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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, 2018
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
https://cdn.kscope.io/82811c0381e0a384f6c80456d339c722-logocolor450pxwidthpnga03.jpg
Incorporated in the State of North Carolina
I.R.S. Employer Identification No. 13-2607329
1 RAYONIER WAY
WILDLIGHT, FL 32097
(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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
  
Accelerated filer  o
  
 
Non-accelerated filer  o
  
Smaller reporting company o
  
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 27, 2018, there were outstanding 129,459,659 Common Shares of the registrant.







Table of Contents

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

i

Table of Contents

PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
SALES

$245,906

 

$200,964

 

$449,101

 

$395,455

Costs and Expenses
 
 
 
 
 
 
 
Cost of sales
184,418

 
144,610

 
322,906

 
281,438

Selling and general expenses
11,502

 
10,246

 
20,504

 
19,836

Other operating income, net (Note 15)
(1,659
)
 
(785
)
 
(3,029
)
 
(1,973
)

194,261

 
154,071

 
340,381

 
299,301

OPERATING INCOME
51,645

 
46,893

 
108,720

 
96,154

Interest expense
(8,102
)
 
(8,631
)
 
(16,155
)
 
(17,046
)
Interest and other miscellaneous income, net
2,905

 
4

 
3,525

 
522

INCOME BEFORE INCOME TAXES
46,448

 
38,266

 
96,090

 
79,630

Income tax expense (Note 8)
(7,110
)
 
(7,493
)
 
(14,047
)
 
(13,774
)
NET INCOME
39,338

 
30,773

 
82,043

 
65,856

Less: Net income attributable to noncontrolling interest
3,080

 
4,612

 
5,246

 
5,853

NET INCOME ATTRIBUTABLE TO RAYONIER INC.
36,258

 
26,161

 
76,797

 
60,003

OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax expense of $0, $0, $0 and $0
(29,760
)
 
21,484

 
(20,072
)
 
23,916

Cash flow hedges, net of income tax (expense) benefit of ($2,008), $1,180, ($1,640) and $1,148
529

 
(1,988
)
 
17,143

 
565

Amortization of pension and postretirement plans, net of income tax expense of $0, $0, $0 and $0
178

 
116

 
338

 
233

Total other comprehensive (loss) income
(29,053
)
 
19,612

 
(2,591
)
 
24,714

COMPREHENSIVE INCOME
10,285

 
50,385

 
79,452

 
90,570

Less: Comprehensive (loss) income attributable to noncontrolling interest
(5,011
)
 
9,595

 
(528
)
 
11,247

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$15,296

 

$40,790

 

$79,980

 

$79,323

EARNINGS PER COMMON SHARE (Note 11)
 
 
 
 
 
 
 
Basic earnings per share attributable to Rayonier Inc.

$0.28

 

$0.20

 

$0.60

 

$0.48

Diluted earnings per share attributable to Rayonier Inc.

$0.28

 

$0.20

 

$0.59

 

$0.47

 
 
 
 
 
 
 
 
Dividends declared per share

$0.27

 

$0.25

 

$0.52

 

$0.50


See Notes to Consolidated Financial Statements.

1

Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
June 30, 2018
 
December 31, 2017
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents

$106,611

 

$112,653

Accounts receivable, less allowance for doubtful accounts of $23 and $23
54,340

 
27,693

Inventory (Note 16)
19,125

 
24,141

Prepaid expenses
15,774

 
15,993

Other current assets
2,840

 
3,047

Total current assets
198,690

 
183,527

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
2,406,425

 
2,462,066

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT
     INVESTMENTS (NOTE 6)
86,955

 
80,797

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
3,962

 
3,962

Buildings
23,142

 
23,618

Machinery and equipment
4,432

 
4,440

Construction in progress
545

 
627

Total property, plant and equipment, gross
32,081

 
32,647

Less — accumulated depreciation
(9,149
)
 
(9,269
)
Total property, plant and equipment, net
22,932

 
23,378

RESTRICTED CASH (NOTE 17)
69,638

 
59,703

OTHER ASSETS
66,422

 
49,010

TOTAL ASSETS

$2,851,062

 

