Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
EXECUTIVE SUMMARY
OUR COMPANY
We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the U.S. and New Zealand. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate and Trading. We own or lease under long-term agreements approximately 2.7 million acres of timberland and real estate in Alabama, Arkansas, Florida, Georgia, Louisiana, Oklahoma, Oregon, South Carolina, Texas and Washington. We also have a 77% ownership interest in Matariki Forestry Group, a joint venture (“New Zealand subsidiary”), that owns or leases approximately 419,000 gross acres (296,000 net plantable acres) of timberlands in New Zealand.
Across our timberland management segments, we sell standing timber (primarily at auction to third parties) and delivered logs. Sales from our timber segments include all activities related to the harvesting of timber and other value-added activities such as the licensing of properties for hunting and the leasing of properties for mineral extraction and cell towers. We believe we are the second largest publicly-traded timberland REIT and the fourth largest private timberland owner in the United States. Our Real Estate business manages all property sales and seeks to maximize the value of our properties that are more valuable for development, recreational or residential uses than for growing timber, and opportunistically sells non-strategic timberlands. Our Trading segment, primarily consisting of activity by the New Zealand subsidiary, markets and sells timber owned or acquired from third parties in New Zealand and Australia. We also engage in log trading activities from the U.S. South and U.S. Pacific Northwest.
CURRENT YEAR DEVELOPMENTS
During 2021, we acquired approximately 103,000 acres of timberlands for $179.1 million. For additional information on acquisitions, see Note 5 - Timberland Acquisitions. Additionally, as discussed in Note 7 - Noncontrolling Interests, we sold the rights to manage Timber Fund III & IV, as well as our ownership interests in both funds. We also completed the liquidation of Fund II timberland assets. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale. As of December 31, 2021, we continue to manage and maintain a 20% ownership interest in Fund II, which is scheduled to terminate in March 2023. Prior to the termination of Fund II, the remaining capital will be distributed to Fund II investors. See Note 7 - Noncontrolling Interests and Note 8 - Variable Interest Entities for additional information. INDUSTRY AND MARKET CONDITIONS
The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on
domestic customers but also exports a significant volume of timber, particularly to China. 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 markets in China, South Korea and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms.
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.
In 2021, pricing in the U.S. South improved versus the prior year, with increases in both pulpwood and sawtimber prices. Both pulpwood and sawtimber pricing tend to be driven by local market supply and demand dynamics, which vary considerably based on the available inventory of logs, local market mill demand, and access to export markets. In the Pacific Northwest, average log prices for 2021 were higher when compared to the prior year, primarily driven by improved sawtimber pricing resulting from strong domestic demand and increased market tension due to higher levels of export activity to China. In New Zealand, average log prices for 2021 were higher than the prior year, which reflected strong domestic demand, the ability of log exporters to pass higher costs on to customers as well as the restriction on competing log imports into China from Australia.
We are 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. In 2021, each of our timber segments experienced upward pressure on these cost components, with the most significant increase experienced in ocean freight and demurrage costs in our New Zealand Timber segment. 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.
In Real Estate, overall demand and pricing for HBU properties remained exceptionally strong in 2021. This was driven in part by historically low mortgage rates coupled with higher demand for rural land since the outset of the pandemic. In addition, we saw increased interest in our improved development properties, specifically Wildlight, our development project north of Jacksonville, Florida, and Richmond Hill, our development project south of Savannah, Georgia.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
The preparation of financial statements requires us to establish accounting policies and make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our Annual Report on Form 10-K. 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.
CAPITALIZED COSTS INCLUDED IN TIMBER BASIS
Timber is stated at the lower of cost or market value. Costs relating to acquiring, planting and growing timber, including real estate taxes, site preparation and direct support costs relating to facilities, vehicles and supplies, are capitalized. A portion of timberland lease payments are capitalized based on the proportion of acres with merchantable timber volume remaining to be harvested under the lease term, and the residual portion of the lease payments are expensed as incurred. Payroll costs are capitalized for time spent on timber growing activities, while interest or any other intangible costs are not capitalized.
MERCHANTABLE INVENTORY AND DEPLETION COSTS AS DETERMINED BY TIMBER HARVEST MODELS
An annual depletion rate is established for each particular region by dividing the cost of merchantable inventory (including costs described above) by standing merchantable inventory volume. Pre-merchantable records are maintained for each planted year age class, including acres planted, stems per acre and costs of planting and tending.
Significant assumptions and estimates are used in the recording of timber inventory and depletion costs. Factors that can impact timber volume include weather changes, losses due to natural causes, differences in actual versus estimated growth rates and changes in the age when timber is considered merchantable. A 3% company-wide change in estimated standing merchantable inventory would have caused an estimated change of approximately $3.9 million to 2021 depletion expense.
Merchantable standing timber inventory is estimated by our land information services group annually, using industry-standard computer software. The inventory calculation takes into account growth, in-growth (annual transfer of oldest pre-merchantable age class into merchantable inventory), timberland sales and the annual harvest specific to each business unit. The age at which timber is considered merchantable is reviewed periodically and updated for changing harvest practices, future harvest age profiles and biological growth factors.
Acquisitions of timberland can also affect the depletion rate. Upon the acquisition of timberland, we make a determination whether to combine the newly-acquired merchantable timber with an existing depletion pool or to create a new pool. The determination is based on the geographic location of the new timber, the customers/markets that will be served and species mix. During 2021, we acquired 103,000 acres of timberlands in Florida, Georgia, Texas and New Zealand. These acquisitions did not have a material impact on 2021 depletion rates.
REVENUE RECOGNITION
DETERMINING THE ADEQUACY OF PENSION AND OTHER POSTRETIREMENT BENEFIT ASSETS AND LIABILITIES
We have one 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 plan. The qualified and unfunded plans are closed to new participants. Effective December 31, 2016, we froze benefits for all employees participating in the pension plans.
In 2021, we recognized $0.3 million of pension and postretirement benefit credit due to the expected return on plan assets offsetting interest costs and amortization of losses. Numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements. The key assumptions include discount rate, return on assets, health care cost trends, mortality rates and longevity of employees. Although there is authoritative guidance on how to select most of the assumptions, some degree of judgment is exercised in selecting these assumptions. Different assumptions, as well as actual versus expected results, would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements. The changes in our discount rate and expected return on plan assets have an inverse relationship with our projected benefit obligation and pension expense, respectively. A hypothetical 25 basis point increase/decrease in our pension plan’s discount rate would result in a decrease/increase in the projected benefit obligation of approximately $3.1 million and $3.3 million, respectively. A hypothetical 25 basis point increase/decrease in our pension plan’s expected return on plan assets assumption would result in a decrease/increase in pension expense of approximately $0.2 million. See Note 20 — Employee Benefit Plans for additional information.
DEFERRED TAX ITEMS
The Timber and Real Estate operations conducted within our REIT are generally not subject to U.S. income taxation. We expect any variability in our effective tax rate and the amount of cash taxes to be paid to be driven primarily by our New Zealand Timber and Trading segments, as our other business operations are conducted within our U.S. REIT subsidiaries. However, the assessment of the ability to realize certain deferred tax assets, or estimate deferred tax liabilities, remains subjective. See Note 22 — Income Taxes for additional information about our unrecognized tax benefits.
ENVIRONMENTAL AND NATURAL RESOURCE DAMAGE LIABILITIES
We determine the costs of environmental remediation for areas we have been named potentially liable parties based on evaluations of current law and existing technologies. Inherent uncertainties exist in such evaluations primarily due to unknown environmental conditions, changing governmental regulations and legal standards regarding liability and emerging remediation technologies. At December 31, 2021, the total amount of liabilities recorded on our Consolidated Balance Sheets related to environmental contamination and Natural Resource Damages was $10.8 million. This is management’s best estimate of the costs for remediation and restoration, however, management will continue to monitor the cleanup process and make adjustments to the liability as needed. For more information, see Governmental Regulations and Environmental Matters in Item 1 - Business. BUSINESS COMBINATIONS
We account for business combinations using the acquisition method of accounting, under which all assets acquired and liabilities assumed, including amounts attributable to noncontrolling interests, are recorded at their respective fair values as of the acquisition date. The excess of the purchase price over fair values of identifiable assets and liabilities is recorded as goodwill. The preliminary allocation of purchase price in a business combination uses significant assumptions and estimates. Critical estimates include, but are not limited to, future expected cash flows, including revenues and expenses, and applicable discount rates. While we believe our estimates and assumptions to be reasonable, they are subject to change as we obtain additional information related to those estimates during the applicable measurement periods (up to one year from the acquisition date). Pursuant to ASC 805, our financial statements are not retrospectively adjusted for any changes to the recorded values that occur in subsequent periods. Rather, we recognize any change in recorded values during the reporting period in which the adjustments are determined. We also record, in the same period’s financial statements, the effect on earnings of changes in depletion, depreciation, amortization, or other income effects, if any, as a result of any change to the recorded values, calculated as if the accounting had been completed at the acquisition date. See Note 2 — Merger with Pope Resources for additional information.
RESULTS OF OPERATIONS
Summary of our results of operations for the three years ended December 31:
| | | | | | | | | | | | | | | | | |
Financial Information (in millions of dollars) | 2021 | | 2020 | | 2019 |
Sales | | | | | |
Southern Timber | $204.4 | | | $191.8 | | | $194.1 | |
Pacific Northwest Timber | 143.0 | | | 120.8 | | | 85.4 | |
New Zealand Timber | 281.2 | | | 202.3 | | | 241.9 | |
Timber Funds (a) | 199.4 | | | 29.6 | | | — | |
Real Estate | | | | | |
Improved Development | 51.7 | | | 14.5 | | | 5.9 | |
Unimproved Development | 37.5 | | | 8.4 | | | 19.5 | |
Rural | 43.1 | | | 67.2 | | | 47.7 | |
Timberlands & Non-Strategic - U.S. | — | | | 19.3 | | | 1.3 | |
| | | | | |
Conservation Easements | 3.9 | | | 3.1 | | | — | |
Deferred Revenue/Other (b) | (2.4) | | | 0.9 | | | 0.5 | |
Large Dispositions | 56.0 | | | 116.0 | | | — | |
Total Real Estate | 189.9 | | | 229.3 | | | 74.9 | |
Trading | 95.4 | | | 89.0 | | | 115.4 | |
Intersegment Eliminations | (3.7) | | | (3.6) | | | (0.1) | |
Total Sales | $1,109.6 | | | $859.2 | | | $711.6 | |
| | | | | |
Operating Income (Loss) | | | | | |
Southern Timber | $66.1 | | | $41.3 | | | $57.8 | |
Pacific Northwest Timber | 6.8 | | | (10.0) | | | (12.4) | |
New Zealand Timber | 51.5 | | | 30.0 | | | 48.0 | |
Timber Funds (a) | 63.3 | | | (13.2) | | | — | |
Real Estate (b)(c) | 112.5 | | | 72.0 | | | 38.7 | |
Trading | 0.1 | | | (0.5) | | | — | |
Corporate and other | (30.6) | | | (45.2) | | | (25.1) | |
Operating Income | 269.8 | | | 74.4 | | | 107.0 | |
Interest expense | (44.9) | | | (38.8) | | | (31.7) | |
Interest and other miscellaneous income, net | 0.2 | | | 1.2 | | | 5.3 | |
Income tax expense | (14.6) | | | (7.0) | | | (12.9) | |
| | | | | |
| | | | | |
Net Income | 210.5 | | | 29.8 | | | 67.7 | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates (d) | (53.4) | | | 7.8 | | | (8.6) | |
Net Income Attributable to Rayonier, L.P. | $157.1 | | | $37.6 | | | $59.1 | |
Less: Net income attributable to noncontrolling interests in the operating partnership | (4.5) | | | (0.5) | | | — | |
Net Income Attributable to Rayonier Inc. | $152.6 | | | $37.1 | | | $59.1 | |
| | | | | |
Adjusted EBITDA (e) | | | | | |
Southern Timber | $120.2 | | | $109.1 | | | $119.7 | |
Pacific Northwest Timber | 57.3 | | | 37.1 | | | 16.7 | |
New Zealand Timber | 78.5 | | | 55.0 | | | 75.8 | |
Timber Funds | 2.3 | | | 1.8 | | | — | |
Real Estate | 100.7 | | | 91.4 | | | 59.5 | |
Trading | 0.1 | | | (0.5) | | | — | |
Corporate and other | (29.4) | | | (26.6) | | | (23.9) | |
Total Adjusted EBITDA (e) | $329.8 | | | $267.4 | | | $247.8 | |
| | | | | |
(a)The year ended December 31, 2021 includes sales and operating income of $156.8 million and $51.5 million, respectively, from Fund II Timberland Dispositions.
(b)Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.
(c)The years ended December 31, 2021 and December 31, 2020 include income of $44.8 million and $28.7 million, respectively, related to Large Dispositions.
(d)The year ended December 31, 2021 includes a $41.2 million gain from Fund II Timberland Dispositions. The year ended December 31, 2020 includes a $7.3 million loss related to timber write-offs resulting from casualty events.
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Southern Timber Overview | 2021 | | 2020 | | 2019 |
Sales Volume (in thousands of tons) | | | | | |
Pine Pulpwood | 3,516 | | | 3,804 | | | 3,640 | |
Pine Sawtimber | 2,001 | | | 2,243 | | | 2,191 | |
Total Pine Volume | 5,517 | | | 6,047 | | | 5,831 | |
Hardwood | 177 | | | 152 | | | 235 | |
Total Volume | 5,694 | | | 6,199 | | | 6,066 | |
| | | | | |
% Delivered Volume (vs. Total Volume) | 40 | % | | 41 | % | | 33 | % |
% Pine Sawtimber Volume (vs. Total Pine Volume) | 36 | % | | 37 | % | | 38 | % |
% Export Volume (vs. Total Volume) (a) | 5 | % | | 3 | % | | 3 | % |
| | | | | |
Net Stumpage Prices (dollars per ton) | | | | | |
Pine Pulpwood | $19.09 | | | $15.83 | | | $16.42 | |
Pine Sawtimber | 28.27 | | | 25.72 | | | 24.86 | |
Weighted Average Pine | $22.42 | | | $19.50 | | | $19.59 | |
Hardwood | 17.96 | | | 11.52 | | | 16.93 | |
Weighted Average Total | $22.28 | | | $19.30 | | | $19.49 | |
| | | | | |
Summary Financial Data (in millions of dollars) | | | | | |
Timber Sales | $179.8 | | | $170.2 | | | $159.2 | |
Less: Cut and Haul | (43.6) | | | (45.4) | | | (36.4) | |
Less: Port and Freight | (9.4) | | | (5.2) | | | (4.6) | |
Net Stumpage Sales | $126.9 | | | $119.6 | | | $118.2 | |
| | | | | |
Non-Timber Sales | 24.6 | | | 21.6 | | | 35.0 | |
Total Sales | $204.4 | | | $191.8 | | | $194.1 | |
| | | | | |
Operating Income | $66.1 | | | $41.3 | | | $57.8 | |
(+) Timber write-offs resulting from casualty events (b) | — | | | 6.0 | | | — | |
(+) Depreciation, depletion and amortization | 54.1 | | | 61.8 | | | 61.9 | |
Adjusted EBITDA (c) | $120.2 | | | $109.1 | | | $119.7 | |
| | | | | |
Other Data | | | | | |
| | | | | |
Year-End Acres (in thousands) | 1,798 | | | 1,733 | | | 1,835 | |
(a)Estimated percentage of export volume which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(b)Timber write-offs resulting from casualty events include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.
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Pacific Northwest Timber Overview | 2021 | | 2020 | | 2019 |
Sales Volume (in thousands of tons) | | | | | |
Pulpwood | 287 | | | 297 | | | 254 | |
Sawtimber | 1,382 | | | 1,306 | | | 956 | |
| | | | | |
| | | | | |
Total Volume | 1,669 | | | 1,603 | | | 1,211 | |
Total Volume (converted to MBF) | 207,114 | | | 197,899 | | | 150,826 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
% Delivered Volume (vs. Total Volume) | 88 | % | | 90 | % | | 94 | % |
% Sawtimber Volume (vs. Total Volume) | 83 | % | | 82 | % | | 79 | % |
% Export Volume (vs. Total Volume) (a) | 16 | % | | 10 | % | | 17 | % |
| | | | | |
Delivered Log Pricing (in dollars per ton) | | | | | |
Pulpwood | $31.65 | | | $35.51 | | | $41.09 | |
Sawtimber | 97.87 | | | 84.93 | | | 78.41 | |
Weighted Average Log Price | $86.23 | | | $75.44 | | | $70.34 | |
| | | | | |
Summary Financial Data (in millions of dollars) | | | | | |
Timber Sales | $137.1 | | | $116.6 | | | $82.7 | |
Less: Cut and Haul | (55.3) | | | (54.6) | | | (45.9) | |
Net Stumpage Sales | $81.8 | | | $62.0 | | | $36.8 | |
| | | | | |
Non-Timber Sales | 5.9 | | | 4.2 | | | 2.7 | |
Total Sales | $143.0 | | | $120.8 | | | $85.4 | |
| | | | | |
Operating Income (Loss) | $6.8 | | | ($10.0) | | | ($12.4) | |
(+) Depreciation, depletion and amortization | 50.5 | | | 47.1 | | | 29.2 | |
Adjusted EBITDA (b) | $57.3 | | | $37.1 | | | $16.7 | |
| | | | | |
Other Data | | | | | |
| | | | | |
Year-End Acres (in thousands) | 490 | | | 507 | | | 379 | |
Sawtimber (in dollars per MBF) (c) | $748 | | | $666 | | | $587 | |
| | | | | |
(a)Estimated percentage of export volume which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(c)Delivered Sawtimber excluding chip-n-saw.
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New Zealand Timber Overview | 2021 | | 2020 | | 2019 |
Sales Volume (in thousands of tons) | | | | | |
Domestic Pulpwood (Delivered) | 425 | | | 470 | | | 490 | |
Domestic Sawtimber (Delivered) | 671 | | | 665 | | | 803 | |
Export Pulpwood (Delivered) | 198 | | | 133 | | | 148 | |
Export Sawtimber (Delivered) | 1,308 | | | 1,221 | | | 1,290 | |
| | | | | |
Total Volume | 2,602 | | | 2,488 | | | 2,731 | |
| | | | | |
% Delivered Volume (vs. Total Volume) | 100 | % | | 100 | % | | 100 | % |
% Sawtimber Volume (vs. Total Volume) | 76 | % | | 76 | % | | 77 | % |
% Export Volume (vs. Total Volume) (a) | 58 | % | | 54 | % | | 53 | % |
| | | | | |
Delivered Log Pricing (in dollars per ton) | | | | | |
Domestic Pulpwood | $41.97 | | | $33.79 | | | $37.93 | |
Domestic Sawtimber | 83.19 | | | 70.37 | | | 77.85 | |
Export Sawtimber | 138.84 | | | 98.47 | | | 105.65 | |
Weighted Average Log Price | $107.65 | | | $78.17 | | | $84.75 | |
| | | | | |
Summary Financial Data (in millions of dollars) | | | | | |
Timber Sales | $280.1 | | | $194.5 | | | $231.4 | |
Less: Cut and Haul | (93.4) | | | (77.6) | | | (88.1) | |
Less: Port and Freight Costs | (89.6) | | | (42.9) | | | (51.0) | |
Net Stumpage Sales | $97.1 | | | $74.0 | | | $92.3 | |
| | | | | |
Non-Timber Sales / Carbon Credits | 1.1 | | | 7.8 | | | 10.5 | |
Total Sales | $281.2 | | | $202.3 | | | $241.9 | |
| | | | | |
Operating Income | $51.5 | | | $30.0 | | | $48.0 | |
| | | | | |
(+) Depreciation, depletion and amortization | 27.0 | | | 25.0 | | | 27.8 | |
Adjusted EBITDA (b) | $78.5 | | | $55.0 | | | $75.8 | |
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Other Data | | | | | |
| | | | | |
New Zealand Dollar to U.S. Dollar Exchange Rate (c) | 0.7090 | | | 0.6522 | | | 0.6615 | |
Net Plantable Year-End Acres (in thousands) | 296 | | | 296 | | | 295 | |
Export Sawtimber (in dollars per JAS m3) | $161.42 | | | $114.50 | | | $122.84 | |
Domestic Sawtimber (in $NZD per tonne) | $129.07 | | | $118.69 | | | $129.46 | |
(a)Estimated percentage of export volume which includes volumes sold to third-party exporters in addition to direct exports through our log export program.
(c)Represents the period average rates for each year.
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Timber Funds Overview | | 2021 | | 2020 | | 2019 |
Sales Volume (in thousands of tons) | | | | | | |
Pulpwood | | 28 | | | 27 | | | — | |
Sawtimber | | 374 | | | 288 | | | — | |
Total Volume | | 402 | | | 315 | | | — | |
| | | | | | |
Summary Financial Data (in millions of dollars) | | | | | | |
Timber Sales | | $38.8 | | | $26.0 | | | — | |
Less: Cut and Haul | | (16.5) | | | (10.2) | | | — | |
Net Stumpage Sales | | $22.4 | | | $15.8 | | | — | |
| | | | | | |
Fund II Timberland Dispositions (a) | | $156.8 | | | — | | | — | |
Non-Timber Sales | | 0.5 | | | 0.1 | | | — | |
Timberland Management Fees | | 3.3 | | | 3.4 | | | — | |
Total Sales | | $199.4 | | | $29.6 | | | — | |
| | | | | | |
| | | | | | |
| | | | | | |
Operating Income (Loss) | | $63.3 | | | ($13.2) | | | — | |
Operating (income) loss attributable to NCI in Timber Funds | | (45.6) | | | 11.6 | | | — | |
(-) Fund II Timberland Dispositions attributable to Rayonier (a) | | (10.3) | | | — | | | — | |
(-) Gain on investment in Timber Funds (b) | | (7.5) | | | — | | | — | |
(+) Timber write-offs resulting from casualty events attributable to Rayonier (c) | | — | | | 1.8 | | | — | |
(+) Depreciation, depletion and amortization (“Look-through”) | | 2.4 | | | 1.6 | | | — | |
Adjusted EBITDA (d) | | $2.3 | | | $1.8 | | | — | |
| | | | | | |
Other Data | | | | | | |
Year-End Acres (in thousands) | | — | | | 141 | | | — | |
“Look-through” Year-End Acres (in thousands) | | — | | | 17 | | | — | |
(a)Fund II Timberland Dispositions represents the disposition of Timber Fund II timberland assets, which we managed and owned a co-investment stake in. Fund II Timberland Dispositions attributable to Rayonier represents the proportionate share of Fund II Timberland Dispositions that are attributable to Rayonier.
(b)Gain on investment in Timber Funds reflects the gain recognized on Fund II carried interest incentive fees in the fourth quarter of 2021 as well as the gain recognized on the sale of Timber Funds III & IV in the third quarter of 2021.
(c)Timber write-offs resulting from casualty events attributable to Rayonier include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.
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Trading Overview | | 2021 | | 2020 | | 2019 |
Sales Volume (in thousands of tons) | | | | | | |
U.S. | | 1 | | | 1 | | | 1 | |
NZ | | 705 | | | 959 | | | 1,106 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Total Volume | | 706 | | | 960 | | | 1,107 | |
| | | | | | |
Summary Financial Data (in millions of dollars) | | | | | | |
Trading Sales | | $93.6 | | | $87.6 | | | $114.6 | |
Non-Timber Sales | | 1.7 | | | 1.4 | | | 0.8 | |
Total Sales | | $95.4 | | | $89.0 | | | $115.4 | |
| | | | | | |
Operating Income (Loss) | | $0.1 | | | ($0.5) | | | — | |
| | | | | | |
Adjusted EBITDA (a) | | $0.1 | | | ($0.5) | | | — | |
| | | | | | | | | | | | | | | | | |
Real Estate Overview | 2021 | | 2020 | | 2019 |
Sales (in millions of dollars) | | | | | |
Improved Development (a) | $51.7 | | | $14.5 | | | $5.9 | |
Unimproved Development | 37.5 | | | 8.4 | | | 19.5 | |
Rural | 43.1 | | | 67.2 | | | 47.7 | |
Timberland & Non-Strategic | — | | | 19.3 | | | 1.3 | |
| | | | | |
Conservation Easements | 3.9 | | | 3.1 | | | — | |
Deferred Revenue/Other (b) | (2.4) | | | 0.9 | | | 0.5 | |
Large Dispositions (c) | 56.0 | | | 116.0 | | | — | |
Total Sales | $189.9 | | | $229.3 | | | $74.9 | |
| | | | | |
Acres Sold | | | | | |
Improved Development (a) | 791 | | | 330 | | | 44 | |
Unimproved Development | 359 | | | 570 | | | 1,196 | |
Rural | 14,565 | | | 22,437 | | | 15,089 | |
Timberland & Non-Strategic | 34 | | | 20,701 | | | 821 | |
| | | | | |
Large Dispositions (c) | 16,622 | | | 66,946 | | | — | |
Total Acres Sold | 32,371 | | | 110,984 | | | 17,151 | |
| | | | | |
Price per Acre (dollars per acre) | | | | | |
Improved Development (a) | $65,375 | | | $43,957 | | | $132,412 | |
Unimproved Development | 104,579 | | | 14,780 | | | 16,290 | |
Rural | 2,958 | | | 2,993 | | | 3,158 | |
Timberland & Non-Strategic | 1,297 | | | 930 | | | 1,629 | |
| | | | | |
Large Dispositions (c) | 3,372 | | | 1,733 | | | — | |
Weighted Average (Total) (d) | $8,403 | | | $2,483 | | | $4,335 | |
Weighted Average (Adjusted) (e) | $5,391 | | | $2,170 | | | $4,002 | |
| | | | | |
Total Sales (Excluding Large Dispositions) | $133.9 | | | $113.3 | | | $74.9 | |
| | | | | |
Operating Income | $112.5 | | | $72.0 | | | $38.7 | |
(+) Depreciation, depletion and amortization | 7.9 | | | 17.7 | | | 8.2 | |
| | | | | |
(+) Non-cash cost of land and improved development | 25.0 | | | 30.4 | | | 12.6 | |
| | | | | |
(–) Large Dispositions (c) | (44.8) | | | (28.7) | | | — | |
Adjusted EBITDA (f) | $100.7 | | | $91.4 | | | $59.5 | |
(a)Reflects land with capital invested in infrastructure improvements.
(b)Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.
(c)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 2021, we completed two dispositions of approximately 17,000 acres in total. In June 2021, we completed a disposition of approximately 9,000 acres in Washington for a sales price and gain of approximately $36.0 million and $30.3 million, respectively. In July 2021, we completed a second disposition of approximately 8,000 acres in Washington, for a sales price and gain of approximately $20.0 million and $14.5 million, respectively. In 2020, we completed the disposition of approximately 67,000 acres located in Mississippi for a sales price and a gain of approximately $116.0 million and $28.7 million, respectively.
(d)Excludes Large Dispositions.
(e)Excludes Improved Development and Large Dispositions.
| | | | | | | | | | | | | | | | | |
Capital Expenditures By Segment | 2021 | | 2020 | | 2019 |
Timber Capital Expenditures (in millions of dollars) | | | | | |
Southern Timber | | | | | |
Reforestation, silvicultural and other capital expenditures | $21.5 | | | $20.7 | | | $18.8 | |
Property taxes | 6.8 | | | 6.8 | | | 7.1 | |
Lease and timber deed payments | 3.1 | | | 3.5 | | | 4.4 | |
Allocated overhead | 4.4 | | | 4.4 | | | 4.3 | |
Subtotal Southern Timber | $35.8 | | | $35.5 | | | $34.6 | |
Pacific Northwest Timber | | | | | |
Reforestation, silvicultural and other capital expenditures | 10.8 | | | 6.5 | | | 7.4 | |
Property taxes | 1.1 | | | 0.8 | | | 0.7 | |
| | | | | |
Allocated overhead | 4.7 | | | 4.1 | | | 3.1 | |
Subtotal Pacific Northwest Timber | $16.6 | | | $11.4 | | | $11.2 | |
New Zealand Timber | | | | | |
Reforestation, silvicultural and other capital expenditures | 11.2 | | | 8.9 | | | 9.4 | |
Property taxes | 0.8 | | | 0.7 | | | 0.6 | |
Lease and timber deed payments | 5.2 | | | 4.3 | | | 4.7 | |
Allocated overhead | 3.0 | | | 2.7 | | | 2.6 | |
Subtotal New Zealand Timber | $20.1 | | | $16.6 | | | $17.4 | |
Total Timber Segments Capital Expenditures | $72.5 | | | $63.5 | | | $63.2 | |
Timber Funds (“Look-through”) (a) | 0.5 | | | 0.3 | | | — | |
Real Estate | 0.2 | | | 0.4 | | | 0.2 | |
Corporate | — | | | — | | | 0.6 | |
Total Capital Expenditures | $73.2 | | | $64.2 | | | $64.0 | |
| | | | | |
Timberland Acquisitions | | | | | |
Southern Timber | $168.2 | | | $24.2 | | | $98.9 | |
Pacific Northwest Timber (b) | — | | | — | | | 7.3 | |
New Zealand Timber | 10.9 | | | 0.5 | | | 36.0 | |
| | | | | |
Total Timberland Acquisitions | $179.1 | | | $24.7 | | | $142.3 | |
| | | | | |
Real Estate Development Investments (c) | $12.5 | | | $6.5 | | | $6.8 | |
| | | | | |
(a)The years ended December 31, 2021 and December 31, 2020 exclude $2.8 million and $2.3 million, respectively, of capital expenditures attributable to noncontrolling interests in Timber Funds.
(c)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.
