivables
2,414

 
9,988

Inventories
(8,107
)
 
4,765

Accounts payable
3,874

 
27,299

Income tax receivable/payable
(321
)
 
5,217

All other operating activities
9,868

 
7,885

Expenditures for dispositions and discontinued operations

 
(5,096
)
CASH PROVIDED BY OPERATING ACTIVITIES
85,883

 
229,144

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(26,130
)
 
(33,597
)
Capital expenditures from discontinued operations

 
(47,050
)
Real estate development costs
(578
)
 
(2,595
)
Purchase of timberlands
(88,414
)
 
(74,817
)
Change in restricted cash
4,160

 
63,128

Other
3,689

 
(478
)
CASH USED FOR INVESTING ACTIVITIES
(107,273
)
 
(95,409
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
59,100

 
1,238,389

Repayment of debt
(31,472
)
 
(1,107,062
)
Dividends paid
(63,421
)
 
(124,628
)
Proceeds from the issuance of common shares
718

 
3,347

Repurchase of common shares
(9,057
)
 
(1,834
)
Debt issuance costs

 
(12,380
)
Net cash disbursed upon spin-off of Performance Fibers business

 
(106,420
)
Other

 
(680
)
CASH USED FOR FINANCING ACTIVITIES
(44,132
)
 
(111,268
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
(4,404
)
 
(50
)
CASH AND CASH EQUIVALENTS
 
 
 
Change in cash and cash equivalents
(69,926
)
 
22,417

Balance, beginning of year
161,558

 
199,644

Balance, end of period

$91,632

 

$222,061

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid during the period:
 
 
 
Interest (a)

$15,303

 

$26,980

Income taxes
270

 
10,417

Non-cash investing activity:
 
 
 
Capital assets purchased on account
2,396

 
11,547

 
 
 
 
 
(a)
Interest paid is presented net of patronage refunds received of $1.3 million for the six months ended June 30, 2015 and $2.1 million for the six months ended June 30, 2014. For additional information on patronage refunds, see Note 13 Debt in the 2014 Form 10-K.
See Notes to Consolidated Financial Statements.

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Table of Contents

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


1.
BASIS OF PRESENTATION
Basis of Presentation
The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries (“Rayonier” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, these financial statements and notes reflect all adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC (the “2014 Form 10-K”).
Reclassifications
Certain 2014 amounts have been reclassified to conform to the current presentation, including changes in balance sheet presentation. During the first quarter of 2015, the Company reclassified seeds and seedlings from Inventory and Other Assets to Timber and Timberlands, Net to better reflect the intended use of the assets. Rayonier also reclassified long-term higher and better use (“HBU”) timberlands and real estate development costs from Other Assets to a separate balance sheet caption. These adjustments are reflected in the June 30, 2015 and December 31, 2014 Consolidated Balance Sheets. Corresponding changes have also been made to the Consolidated Statements of Cash Flows for both periods presented.
Certain 2014 amounts have also been adjusted for reclassification of discontinued operations. Rayonier completed the spin-off of its Performance Fibers business on June 27, 2014. Accordingly, the operating results of this business segment are reported as discontinued operations in the Company’s Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the prior-year period. Certain administrative and general costs historically allocated to the Performance Fibers business that remained with Rayonier are reported in continuing operations.
The Consolidated Statement of Cash Flow for the six months ended June 30, 2014 has not been restated to exclude Performance Fibers cash flows.
See Note 2Discontinued Operations for additional information regarding the spin-off of the Performance Fibers business.
New Accounting Standards
In May 2014, the Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) jointly issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers, a comprehensive new revenue recognition standard that will supersede current revenue recognition guidance. The core principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to receive in exchange for those goods or services. The guidance provides a unified model to determine when and how revenue is recognized and will require enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In July 2015, the FASB approved a one-year deferral of the effective date of the new standard, with an option for organizations to adopt early based on the original effective date. This standard will be effective for Rayonier beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-03, Interest — Imputation of Interest (Subtopic 835-30) — Simplifying the Presentation of Debt Issuance Costs. ASU No. 2015-03 requires that debt issuance costs be presented in the Balance Sheet as a direct deduction from the carrying amount of the debt liability. ASU No. 2015-03 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period, and is required to be applied on a retrospective basis. Early adoption is permitted. Rayonier intends to adopt ASU No. 2015-03 in the Company’s first quarter 2016 Form 10-Q filing and does not expect adoption to have a material impact on the consolidated financial statements.

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

     In May 2015, the FASB issued ASU No. 2015–07, “Fair Value Measurement (Topic 820) — Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). ASU No. 2015–07 requires that investments for which the fair value is measured at NAV using the practical expedient (investments in funds measured at NAV) under “Fair Value Measurements and Disclosures” (Topic 820) be excluded from the fair value hierarchy. ASU No. 2015–07 is effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. ASU No. 2015–07 is required to be applied retrospectively to all periods presented beginning in the period of adoption. Early adoption is permitted. Rayonier intends to adopt ASU No. 2015–07 in the Company’s first quarter 2016 Form 10-Q filing and does not expect adoption to have a material impact on the consolidated financial statements.
Subsequent Events
Quarterly Dividend
On July 20, 2015, the Company announced a third quarter dividend of 25 cents per share payable September 30, 2015, to shareholders of record on September 16, 2015.
Debt Refinancing and Recapitalization of New Zealand JV
See Note 15Debt for discussion of debt refinancing and planned recapitalization of the Company’s New Zealand joint venture.

2.
DISCONTINUED OPERATIONS
Spin-Off of the Performance Fibers Business
On June 27, 2014, Rayonier completed the tax-free spin-off of its Performance Fibers business and retained its timber, real estate and trading businesses. 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 connection with the spin-off, Rayonier Advanced Materials distributed $906.2 million in cash to Rayonier from $550 million in Senior Notes issued by Rayonier A.M. Products (a wholly-owned subsidiary of Rayonier Advanced Materials), $325 million in term loans, and $75 million from a revolving credit facility Rayonier Advanced Materials entered into prior to the spin-off. Pursuant to the terms of the Internal Revenue Service spin-off ruling, $75 million of this cash was paid to Rayonier’s shareholders as dividends. Of this $75 million, $63.2 million was paid to shareholders as a special dividend in the third quarter of 2014.
In order to effect the spin-off and govern the Company’s relationship with Rayonier Advanced Materials after the spin-off, Rayonier and Rayonier Advanced Materials entered into a Separation and Distribution Agreement, an Intellectual Property Agreement, a Tax Sharing Agreement, an Employee Matters Agreement and a Transition Services Agreement. See Note 3 — Discontinued Operations in the 2014 Form 10-K for further details concerning these agreements.
Rayonier will not have significant continuing involvement in the operations of the Performance Fibers business going forward. Accordingly, the operating results of the Performance Fibers business, formerly disclosed as a separate reportable segment, are classified as discontinued operations in the Company's Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for all periods presented. Certain administrative and general costs historically allocated to the Performance Fibers segment are reported in continuing operations, as required.

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

The following table summarizes the operating results of the Company's discontinued operations related to the Performance Fibers spin-off for the three and six months ended June 30, 2014, as presented in "Income from discontinued operations, net" in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income:
 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
Sales

$212,680

 

$456,180

Cost of sales and other
(174,961
)
 
(368,868
)
Transaction expenses
(19,669
)
 
(22,989
)
Income from discontinued operations before income taxes
18,050

 
64,323

Income tax expense
(5,966
)
 
(21,231
)
Income from discontinued operations, net

$12,084

 

$43,092


In accordance with Accounting Standards Codification (“ASC”) 205-20-S99-3, Allocation of Interest to Discontinued Operations, the Company elected to allocate interest expense to discontinued operations where the debt is not directly attributed to the Performance Fibers business.  Interest expense has been allocated based on a ratio of net assets to be discontinued to the sum of consolidated net assets plus consolidated debt (other than debt directly attributable to the Timber and Real Estate operations). The following table summarizes the interest expense allocated to discontinued operations for the three and six months ended June 30, 2014:
 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
Interest expense allocated to the Performance Fibers business

($1,910
)
 

($4,205
)
The following table summarizes the depreciation, amortization and capital expenditures of the Company's discontinued operations related to the Performance Fibers business:
 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
Depreciation and amortization

$17,336

 

$37,985

Capital expenditures
29,880

 
47,050

    
Pursuant to a Memorandum of Understanding agreement, Rayonier may provide Rayonier Advanced Materials with up to 120,000 tons of hardwood annually through July 30, 2017. Prior to the spin-off, hardwood purchases were intercompany transactions eliminated in consolidation as follows:
 
Three Months Ended
June 30, 2014
 
Six Months Ended
June 30, 2014
Hardwood purchases

$1,190

 

$3,935



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

3.
(LOSS) EARNINGS PER COMMON SHARE
The following table provides details of the calculations of basic and diluted (loss) earnings per common share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
(Loss) income from continuing operations

($2,860
)
 

$4,024

 

$15,320

 

$14,359

Less: Net (loss) from continuing operations attributable to noncontrolling interest
(1,324
)
 
(245
)
 
(891
)
 
(328
)
(Loss) income from continuing operations attributable to Rayonier Inc.

($1,536
)
 

$4,269

 

$16,211

 

$14,687

 
 
 
 
 
 
 
 
Income from discontinued operations, net, attributable to Rayonier Inc.

 

$12,084

 

 
43,092

 
 
 
 
 
 
 
 
Net (loss) income attributable to Rayonier Inc.

($1,536
)
 

$16,353

 

$16,211

 

$57,779

 
 
 
 
 
 
 
 
Shares used for determining basic (loss) earnings per common share
126,635,710

 
126,434,376

 
126,625,081

 
126,390,891

Dilutive effect of:
 
 
 
 
 
 
 
Stock options

 
293,213

 
146,754

 
296,768

Performance and restricted shares

 
201,956

 
30,515

 
194,995

Assumed conversion of Senior Exchangeable Notes (a)

 
2,631,514

 
702,301

 
2,579,402

Assumed conversion of warrants (a)

 
2,738,606

 

 
2,656,633

Shares used for determining diluted (loss) earnings per common share
126,635,710

 
132,299,665

 
127,504,651

 
132,118,689

Basic (loss) earnings per common share attributable to Rayonier Inc.:
 
 
 
 
 
 
 
Continuing operations

($0.01
)
 

$0.03

 

$0.13

 

$0.12

Discontinued operations

 
0.10

 

 
0.34

Net (loss) income

($0.01
)
 

$0.13

 

$0.13

 

$0.46

Diluted (loss) earnings per common share attributable to Rayonier Inc.:
 
 
 
 
 
 
 
Continuing operations

($0.01
)
 

$0.03

 

$0.13

 

$0.11

Discontinued operations

 
0.09

 

 
0.33

Net (loss) income

($0.01
)
 

$0.12

 

$0.13

 

$0.44


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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Anti-dilutive shares excluded from the computations of diluted (loss) earnings per share:
 
 
 
 
 
 
 
Stock options, performance and restricted shares (b)
158,191

 
507,044

 
937,236

 
499,193

Assumed conversion of exchangeable note hedges (a)

 
2,631,514

 
702,301

 
2,579,402

Assumed conversion of Senior Exchangeable Notes due 2015 (b)
501,189

 

 

 

Total
659,380

 
3,138,558

 
1,639,537

 
3,078,595

 
 
 
 
 
(a)     Rayonier will not issue additional shares upon future exchange or maturity of the Senior Exchangeable Notes due 2015 (the “2015 Notes”) due to offsetting hedges. ASC 260, Earnings Per Share requires the assumed conversion of the 2015 Notes to be included in dilutive shares if the average stock price for the period exceeds the strike price, while the assumed conversion of the hedges is excluded since they are anti-dilutive. The full dilutive effect of the 2015 Notes was included for all periods presented, except for second quarter 2015 due to the loss incurred in that period.
Rayonier will distribute additional shares upon maturity of the warrants sold in conjunction with the 2015 Notes if the stock price exceeds $28.11 per share. The exchange price on the warrants is lower than periods prior to second quarter 2014 as it has been adjusted to reflect the spin-off of the Performance Fibers business. The warrants were not dilutive for the three and six months ended June 30, 2015 as the average stock price for these periods did not exceed the strike price. For further information, see Note 13 — Debt in the 2014 Form 10-K and Note 15Debt of this Form 10-Q.
(b)    For the three months ended June 30, 2015, the assumed conversion of the 2015 Notes, as well as incremental shares related to stock options, performance shares, and restricted shares, were not included in the computation of diluted loss per share as their inclusion would have an anti-dilutive effect.

4.     INCOME TAXES
The operations conducted by the Company’s real estate investment trust (“REIT”) entities are generally not subject to U.S. federal and state income taxation. Non-REIT qualifying operations are conducted by the Company’s taxable REIT subsidiaries. Prior to the June 27, 2014 spin-off of Rayonier Advanced Materials, the Company’s taxable REIT subsidiaries (“TRS”) operations included the Performance Fibers business. As such, during 2014 and prior periods the income tax benefit from continuing operations was significantly impacted by the TRS businesses. Subsequent to the spin-off, the primary businesses performed in Rayonier’s taxable REIT subsidiaries include log trading and certain real estate activities, such as the sale and entitlement of development HBU properties.
Provision for Income Taxes from Continuing Operations
The Company’s effective tax rate is below the 35 percent U.S. statutory rate due to tax benefits associated with being a REIT. The income tax benefit for the three and six months ended June 30, 2015 is principally related to the Matariki Forestry Group joint venture (the “New Zealand JV”). The prior year period’s benefit was due to losses at Rayonier's taxable operations primarily from interest and general administrative expenses not allowed to be allocated to the discontinued operations of the Performance Fibers business and is not comparable to the current year.

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

The table below reconciles the U.S. statutory rate to the Company’s effective tax rate for each period presented:
 
Three Months Ended June 30,
 
2015
 
2014
Income tax (benefit) expense at federal statutory rate

($1,105
)
 
35.0
 %
 

$6,153

 
35.0
 %
REIT income and taxable losses
1,077

 
(34.1
)
 
(5,625
)
 
(32.0
)
Foreign operations
101

 
(3.2
)
 
(728
)
 
(4.1
)
Net operating loss valuation allowance
(216
)
 
6.9

 

 

Non-deductible real estate losses

 

 
590

 
3.4

Other
(153
)
 
4.8

 
119

 
0.6

Income tax (benefit) expense before discrete items

($296
)
 
9.4
 %
 

$509

 
2.9
 %
CBPC valuation allowance

 

 
15,574

 
88.7

Spin-off related costs

 

 
797

 
4.5

Deferred tax inventory valuations

 

 
(3,293
)
 
(18.7
)
Other

 

 
(31
)
 
(0.3
)
Income tax (benefit) expense as reported for continuing operations

($296
)
 
9.4
 %
 

$13,556

 
77.1
 %
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
2015
 
2014
Income tax expense at federal statutory rate

$5,093

 
35.0
 %
 

$7,112

 
35.0
 %
REIT income and taxable losses
(6,894
)
 
(47.4
)
 
(13,823
)
 
(69.3
)
Foreign operations
(645
)
 
(4.4
)
 
(841
)
 
(0.3
)
Net operating loss valuation allowance
1,386

 
9.5

 

 

Non-deductible real estate losses

 

 
681

 
1.2

Other
292

 
2.0

 
138

 
0.3

Income tax benefit before discrete items

($768
)
 
(5.3
)%
 

($6,733
)
 
(33.1
)%
CBPC valuation allowance

 

 
15,574

 
76.6

Spin-off related costs

 

 
797

 
3.9

Deferred tax inventory valuations

 

 
(3,293
)
 
(16.2
)
Other

 

 
(384
)
 
(1.9
)
Income tax (benefit) expense as reported for continuing operations

($768
)
 
(5.3
)%
 

$5,961

 
29.3
 %
Provision for Income Taxes from Discontinued Operations
On June 27, 2014, Rayonier completed the spin-off of its Performance Fibers business. For the three and six months ended June 30, 2014, income tax expense related to Performance Fibers discontinued operations was $6.0 million and $21.2 million, respectively. See Note 2Discontinued Operations for additional information on the spin-off of the Performance Fibers business.


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

5.     HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT COSTS

Rayonier continuously assesses potential alternative uses of its timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. The Company periodically transfers, via a sale or contribution from the REIT to TRS, HBU timberlands to enable land-use entitlement, development or marketing activities. The Company also acquires HBU properties in connection with timberland acquisitions. These properties are managed as timberlands until sold or developed. While the majority of HBU sales involve rural and recreational land, the Company also selectively pursues various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value of such properties. For selected development properties, Rayonier also invests in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties.
An analysis of higher and better use timberlands and real estate development costs from December 31, 2014 to June 30, 2015 is shown below:
 
Higher and Better Use Timberlands and Real Estate Development Costs
 
Land and Timber
 
Development Costs
 
Total
Non-current portion at December 31, 2014

$65,959

 

$11,474

 

$77,433

Plus: Current portion (a)
4,875

 
57

 
4,932

Total Balance at December 31, 2014
70,834

 
11,531

 
82,365

Non-cash cost of land sold and real estate development costs recovered upon sale

(4,205
)
 
(57
)
 
(4,262
)
Timber depletion from harvesting activities and basis of timber sold in real estate sales

(1,340
)
 

 
(1,340
)
Capitalized real estate development costs (b)

 
926

 
926

Capital expenditures (silviculture)
100

 

 
100

Acquisitions

 

 

Transfers

 

 

Other

 
(28
)
 
(28
)
Total Balance at June 30, 2015
65,389

 
12,372

 
77,761

Less: Current portion (a)
(7,488
)
 
(547
)
 
(8,035
)
Non-current portion at June 30, 2015

$57,901

 

$11,825

 

$69,726

 
 
 
 
 
(a)
The current portion of Higher and Better Use Timberlands and Real Estate Development Costs is recorded in Inventory. See Note 14Inventory for additional information.
(b)
Capitalized real estate development costs for the six months ended June 30, 2015 of $926,000 consisted of $578,000 in cash outflows and a $348,000 change in accrued spending.

