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2: EX-22.1 List of Guarantor Subsidiaries HTML 32K
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5: EX-31.3 Section 302 Certification of CEO HTML 33K
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8: EX-32.2 Section 906 Certification of CEO & CFO HTML 31K
14: R1 Cover HTML 89K
15: R2 Consolidated Statements of Income and HTML 153K
Comprehensive Income (Unaudited)
16: R3 Consolidated Statements of Income and HTML 39K
Comprehensive Income (Unaudited) (Parenthetical)
17: R4 Consolidated Balance Sheets (Unaudited) HTML 214K
18: R5 Consolidated Balance Sheets (Unaudited) HTML 45K
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19: R6 Consolidated Statements of Changes in HTML 151K
Shareholders' Equity (Unaudited)
20: R7 Consolidated Statements of Changes in HTML 36K
Shareholders' Equity (Unaudited) (Parenthetical)
21: R8 Consolidated Statements of Changes in Capital HTML 113K
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22: R9 Consolidated Statements of Changes in Capital HTML 33K
(Unaudited) (Parenthetical)
23: R10 Consolidated Statements of Cash Flows (Unaudited) HTML 170K
24: R11 Consolidated Statements of Cash Flows (Unaudited) HTML 42K
(Parenthetical)
25: R12 Basis of Presentation HTML 38K
26: R13 Segment and Geographical Information HTML 110K
27: R14 Revenue HTML 417K
28: R15 Noncontrolling Interests HTML 50K
29: R16 Earnings Per Share and Per Unit HTML 119K
30: R17 Debt HTML 66K
31: R18 Derivative Financial Instruments and Hedging HTML 132K
Activities
32: R19 Fair Value Measurements HTML 82K
33: R20 Commitments HTML 49K
34: R21 Contingencies HTML 32K
35: R22 Environmental and Natural Resource Damage HTML 43K
Liabilities
36: R23 Guarantees HTML 37K
37: R24 Higher and Better Use Timberlands and Real Estate HTML 55K
Development Investments
38: R25 Inventory HTML 38K
39: R26 Other Operating (Expense) Income, Net HTML 46K
40: R27 Employee Benefit Plans HTML 71K
41: R28 Income Taxes HTML 45K
42: R29 Accumulated Other Comprehensive Income (Loss) HTML 80K
43: R30 Restricted Cash HTML 42K
44: R31 Assets Held for Sale HTML 32K
45: R32 Related Party HTML 41K
46: R33 Basis of Presentation (Policies) HTML 63K
47: R34 Segment and Geographical Information (Tables) HTML 106K
48: R35 Revenue (Tables) HTML 415K
49: R36 Noncontrolling Interests (Tables) HTML 48K
50: R37 Earnings Per Share and Per Unit (Tables) HTML 120K
51: R38 Debt (Tables) HTML 63K
52: R39 Derivative Financial Instruments and Hedging HTML 131K
Activities (Tables)
53: R40 Fair Value Measurements (Tables) HTML 74K
54: R41 Commitments (Tables) HTML 49K
55: R42 Environmental and Natural Resource Damage HTML 37K
Liabilities (Tables)
56: R43 Guarantees (Tables) HTML 37K
57: R44 Higher and Better Use Timberlands and Real Estate HTML 53K
Development Investments (Tables)
58: R45 Inventory (Tables) HTML 39K
59: R46 Other Operating (Expense) Income, Net (Tables) HTML 46K
60: R47 Employee Benefit Plans (Tables) HTML 66K
61: R48 Income Taxes (Tables) HTML 43K
62: R49 Accumulated Other Comprehensive Income (Loss) HTML 81K
(Tables)
63: R50 Restricted Cash (Tables) HTML 42K
64: R51 Related Party (Tables) HTML 38K
65: R52 Basis of Presentation (Details) HTML 34K
66: R53 SEGMENT AND GEOGRAPHICAL INFORMATION - Schedule of HTML 67K
Segment Sales (Details)
67: R54 SEGMENT AND GEOGRAPHICAL INFORMATION - Schedule of HTML 62K
Operating Income (Details)
68: R55 SEGMENT AND GEOGRAPHICAL INFORMATION - Schedule of HTML 52K
Depreciation, Depletion and Amortization (Details)
69: R56 SEGMENT AND GEOGRAPHICAL INFORMATION - Schedule of HTML 36K
Non-Cash Cost of Land and Improved Development
(Details)
70: R57 REVENUE - Narrative (Details) HTML 33K
71: R58 REVENUE - Contract Liability (Details) HTML 31K
72: R59 REVENUE - Disaggregation of Revenue by Product HTML 168K
(Details)
73: R60 REVENUE - Disaggregation of Revenue by Contract HTML 110K
Type (Details)
74: R61 NONCONTROLLING INTERESTS - Narrative (Details) HTML 39K
75: R62 NONCONTROLLING INTERESTS - Schedule of HTML 43K
Noncontrolling Interests (Details)
76: R63 EARNINGS PER SHARE AND PER UNIT - Schedule of HTML 110K
Earnings Per Share, Basic and Diluted (Details)
77: R64 EARNINGS PER SHARE AND PER UNIT - Antidilutive HTML 35K
Securities (Details)
78: R65 DEBT - Schedule of Long Term Debt (Details) HTML 77K
79: R66 DEBT - Schedule of Long Term Maturities (Details) HTML 47K
80: R67 DEBT - Narrative (Details) HTML 104K
81: R68 DEBT - Debt Covenants (Details) HTML 39K
82: R69 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING HTML 58K
ACTIVITIES - Narrative (Details)
83: R70 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING HTML 69K
ACTIVITIES - Outstanding Derivative Products
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84: R71 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING HTML 47K
ACTIVITIES - Income Statement Location (Details)
85: R72 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING HTML 39K
ACTIVITIES - Reclassified Amounts Into Earnings
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86: R73 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING HTML 43K
ACTIVITIES - Notional Amounts (Details)
87: R74 DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING HTML 64K
ACTIVITIES - Balance Sheet Location (Details)
88: R75 FAIR VALUE MEASUREMENTS - Carrying Amount and HTML 95K
Estimated Fair Value of Financial Instruments
(Details)
89: R76 Commitments (Details) HTML 53K
90: R77 ENVIRONMENTAL AND NATURAL RESOURCE DAMAGE HTML 44K
LIABILITIES - Schedule of Liabilities (Details)
91: R78 ENVIRONMENTAL AND NATURAL RESOURCE DAMAGE HTML 38K
LIABILITIES - Narrative (Details)
92: R79 Guarantees (Details) HTML 35K
93: R80 Higher and Better Use Timberlands and Real Estate HTML 64K
Development Investments (Details)
94: R81 Inventory (Details) HTML 36K
95: R82 Other Operating (Expense) Income, Net (Details) HTML 42K
96: R83 Employee Benefit Plans (Details) HTML 60K
97: R84 Income Taxes (Details) HTML 32K
98: R85 Income Taxes - Schedule of Components of Income HTML 33K
Tax Expense (Benefit) (Details)
99: R86 INCOME TAXES - Schedule of Effective Income Tax HTML 31K
Rate Reconciliation (Details)
100: R87 Accumulated Other Comprehensive Income (LOSS) - HTML 70K
Schedule of Components (Details)
101: R88 Accumulated Other Comprehensive Income (LOSS) - HTML 70K
Reclassified AOCI (Details)
102: R89 RESTRICTED CASH - Narrative (Details) HTML 30K
103: R90 RESTRICTED CASH - Schedule of Restricted Cash HTML 52K
(Details)
104: R91 Assets Held for Sale (Details) HTML 40K
105: R92 RELATED PARTY - Narrative (Details) HTML 35K
106: R93 RELATED PARTY - Related Party Transactions on HTML 40K
Consolidated Statements of Income and
Comprehensive Income (Details)
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Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class
Trading Symbol
Exchange
iCommon Shares, no par value, of Rayonier Inc.
iRYN
iNew
York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Rayonier Inc. iYes☒No☐ Rayonier,
L.P. iYes☒No☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Rayonier Inc. iYes☒No☐ Rayonier, L.P. iYes☒No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large
accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Rayonier Inc.
iLarge
Accelerated Filer
☒
Accelerated Filer
☐
Non-accelerated Filer
☐
Smaller Reporting Company
i☐
Emerging Growth Company
i☐
Rayonier,
L.P.
Large Accelerated Filer
☐
Accelerated Filer
☐
iNon-accelerated
Filer
☒
Smaller Reporting Company
i☐
Emerging Growth Company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Rayonier Inc.☐Rayonier, L.P.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Rayonier Inc. Yes ☐Noi☒Rayonier,
L.P. Yes ☐Noi☒
As of July 29, 2022, Rayonier Inc. had i146,421,847
Common Shares outstanding. As of July 29, 2022, Rayonier, L.P. had i3,212,229Units outstanding.
This report combines the quarterly reports on Form 10-Q for the quarterly period ended June 30, 2022 of Rayonier Inc., a North Carolina corporation, and Rayonier, L.P., a Delaware limited partnership. Unless stated otherwise or the context otherwise requires, references to “Rayonier” or “the Company” mean Rayonier Inc. and references to the “Operating Partnership” mean Rayonier, L.P. References to “we,”“us,” and “our” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership.
Rayonier Inc. has elected to be taxed as a real estate investment
trust, or REIT, under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 2004. The Company is structured as an umbrella partnership REIT (“UPREIT”) under which substantially all of its business is conducted through the Operating Partnership. Rayonier Inc. is the sole general partner of the Operating Partnership. On May 8, 2020, Rayonier, L.P. acquired Pope Resources, a Delaware Limited Partnership (“Pope Resources”) and issued approximately 4.45 million operating partnership units (“OP Units” or “Redeemable Operating Partnership Units”) of Rayonier, L.P. as partial merger consideration. These OP Units are generally considered to be economic equivalents to Rayonier common shares and receive distributions equal to the dividends paid on Rayonier common shares.
As
of June 30, 2022, the Company owned a 97.8% interest in the Operating Partnership, with the remaining 2.2% interest owned by limited partners of the Operating Partnership. As the sole general partner of the Operating Partnership, Rayonier Inc. has exclusive control of the day-to-day management of the Operating Partnership.
Rayonier Inc. and the Operating Partnership are operated as one business. The management of the Operating Partnership consists of the same members as the management of Rayonier Inc. As general partner with control of the Operating Partnership, Rayonier Inc. consolidates Rayonier, L.P. for financial reporting purposes, and has no material assets or liabilities other than its investment in the Operating Partnership.
We
believe combining the quarterly reports of Rayonier Inc. and Rayonier, L.P. into this single report results in the following benefits:
•Strengthens investors’ understanding of Rayonier Inc. and the Operating Partnership by enabling them to view the business as a single operating unit in the same manner as management views and operates the business;
•Creates efficiencies for investors by reducing duplicative disclosures and providing a single comprehensive document; and
•Generates time and cost savings associated with the preparation of the reports when compared to preparing separate reports for each entity.
There are a few important differences
between Rayonier Inc. and the Operating Partnership in the context of how Rayonier Inc. operates as a consolidated company. The Company itself does not conduct business, other than through acting as the general partner of the Operating Partnership and issuing equity or equity-related instruments from time to time. The Operating Partnership holds, directly or indirectly, substantially all of the Company’s assets. Likewise, all debt is incurred by the Operating Partnership or entities/subsidiaries owned or controlled by the Operating Partnership. The Operating Partnership conducts substantially all of the Company’s business and is structured as a partnership with no publicly traded equity.
