RAYONIER INC - FORM 10-Q - November 4, 2016

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EX-31.2 - SECTION 302 CERTIFICATION OF CFO - RAYONIER INCrayonierex3122q20161.htm
EX-32 - SECTION 906 CERTIFICATION OF CEO & CFO - RAYONIER INCrayonierex322q20161.htm
EX-31.1 - SECTION 302 CERTIFICATION OF CEO - RAYONIER INCrayonierex3112q20161.htm
EX-10.3 - AMENDED AND RESTATED EXECUTIVE SEVERANCE PAY PLAN - RAYONIER INCrayonierex103amendedandres.htm
EX-10.2 - FIRST AMENDMENT TO THE RETIREMENT PLAN FOR SALARIED EMPLOYEES - RAYONIER INCrayonierex102firstamendmen.htm
EX-10.1 - AMENDMENT TO RAYONIER INVESTMENT AND SAVINGS PLAN FOR SALARIED EMPLOYEES - RAYONIER INCrayonierex101amendmenttora.htm



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, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from              to             
Commission File Number 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification No. 13-2607329
225 WATER STREET, SUITE 1400
JACKSONVILLE, FL 32202
(Principal Executive Office)
Telephone Number: (904) 357-9100

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

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

As of October 31, 2016, there were outstanding 122,877,503 Common Shares of the registrant.

















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

i


PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
SALES

$171,421

 

$151,657

 

$567,814

 

$407,764

Costs and Expenses
 
 
 
 
 
 
 
Cost of sales
116,624

 
116,044

 
362,790

 
326,966

Selling and general expenses
10,607

 
10,689

 
31,638

 
34,315

Other operating income, net (Note 15)
(5,499
)
 
(2,855
)
 
(20,867
)
 
(15,567
)
 
121,732

 
123,878

 
373,561

 
345,714

OPERATING INCOME
49,689

 
27,779

 
194,253

 
62,050

Interest expense
(8,544
)
 
(7,581
)
 
(23,603
)
 
(24,608
)
Interest income and miscellaneous income (expense), net
258

 
(1,558
)
 
(1,115
)
 
(4,250
)
INCOME BEFORE INCOME TAXES
41,403

 
18,640

 
169,535

 
33,192

Income tax (expense) benefit
(779
)
 
541

 
(2,274
)
 
1,309

NET INCOME
40,624

 
19,181

 
167,261

 
34,501

Less: Net income (loss) attributable to noncontrolling interest
1,269

 
(488
)
 
3,613

 
(1,379
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
39,355

 
19,669

 
163,648

 
35,880

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax expense of $0, $429, $0 and $1,581
12,022

 
(13,370
)
 
28,046

 
(53,087
)
Cash flow hedges, net of income tax benefit (expense) of $229, $185, $1,293 and $1,687
4,195

 
(14,120
)
 
(22,055
)
 
(17,983
)
Actuarial change and amortization of pension and postretirement plans, net of income tax expense of $0, $66, $0 and $404
632

 
890

 
1,881

 
2,414

Total other comprehensive income (loss)
16,849

 
(26,600
)
 
7,872

 
(68,656
)
COMPREHENSIVE INCOME (LOSS)
57,473

 
(7,419
)
 
175,133

 
(34,155
)
Less: Comprehensive income (loss) attributable to noncontrolling interest
3,649

 
(5,363
)
 
11,808

 
(18,884
)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC.

$53,824

 

($2,056
)
 

$163,325

 

($15,271
)
EARNINGS PER COMMON SHARE (Note 11)
 
 
 
 
 
 
 
Basic earnings per share attributable to Rayonier Inc.

$0.32

 

$0.16

 

$1.34

 

$0.28

Diluted earnings per share attributable to Rayonier Inc.

$0.32

 

$0.16

 

$1.33

 

$0.28

 
 
 
 
 
 
 
 
Dividends declared per share

$0.25

 

$0.25

 

$0.75

 

$0.75


See Notes to Consolidated Financial Statements.

1


RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
September 30, 2016
 
December 31, 2015
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents

$110,039

 

$51,777

Accounts receivable, less allowance for doubtful accounts of $35 and $42
24,731

 
20,222

Inventory (Note 16)
16,064

 
15,351

Prepaid expenses
12,564

 
12,654

Assets held for sale (Note 18)
47,361

 
—

Other current assets
3,369

 
5,681

Total current assets
214,128

 
105,685

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
2,325,489

 
2,066,780

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT
     INVESTMENTS (NOTE 6)
70,324

 
65,450

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
1,832

 
1,833

Buildings
9,673

 
9,014

Machinery and equipment
3,469

 
3,686

Construction in progress
4,993

 
1,282

Total property, plant and equipment, gross
19,967

 
15,815

Less — accumulated depreciation
(8,891
)
 
(9,073
)
Total property, plant and equipment, net
11,076

 
6,742

OTHER ASSETS
50,381

 
71,281

TOTAL ASSETS

$2,671,398

 

$2,315,938

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable

$23,735

 

$21,479

Current maturities of long-term debt
31,752

 
—

Accrued taxes
6,892

 
3,685

Accrued payroll and benefits
6,224

 
7,037

Accrued interest
8,313

 
6,153

Other current liabilities
23,227

 
21,103

Total current liabilities
100,143

 
59,457

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS
1,033,288

 
830,554

PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 14)
34,702

 
34,137

OTHER NON-CURRENT LIABILITIES
54,684

 
30,050

COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 shares authorized, 122,876,035 and 122,770,217 shares issued and outstanding
707,977

 
708,827

Retained earnings
683,596

 
612,760

Accumulated other comprehensive loss
(30,388
)
 
(33,503
)
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,361,185

 
1,288,084

Noncontrolling interest
87,396

 
73,656

TOTAL SHAREHOLDERS’ EQUITY
1,448,581

 
1,361,740

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$2,671,398

 

$2,315,938


See Notes to Consolidated Financial Statements.

2


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


 
Common Shares
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Non-controlling Interest
 
Shareholders’
Equity
 
Shares
 
Amount
 
Balance, December 31, 2014
126,773,097

 

$702,598

 

$790,697

 

($4,825
)
 

$86,681

 

$1,575,151

Net income (loss)
—

 
—

 
46,165

 
—

 
(2,224
)
 
43,941

Dividends ($1.00 per share)
—

 
—

 
(124,943
)
 
—

 
—

 
(124,943
)
Issuance of shares under incentive stock plans
205,219

 
2,117

 
—

 
—

 
—

 
2,117

Stock-based compensation
—

 
4,484

 
—

 
—

 
—

 
4,484

Tax deficiency on stock-based compensation
—

 
(250
)
 
—

 
—

 
—

 
(250
)
Repurchase of common shares
(4,208,099
)
 
(122
)
 
(100,000
)
 
—

 
—

 
(100,122
)
Net gain from pension and postretirement plans
—

 
—

 
—

 
2,933

 
—

 
2,933

Adjustments to Rayonier Advanced Materials
—

 
—

 
841

 
—

 
—

 
841

Foreign currency translation adjustment
—

 
—

 
—

 
(21,567
)
 
(10,884
)
 
(32,451
)
Cash flow hedges
—

 
—

 
—

 
(10,044
)
 
83

 
(9,961
)
Balance, December 31, 2015
122,770,217

 

$708,827

 

$612,760

 

($33,503
)
 

$73,656

 

$1,361,740

Net income
—

 
—

 
163,648

 
—

 
3,613

 
167,261

Dividends ($0.75 per share)
—

 
—

 
(92,122
)
 
—

 
—

 
(92,122
)
Issuance of shares under incentive stock plans
149,666

 
889

 
—

 
—

 
—

 
889

Stock-based compensation
—

 
3,894

 
—

 
—

 
—

 
3,894

Repurchase of common shares
(43,848
)
 
(139
)
 
(690
)
 
—

 
—

 
(829
)
Actuarial change and amortization of pension and postretirement plan liabilities
—

 
—

 
—

 
1,881

 
—

 
1,881

Foreign currency translation adjustment
—

 
—

 
—

 
20,527

 
7,519

 
28,046

Cash flow hedges
—

 


 
—

 
(22,731
)
 
676

 
(22,055
)
Recapitalization of New Zealand Joint Venture
—

 
(5,398
)
 
—

 
3,438

 
1,960

 
—

Recapitalization costs
—

 
(96
)
 
—

 
—

 
(28
)
 
(124
)
Balance, September 30, 2016
122,876,035

 

$707,977

 

$683,596

 

($30,388
)
 

$87,396

 

$1,448,581


See Notes to Consolidated Financial Statements.















3


RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
Nine Months Ended September 30,
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
Net income

$167,261

 

$34,501

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
83,685

 
85,784

Non-cash cost of land and improved development
10,111

 
9,532

Stock-based incentive compensation expense
3,894

 
3,522

Deferred income taxes
4,472

 
(4,745
)
Non-cash adjustments to unrecognized tax benefit liability
—

 
135

Amortization of losses from pension and postretirement plans
1,881

 
2,818

Gain on sale of large disposition of timberlands
(101,325
)
 
—

Other
(251
)
 
2,336

Changes in operating assets and liabilities:
 
 
 
Receivables
(3,897
)
 
1,895

Inventories
(4,591
)
 
(9,403
)
Accounts payable
583

 
1,854

Income tax receivable/payable
(47
)
 
(947
)
All other operating activities
2,132

 
16,121

CASH PROVIDED BY OPERATING ACTIVITIES
163,908

 
143,403

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(40,246
)
 
(37,211
)
Real estate development investments
(4,815
)
 
(2,029
)
Purchase of timberlands
(353,828
)
 
(88,466
)
Assets purchased in business acquisition
(1,113
)
 
—

Net proceeds from large disposition of timberlands
126,965

 
—

Rayonier office building under construction
(3,933
)
 
(369
)
Change in restricted cash
22,430

 
(17,835
)
Other
444

 
3,039

CASH USED FOR INVESTING ACTIVITIES
(254,096
)
 
(142,871
)
FINANCING ACTIVITIES
 
 
 
Issuance of debt
694,096

 
379,027

Repayment of debt
(454,419
)
 
(300,871
)
Dividends paid
(92,095
)
 
(94,280
)
Proceeds from the issuance of common shares
889

 
1,322

Repurchase of common shares made under share repurchase program
(690
)
 
(73,621
)
Debt issuance costs
(818
)
 
(1,678
)
Other
(139
)
 
—

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
146,824

 
(90,101
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
1,626

 
(6,234
)
CASH AND CASH EQUIVALENTS
 
 
 
Change in cash and cash equivalents
58,262

 
(95,803
)
Balance, beginning of year
51,777

 
161,558

Balance, end of period

$110,039

 

$65,755

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

$23,540

 

$21,944

Income taxes
495

 
421

Non-cash investing activity:
 
 
 
Capital assets purchased on account
4,376

 
1,945

 
 
 
 
 
(a)
Interest paid is presented net of patronage payments received of $0.4 million and $1.3 million for the nine months ended September 30, 2016 and September 30, 2015, respectively. For additional information on patronage payments, see Note 5 — Debt in the 2015 Form 10-K.

See Notes to Consolidated Financial Statements.

4


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


1.
BASIS OF PRESENTATION
Basis of Presentation
The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries (“Rayonier” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of management, these financial statements and notes reflect all adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC (the “2015 Form 10-K”).
Reclassifications
Certain 2015 amounts have been reclassified to conform with the current year presentation, including changes in balance sheet presentation. During the first quarter of 2016, the Company reclassified capitalized debt costs related to non-revolving debt from Other Assets to Long Term Debt as a result of the adoption of Accounting Standards Update (“ASU”) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-50) - Simplifying the Presentation of Debt Issuance Costs, which is required to be applied on a retrospective basis. This reclassification is reflected in the September 30, 2016 and December 31, 2015 Consolidated Balance Sheets. A corresponding change has also been made to the Consolidated Statement of Cash Flows for both periods presented.
New Accounting Standards
In August 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which addresses the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU No. 2016-15 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. ASU No. 2016-15 is required to be applied retrospectively to all periods presented beginning in the period of adoption. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplifies the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU No. 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Rayonier intends to adopt ASU No. 2016-09 in the Company’s first quarter 2017 Form 10-Q. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-05, Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require de-designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. ASU No. 2016-05 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Rayonier intends to adopt ASU No. 2016-05 in the Company’s first quarter 2017 Form 10-Q and does not expect it will have an impact on the consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which 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. ASU No. 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. ASU No. 2016-02 is required to be applied retrospectively to all periods presented beginning in the period of adoption. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

5

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

In May 2014, the FASB and International Accounting Standards Board (“IASB”) jointly issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), a comprehensive new revenue recognition standard that will supersede current revenue recognition guidance. The guidance provides a unified model to determine when and how revenue is recognized and will require enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers - Deferral of the Effective Date. ASU No. 2015-14 provides a one-year deferral of the effective date of the new standard, with an option for organizations to adopt early based on the original effective date.  In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers—Identifying Performance Obligations and Licensing. The update clarifies the guidance for identifying performance obligations. In May 2016, the FASB issued ASU. No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The update clarifies the guidance for assessing collectibility, presenting sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition, completed contracts at transition and disclosing the accounting change in the period of adoption. This standard will be effective for Rayonier beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements and has completed a preliminary analysis of the specific impacts to our Southern Timber, Pacific Northwest Timber, New Zealand Timber and Real Estate segments.

Subsequent Events
Disposition of 37,000 acres of Gulf states timberland
On October 21, 2016, the Company completed two separate transactions for the sale of 37,000 acres of timberland in Alabama and Mississippi for $77.8 million. The basis in these properties were classified as held for sale in the Consolidated Balance Sheet as of September 30, 2016. See Note 18 — Assets Held For Sale for additional information.

2.
TIMBERLAND ACQUISITION
Menasha Acquisition
The Company and Forest Investment Associates (“FIA”) formed Olympus Acquisition Company (“Olympus”) to acquire all the outstanding common stock of Menasha Forest Products Corporation (“Menasha”), a privately held company with approximately 132,000 acres of timberland located in Oregon and Washington (the “Menasha Acquisition”).
On May 10, 2016 (the “acquisition date”), essentially all of the net assets of Olympus were distributed to the Company and FIA, resulting in the Company owning an identified portfolio of 61,000 acres of the former Menasha timberland for a final purchase price of approximately $263 million.
Business Combination Accounting
The distribution of net assets from Olympus to Rayonier has been accounted for as a business combination. Accordingly, the consideration paid by the Company has been recorded to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition. In determining the fair value of the timberlands, the Company utilized valuation methodologies including a discounted cash flow analysis. A sales comparison approach was utilized to determine the fair market value of property, plant and equipment. The carrying values for current assets and liabilities were deemed to approximate their fair values due to the short-term nature of these assets and liabilities. Rayonier’s share of acquisition costs of $1.3 million is included in “Other operating income, net.”
As of the filing date of this report, the Company has not completed its final accounting related to this acquisition. As a result, preliminary estimates have been recorded and are subject to change. Any necessary adjustments from the preliminary estimates will be finalized as soon as practicable but within one year from the date of acquisition. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.

6

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

The Company is currently in the process of finalizing its valuations related to the following: Timber and timberlands, Property, plant and equipment, Other current and non-current assets and Other current and non-current liabilities.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the acquisition date:

 
May 10, 2016
Timber and timberlands (a)

$263,073

Property, plant and equipment
1,554

Other current and non-current assets
280

Total identifiable assets acquired
264,907

Other current and non-current liabilities
1,503

Total liabilities assumed
1,503

Net identifiable assets (purchase price)

$263,404

 
 
 
 
 
(a)
Timber and timberlands include $0.8 million of seeds and seedlings.
Operating Results and Unaudited Pro Forma Financial Information
The net income effect resulting from the Menasha acquisition for the three and nine months ended September 30, 2016 is impracticable to determine, as the Company immediately integrated Menasha into its ongoing operations. Additionally, pro forma information has not been provided, as the portion of Menasha acquired was a component of a larger legal entity and separate historical financial statements were not prepared. Since stand-alone financial information prior to the acquisition was not readily available, compilation of such data is impracticable.
Washington Disposition
In May 2016, the Company completed a disposition of approximately 55,000 acres located in Washington to FIA (the “Washington disposition”) for a sale price of approximately $130 million. The proceeds received from the disposition were used to finance a portion of the Menasha Acquisition. The remainder of the acquisition was financed by entering into an incremental term loan agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions to provide a 10-year, $300 million incremental term loan. See Note 5 — Debt for additional information.

3.
JOINT VENTURE INVESTMENT
Matariki Forestry Group
On March 3, 2016, the Company made a capital contribution into Matariki Forestry Group (the "New Zealand JV"), a joint venture that owns or leases approximately 0.4 million legal acres of New Zealand timberlands, for the purpose of refinancing approximately NZ$235 million of New Zealand JV indebtedness and paying related fees and expenses, including the costs of settling out-of-the-money interest rate swaps. As a result of the capital contribution, the Company's ownership interest in the New Zealand JV increased from 65% to 77%. As a result of the increase in ownership percentage, the pro-rata share of the New Zealand JV’s unrealized foreign currency and cash flow hedge losses were reallocated between the Company and the noncontrolling interest. In accordance with Accounting Standards Codification (“ASC”) 810-10-45-24, this reallocation resulted in a reduction to the common share balance. The Company maintains a controlling financial interest in the New Zealand JV and, accordingly, 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 Shareholders’ Equity. Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the New Zealand JV.