$2,858,481

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable

$27,692

 

$25,148

Current maturities of long-term debt (Note 5)
—

 
3,375

Accrued taxes
5,299

 
3,781

Accrued payroll and benefits
6,690

 
9,662

Accrued interest
4,995

 
5,054

Deferred revenue
17,674

 
9,721

Other current liabilities
21,538

 
11,807

Total current liabilities
83,888

 
68,548

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS (NOTE 5)
972,285

 
1,022,004

PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 14)
30,230

 
31,905

OTHER NON-CURRENT LIABILITIES
51,782

 
43,084

COMMITMENTS AND CONTINGENCIES (NOTES 7 and 9)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 shares authorized, 129,451,268 and 128,970,776 shares issued and outstanding
880,560

 
872,228

Retained earnings
716,328

 
707,378

Accumulated other comprehensive income (Note 18)
16,601

 
13,417

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,613,489

 
1,593,023

Noncontrolling interest
99,388

 
99,917

TOTAL SHAREHOLDERS’ EQUITY
1,712,877

 
1,692,940

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$2,851,062

 

$2,858,481


See Notes to Consolidated Financial Statements.

2

Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except share data)


 
Common Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Non-controlling Interest
 
Shareholders’
Equity
 
Shares
 
Amount
 
Balance, December 31, 2016
122,904,368

 

$709,867

 

$700,887

 

$856

 

$85,142

 

$1,496,752

Cumulative-effect adjustment due to adoption of ASU No. 2016-16
—

 
—

 
(14,365
)
 
—

 
—

 
(14,365
)
Net income
—

 
—

 
148,842

 
—

 
12,737

 
161,579

Dividends ($1.00 per share)
—

 
—

 
(127,986
)
 
—

 
—

 
(127,986
)
Issuance of shares under incentive stock plans
322,314

 
4,751

 
—

 
—

 
—

 
4,751

Stock-based compensation
—

 
5,396

 
—

 
—

 
—

 
5,396

Repurchase of common shares
(5,906
)
 
(176
)
 
—

 
—

 
—

 
(176
)
Actuarial change and amortization of pension and postretirement plan liabilities
—

 
—

 
—

 
(208
)
 
—

 
(208
)
Foreign currency translation adjustment
—

 
—

 
—

 
7,416

 
1,698

 
9,114

Cash flow hedges
—

 
—

 
—

 
5,353

 
340

 
5,693

Issuance of shares under equity offering, net of costs
5,750,000

 
152,390

 
—

 
—

 
—

 
152,390

Balance, December 31, 2017
128,970,776

 

$872,228

 

$707,378

 

$13,417

 

$99,917

 

$1,692,940

Net income
—

 
—

 
76,797

 
—

 
5,246

 
82,043

Dividends ($0.52 per share)
—

 
—

 
(67,847
)
 
—

 
—

 
(67,847
)
Issuance of shares under incentive stock plans
561,475

 
7,824

 
—

 
—

 
—

 
7,824

Stock-based compensation
—

 
3,474

 
—

 
—

 
—

 
3,474

Repurchase of common shares
(80,983
)
 
(2,966
)
 
—

 
—

 
—

 
(2,966
)
Amortization of pension and postretirement plan liabilities
—

 
—

 
—

 
338

 
—

 
338

Foreign currency translation adjustment
—

 
—

 
—

 
(15,251
)
 
(4,821
)
 
(20,072
)
Cash flow hedges
—

 
—

 
—

 
18,097

 
(954
)
 
17,143

Balance, June 30, 2018
129,451,268

 

$880,560

 

$716,328

 

$16,601

 

$99,388

 

$1,712,877


See Notes to Consolidated Financial Statements.