To help investors understand the significant differences between the Company and the Operating Partnership, this report includes:
•Separate
Consolidated Financial Statements for Rayonier Inc. and Rayonier, L.P.;
•A combined set of Notes to the Consolidated Financial Statements with separate discussions of per share and per unit information, noncontrolling interests and shareholders’ equity and partners’ capital, as applicable;
•A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations which includes specific information related to each reporting entity;
Adjustments
to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization
i83,169
i87,909
Non-cash
cost of land and improved development
i17,139
i7,003
Stock-based
incentive compensation expense
i7,209
i5,008
Deferred
income taxes
(i7,272)
i7,315
Amortization
of losses from pension and postretirement plans
i376
i587
Gain
on sale of large disposition of timberlands
i—
(i30,324)
Other
(i4,206)
i7,233
Changes
in operating assets and liabilities:
Receivables
(i17,060)
(i413)
Inventories
(i2,398)
(i1,637)
Accounts
payable
i6,959
i4,213
All
other operating activities
i8,328
(i764)
CASH
PROVIDED BY OPERATING ACTIVITIES
i148,530
i164,582
INVESTING
ACTIVITIES
Capital expenditures
(i30,335)
(i32,199)
Real
estate development investments
(i6,013)
(i6,269)
Purchase
of timberlands
(i3,237)
(i51,882)
Net
proceeds from large disposition of timberlands
i—
i35,219
Other
i5,112
i5,998
CASH
USED FOR INVESTING ACTIVITIES
(i34,473)
(i49,133)
FINANCING
ACTIVITIES
Issuance of debt
i408,439
i446,378
Repayment
of debt
(i533,298)
(i350,000)
Dividends
paid on common shares
(i81,767)
(i75,676)
Distributions
to noncontrolling interests in the operating partnership
(i1,839)
(i2,309)
Proceeds
from the issuance of common shares under incentive stock plan
i2,561
i4,490
Proceeds
from the issuance of common shares under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs
i31,915
i110,702
Repurchase
of common shares to pay withholding taxes on vested incentive stock awards
(i4,204)
(i1,608)
Debt
issuance costs
i—
(i4,812)
Distributions
to noncontrolling interests in consolidated affiliates
(i6,684)
(i15,212)
CASH
(USED FOR) PROVIDED BY FINANCING ACTIVITIES
(i184,877)
i111,953
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
(i2,246)
i126
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash
(i73,066)
i227,528
Balance,
beginning of year
i369,139
i87,482
Balance,
end of period
$i296,073
$i315,010
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest (a)
$i16,932
$i17,677
Income
taxes
i14,330
i7,132
Non-cash
investing activity:
Capital assets purchased on account
i4,882
i4,155
Non-cash
financing activity:
Noncontrolling interests in consolidated affiliates redemption of shares (b)
i27,860
i—
(a)Interest
paid is presented net of patronage payments received of $i6.0 million and $i6.8
million for the six months ended June 30, 2022 and June 30, 2021, respectively. For additional information on patronage payments, see Note 10 — Debt in the 2021 Form 10-K.
(b)In the second quarter of 2022, the New Zealand subsidiary made a capital distribution in order to redeem certain equity interests, resulting in the recording of a loan payable by the New Zealand subsidiary in the amount of $i27.9 million.
See Note 6 - Debt for further information.
Adjustments
to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization
i83,169
i87,909
Non-cash
cost of land and improved development
i17,139
i7,003
Stock-based
incentive compensation expense
i7,209
i5,008
Deferred
income taxes
(i7,272)
i7,315
Amortization
of losses from pension and postretirement plans
i376
i587
Gain
on sale of large disposition of timberlands
i—
(i30,324)
Other
(i4,206)
i7,233
Changes
in operating assets and liabilities:
Receivables
(i17,060)
(i413)
Inventories
(i2,398)
(i1,637)
Accounts
payable
i6,959
i4,213
All
other operating activities
i8,328
(i764)
CASH
PROVIDED BY OPERATING ACTIVITIES
i148,530
i164,582
INVESTING
ACTIVITIES
Capital expenditures
(i30,335)
(i32,199)
Real
estate development investments
(i6,013)
(i6,269)
Purchase
of timberlands
(i3,237)
(i51,882)
Net
proceeds from large disposition of timberlands
i—
i35,219
Other
i5,112
i5,998
CASH
USED FOR INVESTING ACTIVITIES
(i34,473)
(i49,133)
FINANCING
ACTIVITIES
Issuance of debt
i408,439
i446,378
Repayment
of debt
(i533,298)
(i350,000)
Distributions
on units
(i83,606)
(i77,985)
Proceeds
from the issuance of units under incentive stock plan
i2,561
i4,490
Proceeds
from the issuance of units under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs
i31,915
i110,702
Repurchase
of units to pay withholding taxes on vested incentive stock awards
(i4,204)
(i1,608)
Debt
issuance costs
i—
(i4,812)
Distributions
to noncontrolling interests in consolidated affiliates
(i6,684)
(i15,212)
CASH
(USED FOR) PROVIDED BY FINANCING ACTIVITIES
(i184,877)
i111,953
EFFECT
OF EXCHANGE RATE CHANGES ON CASH
(i2,246)
i126
CASH,
CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash
(i73,066)
i227,528
Balance,
beginning of year
i369,139
i87,482
Balance,
end of period
$i296,073
$i315,010
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest (a)
$i16,932
$i17,677
Income
taxes
i14,330
i7,132
Non-cash
investing activity:
Capital assets purchased on account
i4,882
i4,155
Non-cash
financing activity:
Noncontrolling interests in consolidated affiliates redemption of shares (b)
i27,860
i—
(a)Interest
paid is presented net of patronage payments received of $i6.0 million and $i6.8 million
for the six months ended June 30, 2022 and June 30, 2021, respectively. For additional information on patronage payments, see Note 10 — Debt in the 2021 Form 10-K.
(b)In the second quarter of 2022, the New Zealand subsidiary made a capital distribution in order to redeem certain equity interests, resulting in the recording of a loan payable by the New Zealand subsidiary in the amount of $i27.9 million.
See Note 6 - Debt for further information.
(Dollar
amounts in thousands unless otherwise stated)
1.iiBASIS
OF PRESENTATION/
The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries and Rayonier, L.P. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The Rayonier Inc. and Rayonier, L.P. year-end balance sheet information was derived from audited financial statements not included herein. In the opinion of management, these financial statements and notes reflect any adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of
operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC (the “2021 Form 10-K”).
As of June 30, 2022, the Company owned a i97.8%
interest in the Operating Partnership, with the remaining i2.2% interest owned by limited partners of the Operating Partnership. As the sole general partner of the Operating Partnership, Rayonier Inc. has exclusive control of the day-to-day management of the Operating Partnership.
SUMMARY OF UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
For a full description of our other
significant accounting policies, see Note 1 — Summary of Significant Accounting Policies in our 2021 Form 10-K.
i
NEW ACCOUNTING STANDARDS
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848), which provides optional guidance to ease the potential burden in accounting due to reference rate reform. ASU 2020-04 contains practical expedients for reference
rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. We have elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
In August 2020, the FASB issued ASU 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts
in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The pronouncement eliminates the requirement that contracts legally permitting settlement in registered shares be classified as temporary equity. As a result, Redeemable Operating Partnership Units may be classified as permanent partners’ capital in the Operating Partnership’s accompanying balance sheets and the related noncontrolling interest as permanent equity in the accompanying balance sheets of Rayonier, Inc. However, the corresponding SEC guidance on equity classification has remained unchanged.
We will continue to monitor any developments in this area and may reclassify the temporary partners’ capital and noncontrolling interest to permanent upon agreement in guidance.
Recent accounting pronouncements adopted or pending adoption not discussed above are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations, or cash flows.
iSUBSEQUENT EVENTS
We
have evaluated events occurring from June 30, 2022 to the date of issuance of these Consolidated Financial Statements for potential recognition or disclosure in the consolidated financial statements. No events were identified that warranted recognition or disclosure.
(Dollar amounts in thousands unless otherwise stated)
2. iSEGMENT
AND GEOGRAPHICAL INFORMATION
i
Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. We evaluate financial performance based on segment operating income and Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”). Asset information is not reported by segment, as we do not produce asset information by segment internally.
Operating income as presented in the Consolidated Statements
of Income and Comprehensive Income is equal to segment income. Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include interest income (expense), miscellaneous income (expense) and income tax expense, are not considered by management to be part of segment operations and are included under “unallocated interest expense and other.”
i
The following tables summarize the segment information
for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,
Six Months Ended June 30,
SALES
2022
2021
2022
2021
Southern
Timber
$i66,271
$i49,294
$i143,035
$i100,971
Pacific
Northwest Timber
i39,157
i35,323
i85,437
i76,844
New
Zealand Timber
i78,882
i80,559
i130,271
i138,138
Timber
Funds (a)
i—
i18,646
i—
i33,585
Real
Estate (b)
i34,402
i74,531
i68,597
i85,035
Trading
i27,683
i34,546
i41,145
i51,212
Intersegment
Eliminations (c)
(i49)
(i1,468)
(i98)
(i2,907)
Total
$i246,346
$i291,431
$i468,387
$i482,878
(a)The
three and six months ended June 30, 2021 include $i14.7 million and $i26.7 million of sales attributable to noncontrolling interests in Timber Funds.
(b)The
three and six months ended June 30, 2021 includes $ii36.0/ million from a Large Disposition.
Large Dispositions are defined as transactions involving the sale of timberland that exceed $ii20/ million
in size and do not have a demonstrable premium relative to timberland value.
(c)Primarily consists of the elimination of timberland investment management fees paid to us by the timber funds, which were initially recognized as sales and cost of sales within the Timber Funds segment, as well as log marketing fees paid to our Trading segment from our Southern Timber and Pacific Northwest Timber segments for marketing log export sales.
(Dollar amounts in thousands unless otherwise stated)
Three
Months Ended June 30,
Six Months Ended June 30,
OPERATING INCOME
2022
2021
2022
2021
Southern Timber
$i24,067
$i16,980
$i54,409
$i34,327
Pacific
Northwest Timber
i2,943
i1,872
i9,550
i3,222
New
Zealand Timber
i7,981
i20,714
i13,373
i34,658
Timber
Funds (a)
i—
i1,991
i—
i3,492
Real
Estate (b)
i11,023
i50,511
i21,204
i52,199
Trading
(i444)
i418
(i93)
i662
Corporate
and Other
(i10,102)
(i8,042)
(i17,657)
(i15,631)
Total
Operating Income
i35,468
i84,444
i80,786
i112,929
Unallocated
interest expense and other
(i8,877)
(i14,144)
(i17,682)
(i24,175)
Total
Income before Income Taxes
$i26,591
$i70,300
$i63,104
$i88,754
(a)The
three and six months ended June 30, 2021 include $i1.6 million and $i2.7 million, respectively, of operating
income attributable to noncontrolling interests in Timber Funds.
(b)The three and six months ended June 30, 2021 includes $ii30.3/ million
from a Large Disposition.
Three Months Ended June 30,
Six Months Ended June 30,
DEPRECIATION, DEPLETION AND AMORTIZATION
2022
2021
2022
2021
Southern
Timber
$i14,657
$i13,576
$i32,716
$i27,935
Pacific
Northwest Timber
i11,316
i12,031
i26,232
i28,316
New
Zealand Timber
i6,901
i6,952
i11,891
i14,201
Timber
Funds (a)
i—
i6,121
i—
i11,621
Real
Estate (b)
i2,564
i8,535
i11,709
i10,092
Corporate
and Other
i313
i313
i621
i576
Total
$i35,751
$i47,528
$i83,169
$i92,741
(a)The
three and six months ended June 30, 2021 include $i5.1 million and $i10.1 million,
respectively, of depreciation, depletion and amortization attributable to noncontrolling interests in Timber Funds.
(b)The three and six months ended June 30, 2021 includes $ii4.8/ million
from a Large Dispositions.
Three Months Ended June 30,
Six Months Ended June 30,
NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT
2022
2021
2022
2021
Real
Estate (a)
$i11,780
$i5,254
$i17,139
$i7,067
Total
$i11,780
$i5,254
$i17,139
$i7,067
(a)The
three and six months ended June 30, 2021 includes $ii0.1/ million
from a Large Disposition.
(Dollar amounts in thousands unless otherwise stated)
3. iREVENUE
i
PERFORMANCE OBLIGATIONS
We recognize revenue when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected in exchange for those goods or services (“transaction price”). We generally satisfy performance obligations within a year of entering into a contract and therefore have applied the disclosure exemption found under ASC 606-10-50-14. Unsatisfied performance obligations as of June 30,
2022 are primarily due to advances on stumpage contracts, unearned license revenue and post-closing obligations on real estate sales. These performance obligations are expected to be satisfied within the next itwelve months. We generally collect payment within a year of satisfying performance obligations and therefore have elected not to adjust revenues for a financing component.