6.
RESTRICTED DEPOSITS
In order to qualify for like-kind exchange (“LKE”) treatment, the proceeds from real estate sales must be deposited with a third-party intermediary. These proceeds are accounted for as restricted cash until a suitable replacement property is acquired. In the event LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of June 30, 2015 and December 31, 2014, the Company had $2.5 million and $6.7 million, respectively, of proceeds from real estate sales classified as restricted cash in Other Assets, which were deposited with an LKE intermediary.


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

7.
SHAREHOLDERS’ EQUITY
 An analysis of shareholders’ equity for the six months ended June 30, 2015 and the year ended December 31, 2014 is shown below (share amounts not in thousands):
 
Rayonier Inc. Shareholders’ Equity
 
 
 
 
 
Common Shares
 
Retained
Earnings
 
Accumulated Other Comprehensive Income/(Loss)
 
Non-controlling Interest
 
Total Shareholders’
Equity
 
Shares (a)
 
Amount
 
Balance, December 31, 2013
126,257,870

 

$692,100

 

$1,015,209

 

($46,139
)
 

$94,073

 

$1,755,243

Net income (loss)

 

 
99,337

 

 
(1,491
)
 
97,846

Dividends ($2.03 per share)

 

 
(256,861
)
 

 

 
(256,861
)
Contribution to Rayonier Advanced Materials

 
(301
)
 
(61,318
)
 
80,749

 

 
19,130

Adjustments to Rayonier Advanced Materials (b)

 

 
(5,670
)
 
(2,556
)
 

 
(8,226
)
Issuance of shares under incentive stock plans
561,701

 
5,579

 

 

 

 
5,579

Stock-based compensation

 
7,869

 

 

 

 
7,869

Tax deficiency on stock-based compensation

 
(791
)
 

 

 

 
(791
)
Repurchase of common shares
(46,474
)
 
(1,858
)
 

 

 

 
(1,858
)
Net loss from pension and postretirement plans

 

 

 
(24,147
)
 

 
(24,147
)
Noncontrolling interest redemption of shares

 

 

 

 
(931
)
 
(931
)
Foreign currency translation adjustment

 

 

 
(11,526
)
 
(4,321
)
 
(15,847
)
Joint venture cash flow hedges

 

 

 
(1,206
)
 
(649
)
 
(1,855
)
Balance, December 31, 2014
126,773,097

 

$702,598

 

$790,697

 

($4,825
)
 

$86,681

 

$1,575,151

Net income (loss)

 

 
16,211

 

 
(891
)
 
15,320

Dividends ($0.50 per share)

 

 
(63,380
)
 

 

 
(63,380
)
Issuance of shares under incentive stock plans
134,448

 
718

 

 

 

 
718

Stock-based compensation

 
2,588

 

 

 

 
2,588

Tax deficiency on stock-based compensation

 
(272
)
 

 

 

 
(272
)
Repurchase of common shares (c) (d)
(415,484
)
 
(10,797
)
 

 

 

 
(10,797
)
Net gain from pension and postretirement plans

 

 

 
1,524

 

 
1,524

Foreign currency translation adjustment

 

 

 
(28,438
)
 
(11,279
)
 
(39,717
)
Joint venture cash flow hedges

 

 

 
(2,511
)
 
(1,352
)
 
(3,863
)
Balance, June 30, 2015
126,492,061

 

$694,835

 

$743,528

 

($34,250
)
 

$73,159

 

$1,477,272

 
 
 
 
 
 
(a)
The Company’s common shares are registered in North Carolina and have a $0.00 par value.
(b)
Primarily relates to adjustments made to the Rayonier Advanced Materials contribution as income taxes and pension and postretirement plan assets and obligations were finalized.
(c)
During the second quarter the Company repurchased approximately $10.7 million of common stock at an average price of $25.94 per share. As of June 30, 2015, the Company had 126.5 million shares of common stock outstanding and $89.3 million remaining in its share repurchase authorization announced in June 2015.
(d)
Includes shares of the Company’s common stock purchased from employees in non-open market transactions. The shares of stock were sold by current and former employees of the Company in exchange for cash that was used to pay withholding taxes associated with the vesting of restricted stock awards under the Company’s stock incentive plan. The price per share surrendered is based on the closing price of the company’s stock on the respective vesting dates of the awards.
8.
SEGMENT AND GEOGRAPHICAL INFORMATION
On June 27, 2014, the Company spun-off its Performance Fibers business and its operations are shown as discontinued operations for all periods presented. See Note 2Discontinued Operations for additional information. Effective with the fourth quarter of 2014, the Company realigned its segments considering the economic characteristics of each business unit and the way management internally evaluates business performance and makes capital allocation decisions. All prior period amounts have been reclassified to reflect the newly realigned segment structure. See Item 2 — Management’s Discussion and Analysis of Financial Condition Our Company and Results of Operations for additional information.
Sales between operating segments are made based on estimated fair market value. Intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on segment operating income and Adjusted EBITDA. Asset information is not reported by segment, as the company does not produce asset information by segment internally.
Operating income as presented in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income is equal to segment income. Certain income (loss) items in the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations.
Segment information for the three and six months ended June 30, 2015 and 2014 were as follows:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
SALES
2015
 
2014
 
2015
 
2014
Southern Timber

$32,681

 

$31,525

 

$68,212

 

$65,402

Pacific Northwest Timber
17,102

 
25,053

 
36,256

 
58,090

New Zealand Timber
39,223

 
44,543

 
80,417

 
82,307

Real Estate
6,945

 
34,017

 
30,736

 
39,547

Trading
19,850

 
29,224

 
40,485

 
64,910

Intersegment Eliminations

 
(1,217
)
 

 
(3,924
)
Total

$115,801

 

$163,145

 

$256,106

 

$306,332

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
OPERATING INCOME
2015
 
2014
 
2015
 
2014
Southern Timber

$11,777

 

$8,886

 

$24,190

 

$19,379

Pacific Northwest Timber
1,687

 
8,785

 
4,275

 
21,427

New Zealand Timber
(945
)
 
2,249

 
4,749

 
4,660

Real Estate
1,421

 
27,764

 
14,003

 
28,489

Trading
(84
)
 
(132
)
 
186

 
(544
)
Corporate and other
(7,333
)
 
(9,975
)
 
(13,133
)
 
(21,408
)
Total Operating Income

$6,523

 

$37,577

 
34,270

 
52,003

Unallocated interest expense and other
(9,679
)
 

($19,997
)
 
(19,718
)
 
(31,683
)
Total (loss) income from continuing operations before income taxes

($3,156
)
 

$17,580

 

$14,552

 

$20,320


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

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
DEPRECIATION, DEPLETION AND AMORTIZATION
2015
 
2014
 
2015
 
2014
Southern Timber

$12,650

 

$10,709

 

$26,951

 

$22,705

Pacific Northwest Timber
2,941

 
5,194

 
6,731

 
11,492

New Zealand Timber
7,183

 
7,669

 
15,186

 
14,163

Real Estate
1,006

 
6,422

 
4,818

 
7,333

Trading

 

 

 

Corporate and other
70

 
341

 
140

 
623

Total

$23,850

 

$30,335

 

$53,826

 

$56,316

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
NON-CASH COST OF LAND SOLD AND REAL ESTATE COSTS RECOVERED UPON SALE
2015
 
2014
 
2015
 
2014
Southern Timber

 

 

 

Pacific Northwest Timber

 

 

 

New Zealand Timber

 
(2
)
 

 
2,096

Real Estate
1,191

 
2,324

 
4,938

 
3,302

Trading

 

 

 

Corporate and other

 

 

 

Total

$1,191

 

$2,322

 

$4,938

 

$5,398


9.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. The Company’s New Zealand JV uses derivative financial instruments to mitigate the financial impact of exposure to these risks. The Company also uses derivative financial instruments to mitigate exposure to foreign currency risk due to the translation of the investment in Rayonier’s New Zealand-based operations from New Zealand dollars to U.S. dollars.
Accounting for derivative financial instruments is governed by Accounting Standards Codification Topic 815, Derivatives and Hedging, (“ASC 815”). In accordance with ASC 815, the Company records its derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the Company’s investment in New Zealand is partially or completely liquidated. The ineffective portion of any hedge as well as changes in the fair value of derivatives not designated as hedging instruments and those which are no longer effective as hedging instruments, are recognized immediately in earnings. The Company’s hedge ineffectiveness was immaterial for all periods presented.
Foreign Currency Exchange and Option Contracts
The functional currency of Rayonier’s wholly owned subsidiary, Rayonier New Zealand Limited (“RNZ”) and the New Zealand JV is the New Zealand dollar. The New Zealand JV is exposed to foreign currency risk on export sales and ocean freight payments which are mainly denominated in U.S. dollars. The timber operations of the New Zealand JV are typically hedged 50 percent to 90 percent of its estimated foreign currency exposure with respect to the following three months forecasted sales and purchases, 50 percent to 75 percent of forecasted sales and purchases for the forward three to 12 months and up to 50 percent of the forward 12 to 18 months. Foreign currency exposure from the New Zealand JV’s trading operations is typically hedged based on the following three months forecasted sales and purchases. As of June 30, 2015, foreign currency exchange contracts and foreign currency option contracts had maturity dates through December 2016.

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

Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments that were entered into subsequent to the Company’s acquisition of a majority interest in the New Zealand JV qualify for cash flow hedge accounting. The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model.
In December 2014, the Company entered into a foreign currency exchange contract to mitigate the risk of fluctuations in foreign currency exchange rates when translating RNZ’s balance sheet to U.S. dollars. This contract hedges a portion of the Company’s net investment in New Zealand and qualifies as a net investment hedge. The fair value of the foreign currency exchange contract is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. The ineffectiveness of the foreign currency exchange contract is measured using the spot rate method, whereby the change in the fair value of the contract, other than the change attributable to movements in the spot rate, is excluded from the measure of hedge ineffectiveness and is reported directly in earnings. The Company does not expect any ineffectiveness or changes other than those attributable to movements in the spot rate as the critical risks of the forward contract and the net investment in RNZ coincide. This foreign currency exchange contract matures on December 21, 2015.
Interest Rate Swaps
The Company uses interest rate swaps to manage the New Zealand JV’s exposure to interest rate movements on its variable rate debt attributable to changes in the New Zealand Bank bill rate. By converting a portion of these borrowings from floating rates to fixed rates the Company has reduced the impact of interest rate changes on its expected future cash outflows. As of June 30, 2015, the Company’s interest rate contracts hedged 81 percent of the New Zealand JV’s variable rate debt and had maturity dates through January 2020.
See Note 15Debt for discussion of debt refinancing and planned recapitalization of the Company’s New Zealand joint venture subsequent to June 30, 2015.
Fuel Hedge Contracts
The Company has historically used fuel hedge contracts to manage its New Zealand JV’s exposure to changes in New Zealand’s domestic diesel prices. Due to the low volume of diesel fuel purchases made by the New Zealand JV in 2013, the Company decided to no longer hedge its diesel fuel purchases effective November 2013. There were no contracts remaining as of December 31, 2014.    
The following table demonstrates the impact of the Company’s derivatives on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the six months ended June 30, 2015 and 2014.
 
 
 
Three Months Ended
June 30,
 
Income Statement Location
 
2015
 
2014
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other comprehensive (loss) income
 

($1,621
)
 

($818
)
Foreign currency option contracts
Other comprehensive (loss) income
 
(2,658
)
 
(504
)
 
 
 
 
 
 
Derivative designated as a net investment hedge:
 
 
 
 
 
Foreign currency exchange contract
Other comprehensive (loss) income
 

$2,173

 

 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency exchange contracts
Other operating (income) expense
 

 

Foreign currency option contracts
Other operating (income) expense
 
546

 

Interest rate swaps
Interest income and miscellaneous expense, net
 
(1,417
)
 
(729
)
Fuel hedge contracts
Cost of sales (benefit)
 

 
(92
)
 
 
 
 
 
 

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


 
 
 
Six Months Ended
June 30,
 
Income Statement Location
 
2015
 
2014
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other comprehensive (loss) income
 

($2,308
)
 

$669

Foreign currency option contracts
Other comprehensive (loss) income
 
(3,339
)
 
221

 
 
 
 
 
 
Derivative designated as a net investment hedge:
 
 
 
 
 
Foreign currency exchange contract
Other comprehensive (loss) income
 
3,107

 

 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency exchange contracts
Other operating (income) expense
 

 
25

Foreign currency option contracts
Other operating (income) expense
 
546

 
7

Interest rate swaps
Interest and miscellaneous (expense) income, net
 
(3,273
)
 
(1,862
)
Fuel hedge contracts
Cost of sales (benefit)
 

 
225

During the next 12 months, the amount of the June 30, 2015 AOCI balance, net of tax, expected to be reclassified into earnings as a result of the maturation of the Company’s derivative instruments is a loss of approximately $4.1 million.
The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
 
Notional Amount
 
June 30, 2015
 
December 31, 2014
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency exchange contracts

$28,200

 

$28,540

Foreign currency option contracts
135,700

 
79,400

 
 
 
 
Derivative designated as a net investment hedge:
 
 
 
Foreign currency exchange contract
23,828

 
27,419

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Interest rate swaps
129,352

 
161,968


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

The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets:
 
Location on Balance Sheet
 
Fair Value Assets / (Liabilities) (a)
 
 
 
June 30, 2015
 
December 31, 2014
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Prepaid and other current assets
 

 

$132

 
Other assets
 

 
59

 
Other current liabilities
 
(2,197
)
 
(272
)
 
Other non-current liabilities
 
(639
)
 

Foreign currency option contracts
Prepaid and other current assets
 

 
299

 
Other assets
 

 
198

 
Other current liabilities
 
(3,614
)
 
(1,439
)
 
Other non-current liabilities
 
(653
)
 
(196
)
 
 
 
 
 
 
Derivative designated as a net investment hedge:
 
 
 
 
Foreign currency exchange contract
Prepaid and other current assets
 
2,884

 

 
Other current liabilities
 

 
(223
)
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Interest rate swaps
Other non-current liabilities
 
(8,271
)
 
(7,247
)
 
 
 
 
 
 
Total derivative contracts:
 
 
 
 
 
Prepaid and other current assets
 
 

$2,884

 

$431

Other assets
 
 

 
257

Total derivative assets
 
 
2,884

 
688

 
 
 
 
 
 
Other current liabilities
 
 
(5,811
)
 
(1,934
)
Other non-current liabilities
 
 
(9,563
)
 
(7,443
)
Total derivative liabilities
 
 

($15,374
)
 

($9,377
)
 
 
 
 
 
(a)
See Note 10Fair Value Measurements for further information on the fair value of the Company’s derivatives including their classification within the fair value hierarchy.

Offsetting Derivatives
Derivative financial instruments are presented at their gross fair values in the Consolidated Balance Sheets. The Company’s derivative financial instruments are not subject to master netting arrangements, which would allow the right of offset.


15


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

10.
FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The Accounting Standards Codification established a three-level hierarchy that prioritizes the inputs used to measure fair value as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 Observable inputs other than quoted prices included in Level 1.
Level 3 Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table presents the carrying amount and estimated fair values of financial instruments held by the Company at June 30, 2015 and December 31, 2014, using market information and what the Company believes to be appropriate valuation methodologies under generally accepted accounting principles:
 
June 30, 2015
 
December 31, 2014
Asset (liability)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
 
 
Level 1
 
Level 2
Cash and cash equivalents

$91,632

 

$91,632

 

 

$161,558

 

$161,558

 

Restricted cash (a)
2,528

 
2,528

 

 
6,688

 
6,688

 

Current maturities of long-term debt
(30,000
)
 

 
(32,812
)
 
(129,706
)
 

 
(156,762
)
Long-term debt
(722,353
)
 

 
(725,543
)
 
(621,849
)
 

 
(628,476
)
Interest rate swaps (b)
(8,271
)
 

 
(8,271
)
 
(7,247
)
 

 
(7,247
)
Foreign currency exchange contracts (b)
48

 

 
48

 
(304
)
 

 
(304
)
Foreign currency option contracts (b)
(4,267
)
 

 
(4,267
)
 
(1,138
)
 

 
(1,138
)
 
 
 
 
 
(a)
Restricted cash is recorded in “Other Assets” and represents the proceeds from LKE sales deposited with a third-party intermediary.
(b)
See Note 9Derivative Financial Instruments and Hedging Activities for information regarding the Balance Sheet classification of the Company’s derivative financial instruments.
Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents and Restricted cashThe carrying amount is equal to fair market value.
Debt The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value.
Interest rate swap agreements The fair value of interest rate contracts is determined by discounting the expected future cash flows, for each instrument, at prevailing interest rates.
Foreign currency exchange contracts The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.
Foreign currency option contracts The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model.


16


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

11.
GUARANTEES
The Company provides financial guarantees as required by creditors, insurance programs, and various governmental agencies. As of June 30, 2015, the following financial guarantees were outstanding:
Financial Commitments
 
Maximum Potential
Payment
 
Carrying Amount
of Associated Liability
Standby letters of credit (a)
 

$16,685

 

$15,000

Guarantees (b)
 
2,254

 
43

Surety bonds (c)
 
776

 

Total financial commitments
 

$19,715

 

$15,043

 
 
 
 
 
(a)
Approximately $15 million of the standby letters of credit serve as credit support for industrial revenue bonds. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation. These letters of credit will expire at various dates during 2015 and will be renewed as required.
(b)
In conjunction with a timberland sale and note monetization in 2004, the Company issued a make-whole agreement pursuant to which it guaranteed $2.3 million of obligations of a special-purpose entity that was established to complete the monetization. At June 30, 2015, the Company has a de minimis liability to reflect the fair market value of its obligation to perform under the make-whole agreement.
(c)
Rayonier issues surety bonds primarily to secure timber harvesting obligations in the State of Washington and to provide collateral for the Company’s workers’ compensation self-insurance program in that state. These surety bonds expire at various dates during 2015 and 2016 and are expected to be renewed as required.
 
