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RAYONIER INC - Quarter Report: 2018 September (Form 10-Q)

Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from              to             
Commission File Number 1-6780
logocolor450pxwidthpnga04.jpg
Incorporated in the State of North Carolina
I.R.S. Employer Identification No. 13-2607329
1 RAYONIER WAY
WILDLIGHT, FL 32097
(Principal Executive Office)
Telephone Number: (904) 357-9100

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

As of October 26, 2018, there were outstanding 129,467,663 Common Shares of the registrant.







Table of Contents

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

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Table of Contents

PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
SALES (NOTE 2)

$200,890

 

$184,419

 

$649,991

 

$579,874

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

 
2,577

 
3,744


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

 
39,271

 
155,097

 
135,426

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

 
1,128

 
4,020

 
1,650

INCOME BEFORE INCOME TAXES
39,035

 
31,846

 
135,125

 
111,476

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

 
28,803

 
112,682

 
94,659

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

 
24,688

 
100,229

 
84,691

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

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

 
(2,162
)
 
21,285

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

 
(204
)
 
349

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

COMPREHENSIVE INCOME
23,712

 
19,440

 
103,164

 
110,010

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

$19,179

 

$17,151

 

$99,160

 

$96,473

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

$0.18

 

$0.19

 

$0.78

 

$0.67

Diluted earnings per share attributable to Rayonier Inc.

$0.18

 

$0.19

 

$0.77

 

$0.67

 
 
 
 
 
 
 
 
Dividends declared per share

$0.27

 

$0.25

 

$0.79

 

$0.75


See Notes to Consolidated Financial Statements.

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Table of Contents

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

$146,259

 

$112,653

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

 
27,693

Inventory (Note 16)
26,950

 
24,141

Prepaid expenses
15,849

 
15,993

Other current assets
2,443

 
3,047

Total current assets
234,590

 
183,527

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

 
2,462,066

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

 
80,797

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
4,131

 
3,962

Buildings
23,149

 
23,618

Machinery and equipment
4,427

 
4,440

Construction in progress
635

 
627

Total property, plant and equipment, gross
32,342

 
32,647

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

 
23,378

RESTRICTED CASH (NOTE 17)
45,418

 
59,703

OTHER ASSETS
72,709

 
49,010

TOTAL ASSETS

$2,842,215

 

$2,858,481

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable

$22,406

 

$25,148

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

 
3,375

Accrued taxes
7,818

 
3,781

Accrued payroll and benefits
8,320

 
9,662

Accrued interest
7,963

 
5,054

Deferred revenue
13,867

 
9,721

Other current liabilities
21,249

 
11,807

Total current liabilities
81,623

 
68,548

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

 
1,022,004

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

 
31,905

OTHER NON-CURRENT LIABILITIES
58,142

 
43,084

COMMITMENTS AND CONTINGENCIES (NOTES 7 and 9)

 

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

 
872,228

Retained earnings
705,531

 
707,378

Accumulated other comprehensive income (Note 18)
12,348

 
13,417

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

 
1,593,023

Noncontrolling interest
100,799

 
99,917

TOTAL SHAREHOLDERS’ EQUITY
1,701,099

 
1,692,940

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$2,842,215

 

$2,858,481


See Notes to Consolidated Financial Statements.

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Table of Contents

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


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

 

$709,867

 

$700,887

 

$856

 

$85,142

 

$1,496,752

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

 
—

 
(14,365
)
 
—

 
—

 
(14,365
)
Net income
—

 
—

 
148,842

 
—

 
12,737

 
161,579

Dividends ($1.00 per share)
—

 
—

 
(127,986
)
 
—

 
—

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

 
4,751

 
—

 
—

 
—

 
4,751

Stock-based compensation
—

 
5,396

 
—

 
—

 
—

 
5,396

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

 
—

 
—

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

 
—

 
—

 
(208
)
 
—

 
(208
)
Foreign currency translation adjustment
—

 
—

 
—

 
7,416

 
1,698

 
9,114

Cash flow hedges
—

 
—

 
—

 
5,353

 
340

 
5,693

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

 
152,390

 
—

 
—

 
—

 
152,390

Balance, December 31, 2017
128,970,776

 

$872,228

 

$707,378

 

$13,417

 

$99,917

 

$1,692,940

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

 
—

 
711

 
(711
)
 
—

 
—

Net income
—

 
—

 
100,229

 
—

 
12,453

 
112,682

Dividends ($0.79 per share)
—

 
—

 
(102,787
)
 
—

 
—

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

 
8,216

 
—

 
—

 
—

 
8,216

Stock-based compensation
—

 
4,957

 
—

 
—

 
—

 
4,957

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

 
—

 
—

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

 
—

 
—

 
507

 
—

 
507

Foreign currency translation adjustment
—

 
—

 
—

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

 
—

 
—

 
22,476

 
(1,191
)
 
21,285

Dividend to New Zealand minority shareholder
—

 
—

 
—

 
—

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

 

$882,421

 

$705,531

 

$12,348

 

$100,799

 

$1,701,099


See Notes to Consolidated Financial Statements.















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

$112,682

 

$94,659

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

 
96,602

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

 
8,631

Stock-based incentive compensation expense
4,957

 
4,084

Deferred income taxes
21,019

 
16,714

Amortization of losses from pension and postretirement plans
507

 
349

Gain on sale of large disposition of timberlands
—

 
(28,183
)
Other
3,470

 
29

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

 
(617
)
Accounts payable
(825
)
 
5,018

Income tax receivable/payable
—

 
(126
)
All other operating activities
640

 
8,352

CASH PROVIDED BY OPERATING ACTIVITIES
261,051

 
186,873

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

 
42,029

Rayonier office building under construction
—

 
(5,979
)
Other
2,132

 
383

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

 
63,389

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

 
3,665

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

 
152,390

Repurchase of common shares
(2,980
)
 
—

Proceeds from shareholder distribution hedge
610

 
—

Distribution to minority shareholder
(3,122
)
 
—

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

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

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

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

 
157,617

Balance, end of period

$191,677

 

$114,693

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

$20,910

 

$23,540

Income taxes
824

 
495

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

 
4,376

 
 
 
 
 
(a)
Due to the adoption of ASU No. 2016-18, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-year and end-of-period total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior period amounts have been restated to conform to current period presentation. For additional information and a reconciliation of cash, see Note 17 — Restricted Cash.
(b)
Interest paid is presented net of patronage payments received of $4.1 million and $3.0 million for the nine months ended September 30, 2018 and September 30, 2017, respectively. For additional information on patronage payments, see Note 5 — Debt in the 2017 Form 10-K.

See Notes to Consolidated Financial Statements.

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Table of Contents

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


1.
BASIS OF PRESENTATION
The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries (“Rayonier” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The year-end balance sheet information was derived from audited financial statements not included herein. In the opinion of management, these financial statements and notes reflect any adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, as filed with the SEC (the “2017 Form 10-K”).
SUMMARY OF UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
REVENUE
See Note 2 — Revenue for significant accounting policies related to revenue that were revised upon adoption of Accounting Standards Codification (“ASC”) 606.
COST OF SALES
Cost of sales associated with real estate sold includes the cost of the land, the cost of any timber on the property that was conveyed to the buyer, any real estate development costs and any closing costs including sales commissions that may be borne by the Company. As allowed under GAAP, the Company expenses closing costs, including sales commissions, when incurred for all real estate sales with future performance obligations expected to be satisfied within one year. When developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold through completion. Costs are allocated to each sold unit or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated periodically throughout the year, with adjustments being allocated prospectively to the remaining units available for sale.
For a full description of our significant accounting policies, see Note 2 — Summary of Significant Accounting Policies in the 2017 Form 10-K.
RECLASSIFICATIONS
Management has changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments. See Note 4 — Segment and Geographic Information.
RECENTLY ADOPTED STANDARDS
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU No. 2018-02 is effective for the Company's reporting period beginning on January 1, 2019; early adoption is permitted. The Company elected to adopt ASU No. 2018-02 during the third quarter of 2018, and elected to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings. The reclassification decreased AOCI and increased retained earnings by $0.7 million, with zero net effect on total shareholders’ equity. See Note 8 — Income Taxes for additional information.
The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018. The Company elected to apply the modified retrospective method to contracts that were not completed at the date of adoption. The Company also elected not to retrospectively restate contracts modified prior to January 1, 2018.

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

A cumulative effect of adoption adjustment to the opening balance of retained earnings was not recorded as there was no accounting impact to any contracts with customers not completed at the date of adoption. See Note 2 — Revenue for additional information.
In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires that an employer report the service cost component of net periodic benefit cost in the Consolidated Statements of Income in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components of net periodic benefit cost (interest cost, expected return on plan assets and amortization of losses or gains) are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. ASU No. 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and is required to be applied retrospectively to all periods presented beginning in the period of adoption. Rayonier adopted ASU No. 2017-07 during the first quarter ended March 31, 2018 and applied the update retrospectively to all periods presented. See Note 14 — Employee Benefit Plans for the components of net periodic benefit cost and the location of these items in the Consolidated Statements of Income and Comprehensive Income.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows. ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. ASU No. 2016-18 is required to be applied retrospectively to all periods presented beginning in the period of adoption. Rayonier adopted ASU No. 2016-18 in the first quarter ended March 31, 2018 and applied the update retrospectively to all periods presented. Restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-year and end-of-period total amounts shown on the Consolidated Statements of Cash Flows, and therefore changes in restricted cash are no longer reported as cash flow activities. See Note 17 — Restricted Cash for additional information, including the nature of restrictions on the Company’s cash, cash equivalents, and restricted cash.

The Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments in the first quarter ended March 31, 2018 with no material impact on the consolidated financial statements.

The Company adopted ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments —Overall (Subtopic 825-10) in the third quarter ended September 30, 2018 with no material impact on the consolidated financial statements.
NEW ACCOUNTING STANDARDS
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which currently requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. ASU No. 2016-02 also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. This update provides an optional transition practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the current leases guidance. An entity that elects this practical expedient should evaluate new or modified land easements under ASU No. 2016-02, once adopted. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of ASU No. 2016-02 to assess whether they meet the definition of a lease. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and is required to be applied on a modified retrospective basis beginning at the earliest period presented. Early adoption is permitted. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which will make more financial and non-financial hedging strategies eligible for

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

hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU No. 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted and the amended presentation and disclosure guidance is required to be applied on a prospective basis. The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements.
SUBSEQUENT EVENTS
The Company has evaluated events occurring from September 30, 2018 to the date of issuance of these Consolidated Financial Statements for potential recognition or disclosure in the consolidated financial statements. No events were identified that warranted recognition. See Note 9 — Contingencies for events that warranted disclosure.    

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

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

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

$19,998

 

$3,560

 

$7,278

 
—

 

$2,487

 
—

 

$33,323

Sawtimber
13,734

 
23,495

 
56,663

 
—

 
28,321

 
—

 
122,213

Hardwood
1,071

 
—

 
—

 
—

 
—

 
—

 
1,071

Total Timber Sales
34,803

 
27,055

 
63,941

 
—

 
30,808

 
—

 
156,607

License Revenue, Primarily From Hunting
4,016

 
224

 
98

 
—

 
—

 
—

 
4,338

Other Non-Timber/Carbon Revenue
637

 
468

 
2,226

 
—

 
—

 
—

 
3,331

Agency Fee Income
—

 
—

 
—

 
—

 
172

 
—

 
172

Total Non-Timber Sales
4,653

 
692

 
2,324

 
—

 
172

 
—

 
7,841

Improved Development
—


—

 
—

 
1,352

 
—

 
—

 
1,352

Unimproved Development
—


—

 
—

 
1,175

 
—

 
—

 
1,175

Rural
—


—

 
—

 
4,489

 
—

 
—

 
4,489

Non-strategic / Timberlands
—


—

 
—

 
29,152

 
—

 
—

 
29,152

Large Dispositions
—


—

 
—

 
—

 
—

 
—

 
—

Total Real Estate Sales
—


—

 
—

 
36,168

 
—

 
—

 
36,168

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
39,456

 
27,747

 
66,265

 
36,168

 
30,980

 
—

 
200,616

Other Non-Timber Sales, Primarily Lease
206

 
68

 
—

 
—

 
—

 
—

 
274

Intersegment
—

 
—

 
—

 
—

 
30

 
(30
)
 
—

Total Revenue

$39,662

 

$27,815

 

$66,265

 

$36,168

 

$31,010

 

($30
)
 

$200,890

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$18,260

 

$2,515

 

$7,344

 
—

 

$3,425

 
—

 

$31,544

Sawtimber
12,485

 
16,131

 
62,569

 
—

 
36,828

 
—

 
128,013

Hardwood
1,152

 
—

 
—

 
—

 
—

 
—

 
1,152

Total Timber Sales
31,897

 
18,646

 
69,913

 
—

 
40,253

 
—

 
160,709

License Revenue, Primarily from Hunting
4,171

 
161

 
36

 
—

 
—

 
—

 
4,368

Other Non-Timber Revenue
1,042

 
233

 
146

 
—

 
—

 
—

 
1,421

Agency Fee Income
—

 
—

 
—

 
—

 
433

 
—

 
433

Total Non-Timber Sales
5,213

 
394

 
182

 
—

 
433

 
—

 
6,222

Improved Development
—

 
—

 
—

 
46

 
—

 
—

 
46

Unimproved Development
—

 
—

 
—

 
13,905

 
—

 
—

 
13,905

Rural
—

 
—

 
—

 
3,125

 
—

 
—

 
3,125

Non-strategic / Timberlands
—

 
—

 
—

 
164

 
—

 
—

 
164

Large Dispositions
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Real Estate Sales
—

 
—

 
—

 
17,240

 
—

 
—

 
17,240

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
37,110

 
19,040

 
70,095

 
17,240

 
40,686

 
—

 
184,171

Other Non-Timber Sales, Primarily Lease
191

 
57

 
—

 
—

 
—

 
—

 
248

Total Revenue

$37,301



$19,097



$70,095



$17,240



$40,686


—

 

$184,419



8

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

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

$61,898

 

$11,648

 

$20,910

 
—

 

$10,548

 
—

 

$105,004

Sawtimber
45,452

 
77,172

 
162,627

 
—

 
105,309

 
—

 
390,560

Hardwood
2,882

 
—

 
—

 
—

 
—

 
—

 
2,882

Total Timber Sales
110,232

 
88,820

 
183,537

 
—

 
115,857

 
—

 
498,446

License Revenue, Primarily From Hunting
12,137

 
450

 
292

 
—

 
—

 
—

 
12,879

Other Non-Timber/Carbon Revenue
8,320

 
1,923

 
5,053

 
—

 
—

 
—

 
15,296

Agency Fee Income
—

 
—

 
—

 
—

 
460

 
—

 
460

Total Non-Timber Sales
20,457

 
2,373

 
5,345

 
—

 
460

 
—

 
28,635

Improved Development
—

 
—

 
—

 
3,817

 
—

 
—

 
3,817

Unimproved Development
—

 
—

 
—

 
8,621

 
—

 
—

 
8,621

Rural
—

 
—

 
—

 
10,969

 
—

 
—

 
10,969

Non-strategic / Timberlands
—

 
—

 
—

 
98,685

 
—

 
—

 
98,685

Large Dispositions
—

 
—

 
—

 
—

 
—

 
—

 
—

Total Real Estate Sales
—

 
—

 
—

 
122,092

 
—

 
—

 
122,092

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
130,689

 
91,193

 
188,882

 
122,092

 
116,317

 
—

 
649,173

Other Non-Timber Sales, Primarily Lease
609

 
209

 
—

 
—

 
—

 
—

 
818

Intersegment
—

 
—

 
—

 
—

 
66

 
(66
)
 
—

Total Revenue

$131,298

 

$91,402

 

$188,882

 

$122,092

 

$116,383

 

($66
)
 

$649,991

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Pulpwood

$52,407

 

$8,683

 

$18,956

 
—

 

$9,972

 
—

 

