Rayonier 2014 10Q/A 1Q2014/A
Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q/A
(AMENDMENT NO. 1)
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from              to             
Commission File Number 1-6780
RAYONIER INC.
Incorporated in the State of North Carolina
I.R.S. Employer Identification No. 13-2607329
225 WATER STREET, SUITE 1400
JACKSONVILLE, FL 32202
(Principal Executive Office)
Telephone Number: (904) 357-9100

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

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

As of November 3, 2014, there were outstanding 126,726,146 Common Shares of the registrant.


















Table of Contents

EXPLANATORY NOTE
This Amendment No. 1 (this “Amendment”) to the Quarterly Report on Form 10-Q of Rayonier Inc. (the “Company”) for the quarterly period ended March 31, 2014 is being filed to amend and restate in their entirety the following items of its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 that was filed on April 30, 2014 (the “Original Filing”): (i) Item 1 of Part I, “Financial Information,” (ii) Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and (iii) Item 4 of Part I, “Controls and Procedures”. The Company has also updated the signature page, the certifications of its chief executive officer and chief financial officer in Exhibits 31.1, 31.2 and 32 and its unaudited consolidated financial statements formatted in Extensible Business Reporting Language (XBRL) in Exhibit 101. Concurrently with the filing of this Amendment, the Company is also filing Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2013, Amendment No. 1 to its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014 and Amendment No. 1 to its Form 8-K filed with the Securities and Exchange Commission on July 3, 2014.
On June 27, 2014, the Company spun off its Performance Fibers business to its shareholders as a newly formed publicly traded company named Rayonier Advanced Materials Inc. Following the spin-off, new management conducted a review of the Company’s operations and business strategies and identified issues related to its historical timber harvest levels, its estimate of merchantable timber inventory and the effect of such estimate on its calculation of depletion expense in each of the quarterly periods ended March 31, 2014 and June 30, 2014. At the direction of the Company’s Board of Directors, management commenced an internal review into these matters with the assistance of independent counsel, forensic accountants and financial advisers. As a result of the internal review, the Company concluded that it included in merchantable timber inventory for 2014, timber in specially designated parcels located in restricted, environmentally sensitive or economically inaccessible areas, which was incorrect, inconsistent with its definition of merchantable timber inventory, and a significant change from prior years. As a result, the Company concluded that it understated its depletion expense in cost of goods sold (referred to as “Cost of sales” in the Company's consolidated statements of income) by approximately $2.0 million in each of the quarterly periods ended March 31, 2014 and June 30, 2014, which resulted in a corresponding overstatement of income from continuing operations of $1.9 million and $2.0 million, respectively, in those periods. In addition, management determined that there was a material weakness in the Company’s internal controls related to merchantable timber inventory, as discussed in Part I, Item 4 of this Amendment. Accordingly, the Company has filed this Amendment and the restated interim consolidated financial statements contained herein. Further details of the errors and the impact on the unaudited financial statements set forth in the Original Filing are contained in Note 3 — Restatement of Previously Issued Consolidated Financial Statements in the Notes to the Unaudited Consolidated Financial Statements included in this Amendment.
The Company has not modified or updated disclosures presented in the Original Filing, except to reflect the effects of the restatement of the Company’s financial statements and disclose the material weaknesses in our internal control over financial reporting that has been identified since the date of the Annual Report on Form 10-K, as described above. Accordingly, this Amendment does not reflect events occurring after the Original Filing, except as noted above, and this Amendment continues to speak as of the date of the Original Filing. Therefore, this Amendment should be read in conjunction with the Company’s other filings made with the Securities and Exchange Commission subsequent to the filing of the Original Filing, including any amendments to those filings.


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TABLE OF CONTENTS

Item
 
 
Page
 
 
PART I - FINANCIAL INFORMATION
 
1.
 
 
 
 
 
 
 
 
 
2.
 
4.
 
 
 
PART II - OTHER INFORMATION
 
6.
 
 
 
 

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PART I.        FINANCIAL INFORMATION

Item 1.         Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended
March 31,
 
2014
 
2013
 
(Restated)
 
 
SALES
$
386,686

 
$
393,719

Costs and Expenses
 
 
 
Cost of sales
304,619

 
266,018

Selling and general expenses
15,491

 
16,099

Other operating expense (income), net (Note 18)
3,537

 
(3,503
)
 
323,647

 
278,614

Equity in income of New Zealand joint venture

 
258

OPERATING INCOME
63,039

 
115,363

Interest expense
(12,969
)
 
(7,717
)
Interest and miscellaneous (expense) income, net
(1,015
)
 
57

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
49,055

 
107,703

Income tax expense
(7,712
)
 
(4,445
)
INCOME FROM CONTINUING OPERATIONS
41,343

 
103,258

DISCONTINUED OPERATIONS, NET (Note 2)
 
 
 
Income from discontinued operations, net of income tax expense of $0 and $22,273

 
44,477

NET INCOME
41,343

 
147,735

Less: Net loss attributable to noncontrolling interest
(83
)
 

NET INCOME ATTRIBUTABLE TO RAYONIER INC.
41,426

 
147,735

OTHER COMPREHENSIVE INCOME
 
 
 
Foreign currency translation adjustment
17,803

 
975

New Zealand joint venture cash flow hedges, net of income tax expense of $501 and $0
1,711

 
554

Amortization of pension and postretirement plans, net of income tax expense of $931 and $2,204
2,097

 
4,969

Total other comprehensive income
21,611

 
6,498

COMPREHENSIVE INCOME
62,954

 
154,233

Less: Comprehensive income attributable to noncontrolling interest
5,425

 

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.
$
57,529

 
$
154,233

EARNINGS PER COMMON SHARE (Note 4)
 
 
 
BASIC EARNINGS PER SHARE ATTRIBUTABLE TO RAYONIER INC.
 
 
 
Continuing Operations
$
0.33

 
$
0.83

Discontinued Operations

 
0.36

Net Income
$
0.33

 
$
1.19

DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO RAYONIER INC.
 
 
 
Continuing Operations
$
0.32

 
$
0.79

Discontinued Operations

 
0.34

Net Income
$
0.32

 
$
1.13


See Notes to Consolidated Financial Statements.

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RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 
March 31, 2014
 
December 31, 2013
 
(Restated)
 
 
ASSETS
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
156,071

 
$
199,644

Accounts receivable, less allowance for doubtful accounts of $777 and $673
111,697

 
94,956

Inventory
 
 
 
Finished goods
124,075

 
115,270

Work in progress
2,533

 
3,555

Raw materials
12,943

 
17,661

Manufacturing and maintenance supplies
2,377

 
2,332

Total inventory
141,928

 
138,818

Deferred tax assets
31,580

 
39,100

Prepaid and other current assets
54,577

 
46,576

Total current assets
495,853

 
519,094

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION
2,067,549

 
2,049,378

PROPERTY, PLANT AND EQUIPMENT
 
 
 
Land
20,620

 
20,138

Buildings
188,913

 
180,573

Machinery and equipment
1,756,924

 
1,760,641

Construction in progress
32,560

 
19,795

Total property, plant and equipment, gross
1,999,017

 
1,981,147

Less — accumulated depreciation
(1,137,048
)
 
(1,120,326
)
Total property, plant and equipment, net
861,969

 
860,821

OTHER ASSETS
217,458

 
256,208

TOTAL ASSETS
$
3,642,829

 
$
3,685,501

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
 
 
 
Accounts payable
$
86,282

 
$
69,293

Current maturities of long-term debt
114,319

 
112,500

Accrued taxes
11,374

 
8,551

Accrued payroll and benefits
19,261

 
24,948

Accrued interest
13,857

 
9,531

Accrued customer incentives
10,082

 
9,580

Other current liabilities
35,870

 
34,874

Current liabilities for dispositions and discontinued operations (Note 13)
6,446

 
6,835

Total current liabilities
297,491

 
276,112

LONG-TERM DEBT
1,393,887

 
1,461,724

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS (Note 13)
67,456

 
69,543

PENSION AND OTHER POSTRETIREMENT BENEFITS (Note 15)
95,098

 
95,654

OTHER NON-CURRENT LIABILITIES
31,254

 
27,225

COMMITMENTS AND CONTINGENCIES (Notes 12 and 14)

 

SHAREHOLDERS’ EQUITY
 
 
 
Common Shares, 480,000,000 shares authorized, 126,451,505 and 126,257,870 shares issued and outstanding
694,236

 
692,100

Retained earnings
994,624

 
1,015,209

Accumulated other comprehensive loss
(30,037
)
 
(46,139
)
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,658,823

 
1,661,170

Noncontrolling interest
98,820

 
94,073

TOTAL SHAREHOLDERS’ EQUITY
1,757,643

 
1,755,243

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
3,642,829

 
$
3,685,501


See Notes to Consolidated Financial Statements.

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RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
 
Three Months Ended March 31,
 
2014
 
2013
 
(Restated)
 
 
OPERATING ACTIVITIES
 
 
 
Net income
$
41,343

 
$
147,735

Adjustments to reconcile net income to cash provided by operating activities:
 
 
 
Depreciation, depletion and amortization
48,728

 
35,992

Non-cash cost of real estate sold
978

 
633

Stock-based incentive compensation expense
3,103

 
3,280

Deferred income taxes
5,596

 
1,832

Tax benefit of AFMC for CBPC exchange

 
(18,761
)
Amortization of losses from pension and postretirement plans
3,028

 
6,279

Gain on sale of discontinued operations, net

 
(42,670
)
Gain on foreign currency forward contracts

 
(1,881
)
Other
(287
)
 
(4,656
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(15,950
)
 
(8,778
)
Inventories
(950
)
 
11,197

Accounts payable
13,929

 
15,386

Income tax receivable/payable
1,319

 
15,915

All other operating activities
935

 
99

Payment to exchange AFMC for CBPC

 
(70,311
)
Expenditures for dispositions and discontinued operations
(2,498
)
 
(1,631
)
CASH PROVIDED BY OPERATING ACTIVITIES
99,274

 
89,660

INVESTING ACTIVITIES
 
 
 
Capital expenditures
(36,755
)
 
(32,664
)
Purchase of timberlands
(10,637
)
 
(1,560
)
Jesup mill cellulose specialties expansion (gross purchases of $0 and $57,693, net of purchases on account of $0 and $20,959)

 
(36,734
)
Proceeds from disposition of Wood Products business

 
83,741

Change in restricted cash
45,312

 
9,908

Other
1,592

 
1,790

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES
(488
)
 
24,481

FINANCING ACTIVITIES
 
 
 
Issuance of debt
31,819

 
100,000

Repayment of debt
(110,000
)
 
(170,000
)
Dividends paid
(62,545
)
 
(57,744
)
Proceeds from the issuance of common shares
2,027

 
4,091

Excess tax (deficiencies) benefits on stock-based compensation
(1,240
)
 
6,191

Repurchase of common shares
(1,754
)
 
(11,241
)
Other
(679
)
 

CASH USED FOR FINANCING ACTIVITIES
(142,372
)
 
(128,703
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
13

 
(17
)
CASH AND CASH EQUIVALENTS
 
 
 
Change in cash and cash equivalents
(43,573
)
 
(14,579
)
Balance, beginning of year
199,644

 
280,596

Balance, end of period
$
156,071

 
$
266,017

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid during the period:
 
 
 
Interest
$
8,990

 
$
3,562

Income taxes
$
7,134

 
$
70,403

Non-cash investing activity:
 
 
 
Capital assets purchased on account
$
17,891

 
$
49,094


See Notes to Consolidated Financial Statements.

