Companies: 10,793     total market cap: $134.568 T
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Rayonier
RYN
#2663
Rank
$6.34 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$20.86
Share price
1.16%
Change (1 day)
-24.67%
Change (1 year)
๐Ÿ  Real estate๐Ÿ’ฐ Investment ๐Ÿ˜๏ธ REITs
Categories
  1. Rayonier
  2. Quarterly Reports (10-Q)
  3. Submitted on 2020-08-10

Rayonier - 10-Q quarterly report FY


Text size:
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

    For the transition period from              to             
ryn-20200630_g1.jpg
RAYONIER INC.
(Exact name of registrant as specified in its charter)
North Carolina1-678013-2607329
(State or other Jurisdiction of incorporation or organization)(Commission File Number)(I.R.S. Employer Identification Number)
Rayonier, L.P.
(Exact name of registrant as specified in its charter)
Delaware333-23724691-1313292
(State or other Jurisdiction of incorporation or organization)(Commission File Number)(I.R.S. Employer Identification Number)
1 RAYONIER WAY
WILDLIGHT, FL 32097
(Principal Executive Office)
Telephone Number: (904) 357-9100
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading SymbolExchange
Common Shares, no par value, of Rayonier Inc.RYNNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Rayonier Inc. Yes ☒        No  ☐ Rayonier, L.P. Yes ☒        No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Rayonier Inc. Yes ☒       No  ☐ Rayonier, L.P. Yes ☒       No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Rayonier Inc.
Large Accelerated Filer
☒ 
Accelerated Filer☐Non-accelerated Filer☐Smaller Reporting Company☐Emerging Growth Company☐
Rayonier, L.P.
Large Accelerated Filer☐Accelerated Filer☐Non-accelerated Filer
☒ 
Smaller Reporting Company☐Emerging Growth Company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Rayonier Inc. o Rayonier, L.P. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Rayonier Inc. Yes ☐        No  ☒ Rayonier, L.P. Yes ☐        No  ☒ 
As of July 31, 2020, Rayonier Inc. had 136,512,112 Common Shares outstanding. As of July 31, 2020, Rayonier, L.P. had 4,446,153 Common Units outstanding.


EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarterly period ended June 30, 2020 of Rayonier Inc., a North Carolina corporation, and Rayonier, L.P., a Delaware limited partnership. Unless stated otherwise or the context otherwise requires, references to “Rayonier” or “the Company” mean Rayonier Inc. and references to the “Operating Partnership” mean Rayonier, L.P. References to “we,” “us,” and “our” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership.

Rayonier Inc. has elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 2004. The Company is structured as an umbrella partnership REIT (“UPREIT”) under which substantially all of its business is conducted through the Operating Partnership. Rayonier Inc. is the sole general partner of the Operating Partnership. On May 8, 2020, Rayonier, L.P. acquired Pope Resources, a Delaware Limited Partnership (“Pope Resources”) and issued approximately 4.45 million operating partnership units (“OP Units” or “Redeemable Common Units”) of Rayonier, L.P. as partial merger consideration. These OP Units are generally considered to be economic equivalents to Rayonier common shares and receive distributions equal to the dividends paid on Rayonier common shares. See Note 2 - Merger with Pope Resources for additional information pertaining to the merger.

As of June 30, 2020, the Company owned a 96.8% interest in the Operating Partnership, with the remaining 3.2% interest owned by limited partners of the Operating Partnership. As the sole general partner of the Operating Partnership, Rayonier Inc. has exclusive control of the day-to-day management of the Operating Partnership.

Rayonier Inc. and the Operating Partnership are operated as one business. The management of the Operating Partnership consists of the same members as the management of Rayonier Inc. As general partner with control of the Operating Partnership, Rayonier Inc. consolidates Rayonier, L.P. for financial reporting purposes, and has no material assets or liabilities other than its investment in the Operating Partnership.

We believe combining the quarterly reports of Rayonier Inc. and Rayonier, L.P. into this single report results in the following benefits:

•Strengthens investors’ understanding of Rayonier Inc. and the Operating Partnership by enabling them to view the business as a single operating unit in the same manner as management views and operates the business;
•Creates efficiencies for investors by reducing duplicative disclosures and providing a single comprehensive document;
•Generates time and cost savings associated with the preparation of the reports when compared to preparing separate reports for each entity.

There are a few important differences between Rayonier Inc. and the Operating Partnership in the context of how Rayonier Inc. operates as a consolidated company. The Company itself does not conduct business, other than through acting as the general partner of the Operating Partnership and issuing equity or equity-related instruments from time-to-time. The Operating Partnership holds, directly or indirectly, substantially all of the Company’s assets. Likewise, all debt is incurred by the Operating Partnership or entities/subsidiaries owned or controlled by the Operating Partnership. The Operating Partnership conducts substantially all of the Company’s business and is structured as a partnership with no publicly traded equity.

To help investors understand the significant differences between the Company and the Operating Partnership, this report includes:

•Separate Consolidated Financial Statements for Rayonier Inc. and Rayonier, L.P.;
•A combined set of Notes to the Consolidated Financial Statements with separate discussions of per share and per unit information, noncontrolling interests and shareholders’ equity and partners’ capital, as applicable;
•A combined Management’s Discussion and Analysis of Financial Condition and Results of Operations which includes specific information related to each reporting entity;

•A separate Part 1, Item 4. Controls and Procedures related to each reporting entity;
•A separate Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds section related to each reporting entity;
•Separate Exhibit 31 and 32 certifications for each reporting entity within Part II, Item 6.

TABLE OF CONTENTS
 
ItemPage
PART I - FINANCIAL INFORMATION
1.
1
Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019
1
Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019
2
Consolidated Statements of Changes in Shareholders’ Equity for the Quarters and Six Months ended June 30, 2020 and 2019
3
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
5
Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019
6
Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019
7
Consolidated Statements of Changes in Capital for the Quarters and Six Months ended June 30, 2020 and 2019
8
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019
10
11
2.
54
3.
81
4.
83
PART II - OTHER INFORMATION
1A.
84
1.
84
2.
85
6.
86
88
 
i
PART I.  FINANCIAL INFORMATION

Item 1.   Financial Statements

RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per share amounts)

Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
SALES (NOTE 3)
$195,630  $184,800  $454,760  $376,346  
Costs and Expenses
Cost of sales(154,891) (140,454) (364,390) (283,705) 
Selling and general expenses(12,570) (10,984) (22,538) (20,794) 
Other operating expense, net (Note 19)
(16,483) (1,969) (17,594) (1,934) 
(183,944) (153,407) (404,522) (306,433) 
OPERATING INCOME11,686  31,393  50,238  69,913  
Interest expense(9,820) (7,922) (18,036) (15,632) 
Interest and other miscellaneous income, net1,579  1,057  1,370  2,390  
INCOME BEFORE INCOME TAXES
3,445  24,528  33,572  56,671  
Income tax expense (Note 10)
(2,990) (3,608) (6,696) (7,958) 
NET INCOME455  20,920  26,876  48,713  
Less: Net income attributable to noncontrolling interest in the Operating Partnership(219) —  (219) —  
Less: Net loss (income) attributable to noncontrolling interests in consolidated affiliates1,499  (2,168) 931  (5,167) 
NET INCOME ATTRIBUTABLE TO RAYONIER INC.1,735  18,752  27,588  43,546  
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment, net of income tax effect of $0, $0, $0, and $0
23,258  (5,604) (20,765) 429  
Cash flow hedges, net of income tax effect of $1,741, $91, $116 and $244
(7,276) (19,519) (90,751) (30,205) 
Amortization of pension and postretirement plans, net of income tax expense of $0, $0, $0 and $0
217  112  434  224  
Total other comprehensive income (loss)16,199  (25,011) (111,082) (29,552) 
COMPREHENSIVE INCOME (LOSS)16,654  (4,091) (84,206) 19,161  
Less: Comprehensive income attributable to noncontrolling interests in the Operating Partnership(676) —  (676) —  
Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates(4,917) (815) 5,743  (5,366) 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC.
$11,061  ($4,906) ($79,139) $13,795  
EARNINGS PER COMMON SHARE (NOTE 14)
Basic earnings per share attributable to Rayonier Inc.
$0.01  $0.14  $0.21  $0.34  
Diluted earnings per share attributable to Rayonier Inc.
$0.01  $0.14  $0.21  $0.34  

See Notes to Consolidated Financial Statements.

1
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 June 30, 2020December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents, excluding Timber Funds$87,813  $68,735  
Cash and cash equivalents, Timber Funds6,973  —  
Total cash and cash equivalents94,786  68,735  
Accounts receivable, less allowance for doubtful accounts of $25 and $24
36,811  27,127  
Inventory (Note 21)
10,365  14,518  
Prepaid expenses18,133  14,728  
Other current assets1,135  867  
Total current assets161,230  125,975  
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION3,332,067  2,482,047  
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT
     INVESTMENTS (NOTE 8)
113,920  81,791  
PROPERTY, PLANT AND EQUIPMENT
Land5,566  4,131  
Buildings29,153  23,095  
Machinery and equipment4,753  4,339  
Construction in progress382  348  
Total property, plant and equipment, gross39,854  31,913  
Less — accumulated depreciation(10,444) (9,662) 
Total property, plant and equipment, net29,410  22,251  
RESTRICTED CASH (NOTE 22)
475  1,233  
RIGHT-OF-USE ASSETS (NOTE 4)
96,710  99,942  
OTHER ASSETS35,455  47,757  
TOTAL ASSETS$3,769,267  $2,860,996  
LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable$21,836  $18,160  
Current maturities of long-term debt, excluding Timber Funds (Note 7)
—  82,000  
Current maturities of long-term debt, Timber Funds (Note 7)
25,042  —  
Accrued taxes6,444  3,032  
Accrued payroll and benefits6,628  8,869  
Accrued interest6,500  5,205  
Deferred revenue18,434  11,440  
Other current liabilities24,405  22,480  
Total current liabilities109,289  151,186  
LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS, EXCLUDING TIMBER FUNDS (NOTE 7)
1,310,506  973,129  
LONG-TERM DEBT, TIMBER FUNDS (NOTE 7)
35,617  —  
PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 17)
23,767  25,311  
LONG-TERM LEASE LIABILITY (NOTE 4)
87,774  90,481  
OTHER NON-CURRENT LIABILITIES178,136  83,247  
COMMITMENTS AND CONTINGENCIES (NOTES 9 and 11)
NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP (NOTE 5)
110,220  —  
SHAREHOLDERS’ EQUITY
Common Shares, 480,000,000 shares authorized,136,512,112 and 129,331,069 shares issued and outstanding
1,063,489  888,177  
Retained earnings531,681  583,006  
Accumulated other comprehensive loss (Note 23)
(137,929) (31,202) 
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY1,457,241  1,439,981  
Noncontrolling interests in consolidated affiliates (Note 5)
456,717  97,661  
TOTAL SHAREHOLDERS’ EQUITY1,913,958  1,537,642  
TOTAL LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY$3,769,267  $2,860,996  

See Notes to Consolidated Financial Statements.
2
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(Unaudited)
(Dollars in thousands, except share data)

 Common SharesRetained
Earnings		Accumulated
Other
Comprehensive Loss		Noncontrolling Interests in Consolidated AffiliatesShareholders’
Equity
 SharesAmount
Balance, January 1, 2020129,331,069  $888,177  $583,006  ($31,202) $97,661  $1,537,642  
Net income—  —  25,854  —  567  26,421  
Dividends ($0.27 per share)
—  —  (34,813) —  —  (34,813) 
Issuance of shares under incentive stock plans
2,407  66  —  —  —  66  
Stock-based compensation—  1,510  —  —  —  1,510  
Repurchase of common shares made under repurchase program(152,237) —  (3,152) —  —  (3,152) 
Amortization of pension and postretirement plan liabilities
—  —  —  217  —  217  
Foreign currency translation adjustment—  —  —  (33,894) (10,129) (44,023) 
Cash flow hedges—  —  —  (82,376) (1,099) (83,475) 
Distributions to noncontrolling interests in consolidated affiliates—  —  —  —  (725) (725) 
Balance, March 31, 2020129,181,239  $889,753  $570,895  ($147,255) $86,275  $1,399,668  
Issuances of shares associated with the merger with Pope Resources7,181,071  172,418  —  —  —  172,418  
Net income (loss)—  —  1,954  —  (1,499) 455  
Net income attributable to noncontrolling interest in the Operating Partnership—  —  (219) —  —  (219) 
Dividends ($0.27 per share) (a)
—  —  (36,957) —  —  (36,957) 
Issuance of shares under incentive stock plans
215,970  222  —  —  —  222  
Stock-based compensation—  2,668  —  —  —  2,668  
Repurchase of common shares(66,168) (1,572) —  —  —  (1,572) 
Acquisition of noncontrolling interests in consolidated affiliates—  —  —  —  372,381  372,381  
Adjustment of noncontrolling interest in the Operating Partnership—  —  (3,992) —  —  (3,992) 
Amortization of pension and postretirement plan liabilities
—  —  —  217  —  217  
Foreign currency translation adjustment—  —  —  17,872  5,386  23,258  
Cash flow hedges—  —  —  (8,306) 1,030  (7,276) 
Allocation of other comprehensive income to noncontrolling interests in the Operating Partnership—  —  —  (457) —  (457) 
Distributions to noncontrolling interests in consolidated affiliates—  —  —  —  (6,856) (6,856) 
Balance, June 30, 2020136,512,112  $1,063,489  $531,681  ($137,929) $456,717  $1,913,958  

(a)For information regarding distributions to noncontrolling interests in the Operating Partnership, see the Rayonier Inc. Consolidated Statements of Cash Flows and Note 5 — Noncontrolling Interests.
3
 Common SharesRetained
Earnings		Accumulated
Other
Comprehensive
Income (Loss)		Noncontrolling Interests in Consolidated AffiliatesShareholders’
Equity
 SharesAmount
Balance, January 1, 2019129,488,675  $884,263  $672,371  $239  $97,677  $1,654,550  
Net income—  —  24,794  —  2,999  27,793  
Dividends ($0.27 per share)
—  —  (35,049) —  —  (35,049) 
Issuance of shares under incentive stock plans
26,031  597  —  —  —  597  
Stock-based compensation—  1,477  —  —  —  1,477  
Repurchase of common shares(1,140) (33) —  —  —  (33) 
Amortization of pension and postretirement plan liabilities
—  —  —  112  —  112  
Foreign currency translation adjustment—  —  —  4,680  1,353  6,033  
Cash flow hedges—  —  —  (10,884) 198  (10,686) 
Distributions to noncontrolling interests in consolidated affiliates—  —  —  —  (3,594) (3,594) 
Balance, March 31, 2019129,513,566  $886,304  $662,116  ($5,853) $98,633  $1,641,200  
Net income—  —  18,752  —  2,168  20,920  
Dividends ($0.27 per share)
—  —  (35,125) —  —  (35,125) 
Issuance of shares under incentive stock plans
250,344  177  —  —  —  177  
Stock-based compensation—  2,344  —  —  —  2,344  
Repurchase of common shares(134,194) (4,207) —  —  —  (4,207) 
Amortization of pension and postretirement plan liabilities
—  —  —  112  —  112  
Foreign currency translation adjustment—  —  —  (4,305) (1,299) (5,604) 
Cash flow hedges—  —  —  (19,465) (54) (19,519) 
Balance, June 30, 2019129,629,716  $884,618  $645,743  ($29,511) $99,448  $1,600,298  

See Notes to Consolidated Financial Statements.