3

Table of Contents

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
Six Months Ended June 30,
 
2018
 
2017
OPERATING ACTIVITIES
 
 
 
Net income

$82,043

 

$65,856

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
80,920

 
67,895

Non-cash cost of land and improved development
14,936

 
7,359

Stock-based incentive compensation expense
3,474

 
2,892

Deferred income taxes
13,653

 
15,214

Amortization of losses from pension and postretirement plans
338

 
233

Gain on sale of large disposition of timberlands
—

 
(28,183
)
Other
(5,466
)
 
1,719

Changes in operating assets and liabilities:
 
 
 
Receivables
(26,203
)
 
(10,421
)
Inventories
1,014

 
(1,772
)
Accounts payable
4,448

 
5,141

Income tax receivable/payable
(84
)
 
(126
)
All other operating activities
12,510

 
2,508

CASH PROVIDED BY OPERATING ACTIVITIES
181,583

 
128,315

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(25,920
)
 
(29,840
)
Real estate development investments
(4,501
)
 
(5,599
)
Purchase of timberlands
(31,234
)
 
(237,235
)
Net proceeds from large disposition of timberlands
—

 
42,029

Rayonier office building under construction
—

 
(5,573
)
Other
113

 
1,033

CASH (USED FOR) INVESTING ACTIVITIES
(61,542
)
 
(235,185
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
1,014

 
63,389

Repayment of debt
(54,389
)
 
(60,422
)
Dividends paid
(67,053
)
 
(62,825
)
Proceeds from the issuance of common shares under incentive stock plan
7,824

 
3,206

Proceeds from the issuance of common shares from equity offering, net of costs
—

 
152,390

Repurchase of common shares
(2,966
)
 
—

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(115,570
)
 
95,738

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(578
)
 
1,855

CASH, CASH EQUIVALENTS AND RESTRICTED CASH (a)
 
 
 
Change in cash, cash equivalents and restricted cash
3,893

 
(9,277
)
Balance, beginning of year
172,356

 
157,617

Balance, end of period

$176,249

 

$148,340

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

$14,858

 

$16,546

Income taxes
302

 
376

Non-cash investing activity:
 
 
 
Capital assets purchased on account
6,646

 
5,284

 
 
 
 
 
(a)
Due to the adoption of ASU No. 2016-18, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-year and end-of-period total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior period amounts have been restated to conform to current period presentation. For additional information and a reconciliation of cash, see Note 17 — Restricted Cash.
(b)
Interest paid is presented net of patronage payments received of $3.8 million and $3.0 million for the six months ended June 30, 2018 and June 30, 2017, respectively. For additional information on patronage payments, see Note 5 — Debt in the 2017 Form 10-K.

See Notes to Consolidated Financial Statements.

4

Table of Contents

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


1.
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 (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end balance sheet information was derived from audited financial statements not included herein. In the opinion of management, these financial statements and notes reflect any 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, 2017, as filed with the SEC (the “2017 Form 10-K”).
SUMMARY OF UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
REVENUE
See Note 2 — Revenue for significant accounting policies related to revenue that were revised upon adoption of Accounting Standards Codification (“ASC”) 606.
COST OF SALES
Cost of sales associated with real estate sold includes the cost of the land, the cost of any timber on the property that was conveyed to the buyer, any real estate development costs and any closing costs including sales commissions that may be borne by the Company. As allowed under GAAP, the Company expenses closing costs, including sales commissions, when incurred for all real estate sales with future performance obligations expected to be satisfied within one year. When developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold through completion. Costs are allocated to each sold unit or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated periodically throughout the year, with adjustments being allocated prospectively to the remaining units available for sale.
For a full description of our significant accounting policies, see Note 2 — Summary of Significant Accounting Policies in the 2017 Form 10-K.
RECENTLY ADOPTED STANDARDS
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018. The Company elected to use the modified retrospective method to contracts that were not completed at the date of adoption. The Company also elected not to retrospectively restate contracts modified prior to January 1, 2018. A cumulative effect of adoption adjustment to the opening balance of retained earnings was not recorded as there was no accounting impact to any contracts with customers not completed at the date of adoption. See Note 2 — Revenue for additional information.
In March 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires that an employer report the service cost component of net periodic benefit cost in the Consolidated Statements of Income in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components of net periodic benefit cost (interest cost, expected return on plan assets and amortization of losses or gains) are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. ASU No. 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and is required to be applied retrospectively to all periods presented beginning in the period of adoption. Rayonier adopted ASU No. 2017-07 during the first quarter ended March 31, 2018 and applied the update retrospectively to all periods presented. See Note 14 — Employee Benefit Plans for the components of net periodic benefit cost and the location of these items in the Consolidated Statements of Income and Comprehensive Income.