$90,018

Sawtimber
40,088

 
54,203

 
144,550

 
—

 
105,964

 
—

 
344,805

Hardwood
2,895

 
—

 
—

 
—

 
—

 
—

 
2,895

Total Timber Sales
95,390

 
62,886

 
163,506

 
—

 
115,936

 
—

 
437,718

License Revenue, Primarily from Hunting
11,809

 
354

 
154

 
—

 
—

 
—

 
12,317

Other Non-Timber Revenue
4,184

 
2,037

 
320

 
—

 
—

 
—

 
6,541

Agency Fee Income
—

 
—

 
—

 
—

 
1,051

 
—

 
1,051

Total Non-Timber Sales
15,993

 
2,391

 
474

 
—

 
1,051

 
—

 
19,909

Improved Development
—

 
—

 
—

 
189

 
—

 
—

 
189

Unimproved Development
—

 
—

 
—

 
16,405

 
—

 
—

 
16,405

Rural
—

 
—

 
—

 
15,357

 
—

 
—

 
15,357

Non-strategic / Timberlands
—

 
—

 
—

 
47,558

 
—

 
—

 
47,558

Large Dispositions
—

 
—

 
—

 
41,951

 
—

 
—

 
41,951

Total Real Estate Sales
—

 
—

 
—

 
121,460

 
—

 
—

 
121,460

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue from Contracts with Customers
111,383

 
65,277

 
163,980

 
121,460

 
116,987

 
—

 
579,087

Other Non-Timber Sales, Primarily Lease
584

 
203

 
—

 
—

 
—

 
—

 
787

Total Revenue

$111,967

 

$65,480

 

$163,980

 

$121,460

 

$116,987

 
—

 

$579,874



9

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

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

    

10

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

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

$16,984

 
—

 
—

 
—

 

$16,984

Stumpage Lump Sum
284

 
2,143

 
—

 
—

 
2,427

Stumpage Agreed Volume
—

 
—

 
—

 
—

 
—

Total Stumpage
17,268

 
2,143

 
—

 
—

 
19,411

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
15,856

 
24,912

 
24,771

 
1,813

 
67,352

Delivered Wood (Export)
1,679

 
—

 
39,170

 
28,995

 
69,844

Total Delivered
17,535

 
24,912

 
63,941

 
30,808

 
137,196

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$34,803

 

$27,055

 

$63,941

 

$30,808

 

$156,607

 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$18,607

 
—

 
—

 
—

 

$18,607

Stumpage Lump Sum
1,954

 
3,987

 
—

 
—

 
5,941

Stumpage Agreed Volume
—

 
—

 
—

 
—

 
—

Total Stumpage
20,561

 
3,987

 
—

 
—

 
24,548

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
11,336

 
14,659

 
24,440

 
1,808

 
52,243

Delivered Wood (Export)
—

 
—

 
45,473

 
38,445

 
83,918

Total Delivered
11,336

 
14,659

 
69,913

 
40,253

 
136,161

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$31,897

 

$18,646

 

$69,913

 

$40,253

 

$160,709

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

$59,348

 
—

 
—

 
—

 

$59,348

Stumpage Lump Sum
2,358

 
11,854

 
—

 
—

 
14,212

Stumpage Agreed Volume
—

 
—

 
—

 
—

 
—

Total Stumpage
61,706

 
11,854

 
—

 
—

 
73,560

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
44,399

 
76,966

 
70,521

 
4,317

 
196,203

Delivered Wood (Export)
4,127

 
—

 
113,016

 
111,540

 
228,683

Total Delivered
48,526

 
76,966

 
183,537

 
115,857

 
424,886

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$110,232

 

$88,820

 

$183,537

 

$115,857

 

$498,446

 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
Stumpage Pay-as-Cut

$56,956

 
—

 
—

 
—

 

$56,956

Stumpage Lump Sum
6,997

 
6,574

 
—

 
—

 
13,571

Stumpage Agreed Volume
—

 
1,234

 
—

 
—

 
1,234

Total Stumpage
63,953

 
7,808

 
—

 
—

 
71,761

 
 
 
 
 
 
 
 
 
 
Delivered Wood (Domestic)
31,437

 
55,078

 
63,883

 
4,132

 
154,530

Delivered Wood (Export)
—

 
—

 
99,623

 
111,804

 
211,427

Total Delivered
31,437

 
55,078

 
163,506

 
115,936

 
365,957

 
 
 
 
 
 
 
 
 
 
Total Timber Sales

$95,390

 

$62,886

 

$163,506

 

$115,936

 

$437,718


11

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



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

$355

 

$459

 

$8,685

 

$8,369

 
 
 
 
 
(a)
Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales.
3.
JOINT VENTURE INVESTMENT (MATARIKI FORESTRY GROUP)
The Company maintains a controlling financial interest in Matariki Forestry Group (the “New Zealand JV”), a joint venture that owns or leases approximately 407,000 legal acres of New Zealand timberland. Accordingly, the Company consolidates the New Zealand JV’s balance sheet and results of operations. The portions of the consolidated financial position and results of operations attributable to the New Zealand JV’s 23% noncontrolling interest are shown separately within the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Changes in Shareholders’ Equity. Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the New Zealand JV.

4.
SEGMENT AND GEOGRAPHICAL INFORMATION
Management has changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments.
Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on segment operating income and Adjusted EBITDA. Asset information is not reported by segment, as the Company does not produce asset information by segment internally.

12

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

Operating income as presented in the Consolidated Statements of Income and Comprehensive Income is equal to segment income. Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include interest expense, interest and other miscellaneous income and income tax expense, are not considered by management to be part of segment operations and are included under “Corporate and other” or “unallocated interest expense and other.”
The following tables summarize the segment information for the three and nine months ended September 30, 2018 and 2017:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
SALES
2018
 
2017
 
2018
 
2017
Southern Timber

$39,662

 

$37,301

 

$131,298

 

$111,967

Pacific Northwest Timber
27,815

 
19,097

 
91,402

 
65,480

New Zealand Timber
66,265

 
70,095

 
188,882

 
163,980

Real Estate (a)
36,168

 
17,240

 
122,092

 
121,460

Trading
31,010

 
40,686

 
116,383

 
116,987

Intersegment Eliminations
(30
)
 
—

 
(66
)
 
—

Total

$200,890

 

$184,419

 

$649,991

 

$579,874

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

$9,183

 

$11,436

 

$37,061

 

$35,031

Pacific Northwest Timber
1,911

 
1,134

 
12,209

 
(1,278
)
New Zealand Timber
16,416

 
19,280

 
50,141

 
41,510

Real Estate (a)
24,726

 
11,437

 
71,645

 
72,052

Trading
304

 
1,142

 
680

 
3,380

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

 
39,271

 
155,097

 
135,426

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

$39,035

 

$31,846

 

$135,125

 

$111,476

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

$13,672

 

$12,736

 

$44,591

 

$37,092

Pacific Northwest Timber
7,802

 
6,481

 
26,687

 
23,766

New Zealand Timber
7,544

 
8,478

 
21,287

 
20,477

Real Estate (a)
5,491

 
735

 
22,296

 
22,902

Trading
—

 
—

 
—

 
—

Corporate and other
297

 
277

 
865

 
469

Total

$34,806

 

$28,707

 

$115,726

 

$104,706

 
 
 
 
 
(a)    The nine months ended September 30, 2017 includes $8.1 million from Large Dispositions.

13

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

NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT
Three Months Ended September 30,
 
Nine Months Ended September 30,
2018
 
2017
 
2018
 
2017
Southern Timber
—

 
—

 
—

 
—

Pacific Northwest Timber
—

 
—

 
—

 
—

New Zealand Timber
—

 
—

 
—

 
—

Real Estate (a)
2,115

 
1,272

 
17,051

 
14,374

Trading
—

 
—

 
—

 
—

Total

$2,115

 

$1,272

 

$17,051

 

$14,374

 
 
 
 
 
(a)    The nine months ended September 30, 2017 includes $5.7 million from Large Dispositions.

5.
DEBT
Rayonier’s debt consisted of the following at September 30, 2018:
 
September 30, 2018
Term Credit Agreement borrowings due 2024 at a variable interest rate of 3.7% at September 30, 2018 (a)

$350,000

Senior Notes due 2022 at a fixed interest rate of 3.75%
325,000

Incremental Term Loan Agreement borrowings due 2026 at a variable interest rate of 4.0% at September 30, 2018 (b)
300,000

Total debt
975,000

Less: Deferred financing costs
(2,574
)
Long-term debt, net of deferred financing costs

$972,426

 
 
 
 
 
(a)    As of September 30, 2018, the periodic interest rate on the term loan facility was LIBOR plus 1.625%. The Company estimates the effective
fixed interest rate on the term loan facility to be approximately 3.3% after consideration of interest rate swaps and estimated patronage refunds.
(b)    As of September 30, 2018, the periodic interest rate on the incremental term loan was LIBOR plus 1.900%. The Company estimates the
effective fixed interest rate on the incremental term loan facility to be approximately 2.8% after consideration of interest rate swaps and
estimated patronage refunds.
Principal payments due during the next five years and thereafter are as follows:
2018
—

2019
—

2020
—

2021
—

2022
325,000

Thereafter
650,000

Total Debt

$975,000


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

2018 DEBT ACTIVITY
During the nine months ended September 30, 2018, the Company made a repayment of $50.0 million on the Revolving Credit Facility. As of September 30, 2018, the Company had available borrowings of $189.8 million under the Revolving Credit Facility, net of $10.2 million to secure its outstanding letters of credit.
In addition, the New Zealand JV made borrowings and repayments of $1.0 million on its working capital facility. As of September 30, 2018, draws totaling NZ$40.0 million remain available on the working capital facility. The New Zealand JV also fully repaid its shareholder loan held by the noncontrolling interest party during the nine months ended September 30, 2018.
DEBT COVENANTS
In connection with the Company’s $350 million term credit agreement (the “Term Credit Agreement”), $300 million incremental term loan agreement (the “Incremental Term Loan Agreement”) and $200 million revolving credit facility (the “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 listed above, the 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, 2018, 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 enhance the value of such properties.
An analysis of higher and better use timberlands and real estate development investments from December 31, 2017 to September 30, 2018 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, 2017

$59,653

 

$21,144

 

$80,797

Plus: Current portion (a)
6,702

 
11,648

 
18,350

Total Balance at December 31, 2017
66,355

 
32,792

 
99,147

Non-cash cost of land and improved development
(1,179
)
 
(2,961
)
 
(4,140
)
Timber depletion from harvesting activities and basis of timber sold in real estate sales
(1,335
)
 
—

 
(1,335
)
Capitalized real estate development investments (b)
—

 
6,889

 
6,889

Capital expenditures (silviculture)
161

 
—

 
161

Intersegment transfers
1,399

 
—

 
1,399

Total Balance at September 30, 2018
65,401

 
36,720

 
102,121

Less: Current portion (a)
(5,858
)
 
(16,516
)
 
(22,374
)
Non-current portion at September 30, 2018

$59,543

 

$20,204

 

$79,747

 
 
 
 
 
(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 include $0.5 million of capitalized interest.

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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, 2018, the future minimum payments under non-cancellable operating leases, timberland leases and other commitments were as follows:
 
Operating
Leases
 
Timberland
Leases (a)
 
Commitments (b)
 
Total
Remaining 2018

$331

 

$3,888

 

$5,480

 

$9,699

2019
1,173

 
8,677

 
3,239

 
13,089

2020
1,017

 
8,300

 
787

 
10,104

2021
849

 
8,301

 
612

 
9,762

2022
701

 
8,063

 
587

 
9,351

Thereafter (c)
717

 
142,876

 
929

 
144,522

 

$4,788

 

$180,105

 

$11,634

 

$196,527

 
 
 
 
 
(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 $0.5 million of pension contribution requirements remaining in 2018 based on actuarially determined estimates and IRS minimum funding requirements, payments expected to be made on derivative financial instruments (foreign exchange contracts and interest rate swaps), construction of the Company’s Wildlight development project and other purchase obligations.
(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, 2018, the New Zealand JV has two CFL’s under termination notice that are currently being relinquished as harvest activities are concluding, 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.

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, entitlement and development of HBU properties. For the three and nine months ended September 30, 2018, the Company recorded income tax expense of $8.4 million and $22.4 million, respectively. For the three and nine months ended September 30, 2017, the Company recorded income tax expense of $3.0 million and $16.8 million, respectively.
PROVISION FOR INCOME TAXES
The Company’s effective tax rate is below the 21.0% U.S. statutory rate due to tax benefits associated with being a REIT. The Company’s annualized effective tax rate (“AETR”) as of September 30, 2018 and September 30, 2017 was 16.5% and 15.1%, respectively. The company’s tax expense is principally related to New Zealand corporate level tax on the New Zealand JV income.
In accordance with GAAP, the Company recognizes the impact of a tax position if a position is “more-likely-than-not” to prevail. For the nine months ended September 30, 2018, there were no material changes in uncertain tax positions.

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

U.S. TAX REFORM
The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017 making significant changes to the Internal Revenue Code. Changes include a permanent reduction in the U.S. statutory corporate income tax rate from 35% to 21% effective January 1, 2018 and a one-time transition tax on the deemed repatriation of deferred foreign earnings in 2017.
The Company has completed its assessment of the accounting implications of the Act. The remeasurement of U.S. deferred tax assets and liabilities resulting from the permanent reduction in the U.S. statutory corporate tax rate resulted in no P&L impact as the Company has a full valuation allowance against U.S. deferred tax assets (net of liabilities). Further, mandatory deemed repatriation had no material impact as the income inclusion was offset by net operating losses (NOL).
The Act subjects a U.S. shareholder to current tax on global intangible low-taxed income (GILTI) earned by certain foreign subsidiaries effective January 1, 2018. For current year, the Company’s REIT entity has a GILTI income inclusion of $1.4 million. The FASB Staff Q&A, Topic 740 No. 5, Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI in the year the tax is incurred. Due to the Company’s REIT status and the corresponding distribution requirement, the Company has neither a deferred tax related to GILTI nor any current tax expense.
ADOPTION OF ASU 2018-02
The Company evaluates releasing income tax effects from accumulated other comprehensive income each quarter as part of its analysis of AOCI. The Company elected to adopt ASU No. 2018-02 during the third quarter of 2018 and reclassified the resulting income tax effects from AOCI to retained earnings. The reclassification decreased AOCI and increased retained earnings by $0.7 million, with zero net effect on total shareholders’ equity.

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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 and June 30, 2014, (the “November 2014 Announcement”), 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 (the “Derivative Claims”). 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.