4
RAYONIER INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
 20202019
OPERATING ACTIVITIES
Net income$26,876  $48,713  
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization76,195  64,093  
Non-cash cost of land and improved development13,441  5,647  
Stock-based incentive compensation expense4,178  3,821  
Deferred income taxes9,225  7,257  
Amortization of losses from pension and postretirement plans435  224  
Gain on sale of large disposition of timberlands(28,655) —  
Other(10,632) 987  
Changes in operating assets and liabilities, net of effects of merger with Pope Resources:
Receivables(7,604) (21,031) 
Inventories(3,714) (994) 
Accounts payable4,895  5,558  
All other operating activities(2,040) 2,679  
CASH PROVIDED BY OPERATING ACTIVITIES82,600  116,954  
INVESTING ACTIVITIES
Capital expenditures(29,440) (29,505) 
Real estate development investments(3,587) (999) 
Purchase of timberlands(24,238) (26,396) 
Net proceeds from large disposition of timberlands115,666  —  
Net cash consideration for merger with Pope Resources(231,068) —  
Other1,880  (3,888) 
CASH USED FOR INVESTING ACTIVITIES(170,787) (60,788) 
FINANCING ACTIVITIES
Issuance of debt320,000  —  
Repayment of debt(117,000) —  
Dividends paid on common stock(72,204) (71,107) 
Distributions to noncontrolling interests in the Operating Partnership(1,200) —  
Proceeds from the issuance of common shares under incentive stock plan66  774  
Repurchase of common shares(1,572) (4,241) 
Debt issuance costs(2,427) —  
Repurchase of common shares made under repurchase program(3,152) —  
Distributions to noncontrolling interest in consolidated affiliates(7,581) (3,594) 
Other—  133  
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES114,930  (78,035) 
EFFECT OF EXCHANGE RATE CHANGES ON CASH(1,450) 125  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash25,293  (21,744) 
Balance, beginning of year69,968  156,454  
Balance, end of period$95,261  $134,710  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest (a)$16,134  $14,377  
Income taxes1,083  705  
Non-cash investing activity:
Capital assets purchased on account2,217  3,407  
Non-cash financing activity:
Equity consideration for merger with Pope Resources$172,640  —  
Redeemable Common Unit consideration for merger with Pope Resources106,752  —  

(a)Interest paid is presented net of patronage payments received of $4.3 million and $4.0 million for the six months ended June 30, 2020 and June 30, 2019, respectively. For additional information on patronage payments, see Note 6 — Debt in the 2019 Form 10-K.

See Notes to Consolidated Financial Statements.
5
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(Unaudited)
(Dollars in thousands, except per unit amounts)

Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
SALES (NOTE 3)
$195,630  $184,800  $454,760  $376,346  
Costs and Expenses
Cost of sales(154,891) (140,454) (364,390) (283,705) 
Selling and general expenses(12,570) (10,984) (22,538) (20,794) 
Other operating expense, net (Note 19)
(16,483) (1,969) (17,594) (1,934) 
(183,944) (153,407) (404,522) (306,433) 
OPERATING INCOME11,686  31,393  50,238  69,913  
Interest expense(9,820) (7,922) (18,036) (15,632) 
Interest and other miscellaneous income, net1,579  1,057  1,370  2,390  
INCOME BEFORE INCOME TAXES
3,445  24,528  33,572  56,671  
Income tax expense (Note 10)
(2,990) (3,608) (6,696) (7,958) 
NET INCOME455  20,920  26,876  48,713  
Less: Net loss (income) attributable to noncontrolling interests in consolidated affiliates1,499  (2,168) 931  (5,167) 
NET INCOME ATTRIBUTABLE TO RAYONIER, L.P. COMMON UNITHOLDERS1,954  18,752  27,807  43,546  
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment, net of income tax effect of $0, $0, $0, and $0
23,258  (5,604) (20,765) 429  
Cash flow hedges, net of income tax effect of $1,741, $91, $116 and $244
(7,276) (19,519) (90,751) (30,205) 
Amortization of pension and postretirement plans, net of income tax expense of $0, $0, $0 and $0
217  112  434  224  
Total other comprehensive income (loss)16,199  (25,011) (111,082) (29,552) 
COMPREHENSIVE INCOME (LOSS)16,654  (4,091) (84,206) 19,161  
Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates(4,917) (815) 5,743  (5,366) 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER, L.P. COMMON UNITHOLDERS
$11,737  ($4,906) ($78,463) $13,795  
EARNINGS PER COMMON UNIT (NOTE 14)
Basic earnings per unit attributable to Rayonier, L.P.
$0.01  $0.14  $0.21  $0.34  
Diluted earnings per unit attributable to Rayonier, L.P.
$0.01  $0.14  $0.21  $0.34  

See Notes to Consolidated Financial Statements.

6
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
 June 30, 2020December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents, excluding Timber Funds$87,813  $68,735  
Cash and cash equivalents, Timber Funds6,973  —  
Total cash and cash equivalents94,786  68,735  
Accounts receivable, less allowance for doubtful accounts of $25 and $24
36,811  27,127  
Inventory (Note 21)
10,365  14,518  
Prepaid expenses18,133  14,728  
Other current assets1,135  867  
Total current assets161,230  125,975  
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION3,332,067  2,482,047  
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT
     INVESTMENTS (NOTE 8)
113,920  81,791  
PROPERTY, PLANT AND EQUIPMENT
Land5,566  4,131  
Buildings29,153  23,095  
Machinery and equipment4,753  4,339  
Construction in progress382  348  
Total property, plant and equipment, gross39,854  31,913  
Less — accumulated depreciation(10,444) (9,662) 
Total property, plant and equipment, net29,410  22,251  
RESTRICTED CASH (NOTE 22)
475  1,233  
RIGHT-OF-USE ASSETS (NOTE 4)
96,710  99,942  
OTHER ASSETS35,455  47,757  
TOTAL ASSETS$3,769,267  $2,860,996  
       LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL
CURRENT LIABILITIES
Accounts payable$21,836  $18,160  
Current maturities of long-term debt, excluding Timber Funds (Note 7)
—  82,000  
Current maturities of long-term debt, Timber Funds (Note 7)
25,042  —  
Accrued taxes6,444  3,032  
Accrued payroll and benefits6,628  8,869  
Accrued interest6,500  5,205  
Deferred revenue18,434  11,440  
Other current liabilities24,405  22,480  
Total current liabilities109,289  151,186  
LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS, EXCLUDING TIMBER FUNDS (NOTE 7)
1,310,506  973,129  
LONG-TERM DEBT, TIMBER FUNDS (NOTE 7)
35,617  —  
PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 17)
23,767  25,311  
LONG-TERM LEASE LIABILITY (NOTE 4)
87,774  90,481  
OTHER NON-CURRENT LIABILITIES178,136  83,247  
COMMITMENTS AND CONTINGENCIES (NOTES 9 and 11)
REDEEMABLE OPERATING PARTNERSHIP UNITS (NOTE 5) 4,446,153 and 0 Common Units outstanding, respectively
110,220  —  
CAPITAL
General partners’ capital15,947  14,712  
Limited partners’ capital1,578,766  1,456,471  
Accumulated other comprehensive loss (Note 23)
(137,472) (31,202) 
TOTAL CONTROLLING INTEREST CAPITAL1,457,241  1,439,981  
Noncontrolling interests in consolidated affiliates (Note 5)
456,717  97,661  
TOTAL CAPITAL1,913,958  1,537,642  
TOTAL LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL$3,769,267  $2,860,996  

See Notes to Consolidated Financial Statements.
7
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL
(Unaudited)
(Dollars in thousands, except share data)

 Accumulated
Other
Comprehensive Loss		Noncontrolling Interests in Consolidated AffiliatesTotal Capital
Common Units
 General Partners’ CapitalLimited Partners’ Capital
Balance, January 1, 2020$14,712  $1,456,471  ($31,202) $97,661  $1,537,642  
Distributions on common units ($0.27 per common unit)
(349) (34,464) —  —  (34,813) 
Issuance of common units under incentive stock plans1  65  —  —  66  
Stock-based compensation15  1,495  —  —  1,510  
Repurchase of common units made under repurchase program(32) (3,120) —  —  (3,152) 
Net income259  25,595  —  567  26,421  
Amortization of pension and postretirement plan liabilities—  —  217  —  217  
Foreign currency translation adjustment—  —  (33,894) (10,129) (44,023) 
Cash flow hedges—  —  (82,376) (1,099) (83,475) 
Distributions to noncontrolling interests in consolidated affiliates—  —  —  (725) (725) 
Balance, March 31, 2020$14,606  $1,446,042  ($147,255) $86,275  $1,399,668  
Issuance of common units associated with the merger with Pope Resources1,724  170,694  —  —  172,418  
Distributions on common units ($0.27 per common unit)
(382) (37,775) —  —  (38,157) 
Issuance of common units under incentive stock plans2  220  —  —  222  
Stock-based compensation27  2,641  —  —  2,668  
Repurchase of common units(15) (1,557) —  —  (1,572) 
Adjustment of Redeemable Common Units(35) (3,433) —  —  (3,468) 
Net income20  1,934  —  (1,499) 455  
Acquisition of noncontrolling interests in consolidated affiliates—  —  —  372,381  372,381  
Amortization of pension and postretirement plan liabilities—  —  217  —  217  
Foreign currency translation adjustment—  —  17,872  5,386  23,258  
Cash flow hedges—  —  (8,306) 1,030  (7,276) 
Distributions to noncontrolling interests in consolidated affiliates—  —  —  (6,856) (6,856) 
Balance, June 30, 2020$15,947  $1,578,766  ($137,472) $456,717  $1,913,958  

8
 Common UnitsAccumulated
Other
Comprehensive
Income (Loss)		Noncontrolling Interests in Consolidated AffiliatesTotal Capital
 General Partners’ CapitalLimited Partners’ Capital
Balance, January 1, 2019$15,566  $1,541,068  $239  $97,677  $1,654,550  
Distributions on common units ($0.27 per common unit)
(351) (34,698) —  —  (35,049) 
Issuance of common units under incentive stock plans6  591  —  —  597  
Stock-based compensation15  1,462  —  —  1,477  
Repurchase of common units—  (33) —  —  (33) 
Net income248  24,546  —  2,999  27,793  
Amortization of pension and postretirement plan liabilities—  —  112  —  112  
Foreign currency translation adjustment—  —  4,680  1,353  6,033  
Cash flow hedges—  —  (10,884) 198  (10,686) 
Distributions to noncontrolling interests in consolidated affiliates—  —  —  (3,594) (3,594) 
Balance, March 31, 2019$15,484  $1,532,936  ($5,853) $98,633  $1,641,200  
Distributions on common units ($0.27 per common unit)
(351) (34,774) —  —  (35,125) 
Issuance of common units under incentive stock plans2  175  —  —  177  
Stock-based compensation23  2,321  —  —  2,344  
Repurchase of common units(42) (4,165) —  —  (4,207) 
Net income188  18,564  —  2,168  20,920  
Amortization of pension and postretirement plan liabilities—  —  112  —  112  
Foreign currency translation adjustment—  —  (4,305) (1,299) (5,604) 
Cash flow hedges—  —  (19,465) (54) (19,519) 
Balance, June 30, 2019$15,304  $1,515,057  ($29,511) $99,448  $1,600,298  

See Notes to Consolidated Financial Statements.

9
RAYONIER, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Six Months Ended June 30,
 20202019
OPERATING ACTIVITIES
Net income$26,876  $48,713  
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization76,195  64,093  
Non-cash cost of land and improved development13,441  5,647  
Stock-based incentive compensation expense4,178  3,821  
Deferred income taxes9,225  7,257  
Amortization of losses from pension and postretirement plans435  224  
Gain on sale of large disposition of timberlands(28,655) —  
Other(10,632) 987  
Changes in operating assets and liabilities, net of effects of merger with Pope Resources:
Receivables(7,604) (21,031) 
Inventories(3,714) (994) 
Accounts payable4,895  5,558  
All other operating activities(2,040) 2,679  
CASH PROVIDED BY OPERATING ACTIVITIES82,600  116,954  
INVESTING ACTIVITIES
Capital expenditures(29,440) (29,505) 
Real estate development investments(3,587) (999) 
Purchase of timberlands(24,238) (26,396) 
Net proceeds from large disposition of timberlands115,666  —  
Cash consideration for merger with Pope Resources, net of cash acquired(231,068) —  
Other1,880  (3,888) 
CASH USED FOR INVESTING ACTIVITIES(170,787) (60,788) 
FINANCING ACTIVITIES
Issuance of debt320,000  —  
Repayment of debt(117,000) —  
Distribution on common units(73,404) (71,107) 
Proceeds from the issuance of common units under incentive stock plan66  774  
Repurchase of common units(1,572) (4,241) 
Debt issuance costs(2,427) —  
Repurchase of common units made under repurchase program(3,152) —  
Distributions to noncontrolling interest in consolidated affiliates(7,581) (3,594) 
Other—  133  
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES114,930  (78,035) 
EFFECT OF EXCHANGE RATE CHANGES ON CASH(1,450) 125  
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash25,293  (21,744) 
Balance, beginning of year69,968  156,454  
Balance, end of period$95,261  $134,710  
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest (a)$16,134  $14,377  
Income taxes1,083  705  
Non-cash investing activity:
Capital assets purchased on account2,217  3,407  
Non-cash financing activity:
Common unit consideration for merger with Pope Resources$172,640  —  
Redeemable Common Unit consideration for merger with Pope Resources106,752  —  

(a)Interest paid is presented net of patronage payments received of $4.3 million and $4.0 million for the six months ended June 30, 2020 and June 30, 2019, respectively. For additional information on patronage payments, see Note 6 — Debt in the 2019 Form 10-K.