7

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

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 (Loss) is equal to segment income. Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income (Loss) are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations 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, 2016 and 2015:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
SALES
2016
 
2015
 
2016
 
2015
Southern Timber

$27,826

 

$34,797

 

$102,205

 

$103,009

Pacific Northwest Timber
16,139

 
21,549

 
52,316

 
57,805

New Zealand Timber
42,179

 
41,065

 
125,951

 
121,482

Real Estate (a)
60,626

 
35,232

 
211,296

 
65,968

Trading
24,651

 
19,014

 
76,046

 
59,500

Total

$171,421

 

$151,657

 

$567,814

 

$407,764

 
 
 
 
 
(a)
The nine months ended September 30, 2016 include $129.5 million from the Washington disposition.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
OPERATING INCOME (LOSS)
2016
 
2015
 
2016
 
2015
Southern Timber

$8,183

 

$10,504

 

$34,976

 

$34,694

Pacific Northwest Timber
(3,293
)
 
3,081

 
(874
)
 
7,356

New Zealand Timber
6,613

 
(915
)
 
21,385

 
3,834

Real Estate (a)
43,078

 
20,001

 
152,997

 
34,004

Trading
481

 
428

 
1,456

 
614

Corporate and other
(5,373
)
 
(5,320
)
 
(15,687
)
 
(18,452
)
Total Operating Income
49,689

 
27,779

 
194,253

 
62,050

Unallocated interest expense and other
(8,286
)
 
(9,139
)
 
(24,718
)
 
(28,858
)
Total Income before Income Taxes

$41,403

 

$18,640

 

$169,535

 

$33,192

 
 
 
 
 
(a)
The nine months ended September 30, 2016 include $101.3 million from the Washington disposition.

8

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

 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
DEPRECIATION, DEPLETION AND
AMORTIZATION
2016
 
2015
 
2016
 
2015
Southern Timber

$9,988

 

$14,404

 

$37,102

 

$41,356

Pacific Northwest Timber
6,668

 
4,189

 
14,978

 
10,920

New Zealand Timber
5,956

 
7,021

 
17,252

 
22,207

Real Estate (a)
9,260

 
6,269

 
35,988

 
11,087

Trading
—

 
—

 
—

 
—

Corporate and other
106

 
75

 
298

 
214

Total

$31,978

 

$31,958

 

$105,618

 

$85,784

 
 
 
 
 
(a)
The nine months ended September 30, 2016 include $21.9 million from the Washington disposition.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT
2016
 
2015
 
2016
 
2015
Southern Timber
—

 
—

 
—

 
—

Pacific Northwest Timber
—

 
—

 
—

 
—

New Zealand Timber
—

 
—

 
1,824

 
—

Real Estate (a)
4,336

 
4,594

 
10,092

 
9,532

Trading
—

 
—

 
—

 
—

Corporate and other
—

 
—

 
—

 
—

Total

$4,336

 

$4,594

 

$11,916

 

$9,532

 
 
 
 
 
(a)
The nine months ended September 30, 2016 include $1.8 million from the Washington disposition.

5.
DEBT
Rayonier’s debt consisted of the following at September 30, 2016:
 
September 30, 2016
Senior Notes due 2022 at a fixed interest rate of 3.75%

$325,000

Term Credit Agreement borrowings due 2024 at a variable interest rate of 2.1% at September 30, 2016
350,000

Incremental Term Loan Agreement borrowings due 2026 at a variable interest rate of 2.4% at September 30, 2016
300,000

Mortgage notes due 2017 at fixed interest rates of 4.35%
31,752

Revolving Credit Facility borrowings due 2020 at a variable interest rate of 1.8% at September 30, 2016
25,000

Solid waste bond due 2020 at a variable interest rate of 2.1% at September 30, 2016
15,000

New Zealand JV noncontrolling interest shareholder loan at 0% interest rate
22,022

Total debt
1,068,774

Less: Current maturities of long-term debt
(31,752
)
Less: Deferred financing costs
(3,734
)
Long-term debt, net of deferred financing costs

$1,033,288


9

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

Principal payments due during the next five years and thereafter are as follows:
2016
—

2017 (a)
31,500

2018
—

2019
—

2020
40,000

Thereafter
997,022

Total Debt

$1,068,522

 
 
 
 
 
(a)
The mortgage notes due in 2017 were recorded at a premium of $0.3 million as of September 30, 2016. Upon maturity the liability will be $31.5 million.
Incremental Term Loan Agreement
On April 28, 2016, the Company entered into an incremental term loan agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions to provide a 10-year, $300 million incremental term loan. Proceeds from the term loan were used to fund Rayonier’s portion of the Menasha acquisition net of the proceeds received from the Washington disposition, to repay approximately $105 million outstanding on the Company’s revolving credit facility and for general corporate purposes. The Company has entered into interest rate swap transactions to fix the cost of the term loan over its 10-year term. The periodic interest rate on the incremental term loan agreement is LIBOR plus 1.900%. The Company receives annual patronage payments, which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user. The Company estimates the effective interest rate for the third quarter was approximately 2.8% after consideration of the estimated patronage payments and interest rate swaps.
Term Credit Agreement
On August 5, 2015, the Company entered into a credit agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions and other commercial banks to provide $550 million of new credit facilities, including a five-year $200 million unsecured revolving credit facility (see below) and a nine-year $350 million term loan facility. The Company has entered into interest rate swap transactions to fix the cost of the term loan facility over its nine-year term. The periodic interest rate on the term credit agreement is LIBOR plus 1.625%. The Company estimates the effective interest rate for the third quarter was approximately 3.3% after consideration of the estimated patronage payments and interest rate swaps.
Revolving Credit Facility
In August 2015, the Company entered into a five-year $200 million unsecured revolving credit facility, replacing the previous $200 million revolving credit facility and $100 million farm credit facility, which were scheduled to expire in April 2016 and December 2019, respectively. The periodic interest rate on the revolving credit facility is LIBOR plus 1.250%, with an unused commitment fee of 0.175%.
Net borrowings of $25.0 million were made in the third quarter of 2016 on the revolving credit facility. At September 30, 2016, the Company had available borrowings of $169.5 million under the revolving credit facility, net of $5.5 million to secure its outstanding letters of credit.
Joint Venture Debt
On March 3, 2016, the Company used proceeds from the term loan facility to fund a capital contribution into the New Zealand JV. The New Zealand JV in turn used the proceeds for full repayment of the outstanding amount of $155 million under its Tranche A credit facility.
In June 2016, the New Zealand JV entered into a 12-month NZ$20.0 million working capital facility and an 18-month NZ$20.0 million working capital facility, replacing the previous NZ$40.0 million facility that expired in June 2016.

10

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

During the nine months ended September 30, 2016, the New Zealand JV made additional borrowings and repayments of $146.1 million on the facility. Draws totaling $29.2 million remain available on the working capital facilities at September 30, 2016. In addition, the New Zealand JV paid $2.6 million of its shareholder loan held with the non-controlling interest party during the nine months ended September 30, 2016. Changes in exchange rates increased debt on a U.S. dollar basis for its shareholder loan by $1.4 million.
Debt Covenants
In connection with the Company’s $350 million term credit agreement, $300 million incremental term loan agreement and $200 million revolving credit facility, customary covenants must be met, the most significant of which include interest coverage and leverage ratios. In addition to these financial covenants, the mortgage notes, senior notes, term credit agreement, incremental term loan agreement and revolving credit facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At September 30, 2016, the Company was in compliance with all applicable covenants.


6.
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS

Rayonier continuously assesses potential alternative uses of its timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. The Company periodically transfers, via a sale or contribution from the real estate investment trust (“REIT”) entities to taxable REIT subsidiaries (“TRS”), higher and better use (“HBU”) timberlands to enable land-use entitlement, development or marketing activities. The Company also acquires HBU properties in connection with timberland acquisitions. These properties are managed as timberlands until sold or developed. While the majority of HBU sales involve rural and recreational land, the Company also selectively pursues various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value of such properties. For selected development properties, Rayonier also invests in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties.

An analysis of higher and better use timberlands and real estate development costs from December 31, 2015 to September 30, 2016 is shown below:
 
Higher and Better Use Timberlands and Real Estate Development Investments
 
Land and Timber
 
Development Investments
 
Total
Non-current portion at December 31, 2015

$57,897

 

$7,553

 

$65,450

Plus: Current portion (a)
6,019

 
6,233

 
12,252

Total Balance at December 31, 2015
63,916

 
13,786

 
77,702

Non-cash cost of land and improved development
(1,612
)
 
(151
)
 
(1,763
)
Timber depletion from harvesting activities and basis of timber sold in real estate sales
(1,123
)
 
—

 
(1,123
)
Capitalized real estate development investments (b)
—

 
4,815

 
4,815

Capital expenditures (silviculture)
153

 
—

 
153

Intersegment transfers
4

 
—

 
4

Total Balance at September 30, 2016
61,338

 
18,450

 
79,788

Less: Current portion (a)
(3,930
)
 
(5,534
)
 
(9,464
)
Non-current portion at September 30, 2016

$57,408

 

$12,916

 

$70,324

 
 
 
 
 
(a)
The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 16 — Inventory for additional information.
(b)
Capitalized real estate development investments includes $0.1 million of capitalized interest.


11

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

7.
COMMITMENTS
The Company leases certain buildings, machinery, and equipment under various operating leases. The Company also has long-term lease agreements on certain timberlands in the Southern U.S. and New Zealand. U.S. leases typically have initial terms of approximately 30 to 65 years, with renewal provisions in some cases. New Zealand timberland lease terms range between 30 and 99 years. Such leases are generally non-cancellable and require minimum annual rental payments.
At September 30, 2016, the future minimum payments under non-cancellable operating and timberland leases were as follows:
 
Operating
Leases
 
Timberland
Leases (a)
 
Commitments (b)
 
Total
Remaining 2016

$518

 

$3,838

 

$5,120

 

$9,476

2017
1,657

 
10,594

 
13,786

 
26,037

2018
902

 
9,443

 
9,193

 
19,538

2019
725

 
8,966

 
9,193

 
18,884

2020
605

 
8,553

 
9,193

 
18,351

Thereafter (c)
1,770

 
163,003

 
37,393

 
202,166

 

$6,177

 

$204,397

 

$83,878

 

$294,452

 
 
 
 
 
(a)
The majority of timberland leases are subject to increases or decreases based on either the Consumer Price Index, Producer Price Index or market rates.
(b)
Commitments include payments expected to be made on derivative financial instruments (foreign exchange contracts and interest rate swaps), standby letters of credit fees for industrial revenue bonds and construction of the Company’s office building.
(c)
Includes 20 years of future minimum payments for perpetual Crown Forest Licenses (“CFL”). A CFL consists of a license to use public or government owned land to operate a commercial forest. The CFL's extend indefinitely and may only be terminated upon a 35-year termination notice from the government. If no termination notice is given, the CFLs renew automatically each year for a one-year term. As of September 30, 2016, the New Zealand JV has four CFL’s under termination notice, terminating in 2034, two in 2044 and 2049 as well as two fixed-term CFL’s expiring in 2062. The annual license fee is determined based on current market rental value, with triennial rent reviews.

12

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

8.
INCOME TAXES
The operations conducted by the Company’s REIT entities are generally not subject to U.S. federal and state income tax. The New Zealand JV is subject to corporate level tax in New Zealand. Non-REIT qualifying operations are conducted by the Company’s TRS. The primary businesses performed in Rayonier’s TRS include log trading and certain real estate activities, such as the sale and entitlement of development HBU properties.
Provision for Income Taxes
The Company’s effective tax rate is below the 35.0% U.S. statutory rate due to tax benefits associated with being a REIT. The income tax expense (benefit) for the three and nine months ended September 30, 2016 and 2015 are principally related to the New Zealand JV.
The table below reconciles the U.S. statutory rate to the Company’s effective tax rate for each period presented:
 
Three Months Ended September 30,
 
2016
 
2015
Income tax expense at federal statutory rate

$14,491

 
35.0
 %
 

$6,524

 
35.0
 %
U.S. and foreign REIT income & U.S. TRS taxable losses
(11,487
)
 
(27.7
)
 
(9,259
)
 
(49.6
)
Foreign TRS operations
(312
)
 
(0.8
)
 
(1,466
)
 
(7.9
)
U.S. net deferred tax asset valuation allowance
(1,741
)
 
(4.2
)
 
2,742

 
14.7

Other
(70
)
 
(0.2
)
 
90

 
0.5

Income tax expense (benefit) before discrete items

$881

 
2.1
 %
 

($1,369
)
 
(7.3
)%
CBPC(a) valuation allowance
—

 
—

 
997

 
5.3

Return-to-accrual adjustments
(171
)
 
(0.4
)
 
(169
)
 
(0.9
)
Other
69

 
0.2

 
—

 
—

Income tax expense (benefit) as reported

$779

 
1.9
 %
 

($541
)
 
(2.9
)%

 
Nine Months Ended September 30,
 
2016
 
2015
Income tax expense at federal statutory rate

$59,337

 
35.0
 %
 

$11,617

 
35.0
 %
U.S. and foreign REIT income & U.S. TRS taxable losses
(55,801
)
 
(32.9
)
 
(16,260
)
 
(48.9
)
Foreign TRS operations
(626
)
 
(0.4
)
 
(3,029
)
 
(9.1
)
U.S. net deferred tax asset valuation allowance
2,654

 
1.6

 
5,360

 
16.1

Other
137

 
0.1

 
175

 
0.5

Income tax expense (benefit) before discrete items

$5,701

 
3.4
 %
 

($2,137
)
 
(6.4
)%
CBPC(a) valuation allowance
—

 
—

 
997

 
3.0

Tax benefit recognized related to changes in the New Zealand JV deferred tax inventory
(1,833
)
 
(1.1
)
 
—

 
—

Purchase accounting deferred tax benefit
(1,423
)
 
(0.9
)
 
—

 
—

Return-to-accrual adjustments
(171
)
 
(0.1
)
 
(169
)
 
(0.5
)
Income tax expense (benefit) as reported

$2,274

 
1.3
 %
 

($1,309
)
 
(3.9
)%
 
 
 
 
 
(a)    Cellulosic biofuels producer credit.


13

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

9.
CONTINGENCIES

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

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

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

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

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

•
Brown v. Rayonier Inc. et al, Civil Action No. 1:14-cv-08986, initially filed in the United States District Court for the Southern District of New York and later transferred to the United States District Court for the Middle District of Florida and assigned as Civil Action No. 3:14-cv-01474.
    
On January 9, 2015, the five securities actions were consolidated into one putative class action entitled In re Rayonier Inc. Securities Litigation, Case No. 3:14-cv-01395-TJC-JBT, in the United States District Court for the Middle District of Florida. The plaintiffs alleged that the defendants made false and/or misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The plaintiffs sought unspecified monetary damages and attorneys’ fees and costs. Two shareholders, the Pension Trust Fund for Operating Engineers and the Lake Worth Firefighters’ Pension Trust Fund moved for appointment as lead plaintiff on January 12, 2015, which was granted on February 25, 2015. On April 7, 2015, the plaintiffs filed a Consolidated Class Action Complaint (the “Consolidated Complaint”). In the Consolidated Complaint, plaintiffs added allegations as to and added as a defendant N. Lynn Wilson, a former officer of Rayonier. With the filing of the Consolidated Complaint, David L. Nunes and H. Edwin Kiker were dropped from the case as defendants. Defendants timely filed Motions to Dismiss the Consolidated Complaint on May 15, 2015. After oral argument on Defendants' motions on August 25, 2015, the Court dismissed the Consolidated Complaint without prejudice, allowing plaintiffs leave to refile. Plaintiffs filed the Amended Consolidated Class Action Complaint (the “Amended Complaint”) on September 25, 2015, which continued to assert claims against the Company, as well as Ms. Wilson and Messrs. Boynton and Vanden Noort. Defendants timely filed Motions to Dismiss the Amended Complaint on October 26, 2015. The court denied those motions on May 20, 2016. The case is now in the discovery phase. At this preliminary stage, the Company cannot determine whether there is a reasonable likelihood a material loss has been incurred nor can the range of any such loss be estimated.