Following the Company’s receipt of the Derivative Claims, it entered into a series of tolling agreements with the shareholders from whom it received demands (the “Demand Shareholders”). The last of these tolling agreements ended in March of 2017. On October 13, 2017, one of the Demand Shareholders filed an action in the United States District Court for the Middle District of Florida, currently styled Molloy v. Boynton, et al., Civil Action No. 3:17-cv-01157-TJC-MCR (the “Derivative Lawsuit”). The complaint alleges breaches of fiduciary duties and unjust enrichment and names as defendants former officers, Paul G. Boynton, Hans E. Vanden Noort and N. Lynn Wilson, and former directors, C. David Brown, II, Mark E. Gaumond, James H. Miller, Thomas I. Morgan and Ronald Townsend (the former officers and directors named as defendants are collectively the “Individual Defendants”).
In November 2017, the parties reached an agreement to resolve all claims brought in the Derivative Lawsuit and agreed to negotiate in good faith regarding the amount of attorneys’ fees and expenses to be paid to the Demand Shareholders’ counsel, subject to court approval. The parties executed a term sheet on November 27, 2017, and agreed to schedule a mediation regarding the amount of attorneys’ fees and expenses. On November 30, 2017, Rayonier and certain of the Individual Defendants who had been served with the complaint filed an unopposed Motion to Stay or, in the Alternative, to Extend Time to Respond to the Complaint in order to allow the parties time to attempt to resolve the Derivative Lawsuit without further litigation. On December 6, 2017, the Court entered an order staying the case, directing that the case be administratively closed, and ordering the parties to file a joint status report with the Court not later than March 15, 2018. At December 31, 2017, the case was stayed, some of the Individual Defendants had not yet been served, none of the defendants had filed any responsive pleading or dispositive motion, and the Company could not determine whether there was a likelihood a material loss had been incurred nor could the range of any such loss be estimated.
On March 13, 2018, the Demand Shareholders, Rayonier, certain of Rayonier’s directors’ and officers’ insurance carriers, and certain of the Individual Defendants participated in a mediation, at the conclusion of which the parties reached an agreement in principle to settle the case and amended the term sheet to memorialize such agreement. On April 17, 2018, Plaintiff filed with the Court Plaintiff’s Unopposed Motion for Preliminary Approval of Derivative Settlement and Memorandum of Legal Authority in Support (“Motion for Preliminary Approval”). The terms of the proposed settlement (the “Settlement”) are contained in the Stipulation and Agreement of Settlement (the “Stipulation”), which was attached to the Motion for Preliminary Approval and filed with the Court. The Stipulation, executed by all parties, included the material terms of the term sheet. Pursuant to the terms of the Settlement, which is subject to Court approval and objections by shareholders, the Company agreed to certain governance reforms and to cause certain of its directors’ and officers’ liability insurance carriers to fund a settlement payment for the Demand Shareholders’ attorneys’ fees and expenses as well as incentive awards to the Demand Shareholders in the aggregate amount of $1.995 million. On August 17, 2018, the Court granted the Motion for Preliminary Approval, established notice requirements and scheduled the final hearing as to approval of the Settlement for October 16, 2018. On September 11, 2018, Plaintiff filed with the Court Plaintiff’s Unopposed Motion for Final Approval of Derivative Settlement and Approval of the Agreed-Upon Attorneys’ Fees and Expenses (“Motion for Final Approval”). On October 9, 2018, the Court issued an order rescheduling the hearing on the Motion for Final Approval to October 30, 2018 and the hearing went forward on that date. On November 2, 2018, the Court issued an order granting the Motion for Final Approval and dismissed the case with prejudice. The payments agreed to on March 13, 2018, including the realized amount to be funded by the insurance carriers, were reflected in the Company’s Consolidated Financial Statements as of September 30, 2018.
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

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

occurring in connection with its businesses, it has in certain cases retained some risk through the operation of large deductible insurance plans, primarily in the areas of executive risk, property, automobile 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.



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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, 2018, the following financial guarantees were outstanding:
Financial Commitments
 
Maximum Potential
Payment
 
Carrying Amount
of Associated Liability
Standby letters of credit (a)
 

$10,176

 
—

Guarantees (b)
 
2,254

 
43

Surety bonds (c)
 
1,284

 
—

Total financial commitments
 

$13,714

 

$43

 
 
 
 
 
(a)
Approximately $9.2 million of the irrevocable 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 2018 and 2019 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, 2018, 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 outstanding claims under the Company’s previous workers’ compensation self-insurance programs in Washington and Florida. 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 2018 and 2019 and are expected to be renewed as required.

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,
 
2018
 
2017
 
2018
 
2017
Net Income

$30,639

 

$28,803

 

$112,682

 

$94,659

Less: Net income attributable to noncontrolling interest
(7,207
)
 
(4,115
)
 
(12,453
)
 
(9,968
)
Net income attributable to Rayonier Inc.

$23,432

 

$24,688

 

$100,229

 

$84,691

 
 
 
 
 
 
 
 
Shares used for determining basic earnings per common share
129,142,931

 
128,610,696

 
129,005,074

 
126,934,003

Dilutive effect of:
 
 
 
 
 
 
 
Stock options
73,372

 
84,380

 
85,000

 
94,528

Performance and restricted shares
539,571

 
270,704

 
584,364

 
315,476

Shares used for determining diluted earnings per common share
129,755,874

 
128,965,780

 
129,674,438

 
127,344,007

 
 
 
 
 
 
 
 
Basic earnings per common share attributable to Rayonier Inc.:

$0.18

 

$0.19

 

$0.78

 

$0.67

 
 
 
 
 
 
 
 
Diluted earnings per common share attributable to Rayonier Inc.:

$0.18

 

$0.19

 

$0.77

 

$0.67


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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Anti-dilutive shares excluded from the computations of diluted earnings per share:
 
 
 
 
 
 
 
Stock options and performance shares
150,313

 
621,447

 
192,265

 
600,039


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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, 2018, foreign currency exchange contracts and foreign currency option contracts had maturity dates through December 2019 and February 2020, respectively.
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.
Through our ownership in the New Zealand JV, the Company is exposed to foreign currency risk on shareholder distribution payments which are denominated in N.Z. dollars. On behalf of the Company, the New Zealand JV typically hedges 60% to 100% of its estimated foreign currency exposure with respect to the following three months anticipated distributions, up to 75% of anticipated distributions for the forward three to six months and up to 50% of the forward six to 12 months. For the three and nine months ended September 30, 2018, the change in fair value of the foreign exchange forward contracts of ($0.2) million and $2.4 million, respectively, was recorded as a (loss)/gain in “Interest and other miscellaneous income, net” as the contracts did not qualify for hedge accounting treatment. As of September 30, 2018, foreign exchange forward contracts had maturity dates through December 2018.
 

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

In March 2018, the Company entered into a foreign currency exchange contract (notional amount of NZ$37 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. This contract hedged the cash portion of the Company’s net investment in New Zealand and qualified as a net investment hedge. The fair value of this contract 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. This hedge 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 reviewed the hedge for ineffectiveness. In April 2018, the foreign currency exchange contract matured and the Company repatriated the cash. The Company did not have any ineffectiveness during the life of the hedge.
INTEREST RATE SWAPS
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.
The following table contains information on the outstanding interest rate swaps as of September 30, 2018:
Outstanding Interest Rate Swaps (a)
Date Entered Into
Term
Notional Amount
Related Debt Facility
Fixed Rate of Swap
Bank Margin on Debt
Total Effective Interest Rate (b)
August 2015
9 years
$170,000
Term Credit Agreement
2.20
%
1.63
%
3.83
%
August 2015
9 years
180,000
Term Credit Agreement
2.35
%
1.63
%
3.98
%
April 2016
10 years
100,000
Incremental Term Loan
1.60
%
1.90
%
3.50
%
April 2016
10 years
100,000
Incremental Term Loan
1.60
%
1.90
%
3.50
%
July 2016
10 years
100,000
Incremental Term Loan
1.26
%
1.90
%
3.16
%
 
 
 
 
 
(a)
All interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting.
(b)
Rate is before estimated patronage payments.

CARBON OPTIONS
The New Zealand JV enters into carbon options from time to time to sell carbon assets at certain prices. The fair value of carbon options is determined by a mark-to-market valuation using the Black-Scholes option pricing model, 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. For the three and nine months ended September 30, 2018, the change in fair value of the carbon option contracts of ($0.6) million and ($0.6) million, respectively, was recorded as a loss in “Interest and other miscellaneous income, net” as the contracts did not qualify for hedge accounting treatment. As of September 30, 2018, carbon option contracts had maturity dates through March 2019.

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

The following tables 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, 2018 and 2017.
 
 
 
Three Months Ended September 30,
 
Income Statement Location
 
2018
 
2017
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other comprehensive (loss) income
 

($1,402
)
 

($1,579
)
Foreign currency option contracts
Other comprehensive (loss) income
 
(29
)
 
(716
)
Interest rate swaps
Other comprehensive (loss) income
 
5,173

 
(533
)
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency exchange contracts
Interest and other miscellaneous income, net
 
(189
)
 
609

Carbon option contracts
Interest and other miscellaneous income, net
 
(577
)
 
—


 
 
 
Nine Months Ended September 30,
 
Income Statement Location
 
2018
 
2017
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Other comprehensive (loss) income
 

($6,800
)
 

$1,611

Foreign currency option contracts
Other comprehensive (loss) income
 
(388
)
 
219

Interest rate swaps
Other comprehensive (loss) income
 
26,461

 
(2,921
)
 
 
 
 
 
 
Derivatives designated as a net investment hedge:
 
 
 
 
Foreign currency exchange contract
Other comprehensive (loss) income
 
(344
)
 
—

 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency exchange contracts
Interest and other miscellaneous income, net
 
2,419

 
283

Carbon option contracts
Interest and other miscellaneous income, net
 
(577
)
 
—

During the next 12 months, the amount of the September 30, 2018 AOCI balance, net of tax, expected to be reclassified into earnings as a result of the maturation of the Company’s derivative instruments is a loss of approximately $2.6 million.

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

The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
 
Notional Amount
 
September 30, 2018
 
December 31, 2017
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency exchange contracts

$103,000

 

$107,400

Foreign currency option contracts
20,000

 
48,000

Interest rate swaps
650,000

 
650,000

 
 
 
 
Derivative not designated as a hedging instrument:
 
 
 
Foreign currency exchange contracts
21,019

 
18,439

Carbon options (a)
7,500

 
—

 
 
 
 
 
(a)    Notional amount for carbon options is calculated as the number of units outstanding multiplied by the spot price as of September 30, 2018.

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, 2018
 
December 31, 2017
Derivatives designated as cash flow hedges:
 
 
 
 
Foreign currency exchange contracts
Other current assets
 

$9

 

$2,286

 
Other assets
 
—

 
538

 
Other current liabilities
 
(3,528
)
 
(37
)
 
Other non-current liabilities
 
(494
)
 
—

Foreign currency option contracts
Other current assets
 
40

 
389

 
Other assets
 
79

 
137

 
Other current liabilities
 
(104
)
 
(119
)
 
Other non-current liabilities
 
(79
)
 
(55
)
Interest rate swaps
Other assets
 
41,900

 
17,473

 
Other non-current liabilities
 
—

 
(2,033
)
 
 
 
 
 
 
Derivative not designated as a hedging instrument:
 
 
 
 
Foreign currency exchange contracts
Other current assets
 
2,206

 
209

 
Other current liabilities
 
(1
)
 
(189
)
Carbon options
Other current liabilities
 
(664
)
 
—

 
 
 
 
 
 
Total derivative contracts:
 
 
 
 
 
Other current assets
 
 

$2,255

 

$2,884

Other assets
 
 
41,979

 
18,148

Total derivative assets
 
 

$44,234

 

$21,032

 
 
 
 
 
 
Other current liabilities
 
 
(4,297
)
 
(345
)
Other non-current liabilities
 
 
(573
)
 
(2,088
)
Total derivative liabilities
 
 

($4,870
)
 

($2,433
)
 
 
 
 
 
(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.

25

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

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.

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, 2018 and December 31, 2017, using market information and what the Company believes to be appropriate valuation methodologies under GAAP:
 
September 30, 2018
 
December 31, 2017
Asset (Liability) (a)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
Level 1
 
Level 2
 
 
Level 1
 
Level 2
Cash and cash equivalents

$146,259

 

$146,259

 
—

 

$112,653

 

$112,653

 
—

Restricted cash (b)
45,418

 
45,418

 
—

 
59,703

 
59,703

 
—

Current maturities of long-term debt
—

 
—

 
—

 
(3,375
)
 
—

 
(3,375
)
Long-term debt (c)
(972,426
)
 
—

 
(970,970
)
 
(1,022,004
)
 
—

 
(1,030,135
)
Interest rate swaps (d)
41,900

 
—

 
41,900

 
15,440

 
—

 
15,440

Foreign currency exchange contracts (d)
(1,808
)
 
—

 
(1,808
)
 
2,807

 
—

 
2,807

Foreign currency option contracts (d)
(64
)
 
—

 
(64
)
 
352

 
—

 
352

Carbon option contracts
(664
)
 
—

 
(664
)
 
—

 
—

 
—

 
 
 
 
 
(a)
The Company did not have Level 3 assets or liabilities at September 30, 2018 and December 31, 2017.
(b)
Restricted cash 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 Cash for additional information.
(c)
The carrying amount of long-term debt is presented net of capitalized debt costs on non-revolving debt.
(d)
See Note 12 — Derivative Financial Instruments and Hedging Activities for information regarding the Consolidated Balance Sheets 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.


26

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

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.
Carbon option contracts — The fair value of carbon option contracts is determined by a mark-to-market valuation using the Black-Scholes option pricing model, 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.


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. Both plans are closed to new participants. Effective December 31, 2016, the Company froze benefits for all employees participating in the pension plan. In lieu of the pension plan, the Company provides those employees with an enhanced 401(k) plan match. 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.
As of September 30, 2018, the Company has paid $2.3 million of the approximately $2.7 million in current year mandatory pension contribution requirements (based on actuarially determined estimates and IRS minimum funding requirements).
The net pension and postretirement benefit (credit) costs that have been recorded are shown in the following table:
Components of Net Periodic Benefit (Credit) Cost
Income Statement Location (a)
 
Pension
 
Postretirement
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Components of Net Periodic Benefit (Credit) Cost
 
 
 
 
 
 
 
 
 
Service cost
Selling and general expenses
 
—

 
—

 

$2

 

$2

Interest cost
Interest and other miscellaneous income, net
 
755

 
815

 
13

 
13

Expected return on plan assets (b)
Interest and other miscellaneous income, net
 
(983
)
 
(945
)
 
—

 
—

Amortization of losses
Interest and other miscellaneous income, net
 
168

 
116

 
—

 
—

Net periodic benefit (credit) cost
 
 

($60
)
 

($14
)
 

$15

 

$15

 
 
 
 
 
 
 
 
 
 
Components of Net Periodic Benefit (Credit) Cost
Income Statement Location (a)
 
Pension
 
Postretirement
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Components of Net Periodic Benefit (Credit) Cost
 
 
 
 
 
 
 
 
 
Service cost
Selling and general expenses
 
—

 
—

 

$5

 

$5

Interest cost
Interest and other miscellaneous income, net
 
2,266

 
2,444

 
38

 
39

Expected return on plan assets (b)
Interest and other miscellaneous income, net
 
(2,950
)
 
(2,836
)
 
—

 
—

Amortization of losses
Interest and other miscellaneous income, net
 
505

 
349

 
2

 
—

Net periodic benefit (credit) cost
 
 

($179
)
 

($43
)
 

$45

 

$44

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a)
Due to the adoption of ASU No. 2017-07, the service cost component of net periodic benefit (credit) cost is now recorded to “Selling and general expenses” in the Consolidated Statements of Income and Comprehensive Income with other compensation costs arising from services rendered by employees during the period. The other components of net periodic benefit (credit) cost (interest cost, expected return on plan assets and amortization of losses) are now recorded to “Interest and other miscellaneous income, net” in the Consolidated Statements of Income. Prior period amounts have been reclassified to conform to current period presentation. See Note 1 — Basis of Presentation for additional information.
(b)
The weighted-average expected long-term rate of return on plan assets used in computing 2018 net periodic benefit cost for pension benefits is 7.2%.

27

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

15.
OTHER OPERATING (LOSS) INCOME, NET
Other operating income, net comprised the following:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Foreign currency income (expense)

$242

 

$165

 

$264

 

$15

Loss on sale or disposal of property and equipment
(30
)
 
(63
)
 
(3
)
 
(69
)
(Loss) gain on foreign currency exchange and option contracts
(712
)
 
1,295

 
1,599

 
2,476

Log trading marketing fees
66

 
389

 
197

 
896

Income from the sale of unused Internet Protocol addresses
—

 
—

 
646

 
—

Income from New Zealand Timber settlement
—

 
—

 
—

 
420

Miscellaneous (expense) income, net
(17
)
 
(15
)
 
(126
)
 
6

Total

($451
)
 

$1,771

 

$2,577

 

$3,744


16.
INVENTORY
As of September 30, 2018 and December 31, 2017, Rayonier’s inventory was solely comprised of finished goods, as follows:
 
September 30, 2018
 
December 31, 2017
Finished goods inventory
 
 
 
Real estate inventory (a)

$22,374

 

$18,350

Log inventory
4,576

 
5,791

Total inventory

$26,950

 

$24,141

 
 
 
 
 
(a)
Represents cost of HBU real estate (including capitalized development investments) expected to be sold within 12 months. See Note 6 — Higher And Better Use Timberlands and Real Estate Development Investments for additional information.