RESULTS OF OPERATIONS, 2021 VERSUS 2020
(millions of dollars)
The following tables summarize sales, operating income and Adjusted EBITDA variances for 2021 versus 2020: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sales | | Southern Timber | | Pacific Northwest Timber | | New Zealand Timber | | Timber Funds | | Real Estate | | Trading | | Elim. | | | | Total |
2020 | | $191.8 | | | $120.8 | | | $202.3 | | | $29.6 | | | $229.3 | | | $89.0 | | | ($3.6) | | | | | $859.2 | |
Volume | | (9.7) | | | 2.5 | | | 9.2 | | | 0.9 | | | (68.2) | | | (23.2) | | | — | | | | | (88.5) | |
Price | | 17.0 | | | 17.3 | | | 22.7 | | | 0.1 | | | 88.9 | | | 29.2 | | | — | | | | | 175.2 | |
Non-timber sales | | 3.0 | | | 1.7 | | | (7.5) | | | — | | | — | | | 0.4 | | | — | | | | | (2.4) | |
Foreign exchange (a) | | — | | | — | | | 6.4 | | | — | | | — | | | — | | | — | | | | | 6.4 | |
Other | | 2.3 | | (b) | 0.7 | | (b) | 48.1 | | (c) | 168.8 | | (d) | (60.1) | | (e) | — | | | (0.1) | | (f) | | | 159.7 | |
2021 | | $204.4 | | | $143.0 | | | $281.2 | | | $199.4 | | | $189.9 | | | $95.4 | | | ($3.7) | | | | | $1,109.6 | |
(a)Net of currency hedging impact.
(b)Includes variance due to stumpage versus delivered sales.
(c)Includes variance due to domestic versus export sales.
(d)Timber Funds includes an increase in sales attributable to noncontrolling interests of $136.3 million, $31.4 million related to Fund II Timberland Dispositions attributable to Rayonier, sales related to timberland investment management fees paid to us by the timber funds, and a variance due to stumpage versus delivered sales.
(e)Includes a $60.0 million decrease in Large Dispositions in addition to Conservation Easements sales, residential and commercial lease income, marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
(f)Includes a $0.1 million decrease in Intersegment eliminations related to timberland management fees paid by the timber funds and reported as sales within the Timber Funds segment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income | | Southern Timber | | Pacific Northwest Timber | | New Zealand Timber | | Timber Funds | | Real Estate | | Trading | | Corporate and Other | | Total |
2020 | | $41.3 | | | ($10.0) | | | $30.0 | | | ($13.2) | | | $72.0 | | | ($0.5) | | | ($45.2) | | | $74.4 | |
Volume | | (4.7) | | | 0.1 | | | 2.1 | | | 0.2 | | | (39.6) | | | — | | | — | | | (41.9) | |
Price (a) | | 17.0 | | | 17.3 | | | 22.7 | | | 0.1 | | | 88.9 | | | — | | | — | | | 146.0 | |
Cost | | 0.6 | | | (0.9) | | | (1.2) | | | (0.3) | | | (9.6) | | | 0.8 | | | (2.8) | | | (13.4) | |
Non-timber income | | 3.2 | | | 1.7 | | | (7.3) | | | — | | | — | | | (0.2) | | | — | | | (2.6) | |
Foreign exchange (b) | | — | | | — | | | 3.7 | | | — | | | — | | | — | | | — | | | 3.7 | |
Depreciation, depletion & amortization | | 2.7 | | | (1.4) | | | 1.5 | | | (0.2) | | | (1.1) | | | — | | | 0.2 | | | 1.7 | |
Non-cash cost of land and improved development | | — | | | — | | | — | | | — | | | (14.9) | | | — | | | — | | | (14.9) | |
Other (c) | | 6.0 | | | — | | | — | | | 76.7 | | | 16.8 | | | — | | | 17.2 | | | 116.7 | |
2021 | | $66.1 | | | $6.8 | | | $51.5 | | | $63.3 | | | $112.5 | | | $0.1 | | | ($30.6) | | | $269.8 | |
(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)Net of currency hedging impact.
(c)Southern Timber includes $6.0 million in timber write-offs resulting from casualty events in the prior year. Timber Funds includes an increase in operating income attributable to noncontrolling interests of $57.1 million, a $10.3 million gain related to Fund II Timberland Dispositions, $3.7 million related to the gain on sales of Funds III and IV, a $3.8 million gain on Fund II carried interest incentive fees, $1.8 million of timber write-offs from casualty events attributable to Rayonier in the prior year and timberland investment management fees paid to us by the timber funds. Real Estate includes a $16.1 million increase in operating income from Large Dispositions in addition to Conservation Easements sales, residential and commercial lease income, marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments. Corporate and Other includes $17.2 million in costs related to the merger with Pope Resources in 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA (a) | | Southern Timber | | Pacific Northwest Timber | | New Zealand Timber | | Timber Funds | | Real Estate | | Trading | | Corporate and Other | | Total |
2020 | | $109.1 | | | $37.1 | | | $55.0 | | | $1.8 | | | $91.4 | | | ($0.5) | | | ($26.6) | | | $267.4 | |
Volume | | (9.7) | | | 2.1 | | | 3.3 | | | 0.8 | | | (68.2) | | | — | | | — | | | (71.7) | |
Price (b) | | 17.0 | | | 17.3 | | | 22.7 | | | 0.1 | | | 88.9 | | | — | | | — | | | 146.0 | |
Cost | | 0.6 | | | (0.9) | | | (1.2) | | | (0.3) | | | (9.6) | | | 0.8 | | | (2.8) | | | (13.4) | |
Non-timber income | | 3.2 | | | 1.7 | | | (7.3) | | | — | | | — | | | (0.2) | | | — | | | (2.6) | |
Foreign exchange (c) | | — | | | — | | | 6.0 | | | — | | | — | | | — | | | — | | | 6.0 | |
Other (d) | | — | | | — | | | — | | | (0.1) | | | (1.8) | | | — | | | — | | | (1.9) | |
2021 | | $120.2 | | | $57.3 | | | $78.5 | | | $2.3 | | | $100.7 | | | $0.1 | | | ($29.4) | | | $329.8 | |
(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)Net of currency hedging impact.
(d)Timber Funds includes timberland investment management fees paid to us by the timber fund. Real Estate includes Conservation Easements sales, residential and commercial lease income, marketing fees related to Improved Development sales, equity income from joint venture entities and deferred adjustments.
SOUTHERN TIMBER
Full-year sales of $204.4 million increased $12.6 million, or 7%, versus the prior year, including an increase in non-timber sales of $3.0 million versus the prior year. Harvest volumes decreased 8% to 5.69 million tons versus 6.20 million tons in the prior year. Average pine sawtimber stumpage prices increased 10% to $28.27 per ton versus $25.72 per ton in the prior year, while average pine pulpwood stumpage prices increased 21% to $19.09 per ton versus $15.83 in the prior year. The increase in average pine pulpwood prices was primarily due to strong domestic demand, constrained supply due to wet weather conditions and an increase in pulpwood exports to China. The increase in average pine sawtimber prices was primarily due to strong domestic lumber demand, upward pressure on chip-n-saw pricing due to increased competition from pulp mills and a strengthening export market along the east coast.
Operating income of $66.1 million increased $24.9 million versus the prior year due to higher net stumpage realizations ($17.0 million), the prior year write-off of timber basis as a result of Hurricane Laura ($6.0 million), higher non-timber income ($3.2 million), lower depletion rates ($2.7 million) and lower costs ($0.6 million), partially offset by lower volumes ($4.7 million). Full-year Adjusted EBITDA of $120.2 million was $11.1 million above the prior year.
PACIFIC NORTHWEST TIMBER
Full-year sales of $143.0 million increased $22.2 million, or 18%, versus the prior year. Harvest volumes increased 4% to 1.67 million tons versus 1.60 million tons in the prior year, primarily due to incremental volume from the Pope Resources acquisition. Average delivered sawtimber prices increased 15% to $97.87 per ton versus $84.93 per ton in the prior year, as favorable domestic lumber markets coupled with increased export demand drove higher log prices. Average delivered pulpwood prices decreased 11% to $31.65 per ton versus $35.51 per ton in the prior year, as increased lumber production resulted in an increased supply of competing sawmill residuals.
Operating income of $6.8 million improved $16.8 million versus the prior year, primarily due to higher net stumpage realizations ($17.3 million), higher non-timber income ($1.7 million) and higher volumes ($0.1 million), partially offset by higher depletion rates ($1.4 million) and higher costs ($0.9 million). Full-year Adjusted EBITDA of $57.3 million was $20.2 million above the prior year.
NEW ZEALAND TIMBER
Full-year sales of $281.2 million increased $78.8 million, or 39%, versus the prior year. Harvest volumes increased 5% to 2.60 million tons versus 2.49 million tons in the prior year driven by strong export and domestic demand versus the prior year period that was negatively impacted by COVID-19 related headwinds. Average delivered prices for export sawtimber increased 41% to $138.84 per ton versus $98.47 per ton in the prior year, while average delivered prices for domestic sawtimber increased 18% to $83.19 per ton versus $70.37 per ton in the prior year. The increase in export sawtimber prices was driven primarily by the restriction on competing log imports into China from Australia in the current year, as well as the ability of log exporters to pass higher costs along to customers. The increase in domestic sawtimber prices (in U.S. dollar terms) was driven in part by the NZ$/US$ exchange rate (US$0.71 per NZ$1.00 versus US$0.65 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 9% from the prior year, following the upward trend in the export market.
Operating income of $51.5 million increased $21.5 million versus the prior year due to higher net stumpage realizations ($22.7 million), favorable foreign exchange impacts ($3.7 million), higher volumes ($2.1 million) and lower depletion rates ($1.5 million), which were partially offset by lower non-timber income ($7.3 million) and higher forest management costs ($1.2 million). Full-year Adjusted EBITDA of $78.5 million was $23.5 million above the prior year.
TIMBER FUNDS
Full-year sales of $199.4 million increased $169.8 million versus the prior year, while operating income of $63.3 million increased $76.5 million versus the prior year. Full-year sales and operating income included $156.8 million and $51.5 million, respectively, from the Fund II Timberland Dispositions. Full-year operating income also included a $3.7 million gain on the sale of Timber Funds III and IV and a $3.8 million gain on Fund II carried interest incentive fees. The prior year period included timber write-offs of $9.2 million resulting from two fires in Oregon. Harvest volumes increased 28% to 402,000 tons versus 315,000 tons in the prior year period. The prior year period reflected results for only a portion of the year following the closing of the Pope Resources acquisition on May 8, 2020, while the current year reflects activity through July 21 for Timber Funds III and IV and limited activity in Fund II during the fourth quarter due to the liquidation of it’s timberland assets. Full-year Adjusted EBITDA of $2.3 million was $0.5 million above the prior year period.
REAL ESTATE
Full-year sales of $189.9 million decreased $39.5 million versus the prior year, while operating income of $112.5 million increased $40.6 million versus the prior year. Sales and operating income in the current year included $56.0 million and $44.8 million, respectively, from Large Dispositions. Prior year sales and operating income included $116.0 million and $28.7 million, respectively, from Large Dispositions. Sales decreased primarily due to lower volumes (32,371 acres sold versus 110,984 acres sold in the prior year), partially offset by higher weighted average prices ($5,820 per acre versus $2,031 per acre in the prior year). Full-year Adjusted EBITDA of $100.7 million was $9.3 million above the prior year.
TRADING
Full-year sales of $95.4 million increased $6.4 million versus the prior year due to higher prices, partially offset by lower volumes. Sales volumes decreased 26% to 706,000 tons versus 960,000 tons in the prior year. Operating income and Adjusted EBITDA increased $0.6 million versus the prior year.
CORPORATE AND OTHER EXPENSE/ELIMINATIONS
Full-year corporate and other operating expense of $30.6 million decreased $14.6 million versus the prior year, which included $17.2 million of costs related to the Pope Resources merger. This positive variance was partially offset by higher overhead expenses.
INTEREST EXPENSE
Full-year interest expense of $44.9 million increased $6.1 million versus the prior year due to higher average outstanding debt and a $2.2 million loss from the second quarter termination of a cash flow hedge related to the voluntary repayment of $100 million of term loans.
INTEREST AND OTHER MISCELLANEOUS INCOME, NET
Other non-operating income of $0.2 million decreased $0.9 million versus the prior year primarily due to favorable mark to market adjustments on marketable equity securities and carbon options in the prior year, and costs related to debt extinguishments and modifications in the current year, partially offset by favorable periodic pension costs.
INCOME TAX EXPENSE
Full-year income tax expense of $14.7 million increased $7.7 million versus the prior year. The New Zealand subsidiary is the primary driver of income tax expense.
RESULTS OF OPERATIONS, 2020 VERSUS 2019
Refer to Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for the results of operations discussion for the fiscal year ended December 31, 2020 compared to the fiscal year ended December 31, 2019.
OUTLOOK FOR 2022
In 2022, we expect to achieve full-year harvest volumes in our Southern Timber segment of 6.3 to 6.6 million tons. The anticipated increase relative to 2021 reflects a rebound in harvest activity following the wet weather conditions and supply chain constraints that negatively impacted full-year 2021 volumes, as well as the expected contribution from recent acquisitions. We also anticipate an improvement in weighted average stumpage realizations relative to full-year 2021 driven by strong sawtimber and pulpwood demand, partially offset by higher harvest and transportation costs.
In our Pacific Northwest Timber segment, we expect to achieve harvest volumes of 1.7 to 1.8 million tons. We anticipate weighted average pricing to increase modestly relative to full-year 2021 driven by continued strong demand. However, we expect that higher prices will be largely offset by increased harvest and transportation costs.
In our New Zealand Timber segment, we expect to achieve harvest volumes of 2.6 to 2.8 million tons. For the full-year, we anticipate modestly lower export pricing relative to the full-year pricing achieved in 2021. However, as log inventories in China normalize and demand picks up following the Lunar New Year, we anticipate export pricing to increase from current levels. Seasonally lower volumes, supply chain disruptions and lower pricing are generally expected to produce lower operating results from this segment in the first half versus the second half of the year.
In the Real Estate segment, we remain focused on opportunistically unlocking the long-term value of our HBU development and rural property portfolio. Following exceptionally strong Real Estate results in 2021, we currently anticipate more normalized transaction activity in 2022.
Our 2022 outlook is subject to a number of variables and uncertainties, including those discussed at Item 1A — Risk Factors.
LIQUIDITY AND CAPITAL RESOURCES
Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As a REIT, our main use of cash is dividends on Rayonier Inc. common shares and distributions on Rayonier, L.P. units. 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.
STRATEGY
We continuously evaluate our capital structure. Our strategy is to maintain a weighted-average cost of capital competitive with other timberland REITs and TIMOs, while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue capital allocation opportunities as they become available. Overall, we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management.
CREDIT RATINGS
Both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings, which are periodically reviewed by the rating agencies. As of December 31, 2021, our credit ratings from S&P and Moody’s were “BBB-” and “Baa3,” respectively, with both agencies listing our outlook as “Stable.”
SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS
| | | | | | | | | | | | | | | | | |
| As of December 31, |
(in millions of dollars) | 2021 | | 2020 | | 2019 |
Cash and cash equivalents (excluding Timber Funds) | $358.7 | | | $80.5 | | | $68.7 | |
Total debt (excluding Timber Funds) (a) | 1,376.1 | | | 1,294.9 | | | 1,057.0 | |
Noncontrolling interests in the operating partnership | 133.8 | | | 130.1 | | | — | |
Shareholders’ equity | 1,815.6 | | | 1,862.6 | | | 1,537.6 | |
Net Income Attributable to Rayonier Inc. | 152.6 | | | 37.1 | | | 59.1 | |
Adjusted EBITDA (b) | 329.8 | | | 267.4 | | | 247.8 | |
Total capitalization (total debt plus permanent and temporary equity) | 3,325.5 | | | 3,287.6 | | | 2,594.6 | |
Debt to capital ratio | 41 | % | | 39 | % | | 41 | % |
Debt to Adjusted EBITDA (b) | 4.2 | | | 4.8 | | | 4.3 | |
Net debt to Adjusted EBITDA (b)(c) | 3.1 | | | 4.5 | | | 4.0 | |
Net debt to enterprise value (c)(d) | 14 | % | | 23 | % | | 19 | % |
(a)Total debt as of December 31, 2021, 2020 and 2019 reflects the principal on long-term debt, net of fair market value adjustments and gross of deferred financing costs and unamortized discounts of $8.3 million, $2.5 million and $1.9 million, respectively.
(c)Net debt is calculated as total debt less cash and cash equivalents.
(d)Enterprise value based on market capitalization (including Rayonier, L.P. “OP” units) plus net debt based on Rayonier’s share price of $40.36, $29.38, and $32.76 as of December 31, 2021, 2020 and 2019, respectively.
AT-THE-MARKET EQUITY OFFERING PROGRAM (“ATM 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. During the year ended December 31, 2021, the Company sold 6.4 million shares under the ATM Program at an average price of $37.05 per share, generating aggregate gross proceeds of $235.5 million, excluding $2.4 million of commissions. During the year ended December 31, 2020, the Company sold 1.1 million shares under the ATM Program at an average price of $30.26 per share, generating aggregate gross proceeds of $33.4 million, excluding $0.3 million of commissions. As of December 31, 2021, $31.1 million remains available for issuance under the program.
The following table outlines the common stock issuance pursuant to our ATM program (dollars in millions):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Shares of common stock issued under the ATM program | 6,357,972 | | | 1,103,012 | |
Gross proceeds | $235.5 | | | $33.4 | |
CASH FLOWS
The following table summarizes our cash flows from operating, investing and financing activities for each of the three years ended December 31 (in millions of dollars):
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Total cash provided by (used for): | | | | | |
Operating activities | $325.1 | | | $204.2 | | | $214.3 | |
Investing activities | (26.3) | | | (213.6) | | | (219.4) | |
Financing activities | (16.3) | | | 27.0 | | | (79.6) | |
Effect of exchange rate changes on cash | (0.9) | | | (0.1) | | | (1.8) | |
Change in cash, cash equivalents and restricted cash | $281.7 | | | $17.5 | | | ($86.5) | |
CASH PROVIDED BY OPERATING ACTIVITIES
Cash provided by operating activities increased $120.9 million versus the prior year primarily due to higher operating results and $17.2 million of merger-related costs in the prior year.
CASH USED FOR INVESTING ACTIVITIES
Cash used for investing activities decreased $187.4 million versus the prior year primarily due to the net cash consideration transferred in our merger with Pope Resources in the prior year ($231.1 million), net proceeds from the sale of Fund II timberlands ($154.7 million), net proceeds from the sale of Timber Funds III and IV ($31.0 million) and other investing activities ($1.5 million), partially offset by an increase in timberland acquisitions ($154.4 million), lower proceeds from Large Dispositions ($61.0 million), higher capital expenditures ($9.5 million) and higher real estate development investments ($6.0 million).
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES
Cash used for financing activities of $16.3 million compares to cash provided by financing activities of $27.0 million in the prior year. This is primarily due to a decrease in net borrowings ($141.6 million), higher distributions to consolidated affiliates ($96.3 million), higher dividends paid on common stock ($7.2 million), make-whole fees on debt prepayments in the current year ($6.2 million), higher debt issuance costs ($2.4 million) and higher distributions to noncontrolling interests in the operating partnership ($0.7 million), partially offset by higher proceeds from the issuance of common shares under the ATM equity offering program ($198.3 million), noncontrolling interests in consolidated affiliates redemption of shares in the prior year ($5.1 million), higher proceeds from the issuance of common shares under the incentive stock plan ($4.6 million) and decreases in share repurchases ($3.1 million).
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, repurchases of the Company’s common shares and to satisfy other commitments.
Significant long-term uses of cash include the following (in millions):
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Future uses of cash (in millions) | Total | | Payments Due by Period |
2022 | | 2023-2024 | | 2025-2026 | | Thereafter |
Long-term debt (a) | $1,251.1 | | | $200.0 | | | — | | | $251.1 | | | $800.0 | |
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Current maturities of long-term debt (b) | 125.0 | | | 125.0 | | | — | | | — | | | — | |
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Interest payments on long-term debt (c) | 185.6 | | | 30.4 | | | 48.1 | | | 44.0 | | | 63.1 | |
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Operating leases — timberland (d) | 182.1 | | | 8.0 | | | 15.0 | | | 13.4 | | | 145.7 | |
Operating leases — PP&E, offices (d) | 6.0 | | | 1.4 | | | 2.2 | | | 1.4 | | | 1.0 | |
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Commitments — development projects (e) | 19.3 | | | 14.3 | | | 0.5 | | | 0.5 | | | 4.0 | |
Commitments — derivatives (f) | 49.2 | | | 13.9 | | | 21.9 | | | 8.8 | | | 4.6 | |
Commitments - environmental remediation (g) | 10.8 | | | 0.7 | | | 7.7 | | | 1.4 | | | 1.0 | |
Commitments — other (h) | 1.4 | | | 0.8 | | | 0.5 | | | 0.1 | | | — | |
Total | $1,830.5 | | | $394.5 | | | $95.9 | | | $320.7 | | | $1,019.4 | |
(a)The book value of long-term debt, net of deferred financing costs and unamortized discounts, is currently recorded at $1,242.8 million on our Consolidated Balance Sheets, but upon maturity the liability will be $1,251.1 million. See Note 10 - Debt for additional information. (b)The book value of current maturities of long-term debt, net of deferred financing costs is currently recorded at $125.0 million on our Consolidated Balance Sheets, and upon maturity the liability will be $125.0 million. See Note 10 - Debt for additional information. (c)Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of December 31, 2021.
(d)Excludes anticipated renewal options.
(e)Commitments — developmental projects primarily consists of payments expected to be made on our Wildlight and Richmond Hill projects.
(h)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.
EXPECTED 2022 EXPENDITURES
Capital expenditures in 2022 are forecasted to be between $80 million and $85 million, excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to be primarily comprised of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities.
Real estate development investments in 2022 are expected to be between $22 million and $25 million, net of anticipated 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; Richmond Hill, our mixed-use development project located south of Savannah, Georgia; development properties in the town of Port Gamble, Washington; and development projects in Gig Harbor, Kingston and Bremerton, Washington.
Our 2022 dividend payments on Rayonier Inc. common shares and distributions to Rayonier, L.P. unitholders are expected to be approximately $157.5 million and $3.6 million, respectively, assuming no change in the quarterly dividend rate of $0.27 per share or material changes in the number of common 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 made no discretionary pension contributions in 2021. We have no pension contribution requirements in 2022 but may make discretionary contributions in the future.
Cash income tax payments in 2022 are expected to be between $18 million and $22 million, primarily due to the New Zealand subsidiary.
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 16 — Guarantees for further discussion. SUMMARY OF GUARANTOR FINANCIAL INFORMATION
In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022 (the “Senior Notes due 2022”). On May 7, 2020, Rayonier Inc. contributed its 100% ownership interest in Rayonier Operating Company LLC (the “Contribution”) to Rayonier, L.P. As a result of the Contribution, Rayonier, L.P. expressly assumed all the obligations of Rayonier Inc. with respect to the outstanding Senior Notes due 2022 and Rayonier Inc. agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. under the Indenture, including the Senior Notes due 2022. Rayonier L.P. is the current issuer of the Senior Notes due 2022. See the subsequent events section of Note 1 - Summary of Significant Accounting Policies for information about the repayment of our Senior Notes due 2022. 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., together with 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.
The following table contains the summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for the two years ended December 31:
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(in millions) | December 31, 2021 | | December 31, 2020 |
Current assets | $335.8 | | | $69.7 | |
Non-current assets | 54.6 | | | 48.3 | |
Current liabilities | 146.0 | | | 21.0 | |
Non-current liabilities | 1,821.7 | | | 1,942.4 | |
Due to non-guarantors | 570.4 | | | 596.7 | |
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The following table contains the summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for the two years ended December 31:
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(in millions) | December 31, 2021 | | December 31, 2020 |
Cost and expenses | ($27.5) | | | ($43.4) | |
Operating loss | (27.3) | | | (43.4) | |
Net loss | (69.7) | | | (81.3) | |
Revenue from non-guarantors | 1,109.4 | | | 859.2 | |
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LIQUIDITY FACILITIES
See Note 10 — Debt for information on liquidity facilities and other outstanding debt, as well as for information on covenants that must be met in connection with our Senior Notes due 2022, Senior Notes due 2031, Term Credit Agreement, Incremental Term Loan Agreement, 2021 Incremental Term Loan Agreement and Revolving Credit Facility. RESTRICTED CASH
See Note 24 — Restricted Cash for further information regarding the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests and cash held in escrow.
PERFORMANCE AND LIQUIDITY INDICATORS
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”), and Cash Available for Distribution (“CAD”). These measures are not defined by 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 considers these measures to be important to estimate the enterprise and shareholder values and of our core segments, and for allocating capital resources. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Management uses Adjusted EBITDA as a performance measure and CAD as a liquidity measure. Adjusted EBITDA and CAD as defined may not be comparable to similarly titled measures reported by other companies. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with GAAP.
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land and improved development, non-operating income and expense, operating income (loss) attributable to noncontrolling interests in Timber Funds, costs related to the merger with Pope Resources, timber write-offs resulting from casualty events, the gain on investment in Timber Funds, Fund II Timberland Dispositions and Large Dispositions.
Below is a reconciliation of Net Income to Adjusted EBITDA for the three years ended December 31 (in millions of dollars):
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| 2021 | | 2020 | | 2019 | | | | |
Net Income to Adjusted EBITDA Reconciliation | | | | | | | | | |
Net Income | $210.5 | | | $29.8 | | | $67.7 | | | | | |
Operating (income) loss attributable to NCI in Timber Funds | (45.6) | | | 11.6 | | | — | | | | | |
Interest, net attributable to NCI in Timber Funds | 0.3 | | | 0.5 | | | — | | | | | |
Income tax expense attributable to NCI in Timber Funds | 0.1 | | | 0.2 | | | — | | | | | |
Net income (Excluding NCI in Timber Funds) | $165.3 | | | $42.1 | | | $67.7 | | | | | |
Interest, net and miscellaneous income attributable to Rayonier | 44.3 | | | 38.0 | | | 29.1 | | | | | |
Income tax expense attributable to Rayonier | 14.6 | | | 6.8 | | | 12.9 | | | | | |
Depreciation, depletion and amortization attributable to Rayonier | 143.2 | | | 154.7 | | | 128.2 | | | | | |
Non-cash cost of land and improved development | 25.0 | | | 30.4 | | | 12.6 | | | | | |
Timber write-offs resulting from casualty events attributable to Rayonier (a) | — | | | 7.9 | | | — | | | | | |
Non-operating income | — | | | (0.9) | | | (2.7) | | | | | |
Costs related to the merger with Pope Resources (b) | — | | | 17.2 | | | — | | | | | |
Gain on investment in Timber Funds (c) | (7.5) | | | — | | | — | | | | | |
Fund II Timberland Dispositions attributable to Rayonier (d) | (10.3) | | | — | | | — | | | | | |
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Large Dispositions (e) | (44.8) | | | (28.7) | | | — | | | | | |
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Adjusted EBITDA | $329.8 | | | $267.4 | | | $247.8 | | | | | |
(a)Timber write-offs resulting from casualty events include the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.
(b)Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.
(c)Gain on investment in Timber Funds reflects the gain recognized on Fund II carried interest incentive fees in the fourth quarter of 2021 as well as the gain recognized on the sale of Timber Funds III & IV in the third quarter of 2021.
(d)Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. Fund II Timberland Dispositions attributable to Rayonier represents the proportionate share of Fund II Timberland Dispositions that are attributable to Rayonier.
(e)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.
The following tables provide a reconciliation of Operating Income (Loss) by segment to Adjusted EBITDA by segment for the three years ended December 31 (in millions of dollars):
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| | Southern Timber | | Pacific Northwest Timber | | New Zealand Timber | | Timber Funds | | Real Estate | | Trading | | Corporate and Other | | Total |
2021 | | | | | | | | | | | | | | | |
Operating income (loss) | $66.1 | | | $6.8 | | | $51.5 | | | $63.3 | | | $112.5 | | | $0.1 | | | ($30.6) | | | $269.8 | |
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Add: | Depreciation, depletion and amortization | 54.1 | | | 50.5 | | | 27.0 | | | 2.4 | | | 7.9 | | | — | | | 1.2 | | | 143.2 | |
Add: | Non-cash cost of land and improved development | — | | | — | | | — | | | — | | | 25.0 | | | — | | | — | | | 25.0 | |
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Less: | Operating income attributable to NCI in Timber Funds (a) | — | | | — | | | — | | | (45.6) | | | — | | | — | | | — | | | (45.6) | |
Less: | Gain on investment in Timber Funds (b) | — | | | — | | | — | | | (7.5) | | | — | | | — | | | — | | | (7.5) | |
Less: | Fund II Timberland Dispositions attributable to Rayonier (c) | — | | | — | | | — | | | (10.3) | | | — | | | — | | | — | | | (10.3) | |
Less: | Large Dispositions (d) | — | | | — | | | — | | | — | | | (44.8) | | | — | | | — | | | (44.8) | |
Adjusted EBITDA | $120.2 | | | $57.3 | | | $78.5 | | | $2.3 | | | $100.7 | | | $0.1 | | | ($29.4) | | | $329.8 | |
2020 | | | | | | | | | | | | | | | |
Operating income (loss) | $41.3 | | | ($10.0) | | | $30.0 | | | ($13.2) | | | $72.0 | | | ($0.5) | | | ($45.2) | | | $74.4 | |
Add: | Operating loss attributable to NCI in Timber Funds (a) | — | | | — | | | — | | | 11.6 | | | — | | | — | | | — | | | 11.6 | |
Add: | Timber write-offs resulting from casualty events attributable to Rayonier (e) | 6.0 | | | — | | | — | | | 1.8 | | | — | | | — | | | — | | | 7.9 | |
Add: | Costs related to the merger with Pope Resources (f) | — | | | — | | | — | | | — | | | — | | | — | | | 17.2 | | | 17.2 | |
Add: | Depreciation, depletion and amortization | 61.8 | | | 47.1 | | | 25.0 | | | 1.6 | | | 17.7 | | | — | | | 1.4 | | | 154.7 | |
Add: | Non-cash cost of land and improved development | — | | | — | | | — | | | — | | | 30.4 | | | — | | | — | | | 30.4 | |
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Less: | Large Dispositions (d) | — | | | — | | | — | | | — | | | (28.7) | | | — | | | — | | | (28.7) | |
Adjusted EBITDA | $109.1 | | | $37.1 | | | $55.0 | | | $1.8 | | | $91.4 | | | ($0.5) | | | ($26.6) | | | $267.4 | |
2019 | | | | | | | | | | | | | | | |
Operating income (loss) | $57.8 | | | ($12.4) | | | $48.0 | | | — | | | $38.7 | | | — | | | ($25.1) | | | $107.0 | |
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Add: | Depreciation, depletion and amortization | 61.9 | | | 29.2 | | | 27.8 | | | — | | | 8.2 | | | — | | | 1.2 | | | 128.2 | |
Add: | Non-cash cost of land and improved development | — | | | — | | | — | | | — | | | 12.6 | | | — | | | — | | | 12.6 | |
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Adjusted EBITDA | $119.7 | | | $16.7 | | | $75.8 | | | — | | | $59.5 | | | — | | | ($23.9) | | | $247.8 | |
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(a)The year ended December 31, 2021 includes $41.2 million of income from Fund II Timberland Dispositions. The year ended December 31, 2020 includes a $7.3 million loss related to timber write-offs resulting from casualty events.