See Notes to Consolidated Financial Statements.
10
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)






1.BASIS OF PRESENTATION
The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries and Rayonier, L.P. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The Rayonier Inc. year-end balance sheet information was derived from audited financial statements not included herein. In the opinion of management, these financial statements and notes reflect any adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC (the “2019 Form 10-K”).
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, which constituted the transfer of all or substantially all of Rayonier’s assets under the terms of the Indenture, dated March 5, 2012 (as supplemented and amended from time to time, the “Indenture”), between Rayonier, as issuer, the subsidiary guarantors party thereto and The Bank of New York Mellon Trust Company, N.A., as trustee, Rayonier, L.P. expressly assumed all the obligations of Rayonier under the Indenture, including obligations with respect to the outstanding $325 million in aggregate principal amount of 3.750% Senior Notes due 2022 (the “2022 Notes”) issued thereunder.
On May 7, 2020, Rayonier, Rayonier, L.P., the subsidiary guarantors party thereto and the Trustee entered into the Third Supplemental Indenture, pursuant to which (1) Rayonier, L.P. succeeded to and became substituted for the Company under the Indenture and 2022 Notes and expressly assumed all the obligations of the Company under the Indenture, including obligations with respect to the 2022 Notes, and (2) Rayonier agreed to irrevocably, fully and unconditionally guarantee, jointly and severally, the obligations of Rayonier, L.P. under Indenture, including the 2022 Notes.
On May 8, 2020, Rayonier, L.P. acquired Pope Resources and became the general partner of Pope Resources. The acquisition occurred pursuant to a series of mergers (the “Mergers”) provided for in Agreement and Plan of Merger, dated as of January 14, 2020, as amended by Amendment No. 1, dated as of April 1, 2020 (as amended, the “Merger Agreement”), by and among Rayonier Inc., Rayonier, L.P., Rayonier Operating Company LLC, Rayonier Operating Company Holdings, LLC, Pacific GP Merger Sub I, LLC, Pacific GP Merger Sub II, LLC, Pacific LP Merger Sub III, LLC, Pope Resources, Pope EGP, Inc. and Pope MGP, Inc. As of June 30, 2020, the Company owned a 96.8% interest in the Operating Partnership, with the remaining 3.2% 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.
The Rayonier, L.P. year-end balance sheet information was derived from the separate historical unaudited financial statements of Rayonier Operating Company LLC not included herein. In the opinion of management, these financial statements and notes reflect any adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 included in Exhibit 99.4 of the Operating Partnership’s Amendment No. 1 to the Current Report on Form 8-K filed with the SEC on July 17, 2020.
The Contribution was accounted for as a change in reporting entity between entities under common control in accordance with ASC 250-10-45-21. A change in reporting entity requires retrospective application for all periods as if the Contribution had been in effect since inception of common control. As a result, the unaudited consolidated financial statements and notes thereto for Rayonier, L.P. in this combined report have been prepared as if the change in reporting entity occurred on January 1, 2019.

11
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The effect of the change in reporting entity on Rayonier L.P.’s operating income, net income attributable to Rayonier, L.P. and per unit amounts for the three and six months ended June 30, 2020 and 2019, are presented below (in thousands, except per unit amounts):

 Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Operating income—  —  —  —  
Net income attributable to Rayonier, L.P. (a)($3,596) ($3,596) ($7,192) ($7,192) 
Basic earnings per unit attributable to Rayonier, L.P.($0.03) ($0.03) ($0.05) ($0.06) 
Diluted earnings per unit attributable to Rayonier, L.P.($0.03) ($0.03) ($0.05) ($0.06) 

(a) The effect of the change in net income attributable to Rayonier, L.P. is due to the interest expense and guarantee fees associated with the 2022 Notes.

SUMMARY OF UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
REDEEMABLE COMMON UNITS
Limited partners holding common units other than the Company (“Redeemable Common Units”) have the right to put any and all of the common 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 Common Units are classified outside of permanent partners’ capital in the Operating Partnership's accompanying balance sheets. The recorded value of the Redeemable Common 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 Inc. Common Stock on the balance sheet date multiplied by the total number of Redeemable Common Units outstanding.
For a full description of our other significant accounting policies, see Note 1 — Summary of Significant Accounting Policies in the Company’s 2019 Form 10-K and Note 1 — Summary of Significant Accounting Policies in the audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017 included in Exhibit 99.4 of the Operating Partnership’s Amendment No. 1 to the Current Report on Form 8-K filed with the SEC on July 17, 2020.
MERGER WITH POPE RESOURCES
On May 8, 2020, we completed the previously announced acquisition of Pope Resources. Therefore, Pope Resources’ balance sheet and results of operations are included in our consolidated financial statements from and after the date of acquisition. See Note 2 - Merger with Pope Resources, Note 7 - Debt, and Note 20 - Charges for Integration and Restructuring for further information pertaining to the merger.
As a result of the merger with Pope Resources, we have revised our reportable business segments, adding one additional segment, Timber Funds. Please see Note 6 - Segment and Geographical information for more information about our revised business segments.
RECENTLY ADOPTED STANDARDS
We adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326) on January 1, 2020, with no material impact on the consolidated financial statements.
NEW ACCOUNTING STANDARDS
In March 2020, the 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. The guidance in this update provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to
12
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into on or before December 31, 2022. We are currently evaluating our contracts and the optional expedients provided by the new standard.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes. The guidance issued in this update simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU No. 2019-12 also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard will be effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those fiscal years. We do not expect a material impact on our Consolidated Financial Statements.
On March 2, 2020, the SEC adopted amendments to the financial disclosure requirements for guarantors and issuers of guaranteed securities, as well for affiliates whose securities collateralize a registrant’s securities. The amendments revise Rules 3-10 and 3-16 of Regulation S-X, and relocate part of Rule 3-10 and all of Rule 3-16 to the new Article 13 in Regulation S-X, which is comprised of new Rules 13-01 and 13-02. We early adopted the requirements of the amendments on April 1, 2020, which included replacing guarantor condensed consolidating financial information with summarized financial information for the consolidated obligor group (Parent, Issuer, and Guarantor Subsidiaries) as well as no longer requiring guarantor cash flow information, financial information for non-guarantor subsidiaries, and a reconciliation to the consolidated results.
SUBSEQUENT EVENTS
We have evaluated events occurring from June 30, 2020 to the date of issuance of these Consolidated Financial Statements for potential recognition or disclosure in the consolidated financial statements. No events were identified that warranted recognition or disclosure.

2. MERGER WITH POPE RESOURCES

On May 8, 2020, Rayonier Inc. and Rayonier, L.P. merged with 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 merger added approximately 124,000 acres of high-quality, predominantly Douglas-fir timberlands to our Pacific Northwest timberland portfolio as well as a private equity timber fund business with three funds comprising approximately 141,000 acres. Additionally, the merger augmented our higher-and-better-use real estate pipeline with rural and conservation land sale opportunities and high-potential improved development projects in the West Puget Sound area.

Under the merger agreement, each outstanding unit representing limited partnership interests of Pope Resources was, at the option of its holder, exchanged for either:
 • 3.929 shares of Rayonier Inc. common stock
 • 3.929 units representing limited partnership interests of Rayonier, L.P.
 • $125.00 in cash
Holders of Pope Resources units who did not make a valid election received shares of Rayonier Inc. common stock. The elections were subject to proration to ensure that the aggregate amount of Rayonier shares and Rayonier, L.P. units, on the one hand, and cash, on the other hand, issued in the merger equaled the amounts issued as if every Pope Resources unit converted into merger consideration received 2.751 shares of Rayonier Inc. common stock or Rayonier, L.P. units and $37.50 in cash.
13
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





Upon consummation of the merger, all outstanding Pope Resources restricted units were converted into equivalent equity awards with respect to Rayonier Inc. common shares. Pope Resources directors and some executive employees of Pope Resources held restricted Pope Resources units that were subject to accelerated vesting in connection with the merger. Since a portion of these Pope Resources units relate to services rendered to Pope Resources prior to the merger, a portion of the replacement Rayonier Inc. restricted stock awards’ fair value is included in the consideration transferred. See additional details about the replacement restricted stock awards in Note 18 — Incentive Stock Plans.

The following table summarizes the total consideration transferred by Rayonier in the merger (dollars in thousands, except per share and per unit data):

Cash consideration:
Pope Resources units outstanding as of May 8, 20204,366,636  
Less: Pope Resources units held by us(114,400) 
Units outstanding, net4,252,236  
Cash consideration (per Pope Resources unit)$37.50  
Cash consideration for elections$159,463  
General partner interest10,000  
Repayment of Pope Resources debt 65,943  
Prepayment penalty and accrued interest on Pope Resources’ debt 2,275  
Closing costs paid on behalf of Pope Resources9,637  
Cash consideration transferred$247,318  
Equity consideration:
Rayonier common shares issued7,181,071  
Rayonier share price (a)$24.01  
Equity consideration for elections$172,418  
Pope Resources replacement awards (b)(c)222  
Equity consideration transferred$172,640  
Redeemable Common Unit consideration:
Redeemable Common Units issued4,446,153  
Rayonier share price (a)$24.01  
Redeemable Common Unit consideration transferred$106,752  
Fair Value of Pope Resources units held by us (d)$11,211  
Total consideration$537,921  

(a)The closing price of Rayonier common stock on the NYSE on May 7, 2020.
(b)See Note 18 — Incentive Stock Plans for additional details.
(c)Represents the fair value of Rayonier replacement restricted stock awards for restricted Pope Resources units held by employees that relate to pre-merger services rendered to Pope Resources.
(d)Based on the closing price of Pope Resources units on the NASDAQ on May 7, 2020.




14
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following table contains the amounts of cash transferred in the merger and net cash consideration shown in the Consolidated Statements of Cash Flows for the six months ended June 30, 2020:

June 30, 2020
Cash consideration transferred$247,318  
Less: Cash assumed in merger(16,250) 
Net cash consideration shown in the Consolidated Statements of Cash Flows$231,068  
We recognized approximately $2.5 million and $13.5 million of merger-related costs that were expensed during the first and second quarters of 2020, respectively. See Note 20 — Charges for Integration and Restructuring for descriptions of the components of merger-related costs.

The acquisition of Pope Resources has been accounted for as a business combination under ASC 805, Business Combinations, (“ASC 805”). Under ASC 805, assets acquired and liabilities assumed in a business combination must be recorded at their fair value as of the acquisition date. Recorded fair valuation of assets acquired and liabilities assumed related to the acquisition of Pope Resources is preliminary and will be completed as soon as practicable, but no later than one year after the consummation of the transaction. Pursuant to ASC 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, we will recognize any provisional amount adjustments during the reporting period in which the adjustments are determined. We will also be required to 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 provisional amounts, calculated as if the accounting had been completed at the acquisition date. Our consolidated financial statements as of and for the six months ended June 30, 2020, include results of operations for Pope Resources from May 8, 2020 through June 30, 2020.

The preliminary estimate of fair value required the use of significant assumptions and estimates. Critical estimates included, but were not limited to, future expected cash flows, including projected revenues and expenses, and the applicable discount rates. These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. The assessment of fair value is preliminary and is based on information that was available to management at the time the consolidated financial statements were prepared. Those estimates and assumptions 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). The most significant open items necessary to complete are related to timberlands, property, plant and equipment, higher and better use timberlands and real estate development investments, long-term debt instruments, environmental liabilities, intangible assets and tax related matters.

The preliminary fair value estimates 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 16 — Fair Value Measurements for further information on the fair value hierarchy.

The following summarizes the fair value methodology utilized in our preliminary fair value estimates for significant assets and liabilities:
Income Approach — Estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flows are discounted at rates of return that reflect the relative risk of achieving the cash flows and the time value of money. This approach was primarily used to value acquired timberlands in both our Pacific Northwest and Timber Funds segment.
Cost Approach — Estimates value by determining the current cost of replacing an asset with another of equivalent economic utility. This approach was primarily used for property and equipment.
Market Approach — Estimates fair value for an asset based on values of recent comparable transactions. This approach was primarily used to value higher and better use timberlands and real estate developments investments, certain land and building assets and long-term debt instruments.
15
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The preliminary allocation of purchase price to the identifiable assets acquired and liabilities assumed was based on preliminary estimates of fair value as of May 8, 2020, and is as follows (in thousands):

Core TimberlandsTimber FundsTotal
Timberland and Real Estate Business
Cash$7,380  $8,870  $16,250  
Accounts receivable2,280  1,794  4,074  
Other current assets651  499  1,150  
Timber and Timberlands515,519  471,900  987,419  
Higher and Better Use Timberlands and Real Estate Development Investments27,722  —  27,722  
Property, plant and equipment8,307  —  8,307  
Other assets4,297  —  4,297  
Total identifiable assets acquired$566,156  $483,063  $1,049,219  
—  
Accounts payable274  292  566  
Current maturities of long-term debt—  25,084  25,084  
Accrued interest244  275  519  
Other current liabilities7,233  1,117  8,350  
Long-term debt53,502  35,759  89,261  
Long-term environmental liabilities11,000  —  11,000  
Other non-current liabilities (a)4,137  —  4,137  
Total liabilities assumed$76,390  $62,527  $138,917  
Net identifiable assets$489,766  $420,536  $910,302  
Less: noncontrolling interest(3,307) (369,074) (372,381) 
Total net assets acquired$486,459  $51,462  $537,921  

(a)Other non-current liabilities includes a $4.0 million deferred income tax liability resulting from the preliminary fair value adjustment to Pope Resources’ assets and liabilities.
These estimated fair values are preliminary in nature and subject to adjustments, which could be material. We have not identified any material unrecorded pre-merger contingencies where the related asset, liability or impairment is probable and the amount can be reasonably estimated. Our valuations will be finalized when certain information arranged to be obtained has been received and our review of that information has been completed. Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that such events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation.