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


1.
BASIS OF PRESENTATION
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 for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements and notes reflect all adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as amended by Amendment No. 1 to the Form 10-K on Form 10-K/A (the “Amended Form 10-K”), as filed with the SEC.
Reclassifications
Certain 2013 amounts have been reclassified to agree with the current year presentation.
New Accounting Standards
In March 2013, the FASB issued Accounting Standards Update (“ASU”) No. 2013-05, Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This standard requires a parent entity to release a related foreign entity’s cumulative translation adjustment into net income only if its sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The cumulative translation adjustment should be released into net income if the transaction results in the loss of a controlling financial interest in a foreign entity or results in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date. ASU No. 2013-05 became effective first quarter 2014. The adoption of this standard did not have any impact on the consolidated financial statements.
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The standard requires an unrecognized tax benefit to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss (“NOL”) or similar carryforward or a tax credit carryforward. If an NOL or tax credit carryforward is not available at the reporting date or tax law of the applicable jurisdiction does not require the entity to use the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability. ASU 2013-11 became effective first quarter of 2014. The Company has applied the standard to its income tax balances and it did not have a material impact on the Company’s financial position. See Note 5Income Taxes for further information.
Subsequent Events
The Company evaluated events and transactions that occurred after the balance sheet date but before financial statements were issued, and no subsequent events were identified that warranted disclosure.
Separation of Performance Fibers Business
In January 2014, the Company announced its intention to separate the Performance Fibers business from the Forest Resources and Real Estate businesses. The separation will result in two independent, publicly-traded companies by means of a tax-free spin-off to Rayonier shareholders of a newly formed company named Rayonier Advanced Materials Inc. which will contain the Performance Fibers segment of Rayonier. The separation, which is subject to a number of conditions including final Board approval, receipt of a favorable private letter ruling from the Internal Revenue Service (“IRS”) and effectiveness of a registration statement on Form 10, is expected to be completed by mid-2014.


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

2.
SALE OF WOOD PRODUCTS BUSINESS
On March 1, 2013, Rayonier completed the sale of its Wood Products business (consisting of three lumber mills in Baxley, Swainsboro and Eatonton, Georgia) to International Forest Products Limited (“Interfor”) for $80 million plus a working capital adjustment. Accordingly, the operating results of the Wood Products business, formerly reported as a separate operating segment, are classified as discontinued operations in the Company’s Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2013.
Rayonier recognized an after-tax gain of $42.7 million on the sale. The gain is included in “Income from discontinued operations, net” on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2013.
The following table summarizes the operating results of the Company’s discontinued operations and the related gain for the three months ended March 31, 2013, as presented in “Income from discontinued operations, net” on the Consolidated Statements of Income and Comprehensive Income:
 
Three Months Ended
 
March 31, 2013
Sales
$
16,968

Income from discontinued operations, net
$
44,477



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

3.
RESTATEMENT OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the issuance of the Original Filing, the Company identified issues related to its historical timber harvest levels, its estimate of merchantable timber inventory and the effect of such estimate on its calculation of depletion expense in the quarterly period ended March 31, 2014. The Company determined that it had understated its depletion expense in cost of goods sold (referred to as “Cost of sales” in the Company’s consolidated statements of income and comprehensive income) by approximately $2 million for the period. As a result, the financial amounts noted below have been restated from amounts previously reported.

The following tables summarize the effect of these restatements for the period:

 
 
Consolidated Statements of Income
and Comprehensive Income for the
Three Months Ended March 31, 2014

 
 
As Previously Reported
 
Restatement
 
As Restated
Operating Income
 
$
65,008

 
$
(1,969
)
 
$
63,039

Income Tax Expense
 
(7,732
)
 
20

 
(7,712
)
Income from Continuing Operations
 
43,292

 
(1,949
)
 
41,343

Net Income
 
43,292

 
(1,949
)
 
41,343

Net Income Attributable to Rayonier Inc.
 
43,375

 
(1,949
)
 
41,426

Basic Earnings Per Share Attributable to Rayonier Inc.
 
 
 
 
 
 
Continuing Operations
 
$
0.34

 
(0.01
)
 
$
0.33

Discontinued Operations
 

 

 

Net Income
 
$
0.34

 
$
(0.01
)
 
$
0.33

Diluted Earnings Per Share Attributable to Rayonier Inc.
 
 
 
 
 
 
Continuing Operations
 
$
0.34

 
(0.02
)
 
$
0.32

Discontinued Operations
 

 

 

Net Income
 
$
0.34

 
$
(0.02
)
 
$
0.32

 
 
 
Consolidated Balance Sheet
as of March 31, 2014

 
 
As Previously Reported
 
Restatement
 
As Restated
Prepaid and Other Current Assets
 
$
54,557

 
$
20

 
$
54,577

Timber and Timberlands, Net of Depletion and Amortization
 
2,069,518

 
(1,969
)
 
2,067,549

Retained earnings
 
996,573

 
(1,949
)
 
994,624



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

4.
EARNINGS PER COMMON SHARE
The following table provides details of the calculations of basic and diluted earnings per common share:
 
Three Months Ended March 31,
 
2014
 
2013
 
(Restated)
 
 
Income from continuing operations
$
41,343

 
$
103,258

Less: Loss from continuing operations attributable to noncontrolling interest
(83
)
 

Income from continuing operations attributable to Rayonier Inc.
$
41,426

 
$
103,258

 
 
 
 
Income from discontinued operations attributable to Rayonier Inc.
$

 
$
44,477

 
 
 
 
Net income attributable to Rayonier Inc.
$
41,426

 
$
147,735

 
 
 
 
Shares used for determining basic earnings per common share
126,344,987

 
124,479,865

Dilutive effect of:
 
 
 
Stock options
286,535

 
533,031

Performance and restricted shares
83,850

 
448,440

Assumed conversion of Senior Exchangeable Notes (a)
1,063,538

 
2,115,959

Assumed conversion of warrants (a) (b)
645,583

 
2,859,593

Shares used for determining diluted earnings per common share
128,424,493

 
130,436,888

Basic earnings per common share attributable to Rayonier Inc.:
 
 
 
Continuing operations
$
0.33

 
$
0.83

Discontinued operations

 
0.36

Net income
$
0.33

 
$
1.19

Diluted earnings per common share attributable to Rayonier Inc.:
 
 
 
Continuing operations
$
0.32

 
$
0.79

Discontinued operations

 
0.34

Net income
$
0.32

 
$
1.13

 
Three Months Ended March 31,
 
2014
 
2013
Anti-dilutive shares excluded from the computations of diluted earnings per share:
 
 
 
Stock options, performance and restricted shares
731,046

 
220,701

Assumed conversion of exchangeable note hedges (a)
1,063,538

 
2,115,959

Total
1,794,584

 
2,336,660

(a) Rayonier will not issue additional shares upon future exchange or maturity of the Senior Exchangeable Notes due 2015 (the “2015 Notes”) due to offsetting hedges. Accounting Standards Codification 260, Earnings Per Share requires the assumed conversion of the 2015 Notes to be included in dilutive shares if the average stock price for the period exceeds the strike prices, while the assumed conversion of the hedges is excluded since they are anti-dilutive. As such, the full dilutive effect of the 2015 Notes was included for the three months ended March 31, 2013 and March 31, 2014.

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

The Senior Exchangeable Notes due 2012 (the “2012 Notes”) matured in October 2012; however, no additional shares were issued due to offsetting exchangeable note hedges. The warrants sold in conjunction with the 2012 Notes began maturing on January 15, 2013 and matured ratably through March 27, 2013. As a result, 2,037,303 shares were issued through the end of the first quarter of 2013. The dilutive impact of these warrants was calculated based on the length of time they were outstanding before settlement. Rayonier will distribute additional shares upon maturity of the warrants associated with the 2015 Notes if the stock price exceeds $38.97 per share. For further information, see Note 13 — Debt in the Amended Form 10-K and Note 16Debt of this Form 10-Q/A.

(b) The shares used for the assumed conversion of the warrants decreased in the first quarter of 2014 as there was no dilutive impact from the warrants on the 2012 Notes.

5.
INCOME TAXES
Rayonier is a real estate investment trust (“REIT”). In general, only its taxable REIT subsidiaries, whose businesses include the Company’s non-REIT qualified activities, and foreign activities, are subject to corporate income taxes. Accordingly, the provision for corporate income taxes relates principally to current and deferred taxes on taxable REIT subsidiaries’ income and foreign operations.
Alternative Fuel Mixture Credit (“AFMC”) and Cellulosic Biofuel Producer Credit (“CBPC”)
The U.S. Internal Revenue Code allowed two credits for taxpayers that produced and used an alternative fuel in the operation of their business through December 31, 2009. The AFMC is a $.50 per gallon refundable tax credit (which is not taxable), while the CBPC is a $1.01 per gallon credit that is nonrefundable, taxable and has limitations based on an entity’s tax liability. Rayonier produces and uses an alternative fuel (“black liquor”) at its Jesup, Georgia and Fernandina Beach, Florida Performance Fibers mills, which qualified for both credits. The Company claimed the AFMC on its original 2009 tax return. In the first quarter of 2013, management approved a $70 million tax payment to exchange approximately 120 million gallons of black liquor previously claimed for the AFMC for the CBPC, resulting in a $19 million tax benefit.
Provision for Income Taxes from Continuing Operations
The Company’s effective tax rate is below the 35 percent U.S. statutory tax rate primarily due to tax benefits associated with being a REIT. The Company’s effective tax rate in the prior year period was lower than 2014 primarily due to recording the above referenced AFMC exchange. Excluding the AFMC for CBPC exchange, the effective tax rate decreased in the first quarter 2014 compared to the prior year period principally due to proportionately higher earnings from REIT operations.
The table below reconciles the U.S. statutory rate to the Company’s effective tax rate for each period presented (in millions of dollars):
 
 
 
 
 
 
 
 
 
Three Months Ended March 31,
 
2014
 
2013
 
(Restated)
 
(Restated)
 
 
 
 
Income tax expense at federal statutory rate
$
17

 
35.0
 %
 
$
38

 
35.0
 %
REIT income not subject to tax
(7
)
 
(14.2
)
 
(11
)
 
(10.1
)
Manufacturing deduction
(1
)
 
(2.2
)
 
(2
)
 
(2.2
)
Other

 
(0.1
)
 

 
0.7

Income tax expense before discrete items
9

 
18.5
 %
 
25

 
23.4
 %
Exchange of AFMC for CBPC

 

 
(19
)
 
(17.5
)
Other
(1
)
 
(2.8
)
 
(2
)
 
(1.8
)
Income tax expense as reported
$
8

 
15.7
 %
 
$
4

 
4.1
 %
 
 
 
 
 
 
 
 



8


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

Provision for Income Taxes from Discontinued Operations
In first quarter 2013, Rayonier completed the sale of its Wood Products business for $80 million plus a working capital adjustment. For the three months ended March 31, 2013, income tax expense related to discontinued operations was $22.3 million ($21.4 million from the gain on sale). See Note 2Sale of Wood Products Business for additional information.
Unrecognized Tax Benefits
During the first quarter of 2013, the Company implemented ASU 2013-11, which requires, in certain instances, an unrecognized tax benefit (or portion of an unrecognized tax benefit) to be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss or a tax credit carryforward. As a result, the Company reclassified $3.9 million from an unrecognized tax benefit liability to a reduction to current deferred tax assets at March 31, 2014.

6.
RESTRICTED DEPOSITS
In order to qualify for like-kind exchange (“LKE”) treatment, the proceeds from real estate sales must be deposited with a third-party intermediary. These proceeds are accounted for as restricted cash until a suitable replacement property is acquired. In the event LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of March 31, 2014 and December 31, 2013, the Company had $23.6 million and $68.9 million, respectively, of proceeds from real estate sales classified as restricted cash in Other Assets, which were deposited with an LKE intermediary.

7.
JOINT VENTURE INVESTMENT
On April 4, 2013 (the “acquisition date”), the Company acquired an additional 39 percent ownership interest in Matariki Forestry Group, a joint venture (“New Zealand JV”) that owns or leases approximately 0.3 million acres of New Zealand timberlands. As a result of the acquisition, Rayonier is a 65 percent owner of the New Zealand JV and 100 percent of the results of its operations subsequent to April 4, 2013 have been included in the Company’s consolidated financial statements, along with 100 percent of the JV’s assets and liabilities at March 31, 2014 and December 31, 2013. The portions of the consolidated financial position and results of operations attributable to the New Zealand JV’s 35 percent noncontrolling interest are also shown separately. Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary of Rayonier Inc., continues to serve as the manager of the New Zealand JV forests.
Prior to the acquisition date, the Company accounted for its 26 percent interest in the New Zealand JV as an equity method investment. The additional 39 percent interest was acquired for $139.9 million and resulted in the Company obtaining a controlling financial interest in the New Zealand JV and accordingly, the purchase was accounted for as a step-acquisition. Upon consolidation, the Company recognized a $10.1 million deferred gain, which resulted from the original sale of its New Zealand operations to the joint venture in 2005 and a $6 million benefit due to the required fair market value remeasurement of the Company’s equity interest in the New Zealand JV held before the purchase of the additional interest. The acquisition-date fair value of the previous equity interest was $93.3 million.
We have applied estimates and judgments in order to determine the fair value of assets acquired and liabilities assumed at the acquisition date. In determining fair value we utilized valuation methodologies including discounted cash flow analysis. The assumptions made in performing these valuations include assumptions as to discount rates, foreign exchange rates, and commodity prices.