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

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


14

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

10.
GUARANTEES
The Company provides financial guarantees as required by creditors, insurance programs, and various governmental agencies.
As of September 30, 2016, the following financial guarantees were outstanding:
Financial Commitments
 
Maximum Potential
Payment
 
Carrying Amount
of Associated Liability
Standby letters of credit (a)
 

$20,642

 

$15,000

Guarantees (b)
 
2,254

 
43

Surety bonds (c)
 
771

 
—

Total financial commitments
 

$23,667

 

$15,043

 
 
 
 
 
(a)
Approximately $15 million of the standby letters of credit serve as credit support for industrial revenue bonds. Approximately $3.8 million of the standby letters of credit serve as credit support for infrastructure at the Company’s Wildlight development project. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation. These letters of credit will expire at various dates during 2016 and 2017 and will be renewed as required.
(b)
In conjunction with a timberland sale and note monetization in 2004, the Company issued a make-whole agreement pursuant to which it guaranteed $2.3 million of obligations of a special-purpose entity that was established to complete the monetization. At September 30, 2016, the Company has a de minimis liability to reflect the fair market value of its obligation to perform under the make-whole agreement.
(c)
Rayonier issues surety bonds primarily to secure timber harvesting obligations in the State of Washington and to provide collateral for the Company’s workers’ compensation self-insurance program in that state. Rayonier has also obtained performance bonds to secure the development activity at the Company’s Wildlight development project. These surety bonds expire at various dates during 2017 and are expected to be renewed as required.
 

15

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

11.
EARNINGS PER COMMON SHARE
The following table provides details of the calculations of basic and diluted earnings per common share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net Income

$40,624

 

$19,181

 

$167,261

 

$34,501

Less: Net income (loss) attributable to noncontrolling interest
1,269

 
(488
)
 
3,613

 
(1,379
)
Net income attributable to Rayonier Inc.

$39,355

 

$19,669

 

$163,648

 

$35,880

 
 
 
 
 
 
 
 
Shares used for determining basic earnings per common share
122,597,927

 
125,143,706

 
122,574,094

 
126,125,802

Dilutive effect of:
 
 
 
 
 
 
 
Stock options
113,849

 
91,495

 
88,594

 
129,906

Performance and restricted shares
170,857

 
31,051

 
120,212

 
37,064

Assumed conversion of Senior Exchangeable Notes (a)
—

 
39,720

 
—

 
477,931

Shares used for determining diluted earnings per common share
122,882,633

 
125,305,972

 
122,782,900

 
126,770,703

 
 
 
 
 
 
 
 
Basic earnings per common share attributable to Rayonier Inc.:

$0.32

 

$0.16

 

$1.34

 

$0.28

 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to Rayonier Inc.:

$0.32

 

$0.16

 

$1.33

 

$0.28


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Anti-dilutive shares excluded from the computations of diluted earnings per share:
 
 
 
 
 
 
 
Stock options, performance and restricted shares
745,878

 
994,549

 
863,244

 
906,582

Assumed conversion of exchangeable note hedges (a)
—

 
39,720

 
—

 
477,931

Total
745,878

 
1,034,269

 
863,244

 
1,384,513

 
 
 
 
 
(a)    Rayonier did not issue additional shares upon maturity of the Senior Exchangeable Notes due August 2015 (the “2015
Notes”) due to offsetting hedges. ASC 260, Earnings Per Share required the assumed conversion of the 2015 Notes to be included in dilutive shares if the average stock price for the period exceeded the strike price, while the conversion of the hedges was excluded since they were anti-dilutive. The full dilutive effect of the 2015 Notes was included for the prior period presented.
Rayonier did not distribute additional shares upon the February 2016 maturity of the warrants sold in conjunction with the 2015 Notes as the stock price did not exceed $28.11 per share. The warrants were not dilutive for the nine months ended September 30, 2016 and 2015 as the average stock price for the periods the warrants were outstanding did not exceed the strike price.


16

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

12.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. The Company uses derivative financial instruments to mitigate the financial impact of exposure to these risks.
Accounting for derivative financial instruments is governed by ASC Topic 815, Derivatives and Hedging, (“ASC 815”). In accordance with ASC 815, the Company records its derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the Company’s investment in its New Zealand operations is partially or completely liquidated. The ineffective portion of any hedge, changes in the fair value of derivatives not designated as hedging instruments and those which are no longer effective as hedging instruments, are recognized immediately in earnings. The Company’s hedge ineffectiveness was de minimis for all periods presented.
Foreign Currency Exchange and Option Contracts
The functional currency of Rayonier’s wholly owned subsidiary, Rayonier New Zealand Limited, and the New Zealand JV is the New Zealand dollar. The New Zealand JV is exposed to foreign currency risk on export sales and ocean freight payments which are mainly denominated in U.S. dollars. The New Zealand JV typically hedges 35% to 90% of its estimated foreign currency exposure with respect to the following three months forecasted sales and purchases, 25% to 75% of forecasted sales and purchases for the forward three to 12 months and up to 50% of the forward 12 to 18 months. Foreign currency exposure from the New Zealand JV’s trading operations is typically hedged based on the following three months forecasted sales and purchases. As of September 30, 2016, foreign currency exchange contracts and foreign currency option contracts had maturity dates through November 2017.
Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments qualify for cash flow hedge accounting. The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model.
The Company may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive income for de-designated hedges remains in accumulated other comprehensive income until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings.
In August 2015, the Company entered into foreign currency option contracts (notional amount of $332 million) to mitigate the risk of fluctuations in foreign currency exchange rates when translating the New Zealand JV’s balance sheet to U.S. dollars. These contracts hedged a portion of the Company’s net investment in New Zealand and qualified as a net investment hedge. The fair value of these contracts was determined by a mark-to-market valuation, which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. The hedges qualified for hedge accounting whereby fluctuations in fair market value during the life of the hedge are recorded in AOCI and remain there permanently unless a partial or full liquidation of the investment is made. At each reporting period, the Company reviews the hedges for ineffectiveness. Ineffectiveness can occur when changes to the investment or the hedged instrument are made such that the risk of foreign exchange movements are no longer mitigated by the hedging instrument. At that time, the amount related to the ineffectiveness of the hedge is recorded into earnings. The Company did not have any ineffectiveness during the life of the hedges. The foreign currency option contracts matured on February 3, 2016.
On February 1, 2016, the Company entered into foreign currency option contracts (notional amounts of $159.7 million and $154.6 million) to mitigate the risk of fluctuations in foreign exchange rates when funding the capital contribution to the New Zealand JV. On February 29, 2016, the contracts were settled for a net premium of $0.3 million. The gain on these contracts was recorded in “Other operating income, net” as they did not qualify for hedge accounting treatment.
On February 29, 2016, the Company purchased a foreign exchange forward contract (notional amount $159.5 million) to mitigate the risk of fluctuations in foreign exchange rate contracts when funding the capital contribution to the New Zealand JV. The contract matured on March 3, 2016, resulting in a gain of $0.9 million. The gain on this contract was recorded in “Other operating income, net” as it did not qualify for hedge accounting treatment.

17

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

Interest Rate Swaps
The Company used interest rate swaps to manage the New Zealand JV’s exposure to interest rate movements on its variable rate debt attributable to changes in the New Zealand Bank bill rate. On March 3, 2016, as part of the capital contribution into the New Zealand JV, the Company settled all remaining New Zealand JV interest rate swaps for $9.3 million. Initially, these hedges qualified for hedge accounting; however, upon consolidation of the New Zealand JV in 2013, the hedges no longer qualified, requiring all future changes in the fair market value of the hedges to be recorded in earnings.
The Company is exposed to cash flow interest rate risk on its variable-rate Term Credit Agreement and Incremental Term Loan Agreement (as discussed below), and uses variable-to-fixed interest rate swaps to hedge this exposure. For these derivative instruments, the Company reports the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassifies them to earnings as interest expense in the same period in which the hedged interest payments affect earnings.
In August 2015, the Company entered into a nine-year interest rate swap agreement for a notional amount of $170 million. This swap agreement fixes the variable portion of the interest rate on the Term Credit Agreement borrowings due 2024 from LIBOR to an average rate of 2.20%. Together with the bank margin of 1.63%, this results in a rate of 3.83% before estimated patronage payments. This derivative instrument has been designated as an interest rate cash flow hedge and qualifies for hedge accounting.
Also, in August 2015, the Company entered into a nine-year forward interest rate swap agreement with a start date in April 2016 for a notional amount of $180 million. This swap agreement fixes the variable portion of the interest rate on the Term Credit Agreement borrowings due 2024 from LIBOR to an average rate of 2.35%. Together with the bank margin of 1.63%, this results in a rate of 3.97% before estimated patronage payments. This derivative instrument has been designated as an interest rate cash flow hedge and qualifies for hedge accounting.
In April 2016, the Company entered into two ten-year interest rate swap agreements, each for a notional amount of $100 million. These swap agreements fix the variable portion of the interest rate on the Incremental Term Loan borrowings due 2026 to an average rate of 1.60%. Together with the bank margin of 1.90%, this results in a rate of 3.50% before estimated patronage payments. These derivative instruments have been designated as interest rate cash flow hedges and qualify for hedge accounting.
On July 7, 2016, the Company entered into an interest rate swap agreement for a notional amount of $100 million through May 2026. This swap agreement fixes the variable portion of the interest rate on the Incremental Term Loan borrowings due 2026 from LIBOR to an average rate of 1.26%. Together with the bank margin of 1.90%, this results in a rate of 3.16% before estimated patronage payments. This derivative instrument has been designated as an interest rate cash flow hedge and qualifies for hedge accounting.
The following tables demonstrate the impact of the Company’s derivatives on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2016 and 2015.
 
 
 
Three Months Ended
September 30,
 
Income Statement Location
 
2016
 
2015
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other comprehensive income (loss)
 

$259

 

($289
)
Foreign currency option contracts
Other comprehensive income (loss)
 
635

 
(788
)
Interest rate swaps
Other comprehensive income (loss)
 
3,529

 
(13,644
)
 
 
 
 
 
 
Derivatives designated as a net investment hedge:
 
 
 
 
 
Foreign currency exchange contract
Other comprehensive income (loss)
 
—

 
1,151

Foreign currency option contracts
Other comprehensive income (loss)
 
—

 
2,084

 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency option contracts
Other operating income, net
 
—

 
847

Interest rate swaps
Interest income and miscellaneous income (expense), net
 
—

 
(1,650
)

18

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

 
 
 
Nine Months Ended
September 30,
 
Income Statement Location
 
2016
 
2015
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other comprehensive income (loss)
 

$2,075

 

($2,597
)
Foreign currency option contracts
Other comprehensive income (loss)
 
2,564

 
(4,127
)
Interest rate swaps
Other comprehensive income (loss)
 
(25,459
)
 
(13,644
)
 
 
 
 
 
 
Derivatives designated as a net investment hedge:
 
 
 
 
 
Foreign currency exchange contract
Other comprehensive income (loss)
 
(4,606
)
 
4,258

Foreign currency option contracts
Other comprehensive (loss) income
 
—

 
2,084

 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency exchange contracts
Other operating income, net
 
895

 
—

Foreign currency option contracts
Other operating income, net
 
258

 
1,394

Interest rate swaps
Interest income and miscellaneous income (expense), net
 
(1,219
)
 
4,923

During the next 12 months, the amount of the September 30, 2016 AOCI balance, net of tax, expected to be reclassified into earnings as a result of the maturation of the Company’s derivative instruments is a gain of approximately $1.8 million.
The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
 
Notional Amount
 
September 30, 2016
 
December 31, 2015
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency exchange contracts

$25,390

 

$21,250

Foreign currency option contracts
70,500

 
107,200

Interest rate swaps
650,000

 
350,000

 
 
 
 
Derivatives designated as net investment hedges:
 
 
 
Foreign currency option contracts
—

 
331,588

 
 
 
 
Derivative not designated as a hedging instrument:
 
 
 
Interest rate swaps
—

 
130,169


19

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

The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets:
 
Location on Balance Sheet
 
Fair Value Assets / (Liabilities) (a)
 
 
 
September 30, 2016
 
December 31, 2015
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other current assets
 

$1,173

 

$43

 
Other assets
 
142

 
—

 
Other current liabilities
 
(342
)
 
(1,449
)
 
Other non-current liabilities
 
—

 
(219
)
Foreign currency option contracts
Other current assets
 
1,909

 
560

 
Other assets
 
243

 
408

 
Other current liabilities
 
(173
)
 
(1,393
)
 
Other non-current liabilities
 
(59
)
 
(217
)
Interest rate swaps
Other non-current liabilities
 
(35,655
)
 
(10,197
)
 
 
 
 
 
 
Derivatives designated as net investment hedges:
 
 
 
 
Foreign currency option contracts
Other current assets
 
—

 
4,630

 
Other current liabilities
 
—

 
(24
)
 
 
 
 
 
 
Derivative not designated as a hedging instrument:
 
 
 
 
Interest rate swaps
Other non-current liabilities
 
—

 
(8,047
)
 
 
 
 
 
 
 
 
 
 
 
 
Total derivative contracts:
 
 
 
 
 
Other current assets
 
 

$3,082

 

$5,233

Other assets
 
 
385

 
408

Total derivative assets
 
 

$3,467

 

$5,641

 
 
 
 
 
 
Other current liabilities
 
 
(515
)
 
(2,866
)
Other non-current liabilities
 
 
(35,714
)
 
(18,680
)
Total derivative liabilities
 
 

($36,229
)
 

($21,546
)
 
 
 
 
 
(a)
See Note 13 — Fair Value Measurements for further information on the fair value of the Company’s derivatives including their classification within the fair value hierarchy.

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


20

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

13.
FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. (a)
The following table presents the carrying amount and estimated fair values of financial instruments held by the Company at September 30, 2016 and December 31, 2015, using market information and what the Company believes to be appropriate valuation methodologies under generally accepted accounting principles:
 
September 30, 2016
 
December 31, 2015
Asset (Liability) (a)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
 
 
Level 1
 
Level 2
Cash and cash equivalents

$110,039

 

$110,039

 
—

 

$51,777

 

$51,777

 
—

Restricted cash (b)
1,095

 
1,095

 
—

 
23,525

 
23,525

 
—

Current maturities of long-term debt
(31,752
)
 
—

 
(32,403
)
 
—

 
—

 
—

Long-term debt (c)
(1,033,288
)
 
—

 
(1,049,210
)
 
(830,554
)
 
—

 
(830,203
)
Interest rate swaps (d)
(35,655
)
 
—

 
(35,655
)
 
(18,244
)
 
—

 
(18,244
)
Foreign currency exchange contracts (d)
973

 
—

 
973

 
(1,625
)
 
—

 
(1,625
)
Foreign currency option contracts (d)
1,920

 
—

 
1,920

 
3,964

 
—

 
3,964

 
 
 
 
 
(a)
The Company did not have Level 3 assets or liabilities at September 30, 2016.
(b)
Restricted cash is recorded in “Other Assets” and represents the proceeds from like-kind exchange sales deposited with a third-party intermediary and cash held in escrow for a real estate sale. See Note 17 — Restricted Deposits for additional information regarding restricted cash.
(c)
The carrying amount of long-term debt is presented net of capitalized debt costs on non-revolving debt. See Note 1 — Basis of Presentation for additional information.
(d)
See Note 12 — Derivative Financial Instruments and Hedging Activities for information regarding the Balance Sheet classification of the Company’s derivative financial instruments.
Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents and Restricted cash — The carrying amount is equal to fair market value.
Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value.
Interest rate swap agreements — The fair value of interest rate contracts is determined by discounting the expected future cash flows, for each instrument, at prevailing interest rates.
Foreign currency exchange contracts — The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.
Foreign currency option contracts — The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model.


21

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

14.
EMPLOYEE BENEFIT PLANS
The Company has one qualified non-contributory defined benefit pension plan covering a portion of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plan. Currently, the pension plan is closed to new participants. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change. In 2016, the Company has no mandatory pension contribution requirement.
The net pension and postretirement benefit costs that have been recorded are shown in the following table:
 
Pension
 
Postretirement
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost

$327

 

$371

 

$2

 

$3

Interest cost
869

 
830

 
12

 
13

Expected return on plan assets
(1,008
)
 
(1,007
)
 
—

 
—

Amortization of prior service cost
—

 
3

 
—

 
—

Amortization of losses
632

 
950

 
—

 
3

Net periodic benefit cost

$820

 

$1,147

 

$14

 

$19

 
 
 
 
 
 
 
 

 
Pension
 
Postretirement
 
Nine Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost

$980

 

$1,113

 

$5

 

$8

Interest cost
2,606

 
2,489

 
36

 
39

Expected return on plan assets
(3,023
)
 
(3,020
)
 
—

 
—

Amortization of prior service cost
—

 
10

 
—

 
—

Amortization of losses (gains)
1,893

 
2,799

 
(12
)
 
9

Net periodic benefit cost

$2,456

 

$3,391

 

$29

 

$56

 
 
 
 
 
 
 
 


22

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

15.
OTHER OPERATING INCOME, NET
Other operating income, net comprised the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Lease income, primarily from hunting leases

$3,769

 

$4,349

 

$13,991

 

$14,348

Other non-timber income
666

 
581

 
1,721

 
2,634

Foreign currency income (loss)
533

 
(149
)
 
34

 
67

Gain on sale or disposal of property and equipment
58

 
4

 
81

 
6

Loss on foreign currency exchange and option contracts
(333
)
 
(2,297
)
 
(1,406
)
 
(3,290
)
Deferred payment related to a prior land sale
—

 
—

 
4,000

 
—

Costs related to acquisition
(91
)
 
—

 
(1,306
)
 
—

Gain on foreign currency derivatives (a)
—

 
—

 
1,153

 
—

Gain on sale of carbon credits
359

 
—

 
1,113

 
352

Miscellaneous income, net
538

 
367

 
1,486

 
1,450

Total

$5,499

 

$2,855

 

$20,867

 

$15,567

 
 
 
 
 
(a)
The Company used foreign exchange derivatives to mitigate the risk of fluctuations in foreign exchange rates while awaiting the capital contribution to the New Zealand JV.