CONTRACT BALANCES
The timing of revenue recognition, invoicing and cash
collections results in accounts receivable and deferred revenue (contract liabilities) on the Consolidated Balance Sheets. Accounts receivable are recorded when we have an unconditional right to consideration for completed performance under the contract. Contract liabilities relate to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) we perform under the contract.
/i
The
following table summarizes revenue recognized during the three and six months ended June 30, 2022 and 2021 that was included in the contract liability balance at the beginning of each year:
(Dollar amounts in thousands unless otherwise stated)
i
The
following tables present our revenue from contracts with customers disaggregated by product type for the three and six months ended June 30, 2022 and 2021:
(Dollar amounts in thousands unless otherwise stated)
4. iNONCONTROLLING
INTERESTS
NONCONTROLLING INTERESTS IN CONSOLIDATED AFFILIATES
Matariki Forestry Group
We maintain a i77% controlling financial interest in Matariki Forestry Group (the “New Zealand subsidiary”), a joint venture that owns or leases approximately i418,000
legal acres of New Zealand timberland. Accordingly, we consolidate the New Zealand subsidiary’s balance sheet and results of operations. Income attributable to the New Zealand subsidiary’s i23% noncontrolling interests is reflected as an adjustment to income in our Consolidated Statements of Income and Comprehensive Income under the caption “Net income attributable to noncontrolling interests in consolidated affiliates.” Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary, serves as the manager of the New Zealand subsidiary.
NONCONTROLLING
INTERESTS IN THE OPERATING PARTNERSHIP
Noncontrolling interests in the operating partnership relate to the third-party ownership of Redeemable Operating Partnership Units. Net income attributable to the noncontrolling interests in the operating partnership is computed by applying the weighted average Redeemable Operating Partnership Units outstanding during the period as a percentage of the weighted average total units outstanding to the Operating Partnership’s net income for the period. If a noncontrolling unitholder redeems a unit for a registered common share of Rayonier or cash, the noncontrolling interests in the operating partnership will be reduced and the Company’s share in the Operating Partnership will be increased by the fair value of each security at the time of redemption.
i
The
following table sets forth the Company’s noncontrolling interests in the operating partnership:
2021
Incremental Term Loan Facility Borrowings due 2029 at a variable interest rate of i2.6% at June 30, 2022 (c)
i200,000
New
Zealand subsidiary noncontrolling interests shareholder loan due 2025 at a fixed interest rate of i2.95% (d)
i21,451
New
Zealand subsidiary noncontrolling interests shareholder loan due 2026 at a fixed interest rate of i3.64% (d)
i25,026
New
Zealand subsidiary noncontrolling interests shareholder loan due 2027 at a fixed interest rate of i6.48% (d)
i25,026
New
Zealand Working Capital Facility due 2023 at a variable interest rate of i3.1% at June 30, 2022
i622
Total
principal debt
i1,272,125
Less: Unamortized discounts
(i3,266)
Less:
Current maturities of long-term debt
(i622)
Less: Deferred financing costs
(i4,843)
Total
long-term debt
$i1,263,394
(a) As
of June 30, 2022, the periodic interest rate on the term credit agreement (the “Term Credit Agreement”) was LIBOR plus i1.600%. We estimate the effective fixed interest rate on the term loan facility to be approximately i3.0%
after consideration of interest rate swaps and estimated patronage refunds.
(b) As of June 30, 2022, the periodic interest rate on the incremental term loan (the “Incremental Term Loan Agreement”) was LIBOR plus i1.650%. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately i2.4%
after consideration of interest rate swaps and estimated patronage refunds.
(c) As of June 30, 2022, the periodic interest rate on the 2021 incremental term loan (the “2021 Incremental Term Loan Facility”) was LIBOR plus i1.550%. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately i1.5%
after consideration of interest rate swaps and estimated patronage refunds.
(d) Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of the shareholder loans since inception.
/
i
Principal payments due during the next five years and thereafter are as follows:
(Dollar amounts in thousands unless otherwise stated)
2022 DEBT ACTIVITY
U.S. Debt
On January 3, 2022, we drew $i200.0 million
on our Revolving Credit Facility. On January 4, 2022, we repaid the $i325.0 million Senior Notes due 2022 with $i125.0 million
of cash and the $i200.0 million previously drawn on the Revolving Credit Facility. We then made a $i200.0 million draw on our 2021 Incremental
Term Loan Facility and simultaneously repaid the outstanding principal on our Revolving Credit Facility. The periodic interest rate on the 2021 Incremental Term Loan agreement is subject to a pricing grid based on our leverage ratio, as defined in the credit agreement. As of June 30, 2022, the periodic interest rate on the 2021 Incremental Term Loan is LIBOR plus i1.55%. Monthly payments of interest only are due on this loan through maturity.
On
February 1, 2022, our $i200.0 million notional forward-starting interest rate swap matured into an active interest rate swap. This interest rate swap will fix the cost of the 2021 Incremental Term Loan Facility over its iseven-year
term. We estimate the effective interest rate on the 2021 Incremental Term Loan Facility to be approximately i1.5%after consideration of interest rate swaps and estimated patronage refunds.
At June 30, 2022, we had available borrowings of $i299.1 million
under the Revolving Credit Facility, net of $i0.9 million to secure our outstanding letters of credit.
New Zealand Debt
In June 2022, the New Zealand subsidiary renewed its NZ$i20 million
working capital facility for an additional i12-month term. During the six months ended June 30, 2022, the New Zealand subsidiary made US$i0.6 million of borrowings, net of repayments
and changes in exchange rates, on its working capital facility (the “New Zealand Working Capital Facility”). At June 30, 2022, the New Zealand subsidiary had NZ$i19.0 million of available borrowings under its working capital facility.
In April 2022, the New Zealand subsidiary made a capital distribution to its partners on a pro rata basis in order to redeem certain equity interests, which was reinvested by the partners in shareholder
loans to the New Zealand subsidiary. Our capital distribution and portion of the shareholder loan are eliminated in consolidation. The capital distribution to the minority shareholder and its reinvestment in the shareholder loan resulted in the recording of a loan payable by the New Zealand subsidiary in the amount of $i27.9 million due in 2027 at a fixed interest rate of i6.48%.
As of June 30, 2022, the outstanding balance on the shareholder loan due 2027 is $i25.0 million. Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of the shareholder loan since its inception. See Note 4 — Noncontrolling Interests for more information regarding the New Zealand subsidiary.
DEBT
COVENANTS
In connection with our $i350 million Term Credit Agreement, $i200
million Incremental Term Loan Agreement, $i200 million 2021 Incremental Term Loan Facility and $i300
million Revolving Credit Facility, customary covenants must be met, the most significant of which include interest coverage and leverage ratios.
i
The covenants listed below, which are the most significant financial covenants in effect as of June 30, 2022, are calculated on a trailing 12-month basis:
Covenant
Requirement
Actual Ratio
Favorable
Covenant EBITDA to consolidated interest expense should not be less than
i2.5 to 1
i13.6
to 1
i11.1
Covenant debt to covenant net worth plus covenant debt shall not exceed
i65
%
i41
%
i24
%
/
In
addition to these financial covenants listed above, the Senior Notes due 2031, Term Credit Agreement, Incremental Term Loan Agreement, 2021 Incremental Term Loan Facility, and Revolving Credit Facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At June 30, 2022, we were in compliance with all applicable covenants.
(Dollar amounts in thousands unless otherwise stated)
7. iDERIVATIVE FINANCIAL
INSTRUMENTS AND HEDGING ACTIVITIES
We are exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. We use derivative financial instruments to mitigate the financial impact of exposure to these risks.
iAccounting for derivative financial instruments is governed by ASC Topic 815, Derivatives and Hedging, (“ASC 815”). In accordance with ASC 815, we record our derivative instruments at fair value
as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the investment is partially or completely liquidated. The 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
Our New Zealand
subsidiary is exposed to foreign currency risk, as its functional currency is the New Zealand dollar, but has certain cash flows denominated U.S. dollars. Domestic sales and operating expenses are predominately denominated in New Zealand dollars, while its export sales, shareholder distributions and ocean freight payments are predominately denominated in U.S. dollars. To the extent New Zealand dollar costs exceed New Zealand dollar revenues (the “foreign exchange exposure”), the New Zealand subsidiary manages it through the use of derivative financial instruments. It typically hedges a portion of export sales receipts to cover i50%
to i90% of the projected foreign exchange exposure for the following i12 months, up to i75%
for the forward i12 to i18 months and up to i50%
for the forward i18 to i24 months. Additionally, it will occasionally hedge export sales receipts to cover up to i50%
of the foreign exchange exposure for the forward i24 to i48 months when the New Zealand dollar is at a cyclical low versus the U.S. dollar. The New Zealand subsidiary’s trading operations typically hedges a portion of export sales receipts to cover the
projected foreign exchange exposure for the following three months. As of June 30, 2022, foreign currency exchange contracts and foreign currency option contracts had maturity dates through August 2024 and December 2024, respectively.
Foreign currency exchange and option contracts hedging foreign currency risk qualify for cash flow hedge accounting. We may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive income for de-designated hedges remains in accumulated other comprehensive income until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings.
(Dollar amounts in thousands unless otherwise stated)
INTEREST RATE PRODUCTS
We are exposed to cash flow interest rate risk on our variable-rate debt and on anticipated debt issuances. We use variable-to-fixed interest rate swaps and forward-starting interest rate swap agreements to hedge this exposure. For these derivative instruments, we
report the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassify them to earnings as interest expense in the same period in which the hedged interest payments affect earnings.
To the extent we de-designate or terminate a cash flow hedging relationship and the associated hedged item continues to exist, any unrealized gain or loss of the cash flow hedge at the time of de-designation remains in AOCI and is amortized using the straight-line method through interest expense over the remaining life of the hedged item. To the extent the associated hedged item is no longer effective, the gain or loss is reclassified out of AOCI to earnings immediately.
INTEREST RATE SWAPS
i
The
following table contains information on the outstanding interest rate swaps as of June 30, 2022:
Outstanding Interest Rate Swaps (a)
Date Entered Into
Term
Notional Amount
Related Debt Facility
Fixed
Rate of Swap
Bank Margin on Debt
Total Effective Interest Rate (b)
August 2015
i9 years
$i170,000
Term
Credit Agreement
i2.20
%
i1.60
%
i3.80
%
August
2015
i9 years
i180,000
Term Credit Agreement
i2.35
%
i1.60
%
i3.95
%
April
2016
i10 years
i100,000
Incremental Term Loan
i1.60
%
i1.65
%
i3.25
%
April
2016
i10 years
i100,000
Incremental Term Loan
i1.60
%
i1.65
%
i3.25
%
May
2021 (c)
i7 years
i200,000
2021 Incremental Term Loan Facility
i0.77
%
i1.55
%
i2.32
%
(a)All
interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting.
(b)Rate is before estimated patronage payments.
/
(c)On February 1, 2022, our $i200.0 million notional forward-starting interest rate swap
matured into an active interest rate swap. See Note 6 - Debt for additional information.
FORWARD-STARTING INTEREST RATE SWAPS
The following table contains information on the outstanding forward-starting interest rate swaps as of June 30, 2022:
(Dollar amounts in thousands unless otherwise stated)
i
The
following tables demonstrate the impact, gross of tax, of our derivatives on the Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2022 and 2021:
Three Months Ended June 30,
Income Statement Location
2022
2021
Derivatives
designated as cash flow hedges:
Foreign currency exchange contracts
Other comprehensive (loss) income
($i14,352)
($i896)
Foreign
currency option contracts
Other comprehensive (loss) income
(i686)
(i230)
Interest
rate products
Other comprehensive (loss) income
i14,636
(i14,587)
Interest
expense
i1,948
i5,377
Six
Months Ended June 30,
Income Statement Location
2022
2021
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts
Other comprehensive (loss) income
($i10,839)
($i3,747)
Foreign
currency option contracts
Other comprehensive (loss) income
(i550)
(i1,158)
Interest
rate products
Other comprehensive (loss) income
i49,765
i45,144
Interest
expense
i4,618
i9,371
/
During
the next 12 months, the amount of the June 30, 2022 AOCI balance, net of tax, expected to be reclassified into earnings is a gain of approximately $i3.1 million. The following table contains details of the expected reclassified amounts into earnings:
Amount
expected to be reclassified into earnings in next 12 months
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts
($i6,784)
Foreign
currency option contracts
(i51)
Interest rate products
i9,908
Total
estimated gain on derivatives contracts
$i3,073
i
The
following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
(Dollar amounts in thousands unless otherwise stated)
i
The
following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets at June 30, 2022 and December 31, 2021. Changes in balances of derivative financial instruments are recorded as operating activities in the Consolidated Statements of Cash Flows:
(a) See
Note 8 — Fair 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. Our derivative financial instruments are not subject to master netting arrangements, which would allow the right of offset.