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

The Company’s operating results for the three months ended March 31, 2013 reflect 26 percent of the New Zealand JV’s income prior to the acquisition date, as reported in “Equity in income of New Zealand joint venture” in the Consolidated Statements of Income and Comprehensive Income. The amounts of revenue and earnings of the New Zealand JV included in the Company’s Consolidated Statements of Income and Comprehensive Income for the first quarter 2014 are as follows:
 
Three Months Ended March 31, 2014
Sales
$
37,764

Net Loss
(734
)
The following represents the pro forma Rayonier consolidated sales and net income for the three months ended March 31, 2013 as if the additional interest in the New Zealand JV had been acquired on January 1, 2012.
 
Three Months Ended March 31, 2013
Sales
$
428,245

Net Income
$
146,280



10


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

8.
SHAREHOLDERS’ EQUITY
 An analysis of shareholders’ equity for the three months ended March 31, 2014 and the year ended December 31, 2013 is shown below (share amounts not in thousands):
 
Rayonier Inc. Shareholders Equity
 
 
 
 
 
Common Shares
 
Retained
Earnings
(Restated)
 
Accumulated Other Comprehensive Income/(Loss)
 
Non-controlling Interest
 
Total Shareholders’
Equity
(Restated)
 
Shares
 
Amount
 
Balance, December 31, 2012
123,332,444

 
$
670,749

 
$
876,634

 
$
(109,379
)
 
$

 
$
1,438,004

Net income

 

 
371,896

 

 
1,902

 
373,798

Dividends ($1.86 per share)

 

 
(233,321
)
 

 

 
(233,321
)
Issuance of shares under incentive stock plans
1,001,426

 
10,101

 

 

 

 
10,101

Stock-based compensation

 
11,710

 

 

 

 
11,710

Excess tax benefit on stock-based compensation

 
8,413

 

 

 

 
8,413

Repurchase of common shares
(211,221
)
 
(11,326
)
 

 

 

 
(11,326
)
Equity portion of convertible debt (Note 15)

 
2,453

 

 

 

 
2,453

Settlement of warrants (Note 15)
2,135,221

 

 

 

 

 

Net gain from pension and postretirement plans

 

 

 
61,869

 

 
61,869

Acquisition of noncontrolling interest

 

 

 

 
96,336

 
96,336

Noncontrolling interest redemption of shares

 

 

 

 
(713
)
 
(713
)
Foreign currency translation adjustment

 

 

 
(1,915
)
 
(3,795
)
 
(5,710
)
Joint venture cash flow hedges

 

 

 
3,286

 
343

 
3,629

Balance, December 31, 2013
126,257,870

 
$
692,100

 
$
1,015,209

 
$
(46,139
)
 
$
94,073

 
$
1,755,243

Net income (loss)

 

 
41,426

 

 
(83
)
 
41,343

Dividends ($0.49 per share)

 

 
(62,011
)
 

 

 
(62,011
)
Issuance of shares under incentive stock plans
235,843

 
2,027

 

 

 

 
2,027

Stock-based compensation

 
3,103

 

 

 

 
3,103

Excess tax deficiency on stock-based compensation

 
(1,240
)
 

 

 

 
(1,240
)
Repurchase of common shares
(42,208
)
 
(1,754
)
 

 

 

 
(1,754
)
Amortization of pension and postretirement plans

 

 

 
2,097

 

 
2,097

Noncontrolling interest redemption of shares

 

 

 

 
(679
)
 
(679
)
Foreign currency translation adjustment

 

 

 
12,893

 
4,910

 
17,803

Joint venture cash flow hedges

 

 

 
1,112

 
599

 
1,711

Balance, March 31, 2014
126,451,505

 
$
694,236

 
$
994,624

 
$
(30,037
)
 
$
98,820

 
$
1,757,643

 


11


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

9.
SEGMENT AND GEOGRAPHICAL INFORMATION
Rayonier operates in three reportable business segments: Forest Resources, Real Estate and Performance Fibers. Forest Resources sales include all activities related to the harvesting of timber. Real Estate sales include all property sales, including those designated for higher and better use (“HBU”). The assets of the Real Estate segment include HBU property held by the Company’s real estate subsidiary, TerraPointe LLC. The Performance Fibers segment includes two major product lines, cellulose specialties and commodity grade products (primarily viscose). The Company’s remaining operations include harvesting and selling timber acquired from third parties (log trading). These operations are reported in “Other Operations.” 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 the operating income of the segments.
Operating income (loss) as presented in the Consolidated Statements of Income and Comprehensive Income is equal to segment income (loss). Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations.
Total assets, sales, operating income (loss) and depreciation, depletion and amortization by segment including Corporate were as follows:
 
March 31,
 
December 31,
 
2014
 
2013
ASSETS
(Restated)
 
 
Forest Resources
$
2,187,498

 
$
2,162,913

Real Estate
113,376

 
149,001

Performance Fibers
1,095,574

 
1,078,645

Other Operations
35,121

 
37,334

Corporate and other
211,260

 
257,608

Total
$
3,642,829

 
$
3,685,501


 
Three Months Ended March 31,
SALES
2014
 
2013
Forest Resources (a)
$
104,678

 
$
57,102

Real Estate
5,530

 
24,297

Performance Fibers
241,768

 
284,188

Other Operations
37,417

 
28,227

Intersegment Eliminations
(2,707
)
 
(95
)
Total
$
386,686

 
$
393,719

(a)
First quarter 2014 included $38 million in sales from the consolidation of the New Zealand JV. See Note 7Joint Venture Investment.

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

 
 
Three Months Ended March 31,
 
2014
 
2013
OPERATING INCOME
(Restated)
 
 
Forest Resources
$
25,546

 
$
13,255

Real Estate
725

 
16,842

Performance Fibers
48,980

 
91,670

Other Operations
184

 
165

Corporate and other (a)
(12,396
)
 
(6,569
)
Total
$
63,039

 
$
115,363

(a)
First quarter 2014 included $3.3 million of separation costs related to the planned separation of the Performance Fibers business from the Forest Resources and Real Estate businesses.
 
Three Months Ended March 31,
 
2014
 
2013
DEPRECIATION, DEPLETION AND AMORTIZATION
(Restated)
 
 
Forest Resources (a)
26,887

 
$
16,444

Real Estate
910

 
4,177

Performance Fibers
20,649

 
15,153

Corporate and other
282

 
218

Total
$
48,728

 
$
35,992

(a)
2014 included an increase of approximately $7 million in depletion expenses related to the consolidation of the New Zealand JV. See Note 7Joint Venture Investment.

10.
DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to market risk related to potential fluctuations in foreign currency exchange rates, interest rates and fuel prices. The Company’s New Zealand JV uses derivative financial instruments to mitigate the financial impact of exposure to these risks.
Accounting for derivative financial instruments is governed by Accounting Standards Codification 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. The ineffective portion of any hedge as well as 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.
Foreign Currency Exchange and Option Contracts
The functional currency of the New Zealand JV is the New Zealand dollar. These operations are exposed to foreign currency risk on export sales and ocean freight payments which are predominately denominated in US dollars. The New Zealand JV typically hedges at least 70 percent of its estimated foreign currency exposure with respect to the following three months forecasted sales and purchases and 50 percent of the forward twelve months.
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.

13


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

Interest Rate Swaps
The Company uses interest rate swaps to manage the New Zealand JV’s exposure to interest rate movements on its variable rate debt attributable to changes in the New Zealand Bank bill rate. By converting a portion of these borrowings from floating rates to fixed rates the Company has reduced the impact of interest rate changes on its expected future cash outflows. As of March 31, 2014, the Company’s interest rate contracts hedged 88 percent of the New Zealand JV’s variable rate debt and had maturity dates through January 2020.
Fuel Hedge Contracts
The Company uses fuel swap contracts to manage its New Zealand JV’s exposure to changes in New Zealand’s domestic diesel prices. The fuel swaps are quoted by domestic banks in New Zealand dollar price terms. As of March 31, 2014 all of the contracts had maturities of less than one year. The fair value of the fuel swap 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.
The following table demonstrates the impact of the Company’s derivatives on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2014. No derivative balances were consolidated prior to the Company’s acquisition of a controlling interest in the New Zealand JV in the second quarter of 2013.
 
 
 
Three Months Ended
 
Income Statement Location
 
March 31, 2014
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency exchange contracts
Other comprehensive income (loss)
 
$
1,487

Foreign currency option contracts
Other comprehensive income (loss)
 
725

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Foreign currency exchange contracts
Other operating expense (income)
 
25

Foreign currency option contracts
Other operating expense (income)
 
7

Interest rate swaps
Interest and miscellaneous (expense) income, net
 
(1,134
)
Fuel hedge contracts
Cost of sales
 
317

During the next 12 months, the amount of the March 31, 2014 AOCI balance, net of tax, expected to be reclassified into earnings as a result of the maturation of the Company’s derivative instruments is a gain of approximately $2.7 million.
The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
 
Notional Amount (a)
 
March 31, 2014
 
December 31, 2013
Derivatives designated as cash flow hedges:
 
 
 
Foreign currency exchange contracts
$
37,064

 
$
32,300

Foreign currency option contracts
37,500

 
38,000

 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
Foreign currency exchange contracts
$

 
$
1,950

Foreign currency option contracts

 
4,000

Interest rate swaps
179,066

 
183,851

Fuel hedge contracts
25

 
38

(a)
All notional amounts are stated in thousands of dollars except fuel contracts which are denominated in thousands of barrels.

14


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

The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets :
 
Location on Balance Sheet
 
Fair Value Assets (Liabilities) (a)
 
 
 
March 31, 2014
 
December 31, 2013
Derivatives designated as cash flow hedges:
 
 
 
 
 
Foreign currency exchange contracts
Prepaid and other current assets
 
$
2,616

 
$
915

 
Other current liabilities
 
(84
)
 

Foreign currency option contracts
Prepaid and other current assets
 
1,333

 
673

 
Other current liabilities
 
(90
)
 
(214
)
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
Foreign currency exchange contracts
Prepaid and other current assets
 
$

 
$
25

Foreign currency option contracts
Prepaid and other current assets
 

 
8

Interest rate swaps
Other non-current liabilities
 
(5,145
)
 
(4,659
)
Fuel hedge contracts
Prepaid and other current assets
 

 
160

 
Other current liabilities
 
(159
)
 

 
 
 
 
 
 
Total derivative contracts:
 
 
 
 
 
Prepaid and other current assets
 
 
$
3,949

 
$
1,781

 
 
 
 
 
 
Other current liabilities
 
 
(333
)
 
(214
)
Other non-current liabilities
 
 
(5,145
)
 
(4,659
)
Total derivative liabilities
 
 
$
(5,478
)
 
$
(4,873
)
(a)
See Note 11Fair Value Measurements for further information on the fair value of our derivatives including their classification within the fair value hierarchy.

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

11.
FAIR VALUE MEASUREMENTS
Fair Value of Financial Instruments
The Accounting Standards Codification established a three-level hierarchy that prioritizes the inputs used to measure fair value 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.

