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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 September 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
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12528816&doc=11
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 October 26, 2018, there were outstanding 129,467,663 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.
 
 
 
 

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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 September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
SALES (NOTE 2)

$200,890

 

$184,419

 

$649,991

 

$579,874

Costs and Expenses
 
 
 
 
 
 
 
Cost of sales
(143,261
)
 
(136,983
)
 
(466,167
)
 
(418,421
)
Selling and general expenses
(10,800
)
 
(9,936
)
 
(31,304
)
 
(29,771
)
Other operating (loss) income, net (Note 15)
(451
)
 
1,771

 
2,577

 
3,744


(154,512
)
 
(145,148
)
 
(494,894
)
 
(444,448
)
OPERATING INCOME
46,378

 
39,271

 
155,097

 
135,426

Interest expense
(7,838
)
 
(8,553
)
 
(23,992
)
 
(25,600
)
Interest and other miscellaneous income, net
495

 
1,128

 
4,020

 
1,650

INCOME BEFORE INCOME TAXES
39,035

 
31,846

 
135,125

 
111,476

Income tax expense (Note 8)
(8,396
)
 
(3,043
)
 
(22,443
)
 
(16,817
)
NET INCOME
30,639

 
28,803

 
112,682

 
94,659

Less: Net income attributable to noncontrolling interest
(7,207
)
 
(4,115
)
 
(12,453
)
 
(9,968
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
23,432

 
24,688

 
100,229

 
84,691

OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax expense of $0, $0, $0 and $0
(10,527
)
 
(7,317
)
 
(30,599
)
 
16,599

Cash flow hedges, net of income tax benefit (expense) of $401, ($614), $2,012 and $534
4,142

 
(2,162
)
 
21,285

 
(1,597
)
Amortization of pension and postretirement plans, net of income tax expense of $711, $0, $711 and $0
(542
)
 
116

 
(204
)
 
349

Total other comprehensive (loss) income
(6,927
)
 
(9,363
)
 
(9,518
)
 
15,351

COMPREHENSIVE INCOME
23,712

 
19,440

 
103,164

 
110,010

Less: Comprehensive income attributable to noncontrolling interest
(4,533
)
 
(2,289
)
 
(4,004
)
 
(13,537
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$19,179

 

$17,151

 

$99,160

 

$96,473

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

$0.18

 

$0.19

 

$0.78

 

$0.67

Diluted earnings per share attributable to Rayonier Inc.

$0.18

 

$0.19

 

$0.77

 

$0.67

 
 
 
 
 
 
 
 
Dividends declared per share

$0.27

 

$0.25

 

$0.79

 

$0.75


See Notes to Consolidated Financial Statements.

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

$146,259

 

$112,653

Accounts receivable, less allowance for doubtful accounts of $8 and $23
43,089

 
27,693

Inventory (Note 16)
26,950

 
24,141

Prepaid expenses
15,849

 
15,993

Other current assets
2,443

 
3,047

Total current assets
234,590

 
183,527

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
2,386,949

 
2,462,066

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT
     INVESTMENTS (NOTE 6)
79,747

 
80,797

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
4,131

 
3,962

Buildings
23,149

 
23,618

Machinery and equipment
4,427

 
4,440

Construction in progress
635

 
627

Total property, plant and equipment, gross
32,342

 
32,647

Less — accumulated depreciation
(9,540
)
 
(9,269
)
Total property, plant and equipment, net
22,802

 
23,378

RESTRICTED CASH (NOTE 17)
45,418

 
59,703

OTHER ASSETS
72,709

 
49,010

TOTAL ASSETS

$2,842,215

 

$2,858,481

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable

$22,406

 

$25,148

Current maturities of long-term debt (Note 5)