(Dollar amounts in thousands unless otherwise stated)
8. iFAIR
VALUE MEASUREMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows:
Level 1— Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs other than quoted prices included in Level 1.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
i
The
following table presents the carrying amount and estimated fair values of our financial instruments as of June 30, 2022 and December 31, 2021, using market information and what we believe to be appropriate valuation methodologies under GAAP:
(b)Restricted cash, Timber Funds represents the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests. See Note 19 — Restricted Cash for additional information.
(c)Restricted cash, excluding Timber Funds represents proceeds from like-kind exchange sales deposited with a third-party intermediary and cash held in escrow. See Note
19 — Restricted Cash for additional information.
(d)The carrying amount of long-term debt is presented net of deferred financing costs and unamortized discounts on non-revolving debt. See Note 6 — Debt for additional information.
(f)Noncontrolling interests in the operating
partnership is neither an asset nor liability and is classified as temporary equity in the Company’s Consolidated Balance Sheets. This relates to the ownership of Rayonier, L.P. units by various individuals and entities other than the Company. See Note 4 — Noncontrolling Interests for additional information.
/
i
We
use the following methods and assumptions in estimating the fair value of our financial instruments:
Cash and cash equivalents and Restricted cash — The carrying amount is equal to fair market value.
Debt— The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value.
Interest rate swap agreements— The fair value of interest rate contracts is determined by discounting the expected future cash flows, for each instrument, at prevailing interest rates.
(Dollar amounts in thousands unless otherwise stated)
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.
Noncontrolling interests in the operating partnership— The fair value of noncontrolling interests in the operating partnership is determined based on the period-end closing price of Rayonier Inc. common shares.
9. iCOMMITMENTS
i
At
June 30, 2022, the future minimum payments under non-cancellable commitments were as follows:
Environmental Remediation (a)
Development Projects (b)
Commitments
(c)
Total
Remaining 2022
$i726
$i19,676
$i8,480
$i28,882
2023
i3,874
i3,239
i12,024
i19,137
2024
i3,839
i267
i4,433
i8,539
2025
i1,010
i267
i1,192
i2,469
2026
i451
i267
i360
i1,078
Thereafter
i1,358
i4,062
i—
i5,420
$i11,258
$i27,778
$i26,489
$i65,525
(a)Environmental
remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages (NRD) in Port Gamble, Washington. See Note 11 - Environmental and Natural Resource Damage Liabilities for additional information.
(b)Primarily consisting of payments expected to be made on our Wildlight and Heartwood development projects.
/
(c)Commitments include payments expected to be made on financial instruments (foreign exchange contracts and interest rate swaps) and other purchase obligations.
10. iCONTINGENCIES
We
have been named as a defendant in various lawsuits and claims arising in the normal course of business. While we have procured reasonable and customary insurance covering risks normally occurring in connection with our businesses, we have in certain cases retained some risk through the operation of large deductible insurance plans, primarily in the areas of executive risk, property, automobile and general liability. These pending lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on our financial position, results of operations, or cash flow.
(Dollar amounts in thousands unless otherwise stated)
11. iENVIRONMENTAL
AND NATURAL RESOURCE DAMAGE LIABILITIES
Various federal and state environmental laws in the states in which we operate place cleanup or restoration liability on the current and former owners of affected real estate. These laws are often a source of “strict liability,” meaning that an owner or operator need not necessarily have caused, or even been aware of, the release of contaminated materials. Similarly, there are certain environmental laws that allow state, federal, and tribal trustees (collectively, the “Trustees”) to bring suit against property owners to recover damage for injuries to natural resources. Like the liability that attaches to current property owners in the cleanup context, liability for natural resource damages (“NRD”) can attach to a property simply because an injury to natural resources resulted from releases of contaminated materials on or from the owner’s property, regardless
of culpability for the release.
It
is expected that the upland mill site cleanup and NRD restoration will occur over the next one to itwo years, while the monitoring of Port Gamble Bay, mill site and landfills will continue for an additional i10 to i15
years. NRD costs are subject to change as the scope of the restoration projects become more clearly defined. It is reasonably possible that these components of the liability may increase as the project progresses. Management continues to monitor the Port Gamble cleanup process and will make adjustments as needed. Should any future circumstances result in a change to the estimated cost of the project, we will record an appropriate adjustment to the liability in the period it becomes known and when we can reasonably estimate the amount. For further information on the timing and amount of future payments related to our environmental remediation liabilities, see Note 9 - Commitments.
12. iGUARANTEES
We
provide financial guarantees as required by creditors, insurance programs, and various governmental agencies.
i
As of June 30, 2022, the following financial guarantees were outstanding:
Financial Commitments
(a)
Maximum Potential Payment
Standby letters of credit
$i885
Surety bonds (b)
i23,194
Total
financial commitments
$i24,079
(a)We
have not recorded any liabilities for these financial commitments in our Consolidated Balance Sheets. The guarantees are not subject to measurement, as the guarantees are dependent on our own performance.
(b)Surety bonds are issued primarily to secure performance obligations related to various operational activities, to provide collateral for our Wildlight development project in Nassau County, Florida and in connection with pending and completed sales from the Harbor Hill project in Gig Harbor, Washington. These surety bonds expire at various dates during 2022, 2023, 2024 and 2025 and are expected to be renewed as required.
(Dollar amounts in thousands unless otherwise stated)
13. iHIGHER
AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
We routinely assess potential alternative uses of our timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. We periodically transfer, via a sale or contribution from the real estate investment trust (“REIT”) entities to taxable REIT subsidiaries (“TRS”), higher and better use (“HBU”) timberlands to enable land-use entitlement, development or marketing activities. We also acquire HBU properties in connection with timberland acquisitions. These properties are managed as timberlands until sold or developed. While the majority of HBU sales involve rural and recreational land, we also selectively pursue various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value of such properties. For selected
development properties, we also invest in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties.
i
Changes in higher and better use timberlands and real estate development investments from December 31, 2021 to June 30, 2022 are shown below:
Higher
and Better Use Timberlands and Real Estate Development Investments
(a)The
current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 14 — Inventory for additional information.
(b)Capitalized real estate development investments include $i0.4 million of capitalized interest and $i2.9 million
of parcel real estate development investments. Parcel real estate development investments represent investments made for specific lots and/or commercial parcels that are currently under contract or expected to be ready for market within a year.
Gain on foreign currency remeasurement, net of cash flow hedges
$i1,249
$i1,922
$i677
$i4,351
Gain
on sale or disposal of property and equipment
i6
i3
i31
i93
Log
trading marketing fees
i—
i—
i—
i6
Equity
(loss) income related to Bainbridge Landing LLC joint venture
(i145)
i186
(i370)
i206
Miscellaneous
expense, net
(i309)
(i155)
(i520)
(i252)
Total
$i801
$i1,956
($i182)
$i4,404
/
16. iEMPLOYEE
BENEFIT PLANS
We have ione qualified non-contributory defined benefit pension plan covering a portion of our employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plans. We closed enrollment in the pension plans to salaried employees hired after December 31, 2005. Effective December 31, 2016, we froze benefits for all employees participating
in the pension plan. In lieu of the pension plan, we provide those employees with an enhanced 401(k) plan match similar to what is currently provided to employees hired after December 31, 2005. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change.
We are not required to make mandatory 2022 pension contributions due to our plan’s improved funded status and have made ino
pension contribution payments during the six months ended June 30, 2022.
Interest and other miscellaneous income (expense), net
i1,217
i1,114
i26
i23
Expected
return on plan assets (a)
Interest and other miscellaneous income (expense), net
(i1,743)
(i1,873)
i—
i—
Amortization
of losses
Interest and other miscellaneous income (expense), net
i369
i577
i7
i10
Net
periodic benefit (credit) cost
($i157)
($i182)
$i36
$i37
(a)The
weighted-average expected long-term rate of return on plan assets used in computing 2022 net periodic benefit cost for pension benefits is i5.0%.
/
17. iINCOME
TAXES
Rayonier is a REIT under the Internal Revenue Code and therefore generally does not pay U.S. federal or state income tax. As of June 30, 2022, Rayonier owns a i97.8% interest in the Operating Partnership and conducts substantially all of its timberland operations through the Operating Partnership. The taxable income or
loss generated by the Operating Partnership is passed through and reported to its unit holders (including the Company) on a Schedule K-1 for inclusion in each unitholder’s income tax return.
Certain operations, including log trading and certain real estate activities, such as the entitlement, development and sale of HBU properties, are conducted through our TRS. The TRS subsidiaries are subject to United States federal and state corporate income tax. The New Zealand timber operations are conducted by the New Zealand subsidiary, which is subject to corporate-level tax at 28% in New Zealand and is treated as a partnership for U.S. income tax purposes.
PROVISION FOR INCOME TAXES
The Company’s tax expense is principally related to corporate-level tax in New Zealand and non-resident withholding tax on repatriation of earnings from New Zealand.
iThe following table contains the income tax expense recognized on the Consolidated Statements of Income and Comprehensive Income:
(Dollar amounts in thousands unless otherwise stated)
ANNUAL EFFECTIVE TAX RATE
The Company’s effective tax rate after discrete items is below the 21.0% U.S. statutory rate due to tax benefits associated with being a REIT. iThe
following table contains the Company’s annualized effective tax rate after discrete items:
Annualized
effective tax rate after discrete items
i9.2
%
i11.0
%
18. iACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
i
The following table summarizes the changes in AOCI by component for the six months ended June 30, 2022 and the year ended December 31, 2021. All amounts are presented net of tax and exclude portions attributable to noncontrolling interests.
(b)This component of other comprehensive income (loss) is included in the computation of net periodic pension and post-retirement costs. See Note 16 — Employee Benefit Plansfor additional information.
(Dollar amounts in thousands unless otherwise stated)
i
The
following table presents details of the amounts reclassified in their entirety from AOCI to net income for the six months ended June 30, 2022 and June 30, 2021:
Details about accumulated other comprehensive income (loss) components
Amount reclassified from accumulated other
comprehensive income (loss)
Realized loss on foreign currency exchange contracts
$i71
$i1,725
Other
operating (expense) income, net
Realized loss on foreign currency option contracts
i—
i827
Other
operating (expense) income, net
Noncontrolling interests
(i16)
(i587)
Comprehensive
income attributable to noncontrolling interests
Realized loss on interest rate contracts
i4,617
i9,541
Interest
expense
Income tax effect from net loss on foreign currency contracts
(i15)
(i551)
Income
tax expense
Net loss on cash flow hedges reclassified from accumulated other comprehensive income
$i4,657
$i10,955
/
19. iRESTRICTED
CASH
Restricted cash, Timber Funds includes the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests.
Restricted cash, excluding Timber Funds includes cash deposited with a like-kind exchange (“LKE”) intermediary. In order to qualify for 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 i180
days and reclassified as available cash. Additionally, restricted cash, excluding Timber Funds, includes cash balances held in escrow as collateral for certain contractual obligations related to our Heartwood development project as well as cash held in escrow for real estate sales.
i
The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Consolidated Balance Sheets that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows for the six months ended June 30,
2022 and 2021:
(Dollar amounts in thousands unless otherwise stated)
20. iASSETS
HELD FOR SALE
Assets held for sale is composed of properties under contract and expected to be sold within i12 months that also meet the other relevant held-for-sale criteria in accordance with ASC 360-10-45-9. As of June 30, 2022 and December 31, 2021, the basis in properties meeting this classification was $i2.2
million and $i5.1 million, respectively. Since the basis in these properties was less than the fair value, including costs to sell, ino
impairment was recognized.