17.
RESTRICTED CASH
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, 2018 and December 31, 2017, the Company had $45.4 million and $59.7 million, respectively, of proceeds from real estate sales classified as restricted cash which were deposited with an LKE intermediary as well as cash held in escrow for a real estate sale.
The following table contains the amounts of restricted cash recorded in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows for the nine months ended September 30, 2018:
 
September 30, 2018
Restricted cash deposited with LKE intermediary
$44,868
Restricted cash held in escrow
550

Total restricted cash shown in the Consolidated Balance Sheets
45,418

Cash and cash equivalents
146,259

Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows
$191,677

28

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

18.
ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table summarizes the changes in AOCI by component for the nine months ended September 30, 2018 and the year ended December 31, 2017. All amounts are presented net of tax and exclude portions attributable to noncontrolling interest.
 
Foreign currency translation gains
 
Net investment hedges of New Zealand JV
 
Cash flow hedges
 
Employee benefit plans
 
Total
Balance as of December 31, 2016

$8,559

 

$1,665

 

$10,831

 

($20,199
)
 

$856

Other comprehensive income before reclassifications
7,416

 
—

 
7,321

 
(673
)
 
14,064

Amounts reclassified from accumulated other comprehensive income
—

 
—

 
(1,968
)
 
465

 
(1,503
)
Net other comprehensive income/(loss)
7,416

 
—

 
5,353

 
(208
)
 
12,561

Balance as of December 31, 2017

$15,975

 

$1,665

 

$16,184

 

($20,407
)
 

$13,417

Other comprehensive (loss)/income before reclassifications
(22,997
)
 
(344
)
 
23,042

(a)
—

 
(299
)
Amounts reclassified from accumulated other comprehensive income
—

 
—

 
(566
)
 
(204
)
(b)
(770
)
Net other comprehensive (loss)/income
(22,997
)
 
(344
)
 
22,476


(204
)

(1,069
)
Balance as of September 30, 2018

($7,022
)
 

$1,321

 

$38,660

 

($20,611
)
 

$12,348

 
 
 
 
 
(a)
Includes $26.4 million of other comprehensive income related to interest rate swaps. See Note 12 — Derivative Financial Instruments and Hedging Activities for additional information.
(b)
This component of other comprehensive income includes $0.5 million in the computation of net periodic pension cost. See Note 14 — Employee Benefit Plans for additional information.  Additionally, this component includes a $0.7 million adjustment related to the adoption of ASU 2018-02. See Note 1— Basis of Presentation.

The following table presents details of the amounts reclassified in their entirety from AOCI to net income for the nine months ended September 30, 2018 and September 30, 2017:
Details about accumulated other comprehensive income components
 
Amount reclassified from accumulated other comprehensive income
 
Affected line item in the income statement
 
September 30, 2018
 
September 30, 2017
 
Realized gain on foreign currency exchange contracts
 

($865
)
 

($2,928
)
 
Other operating income, net
Realized gain on foreign currency option contracts
 
(156
)
 
(867
)
 
Other operating income, net
Noncontrolling interest
 
235

 
873

 
Comprehensive income attributable to noncontrolling interest
Income tax expense from gain on foreign currency contracts
 
220

 
818

 
Income tax expense
Net gain from accumulated other comprehensive income
 

($566
)
 

($2,104
)
 
 

29

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

19.
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 INCOME
 AND COMPREHENSIVE INCOME
 
For the Three Months Ended September 30, 2018
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
—

 
—

 

$200,890

 
—

 

$200,890

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
(143,261
)
 
—

 
(143,261
)
Selling and general expenses
—

 
(5,094
)
 
(5,706
)
 
—

 
(10,800
)
Other operating loss, net
—

 
(50
)
 
(401
)
 
—

 
(451
)
 
—

 
(5,144
)
 
(149,368
)
 
—

 
(154,512
)
OPERATING (LOSS) INCOME
—

 
(5,144
)
 
51,522

 
—

 
46,378

Interest expense
(3,138
)
 
(4,676
)
 
(24
)
 
—

 
(7,838
)
Interest and miscellaneous income (expense), net
1,743

 
1,755

 
(3,003
)
 
—

 
495

Equity in income from subsidiaries
24,827

 
33,539

 
—

 
(58,366
)
 
—

INCOME BEFORE INCOME TAXES
23,432

 
25,474

 
48,495

 
(58,366
)
 
39,035

Income tax expense
—

 
(647
)
 
(7,749
)
 
—

 
(8,396
)
NET INCOME
23,432

 
24,827

 
40,746

 
(58,366
)
 
30,639

Less: Net income attributable to noncontrolling interest
—

 
—

 
(7,207
)
 
—

 
(7,207
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
23,432

 
24,827

 
33,539

 
(58,366
)
 
23,432

OTHER COMPREHENSIVE (LOSS) INCOME
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax
(8,090
)
 
—

 
(10,527
)
 
8,090

 
(10,527
)
Cash flow hedges, net of income tax
4,379

 
5,174

 
(1,032
)
 
(4,379
)
 
4,142

Amortization of pension and postretirement plans, net of income tax
(542
)
 
(542
)
 
—

 
542

 
(542
)
Total other comprehensive (loss) income
(4,253
)
 
4,632

 
(11,559
)
 
4,253

 
(6,927
)
COMPREHENSIVE INCOME
19,179

 
29,459

 
29,187

 
(54,113
)
 
23,712

Less: Comprehensive loss attributable to noncontrolling interest
—

 
—

 
(4,533
)
 
—

 
(4,533
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$19,179

 

$29,459

 

$24,654

 

($54,113
)
 

$19,179

 
 
 
 
 
 
 
 
 
 

30

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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 AND COMPREHENSIVE INCOME
 
For the Three Months Ended September 30, 2017
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
—

 
—

 

$184,419

 
—

 

$184,419

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
(136,983
)
 
—

 
(136,983
)
Selling and general expenses
—

 
(4,096
)
 
(5,840
)
 
—

 
(9,936
)
Other operating (loss) income, net
—

 
(81
)
 
1,852

 
—

 
1,771

 
—

 
(4,177
)
 
(140,971
)
 
—

 
(145,148
)
OPERATING (LOSS) INCOME
—

 
(4,177
)
 
43,448

 
—

 
39,271

Interest expense
(3,139
)
 
(4,982
)
 
(432
)
 
—

 
(8,553
)
Interest and miscellaneous income (expense), net
2,486

 
704

 
(2,062
)
 
—

 
1,128

Equity in income from subsidiaries
25,341

 
33,929

 
—

 
(59,270
)
 
—

INCOME BEFORE INCOME TAXES
24,688

 
25,474

 
40,954

 
(59,270
)
 
31,846

Income tax expense
—

 
(133
)
 
(2,910
)
 
—

 
(3,043
)
NET INCOME
24,688

 
25,341

 
38,044

 
(59,270
)
 
28,803

Less: Net income attributable to noncontrolling interest
—

 
—

 
(4,115
)
 
—

 
(4,115
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
24,688

 
25,341

 
33,929

 
(59,270
)
 
24,688

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax
(5,866
)
 
—

 
(7,317
)
 
5,866

 
(7,317
)
Cash flow hedges, net of income tax
(1,787
)
 
(533
)
 
(1,629
)
 
1,787

 
(2,162
)
Amortization of pension and postretirement plans, net of income tax
116

 
116

 
—

 
(116
)
 
116

Total other comprehensive income (loss)
(7,537
)
 
(417
)
 
(8,946
)
 
7,537

 
(9,363
)
COMPREHENSIVE INCOME
17,151

 
24,924

 
29,098

 
(51,733
)
 
19,440

Less: Comprehensive income attributable to noncontrolling interest
—

 
—

 
(2,289
)
 
—

 
(2,289
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$17,151

 

$24,924

 

$26,809

 

($51,733
)
 

$17,151

 
 
 
 
 
 
 
 
 
 



31

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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 AND COMPREHENSIVE INCOME
 
For the Nine Months Ended September 30, 2018
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
—

 
—

 

$649,991

 
—

 

$649,991

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
(466,167
)
 
—

 
(466,167
)
Selling and general expenses
—

 
(14,953
)
 
(16,351
)
 
—

 
(31,304
)
Other operating (loss) income, net
(12
)
 
545

 
2,044

 
—

 
2,577

 
(12
)
 
(14,408
)
 
(480,474
)
 
—

 
(494,894
)
OPERATING (LOSS) INCOME
(12
)
 
(14,408
)
 
169,517

 
—

 
155,097

Interest expense
(9,417
)
 
(14,229
)
 
(346
)
 
—

 
(23,992
)
Interest and miscellaneous income (expense), net
7,105

 
3,265

 
(6,350
)
 
—

 
4,020

Equity in income from subsidiaries
102,553

 
128,786

 
—

 
(231,339
)
 
—

INCOME BEFORE INCOME TAXES
100,229

 
103,414

 
162,821

 
(231,339
)
 
135,125

Income tax expense
—

 
(861
)
 
(21,582
)
 
—

 
(22,443
)
NET INCOME
100,229

 
102,553

 
141,239

 
(231,339
)
 
112,682

Less: Net income attributable to noncontrolling interest
—

 
—

 
(12,453
)
 
—

 
(12,453
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
100,229

 
102,553

 
128,786

 
(231,339
)
 
100,229

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax
(23,341
)
 
452

 
(31,051
)
 
23,341

 
(30,599
)
Cash flow hedges, net of income tax
22,476

 
26,460

 
(5,175
)
 
(22,476
)
 
21,285

Amortization of pension and postretirement plans, net of income tax
(204
)
 
(204
)
 
—

 
204

 
(204
)
Total other comprehensive income (loss)
(1,069
)
 
26,708

 
(36,226
)
 
1,069

 
(9,518
)
COMPREHENSIVE INCOME
99,160

 
129,261

 
105,013

 
(230,270
)
 
103,164

Less: Comprehensive loss attributable to noncontrolling interest
—

 
—

 
(4,004
)
 
—

 
(4,004
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$99,160

 

$129,261

 

$101,009

 

($230,270
)
 

$99,160

 
 
 
 
 
 
 
 
 
 





32

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

 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 AND COMPREHENSIVE INCOME
 
For the Nine Months Ended September 30, 2017
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
—

 
—

 

$579,874

 
—

 

$579,874

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales
—

 
—

 
(418,421
)
 
—

 
(418,421
)
Selling and general expenses
—

 
(11,880
)
 
(17,891
)
 
—

 
(29,771
)
Other operating (loss) income, net
—

 
(212
)
 
3,956

 
—

 
3,744

 
—

 
(12,092
)
 
(432,356
)
 
—

 
(444,448
)
OPERATING (LOSS) INCOME
—

 
(12,092
)
 
147,518

 
—

 
135,426

Interest expense
(9,417
)
 
(14,723
)
 
(1,460
)
 
—

 
(25,600
)
Interest and miscellaneous income (expense), net
7,033

 
2,087

 
(7,470
)
 
—

 
1,650

Equity in income from subsidiaries
87,075

 
112,253

 
—

 
(199,328
)
 
—

INCOME BEFORE INCOME TAXES
84,691

 
87,525

 
138,588

 
(199,328
)
 
111,476

Income tax expense
—

 
(450
)
 
(16,367
)
 
—

 
(16,817
)
NET INCOME
84,691

 
87,075

 
122,221

 
(199,328
)
 
94,659

Less: Net income attributable to noncontrolling interest
—

 
—

 
(9,968
)
 
—

 
(9,968
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
84,691

 
87,075

 
112,253

 
(199,328
)
 
84,691

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment, net of income tax
13,335

 
—

 
16,599

 
(13,335
)
 
16,599

Cash flow hedges, net of income tax
(1,902
)
 
(2,921
)
 
1,324

 
1,902

 
(1,597
)
Amortization of pension and postretirement plans, net of income tax
349

 
349

 
—

 
(349
)
 
349

Total other comprehensive income (loss)
11,782

 
(2,572
)
 
17,923

 
(11,782
)
 
15,351

COMPREHENSIVE INCOME
96,473

 
84,503

 
140,144

 
(211,110
)
 
110,010

Less: Comprehensive income attributable to noncontrolling interest
—

 
—

 
(13,537
)
 
—

 
(13,537
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.

$96,473

 

$84,503

 

$126,607

 

($211,110
)
 

$96,473

 
 
 
 
 
 
 
 
 
 


33

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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of September 30, 2018
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$6,245

 

$92,747

 

$47,267

 
—

 

$146,259

Accounts receivable, less allowance for doubtful accounts
1,994

 
2,738

 
38,357

 
—

 
43,089

Inventory
—

 
—

 
26,950

 
—

 
26,950

Prepaid expenses
—

 
1,534

 
14,315

 
—

 
15,849

Other current assets
—

 
106

 
2,337

 
—

 
2,443

Total current assets
8,239

 
97,125

 
129,226

 
—

 
234,590

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
—

 
—

 
2,386,949

 
—

 
2,386,949

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
—

 
—

 
79,747

 
—

 
79,747

NET PROPERTY, PLANT AND EQUIPMENT
—

 
17,198

 
5,604

 
—

 
22,802

RESTRICTED CASH
—

 
—

 
45,418

 
—

 
45,418

INVESTMENT IN SUBSIDIARIES
1,875,187

 
3,031,631

 
—

 
(4,906,818
)
 
—

INTERCOMPANY RECEIVABLE
48,671

 
(629,661
)
 
580,990

 
—

 
—

OTHER ASSETS
2

 
37,532

 
35,175

 
—

 
72,709

TOTAL ASSETS

$1,932,099

 

$2,553,825

 

$3,263,109

 

($4,906,818
)
 

$2,842,215

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
CURRENT LIABILITIES
 
 
 
 
 
 

 
 
Accounts payable
—

 

$4,210

 

$18,196

 
—

 

$22,406

Accrued taxes
—

 
180

 
7,638

 
—

 
7,818

Accrued payroll and benefits
—

 
4,891

 
3,429

 
—

 
8,320

Accrued interest
6,094

 
1,869

 
—

 
—

 
7,963

Deferred revenue
—

 
—

 
13,867

 
—

 
13,867

Other current liabilities
1,994

 
1,029

 
18,226

 
—

 
21,249

Total current liabilities
8,088

 
12,179

 
61,356

 
—

 
81,623

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS
323,711

 
648,715

 
—

 
—

 
972,426

PENSION AND OTHER POSTRETIREMENT BENEFITS
—

 
29,609

 
(684
)
 
—

 
28,925

OTHER NON-CURRENT LIABILITIES
—

 
7,096

 
51,046

 
—

 
58,142

INTERCOMPANY PAYABLE
—

 
(18,961
)
 
18,961

 
—

 
—

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

 
1,875,187

 
3,031,631

 
(4,906,818
)
 
1,600,300

Noncontrolling interest
—

 
—

 
100,799

 
—

 
100,799

TOTAL SHAREHOLDERS’ EQUITY
1,600,300

 
1,875,187

 
3,132,430

 
(4,906,818
)
 
1,701,099

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,932,099

 

$2,553,825

 

$3,263,109

 

($4,906,818
)
 

$2,842,215



34

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

 
CONDENSED CONSOLIDATING BALANCE SHEETS
 
As of December 31, 2017
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents

$48,564

 

$25,042

 

$39,047

 
—

 

$112,653

Accounts receivable, less allowance for doubtful accounts
—

 
3,726

 
23,967

 
—

 
27,693

Inventory
—

 
—

 
24,141

 
—

 
24,141

Prepaid expenses
—

 
759

 
15,234

 
—

 
15,993

Other current assets
—

 
14

 
3,033

 
—

 
3,047

Total current assets
48,564

 
29,541

 
105,422

 
—

 
183,527

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
—

 
—

 
2,462,066

 
—

 
2,462,066

HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
—

 
—

 
80,797

 
—

 
80,797

NET PROPERTY, PLANT AND EQUIPMENT
—

 
21

 
23,357

 
—

 
23,378

RESTRICTED CASH
—

 
—

 
59,703

 
—

 
59,703

INVESTMENT IN SUBSIDIARIES
1,531,156

 
2,814,408

 
—

 
(4,345,564
)
 
—

INTERCOMPANY RECEIVABLE
40,067

 
(628,167
)
 
588,100

 
—

 
—

OTHER ASSETS
2

 
12,680

 
36,328

 
—

 
49,010

TOTAL ASSETS

$1,619,789

 

$2,228,483

 

$3,355,773

 

($4,345,564
)
 