(b)Gain on investment in Timber Funds reflects the gain recognized on Fund II carried interest incentive fees in the fourth quarter of 2021 as well as the gain recognized on the sale of Timber Funds III & IV in the third quarter of 2021.
(c)Fund II Timberland Dispositions represent the disposition of Fund II Timberland assets, which we managed and owned a co-investment stake in. Fund II Timberland Dispositions attributable to Rayonier represents the proportionate share of Fund II Timberland Dispositions that are attributable to Rayonier.
(d)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.
(e)Timber write-offs resulting from casualty events includes the write-off of merchantable and pre-merchantable timber volume destroyed by casualty events which cannot be salvaged.
(f)Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.
Cash Available for Distribution (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 a non-GAAP measure of cash generated during a period that is available for common stock 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. In compliance with SEC requirements for non-GAAP measures, we reduce CAD by mandatory debt repayments, which results in the measure entitled “Adjusted CAD.” CAD and Adjusted CAD generated in any period are not necessarily indicative of the CAD that may be generated in future periods.
Below is a reconciliation of Cash Provided by Operating Activities to Adjusted CAD for the three years ended December 31 (in millions):
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| 2021 | | 2020 | | 2019 | | | | |
Cash provided by operating activities | $325.1 | | | $204.2 | | | $214.3 | | | | | |
Capital expenditures from continuing operations (a) | (76.0) | | | (66.5) | | | (64.0) | | | | | |
Costs related to the merger with Pope Resources (b) | — | | | 17.2 | | | — | | | | | |
CAD attributable to NCI in Timber Funds | (12.9) | | | (2.8) | | | — | | | | | |
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Working capital and other balance sheet changes | (28.4) | | | 10.3 | | | (0.9) | | | | | |
CAD | $207.8 | | | $162.4 | | | $149.4 | | | | | |
Mandatory debt repayments | (325.0) | | | — | | | (82.0) | | | | | |
Adjusted CAD | ($117.2) | | | $162.4 | | | $67.4 | | | | | |
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Cash used for investing activities | ($26.3) | | | ($213.6) | | | ($219.4) | | | | | |
Cash (used for) provided by financing activities | ($16.3) | | | $27.0 | | | ($79.6) | | | | | |
(a)Capital expenditures exclude timberland acquisitions and real estate development investments.
(b)Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.
The following table provides supplemental cash flow data for the three years ended December 31 (in millions):
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| 2021 | | 2020 | | 2019 | | | | |
Purchase of timberlands (a) | ($179.1) | | | ($24.7) | | | ($142.3) | | | | | |
Real Estate Development Investments | (12.5) | | | (6.5) | | | (6.8) | | | | | |
Distributions to noncontrolling interests in consolidated affiliates | (109.0) | | | (12.6) | | | (9.2) | | | | | |
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Rayonier Inc.
To Our Shareholders:
The management of Rayonier Inc. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our system of internal controls over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of the inherent limitations of internal control over financial reporting, misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Rayonier Inc.’s management, under the supervision of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, we used the framework included in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2021. The report on the Company’s internal control over financial reporting as of December 31, 2021, is on page 63. | | | | | |
RAYONIER INC. |
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By: | /s/ DAVID L. NUNES |
| David L. Nunes President and Chief Executive Officer (Principal Executive Officer) |
| February 25, 2022 |
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By: | /s/ MARK MCHUGH |
| Mark McHugh Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
| February 25, 2022 |
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By: | /s/ APRIL TICE |
| April Tice Vice President and Chief Accounting Officer (Principal Accounting Officer) |
| February 25, 2022 |
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Rayonier, L.P.
To Our Unitholders:
The management of Rayonier, L.P. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our system of internal controls over financial reporting is designed to provide reasonable assurance to the Operating Partnership’s management and the Rayonier Inc. Board of Directors regarding the preparation and fair presentation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of the inherent limitations of internal control over financial reporting, misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Rayonier, L.P.’s management, under the supervision of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, we used the framework included in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2021.
| | | | | |
RAYONIER, L.P. |
| |
By: | RAYONIER, INC., its sole general partner |
| |
By: | /s/ DAVID L. NUNES |
| David L. Nunes President and Chief Executive Officer (Principal Executive Officer) |
| February 25, 2022 |
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By: | /s/ MARK MCHUGH |
| Mark McHugh Senior Vice President and Chief Financial Officer (Principal Financial Officer) |
| February 25, 2022 |
| |
By: | /s/ APRIL TICE |
| April Tice Vice President and Chief Accounting Officer (Principal Accounting Officer) |
| February 25, 2022 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Rayonier Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Rayonier Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rayonier Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and schedule and our report dated February 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Jacksonville, Florida
February 25, 2022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Rayonier Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rayonier Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 25, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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| |
| Depletion of Timber |
Description of the Matter | For the year ended December 31, 2021, the Company recognized $242 million in depletion expense and the Timber and Timberlands balance, net of depletion and amortization, was $2,895 million at December 31, 2021. As described in Note 1 to the financial statements, the Company establishes an annual depletion rate for each particular region. Depletion rates are determined by region by dividing merchantable inventory cost by standing merchantable inventory volume, which is estimated annually. The Company charges accumulated costs attributed to merchantable timber to depletion expense (cost of sales) at the time the timber is harvested or when the underlying timberland is sold.
Auditing management’s annual depletion rate was complex and subjective due to the estimation uncertainty in determining the standing merchantable inventory volume utilized in the calculation of the depletion rate for each region. In particular, estimating the standing merchantable inventory volume involves statistical sampling and growth modeling using inputs such as growth estimates, harvest information and environmental and operational restrictions. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for establishing the annual depletion rate for each geographic region. For example, we tested controls over management’s review of the standing merchantable inventory volume that was determined for each geographic region.
To test the annual depletion rates (including standing merchantable inventory volume), our audit procedures included, among others, evaluating the methodology used and testing the completeness and accuracy of the underlying data used by the Company. We inspected satellite images to test timber existence and assessed the timberland for features that would impact the Company’s ability to harvest its timber. In addition, we evaluated current year changes to harvestability, analyzed the change in depletion as a percentage of sales, utilized published industry growth rates to assess the increase in timber volume growth and compared actual volume harvested to the volume estimated by the Company. |
We have served as the Company’s auditor since 2012.
Jacksonville, Florida
February 25, 2022
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Rayonier Inc., the general partner of Rayonier, L.P.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Rayonier, L.P. and subsidiaries (the Operating Partnership) as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, capital and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Operating Partnership at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Operating Partnership’s management. Our responsibility is to express an opinion on the Operating Partnership’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Operating Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Operating Partnership’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
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| Depletion of Timber |
Description of the Matter | For the year ended December 31, 2021, the Operating Partnership recognized $242 million in depletion expense and the Timber and Timberlands balance, net of depletion and amortization, was $2,895 million at December 31, 2021. As described in Note 1 to the financial statements, the Operating Partnership establishes an annual depletion rate for each particular region. Depletion rates are determined by region by dividing merchantable inventory cost by standing merchantable inventory volume, which is estimated annually. The Operating Partnership charges accumulated costs attributed to merchantable timber to depletion expense (cost of sales) at the time the timber is harvested or when the underlying timberland is sold.
Auditing management’s annual depletion rate was complex and subjective due to the estimation uncertainty in determining the standing merchantable inventory volume utilized in the calculation of the depletion rate for each region. In particular, estimating the standing merchantable inventory volume involves statistical sampling and growth modeling using inputs such as growth estimates, harvest information and environmental and operational restrictions. |
How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Operating Partnership’s process for establishing the annual depletion rate for each geographic region. For example, we tested controls over management’s review of the standing merchantable inventory volume that was determined for each geographic region.
To test the annual depletion rates (including standing merchantable inventory volume), our audit procedures included, among others, evaluating the methodology used and testing the completeness and accuracy of the underlying data used by the Operating Partnership. We inspected satellite images to test timber existence and assessed the timberland for features that would impact the Operating Partnership’s ability to harvest its timber. In addition, we evaluated current year changes to harvestability, analyzed the change in depletion as a percentage of sales, utilized published industry growth rates to assess the increase in timber volume growth and compared actual volume harvested to the volume estimated by the Operating Partnership. |
We have served as the Operating Partnership’s auditor since 2019.
Jacksonville, Florida
February 25, 2022
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31,
(Thousands of dollars, except per share data)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| $1,109,597 | | | $859,154 | | | $711,556 | |
Costs and Expenses | | | | | |
Cost of sales | (796,115) | | | (712,436) | | | (558,350) | |
Selling and general expenses | (57,791) | | | (50,645) | | | (41,646) | |
Other operating income (expense), net (Note 19) | 14,084 | | | (21,685) | | | (4,533) | |
| (839,822) | | | (784,766) | | | (604,529) | |
OPERATING INCOME | 269,775 | | | 74,388 | | | 107,027 | |
Interest expense | (44,907) | | | (38,768) | | | (31,716) | |
Interest and other miscellaneous income, net | 280 | | | 1,173 | | | 5,307 | |
INCOME BEFORE INCOME TAXES | 225,148 | | | 36,793 | | | 80,618 | |
| | | | | |
| (14,661) | | | (7,009) | | | (12,940) | |
NET INCOME | 210,487 | | | 29,784 | | | 67,678 | |
Less: Net income attributable to noncontrolling interests in the operating partnership | (4,516) | | | (528) | | | — | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates | (53,421) | | | 7,828 | | | (8,573) | |
NET INCOME ATTRIBUTABLE TO RAYONIER INC. | 152,550 | | | 37,084 | | | 59,105 | |
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | |
Foreign currency translation adjustment, net of income tax effect of $0, $0 and $0 | (22,096) | | | 28,272 | | | 963 | |
Cash flow hedges, net of income tax effect of $2,667, $1,845 and $664 | 60,315 | | | (61,055) | | | (30,482) | |
Actuarial change and amortization of pension and postretirement plan liabilities, net of income tax effect of $0, $0 and $0 | 12,476 | | | (925) | | | (1,350) | |
Total other comprehensive income (loss) | 50,695 | | | (33,708) | | | (30,869) | |
COMPREHENSIVE INCOME (LOSS) | 261,182 | | | (3,924) | | | 36,809 | |
Less: Comprehensive income attributable to noncontrolling interests in the operating partnership | (6,116) | | | (3,068) | | | — | |
Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates | (48,234) | | | 1,393 | | | (9,146) | |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC. | $206,832 | | | ($5,599) | | | $27,663 | |
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Basic earnings per share attributable to Rayonier Inc. | $1.08 | | | $0.28 | | | $0.46 | |
| | | | | |
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Diluted earnings per share attributable to Rayonier Inc. | $1.08 | | | $0.27 | | | $0.46 | |
| | | | | |
See Notes to Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Thousands of dollars, except share data)
| | | | | | | | | | | |
| 2021 | | 2020 |
ASSETS |
CURRENT ASSETS | | | |
Cash and cash equivalents, excluding Timber Funds | $358,680 | | | $80,454 | |
Cash and cash equivalents, Timber Funds | 3,493 | | | 4,053 | |
Total cash and cash equivalents | 362,173 | | | 84,507 | |
Restricted cash, Timber Funds (Note 24) | 6,341 | | | — | |
Accounts receivable, less allowance for doubtful accounts of $59 and $25 | 30,018 | | | 49,082 | |
| | | |
| 28,523 | | | 10,594 | |
Prepaid logging roads | 14,286 | | | 12,073 | |
Prepaid expenses | 4,242 | | | 4,095 | |
| 5,099 | | | 3,449 | |
Other current assets | 749 | | | 6,765 | |
Total current assets | 451,431 | | | 170,565 | |
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION | 2,894,996 | | | 3,262,126 | |
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT | 106,878 | | | 108,518 | |
PROPERTY, PLANT AND EQUIPMENT | | | |
Land | 6,401 | | | 6,548 | |
Buildings | 31,168 | | | 31,024 | |
Machinery and equipment | 6,494 | | | 4,615 | |
Construction in progress | 460 | | | 452 | |
Total property, plant and equipment, gross | 44,523 | | | 42,639 | |
Less—accumulated depreciation | (14,900) | | | (12,238) | |
Total property, plant and equipment, net | 29,623 | | | 30,401 | |
RESTRICTED CASH, EXCLUDING TIMBER FUNDS (NOTE 24) | 625 | | | 2,975 | |
| 101,837 | | | 108,992 | |
| 50,966 | | | 45,156 | |
TOTAL ASSETS | $3,636,356 | | | $3,728,733 | |
LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY |
CURRENT LIABILITIES | | | |
Accounts payable | $23,447 | | | $24,790 | |
| | | |
Current maturities of long-term debt, excluding Timber Funds (Note 10) | 124,965 | | | — | |
Accrued taxes | 12,446 | | | 7,347 | |
Accrued payroll and benefits | 14,514 | | | 12,327 | |
Accrued interest | 6,343 | | | 6,325 | |
Deferred revenue | 17,802 | | | 11,112 | |
Distributions payable, Timber Funds | 6,341 | | | — | |
Other current liabilities | 25,863 | | | 29,234 | |
Total current liabilities | 231,721 | | | 91,135 | |
LONG-TERM DEBT, NET, EXCLUDING TIMBER FUNDS (NOTE 10) | 1,242,819 | | | 1,300,336 | |
| — | | | 60,179 | |
PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 20) | 10,478 | | | 23,344 | |
| 93,416 | | | 100,251 | |
OTHER NON-CURRENT LIABILITIES | 108,521 | | | 160,722 | |
| | | |
NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP (NOTE 7) | 133,823 | | | 130,121 | |
SHAREHOLDERS’ EQUITY | | | |
Common Shares, 480,000,000 shares authorized, 145,372,961 and 137,678,822 shares issued and outstanding | 1,389,073 | | | 1,101,675 | |
Retained earnings | 402,307 | | | 446,267 | |
Accumulated other comprehensive loss (Note 23) | (19,604) | | | (73,885) | |
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY | 1,771,776 | | | 1,474,057 | |
Noncontrolling interests in consolidated affiliates (Note 7) | 43,802 | | | 388,588 | |
TOTAL SHAREHOLDERS’ EQUITY | 1,815,578 | | | 1,862,645 | |
TOTAL LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY | $3,636,356 | | | $3,728,733 | |
See Notes to Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Thousands of dollars, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests in Consolidated Affiliates | | Shareholders’ Equity |
| Shares | | Amount | |
Balance, December 31, 2018 | 129,488,675 | | | $884,263 | | | $672,371 | | | $239 | | | $97,677 | | | $1,654,550 | |
| | | | | | | | | | | |
Net income | — | | | — | | | 59,105 | | | — | | | 8,573 | | | 67,678 | |
Dividends ($1.08 per share) | — | | | — | | | (140,040) | | | — | | | — | | | (140,040) | |
Issuance of shares under incentive stock plans | 298,003 | | | 1,260 | | | — | | | — | | | — | | | 1,260 | |
Stock-based compensation | — | | | 6,904 | | | — | | | — | | | — | | | 6,904 | |
Repurchase of common shares | (455,609) | | | (4,250) | | | (8,430) | | | — | | | — | | | (12,680) | |
Actuarial change and amortization of pension and postretirement plan liabilities | — | | | — | | | — | | | (1,350) | | | — | | | (1,350) | |
Foreign currency translation adjustment | — | | | — | | | — | | | 784 | | | 179 | | | 963 | |
Cash flow hedges | — | | | — | | | — | | | (30,875) | | | 393 | | | (30,482) | |
Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | — | | | (9,161) | | | (9,161) | |
Balance, December 31, 2019 | 129,331,069 | | | $888,177 | | | $583,006 | | | ($31,202) | | | $97,661 | | | $1,537,642 | |
Issuances of shares associated with the merger with Pope Resources | 7,181,071 | | | 172,418 | | | — | | | — | | | — | | | 172,418 | |
Net income (loss) | — | | | — | | | 37,612 | | | — | | | (7,828) | | | 29,784 | |
Net income attributable to noncontrolling interests in the operating partnership | — | | | — | | | (528) | | | — | | | — | | | (528) | |
Dividends ($1.08 per share) (a) | — | | | — | | | (146,278) | | | — | | | — | | | (146,278) | |
Issuance of shares under the “at-the-market” equity offering, net of commissions and offering costs of $799 | 1,103,012 | | | 32,574 | | | — | | | — | | | — | | | 32,574 | |
Issuance of shares under incentive stock plans | 266,036 | | | 1,589 | | | — | | | — | | | — | | | 1,589 | |
Stock-based compensation | — | | | 8,026 | | | — | | | — | | | — | | | 8,026 | |
Repurchase of common shares | (219,619) | | | (1,605) | | | (3,152) | | | — | | | — | | | (4,757) | |
Acquisition of noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | — | | | 333,366 | | | 333,366 | |
Adjustment of noncontrolling interests in the operating partnership | — | | | — | | | (24,393) | | | — | | | — | | | (24,393) | |
Conversion of units into common shares | 17,253 | | | 496 | | | — | | | — | | | — | | | 496 | |
Actuarial change and amortization of pension and postretirement plan liabilities | — | | | — | | | — | | | (925) | | | — | | | (925) | |
Foreign currency translation adjustment | — | | | — | | | — | | | 22,928 | | | 5,344 | | | 28,272 | |
Cash flow hedges | — | | | — | | | — | | | (62,146) | | | 1,091 | | | (61,055) | |
Allocation of other comprehensive income to noncontrolling interests in the operating partnership | — | | | — | | | — | | | (2,540) | | | — | | | (2,540) | |
Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | — | | | (12,643) | | | (12,643) | |
Noncontrolling interests in consolidated affiliates redemption of shares | — | | | — | | | — | | | — | | | (28,403) | | | (28,403) | |
Balance, December 31, 2020 | 137,678,822 | | | $1,101,675 | | | $446,267 | | | ($73,885) | | | $388,588 | | | $1,862,645 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
(Thousands of dollars, except share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Shares | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests in Consolidated Affiliates | | Shareholders’ Equity |
| Shares | | Amount | |
Balance, December 31, 2020 | 137,678,822 | | | $1,101,675 | | | $446,267 | | | ($73,885) | | | $388,588 | | | $1,862,645 | |
Net income | — | | | — | | | 157,066 | | | — | | | 53,421 | | | 210,487 | |
Net income attributable to noncontrolling interests in the operating partnership | — | | | — | | | (4,516) | | | — | | | — | | | (4,516) | |
Dividends ($1.08 per share) (a) | — | | | — | | | (153,980) | | | — | | | — | | | (153,980) | |
Issuance of shares under the “at-the-market” equity offering, net of commissions and offering costs of $2.5 million | 6,357,972 | | | 233,033 | | | — | | | — | | | — | | | 233,033 | |
Issuance of shares under incentive stock plans | 270,713 | | | 6,029 | | | — | | | — | | | — | | | 6,029 | |
Stock-based compensation | — | | | 9,277 | | | — | | | — | | | — | | | 9,277 | |
Repurchase of common shares | (47,705) | | | (1,617) | | | — | | | — | | | — | | | (1,617) | |
Fund II carried interest incentive fee | — | | | — | | | — | | | — | | | (3,807) | | | (3,807) | |
Disposition of noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | — | | | (255,486) | | | (255,486) | |
Measurement period adjustment of noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | — | | | 9,690 | | | 9,690 | |
| | | | | | | | | | | |
Adjustment of noncontrolling interests in the operating partnership | — | | | — | | | (42,530) | | | — | | | — | | | (42,530) | |
Conversion of units into common shares | 1,113,159 | | | 40,676 | | | — | | | — | | | — | | | 40,676 | |
Actuarial change and amortization of pension and postretirement plan liabilities | — | | | — | | | — | | | 12,476 | | | — | | | 12,476 | |
Foreign currency translation adjustment | — | | | — | | | — | | | (18,487) | | | (3,609) | | | (22,096) | |
Cash flow hedges | — | | | — | | | — | | | 61,893 | | | (1,578) | | | 60,315 | |
Allocation of other comprehensive income to noncontrolling interests in the operating partnership | — | | | — | | | — | | | (1,601) | | | — | | | (1,601) | |
Distributions to noncontrolling interests in consolidated affiliates | — | | | — | | | — | | | — | | | (115,298) | | | (115,298) | |
Noncontrolling interests in consolidated affiliates redemption of shares | — | | | — | | | — | | | — | | | (28,119) | | | (28,119) | |
Balance, December 31, 2021 | 145,372,961 | | | $1,389,073 | | | $402,307 | | | ($19,604) | | | $43,802 | | | $1,815,578 | |
See Notes to Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(Thousands of dollars)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
OPERATING ACTIVITIES | | | | | |
Net income | $210,487 | | | $29,784 | | | $67,678 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
Depreciation, depletion and amortization | 155,722 | | | 164,996 | | | 128,235 | |
Non-cash cost of land and improved development | 24,976 | | | 30,368 | | | 12,565 | |
Stock-based incentive compensation expense | 9,277 | | | 8,026 | | | 6,904 | |
| | | | | |
Deferred income taxes | 8,509 | | | 7,541 | | | 11,314 | |
| | | | | |
Amortization of losses from pension and postretirement plans | 1,174 | | | 869 | | | 449 | |
Timber write-offs due to casualty events | — | | | 15,203 | | | — | |
Gain on sale of large disposition of timberlands | (44,784) | | | (28,655) | | | — | |
Gain on Fund II timberland dispositions | (51,522) | | | — | | | — | |
Gain on sale of Timber Funds III & IV | (3,675) | | | — | | | — | |
Fund II carried interest incentive fee | (3,807) | | | — | | | — | |
Other | 9,456 | | | (11,100) | | | (4,999) | |
Changes in operating assets and liabilities, net of effects of merger with Pope Resources: | | | | | |
Receivables | 17,239 | | | (15,378) | | | (849) | |
Inventories | (503) | | | (1,448) | | | 1,224 | |
Accounts payable | (1,593) | | | 5,668 | | | (1,554) | |
| | | | | |
All other operating activities | (5,846) | | | (1,700) | | | (6,714) | |
CASH PROVIDED BY OPERATING ACTIVITIES | 325,110 | | | 204,174 | | | 214,253 | |
INVESTING ACTIVITIES | | | | | |
Capital expenditures | (75,965) | | | (66,500) | | | (63,996) | |
Real estate development investments | (12,521) | | | (6,462) | | | (6,803) | |
Purchase of timberlands | (179,115) | | | (24,695) | | | (142,287) | |
| | | | | |
Net proceeds from large disposition of timberlands | 54,682 | | | 115,666 | | | — | |
Net proceeds from sale of Timber Funds III & IV | 31,014 | | | — | | | — | |
Net proceeds from Fund II timberland dispositions | 154,740 | | | — | | | — | |
Cash consideration for merger with Pope Resources, net of cash acquired | — | | | (231,068) | | | — | |
| | | | | |
| | | | | |
| | | | | |
Other | 912 | | | (584) | | | (6,304) | |
CASH USED FOR INVESTING ACTIVITIES | (26,253) | | | (213,643) | | | (219,390) | |
FINANCING ACTIVITIES | | | | | |
Issuance of debt | 446,378 | | | 320,000 | | | 82,000 | |
Repayment of debt | (420,000) | | | (152,000) | | | — | |
Dividends paid on common stock | (153,515) | | | (146,348) | | | (141,071) | |
Distributions to noncontrolling interests in the operating partnership | (4,269) | | | (3,596) | | | — | |
Proceeds from the issuance of common shares under incentive stock plan | 5,922 | | | 1,368 | | | 1,260 | |
Proceeds from the issuance of common shares under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs | 230,826 | | | 32,574 | | | — | |
| | | | | |
Repurchase of common shares to pay withholding taxes on vested incentive stock awards | (1,617) | | | (1,605) | | | (4,250) | |
Repurchase of common shares made under repurchase program | — | | | (3,152) | | | (8,430) | |
Debt issuance costs | (4,846) | | | (2,483) | | | (132) | |
Proceeds from shareholder distribution hedge | — | | | — | | | 135 | |
Noncontrolling interests in consolidated affiliates redemption of shares | — | | | (5,113) | | | — | |
Distributions to noncontrolling interests in consolidated affiliates | (108,956) | | | (12,643) | | | (9,161) | |
Make-whole fee on NWFCS debt prepayment | (6,234) | | | — | | | — | |
| | | | | |
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES | (16,311) | | | 27,002 | | | (79,649) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (889) | | | (19) | | | (1,700) | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | |
Change in cash, cash equivalents and restricted cash | 281,657 | | | 17,514 | | | (86,486) | |
Balance, beginning of year | 87,482 | | | 69,968 | | | 156,454 | |
Balance, end of year | $369,139 | | | $87,482 | | | $69,968 | |
See Notes to Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31,
(Thousands of dollars)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | |
Cash paid during the year: | | | | | |
Interest (a) | $42,672 | | | $40,895 | | | $32,782 | |
Income taxes | 7,392 | | | 816 | | | 1,691 | |
Non-cash investing activity: | | | | | |
Capital assets purchased on account | $5,272 | | | $3,205 | | | $3,568 | |
Non-cash financing activity: | | | | | |
Equity consideration for merger with Pope Resources | — | | | $172,640 | | | — | |
Redeemable Operating Partnership Unit consideration for merger with Pope Resources | — | | | 106,752 | | | — | |
Noncontrolling interests in consolidated affiliates redemption of shares (b) | 28,119 | | | 23,290 | | | — | |
(a)Interest paid is presented net of patronage payments received of $6.8 million, $4.7 million and $4.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. For additional information on patronage payments, see Note 10 - Debt. (b)In 2021, 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 $28.1 million. In 2020, the New Zealand subsidiary made a capital distribution in order to redeem certain equity interests, resulting in the recording of a noncontrolling interest share redemption of $5.1 million and a loan payable by the New Zealand subsidiary in the amount of $23.3 million. See Note 7 - Noncontrolling Interests and Note 10 - Debt for further information.
See Notes to Consolidated Financial Statements.
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Years Ended December 31,
(Thousands of dollars, except per unit data)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| $1,109,597 | | | $859,154 | | | $711,556 | |
Costs and Expenses | | | | | |
Cost of sales | (796,115) | | | (712,436) | | | (558,350) | |
Selling and general expenses | (57,791) | | | (50,645) | | | (41,646) | |
Other operating income (expense), net (Note 19) | 14,084 | | | (21,685) | | | (4,533) | |
| (839,822) | | | (784,766) | | | (604,529) | |
OPERATING INCOME | 269,775 | | | 74,388 | | | 107,027 | |
Interest expense | (44,907) | | | (38,768) | | | (31,716) | |
Interest and other miscellaneous income, net | 280 | | | 1,173 | | | 5,307 | |
INCOME BEFORE INCOME TAXES | 225,148 | | | 36,793 | | | 80,618 | |
| | | | | |
| (14,661) | | | (7,009) | | | (12,940) | |
NET INCOME | 210,487 | | | 29,784 | | | 67,678 | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates | (53,421) | | | 7,828 | | | (8,573) | |
NET INCOME ATTRIBUTABLE TO RAYONIER, L.P. UNITHOLDERS | 157,066 | | | 37,612 | | | 59,105 | |
OTHER COMPREHENSIVE INCOME (LOSS) | | | | | |
Foreign currency translation adjustment, net of income tax effect of $0, $0 and $0 | (22,096) | | | 28,272 | | | 963 | |
Cash flow hedges, net of income tax effect of $2,667, $1,845 and $664 | 60,315 | | | (61,055) | | | (30,482) | |
Actuarial change and amortization of pension and postretirement plan liabilities, net of income tax effect of $0, $0 and $0 | 12,476 | | | (925) | | | (1,350) | |
Total other comprehensive income (loss) | 50,695 | | | (33,708) | | | (30,869) | |
COMPREHENSIVE INCOME (LOSS) | 261,182 | | | (3,924) | | | 36,809 | |
Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates | (48,234) | | | 1,393 | | | (9,146) | |
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER, L.P. UNITHOLDERS | $212,948 | | | ($2,531) | | | $27,663 | |
| | | | | |
| | | | | |
| | | | | |
Basic earnings per unit attributable to Rayonier, L.P. | $1.08 | | | $0.28 | | | $0.46 | |
| | | | | |
| | | | | |
Diluted earnings per unit attributable to Rayonier, L.P. | $1.08 | | | $0.27 | | | $0.46 | |
| | | | | |
See Notes to Consolidated Financial Statements.