12.
CONTINGENCIES

Following the Company’s November 10, 2014 earnings release and filing of the restated interim financial statements for the quarterly periods ended March 31, 2014 and June 30, 2014 (the “November 2014 Announcement”), shareholders of the Company filed five putative class actions against the Company and Paul G. Boynton, Hans E. Vanden Noort, David L. Nunes, and H. Edwin Kiker arising from circumstances described in the November 2014 Announcement, entitled respectively:

Sating v. Rayonier Inc. et al, Civil Action No. 3:14-cv-01395; filed November 12, 2014 in the United States District Court for the Middle District of Florida;

Keasler v. Rayonier Inc. et al, Civil Action No. 3:14-cv-01398, filed November 13, 2014 in the United States District Court for the Middle District of Florida;

Lake Worth Firefighters’ Pension Trust Fund v. Rayonier Inc. et al, Civil Action No. 3:14-cv-01403, filed November 13, 2014 in the United States District Court for the Middle District of Florida;

Christie v. Rayonier Inc. et al, Civil Action No. 3:14-cv-01429, filed November 21, 2014 in the United States District Court for the Middle District of Florida; and

Brown v. Rayonier Inc. et al, Civil Action No. 1:14-cv-08986, initially filed in the United States District Court for the Southern District of New York and later transferred to the United States District Court for the Middle District of Florida and assigned as Civil Action No. 3:14-cv-01474.


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

On January 9, 2015, the five securities actions were consolidated into one putative class action entitled In re Rayonier Inc. Securities Litigation, Case No. 3:14-cv-01395-TJC-JBT, in the United States District Court for the Middle District of Florida. The plaintiffs alleged that the defendants made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs sought unspecified monetary damages and attorneys’ fees and costs. Two shareholders, the Pension Trust Fund for Operating Engineers and the Lake Worth Firefighters’ Pension Trust Fund moved for appointment as lead plaintiff on January 12, 2015, which was granted on February 25, 2015. On April 7, 2015, the plaintiffs filed a Consolidated Class Action Complaint (the “Amended Complaint”). In the Amended Complaint, plaintiffs added allegations as to and added as a defendant N. Lynn Wilson, a former officer of Rayonier. With the filing of the Amended Complaint, David L. Nunes and H. Edwin Kiker were dropped from the case as defendants. Defendants timely filed Motions to Dismiss on May 15, 2015. The court has set a hearing on the motion for August 25, 2015. At this preliminary stage, the Company cannot determine whether there is a reasonable likelihood a material loss has been incurred nor can the range of any such loss be estimated.

On November 26, 2014, December 29, 2014, January 26, 2015, February 13, 2015, and May 12, 2015, the Company received separate letters from shareholders requesting that the Company investigate or pursue derivative claims against certain officers and directors related to the November 2014 Announcement. Although these demands do not identify any claims against the Company, the Company could potentially incur certain obligations to advance expenses and provide indemnification to certain current and former officers and directors of the Company. The Company may also incur expenses as a result of any costs arising from the investigation of the claims alleged in the various demands. At this preliminary stage, the ultimate outcome of these matters cannot be predicted, nor can the range of potential expenses the Company may incur as a result of the obligations identified above be estimated.

In November 2014, the Company received a subpoena from the SEC seeking documents related to the Company’s amended reports filed with the SEC on November 10, 2014. The Company is cooperating with the SEC and complying with the subpoena. The Company does not currently believe that the investigation will have a material impact on the Company’s financial condition, results of operations, or cash flow, but cannot predict the timing or outcome of the SEC investigation.

The Company has also been named as a defendant in various other lawsuits and claims arising in the normal course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, it has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance and general liability. These pending lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flow.


18


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

13.
EMPLOYEE BENEFIT PLANS
The Company has one qualified non-contributory defined benefit pension plan covering a portion of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plan. Currently, the pension plans are closed to new participants. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change. In the first quarter of 2015, the Company lowered its return on asset assumption from 8.5 percent to 7.7 percent for 2015.
The net pension and postretirement benefit costs that have been recorded are shown in the following table:
 
Pension
Postretirement
 
Three Months Ended
June 30,
 
Three Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost

$371

 

$1,544

 

$3

 

$147

Interest cost
830

 
4,452

 
13

 
199

Expected return on plan assets
(1,007
)
 
(6,330
)
 

 

Amortization of prior service cost
3

 
277

 

 
4

Amortization of losses
916

 
2,603

 
3

 
116

Amortization of negative plan amendment

 

 

 
(133
)
Net periodic benefit cost (a)

$1,113

 

$2,546

 

$19

 

$333

 
Pension
 
Postretirement
 
Six Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost

$742

 

$3,168

 

$6

 

$326

Interest cost
1,659

 
9,135

 
26

 
405

Expected return on plan assets
(2,014
)
 
(12,988
)
 

 

Amortization of prior service cost
6

 
569

 

 
8

Amortization of losses
1,849

 
5,340

 
6

 
245

Amortization of negative plan amendment

 

 

 
(267
)
Net periodic benefit cost (a)

$2,242

 

$5,224

 

$38

 

$717

 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Net periodic benefit cost for the three and six months ended June 30, 2014 includes $2.0 million and $4.0 million, respectively, recorded in “Income from discontinued operations, net” on the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income.
In 2015, the Company has no mandatory pension contribution requirement.

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

14.
INVENTORY
In the first quarter of 2015, Rayonier reclassified seeds and seedlings from Inventory and Other Assets to Timber and Timberlands, Net to better reflect the intended use of the assets, as discussed at Note 1Basis of Presentation. As of June 30, 2015 and December 31, 2014, Rayonier’s inventory was solely comprised of finished goods, as follows:
 
June 30, 2015
 
December 31, 2014
Finished goods inventory
 
 
 
Real estate inventory (a)

$8,035

 

$4,932

Log inventory
5,327

 
3,451

Total inventory

$13,362

 

$8,383

 
 
 
 
 
(a)
Represents HBU real estate (including capitalized development costs) expected to be sold within 12 months.

15.
DEBT
As of March 31, 2015, the Senior Exchangeable Notes due 2015 were exchangeable at the option of the holders for the calendar quarter ended June 30, 2015. According to the indenture, the notes became exchangeable on May 15, 2015 through maturity. The notes mature in August of 2015 and the Company has both the ability and intent to refinance $100 million of these notes. Therefore, this amount is classified as long-term debt. Approximately $30 million of the exchangeable notes are expected to be paid with the Company’s available cash and, as such, are classified as current maturities of long-term debt as of June 30, 2015.
Net draws of $27.0 million were made in the second quarter of 2015 on the revolving credit facility. At June 30, 2015, the Company had available borrowings of $153.2 million under the revolving credit facility, net of $1.8 million to secure its outstanding letters of credit, and additional draws available of $100 million under the term credit agreement.
As of June 30, 2015, the New Zealand JV had $160 million of long-term variable rate debt maturing in September 2016. This debt is subject to interest rate risk resulting from changes in the 90-day New Zealand Bank bill rate (“BKBM”). However, the New Zealand JV uses interest rate swaps to manage its exposure to interest rate movements on its bank loan by swapping a portion of these borrowings from floating rates to fixed rates. The notional amount of the outstanding interest rate swap contracts at June 30, 2015 was $129.0 million, or 81 percent of the variable rate debt. The interest rate swap contracts have maturities extending through January 2020. The periodic interest rate on New Zealand JV debt is BKBM plus 80 basis points with an additional 80 basis point credit line fee. The Company estimates the periodic effective interest rate on New Zealand JV debt for the second quarter was approximately 6.5% after consideration of interest rate swaps.
During the six months ended June 30, 2015, the New Zealand JV had made additional borrowings and repayments of $2.1 million on its working capital facility. Additional draws totaling $16 million remain available on the working capital facility. In addition, the New Zealand JV paid $1.4 million of its shareholder loan held with the non-controlling interest party. Favorable changes in exchange rates through June 30, 2015 decreased debt on a U.S. dollar basis for the revolving facility and shareholder loan by $24.1 million and $3.5 million, respectively.
There were no other significant changes to the Company’s outstanding debt as reported in Note 13 — Debt in the 2014 Form 10-K.

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

Subsequent Event
On August 5, 2015, the Company announced the closing of a nine-year $350 million term loan facility and a five-year $200 million revolving credit facility (the “Credit Agreement”). In addition, the Company has entered into an interest rate swap transaction to fix the cost of the term loan facility over its nine-year term. Based on the swap rate, the company’s current leverage ratio and the pricing grid, the all-in fixed-rate cost of the term loan facility (net of estimated patronage payments) is expected to be approximately 3.3% and the floating-rate cost of the revolving credit facility will be LIBOR + 1.25%. The Company intends to use approximately $160 million of proceeds from the term loan facility to fund a capital infusion into the New Zealand JV, which the New Zealand JV will in turn use for repayment of all outstanding amounts under its existing NZ$235 million credit facility plus NZ$7 million of related fees and expenses (assuming an exchange rate of US$0.66 per NZ$1.00). The investment into the New Zealand JV is subject to certain closing conditions, including New Zealand Overseas Investment Office approval and the preparation of customary transaction documents. The remaining proceeds of the term loan facility will be used to fund repayment of the company’s 4.50% senior exchangeable notes maturing August 2015 (approximately $131 million), to fund repayment of amounts outstanding under the Company’s existing revolving credit facility (approximately $45 million), to pay transaction fees and expenses (approximately $2 million), and for cash and general corporate purposes (approximately $12 million). In order to provide timing flexibility with respect to the New Zealand JV recapitalization, the term loan facility provides that proceeds can be drawn in up to two advances for up to eight months post-closing. The Credit Agreement contains financial covenants related to leverage and interest coverage, as well as other affirmative and negative covenants relating to, among other things, dividends, liens, mergers, dispositions of timber and timberlands, subsidiary debt, sales and issuances of capital stock of subsidiaries, and affiliate transactions.

16.
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The following table summarizes the changes in AOCI by component for the six months ended June 30, 2015 and the year ended December 31, 2014. All amounts are presented net of tax and exclude portions attributable to noncontrolling interest.
 
Foreign currency translation gains/ (losses)
 
Net investment hedge of New Zealand JV
 
New Zealand JV cash flow hedges
 
Unrecognized components of employee benefit plans
 
Total
Balance as of December 31, 2013

$36,914

 

 

($342
)
 

($82,711
)
 

($46,139
)
Other comprehensive income/(loss) before reclassifications
(11,381
)
 
(145
)
 
510

 
47,938

(a)
36,922

Amounts reclassified from accumulated other comprehensive loss

 

 
(1,716
)
 
6,108

(b)
4,392

Net other comprehensive income/(loss)
(11,381
)
 
(145
)
 
(1,206
)
 
54,046

 
41,314

Balance as of December 31, 2014

$25,533

 

($145
)
 

($1,548
)
 

($28,665
)
 

($4,825
)
Other comprehensive income/(loss) before reclassifications
(30,456
)
 
2,019

 
(3,700
)
 

 
(32,137
)
Amounts reclassified from accumulated other comprehensive loss

 

 
1,188

 
1,524

(c)
2,712

Net other comprehensive income/(loss)
(30,456
)

2,019

 
(2,512
)

1,524


(29,425
)
Balance as of June 30, 2015

($4,923
)
 

$1,874

 

($4,060
)
 

($27,141
)
 

($34,250
)
 
 
 
 
 
(a)
Reflects $78 million, net of taxes, of comprehensive income due to the transfer of losses to Rayonier Advanced Materials Pension Plans. This comprehensive income was offset by $30 million, net of taxes, of losses as a result of revaluations required due to the spin-off at December 31, 2014. See Note 22 — Employee Benefit Plans in the 2014 Form 10-K for additional information.
(b)
This accumulated other comprehensive income component is comprised of $5 million from the computation of net periodic pension cost and the $1 million write-off of a deferred tax asset related to the revaluation and transfer of liabilities as a result of the spin-off.
(c)
This component of other comprehensive income is included in the computation of net periodic pension cost. See Note 13Employee Benefit Plans for additional information.

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

The following table presents details of the amounts reclassified in their entirety from AOCI to net income for the six months ended June 30, 2015 and June 30, 2014:
Details about accumulated other comprehensive income components
 
Amount reclassified from accumulated other comprehensive income
 
Affected line item in the income statement
 
 
June 30, 2015
 
June 30, 2014
 
 
Realized loss (gain) on foreign currency exchange contracts
 

$1,504

 

($2,542
)
 
Other operating income, net
Realized loss (gain) on foreign currency option contracts
 
1,035

 
(937
)
 
Other operating income, net
Noncontrolling interest
 
(889
)
 
1,218

 
Comprehensive (loss) income attributable to noncontrolling interest
Income tax (benefit) expense on loss from foreign currency contracts
 
(462
)
 
254

 
Income tax benefit
Net gain on cash flow hedges reclassified from accumulated other comprehensive income
 
1,188

 
(2,007
)
 
 
Income tax expense on pension plan contributed to Rayonier Advanced Materials
 

 
843

 
Income tax expense
Net loss (gain) from accumulated other comprehensive income
 

$1,188

 

($1,164
)
 
 

17.
OTHER OPERATING INCOME, NET
Other operating income, net comprised the following:
 
Three Months Ended June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Lease income, primarily from hunting leases

$5,890

 

$3,966

 

$9,999

 

$7,003

Other non-timber income
688

 
440

 
2,052

 
993

Foreign currency income (loss)
108

 
1,232

 
215

 
(255
)
Gain (loss) on sale or disposal of property, plant & equipment
3

 
(20
)
 
3

 
(20
)
(Loss) gain on foreign currency exchange contracts
(645
)
 

 
(994
)
 
(32
)
Bankruptcy claim settlement

 
5,779

 

 
5,779

Gain (loss) on sale of carbon credits (a)
352

 
(307
)
 
352

 
(307
)
Miscellaneous income (expense), net
742

 
299

 
1,086

 
(1,397
)
Total

$7,138

 

$11,389

 

$12,713

 

$11,764

 
 
 
 
 
(a)
Loss in 2014 reflects surrender of carbon credit units.


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

18.
CONSOLIDATING FINANCIAL STATEMENTS
The condensed consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly-owned subsidiaries, which are eliminated upon consolidation, and the allocation of certain expenses of Rayonier Inc. incurred for the benefit of its subsidiaries.
In August 2009, Rayonier TRS Holdings Inc. issued $172.5 million of 4.50% Senior Exchangeable Notes due August 2015. The notes are guaranteed by Rayonier Inc. as the Parent Guarantor and Rayonier Operating Company LLC (“ROC”) as the Subsidiary Guarantor. In connection with these exchangeable notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
The subsidiary issuer and subsidiary guarantor are wholly-owned by the Parent Company, Rayonier Inc. The notes are fully and unconditionally guaranteed on a joint and several basis by the guarantor subsidiary and Rayonier Inc.
    
 
CONDENSED CONSOLIDATING STATEMENTS OF (LOSS) INCOME
 AND COMPREHENSIVE (LOSS) INCOME
 
For the Three Months Ended June 30, 2015
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

 

$115,801

 

 

$115,801

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
103,689

 

 
103,689

Selling and general expenses

 
6,330

 

 
6,397

 

 
12,727

Other operating expense (income), net

 
(461
)
 

 
(6,677
)
 

 
(7,138
)
 

 
5,869

 

 
103,409

 

 
109,278

OPERATING (LOSS) INCOME

 
(5,869
)
 

 
12,392

 

 
6,523

Interest expense
(3,169
)
 
(131
)
 
(2,409
)
 
(2,774
)
 

 
(8,483
)
Interest and miscellaneous income (expense), net
1,871

 
817

 
(137
)
 
(3,747
)
 

 
(1,196
)
Equity in (loss) income from subsidiaries
(238
)
 
4,966

 
2,796

 

 
(7,524
)
 

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(1,536
)
 
(217
)
 
250

 
5,871

 
(7,524
)
 
(3,156
)
Income tax (expense) benefit

 
(21
)
 
948

 
(631
)
 

 
296

NET (LOSS) INCOME
(1,536
)
 
(238
)
 
1,198

 
5,240

 
(7,524
)
 
(2,860
)
Less: Net loss attributable to noncontrolling interest

 

 

 
(1,324
)
 

 
(1,324
)
NET (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.
(1,536
)
 
(238
)
 
1,198

 
6,564

 
(7,524
)
 
(1,536
)
OTHER COMPREHENSIVE LOSS
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
(18,008
)
 
(18,008
)
 
(74
)
 
(25,395
)
 
36,090

 
(25,395
)
New Zealand joint venture cash flow hedges
(1,896
)
 
(1,896
)
 
(1,896
)
 
(2,917
)
 
5,688

 
(2,917
)
Amortization of pension and postretirement plans, net of income tax
743

 
743

 
(5
)
 
(5
)
 
(733
)
 
743

Total other comprehensive loss
(19,161
)
 
(19,161
)
 
(1,975
)
 
(28,317
)
 
41,045

 
(27,569
)
COMPREHENSIVE LOSS
(20,697
)
 
(19,399
)
 
(777
)
 
(23,077
)
 
33,521

 
(30,429
)
Less: Comprehensive loss attributable to noncontrolling interest

 

 

 
(9,730
)
 
(1
)
 
(9,731
)
COMPREHENSIVE LOSS ATTRIBUTABLE TO RAYONIER INC.