 
3,375

Accrued taxes
7,818

 
3,781

Accrued payroll and benefits
8,320

 
9,662

Accrued interest
7,963

 
5,054

Deferred revenue
13,867

 
9,721

Other current liabilities
21,249

 
11,807

Total current liabilities
81,623

 
68,548

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS (NOTE 5)
972,426

 
1,022,004

PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 14)
28,925

 
31,905

OTHER NON-CURRENT LIABILITIES
58,142

 
43,084

COMMITMENTS AND CONTINGENCIES (NOTES 7 and 9)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 shares authorized,129,467,237 and 128,970,776 shares issued and outstanding
882,421

 
872,228

Retained earnings
705,531

 
707,378

Accumulated other comprehensive income (Note 18)
12,348

 
13,417

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,600,300

 
1,593,023

Noncontrolling interest
100,799

 
99,917

TOTAL SHAREHOLDERS’ EQUITY
1,701,099

 
1,692,940

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$2,842,215

 

$2,858,481


See Notes to Consolidated Financial Statements.

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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

Cumulative-effect adjustment due to adoption
   of ASU No. 2018-02

 

 
711

 
(711
)
 

 

Net income

 

 
100,229

 

 
12,453

 
112,682

Dividends ($0.79 per share)

 

 
(102,787
)
 

 

 
(102,787
)
Issuance of shares under incentive stock plans
577,857

 
8,216

 

 

 

 
8,216

Stock-based compensation

 
4,957

 

 

 

 
4,957

Repurchase of common shares
(81,396
)
 
(2,980
)
 

 

 

 
(2,980
)
Amortization of pension and postretirement plan liabilities

 

 

 
507

 

 
507

Foreign currency translation adjustment

 

 

 
(23,341
)
 
(7,258
)
 
(30,599
)
Cash flow hedges

 

 

 
22,476

 
(1,191
)
 
21,285

Dividend to New Zealand minority shareholder

 

 

 

 
(3,122
)
 
(3,122
)
Balance, September 30, 2018
129,467,237

 

$882,421

 

$705,531

 

$12,348

 

$100,799

 

$1,701,099


See Notes to Consolidated Financial Statements.















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

$112,682

 

$94,659

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
115,726

 
96,602

Non-cash cost of land and improved development
17,051

 
8,631

Stock-based incentive compensation expense
4,957

 
4,084

Deferred income taxes
21,019

 
16,714

Amortization of losses from pension and postretirement plans
507

 
349

Gain on sale of large disposition of timberlands

 
(28,183
)
Other
3,470

 
29

Changes in operating assets and liabilities:
 
 
 
Receivables
(15,261
)
 
(18,639
)
Inventories
1,085

 
(617
)
Accounts payable
(825
)
 
5,018

Income tax receivable/payable

 
(126
)
All other operating activities
640

 
8,352

CASH PROVIDED BY OPERATING ACTIVITIES
261,051

 
186,873

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(44,137
)
 
(45,731
)
Real estate development investments
(6,889
)
 
(11,780
)
Purchase of timberlands
(38,978
)
 
(239,052
)
Net proceeds from large disposition of timberlands

 
42,029

Rayonier office building under construction

 
(5,979
)
Other
2,132

 
383

CASH (USED FOR) INVESTING ACTIVITIES
(87,872
)
 
(260,130
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
1,014

 
63,389

Repayment of debt
(54,416
)
 
(95,216
)
Dividends paid
(101,839
)
 
(95,008
)
Proceeds from the issuance of common shares under incentive stock plan
8,216

 
3,665

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

 
152,390

Repurchase of common shares
(2,980
)
 

Proceeds from shareholder distribution hedge
610

 

Distribution to minority shareholder
(3,122
)
 

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(152,517
)
 
29,220

EFFECT OF EXCHANGE RATE CHANGES ON CASH
(1,341
)
 
1,113

CASH, CASH EQUIVALENTS AND RESTRICTED CASH (a)
 
 
 
Change in cash, cash equivalents and restricted cash
19,321

 
(42,924
)
Balance, beginning of year
172,356

 
157,617

Balance, end of period

$191,677

 

$114,693

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

$20,910

 

$23,540

Income taxes
824

 
495

Non-cash investing activity:
 
 
 
Capital assets purchased on account
2,848

 
4,376

 
 
 
 
 
(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 $4.1 million and $3.0 million for the nine months ended September 30, 2018 and September 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.