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of December 31,
(Thousands of dollars, except unit data)
| | | | | | | | | | | |
| 2021 | | 2020 |
ASSETS |
CURRENT ASSETS | | | |
Cash and cash equivalents, excluding Timber Funds | $358,680 | | | $80,454 | |
Cash and cash equivalents, Timber Funds | 3,493 | | | 4,053 | |
Total cash and cash equivalents | 362,173 | | | 84,507 | |
Restricted cash, Timber Funds (Note 24) | 6,341 | | | — | |
Accounts receivable, less allowance for doubtful accounts of $59 and $25 | 30,018 | | | 49,082 | |
| | | |
| 28,523 | | | 10,594 | |
| | | |
Prepaid logging roads | 14,286 | | | 12,073 | |
Prepaid expenses | 4,242 | | | 4,095 | |
| 5,099 | | | 3,449 | |
Other current assets | 749 | | | 6,765 | |
Total current assets | 451,431 | | | 170,565 | |
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION | 2,894,996 | | | 3,262,126 | |
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT | 106,878 | | | 108,518 | |
PROPERTY, PLANT AND EQUIPMENT | | | |
Land | 6,401 | | | 6,548 | |
Buildings | 31,168 | | | 31,024 | |
Machinery and equipment | 6,494 | | | 4,615 | |
Construction in progress | 460 | | | 452 | |
Total property, plant and equipment, gross | 44,523 | | | 42,639 | |
Less — accumulated depreciation | (14,900) | | | (12,238) | |
Total property, plant and equipment, net | 29,623 | | | 30,401 | |
RESTRICTED CASH, EXCLUDING TIMBER FUNDS (NOTE 24) | 625 | | | 2,975 | |
| 101,837 | | | 108,992 | |
| 50,966 | | | 45,156 | |
TOTAL ASSETS | $3,636,356 | | | $3,728,733 | |
LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL |
CURRENT LIABILITIES | | | |
Accounts payable | $23,447 | | | $24,790 | |
| | | |
Current maturities of long-term debt, excluding Timber Funds (Note 10) | 124,965 | | | — | |
| | | |
Accrued taxes | 12,446 | | | 7,347 | |
| | | |
Accrued payroll and benefits | 14,514 | | | 12,327 | |
Accrued interest | 6,343 | | | 6,325 | |
Deferred revenue | 17,802 | | | 11,112 | |
Distributions payable, Timber Funds | 6,341 | | | — | |
Other current liabilities | 25,863 | | | 29,234 | |
Total current liabilities | 231,721 | | | 91,135 | |
LONG-TERM DEBT, NET, EXCLUDING TIMBER FUNDS (NOTE 10) | 1,242,819 | | | 1,300,336 | |
LONG-TERM DEBT, NET, TIMBER FUNDS (NOTE 10) | — | | | 60,179 | |
PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 20) | 10,478 | | | 23,344 | |
LONG-TERM LEASE LIABILITY (NOTE 6) | 93,416 | | | 100,251 | |
OTHER NON-CURRENT LIABILITIES | 108,521 | | | 160,722 | |
| | | |
| | | |
REDEEMABLE OPERATING PARTNERSHIP UNITS (NOTE 7) 3,315,741 and 4,428,900 Units outstanding, respectively | 133,823 | | | 130,121 | |
CAPITAL | | | |
General partners’ capital | 17,872 | | | 15,454 | |
Limited partners’ capital | 1,769,367 | | | 1,529,948 | |
Accumulated other comprehensive loss (Note 23) | (15,463) | | | (71,345) | |
TOTAL CONTROLLING INTEREST CAPITAL | 1,771,776 | | | 1,474,057 | |
Noncontrolling interests in consolidated affiliates (Note 7) | 43,802 | | | 388,588 | |
TOTAL CAPITAL | 1,815,578 | | | 1,862,645 | |
TOTAL LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL | $3,636,356 | | | $3,728,733 | |
See Notes to Consolidated Financial Statements.
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(Thousands of dollars, except unit data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests in Consolidated Affiliates | | Total Capital |
| Units | |
| | General Partners’ Capital | | Limited Partners’ Capital | |
Balance, December 31, 2018 | | $15,566 | | | $1,541,068 | | | $239 | | | $97,677 | | | $1,654,550 | |
| | | | | | | | | | |
Net income | | 591 | | | 58,514 | | | — | | | 8,573 | | | 67,678 | |
Distributions on units ($1.08 per unit) | | (1,400) | | | (138,640) | | | — | | | — | | | (140,040) | |
Issuance of units under incentive stock plans | | 13 | | | 1,247 | | | — | | | — | | | 1,260 | |
Stock-based compensation | | 69 | | | 6,835 | | | — | | | — | | | 6,904 | |
Repurchase of units | | (127) | | | (12,553) | | | — | | | — | | | (12,680) | |
Actuarial change and amortization of pension and postretirement plan liabilities | | — | | | — | | | (1,350) | | | — | | | (1,350) | |
Foreign currency translation adjustment | | — | | | — | | | 784 | | | 179 | | | 963 | |
Cash flow hedges | | — | | | — | | | (30,875) | | | 393 | | | (30,482) | |
Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | (9,161) | | | (9,161) | |
Balance, December 31, 2019 | | $14,712 | | | $1,456,471 | | | ($31,202) | | | $97,661 | | | $1,537,642 | |
Issuance of units associated with the merger with Pope Resources | | 1,724 | | | 170,694 | | | — | | | — | | | 172,418 | |
Net income (loss) | | 376 | | | 37,236 | | | — | | | (7,828) | | | 29,784 | |
Distributions on units ($1.08 per unit) | | (1,500) | | | (148,375) | | | — | | | — | | | (149,875) | |
Issuance of units under the “at-the-market” equity offering, net of commissions and offering costs of $799 | | 326 | | | 32,248 | | | — | | | — | | | 32,574 | |
Issuance of units under incentive stock plans | | 16 | | | 1,573 | | | — | | | — | | | 1,589 | |
Stock-based compensation | | 81 | | | 7,945 | | | — | | | — | | | 8,026 | |
Repurchase of units | | (47) | | | (4,710) | | | — | | | — | | | (4,757) | |
Adjustment of Redeemable Operating Partnership Units | | (239) | | | (23,625) | | | | | | | (23,864) | |
Acquisition of noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | 333,366 | | | 333,366 | |
Conversion of units to common shares | | 5 | | | 491 | | | — | | | — | | | 496 | |
Actuarial change and amortization of pension and postretirement plan liabilities | | — | | | — | | | (925) | | | — | | | (925) | |
Foreign currency translation adjustment | | — | | | — | | | 22,928 | | | 5,344 | | | 28,272 | |
Cash flow hedges | | — | | | — | | | (62,146) | | | 1,091 | | | (61,055) | |
Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | (12,643) | | | (12,643) | |
Noncontrolling interests in consolidated affiliates redemption of unit equivalents | | — | | | — | | | — | | | ($28,403) | | | (28,403) | |
Balance, December 31, 2020 | | $15,454 | | | $1,529,948 | | | ($71,345) | | | $388,588 | | | $1,862,645 | |
| | | | | | | | | | |
| | | | | | | | | | |
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (CONTINUED)
(Thousands of dollars, except unit data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interests in Consolidated Affiliates | | Total Capital |
| Units | |
| | General Partners’ Capital | | Limited Partners’ Capital | |
Balance, December 31, 2020 | | $15,454 | | | $1,529,948 | | | ($71,345) | | | $388,588 | | | $1,862,645 | |
Net income | | 1,571 | | | 155,495 | | | — | | | 53,421 | | | 210,487 | |
Distributions on units ($1.08 per unit) | | (1,583) | | | (156,666) | | | — | | | — | | | (158,249) | |
Issuance of units under the “at-the-market” equity offering, net of commissions and offering costs of $2.5 million | | 2,330 | | | 230,703 | | | — | | | — | | | 233,033 | |
Issuance of units under incentive stock plans | | 60 | | | 5,969 | | | — | | | — | | | 6,029 | |
Stock-based compensation | | 93 | | | 9,184 | | | — | | | — | | | 9,277 | |
Repurchase of units | | (16) | | | (1,601) | | | — | | | — | | | (1,617) | |
Adjustment of Redeemable Operating Partnership Units | | (444) | | | (43,934) | | | — | | | — | | | (44,378) | |
| | | | | | | | | | |
Conversion of units to common shares | | 407 | | | 40,269 | | | — | | | — | | | 40,676 | |
Measurement period adjustment of noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | 9,690 | | | 9,690 | |
| | | | | | | | | | |
Fund II carried interest incentive fee | | — | | | — | | | — | | | (3,807) | | | (3,807) | |
Disposition of noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | (255,486) | | | (255,486) | |
Actuarial change and amortization of pension and postretirement plan liabilities | | — | | | — | | | 12,476 | | | — | | | 12,476 | |
Foreign currency translation adjustment | | — | | | — | | | (18,487) | | | (3,609) | | | (22,096) | |
Cash flow hedges | | — | | | — | | | 61,893 | | | (1,578) | | | 60,315 | |
Distributions to noncontrolling interests in consolidated affiliates | | — | | | — | | | — | | | (115,298) | | | (115,298) | |
Noncontrolling interests in consolidated affiliates redemption of unit equivalents | | — | | | — | | | — | | | (28,119) | | | (28,119) | |
Balance, December 31, 2021 | | $17,872 | | | $1,769,367 | | | ($15,463) | | | $43,802 | | | $1,815,578 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
See Notes to Consolidated Financial Statements.
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
(Thousands of dollars)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
OPERATING ACTIVITIES | | | | | |
Net income | $210,487 | | | $29,784 | | | $67,678 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
Depreciation, depletion and amortization | 155,722 | | | 164,996 | | | 128,235 | |
Non-cash cost of land and improved development | 24,976 | | | 30,368 | | | 12,565 | |
Stock-based incentive compensation expense | 9,277 | | | 8,026 | | | 6,904 | |
Deferred income taxes | 8,509 | | | 7,541 | | | 11,314 | |
Amortization of losses from pension and postretirement plans | 1,174 | | | 869 | | | 449 | |
Timber write-offs due to casualty events | — | | | 15,203 | | | — | |
Gain on sale of large disposition of timberlands | (44,784) | | | (28,655) | | | — | |
Gain on Fund II timberland dispositions | (51,522) | | | — | | | — | |
Gain on sale of Timber Funds III & IV | (3,675) | | | — | | | — | |
Fund II carried interest incentive fee | (3,807) | | | — | | | — | |
Other | 9,456 | | | (11,100) | | | (4,999) | |
Changes in operating assets and liabilities, net of effects of merger with Pope Resources: | | | | | |
Receivables | 17,239 | | | (15,378) | | | (849) | |
Inventories | (503) | | | (1,448) | | | 1,224 | |
Accounts payable | (1,593) | | | 5,668 | | | (1,554) | |
| | | | | |
All other operating activities | (5,846) | | | (1,700) | | | (6,714) | |
CASH PROVIDED BY OPERATING ACTIVITIES | 325,110 | | | 204,174 | | | 214,253 | |
INVESTING ACTIVITIES | | | | | |
Capital expenditures | (75,965) | | | (66,500) | | | (63,996) | |
| | | | | |
Real estate development investments | (12,521) | | | (6,462) | | | (6,803) | |
Purchase of timberlands | (179,115) | | | (24,695) | | | (142,287) | |
| | | | | |
Net proceeds from large disposition of timberlands | 54,682 | | | 115,666 | | | — | |
Net proceeds from sale of Timber Funds III & IV | 31,014 | | | — | | | — | |
Net proceeds from Fund II timberland dispositions | 154,740 | | | — | | | — | |
| | | | | |
Cash consideration for merger with Pope Resources, net of cash acquired | — | | | (231,068) | | | — | |
Other | 912 | | | (584) | | | (6,304) | |
CASH USED FOR INVESTING ACTIVITIES | (26,253) | | | (213,643) | | | (219,390) | |
FINANCING ACTIVITIES | | | | | |
Issuance of debt | 446,378 | | | 320,000 | | | 82,000 | |
Repayment of debt | (420,000) | | | (152,000) | | | — | |
Distributions on units | (157,784) | | | (149,944) | | | (141,071) | |
Proceeds from the issuance of units under incentive stock plan | 5,922 | | | 1,368 | | | 1,260 | |
Proceeds from the issuance of units under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs | 230,826 | | | 32,574 | | | — | |
| | | | | |
| | | | | |
Repurchase of units to pay withholding taxes on vested incentive stock awards | (1,617) | | | (1,605) | | | (4,250) | |
Debt issuance costs | (4,846) | | | (2,483) | | | (132) | |
| | | | | |
| | | | | |
| | | | | |
Repurchase of units made under repurchase program | — | | | (3,152) | | | (8,430) | |
Proceeds from shareholder distribution hedge | — | | | — | | | 135 | |
Noncontrolling interests in consolidated affiliates redemption of shares | — | | | (5,113) | | | — | |
Distributions to noncontrolling interests in consolidated affiliates | (108,956) | | | (12,643) | | | (9,161) | |
Make-whole fee on NWFCS debt prepayment | (6,234) | | | — | | | — | |
| | | | | |
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES | (16,311) | | | 27,002 | | | (79,649) | |
EFFECT OF EXCHANGE RATE CHANGES ON CASH | (889) | | | (19) | | | (1,700) | |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH | | | | | |
Change in cash, cash equivalents and restricted cash | 281,657 | | | 17,514 | | | (86,486) | |
Balance, beginning of year | 87,482 | | | 69,968 | | | 156,454 | |
Balance, end of year | $369,139 | | | $87,482 | | | $69,968 | |
See Notes to Consolidated Financial Statements.
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
For the Years Ended December 31,
(Thousands of dollars)
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | |
Cash paid during the period: | | | | | |
Interest (a) | $42,672 | | | $40,895 | | | $32,782 | |
Income taxes | 7,392 | | | 816 | | | 1,691 | |
Non-cash investing activity: | | | | | |
Capital assets purchased on account | $5,272 | | | $3,205 | | | $3,568 | |
Non-cash financing activity: | | | | | |
Unit consideration for merger with Pope Resources | — | | | $172,640 | | | — | |
Redeemable Operating Partnership Unit consideration for merger with Pope Resources | — | | | 106,752 | | | — | |
Noncontrolling interests in consolidated affiliates redemption of shares (b) | 28,119 | | | 23,290 | | | — | |
(a)Interest paid is presented net of patronage payments received of $6.8 million, $4.7 million and $4.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. For additional information on patronage payments, see Note 10 — Debt. (b)In 2021, 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 $28.1 million. In 2020, the New Zealand subsidiary made a capital distribution in order to redeem certain equity interests, resulting in the recording of a noncontrolling interest share redemption of $5.1 million and a loan payable by the New Zealand subsidiary in the amount of $23.3 million. See Note 7 - Noncontrolling Interests and Note 10 - Debt for further information.
See Notes to Consolidated Financial Statements.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands unless otherwise stated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Rayonier Inc.'s Consolidated Financial Statements include the Operating Partnership, wholly-owned subsidiaries and entities in which the Company has a controlling interest. Rayonier, L.P.'s Consolidated Financial Statements include wholly-owned subsidiaries and entities in which the Operating Partnership has a controlling interest. For additional information regarding our consolidated entities with a noncontrolling interest component, see Note 7 - Noncontrolling Interests. All intercompany balances and transactions are eliminated. As of December 31, 2021, 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.
DISPOSITION OF TIMBER FUNDS
Upon completion of the Pope Resources merger in May 2020, we became the manager of three private equity timber funds, Fund II, Fund III, and Fund IV, consisting of 141,000 acres in the Pacific Northwest, and obtained ownership interests in the Funds of 20%, 5%, and 15%, respectively.
On July 21, 2021, we sold the rights to manage Fund III and IV, as well as our ownership interests in both funds to BTG Pactual’s Timberland Investment Group (TIG) for an aggregate sales price of $35.9 million. Due to the sale of our rights to manage Fund III and Fund IV, we determined that we no longer have the power to direct the activities that most significantly impact the success of Fund III and Fund IV. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale. For additional information on Fund III and IV, see Note 7 - Noncontrolling Interests. In addition, we completed the liquidation of Fund II timberland assets through three separate transactions during the third and fourth quarters of 2021 for an aggregate sales price of $156.8 million. As of December 31, 2021, we continue to manage and maintain a 20% ownership interest in Fund II, which is scheduled to terminate in March 2023. Prior to the termination of Fund II, the remaining capital will be distributed to Fund II investors. For additional information regarding Fund II, see Note 7 - Noncontrolling Interests, Note 8 - Variable Interest Entities and Note 24 - Restricted Cash. RECLASSIFICATIONS
Effective for year ended December 31, 2021, we have updated our presentation for the employee benefit pension plan to include a separate line item “Expenses paid,” which was previously reported as part of “Actuarial loss (gain).” “Actuarial loss (gain)” now solely represents changes resulting from adjustments to actuarial assumptions and estimates. The other categories of the pension plan remain unchanged, and this reclassification had no impact on the total projected benefit obligation. See Note 20 - Employee Benefit Plans. USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. There are risks inherent in estimating and therefore actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash on hand and other highly liquid investments with original maturities of three months or less.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
ACCOUNTS RECEIVABLE
Accounts receivable are primarily amounts due to us for the sale of timber and are presented net of an allowance for doubtful accounts.
INVENTORY
Higher and better use (“HBU”) real estate properties that are expected to be sold within one year are included in inventory at the lower of cost or net realizable value. HBU properties that are expected to be sold after one year are included in a separate balance sheet line entitled “Higher and Better Use Timberlands and Real Estate Development Investments.” See below for additional information.
Inventory also includes logs available to be sold by the Trading segment. Log inventory is recorded at the lower of cost or net realizable value and expensed to cost of sales when sold to third-party buyers. See Note 18 — Inventory for additional information. PREPAID LOGGING ROADS
Costs for roads built in the Pacific Northwest and New Zealand to access particular tracts to be harvested in the upcoming 24 months to 60 months are recorded as prepaid logging roads. We charge such costs to expense as timber is harvested using an amortization rate determined annually as the total cost of prepaid roads divided by the estimated tons of timber to be accessed by those roads. The prepaid balance is classified as short-term or long-term based on the upcoming harvest schedule. See Note 25 — Other Assets for additional information. PATRONAGE DIVIDENDS
As a requirement of the Farm Credit Act, borrowers in the Farm Credit System are required to purchase equity in Farm Credit lenders. The equity balance primarily represents shares of Class A common stock in CoBank valued at $100 par value. CoBank equity purchases continue annually until a balance equal to 8% of our 10-year historical average loan balance at CoBank is obtained. Initially, a minimal equity purchase was made in cash upon receiving the loan proceeds. Subsequently, equity purchases are made annually through patronage dividends, of which approximately 88% is cash and 12% is equity. The stock has no cash value until retired. As our loans are paid in full, the stock is generally retired over a 10-year loan base period beginning in the year following loan payoff.
Estimated cash and equity dividends are recognized as an offset to interest expense in the period earned. These estimates are calculated by applying the weighted average debt balance with each participating lender to a historical dividend rate. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change. See Note 10 — Debt and Note 25 — Other Assets for additional information. DEFERRED FINANCING COSTS
Deferred financing costs related to revolving debt are capitalized and amortized to interest expense over the term of the revolving debt using a method that approximates the effective interest method. See Note 25 — Other Assets for additional information on deferred financing costs related to revolving debt. See Note 10 — Debt for additional information on deferred financing costs related to term debt. CAPITALIZED SOFTWARE COSTS
Software costs are capitalized and amortized over a period not exceeding five years using the straight-line method.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
TIMBER AND TIMBERLANDS
Timber is stated at the lower of cost or net realizable value. Costs relating to acquiring, planting and growing timber including real estate taxes, site preparation and direct support costs relating to facilities, vehicles and supplies, are capitalized. A portion of timberland lease payments are capitalized based on the proportion of acres with merchantable timber volume remaining to be harvested under the lease term and the residual portion of the lease payments are expensed as incurred. Payroll costs are capitalized for time spent on timber growing activities, while interest or any other intangible costs are not capitalized. An annual depletion rate is established for each particular region by dividing merchantable inventory cost by standing merchantable inventory volume, which is estimated annually. We charge accumulated costs attributed to merchantable timber to depletion expense (cost of sales) at the time the timber is harvested or when the underlying timberland is sold.
Upon the acquisition of timberland, we make a determination on whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new, separate pool. This determination is based on the geographic location of the new timber, the customers/markets that will be served and the species mix. If the acquisition is similar, the cost of the acquired timber is combined into an existing depletion pool and a new depletion rate is calculated for the pool. This determination and depletion rate adjustment normally occurs in the quarter following the acquisition.
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
HBU timberland is recorded at the lower of cost or net realizable value. These properties are managed as timberlands until sold or developed, with sales and depletion expense related to the harvesting of timber accounted for within the respective timber segment. At the time of sale, the cost basis of any unharvested timber is recorded as depletion expense, a component of cost of sales, within the Real Estate segment.
REAL ESTATE DEVELOPMENT INVESTMENTS
Real estate development investments include capitalized costs for targeted infrastructure improvements, such as roadways and utilities. The capitalization period relating to real estate development investments is the period in which activities necessary to ready a property for its intended use are in progress. The period begins when such activities commence, typically when we begin the site work for land already owned, and ends when the improvement is substantially complete and ready for its intended use. Determination of when construction of a project is substantially complete and ready for its intended use is subjective and requires business judgement. As such, we determine when the capitalization period begins and ends through communication with project and other managers responsible for the tracking and oversight of individual projects.
We capitalize costs directly associated with development and construction of identified real estate projects, such as infrastructure, roadways, utilities, amenities and/or other improvements designed to enhance marketability and create parcels, pads and/or lots for sale. We capitalize interest based on the amount of underlying expenditures on real estate projects under development.
IMPAIRMENT OF HBU TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
We review our higher and better use timberlands and real estate development investments for potential impairment indicators whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Impairment indicators for each development project are assessed separately and include, but are not limited to, significant decreases in sales pace or average selling prices, significant increases in expected land development and construction costs, and projected losses on expected future sales. Development projects have extended life cycles that may last 20 to 40 years, or longer, and have few long-term contractual cash flows. Development periods often occur through several economic cycles. Subjective factors such as the expected timing of property development and sales, optimal development density and sales strategy impact the timing and amount of expected future cash flows and fair value.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding future economic conditions, such as construction costs and sales values that could differ materially from actual results in future periods. If impairment indicators exist and it is expected that undiscounted cash flows generated by the asset are less than its carrying amount less costs to sell, an impairment provision is recorded to write-down the carrying amount of the asset to its fair value.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, plant and equipment additions are recorded at cost, including applicable freight, interest, construction and installation costs. We generally depreciate our assets, including office and transportation equipment, using the straight-line depreciation method over 3 to 25 years. Buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years, respectively.
Gains and losses on the sale or retirement of assets are included in operating income. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the amount the carrying value exceeds the fair value of the assets, which is based on a discounted cash flow model. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell.
LEASES
At inception, we determine if an arrangement is a lease and whether that lease meets the classification criteria of a finance or operating lease. Operating leases are included in right-of-use (“ROU”) assets, other current liabilities, and long-term lease liability in the Consolidated Balance Sheets. The income generated from our commercial and residential leases in Port Gamble are accounted for in accordance with Topic 842. We recognize the total minimum lease payments provided for under the leases on a straight-line basis over the lease term.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we generally use our incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
RIGHT-OF-USE ASSETS IMPAIRMENT
Operating lease right-of-use assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group to which the operating lease is assigned may not be recoverable. Recoverability of the asset group is evaluated based on forecasted undiscounted cash flows. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is compared to its carrying amount and an impairment charge is recognized for the amount by which the carrying amount exceeds the fair value. A discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate are used to estimate the fair value of the asset group.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
FAIR VALUE MEASUREMENTS
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy that prioritizes the inputs used to measure fair value was established 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, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
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. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
ENVIRONMENTAL REMEDIATION LIABILITIES
Environmental remediation liabilities have been evaluated using a combination of methods. The liability is estimated based on amounts included in construction contracts and estimates for construction contingencies, project management, and other professional fees. See Note 15 - Environmental and Natural Resource Damages Liabilities for more information. GOODWILL
Goodwill represents the excess of the acquisition cost of the New Zealand Timber segment over the fair value of the net assets acquired. Goodwill is not amortized, but is periodically reviewed for impairment. An impairment test for this reporting unit’s goodwill is performed annually and whenever events or circumstances indicate that the value of goodwill may be impaired. We compare the fair value of the New Zealand Timber segment, using an independent valuation for the New Zealand forest assets, to its carrying value including goodwill. The independent valuation of the New Zealand forest assets is based on discounted cash flow models where the fair value is calculated using cash flows from sustainable forest management plans. The fair value of the forest assets is measured as the present value of cash flows from one growth cycle based on the productive forest land, taking into consideration environmental, operational, and market restrictions. These cash flow valuations involve a number of estimates that require broad assumptions and significant judgment regarding future performance. The annual impairment test was performed as of October 1, 2021; the estimated fair value of the New Zealand Timber segment exceeded its carrying value and no impairment was recorded. Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of goodwill since the initial recognition. See Note 25 — Other Assets for additional information. FOREIGN CURRENCY TRANSLATION AND REMEASUREMENT
The functional currency of our New Zealand-based operations is the New Zealand dollar. All assets and liabilities are translated into U.S. dollars at the exchange rate in effect at the respective balance sheet dates. Translation gains and losses are recorded as a separate component of Accumulated Other Comprehensive Income (“AOCI”), within Shareholders’ Equity.
U.S. denominated transactions of the New Zealand subsidiary are remeasured into New Zealand dollars at the exchange rate in effect on the date of the transaction and recognized in earnings, net of related cash flow hedges. All income statement items of the New Zealand subsidiary are translated into U.S. dollars for reporting purposes using monthly average exchange rates with translation gains and losses being recorded as a separate component of AOCI, within Shareholders’ Equity.
REDEEMABLE OPERATING PARTNERSHIP UNITS
Limited partners holding Redeemable Operating Partnership Units have the right to put any and all of the units to the Operating Partnership in exchange for Rayonier registered common shares, on a one-for-one basis, or cash, at Rayonier’s option. Consequently, these Redeemable Operating Partnership Units are classified outside of permanent partners’ capital in the Operating Partnership's accompanying balance sheets and the related
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
noncontrolling interest is classified outside of permanent equity in the accompanying balance sheets of Rayonier. The recorded value of the Redeemable Operating Partnership Units is based on the higher of 1) initial carrying amount, increased or decreased for its share of net income or loss, other comprehensive income or loss, and dividend or 2) redemption value as measured by the closing price of Rayonier common stock on the balance sheet date multiplied by the total number of Redeemable Operating Partnership Units outstanding.
RELATED PARTY
We follow ASC 850, Related Party Disclosure, for the identification of related parties and disclosure of related party transactions. A party is considered to be related to us if the party, directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include principal owners, management and directors, as well as members of their immediate families or any other parties with which we may deal if one party to a transaction controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. See Note 28 – Related Party. BUSINESS COMBINATION
We account for business combinations using the acquisition method of accounting, under which all assets acquired and liabilities assumed, including amounts attributable to noncontrolling interest, are recorded at their respective fair values as of the acquisition date. The excess of the purchase price over the fair value of identifiable assets and liabilities is recorded as goodwill. The allocation of purchase price in a business combination uses significant assumptions and estimates. Critical estimates include, but are not limited to, future expected cash flows, including revenues and expenses, and applicable discount rates. While we believe our estimates and assumptions to be reasonable, they are subject to change as we obtain additional information related to those estimates during the applicable measurement periods (up to one year from the acquisition date).
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, we are required to record preliminary values in the financial statements for the items for which the accounting is incomplete. Adjustments to the preliminary recorded values, which are identified during the measurement period, are recognized in the reporting period in which the adjustments are determined. This includes any effect on earnings of changes in depletion, depreciation or amortization, or other income effects as a result of the change to the recorded values, calculated as if the accounting had been completed at the acquisition date. During the measurement period, we are also required to recognize additional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. The measurement period ends the sooner of one year from the acquisition date or when we receive the information we were seeking about facts and circumstances that existed as of the acquisition date or learn that more information is not obtainable. In 2021, we finalized the purchase price allocation related to the Pope Resources merger. See Note 2 – Merger with Pope Resources for more information. REVENUE RECOGNITION
We recognize revenues when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected in exchange for those goods or services (“transaction price”). 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 December 31, 2021 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 twelve months. We generally collect payment within a year of satisfying performance obligations and therefore have elected not to adjust revenues for a financing component.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
TIMBER SALES
Revenue from the sale of timber is recognized when control passes to the buyer. We utilize two primary methods or sales channels for the sale of timber – a stumpage/standing timber model and a delivered log model. The sales method we employ depends upon local market conditions and which method management believes will provide the best overall margins.
Under the stumpage model, standing timber is sold primarily under pay-as-cut contracts, with a specified duration (typically one year or less) and fixed prices, whereby revenue is recognized as timber is severed and the sales volume is determined. We also sell stumpage under lump-sum contracts for specified parcels where we receive cash for the full agreed value of the timber prior to harvest and control passes to the buyer upon signing the contract. We retain interest in the land, slash products and the use of the land for recreational and other purposes. Any uncut timber remaining at the end of the contract period reverts to us. Revenue is recognized for lump-sum timber sales when payment is received, the contract is signed and control passes to the buyer. A third type of stumpage sale we utilize is an agreed-volume sale, whereby revenue is recognized using the output method, as periodic physical observations are made of the percentage of acreage harvested.
Under the delivered log model, we hire third-party loggers and haulers to harvest timber and deliver it to a buyer. Sales of domestic logs generally do not require an initial payment and are made to third-party customers on open credit terms. Sales of export logs generally require a letter of credit from an approved bank. Revenue is recognized when the logs are delivered and control has passed to the buyer. For domestic log sales, control is considered passed to the buyer as the logs are delivered to the customer’s facility. For export log sales (primarily in New Zealand), control is considered passed to the buyer upon delivery onto the export vessel.
The following table summarizes revenue recognition and general payment terms for timber sales: | | | | | | | | | | | | | | | | | | | | |
Contract Type | | Performance Obligation | | Timing of Revenue Recognition | | General Payment Terms |
Stumpage Pay-as-Cut | | Right to harvest a unit (i.e. ton, MBF, JAS m3) of standing timber | | As timber is severed (point-in-time) | | Initial payment between 5% and 20% of estimated contract value; collection generally within 10 days of severance |
Stumpage Lump Sum | | Right to harvest an agreed upon acreage of standing timber | | Contract execution (point-in-time) | | Full payment due upon contract execution |
Stumpage Agreed Volume | | Right to harvest an agreed upon volume of standing timber | | As timber is severed (over-time) | | Payments made throughout contract term at the earlier of a specified harvest percentage or time elapsed |
Delivered Wood (Domestic) | | Delivery of a unit (i.e. ton, MBF, JAS m3) of timber to customer’s facility | | Upon delivery to customer’s facility (point-in-time) | | No initial payment and on open credit terms; collection generally within 30 days of invoice |
Delivered Wood (Export) | | Delivery of a unit (i.e. ton, MBF, JAS m3) onto export vessel | | Upon delivery onto export vessel (point-in-time) | | Letter of credit from an approved bank; collection generally within 30 days of delivery |
NON-TIMBER SALES
Non-timber sales are primarily comprised of hunting and recreational licenses, carbon credits and other auxiliary income. Hunting and recreational license sales and any related costs are recognized ratably over the term of the agreement and included in “Sales” and “Cost of sales,” respectively. Payment is generally due upon contract execution. The New Zealand Emissions Trading Scheme (“NZ ETS”) incentivizes the lowering of greenhouse gas emissions by providing carbon credits to certain organizations that lower carbon emissions. Our New Zealand segment regularly sells carbon credits and recognizes income as they are sold to other carbon emitting entities.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
LOG TRADING
Log trading revenue is generally recognized when procured logs are delivered to the buyer and control has passed. For domestic log trading, control is considered passed to the buyer as the logs are delivered to the customer’s facility. For export log trading, control is considered passed to the buyer upon delivery onto the export vessel. The Trading segment also includes sales from log agency contracts, whereby we act as an agent managing export services on behalf of third parties. Revenue for log agency fees are recognized net of related costs.