The amount of revenue of Pope Resources included in our Consolidated Statements of Income and Comprehensive Income from the date of the merger to June 30, 2020 is approximately $11.1 million. The net income effect resulting from the merger with Pope Resources for the three and six months ended June 30, 2020 is impracticable to determine, as we immediately integrated Pope Resources into our ongoing operations.


16
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





Pursuant to ASC 805, unaudited supplemental pro forma results of operations for the three and six months ended June 30, 2020 and 2019, assuming the acquisition had occurred as of January 1, 2019, are presented below (in thousands, except per share and unit amounts):

 Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Sales$215,500  $212,800  $499,100  $429,300  
Net income attributable to Rayonier Inc.$7,644  $13,016  $28,069  $32,959  
Basic earnings per share attributable to Rayonier Inc.$0.06  $0.10  $0.20  $0.24  
Diluted earnings per share attributable to Rayonier Inc.$0.06  $0.09  $0.20  $0.24  
Net income attributable to Rayonier, L.P.$7,823  $13,414  $28,819  $34,028  
Basic earnings per unit attributable to Rayonier, L.P.$0.06  $0.10  $0.20  $0.24  
Diluted earnings per unit attributable to Rayonier, L.P.$0.06  $0.09  $0.20  $0.24  
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 the three and six months ended June 30, 2020 of $23.3 million and $31.2 million, respectively, 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.
17
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





3. REVENUE
RECLASSIFICATIONS

Effective April 1, 2020, we changed the composition of our Rural and Timberland & Non-Strategic Real Estate sales categories to better align with the way management internally evaluates real estate sales. The Rural category now includes all real estate sales (excluding development sales) representing a demonstrable premium above timberland value. The Timberland & Non-Strategic category now includes all real estate sales representing little to no premium to timberland value. This category consists primarily of sales of property that management views as non-strategic to our long-term portfolio as well as sales of property for capital allocation purposes that do not fit the definition of a Large Disposition. All prior period amounts have been reclassified to reflect the new composition of these two sales categories. The Improved Development, Unimproved Development and Large Disposition categories remain unchanged, and this reclassification had no impact on overall segment results.
PERFORMANCE OBLIGATIONS
We recognize revenue when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected in exchange for those goods or services (“transaction price”). We generally satisfy performance obligations within a year of entering into a contract and therefore have applied the disclosure exemption found under ASC 606-10-50-14. Unsatisfied performance obligations as of June 30, 2020 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. 
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 three and six months ended June 30, 2020 and 2019 that was included in the contract liability balance at the beginning of each year:
 Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Revenue recognized from contract liability balance at the beginning of the year (a)$3,661  $3,440  $10,086  $8,796  

(a) Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales.
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RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following tables present our revenue from contracts with customers disaggregated by product type for the three and six months ended June 30, 2020 and 2019:
Three Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingElim.Total
June 30, 2020
Pulpwood$24,685  $3,163  $5,766  $328  —  $2,463  —  $36,405  
Sawtimber
16,359  22,296  34,959  6,305  —  21,805  —  101,724  
Hardwood
512  —  —  —  —  —  —  512  
Total Timber Sales41,556  25,459  40,725  6,633  —  24,268  —  138,641  
License Revenue, Primarily from Hunting
4,337  95  83  10  —  —  —  4,525  
Other Non-Timber/Carbon Revenue
874  617  961  4  —  —  —  2,456  
Agency Fee Income
—  —  —  —  —  (1) —  (1) 
Total Non-Timber Sales5,211  712  1,044  14  —  (1) —  6,980  
Improved Development—  —  —  —  6,427  —  —  6,427  
Unimproved Development—  —  —  —  8,426  —  —  8,426  
Rural—  —  —  —  27,234  —  —  27,234  
Timberlands & Non-Strategic—  —  —  —  9,606  —  —  9,606  
Deferred Revenue/Other (b)—  —  —  —  (1,756) —  —  (1,756) 
Total Real Estate Sales—  —  —  —  49,937  —  —  49,937  
Revenue from Contracts with Customers46,767  26,171  41,769  6,647  49,937  24,267  —  195,558  
Lease Revenue—  —  —  —  72  —  —  72  
Intersegment—  —  —  877  —  53  (930) —  
Total Revenue$46,767  $26,171  $41,769  $7,524  $50,009  $24,320  ($930) $195,630  
Three Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingElim.Total
June 30, 2019
Pulpwood$19,310  $2,267  $8,581  —  —  $3,826  —  $33,984  
Sawtimber
16,286  15,407  52,427  —  —  31,377  —  115,497  
Hardwood
1,391  —  —  —  —  —  —  1,391  
Total Timber Sales36,987  17,674  61,008  —  —  35,203  —  150,872  
License Revenue, Primarily from Hunting
4,296  103  142  —  —  —  —  4,541  
Other Non-Timber/Carbon Revenue
4,914  779  977  —  —  —  —  6,670  
Agency Fee Income
—  —  —  —  —  184  —  184  
Total Non-Timber Sales9,210  882  1,119  —  —  184  —  11,395  
Improved Development—  —  —  —  172  —  —  172  
Unimproved Development—  —  —  —  14,431  —  —  14,431  
Rural (a)—  —  —  —  7,107  —  —  7,107  
Timberlands & Non-Strategic (a)—  —  —  —  815  —  —  815  
Deferred Revenue/Other (b)—  —  —  —  8  —  —  8  
Total Real Estate Sales—  —  —  —  22,533  —  —  22,533  
Revenue from Contracts with Customers46,197  18,556  62,127  —  22,533  35,387  —  184,800  
Intersegment—  —  —  —  —  74  (74) —  
Total Revenue$46,197  $18,556  $62,127  —  $22,533  $35,461  ($74) $184,800  

(a) The three months ended June 30, 2019 reflects the reclassification of certain real estate sales between the Rural and Timberlands & Non-Strategic sales categories to better align with the way management internally evaluates real estate sales.
(b) Includes deferred revenue adjustments and marketing fees related to Improved Development sales.

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





Six Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingElim.Total
June 30, 2020
Pulpwood$52,178  $6,290  $10,613  $328  —  $4,993  —  $74,402  
Sawtimber
35,868  49,741  65,746  6,305  —  37,918  —  195,578  
Hardwood
993  —  —  —  —  —  —  993  
Total Timber Sales89,039  56,031  76,359  6,633  —  42,911  —  270,973  
License Revenue, Primarily From Hunting
8,926  192  140  10  —  —  —  9,268  
Other Non-Timber/Carbon Revenue
1,784  1,022  2,809  4  —  —  —  5,619  
Agency Fee Income
—  —  —  —  —  327  —  327  
Total Non-Timber Sales10,710  1,214  2,949  14  —  327  —  15,214  
Improved Development—  —  —  —  6,427  —  —  6,427  
Unimproved Development—  —  —  —  8,426  —  —  8,426  
Rural —  —  —  —  29,631  —  —  29,631  
Timberlands & Non-Strategic—  —  —  —  9,606  —  —  9,606  
Deferred Revenue/Other (b)—  —  —  —  (1,616) —  —  (1,616) 
Large Dispositions—  —  —  —  116,027  —  —  116,027  
Total Real Estate Sales—  —  —  —  168,501  —  —  168,501  
Revenue from Contracts with Customers99,749  57,245  79,308  6,647  168,501  43,238  —  454,688  
Lease Revenue—  —  —  —  72  —  —  72  
Intersegment—  —  —  877  —  66  (943) —  
Total Revenue$99,749  $57,245  $79,308  $7,524  $168,573  $43,304  ($943) $454,760  
Six Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber Funds Real EstateTradingElim.Total
June 30, 2019
Pulpwood$46,109  $5,087  $17,349  —  —  $8,152  —  $76,697  
Sawtimber
39,437  32,684  98,290  —  —  58,890  —  229,301  
Hardwood
2,477  —  —  —  —  —  —  2,477  
Total Timber Sales88,023  37,771  115,639  —  —  67,042  —  308,475  
License Revenue, Primarily from Hunting
8,420  205  195  —  —  —  —  8,820  
Other Non-Timber/Carbon Revenue
10,600  1,115  3,423  —  —  —  —  15,138  
Agency Fee Income
—  —  —  —  —  381  —  381  
Total Non-Timber Sales19,020  1,320  3,618  —  —  381  —  24,339  
Improved Development—  —  —  —  514  —  —  514  
Unimproved Development—  —  —  —  15,430  —  —  15,430  
Rural (a)—  —  —  —  26,313  —  —  26,313  
Timberlands & Non-Strategic (a)—  —  —  —  1,207  —  —  1,207  
Deferred Revenue/Other (b)—  —  —  —  68  —  —  68  
Total Real Estate Sales—  —  —  —  43,532  —  —  43,532  
Revenue from Contracts with Customers107,043  39,091  119,257  —  43,532  67,423  —  376,346  
Intersegment—  —  —  —  —  103  (103) —  
Total Revenue$107,043  $39,091  $119,257  —  $43,532  $67,526  ($103) $376,346  

(a) The six months ended June 30, 2019 reflects the reclassification of certain real estate sales between the Rural and Timberlands & Non-Strategic sales categories to better align with the way management internally evaluates real estate sales.
(b) Includes deferred revenue adjustments and marketing fees related to Improved Development sales.




20
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following tables present our timber sales disaggregated by contract type for the three and six months ended June 30, 2020 and 2019:
Three Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsTradingTotal
June 30, 2020
Stumpage Pay-as-Cut $16,216  —  —  531  —  $16,747  
Stumpage Lump Sum863  326  —  —  —  1,189  
Total Stumpage17,079  326  —  531  —  17,936  
Delivered Wood (Domestic)21,438  25,133  12,126  6,102  462  65,261  
Delivered Wood (Export)3,039  —  28,599  —  23,806  55,444  
Total Delivered24,477  25,133  40,725  6,102  24,268  120,705  
Total Timber Sales$41,556  $25,459  $40,725  $6,633  $24,268  $138,641  
June 30, 2019
Stumpage Pay-as-Cut $15,172  —  —  —  —  $15,172  
Stumpage Lump Sum
581  —  —  —  —  581  
Total Stumpage15,753  —  —  —  —  15,753  
Delivered Wood (Domestic)
17,041  17,674  21,739  —  2,669  59,123  
Delivered Wood (Export)
4,193  —  39,269  —  32,534  75,996  
Total Delivered21,234  17,674  61,008  —  35,203  135,119  
Total Timber Sales
$36,987  $17,674  $61,008  —  $35,203  $150,872  

21
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





Six Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsTradingTotal
June 30, 2020
Stumpage Pay-as-Cut $41,623  —  —  531  —  $42,154  
Stumpage Lump Sum1,251  5,457  —  —  —  6,708  
Total Stumpage42,874  5,457  —  531  —  48,862  
Delivered Wood (Domestic)42,498  50,574  25,817  6,102  934  125,925  
Delivered Wood (Export)3,667  —  50,542  —  41,977  96,186  
Total Delivered46,165  50,574  76,359  6,102  42,911  222,111  
Total Timber Sales$89,039  $56,031  $76,359  $6,633  $42,911  $270,973  
June 30, 2019
Stumpage Pay-as-Cut $43,180  —  —  —  —  $43,180  
Stumpage Lump Sum
2,675  —  —  —  —  $2,675  
Total Stumpage45,855  —  —  —  —  45,855  
Delivered Wood (Domestic)
36,379  37,771  42,439  —  4,793  121,382  
Delivered Wood (Export)
5,789  —  73,200  —  62,249  141,238  
Total Delivered42,168  37,771  115,639  —  67,042  262,620  
Total Timber Sales
$88,023  $37,771  $115,639  —  $67,042  $308,475  

4. 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 land 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, the Company 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 June 30, 2020, the New Zealand subsidiary has two CFLs comprising 9,000 gross acres or 8,000 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 8,000 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 have leased 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.

22
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





LEASE MATURITIES, LEASE COST AND OTHER LEASE INFORMATION
The following table details our undiscounted lease obligations as of June 30, 2020 by type of lease and year of expiration:
Year of Expiration
Lease obligationsTotalRemaining 20202021202220232024Thereafter
Operating lease liabilities$178,880  $5,675  $9,003  $8,119  $8,051  $7,946  $140,086  
Total Undiscounted Cash Flows$178,880  $5,675  $9,003  $8,119  $8,051  $7,946  $140,086  
Imputed interest(82,154) 
Balance at June 30, 202096,726  
Less: Current portion (8,952) 
Non-current portion at June 30, 2020$87,774  
        
The following table details components of our lease cost for the three and six months ended June 30, 2020 and June 30, 2019:

Three Months Ended June 30,Six Months Ended June 30,
Lease Cost Components2020201920202019
Operating lease cost$1,341  $2,396  $3,439  $4,833  
Variable lease cost (a)136  81  214  157  
Total lease cost (b)$1,477  $2,477  $3,653  $4,990  

(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 six months ended June 30, 2020. 
        The following table provides supplemental cash flow information related to our leases for the six months ended June 30, 2020 and June 30, 2019:

Six Months Ended June 30,
Supplemental cash flow information related to leases:20202019
Cash paid for amounts included in the measurement of lease liabilities:
     Operating cash flows from operating leases$1,138  $1,493  
     Investing cash flows from operating leases2,301  3,340  
Total cash flows from operating leases$3,439  $4,833  
Weighted-average remaining lease term in years - operating leases2828
Weighted-average discount rate - operating leases5 %5 %
Lessor lease information
In the merger with Pope Resources, we acquired income generating commercial and residential leases primarily concentrated in Port Gamble, Washington. Each of these are classified as operating leases.