5

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

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows. ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. ASU No. 2016-18 is required to be applied retrospectively to all periods presented beginning in the period of adoption. Rayonier adopted ASU No. 2016-18 in the first quarter ended March 31, 2018 and applied the update retrospectively to all periods presented. Restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-year and end-of-period total amounts shown on the Consolidated Statements of Cash Flows and therefore changes in restricted cash are no longer reported as cash flow activities. See Note 17 — Restricted Cash for additional information, including the nature of restrictions on the Company’s cash, cash equivalents, and restricted cash.

Rayonier adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments in the first quarter ended March 31, 2018 with no material impact on the consolidated financial statements.
NEW ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which currently requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. ASU No. 2016-02 also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. This update provides an optional transition practical expedient not to evaluate under ASU No. 2016-02 existing or expired land easements that were not previously accounted for as leases under the current leases guidance. An entity that elects this practical expedient should evaluate new or modified land easements under ASU No. 2016-02, once adopted. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of ASU No. 2016-02 to assess whether they meet the definition of a lease. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and is required to be applied on a modified retrospective basis beginning at the earliest period presented. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which will make more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU No. 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted and the amended presentation and disclosure guidance is required to be applied on a prospective basis. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. The amendments in this update also require certain disclosures about stranded tax effects. ASU No. 2018-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. ASU No. 2018-02 is required to be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Early adoption is permitted in any interim period for which financial statements have not yet been issued. The Company is currently evaluating the impact of adopting this new guidance 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 February 2018, the FASB issued ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments —Overall (Subtopic 825-10), to clarify certain provisions of ASU No. 2016-01 and amend other provisions. ASU No. 2018-03 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years beginning after June 15, 2018. Early adoption is permitted for entities that have adopted ASU 2016-01. The Company anticipates the adoption of this standard will not have a significant impact on the Company’s consolidated financial statements.
SUBSEQUENT EVENTS
The Company has evaluated events occurring from June 30, 2018 to the date of issuance of these Consolidated Financial Statements for potential recognition or disclosure in the consolidated financial statements. No events were identified that warranted recognition or disclosure.

2.    REVENUE
ADOPTION OF ASC 606
For information on the adoption of ASC 606, including changes to significant accounting policies and required transition disclosures, see Note 1 — Basis of Presentation.
REVENUE RECOGNITION
The Company recognizes revenues when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected to be entitled to in exchange for those goods or services (“transaction price”). The Company generally satisfies performance obligations within a year of entering into a contract and therefore has applied the disclosure exemption found under ASC 606-10-50-14. Unsatisfied performance obligations as of June 30, 2018 are primarily due to advances on stumpage contracts and unearned license revenue. These performance obligations are expected to be satisfied within the next twelve months. The Company generally collects payment within a year of satisfying performance obligations and therefore has elected not to adjust revenues for a financing component.
    

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

The following table presents our revenue from contracts with customers disaggregated by product type for the three and six months ended June 30, 2018 and 2017:
Three Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Elim.
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$20,300

 

$4,625

 

$7,788

 
—

 

$3,804

 
—

 