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

The following table presents the carrying amount, estimated fair values and categorization under the fair value hierarchy of financial instruments held by the Company at March 31, 2014 and December 31, 2013, using market information and what management believes to be appropriate valuation methodologies under generally accepted accounting principles:
 
March 31, 2014
 
December 31, 2013
Asset (liability)
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
 
 
 
Level 1
 
Level 2
 
 
 
Level 1
 
Level 2
Cash and cash equivalents
$
156,071

 
$
156,071

 
$

 
$
199,644

 
$
199,644

 
$

Restricted cash (a)
23,633

 
23,633

 

 
68,944

 
68,944

 

Current maturities of long-term debt
(114,319
)
 

 
(122,187
)
 
(112,500
)
 

 
(119,614
)
Long-term debt
(1,393,887
)
 

 
(1,451,984
)
 
(1,461,724
)
 

 
(1,489,810
)
Interest rate swaps (b)
(5,145
)
 

 
(5,145
)
 
(4,659
)
 

 
(4,659
)
Foreign currency exchange contracts (b)
2,532

 

 
2,532

 
940

 

 
940

Foreign currency option contracts (b)
1,243

 

 
1,243

 
467

 

 
467

Fuel contracts (b)
(159
)
 

 
(159
)
 
160

 

 
160

(a)
Restricted cash is recorded in “Other Assets” and represents the proceeds from LKE sales deposited with a third-party intermediary.
(b)
See Note 10Derivative Financial Instruments and Hedging Activities for information regarding the Balance Sheet classification of the Company’s derivative financial instruments.
Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents and Restricted cashThe carrying amount is equal to fair market value.
Debt The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value.
Interest rate swap agreements The fair value of interest rate contracts is determined by discounting the expected future cash flows, for each instrument, at prevailing interest rates.
Foreign currency exchange contracts The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.
Foreign currency option contracts The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model.


16


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

12.
GUARANTEES
The Company provides financial guarantees as required by creditors, insurance programs, and various governmental agencies. As of March 31, 2014, the following financial guarantees were outstanding:
Financial Commitments
 
Maximum Potential
Payment
 
Carrying Amount
of Associated Liability
Standby letters of credit (a)
 
$
17,355

 
$
15,000

Guarantees (b)
 
2,254

 
43

Surety bonds (c)
 
5,498

 
1,099

Total financial commitments
 
$
25,107

 
$
16,142

(a)
Approximately $15 million of the standby letters of credit serve as credit support for industrial revenue bonds. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation and pollution liability policy requirements. These letters of credit will expire at various dates during 2014 and will be renewed as required.
(b)
In conjunction with a timberland sale and note monetization in the first quarter of 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 March 31, 2014, the Company has a de minimus liability to reflect the fair market value of its obligation to perform under the make-whole agreement.
(c)
Rayonier issues surety bonds primarily to secure timber harvesting obligations in the State of Washington and to provide collateral for the Company’s workers’ compensation self-insurance program in that state. These surety bonds expire at various dates during 2014 and 2015 and are expected to be renewed as required.
 
13.
LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS
An analysis of the liabilities for dispositions and discontinued operations follows:
 
March 31,
 
December 31,
 
 
2014
 
2013
 
Balance, beginning of period
$
76,378

 
$
81,695

 
Expenditures charged to liabilities
(2,498
)
 
(8,570
)
 
Increase to liabilities
22

 
3,253

 
Balance, end of period
73,902

 
76,378

 
Less: Current portion
(6,446
)
 
(6,835
)
 
Non-current portion
$
67,456

 
$
69,543

 
These prior dispositions and discontinued operations are exposed to the risk of reasonably possible additional losses in excess of the established liabilities. As of March 31, 2014, this amount could range up to $30 million, attributable to several of the applicable sites, and arises from uncertainty over the availability, feasibility and effectiveness of certain remediation technologies, additional or different contamination that may be discovered, development of new or more effective environmental remediation technologies, potential changes in applicable law and regulations, and the exercise of discretion in interpretation of applicable law and regulations by governmental agencies.
Management believes established liabilities are sufficient for probable costs expected to be incurred over the next 20 years with respect to its dispositions and discontinued operations. Remedial actions for these sites vary, but include on-site (and in certain cases off-site) removal or treatment of contaminated soils and sediments, recovery and treatment/remediation of groundwater, and source remediation and/or control.
 
14.
CONTINGENCIES
Rayonier is engaged in various legal actions, including certain environmental proceedings, and has been named as a defendant in various other lawsuits and claims arising in the normal course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, it has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance and general liability. These other 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.


17


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

15.
EMPLOYEE BENEFIT PLANS
The Company has four qualified non-contributory defined benefit pension plans covering a significant majority of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plans. Currently, all qualified plans are closed to new participants. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change.
The net pension and postretirement benefit costs that have been recorded are shown in the following tables:
 
 
 
 
 
 
 
 
 
Pension
 
Postretirement
 
Three Months Ended
March 31,
 
Three Months Ended
March 31,
 
2014
 
2013
 
2014
 
2013
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
1,624

 
$
2,419

 
$
179

 
$
249

Interest cost
4,683

 
4,834

 
206

 
240

Expected return on plan assets
(6,658
)
 
(7,424
)
 

 

Amortization of prior service cost
292

 
388

 
4

 
6

Amortization of losses
2,737

 
5,727

 
129

 
218

Amortization of negative plan amendment

 

 
(134
)
 

Net periodic benefit cost
$
2,678

 
$
5,944

 
$
384

 
$
713

 
 
 
 
 
 
 
 
In 2014, the Company has no mandatory pension contribution requirements, but may make discretionary contributions.

16.
DEBT
As of December 31, 2013, the 2015 Notes became exchangeable at the option of the holders for the calendar quarter ended March 31, 2014. According to the indenture, in order for the notes to become exchangeable, the Company’s stock price must exceed 130 percent of the exchange price for 20 trading days during a period of 30 consecutive trading days as of the last day of the quarter. During the quarter ended March 31, 2014, the note holders did not elect to exercise the exchange option. Based upon the average stock price for the 30 trading days ended March 31, 2014, these notes again became exchangeable at the option of the holder for the calendar quarter ending June 30, 2014. The entire balance of the notes is classified as long-term debt at March 31, 2014 due to the ability and intent of the Company to refinance them on a long-term basis.
During the three months ended March 31, 2014, the Company made net repayments of $80 million on its unsecured revolving credit facility. The Company had $323 million of available borrowings under this facility at March 31, 2014, net of $2 million to secure its outstanding letters of credit. During the three months ended March 31, 2014, the New Zealand JV borrowed $1.8 million on its working capital facility. Additional draws totaling $18.1 million remain available on the facility.
There were no other significant changes to the Company’s outstanding debt as reported in Note 13 — Debt in the Company’s Amended Form 10-K.


18


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

17.
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in AOCI by component for the three months ended March 31, 2014. All amounts are presented net of tax and exclude portions attributable to noncontrolling interest.
 
Foreign currency translation gains
 
New Zealand joint venture cash flow hedges
 
Unrecognized components of employee benefit plans
 
Total
Balance as of December 31, 2013
$
36,914

 
$
(342
)
 
$
(82,711
)
 
$
(46,139
)
Other comprehensive income before reclassifications
12,893

 
1,604

 

 
14,497

Amounts reclassified from accumulated other comprehensive income

 
(492
)
 
2,097

(a)
1,605

Net other comprehensive income
12,893

 
1,112


2,097


16,102

Balance as of March 31, 2014
$
49,807

 
$
770

 
$
(80,614
)
 
$
(30,037
)
(a)
This accumulated other comprehensive income component is included in the computation of net periodic pension cost. See Note 15Employee Benefit Plans for additional information.

The following table presents details of the amounts reclassified in their entirety from AOCI for the three months ended March 31, 2014:
Details about accumulated other comprehensive income components
 
Amount reclassified from accumulated other comprehensive income
 
Affected line item in the income statement
Realized gain on foreign currency exchange contracts
 
$
(872
)
 
Other operating (income) expense, net
Realized gain on foreign currency option contracts
 
(107
)
 
Other operating (income) expense, net
Noncontrolling interest
 
343

 
Comprehensive income (loss) attributable to noncontrolling interest
Income tax expense
 
144

 
Income tax expense
Net gain reclassified from accumulated other comprehensive income
 
$
(492
)
 
 

18.
OTHER OPERATING (EXPENSE) INCOME, NET
Other operating (expense) income, net was comprised of the following:
 
Three Months Ended March 31,
 
2014
 
2013
Lease income, primarily from hunting leases
$
3,036

 
$
2,462

Other non-timber income
552

 
474

Foreign currency loss
(1,490
)
 
(184
)
Loss on sale or disposal of property, plant & equipment
(532
)
 
(429
)
(Loss) gain on foreign currency exchange contracts
(32
)
 
1,881

Separation costs related to Rayonier Advanced Materials Inc.
(3,318
)
 
(86
)
Miscellaneous expense, net
(1,753
)
 
(615
)
Total
$
(3,537
)
 
$
3,503




19


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 August 2009 TRS issued $172.5 million of 4.50% Senior Exchangeable Notes due 2015. The notes are guaranteed by Rayonier Inc. as the Parent Guarantor and Rayonier Operating Company LLC (“ROC”) as the Subsidiary Guarantor. In connection with these exchangeable 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.
 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 AND COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
 
(Restated)
 
(Restated)
 
 
 
(Restated)
 
(Restated)
 
(Restated)
SALES
$

 
$

 
$

 
$
386,686

 
$

 
$
386,686

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
304,619

 

 
304,619

Selling and general expenses

 
2,150

 

 
13,341

 

 
15,491

Other operating expense, net

 
2,375

 

 
1,162

 

 
3,537

 

 
4,525

 

 
319,122

 

 
323,647

OPERATING (LOSS) INCOME

 
(4,525
)
 

 
67,564

 

 
63,039

Interest expense
(3,193
)
 
(243
)
 
(6,690
)
 
(2,843
)
 

 
(12,969
)
Interest and miscellaneous income (expense), net
2,698

 
814

 
(1,047
)
 
(3,480
)
 

 
(1,015
)
Equity in income from subsidiaries
41,921

 
46,478

 
31,110

 

 
(119,509
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
41,426

 
42,524

 
23,373

 
61,241

 
(119,509
)
 
49,055

Income tax (expense) benefit

 
(603
)
 
2,824

 
(9,933
)
 

 
(7,712
)
NET INCOME
41,426

 
41,921

 
26,197

 
51,308

 
(119,509
)
 
41,343

Less: Net loss attributable to noncontrolling interest

 

 

 
(83
)
 

 
(83
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
41,426

 
41,921

 
26,197

 
51,391

 
(119,509
)
 
41,426

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
12,894

 
12,893

 
766

 
17,795

 
(26,545
)
 
17,803

New Zealand joint venture cash flow hedges
1,112

 
1,112

 
1,112

 
1,711

 
(3,336
)
 
1,711

Amortization of pension and postretirement plans, net of income tax
2,097

 
2,097

 
1,620

 
1,620

 
(5,337
)
 
2,097

Total other comprehensive income
16,103

 
16,102

 
3,498

 
21,126

 
(35,218
)
 
21,611

COMPREHENSIVE INCOME
57,529

 
58,023

 
29,695

 
72,434

 
(154,727
)
 
62,954

Less: Comprehensive income attributable to noncontrolling interest

 

 

 
5,425

 

 
5,425

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.
$
57,529

 
$
58,023

 
$
29,695

 
$
67,009

 
$
(154,727
)
 
$
57,529

 
 
 
 
 
 
 
 
 
 
 
 

20


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 March 31, 2013
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$

 
$

 
$
393,719

 
$

 
$
393,719

Costs and Expenses
 
 
 
 
 
 
 
 
 
 
 
Cost of sales

 

 

 
266,018

 

 
266,018

Selling and general expenses

 
2,401

 

 
13,698

 

 
16,099

Other operating (income) expense, net
(1,881
)
 
523

 

 
(2,145
)
 

 
(3,503
)
 
(1,881
)
 
2,924

 

 
277,571

 

 
278,614

Equity in income of New Zealand joint venture

 

 

 
258

 

 
258

OPERATING INCOME (LOSS)
1,881

 
(2,924
)
 

 
116,406

 

 
115,363

Interest (expense) income
(3,275
)
 
(252
)
 
(6,618
)
 
2,428

 

 
(7,717
)
Interest and miscellaneous income (expense), net
2,419

 
529

 
(751
)
 
(2,140
)
 

 
57

Equity in income from subsidiaries
146,710

 
148,765

 
123,469

 

 
(418,944
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
147,735

 
146,118

 
116,100

 
116,694

 
(418,944
)
 
107,703

Income tax benefit (expense)

 
592

 
2,690

 
(7,727
)
 

 
(4,445
)
INCOME FROM CONTINUING OPERATIONS
147,735

 
146,710

 
118,790

 
108,967

 
(418,944
)
 
103,258

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 
 
 
 
 
 
Income from discontinued operations, net of income tax

 

 

 
44,477

 

 
44,477

NET INCOME
147,735

 
146,710

 
118,790

 
153,444

 
(418,944
)
 
147,735

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
975

 
975

 
240

 
975

 
(2,190
)
 