23
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following table details our lease income for the three and six months ended June 30, 2020:
Three Months Ended June 30,Six Months Ended June 30,
Lease Income Components20202020
Operating lease income$72  $72  
Total lease income$72  $72  

Future lease income as of June 30, 2020, based on payments due by period under the lease contracts, are presented in the following table:
Year of Expiration
Lease assetsTotalRemaining 20202021202220232024Thereafter
Operating lease Income$708  $165  $176  $173  $137  $57  —  

We apply the following practical expedients as allowed under ASC 842:

Practical ExpedientDescription
Short-term leasesWe do not record right-of-use assets or lease 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 componentsWe 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.

5. 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 416,000 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 loss (income) attributable to noncontrolling interests in consolidated affiliates.” Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary, serves as the manager of the New Zealand subsidiary.
The following table sets forth the income attributable to the New Zealand subsidiary’s noncontrolling interests:
 Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Net income attributable to noncontrolling interest in the New Zealand subsidiary$693  $2,168  $1,261  $5,167  






24
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





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 merger with Pope Resources, we became manager of three private equity timber funds, Fund II, Fund III, and Fund IV, and obtained ownership interests in the funds of 20%, 5%, and 15%, respectively. We determined, based upon an analysis under the variable interest entity guidance, that we have the power to direct the activities that most significantly impact the Funds’ economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate the Funds. Loss 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 loss (income) attributable to noncontrolling interests in consolidated affiliates.”
The following table sets forth the (loss) attributable to the Funds’ noncontrolling interests:
 Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Net (loss) attributable to noncontrolling interest in the Funds:($2,146) —  ($2,146) —  
Prior to our 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. Each Fund is organized to operate for a specified term from the end of its respective investment period: 10 years for each of Fund II and Fund III, and 15 years for Fund IV. Fund II is scheduled to terminate in March 2021, Fund III is scheduled to terminate in December 2025 and Fund IV is scheduled to terminate in December 2034. The obligations of each of the Funds do not have any recourse to the Company or the Operating Partnership.
Ferncliff Investors
We also acquired in the merger with Pope Resources an ownership interest in 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.
We determined, based upon an analysis under the variable interest entity guidance, that 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. 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. Under the equity method, Ferncliff Investors records its share of the net income or loss of Bainbridge Landing LLC. To date, this activity has been a loss and is included in Other operating expense, net in the Real Estate segment. The portion of Ferncliff Investors’ loss attributed to third-party investors is shown within the Consolidated Statements of Income and Comprehensive Income under the caption “Net loss (income) attributable to noncontrolling interests in consolidated affiliates.”
The following table sets forth the (loss) attributable to Ferncliff Investors’ noncontrolling interests:
 Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Net (loss) attributable to noncontrolling interest in the Ferncliff Investors:($46) —  ($46) —  

25
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP
Noncontrolling interests in the Operating Partnership relate to the third-party ownership of Redeemable Common Units. Net income attributable to noncontrolling interests in the Operating Partnership is computed by applying the weighted average Redeemable Common Units outstanding during the period as a percentage of the weighted average total common units outstanding to the Operating Partnership’s net income for the period. If a noncontrolling unitholder redeems a common 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:

Three Months Ended June 30,Six Months Ended June 30,
20202020
Beginning noncontrolling interests in the Operating Partnership—  —  
Issuances of Redeemable Common Units106,752  106,752  
Adjustment of noncontrolling interests in the Operating Partnership3,992  3,992  
Net Income attributable to noncontrolling interests in the Operating Partnership219  219  
Other Comprehensive Income attributable to noncontrolling interests in the Operating Partnership457  457  
Distributions to noncontrolling interests in the Operating Partnership(1,200) (1,200) 
Total noncontrolling interests in the Operating Partnership$110,220  $110,220  

6. SEGMENT AND GEOGRAPHICAL INFORMATION
As a result of the merger with Pope Resources, we have revised our reportable business segments, adding one additional segment, Timber Funds. The Timber Funds segment represents operations of the three private equity timber funds included in the transaction – Fund II, Fund III and Fund IV (collectively, the “Funds”). Rayonier owns 20% of Fund II, 5% of Fund III, and 15% of Fund IV and is also the managing member of the Funds. As discussed in Note 5 - Noncontrolling Interests, the Funds are consolidated into our financial statements. The Timber Funds segment also includes fee revenue paid to us for managing the Funds, which consists of both fixed components based on invested capital and acres under management as well as variable components related to the harvest volumes of the Funds. These fees, which also represent an expense in the Timber Funds segment, are eliminated in consolidation.
We now operate 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.”
26
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following tables summarize the segment information for the three and six months ended June 30, 2020 and 2019:
 Three Months Ended June 30,Six Months Ended June 30,
SALES2020201920202019
Southern Timber$46,767  $46,197  $99,749  $107,043  
Pacific Northwest Timber26,171  18,556  57,245  39,091  
New Zealand Timber 41,769  62,127  79,308  119,257  
Timber Funds (a)7,524  —  7,524  —  
Real Estate (b)50,009  22,533  168,573  43,532  
Trading24,320  35,461  43,304  67,526  
Intersegment Eliminations (c)(930) (74) (943) (103) 
Total$195,630  $184,800  $454,760  $376,346  

(a)The three and six months ended June 30, 2020 includes $5.8 million of sales attributable to noncontrolling interests in the Timber Funds.
(b)The six months ended June 30, 2020 includes $116.0 million from a Large Disposition.
(c)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 New Zealand Timber segment from our Southern Timber and Pacific Northwest Timber segments for marketing log export sales.

Three Months Ended June 30,Six Months Ended June 30,
OPERATING INCOME (LOSS)2020201920202019
Southern Timber $11,208  $14,741  $26,278  $36,261  
Pacific Northwest Timber(6,681) (3,815) (7,629) (7,556) 
New Zealand Timber 4,973  12,797  10,422  28,517  
Timber Funds (a)(1,892) —  (1,892) —  
Real Estate (b)24,848  15,468  51,622  25,495  
Trading102  (171) 83  309  
Corporate and Other (c)(20,872) (7,627) (28,646) (13,113) 
Total Operating Income11,686  31,393  50,238  69,913  
Unallocated interest expense and other(8,241) (6,865) (16,666) (13,242) 
Total Income before Income Taxes$3,445  $24,528  $33,572  $56,671  

(a)The three and six months ended June 30, 2020 includes $2.0 million of operating loss attributable to noncontrolling interests in the Timber Funds.
(b)The six months ended June 30, 2020 includes $28.7 million from a Large Disposition.
(c)The three and six months ended June 30, 2020 include $13.5 million and $16.0 million, respectively, of integration and restructuring costs related to the merger with Pope Resources. See Note 20 — Charges for Integration and Restructuring for additional details.



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





 Three Months Ended June 30,Six Months Ended June 30,
DEPRECIATION, DEPLETION AND AMORTIZATION2020201920202019
Southern Timber$15,231  $12,880  $33,414  $32,608  
Pacific Northwest Timber10,606  6,045  21,308  12,871  
New Zealand Timber 4,942  7,189  9,716  13,508  
Timber Funds (a)4,070  —  4,070  —  
Real Estate (b)6,678  1,199  42,422  4,534  
Corporate and Other 340  288  637  572  
Total$41,867  $27,601  $111,567  $64,093  

(a)The three and six months ended June 30, 2020 includes $3.5 million of depreciation, depletion and amortization related to noncontrolling interests in the Timber Funds.
(b)The six months ended June 30, 2020 includes $35.4 million from a Large Disposition.

Three Months Ended June 30,Six Months Ended June 30,
NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT2020201920202019
Real Estate (a)$13,030  $1,617  $65,081  $5,647  
Total$13,030  $1,617  $65,081  $5,647  

(a) The six months ended June 30, 2020 includes $51.6 million from a Large Disposition.


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





7. DEBT
Our debt consisted of the following at June 30, 2020:
June 30, 2020
Debt, excluding Timber Funds:
Term Credit Agreement borrowings due 2028 at a variable interest rate of 1.8% at June 30, 2020 (a)
$350,000  
Senior Notes due 2022 at a fixed interest rate of 3.75%
325,000  
Incremental Term Loan Agreement borrowings due 2026 at a variable interest rate of 2.1% at June 30, 2020 (b)
300,000  
2020 Incremental Term Loan Facility borrowings due 2025 at a variable interest rate of 2.0% at June 30, 2020 (c)
250,000  
Revolving Credit Facility borrowings due 2025 at an average variable interest rate of 1.7% at June 30, 2020
35,000  
Northwest Farm Credit Services Credit Facility with quarterly interest-only payments, collateralized by Core Timberlands, with the following tranches (d)
Due 2025 at a fixed interest rate of 6.1%
11,779  
Due 2028 at a fixed interest rate of 4.1%
12,085  
Due 2033 at a fixed interest rate of 5.3%
19,564  
Due 2036 at a fixed interest rate of 5.4%
9,927  
Total debt, excluding Timber Funds1,313,355  
Debt, Timber Funds:
Fund II Mortgages Payable, collateralized by Fund II timberlands with quarterly interest
payments, as follows: (d)
Due 2020 at a fixed interest rate of 4.9%
11,030  
Due 2020 at a fixed interest rate of 3.8%
14,012  
Fund III Mortgages Payable, collateralized by Fund III timberlands with quarterly interest
payments, as follows (d):
Due 2023 at a fixed interest rate of 5.1%
19,827  
Due 2024 at a fixed interest rate of 4.5%
15,790  
Total debt, Timber Funds60,659  
Total debt1,374,014  
Less: Current maturities of long-term debt, Timber Funds(25,042) 
Less: Deferred financing costs(2,849) 
Long-term debt, net of deferred financing costs$1,346,123  

(a) As of June 30, 2020, the periodic interest rate on the term loan facility was LIBOR plus 1.600%. We estimate the effective fixed interest rate on the term loan facility to be approximately 3.2% after consideration of interest rate swaps and estimated patronage refunds.
(b) As of June 30, 2020, the periodic interest rate on the incremental term loan was LIBOR plus 1.900%. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately 2.8% after consideration of interest rate swaps and estimated patronage refunds.
(c) As of June 30, 2020, the periodic interest rate on the 2020 incremental term loan was LIBOR plus 1.850%. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately 2.3% after consideration of interest rate swaps and estimated patronage refunds.
(d) See the section below labeled “Long-Term Debt Assumed in the Pope Resources Merger” for additional details.
29
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





Principal payments due during the next five years and thereafter are as follows:
Excluding Timber FundsTimber FundsTotal
2020—  $25,000  $25,000  
2021—  —  —  
2022325,000  —  325,000  
2023—  17,980  17,980  
2024—  14,400  14,400  
Thereafter980,000  —  980,000  
Total Debt$1,305,000  $57,380  $1,362,380  
2020 DEBT ACTIVITY
On April 1, 2020, we entered into a Second Amendment to Credit Agreement to increase the limit on our Revolving Credit Facility from $200 million to $250 million and extend its maturity date from August 5, 2020 to April 1, 2025. Additionally, the maturity date of the Term Credit Agreement was extended from August 5, 2024 to April 1, 2028.
On April 13, 2020, we entered into an Accordion Increase Agreement to further increase the limit on the Revolving Credit Facility from $250 million to $300 million.
On April 16, 2020, we entered into a Third Amendment and Incremental Term Loan Agreement, which provided for the advancement of a five-year $250 million senior unsecured incremental term loan facility (the “2020 Incremental Term Loan Facility”). The proceeds from this facility were used to fund our acquisition of Pope Resources.
During the six months ended June 30, 2020, we made borrowings of $70.0 million and repayments of $117.0 million on our Revolving Credit Facility. At June 30, 2020, we had available borrowings of $264.0 million under the Revolving Credit Facility, net of $1.0 million to secure our outstanding letters of credit.
In June 2020, the New Zealand subsidiary renewed its NZ$20 million working capital facility for an additional 12-month term. During the six months ended June 30, 2020, the New Zealand subsidiary made no borrowings or repayments on its working capital facility. At June 30, 2020, the New Zealand subsidiary had NZ$20.0 million of available borrowings under its working capital facility.
LONG-TERM DEBT ASSUMED IN THE POPE RESOURCES MERGER
Through our merger with Pope Resources, we assumed long-term debt instruments consisting of:
•five tranches of a credit facility payable to Northwest Farm Credit Services (“NWFCS”) (defined and described below) totaling $45.0 million, collateralized by the portion of Pacific Northwest Core Timberlands acquired in the merger with Pope Resources; and
•two of Fund II's Mortgages Payable to MetLife (defined and described below) totaling $25.0 million, collateralized by a portion of Fund II timberlands; and
•two of Fund III's Mortgages Payable to NWFCS (defined and described below) totaling $32.4 million, collateralized by a portion of Fund III timberlands.
NWFCS CREDIT FACILITY
We assumed five tranches of a credit facility payable to NWFCS (the “NWFCS Credit Facility”) totaling $45.0 million. Quarterly payments of interest only are due on the NWFCS Credit Facility through the respective maturity of each tranche. The NWFCS Credit Facility is collateralized by a portion of the Pacific Northwest timberlands acquired in the merger with Pope Resources. The NWFCS Credit Facility 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.
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RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The pertinent details of each tranche of the NWFCS Credit Facility we assumed are as follows:
TrancheStated Fixed Interest RateEffective Fixed Interest Rate (a)Stated Principal AmountEst. Fair Value at Merger Date (b)
Tranche 2 (Due 2025)6.1 %4.8 %$10,000  $11,838  
Tranche 4 (Due 2028)4.1 %3.1 %11,000  12,108  
Tranches 6 & 7 (Due 2033)5.3 %4.2 %16,000  19,609  
Tranche 8 (Due 2036)5.4 %4.3 %8,000  9,947  
Total NWFCS Credit Facility assumed$45,000  $53,502  

(a)Estimated effective fixed interest rates as of June 30, 2020 after consideration of estimated patronage refunds.
(b)The fair market value premium will be amortized as a benefit to interest expense over the maturity term of each tranche.
FUND II MORTGAGES PAYABLE
We assumed Fund II's two mortgages payable (the “Fund II Mortgages Payable”) to MetLife totaling $25.0 million. Quarterly payments of interest only are due on the Fund II Mortgages Payable through their respective maturities. The Fund II Mortgages Payable are collateralized by Fund II Timberlands and do not have any recourse to the Company or the Operating Partnership.
The pertinent details of the Fund II Mortgages Payable are as follows:
Maturity DateStated Fixed Interest RateStated Principal AmountEst. Fair Value at Merger Date (a)
September 20204.9 %$11,000  $11,061  
September 20203.8 %14,000  14,023  
$25,000  $25,084  

(a)The fair market value premium will be amortized as a benefit to interest expense over the maturity term of each mortgage.
FUND III MORTGAGES PAYABLE
We assumed Fund III’s two mortgages payable (the “Fund III Mortgages Payable”) to NWFCS totaling $32.4 million. Quarterly payments of interest only are due on the Fund III Mortgages Payable through their respective maturities. The Fund III Mortgages Payable are collateralized by Fund III Timberlands and do not have any recourse to the Company or the Operating Partnership.
The pertinent details of the Fund III Mortgages Payable are as follows:
Maturity DateStated Fixed Interest RateEffective Fixed Interest Rate (a)Stated Principal AmountEst. Fair Value at Merger Date (b)
December 20235.1 %3.9 %$17,980  $19,915  
October 20244.5 %3.2 %14,400  15,844  
$32,380  $35,759  

(a)Estimated effective fixed interest rates as of June 30, 2020 after consideration of estimated patronage refunds.
(b)The fair market value premium will be amortized as a benefit to interest expense over the maturity term of each mortgage.