$36,517

Sawtimber
15,776

 
26,654

 
61,219

 
—

 
42,162

 
—

 
145,811

Hardwood
1,214

 
—

 
—

 
—

 
—

 
—

 
1,214

Total Timber Sales
37,290

 
31,279

 
69,007

 
—

 
45,966

 
—

 
183,542

License Revenue, Primarily From Hunting
3,936

 
103

 
142

 
—

 
—

 
—

 
4,181

Other Non-Timber/Carbon Revenue
6,589

 
749

 
504

 
—

 
—

 
—

 
7,842

Agency Fee Income
—

 
—

 
—

 
—

 
167

 
—

 
167

Total Non-Timber Sales
10,525

 
852

 
646

 
—

 
167

 
—

 
12,190

Improved Development
—


—

 
—

 
1,345

 
—

 
—

 
1,345

Unimproved Development
—


—

 
—

 
—

 
—

 
—

 
—

Rural
—


—

 
—

 
4,827

 
—

 
—

 
4,827

Non-strategic / Timberlands
—


—

 
—

 
43,688

 
—

 
—

 
43,688

Large Dispositions
—


—

 
—

 
—

 
—

 
—

 
—

Total Real Estate Sales
—


—

 
—

 
49,860

 
—

 
—

 
49,860

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
47,815

 
32,131

 
69,653

 
49,860

 
46,133

 
—

 
245,592

Other Non-Timber Sales, Primarily Lease
232

 
82

 
—

 
—

 
—

 
—

 
314

Intersegment
—

 
—

 
—

 
—

 
29

 
(29
)
 
—

Total Revenue

$48,047

 

$32,213

 

$69,653

 

$49,860

 

$46,162

 

($29
)
 

$245,906

 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$15,170

 

$2,803

 

$6,450

 
—

 

$3,711

 
—

 

$28,134

Sawtimber
14,580

 
16,648

 
46,403

 
—

 
37,996

 
—

 
115,627

Hardwood
1,027

 
—

 
—

 
—

 
—

 
—

 
1,027

Total Timber Sales
30,777

 
19,451

 
52,853

 
—

 
41,707

 
—

 
144,788

License Revenue, Primarily from Hunting
3,808

 
93

 
72

 
—

 
—

 
—

 
3,973

Other Non-Timber Revenue
753

 
858

 
86

 
—

 
—

 
—

 
1,697

Agency Fee Income
—

 
—

 
—

 
—

 
330

 
—

 
330

Total Non-Timber Sales
4,561

 
951

 
158

 
—

 
330

 
—

 
6,000

Improved Development
—

 
—

 
—

 
143

 
—

 
—

 
143

Unimproved Development
—

 
—

 
—

 
2,500

 
—

 
—

 
2,500

Rural
—

 
—

 
—

 
5,493

 
—

 
—

 
5,493

Non-strategic / Timberlands
—

 
—

 
24,311

 
17,484

 
—

 
—

 
41,795

Large Dispositions
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Real Estate Sales
—

 
—

 
24,311

 
25,620

 
—

 
—

 
49,931

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
35,338

 
20,402

 
77,322

 
25,620

 
42,037

 
—

 
200,719

Other Non-Timber Sales, Primarily Lease
190

 
55

 
—

 
—

 
—

 
—

 
245

Total Revenue

$35,528



$20,457



$77,322



$25,620



$42,037


—

 

$200,964



8

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

Six Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Elim.
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$41,904

 

$8,044

 

$13,632

 
—

 

$8,062

 
—

 

$71,642

Sawtimber
31,713

 
53,721

 
105,964

 
—

 
76,987

 
—

 
268,385

Hardwood
1,811

 
—

 
—

 
—

 
—

 
—

 
1,811

Total Timber Sales
75,428

 
61,765

 
119,596

 
—

 
85,049

 
—

 
341,838

License Revenue, Primarily From Hunting
8,024

 
128

 
194

 
—

 
—

 
—

 
8,346

Other Non-Timber/Carbon Revenue
7,781

 
1,554

 
2,827

 
—

 
—

 
—

 
12,162

Agency Fee Income
—

 
—

 
—

 
—

 
289

 
—

 
289

Total Non-Timber Sales
15,805

 
1,682

 
3,021

 
—

 
289

 
—

 
20,797

Improved Development
—

 
—

 
—

 
2,465

 
—

 
—

 
2,465

Unimproved Development
—

 
—

 
—

 
7,446

 
—

 
—

 
7,446

Rural
—

 
—

 
—

 
6,480

 
—

 
—

 
6,480

Non-strategic / Timberlands
—

 
—

 
—

 
69,533

 
—

 
—

 
69,533

Large Dispositions
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Real Estate Sales
—