REAL ESTATE
We recognize revenue on sales of real estate generally at the point in time when cash has been received, the sale has closed and control has passed to the buyer. A deposit of 2% to 5% is generally required at the time a purchase and sale agreement is executed, with the balance due at closing. On sales of development real estate containing future performance obligations, revenue is recognized using the cost input method based on development costs incurred to date relative to the total development costs allocated to the contract with the customer. The aggregate amount of the transaction price allocated to unsatisfied obligations is recorded and presented in “Deferred revenue” in the Consolidated Balance Sheets.
COST OF SALES
Cost of sales associated with timber operations primarily include the cost basis of timber sold (depletion), logging and transportation costs (cut and haul) and ocean freight and demurrage costs (port and freight). Depletion includes the amortization of capitalized costs (site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs). Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes and fire prevention.
Cost of sales associated with real estate sold includes the cost of the land, the cost of any timber on the property that was conveyed to the buyer, any real estate development costs and any closing costs including sales commissions that may be borne by us. We expense closing costs, including sales commissions, when incurred for all real estate sales with future performance obligations expected to be satisfied within one year.
When developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold through completion. Costs are allocated to each sold acre or lot based upon the relative sales value of each acre or lot as compared to the estimated sales value of the total project. For purposes of allocating development costs, estimates are reevaluated at least annually and more frequently if warranted by market conditions, changes in the project’s scope or other factors, with any adjustments being allocated prospectively to the remaining units available for sale.
EMPLOYEE BENEFIT PLANS
The determination of expense and funding requirements for our defined benefit pension plan, its unfunded excess pension plan and its postretirement life insurance plan are largely based on a number of actuarial assumptions. The key assumptions include discount rate, return on assets, mortality rates and longevity of employees. See Note 20 — Employee Benefit Plans for assumptions used to determine benefit obligations, and the net periodic benefit cost for the year ended December 31, 2021. Periodic pension and other postretirement expense is included in “Cost of sales,” “Selling and general expenses” and “Interest and other miscellaneous income, net” in the Consolidated Statements of Income and Comprehensive Income. The service cost component of net periodic benefit cost is included in “Cost of sales” and “Selling and general expenses” while the other components of net periodic benefit cost (interest cost, expected return on plan assets and amortization of losses or gains) are presented outside of income from operations in “Interest and other miscellaneous income, net.” At December 31, 2021 and 2020, our pension plans were in a net liability position (underfunded) of $8.7 million and $21.6 million, respectively. The estimated amount to be paid in the next 12 months is recorded in “Accrued payroll and benefits” on the Consolidated Balance Sheets, with the remainder recorded as a long-term liability in “Pension and Other Postretirement Benefits.” Changes in the funded status of our plans are recorded through other comprehensive (loss) income in the year in which the changes occur. We measure plan assets and benefit obligations as of the fiscal year-end. See Note 20 — Employee Benefit Plans for additional information.
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RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
INCOME TAXES
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. We recognize the effect of a change in income tax rates on deferred tax assets and liabilities in the Consolidated Statements of Income and Comprehensive Income in the period that includes the enactment date of the rate change. We record a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more-likely-than-not that such deferred tax assets will not be realized.
In determining the provision for income taxes, we compute an annual effective income tax rate based on annual income by legal entity, permanent differences between book and tax, and statutory income tax rates by jurisdiction. Inherent in the effective tax rate is an assessment of the ultimate outcome of current period uncertain tax positions. We adjust our annual effective tax rate as additional information on outcomes or events becomes available. Discrete items such as taxing authority examination findings or legislative changes are recognized in the period in which they occur.
Our income tax returns are subject to audit by U.S. federal, state and foreign taxing authorities. In evaluating the tax benefits associated with various tax filing positions, we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue. We record a liability for an uncertain tax position that does not meet this criterion. We adjust our liabilities for uncertain tax benefits in the period in which it is determined the issue is settled with the taxing authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information become available. See Note 22 — Income Taxes for additional information. NEW ACCOUNTING PRONOUNCEMENTS
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. During Q2 2020, we 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. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. 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
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
has remained unchanged. We will continue to monitor any developments in this area and will adopt this pronouncement upon agreement in guidance.
SUBSEQUENT EVENTS
On January 3, 2022, we drew $200.0 million on our Revolving Credit Facility. On January 4, 2022, we repaid the $325.0 million Senior Notes due 2022 with $125.0 million of cash and the $200.0 million previously drawn on the Revolving Credit Facility. We then made a $200.0 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 February 25, 2022, the periodic interest rate on the the 2021 Incremental Term Loan is LIBOR plus 1.55%. Monthly payments of interest only are due on this loan through maturity. See Note 10 - Debt for additional information.
On February 1, 2022, our $200.0 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 seven-year term. We estimate the effective interest rate on the 2021 Incremental Term Loan Facility to be approximately 1.5% after consideration of interest rate swaps and estimated patronage refunds.
2. MERGER WITH POPE RESOURCES
On May 8, 2020, Rayonier Inc. and Rayonier, L.P. acquired Pope Resources and became the general partner of Pope Resources. Pope Resources was a master limited partnership that primarily owned and managed timberlands in the U.S. Pacific Northwest. Pope Resources also managed and co-invested in three private equity timber funds and developed and sold real estate properties.
The total purchase price was as follows:
| | | | | |
| |
Cash consideration | $247,318 | |
Equity consideration | 172,640 | |
Redeemable Operating Partnership Unit consideration | 106,752 | |
Fair value of Pope Resources units held by us (a) | 11,211 | |
Total purchase price | $537,921 | |
(a) Based on the closing price of Pope Resources units on the NASDAQ on May 7, 2020.
We recognized approximately $17.2 million of merger-related costs that were expensed during the year ended December 31, 2020. See Note 27 — Charges for Integration and Restructuring for descriptions of the components of merger-related costs. The acquisition of Pope Resources was accounted for as a business combination under ASC 805, Business Combinations, (“ASC 805”). Pursuant to ASC 805, we recorded an allocation of the assets acquired and liabilities assumed in the merger with Pope Resources based on their fair values as of May 8, 2020. We completed our assessment of the fair value of the assets acquired and liabilities assumed within the one-year period from the date of acquisition. We recorded measurement period adjustments due to additional information received primarily related to higher and better use timberlands and real estate development investments, as well as timber and timberlands. As a result of refinements to the purchase price allocation, higher and better use timberlands increased by approximately $8.2 million. This includes development properties in the town of Port Gamble, Washington, development projects in Gig Harbor, Kingston, and Bremerton, Washington and various other assets. Additionally, refinements to the purchase price allocation resulted in an overall increase of $1.1 million to timber and timberlands, with the valuation of core timberlands decreasing by $15.5 million and Timber Funds timber and timberlands increasing by $16.6 million from the preliminary purchase price allocation reported in Note 2 - Merger with Pope Resources in our 2020 Form 10-K.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
As a result of refinements to timberlands preliminarily recorded values, we recognized the following decreases in depletion expense during the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | |
| Year ended December 31, 2021 |
| Pacific Northwest Timber | | | | Timber Funds | | | | Total |
Depletion (a) | ($182) | | | | ($1,202) | | | | ($1,384) |
| | | | | | | | | |
Total | ($182) | | | | ($1,202) | | | | ($1,384) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
(a)Pacific Northwest Timber includes an immaterial increase in depletion expense related to the year ended December 31, 2020. Timber Funds includes an increase in depletion expense of approximately $0.1 million related to the year ended December 31, 2020.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost or market approaches. The fair value measurements were generally based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in ASC 820, Fair Value Measurement, (“ASC 820”) with the exception of certain long-term debt instruments assumed in the merger that can be valued using observable market inputs and are therefore Level 2 measurements. See Note 12 — Fair Value Measurements for further information on the fair value hierarchy. The final allocation of purchase price to the identifiable assets acquired and liabilities assumed is as follows:
| | | | | | | | | | | | | | | | | |
| Core Timberlands | | Timber Funds | | Total |
Timberland and Real Estate Business | | | | | |
Cash | $7,380 | | | $8,870 | | | $16,250 | |
Accounts receivable | 2,459 | | | 1,787 | | | 4,246 | |
Other current assets | 703 | | | 260 | | | 963 | |
Timber and Timberlands | 498,630 | | | 449,073 | | | 947,703 | |
Higher and Better Use Timberlands and Real Estate Development Investments | 34,748 | | | — | | | 34,748 | |
Property, plant and equipment | 11,616 | | | — | | | 11,616 | |
Other assets (a) | 3,737 | | | 2,194 | | | 5,931 | |
Total identifiable assets acquired | $559,273 | | | $462,184 | | | $1,021,457 | |
| | | | | |
Accounts payable | 274 | | | 293 | | | 567 | |
Current maturities of long-term debt | — | | | 25,084 | | | 25,084 | |
Accrued interest | 244 | | | 275 | | | 519 | |
Other current liabilities | 9,038 | | | 2,080 | | | 11,118 | |
Long-term debt | 53,502 | | | 35,759 | | | 89,261 | |
Long-term environmental liabilities | 10,748 | | | — | | | 10,748 | |
Other non-current liabilities (b) | 2,724 | | | 461 | | | 3,185 | |
Total liabilities assumed | $76,530 | | | $63,952 | | | $140,482 | |
| | | | | |
Net identifiable assets | $482,743 | | | $398,232 | | | $880,975 | |
Less: noncontrolling interests | (3,816) | | | (339,238) | | | (343,054) | |
Total net assets acquired | $478,927 | | | $58,994 | | | $537,921 | |
(a)Other assets includes a $1.9 million intangible asset in connection with the Timberland Investment Management business.
(b)Other non-current liabilities includes a $3.2 million deferred income tax liability resulting from the fair value adjustment to Pope Resources’ assets and liabilities.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
Pursuant to ASC 805, unaudited supplemental pro forma results of operations for the years ended December 31, 2020 and 2019, assuming the acquisition had occurred as of January 1, 2019, are presented below (in thousands, except per share and unit amounts):
| | | | | | | | | | | | | | | |
| | | | | 2020 | | 2019 |
Sales | | | | | $890,400 | | | $821,500 | |
| | | | | | | |
Net income attributable to Rayonier Inc. | | | | | $38,411 | | | $28,640 | |
Basic earnings per share attributable to Rayonier Inc. | | | | | $0.28 | | | $0.21 | |
Diluted earnings per share attributable to Rayonier Inc. | | | | | $0.28 | | | $0.21 | |
| | | | | | | |
Net income attributable to Rayonier, L.P. | | | | | $39,658 | | | $29,574 | |
Basic earnings per unit attributable to Rayonier, L.P. | | | | | $0.28 | | | $0.21 | |
Diluted earnings per unit attributable to Rayonier, L.P. | | | | | $0.28 | | | $0.21 | |
The unaudited pro forma results include certain pro forma adjustments to net earnings that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2019, including the following:
•additional depletion expense that would have been recognized relating to the basis increase in the acquired Timber and Timberlands;
•adjustment to interest expense to reflect the removal of Pope Resources debt and the additional borrowings we incurred in conjunction with the acquisition; and
•a reduction in expenses for year ended December 31, 2020 of $32.3 million for acquisition-related transaction costs.
Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
3. SEGMENT AND GEOGRAPHICAL INFORMATION
Rayonier operates in six reportable segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate, and Trading.
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 (loss) and 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.”
Segment information for each of the three years ended December 31 follows: | | | | | | | | | | | | | | | | | |
| Sales by Product Line |
| 2021 | | 2020 | | 2019 |
Southern Timber | $204,441 | | | $191,831 | | | $194,111 | |
Pacific Northwest Timber | 143,021 | | | 120,809 | | | 85,414 | |
New Zealand Timber | 281,158 | | | 202,315 | | | 241,861 | |
Timber Funds (a) | 199,402 | | | 29,557 | | | — | |
Real Estate | | | | | |
Improved Development | 51,713 | | | 14,498 | | | 5,882 | |
Unimproved Development | 37,500 | | | 8,426 | | | 19,476 | |
Rural | 43,088 | | | 67,152 | | | 47,647 | |
Timberland & Non-Strategic | 44 | | | 19,255 | | | 1,338 | |
Conservation Easements | 3,855 | | | 3,099 | | | — | |
Deferred Revenue/Other | (2,380) | | | 888 | | | 544 | |
Large Dispositions | 56,048 | | | 116,027 | | | — | |
Total Real Estate | 189,868 | | | 229,345 | | | 74,887 | |
Trading | 95,364 | | | 88,973 | | | 115,438 | |
Intersegment eliminations (b) | (3,657) | | | (3,676) | | | (155) | |
Total Sales | $1,109,597 | | | $859,154 | | | $711,556 | |
(a)The years ended December 31, 2021 and December 31, 2020 include $159.1 million and $22.7 million, respectively, of sales attributable to noncontrolling interests in Timber Funds. Included in sales attributable to noncontrolling interests in Timber Funds for the year ended December 31, 2021 is $125.4 million from Fund II Timberland Dispositions attributable to noncontrolling interests in Timber Funds. The year ended December 31, 2021 also includes $31.4 million from Fund II Timberland Dispositions attributable to Rayonier.
(b)Primarily consists of the elimination of timberland investment management fees paid to us by the timber funds which are 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.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
| | | | | | | | | | | | | | | | | |
| Operating Income (Loss) |
| 2021 | | 2020 | | 2019 |
Southern Timber (a) | $66,111 | | | $41,247 | | | $57,804 | |
Pacific Northwest Timber | 6,827 | | | (9,979) | | | (12,427) | |
New Zealand Timber | 51,513 | | | 29,984 | | | 48,035 | |
Timber Funds (b) | 63,219 | | | (13,195) | | | — | |
Real Estate (c) | 112,540 | | | 71,951 | | | 38,665 | |
Trading | 144 | | | (462) | | | 8 | |
Corporate and other (d) | (30,579) | | | (45,158) | | | (25,058) | |
Total Operating Income | 269,775 | | | 74,388 | | | 107,027 | |
Unallocated interest expense and other | (44,627) | | | (37,595) | | | (26,409) | |
Total Income before Income Taxes | $225,148 | | | $36,793 | | | $80,618 | |
(a)The year ended December 31, 2020 includes $6.0 million of timber write-offs resulting from casualty events. Timber write-offs resulting from casualty events are recorded within the Consolidated Statements of Income and Comprehensive Income under the caption “Cost of sales.”
(b)The year ended December 31, 2021 includes $45.6 million of operating income attributable to noncontrolling interests in Timber Funds. Included in operating income attributable to noncontrolling interests in Timber Funds for the year ended December 31, 2021 is $41.2 million of income from Fund II Timberland Dispositions. The year ended December 31, 2021 also includes $10.3 million of income on Fund II Timberland Dispositions attributable to Rayonier and a $7.5 million gain on investment in Timber Funds. The year ended December 31, 2020 includes $11.6 million of operating loss attributable to noncontrolling interests in Timber Funds. Included in operating loss attributable to noncontrolling interests in Timber Funds for the year ended December 31, 2020 is $7.3 million related to timber write-offs resulting from casualty events. The year ended December 31, 2020 also includes $1.8 million of timber write-offs resulting from casualty events attributable to Rayonier. Timber write-offs resulting from casualty events are recorded within the Consolidated Statements of Income and Comprehensive Income under the caption “Cost of sales.”
(c)The years ended December 31, 2021 and December 31, 2020 include $44.8 million and $28.7 million, respectively, from Large Dispositions.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
| | | | | | | | | | | | | | | | | |
| Gross Capital Expenditures |
| 2021 | | 2020 | | 2019 |
Capital Expenditures (a) | | | | | |
Southern Timber | $35,790 | | | $35,505 | | | $34,574 | |
Pacific Northwest Timber | 16,585 | | | 11,367 | | | 11,220 | |
New Zealand Timber | 20,128 | | | 16,595 | | | 17,357 | |
Timber Funds (b) | 3,271 | | | 2,606 | | | — | |
Real Estate | 191 | | | 428 | | | 204 | |
| | | | | |
Corporate and other | — | | | — | | | 641 | |
Total capital expenditures | $75,965 | | | $66,500 | | | $63,996 | |
| | | | | |
Timberland Acquisitions (c) | | | | | |
Southern Timber | $168,188 | | | $24,241 | | | $98,927 | |
Pacific Northwest Timber | — | | | — | | | 7,340 | |
New Zealand Timber | 10,927 | | | 454 | | | 36,020 | |
| | | | | |
| | | | | |
| | | | | |
Total timberland acquisitions | $179,115 | | | $24,695 | | | $142,287 | |
| | | | | |
Total Gross Capital Expenditures | $255,080 | | | $91,195 | | | $206,283 | |
(a)Excludes timberland acquisitions presented separately in addition to real estate development investments of $12.5 million, $6.5 million and $6.8 million in the years ended December 31, 2021, 2020 and 2019, respectively.
(b)The years ended December 31, 2021 and December 31, 2020 include $2.8 million and $2.3 million, respectively, of capital expenditures attributable to noncontrolling interests in Timber Funds.
| | | | | | | | | | | | | | | | | |
| Depreciation, Depletion and Amortization |
| 2021 | | 2020 | | 2019 |
Southern Timber | $54,116 | | | $61,827 | | | $61,923 | |
Pacific Northwest Timber | 50,487 | | | 47,107 | | | 29,165 | |
New Zealand Timber | 27,005 | | | 25,030 | | | 27,761 | |
Timber Funds (a) | 97,943 | | | 11,884 | | | — | |
Real Estate (b) | 17,746 | | | 53,093 | | | 8,229 | |
| | | | | |
Corporate and other | 1,208 | | | 1,427 | | | 1,157 | |
Total | $248,505 | | | $200,368 | | | $128,235 | |
(a)The year ended December 31, 2021 includes $78.9 million of depreciation, depletion, and amortization attributable to noncontrolling interests in Timber Funds. Included in depreciation, depletion, and amortization attributable to noncontrolling interests in Timber Funds for the year ended December 31, 2021 is $66.4 million related to Fund II Timberland Dispositions. The year ended December 31, 2021 also includes $16.6 million related to Fund II Timberland Dispositions attributable to Rayonier. The year ended December 31, 2020 includes $10.3 million of depreciation, depletion and amortization attributable to noncontrolling interests in Timber Funds.
(b)The years ended December 31, 2021 and December 31, 2020 include $9.8 million and $35.4 million, respectively, from Large Dispositions.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
| | | | | | | | | | | | | | | | | |
| Non-Cash Cost of Land and Improved Development |
| 2021 | | 2020 | | 2019 |
| | | | | |
| | | | | |
| | | | | |
Timber Funds (a) | $20,239 | | | — | | | — | |
Real Estate (b) | 25,070 | | | 82,008 | | | 12,565 | |
| | | | | |
| | | | | |
Total | $45,309 | | | $82,008 | | | $12,565 | |
(a)The year ended December 31, 2021 includes $20.2 million of non-cash cost of land and improved development from Fund II Timberland Dispositions, of which $16.2 million was attributable to noncontrolling interests in Timber Funds and $4.0 million was attributable to Rayonier.
(b)The years ended December 31, 2021 and December 31, 2020 include $0.1 million and $51.6 million, respectively, from Large Dispositions.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Geographical Operating Information |
| Sales | | Operating Income | | Identifiable Assets |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 | | 2021 | | 2020 |
United States | $732,995 | | | $567,998 | | | $354,395 | | | $217,964 | | | $44,877 | | | $58,945 | | | $3,046,707 | | | $3,104,916 | |
New Zealand | 376,602 | | | 291,156 | | | 357,161 | | | 51,811 | | | 29,511 | | | 48,082 | | | 589,649 | | | 623,817 | |
Total | $1,109,597 | | | $859,154 | | | $711,556 | | | $269,775 | | | $74,388 | | | $107,027 | | | $3,636,356 | | | $3,728,733 | |
4. REVENUE
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.
The following table summarizes revenue recognized during the years ended December 31, 2021 and 2020 that was included in the contract liability balance at the beginning of each year:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
Revenue recognized from contract liability balance at the beginning of the year (a) | $10,809 | | | $10,857 | |
(a) Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following tables present our revenue from contracts with customers disaggregated by product type for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended | Southern Timber | | Pacific Northwest Timber | | New Zealand Timber | | Timber Funds | | Real Estate | | Trading | | | | Elim. | | Total |
December 31, 2021 | | | | | | | | | | | | | | | | | |
Pulpwood | $95,995 | | | $9,336 | | | $42,836 | | | $792 | | | — | | | $11,369 | | | | | — | | | $160,328 | |
Sawtimber | 79,154 | | | 127,768 | | | 237,262 | | | 38,042 | | | — | | | 82,276 | | | | | — | | | 564,502 | |
Hardwood | 4,671 | | | — | | | — | | | — | | | — | | | — | | | | | — | | | 4,671 | |
Total Timber Sales | 179,820 | | | 137,104 | | | 280,098 | | | 38,834 | | | — | | | 93,645 | | | | | — | | | 729,501 | |
License Revenue, Primarily From Hunting | 18,116 | | | 990 | | | 385 | | | 40 | | | — | | | — | | | | | — | | | 19,531 | |
Other Non-Timber/Carbon Revenue | 6,505 | | | 4,927 | | | 675 | | | 439 | | | — | | | — | | | | | — | | | 12,546 | |
Agency Fee Income | — | | | — | | | — | | | — | | | — | | | 1,399 | | | | | — | | | 1,399 | |
Fund II Timberland Dispositions | — | | | — | | | — | | | 156,752 | | | — | | | — | | | | | — | | | 156,752 | |
Total Non-Timber Sales | 24,621 | | | 5,917 | | | 1,060 | | | 157,231 | | | — | | | 1,399 | | | | | — | | | 190,228 | |
Improved Development | — | | | — | | | — | | | — | | | 51,713 | | | — | | | | | — | | | 51,713 | |
Unimproved Development | — | | | — | | | — | | | — | | | 37,500 | | | — | | | | | — | | | 37,500 | |
Rural | — | | | — | | | — | | | — | | | 43,088 | | | — | | | | | — | | | 43,088 | |
Timberland & Non-Strategic | — | | | — | | | — | | | — | | | 44 | | | — | | | | | — | | | 44 | |
Conservation Easements | — | | | — | | | — | | | — | | | 3,855 | | | — | | | | | — | | | 3,855 | |
Deferred Revenue/Other (a) | — | | | — | | | — | | | — | | | (3,532) | | | — | | | | | — | | | (3,532) | |
Large Dispositions | — | | | — | | | — | | | — | | | 56,048 | | | — | | | | | — | | | 56,048 | |
Total Real Estate Sales | — | | | — | | | — | | | — | | | 188,716 | | | — | | | | | — | | | 188,716 | |
Revenue from Contracts with Customers | 204,441 | | | 143,021 | | | 281,158 | | | 196,065 | | | 188,716 | | | 95,044 | | | | | — | | | 1,108,445 | |
Lease Revenue | — | | | — | | | — | | | — | | | 1,152 | | | — | | | | | — | | | 1,152 | |
Intersegment | — | | | — | | | — | | | 3,337 | | | — | | | 320 | | | | | (3,657) | | | — | |
Total Revenue | $204,441 | | | $143,021 | | | $281,158 | | | $199,402 | | | $189,868 | | | $95,364 | | | | | ($3,657) | | | $1,109,597 | |
December 31, 2020 | | | | | | | | | | | | | | | | | |
Pulpwood | $94,108 | | | $10,581 | | | $27,558 | | | $784 | | | — | | | $10,260 | | | | | — | | | $143,291 | |
Sawtimber | 73,683 | | | 106,051 | | | 166,935 | | | 25,195 | | | — | | | 77,314 | | | | | — | | | 449,178 | |
Hardwood | 2,430 | | | — | | | — | | | — | | | — | | | — | | | | | — | | | 2,430 | |
Total Timber Sales | 170,221 | | | 116,632 | | | 194,493 | | | 25,979 | | | — | | | 87,574 | | | | | — | | | 594,899 | |
License Revenue, Primarily from Hunting | 17,765 | | | 843 | | | 307 | | | 17 | | | — | | | — | | | | | — | | | 18,932 | |
Other Non-Timber/Carbon Revenue | 3,845 | | | 3,334 | | | 7,515 | | | 124 | | | — | | | — | | | | | — | | | 14,818 | |
Agency Fee Income | — | | | — | | | — | | | — | | | — | | | 1,160 | | | | | — | | | 1,160 | |
Total Non-Timber Sales | 21,610 | | | 4,177 | | | 7,822 | | | 141 | | | — | | | 1,160 | | | | | — | | | 34,910 | |
Improved Development | — | | | — | | | — | | | — | | | 14,498 | | | — | | | | | — | | | 14,498 | |
Unimproved Development | — | | | — | | | — | | | — | | | 8,426 | | | — | | | | | — | | | 8,426 | |
Rural | — | | | — | | | — | | | — | | | 67,152 | | | — | | | | | — | | | 67,152 | |
Timberland & Non-Strategic | — | | | — | | | — | | | — | | | 19,255 | | | — | | | | | — | | | 19,255 | |
Conservation Easements | — | | | — | | | — | | | — | | | 3,099 | | | — | | | | | — | | | 3,099 | |
Deferred Revenue/Other (a) | — | | | — | | | — | | | | | 283 | | | — | | | | | — | | | 283 | |
Large Dispositions | — | | | — | | | — | | | — | | | 116,027 | | | — | | | | | — | | | 116,027 | |
Total Real Estate Sales | — | | | — | | | — | | | — | | | 228,740 | | | — | | | | | — | | | 228,740 | |
Revenue from Contracts with Customers | 191,831 | | | 120,809 | | | 202,315 | | | 26,120 | | | 228,740 | | | 88,734 | | | | | — | | | 858,549 | |
Lease Revenue | — | | | — | | | — | | | — | | | 605 | | | — | | | | | — | | | 605 | |
Intersegment | — | | | — | | | — | | | 3,437 | | | — | | | 239 | | | | | (3,676) | | | — | |
Total Revenue | $191,831 | | | $120,809 | | | $202,315 | | | $29,557 | | | $229,345 | | | $88,973 | | | | | ($3,676) | | | $859,154 | |
| | | | | | | | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | | | | | | | |
Pulpwood | $86,537 | | | $10,350 | | | $32,925 | | | — | | | — | | | $13,351 | | | | | — | | | $143,163 | |
Sawtimber | 67,360 | | | 72,377 | | | 198,481 | | | — | | | — | | | 101,255 | | | | | — | | | 439,473 | |
Hardwood | 5,259 | | | — | | | — | | | — | | | — | | | — | | | | | — | | | 5,259 | |
Total Timber Sales | 159,156 | | | 82,727 | | | 231,406 | | | — | | | — | | | 114,606 | | | | | — | | | 587,895 | |
License Revenue, Primarily from Hunting | 18,270 | | | 717 | | | 361 | | | — | | | — | | | — | | | | | — | | | 19,348 | |
Other Non-Timber/Carbon Revenue | 16,685 | | | 1,970 | | | 10,094 | | | — | | | — | | | — | | | | | — | | | 28,749 | |
Agency Fee Income | — | | | — | | | — | | | — | | | — | | | 677 | | | | | — | | | 677 | |
Total Non-Timber Sales | 34,955 | | | 2,687 | | | 10,455 | | | — | | | — | | | 677 | | | | | — | | | 48,774 | |
Improved Development | — | | | — | | | — | | | — | | | 5,882 | | | — | | | | | — | | | 5,882 | |
Unimproved Development | — | | | — | | | — | | | — | | | 19,476 | | | — | | | | | — | | | 19,476 | |
Rural | — | | | — | | | — | | | — | | | 47,647 | | | — | | | | | — | | | 47,647 | |
Timberland & Non-Strategic | — | | | — | | | — | | | — | | | 1,338 | | | — | | | | | — | | | 1,338 | |
| | | | | | | | | | | | | | | | | |
Deferred Revenue/Other (a) | — | | | — | | | — | | | — | | | 544 | | | — | | | | | — | | | 544 | |
Total Real Estate Sales | — | | | — | | | — | | | — | | | 74,887 | | | — | | | | | — | | | 74,887 | |
Revenue from Contracts with Customers | 194,111 | | | 85,414 | | | 241,861 | | | — | | | 74,887 | | | 115,283 | | | | | — | | | 711,556 | |
Intersegment | — | | | — | | | — | | | — | | | — | | | 155 | | | | | (155) | | | — | |
Total Revenue | $194,111 | | | $85,414 | | | $241,861 | | | — | | | $74,887 | | | $115,438 | | | | | ($155) | | | $711,556 | |
(a) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following tables present our timber sales disaggregated by contract type for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year Ended | Southern Timber | | Pacific Northwest Timber | | New Zealand Timber | | Timber Funds | | Trading | | Total |
December 31, 2021 | | | | | | | | | | | |
Stumpage Pay-as-Cut | $68,471 | | | — | | | — | | | $768 | | | — | | | $69,239 | |
Stumpage Lump Sum | 6,890 | | | 10,769 | | | — | | | — | | | — | | | 17,659 | |
| | | | | | | | | | | |
Total Stumpage | 75,361 | | | 10,769 | | | — | | | 768 | | | — | | | 86,898 | |
| | | | | | | | | | | |
Delivered Wood (Domestic) | 81,803 | | | 126,335 | | | 73,543 | | | 38,066 | | | 3,731 | | | 323,478 | |
Delivered Wood (Export) | 22,656 | | | — | | | 206,555 | | | — | | | 89,914 | | | 319,125 | |
Total Delivered | 104,459 | | | 126,335 | | | 280,098 | | | 38,066 | | | 93,645 | | | 642,603 | |
| | | | | | | | | | | |
Total Timber Sales | $179,820 | | | $137,104 | | | $280,098 | | | $38,834 | | | $93,645 | | | $729,501 | |
| | | | | | | | | | | |
December 31, 2020 | | | | | | | | | | | |
Stumpage Pay-as-Cut | $68,684 | | | — | | | — | | | $1,731 | | | — | | | $70,415 | |
Stumpage Lump Sum | 2,027 | | | 8,142 | | | — | | | — | | | — | | | 10,169 | |
| | | | | | | | | | | |
Total Stumpage | 70,711 | | | 8,142 | | | — | | | 1,731 | | | — | | | 80,584 | |
| | | | | | | | | | | |
Delivered Wood (Domestic) | 85,996 | | | 108,490 | | | 62,568 | | | 24,248 | | | 1,768 | | | 283,070 | |
Delivered Wood (Export) | 13,514 | | | — | | | 131,925 | | | — | | | 85,806 | | | 231,245 | |
Total Delivered | 99,510 | | | 108,490 | | | 194,493 | | | 24,248 | | | 87,574 | | | 514,315 | |
| | | | | | | | | | | |
Total Timber Sales | $170,221 | | | $116,632 | | | $194,493 | | | $25,979 | | | $87,574 | | | $594,899 | |
| | | | | | | | | | | |
December 31, 2019 | | | | | | | | | | | |
Stumpage Pay-as-Cut | $71,943 | | | — | | | — | | | — | | | — | | | $71,943 | |
Stumpage Lump Sum | 7,428 | | | 2,749 | | | — | | | — | | | — | | | 10,177 | |
| | | | | | | | | | | |
Total Stumpage | 79,371 | | | 2,749 | | | — | | | — | | | — | | | 82,120 | |
| | | | | | | | | | | |
Delivered Wood (Domestic) | 71,054 | | | 79,978 | | | 80,974 | | | — | | | 5,488 | | | 237,494 | |
Delivered Wood (Export) | 8,731 | | | — | | | 150,432 | | | — | | | 109,118 | | | 268,281 | |
Total Delivered | 79,785 | | | 79,978 | | | 231,406 | | | — | | | 114,606 | | | 505,775 | |
| | | | | | | | | | | |
Total Timber Sales | $159,156 | | | $82,727 | | | $231,406 | | | — | | | $114,606 | | | $587,895 | |
5. TIMBERLAND ACQUISITIONS
In 2021, we acquired approximately 100,000 acres of U.S. timberland located in Florida, Georgia, and Texas through seven transactions for an aggregate value of $168.2 million, which were funded from operating cash flow, proceeds from the sale of the Timber Funds business and use of the Company’s at-the-market equity offering program. Additionally, during 2021, we acquired approximately 3,000 acres of timberland (including approximately 1,000 acres of leased land) in New Zealand for approximately $10.9 million. These acquisitions were funded from operating cash flow.