31
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





DEBT COVENANTS — EXCLUDING TIMBER FUNDS
In connection with our $350 million term credit agreement (the “Term Credit Agreement”), $300 million incremental term loan agreement (the “Incremental Term Loan Agreement”), $250 million incremental term loan agreement (“the “2020 Incremental Term Loan Agreement”) and $300 million revolving credit facility (the “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 June 30, 2020, are calculated on a trailing 12-month basis:
Covenant RequirementActual RatioFavorable
Covenant EBITDA to consolidated interest expense should not be less than
2.5 to 1
9.8 to 1
7.3
Covenant debt to covenant net worth plus covenant debt shall not exceed65 %47 %18 %
In connection with our $45 million NWFCS Credit Facility, customary covenants must be met, the most significant of which include interest coverage and debt-to-capitalization ratios.
The covenants listed below, which are the most significant financial covenants in effect as of June 30, 2020, are calculated on a trailing 12-month basis:
Covenant RequirementActual RatioFavorable
Covenant loan-to-appraised value shall not exceed50%11%39 %
Covenant EBITDA to consolidated interest expense should not be less than
2.5 to 1
9.8 to 1
7.3
Covenant debt to covenant net worth plus covenant debt shall not exceed65 %47 %18 %
        In addition to these financial covenants listed above, the Senior Notes, Term Credit Agreement, Incremental Term Loan Agreement, 2020 Incremental Term Loan Facility, Revolving Credit Facility, and NWFCS Credit Facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At June 30, 2020, we were in compliance with all applicable covenants.
DEBT COVENANTS — TIMBER FUNDS
The Fund II Mortgages Payable to MetLife contains a requirement to maintain a loan-to-value ratio of less than 50%, with the denominator defined as fair market value of the timberland pledged as collateral.
The Fund III Mortgages Payable to NWFCS contain a requirement to maintain a minimum interest coverage ratio of 1.5:1, minimum working capital of $500,000, and a loan-to-value ratio of less than 50%, with the denominator defined as fair market value.
Both Timber Funds are in compliance with their respective debt covenants as of June 30, 2020.

32
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





8. 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.
In the merger with Pope Resources, we acquired HBU properties with an estimated fair value of $27.7 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.
Changes in higher and better use timberlands and real estate development investments from December 31, 2019 to June 30, 2020 are shown below:
Higher and Better Use Timberlands and Real Estate Development Investments
 Land and Timber Development InvestmentsTotal
Non-current portion at December 31, 2019$58,091  $23,700  $81,791  
Plus: Current portion (a)274  12,389  12,663  
Total Balance at December 31, 201958,365  36,089  94,454  
Non-cash cost of land and improved development(280) (3,523) (3,803) 
Timber depletion from harvesting activities and basis of timber sold in real estate sales(351) —  (351) 
Capitalized real estate development investments (b)—  3,587  3,587  
HBU properties acquired in merger with Pope Resources (c)27,722  —  27,722  
Capital expenditures (silviculture)180  —  180  
Intersegment transfers(3,979) —  (3,979) 
Total Balance at June 30, 202081,657  36,153  117,810  
Less: Current portion (a)(361) (3,529) (3,890) 
Non-current portion at June 30, 2020$81,296  $32,624  $113,920  
(a)The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 21 — Inventory for additional information.
(b)Capitalized real estate development investments include $0.2 million of capitalized interest.
(c)Based on preliminary estimates of fair value as of May 8, 2020. See Note 2 - Merger with Pope Resources for additional information.
33
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





9. COMMITMENTS
At June 30, 2020, the future minimum payments under non-cancellable commitments were as follows:
 Environmental Remediation (a)Development Projects (b)Pension Contributions (c)Commitments (d)Total
Remaining 2020$710  $4,206  $2,476  $7,880  $15,272  
20212,387  160  681  14,193  17,421  
20222,023  220  —  16,992  19,235  
20232,012  232  —  17,719  19,963  
20242,012  232  —  14,987  17,231  
Thereafter2,784  2,770  —  39,877  45,431  
$11,928  $7,820  $3,157  $111,648  $134,553  

(a)Environmental remediation represents our estimate of potential liability associated with environmental contamination in Port Gamble, Washington.
(b)Primarily consisting of payments expected to be made on our Wildlight and Richmond Hill development projects.
(c)Pension contribution requirements are based on actuarially determined estimates and IRS minimum funding requirements.
(d)Commitments include payments expected to be made on foreign exchange contracts, timberland deeds and other purchase obligations.

34
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)






10. INCOME TAXES

Rayonier Inc. is a real estate investment trust (a “REIT”) under the Internal Revenue Code and therefore generally does not pay U.S. federal or state income tax. Through a series of transactions in connection with the Mergers, the Company transferred all of its assets to the Operating Partnership on May 8, 2020. As a result of these transactions, the Company owns approximately 96.8% of the Operating Partnership and conducts substantially all of its business through the Operating Partnership. The taxable income or loss generated by the Operating Partnership is passed through and reported to its unit holders (including the Company) on a Schedule K-1 for inclusion in each unitholder’s income tax return. Certain operations, including log trading and certain real estate activities, such as the entitlement, development and sale of HBU properties, are conducted through taxable REIT subsidiary (“TRS”) entities. The TRS entities are subject to United States federal and state corporate income tax. The New Zealand timber operations are conducted by the New Zealand subsidiary, which is subject to corporate-level tax in New Zealand and is treated as a partnership for US income tax purposes.
PROVISION FOR INCOME TAXES
Our tax expense is principally related to New Zealand corporate-level tax on the New Zealand subsidiary income. The following table contains the income tax expense recognized in the Consolidated Statements of Income and Comprehensive Income:
 Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Income tax expense($2,990) ($3,608) ($6,696) ($7,958) 
ANNUAL EFFECTIVE TAX RATE
The Company’s effective tax rate after discrete items is below the 21.0% U.S. statutory rate due to tax benefits associated with being a REIT. The following table contains the Company’s annualized effective tax rate after discrete items:
 Six Months Ended
June 30,
20202019
Annualized effective tax rate after discrete items19.8 %15.5 %

35
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





11. 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.


12. ENVIRONMENTAL REMEDIATION LIABILITIES
Various federal and state environmental laws in the states in which we operate place liability for environmental contamination on the current and former owners of real estate on which contamination is discovered. 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 hazardous substances. Similarly, there are certain environmental laws that allow state, federal, and tribal trustees (collectively, the “Trustees”) to bring suit against property owners to recover damage for injuries to natural resources. Like the liability that attaches to current property owners in the cleanup context, liability for natural resource damages (“NRD”) can attach to a property simply because an injury to natural resources resulted from releases of hazardous substances 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 where hazardous substances had previously been discovered, requiring environmental remediation under these laws. Prior to the merger, Pope Resources had completed required remediation on the Port Gamble Bay, performed remedial investigation and drafted a cleanup action plan for the Port Gamble millsite, and started discussions relating to alleged natural resource damages.
As of June 30, 2020, we have accrued $11.9 million for environmental remediation, which represents our current estimate of the remaining cleanup cost and most likely outcome to various contingencies. It is expected that the millsite cleanup and natural resource damages (NRD) restoration will occur over the next two to three years, while the monitoring of the Port Gamble Bay, millsite and landfills containing dredged and excavated contaminated sediments will continue for an additional 10 to 15 years. The NRD costs might change as the scope of the restoration projects become more clearly defined. It is reasonably possible that these components of the liability may increase as the project progresses. Management continues to monitor the Port Gamble cleanup process and will make adjustments as needed. Should any future circumstances result in a change to the estimated cost of the project, we will record an appropriate adjustment to the liability in the period it becomes known and when we can reasonably estimate the amount. For further information on the timing and amount of future payments related to our environmental remediation liabilities, see Note 9 - Commitments.
36
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





13. GUARANTEES
We provide financial guarantees as required by creditors, insurance programs, and various governmental agencies.
As of June 30, 2020, the following financial guarantees were outstanding:
Financial Commitments (a)Maximum Potential
Payment
Standby letters of credit$985  
Surety bonds (b)10,011  
Total financial commitments$10,996  

(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 2020, 2021 and 2022 and are expected to be renewed as required.
37
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)






14. EARNINGS PER SHARE AND PER UNIT
The following table provides details of the calculations of basic and diluted earnings per common share of the Company:
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Earnings per common share - basic
Numerator:
Net Income
$455  $20,920  $26,876  $48,713  
Less: Net income attributable to noncontrolling interest in the Operating Partnership(219) —  (219) —  
Less: Net loss (income) attributable to noncontrolling interests in consolidated affiliates1,499  (2,168) 931  (5,167) 
Net income attributable to Rayonier Inc.
$1,735  $18,752  $27,588  $43,546  
Denominator:
Denominator for basic earnings per common share - weighted average shares133,318,209  129,380,282  131,227,852  129,277,490  
Basic earnings per common share attributable
to Rayonier Inc.:		$0.01  $0.14  $0.21  $0.34  
Earnings per common share - diluted
Numerator:
Net Income$455  $20,920  $26,876  $48,713  
Less: Net loss (income) attributable to noncontrolling interest in consolidated affiliates1,499  (2,168) 931  (5,167) 
Net income attributable to Rayonier Inc., before net income attributable to noncontrolling interests in the Operating Partnership$1,954  $18,752  $27,807  $43,546  
Denominator:
Denominator for basic earnings per common
share - weighted average shares		133,318,209  129,380,282  131,227,852  129,277,490  
Add: Dilutive effect of:
Stock options—  13,463  537  16,580  
Performance shares, restricted shares and restricted stock units49,299  250,170  129,390  403,915  
Noncontrolling interests in common units2,589,518  —  1,294,759  —  
Denominator for diluted earnings per common share - adjusted weighted average shares135,957,026  129,643,915  132,652,538  129,697,985  
Diluted earnings per common share attributable to Rayonier Inc.:$0.01  $0.14  $0.21  $0.34  

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Anti-dilutive shares excluded from the computations of diluted earnings per share:
Stock options, performance shares, restricted shares and restricted stock units635,779  451,258  521,053  444,765  
Total635,779  451,258  521,053  444,765  
38
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)






The following table provides details of the calculations of basic and diluted earnings per common unit of the Operating Partnership:
Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Earnings per common unit - basic
Numerator:
Net Income
$455  $20,920  $26,876  $48,713  
Less: Net loss (income) attributable to noncontrolling interests in consolidated affiliates1,499  (2,168) 931  (5,167) 
Net income available to unitholders
$1,954  $18,752  $27,807  $43,546  
Denominator:
Denominator for basic earnings per common unit - weighted average units135,907,727  129,380,282  132,522,611  129,277,490  
Basic earnings per common unit attributable
to Rayonier, L.P.:		$0.01  $0.14  $0.21  $0.34  
Earnings per common unit - diluted
Numerator:
Net Income$455  $20,920  $26,876  $48,713  
Less: Net loss (income) attributable to noncontrolling interests in consolidated affiliates1,499  (2,168) 931  (5,167) 
Net income available to unitholders$1,954  $18,752  $27,807  $43,546  
Denominator:
Denominator for basic earnings per common
share - weighted average units		135,907,727  129,380,282  132,522,611  129,277,490  
Add: Dilutive effect of unit equivalents:
Stock options—  13,463  537  16,580  
Performance shares, restricted shares and restricted stock units49,299  250,170  129,390  403,915  
Denominator for diluted earnings per common unit - adjusted weighted average units135,957,026  129,643,915  132,652,538  129,697,985  
Diluted earnings per common share attributable to Rayonier, L.P..:$0.01  $0.14  $0.21  $0.34  

Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Anti-dilutive unit equivalents excluded from the computations of diluted earnings per unit:
Stock options, performance shares, restricted shares and restricted stock units635,779  451,258  521,053  444,765  
Total635,779  451,258  521,053  444,765  

39
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





15. 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.
Accounting for derivative financial instruments is governed by ASC Topic 815, Derivatives and Hedging, (“ASC 815”). In accordance with ASC 815, we record our derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive loss (“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 functional currency of Rayonier New Zealand Limited, and the New Zealand subsidiary is the New Zealand dollar. The New Zealand subsidiary is exposed to foreign currency risk on export sales and ocean freight payments which are mainly denominated in U.S. dollars. 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 June 30, 2020, foreign currency exchange contracts and foreign currency option contracts had maturity dates through April 2022 and August 2021, respectively.
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 for de-designated hedges remains in accumulated other comprehensive loss until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings.

INTEREST RATE SWAPS
We are exposed to cash flow interest rate risk on our variable-rate Term Credit Agreement, Incremental Term Loan Agreement and 2020 Incremental Term Loan Facility and use variable-to-fixed interest rate swaps 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.
        