$2,858,481

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
—

 

$2,838

 

$22,310

 
—

 

$25,148

Current maturities of long-term debt
—

 
—

 
3,375

 
—

 
3,375

Accrued taxes
—

 
48

 
3,733

 
—

 
3,781

Accrued payroll and benefits
—

 
5,298

 
4,364

 
—

 
9,662

Accrued interest
3,047

 
1,995

 
12

 
—

 
5,054

Deferred revenue
—

 
—

 
9,721

 
—

 
9,721

Other current liabilities
—

 
564

 
11,243

 
—

 
11,807

Total current liabilities
3,047

 
10,743

 
54,758

 
—

 
68,548

LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS
323,434

 
663,570

 
35,000

 
—

 
1,022,004

PENSION AND OTHER POSTRETIREMENT BENEFITS
—

 
32,589

 
(684
)
 
—

 
31,905

OTHER NON-CURRENT LIABILITIES
—

 
9,386

 
33,698

 
—

 
43,084

INTERCOMPANY PAYABLE
(299,715
)
 
(18,961
)
 
318,676

 
—

 
—

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,593,023

 
1,531,156

 
2,814,408

 
(4,345,564
)
 
1,593,023

Noncontrolling interest
—

 
—

 
99,917

 
—

 
99,917

TOTAL SHAREHOLDERS’ EQUITY
1,593,023

 
1,531,156

 
2,914,325

 
(4,345,564
)
 
1,692,940

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$1,619,789

 

$2,228,483

 

$3,355,773

 

($4,345,564
)
 

$2,858,481



35

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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Nine Months Ended September 30, 2018
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES

($16,590
)
 

$165,283

 

$112,358

 
—

 

$261,051

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
(58
)
 
(44,079
)
 
—

 
(44,137
)
Real estate development investments
—

 
—

 
(6,889
)
 
—

 
(6,889
)
Purchase of timberlands
—

 
—

 
(38,978
)
 
—

 
(38,978
)
Investment in subsidiaries
—

 
40,554

 
—

 
(40,554
)
 
—

Other
—

 
—

 
2,132

 
—

 
2,132

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
—

 
40,496

 
(87,814
)
 
(40,554
)
 
(87,872
)
FINANCING ACTIVITIES (a)
 
 
 
 
 
 

 
 
Issuance of debt
—

 
—

 
1,014

 
—

 
1,014

Repayment of debt
—

 
(50,000
)
 
(4,416
)
 
—

 
(54,416
)
Dividends paid
(101,839
)
 
—

 
—

 
—

 
(101,839
)
Proceeds from the issuance of common shares under incentive stock plan
8,216

 
—

 
—

 
—

 
8,216

Repurchase of common shares
(2,980
)
 
—

 
—

 
—

 
(2,980
)
Proceeds from shareholder distribution hedge
—

 
—

 
610

 
—

 
610

Distribution to minority shareholder
—

 
—

 
(3,122
)
 
—

 
(3,122
)
Issuance of intercompany notes
(9,000
)
 
—

 
9,000

 
—

 
—

Intercompany distributions
79,874

 
(88,074
)
 
(32,354
)
 
40,554

 
—

CASH USED FOR FINANCING ACTIVITIES
(25,729
)
 
(138,074
)
 
(29,268
)
 
40,554

 
(152,517
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
(1,341
)
 
—

 
(1,341
)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
 
 
 

 
 
Change in cash, cash equivalents and restricted cash
(42,319
)
 
67,705

 
(6,065
)
 
—

 
19,321

Balance, beginning of year
48,564

 
25,042

 
98,750

 
—

 
172,356

Balance, end of period

$6,245

 

$92,747

 

$92,685

 
—

 

$191,677

 
 
 
 
 
(a)
Non-cash financing activity: In August 2018, Rayonier Inc. waived $308.7 million and $67.2 million of intercompany loans and accrued interest, respectively, due from non-guarantors.


36

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

 
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
For the Nine Months Ended September 30, 2017
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES

($40,090
)
 

$77,358

 

$149,605

 
—

 

$186,873

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures
—

 
—

 
(45,731
)
 
—

 
(45,731
)
Real estate development investments
—

 
—

 
(11,780
)
 
—

 
(11,780
)
Purchase of timberlands
—

 
—

 
(239,052
)
 
—

 
(239,052
)
Net proceeds from large disposition
—

 
—

 
42,029

 
—

 
42,029

Rayonier office building under construction
—

 
—

 
(5,979
)
 
—

 
(5,979
)
Investment in subsidiaries
—

 
12,307

 
—

 
(12,307
)
 
—

Other
—

 
—

 
383

 
—

 
383

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
—

 
12,307

 
(260,130
)
 
(12,307
)
 
(260,130
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Issuance of debt
—

 
25,000

 
38,389

 
—

 
63,389

Repayment of debt
—

 
(15,000
)
 
(80,216
)
 
—

 
(95,216
)
Dividends paid
(95,008
)
 
—

 
—

 
—

 
(95,008
)
Proceeds from the issuance of common shares under incentive stock plan
3,665

 
—

 
—

 
—

 
3,665

Proceeds from the issuance of common shares from equity offering, net of costs
152,390

 
—

 
—

 
—

 
152,390

Issuance of intercompany notes
(32,000
)
 
—

 
32,000

 
—

 
—

Intercompany distributions
52,809

 
(102,521
)
 
37,405

 
12,307

 
—

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
81,856

 
(92,521
)
 
27,578

 
12,307

 
29,220

EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
1,113

 
—

 
1,113

CASH, CASH EQUIVALENTS AND RESTRICTED CASH
 
 
 
 
 
 
 
 
 
Change in cash, cash equivalents and restricted cash
41,766

 
(2,856
)
 
(81,834
)
 
—

 
(42,924
)
Balance, beginning of year
21,453

 
9,461

 
126,703

 
—

 
157,617

Balance, end of period

$63,219

 

$6,605

 

$44,869

 
—

 

$114,693



37

Table of Contents



Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
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 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, 2017 (the “2017 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 and dispositions, 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 2017 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.


38

Table of Contents

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, 2018, we owned or leased under long-term agreements approximately 2.6 million acres of timberlands located in the U.S. South (1.8 million acres) and U.S. Pacific Northwest (378,000 acres). We also have a 77% ownership interest in Matariki Forestry Group, a joint venture (the “New Zealand JV”), that owns or leases approximately 407,000 acres (290,000 net plantable acres) of timberlands in New Zealand.
SEGMENT INFORMATION
Management has changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, we have reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments.
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 licensing of properties for hunting and the leasing of properties for mineral extraction and cell towers.
The Real Estate segment includes all U.S. and New Zealand land or leasehold sales disaggregated into five sales categories: Improved Development, Unimproved Development, Rural, Non-Strategic / Timberlands and Large Dispositions.
The Trading segment primarily 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 Timber 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, South 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 operating results of the segment in U.S. dollar terms.
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 and certain payroll costs). Other costs include amortization of capitalized costs related to road and bridge construction and software, 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.


39


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. See Note 1 — Basis of Presentation and Note 2 — Revenue contained in Part I, Item 1 of this report for a discussion of the Company’s updated accounting policies on revenue recognition and cost of sales. 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 2017 Form 10-K.


40

Table of Contents

DISCUSSION OF TIMBER INVENTORY AND SUSTAINABLE YIELD
See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in the 2017 Form 10-K.
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, 2018 and December 31, 2017:
(acres in 000s)
As of September 30, 2018
 
As of December 31, 2017
 
Owned
 
Leased
 
Total
 
Owned
 
Leased
 
Total
Southern
 
 
 
 
 
 
 
 
 
 
 
Alabama
229

 
14

 
243

 
229

 
14

 
243

Arkansas
—

 
11

 
11

 
—

 
11

 
11

Florida
287

 
82

 
369

 
274

 
83

 
357

Georgia
620

 
82

 
702

 
622

 
82

 
704

Louisiana
129

 
—

 
129

 
144

 
1

 
145

Mississippi
67

 
—

 
67

 
67

 
—

 
67

Oklahoma
92

 
—

 
92

 
92

 
—

 
92

South Carolina
18

 
—

 
18

 
18

 
—

 
18

Tennessee
1

 
—

 
1

 
1

 
—

 
1

Texas
180

 
—

 
180

 
182

 
—

 
182

 
1,623


189


1,812

 
1,629

 
191

 
1,820

 
 
 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
 
 
Oregon
61

 
—

 
61

 
61

 
—

 
61

Washington
316

 
1

 
317

 
316

 
1

 
317

 
377

 
1

 
378

 
377

 
1

 
378

 
 
 
 
 
 
 
 
 
 
 
 
New Zealand (a)
179

 
228

 
407

 
179

 
231

 
410

Total
2,179

 
418

 
2,597

 
2,185

 
423

 
2,608

 
 
 
 
 
(a)
Represents legal acres owned and leased by the New Zealand JV, in which Rayonier owns a 77% interest. As of September 30, 2018, legal acres in New Zealand were comprised of 290,000 plantable acres and 117,000 non-productive acres.

41

Table of Contents

The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2017 to September 30, 2018:
(acres in 000s)
Acres Owned
 
December 31, 2017
 
Acquisitions
 
Sales
 
Other
 
September 30, 2018
Southern
 
 
 
 
 
 
 
 
 
Alabama
229

 
—

 
—

 
—

 
229

Florida
274

 
14

 
(8
)
 
7

 
287

Georgia
622

 
2

 
(1
)
 
(3
)
 
620

Louisiana
144

 
—

 
(15
)
 
—

 
129

Mississippi
67

 
—

 
—

 
—

 
67

Oklahoma
92

 
—

 
—

 
—

 
92

South Carolina
18

 
—

 
—

 
 
 
18

Tennessee
1

 
—

 
—

 
—

 
1

Texas
182

 
—

 
(2
)
 
—

 
180

 
1,629

 
16

 
(26
)
 
4

 
1,623

 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
Oregon
61

 
—

 
—

 
—

 
61

Washington
316

 
—

 
—

 
—

 
316

 
377

 
—

 
—

 
—

 
377

 
 
 
 
 
 
 
 
 
 
New Zealand (a)
179

 
—

 
—

 
—

 
179

Total
2,185

 
16

 
(26
)
 
4

 
2,179

 
 
 
 
 
(a)
Represents legal acres owned by the New Zealand JV, in which Rayonier has a 77% interest.
(acres in 000s)
Acres Leased
 
December 31, 2017
 
New Leases
 
Sold/Expired Leases (a)
 
Other (b)
 
September 30, 2018
Southern
 
 
 
 
 
 
 
 
 
Alabama
14

 
—

 
—

 
—

 
14

Arkansas
11

 
—

 
—

 
—

 
11

Florida
83

 
—

 
(1
)
 
—

 
82

Georgia
82

 
—

 
—

 
—

 
82

Louisiana
1

 
—

 
(1
)
 
—

 
—

 
191

 
—

 
(2
)
 
—

 
189

 
 
 
 
 
 
 
 
 
 
Pacific Northwest
 
 
 
 
 
 
 
 
 
Washington
1

 
—

 
—

 
—

 
1

 
 
 
 
 
 
 
 
 
 
New Zealand (b)
231

 
3

 
(7
)
 
1

 
228

Total
423

 
3

 
(9
)
 
1

 
418

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



42

Table of Contents

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)
2018
 
2017
 
2018
 
2017
Sales
 
 
 
 
 
 
 
Southern Timber

$39.7

 

$37.3

 

$131.3

 

$112.0

Pacific Northwest Timber
27.8

 
19.1

 
91.4

 
65.5

New Zealand Timber
66.3

 
70.1

 
188.9

 
164.0

Real Estate
 
 
 
 
 
 
 
Improved Development
1.4

 
0.1

 
3.8

 
0.2

Unimproved Development
1.2

 
13.9

 
8.6

 
16.4

Rural
4.5

 
3.1

 
11.0

 
15.4

Non-Strategic / Timberlands
29.2

 
0.2

 
98.7

 
47.6

Large Dispositions
—

 
—

 
—

 
42.0

Total Real Estate
36.2

 
17.3

 
122.1

 
121.5

Trading
31.0

 
40.7

 
116.4

 
117.0

Total Sales

$200.9

 

$184.4

 

$650.0

 

$579.9

 
 
 
 
 
 
 
 
Operating Income (Loss)
 
 
 
 
 
 
 
Southern Timber

$9.2

 

$11.5

 

$37.1

 

$35.0

Pacific Northwest Timber
1.9

 
1.1

 
12.2

 
(1.3
)
New Zealand Timber
16.4

 
19.3

 
50.1

 
41.5

Real Estate (a)
24.7

 
11.4

 
71.6

 
72.1

Trading
0.3

 
1.1

 
0.7

 
3.4

Corporate and other
(6.2
)

(5.1
)

(16.6
)

(15.3
)
Operating Income
46.4

 
39.3

 
155.1

 
135.4

Interest expense, interest income and other
(7.4
)

(7.5
)

(20.0
)

(23.9
)
Income tax expense
(8.4
)
 
(3.0
)
 
(22.4
)
 
(16.8
)
Net Income
30.6

 
28.8

 
112.7

 
94.7

Less: Net income attributable to noncontrolling interest
7.2

 
4.1

 
12.5

 
10.0

Net Income Attributable to Rayonier Inc.

$23.4

 

$24.7

 

$100.2

 

$84.7

 
 
 
 
 
 
 
 
Adjusted EBITDA (b)
 
 
 
 
 
 
 
Southern Timber

$22.9

 

$24.2

 

$81.7

 

$72.1

Pacific Northwest Timber
9.7

 
7.6

 
38.9

 
22.5

New Zealand Timber
24.0

 
27.8

 
71.4

 
62.0

Real Estate
32.3

 
13.4

 
111.0

 
67.2

Trading
0.3

 
1.1

 
0.7

 
3.4

Corporate and Other
(5.9
)
 
(4.8
)
 
(15.8
)
 
(14.1
)
Total Adjusted EBITDA

$83.3

 

$69.3

 

$287.9

 

$213.1

 
 
 
 
 
(a)
The nine months ended September 30, 2017 include $28.2 million from a Large Disposition.
(b)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.