($20,697
)
 

($19,399
)
 

($777
)
 

($13,347
)
 

$33,522

 

($20,698
)
 
 
 
 
 
 
 
 
 
 
 
 

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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
 
For the Three Months Ended June 30, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

 

$163,145

 

 

$163,145

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
123,096

 

 
123,096

Selling and general expenses

 
2,394

 

 
11,467

 

 
13,861

Other operating expense (income), net

 
1,573

 

 
(12,962
)
 

 
(11,389
)
 

 
3,967

 

 
121,601

 

 
125,568

OPERATING (LOSS) INCOME

 
(3,967
)
 

 
41,544

 

 
37,577

Interest expense
(3,196
)
 
(225
)
 
(10,982
)
 
(1,209
)
 

 
(15,612
)
Interest and miscellaneous income (expense), net
2,733

 
(3,003
)
 
(1,098
)
 
(3,017
)
 

 
(4,385
)
Equity in income (loss) from subsidiaries
16,814

 
23,549

 
(54,081
)
 

 
13,718

 

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
16,351

 
16,354

 
(66,161
)
 
37,318

 
13,718

 
17,580

Income tax benefit (expense)

 
460

 
4,409

 
(18,425
)
 

 
(13,556
)
INCOME (LOSS) FROM CONTINUING OPERATIONS
16,351

 
16,814

 
(61,752
)
 
18,893

 
13,718

 
4,024

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net of income taxes

 

 

 
12,084

 

 
12,084

NET INCOME (LOSS)
16,351

 
16,814

 
(61,752
)
 
30,977

 
13,718

 
16,108

Less: Net loss attributable to noncontrolling interest

 

 

 
(245
)
 

 
(245
)
NET INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC.
16,351

 
16,814

 
(61,752
)
 
31,222

 
13,718

 
16,353

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
2,653

 
2,653

 
513

 
3,517

 
(5,819
)
 
3,517

New Zealand joint venture cash flow hedges
(598
)
 
(598
)
 
(598
)
 
(920
)
 
1,794

 
(920
)
Amortization of pension and postretirement plans, net of income tax
58,873

 
58,873

 
92,714

 
92,714

 
(244,301
)
 
58,873

Total other comprehensive income
60,928

 
60,928

 
92,629

 
95,311

 
(248,326
)
 
61,470

COMPREHENSIVE INCOME
77,279

 
77,742

 
30,877

 
126,288

 
(234,608
)
 
77,578

Less: Comprehensive income attributable to noncontrolling interest

 

 

 
297

 

 
297

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$77,279

 

$77,742

 

$30,877

 

$125,991

 

($234,608
)
 

$77,281

 
 
 
 
 
 
 
 
 
 
 
 





24


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

 
CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
 
For the Six Months Ended June 30, 2015
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

 

$256,106

 

 

$256,106

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
210,923

 

 
210,923

Selling and general expenses

 
11,279

 

 
12,347

 

 
23,626

Other operating income, net

 
(461
)
 

 
(12,252
)
 

 
(12,713
)
 

 
10,818

 

 
211,018

 

 
221,836

OPERATING (LOSS) INCOME

 
(10,818
)
 

 
45,088

 

 
34,270

Interest expense
(6,337
)
 
(223
)
 
(4,841
)
 
(5,626
)
 

 
(17,027
)
Interest and miscellaneous income (expense), net
3,807

 
1,654

 
(281
)
 
(7,871
)
 

 
(2,691
)
Equity in income from subsidiaries
18,741

 
28,149

 
4,223

 

 
(51,113
)
 

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
16,211

 
18,762

 
(899
)
 
31,591

 
(51,113
)
 
14,552

Income tax (expense) benefit

 
(21
)
 
1,908

 
(1,119
)
 

 
768

NET INCOME
16,211

 
18,741

 
1,009

 
30,472

 
(51,113
)
 
15,320

Less: Net loss attributable to noncontrolling interest

 

 

 
(891
)
 

 
(891
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
16,211

 
18,741

 
1,009

 
31,363

 
(51,113
)
 
16,211

OTHER COMPREHENSIVE LOSS
 
 
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
(28,438
)
 
(28,438
)
 
(926
)
 
(39,718
)
 
57,803

 
(39,717
)
New Zealand joint venture cash flow hedges
(2,511
)
 
(2,511
)
 
(2,511
)
 
(3,863
)
 
7,533

 
(3,863
)
Amortization of pension and postretirement plans, net of income tax
1,524

 
1,524

 
15

 
15

 
(1,554
)
 
1,524

Total other comprehensive loss
(29,425
)
 
(29,425
)
 
(3,422
)
 
(43,566
)
 
63,782

 
(42,056
)
COMPREHENSIVE LOSS
(13,214
)
 
(10,684
)
 
(2,413
)
 
(13,094
)
 
12,669

 
(26,736
)
Less: Comprehensive loss attributable to noncontrolling interest

 

 

 
(13,522
)
 

 
(13,522
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.

($13,214
)
 

($10,684
)
 

($2,413
)
 

$428

 

$12,669

 

($13,214
)
 
 
 
 
 
 
 
 
 
 
 
 



25


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

 
CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
 
For the Six Months Ended June 30, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

 

$306,332

 

 

$306,332

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
238,995

 

 
238,995

Selling and general expenses

 
4,544

 

 
22,554

 

 
27,098

Other operating expense (income), net

 
3,948

 

 
(15,712
)
 

 
(11,764
)
 

 
8,492

 

 
245,837

 

 
254,329

OPERATING (LOSS) INCOME

 
(8,492
)
 

 
60,495

 

 
52,003

Interest expense
(6,389
)
 
(468
)
 
(17,672
)
 
(1,757
)
 

 
(26,286
)
Interest and miscellaneous income (expense), net
5,431

 
(2,189
)
 
(2,145
)
 
(6,494
)
 

 
(5,397
)
Equity in income (loss) from subsidiaries
58,737

 
70,049

 
(22,951
)
 

 
(105,835
)
 

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
57,779

 
58,900

 
(42,768
)
 
52,244

 
(105,835
)
 
20,320

Income tax (expense) benefit

 
(163
)
 
7,233

 
(13,031
)
 

 
(5,961
)
INCOME (LOSS) FROM CONTINUING OPERATIONS
57,779

 
58,737

 
(35,535
)
 
39,213

 
(105,835
)
 
14,359

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net of income taxes

 

 

 
43,092

 

 
43,092

NET INCOME (LOSS)
57,779

 
58,737

 
(35,535
)
 
82,305

 
(105,835
)
 
57,451

Less: Net loss attributable to noncontrolling interest

 

 

 
(328
)
 

 
(328
)
NET INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC.
57,779

 
58,737

 
(35,535
)
 
82,633

 
(105,835
)
 
57,779

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
15,547

 
15,547

 
1,279

 
21,312

 
(32,365
)
 
21,320

New Zealand joint venture cash flow hedges
514

 
514

 
514

 
791

 
(1,542
)
 
791

Amortization of pension and postretirement plans, net of income tax
60,970

 
60,970

 
94,334

 
94,334

 
(249,638
)
 
60,970

Total other comprehensive income
77,031

 
77,031

 
96,127

 
116,437

 
(283,545
)
 
83,081

COMPREHENSIVE INCOME
134,810

 
135,768

 
60,592

 
198,742

 
(389,380
)
 
140,532

Less: Comprehensive income attributable to noncontrolling interest

 

 

 
5,722

 

 
5,722

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$134,810

 

$135,768

 

$60,592

 

$193,020

 

($389,380
)
 

$134,810

 
 
 
 
 
 
 
 
 
 
 
 

 





26


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of June 30, 2015
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$5,366

 

$94

 

$45,847

 

$40,325

 

 

$91,632

Accounts receivable, less allowance for doubtful accounts

 

 
91

 
19,353

 

 
19,444

Inventory

 

 

 
13,362

 

 
13,362

Prepaid and other current assets

 
1,855

 
3,008

 
16,359

 

 
21,222

Total current assets
5,366

 
1,949

 
48,946

 
89,399

 

 
145,660

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 

 
2,086,729

 

 
2,086,729

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT COSTS

 

 

 
69,726

 

 
69,726

NET PROPERTY, PLANT AND EQUIPMENT

 
480

 

 
5,954

 

 
6,434

INVESTMENT IN SUBSIDIARIES
1,516,408

 
2,182,721

 
843,077

 

 
(4,542,206
)
 

INTERCOMPANY NOTES RECEIVABLE
252,815

 

 
21,928

 

 
(274,743
)
 

OTHER ASSETS
2,570

 
16,476

 
1,325

 
37,401

 

 
57,772

TOTAL ASSETS

$1,777,159

 

$2,201,626

 

$915,276

 

$2,289,209

 

($4,816,949
)
 

$2,366,321

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable

 

$3,434

 

$83

 

$18,879

 

 

$22,396

Current maturities of long-term debt

 

 
30,000

 

 

 
30,000

Accrued taxes

 
14

 

 
15,797

 

 
15,811

Accrued payroll and benefits

 
2,476

 

 
2,120

 

 
4,596

Accrued interest
3,046

 
(12
)
 
2,505

 
35,499

 
(32,995
)
 
8,043

Other current liabilities

 
2,420

 
9,570

 
19,624

 

 
31,614

Total current liabilities
3,046

 
8,332

 
42,158

 
91,919

 
(32,995
)
 
112,460

LONG-TERM DEBT
370,000

 

 
115,972

 
236,381

 

 
722,353

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
34,081

 

 
(685
)
 

 
33,396

OTHER NON-CURRENT LIABILITIES

 
6,615

 

 
14,225

 

 
20,840

INTERCOMPANY PAYABLE

 
636,190

 

 
(254,315
)
 
(381,875
)
 

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,404,113

 
1,516,408

 
757,146

 
2,128,525

 
(4,402,079
)
 
1,404,113

Noncontrolling interest

 

 

 
73,159

 

 
73,159

TOTAL SHAREHOLDERS’ EQUITY
1,404,113

 
1,516,408

 
757,146

 
2,201,684

 
(4,402,079
)
 
1,477,272

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,777,159

 

$2,201,626

 

$915,276

 

$2,289,209

 

($4,816,949
)
 

$2,366,321


27


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of December 31, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$102,218

 

$11

 

$8,094

 

$51,235

 

 

$161,558

Accounts receivable, less allowance for doubtful accounts

 

 
1,409

 
22,609

 

 
24,018

Inventory

 

 

 
8,383

 

 
8,383

Prepaid and other current assets

 
2,003

 
6

 
17,736

 

 
19,745

Total current assets
102,218

 
2,014

 
9,509

 
99,963

 

 
213,704

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 

 
2,088,501

 

 
2,088,501

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT COSTS

 

 

 
77,433

 

 
77,433

NET PROPERTY, PLANT AND EQUIPMENT

 
433

 

 
6,273

 

 
6,706

INVESTMENT IN SUBSIDIARIES
1,463,303

 
1,923,185

 
640,678

 

 
(4,027,166
)
 

INTERCOMPANY NOTES RECEIVABLE
248,233

 

 
21,500

 

 
(269,733
)
 

OTHER ASSETS
2,763

 
16,610

 
1,759

 
45,639

 

 
66,771

TOTAL ASSETS

$1,816,517

 

$1,942,242

 

$673,446

 

$2,317,809

 

($4,296,899
)
 

$2,453,115

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable

 

$2,687

 

$123

 

$17,401

 

 

$20,211

Current maturities of long-term debt

 

 
129,706

 

 

 
129,706

Accrued taxes

 
11

 

 
11,394

 

 
11,405

Accrued payroll and benefits

 
3,253

 

 
3,137

 

 
6,390

Accrued interest
3,047

 
(3
)
 
2,520

 
31,281

 
(28,412
)
 
8,433

Other current liabilities

 
928

 
145

 
24,784

 

 
25,857

Total current liabilities
3,047

 
6,876

 
132,494

 
87,997

 
(28,412
)
 
202,002

LONG-TERM DEBT
325,000

 

 
31,000

 
265,849

 

 
621,849

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
34,161

 

 
(684
)
 

 
33,477

OTHER NON-CURRENT LIABILITIES

 
6,436

 

 
14,200

 

 
20,636

INTERCOMPANY PAYABLE

 
431,466

 

 
(153,754
)
 
(277,712
)
 

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,488,470

 
1,463,303

 
509,952

 
2,017,520

 
(3,990,775
)
 
1,488,470

Noncontrolling interest

 

 

 
86,681

 

 
86,681

TOTAL SHAREHOLDERS’ EQUITY
1,488,470

 
1,463,303

 
509,952

 
2,104,201

 
(3,990,775
)
 
1,575,151

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,816,517

 

$1,942,242

 

$673,446

 

$2,317,809

 

($4,296,899
)
 

$2,453,115


28


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

 
 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2015
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES

($25,092
)
 

($13,561
)
 

 

$110,401

 

$14,135

 

$85,883

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(134
)
 

 
(25,996
)
 

 
(26,130
)
Real estate development costs

 

 

 
(578
)
 

 
(578
)
Purchase of timberlands

 

 

 
(88,414
)
 

 
(88,414
)
Change in restricted cash

 

 

 
4,160

 

 
4,160

Investment in Subsidiaries

 

 
8,753

 

 
(8,753
)
 

Other

 

 

 
3,689

 

 
3,689

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES

 
(134
)
 
8,753

 
(107,139
)
 
(8,753
)
 
(107,273
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 

 
 
Issuance of debt

 

 
57,000

 
2,100

 

 
59,100

Repayment of debt

 

 
(28,000
)
 
(3,472
)
 

 
(31,472
)
Dividends paid
(63,421
)
 

 

 

 

 
(63,421
)
Proceeds from the issuance of common shares
718

 

 

 

 

 
718

Repurchase of common shares
(9,057
)
 

 

 

 

 
(9,057
)
Intercompany distributions

 
13,778

 

 
(8,396
)
 
(5,382
)
 

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(71,760
)
 
13,778

 
29,000

 
(9,768
)
 
(5,382
)
 
(44,132
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

 
(4,404
)
 

 
(4,404
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 

 
 
Change in cash and cash equivalents
(96,852
)
 
83

 
37,753

 
(10,910
)
 

 
(69,926
)
Balance, beginning of year
102,218

 
11

 
8,094

 
51,235

 

 
161,558

Balance, end of period

$5,366

 

$94

 

$45,847

 

$40,325

 

 

$91,632



29


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES

$138,535

 

$150,518

 

 

$87,098

 

($147,007
)
 

$229,144

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(201
)
 

 
(33,396
)
 

 
(33,597
)
Capital expenditures from discontinued operations

 

 

 
(47,050
)
 

 
(47,050
)
Real estate development costs

 

 

 
(2,595
)
 

 
(2,595
)
Purchase of timberlands

 

 

 
(74,817
)
 

 
(74,817
)
Change in restricted cash

 

 

 
63,128

 

 
63,128

Investment in Subsidiaries

 

 
(62,800
)
 

 
62,800

 

Other

 

 

 
(478
)
 

 
(478
)
CASH USED FOR INVESTING ACTIVITIES

 
(201
)
 
(62,800
)
 
(95,208
)
 
62,800

 
(95,409
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
Issuance of debt

 

 
1,238,389

 

 

 
1,238,389

Repayment of debt

 

 
(1,107,062
)
 

 

 
(1,107,062
)
Dividends paid
(124,628
)
 

 

 

 

 
(124,628
)
Proceeds from the issuance of common shares
3,347

 

 

 

 

 
3,347

Repurchase of common shares
(1,834
)
 

 

 

 

 
(1,834
)
Debt issuance costs

 

 
(12,380
)
 

 

 
(12,380
)
Net cash disbursed upon spin-off of Performance Fibers business
(106,420
)
 

 

 

 

 
(106,420
)
Intercompany distributions

 
(149,525
)
 

 
65,318

 
84,207

 

Other

 

 

 
(680
)
 

 
(680
)
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(229,535
)
 
(149,525
)
 
118,947

 
64,638

 
84,207

 
(111,268
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

 
(50
)
 

 
(50
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
(91,000
)
 
792

 
56,147

 
56,478

 

 
22,417

Balance, beginning of year
130,181

 
304

 
10,719

 
58,440

 

 
199,644

Balance, end of period

$39,181

 

$1,096

 

$66,866

 

$114,918

 

 

$222,061


30


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

In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. In connection with these notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
The subsidiary guarantors, ROC and Rayonier TRS Holdings, Inc., are wholly-owned by the Parent Company, Rayonier Inc. The notes are fully and unconditionally guaranteed on a joint and several basis by the guarantor subsidiaries.
 
CONDENSED CONSOLIDATING STATEMENTS OF (LOSS) INCOME
 AND COMPREHENSIVE (LOSS) INCOME
 
For the Three Months Ended June 30, 2015
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

$115,801

 

 

$115,801

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales

 

 
103,689

 

 
103,689

Selling and general expenses

 
6,330

 
6,397

 

 
12,727

Other operating income, net

 
(461
)
 
(6,677
)
 

 
(7,138
)
 

 
5,869

 
103,409

 

 
109,278

OPERATING (LOSS) INCOME

 
(5,869
)
 
12,392

 

 
6,523

Interest expense
(3,169
)
 
(2,540
)
 
(2,774
)
 

 
(8,483
)
Interest and miscellaneous income (expense), net
1,871

 
680

 
(3,747
)
 

 
(1,196
)
Equity in (loss) income from subsidiaries
(238
)
 
6,564

 

 
(6,326
)
 

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(1,536
)
 
(1,165
)
 
5,871

 
(6,326
)
 
(3,156
)
Income tax benefit (expense)

 
927

 
(631
)
 

 
296

NET (LOSS) INCOME
(1,536
)
 
(238
)
 
5,240

 
(6,326
)
 
(2,860
)
Less: Net loss attributable to noncontrolling interest

 

 
(1,324
)
 

 
(1,324
)
NET (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.
(1,536
)
 
(238
)
 
6,564

 
(6,326
)
 
(1,536
)
OTHER COMPREHENSIVE LOSS
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
(18,008
)
 
(18,008
)
 
(25,395
)
 
36,016

 
(25,395
)
New Zealand joint venture cash flow hedges
(1,896
)
 
(1,896
)
 
(2,917
)
 
3,792

 
(2,917
)
Amortization of pension and postretirement plans, net of income tax
743

 
743

 
(5
)
 
(738
)
 
743

Total other comprehensive loss
(19,161
)
 
(19,161
)
 
(28,317
)
 
39,070

 
(27,569
)
COMPREHENSIVE LOSS
(20,697
)
 
(19,399
)
 
(23,077
)
 
32,744

 
(30,429
)
Less: Comprehensive loss attributable to noncontrolling interest

 

 
(9,730
)
 
(1
)
 
(9,731
)
COMPREHENSIVE LOSS ATTRIBUTABLE TO RAYONIER INC.