16.
INVENTORY
As of September 30, 2016 and December 31, 2015, Rayonier’s inventory was solely comprised of finished goods, as follows:
 
September 30, 2016
 
December 31, 2015
Finished goods inventory
 
 
 
Real estate inventory (a)

$9,464

 

$12,252

Log inventory
6,600

 
3,099

Total inventory

$16,064

 

$15,351

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

17.
RESTRICTED DEPOSITS
In order to qualify for like-kind exchange (“LKE”) treatment, the proceeds from real estate sales must be deposited with a third-party intermediary. These proceeds are accounted for as restricted cash until a suitable replacement property is acquired. In the event LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of September 30, 2016 and December 31, 2015, the Company had $1.1 million and $23.5 million, respectively, of proceeds from real estate sales classified as restricted cash in “Other Assets,” which includes cash deposited with an LKE intermediary as well as cash held in escrow for a real estate sale.


23

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

18.
ASSETS HELD FOR SALE
During the three months ended September 30, 2016, the Company entered in to three separate contracts to sell a total of 62,100 acres of timberland in Alabama and Mississippi for $119.7 million. The basis in these properties of $47.4 million is classified as assets held for sale in the Consolidated Balance Sheet as of September 30, 2016 as the properties are expected to be sold within the next 12 months and meet the other relevant held-for-sale criteria in accordance with ASC 360-10-45-9. Two of these transactions will close in October 2016, and the remaining transaction is expected to close in January 2017.
Subsequent Event
See Note 1 — Basis of Presentation for additional information on subsequent events.

19.
ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)
The following table summarizes the changes in AOCI by component for the nine months ended September 30, 2016 and the year ended December 31, 2015. All amounts are presented net of tax and exclude portions attributable to noncontrolling interest.
 
Foreign currency translation gains/ (losses)
 
Net investment hedges of New Zealand JV
 
Cash flow hedges
 
Employee benefit plans
 
Total
Balance as of December 31, 2014

$25,533

 

($145
)
 

($1,548
)
 

($28,665
)
 

($4,825
)
Other comprehensive income/(loss) before reclassifications
(27,983
)
 
6,416

 
(14,444
)
(a)
(354
)
 
(36,365
)
Amounts reclassified from accumulated other comprehensive loss
—

 
—

 
4,400

 
3,287

(b)
7,687

Net other comprehensive income/(loss)
(27,983
)
 
6,416

 
(10,044
)
 
2,933

 
(28,678
)
Balance as of December 31, 2015

($2,450
)
 

$6,271

 

($11,592
)
 

($25,732
)
 

($33,503
)
Other comprehensive income/(loss) before reclassifications
25,133

 
—

 
(22,954
)
(c)
—

 
2,179

Amounts reclassified from accumulated other comprehensive loss
—

 
(4,606
)
 
223

 
1,881

(b)
(2,502
)
Net other comprehensive income/(loss)
25,133

 
(4,606
)
 
(22,731
)

1,881


(323
)
Recapitalization of New Zealand JV
3,622

 
—

 
(184
)
 
—

 
3,438

Balance as of September 30, 2016

$26,305

 

$1,665

 

($34,507
)
 

($23,851
)
 

($30,388
)
 
 
 
 
 
(a)
Includes $10.2 million of other comprehensive loss related to interest rate swaps entered into in the third quarter 2015. See Note 12 — Derivative Financial Instruments and Hedging Activities for additional information.
(b)
This component of other comprehensive income is included in the computation of net periodic pension cost. See Note 14 — Employee Benefit Plans for additional information.
(c)
Includes $25.5 million of other comprehensive loss related to interest rate swaps. See Note 12 — Derivative Financial Instruments and Hedging Activities for additional information.

24

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

The following table presents details of the amounts reclassified in their entirety from AOCI to net income for the nine months ended September 30, 2016 and September 30, 2015:
Details about accumulated other comprehensive income components
 
Amount reclassified from accumulated other comprehensive income
 
Affected line item in the income statement
 
 
September 30,
 2016
 
September 30,
2015
 
 
Realized loss on foreign currency exchange contracts
 

$43

 

$3,928

 
Other operating income, net
Realized loss on foreign currency option contracts
 
502

 
3,149

 
Other operating income, net
Noncontrolling interest
 
(235
)
 
(2,477
)
 
Comprehensive income (loss) attributable to noncontrolling interest
Income tax benefit on loss from foreign currency contracts
 
(87
)
 
(1,288
)
 
Income tax (expense) benefit
Net loss from accumulated other comprehensive income
 

$223

 

$3,312

 
 



25

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

20.
CONSOLIDATING FINANCIAL STATEMENTS
The condensed consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly-owned subsidiaries, which are eliminated upon consolidation, and the allocation of certain expenses of Rayonier Inc. incurred for the benefit of its subsidiaries.
In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. In connection with these notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.
The subsidiary guarantors, Rayonier Operating Company LLC (“ROC”) and Rayonier TRS Holdings Inc., are wholly-owned by the Parent Company, Rayonier Inc. The notes are fully and unconditionally guaranteed on a joint and several basis by the guarantor subsidiaries.
 
CONDENSED CONSOLIDATING STATEMENTS OF (LOSS) INCOME
 AND COMPREHENSIVE (LOSS) INCOME
 
For the Three Months Ended September 30, 2016
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
—

 
—

 

$171,421

 
—

 

$171,421

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
116,624

 
—

 
116,624

Selling and general expenses
—

 
5,904

 
4,703

 
—

 
10,607

Other operating expense (income), net
—

 
190

 
(5,689
)
 
—

 
(5,499
)
 
—

 
6,094

 
115,638

 
—

 
121,732

OPERATING (LOSS) INCOME
—

 
(6,094
)
 
55,783

 
—

 
49,689

Interest expense
(3,139
)
 
(5,150
)
 
(255
)
 
—

 
(8,544
)
Interest and miscellaneous income (expense), net
2,199

 
694

 
(2,635
)
 
—

 
258

Equity in income from subsidiaries
40,295

 
50,315

 
—

 
(90,610
)
 
—

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
39,355

 
39,765

 
52,893

 
(90,610
)
 
41,403

Income tax benefit (expense)
—

 
530

 
(1,309
)
 
—

 
(779
)
NET INCOME
39,355

 
40,295

 
51,584

 
(90,610
)
 
40,624

Less: Net income attributable to noncontrolling interest
—

 
—

 
1,269

 
—

 
1,269

NET INCOME ATTRIBUTABLE TO RAYONIER INC.
39,355

 
40,295

 
50,315

 
(90,610
)
 
39,355

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 


 
 
Foreign currency translation adjustment, net of income tax
9,793

 
—

 
12,020

 
(9,791
)
 
12,022

Cash flow hedges, net of income tax
4,044

 
3,530

 
665

 
(4,044
)
 
4,195

Actuarial change and amortization of pension and postretirement plans, net of income tax
632

 
632

 
—

 
(632
)
 
632

Total other comprehensive income
14,469

 
4,162

 
12,685

 
(14,467
)
 
16,849

COMPREHENSIVE INCOME
53,824

 
44,457

 
64,269

 
(105,077
)
 
57,473

Less: Comprehensive income attributable to noncontrolling interest
—

 
—

 
3,649

 
—

 
3,649

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$53,824

 

$44,457

 

$60,620

 

($105,077
)
 

$53,824

 
 
 
 
 
 
 
 
 
 

26

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

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

 
—

 

$151,657

 
—

 

$151,657

Costs and Expenses
 
 
 
 
 
 

 
 
Cost of sales
—

 
—

 
116,044

 
—

 
116,044

Selling and general expenses
—

 
4,412

 
6,277

 
—

 
10,689

Other operating income, net
—

 
16

 
(2,871
)
 
—

 
(2,855
)
 
—

 
4,428

 
119,450

 
—

 
123,878

OPERATING (LOSS) INCOME
—

 
(4,428
)
 
32,207

 
—

 
27,779

Interest expense
(3,227
)
 
(2,240
)
 
(2,114
)
 
—

 
(7,581
)
Interest and miscellaneous income (expense), net
1,980

 
583

 
(4,121
)
 
—

 
(1,558
)
Equity in income from subsidiaries
20,916

 
26,647

 
—

 
(47,563
)
 
—

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
19,669

 
20,562

 
25,972

 
(47,563
)
 
18,640

Income tax benefit (expense)
—

 
354

 
187

 
—

 
541

NET INCOME
19,669

 
20,916

 
26,159

 
(47,563
)
 
19,181

Less: Net loss attributable to noncontrolling interest
—

 
—

 
(488
)
 
—

 
(488
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
19,669

 
20,916

 
26,647

 
(47,563
)
 
19,669

OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
 
 
 


 
 
Foreign currency translation adjustment, net of income tax
(8,662
)
 
(8,662
)
 
(13,370
)
 
17,324

 
(13,370
)
Cash flow hedges, net of income tax
(13,954
)
 
(13,954
)
 
(14,120
)
 
27,908

 
(14,120
)
Actuarial change and amortization of pension and postretirement plans, net of income tax
890

 
890

 
117

 
(1,007
)
 
890

Total other comprehensive loss
(21,726
)
 
(21,726
)
 
(27,373
)
 
44,225

 
(26,600
)
COMPREHENSIVE LOSS
(2,057
)
 
(810
)
 
(1,214
)
 
(3,338
)
 
(7,419
)
Less: Comprehensive loss attributable to noncontrolling interest
—

 
—

 
(5,363
)
 
—

 
(5,363
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.

($2,057
)
 

($810
)
 

$4,149

 

($3,338
)
 

($2,056
)
 
 
 
 
 
 
 
 
 
 



27

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

 
CONDENSED CONSOLIDATING STATEMENTS OF (LOSS) INCOME
 AND COMPREHENSIVE (LOSS) INCOME
 
For the Nine Months Ended September 30, 2016
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
—

 
—

 

$567,814

 
—

 

$567,814

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
362,790

 
—

 
362,790

Selling and general expenses
—

 
11,485

 
20,153

 
—

 
31,638

Other operating expense (income), net
—

 
378

 
(21,245
)
 
—

 
(20,867
)
 
—

 
11,863

 
361,698

 
—

 
373,561

OPERATING (LOSS) INCOME
—

 
(11,863
)
 
206,116

 
—

 
194,253

Interest expense
(9,417
)
 
(11,678
)
 
(2,508
)
 
—

 
(23,603
)
Interest and miscellaneous income (expense), net
6,346

 
2,059

 
(9,520
)
 
—

 
(1,115
)
Equity in income from subsidiaries
166,719

 
188,588

 
—

 
(355,307
)
 
—

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
163,648

 
167,106

 
194,088

 
(355,307
)
 
169,535

Income tax expense
—

 
(387
)
 
(1,887
)
 
—

 
(2,274
)
NET INCOME
163,648

 
166,719

 
192,201

 
(355,307
)
 
167,261

Less: Net income attributable to noncontrolling interest
—

 
—

 
3,613

 
—

 
3,613

NET INCOME ATTRIBUTABLE TO RAYONIER INC.
163,648

 
166,719

 
188,588

 
(355,307
)
 
163,648

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
—

 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax
20,529

 
(4,607
)
 
32,653

 
(20,529
)
 
28,046

Cash flow hedges, net of income tax
(22,733
)
 
(25,458
)
 
3,403

 
22,733

 
(22,055
)
Actuarial change and amortization of pension and postretirement plans, net of income tax
1,881

 
1,881

 
—

 
(1,881
)
 
1,881

Total other comprehensive (loss) income
(323
)
 
(28,184
)
 
36,056

 
323

 
7,872

COMPREHENSIVE INCOME
163,325

 
138,535

 
228,257

 
(354,984
)
 
175,133

Less: Comprehensive income attributable to noncontrolling interest
—

 
—

 
11,808

 
—

 
11,808

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$163,325

 

$138,535

 

$216,449

 

($354,984
)
 

$163,325

 
 
 
 
 
 
 
 
 
 




28

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

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

 
—

 

$407,764

 
—

 

$407,764

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
326,966

 
—

 
326,966

Selling and general expenses
—

 
15,691

 
18,624

 
—

 
34,315

Other operating (income) expense, net
—

 
(445
)
 
(15,122
)
 
—

 
(15,567
)
 
—

 
15,246

 
330,468

 
—

 
345,714

OPERATING (LOSS) INCOME
—

 
(15,246
)
 
77,296

 
—

 
62,050

Interest expense
(9,564
)
 
(7,304
)
 
(7,740
)
 
—

 
(24,608
)
Interest and miscellaneous income (expense), net
5,787

 
1,956

 
(11,993
)
 
—

 
(4,250
)
Equity in income from subsidiaries
39,657

 
58,010

 
—

 
(97,667
)
 
—

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
35,880

 
37,416

 
57,563

 
(97,667
)
 
33,192

Income tax benefit (expense)
—

 
2,241

 
(932
)
 
—

 
1,309

NET INCOME
35,880

 
39,657

 
56,631

 
(97,667
)
 
34,501

Less: Net loss attributable to noncontrolling interest
—

 
—

 
(1,379
)
 
—

 
(1,379
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
35,880

 
39,657

 
58,010

 
(97,667
)
 
35,880

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax
(37,100
)
 
(37,100
)
 
(53,088
)
 
74,201

 
(53,087
)
Cash flow hedges, net of income tax
(16,465
)
 
(16,465
)
 
(17,983
)
 
32,930

 
(17,983
)
Actuarial change and amortization of pension and postretirement plans, net of income tax
2,414

 
2,414

 
132

 
(2,546
)
 
2,414

Total other comprehensive (loss) income
(51,151
)
 
(51,151
)
 
(70,939
)
 
104,585

 
(68,656
)
COMPREHENSIVE (LOSS) INCOME
(15,271
)
 
(11,494
)
 
(14,308
)
 
6,918

 
(34,155
)
Less: Comprehensive loss attributable to noncontrolling interest
—

 
—

 
(18,884
)
 
—

 
(18,884
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.

($15,271
)
 

($11,494
)
 

$4,576

 

$6,918

 

($15,271
)
 
 
 
 
 
 
 
 
 
 


29

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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of September 30, 2016
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$59,966

 

$5,320

 

$44,753

 
—

 

$110,039

Accounts receivable, less allowance for doubtful accounts
—

 
2,050

 
22,681

 
—

 
24,731

Inventory
—

 
—

 
16,064

 
—

 
16,064

Prepaid expenses
—

 
985

 
11,579

 
—

 
12,564

Assets held for sale
—

 
—

 
47,361

 
—

 
47,361

Other current assets
—

 
242

 
3,127

 
—

 
3,369

Total current assets
59,966

 
8,597

 
145,565

 
—

 
214,128

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
—

 
—

 
2,325,489

 
—

 
2,325,489

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
—

 
—

 
70,324

 
—

 
70,324

NET PROPERTY, PLANT AND EQUIPMENT
—

 
213

 
10,863

 
—

 
11,076

INVESTMENT IN SUBSIDIARIES
1,339,173

 
2,644,299

 
—

 
(3,983,472
)
 
—

INTERCOMPANY RECEIVABLE
23,396

 
(606,285
)
 
582,889

 
—

 
—

OTHER ASSETS
3

 
21,937

 
28,441

 
—

 
50,381

TOTAL ASSETS

$1,422,538

 

$2,068,761

 

$3,163,571

 

($3,983,472
)
 

$2,671,398

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
CURRENT LIABILITIES
 
 
 
 
 
 

 
 
Accounts payable
—

 

$2,106

 

$21,629

 
—

 

$23,735

Current maturities of long-term debt
31,752

 
—

 
—

 
—

 
31,752

Accrued taxes
—

 
(149
)
 
7,041

 
—

 
6,892

Accrued payroll and benefits
—

 
3,115

 
3,109

 
—

 
6,224

Accrued interest
6,094

 
1,960

 
259

 
—

 
8,313

Other current liabilities
—

 
372

 
22,855

 
—

 
23,227

Total current liabilities
37,846

 
7,404

 
54,893

 
—

 
100,143

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS
291,222

 
663,292

 
78,774

 
—

 
1,033,288

PENSION AND OTHER POSTRETIREMENT BENEFITS
—

 
35,386

 
(684
)
 
—

 
34,702

OTHER NON-CURRENT LIABILITIES
—

 
42,466

 
12,218

 
—

 
54,684

INTERCOMPANY PAYABLE
(267,715
)
 
(18,960
)
 
286,675

 
—

 
—

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,361,185

 
1,339,173

 
2,644,299

 
(3,983,472
)
 
1,361,185

Noncontrolling interest
—

 
—

 
87,396

 
—

 
87,396

TOTAL SHAREHOLDERS’ EQUITY
1,361,185

 
1,339,173

 
2,731,695

 
(3,983,472
)
 
1,448,581

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,422,538

 

$2,068,761

 

$3,163,571

 