43

Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Southern Timber Overview
2018
 
2017
 
2018
 
2017
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Pine Pulpwood
828

 
818

 
2,676

 
2,405

Pine Sawtimber
427

 
469

 
1,510

 
1,494

Total Pine Volume
1,255

 
1,287

 
4,186

 
3,899

Hardwood
75

 
69

 
202

 
193

Total Volume
1,330

 
1,356

 
4,388

 
4,092

 
 
 
 
 
 
 
 
Percentage Delivered Sales
34
%
 
23
%
 
29
%
 
21
%
Percentage Stumpage Sales
66
%
 
77
%
 
71
%
 
79
%
 
 
 
 
 
 
 
 
Net Stumpage Pricing (dollars per ton)
 
 
 
 
 
 
 
Pine Pulpwood

$16.74

 

$16.32

 

$16.64

 

$16.43

Pine Sawtimber
25.55

 
25.93

 
26.06

 
25.99

Weighted Average Pine

$19.74

 

$19.83

 

$20.04

 

$20.10

Hardwood
13.34

 
15.98

 
12.20

 
13.02

Weighted Average Total

$19.36

 

$19.63

 

$19.67

 

$19.76

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Timber Sales

$34.8

 

$31.9

 

$110.2

 

$95.4

Less: Cut, Haul & Freight
(9.1
)
 
(5.3
)
 
(23.9
)
 
(14.6
)
Net Stumpage Sales

$25.7

 

$26.6

 

$86.3

 

$80.8

 
 
 
 
 
 
 
 
Non-Timber Sales
4.9

 
5.4

 
21.1

 
16.6

Total Sales

$39.7

 

$37.3

 

$131.3

 

$112.0

 
 
 
 
 
 
 
 
Operating Income

$9.2

 

$11.5

 

$37.1

 

$35.0

(+) Depreciation, depletion and amortization
13.7

 
12.7

 
44.6

 
37.1

Adjusted EBITDA (a)

$22.9

 

$24.2

 

$81.7

 

$72.1

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
Period-End Acres (in thousands)
1,812

 
1,900

 
1,812

 
1,900

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










44

Table of Contents

 
Three Months Ended September 30,

Nine Months Ended September 30,
Pacific Northwest Timber Overview
2018
 
2017
 
2018
 
2017
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Pulpwood
73

 
59

 
242

 
219

Sawtimber
237

 
193

 
822

 
707

Total Volume
310

 
252

 
1,063

 
926

 
 
 
 
 
 
 
 
Sales Volume (converted to MBF)
 
 
 
 
 
 
 
Pulpwood
6,878

 
5,516

 
22,907

 
20,525

Sawtimber
32,194

 
25,380

 
108,418

 
91,596

Total Volume
39,072

 
30,896

 
131,325

 
112,121

 
 
 
 
 
 
 
 
Percentage Delivered Sales
90
%
 
76
%
 
83
%
 
85
%
Percentage Sawtimber Sales
77
%
 
76
%
 
77
%
 
76
%
 
 
 
 
 
 
 
 
Delivered Log Pricing (in dollars per ton)
 
 
 
 
 
 
 
Pulpwood

$48.93

 

$41.43

 

$47.94

 

$39.65

Sawtimber
102.74

 
89.62

 
100.46

 
80.79

Weighted Average Log Price

$89.37

 

$76.47

 

$87.34

 

$70.29

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Timber Sales

$27.1

 

$18.6

 

$88.8

 

$62.9

Less: Cut and Haul
(11.5
)
 
(6.7
)
 
(34.5
)
 
(26.9
)
Net Stumpage Sales

$15.6

 

$11.9

 

$54.3

 

$36.0

 
 
 
 
 
 
 
 
Non-Timber Sales
0.8

 
0.5

 
2.6

 
2.6

Total Sales

$27.8

 

$19.1

 

$91.4

 

$65.5

 
 
 
 
 
 
 
 
Operating Income (Loss)

$1.9

 

$1.1

 

$12.2

 

($1.3
)
(+) Depreciation, depletion and amortization
7.8

 
6.5

 
26.7

 
23.8

Adjusted EBITDA (a)

$9.7

 

$7.6

 

$38.9

 

$22.5

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
Period-End Acres (in thousands)
378

 
378

 
378

 
378

Sawtimber (in dollars per MBF)

$741

 

$681

 

$759

 

$624

Estimated Percentage of Export Volume
23
%
 
30
%
 
24
%
 
26
%
 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.

45

Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
New Zealand Timber Overview
2018
 
2017
 
2018
 
2017
Sales Volume (in thousands of tons)
 
 
 
 
 
 
 
Domestic Pulpwood (Delivered)
136

 
131

 
390

 
336

Domestic Sawtimber (Delivered)
243

 
239

 
663

 
652

Export Pulpwood (Delivered)
21

 
28

 
60

 
83

Export Sawtimber (Delivered)
323

 
376

 
907

 
819

Total Volume
724

 
774

 
2,020

 
1,890

 
 
 
 
 
 
 
 
Delivered Log Pricing (in dollars per ton)
 
 
 
 
 
 
 
Domestic Pulpwood

$37.54

 

$34.42

 

$37.36

 

$34.16

Domestic Sawtimber
80.74

 
83.61

 
84.43

 
80.54

Export Sawtimber
114.54

 
113.35

 
117.74

 
111.62

Weighted Average Log Price

$88.35

 

$90.28

 

$90.84

 

$85.83

 
 
 
 
 
 
 
 
Summary Financial Data (in millions of dollars)
 
 
 
 
 
 
 
Timber Sales

$63.9

 

$69.9

 

$183.5

 

$163.5

Less: Cut and Haul
(22.2
)
 
(24.8
)
 
(65.1
)
 
(60.3
)
Less: Port and Freight Costs
(13.7
)
 
(12.9
)
 
(36.7
)
 
(28.5
)
Net Stumpage Sales

$28.1

 

$32.2

 

$81.7

 

$74.7

 
 
 
 
 
 
 
 
Non-Timber Sales / Carbon Credits
2.3

 
0.2

 
5.3

 
0.5

Total Sales

$66.3

 

$70.1

 

$188.9

 

$164.0

 
 
 
 
 
 
 
 
Operating Income

$16.4

 

$19.3

 

$50.1

 

$41.5

(+) Depreciation, depletion and amortization
7.5

 
8.5

 
21.3

 
20.5

Adjusted EBITDA (a)

$24.0

 

$27.8

 

$71.4

 

$62.1

 
 
 
 
 
 
 
 
Other Data
 
 
 
 
 
 
 
New Zealand Dollar to U.S. Dollar Exchange Rate (b)
0.6755

 
0.7328

 
0.7032

 
0.7154

Net Plantable Period-End Acres (in thousands)
290

 
294

 
290

 
294

Export Sawtimber (in dollars per JAS m3)

$133.18

 

$131.80

 

$136.90

 

$129.72

Domestic Sawtimber (in $NZD per tonne)

$131.48

 

$125.51

 

$132.39

 

$123.73

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


46

Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Real Estate Overview
2018
 
2017
 
2018
 
2017
Sales (in millions of dollars)
 
 
 
 
 
 
 
Improved Development (a)

$1.3



$0.1



$3.8



$0.2

Unimproved Development
1.2


13.9


8.6


16.4

Rural
4.5


3.1


11.0


15.3

Non-Strategic / Timberlands - U.S.
1.0


0.2


70.6


23.2

Non-Strategic / Timberlands - N.Z.
28.1

 
—

 
28.1

 
24.3

Large Dispositions (b)
—

 
—

 
—

 
42.0

Total Sales

$36.2

 

$17.3

 

$122.1

 

$121.6

 
 
 
 
 
 
 
 
Acres Sold
 
 
 
 
 
 
 
Improved Development (a)
5.2

 
0.2

 
13.3

 
1.5

Unimproved Development
126

 
1,319

 
751

 
1,449

Rural
1,420

 
1,128

 
2,906

 
5,140

Non-Strategic / Timberlands - U.S
789

 
102

 
22,700

 
9,758

Non-Strategic / Timberlands - N.Z. (c)
4,996

 
—

 
4,996

 
9,646

Large Dispositions (b)
—

 
—

 
—

 
24,954

Total Acres Sold
7,336

 
2,549

 
31,366

 
50,949

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

$260,721

 

$269,412

 

$284,225

 

$318,108

Unimproved Development
9,325

 
10,540

 
11,486

 
11,318

Rural
3,161

 
2,771

 
3,775

 
2,968

Non-Strategic / Timberlands - U.S.
1,309

 
1,616

 
3,109

 
2,382

Non-Strategic / Timberlands - N.Z.
5,628

 
—

 
5,628

 
2,520

Large Dispositions (b)
—

 
—

 
—

 
1,681

Weighted Average (Total) (d)

$4,929

 

$6,764

 

$3,892

 

$3,072

Weighted Average (Adjusted) (e)

$4,749

 

$6,747

 

$3,772

 

$3,054

 
 
 
 
 
 
 
 
Sales (Excluding Large Dispositions)

$36.2



$17.3

 

$122.1

 

$79.8

 
 
 
 
 
 
 
 
Operating Income

$24.7

 

$11.4

 

$71.6

 

$72.1

(+) Depreciation, depletion and amortization - U.S.
1.0

 
0.7

 
17.8

 
5.9

 (+) Depreciation, depletion and amortization - N.Z.
4.5

 
—

 
4.5

 
8.9

(+) Non-cash cost of land and improved development - U.S.
2.1

 
1.3

 
17.1

 
8.5

(+) Non-cash cost of land and improved development - N.Z.
—

 
—

 
—

 
0.1

(–) Large Dispositions (b)
—

 
—

 
—

 
(28.2
)
Adjusted EBITDA (f)

$32.3

 

$13.4

 

$111.0

 

$67.2

 
 
 
 
 
(a)
Reflects land with capital invested in infrastructure improvements. Sales for the nine months ended September 30, 2017 are presented net of $0.3 million of deferred revenue adjustments due to remaining performance obligations. Price per acre is calculated on gross sales of $0.5 million for the nine months ended September 30, 2017.
(b)
Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In January 2017, the Company completed a disposition of approximately 25,000 acres located in Alabama for a sale price and gain of approximately $42.0 million and $28.2 million, respectively.
(c)
New Zealand Non-Strategic / Timberlands represents productive acres.
(d)
Excludes Large Dispositions.
(e)
Excludes Improved Development and Large Dispositions.
(f)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.



47

Table of Contents

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Capital Expenditures By Segment (in millions of dollars)
2018
 
2017
 
2018
 
2017
Timber Capital Expenditures
 
 
 
 
 
 
 
Southern Timber
 
 
 
 
 
 
 
Reforestation, silviculture and other capital expenditures

$7.3

 

$5.6

 

$13.7

 

$11.4

Property taxes
1.8

 
1.6

 
5.0

 
6.0

Lease payments
0.5

 
0.5

 
2.5

 
3.0

Allocated overhead
1.0

 
0.9

 
3.0

 
2.6

Subtotal Southern Timber

$10.5

 

$8.6

 

$24.3

 

$23.1

Pacific Northwest Timber
 
 
 
 
 
 
 
Reforestation, silviculture and other capital expenditures
1.8

 
1.5

 
5.3

 
5.3

Property taxes
0.2

 
0.2

 
0.5

 
0.7

Allocated overhead
0.6

 
0.5

 
1.8

 
1.5

Subtotal Pacific Northwest Timber

$2.6

 

$2.2

 

$7.6

 

$7.5

New Zealand Timber
 
 
 
 
 
 
 
Reforestation, silviculture and other capital expenditures
3.3

 
2.7

 
7.1

 
6.6

Property taxes
0.1

 
0.2

 
0.5

 
0.5

Lease payments
0.9

 
0.4

 
2.4

 
2.5

Allocated overhead
0.7

 
0.7

 
2.1

 
2.2

Subtotal New Zealand Timber

$5.0

 

$4.0

 

$12.1

 

$11.8

Total Timber Segments Capital Expenditures

$18.1

 

$14.8

 

$43.9

 

$42.4

Real Estate
0.1

 
0.7

 
0.2

 
1.1

Corporate
—

 
0.4

 
—

 
2.2

Total Capital Expenditures

$18.2

 

$15.9

 

$44.1

 

$45.7

 
 
 
 
 
 
 
 
Timberland Acquisitions
 
 
 
 
 
 
 
Southern Timber

$2.9

 

$1.9

 

$27.3

 

$216.2

Pacific Northwest Timber
—

 
—

 
—

 
1.5

New Zealand Timber
4.9

 
—

 
11.7

 
21.4

Subtotal Timberland Acquisitions

$7.8

 

$1.9

 

$39.0

 

$239.1

 
 
 
 
 
 
 
 
Real Estate Development Investments

$2.4

 

$6.2

 

$6.9

 

$11.8

Rayonier Office Building
—

 

$0.4

 
—

 

$6.0



48

Table of Contents


The following tables summarize sales, operating income and Adjusted EBITDA variances for September 30, 2018 versus September 30, 2017 (millions of dollars):
Sales
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
Real Estate
 
Trading
 
Total
Three Months Ended September 30, 2017
 

$37.3

 

$19.1

 

$70.1


$17.2

 

$40.7

 

$184.4

Volume/Mix
 
(0.5
)
 
2.8

 
(4.4
)
32.4

 
(9.6
)
 
20.7

Price
 
(0.4
)
 
0.9

 
(2.4
)
(13.5
)
 
0.1

 
(15.3
)
Non-timber sales (a)
 
(0.5
)
 
0.3

 
2.2

—

 
(0.2
)
 
1.8

Foreign exchange (b)
 
—

 
—

 
0.8

—

 
—

 
0.8

Other
 
3.8

(c)
4.7

(c)
—

0.1

 
—

 
8.5

Three Months Ended September 30, 2018
 

$39.7

 

$27.8

 

$66.3


$36.2

 

$31.0

 

$200.9

 
 
 
 
 
(a)    New Zealand Timber includes $2.2 million of carbon credit sales during the three months ended September 30, 2018.
(b)    Net of currency hedging impact.
(c)    Includes variance due to stumpage versus delivered sales.

Sales
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
Real Estate
 
Trading
 
Total
Nine Months Ended September 30, 2017
 

$112.0

 

$65.5

 

$164.0


$121.5

 

$117.0

 

$579.9

Volume/Mix
 
5.8

 
5.4

 
10.9

16.6

 
(6.5
)
 
32.2

Price
 
(0.4
)
 
13.0

 
10.2

25.9

 
6.4

 
55.1

Non-timber sales (a)
 
4.5

 
—

 
4.9

—

 
(0.5
)
 
8.9

Foreign exchange (b)
 
—

 
—

 
(1.1
)
—

 
 
 
(1.1
)
Other
 
9.4

(c)
7.5

(c)
—

(41.9
)
(d)
—

 
(25.0
)
Nine Months Ended September 30, 2018
 

$131.3

 

$91.4

 

$188.9


$122.1

 

$116.4

 

$650.0

 
 
 
 
 
(a)    New Zealand Timber includes $4.7 million of carbon credit sales during the nine months ended September 30, 2018.
(b)    Net of currency hedging impact.
(c)    Includes variance due to stumpage versus delivered sales.
(d)    Real Estate includes $42.0 million of sales from Large Dispositions in 2017 and $0.3 million of deferred revenue in 2017.

Operating Income
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate and Other
 
Total
Three Months Ended September 30, 2017
 

$11.5

 

$1.1

 

$19.3

 

$11.4

 

$1.1

 

($5.1
)
 

$39.3

Volume/Mix
 
(0.2
)
 
0.9

 
(1.6
)
 
28.4

 
—

 
—

 
27.5

Price
 
(0.4
)
 
0.9

 
(2.4
)
 
(13.5
)
 
—

 
—

 
(15.4
)
Cost
 
—

 
(1.5
)
 
(0.2
)
 
0.5

 
(0.8
)
 
(1.1
)
 
(3.1
)
Non-timber income
 
(0.5
)
 
0.3

 
2.0

 
—

 
—

 
—

 
1.8

Foreign exchange (a)
 
—

 
—

 
(0.5
)
 
—

 
—

 
—

 
(0.5
)
Depreciation, depletion & amortization
 
(1.2
)
 
0.2

 
(0.2
)
 
(3.6
)
 
—

 
—

 
(4.8
)
Non-cash cost of land and improved development
 
—

 
—

 
—

 
1.5

 
—

 
—

 
1.5

Three Months Ended September 30, 2018
 

$9.2

 

$1.9

 

$16.4

 

$24.7

 

$0.3

 

($6.2
)
 

$46.4

 
 
 
 
 
(a)    Net of currency hedging impact.