975

New Zealand joint venture cash flow hedges
554

 
554

 

 
554

 
(1,108
)
 
554

Amortization of pension and postretirement plans, net of income tax
4,969

 
4,969

 
4,012

 

 
(8,981
)
 
4,969

Total other comprehensive income
6,498

 
6,498

 
4,252

 
1,529

 
(12,279
)
 
6,498

COMPREHENSIVE INCOME
$
154,233

 
$
153,208

 
$
123,042

 
$
154,973

 
$
(431,223
)
 
$
154,233

 
 
 
 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 



21


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 March 31, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
 
(Restated)
 
(Restated)
 
 
 
(Restated)
 
(Restated)
 
(Restated)
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
93,840

 
$
4,494

 
$
(178
)
 
$
57,915

 
$

 
$
156,071

Accounts receivable, less allowance for doubtful accounts

 
10

 
689

 
110,998

 

 
111,697

Inventory

 

 

 
141,928

 

 
141,928

Deferred tax assets

 

 
646

 
30,934

 

 
31,580

Prepaid and other current assets

 
6,582

 
3

 
47,992

 

 
54,577

Total current assets
93,840

 
11,086

 
1,160

 
389,767

 

 
495,853

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 

 
2,067,549

 

 
2,067,549

NET PROPERTY, PLANT AND EQUIPMENT

 
2,698

 

 
859,271

 

 
861,969

INVESTMENT IN SUBSIDIARIES
1,675,347

 
1,851,260

 
1,170,755

 

 
(4,697,362
)
 

INTERCOMPANY NOTES RECEIVABLE
216,844

 

 
20,866

 

 
(237,710
)
 

OTHER ASSETS
3,569

 
32,705

 
3,496

 
177,688

 

 
217,458

TOTAL ASSETS
$
1,989,600

 
$
1,897,749

 
$
1,196,277

 
$
3,494,275

 
$
(4,935,072
)
 
$
3,642,829

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
1,054

 
$
2,102

 
$
83,126

 
$

 
$
86,282

Current maturities of long-term debt

 

 
112,500

 
1,819

 

 
114,319

Accrued taxes

 
14

 

 
11,360

 

 
11,374

Accrued payroll and benefits

 
8,038

 

 
11,223

 

 
19,261

Accrued interest
5,777

 
669

 
3,723

 
25,112

 
(21,424
)
 
13,857

Accrued customer incentives

 

 

 
10,082

 

 
10,082

Other current liabilities

 
9,058

 

 
26,812

 

 
35,870

Current liabilities for dispositions and discontinued operations

 

 

 
6,446

 

 
6,446

Total current liabilities
5,777

 
18,833

 
118,325

 
175,980

 
(21,424
)
 
297,491

LONG-TERM DEBT
325,000

 

 
768,228

 
300,659

 

 
1,393,887

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

 
67,456

 

 
67,456

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
91,807

 

 
3,291

 

 
95,098

OTHER NON-CURRENT LIABILITIES

 
13,763

 

 
17,491

 

 
31,254

INTERCOMPANY PAYABLE

 
97,999

 

 
151,938

 
(249,937
)
 

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,658,823

 
1,675,347

 
309,724

 
2,678,640

 
(4,663,711
)
 
1,658,823

Noncontrolling interest

 

 

 
98,820

 

 
98,820

TOTAL SHAREHOLDERS’ EQUITY
1,658,823

 
1,675,347

 
309,724

 
2,777,460

 
(4,663,711
)
 
1,757,643

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,989,600

 
$
1,897,749

 
$
1,196,277

 
$
3,494,275

 
$
(4,935,072
)
 
$
3,642,829


22


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, 2013
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
130,181

 
$
304

 
$
10,719

 
$
58,440

 
$

 
$
199,644

Accounts receivable, less allowance for doubtful accounts

 
10

 
2,300

 
92,646

 

 
94,956

Inventory

 

 

 
138,818

 

 
138,818

Deferred tax assets

 

 
681

 
38,419

 

 
39,100

Prepaid and other current assets

 
2,363

 
6

 
44,207

 

 
46,576

Total current assets
130,181

 
2,677

 
13,706

 
372,530

 

 
519,094

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 

 
2,049,378

 

 
2,049,378

NET PROPERTY, PLANT AND EQUIPMENT

 
2,612

 

 
858,209

 

 
860,821

INVESTMENT IN SUBSIDIARIES
1,627,315

 
1,837,760

 
1,148,221

 

 
(4,613,296
)
 

INTERCOMPANY NOTES RECEIVABLE
228,032

 

 
20,659

 

 
(248,691
)
 

OTHER ASSETS
3,689

 
32,519

 
3,739

 
216,261

 

 
256,208

TOTAL ASSETS
$
1,989,217

 
$
1,875,568

 
$
1,186,325

 
$
3,496,378

 
$
(4,861,987
)
 
$
3,685,501

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
1,522

 
$
1,564

 
$
66,207

 
$

 
$
69,293

Current maturities of long-term debt

 

 
112,500

 

 

 
112,500

Accrued taxes

 
4,855

 

 
3,696

 

 
8,551

Accrued payroll and benefits

 
11,382

 

 
13,566

 

 
24,948

Accrued interest
3,047

 
538

 
2,742

 
22,816

 
(19,612
)
 
9,531

Accrued customer incentives

 

 

 
9,580

 

 
9,580

Other current liabilities

 
8,765

 

 
26,109

 

 
34,874

Current liabilities for dispositions and discontinued operations

 

 

 
6,835

 

 
6,835

Total current liabilities
3,047

 
27,062

 
116,806

 
148,809

 
(19,612
)
 
276,112

LONG-TERM DEBT
325,000

 

 
847,749

 
288,975

 

 
1,461,724

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 

 
69,543

 

 
69,543

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
91,471

 

 
4,183

 

 
95,654

OTHER NON-CURRENT LIABILITIES

 
11,493

 

 
15,732

 

 
27,225

INTERCOMPANY PAYABLE

 
118,227

 

 
125,921

 
(244,148
)
 

TOTAL SHAREHOLDERS’ EQUITY
1,661,170

 
1,627,315

 
221,770

 
2,843,215

 
(4,598,227
)
 
1,755,243

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,989,217

 
$
1,875,568

 
$
1,186,325

 
$
3,496,378

 
$
(4,861,987
)
 
$
3,685,501


23


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 Three Months Ended March 31, 2014
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES
$
25,931

 
$
32,794

 
$

 
$
67,759

 
$
(27,210
)
 
$
99,274

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(170
)
 

 
(36,585
)
 

 
(36,755
)
Purchase of timberlands

 

 

 
(10,637
)
 

 
(10,637
)
Change in restricted cash

 

 

 
45,312

 

 
45,312

Investment in Subsidiaries

 

 
69,103

 

 
(69,103
)
 

Other

 

 

 
1,592

 

 
1,592

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES

 
(170
)
 
69,103

 
(318
)
 
(69,103
)
 
(488
)
FINANCING ACTIVITIES
 
 
 
 
 
 
 
 

 
 
Issuance of debt

 

 
30,000

 
1,819

 

 
31,819

Repayment of debt

 

 
(110,000
)
 

 

 
(110,000
)
Dividends paid
(62,545
)
 

 

 

 

 
(62,545
)
Proceeds from the issuance of common shares
2,027

 

 

 

 

 
2,027

Excess tax deficiencies on stock-based compensation

 

 

 
(1,240
)
 

 
(1,240
)
Repurchase of common shares
(1,754
)
 

 

 

 

 
(1,754
)
Intercompany distributions

 
(28,434
)
 

 
(67,879
)
 
96,313

 

Other

 

 

 
(679
)
 

 
(679
)
CASH USED FOR FINANCING ACTIVITIES
(62,272
)
 
(28,434
)
 
(80,000
)
 
(67,979
)
 
96,313

 
(142,372
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

 
13

 

 
13

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 

 
 
Change in cash and cash equivalents
(36,341
)
 
4,190

 
(10,897
)
 
(525
)
 

 
(43,573
)
Balance, beginning of year
130,181

 
304

 
10,719

 
58,440

 

 
199,644

Balance, end of period
$
93,840

 
$
4,494

 
$
(178
)
 
$
57,915

 
$

 
$
156,071



24


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 Three Months Ended March 31, 2013
 
Rayonier Inc.
(Parent
Guarantor)
 
ROC (Subsidiary Guarantor)
 
Rayonier TRS
Holdings Inc.
(Issuer)
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES
$
13,984

 
$
22,259

 
$

 
$
58,980

 
$
(5,563
)
 
$
89,660

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(89
)
 

 
(32,575
)
 

 
(32,664
)
Purchase of timberlands

 

 

 
(1,560
)
 

 
(1,560
)
Jesup mill cellulose specialties expansion

 

 

 
(36,734
)
 

 
(36,734
)
Proceeds from disposition of Wood Products business

 

 

 
83,741

 

 
83,741

Change in restricted cash

 

 

 
9,908

 

 
9,908

Investment in Subsidiaries

 

 
32,391

 

 
(32,391
)
 

Other

 

 

 
1,790

 

 
1,790

CASH (USED FOR) PROVIDED BY INVESTING ACTIVITIES

 
(89
)
 
32,391

 
24,570

 
(32,391
)
 
24,481

FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
 
 
Issuance of debt
100,000

 

 

 

 

 
100,000

Repayment of debt
(150,000
)
 

 
(20,000
)
 

 

 
(170,000
)
Dividends paid
(57,744
)
 

 

 

 

 
(57,744
)
Proceeds from the issuance of common shares
4,091

 

 

 

 

 
4,091

Excess tax benefits on stock-based compensation

 

 

 
6,191

 

 
6,191

Repurchase of common shares
(11,241
)
 

 

 

 

 
(11,241
)
Intercompany distributions

 
(5,206
)
 

 
(32,748
)
 
37,954

 

CASH USED FOR FINANCING ACTIVITIES
(114,894
)
 
(5,206
)
 
(20,000
)
 
(26,557
)
 
37,954

 
(128,703
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 

 
(17
)
 

 
(17
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
(100,910
)
 
16,964

 
12,391

 
56,976

 

 
(14,579
)
Balance, beginning of year
252,888

 
3,966

 
19,358

 
4,384

 

 
280,596

Balance, end of period
$
151,978

 
$
20,930

 
$
31,749

 
$
61,360

 
$

 
$
266,017


 

25


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

In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. The notes are fully and unconditionally guaranteed by ROC and Rayonier TRS Holdings Inc. In connection with these notes, the Company provides the following 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.
 