21. iRELATED PARTY
In January 2020, we entered into an agreement to sell developed lots to Mattamy Jacksonville LLC, a wholly owned subsidiary of Mattamy Homes, for an aggregate base purchase price of $i4.45 million
(subject to multiple takedowns over a i2 year period), plus additional consideration as to each lot to the extent the ultimate sales price of each finished home exceeds agreed price thresholds (the “Mattamy Contract”). In May 2021, we entered into an amendment to the original agreement for the sale of additional lots to Mattamy for an aggregate base purchase price of $i1.0 million.
The Mattamy contract also includes marketing fee revenue based on a percentage of the sales price of each finished home.
In September 2020, Keith Bass, a member of our Board of Directors, was named the Chief Executive Officer of Mattamy Homes US. Following this development, the Mattamy Contract and the ongoing obligations therein, were reviewed by the Nominating and Corporate Governance Committee in accordance with established policies and procedures regarding the authorization and approval of transactions with related parties.
i
The
following table demonstrates the impact, gross of tax, of our related party transactions on the Consolidated Statements of Income and Comprehensive Income for the six months ended:
Three Months Ended June 30,
Six Months Ended June 30,
Related
Party Transaction
Location on Statement of Income and Comprehensive Income
2022
2021
2022
2021
Mattamy Contract
Sales (a)
$i339
i1,446
$i513
i1,488
(a)The
three and six months ended June 30, 2021 exclude approximately $i0.1 million and $i0.2 million,
respectively, of cash received from Mattamy Jacksonville LLC under this agreement for the reimbursement of local impact fees.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
When
we refer to “Rayonier” or “the Company” we mean Rayonier Inc. and its consolidated subsidiaries. References to the “Operating Partnership” mean Rayonier, L.P. and its consolidated subsidiaries. References to “we,”“us,” or “our,” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership.References herein to “Notes to Financial Statements” refer to the Notes to Consolidated Financial Statements of Rayonier Inc. and Rayonier, L.P. included in Item 1 of this report.
This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read
in conjunction with our Consolidated Financial Statements included in Item 1 of this report, our Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) and information contained in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”).
FORWARD-LOOKING STATEMENTS
Certain statements in this document regarding anticipated financial outcomes, including our earnings guidance, if any, business and market conditions, outlook, expected dividend rate, our business strategies, including the potential effects of the ongoing global novel coronavirus (“COVID-19”) pandemic, expected harvest schedules, timberland acquisitions and dispositions, the anticipated benefits of our business strategies, and other similar statements relating to our 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 2021 Form 10-K, Part II, Item
1A — Risk Factors in this report and similar discussions included in other reports that we subsequently file with the SEC, among others, could cause actual results or events to differ materially from our historical experience and those expressed in forward-looking statements made in this document.
Forward-looking statements are only as of the date they are made, and we undertake no duty to update our forward-looking statements except as required by law. You are advised, however, to review any subsequent disclosures we make on related subjects in subsequent reports filed with the SEC.
NON-GAAP MEASURES
To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures, including “Cash Available for
Distribution,” and “Adjusted EBITDA,” which are defined and further explained in Performance and Liquidity Indicators below. Reconciliation of such measures to the nearest GAAP measures can also be found in Performance and Liquidity Indicators below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.
OBJECTIVE
The objective of the Management’s Discussion and Analysis is to detail material information, events, uncertainties and other factors impacting the Company and the Operating Partnership and to provide investors an understanding of “Management’s perspective.” Item 7, Management’s
Discussion and Analysis (“MD&A”) highlights the critical areas for evaluating the Company’s performance which includes a discussion on the reportable segments, liquidity and capital, and critical accounting estimates. The MD&A is provided as a supplement to, and should be read in conjunction with, our financial statements and notes.
We are a leading timberland real estate investment trust (“REIT”) with assets located
in some of the most productive softwood timber growing regions in the United States and New Zealand. We invest in timberlands and actively manage them to provide current income and attractive long-term returns to our shareholders. We conduct our business through an umbrella partnership real estate investment trust (“UPREIT”) structure in which our assets are owned by our Operating Partnership and its subsidiaries. Rayonier manages the Operating Partnership as its sole general partner. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate, and Trading. As of June 30, 2022, we owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.79 million acres), U.S. Pacific Northwest (486,000
acres) and New Zealand (418,000 gross acres or 296,000 net plantable acres).
SEGMENT INFORMATION
The Southern Timber, Pacific Northwest Timber and New Zealand Timber segments include all activities related to the harvesting of timber and other non-timber income activities, such as the licensing of properties for hunting, the leasing of properties for mineral extraction and cell towers, and carbon credit sales. Our New Zealand operations are conducted by Matariki Forestry Group, a joint venture (the “New Zealand subsidiary”), in which we maintain a 77% ownership interest. See Note 4 - Noncontrolling Interests for additional information regarding our noncontrolling interests in the New Zealand Timber segment.
The
Real Estate segment includes all U.S. and New Zealand land or leasehold sales disaggregated into six sales categories: Improved Development, Unimproved Development, Rural, Timberland & Non-Strategic, Conservation Easements and Large Dispositions. It also includes residential and commercial lease activity, primarily in the town of Port Gamble, Washington.
The Trading segment primarily reflects log trading activities in New Zealand and Australia conducted by our New Zealand subsidiary. It also includes log trading activities conducted from the U.S. South and Pacific Northwest. Our Trading segment activities include an export services joint venture with a third-party forest manager in which Matariki Forests Trading Ltd maintains a 50% ownership interest. The Trading segment complements the New Zealand Timber segment by providing added market intelligence, increasing the scale of export operations and achieving cost savings
that directly benefit the New Zealand Timber segment. This additional market intelligence also benefits our Southern and Pacific Northwest export log marketing.
The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on domestic customers but also exports a significant volume of timber, particularly to China. The Southern Timber and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to Asian markets,
particularly in China and South Korea. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms.
Global log and lumber markets were volatile during the first and second quarters as sanctions were placed on Russia in response to their invasion of Ukraine. While we do not expect our operations to be directly impacted by the conflict at this time, changes in global wood and commodity flows could impact the markets in which we operate.
As the current COVID-19 pandemic continues to evolve, the expected duration and the extent of economic disruption it may ultimately cause remain uncertain. Local, state and national governments continue to evaluate policies and restrictions in order to mitigate the spread of COVID-19. Government-mandated shutdowns
or shelter-in-place orders in markets in which we operate could negatively impact our results. Further, prolonged periods of lower overall business activity as a result of COVID-19 could cause significant damage to the underlying economy, which would likely impact timber markets.
We are also subject to the risk of price fluctuations in certain of our cost components, primarily logging and transportation (cut and haul), ocean freight and demurrage costs. Other major components of our cost of sales are the cost basis of timber sold (depletion) and the cost basis of real estate sold. Depletion includes the amortization of capitalized site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs. The cost basis of real estate sold includes the cost basis in land and costs directly associated with the development and construction of
identified real estate projects, such as infrastructure, roadways, utilities, amenities and/or other improvements. Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes, fire prevention and real estate commissions and closing costs.
For additional information on market conditions impacting our business, see Results of Operations.
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 2021 Form 10-K.
39
DISCUSSION
OF TIMBER INVENTORY AND SUSTAINABLE YIELD
See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in our 2021 Form 10-K.
OUR TIMBERLANDS
Our timber operations are disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. The following tables provide a breakdown of our timberland holdings as of June 30, 2022 and December 31, 2021:
(a)Represents
legal acres owned and leased by the New Zealand subsidiary, in which we own a 77% interest. As of June 30, 2022, legal acres in New Zealand consisted of 296,000 plantable acres and 122,000 non-productive acres.
40
The
following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2021 to June 30, 2022:
(a)Includes
acres previously under lease that have been harvested and activity for the relinquishment of leased acres.
(b)Primarily timber reservations acquired in the merger with Pope Resources.
(c)Represents legal acres leased by the New Zealand subsidiary, in which we have a 77% interest.
41
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table provides key financial information by segment and on a consolidated basis:
Three
Months Ended June 30,
Six Months Ended June 30,
Financial Information (in millions)
2022
2021
2022
2021
Sales
Southern Timber
$66.3
$49.3
$143.0
$101.0
Pacific
Northwest Timber
39.2
35.3
85.4
76.8
New Zealand Timber
78.9
80.6
130.3
138.1
Timber
Funds
—
18.6
—
33.6
Real Estate
Improved Development
11.6
19.3
16.5
19.6
Rural
23.4
20.3
40.4
30.1
Timberland
& Non-Strategic
—
—
11.4
—
Conservation Easement
—
3.9
—
3.9
Deferred Revenue/Other
(a)
(0.6)
(5.0)
0.3
(4.5)
Large Dispositions
—
36.0
—
36.0
Total Real Estate
34.4
74.5
68.6
85.0
Trading
27.7
34.5
41.1
51.2
Intersegment
Eliminations
(0.1)
(1.4)
(0.1)
(2.8)
Total Sales
$246.3
$291.4
$468.4
$482.9
Operating
Income
Southern Timber
$24.1
$17.0
$54.4
$34.3
Pacific Northwest Timber
2.9
1.9
9.5
3.2
New
Zealand Timber
8.0
20.7
13.4
34.7
Timber Funds
—
2.0
—
3.5
Real Estate (a)(b)
11.0
50.5
21.2
52.2
Trading
(0.4)
0.4
(0.1)
0.7
Corporate
and Other
(10.1)
(8.0)
(17.7)
(15.6)
Operating Income
35.5
84.4
80.8
112.9
Interest expense,
interest income and other
(8.9)
(14.1)
(17.7)
(24.1)
Income tax expense
(1.3)
(6.9)
(6.8)
(10.3)
Net
Income
25.3
63.4
56.3
78.5
Less: Net income attributable to noncontrolling interests in consolidated affiliates
(0.6)
(4.5)
(1.7)
(8.3)
Net
Income Attributable to Rayonier, L.P.
$24.7
$58.9
$54.6
$70.2
Less: Net income attributable to noncontrolling interests in the operating partnership
(0.6)
(1.7)
(1.2)
(2.1)
Net
Income Attributable to Rayonier Inc.
$24.1
$57.2
$53.4
$68.1
Adjusted EBITDA (c)
Southern
Timber
$38.7
$30.6
$87.1
$62.3
Pacific Northwest Timber
14.3
13.9
35.8
31.5
New Zealand
Timber
14.9
27.7
25.3
48.9
Timber Funds
—
1.4
—
2.3
Real Estate
25.4
29.1
50.1
34.1
Trading
(0.4)
0.4
(0.1)
0.7
Corporate
and Other
(9.8)
(7.7)
(17.0)
(15.1)
Total Adjusted EBITDA
$83.0
$95.3
$181.1
$164.7
(a)Includes
deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.
(b)The three and six months ended June 30, 2021 includes $30.3 million from a Large Disposition.
(a)Estimated
percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(a)Estimated
percentage of export volume, which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(+)
Non-cash cost of land and improved development
11.8
5.2
17.1
7.0
(–)
Large Dispositions (b)
—
(30.3)
—
(30.3)
Adjusted EBITDA (e)
$25.4
$29.1
$50.1
$34.1
(a)Includes
deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.
(b)Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In June 2021, we completed the disposition of approximately 9,000 acres located in Washington for a sales price and a gain of approximately $36.0 million and $30.3 million, respectively.
(c)Excludes Large Dispositions.
(d)Excludes Improved Development and Large Dispositions.