 
—

 
—

 
85,924

 
—

 
—

 
85,924

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
91,233

 
63,447

 
122,617

 
85,924

 
85,338

 
—

 
448,559

Other Non-Timber Sales, Primarily Lease
402

 
140

 
—

 
—

 
—

 
—

 
542

Intersegment
—

 
—

 
—

 
—

 
35

 
(35
)
 
—

Total Revenue

$91,635

 

$63,587

 

$122,617

 

$85,924

 

$85,373

 

($35
)
 

$449,101

 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$34,146

 

$6,162

 

$11,611

 
—

 

$6,547

 
—

 

$58,466

Sawtimber
27,603

 
38,081

 
81,982

 
—

 
69,137

 
—

 
216,803

Hardwood
1,743

 
—

 
—

 
—

 
—

 
—

 
1,743

Total Timber Sales
63,492

 
44,243

 
93,593

 
—

 
75,684

 
—

 
277,012

License Revenue, Primarily from Hunting
7,638

 
190

 
119

 
—

 
—

 
—

 
7,947

Other Non-Timber Revenue
3,142

 
1,804

 
173

 
—

 
—

 
—

 
5,119

Agency Fee Income
—

 
—

 
—

 
—

 
618

 
—

 
618

Total Non-Timber Sales
10,780

 
1,994

 
292

 
—

 
618

 
—

 
13,684

Improved Development
—

 
—

 
—

 
143

 
—

 
—

 
143

Unimproved Development
—

 
—

 
—

 
2,500

 
—

 
—

 
2,500

Rural
—

 
—

 
—

 
12,232

 
—

 
—

 
12,232

Non-strategic / Timberlands
—

 
—

 
24,311

 
23,083

 
—

 
—

 
47,394

Large Dispositions
—

 
—

 
—

 
41,951

 
—

 
—

 
41,951

Total Real Estate Sales
—

 
—

 
24,311

 
79,909

 
—

 
—

 
104,220

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
74,272

 
46,237

 
118,196

 
79,909

 
76,302

 
—

 
394,916

Other Non-Timber Sales, Primarily Lease
394

 
145

 
—

 
—

 
—

 
—

 
539

Total Revenue

$74,666

 

$46,382

 

$118,196

 

$79,909

 

$76,302

 
—

 

$395,455



9

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

REVENUE RECOGNITION FOR TIMBER SALES AND NON-TIMBER INCOME
Revenue from the sale of timber is recognized when control passes to the buyer. The Company utilizes two primary methods or sales channels for the sale of timber, a stumpage or standing timber model and a delivered log model. The sales method the Company employs depends upon local market conditions and which method management believes will provide the best overall margins. Under the stumpage model, standing timber is sold primarily under pay-as-cut contracts, with specified duration (typically one year or less) and fixed prices, whereby revenue is recognized as timber is severed and the sales volume is determined. The Company also sells stumpage under lump-sum contracts for specified parcels where the Company receives cash for the full agreed value of the timber prior to harvest and control passes to the buyer upon signing the contract. The Company retains interest in the land, slash products, and the use of the land for recreational and other purposes. Any uncut timber remaining at the end of the contract period reverts to the Company. Revenue is recognized for lump-sum timber sales when payment is received, the contract is signed and control passes to the buyer. A third type of stumpage sale the Company utilizes is an agreed-volume sale, whereby revenue is recognized using the output method, as periodic physical observations are made of the percentage of acreage harvested.
Under the delivered log model, the Company hires third-party loggers and haulers to harvest timber and deliver it to a buyer. Sales of domestic logs generally do not require an initial payment and are made to third-party customers on open credit terms. Sales of export logs generally require a letter of credit from an approved bank. Revenue is recognized when the logs are delivered and control has passed to the buyer. For domestic log sales, control is considered passed to the buyer as the logs are delivered to the customer’s facility. For export log sales (primarily in New Zealand), control is considered passed to the buyer upon delivery onto the export vessel.
Non-timber income is primarily comprised of hunting and recreational licenses. Such income and any related cost are recognized ratably over the term of the agreement and included in “Sales” and “Cost of sales”, respectively. Payment is generally due upon contract execution.
The following table summarizes revenue recognition and general payment terms for timber sales:
Contract Type
 