40
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following table contains information on the outstanding interest rate swaps as of June 30, 2020:
Outstanding Interest Rate Swaps (a)
Date Entered IntoTermNotional AmountRelated Debt FacilityFixed Rate of Swap (b)Bank Margin on DebtTotal Effective Interest Rate (c)
August 20159 years$170,000  Term Credit Agreement2.20 %1.60 %3.80 %
August 20159 years180,000  Term Credit Agreement2.35 %1.60 %3.95 %
April 201610 years100,000  Incremental Term Loan1.60 %1.90 %3.50 %
April 201610 years100,000  Incremental Term Loan1.60 %1.90 %3.50 %
July 201610 years100,000  Incremental Term Loan1.26 %1.90 %3.16 %
June 202010 years250,000  2020 Incremental Term Loan1.10 %1.85 %2.95 %

(a)  All interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting.
(b) The interest rate swap entered in June 2020, was an off-market derivative, meaning it contained an embedded financing element, which the counterparties recovered through an incremental charge in the fixed rate over what would have been charged for an at-market swap.
(c) Rate is before estimated patronage payments.
TREASURY LOCKS
During the first quarter, we entered into treasury lock agreements, which were designated and qualified as cash flow hedges. These derivative instruments hedged the impact of changes in the benchmark interest rate to future interest payments associated with anticipated debt issuances. Prior to expiration, we de-designated and settled the treasury locks by converting them into interest rate swap lock agreements (discussed below). 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 accumulated other comprehensive loss and is amortized using the straight-line method through interest expense over the remaining life of the hedged item. Amounts recorded in accumulated other comprehensive loss in connection with the settled treasury locks were ($20.8) million which will be reclassified to earnings through interest expense over the life of the anticipated issued debt.
The following table contains information on the expired treasury lock agreements entered into during the six months ended June 30, 2020:
Converted Treasury Rate Locks (a)
Date Entered IntoTermNotional AmountRateRelated Debt Facility (b)Expiration Date
January 202010 years$100,000  1.53%2020 Incremental Term Loan FacilityMarch 30, 2020
January 202010 years100,000  1.53%2020 Incremental Term Loan FacilityMarch 31, 2020
February 202010 years50,000  1.35%2020 Incremental Term Loan FacilityMarch 31, 2020

(a)  At inception, all treasury locks were designated as interest rate cash flow hedges and qualified for hedge accounting.
(b) On April 16, 2020, we entered into a Third Amendment and Incremental Term Loan Agreement which provided for a five-year $250 million senior unsecured incremental term loan facility (the “2020 Incremental Term Loan Facility”). See Note 7 — Debt for more information. We anticipate extending the term of the 2020 Incremental Term Loan facility for an additional five-year term upon maturity.
INTEREST RATE SWAP LOCKS
Upon de-designation, we converted the above treasury lock agreements to interest rate swap lock agreements to hedge the risk of changes in the interest payments attributable to changes in the benchmark LIBOR interest rate associated with anticipated issuances of debt. The interest rate swap locks were designated and qualified as cash flow hedges.
Prior to expiration, we de-designated and partially cash settled $11.1 million of the interest rate swap locks and converted them into interest rate swap agreements. 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
41
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





at the time of de-designation remains in accumulated other comprehensive loss and is amortized using the straight-line method through interest expense over the remaining life of the hedged item. Incremental amounts recorded in accumulated other comprehensive loss in connection with the settled interest rate swap locks were ($1.4) million, which will be reclassified to earnings through interest expense over the life of the anticipated issued debt.
The following table contains information on the terminated interest rate swap lock agreements as of June 30, 2020:
Converted Interest Rate Swap Locks (a)
Date Entered IntoTermNotional AmountFixed Rate of Swap Lock (b)Related Debt Facility (c)Termination Date
March 202010 years$100,000  1.56%2020 Incremental Term Loan FacilityJune 30, 2020
March 202010 years100,000  1.59%2020 Incremental Term Loan FacilityJune 30, 2020
March 202010 years50,000  1.41%2020 Incremental Term Loan FacilityJune 30, 2020

(a)  All interest rate swap locks have been designated as interest rate cash flow hedges and qualify for hedge accounting.
(b) These interest rate swap locks were off-market derivatives, meaning they contained an embedded financing element, which the counterparties recovered through an incremental charge in the fixed rate over what would have been charged for an at-market swap lock.
(c) On April 16, 2020, we entered into a Third Amendment and Incremental Term Loan Agreement which provided for a five-year $250 million senior unsecured incremental term loan facility (the “2020 Incremental Term Loan Facility”). See Note 7 — Debt for information. We anticipate extending the term of the 2020 Incremental Term Loan facility for an additional five-year term upon maturity.
FORWARD-STARTING INTEREST RATE SWAPS
We are exposed to cash flow interest rate risk on anticipated debt issuances and use forward-starting interest rate swap agreements to hedge against changes in future cash flows resulting from changes in interest rates from the trade date through the anticipated issuance date. 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.
The following table contains information on the outstanding forward-starting interest rate swaps as of June 30, 2020:
Outstanding Forward-Starting Interest Rate Swaps (a)
Date Entered IntoTermNotional AmountFixed Rate of SwapRelated Debt FacilityForward DateMaximum Period Ending for Forecasted Issuance Date
February 202010 years$325,000  1.40 %Anticipated refinancing of Senior Notes due 2022April 2022April 2022
March 20204 years100,000  0.88 %Term Credit AgreementAugust 2024N/A
May 20204 years50,000  0.74 %Term Credit AgreementAugust 2024N/A

(a)  All forward-starting interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting.

CARBON OPTIONS
The New Zealand subsidiary enters into carbon options from time to time to sell carbon assets at certain prices. 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 June 30, 2020, all existing carbon option contracts have expired.
        
42
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following tables demonstrate the impact, gross of tax, of the Company’s derivatives on the Consolidated Statements of Income and Comprehensive Income for the three and six months ended June 30, 2020 and 2019:
Three Months Ended
June 30,
Income Statement Location20202019
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts
Other comprehensive income (loss)$5,340  ($219) 
Foreign currency option contracts
Other comprehensive income (loss)877  (107) 
Interest rate productsOther comprehensive income (loss)(14,469) (18,371) 
Interest Expense2,716  (913) 
Derivatives not designated as hedging instruments:
Foreign currency exchange contractsInterest and other miscellaneous income, net—  152  
Carbon option contractsInterest and other miscellaneous income, net14  12  

Six Months Ended
June 30,
Income Statement Location20202019
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts
Other comprehensive income (loss)($140) $900  
Foreign currency option contracts
Other comprehensive income (loss)(273) (30) 
Interest rate productsOther comprehensive income (loss)(93,621) (28,966) 
Interest Expense3,168  (1,866) 
Derivatives not designated as hedging instruments:
Foreign currency exchange contractsInterest and other miscellaneous income, net—  135  
Carbon option contractsInterest and other miscellaneous income, net563  415  
During the next 12 months, the amount of the June 30, 2020 AOCI balance, net of tax, expected to be reclassified into earnings as a result of the maturation of the Company’s derivative instruments is a loss of approximately $0.5 million.
The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:
Notional Amount
June 30, 2020December 31, 2019
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts$61,500  $56,350  
Foreign currency option contracts36,000  22,000  
Interest rate swaps900,000  650,000  
Forward-starting interest rate swaps475,000  —  
Derivative not designated as a hedging instrument:
Carbon options (a)—  9,592  

(a) Notional amount for carbon options is calculated as the number of units outstanding multiplied by the spot price as of June 30, 2020.
43
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets:
Location on Balance SheetFair Value Assets / (Liabilities) (a)
June 30, 2020December 31, 2019
Derivatives designated as cash flow hedges:
Foreign currency exchange contractsOther current assets$310  $424  
Other assets 1,177  390  
Other current liabilities(968) (172) 
Other non-current liabilities(17) —  
Foreign currency option contractsOther current assets275  151  
Other assets172  209  
Other current liabilities(305) (27) 
Other non-current liabilities(112) (30) 
Interest rate swapsOther assets—  2,614  
Other non-current liabilities(65,381) (11,068) 
Forward-starting interest rate swapsOther non-current liabilities(22,832) —  
Derivative not designated as a hedging instrument:
Carbon optionsOther current liabilities—  (607) 
Total derivative contracts:
Other current assets$585  $575  
Other assets1,349  3,213  
Total derivative assets$1,934  $3,788  
Other current liabilities(1,273) (806) 
Other non-current liabilities(88,342) (11,098) 
Total derivative liabilities($89,615) ($11,904) 

(a) See Note 16 — 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.

44
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





16. 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 as of June 30, 2020 and December 31, 2019, using market information and what we believe to be appropriate valuation methodologies under GAAP:

 June 30, 2020December 31, 2019
Asset (Liability) (a)Carrying
Amount		Fair ValueCarrying
Amount		Fair Value
Level 1Level 2Level 1Level 2
Cash and cash equivalents, excluding Timber Funds$87,813  $87,813  —  $68,735  $68,735  —  
Cash and cash equivalents, Timber Funds6,973  6,973  —  —  —  —  
Restricted cash (b)475  475  —  1,233  1,233  —  
Current maturities of long-term debt, excluding Timber Funds—  —  —  (82,000) —  (82,000) 
Current maturities of long-term debt, Timber Funds(25,042) —  (25,083) —  —  —  
Long-term debt, excluding Timber Funds (c)(1,310,506) —  (1,297,698) (973,129) —  (981,500) 
Long-term debt, Timber Funds (c)(35,617) —  (35,741) —  —  —  
Interest rate swaps (d)(65,381) —  (65,381) (8,454) —  (8,454) 
Forward-starting interest rate swaps (d)(22,832) —  (22,832) —  —  —  
Foreign currency exchange contracts (d)502  —  502  642  —  642  
Foreign currency option contracts (d)30  —  30  303  —  303  
Carbon option contracts (d)—  —  —  (607) —  (607) 
Marketable equity securities (e)—  —  —  10,582  10,582  —  
Noncontrolling Interests in the Operating Partnership (f)110,220  110,220  —  —  —  —  

(a)We did not have Level 3 assets or liabilities at June 30, 2020 and December 31, 2019.
(b)Restricted cash represents the proceeds from like-kind exchange sales deposited with a third-party intermediary and cash held in escrow for a real estate sale. See Note 22 — Restricted Cash for additional information.
(c)The carrying amount of long-term debt is presented net of capitalized debt costs on non-revolving debt. See Note 7 — Debt for additional information.
(d)See Note 15 — Derivative Financial Instruments and Hedging Activities for information regarding the Consolidated Balance Sheets classification of our derivative financial instruments.
(e)Investments in marketable securities are classified in “Other Assets” based on the nature of the securities and their availability for use in current operations.
(f)Noncontrolling Interests in the Operating Partnership is neither an asset or liability and is classified as temporary equity in the Company’s Consolidated Balance Sheets. This relates to the ownership of Rayonier, L.P. Common Units by various individuals and entities other than the Company.



45
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(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.
Carbon option contracts — The fair value of carbon option contracts is determined by a mark-to-market valuation using the Black-Scholes option pricing model, which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate.
Marketable equity securities — The fair value of marketable equity securities is determined by quoted prices in their active market.
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.
The following table presents marketable equity securities that have been in a continuous unrealized gain position for less than 12 months and for more than 12 months or greater at June 30, 2020 and December 31, 2019:
June 30, 2020December 31, 2019
Carrying AmountLess than 12 Months12 Months or GreaterTotalCarrying AmountLess than 12 Months12 Months or GreaterTotal
Fair value of marketable equity securities—  —  —  —  $10,58210,582  —  10,582  
Unrealized (losses) gains—  —  —  —  —  3,043  —  3,043  

17. EMPLOYEE BENEFIT PLANS
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. Both plans are closed to new participants. 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. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change.
As of June 30, 2020, we have paid $1.1 million of the approximately $3.6 million in current year mandatory pension contribution requirements (based on actuarial estimates and IRS minimum funding requirements).
46
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





The net pension and postretirement benefit costs (credits) that have been recorded are shown in the following table:
Components of Net Periodic Benefit Cost (Credit)Income Statement LocationPensionPostretirement
Three Months Ended
June 30,		Three Months Ended
June 30,
2020201920202019
Service costSelling and general expenses—  —  $2  $1  
Interest costInterest and other miscellaneous income, net677  799  13  13  
Expected return on plan assets (a)Interest and other miscellaneous income, net(876) (777) —  —  
Amortization of lossesInterest and other miscellaneous income, net215  112  2  —  
Net periodic benefit cost$16  $134  $17  $14  

Components of Net Periodic Benefit Cost (Credit)Income Statement LocationPensionPostretirement
Six Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Service costSelling and general expenses—  —  $3  $3  
Interest costInterest and other miscellaneous income, net1,353  1,599  26  27  
Expected return on plan assets (a)Interest and other miscellaneous income, net(1,752) (1,554) —  —  
Amortization of lossesInterest and other miscellaneous income, net431  224  4  —  
Net periodic benefit cost $32  $269  $33  $30  

(a)The weighted-average expected long-term rate of return on plan assets used in computing 2020 net periodic benefit cost for pension benefits is 5.7%

DEFINED CONTRIBUTION PLANS
Upon completion of the merger with Pope Resources, former Pope Resources employees were immediately eligible to participate in the Rayonier 401(k) plan. Pope Resources employees’ years of service were credited to the 401(k) plan for vesting purposes. Former Pope Resources employees have the option to rollover their former 401(k) account balance into our 401(k) plan. 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.