Capital Expenditures By Segment (in millions of dollars)
2022
2021
2022
2021
Timber Capital Expenditures
Southern Timber
Reforestation,
silviculture and other capital expenditures
$3.6
$4.3
$6.1
$7.6
Property taxes
1.9
1.8
3.7
3.3
Lease
payments
0.2
0.2
0.9
1.0
Allocated overhead
1.1
1.0
2.4
2.2
Subtotal Southern Timber
$6.8
$7.2
$13.1
$14.0
Pacific
Northwest Timber
Reforestation, silviculture and other capital expenditures
1.5
1.7
5.2
4.4
Property
taxes
0.3
0.3
0.5
0.5
Allocated overhead
1.4
1.2
2.7
2.3
Subtotal
Pacific Northwest Timber
$3.2
$3.1
$8.4
$7.3
New
Zealand Timber
Reforestation, silviculture and other capital expenditures
3.0
3.1
5.5
5.0
Property taxes
0.2
0.2
0.4
0.4
Lease
payments
0.9
0.7
1.4
1.2
Allocated overhead
0.7
0.8
1.4
1.5
Subtotal New Zealand Timber
$4.8
$4.7
$8.6
$8.1
Total
Timber Segments Capital Expenditures
$14.7
$15.1
$30.2
$29.3
Timber Funds (“Look-through”) (a)
—
0.2
—
0.4
Real
Estate
—
—
0.1
0.1
Total Capital Expenditures
$14.7
$15.2
$30.3
$29.7
Timberland
Acquisitions
Southern Timber
$0.4
$11.0
$3.2
$41.0
New
Zealand Timber
—
10.9
—
10.9
Timberland Acquisitions
$0.4
$21.9
$3.2
$51.9
Real
Estate Development Investments (b)
$2.9
$3.3
$6.0
$6.3
(a)The
three and six months ended June 30, 2021 exclude $1.2 million and $2.5 million, respectively, of capital expenditures attributable to noncontrolling interests in Timber Funds.
(b)Represents investments in master infrastructure or entitlements in our real estate development projects. Real Estate Development Investments are amortized as the underlying properties are sold and included in Non-Cash Cost of Land and Improved Development.
48
The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances
for June 30, 2022 versus June 30, 2021 (millions of dollars):
(b) Includes variance due to stumpage versus delivered sales.
(c) Includes variance due to domestic versus export sales.
(d) Timber Funds segment was liquidated in 2021.
(e) Includes $36.0 million of sales from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
(f) Includes a decrease in Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment.
(b) Includes variance due to stumpage versus delivered sales.
(c) Includes variance due to domestic versus export sales.
(d) Timber Funds segment was liquidated in 2021.
(e) Includes $36.0 million of sales from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
(f) Includes adecrease in Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment.
(a)For
Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs.
(b)For the New Zealand Timber segment, includes carbon credit sales.
(c)Net of currency hedging impact.
(d)Timber Funds segment was liquidated in 2021. Real Estate includes $30.3 million of operating income from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
(a)For
Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs.
(b)For the New Zealand Timber segment, includes carbon credit sales.
(c)Net of currency hedging impact.
(d)Timber Funds segment was liquidated in 2021. Real Estate includes $30.3 million of operating income from a Large Disposition in addition to Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
(b)For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs.
(c)For the New Zealand Timber segment, includes carbon credit sales.
(d)Net of currency hedging impact.
(e)Timber Funds segment was liquidated in 2021. Real Estate includes Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue
true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
(b)For Timber segments, price reflects net stumpage realizations (i.e., net of cut and haul and shipping costs). For Real Estate, price is presented net of cash closing costs.
(c)For the New Zealand Timber segment, includes carbon credit sales.
(d)Net of currency hedging impact.
(e)Timber Funds segment was liquidated in 2021. Real Estate includes Conservation Easement sales in Q2 2021, residential and commercial lease income, revenue
true-ups and marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
SOUTHERN TIMBER
Second quarter sales of $66.3 million increased $17.0 million, or 34%, versus the prior year period. Harvest volumes increased 4% to 1.52 million tons versus 1.47 million tons in the prior year period, as demand remained strong across the region. Average pine sawtimber stumpage prices increased 22% to $34.09 per ton versus $27.96 per ton in the prior year period, due to strong domestic lumber demand as well as increased competition for chip-n-saw volume from pulp mills. Average pine pulpwood stumpage prices rose 18% to $21.46 per ton versus $18.22 per ton in the prior year period. Despite an unfavorable shift in our geographic mix of pulpwood
sales versus the prior year period, robust competition amid strong end-market demand allowed us to capture pulpwood price increases that more than offset the upward pressure on cut and haul costs. Overall, weighted-average stumpage prices (including hardwood) increased 18% to $25.55 per ton versus $21.61 per ton in the prior year period. Operating income of $24.1 million increased $7.1 million versus the prior year period due to higher net stumpage realizations ($6.0 million), higher non-timber income ($2.4 million) and higher volumes ($0.7 million), partially offset by higher overhead costs ($1.4 million) and higher depletion rates ($0.6 million). Second quarter Adjusted EBITDA of $38.7 million was 27%, or $8.1 million, above the prior year period.
51
Year-to-date
sales of $143.0 million increased $42.1 million, or 42%, versus the prior year period. Harvest volumes increased 15% to 3.42 million tons versus 2.98 million in the prior year period, due to strong demand and favorable logging conditions. Average pine sawtimber stumpage prices increased 26% to $34.86 per ton versus $27.69 per ton in the prior year period, primarily due to robust demand from sawmills given the strength of the domestic lumber market, as well as competition for chip-n-saw volume from pulp mills. Average pine pulpwood stumpage prices increased 30% to $22.93 per ton versus $17.69 per ton in the prior year period, driven by strong demand due to low mill inventories at the start of the year and favorable end-market demand. Overall, weighted-average stumpage prices (including hardwood) increased 25% to $26.87 per ton versus $21.48 per ton in the prior year period. Operating income of $54.4 million increased $20.1 million versus the prior year period due to higher
net stumpage realizations ($18.4 million), higher volumes ($5.3 million) and higher non-timber income ($0.7 million), partially offset by higher costs ($3.6 million) and higher depletion rates ($0.7 million).
PACIFIC NORTHWEST TIMBER
Second quarter sales of $39.2 million increased $3.8 million, or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 6% to 376,000 tons versus 400,000 tons in the prior year period. Average delivered sawtimber prices increased 19% to $116.60 per ton versus $97.80 per ton in the prior year period, driven by continued strong demand from domestic lumber mills as well as a favorable species mix, as a higher proportion of Douglas-fir sawtimber was harvested in the current year quarter. Average delivered pulpwood prices increased 56% to $45.17 per ton versus $29.02 per ton in the prior year period, reflecting strong end- market
demand as well as the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Operating income of $2.9 million improved $1.1 million versus the prior year period due to higher net stumpage realizations ($3.0 million), partially offset by higher overhead and other costs ($1.4 million), lower volumes ($0.4 million) and lower non-timber income ($0.2 million). Second quarter Adjusted EBITDA of $14.3 million was 3%, or $0.4 million, above the prior year period.
Year-to-date sales of $85.4 million increased $8.6 million, or 11%, versus the prior year period, notwithstanding a decline in harvest volumes of 6% to 881,000 tons versus 936,000 tons in the prior year period. Average delivered sawtimber prices increased 17% to $110.66 per ton versus $94.20 per ton in the prior year period due to strong domestic lumber demand and a favorable species mix in
the current year period. Average delivered pulpwood prices increased 43% to $41.83 per ton versus $29.18 per ton in the prior year period, driven by strong end-market demand, the restart of previously idled pulp mill capacity, and the resumption of chip exports, which resulted in greater competition from pulp mills to secure supply. Operating income of $9.5 million improved $6.3 million versus the prior year period due to higher net stumpage realizations ($8.7 million) and lower depletion rates ($0.4 million), partially offset by higher costs ($1.9 million), lower volumes ($0.6 million) and lower non-timber income ($0.3 million).
NEW ZEALAND TIMBER
Second quarter sales of $78.9 million decreased $1.7 million, or 2%, versus the prior year period. Harvest volumes increased 1% to 703,000 tons versus 692,000 tons in the prior year period, reflecting
a pickup in activity to more normalized levels following a relatively light first quarter. Average delivered prices for export sawtimber decreased 5% to $140.44 per ton versus $148.28 per ton in the prior year period. The decrease in export sawtimber prices versus the prior year period was driven by reduced demand stemming from the COVID-19 lockdowns in China, which in turn contributed to persistently high port inventories. Net stumpage realizations for export sawtimber were further reduced by significantly higher port / freight costs, driven by elevated fuel prices as well as increased demurrage charges due to port congestion. Average delivered prices for domestic sawtimber decreased 10% to $76.82 per ton versus $85.09 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollar terms) was primarily driven by the decline in the NZ$/US$ exchange rate (US$0.66 per NZ$1.00 versus US$0.72 per NZ$1.00). Excluding the impact of foreign exchange
rates, domestic sawtimber prices decreased 2% versus the prior year period, reflecting additional supply that was diverted into domestic markets due to export market headwinds. Operating income of $8.0 million decreased $12.7 million versus the prior year period due to lower net stumpage realizations ($16.5 million), higher costs ($0.9 million) and higher depletion rates ($0.3 million), partially offset by higher carbon credit sales ($3.4 million), favorable foreign exchange impacts ($1.1 million) and higher volumes ($0.5 million). Second quarter Adjusted EBITDA of $14.9 million was 46%, or $12.8 million, below the prior year period.
Year-to-date sales of $130.3 million decreased $7.9 million, or 6%, versus the prior year period. Harvest volumes decreased 6% to 1.2 million tons versus 1.3 million tons in the prior year period. Average delivered prices
52
for
export sawtimber decreased 1% to $135.13 per ton versus $136.45 per ton in the prior year period. The decrease in export sawtimber prices versus the prior year period was primarily driven by reduced demand due to COVID-19 related disruptions in China. Net stumpage realizations for export sawtimber were further pressured by higher shipping and demurrage costs due to ongoing supply chain and port congestion issues. Average delivered prices for domestic sawtimber decreased 8% to $76.48 per ton versus $83.11 per ton in the prior year period. The decrease in domestic sawtimber prices (in U.S. dollars terms) was driven primarily by the decline in the NZ$/US$ exchange rate (US$0.67 per NZ$1.00 versus US$0.72 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 1% versus the prior year period. Operating income of $13.4 million decreased $21.3 million versus the prior year period as a result of lower net stumpage realizations ($22.4 million),
lower volumes ($2.6 million), higher costs (1.4 million) and unfavorable foreign exchange impacts ($0.4 million), partially offset by higher carbon credit sales (4.9 million) and lower depletion rates ($0.6 million). Year-to-date Adjusted EBITDA of $25.3 million was $23.6 million below the prior year period.
TIMBER FUNDS
During 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds, and we completed the liquidation of Fund II timberland assets. As such, we had no sales, operating income or Adjusted EBITDA in the current quarter or year-to-date period in the Timber Funds segment, as will be the case going forward.
The Timber Funds segment generated prior year second quarter sales of $18.6 million on harvest volumes of 175,000 tons, resulting in operating income of $2.0 million in the prior
year period. Second quarter Adjusted EBITDA was $1.4 million in the prior year period.
The Timber Funds segment generated prior year year-to-date sales of $33.6 million on harvest volumes of 319,000 tons, resulting in operating income of $3.5 million in the prior year period. Year-to-date Adjusted EBITDA was $2.3 million in the prior year period.
REAL ESTATE
Second quarter sales of $34.4 million decreased $40.1 million versus the prior year period, while operating income of $11.0 million decreased $39.5 million versus the prior year period. The prior year second quarter sales and operating income included $36.0 million and $30.3 million, respectively, from a Large Disposition. Sales and operating income declined versus the prior year period due
to a lower number of acres sold (4,694 acres sold versus 16,548 acres sold in the prior year period), partially offset by an increase in weighted-average prices ($7,453 per acre versus $4,571 per acre in the prior year period).
Improved Development sales of $11.6 million included $10.5 million from the Wildlight development project north of Jacksonville, Florida and $1.1 million from the Heartwood development project south of Savannah, Georgia. Sales in Wildlight consisted of a 22-acre multifamily apartment site for $4.8 million ($222,000 per acre), a 31-acre single-family build-to-rent site for $4.4 million ($140,000 per acre), and 19 residential lots for $1.3 million ($70,000 per lot). Sales in Heartwood consisted of 26 residential lots for $1.1 million ($42,000 per lot). This compares to prior year period Improved Development sales of $19.3 million, which reflected significant activity in both Wildlight and Heartwood / Belfast
Commerce Park.
There were no Unimproved Development sales in the second quarter or the prior year period.
Rural sales of $23.4 million consisted of 4,633 acres at an average price of $5,054 per acre, which compares to prior year period sales of $20.3 million, which consisted of 7,725 acres at an average price of $2,627 per acre.
There were no Timberland & Non-Strategic sales in the second quarter or the prior year period.