Performance
Obligation
 
Timing of
Revenue Recognition
 
General
Payment Terms
Stumpage Pay-as-Cut
 
Right to harvest a unit (i.e. ton, MBF, JAS m3) of standing timber
 
As timber is severed
(point-in-time)
 
Initial payment between
5% and 20% of estimated contract value; collection generally within 10 days of severance
Stumpage Lump Sum
 
Right to harvest an agreed upon volume of standing timber
 
Contract execution
(point-in-time)
 
Full payment due upon contract execution
Stumpage Agreed Volume
 
Right to harvest an agreed upon acreage of standing timber
 
As timber is severed (over-time)
 
Payments made throughout contract term at the earlier of a specified harvest percentage or time elapsed
Delivered Wood (Domestic)
 
Delivery of a unit (i.e. ton, MBF, JAS m3) of timber to customer’s facility
 
Upon delivery to customer’s facility
 (point-in-time)
 
No initial payment and on open credit terms; collection generally within 30 days of invoice
Delivered Wood (Export)
 
Delivery of a unit (i.e. ton, MBF, JAS m3) onto export vessel
 
Upon delivery onto export vessel
 (point-in-time)
 
Letter of credit from an approved bank; collection generally within 30 days of delivery

    

10

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 our timber sales disaggregated by contract type for the three and six months ended June 30, 2018 and 2017:
Three Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Trading
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$19,855

 
—

 
—

 
—

 

$19,855

Stumpage Lump Sum
256

 
4,605

 
—

 
—

 
4,861

Stumpage Agreed Volume
—

 
—

 
—

 
—

 
—

Total Stumpage
20,111

 
4,605

 
—

 
—

 
24,716

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
15,166

 
26,674

 
25,647

 
1,567

 
69,054

Delivered Wood (Export)
2,013

 
—

 
43,360

 
44,399

 
89,772

Total Delivered
17,179

 
26,674

 
69,007

 
45,966

 
158,826

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$37,290

 

$31,279

 

$69,007

 

$45,966

 

$183,542

 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$18,249

 
—

 
—

 
—

 

$18,249

Stumpage Lump Sum
2,247

 
—

 
—

 
—

 
2,247

Stumpage Agreed Volume
—

 
54

 
—

 
—

 
54

Total Stumpage
20,496

 
54

 
—

 
—

 
20,550

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
10,281

 
19,397

 
20,598

 
1,317

 
51,593

Delivered Wood (Export)
—

 
—

 
32,255

 
40,390

 
72,645

Total Delivered
10,281

 
19,397

 
52,853

 
41,707

 
124,238

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$30,777

 

$19,451

 

$52,853

 

$41,707

 

$144,788

Six Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Trading
 
Total
June 30, 2018
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$42,364

 
—

 
—

 
—

 

$42,364

Stumpage Lump Sum
2,074

 
9,711

 
—

 
—

 
11,785

Stumpage Agreed Volume
—

 
—

 
—

 
—

 
—

Total Stumpage
44,438

 
9,711

 
—

 
—

 
54,149

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
28,543

 
52,054

 
45,750

 
2,504

 
128,851

Delivered Wood (Export)
2,447

 
—

 
73,846

 
82,545

 
158,838

Total Delivered
30,990

 
52,054

 
119,596

 
85,049

 
287,689

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$75,428

 

$61,765

 

$119,596

 

$85,049

 

$341,838

 
 
 
 
 
 
 
 
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$38,352

 
—

 
—

 
—

 

$38,352

Stumpage Lump Sum
5,043

 
2,580

 
—

 
—

 
7,623

Stumpage Agreed Volume
—

 
1,234

 
—

 
—

 
1,234

Total Stumpage
43,395

 
3,814

 
—

 
—

 
47,209

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
20,097

 
40,429

 
39,443

 
2,324

 
102,293

Delivered Wood (Export)
—

 
—

 
54,150

 
73,360

 
127,510

Total Delivered
20,097

 
40,429

 
93,593

 
75,684

 
229,803

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$63,492

 

$44,243

 

$93,593

 

$75,684

 