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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.
RECLASSIFICATIONS
Management has changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments. See Note 4 Segment and Geographic Information.
RECENTLY ADOPTED STANDARDS
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . This standard allows 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. ASU No. 2018-02 is effective for the Company's reporting period beginning on January 1, 2019; early adoption is permitted. The Company elected to adopt ASU No. 2018-02 during the third quarter of 2018, and elected to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings. The reclassification decreased AOCI and increased retained earnings by $0.7 million, with zero net effect on total shareholders’ equity. See Note 8 — Income Taxes for additional information.
The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018. The Company elected to apply 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.

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

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 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.
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.

The Company 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.

The Company adopted ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments —Overall (Subtopic 825-10) in the third quarter ended September 30, 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 to not evaluate 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

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

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 August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.
SUBSEQUENT EVENTS
The Company has evaluated events occurring from September 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. See Note 9 — Contingencies for events that warranted 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 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 September 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 tables present our revenue from contracts with customers disaggregated by product type for the three and nine months ended September 30, 2018 and 2017:
Three Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Elim.
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$19,998

 

$3,560

 

$7,278

 

 

$2,487

 

 

$33,323

Sawtimber
13,734

 
23,495

 
56,663

 

 
28,321

 

 
122,213

Hardwood
1,071

 

 

 

 

 

 
1,071

Total Timber Sales
34,803

 
27,055

 
63,941

 

 
30,808

 

 
156,607

License Revenue, Primarily From Hunting
4,016

 
224

 
98

 

 

 

 
4,338

Other Non-Timber/Carbon Revenue
637

 
468

 
2,226

 

 

 

 
3,331

Agency Fee Income

 

 

 

 
172

 

 
172

Total Non-Timber Sales
4,653

 
692

 
2,324

 

 
172

 

 
7,841

Improved Development



 

 
1,352

 

 

 
1,352

Unimproved Development



 

 
1,175

 

 

 
1,175

Rural



 

 
4,489

 

 

 
4,489

Non-strategic / Timberlands



 

 
29,152

 

 

 
29,152

Large Dispositions



 

 

 

 

 

Total Real Estate Sales



 

 
36,168

 

 

 
36,168

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
39,456

 
27,747

 
66,265

 
36,168

 
30,980

 

 
200,616

Other Non-Timber Sales, Primarily Lease
206

 
68

 

 

 

 

 
274

Intersegment

 

 

 

 
30

 
(30
)
 

Total Revenue

$39,662

 

$27,815

 

$66,265

 

$36,168

 

$31,010

 

($30
)
 

$200,890

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$18,260

 

$2,515

 

$7,344

 

 

$3,425

 

 

$31,544

Sawtimber
12,485

 
16,131

 
62,569

 

 
36,828

 

 
128,013

Hardwood
1,152

 

 

 

 

 

 
1,152

Total Timber Sales
31,897

 
18,646

 
69,913

 

 
40,253

 

 
160,709

License Revenue, Primarily from Hunting
4,171

 
161

 
36

 

 

 

 
4,368

Other Non-Timber Revenue
1,042

 
233

 
146

 

 

 

 
1,421

Agency Fee Income

 

 

 

 
433

 

 
433

Total Non-Timber Sales
5,213

 
394

 
182

 

 
433

 

 
6,222

Improved Development

 

 

 
46

 

 

 
46

Unimproved Development

 

 

 
13,905

 

 

 
13,905

Rural

 

 

 
3,125

 

 

 
3,125

Non-strategic / Timberlands

 

 

 
164

 

 

 
164

Large Dispositions

 

 

 

 

 

 

Total Real Estate Sales

 

 

 
17,240

 

 

 
17,240

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
37,110

 
19,040

 
70,095

 
17,240

 
40,686

 

 
184,171

Other Non-Timber Sales, Primarily Lease
191

 
57

 

 