In 2020, we acquired approximately 13,000 acres of U.S. timberland located in Alabama, Georgia, and Louisiana through three transactions for an aggregate value of $24.2 million. Approximately $24.1 million of these acquisitions were acquired using like-kind exchange proceeds while the remaining $0.1 million were funded from operating cash flow. Additionally, during 2020, we acquired approximately 2,000 acres of timberland (including approximately 2,000 acres of leased land) in New Zealand for approximately $0.5 million. These acquisitions were funded from operating cash flow.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following table summarizes the timberland acquisitions for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 (a) |
| Cost | | Acres | | Cost | | Acres |
Alabama | — | | | — | | | $100 | | | 56 | |
Florida | 31,342 | | | 24,153 | | | — | | | — | |
Georgia | 38,339 | | | 24,776 | | | 18 | | | 20 | |
| | | | | | | |
| | | | | | | |
Louisiana | — | | | — | | | 24,123 | | | 12,558 | |
Texas | 98,507 | | | 51,568 | | | — | | | — | |
| | | | | | | |
New Zealand | 10,927 | | | 2,676 | | | 454 | | | 2,378 | |
Total Acquisitions | $179,115 | | | 103,173 | | | $24,695 | | | 15,012 | |
6. LEASES
TIMBERLAND LEASES
U.S. timberland leases typically have initial terms of approximately 30 to 65 years, with renewal provisions in some cases. New Zealand timberland lease terms typically range between 30 and 99 years. New Zealand lease arrangements generally consist of Crown Forest Licenses (“CFLs”), forestry rights and land leases. A CFL is a license arrangement to use government or privately owned lands to operate a commercial forest. CFLs generally extend indefinitely and may only be terminated upon a 35-year termination notice. If no termination notice is given, the CFLs renew automatically each year for a one-year term. Alternatively, some CFLs extend for a specific term. Once a CFL is terminated, we may be able to obtain a forestry right from the subsequent owner. A forestry right is a license arrangement with a private entity to use their lands to operate a commercial forest. Forestry rights terminate either upon the issuance of a termination notice (which can last 35 to 45 years), completion of harvest, or a specified termination date.
As of December 31, 2021, the New Zealand subsidiary has three CFLs comprising 11,000 gross acres or 9,000 net plantable acres under termination notice that are being relinquished as harvest activities are concluded, as well as two fixed-term CFLs comprising 3,000 gross acres or 2,000 net plantable acres expiring in 2062. Additionally, the New Zealand subsidiary has two forestry rights comprising 32,000 gross acres or 6,000 net plantable acres under termination notice that are being relinquished as harvest activities are concluded.
OTHER NON-TIMBERLAND LEASES
In addition to timberland holdings, we lease properties for certain office locations. Significant leased properties include a regional office in Lufkin, Texas; a Pacific Northwest Timber office in Hoquiam, Washington and a New Zealand Timber and Trading headquarters in Auckland, New Zealand.
LEASE MATURITIES, LEASE COST AND OTHER LEASE INFORMATION
The following table details our undiscounted lease obligations as of December 31, 2021 by type of lease and year of expiration:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year of Expiration |
Lease obligations | | Total | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
Operating lease liabilities | | $188,388 | | | $9,038 | | | $8,864 | | | $8,604 | | | $7,889 | | | $7,176 | | | $146,817 | |
Total Undiscounted Cash Flows | | $188,388 | | | $9,038 | | | $8,864 | | | $8,604 | | | $7,889 | | | $7,176 | | | $146,817 | |
Imputed interest | | (86,540) | | | | | | | | | | | | | |
Balance at December 31, 2021 | | $101,848 | | | | | | | | | | | | | |
Less: Current portion | | (8,432) | | | | | | | | | | | | | |
Non-current portion at December 31, 2021 | | $93,416 | | | | | | | | | | | | | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following table details components of our lease cost for the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year Ended December 31, |
Lease Cost Components | | | | 2021 | | 2020 | | 2019 |
Operating lease cost | | | | $10,166 | | | $9,647 | | | $10,870 | |
Variable lease cost (a) | | | | 196 | | | 230 | | | 235 | |
Total lease cost (b) | | | | $10,362 | | | $9,877 | | | $11,105 | |
(a) The majority of timberland leases are subject to increases or decreases based on either the Consumer Price Index, Producer Price Index or market rates.
(b) Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases are expensed on a straight line basis over the lease term. Short-term lease expense was not material for the year ended December 31, 2021.
The following table details components of our lease cost for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
Supplemental Cash Flow Information Related to Leases: | | | 2021 | | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | | | | |
Operating cash flows from operating leases | | | $2,389 | | | $2,127 | | | $2,567 | |
Investing cash flows from operating leases | | | 7,777 | | | 7,520 | | | 8,303 | |
Total cash flows from operating leases | | | $10,166 | | | $9,647 | | | $10,870 | |
| | | | | | | |
Weighted-average remaining lease term in years - operating leases | | | 29 | | 29 | | 28 |
Weighted-average discount rate - operating leases | | | 5 | % | | 5 | % | | 5 | % |
Lessor Lease Information
In the Pope Resources merger, we acquired commercial and residential properties primarily concentrated in Port Gamble, Washington, which generate lease income under operating leases. As of December 31, 2021, properties subject to operating leases had an aggregate cost basis and accumulated depreciation of $3.5 million and $0.5 million, respectively. These leases typically range a few years with the option to extend on a case by case basis. Commercial and residential leases have non-lease components of taxes, insurance and common area maintenance, which we have elected not to separate under the ASC 842 practical expedient.
The following table details our lease income for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Year Ended December 31, | | |
Lease Income Components | | | | | 2021 | | 2020 | | 2019 | | |
Operating lease income | | | | | $1,152 | | | $605 | | | — | | | |
| | | | | | | | | | | |
Total lease income | | | | | $1,152 | | | $605 | | | — | | | |
Future lease income as of December 31, 2021, based on payments due by period under the lease contracts, are presented in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Year of Expiration |
Lease assets | | Total | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
Operating lease Income | | $638 | | | $379 | | | $173 | | | $82 | | | $2 | | | $2 | | | — | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
We apply the following practical expedients as allowed under ASC 842:
| | | | | | | | |
Practical Expedient | | Description |
Short-term leases | | We do not record right-of-use assets or liabilities for short-term leases (a lease that at commencement date has a lease term of 12 months or less and does not contain a purchase option that is reasonably certain to be exercised). |
Separation of lease and non-lease components | | We do not separate non-lease components from the associated lease components if they have the same timing and pattern of transfer and, if accounted for separately, would both be classified as an operating lease. |
7. NONCONTROLLING INTERESTS
NONCONTROLLING INTERESTS IN CONSOLIDATED AFFILIATES
Matariki Forestry Group
We maintain a 77% controlling financial interest in Matariki Forestry Group (the “New Zealand subsidiary”), a joint venture that owns or leases approximately 419,000 legal acres of New Zealand timberland. Accordingly, we consolidate the New Zealand subsidiary’s balance sheet and results of operations. The portions of the consolidated financial position and results of operations attributable to the New Zealand subsidiary’s 23% noncontrolling interest are reflected as an adjustment to income in our Consolidated Statements of Income and Comprehensive Income under the caption “Net (income) loss 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.
The following table sets forth the income attributable to the New Zealand subsidiary’s noncontrolling interests:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | 2021 | | 2020 | | 2019 |
Net income attributable to noncontrolling interests in the New Zealand subsidiary | | | | | $7,696 | | | $4,920 | | | $8,573 | |
ORM Timber Fund II, Inc. (Fund II), ORM Timber Fund III LLC (Fund III), and ORM Timber Fund IV LLC. (Fund IV) (Collectively, the “Funds”)
Upon completion of the Pope Resources merger, we became the manager of three private equity timber funds, Fund II, Fund III, and Fund IV, consisting of 141,000 acres in the Pacific Northwest, and obtained ownership interests in the Funds of 20%, 5%, and 15%, respectively. Prior to the merger with Pope Resources, the Funds were formed by ORM LLC for the purpose of generating a return on investment through the acquisition, management, value enhancement and sale of timberland properties. Based upon an analysis under the variable interest entity guidance, we determined that we had the power to direct the activities that most significantly impacted the Funds’ economic success. Therefore, we were considered the primary beneficiary and were required under ASC 810 — Consolidation to consolidate the Funds. Income attributed to third-party investors is reflected as an adjustment to income in our Consolidated Statements of Income and Comprehensive Income under the caption “Net (income) loss attributable to noncontrolling interests in consolidated affiliates.”
On July 21, 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds to BTG Pactual’s Timberland Investment Group (TIG) for an aggregate sales price of $35.9 million and recognized in our Consolidated Statements of Income and Comprehensive Income a gain on the sale of $3.7 million under the caption of other operating income (expense), net. Due to the sale of our rights to manage Fund III and Fund IV, we determined that we no longer have the power to direct the activities that most significantly impact the success of Fund III and Fund IV. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale.
In addition, we completed the liquidation of Fund II timberland assets through three separate transactions during the third and fourth quarters of 2021 for an aggregate sales price of $156.8 million and recognized in our Consolidated Statements of Income and Comprehensive Income an aggregate gain on the sales of $51.5 million, of which $10.3 million was attributable to Rayonier. This consisted of a 13,000 acre sale in Washington on September 30, 2021 for a sales price and gain of $87.1 million and $35.9 million, respectively, a 5,000 acre sale in Oregon on October 5, 2021 for a sales price and gain of $37.2 million and $11.0 million, respectively, and a 13,000 acre sale in Oregon on November 1, 2021 for a sales price and gain of $32.5 million and $4.6 million, respectively.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
As of December 31, 2021, we continue to manage and maintain a 20% ownership interest in Fund II, which is scheduled to terminate in March 2023. Prior to the termination of Fund II, the remaining capital will be distributed to Fund II investors. We continue to have the power to direct the activities that most significantly impact Fund II’s economic success. Therefore, we are considered the primary beneficiary and consolidate Fund II under ASC 810 — Consolidation. The obligations of Fund II do not have any recourse to the Company or the Operating Partnership and the assets of Fund II are not available to satisfy the Company or the Operating Partnership’s liabilities.
Due to Timber Fund II distribution requirements, we classified the portion of proceeds from Fund II Timberland Dispositions attributable to noncontrolling interests as a current asset under the caption “Restricted Cash, Timber Funds” on our Consolidated Balance Sheets. Additionally, we recognized a current liability under the caption “Distribution payable, Timber Funds” and a corresponding decrease in “Noncontrolling Interests in Consolidated Affiliates” on our Consolidated Balance Sheets. See Note 1 — Summary of Significant Accounting Policies, Note 8 — Variable Interest Entities and Note 24 — Restricted Cash for additional information. The following table sets forth the income (loss) attributable to the Funds’ noncontrolling interests:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Net income (loss) attributable to noncontrolling interests in the Funds: | $45,124 | | | ($12,221) | | | — | |
Timber Fund II Carried Interest Incentive Fees
As a performance incentive to us as the manager and general partner of Timber Fund II, the Fund agreement provides for a “carried interest,” permitting us to receive a greater allocable share of the Fund’s earnings from investments relative to our capital contributions and correspondingly reducing the noncontrolling interests’ share of those earnings. After distributions sufficient for the Fund to pay each stockholder a return of 8% on its average investment and reduce its invested capital balance to zero, we are entitled to receive a 20% carried interest of any further distributions. Carried interest is earned to the extent that cumulative investment returns are positive and preferred dividend payment thresholds have been met.
Carried interest is recognized in our Consolidated Statements of Income and Comprehensive Income based on the contractual conditions set forth in the agreements governing the Fund as if the Fund were terminated and liquidated at the reporting date. In the year ended December 31, 2021, we recognized a gain on Fund II carried interest incentive fees of $3.8 million in our Consolidated Statements of Income and Comprehensive Income under the caption of other operating income (expense), net.
Ferncliff Investors
We maintain an ownership interest in Ferncliff Investors, a real estate joint venture entity. In 2017, Ferncliff Management and Ferncliff Investors were formed for the purpose of raising capital from third parties to invest in an unconsolidated real estate joint venture entity, Bainbridge Landing LLC, which is developing a five-acre parcel on Bainbridge Island, Washington into a multi-family community containing apartments and townhomes. Ferncliff Management is the manager and 33.33% owner of Ferncliff Investors, with the remaining ownership interest in Ferncliff Investors held by third-party investors. Ferncliff Investors holds a 50% interest in Bainbridge Landing LLC, the joint venture entity that owns and is developing the property.
Based upon an analysis under the variable interest entity guidance, we have the power to direct the activities that most significantly impact Ferncliff Investor’s economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate Ferncliff Investors. The obligations of Ferncliff Investors do not have any recourse to the Company or the Operating Partnership.
Bainbridge Landing LLC is considered a voting interests entity. Ferncliff Investors accounts for its interest in the joint venture entity under the equity method because neither it nor the other member can exercise control over Bainbridge Landing LLC.
The Ferncliff Investors joint venture agreement provides for liquidation rights and distribution priorities that are disproportionate to each member’s ownership interest. Due to the complex nature of cash distributions to members, net income of the joint venture is allocated to members, including us, using the Hypothetical Liquidation at Book Value (HLBV) method. Under the HLBV method, Ferncliff Investors income or loss is allocated to the members based on the period change in each member’s claim on the book value of net assets, excluding capital contributions and distributions made during the period.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following table sets forth the income (loss) attributable to Ferncliff Investors’ noncontrolling interests:
| | | | | | | | | | | | | | | | | | | | | |
| | | | | 2021 | | 2020 | | 2019 |
Net income (loss) attributable to noncontrolling interests in Ferncliff Investors: | | | | | $601 | | | ($526) | | | — | |
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.
The following table sets forth the Company’s noncontrolling interests in the operating partnership:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
Beginning noncontrolling interests in the operating partnership | | $130,121 | | | — | |
Issuances of redeemable operating partnership units | | — | | | 106,752 | |
Adjustment of noncontrolling interests in the operating partnership | | 42,530 | | | 24,393 | |
Conversions of redeemable operating partnership units to common shares | | (40,676) | | | (496) | |
Net income attributable to noncontrolling interests in the operating partnership | | 4,516 | | | 528 | |
Other comprehensive income attributable to noncontrolling interests in the operating partnership | | 1,601 | | | 2,540 | |
Distributions to noncontrolling interests in the operating partnership | | (4,269) | | | (3,596) | |
Total noncontrolling interests in the operating partnership | | $133,823 | | | $130,121 | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
8. VARIABLE INTEREST ENTITIES
ORM Timber Fund II, Inc. (Fund II), ORM Timber Fund III LLC (Fund III), and ORM Timber Fund IV LLC. (Fund IV) (Collectively, the “Funds”)
As mentioned in Note 1 — Summary of Significant Accounting Policies and Note 7 — Noncontrolling Interests, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds in July 2021. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale. In addition, we completed the liquidation of Fund II timberland assets through three separate transactions during the third and fourth quarters of 2021. As of December 31, 2021, we continue to maintain a 20% ownership interest in Fund II, which is scheduled to terminate in March 2023. Prior to the termination of Fund II, the remaining capital will be distributed to Fund II investors. We continue to have the power to direct the activities that most significantly impact Fund II’s economic success. Therefore, we are considered the primary beneficiary and consolidate Fund II under ASC 810 — Consolidation. For further information on the Funds, see Note 7 — Noncontrolling Interests. The assets, liabilities and equity of Fund II as of December 31, 2021, were as follows:
| | | | | |
Timber Funds | 2021 |
Assets: | |
Cash and cash equivalents | $3,493 | |
Restricted cash, Timber Funds (Note 24) | 6,341 | |
Accounts receivable | 9 | |
| |
| |
Intercompany receivable (a) | 41 | |
Other current assets | 26 | |
Total current assets | 9,910 | |
| |
| |
Total assets | $9,910 | |
Liabilities and Equity: | |
Accounts payable | $22 | |
| |
| |
Accrued taxes | 32 | |
| |
| |
Distributions payable, Timber Funds (b) | 6,341 | |
Other current liabilities (c) | 3,546 | |
Total current liabilities | 9,941 | |
| |
Funds’ equity | (31) | |
Total liabilities and equity | $9,910 | |
(a)Includes amounts due from other consolidated entities. These amounts are eliminated in the Consolidated Balance Sheets.
(b)Represents the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests.
(c)Includes $3.5 million of proceeds from Fund II Timberland Dispositions required to be distributed to other consolidated entities. These amounts are eliminated in the Consolidated Balance Sheets.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
Ferncliff Investors
We maintain an ownership interest in Ferncliff Investors, a real estate joint venture entity. Based upon an analysis under the variable interest entity guidance, we have the power to direct the activities that most significantly impact the joint venture’s economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate Ferncliff Investors. For further information on Ferncliff Investors, see Note 7 — Noncontrolling Interests. The assets, liabilities and equity of Ferncliff Investors as of December 31, 2021, were as follows:
| | | | | |
Ferncliff Investors | 2021 |
Assets: | |
Cash and cash equivalents | $1,508 | |
| |
| |
Total current assets | 1,508 | |
| |
| |
Total assets | $1,508 | |
Liabilities and equity: | |
| |
| |
| |
| |
| |
| |
| |
| |
Total current liabilities | $472 | |
Total non-current liabilities | 2,170 | |
Total liabilities | $2,642 | |
Ferncliff Investors’ equity | (1,134) | |
Total liabilities and equity | $1,508 | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
9. EARNINGS PER SHARE AND PER UNIT
Basic earnings per common share (“EPS”) is calculated by dividing net income attributable to Rayonier Inc. by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income attributable to Rayonier Inc., before net income attributable to noncontrolling interests in the operating partnership by the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of outstanding stock options, performance shares, restricted shares, restricted stock units and noncontrolling interests in operating partnership units.
The following table provides details of the calculations of basic and diluted earnings per common share of the Company for the three years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Earnings per common share - basic | | | | | |
Numerator: | | | | | |
Net Income | $210,487 | | | $29,784 | | | $67,678 | |
Less: Net income attributable to noncontrolling interests in the operating partnership | (4,516) | | | (528) | | | — | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates | (53,421) | | | 7,828 | | | (8,573) | |
Net income attributable to Rayonier Inc. | $152,550 | | | $37,084 | | | $59,105 | |
Denominator: | | | | | |
Denominator for basic earnings per common share - weighted average shares | 140,812,882 | | | 133,865,867 | | | 129,257,202 | |
Basic earnings per common share attributable to Rayonier Inc.: | $1.08 | | | $0.28 | | | $0.46 | |
Earnings per common share - diluted | | | | | |
Numerator: | | | | | |
Net Income | $210,487 | | | $29,784 | | | $67,678 | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates | (53,421) | | | 7,828 | | | (8,573) | |
| | | | | |
Net income attributable to Rayonier Inc., before net income attributable to noncontrolling interests in the operating partnership | $157,066 | | | $37,612 | | | $59,105 | |
Denominator: | | | | | |
Denominator for basic earnings per common share - weighted average shares | 140,812,882 | | | 133,865,867 | | | 129,257,202 | |
Add: Dilutive effect of: | | | | | |
Stock options | 8,727 | | | 633 | | | 12,209 | |
Performance shares, restricted shares and restricted stock units | 416,527 | | | 198,955 | | | 328,977 | |
Noncontrolling interests in operating partnership units | 4,062,725 | | | 2,877,447 | | | — | |
| | | | | |
| | | | | |
Denominator for diluted earnings per common share - adjusted weighted average shares | 145,300,861 | | | 136,942,902 | | | 129,598,388 | |
| | | | | |
| | | | | |
Diluted earnings per common share attributable to Rayonier Inc.: | $1.08 | | | $0.27 | | | $0.46 | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Anti-dilutive shares excluded from computations of diluted earnings per share: | | | | | |
Stock options, performance shares, restricted shares and restricted stock units | 149,705 | | | 450,551 | | | 450,681 | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
Basic earnings per unit (“EPU”) is calculated by dividing net income available to unitholders of Rayonier, L.P. by the weighted average number of units outstanding during the year. Diluted EPU is calculated by dividing net income available to unitholders of Rayonier, L.P. by the weighted average number of units outstanding adjusted to include the potentially dilutive effect of outstanding unit equivalents, including stock options, performance shares, restricted shares and restricted stock units.
The following table provides details of the calculations of basic and diluted earnings per unit of the Operating Partnership for the three years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Earnings per unit - basic | | | | | |
Numerator: | | | | | |
Net Income | $210,487 | | | $29,784 | | | $67,678 | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates | (53,421) | | | 7,828 | | | (8,573) | |
Net income available to unitholders | $157,066 | | | $37,612 | | | $59,105 | |
Denominator: | | | | | |
Denominator for basic earnings per unit - weighted average units | 144,875,607 | | | 136,743,314 | | | 129,257,202 | |
Basic earnings per unit attributable to Rayonier, L.P.: | $1.08 | | | $0.28 | | | $0.46 | |
Earnings per unit - diluted | | | | | |
Numerator: | | | | | |
Net Income | $210,487 | | | $29,784 | | | $67,678 | |
Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates | (53,421) | | | 7,828 | | | (8,573) | |
| | | | | |
Net income available to unitholders | $157,066 | | | $37,612 | | | $59,105 | |
Denominator: | | | | | |
Denominator for basic earnings per unit - weighted average units | 144,875,607 | | | 136,743,314 | | | 129,257,202 | |
Add: Dilutive effect of unit equivalents: | | | | | |
Stock options | 8,727 | | | 633 | | | 12,209 | |
Performance shares, restricted shares and restricted stock units | 416,527 | | | 198,955 | | | 328,977 | |
| | | | | |
| | | | | |
Denominator for diluted earnings per unit - adjusted weighted average units | 145,300,861 | | | 136,942,902 | | | 129,598,388 | |
| | | | | |
| | | | | |
Diluted earnings per unit attributable to Rayonier, L.P. | $1.08 | | | $0.27 | | | $0.46 | |
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Anti-dilutive unit equivalents excluded from computations of diluted earnings per unit: | | | | | |
Stock options, performance shares, restricted shares and restricted stock units | 149,705 | | | 450,551 | | | 450,681 | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
10. DEBT
Our debt consisted of the following at December 31, 2021 and 2020:
| | | | | | | | | | | |
| 2021 | | 2020 |
Debt, excluding Timber Funds: | | | |
Term Credit Agreement borrowings due 2028 at a variable interest rate of 1.7% at December 31, 2021 | $350,000 | | | $350,000 | |
Senior Notes due 2022 at a fixed interest rate of 3.75% | 325,000 | | | 325,000 | |
Senior Notes due 2031 at a fixed interest rate of 2.75% | 450,000 | | | — | |
Incremental Term Loan Agreement borrowings due 2026 at a variable interest rate of 1.75% at December 31, 2021 | 200,000 | | | 300,000 | |
2020 Incremental Term Loan Facility borrowings due 2025 at a variable interest rate of 2.0% at December 31, 2020 | — | | | 250,000 | |
| | | |
New Zealand subsidiary noncontrolling interest shareholder loan due 2025 at a fixed interest rate of 2.95% | 23,588 | | | 24,903 | |
New Zealand subsidiary noncontrolling interest shareholder loan due 2026 at a fixed interest rate of 3.64% | 27,519 | | | — | |
Northwest Farm Credit Services Credit Facility with quarterly interest-only payments, collateralized by Core Timberlands, with the following tranches: (a) | | | |
Due 2025 at a fixed interest rate of 6.1% | — | | | 10,000 | |
Due 2028 at a fixed interest rate of 4.1% | — | | | 11,000 | |
Due 2033 at a fixed interest rate of 5.3% | — | | | 16,000 | |
Due 2036 at a fixed interest rate of 5.4% | — | | | 8,000 | |
Total principal debt, excluding Timber Funds | 1,376,107 | | | 1,294,903 | |
Add: Fair value adjustments, excluding Timber Funds | — | | | 7,917 | |
Less: Unamortized discounts, excluding Timber Funds | (3,426) | | | — | |
Less: Current maturities of long-term debt, excluding Timber Funds | (124,965) | | | — | |
Less: Deferred financing costs, excluding Timber Funds | (4,897) | | | (2,484) | |
Total long-term debt, excluding Timber Funds | 1,242,819 | | | 1,300,336 | |
| | | |
| | | |
Debt, Timber Funds: | | | |
Fund II Mortgages Payable, collateralized by Fund II timberlands with quarterly interest payments, as follows: (a) | | | |
Due 2022 at a fixed interest rate of 2.0% | — | | | 11,000 | |
Due 2022 at a fixed interest rate of 2.0% | — | | | 14,000 | |
Fund III Mortgages Payable, collateralized by Fund III timberlands with quarterly interest payments, as follows: (a) | | | |
Due 2023 at a fixed interest rate of 5.1% | — | | | 17,980 | |
Due 2024 at a fixed interest rate of 4.5% | — | | | 14,400 | |
Total principal debt, Timber Funds | — | | | 57,380 | |
Add: Fair value adjustments, Timber Funds | — | | | 2,809 | |
Less: Deferred financing costs, Timber Funds | — | | | (10) | |
Total long-term debt, Timber Funds | — | | | 60,179 | |
| | | |
| | | |
| | | |
Total long-term debt | $1,242,819 | | | $1,360,515 | |
(a) See the section below labeled “Long-Term Debt Assumed in the Pope Resources Merger” for additional details.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
Principal payments due during the next five years and thereafter are as follows:
| | | | | | | | | |
| | | | | |
2022 | $325,000 | | | | | |
2023 | — | | | | | |
2024 | — | | | | | |
2025 | 23,588 | | | | | |
2026 | 227,519 | | | | | |
Thereafter | 800,000 | | | | | |
Total debt | $1,376,107 | | | | | |
TERM CREDIT AGREEMENT
In August 2015, we entered into a credit agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions and other commercial banks to provide $550 million of new credit facilities, including a nine-year $350 million term loan facility. In April 2020, the maturity date of the Term Credit Agreement was extended from August 5, 2024 to April 1, 2028. In connection therewith, we recorded deferred financing costs in the amount of $0.5 million, which are being amortized over the term of the Term Credit Agreement. The periodic interest rate on the term loan facility is subject to a pricing grid based on our leverage ratio, as defined in the credit agreement. As of December 31, 2021, the periodic interest rate on the term loan facility was LIBOR plus 1.600%. Monthly payments of interest only are due on this loan through maturity. Following the closing of the term loan, we entered into several interest rate swap transactions to fix the cost of the term loan facility over its nine-year term. The term credit agreement allows us to receive annual patronage payments, which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user. We estimate the effective interest rate on the term loan facility to be approximately 3.0% after consideration of the interest rate swaps and estimated patronage refunds. For additional information on our interest rate swaps see Note 11 — Derivative Financial Instruments and Hedging Activities. 3.75% SENIOR NOTES ISSUED MARCH 2012
In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022, guaranteed by certain subsidiaries. Semi-annual payments of interest only are due on these notes through maturity. See the subsequent events section of Note 1 - Summary of Significant Accounting Policies for information about the repayment of our Senior Notes due 2022. 2.75% SENIOR NOTES ISSUED MAY 2021
In May 2021, Rayonier, L.P. issued $450 million of 2.75% Senior Notes due 2031, guaranteed by certain subsidiaries. Semi-annual payments of interest only are due on these notes through maturity. The Senior Notes due 2031 were sold at an issue price of 99.195% of their face value, before underwriters discount. Our net proceeds after deducting approximately $3.9 million of underwriting discounts and expenses, were approximately $442.5 million. The discount and debt issuance costs will be amortized to interest expense over the term of the notes using the effective interest method. A portion of the proceeds were used to repay $250 million outstanding under our 2020 Incremental Term Loan Agreement.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
INCREMENTAL TERM LOAN AGREEMENT
In April 2016, we entered into an incremental term loan agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions to provide a 10-year, $300 million incremental term loan. The periodic interest rate on the incremental term loan agreement is subject to a pricing grid based on our leverage ratio, as defined in the credit agreement. In June 2021, we entered into a Fourth Amendment to the Credit Agreement which decreased the applicable margin from LIBOR plus 1.900% to LIBOR plus 1.6500%. As a result of the debt modification, approximately $0.3 million in third-party expenses have been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income, net.” In June 2021, we prepaid $100 million on the $300 million Incremental Term Loan Agreement. In connection with the partial prepayment, we recognized a loss on early extinguishment of debt of $0.1 million, representing the write-off of one-third of the unamortized deferred financing costs. The loss on early extinguishment of debt has been recorded in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income, net.” As of December 31, 2021, the periodic interest rate on the incremental term loan was LIBOR plus 1.650%. Monthly payments of interest only are due on this loan through maturity. Following the closing of the incremental term loan, we entered into several interest rate swap transactions to fix the cost of the facility over its 10-year term. We estimate the effective interest rate on the incremental term loan facility to be approximately 2.4% after consideration of the interest rate swaps and estimated patronage payments. For additional information on our interest rate swaps see Note 11 — Derivative Financial Instruments and Hedging Activities. 2020 INCREMENTAL TERM LOAN AGREEMENT
In April 2020, we entered into an Incremental Term Loan Agreement, which provided for the advancement of a five-year $250 million senior unsecured incremental term loan facility. Proceeds from the 2020 Incremental Term Loan Facility were used to fund our acquisition of Pope Resources. In May 2021, the Incremental Term Loan Agreement was fully repaid. We recognized a loss on early extinguishment of debt of $0.6 million, representing the write-off of unamortized deferred financing costs. The loss on early extinguishment of debt has been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income, net.”