($20,697
)
 

($19,399
)
 

($13,347
)
 

$32,745

 

($20,698
)
 
 
 
 
 
 
 
 
 
 

31


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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
 
For the Three Months Ended June 30, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

$163,145

 

 

$163,145

Costs and Expenses
 
 
 
 
 
 

 
 
Cost of sales

 

 
123,096

 

 
123,096

Selling and general expenses

 
2,394

 
11,467

 

 
13,861

Other operating expense (income), net

 
1,573

 
(12,962
)
 

 
(11,389
)
 

 
3,967

 
121,601

 

 
125,568

OPERATING (LOSS) INCOME

 
(3,967
)
 
41,544

 

 
37,577

Interest expense
(3,196
)
 
(11,207
)
 
(1,209
)
 

 
(15,612
)
Interest and miscellaneous income (expense), net
2,733

 
(4,101
)
 
(3,017
)
 

 
(4,385
)
Equity in income from subsidiaries
16,814

 
31,220

 

 
(48,034
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
16,351

 
11,945

 
37,318

 
(48,034
)
 
17,580

Income tax benefit (expense)

 
4,869

 
(18,425
)
 

 
(13,556
)
INCOME FROM CONTINUING OPERATIONS
16,351

 
16,814

 
18,893

 
(48,034
)
 
4,024

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 


 
 
Income from discontinued operations, net of income taxes

 

 
12,084

 

 
12,084

NET INCOME
16,351

 
16,814

 
30,977

 
(48,034
)
 
16,108

Less: Net loss attributable to noncontrolling interest

 

 
(245
)
 

 
(245
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
16,351

 
16,814

 
31,222

 
(48,034
)
 
16,353

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
2,653

 
2,655

 
3,517

 
(5,308
)
 
3,517

New Zealand joint venture cash flow hedges
(598
)
 
(598
)
 
(920
)
 
1,196

 
(920
)
Amortization of pension and postretirement plans, net of income tax
58,873

 
58,873

 
92,714

 
(151,587
)
 
58,873

Total other comprehensive income
60,928

 
60,930

 
95,311

 
(155,699
)
 
61,470

COMPREHENSIVE INCOME
77,279

 
77,744

 
126,288

 
(203,733
)
 
77,578

Less: Comprehensive income attributable to noncontrolling interest

 

 
297

 

 
297

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$77,279

 

$77,744

 

$125,991

 

($203,733
)
 

$77,281

 
 
 
 
 
 
 
 
 
 

32


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

 
CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
 
For the Six Months Ended June 30, 2015
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

$256,106

 

 

$256,106

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales

 

 
210,923

 

 
210,923

Selling and general expenses

 
11,279

 
12,347

 

 
23,626

Other operating income, net

 
(461
)
 
(12,252
)
 

 
(12,713
)
 

 
10,818

 
211,018

 

 
221,836

OPERATING (LOSS) INCOME

 
(10,818
)
 
45,088

 

 
34,270

Interest expense
(6,337
)
 
(5,064
)
 
(5,626
)
 

 
(17,027
)
Interest and miscellaneous income (expense), net
3,807

 
1,373

 
(7,871
)
 

 
(2,691
)
Equity in income from subsidiaries
18,741

 
31,363

 

 
(50,104
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
16,211

 
16,854

 
31,591

 
(50,104
)
 
14,552

Income tax benefit (expense)

 
1,887

 
(1,119
)
 

 
768

NET INCOME
16,211

 
18,741

 
30,472

 
(50,104
)
 
15,320

Less: Net loss attributable to noncontrolling interest

 

 
(891
)
 

 
(891
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
16,211

 
18,741

 
31,363

 
(50,104
)
 
16,211

OTHER COMPREHENSIVE LOSS
 
 
 
 
 
 

 
 
Foreign currency translation adjustment
(28,438
)
 
(28,438
)
 
(39,718
)
 
56,877

 
(39,717
)
New Zealand joint venture cash flow hedges
(2,511
)
 
(2,511
)
 
(3,863
)
 
5,022

 
(3,863
)
Amortization of pension and postretirement plans, net of income tax
1,524

 
1,524

 
15

 
(1,539
)
 
1,524

Total other comprehensive loss
(29,425
)
 
(29,425
)
 
(43,566
)
 
60,360

 
(42,056
)
COMPREHENSIVE LOSS
(13,214
)
 
(10,684
)
 
(13,094
)
 
10,256

 
(26,736
)
Less: Comprehensive loss attributable to noncontrolling interest

 

 
(13,522
)
 

 
(13,522
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.

($13,214
)
 

($10,684
)
 

$428

 

$10,256

 

($13,214
)
 
 
 
 
 
 
 
 
 
 



33


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

 
CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
 
For the Six Months Ended June 30, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES

 

 

$306,332

 

 

$306,332

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales

 

 
238,995

 

 
238,995

Selling and general expenses

 
4,544

 
22,554

 

 
27,098

Other operating expense (income), net

 
3,948

 
(15,712
)
 

 
(11,764
)
 

 
8,492

 
245,837

 

 
254,329

OPERATING (LOSS) INCOME

 
(8,492
)
 
60,495

 

 
52,003

Interest expense
(6,389
)
 
(18,140
)
 
(1,757
)
 

 
(26,286
)
Interest and miscellaneous income (expense), net
5,431

 
(4,334
)
 
(6,494
)
 

 
(5,397
)
Equity in income from subsidiaries
58,737

 
82,633

 

 
(141,370
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
57,779

 
51,667

 
52,244

 
(141,370
)
 
20,320

Income tax benefit (expense)

 
7,070

 
(13,031
)
 

 
(5,961
)
INCOME FROM CONTINUING OPERATIONS
57,779

 
58,737

 
39,213

 
(141,370
)
 
14,359

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 


 
 
Income from discontinued operations, net of income tax

 

 
43,092

 

 
43,092

NET INCOME
57,779

 
58,737

 
82,305

 
(141,370
)
 
57,451

Less: Net loss attributable to noncontrolling interest

 

 
(328
)
 

 
(328
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
57,779

 
58,737

 
82,633

 
(141,370
)
 
57,779

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
15,547

 
15,547

 
21,312

 
(31,086
)
 
21,320

New Zealand joint venture cash flow hedges
514

 
514

 
791

 
(1,028
)
 
791

Amortization of pension and postretirement plans, net of income tax
60,970

 
60,970

 
94,334

 
(155,304
)
 
60,970

Total other comprehensive income
77,031

 
77,031

 
116,437

 
(187,418
)
 
83,081

COMPREHENSIVE INCOME
134,810

 
135,768

 
198,742

 
(328,788
)
 
140,532

Less: Comprehensive income attributable to noncontrolling interest

 

 
5,722

 

 
5,722

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$134,810

 

$135,768

 

$193,020

 

($328,788
)
 

$134,810

 
 
 
 
 
 
 
 
 
 





34


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of June 30, 2015
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$5,366

 

$45,941

 

$40,325

 

 

$91,632

Accounts receivable, less allowance for doubtful accounts

 
91

 
19,353

 

 
19,444

Inventory

 

 
13,362

 

 
13,362

Prepaid and other current assets

 
4,863

 
16,359

 

 
21,222

Total current assets
5,366

 
50,895

 
89,399

 

 
145,660

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 
2,086,729

 

 
2,086,729

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT COSTS

 

 
69,726

 

 
69,726

NET PROPERTY, PLANT AND EQUIPMENT

 
480

 
5,954

 

 
6,434

INVESTMENT IN SUBSIDIARIES
1,516,408

 
2,268,652

 

 
(3,785,060
)
 

INTERCOMPANY NOTES RECEIVABLE
252,815

 
21,928

 

 
(274,743
)
 

OTHER ASSETS
2,570

 
17,801

 
37,401

 

 
57,772

TOTAL ASSETS

$1,777,159

 

$2,359,756

 

$2,289,209

 

($4,059,803
)
 

$2,366,321

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
CURRENT LIABILITIES
 
 
 
 
 
 

 
 
Accounts payable

 

$3,517

 

$18,879

 

 

$22,396

Current maturities of long-term debt

 
30,000

 

 

 
30,000

Accrued taxes

 
14

 
15,797

 

 
15,811

Accrued payroll and benefits

 
2,476

 
2,120

 

 
4,596

Accrued interest
3,046

 
2,493

 
35,499

 
(32,995
)
 
8,043

Other current liabilities

 
11,990

 
19,624

 

 
31,614

Total current liabilities
3,046

 
50,490

 
91,919

 
(32,995
)
 
112,460

LONG-TERM DEBT
370,000

 
115,972

 
236,381

 

 
722,353

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
34,081

 
(685
)
 

 
33,396

OTHER NON-CURRENT LIABILITIES

 
6,615

 
14,225

 

 
20,840

INTERCOMPANY PAYABLE

 
636,190

 
(254,315
)
 
(381,875
)
 

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,404,113

 
1,516,408

 
2,128,525

 
(3,644,933
)
 
1,404,113

Noncontrolling interest

 

 
73,159

 

 
73,159

TOTAL SHAREHOLDERS’ EQUITY
1,404,113

 
1,516,408

 
2,201,684

 
(3,644,933
)
 
1,477,272

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,777,159

 

$2,359,756

 

$2,289,209

 

($4,059,803
)
 

$2,366,321



35


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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of December 31, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$102,218

 

$8,105

 

$51,235

 

 

$161,558

Accounts receivable, less allowance for doubtful accounts

 
1,409

 
22,609

 

 
24,018

Inventory

 

 
8,383

 

 
8,383

Prepaid and other current assets

 
2,009

 
17,736

 

 
19,745

Total current assets
102,218

 
11,523

 
99,963

 

 
213,704

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 
2,088,501

 

 
2,088,501

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT COSTS

 

 
77,433

 

 
77,433

NET PROPERTY, PLANT AND EQUIPMENT

 
433

 
6,273

 

 
6,706

INVESTMENT IN SUBSIDIARIES
1,463,303

 
2,053,911

 

 
(3,517,214
)
 

INTERCOMPANY NOTES RECEIVABLE
248,233

 
21,500

 

 
(269,733
)
 

OTHER ASSETS
2,763

 
18,369

 
45,639

 

 
66,771

TOTAL ASSETS

$1,816,517

 

$2,105,736

 

$2,317,809

 

($3,786,947
)
 

$2,453,115

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable

 

$2,810

 

$17,401

 

 

$20,211

Current maturities of long-term debt

 
129,706

 

 

 
129,706

Accrued taxes

 
11

 
11,394

 

 
11,405

Accrued payroll and benefits

 
3,253

 
3,137

 

 
6,390

Accrued interest
3,047

 
2,517

 
31,281

 
(28,412
)
 
8,433

Other current liabilities

 
1,073

 
24,784

 

 
25,857

Total current liabilities
3,047

 
139,370

 
87,997

 
(28,412
)
 
202,002

LONG-TERM DEBT
325,000

 
31,000

 
265,849

 

 
621,849

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
34,161

 
(684
)
 

 
33,477

OTHER NON-CURRENT LIABILITIES

 
6,436

 
14,200

 

 
20,636

INTERCOMPANY PAYABLE

 
431,466

 
(153,754
)
 
(277,712
)
 

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,488,470

 
1,463,303

 
2,017,520

 
(3,480,823
)
 
1,488,470

Noncontrolling interest

 

 
86,681

 

 
86,681

TOTAL SHAREHOLDERS’ EQUITY
1,488,470

 
1,463,303

 
2,104,201

 
(3,480,823
)
 
1,575,151

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,816,517

 

$2,105,736

 

$2,317,809

 

($3,786,947
)
 

$2,453,115



36


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2015
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES

($25,092
)
 

($13,561
)
 

$110,401

 

$14,135

 

$85,883

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(134
)
 
(25,996
)
 

 
(26,130
)
Real estate development costs

 

 
(578
)
 

 
(578
)
Purchase of timberlands

 

 
(88,414
)
 

 
(88,414
)
Change in restricted cash

 

 
4,160

 

 
4,160

Investment in Subsidiaries

 
8,753

 

 
(8,753
)
 

Other

 

 
3,689

 

 
3,689

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES

 
8,619

 
(107,139
)
 
(8,753
)
 
(107,273
)
FINANCING ACTIVITIES
 
 
 
 
 
 

 
 
Issuance of debt

 
57,000

 
2,100

 

 
59,100

Repayment of debt

 
(28,000
)
 
(3,472
)
 

 
(31,472
)
Dividends paid
(63,421
)
 

 

 

 
(63,421
)
Proceeds from the issuance of common shares
718

 

 

 

 
718

Repurchase of common shares
(9,057
)
 

 

 

 
(9,057
)
Intercompany distributions

 
13,778

 
(8,396
)
 
(5,382
)
 

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(71,760
)
 
42,778

 
(9,768
)
 
(5,382
)
 
(44,132
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 
(4,404
)
 

 
(4,404
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 

 
 
Change in cash and cash equivalents
(96,852
)
 
37,836

 
(10,910
)
 

 
(69,926
)
Balance, beginning of year
102,218

 
8,105

 
51,235

 

 
161,558

Balance, end of period

$5,366

 

$45,941

 

$40,325

 

 

$91,632



37


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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Six Months Ended June 30, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES

$138,535

 

$150,518

 

$87,098

 

($147,007
)
 

$229,144

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(201
)
 
(33,396
)
 

 
(33,597
)
Capital expenditures from discontinued operations

 

 
(47,050
)
 

 
(47,050
)
Real estate development costs

 

 
(2,595
)
 

 
(2,595
)
Purchase of timberlands

 

 
(74,817
)
 

 
(74,817
)
Change in restricted cash

 

 
63,128

 

 
63,128

Investment in Subsidiaries

 
(62,800
)
 

 
62,800

 

Other

 

 
(478
)
 

 
(478
)
CASH USED FOR INVESTING ACTIVITIES

 
(63,001
)
 
(95,208
)
 
62,800

 
(95,409
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Issuance of debt

 
1,238,389

 

 

 
1,238,389

Repayment of debt

 
(1,107,062
)
 

 

 
(1,107,062
)
Dividends paid
(124,628
)
 

 

 

 
(124,628
)
Proceeds from the issuance of common shares
3,347

 

 

 

 
3,347

Repurchase of common shares
(1,834
)
 

 

 

 
(1,834
)
Debt issuance costs

 
(12,380
)
 

 

 
(12,380
)
Net cash disbursed upon spin-off of Performance Fibers business
(106,420
)
 

 

 

 
(106,420
)
Intercompany distributions

 
(149,525
)
 
65,318

 
84,207

 

Other

 

 
(680
)
 

 
(680
)
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(229,535
)
 
(30,578
)
 
64,638

 
84,207

 
(111,268
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 
(50
)
 

 
(50
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
(91,000
)
 
56,939

 
56,478

 

 
22,417

Balance, beginning of year
130,181

 
11,023

 
58,440

 

 
199,644

Balance, end of period

$39,181

 

$67,962

 

$114,918

 

 

$222,061



38


Table of Contents



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier,” we mean Rayonier Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Rayonier Inc. included in Item 1 of this Report.
This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements included in Item 1 of this report, our Annual Report on Form 10-K for the year ended December 31, 2014 (the “Form 10-K”) and information contained in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”).
Forward-Looking Statements
Certain statements in this document regarding anticipated financial outcomes including Rayonier’s earnings guidance, if any, business and market conditions, and outlook, expected dividend rate, expected harvest schedules, timberland acquisitions, sales of non-strategic timberlands, the anticipated benefits of Rayonier’s business strategy, expected availability and access to borrowings, 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 the Form 10-K and similar discussions included in other reports that we subsequently file with the SEC, 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 subsequent disclosures the Company makes on related subjects in its subsequent reports filed with the SEC.

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. As of June 30, 2015 we owned or leased under long-term agreements approximately 2.3 million acres of timberlands located in the U.S. South (1.9 million acres) and U.S. Pacific Northwest (373,000 acres). We also have a 65 percent ownership interest in Matariki Forestry Group, a joint venture (“New Zealand JV”), that owns or leases approximately 444,000 acres (303,000 net plantable acres) of timberlands in New Zealand.
The Southern Timber, Pacific Northwest Timber and New Zealand Timber segments include all activities related to the harvesting of timber and other non-timber income activities such as the leasing of properties for hunting, mineral extraction and cell towers. The New Zealand Timber segment also reflects any land sales that occur within our New Zealand portfolio.
The Real Estate segment includes all U.S. land sales disaggregated into four sales categories: Improved Development, Unimproved Development, Rural, and Non-Strategic / Timberlands.
The Trading segment includes log trading in New Zealand, conducted by the New Zealand JV in two core areas of business — managed export services on behalf of third parties and procured logs for export sale by the New Zealand JV.


39


Table of Contents

Industry and Market Conditions
The demand for timber is directly related to the underlying demand for pulp, paper, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest segment relies primarily on domestic customers but also exports a significant volume of timber, particularly to China. Both the Southern and Pacific Northwest segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to markets in China, Korea, and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the competitiveness of its products.
In the second quarter of 2015 in our Southern Timber segment, we continued to see strong pulpwood demand and steady demand for sawtimber. In our Pacific Northwest Timber and New Zealand Timber segments, prices generally declined primarily due to lower demand from China, which also put pressure on domestic pricing in both regions.
For additional information on market conditions impacting our business, see Results of Operations.

Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. For a full description of our critical accounting policies, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2014 Form 10-K.

Discussion of Timber Inventory and Sustainable Yield
See Item 1 — BusinessDiscussion of Timber Inventory and Sustainable Yield of our 2014 Form 10-K.