($3,983,472
)
 

$2,671,398



30

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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of December 31, 2015
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$2,472

 

$13,217

 

$36,088

 
—

 

$51,777

Accounts receivable, less allowance for doubtful accounts
—

 
1,870

 
18,352

 
—

 
20,222

Inventory
—

 
—

 
15,351

 
—

 
15,351

Prepaid expenses
—

 
443

 
12,211

 
—

 
12,654

Other current assets
—

 
4,876

 
805

 
—

 
5,681

Total current assets
2,472

 
20,406

 
82,807

 
—

 
105,685

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
—

 
—

 
2,066,780

 
—

 
2,066,780

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
—

 
—

 
65,450

 
—

 
65,450

NET PROPERTY, PLANT AND EQUIPMENT
—

 
330

 
6,412

 
—

 
6,742

INVESTMENT IN SUBSIDIARIES
1,321,681

 
2,212,405

 
—

 
(3,534,086
)
 
—

INTERCOMPANY RECEIVABLE
34,567

 
(610,450
)
 
575,883

 
—

 
—

OTHER ASSETS
3

 
18,718

 
52,560

 
—

 
71,281

TOTAL ASSETS

$1,358,723

 

$1,641,409

 

$2,849,892

 

($3,534,086
)
 

$2,315,938

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
609

 

$1,463

 

$19,407

 
—

 

$21,479

Accrued taxes
—

 
(10
)
 
3,695

 
—

 
3,685

Accrued payroll and benefits
—

 
3,594

 
3,443

 
—

 
7,037

Accrued interest
3,047

 
666

 
2,440

 
—

 
6,153

Other current liabilities
—

 
262

 
20,841

 
—

 
21,103

Total current liabilities
3,656

 
5,975

 
49,826

 
—

 
59,457

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS
322,697

 
280,978

 
226,879

 
—

 
830,554

PENSION AND OTHER POSTRETIREMENT BENEFITS
—

 
34,822

 
(685
)
 
—

 
34,137

OTHER NON-CURRENT LIABILITIES
—

 
16,914

 
13,136

 
—

 
30,050

INTERCOMPANY PAYABLE
(255,714
)
 
(18,961
)
 
274,675

 
—

 
—

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,288,084

 
1,321,681

 
2,212,405

 
(3,534,086
)
 
1,288,084

Noncontrolling interest
—

 
—

 
73,656

 
—

 
73,656

TOTAL SHAREHOLDERS’ EQUITY
1,288,084

 
1,321,681

 
2,286,061

 
(3,534,086
)
 
1,361,740

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,358,723

 

$1,641,409

 

$2,849,892

 

($3,534,086
)
 

$2,315,938



31

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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Nine Months Ended September 30, 2016
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES

($578
)
 

$26,589

 

$137,897

 
—

 

$163,908

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(40,246
)
 
—

 
(40,246
)
Real estate development investments
—

 
—

 
(4,815
)
 
—

 
(4,815
)
Purchase of timberlands
—

 
—

 
(353,828
)
 
—

 
(353,828
)
Assets purchased in business acquisition
—

 
—

 
(1,113
)
 
—

 
(1,113
)
Net proceeds from large disposition
—

 
—

 
126,965

 
—

 
126,965

Rayonier office building under construction
—

 
—

 
(3,933
)
 
—

 
(3,933
)
Change in restricted cash
—

 
—

 
22,430

 
—

 
22,430

Investment in subsidiaries
—

 
(285,937
)
 
—

 
285,937

 
—

Other
—

 
—

 
444

 
—

 
444

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES
—

 
(285,937
)
 
(254,096
)
 
285,937

 
(254,096
)
FINANCING ACTIVITIES
 
 
 
 
 
 

 
 
Issuance of debt
—

 
548,000

 
146,096

 
—

 
694,096

Repayment of debt
—

 
(140,000
)
 
(314,419
)
 
—

 
(454,419
)
Dividends paid
(92,095
)
 
—

 
—

 
—

 
(92,095
)
Proceeds from the issuance of common shares
889

 
—

 
—

 
—

 
889

Repurchase of common shares
(690
)
 
—

 
—

 
—

 
(690
)
Debt issuance costs
—

 
(818
)
 
—

 
—

 
(818
)
Issuance of intercompany notes
(12,000
)
 
—

 
12,000

 
—

 
—

Intercompany distributions
162,107

 
(155,731
)
 
279,561

 
(285,937
)
 
—

Other
(139
)
 
—

 
—

 
—

 
(139
)
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
58,072

 
251,451

 
123,238

 
(285,937
)
 
146,824

EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
1,626

 
—

 
1,626

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 

 
 
Change in cash and cash equivalents
57,494

 
(7,897
)
 
8,665

 
—

 
58,262

Balance, beginning of year
2,472

 
13,217

 
36,088

 
—

 
51,777

Balance, end of period

$59,966

 

$5,320

 

$44,753

 
—

 

$110,039


32

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

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

$77,316

 

$92,414

 

$64,901

 

($91,228
)
 

$143,403

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(78
)
 
(37,133
)
 
—

 
(37,211
)
Real estate development investments
—

 
—

 
(2,029
)
 
—

 
(2,029
)
Purchase of timberlands
—

 
—

 
(88,466
)
 
—

 
(88,466
)
Rayonier office building under construction
—

 
—

 
(369
)
 
—

 
(369
)
Change in restricted cash
—

 
—

 
(17,835
)
 
—

 
(17,835
)
Investment in subsidiaries
—

 
(75,946
)
 
—

 
75,946

 
—

Other
—

 
—

 
3,039

 
—

 
3,039

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES
—

 
(76,024
)
 
(142,793
)
 
75,946

 
(142,871
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Issuance of debt
—

 
374,000

 
5,027

 
—

 
379,027

Repayment of debt
—

 
(294,472
)
 
(6,399
)
 
—

 
(300,871
)
Dividends paid
(94,280
)
 
—

 
—

 
—

 
(94,280
)
Proceeds from the issuance of common shares
1,322

 
—

 
—

 
—

 
1,322

Repurchase of common shares
(73,621
)
 
—

 
—

 
—

 
(73,621
)
Debt issuance costs
—

 
(1,678
)
 
—

 
—

 
(1,678
)
Intercompany distributions
—

 
(91,585
)
 
76,303

 
15,282

 
—

CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
(166,579
)
 
(13,735
)
 
74,931

 
15,282

 
(90,101
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
(6,234
)
 
—

 
(6,234
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
(89,263
)
 
2,655

 
(9,195
)
 
—

 
(95,803
)
Balance, beginning of year
102,218

 
8,105

 
51,235

 
—

 
161,558

Balance, end of period

$12,955

 

$10,760

 

$42,040

 
—

 

$65,755



33




Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier,” we mean Rayonier Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Rayonier Inc. included in Item 1 of this Report.
This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements included in Item 1 of this report, our Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) and information contained in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”).
Forward-Looking Statements
Certain statements in this document regarding anticipated financial outcomes including Rayonier’s earnings guidance, if any, business and market conditions, outlook, expected dividend rate, Rayonier’s business strategies, including expected harvest schedules, timberland acquisitions, sales of non-strategic timberlands, the anticipated benefits of Rayonier’s business strategies, and other similar statements relating to Rayonier’s future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in the 2015 Form 10-K and similar discussions included in other reports that we subsequently file with the SEC, among others, could cause actual results or events to differ materially from the Company’s historical experience and those expressed in forward-looking statements made in this document.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any subsequent disclosures the Company makes on related subjects in its subsequent reports filed with the SEC.
Non-GAAP Measures
To supplement Rayonier’s financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Rayonier uses certain non-GAAP measures, including “cash available for distribution,” and “Adjusted EBITDA,” which are defined and further explained in Performance and Liquidity Indicators below. Reconciliation of such measures to the nearest GAAP measures can also be found in Performance and Liquidity Indicators below. Rayonier’s definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.


34


Our Company
We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the United States and New Zealand. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. As of September 30, 2016, we owned or leased under long-term agreements approximately 2.3 million acres of timberlands located in the U.S. South (1.9 million acres) and U.S. Pacific Northwest (379,000 acres). We also have a 77% ownership interest in Matariki Forestry Group, a joint venture (“New Zealand JV”), that owns or leases approximately 436,000 acres (299,000 net plantable acres) of timberlands in New Zealand.
The Southern Timber, Pacific Northwest Timber and New Zealand Timber segments include all activities related to the harvesting of timber and other non-timber income activities, such as the leasing of properties for hunting, mineral extraction and cell towers. The New Zealand Timber segment also reflects any land or leasehold sales that occur within our New Zealand portfolio.
The Real Estate segment includes all U.S. land sales disaggregated into five sales categories: Improved Development, Unimproved Development, Rural, Non-Strategic / Timberlands and Large Dispositions.
The Trading segment reflects the log trading activities that support our New Zealand operations. The Trading segment complements the New Zealand Timber segment by adding scale and achieving cost savings that directly benefit the New Zealand Timber segment. Trading also generally contributes modestly to earnings without significant investment and provides market intelligence that benefits the timber business.
Industry and Market Conditions
The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest segment relies primarily on domestic customers but also exports a significant volume of timber, particularly to China. Both the Southern and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to markets in China, Korea and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the competitiveness of its products.
The Company is also subject to the risk of price fluctuations in its major cost components. The primary components of the Company's cost of sales are the cost basis of timber sold (depletion), the cost basis of real estate sold and logging and transportation costs (cut and haul). Depletion includes the amortization of capitalized costs (site preparation, planting and fertilization, real estate taxes, timberland lease payments, road and bridge construction, software and certain payroll costs). Other costs include depreciation of fixed assets and equipment, road maintenance, severance and excise taxes, fire prevention and real estate commissions and closing costs.
For additional information on market conditions impacting our business, see Results of Operations.

Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. For a full description of our critical accounting policies, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2015 Form 10-K.

Discussion of Timber Inventory and Sustainable Yield
See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in the 2015 Form 10-K.

35



Our Timberlands
Our timber operations are disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. The following table provides a breakdown of our timberland holdings as of September 30, 2016 and December 31, 2015:
(acres in 000s)
As of September 30, 2016
 
As of December 31, 2015
 
Owned
 
Leased
 
Total
 
Owned
 
Leased
 
Total
Southern
 
 
 
 
 
 
 
 
 
 
 
Alabama
300

 
24

 
324

 
302

 
24

 
326

Arkansas
—

 
15

 
15

 
—

 
15

 
15

Florida
282

 
92

 
374

 
275

 
93

 
368

Georgia
547

 
109

 
656

 
571

 
109

 
680

Louisiana
145

 
1

 
146

 
149

 
1

 
150

Mississippi
89

 
—

 
89

 
91

 
—

 
91

Oklahoma
92

 
—

 
92

 
92

 
—

 
92

Tennessee
1

 
—

 
1

 
1

 
—

 
1

Texas
188

 
—

 
188

 
153

 
—

 
153

 
1,644


241


1,885

 
1,634

 
242

 
1,876

 
 
 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
 
 
Oregon
62

 
—

 
62

 
6

 
—

 
6

Washington
316

 
1

 
317

 
366

 
1

 
367

 
378

 
1

 
379

 
372

 
1

 
373

 
 
 
 
 
 
 
 
 
 
 
 
New Zealand (a)
179

 
257

 
436

 
185

 
254

 
439

Total
2,201

 
499

 
2,700

 
2,191

 
497

 
2,688

 
 
 
 
 
(a)
Represents legal acres owned and leased by the New Zealand JV, in which Rayonier owns a 77% interest. As of September 30, 2016, legal acres in New Zealand were comprised of 299,000 plantable acres and 137,000 non-productive acres.

36


The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2015 to September 30, 2016:
(acres in 000s)
Acres Owned
 
December 31, 2015
 
Acquisitions
 
Sales
 
September 30, 2016
Southern
 
 
 
 
 
 
 
Alabama
302

 
—

 
(2
)
 
300

Florida
275

 
7

 
—

 
282

Georgia
571

 
—

 
(24
)
 
547

Louisiana
149

 
—

 
(4
)
 
145

Mississippi
91

 
—

 
(2
)
 
89

Oklahoma
92

 
—

 
—

 
92

Tennessee
1

 
—

 
—

 
1

Texas
153

 
38

 
(3
)
 
188

 
1,634

 
45

 
(35
)
 
1,644

 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
Oregon
6

 
56

 
—

 
62

Washington
366

 
5

 
(55
)
 
316

 
372

 
61

 
(55
)
 
378

 
 
 
 
 
 
 
 
New Zealand (a)
185

 
—

 
(6
)
 
179

Total
2,191

 
106

 
(96
)
 
2,201

 
 
 
 
 
(a)
Represents legal acres owned by the New Zealand JV, in which Rayonier has a 77% interest.
(acres in 000s)
Acres Leased
 
December 31, 2015
 
New Leases
 
Expired Leases (a)
 
September 30, 2016
Southern
 
 
 
 
 
 
 
Alabama
24

 
—

 
—

 
24

Arkansas
15

 
—

 
—

 
15

Florida
93

 
—

 
(1
)
 
92

Georgia
109

 
—

 
—

 
109

Louisiana
1

 
—

 
—

 
1

 
242

 
—

 
(1
)
 
241

 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
Washington
1

 
—

 
—

 
1

 
 
 
 
 
 
 
 
New Zealand (b)
254

 
3

 
—

 
257

Total
497

 
3

 
(1
)
 
499

 
 
 
 
 
(a)
Includes acres previously under lease that have been harvested or sold.
(b)
Represents legal acres leased by the New Zealand JV, in which Rayonier has a 77% interest.



37


Results of Operations
Consolidated Results
The following table provides key financial information by segment and on a consolidated basis:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Financial Information (in millions)
2016
 
2015
 
2016
 
2015
Sales
 
 
 
 
 
 
 
Southern Timber

$27.8

 

$34.8

 

$102.2

 

$103.0

Pacific Northwest Timber
16.1

 
21.6

 
52.3

 
57.8

New Zealand Timber
42.2

 
41.1

 
126.0

 
121.5

Real Estate
 
 
 
 
 
 
 
Improved Development
—

 
—

 
1.7

 
0.8

Unimproved Development
1.4

 
0.1

 
2.2

 
5.7

Rural
6.4

 
9.8

 
17.4

 
19.9

Non-Strategic / Timberlands
52.8

 
25.3

 
60.5

 
39.6

Large Dispositions
—

 
—

 
129.5

 
—

Total Real Estate
60.6

 
35.2

 
211.3

 
66.0

Trading
24.7

 
19.0

 
76.0

 
59.5

Total Sales

$171.4

 

$151.7

 

$567.8

 

$407.8

 
 
 
 
 
 
 
 
Operating Income
 
 
 
 
 
 
 
Southern Timber

$8.2

 

$10.5

 

$35.0

 

$34.7

Pacific Northwest Timber
(3.3
)
 
3.1

 
(0.9
)
 
7.4

New Zealand Timber
6.6

 
(0.9
)
 
21.4

 
3.8

Real Estate
43.1

 
20.0

 
153.0

 
34.0

Trading
0.5

 
0.4

 
1.5

 
0.6

Corporate and other
(5.4
)

(5.3
)

(15.7
)

(18.5
)
Operating Income
49.7

 
27.8

 
194.3

 
62.0

Interest Expense, Interest Income and Other
(8.3
)

(9.2
)

(24.8
)

(28.8
)
Income Tax (Expense) Benefit
(0.8
)
 
0.6

 
(2.2
)
 
1.3

Net Income
40.6

 
19.2

 
167.3

 
34.5

Less: Net income (loss) attributable to noncontrolling interest
1.2

 
(0.5
)
 
3.7

 
(1.4
)
Net Income Attributable to Rayonier Inc.

$39.4

 

$19.7

 

$163.6

 

$35.9

 
 
 
 
 
 
 
 
Adjusted EBITDA (a)
 
 
 
 
 
 
 
Southern Timber

$18.2

 

$24.9

 

$72.1

 

$76.1

Pacific Northwest Timber
3.4

 
7.3

 
14.1

 
18.3

New Zealand Timber
12.6

 
6.1

 
40.5

 
26.0

Real Estate
56.6

 
30.9

 
74.0

 
54.6

Trading
0.5

 
0.4

 
1.5

 
0.6

Corporate and Other
(4.1
)
 
(3.8
)
 
(14.4
)
 
(15.2
)
Total Adjusted EBITDA

$87.2

 

$65.8

 

$187.8

 

$160.4

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



38


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Southern Timber Overview
2016
 
2015
 
2016
 
2015
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Pine Pulpwood
634

 
895

 
2,610

 
2,645

Pine Sawtimber
333

 
421

 
1,195

 
1,214

Total Pine Volume
967

 
1,316

 
3,805

 
3,859

Hardwood
123

 
100

 
227

 
222

Total Volume
1,090

 
1,416

 
4,032

 
4,081

 
 
 
 
 
 
 
 
Percentage Delivered Sales
32
%
 
28
%
 
27
%
 
26
%
Percentage Stumpage Sales
68
%
 
72
%
 
73
%
 
74
%
 
 
 
 
 
 
 
 
Net Stumpage Pricing (dollars per ton)
 
 
 
 
 
 
 
Pine Pulpwood

$17.36

 

$16.39

 

$18.34

 

$18.09

Pine Sawtimber
26.17

 
27.27

 
26.74

 
27.83

Weighted Average Pine

$20.40

 

$19.87

 

$20.98

 

$21.15

Hardwood
14.84

 
16.56

 
13.38

 
13.70

Weighted Average Total

$19.76

 

$19.63

 

$20.54

 

$20.77

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Sales

$27.8

 

$34.8

 

$102.2

 

$103.0

Less: Cut and Haul
(6.3
)
 
(7.0
)
 
(19.4
)
 
(18.3
)
Net Stumpage Sales

$21.5

 

$27.8

 

$82.8

 

$84.7

 
 
 
 
 
 
 
 
Operating Income

$8.2

 

$10.5

 

$35.0

 

$34.7

(+) Depreciation, depletion and amortization
10.0

 
14.4

 
37.1

 
41.4

Adjusted EBITDA (a)

$18.2

 

$24.9

 

$72.1

 

$76.1

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

$3.9

 

$4.1

 

$13.4

 

$13.5

Period-End Acres (in thousands)
1,885

 
1,896

 
1,885

 
1,896

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
(b)
Non-Timber Income is presented net of direct charges and excludes allocated overhead.