 

 

 
248

Total Revenue

$37,301



$19,097



$70,095



$17,240



$40,686



 

$184,419



8


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

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

$61,898

 

$11,648

 

$20,910

 

 

$10,548

 

 

$105,004

Sawtimber
45,452

 
77,172

 
162,627

 

 
105,309

 

 
390,560

Hardwood
2,882

 

 

 

 

 

 
2,882

Total Timber Sales
110,232

 
88,820

 
183,537

 

 
115,857

 

 
498,446

License Revenue, Primarily From Hunting
12,137

 
450

 
292

 

 

 

 
12,879

Other Non-Timber/Carbon Revenue
8,320

 
1,923

 
5,053

 

 

 

 
15,296

Agency Fee Income

 

 

 

 
460

 

 
460

Total Non-Timber Sales
20,457

 
2,373

 
5,345

 

 
460

 

 
28,635

Improved Development

 

 

 
3,817

 

 

 
3,817

Unimproved Development

 

 

 
8,621

 

 

 
8,621

Rural

 

 

 
10,969

 

 

 
10,969

Non-strategic / Timberlands

 

 

 
98,685

 

 

 
98,685

Large Dispositions

 

 

 

 

 

 

Total Real Estate Sales

 

 

 
122,092

 

 

 
122,092

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
130,689

 
91,193

 
188,882

 
122,092

 
116,317

 

 
649,173

Other Non-Timber Sales, Primarily Lease
609

 
209

 

 

 

 

 
818

Intersegment

 

 

 

 
66

 
(66
)
 

Total Revenue

$131,298

 

$91,402

 

$188,882

 

$122,092

 

$116,383

 

($66
)
 

$649,991

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$52,407

 

$8,683

 

$18,956

 

 

$9,972

 

 

$90,018

Sawtimber
40,088

 
54,203

 
144,550

 

 
105,964

 

 
344,805

Hardwood
2,895

 

 

 

 

 

 
2,895

Total Timber Sales
95,390

 
62,886

 
163,506

 

 
115,936

 

 
437,718

License Revenue, Primarily from Hunting
11,809

 
354

 
154

 

 

 

 
12,317

Other Non-Timber Revenue
4,184

 
2,037

 
320

 

 

 

 
6,541

Agency Fee Income

 

 

 

 
1,051

 

 
1,051

Total Non-Timber Sales
15,993

 
2,391

 
474

 

 
1,051

 

 
19,909

Improved Development

 

 

 
189

 

 

 
189

Unimproved Development

 

 

 
16,405

 

 

 
16,405

Rural

 

 

 
15,357

 

 

 
15,357

Non-strategic / Timberlands

 

 

 
47,558

 

 

 
47,558

Large Dispositions

 

 

 
41,951

 

 

 
41,951

Total Real Estate Sales

 

 

 
121,460

 

 

 
121,460

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
111,383

 
65,277

 
163,980

 
121,460

 
116,987

 

 
579,087

Other Non-Timber Sales, Primarily Lease
584

 
203

 

 

 

 

 
787

Total Revenue

$111,967

 

$65,480

 

$163,980

 

$121,460

 

$116,987

 

 

$579,874



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/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 acreage of standing timber
 
Contract execution
(point-in-time)
 
Full payment due upon contract execution
Stumpage Agreed Volume
 
Right to harvest an agreed upon volume 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 tables present our timber sales disaggregated by contract type for the three and nine months ended September 30, 2018 and 2017:
Three Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Trading
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$16,984

 

 

 

 

$16,984

Stumpage Lump Sum
284

 
2,143

 

 

 
2,427

Stumpage Agreed Volume

 

 

 

 

Total Stumpage
17,268

 
2,143

 

 

 
19,411

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
15,856

 
24,912

 
24,771

 
1,813

 
67,352

Delivered Wood (Export)
1,679

 

 
39,170

 
28,995

 
69,844

Total Delivered
17,535

 
24,912

 
63,941

 
30,808

 
137,196

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$34,803

 