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Operating Income
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate and Other
 
Total
Nine Months Ended September 30, 2017
 

$35.0

 

($1.3
)
 

$41.5

 

$72.1

 

$3.4

 

($15.3
)
 

$135.4

Volume/Mix
 
3.2

 
1.1

 
3.8

 
11.3

 
—

 
—

 
19.4

Price
 
(0.4
)
 
13.0

 
2.0

 
25.9

 
—

 
—

 
40.5

Cost
 
(0.3
)
 
(1.1
)
 
(1.4
)
 
1.5

 
(2.7
)
 
(0.9
)
 
(4.9
)
Non-timber income
 
4.5

 
—

 
4.6

 
—

 
—

 
—

 
9.1

Foreign exchange (a)
 
—

 
—

 
(0.1
)
 
—

 
—

 
—

 
(0.1
)
Depreciation, depletion & amortization
 
(4.9
)
 
0.5

 
0.1

 
(4.7
)
 
—

 
(0.4
)
 
(9.4
)
Non-cash cost of land and improved development
 
—

 
—

 
—

 
(6.4
)
 
—

 
—

 
(6.4
)
Other
 
—

 
—

 
(0.4
)
(b)
(28.1
)
(c)
—

 
—

 
(28.5
)
Nine Months Ended September 30, 2018
 

$37.1

 

$12.2

 

$50.1

 

$71.6

 

$0.7

 

($16.6
)
 

$155.1

 
 
 
 
 
(a)    Net of currency hedging impact.
(b)    New Zealand Timber includes $0.4 million from a settlement received in 2017.
(c)
Real Estate includes $28.2 million of operating income from Large Dispositions in 2017.
Adjusted EBITDA (a)
 
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
Real Estate
 
Trading
 
Corporate and Other
 
Total
Three Months Ended September 30, 2017
 

$24.2

 

$7.6

 

$27.8


$13.4

 

$1.1

 

($4.8
)
 

$69.3

Volume/Mix
 
(0.4
)
 
2.4

 
(2.1
)
31.9

 
—

 
—

 
31.8

Price
 
(0.4
)
 
0.9

 
(2.4
)
(13.5
)
 
—

 
—

 
(15.4
)
Cost
 
—

 
(1.5
)
 
(0.2
)
0.5

 
(0.8
)
 
(1.1
)
 
(3.1
)
Non-timber income
 
(0.5
)
 
0.3

 
2.0

—

 
—

 
—

 
1.8

Foreign exchange (b)
 
—

 
—

 
(1.1
)
—

 
—

 
—

 
(1.1
)
Three Months Ended September 30, 2018
 

$22.9



$9.7



$24.0


$32.3



$0.3



($5.9
)


$83.3

 
 
 
 
 
(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, 2017
 

$72.1

 

$22.5

 

$62.0

 

$67.2

 

$3.4

 

($14.1
)
 

$213.1

Volume/Mix
 
5.8

 
4.5

 
4.9

 
16.0

 
—

 
—

 
31.2

Price
 
(0.4
)
 
13.0

 
2.0

 
25.9

 
—

 
—

 
40.5

Cost
 
(0.3
)
 
(1.1
)
 
(1.4
)
 
1.5

 
(2.7
)
 
(1.7
)
 
(5.7
)
Non-timber income
 
4.5

 
—

 
4.6

 
—

 
—

 
—

 
9.1

Foreign exchange (b)
 
—

 
—

 
(0.3
)
 
—

 
—

 
—

 
(0.3
)
Other
 
—

 
—

 
(0.4
)
(c)
0.4

(d)
—

 
—

 
—

Nine Months Ended September 30, 2018
 

$81.7

 

$38.9

 

$71.4

 

$111.0

 

$0.7

 

($15.8
)
 

$287.9

 
 
 
 
 
(a)
Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.
(b)
Net of currency hedging impact.
(c)
New Zealand Timber includes $0.4 million of operating income from a settlement received in 2017.
(d)
Real Estate includes $0.3 million of deferred revenue in 2017.


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SOUTHERN TIMBER
Third quarter sales of $39.7 million increased $2.4 million, or 6%, versus the prior year period. Harvest volumes decreased 2% to 1.33 million tons versus 1.36 million tons in the prior year period, primarily due to wet ground conditions hampering the ability to harvest. Average pine sawtimber stumpage prices decreased 1% to $25.55 per ton versus $25.93 per ton in the prior year period due to geographic mix and the impact of China tariffs on export prices. Average pine pulpwood stumpage prices increased 3% to $16.74 per ton versus $16.32 per ton in the prior year period, as wet ground conditions generated favorable spot markets in the current quarter and the prior year quarter included salvage timber volume from the West Mims fire. Overall, weighted-average stumpage prices (including hardwood) decreased 1% to $19.36 per ton versus $19.63 per ton in the prior year period. Operating income of $9.2 million decreased $2.4 million versus the prior year period due to lower net stumpage prices ($0.4 million), volume/mix changes ($0.2 million), lower non-timber income ($0.5 million), and higher depletion rates ($1.2 million). Third quarter Adjusted EBITDA of $22.9 million was $1.2 million below the prior year period.
Year-to-date sales of $131.3 million increased $19.2 million, or 17%, versus the prior year period. Harvest volumes increased 7% to 4.4 million tons versus 4.1 million tons in the prior year period, primarily due to incremental volume on new acquisitions. Average pine sawtimber stumpage prices remained relatively flat at $26.06 per ton versus $25.99 per ton in the prior year period, while average pine pulpwood stumpage prices increased 1% to $16.64 per ton versus $16.43 per ton in the prior year period. The increase in average pulpwood prices is due to a reduction in salvage volume along the east coast, combined with wet ground conditions generating favorable spot markets. Overall, weighted-average stumpage prices (including hardwood) remained relatively flat at $19.67 per ton versus to $19.76 per ton in the prior year period. Operating income of $37.1 million increased $1.9 million versus the prior year period due to higher non-timber income ($4.5 million) and higher volumes ($3.2 million), which were partially offset by lower net stumpage prices ($0.4) million, higher depletion rates ($4.9 million) and higher costs ($0.3 million). Adjusted EBTIDA of $81.7 million was $9.4 million above the prior year period.
PACIFIC NORTHWEST TIMBER
Third quarter sales of $27.8 million increased $8.7 million, or 46%, versus the prior year period. Harvest volumes increased 23% to 310,000 tons versus 252,000 tons in the prior year period, as the prior year period was hampered by fire restrictions. Average delivered sawtimber prices increased 15% to $102.74 per ton versus $89.62 per ton in the prior year period, while average delivered pulpwood prices increased 18% to $48.93 per ton versus $41.43 per ton in the prior year period. The increase in delivered sawtimber prices was driven by continued strong demand from both domestic and export markets, while the increase in delivered pulpwood prices was driven primarily by price tension resulting from chip exports in the first half of the year. The increases in delivered sawtimber and pulpwood prices were partially offset by higher cut and haul costs resulting from an increased proportion of cable logging as well as increased demand for logging and trucking contractors. Operating income of $1.9 million increased $0.8 million versus the prior year period due to higher net stumpage prices ($0.9 million), volume/mix changes ($0.9 million), higher non-timber income ($0.3 million) and lower depletion rates ($0.2 million), which were partially offset by higher road maintenance, engineering, overhead and other costs ($1.5 million). Third quarter Adjusted EBITDA of $9.7 million was $2.1 million above the prior year period.
Year-to-date sales of $91.4 million increased $25.9 million, or 40%, versus the prior year period. Harvest volumes increased 15% to 1,063,000 tons versus 926,000 tons in the prior year period, as demand for timber was very strong in the Pacific Northwest. Average delivered sawtimber prices increased 24% to $100.46 per ton versus $80.79 per ton in the prior year period, while average delivered pulpwood prices increased 21% to $47.94 per ton versus $39.65 per ton in the prior year period. The increase in average sawtimber prices was due to strong demand from both domestic and export sawtimber markets. The increase in average pulpwood prices was due to increased competition for pulpwood, including chip exports in the first half of the year. Operating income of $12.2 million increased $13.5 million relative to an operating loss of $1.3 million in the prior year period due to higher net stumpage prices ($13.0 million), higher volume ($1.1 million) and lower depletion rates ($0.5 million), which were partially offset by higher costs ($1.1 million). Adjusted EBITDA of $38.9 million was $16.4 million above the prior year period.
NEW ZEALAND TIMBER
Third quarter sales of $66.3 million decreased $3.8 million, or 5%, versus the prior year period. Volumes decreased 7% to 724,000 tons versus 774,000 tons in the prior year period, driven primarily by the timing of export shipments. Average delivered prices for export sawtimber increased 1% to $114.54 per ton versus $113.35 per ton in the prior year period, while average delivered prices for domestic sawtimber decreased 3% to $80.74 per ton versus $83.61 per ton in the prior year period. The increase in export sawtimber prices was primarily due to stronger demand from China relative to the prior year quarter. However, despite continued strong export demand, pricing declined versus the second quarter due to the global impacts of the U.S. / China trade tensions, including the depreciation of the Chinese

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Yuan (CNY) versus the U.S. dollar. The decrease in domestic sawtimber prices (in U.S. dollar terms) versus the prior year quarter was driven primarily by the fall in the NZ$/US$ exchange rate (US$0.68 per NZ$1.00 versus US$0.73 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 5% from the prior year period. Operating income of $16.4 million decreased $2.9 million versus the prior year period as a result of lower volumes ($1.6 million), lower net stumpage prices ($2.4 million), unfavorable foreign exchange impacts ($0.5 million), higher depletion rates ($0.2 million) and higher road maintenance and overhead costs ($0.2 million), which were partially offset by higher non-timber income ($2.0 million). Third quarter Adjusted EBITDA of $24.0 million was $3.8 million below the prior year period.
Year-to-date sales of $188.9 million increased $24.9 million, or 15%, versus the prior year period. Harvest volumes increased 7% to 2.0 million tons versus 1.9 million tons in the prior year period, driven primarily by incremental volume from prior year acquisitions. Average delivered prices for export sawtimber increased 5% to $117.74 per ton versus $111.62 per ton in the prior year period, while average delivered prices for domestic sawtimber prices increased 5% to $84.43 per ton versus $80.54 per ton in the prior year period. The increase in export sawtimber was primarily due to stronger demand from China. The increase in domestic sawtimber prices (in U.S. dollar terms) was driven by increased demand tension between export markets and local sawmills. Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 7% from the prior year period. Operating income of $50.1 million increased $8.6 million versus the prior year period due to higher volume ($3.8 million), higher net stumpage prices ($2.0 million), higher non-timber income ($4.6 million) and lower capitalized bridge amortization ($0.1 million), partially offset by higher costs ($1.4 million), the prior year receipt of a timber damage settlement ($0.4 million) and unfavorable foreign exchange impacts ($0.2 million).
REAL ESTATE
Third quarter sales of $36.2 million increased $19.0 million versus the prior year period, while operating income of $24.7 million increased $13.4 million versus the prior year period due to a higher number of acres sold (7,336 acres sold versus 2,549 acres sold in the prior year period), partially offset by a decrease in weighted-average prices ($4,929 per acre versus $6,764 per acre in the prior year period). Improved Development closings of $1.3 million in the Wildlight development project included 2.2 acres of commercial property for $0.5 million ($225,000 per acre) and 20 residential lots for $0.8 million ($42,000 per lot or $288,000 per acre). Unimproved Development sales of $1.2 million were comprised of 126 acres at an average price of $9,325 per acre. This compares to the prior year period sales of $13.9 million, comprised of 1,319 acres at an average price of $10,540 per acre. Rural sales of $4.5 million were comprised of 1,420 acres at an average price of $3,161 per acre. This compares to prior year period sales of $3.1 million, comprised of 1,128 acres at an average price of $2,771 per acre. Non-strategic / Timberland sales of $29.2 million were comprised of 5,785 acres at an average price of $5,039 per acre, including a $28.1 million timberland sale in New Zealand comprised of 4,996 productive acres at an average price of $5,628 per acre. This compares to prior year period sales of $0.2 million, comprised of 102 acres at an average price of $1,616 per acre. Third quarter Adjusted EBITDA of $32.3 million was $18.9 million above the prior year period.
Year-to-date sales of $122.1 million increased $0.5 million versus the prior year period, while operating income of $71.6 million decreased $0.5 million versus the prior year period. Prior period year-to-date sales and operating income include $42.0 million and $28.2 million, respectively, from Large Dispositions. Sales and operating income increased in the first nine months due to higher weighted average prices ($3,892 per acre versus $2,388 per acre in the prior year period), partially offset by lower volumes (31,366 acres sold versus 50,949 acres sold in the prior year period). Year-to-date Adjusted EBITDA of $111.0 million increased $43.7 million above the prior year period.
TRADING
Third quarter sales of $31.0 million decreased $9.7 million versus the prior year period due to lower volumes. Sales volumes decreased 24% to 283,000 tons versus 371,000 tons in the prior year period. Operating income and Adjusted EBITDA of $0.3 million decreased $0.8 million versus the prior year period.
Year-to-date sales of $116.4 million decreased $0.1 million versus the prior year period. Sales volumes decreased 6% to 1.0 million tons versus 1.1 million tons in the prior year period. Average prices increased 6% to $113.76 per ton versus $107.45 per ton in the prior year period primarily due to stronger demand from China. Operating income and Adjusted EBITDA of $0.7 million decreased $2.7 million versus the prior year period due to lower margins as a result of increased competition to procure wood and lower volumes.

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OTHER ITEMS
CORPORATE AND OTHER EXPENSE/ELIMINATIONS
Third quarter corporate and other operating expenses of $6.2 million increased $1.1 million versus the prior year period due to a reduction in overhead costs allocated to operating segments ($0.5 million), higher stock based compensation and other benefits expense ($0.3 million), higher property taxes ($0.2 million) and higher insurance costs ($0.1 million).
Year-to-date corporate and other operating expense of $16.6 million increased $1.4 million versus the prior year period due to a reduction in overhead costs allocated to operating segments ($1.0 million), higher stock-based compensation and other benefits expense ($1.0 million), higher depreciation expense ($0.4 million) and IT related costs ($0.3 million), partially offset by lower costs related to shareholder litigation ($0.7 million) and income from the sale of unused Internet Protocol addresses ($0.6 million).
Costs related to shareholder litigation in the prior year period include expenses incurred as a result of the now-concluded securities litigation and the shareholder derivative demands. For additional information related to the securities litigation, see Note 10—Contingencies of Item 8 — Financial Statements and Supplementary Data in the Company’s most recent Annual Report on Form 10-K. For additional information on the shareholder derivative demands, see Note 9 — Contingencies.
INTEREST EXPENSE
Third quarter interest expense of $7.9 million decreased $0.7 million versus the prior year period. Year-to-date interest expense of $24.0 million decreased $1.6 million versus the prior year period. The decrease in third quarter and year-to-date interest expense was due to lower average debt.
NON-OPERATING INCOME
Third quarter and year-to-date non-operating income of $0.5 million and $4.0 million, respectively, includes interest income and the unrealized gains on foreign currency derivatives used to mitigate the risk of fluctuations in foreign exchange rates with respect to anticipated distributions from the New Zealand JV.
INCOME TAX EXPENSE
Third quarter income tax expense of $8.4 million increased $5.4 million versus the prior year period. Year-to-date income tax expense of $22.4 million increased $5.6 million versus the prior year period. The New Zealand JV is the primary driver of income tax expense.
OUTLOOK
Based on results for the first nine months and expectations for the balance of the year, we anticipate that full-year adjusted EBITDA will be above our prior guidance. In our Southern Timber segment, we expect to achieve full-year harvest volumes of 5.6 to 5.7 million tons and Adjusted EBITDA modestly below prior guidance, as we are choosing to pull back harvest volumes in certain market areas that have been impacted by Hurricane Michael. In our Pacific Northwest Timber segment, we expect to achieve full-year harvest volumes of approximately 1.3 million tons and Adjusted EBITDA toward the lower end of prior guidance, as domestic and export prices have softened following the announcement of tariffs on log exports into China. In our New Zealand Timber segment, we expect to achieve full-year harvest volumes of 2.6 to 2.7 million tons and Adjusted EBITDA modestly above prior guidance, as reduced log inventories in China coupled with reduced trade flows from the U.S. have led to some recent strengthening of export prices. In our Real Estate segment, we anticipate full-year Adjusted EBITDA well above prior guidance driven by the New Zealand timberland sale in the third quarter (which contributed Adjusted EBITDA and net income attributable to Rayonier of $27.7 million and $12.8 million, respectively), while we expect fourth quarter Real Estate closings will be relatively light. On balance, we remain on track to achieve our prior earnings guidance before considering the impact of the third quarter New Zealand timberland sale, which represents upside to the prior guidance.


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

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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)
2018
 
2017
Cash and cash equivalents

$146.3

 

$112.7

Total debt (a)
975.0

 
1,028.4

Shareholders’ equity
1,701.1

 
1,693.0

Total capitalization (total debt plus equity)
2,676.1

 
2,721.4

Debt to capital ratio
36
%
 
38
%
Net debt to enterprise value (b)
16
%
 
18
%
 
 
 
 
 
(a)
Total debt as of September 30, 2018 and December 31, 2017 is presented gross of deferred financing costs of $2.6 million and $3.0 million, respectively.
(b)
Enterprise value is calculated as the number of shares outstanding multiplied by the Company’s share price plus net debt as of September 30, 2018 and December 31, 2017.