39


 
Three Months Ended
September 30,

Nine Months Ended
September 30,
Pacific Northwest Timber Overview
2016
 
2015
 
2016
 
2015
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Pulpwood
64

 
100

 
231

 
218

Sawtimber
177

 
253

 
608

 
710

Total Volume
241

 
353

 
839

 
928

 
 
 
 
 
 
 
 
Sales Volume (converted to MBF)
 
 
 
 
 
 
 
Pulpwood
6,016

 
9,514

 
21,920

 
20,639

Sawtimber
24,084

 
34,058

 
80,014

 
92,693

Total Volume
30,100

 
43,572

 
101,934

 
113,332

 
 
 
 
 
 
 
 
Percentage Delivered Sales
100
%
 
80
%
 
93
%
 
85
%
Percentage Sawtimber Sales
74
%
 
72
%
 
72
%
 
77
%
 
 
 
 
 
 
 
 
Delivered Log Pricing (in dollars per ton)
 
 
 
 
 
 
 
Pulpwood

$40.07

 

$45.88

 

$42.85

 

$44.48

Sawtimber
76.69

 
74.33

 
72.80

 
74.11

Weighted Average Log Price

$67.02

 

$65.05

 

$64.32

 

$66.71

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Sales

$16.1

 

$21.6

 

$52.3

 

$57.8

Less: Cut and Haul
(7.8
)
 
(9.4
)
 
(24.6
)
 
(26.0
)
Net Stumpage Sales

$8.3

 

$12.2

 

$27.7

 

$31.8

 
 
 
 
 
 
 
 
Operating Income (Loss)

($3.3
)
 

$3.1

 

($0.9
)
 

$7.4

(+) Depreciation, depletion and amortization
6.7

 
4.2

 
15.0

 
10.9

Adjusted EBITDA (a)

$3.4

 

$7.3

 

$14.1

 

$18.3

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

$0.5

 

$0.6

 

$2.1

 

$2.6

Period-End Acres (in thousands)
379

 
373

 
379

 
373

Sawtimber (in dollars per MBF)

$563

 

$541

 

$556

 

$573

Estimated Percentage of Export Volume
20
%
 
20
%
 
25
%
 
21
%
 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
(b)
Non-Timber Income is presented net of direct charges and excludes allocated overhead.


40


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
New Zealand Timber Overview
2016
 
2015
 
2016
 
2015
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Domestic Sawtimber (Delivered)
220

 
189

 
630

 
508

Domestic Pulpwood (Delivered)
99

 
118

 
285

 
328

Export Sawtimber (Delivered)
213

 
279

 
675

 
728

Export Pulpwood (Delivered)
21

 
19

 
60

 
50

Stumpage
—

 
116

 
10

 
227

Total Volume
552

 
721

 
1,658

 
1,841

 
 
 
 
 
 
 
 
Percentage Delivered Sales
100
%
 
84
%
 
100
%
 
88
%
Percentage Stumpage Sales
—

 
16
%
 
—

 
12
%
 
 
 
 
 
 
 
 
Delivered Log Pricing (in dollars per ton)
 
 
 
 
 
 
 
Domestic Sawtimber

$75.06

 

$60.12

 

$71.26

 

$65.54

Domestic Pulpwood

$32.55

 

$29.03

 

$31.30

 

$32.50

Export Sawtimber

$97.44

 

$82.42

 

$96.04

 

$89.01

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Sales

$42.2

 

$41.1

 

$124.2

 

$117.3

Less: Cut and Haul
(18.3
)
 
(18.7
)
 
(52.1
)
 
(53.9
)
Less: Port and Freight Costs
(6.6
)
 
(8.9
)
 
(19.3
)
 
(23.6
)
Net Stumpage Sales

$17.3

 

$13.5

 

$52.8

 

$39.8

 
 
 
 
 
 
 
 
Land Sales
—

 
—

 
1.8

 
4.2

Total Sales

$42.2

 

$41.1

 

$126.0

 

$121.5

 
 
 
 
 
 
 
 
Operating Income (Loss)

$6.6

 

($0.9
)
 

$21.4

 

$3.8

(+) Depreciation, depletion and amortization
6.0

 
7.0

 
17.3

 
22.2

(+) Non-cash cost of land sold
—

 
—

 
1.8

 
—

Adjusted EBITDA (a)

$12.6

 

$6.1

 

$40.5

 

$26.0

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
New Zealand Dollar to U.S. Dollar Exchange Rate (b)
0.7178

 
0.6601

 
0.6897

 
0.7185

Net Plantable Period-End Acres (in thousands)
299

 
302

 
299

 
302

Domestic Sawtimber (in $NZD per tonne)

$115.03

 

$100.20

 

$113.38

 

$100.63

Export Sawtimber (in dollars per JAS m3)

$113.25

 

$96.45

 

$111.63

 

$103.93

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


41


 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
Real Estate Overview
2016
 
2015
 
2016
 
2015
Sales (in millions of dollars)
 
 
 
 
 
 
 
Improved Development (a)
—


—



$1.7



$0.8

Unimproved Development
1.4


0.1


2.2


5.7

Rural
6.4


9.8


17.4


19.9

Non-Strategic / Timberlands
52.8


25.3


60.5


39.6

Large Dispositions
—

 
—

 
129.5

 
—

Total Sales

$60.6

 

$35.2

 

$211.3

 

$66.0

 
 
 
 
 
 
 
 
Acres Sold
 
 
 
 
 
 
 
Improved Development (a)
—

 
—

 
47

 
19

Unimproved Development
73

 
20

 
121

 
515

Rural
2,069

 
3,503

 
6,180

 
7,773

Non-Strategic / Timberlands
21,459

 
10,681

 
27,842

 
15,631

Large Dispositions
—

 
—

 
55,320

 
—

Total Acres Sold
23,601

 
14,204

 
89,510

 
23,938

 
 
 
 
 
 
 
 
Price per Acre (dollars per acre)
 
 
 
 
 
 
 
Improved Development (a)
—

 
—

 

$37,353

 

$42,281

Unimproved Development
18,500

 
5,000

 
18,302

 
11,043

Rural
3,082

 
2,796

 
2,797

 
2,563

Non-Strategic / Timberlands
2,465

 
2,373

 
2,174

 
2,531

Large Dispositions
—

 
—

 
2,342

 
—

Weighted Average (Total) (b)

$2,569

 

$2,480

 

$2,392

 

$2,756

Weighted Average (Adjusted) (c)

$2,569

 

$2,480

 

$2,344

 

$2,724

 
 
 
 
 
 
 
 
Sales (Excluding Large Dispositions)

$60.6



$35.2

 

$81.8

 

$66.0

 
 
 
 
 
 
 
 
Operating Income

$43.1

 

$20.0

 

$153.0

 

$34.0

(+) Depreciation, depletion and amortization
9.2

 
6.3

 
14.0

 
11.1

(+) Non-cash cost of land sold
4.3

 
4.6

 
8.3

 
9.5

(–) Large Dispositions (d)
—

 
—

 
(101.3
)
 
—

Adjusted EBITDA (e)

$56.6

 

$30.9

 

$74.0

 

$54.6

 
 
 
 
 
(a)
Reflects land with capital invested in infrastructure improvements.
(b)
Excludes Large Dispositions.
(c)
Excludes Improved Development and Large Dispositions.
(d)
Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have any identified HBU premium relative to timberland value. On April 28, 2016, the Company completed a disposition of approximately 55,000 acres located in Washington for a sale price and gain of approximately $129.5 million and $101.3 million, respectively.
(e)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.







42


 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
Capital Expenditures By Segment (in millions of dollars)
2016
 
2015
 
2016
 
2015
Timber Capital Expenditures
 
 
 
 
 
 
 
Southern Timber
 
 
 
 
 
 
 
Reforestation, silviculture and other capital expenditures

$4.0

 

$3.6

 

$11.5

 

$9.3

Property taxes
1.6

 
1.8

 
5.2

 
5.4

Lease payments
0.5

 
0.6

 
3.2

 
3.7

Allocated overhead
1.0

 
0.9

 
3.1

 
2.7

Subtotal Southern Timber

$7.1

 

$6.9

 

$23.0

 

$21.1

Pacific Northwest Timber
 
 
 
 
 
 
 
Reforestation, silviculture and other capital expenditures
1.1

 
0.5

 
4.1

 
4.4

Property taxes
0.1

 
0.1

 
0.4

 
0.4

Lease payments
—

 
—

 
—

 
—

Allocated overhead
0.4

 
0.4

 
1.1

 
1.3

Subtotal Pacific Northwest Timber

$1.6

 

$1.0

 

$5.6

 

$6.1

New Zealand Timber
 
 
 
 
 
 
 
Reforestation, silviculture and other capital expenditures
3.0

 
2.5

 
6.4

 
5.6

Property taxes
0.2

 
0.1

 
0.5

 
0.4

Lease payments
1.3

 
0.9

 
2.6

 
2.4

Allocated overhead
0.7

 
0.3

 
1.9

 
1.5

Subtotal New Zealand Timber

$5.2

 

$3.8

 

$11.4

 

$9.9

Total Timber Segments Capital Expenditures

$13.9

 

$11.7

 

$40.0

 

$37.1

Real Estate
0.1

 
—

 
0.2

 
0.1

Corporate
—

 
—

 
—

 
—

Total Capital Expenditures

$14.0

 

$11.7

 

$40.2

 

$37.2

 
 
 
 
 
 
 
 
Timberland Acquisitions
 
 
 
 
 
 
 
Southern Timber

$77.1

 

$0.1

 

$91.4

 

$54.5

Pacific Northwest Timber
0.1

 
—

 
262.4

 
34.0

New Zealand Timber
—

 
—

 
—

 
—

Subtotal Timberland Acquisitions

$77.2

 

$0.1

 

$353.8

 

$88.5

 
 
 
 
 
 
 
 
Real Estate Development Investments

$1.8

 

$1.1

 

$4.8

 

$2.0

Rayonier Office Building

$2.8

 

$0.1

 

$3.9

 

$0.4



43




The following tables summarize sales, operating income and Adjusted EBITDA variances for September 30, 2016 versus September 30, 2015 (millions of dollars):
Sales
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Total
Three Months Ended September 30, 2015
 

$34.8

 

$21.6

 

$41.1

 

$35.2

 

$19.0

 

$151.7

Volume/Mix
 
(7.2
)
 
(6.0
)
 
(6.0
)
 
23.3

 
3.1

 
7.2

Price
 
0.2

 
0.5

 
5.7

 
2.1

 
2.5

 
11.0

Foreign exchange (a)
 
—

 
—

 
1.4

 
—

 
—

 
1.4

Other
 
—

 
—

 
—

 
—

 
0.1

 
0.1

Three Months Ended September 30, 2016
 

$27.8

 

$16.1

 

$42.2

 

$60.6

 

$24.7

 

$171.4

 
 
 
 
 
(a)
Net of currency hedging impact.

Sales
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Total
Nine Months Ended September 30, 2015
 

$103.0

 

$57.8

 

$121.5

 

$66.0

 

$59.5

 

$407.8

Volume/Mix
 
(0.1
)
 
(3.6
)
 
(1.9
)
 
28.3

 
11.9

 
34.6

Price
 
(0.7
)
 
(1.9
)
 
10.8

 
(12.5
)
 
5.5

 
1.2

Foreign exchange (a)
 
—

 
—

 
(2.2
)
 
—

 
—

 
(2.2
)
Other (b)
 
—

 
—

 
(2.2
)
 
129.5

 
(0.9
)
 
126.4

Nine Months Ended September 30, 2016
 

$102.2

 

$52.3

 

$126.0

 

$211.3

 

$76.0

 

$567.8

 
 
 
 
 
(a)
Net of currency hedging impact.
(b)
Real Estate includes $129.5 million of sales from a Large Disposition of approximately 55,000 acres of timberlands.

Operating Income
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate and Other
 
Total
Three Months Ended September 30, 2015
 

$10.5

 

$3.1

 

($0.9
)
 

$20.0

 

$0.4

 

($5.3
)
 

$27.8

Volume/Mix
 
(3.0
)
 
(2.6
)
 
0.3

 
15.7

 
—

 
—

 
10.4

Price
 
0.2

 
0.6

 
6.6

 
2.1

 
—

 
—

 
9.5

Cost
 
(0.3
)
 
(0.5
)
 
(1.0
)
 
0.8

 
0.1

 
(0.1
)
 
(1.0
)
Non-timber income
 
(0.2
)
 
(0.1
)
 
0.3

 
—

 
—

 
—

 
—

Foreign exchange (a)
 
—

 
—

 
1.2

 
—

 
—

 
—

 
1.2

Depreciation, depletion & amortization
 
1.0

 
(3.8
)
 
0.1

 
1.2

 
—

 
—

 
(1.5
)
Non-cash cost of land and improved development
 
—

 
—

 
—

 
3.3

 
—

 
—

 
3.3

Other
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Three Months Ended September 30, 2016
 

$8.2

 

($3.3
)
 

$6.6

 

$43.1

 

$0.5

 

($5.4
)
 

$49.7

 
 
 
 
 
(a)
Net of currency hedging impact.


44


Operating Income
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate and Other
 
Total
Nine Months Ended September 30, 2015
 

$34.7

 

$7.4

 

$3.8

 

$34.0

 

$0.6

 

($18.5
)
 

$62.0

Volume/Mix
 
(0.5
)
 
(1.8
)
 
1.5

 
18.9

 
—

 
—

 
18.1

Price
 
(0.9
)
 
(0.7
)
 
17.7

 
(12.4
)
 
—

 
—

 
3.7

Cost
 
(1.9
)
 
(0.1
)
 
(0.5
)
 
0.2

 
1.7

 
2.9

 
2.3

Non-timber income
 
(0.1
)
 
(0.6
)
 
(1.6
)
 
—

 
(0.8
)
 
—

 
(3.1
)
Foreign exchange (a)
 
—

 
—

 
(0.2
)
 
—

 
—

 
—

 
(0.2
)
Depreciation, depletion & amortization
 
3.7

 
(5.1
)
 
0.3

 
1.7

 
—

 
(0.1
)
 
0.5

Non-cash cost of land and improved development
 
—

 
—

 
(1.8
)
 
5.3

 
—

 
—

 
3.5

Other (b)
 
—

 
—

 
2.2

 
105.3

 
—

 
—

 
107.5

Nine Months Ended September 30, 2016
 

$35.0

 

($0.9
)
 

$21.4

 

$153.0

 

$1.5

 

($15.7
)
 

$194.3

 
 
 
 
 
(a)
Net of currency hedging impact.
(b)
Real Estate includes $101.3 million of operating income from a Large Disposition of approximately 55,000 acres of timberlands and a $4.0 million receipt of a deferred payment related to a prior land sale.
Adjusted EBITDA (a)
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate and Other
 
Total
Three Months Ended September 30, 2015
 

$24.9

 

$7.3

 

$6.1

 

$30.9

 

$0.4

 

($3.8
)
 

$65.8

Volume/Mix
 
(6.4
)
 
(3.9
)
 
(1.4
)
 
22.8

 
—

 
—

 
11.1

Price
 
0.2

 
0.6

 
6.6

 
2.1

 
—

 
—

 
9.5

Cost
 
(0.3
)
 
(0.5
)
 
(1.0
)
 
0.8

 
0.1

 
(0.3
)
 
(1.2
)
Non-timber income
 
(0.2
)
 
(0.1
)
 
0.3

 
—

 
—

 
—

 
—

Foreign exchange (b)
 
—

 
—

 
1.9

 
—

 
—

 
—

 
1.9

Other
 
—

 
—

 
0.1

 
—

 
—

 
—

 
0.1

Three Months Ended September 30, 2016
 

$18.2

 

$3.4

 

$12.6

 

$56.6

 

$0.5

 

($4.1
)
 

$87.2

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.
(b)
Net of currency hedging impact.
Adjusted EBITDA (a)
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate and Other
 
Total
Nine Months Ended September 30, 2015
 

$76.1

 

$18.3

 

$26.0

 

$54.6

 

$0.6

 

($15.2
)
 

$160.4

Volume/Mix
 
(1.1
)
 
(2.8
)
 
(0.3
)
 
27.6

 
—

 
—

 
23.4

Price
 
(0.9
)
 
(0.7
)
 
17.7

 
(12.4
)
 
—

 
—

 
3.7

Cost
 
(1.9
)
 
(0.1
)
 
(0.5
)
 
0.2

 
1.7

 
0.8

 
0.2

Non-timber income
 
(0.1
)
 
(0.6
)
 
(1.6
)
 
—

 
(0.8
)
 
—

 
(3.1
)
Foreign exchange (b)
 
—

 
—

 
(0.9
)
 
—

 
—

 
—

 
(0.9
)
Other (c)
 
—

 
—

 
0.1

 
4.0

 
—

 
—

 
4.1

Nine Months Ended September 30, 2016
 

$72.1

 

$14.1

 

$40.5

 

$74.0

 

$1.5

 

($14.4
)
 

$187.8

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.
(b)
Net of currency hedging impact.
(c)
Real Estate includes the receipt of a $4.0 million deferred payment related to a prior land sale.