CONDENSED CONSOLIDATING STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
For the Three Months Ended March 31, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
 
(Restated)
 
(Restated)
 
(Restated)
 
(Restated)
 
(Restated)
SALES
$

 
$

 
$
386,686

 
$

 
$
386,686

Costs and Expenses
 
 
 
 
 
 
 
 
 
Cost of sales

 

 
304,619

 

 
304,619

Selling and general expenses

 
2,150

 
13,341

 

 
15,491

Other operating expense, net

 
2,375

 
1,162

 

 
3,537

 

 
4,525

 
319,122

 

 
323,647

OPERATING (LOSS) INCOME

 
(4,525
)
 
67,564

 

 
63,039

Interest expense
(3,193
)
 
(6,933
)
 
(2,843
)
 

 
(12,969
)
Interest and miscellaneous income (expense), net
2,698

 
(233
)
 
(3,480
)
 

 
(1,015
)
Equity in income from subsidiaries
41,921

 
51,391

 

 
(93,312
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
41,426

 
39,700

 
61,241

 
(93,312
)
 
49,055

Income tax benefit (expense)

 
2,221

 
(9,933
)
 

 
(7,712
)
NET INCOME
41,426

 
41,921

 
51,308

 
(93,312
)
 
41,343

Less: Net loss attributable to noncontrolling interest

 

 
(83
)
 

 
(83
)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.
41,426

 
41,921

 
51,391

 
(93,312
)
 
41,426

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
12,894

 
12,892

 
17,795

 
(25,778
)
 
17,803

New Zealand joint venture cash flow hedges
1,112

 
1,112

 
1,711

 
(2,224
)
 
1,711

Amortization of pension and postretirement plans, net of income tax
2,097

 
2,097

 
1,620

 
(3,717
)
 
2,097

Total other comprehensive income
16,103

 
16,101

 
21,126

 
(31,719
)
 
21,611

COMPREHENSIVE INCOME
57,529

 
58,022

 
72,434

 
(125,031
)
 
62,954

Less: Comprehensive income attributable to noncontrolling interest

 

 
5,425

 

 
5,425

COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.
$
57,529

 
$
58,022

 
$
67,009

 
$
(125,031
)
 
$
57,529


26


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 March 31, 2013
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
SALES
$

 
$

 
$
393,719

 
$

 
$
393,719

Costs and Expenses
 
 
 
 
 
 

 
 
Cost of sales

 

 
266,018

 

 
266,018

Selling and general expenses

 
2,401

 
13,698

 

 
16,099

Other operating (income) expense, net
(1,881
)
 
523

 
(2,145
)
 

 
(3,503
)
 
(1,881
)
 
2,924

 
277,571

 

 
278,614

Equity in income of New Zealand joint venture

 

 
258

 

 
258

OPERATING INCOME (LOSS)
1,881

 
(2,924
)
 
116,406

 

 
115,363

Interest (expense) income
(3,275
)
 
(6,870
)
 
2,428

 

 
(7,717
)
Interest and miscellaneous income (expense), net
2,419

 
(222
)
 
(2,140
)
 

 
57

Equity in income from subsidiaries
146,710

 
153,444

 

 
(300,154
)
 

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
147,735

 
143,428

 
116,694

 
(300,154
)
 
107,703

Income tax benefit (expense)

 
3,282

 
(7,727
)
 

 
(4,445
)
INCOME FROM CONTINUING OPERATIONS
147,735

 
146,710

 
108,967

 
(300,154
)
 
103,258

DISCONTINUED OPERATIONS, NET
 
 
 
 
 
 


 
 
Income from discontinued operations, net of income taxes

 

 
44,477

 

 
44,477

NET INCOME
147,735

 
146,710

 
153,444

 
(300,154
)
 
147,735

OTHER COMPREHENSIVE INCOME
 
 
 
 
 
 


 
 
Foreign currency translation adjustment
975

 
975

 
975

 
(1,950
)
 
975

New Zealand joint venture cash flow hedges
554

 
554

 
554

 
(1,108
)
 
554

Amortization of pension and postretirement plans, net of income tax
4,969

 
4,969

 

 
(4,969
)
 
4,969

Total other comprehensive income
6,498

 
6,498

 
1,529

 
(8,027
)
 
6,498

COMPREHENSIVE INCOME
$
154,233

 
$
153,208

 
$
154,973

 
$
(308,181
)
 
$
154,233


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

27


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 March 31, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
 
(Restated)
 
(Restated)
 
(Restated)
 
(Restated)
 
(Restated)
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
93,840

 
$
4,316

 
$
57,915

 
$

 
$
156,071

Accounts receivable, less allowance for doubtful accounts

 
699

 
110,998

 

 
111,697

Inventory

 

 
141,928

 

 
141,928

Deferred tax asset

 
646

 
30,934

 

 
31,580

Prepaid and other current assets

 
6,585

 
47,992

 

 
54,577

Total current assets
93,840

 
12,246

 
389,767

 

 
495,853

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 
2,067,549

 

 
2,067,549

NET PROPERTY, PLANT AND EQUIPMENT

 
2,698

 
859,271

 

 
861,969

INVESTMENT IN SUBSIDIARIES
1,675,347

 
2,712,291

 

 
(4,387,638
)
 

INTERCOMPANY NOTES RECEIVABLE
216,844

 
20,866

 

 
(237,710
)
 

OTHER ASSETS
3,569

 
36,201

 
177,688

 

 
217,458

TOTAL ASSETS
$
1,989,600

 
$
2,784,302

 
$
3,494,275

 
$
(4,625,348
)
 
$
3,642,829

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 

 
 
CURRENT LIABILITIES
 
 
 
 
 
 

 
 
Accounts payable
$

 
$
3,156

 
$
83,126

 
$

 
$
86,282

Current maturities of long-term debt

 
112,500

 
1,819

 

 
114,319

Accrued taxes

 
14

 
11,360

 

 
11,374

Accrued payroll and benefits

 
8,038

 
11,223

 

 
19,261

Accrued interest
5,777

 
4,392

 
25,112

 
(21,424
)
 
13,857

Accrued customer incentives

 

 
10,082

 

 
10,082

Other current liabilities

 
9,058

 
26,812

 

 
35,870

Current liabilities for dispositions and discontinued operations

 

 
6,446

 

 
6,446

Total current liabilities
5,777

 
137,158

 
175,980

 
(21,424
)
 
297,491

LONG-TERM DEBT
325,000

 
768,228

 
300,659

 

 
1,393,887

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 
67,456

 

 
67,456

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
91,807

 
3,291

 

 
95,098

OTHER NON-CURRENT LIABILITIES

 
13,763

 
17,491

 

 
31,254

INTERCOMPANY PAYABLE

 
97,999

 
151,938

 
(249,937
)
 

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY
1,658,823

 
1,675,347

 
2,678,640

 
(4,353,987
)
 
1,658,823

Noncontrolling interest

 

 
98,820

 

 
98,820

TOTAL SHAREHOLDERS’ EQUITY
1,658,823

 
1,675,347

 
2,777,460

 
(4,353,987
)
 
1,757,643

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,989,600

 
$
2,784,302

 
$
3,494,275

 
$
(4,625,348
)
 
$
3,642,829


28


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, 2013
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
CURRENT ASSETS
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
130,181

 
$
11,023

 
$
58,440

 
$

 
$
199,644

Accounts receivable, less allowance for doubtful accounts

 
2,310

 
92,646

 

 
94,956

Inventory

 

 
138,818

 

 
138,818

Deferred tax assets

 
681

 
38,419

 

 
39,100

Prepaid and other current assets

 
2,369

 
44,207

 

 
46,576

Total current assets
130,181

 
16,383

 
372,530

 

 
519,094

TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION

 

 
2,049,378

 

 
2,049,378

NET PROPERTY, PLANT AND EQUIPMENT

 
2,612

 
858,209

 

 
860,821

INVESTMENT IN SUBSIDIARIES
1,627,315

 
2,764,211

 

 
(4,391,526
)
 

INTERCOMPANY NOTES RECEIVABLE
228,032

 
20,659

 

 
(248,691
)
 

OTHER ASSETS
3,689

 
36,258

 
216,261

 

 
256,208

TOTAL ASSETS
$
1,989,217

 
$
2,840,123

 
$
3,496,378

 
$
(4,640,217
)
 
$
3,685,501

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES
 
 
 
 
 
 
 
 
 
Accounts payable
$

 
$
3,086

 
$
66,207

 
$

 
$
69,293

Current maturities of long-term debt

 
112,500

 

 

 
112,500

Accrued taxes

 
4,855

 
3,696

 

 
8,551

Accrued payroll and benefits

 
11,382

 
13,566

 

 
24,948

Accrued interest
3,047

 
3,280

 
22,816

 
(19,612
)
 
9,531

Accrued customer incentives

 

 
9,580

 

 
9,580

Other current liabilities

 
8,765

 
26,109

 

 
34,874

Current liabilities for dispositions and discontinued operations

 

 
6,835

 

 
6,835

Total current liabilities
3,047

 
143,868

 
148,809

 
(19,612
)
 
276,112

LONG-TERM DEBT
325,000

 
847,749

 
288,975

 

 
1,461,724

NON-CURRENT LIABILITIES FOR DISPOSITIONS AND DISCONTINUED OPERATIONS

 

 
69,543

 

 
69,543

PENSION AND OTHER POSTRETIREMENT BENEFITS

 
91,471

 
4,183

 

 
95,654

OTHER NON-CURRENT LIABILITIES

 
11,493

 
15,732

 

 
27,225

INTERCOMPANY PAYABLE

 
118,227

 
125,921

 
(244,148
)
 

TOTAL SHAREHOLDERS’ EQUITY
1,661,170

 
1,627,315

 
2,843,215

 
(4,376,457
)
 
1,755,243

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,989,217

 
$
2,840,123

 
$
3,496,378

 
$
(4,640,217
)
 
$
3,685,501


29


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 Three Months Ended March 31, 2014
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES
$
25,931

 
$
32,794

 
$
67,759

 
$
(27,210
)
 
$
99,274

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(170
)
 
(36,585
)
 

 
(36,755
)
Purchase of timberlands

 

 
(10,637
)
 

 
(10,637
)
Change in restricted cash

 

 
45,312

 

 
45,312

Investment in Subsidiaries

 
69,103

 

 
(69,103
)
 

Other

 

 
1,592

 

 
1,592

CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES

 
68,933

 
(318
)
 
(69,103
)
 
(488
)
FINANCING ACTIVITIES
 
 
 
 
 
 

 
 
Issuance of debt

 
30,000

 
1,819

 

 
31,819

Repayment of debt

 
(110,000
)
 

 

 
(110,000
)
Dividends paid
(62,545
)
 

 

 

 
(62,545
)
Proceeds from the issuance of common shares
2,027

 

 

 

 
2,027

Excess tax deficiencies on stock-based compensation

 

 
(1,240
)
 

 
(1,240
)
Repurchase of common shares
(1,754
)
 

 

 

 
(1,754
)
Intercompany distributions

 
(28,434
)
 
(67,879
)
 
96,313

 

Other

 

 
(679
)
 

 
(679
)
CASH USED FOR FINANCING ACTIVITIES
(62,272
)
 
(108,434
)
 
(67,979
)
 
96,313

 
(142,372
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 
13

 

 
13

CASH AND CASH EQUIVALENTS
 
 
 
 
 
 

 
 
Change in cash and cash equivalents
(36,341
)
 
(6,707
)
 
(525
)
 

 
(43,573
)
Balance, beginning of year
130,181

 
11,023

 
58,440

 

 
199,644

Balance, end of period
$
93,840

 
$
4,316

 
$
57,915

 
$

 
$
156,071


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 CASH FLOWS
For the Three Months Ended March 31, 2013
 
Rayonier Inc.
(Parent
Issuer)
 
Subsidiary Guarantors
 
Non-
guarantors
 
Consolidating
Adjustments
 
Total
Consolidated
CASH PROVIDED BY OPERATING ACTIVITIES
$
13,984

 
$
22,259

 
$
58,980

 
$
(5,563
)
 
$
89,660

INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Capital expenditures

 
(89
)
 
(32,575
)
 

 
(32,664
)
Purchase of timberlands

 

 
(1,560
)
 

 
(1,560
)
Jesup mill cellulose specialties expansion

 

 
(36,734
)
 

 
(36,734
)
Proceeds from disposition of Wood Products business

 

 
83,741

 

 
83,741

Change in restricted cash

 

 
9,908

 

 
9,908

Investment in Subsidiaries

 
32,391

 

 
(32,391
)
 

Other

 

 
1,790

 

 
1,790

CASH PROVIDED BY INVESTING ACTIVITIES

 
32,302

 
24,570

 
(32,391
)
 
24,481

FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Issuance of debt
100,000

 

 

 

 
100,000

Repayment of debt
(150,000
)
 
(20,000
)
 

 

 
(170,000
)
Dividends paid
(57,744
)
 

 

 

 
(57,744
)
Proceeds from the issuance of common shares
4,091

 

 

 

 
4,091

Excess tax benefits on stock-based compensation

 

 
6,191

 

 
6,191

Repurchase of common shares
(11,241
)
 

 

 

 
(11,241
)
Intercompany distributions

 
(5,206
)
 
(32,748
)
 
37,954

 

CASH USED FOR FINANCING ACTIVITIES
(114,894
)
 
(25,206
)
 
(26,557
)
 
37,954

 
(128,703
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH

 

 
(17
)
 

 
(17
)
CASH AND CASH EQUIVALENTS
 
 
 
 
 
 
 
 
 
Change in cash and cash equivalents
(100,910
)
 
29,355

 
56,976

 

 
(14,579
)
Balance, beginning of year
252,888

 
23,324

 
4,384

 

 
280,596

Balance, end of period
$
151,978

 
$
52,679

 
$
61,360

 
$

 
$
266,017



31


Table of Contents



Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier,” we mean Rayonier Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Rayonier Inc. included in Item 1 of this Report.
Our financial condition and results of operations as of and for the period ended March 31, 2014 have been restated. All information and disclosures contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) related to that period reflect the effects of such restatement. For a more detailed description of the restatement, see Note 3 - Restatement of Previously Issued Consolidated Financial Statements of the Notes to the accompanying unaudited Consolidated Financial Statements and MD&A included in this Quarterly Report on Form 10-Q/A.
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 the Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Initial Form 10-K”), as amended by Amendment No. 1 to the Form 10-K on Form 10-K/A filed with the SEC concurrently herewith (the “Amended Form 10-K”) and information contained in our subsequent Forms 10-Q, Forms 10-Q/A, Forms 8-K, Forms 8-K/A and other reports filed with the SEC.
Forward-Looking Statements
Certain statements in this document regarding anticipated financial outcomes including earnings guidance, if any, business and market conditions, outlook 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 our Amended Form 10-K and any subsequent Form 10-Q, 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.
In addition, specifically with respect to the separation of Rayonier Advanced Materials Inc. from Rayonier, the following important factors, among others, could cause actual results to differ materially from those expressed in forward-looking statements that may have been made in this document: uncertainties as to the timing of the separation and whether it will be completed, the possibility that various closing conditions for the separation may not be satisfied or waived, the expected tax treatment of the separation, the impact of the separation on the businesses of Rayonier and Rayonier Advanced Materials Inc., the ability of both companies to meet debt service requirements, the availability and terms of financing and expectations of credit rating.
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 further disclosures we make on related subjects in our subsequent Forms 10-Q, Forms 10-K, Forms 8-K and other reports filed with the SEC.
 