2021 INCREMENTAL TERM LOAN AGREEMENT
In June 2021, we entered into an Incremental Term Loan Agreement, which provides us the ability to make an advance of $200 million on or before June 1, 2022. As of December 31, 2021, no advance had been made under this facility. We will use a future advance of $200 million under the 2021 Incremental Term Loan Facility to refinance a portion of the 3.750% Senior Notes due 2022 on a long-term basis, and as such, have excluded $200 million of principal from current maturities of long-term debt, net, in our Consolidated Balance Sheets. We deferred $0.3 million of commitment fees, which are being amortized to interest expense over the term of the access period, through June 1, 2022. Additionally, we deferred $0.2 million in debt issuance costs, which will be amortized to interest expense over the term of the facility, once any future advance is made. See the subsequent events section of Note 1 - Summary of Significant Accounting Policies information about activity on the 2021 Incremental Term Loan subsequent to December 31, 2021. REVOLVING CREDIT FACILITY
In June 2021, we amended our Revolving Credit Facility, originally entered into in 2015, with one amendment to the credit agreement: the amendment decreased the applicable margin from LIBOR plus 1.500% to LIBOR plus 1.2500% and extended its maturity date from April 1, 2025 to June 1, 2026. As a result of the revolver modification, approximately $0.3 million in lender fees have been deferred and are being amortized to interest expense over the remaining term of the revolver. In April 2020, we previously amended our Revolving Credit Facility, with two amendments to the credit agreement: the first amendment increased the limit on the Revolving Credit Facility from $200 million to $250 million and extended its maturity date from August 5, 2020 to April 1, 2025, and the second amendment further increased the limit to $300 million. In connection therewith, we recorded deferred financing costs in the amount of $1.2 million, which are being amortized over the term of the Revolving Credit Facility. See Note 25 - Other Assets for additional information about deferred financing costs related to revolving debt. The periodic interest rate on the revolving credit facility is subject to a pricing grid based on our leverage ratio, as defined in the credit agreement. As of December 31, 2021, the periodic interest rate on the revolving credit facility was LIBOR plus
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
1.250%, with an unused commitment fee of 0.175%. Monthly payments of interest only are due on this loan through maturity.
During the year ended December 31, 2021, we made no borrowings or repayments on our Revolving Credit Facility. At December 31, 2021, we had available borrowings of $299.1 million under the Revolving Credit Facility, net of $0.9 million to secure our outstanding letters of credit.
NEW ZEALAND SUBSIDIARY DEBT
WORKING CAPITAL FACILITY
In June 2021, the New Zealand subsidiary renewed its NZ$20 million working capital facility for an additional 12-month term. The NZ$20 million working capital facility is available for short-term operating cash flow needs of the New Zealand subsidiary. This facility holds a variable interest rate indexed to the 90-day New Zealand Bank Bill rate (“BKBM”). The margins are set for the term of the facility. During the year ended December 31, 2021, the New Zealand subsidiary made no borrowings or repayments on its working capital facility. At December 31, 2021, there was no outstanding balance on the working capital facility.
SHAREHOLDER LOAN DUE 2025
In September 2020, the New Zealand subsidiary made a capital distribution to its partners on a pro rata basis in order to redeem certain equity interests. A portion of this capital distribution 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 noncontrolling interest share redemption of $5.1 million and a loan payable by the New Zealand subsidiary in the amount of $23.3 million due in 2025 at a fixed interest rate of 2.95%. As of December 31, 2021, the outstanding balance on the shareholder loan is $23.6 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.
SHAREHOLDER LOAN DUE 2026
In July 2021, 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 $28.1 million due in 2026 at a fixed interest rate of 3.64%. As of December 31, 2021, the outstanding balance on the shareholder loan due 2026 is $27.5 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 7 - Noncontrolling Interests for more information regarding the New Zealand subsidiary. LONG-TERM DEBT ASSUMED IN THE POPE RESOURCES MERGER
Northwest Farm Credit Services Credit Facility
We assumed five tranches of a credit facility payable to Northwest Farm Credit Services (the “NWFCS Credit Facility”) totaling $45.0 million. In September 2021, we repaid the $45 million outstanding under our credit facility with Northwest Farm Credit Services (NWFCS). We recognized a gain on early extinguishment of debt of $7.2 million, representing the net write-off of unamortized deferred financing costs and fair market value adjustments, partially offset by a $6.2 million loss related to a make-whole fee due to debt prepayment. The net gain on early extinguishment of debt of approximately $0.9 million has been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income, net.”
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
Fund II Mortgages Payable
We assumed Fund II’s two mortgages payable (the “Fund II Mortgages Payable”) to MetLife totaling $25.0 million. In September 2021, we repaid the $25.0 million outstanding under the Fund II Mortgages payable to MetLife. We recognized a loss on early extinguishment of debt of $6 thousand, representing the write-off of unamortized deferred financing costs. The loss on early extinguishment of debt has been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income, net.”
Fund III Mortgages Payable
We assumed Fund III’s two mortgages payable (the “Fund III Mortgages Payable”) to NWFCS totaling $32.4 million. In July 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds. Following the sale, Fund III’s two mortgages payable to NWFCS are no longer recognized in our Consolidated Balance Sheets as of December 31, 2021. See Note 7 - Noncontrolling Interests for additional information. DEBT COVENANTS — EXCLUDING TIMBER FUNDS
In connection with our $350 million Term Credit Agreement, $200 million Incremental Term Loan Agreement, $200 million 2021 Incremental Term Loan Agreement and $300 million Revolving Credit Facility, customary covenants must be met, the most significant of which include interest coverage and leverage ratios.
The covenants listed below, which are the most significant financial covenants in effect as of December 31, 2021, are calculated on a trailing 12-month basis:
| | | | | | | | | | | | | | | | | |
| Covenant Requirement | | Actual Ratio | | Favorable |
Covenant EBITDA to consolidated interest expense should not be less than | 2.5 to 1 | | 12.6 to 1 | | 10.1 |
Covenant debt to covenant net worth plus covenant debt shall not exceed | 65 | % | | 43 | % | | 22 | % |
In addition to these financial covenants listed above, the Senior Notes due 2022, 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 December 31, 2021, we were in compliance with all applicable covenants.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
11. DERIVATIVE 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. We also use derivative financial instruments to mitigate exposure to foreign currency risk due to the translation of the investment in Rayonier’s New Zealand-based operations from New Zealand dollars to U.S. dollars.
Accounting for derivative financial instruments is governed by Accounting Standards Codification 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 (loss) 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
The New Zealand subsidiary’s export sales are predominantly 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. The New Zealand subsidiary typically hedges 50% to 90% of its estimated foreign currency exposure with respect to the following twelve months forecasted sales and purchases less distributions and up to 75% of the forward 12 to 18 months. Additionally, the New Zealand subsidiary will occasionally hedge up to 50% of its estimated foreign currency exposure with respect to the following 18 to 48 months forecasted sales and purchases, less distributions, when the New Zealand dollar is at a cyclical low versus the U.S. dollar. Foreign currency exposure from the New Zealand subsidiary’s trading operations is typically hedged based on the following three months forecasted sales and purchases. As of December 31, 2021, foreign currency exchange contracts and foreign currency option contracts had maturity dates through December 2023.
Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments 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 (loss) income for de-designated hedges remains in AOCI until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings.
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
During the second quarter of 2021, we terminated and cash settled $250 million in notional value of our interest rate swaps, maturing in 2030, in connection with the repayment of $250 million outstanding under the 2020 Incremental Term Loan. Upon termination of the swap, we received $6.8 million from our counterparty. As of
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
December 31, 2021, there was a $15.9 million gain recorded in accumulated other comprehensive loss in connection with the terminated interest rate swap, which will be reclassified to earnings through interest expense over the remaining life of the hedged items, as the originally hedged cash flows remain probable.
During the second quarter of 2021, we terminated and cash settled $100 million in notional value of our interest rate swaps, maturing in 2026, in connection with the prepayment of $100 million on the 2026 Incremental Term Loan. Upon termination of the swap, we paid $2.2 million to our counterparty that was recognized immediately into earnings as interest expense, as the forecasted cash flows will no longer occur. See Note 10 — Debt for additional information.
The following table contains information on the outstanding interest rate swaps as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
Outstanding Interest Rate Swaps (a) |
Date Entered Into | Term | Notional Amount | Related Debt Facility | Fixed Rate of Swap | Bank Margin on Debt | Total Effective Interest Rate (b) |
August 2015 | 9 years | $170,000 | | Term Credit Agreement | 2.20 | % | 1.60 | % | 3.80 | % |
August 2015 | 9 years | 180,000 | | Term Credit Agreement | 2.35 | % | 1.60 | % | 3.95 | % |
April 2016 | 10 years | 100,000 | | Incremental Term Loan | 1.60 | % | 1.65 | % | 3.25 | % |
April 2016 | 10 years | 100,000 | | Incremental Term Loan | 1.60 | % | 1.65 | % | 3.25 | % |
(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.
TREASURY LOCKS
During the first quarter of 2020, we entered into three treasury lock agreements, which were designated and qualified as cash flow hedges. Prior to expiration, we de-designated and settled the treasury locks by converting them into interest rate swap lock agreements (discussed below).
As of December 31, 2021, there was a $17.3 million loss recorded in accumulated other comprehensive loss in connection with the settled treasury locks, which will be reclassified to earnings as interest expense over the life of the hedged item.
INTEREST RATE SWAP LOCKS
Upon de-designation, we converted the above treasury lock agreements to interest rate swap lock agreements, which were designated and qualified as cash flow hedges. During the second quarter of 2020, we de-designated and partially cash settled $11.1 million of the interest rate swap locks and converted them into an interest rate swap agreement.
As of December 31, 2021, there was a $1.2 million loss recorded in accumulated other comprehensive loss in connection with settled interest rate swap locks, which will be reclassified to earnings as interest expense over the life of the hedged item.
FORWARD-STARTING INTEREST RATE SWAPS
During the second quarter of 2021, we de-designated and settled $325 million in notional value of our forward-starting interest rate swap, maturing in 2032, by converting it into a new forward-starting interest rate swap agreement. As of December 31, 2021, there was a $9.7 million gain recorded in accumulated other comprehensive loss in connection with the converted forward-starting interest rate swap, which will be reclassified to earnings through interest expense over the remaining life of the hedged item.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following table contains information on the outstanding forward-starting interest rate swaps as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
Outstanding Forward-Starting Interest Rate Swaps (a) |
Date Entered Into | Term | Notional Amount | Fixed Rate of Swap | Related Debt Facility | Forward Date | Maximum Period Ending for Forecasted Issuance Date |
April 2020 | 4 years | $100,000 | | 0.88 | % | Term Credit Agreement | August 2024 | N/A |
May 2020 | 4 years | 50,000 | | 0.74 | % | Term Credit Agreement | August 2024 | N/A |
May 2021 (b) | 7 years | 200,000 | | 0.77 | % | Future Issuance | February 2022 | N/A |
(a) All forward-starting interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting.
(b) The forward-starting interest rate swap entered into in May 2021 contained an embedded mark-to-market gain, which we recovered through a reduced charge in the fixed rate over what would have been charged for an at-market swap. See the subsequent events section of Note 1 - Summary of Significant Accounting Policies for additional information regarding the maturation of this forward-starting interest rate swap. CARBON OPTIONS
The New Zealand subsidiary enters into carbon options from time to time to sell carbon assets. Changes in fair value of the carbon option contracts are recorded in “Interest and other miscellaneous income, net” as the contracts do not qualify for hedge accounting treatment. As of December 31, 2021, all existing carbon option contracts have expired.
The following table demonstrates the impact, gross of tax, of our derivatives on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2021, 2020 and 2019. | | | | | | | | | | | | | | | | | | | | | | | |
| Location on Statement of Income and Comprehensive Income | | 2021 | | 2020 | | 2019 |
Derivatives designated as cash flow hedges: | | | | | | | |
Foreign currency exchange contracts | Other comprehensive income (loss) | | ($7,965) | | | $5,376 | | | $2,211 | |
Foreign currency option contracts | Other comprehensive income (loss) | | (1,556) | | | 1,211 | | | 159 | |
Interest rate products | Other comprehensive income (loss) | | 52,478 | | | (76,567) | | | (29,893) | |
Interest rate products | Interest Expense | | 14,694 | | | 10,769 | | | (2,296) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | |
Foreign currency exchange contracts | Interest and other miscellaneous income, net | | — | | | — | | | $135 | |
Carbon options | Interest and other miscellaneous income, net | | — | | | 563 | | | (105) | |
| | | | | | | |
| | | | | | | |
During the next 12 months, the amount of the December 31, 2021 AOCI balance, net of tax, expected to be reclassified into earnings is a loss of approximately $10.8 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 | ($965) | |
| |
Interest rate products | (9,882) | |
Total estimated loss on derivatives contracts | ($10,847) | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets at December 31, 2021 and 2020:
| | | | | | | | | | | |
| Notional Amount |
| 2021 | | 2020 |
Derivatives designated as cash flow hedges: | | | |
Foreign currency exchange contracts | $149,250 | | | $49,000 | |
Foreign currency option contracts | 14,000 | | | 28,000 | |
Interest rate swaps | 550,000 | | | 900,000 | |
Forward-starting interest rate swaps | 350,000 | | | 475,000 | |
| | | |
| | | |
| | | |
| | | |
The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets at December 31, 2021 and 2020. Changes in balances of derivative financial instruments are recorded as operating activities in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | | | | | | | |
| | | Fair Value Assets (Liabilities) (a) |
| Location on Balance Sheet | | 2021 | | 2020 |
Derivatives designated as cash flow hedges: | | | | | |
Foreign currency exchange contracts | Other current assets | | $721 | | | $4,968 | |
| Other assets | | 86 | | | 1,050 | |
| Other current liabilities | | (2,061) | | | — | |
| Other non-current liabilities | | (694) | | | — | |
Foreign currency option contracts | Other current assets | | — | | | 1,526 | |
| Other assets | | 228 | | | — | |
| Other current liabilities | | — | | | (11) | |
| Other non-current liabilities | | (270) | | | — | |
| | | | | |
Interest rate swaps | Other non-current liabilities | | (15,582) | | | (51,580) | |
Forward-starting interest rate swaps | Other assets | | 11,482 | | | 513 | |
| Other non-current liabilities | | — | | | (13,042) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Total derivative contracts: | | | | | |
Other current assets | | $721 | | | $6,494 | |
Other assets | | 11,796 | | | 1,563 | |
Total derivative assets | | $12,517 | | | $8,057 | |
| | | | | |
Other current liabilities | | (2,061) | | | (11) | |
Other non-current liabilities | | (16,546) | | | (64,622) | |
Total derivative liabilities | | ($18,607) | | | ($64,633) | |
(a)See Note 12 — 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.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
12. FAIR VALUE MEASUREMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following table presents the carrying amount and estimated fair values of our financial instruments at December 31, 2021 and 2020, using market information and what we believe to be appropriate valuation methodologies under generally accepted accounting principles:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Asset (Liability) (a) | | Level 1 | | Level 2 | | | Level 1 | | Level 2 |
Cash and cash equivalents, excluding Timber Funds | $358,680 | | | $358,680 | | | — | | | $80,454 | | | $80,454 | | | — | |
Cash and cash equivalents, Timber Funds | 3,493 | | | 3,493 | | | — | | | 4,053 | | | 4,053 | | | — | |
Restricted cash, Timber Funds (b) | 6,341 | | | 6,341 | | | — | | | — | | | — | | | — | |
Restricted cash, excluding Timber Funds (c) | 625 | | | 625 | | | — | | | 2,975 | | | 2,975 | | | — | |
Current maturities of long-term debt, excluding Timber Funds (d) | (124,965) | | | — | | | (125,288) | | | — | | | — | | | — | |
| | | | | | | | | | | |
Long-term debt, excluding Timber Funds (d) | (1,242,819) | | | — | | | (1,245,148) | | | (1,300,336) | | | — | | | (1,313,631) | |
Long-term debt, Timber Funds (d) | — | | | — | | | — | | | (60,179) | | | — | | | (60,474) | |
Interest rate swaps (e) | (15,582) | | | — | | | (15,582) | | | (51,580) | | | — | | | (51,580) | |
Forward-starting interest rate swaps (e) | 11,482 | | | — | | | 11,482 | | | (12,529) | | | — | | | (12,529) | |
Foreign currency exchange contracts (e) | (1,948) | | | — | | | (1,948) | | | 6,018 | | | — | | | 6,018 | |
Foreign currency option contracts (e) | (42) | | | — | | | (42) | | | 1,515 | | | — | | | 1,515 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Noncontrolling interests in the operating partnership (f) | 133,823 | | | 133,823 | | | — | | | 130,121 | | | 130,121 | | | — | |
(a)We did not have Level 3 assets or liabilities at December 31, 2021 and 2020.
(b)Restricted cash, Timber Funds represents the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests. See Note 24 - Restricted Cash for additional information. (c)Restricted cash, excluding Timber Funds represents cash held in escrow. See Note 24 - Restricted Cash for additional information. (d)The carrying amount of long-term debt is presented net of deferred financing costs, unamortized discounts and fair value adjustments on non-revolving debt.. See Note 10 — 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.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
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.
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.
13. COMMITMENTS
At December 31, 2021, the future minimum payments under non-cancellable commitments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Environmental Remediation (a) | | Development Projects (b) | | | | Commitments (c) | | Total |
2022 | $695 | | | $14,316 | | | | | $14,722 | | | $29,733 | |
2023 | 3,838 | | | 267 | | | | | 12,996 | | | 17,101 | |
2024 | 3,838 | | | 267 | | | | | 9,347 | | | 13,452 | |
2025 | 995 | | | 267 | | | | | 5,542 | | | 6,804 | |
2026 | 426 | | | 267 | | | | | 3,430 | | | 4,123 | |
Thereafter | 1,013 | | | 3,899 | | | | | 4,589 | | | 9,501 | |
| $10,805 | | | $19,283 | | | | | $50,626 | | | $80,714 | |
(b)Primarily consisting of payments expected to be made on our Wildlight and Richmond Hill development projects.
(c)Commitments include payments expected to be made on derivative financial instruments (foreign exchange contracts, interest rate swaps and forward-starting interest rate swaps) and other purchase obligations.
14. CONTINGENCIES
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.
15. ENVIRONMENTAL 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
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
resource damages (“NRD”) can attach to a property simply because an injury to natural resources resulted from releases of contaminated materials on the owner’s property, regardless of culpability for the release.
In connection to the merger with Pope Resources, we assumed ownership of certain real estate in Port Gamble, Washington, which requires environmental remediation under these laws.
An analysis of environmental and NRD liabilities from December 31, 2020 to December 31, 2021 is shown below:
| | | | | |
| Port Gamble, WA |
Non-current portion at December 31, 2020 | $10,615 |
Plus: Current portion | 1,026 |
Total Balance at December 31, 2020 | 11,641 |
Expenditures charged to liabilities | (941) | |
Increase in liabilities | 105 |
| |
Total Balance at December 31, 2021 | 10,805 |
Less: Current portion | (695) | |
Non-current portion at December 31, 2021 | $10,110 |
These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. See Note 2 - Merger with Pope Resources for information regarding the final allocation of fair value to environmental and NRD liabilities assumed in the merger with Pope Resources. It is expected that the millsite cleanup and NRD restoration will occur over the next one to three years, while the monitoring of the Port Gamble Bay, millsite and landfills will continue for an additional 10 to 15 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 13 - Commitments.
16. GUARANTEES
We provide financial guarantees as required by creditors, insurance programs, and various governmental agencies. As of December 31, 2021, the following financial guarantees were outstanding:
| | | | | | | |
Financial Commitments (a) | Maximum Potential Payment | | |
Standby letters of credit | $885 | | | |
| | | |
Surety bonds (b) | 12,238 | | | |
Total financial commitments | $13,123 | | | |
(a)We have not recorded any liabilities for these financial commitments in the 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 and 2024 and are expected to be renewed as required.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
17. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS
We continuously 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.
Changes in higher and better use timberlands and real estate development investments from December 31, 2020 to December 31, 2021 are shown below:
| | | | | | | | | | | | | | | | | |
| Higher and Better Use Timberlands and Real Estate Development Investments |
| Land and Timber | | Development Investments | | Total |
Non-current portion at December 31, 2020 | $79,901 | | | $28,617 | | | $108,518 | |
Plus: Current portion (a) | 212 | | | 6,544 | | | 6,756 | |
Total Balance at December 31, 2020 | 80,113 | | | 35,161 | | | 115,274 | |
Non-cash cost of land and improved development | (11,894) | | | (8,211) | | | (20,105) | |
Amortization of parcel real estate development investments | — | | | (5,923) | | | (5,923) | |
Timber depletion from harvesting activities and basis of timber sold in real estate sales | (1,301) | | | — | | | (1,301) | |
Capitalized real estate development investments (b) | — | | | 21,963 | | | 21,963 | |
Capital expenditures (silviculture) | 191 | | | — | | | 191 | |
| | | | | |
Intersegment transfers | 13,281 | | | — | | | 13,281 | |
Purchase price allocation adjustment (c) | 8,238 | | | — | | | 8,238 | |
| | | | | |
Total Balance at December 31, 2021 | 88,628 | | | 42,990 | | | 131,618 | |
Less: Current portion (a) | (718) | | | (24,022) | | | (24,740) | |
Non-current portion at December 31, 2021 | $87,910 | | | $18,968 | | | $106,878 | |
(a)The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 18 — Inventory for additional information. (b)Capitalized real estate development investments includes $0.6 million of capitalized interest and $9.4 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.
(c)Reflects measurement period adjustments on HBU properties acquired in the merger with Pope Resources. The final allocation of fair value to HBU properties acquired in the merger is approximately $34.7 million. This includes development properties in the town of Port Gamble, Washington, development projects in Gig Harbor, Kingston, and Bremerton, Washington and various other assets. See Note 2 - Merger with Pope Resources for additional information.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
18. INVENTORY
As of December 31, 2021 and 2020, our inventory was solely comprised of finished goods, as follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
| | | |
Real estate inventory (a) | $24,740 | | | $6,756 | |
Log inventory | 3,783 | | | 3,838 | |
Total inventory | $28,523 | | | $10,594 | |
19. OTHER OPERATING INCOME (EXPENSE), NET
The following table provides the composition of Other operating income (expense), net for the three years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Gain (loss) on foreign currency remeasurement, net of cash flow hedges | $6,823 | | | ($3,503) | | | ($3,077) | |
Gain on sale or disposal of property plant & equipment | 75 | | | 121 | | | 56 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Gain on investment in Timber Funds (a) | 7,482 | | | — | | | — | |
Log trading marketing fees | 6 | | | 56 | | | 314 | |
| | | | | |
| | | | | |
| | | | | |
Cost related to the merger with Pope Resources (b) | — | | | (17,166) | | | — | |
Equity income (loss) related to Bainbridge Landing LLC joint venture (c) | 102 | | | (721) | | | — | |
Miscellaneous expense, net | (404) | | | (472) | | | (1,826) | |
Total | $14,084 | | | ($21,685) | | | ($4,533) | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
20. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLANS
We have one qualified non-contributory defined benefit pension plan covering a portion of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified 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.
The following tables set forth the change in the projected benefit obligation and plan assets and reconcile the funded status and the amounts recognized in the Consolidated Balance Sheets for the pension and postretirement benefit plans for the two years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| 2021 | | 2020 | | 2021 | | 2020 |
Change in Projected Benefit Obligation | | | | | | | |
Projected benefit obligation at beginning of year | $100,469 | | | $90,261 | | | $1,886 | | | $1,634 | |
Service cost | — | | | — | | | 8 | | | 6 | |
Interest cost | 2,228 | | | 2,706 | | | 45 | | | 51 | |
| | | | | | | |
| | | | | | | |
Actuarial loss (gain) | (5,112) | | | 11,413 | | | (35) | | | 209 | |
| | | | | | | |
| | | | | | | |
Benefits paid | (3,519) | | | (3,413) | | | (14) | | | (14) | |
Expenses paid | (267) | | | (498) | | | — | | | — | |
Projected benefit obligation at end of year | $93,799 | | | $100,469 | | | $1,890 | | | $1,886 | |
| | | | | | | | | | | | | | | | | | | | | | | |
Change in Plan Assets | | | | | | | |
Fair value of plan assets at beginning of year | $78,883 | | | $66,460 | | | — | | | — | |
Actual return on plan assets | 9,896 | | | 13,329 | | | — | | | — | |
Employer contributions | 86 | | | 3,005 | | | 14 | | | 14 | |
| | | | | | | |
Benefits paid | (3,519) | | | (3,413) | | | (14) | | | (14) | |
Other expense | (267) | | | (498) | | | — | | | — | |
Fair value of plan assets at end of year | $85,079 | | | $78,883 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Funded Status at End of Year: | | | | | | | |
Net accrued benefit cost | ($8,720) | | | ($21,586) | | | ($1,890) | | | ($1,886) | |
| | | | | | | | | | | | | | | | | | | | | | | |
Amounts Recognized in the Consolidated | | | | | | | |
Balance Sheets Consist of: | | | | | | | |
| | | | | | | |
Current liabilities | ($86) | | | ($86) | | | ($46) | | | ($41) | |
Noncurrent liabilities | (8,634) | | | (21,500) | | | (1,844) | | | (1,845) | |
Net amount recognized | ($8,720) | | | ($21,586) | | | ($1,890) | | | ($1,886) | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
For pension and postretirement plans with accumulated benefit obligations in excess of plan assets, the following table sets forth the projected and accumulated benefit obligations and the fair value of plan assets for the two years ended December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
Projected benefit obligation | $93,799 | | | $100,469 | |
Accumulated benefit obligation | 93,799 | | | 100,469 | |
Accumulated postretirement benefit obligation | 1,890 | | | 1,886 | |
Fair value of plan assets | 85,079 | | | 78,883 | |
ACTUARIAL (GAIN) LOSS
PENSION
Key components of the actuarial gains and losses contributing to the period change in the benefit obligation are as follows:
•Changes in participant demographics resulted in an actuarial gain of approximately $0.5 million, which is primarily due to high mortality among participants.
•Changes in mortality assumptions resulted in an actuarial loss of approximately $0.3 million.
•Changes in the discount rate from 2.26% to 2.65% resulted in an actuarial gain of approximately $5.1 million.
POSTRETIREMENT
Key components of the actuarial gains and losses contributing to the period change in the benefit obligation are as follows:
•Re-measurement of current census data resulted in a demographic loss of $0.1 million.
•Changes in the discount rate from 2.42% to 2.75% resulted in an actuarial gain of approximately $0.1 million.
OTHER COMPREHENSIVE INCOME
Net gains or losses recognized in other comprehensive (loss) income for the three years ended December 31 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Net gains (losses) | $11,262 | | | ($1,587) | | | ($1,514) | | | $40 | | | ($207) | | | ($285) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net gains or losses reclassified from other comprehensive income and recognized as a component of pension and postretirement expense for the three years ended December 31 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Amortization of losses (gains) | $1,154 | | | $861 | | | $449 | | | $20 | | | $8 | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
ACCUMULATED OTHER COMPREHENSIVE INCOME (AOCI)
Net losses that have not yet been included in pension and postretirement expense for the two years ended December 31, but have been recognized as a component of AOCI are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
Net losses | ($12,627) | | | ($25,043) | | | ($431) | | | ($491) | |
| | | | | | | |
Deferred income tax benefit | 1,216 | | | 1,216 | | | 6 | | | 6 | |
AOCI | ($11,411) | | | ($23,827) | | | ($425) | | | ($485) | |
NET PENSION AND POSTRETIREMENT BENEFIT (CREDIT) COST
The following tables set forth the components of net pension and postretirement benefit (credit) cost that have been recognized during the three years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Components of Net Periodic Benefit (Credit) Cost | | | | | | | | | | | |
Service cost | — | | | — | | | — | | | $8 | | | $6 | | | $6 | |
Interest cost | 2,228 | | | 2,706 | | | 3,197 | | | 45 | | | 51 | | | 54 | |
Expected return on plan assets | (3,746) | | | (3,504) | | | (3,107) | | | — | | | — | | | — | |
| | | | | | | | | | | |
Amortization of losses (gains) | 1,154 | | | 861 | | | 449 | | | 20 | | | 8 | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Net periodic benefit (credit) cost | ($364) | | | $63 | | | $539 | | | $73 | | | $65 | | | $60 | |
The service cost component of our benefit expense is recorded within the operating expense line item “Selling and general expenses” within the Consolidated Statements of Income. All other components of the benefit costs expense are included within the “Interest and miscellaneous income, net” line item of the Consolidated Statements of Income.