Second quarter Adjusted EBITDA of $25.4 million was $3.7 million below the prior year period.
Year-to-date sales of $68.6 million decreased $16.4 million versus the prior year period, while operating income of $21.2 million decreased $31.0 million versus the prior year period. There were no Large Dispositions in the current year
period, compared with year-to-date sales and operating income of $36.0 million and $30.3 million, respectively from a Large Disposition in the prior year period. Sales decreased in the first six months primarily due to lower volumes (13,428 acres sold versus 18,943 acres sold in the prior year period), partially offset by higher weighted-average prices ($5,087 per acre versus $4,522 per acre in the prior year period). Year-to-date Adjusted EBITDA of $50.1 million increased $15.9 million versus the prior year period.
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TRADING
Second quarter sales
of $27.7 million decreased $6.9 million versus the prior year period primarily due to lower volumes and prices. Sales volumes decreased 14% to 209,000 tons versus 243,000 tons in the prior year period, reflecting elevated log inventories in China and constrained export market demand. The Trading segment generated an operating loss of $0.4 million versus operating income of $0.4 million in the prior year period.
Year-to-date sales of $41.1 million decreased $10.1 million versus the prior year period primarily due to lower volumes, as well as lower prices. Sales volumes decreased 17% to 320,000 tons versus 384,000 tons in the prior year period. The Trading segment generated an operating loss of $0.1 million versus operating income of $0.7 million in the prior year period.
OTHER ITEMS
CORPORATE AND OTHER EXPENSE / ELIMINATIONS
Second
quarter corporate and other operating expenses of $10.1 million increased $2.1 million versus the prior year period, primarily due to higher compensation and benefits expenses ($1.5 million), higher legal costs ($0.3 million) and higher insurance and travel expenses ($0.3 million).
Year-to-date corporate and other operating expenses of $17.7 million increased $2.0 million versus the prior year period, primarily due to higher compensation and benefits expenses ($1.2 million), higher legal costs ($0.4 million) and higher insurance and travel expenses ($0.4 million).
Compensation and benefits expenses were elevated in the current quarter and year-to-date period due to the accelerated realization of equity compensation expense for retirement-eligible employees.
INTEREST EXPENSE
Second quarter
and year-to-date interest expense of $9.1 million and $17.4 million, respectively, decreased $3.9 million and $5.6 million versus the prior year period, as the prior year period included a $2.2 million loss from the termination of a cash flow hedge. Additionally, second quarter and year-to-date interest expense benefited from lower average outstanding debt and a lower average interest rate as compared to the prior year period.
INCOME TAX EXPENSE
Second quarter and year-to-date income tax expense of $1.3 million and $6.8 million, respectively, decreased $5.6 million and $3.5 million versus the prior year period. The New Zealand subsidiary is the primary driver of income tax expense.
OUTLOOK
In our Southern Timber segment, we now expect full-year harvest volumes of 6.4 to 6.6 million tons,
as strong customer demand and favorable weather conditions are allowing us to successfully execute our annual harvest plan. We are encouraged by the significant year-over-year pricing gains that have been realized across our operating areas. However, we expect modestly lower weighted-average net stumpage realizations during the second half of 2022 as compared to the first half, primarily due to higher cut and haul costs as a result of elevated diesel prices and a higher proportion of thinning volume.
In our Pacific Northwest Timber segment, we now expect full-year harvest volumes of 1.6 to 1.7 million tons, due in part to a modest adjustment in our harvest plan to reflect land sales, as well as reduced China export volume. We further expect that weighted-average delivered log prices will remain well above prior year levels for the balance of the year. However, we anticipate these pricing gains will be partially offset by higher
cut and haul costs due to elevated diesel prices.
In our New Zealand Timber segment, we now expect full-year harvest volumes of 2.6 to 2.7 million tons. While domestic log demand was strong throughout the first half of the year, export market dynamics were negatively impacted by ongoing COVID-19 lockdowns in China. We expect export sawtimber prices to stabilize in the second half of the year in response to improved offtake from Chinese ports and a reduction in competing log supply. However, we expect that net stumpage realizations on export volume will continue to be constrained by elevated port and freight costs. In the domestic market, we anticipate continued strong log demand, although we expect that pricing will be modestly lower in the second half of the year as compared to the first half of the year due to added supply pressure resulting from reduced export volume. Partially offsetting these headwinds, we expect a higher
contribution from non-timber income (carbon credit sales) in the second half of the year as compared to the first half.
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In our Real Estate segment, following strong Real Estate results in the first half of the year, we anticipate lower quarterly results for the balance of the year.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As an UPREIT, our main use of cash is dividends and unitholder distributions. We also use
cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources or Large Dispositions.
SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS
June 30,
December 31,
(millions
of dollars)
2022
2021
Cash and cash equivalents (excluding Timber Funds)
$279.3
$358.7
Total debt (a)
1,272.1
1,376.1
Noncontrolling interests in the operating partnership
123.8
133.8
Shareholders’
equity
1,820.4
1,815.6
Total capitalization (total debt plus permanent and temporary equity)
3,216.3
3,325.5
Debt to capital ratio
40
%
41
%
Net
debt to enterprise value (b)(c)
15
%
14
%
(a)Total debt as of June 30, 2022 and December 31,
2021 reflects principal on long-term debt, gross of deferred financing costs and unamortized discounts.
(b)Net debt is calculated as total debt less cash and cash equivalents.
(c)Enterprise value based on market capitalization (including Rayonier, L.P. “OP” units) plus net debt based on Rayonier’s share price of $37.38 and $40.36 as of June 30, 2022 and December 31, 2021, respectively.
AT-THE-MARKET (“ATM”) EQUITY OFFERING PROGRAM
On September 10, 2020, we entered into a distribution agreement with a group of sales agents through which we may sell common
shares, from time to time, having an aggregate sales price of up to $300 million. As of June 30, 2022, $1.0 million remains available for issuance under the program.
The following table outlines common share issuances pursuant to our ATM program (dollars in millions):
Shares of common stock issued under the ATM program
—
2,199,459
726,248
3,307,273
Average
price per share sold under the ATM program
—
$36.79
$41.46
$35.63
Gross proceeds from common shares issued under the ATM program
—
$80.9
$30.1
$117.8
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CASH
FLOWS
The following table summarizes our cash flows from operating, investing and financing activities for the six months ended June 30, 2022 and 2021:
(millions of dollars)
2022
2021
Cash provided by (used for):
Operating
activities
$148.5
$164.6
Investing activities
(34.5)
(49.1)
Financing activities
(184.9)
112.0
CASH PROVIDED BY OPERATING ACTIVITIES
Cash provided by operating activities decreased $16.1 million from the prior year period primarily
due to lower operating results and changes in working capital.
CASH USED FOR INVESTING ACTIVITIES
Cash used for investing activities decreased $14.6 million from the prior year period primarily due to lower timberland acquisitions ($48.6 million), lower capital expenditures ($1.9 million) and lower real estate development investments ($0.3 million), partially offset by lower proceeds from Large Dispositions ($35.2 million) and other investing activities ($1.0 million).
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
Cash used for financing activities of $184.9 million compares to cash provided by financing activities of $112.0 million in the prior year period. This is primarily due to lower net borrowings ($221.2 million), lower net proceeds from the issuance of common shares under
the ATM equity offering program ($78.8 million), higher dividends paid on common shares ($6.1 million), higher share repurchases ($2.6 million) and lower proceeds from the issuance of common shares under the Company’s incentive stock plan ($1.9 million), partially offset by lower distributions to consolidated affiliates ($8.5 million), lower debt issuance costs of ($4.8 million) and lower distributions to noncontrolling interests in the operating partnership ($0.4 million).
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FUTURE USES OF CASH
We expect future uses of cash to include working capital requirements, principal and interest payments on long-term
debt, lease payments, capital expenditures, real estate development investments, timberland acquisitions, dividends on Rayonier Inc. common shares and distributions on Rayonier, L.P. units, distributions to noncontrolling interests, and repurchases of the Company’s common shares to satisfy other commitments. During Q2 2022, the Company announced a 5.6% increase in its quarterly cash dividend from $0.27 to $0.285 per common share and Rayonier, LP unit.
Significant long-term uses of cash include the following (in millions):
Future
uses of cash (in millions)
Total
Payments Due by Period
2022
2023-2024
2025-2026
Thereafter
Long-term debt (a)
$1,271.5
—
—
$246.5
$1,025.0
Current
maturities of long-term debt (b)
0.6
—
0.6
—
—
Interest payments on long-term debt (b)
238.4
18.1
72.5
67.2
80.6
Operating
leases — timberland (c)
189.5
5.5
14.8
14.1
155.1
Operating leases — PP&E, offices (c)
7.9
0.9
2.2
1.2
3.6
Commitments
— development projects (d)
27.8
19.7
3.5
0.5
4.1
Commitments — derivatives (e)
25.4
8.1
15.9
1.4
—
Commitments
— environmental remediation (f)
11.3
0.7
7.7
1.5
1.4
Commitments — other (g)
1.1
0.4
0.6
0.1
—
Total
$1,773.5
$53.4
$117.8
$332.5
$1,269.8
(a)The
book value of long-term debt, net of deferred financing costs and unamortized discounts, is currently recorded at $1,263.4 million on our Consolidated Balance Sheets, but upon maturity the liability will be $1,271.5 million. See Note 6 - Debt for additional information.
(b)Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of June 30, 2022.
(c)Excludes anticipated renewal options.
(d)Commitments — developmental projects primarily consists of payments expected to be made on our Wildlight and Heartwood
projects.
(e)Commitments — derivatives represent payments expected to be made on derivative financial instruments (interest rate swaps and forward-starting interest rate swaps). See Note 7 — Derivative Financial Instruments and Hedging Activities for additional information.
(f)Commitments — environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages in Port Gamble, Washington. See Note 11 - Environmental and Natural Resource Damage Liabilities for additional information.
(g)Commitments — other includes other purchase obligations.
We expect to fund future uses of cash with a combination of existing cash balances, cash generated by operating activities, the remaining issuances available under the Company’s ATM Program, Large Dispositions and the use of our revolving credit facilities.
57
EXPECTED 2022 EXPENDITURES
Capital expenditures in 2022 are expected to be between $80 million and $82 million, excluding any strategic timberland acquisitions we may make.
Capital expenditures are expected to primarily consist of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities.
We anticipate real estate development investments in 2022 to be between $23 million and $25 million, net of reimbursements from community development bonds. Expected real estate development investments are primarily related to Wildlight, our mixed-use community development project located north of Jacksonville, Florida and Heartwood, our mixed-use development project located in Richmond Hill just south of Savannah, Georgia.
Our 2022 dividend payments on Rayonier Inc. common shares and distributions to Rayonier, L.P. unitholders are expected to be approximately $164
million and $3.7 million, respectively, assuming no change in the quarterly dividend rate of $0.285 per share or partnership unit, or material changes in the number of shares or partnership units outstanding.
Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations including capital allocation priorities.
We have no mandatory pension contribution requirements in the current year.
Full-year 2022 cash tax payments are expected to be approximately $15.0 million, primarily related to the New Zealand subsidiary. First quarter cash tax payments were elevated due to the required timing of tax payments for our New Zealand subsidiary following the full utilization of its NOLs.
OFF-BALANCE
SHEET ARRANGEMENTS
We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, and collateral for outstanding claims under our previous workers’ compensation self-insurance programs. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 12 — Guarantees for details on the letters of credit and surety bonds as of June 30, 2022.
SUMMARY
OF GUARANTOR FINANCIAL INFORMATION
In May 2021, Rayonier, L.P. issued $450 million of 2.75% Senior Notes due 2031 (the “Senior Notes due 2031”). Rayonier TRS Holdings Inc., Rayonier Inc., and Rayonier Operating Company, LLC agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. in regards to the Senior Notes due 2031. As a general partner of Rayonier, L.P., Rayonier Inc. consolidates Rayonier, L.P. and has no material assets or liabilities other than its interest in Rayonier, L.P. These notes are unsecured and unsubordinated and will rank equally with all other unsecured and unsubordinated indebtedness from time to time outstanding.