40


Table of Contents

Our Timberlands
Our timber operations are disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. The following table provides a breakdown of our timberland holdings as of June 30, 2015 and December 31, 2014:
(acres in 000s)
As of June 30, 2015
 
As of December 31, 2014
 
Owned
 
Leased
 
Total
 
Owned
 
Leased
 
Total
Southern
 
 
 
 
 
 
 
 
 
 
 
Alabama
308

 
24

 
332

 
309

 
24

 
333

Arkansas

 
18

 
18

 

 
18

 
18

Florida
284

 
94

 
378

 
281

 
105

 
386

Georgia
573

 
123

 
696

 
575

 
125

 
700

Louisiana
149

 
1

 
150

 
126

 
1

 
127

Mississippi
91

 

 
91

 
91

 

 
91

Oklahoma
92

 

 
92

 
92

 

 
92

Tennessee
1

 

 
1

 
1

 

 
1

Texas
157

 

 
157

 
158

 

 
158

 
1,655


260


1,915

 
1,633

 
273

 
1,906

 
 
 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
 
 
Oregon
6

 

 
6

 

 

 

Washington
366

 
1

 
367

 
371

 
1

 
372

 
372

 
1

 
373

 
371

 
1

 
372

 
 
 
 
 
 
 
 
 
 
 
 
New Zealand (a)
185

 
259

 
444

 
185

 
266

 
451

Total
2,212

 
520

 
2,732

 
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 June 30, 2015, legal acres in New Zealand were comprised of 303,000 plantable acres and 142,000 non-productive acres.

41


Table of Contents

The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2014 to June 30, 2015:
(acres in 000s)
Acres Owned
 
December 31, 2014
 
Acquisitions
 
Sales
 
Other
 
June 30, 2015
Southern
 
 
 
 
 
 
 
 
 
Alabama
309

 

 
(1
)
 

 
308

Florida
281

 
3

 

 

 
284

Georgia
575

 
1

 
(3
)
 

 
573

Louisiana
126

 
24

 
(1
)
 

 
149

Mississippi
91

 

 

 

 
91

Oklahoma
92

 

 

 

 
92

Tennessee
1

 

 

 

 
1

Texas
158

 

 
(1
)
 

 
157

 
1,633

 
28

 
(6
)
 

 
1,655

 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
Oregon

 
6

 

 

 
6

Washington
371

 

 
(5
)
 

 
366

 
371

 
6

 
(5
)
 

 
372

 
 
 
 
 
 
 
 
 
 
New Zealand (a)
185

 

 

 

 
185

Total
2,189

 
34

 
(11
)
 

 
2,212

 
 
 
 
 
(a)
Represents legal acres owned by the New Zealand JV, in which Rayonier has a 65 percent interest.
(acres in 000s)
Acres Leased
 
December 31, 2014
 
Expired Leases (a)
 
Other (b)
 
June 30, 2015
Southern
 
 
 
 
 
 
 
Alabama
24

 

 

 
24

Arkansas
18

 

 

 
18

Florida
105

 
(11
)
 

 
94

Georgia
125

 
(2
)
 

 
123

Louisiana
1

 

 

 
1

 
273

 
(13
)
 

 
260

 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
Washington
1

 

 

 
1

 
 
 
 
 
 
 
 
New Zealand (c)
266

 
(1
)
 
(6
)
 
259

Total
540

 
(14
)
 
(6
)
 
520

 
 
 
 
 
(a)
Includes acres previously under lease that have been harvested or sold.
(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.



42



Results of Operations
Consolidated Results
The following table provides key financial information by segment and on a consolidated basis:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Financial Information (in millions)
2015
 
2014
 
2015
 
2014
Sales
 
 
 
 
 
 
 
Southern Timber

$32.7

 

$31.5

 

$68.2

 

$65.4

Pacific Northwest Timber
17.1

 
25.1

 
36.3

 
58.1

New Zealand Timber
39.2

 
44.4

 
80.4

 
82.3

Real Estate
 
 
 
 
 
 
 
Improved Development
0.8

 

 
0.8

 

Unimproved Development
0.8

 
1.4

 
5.6

 
1.6

Rural
3.3

 
5.4

 
10.1

 
10.5

Non-Strategic / Timberlands
2.0

 
27.2

 
14.2

 
27.4

Total Real Estate
6.9

 
34.0

 
30.7

 
39.5

Trading
19.8

 
29.2

 
40.5

 
64.9

Intersegment Eliminations
0.1

 

($1.1
)
 

 
(3.9
)
Total Sales

$115.8

 

$163.1

 

$256.1

 

$306.3

 
 
 
 
 
 
 
 
Operating Income
 
 
 
 
 
 
 
Southern Timber

$11.8

 

$8.9

 

$24.2

 

$19.4

Pacific Northwest Timber
1.7

 
8.8

 
4.3

 
21.4

New Zealand Timber
(0.9
)
 
2.2

 
4.8

 
4.6

Real Estate
1.4

 
27.8

 
14.0

 
28.5

Trading
(0.1
)
 
(0.1
)
 
0.2

 
(0.5
)
Corporate and other
(7.4
)

(10.0
)

(13.2
)

(21.4
)
Operating Income
6.5

 
37.6

 
34.3

 
52.0

Interest Expense, Interest Income and Other
(9.7
)

(20.0
)

(19.7
)

(31.7
)
Income Tax Benefit (Expense)
0.3

 
(13.6
)
 
0.7

 
(5.9
)
(Loss) Income from Continuing Operations
(2.9
)
 
4.0

 
15.3

 
14.4

Discontinued Operations, Net

 
12.1

 

 
43.1

Net (Loss) Income
(2.9
)
 
16.1

 
15.3

 
57.5

Less: Net (loss) income attributable to noncontrolling interest
(1.4
)
 
(0.3
)
 
(0.9
)
 
(0.3
)
Net (Loss) Income Attributable to Rayonier Inc.

($1.5
)
 

$16.4

 

$16.2

 

$57.8

 
 
 
 
 
 
 
 
Adjusted EBITDA (a)
 
 
 
 
 
 
 
Southern Timber

$24.4

 

$19.6

 

$51.2

 

$42.1

Pacific Northwest Timber
4.6

 
14.0

 
11.0

 
32.9

New Zealand Timber
6.2

 
9.9

 
19.9

 
20.9

Real Estate
3.6

 
36.5

 
23.8

 
39.1

Trading
(0.1
)
 
(0.1
)
 
0.2

 
(0.5
)
Corporate and Other
(5.6
)
 
(9.7
)
 
(11.5
)
 
(20.8
)
Total Adjusted EBITDA (a)

$33.1

 

$70.2

 

$94.6

 

$113.7

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.



43


Table of Contents

Southern Timber
Second quarter sales of $32.7 million increased $1.2 million versus the prior year period due to higher harvest volumes and improved pricing. Harvest volumes increased 13% to 1.3 million tons versus 1.1 million tons in the prior year period. Average sawtimber stumpage prices increased 4% to $27.33 per ton versus $26.16 per ton in the prior year period, while pulpwood stumpage prices increased 1% to $19.10 per ton versus $18.94 per ton in the prior year period. The increase in average sawtimber prices was driven by restricted supply as a result of wet weather, partially offset by increased harvest activity in lower-price sawtimber regions. The increase in average pulpwood prices was driven primarily by strong demand in the Company’s core pulpwood markets. Overall, weighted average stumpage prices (including hardwood) increased 2% to $21.03 per ton versus $20.71 per ton in the prior year period. Operating income of $11.8 million increased $2.9 million versus the prior year period due to higher volumes ($1.9 million), higher pricing ($0.1 million), and higher non-timber income ($1.9 million), which were partially offset by higher depletion rates ($0.6 million) and higher costs ($0.5 million). Second quarter Adjusted EBITDA of $24.4 million was $4.8 million above the prior year period.
Year-to-date sales of $68.2 million increased $2.8 million versus the prior year period due to higher harvest volumes and improved pricing. Harvest volumes increased 10% to 2.7 million tons versus 2.4 million tons in the prior year period. Average sawtimber stumpage prices increased 6% to $28.13 per ton versus $26.63 per ton in the prior year period, while pulpwood stumpage prices increased 1% to $18.96 per ton versus $18.74 per ton in the prior year period. The increase in average sawtimber prices was driven by restricted supply as a result of wet weather, partially offset by increased harvest activity in lower-price sawtimber regions. The increase in average pulpwood prices was driven primarily by strong demand in the Company’s core pulpwood markets. Overall, weighted average stumpage prices (including hardwood) increased 3% to $21.37 per ton versus $20.71 per ton in the prior year period. Operating income of $24.2 million increased $4.8 million versus the prior year period due to higher volumes ($3.2 million), higher pricing ($0.9 million), and higher non-timber income ($3.4 million), which were partially offset by higher depletion rates ($1.7 million) and costs ($1.0 million). Year-to-date Adjusted EBITDA of $51.2 million was $9.1 million above the prior year period.

44


Table of Contents

The following table provides key operating statistics and financial information for the Southern Timber segment:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Southern Timber Overview
2015
 
2014
 
2015
 
2014
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Pine Pulpwood
845

 
707

 
1,750

 
1,483

Pine Sawtimber
375

 
363

 
793

 
750

Total Pine Volume
1,220

 
1,070

 
2,543

 
2,233

Hardwood
74

 
79

 
121

 
190

Total Volume
1,294

 
1,149

 
2,664

 
2,423

 
 
 
 
 
 
 
 
Percentage Delivered Sales
25
%
 
36
%
 
25
%
 
33
%
Percentage Stumpage Sales
75
%
 
64
%
 
75
%
 
67
%
 
 
 
 
 
 
 
 
Net Stumpage Pricing (dollars per ton)
 
 
 
 
 
 
 
Pine Pulpwood

$19.10

 

$18.94

 

$18.96

 

$18.74

Pine Sawtimber
27.33

 
26.16

 
28.13

 
26.63

Weighted Average Pine

$21.63

 

$21.39

 

$21.94

 

$21.55

Hardwood
11.33

 
11.58

 
11.79

 
12.91

Weighted Average Total

$21.03

 

$20.71

 

$21.37

 

$20.71

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Sales

$32.7

 

$31.5

 

$68.2

 

$65.40

Less: Cut and Haul
(5.5
)
 
(7.7
)
 
(11.3
)
 
(15.2
)
Net Stumpage Sales

$27.2

 

$23.8

 

$56.9

 

$50.2

 
 
 
 
 
 
 
 
Operating Income

$11.8

 

$8.9

 

$24.2

 

$19.4

Adjusted EBITDA (a)

$24.4

 

$19.6

 

$51.2

 

$42.1

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
Non-Timber Income (in millions of dollars)

$4.4

 

$2.4

 

$8.0

 

$4.5

Period-End Acres (in thousands)
1,915

 
1,901

 
1,915

 
1,901

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

45


Table of Contents

The following tables provide variance analyses for sales, operating income and Adjusted EBITDA for the Southern Timber segment:
 
Sales (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$31.5
 

$65.4

 
Changes Attributable to:
 
 
 
 
Volume/Mix
1.3

 
2.3

 
Price
(0.1
)
 
0.5

 
June 30, 2015
$32.7
 

$68.2

 
Operating Income (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$8.9
 

$19.4

 
Changes Attributable to:
 
 
 
 
Volume/Mix
1.9

 
3.2

 
Price
0.1

 
0.9

 
Cost
(0.5
)
 
(1.0
)
 
Non-timber income
1.9

 
3.4

 
Depreciation, depletion and amortization
(0.6
)
 
(1.7
)
 
Other
0.1

 

 
June 30, 2015
$11.8
 

$24.2

 
Adjusted EBITDA (in millions of dollars) (a)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$19.6
 

$42.1

 
Changes Attributable to:
 
 
 
 
Volume/Mix
3.3

 
5.8

 
Price
0.1

 
0.9

 
Cost
(0.5
)
 
(1.0
)
 
Non-timber income
1.9

 
3.4

 
Other

 

 
June 30, 2015
$24.4
 

$51.2

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.



46


Table of Contents

Pacific Northwest Timber
Second quarter sales of $17.1 million decreased $8.0 million versus the prior year period due to the planned reduction of harvest volumes and, to a lesser extent, lower sawtimber prices. Harvest volumes declined 44% to 0.25 million tons versus 0.45 million tons in the prior year period. Average delivered sawtimber prices decreased 9% to $76.80 per ton versus $84.46 per ton in the prior year period, while delivered pulpwood prices increased 17% to $43.37 per ton versus $37.10 per ton in the prior year period. Weaker demand from China contributed to sawtimber price declines in the region, while strong local demand for pulpwood proximate to our properties resulted in lower haul costs and higher net stumpage prices. Operating income of $1.7 million decreased $7.1 million versus the prior year period due to lower volumes ($5.5 million) and lower prices ($2.0 million), which were partially offset by higher non-timber income ($0.5 million) primarily as a result of a strong cedar market. Second quarter Adjusted EBITDA of $4.6 million was $9.4 million below the prior year period.
Year-to-date sales of $36.3 million decreased $21.8 million versus the prior year period due to the planned reduction of harvest volumes and, to a lesser extent, lower sawtimber prices. Harvest volumes declined 42% to 0.58 million tons versus 1.0 million tons in the prior year period. Average delivered sawtimber prices decreased 11% to $73.98 per ton versus $83.05 per ton in the prior year period, while delivered pulpwood prices increased 15% to $43.29 per ton versus $37.55 per ton in the prior year period. Weaker demand from China resulted in a lower export mix of 22% versus 24% in the prior year period and contributed to sawtimber price declines in the region. Operating income of $4.3 million decreased $17.1 million versus the prior year period due to lower volumes ($13.0 million), lower prices ($4.6 million) and higher costs ($0.4 million), which were partially offset by higher non-timber income ($1.0 million). Year-to-date Adjusted EBITDA of $11.0 million was $21.9 million below the prior year period.


47


Table of Contents

The following table provides key operating statistics and financial information for the Pacific Northwest Timber segment:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Pacific Northwest Timber Overview
2015
 
2014
 
2015
 
2014
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Pulpwood
63

 
73

 
118

 
158

Sawtimber
187

 
375

 
457

 
833

Total Volume
250

 
448

 
575

 
991

 
 
 
 
 
 
 
 
Sales Volume (converted to MBF)
 
 
 
 
 
 
 
Pulpwood
5,985

 
6,860

 
11,125

 
14,971

Sawtimber
25,180

 
49,093

 
58,635

 
103,663

Total Volume
31,165

 
55,953

 
69,760

 
118,634

 
 
 
 
 
 
 
 
Percentage Delivered Sales
100
%
 
41
%
 
88
%
 
44
%
Percentage Stumpage Sales

 
59
%
 
12
%
 
56
%
 
 
 
 
 
 
 
 
Delivered Log Pricing (in dollars per ton)
 
 
 
 
 
 
 
Pulpwood

$43.37

 

$37.10

 

$43.29

 

$37.55

Sawtimber
76.80

 
84.46

 
73.98

 
83.05

Weighted Average Log Price

$68.36

 

$74.51

 

$67.63

 

$74.21

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Sales

$17.1

 

$25.1

 

$36.3

 

$58.1

Less: Cut and Haul
(8.6
)
 
(5.9
)
 
(16.7
)
 
(14.2
)
Net Stumpage Sales

$8.5

 

$19.2

 

$19.6

 

$43.9

 
 
 
 
 
 
 
 
Operating Income

$1.7

 

$8.8

 

$4.3

 

$21.4

Adjusted EBITDA (a)

$4.6

 

$14.0

 

$11.0

 

$32.9

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
Non-Timber Income (in millions of dollars)

$1.0

 

$0.5

 

$1.7

 

$0.7

Period-End Acres (in thousands)
373

 
372

 
373

 
372

Sawtimber (in dollars per MBF)

$571

 

$629

 

$590

 

$659

Estimated Percentage of Export Volume
26
%
 
21
%
 
22
%
 
24
%
 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

48


Table of Contents

The following tables provide variance analyses for sales, operating income and Adjusted EBITDA for the Pacific Northwest Timber segment:
 
Sales (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$25.1
 

$58.1

 
Changes Attributable to:
 
 
 
 
Volume/Mix
(6.4
)
 
(17.4
)
 
Price
(1.5
)
 
(4.5
)
 
Other
(0.1
)
 
0.1

 
June 30, 2015
$17.1
 

$36.3

 
Operating Income (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$8.8
 

$21.4

 
Changes Attributable to:
 
 
 
 
Volume/Mix
(5.5
)
 
(13.0
)
 
Price
(2.0
)
 
(4.6
)
 
Cost

 
(0.4
)
 
Non-timber income
0.5

 
1.0

 
Other
(0.1
)
 
(0.1
)
 
June 30, 2015
$1.7
 

$4.3

 
Adjusted EBITDA (in millions of dollars) (a)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$14.0
 

$32.9

 
Changes Attributable to:
 
 
 
 
Volume/Mix
(7.7
)
 
(17.8
)
 
Price
(2.0
)
 
(4.6
)
 
Cost

 
(0.4
)
 
Non-timber income
0.5

 
1.0

 
Other
(0.2
)
 
(0.1
)
 
June 30, 2015
$4.6
 

$11.0

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

49


Table of Contents

New Zealand Timber
Second quarter sales of $39.2 million decreased $5.2 million versus the prior year period due to lower domestic and export product prices, which were partially offset by higher domestic pulpwood and export sawtimber volumes. Harvest volumes increased 11% to 0.58 million tons versus 0.52 million tons in the prior year period. Average delivered prices for export sawtimber declined 28% to $85.31 per ton versus $118.12 per ton in the prior year period, while average delivered prices for domestic sawtimber declined 21% to $66.96 per ton versus $84.64 per ton in the prior year period. The decline in export sawtimber prices was primarily due to weaker demand from China, while the decline in domestic sawtimber prices (in U.S. dollar terms) was driven primarily by the fall in the NZ$/US$ exchange rate (US$.74 per NZ$1.00 versus US$.86 per NZ$1.00). Operating loss of ($0.9) million versus operating income of $2.2 million in the prior year period was primarily due to the decrease in prices ($3.9 million) and foreign exchange losses ($2.0 million), which were partially offset by lower depletion rates ($1.7 million) and lower costs ($1.4 million). Second quarter Adjusted EBITDA of $6.2 million was $3.7 million below the prior year period.
Year-to-date sales of $80.4 million decreased $1.9 million versus the prior year period due to lower domestic and export product prices, which were partially offset by higher domestic pulpwood and export sawtimber volumes. Harvest volumes increased 14% to 1.1 million tons versus 1.0 million tons in the prior year period. Average delivered prices for export sawtimber declined 22% to $93.21 per ton versus $119.15 per ton in the prior year period, while average delivered prices for domestic sawtimber declined 17% to $68.76 per ton versus $82.53 per ton in the prior year period. The decline in export sawtimber prices was primarily due to weaker demand from China, while the decline in domestic sawtimber prices (in U.S. dollar terms) was driven primarily by the fall in the NZ$/US$ exchange rate (US$.75 per NZ$1.00 versus US$.84 per NZ$1.00). Operating income of $4.8 million was comparable to the prior year period, as the decrease in prices ($4.8 million) and foreign exchange losses ($2.0 million) were largely offset by lower depletion rates ($2.9 million) and costs ($2.2 million). Year-to-date Adjusted EBITDA of $19.9 million was $1.0 million below the prior year period.