VALUATION ASSUMPTIONS
The following table sets forth the principal assumptions inherent in the determination of benefit obligations and net periodic benefit cost of the pension and postretirement benefit plans as of December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension | | Postretirement |
| 2021 | | 2020 | | 2019 | | 2021 | | 2020 | | 2019 |
Assumptions used to determine benefit obligations at December 31: | | | | | | | | | | | |
Discount rate | 2.65 | % | | 2.26 | % | | 3.06 | % | | 2.75 | % | | 2.42 | % | | 3.16 | % |
| | | | | | | | | | | |
Assumptions used to determine net periodic benefit cost for years ended December 31: | | | | | | | | | | | |
Discount rate | 2.26 | % | | 3.06 | % | | 4.11 | % | | 2.42 | % | | 3.16 | % | | 4.18 | % |
Expected long-term return on plan assets | 5.72 | % | | 5.72 | % | | 5.72 | % | | — | | | — | | | — | |
| | | | | | | | | | | |
DISCOUNT RATE
At December 31, 2021, the pension plan’s discount rate was 2.7%. The discount rate is derived from the Financial Times Stock Exchange (FTSE) Pension Discount Curve (f/k/a Citigroup). The Pension Discount Curve (PDC) is a set of yields on hypothetical AA, zero coupon bonds whose maturities range from 6 months up to 30 years. The yields of the PDC are used to discount pension liabilities. The PDC is calculated based on a universe of AA rated corporate bonds from the FTSE US Broad Investment-Grade Bond Index and the yields of the FTSE Treasury model curve.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
The pension plan's future expected cash flows are then matched to the spot rates on the yield curve and a single equivalent discount rate is determined, which produces the same present value as the spot rates.
EXPECTED LONG-TERM RETURN ON PLAN ASSETS
In 2021, the expected return on plan assets remained at 5.7%, which is based on historical returns on current asset allocations and expected returns using the Black-Litterman method.
INVESTMENT OF PLAN ASSETS
Our Pension and Savings Plan Committee and the Audit Committee of the Board of Directors oversee the pension plans’ investment program, which is designed to maximize returns and provide sufficient liquidity to meet plan obligations while maintaining acceptable risk levels. The investment approach emphasizes diversification by allocating the plans’ assets among asset categories and selecting investment managers whose various investment methodologies will be minimally correlative with each other.
In 2020, we transitioned to a liability-driven investment (“LDI”) strategy. An LDI strategy focuses on maintaining a close to fully-funded status over the long-term with minimal funded status risk. This is achieved by investing more of the plan assets in fixed income instruments to more closely match the duration of the plan liability. The investment allocation to fixed income instruments will increase as the plans' funded status increases. Investment target allocation percentages for equity securities can range up to 80 percent.
Our pension plans’ asset allocation (excluding short-term investments) at December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | | |
| Percentage of Plan Assets | |
Asset Category | 2021 | | 2020 |
Domestic equity securities | 29 | % | | 44 | % | |
International equity securities | 18 | % | | 30 | % | |
Domestic fixed income securities | 51 | % | | 21 | % | |
International fixed income securities | — | | | 3 | % | |
Real estate fund | 2 | % | | 2 | % | |
Total | 100 | % | | 100 | % | |
Investments within the equity categories may include large capitalization, small capitalization and emerging market securities. Pension assets did not include a direct investment in Rayonier common shares during the years ended December 31, 2021 and 2020.
NET ASSET VALUE MEASUREMENTS
Separate investment accounts are measured using the unit value calculated based on the Net Asset Value (“NAV”) of the underlying assets. The NAV is based on the fair value of the underlying investments held by each fund less liabilities divided by the units outstanding as of the valuation date. These funds are not publicly traded; however, the unit price calculation is based on observable market inputs of the funds’ underlying assets.
The following table sets forth the net asset value of the plan assets as of December 31, 2021 or 2020:
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Asset Category | | | |
| | | |
| | | |
Investments at Net Asset Value: | | | |
Separate Investment Accounts | $85,079 | | | $78,883 | |
Total Investments at Net Asset Value | $85,079 | | | $78,883 | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
CASH FLOWS
Our expected benefit payments to be made for the next 10 years are as follows:
| | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
2022 | $3,896 | | | $46 | |
2023 | 4,077 | | | 50 | |
2024 | 4,242 | | | 53 | |
2025 | 4,389 | | | 56 | |
2026 | 4,498 | | | 60 | |
2027-2031 | 23,525 | | | 359 | |
We have no mandatory pension contribution requirements in 2022.
DEFINED CONTRIBUTION PLANS
We provide a defined contribution plan to all of our eligible employees. Upon completion of the merger with Pope Resources, former eligible Pope Resource employees were immediately eligible to participate in the Rayonier 401(k) plan. Pope Resources employees’ year of service were credited to the 401(k) plan for vesting purposes. Company match contributions charged to expense for these plans were $1.1 million, $1.1 million and $1.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. The defined contribution plan includes Rayonier common shares with a fair market value of $11.0 million and $8.5 million at December 31, 2021 and 2020, respectively. As of June 1, 2016, the Rayonier Inc. Common Stock Fund was closed to new contributions. Transfers out of the fund will continue to be permitted, but no new investments or transfers into the fund are allowed.
As discussed above, the defined benefit pension plan is currently frozen. In lieu of the pension plan, employees are eligible to receive an enhanced match contribution. Company enhanced match contributions charged to expense for the years ended December 31, 2021, 2020 and 2019 were $1.2 million, $1.0 million and $0.9 million, respectively.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
21. INCENTIVE STOCK PLANS
The Rayonier Incentive Stock Plan (the “Stock Plan”) provides up to 15.8 million shares to be granted for incentive stock options, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and restricted stock units, subject to certain limitations. At December 31, 2021, a total of 2.4 million shares were available for future grants under the Stock Plan. Under the Stock Plan, shares available for issuance are reduced by 1 share for each option or right granted and by 2.27 shares for each performance share, restricted share or restricted stock unit granted. We issue new shares of stock upon the exercise of stock options, the granting of restricted stock, and the vesting of performance shares and restricted stock units.
A summary of our stock-based compensation cost is presented below:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Selling and general expenses | $8,255 | | | $6,839 | | | $6,416 | |
Cost of sales | 816 | | | 693 | | | 378 | |
Timber and Timberlands, net (a) | 206 | | | 170 | | | 110 | |
Other operating expense, net (b) | — | | | 324 | | | — | |
Total stock-based compensation | $9,277 | | | $8,026 | | | $6,904 | |
| | | | | |
Tax benefit recognized related to stock-based compensation expense (c) | $487 | | | $421 | | | $362 | |
(a)Represents amounts capitalized as part of the overhead allocation of timber-related costs.
(c)A valuation allowance is recorded against the tax benefit recognized as we do not expect to be able to realize the benefit in the future.
FAIR VALUE CALCULATIONS BY AWARD
RESTRICTED STOCK
Restricted stock granted to employees under the Stock Plan generally vests in fourths on the first, second, third and fourth anniversary of the grant date. Restricted stock granted to senior management generally vests in thirds on the third, fourth, and fifth anniversary of the grant date. Periodically, other one-time restricted stock grants are issued to employees for special purposes, such as new hire, promotion or retention, and can vest ratably over, or upon completion of, a defined period of time. Generally, holders of restricted stock receive dividend equivalent payments on outstanding restricted shares. Restricted stock granted to members of the board of directors generally vests immediately upon issuance and is subject to certain holding requirements. The fair value of each share granted is equal to the share price of the Company’s stock on the date of grant. We have elected to value each grant in total and recognize the expense on a straight-line basis from the grant date of the award to the latest vesting date. As permitted, we do not estimate a forfeiture rate for non-vested shares. Accordingly, unexpected forfeitures will lower stock-based compensation during the period in which they occur.
REPLACEMENT RESTRICTED STOCK AWARDS FROM THE MERGER WITH POPE RESOURCES
As a result of the merger with Pope Resources, Rayonier issued 69,176 shares of restricted stock awards (“replacement awards”) in connection with unvested Pope Resources restricted units. Eligible outstanding Pope Resources restricted units were canceled and exchanged for replacement awards, pursuant to an exchange ratio in the merger agreement designed to maintain the intrinsic value of the awards immediately prior to the exchange.
The replacement awards issued have similar vesting provisions as the terms of existing Rayonier restricted stock. Expense for the replacement awards that were not fully vested prior to the date of the merger is expected to be recognized over a weighted average remaining service period of approximately 16 months unless a qualifying termination occurs. A qualifying termination of an awardee will result in the acceleration of vesting and expense recognition in the period that the qualifying termination occurs. Qualifying terminations during the years ended December 31, 2021 and 2020 resulted in the accelerated vesting of 1,430 and 15,049 of the replacement awards and recognition of approximately $0.1 million and $0.3 million of expense, respectively.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
As of December 31, 2021, there was $0.7 million of unrecognized compensation cost attributable to our restricted stock. We expect to recognize this cost over a weighted average period of 1 year.
A summary of our restricted stock is presented below:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Restricted shares granted (a) | 22,140 | | | 100,452 | | | 24,592 | |
Weighted average price of restricted shares granted | $37.36 | | | $23.15 | | | $30.90 | |
Intrinsic value of restricted stock outstanding (b) | $3,062 | | | $4,666 | | | $5,540 | |
Grant date fair value of restricted stock vested | 3,121 | | | 2,755 | | | 5,339 | |
Cash used to purchase common shares from current and former employees to pay withholding tax requirements on restricted shares vested | 869 | | | 566 | | | 1,610 | |
(a)The year ended December 31, 2020 includes 69,176 replacement awards issued as a result of the merger with Pope Resources.
(b)Intrinsic value of restricted stock outstanding is based on the market price of the Company’s stock at December 31, 2021.
| | | | | | | | | | | |
| 2021 |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Non-vested Restricted Shares at January 1, | 158,820 | | | $28.47 | |
Granted | 22,140 | | | 37.36 | |
Vested (a) | (104,917) | | | 29.74 | |
Cancelled | (181) | | | 34.71 | |
Non-vested Restricted Shares at December 31, | 75,862 | | | $29.29 | |
(a)The year ended December 31, 2021 includes 1,430 replacement awards vested as a result of acceleration due to qualifying terminations.
RESTRICTED STOCK UNITS
In April 2019, we began granting restricted stock units instead of restricted stock to employees. Most attributes of our restricted stock described herein, including dividend payments, fair value measurement and expense recognition, apply equally to restricted stock units granted under the Stock Plan. However, beginning with the restricted stock units granted in 2021, there is no distinction between the vesting characteristics of restricted stock units granted to senior management and those granted to all other employees. Restricted stock units generally vest in fourths on the first, second, third and fourth anniversary of the grant date.
As of December 31, 2021, there was $7.1 million of unrecognized compensation cost attributable to our restricted stock units. We expect to recognize this cost over a weighted average period of 2.9 years.
A summary of our restricted stock units is presented below:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Restricted stock units granted | 129,290 | | | 171,409 | | | 103,634 | |
Weighted average price of restricted stock units granted | $33.59 | | | $22.58 | | | $31.51 | |
Intrinsic value of restricted stock units outstanding (a) | $15,095 | | | $7,801 | | | $3,351 | |
Grant date fair value of restricted stock units vested | 493 | | | 218 | | | 2 | |
Cash used to purchase common shares from current and former employees to pay withholding tax requirements on restricted stock units vested | 189 | | | 47 | | | 1 | |
(a)Intrinsic value of restricted stock units outstanding is based on the market price of the Company’s stock at December 31, 2021.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
| | | | | | | | | | | |
| 2021 |
| Number of Shares | | Weighted Average Grant Date Fair Value |
Non-vested Restricted Stock Units at January 1, | 265,522 | | | $25.75 | |
Granted | 129,290 | | | 33.59 | |
Vested | (18,998) | | | 25.94 | |
Cancelled | (1,798) | | | 29.37 | |
Non-vested Restricted Stock Units at December 31, | 374,016 | | | $28.44 | |
PERFORMANCE SHARE UNITS
Our performance share units generally vest upon completion of a three-year period. The number of shares, if any, that are ultimately awarded is contingent upon our total shareholder return versus selected peer group companies. The performance share payout is based on a market condition, and as such, the awards are valued using a Monte Carlo simulation model. The model generates the fair value of the award at the grant date, which is then recognized as expense on a straight-line basis over the vesting period. Additionally, we do not estimate a forfeiture rate for non-vested units. As such, unexpected forfeitures will lower stock-based compensation during the period in which they occur.
The Stock Plan allows for the cash settlement of the required withholding tax on performance share unit awards. As of December 31, 2021, there was $5.5 million of unrecognized compensation cost related to our performance share unit awards, which is attributable to awards granted in 2019, 2020 and 2021. This cost is expected to be recognized over a weighted average period of 1.7 years.
A summary of our performance share units is presented below:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Common shares reserved for performance shares granted during year | 191,203 | | | 361,870 | | | 232,684 | |
Weighted average fair value of performance share units granted | $36.10 | | | $29.59 | | | $35.99 | |
Intrinsic value of outstanding performance share units (a) | $16,360 | | | $11,711 | | | $10,758 | |
Fair value of performance shares vested | 1,738 | | | 3,522 | | | 6,387 | |
Cash used to purchase common shares from current and former employees to pay withholding tax requirements on performance shares vested | 559 | | | 992 | | | 2,639 | |
(a)Intrinsic value of outstanding performance share units is based on the market price of the Company's stock at December 31, 2021.
| | | | | | | | | | | |
| 2021 |
| Number of Units | | Weighted Average Grant Date Fair Value |
Outstanding Performance Share units at January 1, | 398,607 | | | $34.17 | |
Granted | 109,259 | | | 36.10 | |
Units Distributed | (102,505) | | | 40.27 | |
| | | |
Outstanding Performance Share units at December 31, | 405,361 | | | $33.16 | |
Expected volatility was estimated using daily returns on the Company’s common shares for the three-year period ending on the grant date. The risk-free rate was based on the 3-year U.S. Treasury rate on the date of the award. The dividend yield was not used to calculate fair value as awards granted receive dividend equivalents. The following table provides an overview of the assumptions used in calculating the fair value of the awards granted for the three years ended December 31, 2021:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Expected volatility | 35.6 | % | | 32.6 | % | | 18.4 | % |
Risk-free rate | 0.4 | % | | 0.3 | % | | 2.3 | % |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
NON-QUALIFIED EMPLOYEE STOCK OPTIONS
The exercise price of each non-qualified stock option granted under the Stock Plan is equal to the closing market price of the Company’s stock on the grant date. Under the Stock Plan, the maximum term is 10 years from the grant date.
A summary of the status of our stock options as of and for the year ended December 31, 2021 is presented below:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| Number of Shares | | Weighted Average Exercise Price (per common share) | | Weighted Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value |
Options outstanding at January 1, | 340,985 | | | $34.07 | | | | | |
| | | | | | | |
Exercised | (186,590) | | | 32.31 | | | | | |
Cancelled or expired | (30,225) | | | 34.25 | | | | | |
Options outstanding at December 31, | 124,170 | | | 36.67 | | | 1.27 | | $458 | |
Options exercisable at December 31, | 124,170 | | | $36.67 | | | 1.27 | | $458 | |
A summary of additional information pertaining to our stock options is presented below:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Intrinsic value of options exercised (a) | $916 | | | $108 | | | $475 | |
| | | | | |
Cash received from exercise of options | 5,922 | | | 1,368 | | | 1,260 | |
(a)Intrinsic value of options exercised is the amount by which the fair value of the stock on the exercise date exceeded the exercise price of the option.
As of December 31, 2021, compensation cost related to stock options was fully recognized.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
22. INCOME 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 December 31, 2021, Rayonier owns a 97.8% 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 unitholders (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 U.S. 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 FROM CONTINUING OPERATIONS
The provision for income taxes for each of the three years ended December 31 follows: | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 | |
Current | | | | | | |
U.S. federal | ($1,893) | | | ($237) | | | $2 | | |
State | (536) | | | (339) | | | (122) | | |
Foreign | (11,425) | | | (5,391) | | | (1,542) | | |
| (13,854) | | | (5,967) | | | (1,662) | | |
Deferred | | | | | | |
U.S. federal | (6,288) | | | 8,355 | | | 465 | | |
State | (1,623) | | | 325 | | | 17 | | |
Foreign | (2,007) | | | (3,027) | | | (11,278) | | |
| (9,918) | | | 5,653 | | | (10,796) | | |
Changes in valuation allowance | 9,111 | | | (6,695) | | | (482) | | |
Total | ($14,661) | | | ($7,009) | | | ($12,940) | | |
A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate for each of the three years ended December 31 follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
U.S. federal statutory income tax rate | | ($47,280) | | | (21.0) | % | | ($7,726) | | | (21.0) | % | | ($16,930) | | | (21.0) | % |
U.S. and foreign REIT income | | 44,316 | | | 19.7 | | | 16,569 | | | 45.0 | | | 19,902 | | | 24.7 | |
Matariki Group and Rayonier New Zealand Ltd | | (12,927) | | | (5.7) | | | (7,698) | | | (20.8) | | | (11,181) | | | (13.9) | |
| | | | | | | | | | | | |
Change in valuation allowance | | 9,111 | | | 4.0 | | | (6,695) | | | (18.2) | | | (482) | | | (0.6) | |
REIT Built-in Gain | | (2,215) | | | (1.0) | | | — | | | — | | | — | | | — | |
State Net Operating Loss | | — | | | — | | | 1,118 | | | 3.0 | | | — | | | — | |
Prepaid land sales | | — | | | — | | | (1,084) | | | (2.9) | | | — | | | — | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Internal transfer of assets deferred | | — | | | — | | | — | | | — | | | (1,815) | | | (2.3) | |
| | | | | | | | | | | | |
Foreign income tax withholding | | (505) | | | (0.2) | | | (721) | | | (2.0) | | | (1,535) | | | (1.9) | |
Sale of Timber Funds | | (2,399) | | | (1.1) | | | — | | | — | | | — | | | — | |
Other | | (2,762) | | | (1.2) | | | (772) | | | (2.1) | | | (899) | | | (1.1) | |
Income tax expense as reported for net income | | ($14,661) | | | (6.5) | % | | ($7,009) | | | (19.0) | % | | ($12,940) | | | (16.1) | % |
The Company’s effective tax rate is below the 21 percent U.S. statutory rate primarily due to tax benefits associated with being a REIT.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
DEFERRED TAXES
Deferred income taxes result from differences between the timing of recognizing revenues and expenses for financial book purposes versus income tax purposes. The nature of the temporary differences and the resulting net deferred tax asset/liability for the two years ended December 31 follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Gross deferred tax assets: | | | |
Pension, postretirement and other employee benefits | $597 | | | $1,403 | |
New Zealand subsidiary | 21,790 | | | 23,461 | |
CBPC tax credit carry forwards | 13,701 | | | 14,555 | |
Capitalized real estate costs | 1,656 | | | 1,459 | |
U.S. TRS net operating loss | 12,489 | | | 18,363 | |
Land basis difference | 9,061 | | | 9,468 | |
Other | 5,367 | | | 5,502 | |
Total gross deferred tax assets | 64,661 | | | 74,211 | |
Less: Valuation allowance | (36,904) | | | (46,015) | |
Total deferred tax assets after valuation allowance | $27,757 | | | $28,196 | |
Gross deferred tax liabilities: | | | |
Accelerated depreciation | (46) | | | (38) | |
| | | |
New Zealand subsidiary | (91,388) | | | (98,245) | |
| | | |
| | | |
Other | (6,059) | | | (4,884) | |
Total gross deferred tax liabilities | (97,493) | | | (103,167) | |
Net deferred tax liability reported as noncurrent | ($69,736) | | | ($74,971) | |
Net operating loss (“NOL”) and tax credit carryforwards as of the two years ended December 31 follows:
| | | | | | | | | | | | | | |
| Tax Effected Balance | | | | | Expiration |
2021 | | | | | | |
| | | | | | |
| | | | | | |
U.S. Federal NOL Carryforwards- Post TCJA (a) | $10,687 | | | | | | None |
U.S State NOL Carryforwards (b) | 1,802 | | | | | | 2033 |
Cellulosic Biofuel Producer Credit (c) | 13,701 | | | | | | 2023 |
| | | | | | |
| | | | | | |
2020 | | | | | | |
| | | | | | |
U.S. Federal NOL Carryforwards- Pre TCJA (a) | $2,363 | | | | | | 2036 |
U.S. Federal NOL Carryforwards- Post TCJA (a) | 13,017 | | | | | | None |
U.S State NOL Carryforwards (b) | 2,983 | | | | | | 2031 |
Cellulosic Biofuel Producer Credit (c) | 14,555 | | | | | | 2023 |
| | | | | | |
(a)The Tax Cuts and Jobs Act (TCJA) was signed into law on December 22, 2017. The TCJA lifted the 20-year federal NOL Carryforward period. Net operating losses generated after December 31, 2017 have an indefinite carryforward period.
(b)The U.S. state NOL is made up of several jurisdictions that expire in various future years. As of December 31, 2021, no state NOL is set to expire before December 31, 2033. As of December 31, 2020, no state NOL was set to expire before December 31, 2031.
(c)The Further Consolidated Appropriations Act, 2020 was signed into law on December 20, 2019. The Further Consolidated Appropriations Act, 2020 included the Taxpayer Certainty and Disaster Relief Act of 2019 (Tax Extenders Act), which temporarily renewed approximately two dozen credits that previously expired or were set to expire at the end of 2019. The Cellulosic Biofuel Producer Credit was one of the credits extended under this act.
We record a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more likely than not that such deferred tax assets will not be realized. Since 2015, we have had a 100% valuation allowance against the U.S. taxable REIT subsidiary's deferred tax assets, net of deferred tax liabilities. During 2021, the net deferred tax assets decreased by $9.1 million. As a result, we recorded a change in the valuation allowance of $9.1 million related to the U.S. TRS's deferred tax assets, net of liabilities.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
TAX STATUTES
The following table provides detail of the tax years that remain open to examination by the IRS and other significant taxing jurisdictions:
| | | | | |
Taxing Jurisdiction | Open Tax Years |
U.S. Internal Revenue Service | 2018 - 2020 |
New Zealand Inland Revenue | 2016 - 2020 |
TAX CHARACTERISTICS OF DIVIDEND DISTRIBUTIONS
The taxable nature of the dividend distributions paid for each of the three years ended December 31 follows: | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 | |
Total dividends/distributions paid per common share/unit | $1.08 | | | $1.08 | | | $1.08 | | |
Tax characteristics: | | | | | | |
Capital gain | 100 | % | | 100 | % | | 100 | % | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
23. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in AOCI by component for the years ended December 31, 2021 and 2020. All amounts are presented net of tax effect and exclude portions attributable to noncontrolling interest.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Foreign currency translation gains/(losses) | | Net investment hedges of New Zealand subsidiary | | Cash flow hedges | | Employee benefit plans | | Total Rayonier, L.P. | | Allocation of Operating Partnership | | Total Rayonier Inc. |
Balance as of December 31, 2019 | ($226) | | | $1,321 | | | ($8,910) | | | ($23,387) | | | ($31,202) | | | — | | | ($31,202) | |
Other comprehensive (loss) income before reclassifications | 22,928 | | | — | | | (71,644) | | | (1,794) | | | (50,510) | | | — | | | (50,510) | |
Amounts reclassified from accumulated other comprehensive (loss) income | — | | | — | | | 9,498 | | | 869 | | (b) | 10,367 | | | (2,540) | | | 7,827 | |
Net other comprehensive (loss) income | 22,928 | | | — | | | (62,146) | | | (925) | | | (40,143) | | | (2,540) | | | (42,683) | |
| | | | | | | | | | | | | |
Balance as of December 31, 2020 | $22,702 | | | $1,321 | | | ($71,056) | | | ($24,312) | | | ($71,345) | | | ($2,540) | | | ($73,885) | |
Other comprehensive (loss) income before reclassifications | (18,487) | | | — | | | 44,899 | | (a) | 11,302 | | | 37,714 | | | — | | | 37,714 | |
Amounts reclassified from accumulated other comprehensive (loss) income | — | | | — | | | 16,994 | | | 1,174 | | (b) | 18,168 | | | (1,601) | | | 16,567 | |
Net other comprehensive (loss) income | (18,487) | | | — | | | 61,893 | | | 12,476 | | | 55,882 | | | (1,601) | | | 54,281 | |
Balance as of December 31, 2021 | $4,215 | | | $1,321 | | | ($9,163) | | | ($11,836) | | | ($15,463) | | | ($4,141) | | | ($19,604) | |
(b)This component of other comprehensive (loss) income is included in the computation of net periodic pension cost. See Note 20 — Employee Benefit Plans for additional information. The following table presents details of the amounts reclassified in their entirety from AOCI for the years ended December 31, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
Details about accumulated other comprehensive loss components | | Amount reclassified from accumulated other comprehensive loss | | Affected line item in the income statement |
| 2021 | | 2020 | |
Realized loss (gain) on foreign currency exchange contracts | | $2,974 | | | ($2,324) | | | Other operating income (expense), net |
Realized loss on foreign currency option contracts | | 1,177 | | | 30 | | | Other operating income (expense), net |
Noncontrolling interest | | (955) | | | 528 | | | Comprehensive (income) loss attributable to noncontrolling interests |
Realized loss on interest rate contracts | | 14,694 | | | 10,769 | | | Interest expense |
Income tax (benefit) expense from foreign currency contracts | | (896) | | | 495 | | | |
Net loss on cash flow hedges reclassified from accumulated other comprehensive income | | $16,994 | | | $9,498 | | | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
24. RESTRICTED 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 balances held in escrow as collateral for certain contractual obligations related to our Richmond Hill development project as well as cash held in escrow for real estate sales.
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 years ended December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| | | |
| | | |
| | | |
Cash and cash equivalents | $362,173 | | | $84,507 | |
Restricted cash, Timber Funds | 6,341 | | | — | |
Restricted cash, excluding Timber Funds (Held in escrow) | 625 | | | 2,975 | |
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows | $369,139 | | | $87,482 | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
25. OTHER ASSETS
Included in Other Assets are derivatives, long-term prepaid roads, goodwill in the New Zealand subsidiary, patronage equity, capitalized software costs, carbon credits, long-term prepaid stumpage and other deferred expenses including deferred financing costs related to revolving debt.
As of December 31, 2021 and 2020, our long-term derivative contracts follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Long-term derivative contracts | $11,796 | | $1,563 |
| | | |
| | | |
| | | |
As of December 31, 2021 and 2020, our prepaid logging and secondary roads follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Long-term and prepaid and secondary roads | | | |
Pacific Northwest long-term prepaid roads | $4,131 | | | $4,087 | |
New Zealand long-term secondary roads | 6,730 | | | 5,767 | |
Total long-term prepaid and secondary roads | $10,861 | | | $9,854 | |
Changes in goodwill for the years ended December 31, 2021 and 2020 were:
| | | | | | | | | | | |
| 2021 | | 2020 |
Balance, January 1 (net of $0 of accumulated impairment) | $8,943 | | | $8,611 | |
Changes to carrying amount | | | |
Acquisitions | — | | | — | |
Impairment | — | | | — | |
Foreign currency adjustment | (486) | | | 332 | |
Balance, December 31 (net of $0 of accumulated impairment) | $8,457 | | | $8,943 | |
As of December 31, 2021 and 2020, Rayonier’s patronage equity follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Patronage Equity | $7,322 | | $6,685 |
| | | |
| | | |
| | | |
As of December 31, 2021 and 2020, our capitalized software costs follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Capitalized software costs | $3,117 | | $3,651 |
| | | |
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
Changes in the basis of carbon credits for the years ended December 31, 2021 and 2020 were:
| | | | | | | | | | | |
| 2021 | | 2020 |
Balance, January 1 | $1,346 | | | $1,544 | |
Changes to carrying amount | | | |
Acquisitions | 698 | | | — | |
Sales | — | | | (286) | |
Foreign currency adjustment | (88) | | | 88 | |
Balance, December 31 (net of $0 of accumulated impairment) | $1,956 | | | $1,346 | |
As of December 31, 2021 and 2020, our prepaid stumpage follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Long-term prepaid stumpage | $1,461 | | $3,137 |
| | | |
As of December 31, 2021 and 2020, our deferred financing costs related to revolving debt follows:
| | | | | | | | | | | |
| 2021 | | 2020 |
Deferred financing costs related to revolving debt | $1,104 | | $1,040 |
| | | |
26. ASSETS HELD FOR SALE
Assets held for sale is composed of properties not included in inventory which are under contract and expected to be sold within the next 12 months that also meet the other relevant held-for-sale criteria in accordance with ASC 360-10-45-9. As of December 31, 2021 and December 31, 2020, the basis in properties meeting this classification was $5.1 million and $3.4 million, respectively. Since the basis in these properties was less than the fair value, including costs to sell, no impairment was recognized.
27. CHARGES FOR INTEGRATION AND RESTRUCTURING
During 2020, we incurred and accrued for termination benefits (primarily severance) and accelerated share-based payment costs based upon actual and expected qualifying terminations of certain employees as a result of restructuring decisions made concurrent with and subsequent to the merger with Pope Resources. We also incurred non-recurring professional services costs for investment banking, legal, consulting, accounting and certain other fees directly attributable to the merger with Pope Resources.
A summary of the charges for integration and restructuring related to the merger with Pope Resources is presented below:
| | | | | | | | | | | |
| | | 2020 | | |
| | | | | |
Termination benefits | | | $625 | | | |
Acceleration of share-based compensation related to qualifying terminations (Note 21) | | | 324 | | | |
Professional services | | | 14,314 | | | |
Other integration and restructuring costs | | | 1,903 | | | |
Total integration and restructuring charges related to the merger with Pope Resources | | | $17,166 | | | |
| | | | | |
| | | | | |
During the year ended December 31, 2020, we incurred $0.6 million in severance benefits related to restructuring associated with the Pope Resources merger. As of December 31, 2020, there was $0.1 million of accrued severance recorded within “Accrued Payroll and Benefits” in our Consolidated Balance Sheets. As of December 31, 2021, all severance associated with the merger with Pope Resources has been paid.
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollar amounts in thousands unless otherwise stated)
28. RELATED 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 $4.45 million (subject to multiple takedowns over a 2 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, which sells additional lots to Mattamy for an aggregate base purchase price of $1.0 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.
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 three years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
Related Party Transaction | Location on Statement of Income and Comprehensive Income | | 2021 | | 2020 | | 2019 |
Mattamy Contract | Sales (a) | | $2,656 | | | $1,354 | | | — | |
(a)The years ended December 31, 2021 and December 31, 2020 exclude approximately $0.3 million and $0.1 million, respectively, of cash received from Mattamy Jacksonville LLC under this agreement for the reimbursement of local impact fees.