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. For a full description of our critical accounting policies, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Amended Form 10-K.

32


Table of Contents

Segments
We are a leading international forest products company primarily engaged in timberland management, the sale of real estate, and the production and sale of high-value specialty cellulose fibers. We operate in three reportable business segments: Forest Resources, Real Estate and Performance Fibers.
Forest Resources sales include all activities which relate to the harvesting of timber and other value-added activities such as the leasing of properties for hunting, mineral extraction and cell towers. Real Estate sales include all property sales, including those designated as higher and better use (“HBU”) and those designated as sales of non-strategic timberlands. The assets of the Real Estate segment include HBU property held by our real estate subsidiary, TerraPointe LLC. The Performance Fibers segment includes two major product lines, cellulose specialties and commodity grade products (primarily viscose). Our remaining operations include harvesting and selling timber acquired from third parties (log trading). These operations are reported in “Other Operations.” Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits or losses are eliminated in consolidation.
We evaluate financial performance based on the operating income of the segments. Operating income, as presented in the Consolidated Statements of Income and Comprehensive Income, is equal to segment income (loss). Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include gains (losses) from certain asset dispositions, interest income (expense), miscellaneous income (expense) and income tax (expense) benefit, are not considered by management to be part of segment operations.


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Table of Contents

Results of Operations
 
Three Months Ended March 31,
Financial Information (in millions)
2014
 
2013
 
(Restated)
 
 
Sales
 
 
 
Forest Resources
 
 
 
Atlantic
$
22

 
$
17

Gulf States
12

 
12

Northern
33

 
25

New Zealand
38

 
3

Total Forest Resources
105

 
57

Real Estate
 
 
 
Development

 
1

Rural
5

 
3

Non-Strategic Timberlands
1

 
20

Total Real Estate
6

 
24

Performance Fibers
 
 
 
Cellulose specialties
206

 
247

Viscose/other
26

 

Absorbent materials
10

 
37

Total Performance Fibers
242

 
284

Other Operations
34

 
29

Total Sales
$
387

 
$
394

 
 
 
 
Operating Income (Loss)
 
 
 
Forest Resources
$
26

 
$
13

Real Estate
1

 
17

Performance Fibers
49

 
92

Other Operations

 

Corporate and other
(13
)
 
(7
)
Operating Income
63

 
115

Interest Expense, Interest Income and Other
(14
)
 
(8
)
Income Tax Expense
(8
)
 
(4
)
Income from Continuing Operations
$
41

 
$
103

Discontinued Operations, Net

 
45

Net Income
$
41

 
$
148

Less: Net income attributable to noncontrolling interest

 

Net Income Attributable to Rayonier Inc.
$
41

 
$
148

 
 
 
 
Diluted Earnings Per Share Attributable to Rayonier Inc.
 
 
 
Continuing Operations
$
0.32

 
$
0.79

Discontinued Operations

 
0.34

Net Income
$
0.32

 
$
1.13




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Table of Contents

FOREST RESOURCES
Sales (in millions)
2013
 
Changes Attributable to:
 
2014
Three Months Ended March 31,
Price
 
Volume/
Mix/Other
 
Atlantic
$
17

 
$
4

 
$
1

 
$
22

Gulf States
12

 

 

 
12

Northern
25

 
3

 
5

 
33

New Zealand (a)
3

 

 
35

 
38

Total Sales
$
57

 
$
7

 
$
41

 
$
105

(a)
First quarter 2014 included $38 million of sales from the consolidation of the New Zealand joint venture (“New Zealand JV”), whereas first quarter 2013 was accounted for on the equity method.
 
 
 
 
 
 
 
 
Operating Income (in millions)
2013
 
Changes Attributable to:
 
2014
Three Months Ended March 31,
Price
 
Volume/
Mix
 
Cost/Other
 
 
 
 
 
 
 
 
(Restated)
 
(Restated)
Atlantic
$
5

 
$
4

 
$

 
$
(1
)
 
$
8

Gulf States
2

 

 

 
1

 
3

Northern
5

 
3

 
6

 
(2
)
 
12

New Zealand (a)
1

 

 

 
2

 
3

Total Operating Income
$
13

 
$
7

 
$
6

 
$

 
$
26

(a)
First quarter 2014 included $2 million of operating income from the consolidation of the New Zealand JV.
 
 
 
 
 
 
 
 
 
 
The Atlantic region’s sales and operating income increased in 2014 as average prices rose 29 percent over the prior year period. Stronger pricing for both stumpage sales and delivered logs resulted from improved demand and reduced supply due to the impact of weather conditions on harvesting.
Sales in the Gulf region were consistent with first quarter 2013 while operating income improved over the prior year due to a four percent increase in stumpage prices offset by sales mix, higher non-timber income and lower logging costs.
Northern region sales and operating income increased significantly in the first quarter 2014, driven by higher stumpage volumes and a 14 percent price increase for delivered wood. Improved volumes and pricing were attributable to higher China demand.
In April 2013, we acquired an additional 39 percent ownership interest in our New Zealand JV. As a 65 percent owner, we began consolidating 100 percent of the New Zealand JV’s results of operations in the second quarter of 2013. The first quarter 2014 higher sales and operating results for New Zealand JV reflect this increased ownership.

REAL ESTATE
Sales (in millions)
2013
 
Changes Attributable to:
 
2014
Three Months Ended March 31,
Price
 
Volume/Mix
 
Development
$
1

 
$

 
$
(1
)
 
$

Rural
3

 
1

 
1

 
5

Non-Strategic Timberlands
20

 
(1
)
 
(18
)
 
1

Total Sales
$
24

 
$

 
$
(18
)
 
$
6

 
 
 
 
 
 
 
 

Operating Income (in millions)
2013
 
Changes Attributable to:
 
2014
Three Months Ended March 31,
Price
 
Volume/Mix
 
 
 
 
 
 
(Restated)
 
(Restated)
Total Operating Income
$
17

 
$

 
$
(16
)
 
$
1

 
 
 
 
 
 
 
 

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Table of Contents

First quarter sales of $6 million and operating income of $1 million decreased $18 million and $16 million, respectively, from the prior year period primarily due to lower non-strategic volumes and prices. The first quarter of 2013 included a 5,400 acre non-strategic sale in our Northern region at $3,673 per acre. Slightly higher rural HBU prices and volumes were partially offset by lower development HBU prices and volumes.

PERFORMANCE FIBERS
Sales (in millions)
2013
 
Changes Attributable to:
 
2014
Three Months Ended March 31,
Price
 
Volume/
Mix
 
Cellulose specialties
$
247

 
$
(6
)
 
$
(35
)
 
$
206

Viscose/other

 

 
26

 
26

Absorbent materials
37

 

 
(27
)
 
10

Total Sales
$
284

 
$
(6
)
 
$
(36
)
 
$
242

 
 
 
 
 
 
 
 
Total sales declined $42 million or approximately 15 percent, as the planned extended annual outage for the Jesup mill and production issues in the first quarter of 2014 reduced customer shipments. Cellulose specialties prices decreased 3 percent partially reflecting the result of the annual price negotiations. Absorbent material sales decreased $27 million or approximately 73 percent reflecting the transition from producing absorbent materials to producing viscose and other commodity grades.
Operating Income (in millions)
2013
 
Changes Attributable to:
 
2014
 
Cellulose Specialties
 
Cost/Mix/Other
 
Three Months Ended March 31,
Price
 
Volume
 
Cost/Mix
 
 
Total Operating Income
$
92

 
$
(6
)
 
$
(14
)
 
$
(6
)
 
$
(17
)
 
$
49

 
 
 
 
 
 
 
 
 
 
 
 
Operating income declined $43 million as a result of lower cellulose specialties volumes and prices and higher wood and energy costs due to weather conditions. Operating income was also impacted by production issues and higher manufacturing costs as a result of the shift from absorbent materials to cellulose specialties and commodity viscose.
OTHER OPERATIONS
Sales from the New Zealand log trading business increased $5 million for the three months ended March 31, 2014 over the prior year period due to increased prices. Operating income remained consistent with prior period due to unfavorable movements in foreign currency rates.
Corporate and Other Expense/Eliminations
First quarter 2014 corporate and other operating expenses of $13 million increased $6 million from the prior year period. Expenses for the current quarter include $3.3 million related to the separation of our Performance Fibers business. The first quarter of 2013 included a $1.9 million gain on a foreign currency forward contract.
Interest Expense/Income and Income Tax Expense
Interest and other expenses increased $6 million from first quarter 2013 to 2014. The higher interest was primarily caused by lower capitalized interest related to the CSE project and higher debt levels associated with the consolidation of our New Zealand JV. First quarter 2014 results also reflect a $1.1 million loss on interest rate swaps as New Zealand long term interest rates moved slightly from the end of 2013.
The first quarter 2014 effective tax rate before discrete items was 18.5 percent compared to 23.4 percent in the prior year period. The decline in the effective tax rate was primarily due to proportionally higher earnings from REIT operations in 2014. Including discrete items, the first quarter 2014 effective tax rate was 15.7 percent compared to 4.1 percent in 2013. The lower effective rate in 2013 was due to the exchange of the alternative fuel mixture credit (“AFMC”) for the cellulosic biofuel producer credit (“CBPC”). See Note 5 —  Income Taxes for additional information.
Employee Relations
Collective bargaining agreements at the Fernandina Beach, Florida mill will expire on April 30, 2014, and negotiations are underway. See Item 1 — Business and Item 1A — Risk Factors in our Amended Form 10-K for additional information on employee relations.



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Table of Contents

Liquidity and Capital Resources
Our operations have generally produced consistent cash flows and required limited capital resources. Short-term borrowings have helped fund cyclicality in working capital needs and long-term debt has been used to fund major acquisitions and strategic projects.
Summary of Liquidity and Financing Commitments (in millions of dollars)
 
March 31,
 
December 31,
 
2014
 
2013
 
(Restated)
 
 
Cash and cash equivalents (a)
$
156

 
$
200

Total debt
1,508

 
1,574

Shareholders’ equity
1,758

 
1,755

Total capitalization (total debt plus equity)
3,266

 
3,329

Debt to capital ratio
46
%
 
47
%
(a)
Cash and cash equivalents consisted primarily of time deposits with original maturities of 90 days or less and money market accounts.
Cash Flows (in millions of dollars)
The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31:
 
2014
 
2013
Cash provided by (used for):
 
 
 
Operating activities
$
99

 
$
90

Investing activities

 
24

Financing activities
(142
)
 
(129
)
Cash Provided by Operating Activities
Cash provided by operating activities in 2014 increased primarily due to lower tax payments, partially offset by lower operating results. The 2013 first quarter included a $70 million tax payment to exchange AFMC for CBPC.
Cash (Used for) Provided by Investing Activities
Cash provided by investing activities decreased primarily due to higher timberland acquisitions of $9 million in 2014 and $84 million from the sale of our Wood Products business in the first quarter of 2013. Partially offsetting these were higher restricted cash receipts of $35 million in 2014 and CSE project costs of $37 million in 2013.
Cash Used for Financing Activities
Cash used for financing activities increased $13 million primarily due to higher dividend payments as a result of the rate increase effective in the third quarter of 2013. In addition, net debt repayments increased $8 million compared to prior year.