$27,055

 

$63,941

 

$30,808

 

$156,607

 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$18,607

 

 

 

 

$18,607

Stumpage Lump Sum
1,954

 
3,987

 

 

 
5,941

Stumpage Agreed Volume

 

 

 

 

Total Stumpage
20,561

 
3,987

 

 

 
24,548

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
11,336

 
14,659

 
24,440

 
1,808

 
52,243

Delivered Wood (Export)

 

 
45,473

 
38,445

 
83,918

Total Delivered
11,336

 
14,659

 
69,913

 
40,253

 
136,161

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$31,897

 

$18,646

 

$69,913

 

$40,253

 

$160,709

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

$59,348

 

 

 

 

$59,348

Stumpage Lump Sum
2,358

 
11,854

 

 

 
14,212

Stumpage Agreed Volume

 

 

 

 

Total Stumpage
61,706

 
11,854

 

 

 
73,560

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
44,399

 
76,966

 
70,521

 
4,317

 
196,203

Delivered Wood (Export)
4,127

 

 
113,016

 
111,540

 
228,683

Total Delivered
48,526

 
76,966

 
183,537

 
115,857

 
424,886

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$110,232

 

$88,820

 

$183,537

 

$115,857

 

$498,446

 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$56,956

 

 

 

 

$56,956

Stumpage Lump Sum
6,997

 
6,574

 

 

 
13,571

Stumpage Agreed Volume

 
1,234

 

 

 
1,234

Total Stumpage
63,953

 
7,808

 

 

 
71,761

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
31,437

 
55,078

 
63,883

 
4,132

 
154,530

Delivered Wood (Export)

 

 
99,623

 
111,804

 
211,427

Total Delivered
31,437

 
55,078

 
163,506

 
115,936

 
365,957

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$95,390

 

$62,886

 

$163,506

 

$115,936

 

$437,718


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 table summarizes revenue recognized during the three and nine months ended September 30, 2018 and 2017 that was included in the contract liability balance at the beginning of each year:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Revenue recognized from contract liability balance at the beginning of the year (a)

$355

 

$459

 

$8,685

 

$8,369

 
 
 
 
 
(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 407,000 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
Management has changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments.
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.

12


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

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 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 nine months ended September 30, 2018 and 2017:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
SALES
2018
 
2017
 
2018
 
2017
Southern Timber

$39,662

 

$37,301

 

$131,298

 

$111,967

Pacific Northwest Timber
27,815

 
19,097

 
91,402

 
65,480

New Zealand Timber
66,265

 
70,095

 
188,882

 
163,980

Real Estate (a)
36,168

 
17,240

 
122,092

 
121,460

Trading
31,010

 
40,686

 
116,383

 
116,987

Intersegment Eliminations
(30
)
 

 
(66
)
 

Total

$200,890

 

$184,419

 

$649,991

 

$579,874

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

$9,183

 

$11,436

 

$37,061

 

$35,031

Pacific Northwest Timber
1,911

 
1,134

 
12,209

 
(1,278
)
New Zealand Timber
16,416

 
19,280

 
50,141

 
41,510

Real Estate (a)
24,726

 
11,437

 
71,645

 
72,052

Trading
304

 
1,142

 
680

 
3,380

Corporate and other
(6,162
)
 
(5,158
)
 
(16,639
)
 
(15,269
)
Total Operating Income
46,378

 
39,271

 
155,097

 
135,426

Unallocated interest expense and other
(7,343
)
 
(7,425
)
 
(19,972
)
 
(23,950
)
Total Income before Income Taxes

$39,035

 

$31,846

 

$135,125

 

$111,476

 
 
 
 
 
(a)    The nine months ended September 30, 2017 includes $28.2 million of Large Dispositions.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
DEPRECIATION, DEPLETION AND AMORTIZATION
2018
 
2017
 
2018
 
2017
Southern Timber

$13,672

 

$12,736

 

$44,591

 

$37,092

Pacific Northwest Timber
7,802

 
6,481

 
26,687