50


Table of Contents

The following table provides key operating statistics and financial information for the New Zealand Timber segment:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
New Zealand Timber Overview
2015
 
2014
 
2015
 
2014
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Domestic Sawtimber (Delivered)
169

 
170

 
319

 
314

Domestic Pulpwood (Delivered)
110

 
77

 
210

 
150

Export Sawtimber (Delivered)
248

 
193

 
449

 
335

Export Pulpwood (Delivered)
21

 
16

 
32

 
25

Stumpage
35

 
67

 
111

 
158

Total Volume
583

 
523

 
1,121

 
982

 
 
 
 
 
 
 
 
Percentage Delivered Sales
94
%
 
87
%
 
90
%
 
84
%
Percentage Stumpage Sales
6
%
 
13
%
 
10
%
 
16
%
 
 
 
 
 
 
 
 
Delivered Log Pricing (in dollars per ton)
 
 
 
 
 
 
 
Domestic Sawtimber

$66.96

 

$84.64

 

$68.76

 

$82.53

Domestic Pulpwood

$33.59

 

$39.52

 

$34.45

 

$38.94

Export Sawtimber

$85.31

 

$118.12

 

$93.21

 

$119.15

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Sales

$38.4

 

$44.1

 

$76.2

 

$79.9

Less: Cut and Haul
(19.2
)
 
(20.3
)
 
(35.2
)
 
(36.2
)
Less: Port and Freight Costs
(8.1
)
 
(9.0
)
 
(14.7
)
 
(14.6
)
Net Stumpage Sales

$11.1

 

$14.8

 

$26.3

 

$29.1

 
 
 
 
 
 
 
 
Land Sales
0.8

 
0.3

 
4.2

 
2.4

Total Sales

$39.2

 

$44.4

 

$80.4

 

$82.3

 
 
 
 
 
 
 
 
Operating (Loss) Income

($0.9
)
 

$2.2

 

$4.8

 

$4.6

Adjusted EBITDA (a)

$6.2

 

$9.9

 

$19.9

 

$20.9

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
New Zealand Dollar to U.S. Dollar Exchange Rate (b)
0.7398

 
0.8575

 
0.7477

 
0.8414

Net Plantable Period-End Acres (in thousands)
303

 
313

 
303

 
313

Export Sawtimber (in dollars per JAS m3)

$99.84

 

$137.05

 

$108.90

 

$138.27

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
(b)
Represents the average period rate.

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Table of Contents

The following tables provide variance analyses for sales, operating income and Adjusted EBITDA for the New Zealand Timber segment:
 
Sales (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$44.4
 

$82.3

 
Changes Attributable to:
 
 
 
 
Volume/Mix
5.2

 
12.1

 
Price
(10.4
)
 
(14.8
)
 
Other

 
0.8

 
June 30, 2015
$39.2
 

$80.4

 
Operating (Loss) Income (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$2.2
 

$4.6

 
Changes Attributable to:
 
 
 
 
Volume/Mix
(0.4
)
 
0.6

 
Price
(3.9
)
 
(4.8
)
 
Cost
1.4

 
2.2

 
Non-timber income (a)
1.1

 
2.6

 
Foreign exchange
(2.0
)
 
(2.0
)
 
Depreciation, depletion and amortization
1.7

 
2.9

 
Non-cash cost of land and real estate development costs recovered upon sale

 
2.1

 
Other (b)
(1.0
)
 
(3.4
)
 
June 30, 2015
($0.9)
 

$4.8

 
 
 
 
 
(a)
Three and six months include $0.4 million and $1.8 million, respectively, primarily related to timber sold in conjunction with the relinquishment of a forestry right and $0.6 million related to the sale of carbon credits.
(b)
Three and six months include $0.6 million and $2.4 million, respectively, of cost basis of timber sold in conjunction with the relinquishment of a forestry right.
 
Adjusted EBITDA (in millions of dollars) (a)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$9.9
 

$20.9

 
Changes Attributable to:
 
 
 
 
Volume/Mix
0.2

 
2.1

 
Price
(3.9
)
 
(4.8
)
 
Cost
1.4

 
2.2

 
Non-timber income
1.1

 
2.6

 
Foreign exchange
(2.0
)
 
(2.0
)
 
Other
(0.5
)
 
(1.1
)
 
June 30, 2015
$6.2
 

$19.9

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.


52


Table of Contents

The following table provides additional information on depreciation, depletion and amortization and capital expenditures for the timber segments:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
Timber Segments Selected Operating Information
2015
 
2014
 
2015
 
2014
Depreciation, Depletion and Amortization (in millions of dollars)
 
 
 
 
 
 
 
Southern Timber

$12.6

 

$10.7

 

$27.0

 

$22.7

Pacific Northwest Timber
2.9

 
5.2

 
6.7

 
11.5

New Zealand Timber
7.1

 
7.7

 
15.1

 
14.2

Total

$22.6

 

$23.6



$48.8



$48.4

 
 
 
 
 
 
 
 
Timber Capital Expenditures (in millions of dollars)
 
 
 
 
 
 
 
U.S. Timber
 
 
 
 
 
 
 
Reforestation, silvicultural and other capital expenditures
4.8


5.5


9.5


11.0

Property taxes
1.9

 
1.6

 
3.8

 
3.7

Lease payments
0.8

 
0.9

 
3.1

 
3.5

Allocated overhead
1.3

 
1.6

 
2.7

 
3.2

Timberland acquisitions
65.3

 
62.0

 
88.4

 
72.7

Subtotal U.S. Timber

$74.1



$71.6



$107.5



$94.1

New Zealand Timber
 
 
 
 
 
 
 
Reforestation, silvicultural and other capital expenditures
1.6


2.9


3.1


4.7

Property taxes
0.1

 
0.2

 
0.3

 
0.4

Lease payments
1.0

 
1.6

 
1.5

 
1.9

Allocated overhead
0.5

 
0.8

 
1.2

 
1.6

Timberland acquisitions

 

 

 
2.1

Subtotal New Zealand Timber

$3.2



$5.5



$6.1



$10.7

Total Timber Segments Capital Expenditures

$77.3

 

$77.1



$113.6



$104.8



53


Table of Contents

Real Estate
Second quarter sales of $6.9 million decreased $27.1 million versus the prior year period, and operating income of $1.4 million decreased $26.4 million versus the prior year period. Sales and operating income decreased in the second quarter due to lower volumes (2,337 acres sold versus 25,283 acres in the prior year period) partially offset by higher weighted average prices ($2,971 per acre versus $1,345 per acre in the prior year period).
Year-to-date sales of $30.7 million decreased $8.8 million versus the prior year period, and operating income of $14.0 million decreased $14.5 million versus the prior year period. Sales and operating income decreased due to lower volumes (9,734 acres sold versus 27,405 acres in the prior year period) partially offset by higher weighted average prices ($3,157 per acre versus $1,443 per acre in the prior year period).
Second quarter and year-to-date operating income also decreased as the prior year periods included $5.8 million in proceeds from a bankruptcy settlement with respect to a former land sale customer.
Improved Development second quarter and year-to-date sales of $0.8 million were comprised of 19 acres in the Belfast Commerce Centre near Savannah, Georgia for $42,281 per acre.
Unimproved Development second quarter sales of $0.8 million decreased $0.6 million versus the prior year period. The prior year period included a six-acre sale to the Florida Department of Transportation for $173,574 per acre. Year-to-date sales of $5.6 million increased $4.1 million versus the prior year period and included 217 acres in St. Johns County, Florida for $17,000 per acre, 76 acres in Bryan County, Georgia for $8,305 per acre and 20 acres in Baker County, Florida for $10,000 per acre.
Rural second quarter and year-to-date sales of $3.3 million and $10.1 million decreased $2.1 million and $0.4 million, respectively, versus the prior year periods due to a decrease in average prices. The prior year period included a 656-acre sale in Nassau County, Florida for $2,750 per acre and a higher proportion of sales in higher-price regions.
Non-strategic/Timberland second quarter and year-to-date sales of $2.0 million and $14.2 million decreased $25.2 million and $13.3 million, respectively, versus the prior year period. The prior year period included 19,556 acres of non-strategic timberlands in Gilchrist County, Florida at $1,125 per acre and 3,629 acres sold to the Alabama Department of Conservation for $1,435 per acre.
Second quarter and year-to-date Adjusted EBITDA of $3.6 million and $23.8 million were $32.9 million and $15.3 million, respectively, below the prior year period.


54


Table of Contents

The following table provides key operating statistics and financial information for the Real Estate segment:
 
Three Months Ended
June 31,
 
Six Months Ended
June 30,
Real Estate Overview
2015
 
2014
 
2015
 
2014
Sales (in millions of dollars)
 
 
 
 
 
 
 
Improved Development (a)
0.8




0.8



Unimproved Development
0.8


1.4


5.6


1.6

Rural (b)
3.3


5.4


10.1


10.5

Non-Strategic / Timberlands (b)
2.0


27.2


14.2


27.4

Total Sales

$6.9

 

$34.0

 

$30.7

 

$39.5

Sales (Development and Rural Only) (c)

$4.1

 

$6.8

 

$15.7

 

$12.1

 
 
 
 
 
 
 
 
Acres Sold
 
 
 
 
 
 
 
Improved Development (a)
19

 

 
19

 

Unimproved Development
86

 
68

 
495

 
95

Rural (b)
1,393

 
2,030

 
4,270

 
3,763

Non-Strategic / Timberlands (b)
839

 
23,185

 
4,950

 
23,547

Total Acres Sold
2,337

 
25,283

 
9,734

 
27,405

Acre Sold (Development and Rural Only) (c)
1,479

 
2,098

 
4,765

 
3,858

 
 
 
 
 
 
 
 
Percentage of U.S. South acreage sold (d)
0.1
%
 
0.1
%
 
0.3
%
 
0.2
%
 
 
 
 
 
 
 
 
Price per Acre (dollars per acre)
 
 
 
 
 
 
 
Improved Development (a)

$42,281

 

 

$42,281

 

Unimproved Development
8,908

 
20,897

 
11,282

 
16,450

Rural (b)
2,377

 
2,654

 
2,371

 
2,794

Non-Strategic / Timberlands (b)
2,440

 
1,174

 
2,870

 
1,167

Weighted Average (Total)

$2,971

 

$1,345

 

$3,157

 

$1,443

Weighted Average (Development and Rural) (c)

$2,757

 

$3,245

 

$3,297

 

$3,136

 
 
 
 
 
(a)
Reflects land with capital invested in infrastructure improvements.
(b)
Conservation sales previously reported as Rural are now reported with Non-Strategic / Timberlands.
(c)
Excludes Improved Development.
(d)
Calculated as Southern development and rural acres sold over U.S. South acres owned.


55


Table of Contents

The following tables provide variance analyses for sales, operating income and Adjusted EBITDA for the Real Estate segment:
 
 
 
 
 
Sales (in millions of dollars)
Three Months Ended
 
Six Months Ended
June 30, 2014
 

$34.0

 

$39.5

Changes Attributable to:
 
 
 
 
Volume/Mix
 
(30.9
)
 
(25.5
)
Price
 
3.8

 
16.7

June 30, 2015
 

$6.9

 

$30.7

Operating Income (in millions of dollars)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2014
 

$27.8

 

$28.5

Changes Attributable to:
 
 
 
 
Volume/Mix
 
(22.3
)
 
(18.0
)
Price
 
3.8

 
16.7

Cost
 
(0.8
)
 
(1.5
)
Depreciation, depletion and amortization
 
(0.3
)
 
(2.1
)
Non-cash cost of land and real estate development costs recovered upon sale
 
(1.0
)
 
(3.8
)
Other (a)
 
(5.8
)
 
(5.8
)
June 30, 2015
 

$1.4

 

$14.0

 
 
 
 
 
(a)
Three and six month prior year periods include $5.8 million in proceeds from a bankruptcy settlement related to a former land sale customer.

Adjusted EBITDA (in millions of dollars) (a)
 
Three Months Ended
 
Six Months Ended
 
June 30, 2014
 

$36.5

 

$39.1

Changes Attributable to:
 
 
 
 
Volume/Mix
 
(30.1
)
 
(24.7
)
Price
 
3.8

 
16.7

Cost
 
(0.8
)
 
(1.5
)
Other (b)
 

($5.8
)
 

($5.8
)
June 30, 2015
 

$3.6

 

$23.8

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
(b)
Three and six month prior year periods include $5.8 million in proceeds from a bankruptcy settlement related to a former land sale customer.



56


Table of Contents

Trading
The Trading segment complements the New Zealand Timber segment by adding scale and achieving cost savings that directly benefit the New Zealand Timber segment. Trading also generally contributes modestly to earnings without significant investment and provides market intelligence that benefits the timber business.
Second quarter sales of $19.8 million decreased $9.4 million versus the prior year period due to lower volumes and prices primarily as a result of continued weak demand in China. Sales volumes decreased 1.3% to 234,000 tons versus 237,000 tons in the prior year period. Average prices decreased 29.4% to $84.16 per ton versus $119.28 per ton in the prior year period. Operating loss of $0.1 million was comparable to the prior year period.

Year-to-date sales of $40.5 million decreased $24.4 million versus the prior year period due to lower volumes and prices as a result of unfavorable China market conditions. Sales volumes decreased 12.7% to 448,000 tons versus 513,000 tons in the prior year period. Average prices decreased 27.8% to $88.58 per ton versus $122.67 per ton in the prior year period. Operating income increased $0.7 million versus the prior year period, as the reductions in price and volume were more than offset by favorable costs and NZ$/US$ exchange gains ($1.3 million).
The following tables provide variance analyses for sales, operating income and Adjusted EBITDA for the Trading segment:
 
Sales (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
$29.2
 

$64.9

 
Changes Attributable to:
 
 
 
 
Volume/Other
(0.4
)
 
(8.0
)
 
Price
(8.2
)
 
(15.3
)
 
Other
(0.8
)
 
(1.2
)
 
June 30, 2015
$19.8
 

$40.5

 
Operating (Loss) Income (in millions of dollars)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
($0.1)
 

($0.5
)
 
Changes Attributable to:
 
 
 
 
Foreign exchange
0.2

 
1.3

 
Other
(0.2
)
 
(0.6
)
 
June 30, 2015
($0.1)
 

$0.2

 
Adjusted EBITDA (in millions of dollars) (a)
Three Months Ended
 
Six Months Ended
 
 
June 30, 2014
($0.1)
 

($0.5
)
 
Changes Attributable to:
 
 
 
 
Foreign exchange
0.2

 
1.3

 
Other
(0.2
)
 
(0.6
)
 
June 30, 2015
($0.1)
 

$0.2

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.


57


Table of Contents

Other Items
Corporate and Other Expense/Eliminations
Second quarter and year-to-date corporate and other operating expenses of $7.3 million and $13.2 million decreased $2.6 million and $8.2 million, respectively, versus the prior year periods primarily due to lower selling, general and administrative expenses as a result of the spin-off of the Performance Fibers business. Second quarter and year-to-date corporate and other operating expenses include $1.5 million and $1.6 million, respectively, of costs related to the shareholder litigation (“costs related to shareholder litigation”). Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder derivative demands and the Securities and Exchange Commission investigation. See Note 12—Contingencies.
Interest Expense
Second quarter and year-to-date interest expense of $8.5 million and $17.0 million decreased $7.1 million and $9.3 million, respectively, versus the prior year periods primarily due to lower outstanding debt and $5.0 million of interest expense related to an early repayment of debt in the prior year periods.
Other Non-Operating Expense
Second quarter and year-to-date other non-operating expenses of $1.2 million and $2.7 million decreased $3.2 million and $2.7 million, respectively, primarily due to $3.8 million of costs related to the spin-off in the prior year period, partially offset by unfavorable mark-to-market adjustments on New Zealand joint venture interest rate swaps.
Income Tax Benefit (Expense)
The second quarter and year-to-date income tax benefit from continuing operations was $0.3 million and $0.7 million versus an income tax expense of $13.6 million and $5.9 million, respectively, in the prior year periods. The current quarter and year-to-date tax benefit is principally related to the New Zealand joint venture. The expense in the prior year periods was primarily related to the Performance Fibers business.
Share Repurchases
During the second quarter the Company repurchased approximately $10.7 million of common stock at an average price of $25.94 per share. As of June 30, 2015, the Company had 126.5 million shares of common stock outstanding and $89.3 million remaining in its current share repurchase authorization.
Outlook
In our Southern Timber segment, we anticipate continued strong pulpwood demand and prices in our key market areas. We continue to expect that the gradual improvement in U.S. housing demand will drive increases in Southern sawtimber prices over the long term; however, we expect limited upside to current prices through the remainder of 2015. In our Pacific Northwest and New Zealand segments, we anticipate near-term weakness in the China export market will weigh on prices but that export demand will gradually improve, although likely at a slower pace than we expected earlier in the year. In our Real Estate segment, we continue to see steady demand for rural properties and increasing interest in selected development properties as we execute on our strategy and develop catalysts for demand.