$277,012


11

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



REVENUE RECOGNITION FOR REAL ESTATE SALES
The Company recognizes revenue on sales of real estate generally at the point in time when cash has been received, the sale has closed, and control has passed to the buyer. A deposit of 5% is generally required at the time a purchase and sale agreement is executed, with the balance due at closing. On sales of real estate containing future performance obligations, revenue is recognized using the input method based on costs incurred to date relative to the total costs expected to fulfill the performance obligations in the contract with the customer.
REVENUE RECOGNITION FOR LOG TRADING
Log trading revenue is generally recognized when procured logs are delivered to the buyer and control has passed. For domestic log trading, control is considered passed to the buyer as the logs are delivered to the customer’s facility. For export log trading, control is considered passed to the buyer upon delivery onto the export vessel. The Trading segment also includes sales from log agency contracts, whereby the Company acts as an agent managing export services on behalf of third parties. Revenue for log agency fees are recognized net of related costs.
Contract Balances
The timing of revenue recognition, invoicing and cash collections results in accounts receivable and deferred revenue (contract liabilities) on the Consolidated Balance Sheets. Accounts receivable are recorded when the Company has an unconditional right to consideration for completed performance under the contract. Contract liabilities relate to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract.
The following tables summarizes revenue recognized during the three and six months ended June 30, 2018 and 2017 that was included in the contract liability balance at the beginning of each year:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Revenue recognized from contract liability balance at the beginning of the year (a)

$5,429

 

$3,809

 

$11,800

 

$8,592

 
 
 
 
 
(a)
Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales.
3.
JOINT VENTURE INVESTMENT
MATARIKI FORESTRY GROUP
The Company maintains a controlling financial interest in Matariki Forestry Group (the “New Zealand JV”), a joint venture that owns or leases approximately 411,000 legal acres of New Zealand timberland. Accordingly, the Company consolidates the New Zealand JV’s balance sheet and results of operations. The portions of the consolidated financial position and results of operations attributable to the New Zealand JV’s 23% noncontrolling interest are shown separately within the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Changes in Shareholders’ Equity. Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the New Zealand JV.

4.
SEGMENT AND GEOGRAPHICAL INFORMATION
Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on 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 Income and Comprehensive Income is equal to segment income. Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include interest expense, interest and other miscellaneous income

12

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

and income tax expense, are not considered by management to be part of segment operations and are included under “Corporate and other” or “unallocated interest expense and other.”
The following tables summarize the segment information for the three and six months ended June 30, 2018 and 2017:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
SALES
2018
 
2017
 
2018
 
2017
Southern Timber

$48,047

 

$35,528

 

$91,635

 

$74,666

Pacific Northwest Timber
32,213

 
20,457

 
63,587

 
46,382

New Zealand Timber
69,653

 
77,322

 
122,617

 
118,196

Real Estate (a)
49,860

 
25,620

 
85,924

 
79,909

Trading
46,162

 
42,037

 
85,373

 
76,302

Intersegment Eliminations
(29
)
 
—

 
(35
)
 
—

Total

$245,906

 

$200,964

 

$449,101

 

$395,455

 
 
 
 
 
(a)
The six months ended June 30, 2017 includes $42.0 million of Large Dispositions.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
OPERATING INCOME (LOSS)
2018
 
2017
 
2018
 
2017
Southern Timber

$15,651

 

$9,655

 

$27,878

 

$23,594

Pacific Northwest Timber
5,625

 
(1,535
)
 
10,299

 
(2,413
)
New Zealand Timber
17,768

 
26,804

 
33,725

 
37,046

Real Estate (a)
18,864

 
16,133

 
46,918

 
45,798

Trading
227

 
1,141

 
376

 
2,239

Corporate and other
(6,490
)
 
(5,305
)
 
(10,476
)
 
(10,110
)
Total Operating Income
51,645

 
46,893

 
108,720

 
96,154

Unallocated interest expense and other
(5,197
)
 
(8,627
)
 
(12,630
)
 
(16,524
)
Total Income before Income Taxes

$46,448

 

$38,266

 

$96,090

 

$79,630

 
 
 
 
 
(a)
The six months ended June 30, 2017 includes $28.2 million of Large Dispositions.