SEC Filing | Rayonier Inc.

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ryn-20200630

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			For the transition period from to

RAYONIER INC.

(Exact name of registrant as specified in its charter)

North Carolina

1-6780

13-2607329

(State or other Jurisdiction of incorporation or organization)

(Commission File Number)

(I.R.S. Employer Identification Number)

Rayonier, L.P.

(Exact name of registrant as specified in its charter)

Delaware

333-237246

91-1313292

(State or other Jurisdiction of incorporation or organization)

(Commission File Number)

(I.R.S. Employer Identification Number)

1 RAYONIER WAY

WILDLIGHT, FL 32097

(Principal Executive Office)

Telephone Number: (904) 357-9100

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol	Exchange
Common Shares, no par value, of Rayonier Inc.	RYN	New York Stock Exchange

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.

Rayonier Inc. Yes ☒ No ☐ Rayonier, L.P. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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).

Rayonier Inc. Yes ☒ No ☐ Rayonier, L.P. Yes ☒ No ☐

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.

Rayonier Inc.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

Rayonier, L.P.

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller Reporting Company

☐

Emerging Growth Company

☐

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.

Rayonier Inc. o Rayonier, L.P. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Rayonier Inc. Yes ☐ No ☒ Rayonier, L.P. Yes ☐ No ☒

As of July 31, 2020, Rayonier Inc. had 136,512,112 Common Shares outstanding. As of July 31, 2020, Rayonier, L.P. had 4,446,153 Common Units outstanding.

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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarterly period ended June 30, 2020 of Rayonier Inc., a North Carolina corporation, and Rayonier, L.P., a Delaware limited partnership. Unless stated otherwise or the context otherwise requires, references to “Rayonier” or “the Company” mean Rayonier Inc. and references to the “Operating Partnership” mean Rayonier, L.P. References to “we,” “us,” and “our” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership.

Rayonier Inc. has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 2004. The Company is structured as an umbrella partnership REIT (“UPREIT”) under which substantially all of its business is conducted through the Operating Partnership. Rayonier Inc. is the sole general partner of the Operating Partnership. On May 8, 2020, Rayonier, L.P. acquired Pope Resources, a Delaware Limited Partnership (“Pope Resources”) and issued approximately 4.45 million operating partnership units (“OP Units” or “Redeemable Common Units”) of Rayonier, L.P. as partial merger consideration. These OP Units are generally considered to be economic equivalents to Rayonier common shares and receive distributions equal to the dividends paid on Rayonier common shares. See Note 2 - Merger with Pope Resources for additional information pertaining to the merger.

As of June 30, 2020, the Company owned a 96.8% interest in the Operating Partnership, with the remaining 3.2% interest owned by limited partners of the Operating Partnership. As the sole general partner of the Operating Partnership, Rayonier Inc. has exclusive control of the day-to-day management of the Operating Partnership.

Rayonier Inc. and the Operating Partnership are operated as one business. The management of the Operating Partnership consists of the same members as the management of Rayonier Inc. As general partner with control of the Operating Partnership, Rayonier Inc. consolidates Rayonier, L.P. for financial reporting purposes, and has no material assets or liabilities other than its investment in the Operating Partnership.

We believe combining the quarterly reports of Rayonier Inc. and Rayonier, L.P. into this single report results in the following benefits:

•Strengthens investors’ understanding of Rayonier Inc. and the Operating Partnership by enabling them to view the business as a single operating unit in the same manner as management views and operates the business;

•Creates efficiencies for investors by reducing duplicative disclosures and providing a single comprehensive document;

•Generates time and cost savings associated with the preparation of the reports when compared to preparing separate reports for each entity.

There are a few important differences between Rayonier Inc. and the Operating Partnership in the context of how Rayonier Inc. operates as a consolidated company. The Company itself does not conduct business, other than through acting as the general partner of the Operating Partnership and issuing equity or equity-related instruments from time-to-time. The Operating Partnership holds, directly or indirectly, substantially all of the Company’s assets. Likewise, all debt is incurred by the Operating Partnership or entities/subsidiaries owned or controlled by the Operating Partnership. The Operating Partnership conducts substantially all of the Company’s business and is structured as a partnership with no publicly traded equity.