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Table of Contents

Performance and Liquidity Indicators
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“EBITDA”), and Adjusted Cash Available for Distribution (“Adjusted CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”) and the discussion of EBITDA and Adjusted CAD is not intended to conflict with or change any of the GAAP disclosures described above. Management considers these measures to be important to estimate the enterprise and shareholder values of the Company as a whole and of its core segments, and for allocating capital resources. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Management uses EBITDA as a performance measure and Adjusted CAD as a liquidity measure. EBITDA is defined by the Securities and Exchange Commission. Adjusted CAD as defined, however, may not be comparable to similarly titled measures reported by other companies.
We reconcile EBITDA to Net Income for the consolidated Company and Operating Income for the Segments, as those are the nearest GAAP measures for each. Below is a reconciliation of Net Income to EBITDA for the respective periods (in millions of dollars):
 
Three Months Ended March 31,
 
2014
 
2013
 
(Restated)
 
 
Net Income to EBITDA Reconciliation
 
 
 
Net Income
$
41

 
$
148

Interest, net
14

 
8

Income tax expense, continuing operations
8

 
4

Income tax expense, discontinued operations

 
22

Depreciation, depletion and amortization
49

 
36

Depreciation, depletion and amortization from discontinued operations

 
1

EBITDA
$
112

 
$
219

EBITDA by segment is a critical valuation measure used by our Chief Operating Decision Maker, existing shareholders and potential shareholders to measure how the Company is performing relative to the assets under management. EBITDA by segment for the respective periods was as follows (millions of dollars):
 
Three Months Ended March 31,
 
2014
 
2013
EBITDA by Segment
 
 
 
Forest Resources
$
53

 
$
30

Real Estate
2

 
21

Performance Fibers
70

 
107

Other Operations

 

Corporate and other
(13
)
 
61

EBITDA
$
112

 
$
219

First quarter 2014 EBITDA decreased from 2013 as 2013 included a $64 million gain on the sale of the Company’s Wood Products business. First quarter 2014 EBITDA also reflects lower Performance Fibers and Real Estate operating results, partially offset by higher Forest Resources results.

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Table of Contents

The following tables reconcile Operating Income by segment to EBITDA by segment (millions of dollars):
 
Forest Resources
 
Real Estate
 
Performance Fibers
 
Other Operations
 
Corporate and Other
 
Total
 
(Restated)
 
(Restated)
 
 
 
 
 
 
 
(Restated)
Three Months Ended March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Operating Income
$
26

 
$
1

 
$
49

 
$

 
$
(13
)
 
$
63

Add: Depreciation, depletion and amortization
27

 
1

 
21

 

 

 
49

EBITDA
$
53

 
$
2

 
$
70

 
$

 
$
(13
)
 
$
112

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Operating Income
$
13

 
$
17

 
$
92

 
$

 
$
(7
)
 
$
115

Add: Depreciation, depletion and amortization
17

 
4

 
15

 

 

 
36

Add: Income from discontinued operations

 

 

 

 
67

 
67

Add: Depreciation, depletion and amortization from discontinued operations

 

 

 

 
1

 
1

EBITDA
$
30

 
$
21

 
$
107

 
$

 
$
61

 
$
219

 
 
 
 
 
 
 
 
 
 
 
 
Adjusted CAD is a non-GAAP measure of cash generated during a period which is available for dividend distribution, repurchase of the Company’s common shares, debt reduction and strategic acquisitions. We define CAD as Cash Provided by Operating Activities adjusted for capital spending, strategic divestitures, the change in committed cash, and other items which include cash provided by discontinued operations, excess tax benefits on stock-based compensation and the change in capital expenditures purchased on account. Committed cash represents outstanding checks that have been drawn on our zero balance bank accounts but have not been paid. In compliance with SEC requirements for non-GAAP measures, we reduce CAD by mandatory debt repayments which results in the measure entitled “Adjusted CAD.”
Below is a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
 
Three Months Ended March 31,
 
2014
 
2013
Cash provided by operating activities
$
99

 
$
90

Capital expenditures (a)
(37
)
 
(33
)
Change in committed cash
5

 
1

Excess tax (deficiencies) benefits on stock-based compensation
(1
)
 
6

Other
6

 
3

CAD
72

 
67

Mandatory debt repayments

 

Adjusted CAD
$
72

 
$
67

Cash (used for) provided by investing activities
$

 
$
24

Cash used for financing activities
$
(142
)
 
$
(129
)
(a)
Capital expenditures exclude strategic capital. Strategic capital totaled $11 million for timberland acquisitions for the three months ended March 31, 2014. Strategic capital totaled $58 million for the CSE and $2 million for timberland acquisitions for the three months ended March 31, 2013.
Adjusted CAD increased over the prior year period as lower tax payments in first quarter 2014 were partially offset by lower operating results from our Performance Fibers and Real Estate segments. Adjusted CAD generated in any period is not necessarily indicative of the amounts that may be generated in future periods.
Liquidity Facilities
During the first quarter 2014, we made net repayments of $80 million on our $450 million unsecured revolving credit facility. The Company had $323 million of available borrowings under this facility at March 31, 2014. During the three months ended March 31, 2014, the New Zealand JV borrowed $1.8 million on its working capital facility. Additional draws totaling $18.1 million remain available on the facility. During the first quarter, the New Zealand JV had no activity on its revolving credit facility. Unfavorable changes in exchange rates resulted in a $10 million increase to debt on a USD basis.
    

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Table of Contents

As of December 31, 2013, the 4.50% Senior Exchangeable Notes due 2015 were exchangeable at the option of the holders for the calendar quarter ending March 31, 2014. According to the indenture, in order for the notes to become exchangeable, the Company’s stock price must exceed 130 percent of the exchange price for 20 trading days during a period of 30 consecutive trading days as of the last day of the quarter. During the three months ended March 31, 2014, the note holders did not elect to exercise the exchange option. These notes are also exchangeable in the second quarter based upon the average stock price for the 30 trading days ending March 31, 2014. If the note holders exercise their options prior to June 30, 2014, the Company intends to repay the principal of the notes by accessing its revolving credit facility. Any excess exchange value will be settled at the option of the Company in either cash or stock of Rayonier.
In connection with our installment note, term credit agreement and credit facility, covenants must be met, including ratios based on the covenant definition of EBITDA, ratios based on consolidated funded debt compared to consolidated net worth, ratios of subsidiary debt to consolidated net tangible assets and ratios of cash flows to fixed charges. Covenants must also be met in connection with the New Zealand JV’s credit facility, including ratios of debt to forestry and land valuations and ratios of operating cash flows to financing costs. As of March 31, 2014, we were in compliance with all applicable financial covenants. In addition to these financial covenants, the installment note, mortgage note, term credit agreement and revolving credit facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others.

Contractual Financial Obligations and Off-Balance Sheet Arrangements
We have no material changes to the Contractual Financial Obligations table as presented in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Amended Form 10-K. See Note 12Guarantees for details on the letters of credit, surety bonds and guarantees as of March 31, 2014.
Sales Volume by Segment:
 
 
Three Months Ended March 31,
 
 
2014
 
2013
Forest Resources — in thousands of short green tons
 
 
 
 
Atlantic
 
836

 
868

Gulf States
 
438

 
410

Northern
 
543

 
455

New Zealand
 
459

 

Total
 
2,276

 
1,733

Real Estate — in acres
 
 
 
 
Development
 
27

 
86

Rural
 
1,733

 
1,175

Non-Strategic Timberlands
 
362

 
5,575

Total
 
2,122

 
6,836

Performance Fibers — in thousands of metric tons
 
 
 
 
Cellulose specialties
 
113

 
132

Viscose/other
 
34

 

Absorbent materials
 
16

 
56

Total
 
163

 
188



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Table of Contents

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/A, 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 the Company’s management, including its 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 the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q/A, management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were not effective as of March 31, 2014.
On June 27, 2014, the Company spun off its Performance Fibers business to its shareholders as a newly formed publicly traded company named Rayonier Advanced Materials Inc. Following the spin-off, new management conducted a review of the Company’s operations and business strategies and identified issues related to its historical timber harvest levels, its estimate of merchantable timber inventory and the effect of such estimate on its calculation of depletion expense in each of the quarterly periods ended March 31, 2014 and June 30, 2014. At the direction of the Company’s Board of Directors, management commenced an internal review into these matters with the assistance of independent counsel, forensic accountants and financial advisers. As a result of the internal review, the Company concluded that it included in merchantable timber inventory for 2014, timber in specially designated parcels located in restricted, environmentally sensitive or economically inaccessible areas, which was incorrect, inconsistent with the Company’s definition of merchantable timber inventory, and a significant change from prior years. As a result, the Company concluded that it understated its depletion expense in cost of goods sold (referred to as “Cost of sales” in the Company's consolidated statements of income) by approximately $2.0 million in each of the quarterly periods ended March 31, 2014 and June 30, 2014, which resulted in a corresponding overstatement of income from continuing operations of $1.9 million and $2.0 million, respectively, in those periods. The Company has filed amendments to its Forms 10-Q for the quarterly periods ended March 31, 2014 and June 30, 2014 and restated its interim consolidated financial statements for those periods.
    
Management and E&Y originally concluded that there was not a material weakness in the Company’s internal control over financial reporting as of December 31, 2013, and this conclusion was reflected in the Company’s Initial Form 10-K. Subsequent to the filing of the Initial Form 10-K and in connection with the restatement discussed above, under the direction of the Chief Executive Officer and Chief Financial Officer, management conducted a reevaluation of the effectiveness of the Company’s internal control over financial reporting. After extensive consultation with E&Y and the Company’s forensic accountants, management has now concluded that the Company did not maintain effective control, as of December 31, 2013, over the accounting for depletion expense. Specifically, the Company’s controls related to the preparation and review of the annual depletion calculation which commenced in 2013 were not adequate to ensure that the changes in depletion rate estimates used to recognize depletion expense in 2014 were in accordance with accounting principles generally accepted in the United States of America. Further, these controls relied, in part, on electronic data from information technology systems with ineffective user access and program change management general controls. Accordingly, management has now concluded that the Company’s internal control over financial reporting was ineffective at December 31, 2013 based on the aggregation of these deficiencies. E&Y has reached the same conclusion.

In addition, because this material weakness was not adequately remediated as of March 31, 2014, June 30, 2014 or September 30, 2014, the Company’s internal control over financial reporting was ineffective at those dates as well. There were no other changes in the Company’s internal control over financial reporting that occurred during the quarterly period ended March 31, 2014 that materially affected, or are likely to materially affect, its internal control over financial reporting.
 

    

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Table of Contents

Remediation Plan
 
The Company has initiated a plan to remediate the material weakness described above. The implementation of this plan began in the third quarter of 2014 and consists of the following main elements:
enhancing senior finance management supervision and review of the depletion rate estimates and coordination with the Company’s technical and operations personnel as to volumes of merchantable timber included in the calculation of depletion expense,
instituting more formal procedures around the review and approval of changes to the estimate of merchantable timber inventory and its effect on the calculation of depletion expense, and
implementing controls over user access and changes to system data used in the depletion rate estimates.
Prior to the remediation of the material weakness, there is a risk that material misstatements in the Company’s interim or annual financial statements may occur. The Company can give no assurance that the measures it takes will remediate the material weakness that it has identified or that additional material weaknesses will not arise in the future. The Company will continue to monitor the effectiveness of these and other processes, procedures, and controls and will make any further changes management determines to be appropriate.


42


Table of Contents

PART II.    OTHER INFORMATION


Item 6.    Exhibits
31.1

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

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

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

The following financial information from our Quarterly Report on Form 10-Q/A for the fiscal quarter ended March 31, 2014, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2014 and 2013; (ii) the Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013; (iii) the Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2014 and 2013; and (iv) the Notes to Consolidated Financial Statements
Filed herewith


43


Table of Contents

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/ H. EDWIN KIKER
 
 
H. Edwin Kiker
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer, Principal Financial Officer and Principal Accounting Officer)
Date: November 10, 2014





44