45


Southern Timber
Third quarter sales of $27.8 million decreased $7.0 million, or 20%, versus the prior year period. Harvest volumes decreased 23% to 1.09 million tons versus 1.42 million tons in the prior year period. This decrease in harvest volumes was driven by wet weather in the Gulf states, which restricted our ability to harvest in that region, and curtailed harvest activity in certain eastern markets in response to softer market conditions resulting from dry weather and higher mill inventories. Average sawtimber stumpage prices decreased 4% to $26.17 per ton versus $27.27 per ton in the prior year period, while average pulpwood stumpage prices increased 6% to $17.36 per ton versus $16.39 per ton in the prior year period. The decrease in average sawtimber prices was driven by mix, specifically heavy rainfall resulting in decreased volume in one of the Company’s higher-priced sawtimber regions. The increase in average pulpwood prices was also driven by mix, as an increased proportion of volume came from higher-priced regions. Overall, weighted-average stumpage prices (including hardwood) increased 1% to $19.76 per ton versus $19.63 per ton in the prior year period. Operating income of $8.2 million decreased $2.3 million versus the prior year period due to lower volumes ($3.0 million), higher overhead and road maintenance costs ($0.3 million) and lower non-timber income ($0.2 million), which were partially offset by lower depletion rates ($1.0 million) and higher weighted-average stumpage prices ($0.2 million). Third quarter Adjusted EBITDA of $18.2 million was $6.7 million below the prior year period.
Year-to-date sales of $102.2 million decreased $0.8 million, or 1%, versus the prior year period. Harvest volumes decreased 1% to 4.03 million tons versus 4.08 million tons in the prior year period. This decrease in harvest volumes was driven by extreme wet weather conditions in certain markets. Average pulpwood stumpage prices increased 1% to $18.34 per ton versus $18.09 per ton in the prior year period, while average sawtimber stumpage prices decreased 4% to $26.74 per ton versus $27.83 per ton in the prior year period. The decrease in average sawtimber prices was driven by mix, specifically a significant reduction in volume from one of the Company’s higher-priced sawtimber regions. Average pulpwood prices continued to be well above south-wide benchmarks due to strong pricing in our core markets, particularly along the East Coast. Overall, weighted average stumpage prices (including hardwood) decreased 1% to $20.54 per ton versus $20.77 per ton in the prior year period. Operating income of $35.0 million increased $0.3 million versus the prior year period due to lower depletion rates ($3.7 million), partially offset by higher road maintenance, leased land reforestation expense and overhead costs ($1.2 million), other expense ($0.7 million), lower prices ($0.9 million), lower volumes ($0.5 million) and lower non-timber income ($0.1 million). Year-to-date Adjusted EBITDA of $72.1 million was $4.0 million below the prior year period.
Pacific Northwest Timber
Third quarter sales of $16.1 million decreased $5.5 million, or 25%, versus the prior year period. Harvest volumes decreased 32% to 241,000 tons versus 353,000 tons in the prior year period, as additional volume from our Oregon acquisition was more than offset by harvest curtailments in Washington in response to weaker than expected export market conditions in the beginning of the quarter. Average delivered sawtimber prices increased 3% to $76.69 per ton versus $74.33 per ton in the prior year period, while average delivered pulpwood prices decreased 13% to $40.07 per ton versus $45.88 per ton in the prior year period. The increase in average sawtimber prices was due to an overall strengthening of export and domestic sawtimber markets, combined with additional volume from Oregon, which generally commands a higher sawtimber price than Washington. The decrease in pulpwood prices was due to the increased availability of wood chips in certain market areas. Operating loss of $3.3 million versus operating income of $3.1 million in the prior year period was primarily due to higher depletion rates resulting from our Oregon acquisition ($3.8 million), lower volumes ($2.6 million), higher overhead and severance taxes ($0.5 million) and lower non-timber income ($0.1 million), which were partially offset by higher prices ($0.6 million). Third quarter Adjusted EBITDA of $3.4 million was $3.9 million below the prior year period.
Year-to-date sales of $52.3 million decreased $5.5 million, or 9%, versus the prior year period. Harvest volumes decreased 10% to 839,000 tons versus 928,000 tons in the prior year period. Average delivered sawtimber prices decreased 2% to $72.80 per ton versus $74.11 per ton in the prior year period, while average delivered pulpwood prices decreased 4% to $42.85 per ton versus $44.48 per ton in the prior year period. The decrease in average sawtimber prices was driven by continued weak demand in export markets and reduced local sawmill capacity, while the decrease in average pulpwood prices was driven by a reduction in market prices as more chip residuals entered the market from increased sawmill activity. Operating loss of $0.9 million versus operating income of $7.4 million in the prior year period was primarily due to higher depletion rates ($5.1 million), lower volumes ($1.8 million), lower prices ($0.7 million), lower non-timber income ($0.6 million) and higher road maintenance, sales and engineering costs ($0.1 million). Year-to-date Adjusted EBITDA of $14.1 million was $4.2 million below the prior year period.

46


New Zealand Timber
Third quarter sales of $42.2 million increased $1.1 million, or 3%, versus the prior year period. Harvest volumes decreased 23% to 552,000 tons versus 721,000 tons in the prior year period. Average delivered prices for export sawtimber increased 18% to $97.44 per ton versus $82.42 per ton in the prior year period, while average delivered prices for domestic sawtimber increased 25% to $75.06 per ton versus $60.12 per ton in the prior year period. The increase in export sawtimber prices was primarily due to stronger demand from China. The increase in domestic sawtimber prices (in U.S. dollar terms) was driven primarily by strong demand for construction materials and the rise in the NZ$/US$ exchange rate (US$0.72 per NZ$1.00 versus US$0.66 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 15% from the prior year period. Operating income of $6.6 million increased $7.5 million versus the prior year period due to higher prices ($6.6 million), changes in volume/mix ($0.3 million), lower depletion rates ($0.1 million), favorable changes in foreign exchange impacts ($1.2 million) and higher carbon credit sales ($0.3 million), which were partially offset by higher forest management and overhead costs ($1.0 million). Third quarter Adjusted EBITDA of $12.6 million was $6.5 million above the prior year period.
Year-to-date sales of $126.0 million increased $4.5 million, or 4%, versus the prior year period. Harvest volumes decreased 10% to 1.66 million tons versus 1.84 million tons in the prior year period. Average delivered prices for export sawtimber increased 8% to $96.04 per ton versus $89.01 per ton in the prior year period, while average delivered prices for domestic sawtimber increased 9% to $71.26 per ton versus $65.54 per ton in the prior year period. The increase in export sawtimber prices was primarily due to stronger demand from China, while the increase in domestic sawtimber prices (in U.S. dollar terms) was driven primarily by stronger demand for construction material, partially offset by the fall in the NZ$/US$ exchange rate (US$0.69 per NZ$1.00 versus US$0.72 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 13% from the prior year period. Operating income of $21.4 million increased $17.6 million versus the prior year period due to higher prices ($17.7 million), higher carbon sales ($0.8 million), favorable mix/volumes ($1.5 million) and lower depletion rates ($0.3 million), which were partially offset by changes in foreign exchange impacts ($0.2 million), change in land sales ($1.7 million), lower non-timber income ($0.3 million) and higher forest management costs ($0.5 million). Year-to-date Adjusted EBITDA of $40.5 million was $14.5 million above the prior year period.
Real Estate
Third quarter sales of $60.6 million increased $25.4 million versus the prior year period, while operating income of $43.1 million increased $23.1 million versus the prior year period. Sales and operating income increased in the third quarter due to higher volumes (23,601 acres sold versus 14,204 acres sold in the prior year period), and a 4% increase in weighted average prices ($2,569 per acre versus $2,480 per acre in the prior year period). Third quarter Adjusted EBITDA of $56.6 million was $25.7 million above the prior year period.
Year-to-date sales of $211.3 million increased $145.3 million versus the prior year period, while operating income of $153.0 million increased $119.0 million versus the prior year period. Year-to-date sales and operating income include $129.5 million and $101.3 million, respectively, of a Large Disposition. Sales and operating income increased in the first nine months due to higher volumes (89,510 acres sold versus 23,938 acres sold in the prior year period), partially offset by lower weighted average prices ($2,361 per acre versus $2,756 per acre in the prior year period). Year-to-date operating income also increased due to the receipt of a $4.0 million deferred payment with respect to a prior land sale.
Unimproved Development third quarter sales of $1.4 million were comprised of a 73-acre tract in St. John’s County, Florida for approximately $18,500 per acre. Rural sales of $6.4 million were comprised of 2,069 acres at an average price of $3,082 per acre. Non-strategic / Timberland sales of $52.8 million were comprised of 21,459 acres at an average price of $2,465 per acre, including 17,772 acres in Georgia for $2,720 per acre.
Year-to-date Adjusted EBITDA of $74.0 million was $19.4 million above the prior year period.

47


Trading
Third quarter sales of $24.7 million increased $5.7 million versus the prior year period due to higher volumes and prices. Sales volumes increased 16% to 269,000 tons versus 231,000 tons in the prior year period. Average prices increased 11% to $91.80 per ton versus $82.45 per ton in the prior year period. The increases in both volumes and prices were primarily due to stronger demand from China. Operating income of $0.5 million increased $0.1 million versus the prior year period.
Year-to-date sales of $76.0 million increased $16.5 million versus the prior year period due to higher volumes and prices. Sales volumes increased 20% to 816,000 tons versus 679,000 tons in the prior year period. Average prices increased 8% to $93.18 per ton versus $86.50 per ton in the the prior year period. The increase in both volume and price was primarily due to stronger demand from China. Operating income of $1.5 million increased $0.8 million versus the prior year period.
Other Items
Corporate and Other Expense/Eliminations
Third quarter corporate and other operating expenses of $5.4 million increased $0.1 million versus the prior year period due to increased selling, general and administrative expenses ($0.2 million) and timberland transaction costs ($0.2 million), which were partially offset by lower costs related to shareholder litigation ($0.3 million). Year-to-date corporate and other operating expense of $18.5 million decreased $2.8 million versus the prior year period primarily due to lower selling, general and administrative expenses ($2.6 million), a gain on foreign currency derivatives ($1.2 million) and lower costs related to shareholder litigation ($0.9 million), which were partially offset by timberland transaction costs ($1.3 million) and other minor variances ($0.6 million). Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder derivative demands and the Securities and Exchange Commission investigation. See Note 10 — Contingencies in the 2015 Form 10-K.
Interest Expense
Third quarter interest expense of $8.5 million increased $0.9 million versus the prior year period due to higher outstanding debt, partially offset by lower average rates and $0.4 million of expense related to the write-off of capitalized financing costs in the prior year period. Year-to-date interest expense of $23.6 million decreased $1.0 million versus the prior year period primarily due to lower rates on the term credit agreement entered into in the third quarter of 2015, partially offset by higher outstanding debt.
Income Tax Benefit (Expense)
Third quarter and year-to-date income tax expense of $0.8 million and $2.2 million, respectively, was principally related to the New Zealand JV.
Share Repurchases
During the first quarter, the Company repurchased $0.7 million of common stock at an average price of $19.59 per share and did not repurchase any common stock in the second or third quarters. As of September 30, 2016, the Company had 122.9 million shares of common stock outstanding and $99.3 million remaining on its current share repurchase authorization.
Outlook
Based on our strong results for the first nine months and expectations for the balance of the year, we now anticipate full-year Adjusted EBITDA of $228 to $235 million, well above our prior guidance of $195 to $215 million. We continue to expect relatively flat prices in our Southern Timber and Pacific Northwest Timber segments for the remainder of the year, and we will continue to adjust harvest levels as appropriate to maximize the long-term value of our assets. In our New Zealand Timber segment, we expect continued strong performance driven by solid demand in both domestic and export markets. In our Real Estate segment, following an extraordinarily strong third quarter, we expect relatively light closings in the fourth quarter. We continue to be encouraged by interest in our Wildlight development project north of Jacksonville, Florida.


48



Liquidity and Capital Resources
Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As a REIT, our main use of cash is dividends. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources or asset dispositions.
Summary of Liquidity and Financing Commitments
 
September 30,
 
December 31,
(millions of dollars)
2016
 
2015
Cash and cash equivalents

$110.0

 

$51.8

Total debt
1,065.0

 
830.6

Shareholders’ equity
1,448.6

 
1,361.7

Total capitalization (total debt plus equity)
2,513.6

 
2,192.3

Debt to capital ratio
42
%
 
38
%
Net debt to enterprise value (a)
23
%
 
22
%
 
 
 
 
 
(a)
Enterprise value is calculated as the number of shares outstanding multiplied by the Company’s share price plus net debt as of September 30, 2016 and December 31, 2015.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2016 and 2015.
(millions of dollars)
2016
 
2015
Cash provided by (used for):
 
 
 
Operating activities

$163.9

 

$143.4

Investing activities
(254.1
)
 
(142.9
)
Financing activities
146.8

 
(90.1
)
Cash Provided by Operating Activities
The increase in cash provided by operating activities in 2016 was primarily attributable to higher operating results, partially offset by changes in working capital.
Cash Used for Investing Activities
Cash used for investing activities increased $111.2 million compared to 2015 primarily due to an increase in timberland acquisitions of $265.4 million, an increase in capital expenditures of $3.0 million, an increase in real estate development investments of $2.8 million and an increase in spending on the construction of the Company’s office building of $3.6 million. This amount was partially offset by net proceeds from a Large Disposition of $127.0 million and a change in restricted cash of $40.3 million.
Cash Provided by (Used for) Financing Activities
Cash provided by financing activities increased $236.9 million from the prior year period due to an increase in net debt issuances of $162.4 million, a decrease in common shares repurchases of $72.9 million and a decrease in dividends paid of $2.2 million.

49


Expected 2016 Expenditures
As part of Wildlight, our mixed-use community development project located north of Jacksonville at the interchange of I-95 and State Road A1A, we are constructing an office building expected to cost approximately $13 million. Of the $13 million, we expect to incur $8 million in 2016 and $5 million in 2017. The new office will allow consolidation of three leased offices in Jacksonville and Fernandina Beach, Florida into one location and also serve as a catalyst for the Company’s mixed-use development project.
Capital expenditures in 2016 are expected to be between $60 and $65 million, excluding capital expenditures related to the office building and any strategic timberland acquisitions we may make. Capital expenditures are expected to be comprised primarily of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities. Real estate development investments in 2016 are expected to be approximately $10 million.
Our 2016 dividend payments are expected to be approximately $123 million assuming no change in the quarterly dividend rate of $0.25 per share or material changes in the number of shares outstanding.
Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations including capital allocation priorities.
We have no mandatory pension contributions in 2016 but will likely be required to make contributions in the future. We also may make discretionary contributions in the future. On an ongoing basis, cash income tax payments are expected to be minimal.

Performance and Liquidity Indicators
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”) and Cash Available for Distribution (“CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”), and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above.
Management uses CAD as a liquidity measure. CAD is a non-GAAP measure that management uses to measure cash generated during a period that is available for dividend distribution, repurchase of the Company’s common shares, debt reduction and strategic acquisitions. We define CAD as cash provided by operating activities adjusted for capital spending (excluding timberland acquisitions and spending on the Company’s office building) and working capital and other balance sheet changes. CAD is not necessarily indicative of the CAD that may be generated in future periods.
Management uses Adjusted EBITDA as a performance measure. Adjusted EBITDA is a non-GAAP measure that management uses to make strategic decisions about the business and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land and improved development, costs related to shareholder litigation, the gain on foreign currency derivatives and Large Dispositions. Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder derivative demands and the Securities and Exchange Commission investigation. See Note 10—Contingencies in the 2015 Form 10-K.