To help investors understand the significant differences between the Company and the Operating Partnership, this report includes:

•Separate Consolidated Financial Statements for Rayonier Inc. and Rayonier, L.P.;

•A combined set of Notes to the Consolidated Financial Statements with separate discussions of per share and per unit information, noncontrolling interests and shareholders’ equity and partners’ capital, as applicable;

•A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations which includes specific information related to each reporting entity;

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•A separate Part 1, Item 4. Controls and Procedures related to each reporting entity;

•A separate Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds section related to each reporting entity;

•Separate Exhibit 31 and 32 certifications for each reporting entity within Part II, Item 6.

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TABLE OF CONTENTS


Item		Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements (unaudited)	1
	Rayonier Inc.:
	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 3 0 , 2020 and 2019	1
	Consolidated Balance Sheets as of June 3 0 , 2020 and December 31, 2019	2
	Consolidated Statements of Changes in Shareholders’ Equity for the Quarters and Six Months ended June 30, 2020 and 2019	3
	Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2020 and 2019	5
	Rayonier, L.P.:
	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 3 0 , 2020 and 2019	6
	Consolidated Balance Sheets as of June 3 0 , 2020 and December 31, 2019	7
	Consolidated Statements of Changes in Capital for the Quarters and Six Months ended June 30, 2020 and 2019	8
	Consolidated Statements of Cash Flows for the Six Months Ended June 3 0 , 2020 and 2019	10
	Notes to Consolidated Financial Statements	11
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	54
3.	Quantitative and Qualitative Disclosures about Market Risk	81
4.	Controls and Procedures	83
	PART II - OTHER INFORMATION
1A.	Risk Factors	84
1.	Legal Proceedings	84
2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
6.	Exhibits	86
	Signatures	88

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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 June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
SALES (NOTE 3)	$195,630	$184,800	$454,760	$376,346
Costs and Expenses
Cost of sales	(154,891)	(140,454)	(364,390)	(283,705)
Selling and general expenses	(12,570)	(10,984)	(22,538)	(20,794)
Other operating expense, net (Note 19)	(16,483)	(1,969)	(17,594)	(1,934)
	(183,944)	(153,407)	(404,522)	(306,433)
OPERATING INCOME	11,686	31,393	50,238	69,913
Interest expense	(9,820)	(7,922)	(18,036)	(15,632)
Interest and other miscellaneous income, net	1,579	1,057	1,370	2,390
INCOME BEFORE INCOME TAXES	3,445	24,528	33,572	56,671
Income tax expense (Note 10)	(2,990)	(3,608)	(6,696)	(7,958)
NET INCOME	455	20,920	26,876	48,713
Less: Net income attributable to noncontrolling interest in the Operating Partnership	(219)	—	(219)	—
Less: Net loss (income) attributable to noncontrolling interests in consolidated affiliates	1,499	(2,168)	931	(5,167)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.	1,735	18,752	27,588	43,546
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment, net of income tax effect of $0, $0, $0, and $0	23,258	(5,604)	(20,765)	429
Cash flow hedges, net of income tax effect of $1,741, $91, $116 and $244	(7,276)	(19,519)	(90,751)	(30,205)
Amortization of pension and postretirement plans, net of income tax expense of $0, $0, $0 and $0	217	112	434	224
Total other comprehensive income (loss)	16,199	(25,011)	(111,082)	(29,552)
COMPREHENSIVE INCOME (LOSS)	16,654	(4,091)	(84,206)	19,161
Less: Comprehensive income attributable to noncontrolling interests in the Operating Partnership	(676)	—	(676)	—
Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates	(4,917)	(815)	5,743	(5,366)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC.	$11,061	($4,906)	($79,139)	$13,795
EARNINGS PER COMMON SHARE (NOTE 14)
Basic earnings per share attributable to Rayonier Inc.	$0.01	$0.14	$0.21	$0.34
Diluted earnings per share attributable to Rayonier Inc.	$0.01	$0.14	$0.21	$0.34

See Notes to Consolidated Financial Statements.