CASH FLOWS
The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended September 30, 2018 and 2017.
(millions of dollars)
2018
 
2017
Cash provided by (used for):
 
 
 
Operating activities

$261.1

 

$186.9

Investing activities (a)
(87.9
)
 
(260.1
)
Financing activities
(152.5
)
 
29.2

 
 
 
 
 
(a)
Due to the adoption of ASU No. 2016-18, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior period amounts have been restated to conform to current period presentation.
CASH PROVIDED BY OPERATING ACTIVITIES
Cash provided by operating activities increased $74.2 million primarily due to higher operating results.
CASH USED FOR INVESTING ACTIVITIES
Cash used for investing activities decreased $172.3 million compared to the prior year period primarily due to decreases in timberland acquisitions ($200.1 million), spending on the construction of the Company’s office building ($6.0 million), capital expenditures ($1.6 million) and real estate development investments ($4.9 million). These activities were offset by a decrease in net proceeds from Large Dispositions ($42.0 million) and other investing activities of $1.7 million.
CASH USED FOR FINANCING ACTIVITIES
Cash used for financing activities increased $181.7 million from the prior year period primarily due to decreases in equity issuances ($147.8 million), an increase in net debt repayments ($21.6 million) and an increase in dividends paid ($6.8 million) and shares repurchased ($3.0 million).
EXPECTED 2018 EXPENDITURES
Capital expenditures in 2018 are expected to be between $63 and $67 million, excluding 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 2018 are expected to be between $10 and $12 million, net of anticipated reimbursements from community development bonds. Expected real estate development investments are primarily

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related to Wildlight, our mixed-use community development project located north of Jacksonville, Florida at the interchange of I-95 and State Road A1A.
Our 2018 dividend payments are expected to be approximately $137 million assuming no change in the quarterly dividend rate of $0.27 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 approximately $2.7 million of mandatory pension contribution requirements in 2018 and may make discretionary contributions in the future.
Cash tax payments in 2018 are expected to be approximately $1.5 million, primarily due to the New Zealand JV.

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PERFORMANCE AND LIQUIDITY INDICATORS
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, and 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 common stock dividends, distributions to the New Zealand minority shareholder, repurchase of the Company’s common shares, debt reduction, strategic acquisitions and real estate development investments. 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, non-operating income and expense, costs related to shareholder litigation and Large Dispositions. Costs related to shareholder litigation include expenses incurred as a result of the now-concluded securities class action litigation and the shareholder derivative demands. For additional information related to the securities litigation, see Note 10 — Contingencies of Item 8 — Financial Statements and Supplementary Data in the Company’s most recent Annual Report on Form 10-K. For additional information on the shareholder derivative demands, see Note 9 — Contingencies.
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,
 
2018
 
2017
 
2018
 
2017
Net Income to Adjusted EBITDA Reconciliation
 
 
 
 
 
 
 
Net income

$30.6

 

$28.8

 

$112.7

 

$94.7

Interest, net
7.2

 
6.8

 
22.5

 
24.2

Income tax expense
8.4

 
3.0

 
22.4

 
16.8

Depreciation, depletion and amortization
34.8

 
28.7

 
115.7

 
96.6

Non-cash cost of land and improved development
2.1

 
1.3

 
17.1

 
8.6

Non-operating (income) expense
0.1

 
0.6

 
(2.6
)
 
(0.3
)
Costs related to shareholder litigation
—

 
—

 
—

 
0.7

Large Dispositions (a)
—

 
—

 
—

 
(28.2
)
Adjusted EBITDA

$83.3

 

$69.3

 

$287.9

 

$213.1

 
 
 
 
 
(a)
Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In January 2017, the Company completed a disposition of approximately 25,000 acres located in Alabama for a sale price and gain of approximately $42.0 million and $28.2 million, respectively.

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The following tables provide a reconciliation of Operating Income (Loss) 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, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income

$9.2

 

$1.9

 

$16.4

 

$24.7

 

$0.3

 

($6.2
)
 

$46.4

Depreciation, depletion and amortization
13.7

 
7.8

 
7.5

 
5.5

 
—

 
0.3

 
34.8

Non-cash cost of land and improved development
—

 
—

 
—

 
2.1

 
—

 
—

 
2.1

Adjusted EBITDA

$22.9

 

$9.7

 

$24.0

 

$32.3

 

$0.3

 

($5.9
)
 

$83.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$11.5

 

$1.1

 

$19.3

 

$11.4

 

$1.1

 

($5.1
)
 

$39.3

Depreciation, depletion and amortization
12.7

 
6.5

 
8.5

 
0.7

 
—

 
0.3

 
28.7

Non-cash cost of land and improved development
—

 
—

 
—

 
1.3

 
—

 
—

 
1.3

Adjusted EBITDA

$24.2

 

$7.6

 

$27.8

 

$13.4

 

$1.1

 

($4.8
)
 

$69.3

Nine Months Ended
Southern Timber
 
Pacific Northwest Timber
 
New Zealand Timber
 
Real Estate
 
Trading
 
Corporate
and
other
 
Total
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income

$37.1

 

$12.2

 

$50.1

 

$71.6

 

$0.7

 

($16.6
)
 

$155.1

Depreciation, depletion and amortization
44.6

 
26.7

 
21.3

 
22.3

 
—

 
0.9

 
115.7

Non-cash cost of land and improved development
—

 
—

 
—

 
17.1

 
—

 
—

 
17.1

Adjusted EBITDA

$81.7

 

$38.9

 

$71.4

 

$111.0

 

$0.7

 

($15.8
)
 

$287.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income (loss)

$35.0

 

($1.3
)
 

$41.5

 

$72.1

 

$3.4

 

($15.3
)
 

$135.4

Depreciation, depletion and amortization
37.1

 
23.8

 
20.5

 
14.8

 
—

 
0.5

 
96.6

Non-cash cost of land and improved development
—

 
—

 
—

 
8.6

 
—

 
—

 
8.6

Costs related to shareholder litigation
—

 
—

 
—

 
—

 
—

 
0.7

 
0.7

Large Dispositions (a)
—

 
—

 
—

 
(28.2
)
 
—

 
—

 
(28.2
)
Adjusted EBITDA

$72.1

 

$22.5

 

$62.0

 

$67.2

 

$3.4

 

($14.1
)
 

$213.1

 
 
 
 
 
(a)
Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In January 2017, the Company completed a disposition of approximately 25,000 acres located in Alabama for a sale price and gain of approximately $42.0 million and $28.2 million, respectively.

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The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
 
Nine Months Ended September 30,
 
2018
 
2017
Cash provided by operating activities

$261.1

 

$186.9

Capital expenditures (a)
(44.1
)
 
(45.7
)
Working capital and other balance sheet changes
5.0

 
2.3

CAD
222.0

 
143.5

Mandatory debt repayments
—

 
—

Mandatory pension requirements
(2.7
)
 
—

CAD after mandatory debt repayments and pension requirements
219.3

 
143.5

Cash used for investing activities (b)

($87.9
)
 

($260.1
)
Cash (used for) provided by financing activities

($152.5
)
 

$29.2

 
 
 
 
 
(a)
Capital expenditures exclude timberland acquisitions during the nine months ended September 30, 2018 and September 30, 2017 and spending on the Rayonier office building during the nine months ended September 30, 2017.
(b)
Due to the adoption of ASU No. 2016-18, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior period amounts have been restated to conform to current period presentation.
The following table provides supplemental cash flow data (in millions):
 
Nine Months Ended September 30,
 
2018
 
2017
Purchase of timberlands

($39.0
)
 

($239.1
)
Real Estate Development Investments
(6.9
)
 
(11.8
)
Distributions to New Zealand minority shareholder (a)
(6.5
)
 
(10.9
)
Rayonier Office Building
—

 
(6.0
)
 
 
 
 
 
(a)
Includes debt repayments on the New Zealand JV noncontrolling interest shareholder loan. See Note 5 — Debt for additional information.

LIQUIDITY FACILITIES
2018 DEBT ACTIVITY
During the nine months ended September 30, 2018, the Company made a repayment of $50.0 million on the Revolving Credit Facility. As of September 30, 2018, the Company had available borrowings of $189.8 million under the Revolving Credit Facility, net of $10.2 million to secure its outstanding letters of credit.
In addition, the New Zealand JV made borrowings and repayments of $1.0 million on its working capital facility. As of September 30, 2018, draws totaling NZ$40.0 million remain available on the working capital facility. The New Zealand JV also fully repaid its shareholder loan held by the noncontrolling interest party during the nine months ended September 30, 2018.

OFF-BALANCE SHEET ARRANGEMENTS
We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, and collateral for outstanding claims under the Company’s previous workers’ compensation self-insurance programs. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 10 — Guarantees for details on the letters of credit, surety bonds and guarantees as of September 30, 2018.


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CONTRACTUAL FINANCIAL OBLIGATIONS
In addition to using cash flow from operations and proceeds from Large Dispositions, 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 Sheets, 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, 2018 and anticipated cash spending by period: 
Contractual Financial Obligations (in millions)
Total
 
Payments Due by Period
Remaining 2018
 
2019-2020
 
2021-2022
 
Thereafter
Long-term debt (a)

$975.0

 
—

 
—

 

$325.0

 

$650.0

Interest payments on long-term debt (b)
216.3

 
12.4

 
74.6

 
68.5

 
60.8

Operating leases — timberland
180.1

 
3.9

 
17.0

 
16.3

 
142.9

Operating leases — PP&E, offices
4.8

 
0.3

 
2.2

 
1.6

 
0.7

Commitments — derivatives (c)
7.4

 
3.7

 
1.6

 
1.2

 
0.9

Commitments — other (d)
4.2

 
1.8

 
2.4

 
—

 
—

Total contractual cash obligations

$1,387.8

 

$22.1

 

$97.8

 

$412.6

 

$855.3

 
 
 
 
 
(a)
The book value of long-term debt, net of deferred financing costs, is currently recorded at $972.4 million on the Company’s Consolidated Balance Sheet, but upon maturity the liability will be $975.0 million.
(b)
Projected interest payments for variable rate debt were calculated based on outstanding principal amounts and interest rates as of September 30, 2018.
(c)
Commitments — derivatives represents 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.
(d)
Commitments — other includes $0.5 million of pension contribution requirements remaining in 2018 based on actuarially determined estimates and IRS minimum funding requirements, payments expected to be made on the Company’s Wildlight development project and other purchase obligations.

Item 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Interest Rate Risk
We are exposed to interest rate risk through our variable rate debt, primarily due to changes in LIBOR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreements by swapping existing and anticipated future borrowings from floating rates to fixed rates. As of September 30, 2018, we had $650 million of U.S. long-term variable rate debt. The notional amount of outstanding interest rate swap contracts with respect to this debt at September 30, 2018 was also $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 no corresponding increase/decrease in interest payments and expense over a 12-month period.
The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our long-term fixed rate debt at September 30, 2018 was $321 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, 2018 would result in a corresponding decrease/increase in the fair value of our long-term fixed rate debt of approximately $10 million.
    

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We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt to be approximately 3.3% after consideration of interest rate swaps and estimated patronage refunds, excluding unused commitment fees on the revolving credit facility.
The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at September 30, 2018:
(Dollars in thousands)
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
 
Fair Value
Variable rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal amounts
—
 
—
 
—
 
—
 
—
 
$650,000
 
$650,000
 
$650,000
Average interest rate (a)(b)
—
 
—
 
—
 
—
 
—
 
3.86%
 
3.86%
 
—
Fixed rate debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Principal amounts
—
 
—
 
—
 
—
 
$325,000
 
—
 
$325,000
 
$323,505
Average interest rate (b)
—
 
—
 
—
 
—
 
3.75%
 
—
 
3.75%
 
—
Interest rate swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notional amount
—
 
—
 
—
 
—
 
—
 
$650,000
 
$650,000
 
$41,900
Average pay rate (b)
—
 
—
 
—
 
—
 
—
 
1.91%
 
1.91%
 
—
Average receive rate (b)
—
 
—
 
—
 
—
 
—
 
2.11%
 
2.11%
 
—
 
 
 
 
 
(a)    Excludes estimated patronage refunds.
(b)    Interest rates as of September 30, 2018.
Foreign Currency Exchange Rate Risk
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, shareholder distributions which are paid in U.S. dollars 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.
Sales and Expense Exposure
At September 30, 2018, the New Zealand JV had foreign currency exchange contracts with a notional amount of $103 million and foreign currency option contracts with a notional amount of $20 million outstanding related to foreign export sales and ocean freight payments. The amount hedged represents a portion of forecast U.S. dollar denominated export timber and log trading sales proceeds over the next 18 months and next 3 months, respectively.
Shareholder Distributions
At September 30, 2018, the New Zealand JV had foreign currency exchange contracts with a notional amount of NZ$32 million representing a portion of anticipated shareholder distribution payments over the next 12 months.
Net Investment
In March 2018, we entered into a foreign currency exchange contract with a notional amount of NZ$37 million to mitigate the risk of foreign currency exchange rate fluctuations on the cash portion of the Company’s net investment in New Zealand. The foreign currency exchange contract matured April 2018 and the cash was repatriated. For additional information regarding our derivative balances and activity, see Note 12 — Derivative Financial Instruments and Hedging Activities.
    

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The following table summarizes our outstanding foreign currency exchange rate risk contracts at September 30, 2018:
(Dollars in thousands)
0-1 months
 
1-2 months
 
2-3 months
 
3-6 months
 
6-12 months
 
12-18 months
 
Total
 
Fair Value
Foreign exchange contracts to sell U.S. dollar for New Zealand dollar
 
 
 
 
Notional amount
$12,000
 
$9,750
 
$7,250
 
$17,000
 
$41,000
 
$16,000
 
$103,000
 
($4,013)
Average contract rate
1.4628
 
1.4429
 
1.4450
 
1.4479
 
1.4399
 
1.4527
 
1.4465
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency option contracts to sell U.S. dollar for New Zealand dollar
 

 
 
Notional amount
$2,000
 
$2,000
 
$2,000
 
$6,000
 
$2,000
 
$6,000
 
$20,000
 
($64)
Average strike price
1.4715
 
1.4695
 
1.4699
 
1.4711
 
1.5300
 
1.5073
 
1.4877
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts to sell New Zealand dollar for U.S. dollar
 

 
 
Notional amount (NZ$)
$17,500
 
—
 
$14,250
 
—
 
—
 
—
 
$31,750
 
$2,205
Average contract rate
0.7332
 
—
 
0.7295
 
 
 
—
 
—
 
0.7316
 
 


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, 2018.
In the quarter ended September 30, 2018, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.

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PART II.    OTHER INFORMATION

Item 1.
LEGAL PROCEEDINGS

The information set forth in Note 9 — Contingencies in the “Notes to 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 and the Board of Directors’ 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 2018 and there was $99.3 million, or approximately 2,937,309 shares based on the period end closing stock price of $33.81, available for repurchase as of September 30, 2018.
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. The 1996 anti-dilutive program does not have an expiration date. There were no shares purchased under this program in the third quarter of 2018 and there were 3,869,621 shares available for purchase at September 30, 2018.
The following table provides information regarding our purchases of Rayonier common shares during the quarter ended September 30, 2018:
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
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b)
July 1 to July 31
 
—

 
—

 
—

 
6,806,929

Aug 1 to Aug 31
 
397

 
34.10

 
—

 
6,806,929

Sept 1 to Sept 30
 
16

 
34.83

 
—

 
6,806,929

Total
 
413

 
 
 
—

 


 
 
 
 
 
(a)
Includes 413 shares of the Company’s common shares purchased in August and September from current employees in non-open market transactions. The shares 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 common shares on the respective vesting dates of the awards.
(b)
Maximum number of shares authorized to be purchased as of September 30, 2018 include 3,869,621 under the 1996 anti-dilutive program and approximately 2,937,309 under the share repurchase program.


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Item 6.
EXHIBITS
31.1

Filed herewith
31.2

Filed herewith
32

Furnished herewith
101

The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2018, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2018 and 2017; (ii) the Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017; (iii) the Consolidated Statements of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 2018 and the Year Ended December 31, 2017; (iv) the Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017; and (v) the Notes to Consolidated Financial Statements
Filed herewith
                    


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
RAYONIER INC.
 
 
(Registrant)
 
 
 
 
By:
/s/ APRIL TICE
 
 
April Tice
Director, Financial Services and Corporate Controller
(Duly Authorized Officer, Principal Accounting Officer)
Date: November 2, 2018





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