Rayonier, L.P. is a limited partnership, in which Rayonier Inc. is the general partner. The operating subsidiaries of Rayonier, L.P. conduct all of our operations. Rayonier, L.P.’s most
significant assets are its interest in operating subsidiaries, which have been eliminated in the table below to eliminate intercompany transactions between the issuer and guarantors and to exclude investments in non-guarantors. As a result, our ability to make required payments on the notes depends on the performance of our operating subsidiaries and their ability to distribute funds to us. There are no material restrictions on dividends from the operating subsidiaries.
58
The summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for the six months ended June 30, 2022 and year ended December 31,
2021 are provided in the table below:
The
summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for the six months ended June 30, 2022 and year ended December 31, 2021 are provided in the table below:
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, and ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”) and Cash Available for Distribution (“CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”), and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above.
Management uses CAD as a liquidity measure. CAD is a non-GAAP measure of cash generated during a period that is available for common share dividends, distributions to operating partnership unitholders, distributions to noncontrolling
interests, repurchase of the Company’s common shares, debt reduction, timberland acquisitions and real estate development investments. CAD is defined as cash provided by operating activities adjusted for capital spending (excluding timberland acquisitions and real estate development investments), CAD attributable to noncontrolling interests in Timber Funds, and working capital and other balance sheet changes. CAD is not necessarily indicative of the CAD that may be generated in future periods.
Management uses Adjusted EBITDA as a performance measure. Adjusted EBITDA is a non-GAAP measure that management uses to make strategic decisions about the business and that investors can use to evaluate the operational performance of the assets under management. It excludes specific items that management believes are not indicative of the Company’s ongoing operating results. We define Adjusted EBITDA as earnings before interest, taxes,
depreciation, depletion, amortization, the non-cash cost of land and improved development, non-operating income and expense, operating income attributable to noncontrolling interests in Timber Funds and Large Dispositions.
59
We reconcile Adjusted EBITDA to Net Income for the consolidated Company and to Operating Income for the segments, as those are the most comparable GAAP measures for each. The following table provides a reconciliation of Net Income to Adjusted EBITDA for the respective periods (in millions of dollars):
Operating income attributable to NCI in Timber Funds
—
(1.6)
—
(2.7)
Interest,
net attributable to NCI in Timber Funds
—
0.2
—
0.2
Net Income (Excluding NCI in Timber Funds)
25.3
62.0
56.3
76.0
Interest,
net and miscellaneous income attributable to Rayonier
8.9
12.8
17.1
22.7
Income tax expense attributable to Rayonier
1.3
6.8
6.8
10.3
Depreciation,
depletion and amortization attributable to Rayonier
35.8
37.6
83.2
77.9
Non-cash cost of land and improved development
11.8
5.2
17.1
7.0
Non-operating
expense
—
1.2
0.6
1.2
Large
Dispositions (a)
—
(30.3)
—
(30.3)
Adjusted EBITDA
$83.0
$95.3
$181.1
$164.7
(a)Large
Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In June 2021, we completed the disposition of approximately 9,000 acres located in Washington for a sales price and gain of approximately $36.0 million and $30.3 million, respectively.
60
The
following tables provide a reconciliation of Operating Income by segment to Adjusted EBITDA by segment for the respective periods (in millions of dollars):
Operating
income attributable to NCI in Timber Funds
—
—
—
(1.6)
—
—
—
(1.6)
Depreciation,
depletion and amortization
13.6
12.0
7.0
1.0
3.7
—
0.3
37.6
Non-cash cost of land and improved development
—
—
—
—
5.2
—
—
5.2
Large
Dispositions (a)
—
—
—
—
(30.3)
—
—
(30.3)
Adjusted EBITDA
$30.6
$13.9
$27.7
$1.4
$29.1
$0.4
($7.7)
$95.3
(a)Large
Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In June 2021, we completed the disposition of approximately 9,000 acres located in Washington for a sales price and gain of approximately $36.0 million and $30.3 million, respectively.
Operating
income attributable to NCI in Timber Funds
—
—
—
(2.7)
—
—
—
(2.7)
Depreciation,
depletion and amortization
27.9
28.3
14.2
1.6
5.3
—
0.6
77.9
Non-cash cost of land and improved development
—
—
—
—
7.0
—
—
7.0
Large
Dispositions (a)
—
—
—
—
(30.3)
—
—
(30.3)
Adjusted EBITDA
$62.3
$31.5
$48.9
$2.3
$34.1
$0.7
($15.1)
$164.7
(a)Large
Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In June 2021, we completed the disposition of approximately 9,000 acres located in Washington for a sales price and gain of approximately $36.0 million and $30.3 million, respectively.
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The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
(a) Capital
expenditures exclude timberland acquisitions of $3.2 million and $51.9 million during the six months ended June 30, 2022 and June 30, 2021, respectively.
The following table provides supplemental cash flow data (in millions):
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in
accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes.
Interest Rate Risk
We are exposed to interest rate risk through our variable rate debt, primarily due to changes in LIBOR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreements by swapping existing and anticipated future borrowings from floating rates to fixed rates. As of June 30, 2022, we had $750 million of U.S. variable rate debt outstanding on our term credit agreements.
The notional amount of outstanding
interest rate swap contracts with respect to our term credit agreements at June 30, 2022 was $750 million. The Term Credit Agreement matures in April 2028, with the associated interest rate swaps maturing in August 2024. We have entered into forward starting interest rate swaps to cover $150 million of the Term Credit Agreement through the extended maturity date. The Incremental Term Loan Agreement and associated interest rate swaps mature in May 2026, and the 2021 Incremental Term Loan Facility and associated interest rate swaps mature in June 2029. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in no corresponding increase/decrease in interest payments and expense over a 12-month period.
The fair market value of our fixed interest rate debt is also subject to interest rate risk. The estimated fair value of
our fixed rate debt at June 30, 2022 was $446.6 million compared to the $521.5 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at June 30, 2022 would result in a corresponding decrease/increase in the fair value of our fixed rate debt of approximately $30 million and $33 million, respectively.
We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt to be approximately 2.6% after consideration of interest rate swaps and estimated patronage refunds, excluding unused commitment fees on the revolving
credit facility.
63
The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at June 30, 2022:
The New Zealand subsidiary’s export sales are predominately denominated in U.S. dollars, and therefore its cash flows are affected by fluctuations in the exchange rate between the New Zealand dollar and the U.S. dollar. This exposure is partially managed by a natural currency hedge, as ocean freight payments and shareholder distributions are also paid in U.S. dollars. We manage any excess foreign exchange exposure through the use of derivative financial instruments.
Foreign Exchange Exposure
At June 30,
2022, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $160.5 million and foreign currency option contracts with a notional amount of $32.0 million outstanding related to foreign export sales. The amount hedged represents a portion of forecasted U.S. dollar denominated export timber and log trading sales proceeds over the next 36 months and next 2 months, respectively.
The following table summarizes our outstanding foreign currency exchange rate risk contracts at June 30, 2022:
Foreign exchange contracts to sell U.S. dollar for New Zealand dollar
Notional amount
$10,500
$11,000
$9,000
$26,500
$45,000
$36,500
$20,000
$2,000
$160,500
($12,788)
Average
contract rate
1.4678
1.4452
1.4560
1.4538
1.4709
1.5050
1.5588
1.6251
1.4859
Foreign
currency option contracts to sell U.S. dollar for New Zealand dollar
Notional amount
—
—
—
—
$2,000
$12,000
$6,000
$12,000
$32,000
($592)
Average
strike price
—
—
—
—
1.4744
1.4941
1.5684
1.6391
1.5612
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Item 4. CONTROLS
AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Rayonier Inc.
Rayonier’s management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed with the objective of ensuring information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because
of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.
Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of June 30, 2022.
In the quarter ended June 30, 2022, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no
changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.
Rayonier, L.P.
The Operating Partnership 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 Rayonier, L.P. in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including Rayonier’s 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 Operating Partnership’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, management, including Rayonier’s Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of June 30, 2022.
In
the quarter ended June 30, 2022, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no changes in internal controls over financial reporting that would materially affect or are reasonably likely to materially affect internal controls over financial reporting.
Our operations are subject to a number of risks. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in this Quarterly Report on Form 10-Q. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. The information presented below updates the risk factors set forth in Part I, “Item 1A. Risk Factors,” of our 2021 Form 10-K.
Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine.
The
global economy has been negatively impacted by the military conflict between Russia and Ukraine. The Russia-Ukraine conflict is fast-moving and uncertain. Global log and lumber markets have exhibited increased volatility as sanctions have been imposed on Russia by the United States, the United Kingdom and the European Union in response to Russia’s invasion of Ukraine. While we do not expect our operations to be directly impacted by the conflict at this time, changes in global wood and commodity flows could impact the markets in which we operate, which may in turn negatively impact our business, results of operations, supply chain and financial condition. In addition, the effects of the ongoing conflict could heighten certain of our known risks described in the section entitled “Risk Factors” in Part I, Item 1A, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on
February 25, 2022.
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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Rayonier Inc.
REGISTERED SALES OF EQUITY SECURITIES
From time to time, the Company may issue its common shares in exchange for units in the Operating Partnership. Such shares are issued based on an exchange ratio
of one common share for each unit in the Operating Partnership. During the quarter ended June 30, 2022, the Company issued 977 common shares in exchange for an equal number of units in the Operating Partnership pursuant to the agreement of the Operating Partnership.
ISSUER PURCHASES OF EQUITY SECURITIES
In February 2016, the Board of Directors approved the repurchase of up to $100 million of Rayonier’s common shares (the “share repurchase program”) to be made at management’s discretion. The program has no time limit and may be suspended or discontinued at any time. There were no shares repurchased under this program in the second quarter of 2022. As of June 30, 2022, there was $87.7 million, or approximately 2,346,935 shares based on
the period-end closing stock price of $37.38, remaining under this program.
The following table provides information regarding our purchases ofRayonier common shares during the quarter ended June 30, 2022:
Period
Total
Number of Shares Purchased (a)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (c)
April 1 to April 30
90,405
$43.51
—
2,030,751
May
1 to May 31
324
39.52
—
2,128,298
June 1 to June 30
1,091
40.96
—
2,346,935
Total
91,820
—
(a)Includes
91,820 shares of the Company’s common shares purchased in April, May and June from current and former employees in non-open market transactions. The shares were sold by current and former employees of the Company in exchange for cash that was used to pay withholding taxes associated with the vesting of share-based awards under the Company’s Incentive Stock Plan. The price per share surrendered is based on the closing price of the Company’s common shares on the respective vesting dates of the awards.
(b)Purchases made in open-market transactions under the $100 million share repurchase program announced on February 10, 2016.
(c)Maximum number of shares authorized to be purchased under the share repurchase program at the end of April, May and June are based on month-end closing stock prices
of $43.20, $41.22 and $37.38, respectively.
Rayonier, L.P.
UNREGISTERED SALES OF EQUITY SECURITIES
There were no unregistered sales of equity securities made by the Operating Partnership during the quarter endedJune 30, 2022.
ISSUER PURCHASES OF EQUITY SECURITIES
Pursuant to the Operating Partnership’s limited partnership agreement, limited partners have the right to redeem their units in the Operating Partnership for cash, or at our election, shares of Rayonier Common Stock on a one-for-one basis. During the quarter ended June 30,
2022, 977 units in the Operating Partnership held by limited partners were redeemed in exchange for shares of Rayonier Common Stock.
The following financial information from Rayonier Inc. and Rayonier, L.P.’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2022, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 of Rayonier Inc.; (ii) the Consolidated Balance Sheets as of June 30, 2022 and December 31,
2021 of Rayonier Inc.; (iii) the Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2022 and 2021 of Rayonier Inc.; (iv) the Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 of Rayonier Inc.; (v) the Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2022 and 2021 of Rayonier, L.P.; (vi) the Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021 of Rayonier, L.P.; (vii) the Consolidated Statements of Changes in Capital for the
Six Months Ended June 30, 2022 and 2021 of Rayonier, L.P.; (viii) the Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 of Rayonier, L.P.; and (ix) the Notes to Consolidated Financial Statements of Rayonier Inc. and Rayonier, L.P.
The cover page from the Company’s Quarterly Report on Form 10-Q from the quarter ended June 30, 2022, formatted in Inline XBRL (included as Exhibit 101).
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