58


Table of Contents

Liquidity and Capital Resources
Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. Our main use of cash is dividends due to the REIT distribution requirements. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources.
Summary of Liquidity and Financing Commitments
 
June 30,
 
December 31,
(millions of dollars)
2015
 
2014
Cash and cash equivalents

$91.6

 

$161.6

Total debt
752.4

 
751.5

Shareholders’ equity
1,477.3

 
1,575.2

Total capitalization (total debt plus equity)
2,229.7

 
2,326.7

Debt to capital ratio
34
%
 
32
%
Net debt to enterprise value (a)
17
%
 
14
%
 
 
 
 
 
(a)
Enterprise value is calculated as the number of shares outstanding multiplied by the Company’s share price plus net debt as of June 30, 2015 and December 31, 2014.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the six months ended June 30. The Consolidated Statements of Cash Flows for 2014 has not been restated to exclude discontinued operations.
(millions of dollars)
2015
 
2014
Cash provided by (used for):
 
 
 
Operating activities

$85.9

 

$229.1

Investing activities
(107.3
)
 
(95.4
)
Financing activities
(44.1
)
 
(111.3
)
Cash Provided by Operating Activities
The decline in cash provided by operating activities in 2015 was primarily attributable to the inclusion of the results of the Performance Fibers business in the prior year period before the June 27, 2014 spin-off. Year-to-date 2015 also benefited from lower working capital requirements.
Cash Used for Investing Activities
Cash used for investing activities increased $11.9 million in the first half of 2015 compared to 2014 primarily due to the lower change in restricted cash ($58.9 million) and higher timberland acquisitions ($13.6 million) in the current period. Partially offsetting these increases was a $7.5 million and $47.1 million decrease in capital expenditures from continuing and discontinued operations, respectively, and a $2.0 million decrease in real estate development costs compared to the prior year period.
Cash Used for Financing Activities
Cash used for financing activities declined $67.1 million from the prior year period. Of the decrease, $106.4 million is due to the net cash disbursed upon spin-off of the Performance Fibers business. Additionally, dividend payments decreased $61.2 million compared to prior year due to the change in the dividend rate from $0.49 per share to $0.25 per share on a post-spin basis. These decreases were partially offset by net debt issuances of $27.7 million in first half of 2015 versus $118.9 million in first half of 2014. Repurchases of common stock increased $7.2 million and included $9.0 million of shares repurchased in connection with the Board of Directors’ approval to repurchase up to $100 million of the Company’s common shares.

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Table of Contents

Expected 2015 Expenditures
Capital expenditures in 2015 are expected to be approximately $65 million, excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to be primarily comprised of seedling planting, fertilization and other silvicultural activities, and other capitalized costs. Aside from capital expenditures, we may also make strategic timberland acquisitions as we actively evaluate acquisition opportunities. We also expect to invest approximately $7 million in 2015 for land use entitlements and infrastructure improvements to increase the value and marketability of selected real estate properties.
Our 2015 dividend payments are expected to be approximately $127 million assuming no change in the quarterly dividend rate of $0.25 per share.
Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations.
We have no mandatory pension contributions in 2015 but may make discretionary contributions in the future. On an ongoing basis, cash income tax payments are expected to be minimal. During 2015, we may repatriate approximately $27 million of proceeds received from the sale of our forestry assets to the New Zealand JV when it was formed in 2005. If this occurs, we anticipate that cash payments for income taxes in 2015 will be approximately $3 million.

Performance and Liquidity Indicators
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”), and Cash Available for Distribution (“CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”) and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above. Management considers these measures to be important to estimate the enterprise and shareholder values of the Company as a whole and of its core segments, and for allocating capital resources. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Management uses Adjusted EBITDA as a performance measure and CAD as a liquidity measure. Adjusted EBITDA and CAD as defined may not be comparable to similarly titled measures reported by other companies.
We define Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land sold and real estate development costs recovered upon sale, costs related to shareholder litigation, and in 2014 costs related to the spin-off of the Performance Fibers business, discontinued operations, and internal review and restatement costs. Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder’s derivative demands and the Securities and Exchange Commission investigation. See Note 12—Contingencies.
We reconcile Adjusted EBITDA to Net Income for the consolidated Company and to Operating Income for the Segments, as those are the nearest GAAP measures for each. Below is a reconciliation of Net Income to Adjusted EBITDA for the respective periods (in millions of dollars):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2015
 
2014
 
2015
 
2014
Net (Loss) Income to Adjusted EBITDA Reconciliation
 
 
 
 
 
 
 
Net (loss) income

($2.9
)
 

$16.1

 

$15.3

 

$57.5

Interest, net, continuing operations
9.7

 
16.2

 
19.7

 
27.9

Income tax (benefit) expense, continuing operations
(0.3
)
 
13.6

 
(0.7
)
 
5.9

Depreciation, depletion and amortization
23.9

 
30.3

 
53.8

 
56.3

Non-cash cost of land sold and real estate development costs recovered upon sale
1.2

 
2.3

 
4.9

 
5.4

Costs related to shareholder litigation (a)
1.5

 

 
1.6

 

Cost related to spin-off of the Performance Fibers business

 
3.8

 

 
3.8

Discontinued operations

 
(12.1
)
 

 
(43.1
)
Adjusted EBITDA

$33.1

 

$70.2

 

$94.6

 

$113.7

 
 
 
 
 
(a) Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder’s derivative demands and the Securities and Exchange Commission investigation. See Note 12—Contingencies.

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The following tables reconcile Operating Income by segment to Adjusted EBITDA by segment (millions of dollars):
Three Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate
and
other
 
Total
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$11.8

 

$1.7

 

($0.9
)
 

$1.4

 

($0.1
)
 

($7.4
)
 

$6.5

Depreciation, depletion and amortization
12.6

 
2.9

 
7.1

 
1.0

 

 
0.3

 
23.9

Non-cash cost of land sold and real estate development costs recovered upon sale

 

 

 
1.2

 

 

 
1.2

Costs related to shareholder litigation (a)

 

 

 

 

 
1.5

 
1.5

Adjusted EBITDA

$24.4

 

$4.6

 

$6.2

 

$3.6

 

($0.1
)
 

($5.6
)
 

$33.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$8.9

 

$8.8

 

$2.2

 

$27.8

 

($0.1
)
 

($10.0
)
 

$37.6

Depreciation, depletion and amortization
10.7

 
5.2

 
7.7

 
6.4

 

 
0.3

 
30.3

Non-cash cost of land sold and real estate development costs recovered upon sale

 

 

 
2.3

 

 

 
2.3

Adjusted EBITDA

$19.6

 

$14.0

 

$9.9

 

$36.5

 

($0.1
)
 

($9.7
)
 

$70.2

 
 
 
 
 
(a)     Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder’s derivative demands and the Securities and Exchange Commission investigation. See Note 12—Contingencies.

Six Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate
and
other
 
Total
June 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$24.2

 

$4.3

 

$4.8

 

$14.0

 

$0.2

 

($13.2
)
 

$34.3

Depreciation, depletion and amortization
27.0

 
6.7

 
15.1

 
4.9

 

 
0.1

 
53.8

Non-cash cost of land sold and real estate development costs recovered upon sale

 

 

 
4.9

 

 

 
4.9

Costs related to shareholder litigation (a)

 

 

 

 

 
1.6

 
1.6

Adjusted EBITDA

$51.2

 

$11.0

 

$19.9

 

$23.8

 

$0.2

 

($11.5
)
 

$94.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$19.4

 

$21.4

 

$4.6

 

$28.5

 

($0.5
)
 

($21.4
)
 

$52.0

Depreciation, depletion and amortization
22.7

 
11.5

 
14.2

 
7.3

 

 
0.6

 
56.3

Non-cash cost of land sold and real estate development costs recovered upon sale

 

 
2.1

 
3.3

 

 

 
5.4

Adjusted EBITDA

$42.1

 

$32.9

 

$20.9

 

$39.1

 

($0.5
)
 

($20.8
)
 

$113.7

 
 
 
 
 
(a)
Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder’s derivative demands and the Securities and Exchange Commission investigation. See Note 12—Contingencies.

CAD is a non-GAAP measure of cash generated during a period which is available for dividend distribution, repurchase of the Company’s common shares, debt reduction and strategic acquisitions. We define CAD as Cash Provided by Operating Activities adjusted for capital spending (excluding strategic acquisitions), real estate development costs, cash provided by discontinued operations and working capital and other balance sheet changes. In compliance with SEC requirements for non-GAAP measures, we reduce CAD by mandatory debt repayments which results in the measure entitled “Adjusted CAD.”

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Below is a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
 
Six Months Ended June 30,
 
2015
 
2014
Cash provided by operating activities

$85.9

 

$229.1

Capital expenditures from continuing operations (a)
(26.1
)
 
(33.6
)
Real estate development costs
(0.6
)
 
(2.6
)
Cash flow from discontinued operations

 
(64.0
)
Working capital and other balance sheet changes
(6.9
)
 
(88.8
)
CAD
52.3

 
40.1

Mandatory debt repayments

 

Adjusted CAD

$52.3

 

$40.1

Cash used for investing activities

($107.3
)
 

($95.4
)
Cash used for financing activities

($44.1
)
 

($111.3
)
 
 
 
 
 
(a)
Capital expenditures exclude timberland acquisitions of $88.4 million and $74.8 million during the six months ended June 30, 2015 and June 30, 2014, respectively.
Adjusted CAD increased in the current year as lower operating results from continuing operations was more than offset by lower interest, lower tax payments and lower capital expenditures from continuing operations and real estate development costs. Adjusted CAD generated in any period is not necessarily indicative of the amounts that may be generated in future periods.
Liquidity Facilities
Net draws of $29.0 million were made in the first half on the revolving credit facility for general corporate purposes. At June 30, 2015, the Company had available borrowings of $153.2 million, net of $1.8 million to secure its outstanding letters of credit, under the revolving credit facility and additional draws available of $100.0 million under the term credit agreement.
During the six months ended June 30, 2015, the New Zealand JV made additional borrowings and repayments of $2.1 million on its working capital facility. Additional draws totaling $17.0 million remain available on the working capital facility. In addition, the New Zealand JV paid $1.4 million of its shareholder loan held with the non-controlling interest party. Favorable changes in exchange rates through June 30, 2015 decreased debt on a U.S. dollar basis for the revolving facility and shareholder loan by $24.1 million and $3.5 million, respectively.
In connection with our term credit agreement and credit facility, covenants must be met, including ratios based on the covenant definition of EBITDA, ratios based on consolidated funded debt compared to consolidated net worth, and ratios of subsidiary debt to consolidated net tangible assets. Covenants must also be met in connection with the New Zealand JV’s credit facility, including ratios of debt to forestry and land valuations and ratios of operating cash flows to financing costs. As of June 30, 2015, we were in compliance with all applicable financial covenants. In addition to these financial covenants, the mortgage note, term credit agreement and revolving credit facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others.
See Note 15Debt for discussion of debt refinancing and planned recapitalization of the Company’s New Zealand joint venture subsequent to June 30, 2015.

Contractual Financial Obligations and Off-Balance Sheet Arrangements
We have no material changes to the Contractual Obligations table as presented in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations of our 2014 Form 10-K. See Note 11Guarantees for details on the letters of credit, surety bonds and guarantees as of June 30, 2015. For information on our outstanding debt and derivative purchase obligations as of June 30, 2015 see Note 15Debt and Note 9Derivative Financial Instruments and Hedging Activities, respectively.


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Table of Contents

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market and Other Economic Risks
We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes.
As of June 30, 2015 we had $60 million of U.S. long-term variable rate debt which is subject to interest rate risk. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in a corresponding increase/decrease of approximately $0.6 million in interest payments and expense over a 12 month period. Our primary interest rate exposure on variable rate debt results from changes in LIBOR.
As of June 30, 2015, our New Zealand JV had $160 million of long-term variable rate debt. This debt is subject to interest rate risk resulting from changes in the 90 day New Zealand Bank bill rate (“BKBM”). However, the New Zealand JV uses interest rate swaps to manage its exposure to interest rate movements on its bank loan by swapping a portion of these borrowings from floating rates to fixed rates. The notional amount of the outstanding interest rate swap contracts at June 30, 2015 was $129 million, or 81 percent of the variable rate debt. The interest rate swap contracts have maturities extending through January 2020. The periodic interest rate on New Zealand JV debt is BKBM plus 80 basis points with an additional 80 basis point credit line fee. We estimate the periodic effective interest rate on New Zealand JV debt for the second quarter was approximately 6.5% after consideration of interest rate swaps.
The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our long-term fixed-rate debt at June 30, 2015 was $482 million compared to the $478 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at June 30, 2015 would result in a corresponding decrease/increase in the fair value of our long-term fixed-rate debt of approximately $20 million.
The functional currency of the Company’s New Zealand-based operations and New Zealand JV is the New Zealand dollar. Through these operations and our ownership in the New Zealand JV, we are exposed to foreign currency risk on cash held in foreign currencies and on foreign export sales and ocean freight payments that are predominantly denominated in U.S. dollars. To mitigate these risks, the New Zealand JV routinely enters into foreign currency exchange contracts and foreign currency option contracts to hedge a portion of the New Zealand JV’s foreign exchange exposure. At June 30, 2015, the New Zealand JV had foreign currency exchange contracts with a notional amount of $28 million and foreign currency option contracts with a notional amount of $136 million outstanding. The amount hedged represents 67 percent of forecast U.S. dollar denominated harvesting sales proceeds over the next 18 months and 31 percent of log trading sales proceeds over the next 3 months. In December 2014, we entered into a foreign currency exchange contract with a notional amount of $24 million. The foreign currency contract is designated as a net investment hedge of our New Zealand based-operations to mitigate our risk to fluctuations in foreign currency exchange rates. For additional information regarding our derivative balances and activity, see Note 9Derivative Financial Instruments and Hedging Activities.
See Note 15Debt for discussion of debt refinancing and planned recapitalization of the Company’s New Zealand joint venture subsequent to June 30, 2015.


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Table of Contents

Item 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Rayonier management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), are designed with the objective of ensuring information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.
Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of June 30, 2015.
In the quarter ended June 30, 2015, based upon the evaluation required by paragraph (d) of SEC Rule 13a-15, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.


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Table of Contents

PART II.    OTHER INFORMATION

Item 1.
Legal Proceedings

The information set forth in Note 12Contingencies in the “Notes to the Consolidated Financial Statements” under Item 1 of Part I of this Report is incorporated herein by reference. 

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
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 in the program totaling 2.1 million shares. None of these shares have expiration dates. There were no shares purchased under this program in the second quarter of 2015 and there were 3,836,655 shares available for purchase at June 30, 2015.
In June 2015, the Board of Directors approved the repurchase of up to $100 million of Rayonier’s common shares (the “share repurchase program”) to be made at management’s discretion. The program has no time limit and may be suspended or discontinued at any time. There were 412,500 shares repurchased under this program in the second quarter of 2015 and there was $89.3 million, or approximately 3,495,027 shares based on the period end closing stock price of $25.55, available for repurchase as of June 30, 2015.
The following table provides information regarding our purchases of Rayonier common stock during the quarter ended June 30, 2015:
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 (a)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b)
April 1 to April 30

 

 

 
3,836,655

May 1 to May 31

 

 

 
3,836,655

June 1 to June 30
412,500

 

$25.94

 
412,500

 
7,331,682

 
Total
412,500

 
 
 
412,500

 
7,331,682

(a)
Purchases made in open-market transactions under the $100 million share repurchase program announced on June 16, 2015.
(b)
Maximum number of shares yet to be purchased as of June 30, 2015 include 3,836,655 under the 1996 anti-dilutive program and approximately 3,495,027 under the share repurchase program.


65


Table of Contents


Item 6.
Exhibits
10.1

Credit Agreement dated August 5, 2015 among Rayonier Inc., Rayonier TRS Holdings Inc. and Rayonier Operating Company LLC, as Borrowers, COBANK, ACB, as Administrative Agent, Swing Line Lender and Issuing Bank, JPMORGAN CHASE BANK, N.A. And FARM CREDIT OF FLORIDA, ACA, as Co-Syndication Agents CREDIT SUISSE AG and SUNTRUST BANK, as Co-Documentation Agents and COBANK, ACB, as Sole Lead Arranger and Sole Bookrunner

Incorporated by reference to Exhibit 10.1 to the Registrant’s August 5, 2015 Form 8-K

31.1

Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2

Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32

Certification of Periodic Financial Reports Under Section 906 of the Sarbanes-Oxley Act of 2002
Furnished herewith
101

The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2015, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2015 and 2014; (ii) the Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014; (iii) the Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014; and (iv) the Notes to Consolidated Financial Statements
Filed herewith



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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
RAYONIER INC.
 
 
(Registrant)
 
 
 
 
By:
/s/ H. EDWIN KIKER
 
 
H. Edwin Kiker
Chief Accounting Officer
(Duly Authorized Officer, Principal Accounting Officer)
Date: August 7, 2015





67

Rayonier.EX31.1 2Q2015


EXHIBIT 31.1
CERTIFICATION
I, David L. Nunes, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 7, 2015
 
/S/ DAVID L NUNES
 
David L. Nunes
President and Chief Executive Officer, Rayonier Inc.



Rayonier.EX31.2 2Q2015


EXHIBIT 31.2
CERTIFICATION
I, Mark McHugh, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Rayonier Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: August 7, 2015
 
 
/s/ MARK MCHUGH
 
Mark McHugh
Senior Vice President and Chief Financial Officer, Rayonier Inc. 




Rayonier.EX32 2Q2015


EXHIBIT 32
CERTIFICATION
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to our knowledge:
1.
The quarterly report on Form 10-Q of Rayonier Inc. (the "Company") for the period ended June 30, 2015 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
August 7, 2015
 
/s/ DAVID L. NUNES
  
/s/ MARK MCHUGH
David L. Nunes
  
Mark McHugh
President and Chief Executive Officer, Rayonier Inc.
  
Senior Vice President and
Chief Financial Officer, Rayonier Inc.