50


We reconcile Adjusted EBITDA to Net Income for the consolidated Company and to Operating Income for the Segments, as those are the most comparable GAAP measures for each. The following table provides a reconciliation of Net Income to Adjusted EBITDA for the respective periods (in millions of dollars):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net Income to Adjusted EBITDA Reconciliation
 
 
 
 
 
 
 
Net income

$40.6

 

$19.2

 

$167.3

 

$34.5

Interest, net
8.3

 
9.1

 
24.8

 
28.8

Income tax expense (benefit)
0.8

 
(0.6
)
 
2.2

 
(1.3
)
Depreciation, depletion and amortization
32.0

 
32.0

 
83.7

 
85.8

Non-cash cost of land and improved development
4.3

 
4.6

 
10.1

 
9.5

Costs related to shareholder litigation (a)
1.2

 
1.5

 
2.2

 
3.1

Gain on foreign currency derivatives (b)
—

 
—

 
(1.2
)
 
—

Large Dispositions (c)
—

 
—

 
(101.3
)
 
—

Adjusted EBITDA

$87.2

 

$65.8

 

$187.8

 

$160.4


 
2016
 
Guidance
 
Prior Guidance
Net Income to Adjusted EBITDA Reconciliation
 
 
 
 
 
 
 
Net income

$208.0

-

$214.0

 

$45.0

-

$55.0

Interest, net
33.0

-
33.2

 
28.5

-
29.3

Income tax expense (benefit)
2.5

-
3.5

 
0.5

-
1.7

Depreciation, depletion and amortization
113.0

-
115.0

 
104.0

-
109.0

Non-cash cost of land and improved development
10.0

-
12.0

 
15.0

-
17.0

Costs related to shareholder litigation (a)
2.7

-
3.5

 
2.0

-
3.0

Gain on foreign currency derivatives (b)
(1.2
)
-
(1.2
)
 
—

 
—

Large Dispositions (c)
(140.0
)
-
(145.0
)
 
—

 
—

Adjusted EBITDA

$228.0

-

$235.0

 

$195.0

-

$215.0

 
 
 
 
 
(a)
Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder derivative demands and the Securities and Exchange Commission investigation. See Note 10—Contingencies in the 2015 Form 10-K.
(b)
Gain on foreign currency derivatives is the gain resulting from the foreign exchange derivatives the Company used to mitigate the risk of fluctuations in foreign exchange rates while awaiting the capital contribution to the New Zealand JV.
(c)
Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have any identified HBU premium relative to timberland value. On April 28, 2016, the Company completed a disposition of approximately 55,000 acres located in Washington for a sale price and gain of approximately $129.5 million and $101.3 million, respectively.

51


The following tables provide a reconciliation of Operating Income by segment to Adjusted EBITDA by segment for the respective periods (in millions of dollars):
Three Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate
and
other
 
Total
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$8.2

 

($3.3
)
 

$6.6

 

$43.1

 

$0.5

 

($5.4
)
 

$49.7

Depreciation, depletion and amortization
10.0

 
6.7

 
6.0

 
9.2

 
—

 
0.1

 
32.0

Non-cash cost of land and improved development
—

 
—

 
—

 
4.3

 
—

 
—

 
4.3

Costs related to shareholder litigation (a)
—

 
—

 
—

 
—

 
—

 
1.2

 
1.2

Adjusted EBITDA

$18.2

 

$3.4

 

$12.6

 

$56.6

 

$0.5

 

($4.1
)
 

$87.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$10.5

 

$3.1

 

($0.9
)
 

$20.0

 

$0.4

 

($5.3
)
 

$27.8

Non-operating expense
—

 
—

 
—

 
—

 
—

 
(0.1
)
 
(0.1
)
Depreciation, depletion and amortization
14.4

 
4.2

 
7.0

 
6.3

 
—

 
0.1

 
32.0

Non-cash cost of land and improved development
—

 
—

 
—

 
4.6

 
—

 
—

 
4.6

Costs related to shareholder litigation (a)
—

 
—

 
—

 
—

 
—

 
1.5

 
1.5

Adjusted EBITDA

$24.9

 

$7.3

 

$6.1

 

$30.9

 

$0.4

 

($3.8
)
 

$65.8

 
 
 
 
 
(a)
Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder derivative demands and the Securities and Exchange Commission investigation. See Note 10—Contingencies in the 2015 Form 10-K.
Nine Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate
and
other
 
Total
September 30, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$35.0

 

($0.9
)
 

$21.4

 

$153.0

 

$1.5

 

($15.7
)
 

$194.3

Depreciation, depletion and amortization
37.1

 
15.0

 
17.3

 
14.0

 
—

 
0.3

 
83.7

Non-cash cost of land and improved development
—

 
—

 
1.8

 
8.3

 
—

 
—

 
10.1

Costs related to shareholder litigation (a)
—

 
—

 
—

 
—

 
—

 
2.2

 
2.2

Gain on foreign currency derivatives (b)
—

 
—

 
—

 
—

 
—

 
(1.2
)
 
(1.2
)
Large Dispositions (c)
—

 
—

 
—

 
(101.3
)
 
—

 
—

 
(101.3
)
Adjusted EBITDA

$72.1

 

$14.1

 

$40.5

 

$74.0

 

$1.5

 

($14.4
)
 

$187.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$34.7

 

$7.4

 

$3.8

 

$34.0

 

$0.6

 

($18.5
)
 

$62.0

Depreciation, depletion and amortization
41.4

 
10.9

 
22.2

 
11.1

 
—

 
0.2

 
85.8

Non-cash cost of land and improved development
—

 
—

 
—

 
9.5

 
—

 
—

 
9.5

Costs related to shareholder litigation (a)
—

 
—

 
—

 
—

 
—

 
3.1

 
3.1

Adjusted EBITDA

$76.1

 

$18.3

 

$26.0

 

$54.6

 

$0.6

 

($15.2
)
 

$160.4

 
 
 
 
 
(a)
Costs related to shareholder litigation include expenses incurred as a result of the securities litigation, the shareholder derivative demands and the Securities and Exchange Commission investigation. See Note 10—Contingencies in the 2015 Form 10-K.
(b)
Gain on foreign currency derivatives is the gain resulting from the foreign exchange derivatives used by the Company to mitigate the risk of fluctuations in foreign exchange rates while awaiting the capital contribution to the New Zealand JV.
(c)
Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have any identified HBU premium relative to timberland value. On April 28, 2016, the Company completed a disposition of approximately 55,000 acres located in Washington for a sale price and gain of approximately $129.5 million and $101.3 million, respectively.

52


The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
 
Nine Months Ended September 30,
 
2016
 
2015
Cash provided by operating activities

$163.9

 

$143.4

Capital expenditures (a)
(40.2
)
 
(37.2
)
Working capital and other balance sheet changes
(0.2
)
 
(5.3
)
CAD
123.5

 
100.9

Mandatory debt repayments
—

 
(131.0
)
CAD after mandatory debt repayments

$123.5

 

($30.1
)
Cash used for investing activities

($254.1
)
 

($142.9
)
Cash provided by (used for) financing activities

$146.8

 

($90.1
)
 
 
 
 
 
(a)
Capital expenditures exclude timberland acquisitions of $353.8 million and $88.5 million and spending on the Rayonier office building of $3.9 million and $0.4 million during the nine months ended September 30, 2016 and September 30, 2015, respectively.
Liquidity Facilities
Incremental Term Loan Agreement
On April 28, 2016, the Company entered into an incremental term loan agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions to provide a 10-year, $300 million incremental term loan. Proceeds from the new term loan were used to fund Rayonier’s portion of the Menasha acquisition net of the proceeds received from the Washington disposition, to repay approximately $105 million outstanding on the Company’s revolving credit facility and for general corporate purposes. The Company has entered into an interest rate swap transaction to fix the cost of the term loan over its 10-year term. The periodic interest rate on the incremental term loan agreement is LIBOR plus 1.900%. The Company receives annual patronage payments, which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user. The Company estimates the effective interest rate for the third quarter was approximately 2.8% after consideration of the estimated patronage payments and interest rate swaps.
Term Credit Agreement
On August 5, 2015, the Company entered into a credit agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions and other commercial banks to provide $550 million of new credit facilities, including a nine-year $350 million term loan facility. The Company has entered into an interest rate swap transaction to fix the cost of the term loan facility over its nine-year term. The periodic interest rate on the term credit agreement is LIBOR plus 1.625%. The Company estimates the effective interest rate for the third quarter was approximately 3.3% after consideration of the estimated patronage payments and interest rate swaps.
Revolving Credit Facility
In August 2015, the Company entered into a five-year $200 million unsecured revolving credit facility, replacing the previous $200 million revolving credit facility and $100 million farm credit facility, which were scheduled to expire in April 2016 and December 2019, respectively. The periodic interest rate on the revolving credit facility is LIBOR plus 1.250%, with an unused commitment fee of 0.175%.
Net borrowings of $25.0 million were made during the third quarter of 2016 on the revolving credit facility. At September 30, 2016, the Company had available borrowings of $169.5 million, net of $5.5 million to secure its outstanding letters of credit, under the revolving credit facility.

53


Joint Venture Debt
During the first quarter, the Company used proceeds from the term loan facility to fund a capital contribution into the New Zealand JV, which the New Zealand JV in turn used for repayment of the outstanding amount of $155 million under its existing Tranche A credit facility. In addition, all interest rate swap contracts associated with this debt were settled for $9.3 million at the time of the debt repayment.
In June 2016, the New Zealand JV entered into a 12-month NZ$20.0 million working capital facility and an 18-month NZ$20.0 million working capital facility, replacing the previous NZ$40.0 million facility that expired in June 2016.
During the nine months ended September 30, 2016, the New Zealand JV made additional borrowings and repayments of $146.1 million on its working capital facility. Additional draws totaling $29.2 million remain available on the working capital facility. In addition, the New Zealand JV paid $2.6 million of its shareholder loan held with the non-controlling interest party.
See Note 5 – Debt for additional information on these agreements and other outstanding debt, as well as for information on covenants that must be met in connection with our mortgage notes, term credit agreement and the revolving credit facility.

Off-Balance Sheet Arrangements
See Note 10 — Guarantees for details on the letters of credit, surety bonds and guarantees as of September 30, 2016.

Contractual Financial Obligations
In addition to using cash flow from operations, we finance our operations through the issuance of debt and by entering into leases. These financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction, with the result that some are recorded as liabilities on the Consolidated Balance Sheet, while others are required to be disclosed in the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis.
The following table aggregates our contractual financial obligations as of September 30, 2016 and anticipated cash spending by period: 
Contractual Financial Obligations (in millions)
Total
 
Payments Due by Period
Remaining 2016
 
2017-2018
 
2019-2020
 
Thereafter
Long-term debt (a)

$1,037

 
—

 
—

 

$40

 

$997

Current maturities of long-term debt (b)
32

 
—

 
32

 
—

 
—

Interest payments on long-term debt (c)
199

 
7

 
56

 
55

 
81

Operating leases — timberland
204

 
4

 
20

 
17

 
163

Operating leases — PP&E, offices
6

 
1

 
2

 
1

 
2

Commitments — derivatives (d)
76

 
3

 
18

 
18

 
37

Commitments — other (e)
8

 
3

 
5

 
—

 
—

Total contractual cash obligations

$1,562

 

$18

 

$133

 

$131

 

$1,280

 
 
 
 
 
(a)
The book value of long-term debt, net of deferred financing costs, is currently recorded at $1,033.3 million on the Company’s Consolidated Balance Sheet, but upon maturity the liability will be $1,037.0 million.
(b)
The book value of our current maturities of long-term debt is currently recorded at $31.8 million on the Company’s Consolidated Balance Sheet, but upon maturity the liability will be $31.5 million.
(c)
Projected interest payments for variable rate debt were calculated based on outstanding principal amounts and interest rates as of September 30, 2016.
(d)
Commitments represent payments expected to be made on derivative financial instruments (foreign exchange contracts and interest rate swaps). See Note 12 — Derivative Financial Instruments and Hedging Activities.
(e)
Commitments include payments expected to be made on the construction of the Company’s office building.

54


Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market and Other Economic Risks
We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes.
As of September 30, 2016 we had $690 million of U.S. long-term variable rate debt. Our primary interest rate exposure on variable rate debt results from changes in LIBOR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreement by swapping existing borrowings from floating rates to fixed rates. The notional amount of outstanding interest rate swap contracts at September 30, 2016 was $650 million. The term credit agreement and associated interest rate swaps mature in August 2024 and the incremental term loan agreement and associated interest rate swaps mature in May 2026. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in a corresponding increase/decrease of approximately $0.4 million in interest payments and expense over a 12 month period.
The fair market value of our U.S. long-term fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our long-term fixed-rate debt at September 30, 2016 was $337 million compared to the $325 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at September 30, 2016 would result in a corresponding decrease/increase in the fair value of our long-term fixed-rate debt of approximately $17 million.
We estimate the periodic effective interest rate on U.S. long-term fixed and variable rate debt for the third quarter was approximately 3.3% after consideration of interest rate swaps and estimated patronage payments, excluding unused commitment fees on the revolving credit facility.
The functional currency of the Company’s New Zealand-based operations and New Zealand JV is the New Zealand dollar. Through these operations and our ownership in the New Zealand JV, we are exposed to foreign currency risk on cash held in foreign currencies and on foreign export sales and ocean freight payments that are predominantly denominated in U.S. dollars. To mitigate these risks, the New Zealand JV routinely enters into foreign currency exchange contracts and foreign currency option contracts to hedge a portion of the New Zealand JV’s foreign exchange exposure. At September 30, 2016, the New Zealand JV had foreign currency exchange contracts with a notional amount of $25 million and foreign currency option contracts with a notional amount of $71 million outstanding. The amount hedged represents 40% of forecast U.S. dollar denominated harvesting sales proceeds over the next 18 months and 31% of log trading sales proceeds over the next 3 months. 

Item 4.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Rayonier management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), are designed with the objective of ensuring information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.
Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of September 30, 2016.
In the quarter ended September 30, 2016, based upon the evaluation required by paragraph (d) of SEC Rule 13a-15, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.


55


PART II.    OTHER INFORMATION

Item 1.
Legal Proceedings

The information set forth in Note 9—Contingencies in the “Notes to the Consolidated Financial Statements” under Item 1 of Part I of this Report is incorporated herein by reference. 

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
In February 2016, the Board of Directors approved the repurchase of up to $100 million of Rayonier’s common shares (the “share repurchase program”) to be made at management’s discretion. The program has no time limit and may be suspended or discontinued at any time. There were no shares repurchased under this program in the third quarter of 2016 and there was $99.3 million, or approximately 3,741,915 shares based on the period end closing stock price of $26.54, available for repurchase as of September 30, 2016.
In 1996, we began a Common Share repurchase program (the “1996 anti-dilutive program”) to minimize the dilutive effect of our employee incentive stock plans on earnings per share. This program limits the number of shares that may be purchased each year to the greater of 1.5% of outstanding shares at the beginning of the year or the number of incentive shares issued to employees during the year. In October 2000, July 2003 and October 2011, our Board of Directors authorized the purchase of additional shares in the program totaling 2.1 million shares. None of these shares have expiration dates. There were no shares repurchased under this program in the third quarter of 2016 and there were 3,776,612 shares available for purchase at September 30, 2016.
The following table provides information regarding our purchases of Rayonier common stock during the quarter ended September 30, 2016:
Period
 
Total Number of Shares Purchased (a)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (c)
July 1 to July 31
 
27

 

$26.96

 
—

 
7,518,527

August 1 to August 31
 
—

 
—

 
—

 
7,518,527

September 1 to September 30
 
—

 
—

 
—

 
7,518,527

Total
 
27

 
 
 
—

 


 
 
 
 
 
(a)
Includes 27 shares of the Company’s common stock purchased in July from employees in non-open market transactions. The shares of stock were sold by current employees of the Company in exchange for cash that was used to pay withholding taxes associated with the vesting of restricted stock awards under the Company’s stock incentive plan. The price per share surrendered is based on the closing price of the company’s stock on the respective vesting dates of the awards.
(b)
Purchases made in open-market transactions under the $100 million share repurchase program announced on February 10, 2016.
(c)
Maximum number of shares authorized to be purchased as of September 30, 2016 include 3,776,612 under the 1996 anti-dilutive program and approximately 3,741,915 under the share repurchase program.


56



Item 6.
Exhibits
10.1

Amendment to Rayonier Investment and Savings Plan for Salaried Employees (the “Plan”) effective as of January 1, 2017.
Filed herewith
10.2

First Amendment to the Retirement Plan for Salaried Employees of Rayonier Inc. effective as of December 31, 2016.
Filed herewith
10.3

Amended and Restated Executive Severance Pay Plan effective as of December 31, 2016.*
Filed herewith
31.1

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

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

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

The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2016, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2016 and 2015; (ii) the Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015; (iii) the Consolidated Statements of Shareholders’ Equity for the Nine Months Ended September 30, 2016 and the Years Ended December 31, 2015 and 2014; (iv) the Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015; and (v) the Notes to Consolidated Financial Statements.

Filed herewith
                    
* Management contract or compensatory plan.


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
RAYONIER INC.
 
 
(Registrant)
 
 
 
 
By:
/s/ APRIL TICE
 
 
April Tice
Director, Financial Services and Corporate Controller
(Duly Authorized Officer, Principal Accounting Officer)
Date: November 4, 2016





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