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RAYONIER INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)


	June 30, 2020	December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents, excluding Timber Funds	$87,813	$68,735
Cash and cash equivalents, Timber Funds	6,973	—
Total cash and cash equivalents	94,786	68,735
Accounts receivable, less allowance for doubtful accounts of $25 and $24	36,811	27,127

Inventory (Note 21)	10,365	14,518

Prepaid expenses	18,133	14,728

Other current assets	1,135	867
Total current assets	161,230	125,975
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION	3,332,067	2,482,047
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS (NOTE 8)	113,920	81,791
PROPERTY, PLANT AND EQUIPMENT
Land	5,566	4,131
Buildings	29,153	23,095
Machinery and equipment	4,753	4,339
Construction in progress	382	348
Total property, plant and equipment, gross	39,854	31,913
Less — accumulated depreciation	(10,444)	(9,662)
Total property, plant and equipment, net	29,410	22,251
RESTRICTED CASH (NOTE 22)	475	1,233
RIGHT-OF-USE ASSETS (NOTE 4)	96,710	99,942
OTHER ASSETS	35,455	47,757
TOTAL ASSETS	$3,769,267	$2,860,996
LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$21,836	$18,160

Current maturities of long-term debt, excluding Timber Funds (Note 7)	—	82,000
Current maturities of long-term debt, Timber Funds (Note 7)	25,042	—
Accrued taxes	6,444	3,032

Accrued payroll and benefits	6,628	8,869
Accrued interest	6,500	5,205
Deferred revenue	18,434	11,440
Other current liabilities	24,405	22,480
Total current liabilities	109,289	151,186
LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS, EXCLUDING TIMBER FUNDS (NOTE 7)	1,310,506	973,129
LONG-TERM DEBT, TIMBER FUNDS (NOTE 7)	35,617	—
PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 17)	23,767	25,311
LONG-TERM LEASE LIABILITY (NOTE 4)	87,774	90,481
OTHER NON-CURRENT LIABILITIES	178,136	83,247
COMMITMENTS AND CONTINGENCIES (NOTES 9 and 11)
NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP (NOTE 5)	110,220	—
SHAREHOLDERS’ EQUITY
Common Shares, 480,000,000 shares authorized,136,512,112 and 129,331,069 shares issued and outstanding	1,063,489	888,177
Retained earnings	531,681	583,006
Accumulated other comprehensive loss (Note 23)	(137,929)	(31,202)
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY	1,457,241	1,439,981
Noncontrolling interests in consolidated affiliates (Note 5)	456,717	97,661
TOTAL SHAREHOLDERS’ EQUITY	1,913,958	1,537,642
TOTAL LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY	$3,769,267	$2,860,996

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 Loss	Noncontrolling Interests in Consolidated Affiliates	Shareholders’ Equity
	Shares	Amount
Balance, January 1, 2020	129,331,069	$888,177	$583,006	($31,202)	$97,661	$1,537,642
Net income	—	—	25,854	—	567	26,421
Dividends ($0.27 per share)	—	—	(34,813)	—	—	(34,813)
Issuance of shares under incentive stock plans	2,407	66	—	—	—	66
Stock-based compensation	—	1,510	—	—	—	1,510
Repurchase of common shares made under repurchase program	(152,237)	—	(3,152)	—	—	(3,152)
Amortization of pension and postretirement plan liabilities	—	—	—	217	—	217
Foreign currency translation adjustment	—	—	—	(33,894)	(10,129)	(44,023)
Cash flow hedges	—	—	—	(82,376)	(1,099)	(83,475)
Distributions to noncontrolling interests in consolidated affiliates	—	—	—	—	(725)	(725)
Balance, March 31, 2020	129,181,239	$