47
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





18. INCENTIVE STOCK PLANS
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.
In accordance with ASC 805, these awards are considered to be replacement awards. Exchanges of share-based payment awards in conjunction with a business combination are modifications in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”). As a result, the portion of the fair-value of replacement awards attributable to pre-merger services were included in measuring the consideration transferred in the business combination. The fair value of the replacement awards was estimated to be approximately $1.7 million of which $0.2 million was attributable to pre-merger services. See Note 2 — Merger with Pope Resources for additional information.
REPLACEMENT AWARD EXPENSE
The replacement awards issued have similar vesting provisions as the terms of existing Rayonier Inc. restricted stock. Expense for the replacement awards that were not fully vested prior to the date of the merger will continue to be recognized over a weighted average remaining service period of approximately 21 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 three months and six months ended June 30, 2020 resulted in the accelerated vesting of 11,076 of the replacement awards and recognition of approximately $0.2 million of expense. This accelerated vesting expense is included in merger-related integration costs as described in Note 20 — Charges for Integration and Restructuring.
A summary of the replacement awards granted as a result of the merger with Pope Resources is presented below:
Three Months Ended June 30,Six Months Ended
June 30,
20202020
Replacement restricted shares granted69,176  69,176  
Weighted average price of replacement restricted shares granted$24.01  $24.01  
Replacement restricted shares vested as a result of acceleration due to qualifying terminations11,076  11,076  
Grant date fair value of replacement restricted shares vested$24.01  $24.01  
Intrinsic value of replacement restricted shares outstanding (a)$1,440  $1,440  
Cash used to purchase common shares from employees with vested replacement shares to pay minimum withholding tax requirements44  44  

(a)Intrinsic value of restricted stock outstanding is based on the market price of the Company’s stock at June 30, 2020.
For additional information related to our incentive stock plans, see Note 17 — Incentive Stock Plans in the Company’s 2019 Form 10-K.
48
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)






19. OTHER OPERATING EXPENSE, NET
Other operating expense, net consisted of the following:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Loss on foreign currency remeasurement, net of cash flow hedges($2,720) ($719) ($1,287) ($690) 
Gain on sale or disposal of property and equipment4  35  7  56  
Log trading marketing fees3  80  50  137  
Costs related to the merger with Pope Resources (a)(13,498) —  (15,985) —  
Miscellaneous expense, net(272) (1,365) (379) (1,437) 
Total
($16,483) ($1,969) ($17,594) ($1,934) 

(a) Includes legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources. See Note 2 - Merger with Pope Resources and Note 20 - Charges for Integration and Restructuring for additional information.

20. CHARGES FOR INTEGRATION AND RESTRUCTURING

During 2020, we have 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 Mergers. We have also incurred non-recurring professional services costs for investment banking, legal, consulting, accounting and certain other fees directly attributable to our merger with Pope Resources.
A summary of the charges for integration and restructuring related to our merger with Pope Resources is presented below:
Three Months EndedSix Months Ended
June 30, 2020June 30, 2020
Termination benefits$581  $581  
Acceleration of share-based compensation related to qualifying terminations (Note 18)
232  232  
Professional services10,967  13,314  
Other integration and restructuring costs1,718  1,858  
Total integration and restructuring charges related to our merger with Pope Resources$13,498  $15,985  

Changes in accrued severance related to restructuring during the three and six months ended June 30, 2020 were as follows:

Three Months EndedSix Months Ended
June 30, 2020June 30, 2020
Accrued severance as of March 31, 2020—  —  
Charges581  581  
Payments(334) (334) 
Accrued severance as of June 30, 2020$247  $247  

Accrued severance is recorded within “Accrued Payroll and Benefits” in our Consolidated Balance Sheets. The majority of the accrued severance balance as of June 30, 2020 is expected to be paid within one year.
49
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





21. INVENTORY
As of June 30, 2020 and December 31, 2019, our inventory consisted entirely of finished goods, as follows:
 June 30, 2020December 31, 2019
Finished goods inventory
Real estate inventory (a)$3,890  $12,663  
Log inventory6,475  1,855  
Total inventory$10,365  $14,518  

(a) Represents the cost of HBU real estate (including capitalized development investments) under contract to be sold.


22. RESTRICTED CASH
In order to qualify for like-kind exchange (“LKE”) treatment, the proceeds from real estate sales must be deposited with a third-party intermediary. These proceeds are accounted for as restricted cash until a suitable replacement property is acquired. In the event LKE purchases are not completed, the proceeds are returned to us after 180 days and reclassified as available cash. As of June 30, 2020 and December 31, 2019, we had $0.5 million and $1.2 million, respectively, of proceeds from real estate sales classified as restricted cash which were deposited with an LKE intermediary as well as cash held in escrow for a real estate sale.
The following table contains the amounts of restricted cash recorded in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows for the six months ended June 30, 2020:
 June 30, 2020
Restricted cash held in escrow$475  
Total restricted cash shown in the Consolidated Balance Sheets475  
Cash and cash equivalents 94,786  
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows$95,261  

50
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





23. ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the changes in AOCI by component for the six months ended June 30, 2020 and the year ended December 31, 2019. All amounts are presented net of tax and exclude portions attributable to noncontrolling interest.
Foreign currency translation (loss) gainsNet investment hedges of New Zealand subsidiaryCash flow hedgesEmployee benefit plansTotal Rayonier, L.P.Allocation to Operating PartnershipTotal Rayonier Inc.
Balance as of December 31, 2018($1,010) $1,321  $21,965  ($22,037) $239  —  $239  
Other comprehensive (loss) income before reclassifications784  —  (29,251) (1,799) (30,266) —  (30,266) 
Amounts reclassified from accumulated other comprehensive (loss) income—  —  (1,624) 449  (b)(1,175) —  (1,175) 
Net other comprehensive (loss) income784  —  (30,875) (1,350) (31,441) —  (31,441) 
Balance as of December 31, 2019($226) $1,321  ($8,910) ($23,387) ($31,202) —  ($31,202) 
Other comprehensive loss before reclassifications(16,022) —  (92,806) (a)—  (108,828) —  (108,828) 
Amounts reclassified from accumulated other comprehensive (loss) income—  —  2,124  434  (b)2,558  (457) 2,101  
Net other comprehensive (loss) income(16,022) —  (90,682) 434  (106,270) (457) (106,727) 
Balance as of June 30, 2020($16,248) $1,321  ($99,592) ($22,953) ($137,472) ($457) ($137,929) 

(a)Includes $90.5 million of other comprehensive loss related to interest rate swaps, treasury locks, interest rate swap locks and forward-starting interest rate swaps. See Note 15 — Derivative Financial Instruments and Hedging Activities for additional information.
(b)This component of other comprehensive (loss) income is included in the computation of net periodic pension and post-retirement costs. See Note 17 — Employee Benefit Plans for additional information.
The following table presents details of the amounts reclassified in their entirety from AOCI to net income for the six months ended June 30, 2020 and June 30, 2019:
Details about accumulated other comprehensive (loss) income componentsAmount reclassified from accumulated other comprehensive (loss) incomeAffected line item in the income statement
June 30, 2020June 30, 2019
Realized (gain) loss on foreign currency exchange contracts($1,892) ($190) Other operating expense, net
Realized loss (gain) on foreign currency option contracts8  (60) Other operating expense, net
Noncontrolling interest434  58  Comprehensive (loss) income attributable to noncontrolling interest
Realized loss (gain) on interest rate contracts3,168  (1,866) Interest expense
Income tax expense from net gain on foreign currency contracts406  54  Income tax expense
Net gain from accumulated other comprehensive income$2,124  ($2,004) 
51
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)






24. 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”)
In the May 8, 2020 merger with Pope Resources, we became manager of three private equity timber funds, Fund II, Fund III, and Fund IV, and obtained ownership interests in the funds of 20%, 5%, and 15%, respectively. We determined, based upon an analysis under the variable interest entity guidance, that we have the power to direct the activities that most significantly impact the Funds’ economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate the Funds. For further information on The Funds, see Note 5 — Noncontrolling Interests.
The assets and liabilities of The Funds as of June 30, 2020, were as follows:
Timber FundsJune 30, 2020
Assets:
Cash and cash equivalents$6,973  
Accounts receivable3,213  
Prepaid expenses81  
Other current assets361  
Total current assets10,628  
Timber and timberlands, net of depletion and amortization467,800  
Other assets3  
Total assets$478,431  
Liabilities and Equity:
Accounts payable$636  
Intercompany payable (a)3,837  
Current maturities of long-term debt25,042  
Accrued taxes251  
Accrued interest655  
Deferred revenue1  
Other current liabilities787  
Total current liabilities31,209  
Long-term debt35,617  
Funds’ equity411,605  
Total liabilities and equity$478,431  

(a)Includes management fees and other expenses payable to the Operating Partnership. These amounts are eliminated in the Consolidated Balance Sheets.





52
RAYONIER INC. AND SUBSIDIARIES
RAYONIER, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands unless otherwise stated)





Ferncliff Investors
We also acquired in the merger with Pope Resources an ownership interest in a real estate joint venture entity. We determined, based upon an analysis under the variable interest entity guidance, that 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 5 — Noncontrolling Interests.
The assets and liabilities of Ferncliff Investors as of June 30, 2020, were as follows:
Ferncliff InvestorsJune 30, 2020
Assets:
Cash and cash equivalents$760  
Total current assets760  
Investment in real estate joint venture entity3,141  
Advances to real estate joint venture entity1,000  
Total assets$4,901  
Liabilities and equity:
Intercompany payable (a)$10  
Total current liabilities10  
Ferncliff Investors’ equity4,891  
Total liabilities and equity$4,901  

(a)Includes miscellaneous expenses payable to the Operating Partnership. These amounts are eliminated in the Consolidated Balance Sheets.


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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
When we refer to “Rayonier” or “the Company” we mean Rayonier Inc. and its consolidated subsidiaries. References to the “Operating Partnership” mean Rayonier, L.P. and its consolidated subsidiaries. References to “we,” “us,” or “our,” mean collectively Rayonier Inc., the Operating Partnership and entities/subsidiaries owned or controlled by Rayonier Inc. and/or the Operating Partnership. References herein to “Notes to Financial Statements” refer to the Notes to Consolidated Financial Statements of Rayonier Inc. and Rayonier, L.P. included in Item 1 of this report.
This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements included in Item 1 of this report, the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”), the audited consolidated financial statements of Rayonier Operating Company LLC as of and for the years ended December 31, 2019, 2018 and 2017 included in Exhibit 99.4 of the Operating Partnership’s Amendment No. 1 to the Current Report on Form 8-K filed with the SEC on July 17, 2020 and information contained in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”).
FORWARD-LOOKING STATEMENTS
Certain statements in this document regarding anticipated financial outcomes, including our earnings guidance, if any, business and market conditions, outlook, expected dividend rate, our business strategies, including the recent acquisition of Pope Resources, expected harvest schedules, timberland acquisitions and dispositions, the anticipated benefits of our business strategies, and other similar statements relating to our future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in the Company’s 2019 Form 10-K, in this Report on Form 10-Q and similar discussions included in other reports that we subsequently file with the SEC, among others, could cause actual results or events to differ materially from our historical experience and those expressed in forward-looking statements made in this document.
Forward-looking statements are only as of the date they are made, and we undertake no duty to update our forward-looking statements except as required by law. You are advised, however, to review any subsequent disclosures we make on related subjects in subsequent reports filed with the SEC.
NON-GAAP MEASURES
To supplement our financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), we use certain non-GAAP measures, including “cash available for distribution,” and “Adjusted EBITDA,” which are defined and further explained in Performance and Liquidity Indicators below. Reconciliation of such measures to the nearest GAAP measures can also be found in Performance and Liquidity Indicators below. Our definitions of these non-GAAP measures may differ from similarly titled measures used by others. These non-GAAP measures should be considered supplemental to, and not a substitute for, financial information prepared in accordance with GAAP.

54
OUR COMPANY
        We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the United States and New Zealand. We invest in timberlands and actively manage them to provide current income and attractive long-term returns to our shareholders. We conduct our business through an umbrella partnership real estate investment trust (“UPREIT”) structure in which our assets are owned by our Operating Partnership and its subsidiaries. Rayonier manages the Operating Partnership as its sole general partner. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Timber Funds, Real Estate, and Trading. As of June 30, 2020, we owned or leased under long-term agreements approximately 2.7 million acres of timberlands located in the U.S. South (1.8 million acres), U.S. Pacific Northwest (507,000 acres) and New Zealand (416,000 gross acres or 296,000 net plantable acres). We also act as the managing member in a private equity timber fund business with three funds comprising approximately 141,000 acres. On a “look-through basis,” our ownership in the timber fund business equates to approximately 17,000 acres.
SEGMENT INFORMATION
        The Southern Timber, Pacific Northwest Timber, New Zealand Timber, and Timber Funds segments include all activities related to the harvesting of timber and other non-timber income activities, such as the licensing of properties for hunting, the leasing of properties for mineral extraction and cell towers, and carbon credit sales. Our New Zealand operations are conducted by Matariki Forestry Group, a joint venture (the “New Zealand subsidiary”), in which we maintain a 77% ownership interest. The Timber Funds segment operations are managed by ORM LLC, a subsidiary acquired in the merger with Pope Resources. We own approximately 20% of Fund II, 5% of Fund III and 15% of Fund IV. When referring to our proportionate ownership share of the Timber Funds segment, we will refer to the sums as “look-through” totals. See Note 5 - Noncontrolling Interests for additional information regarding our noncontrolling interests in the New Zealand Timber and Timber Funds segments.
        The Real Estate segment includes all U.S. and New Zealand land or leasehold sales disaggregated into five sales categories: Improved Development, Unimproved Development, Rural, Timberlands & Non-Strategic and Large Dispositions. It also includes residential and commercial lease activity, primarily in the town of Port Gamble, Washington.
        The Trading segment primarily reflects the log trading activities that support our New Zealand operations. The Trading segment complements the New Zealand Timber segment by providing added market intelligence, increasing the scale of export operations and achieving cost savings that directly benefit the New Zealand Timber segment. It also provides additional market intelligence that benefits our Southern and Pacific Northwest export log marketing.
ENVIRONMENTAL MATTERS
PORT GAMBLE ENVIRONMENTAL REMEDIATION
In the merger with Pope Resources, we acquired the town of Port Gamble, Washington. Portions of this property require environmental remediation under federal and state environmental laws, and remediation activities are currently ongoing. As such, through the preliminary purchase price allocation for the merger with Pope Resources, we recognized environmental liabilities for the estimated fair value of liabilities assumed. See Note 2 - Merger with Pope Resources for additional information on the preliminary allocation of purchase price. For additional information on our environmental liabilities see Note 9 - Commitments and Note 12 - Environmental Liabilities.
The sections below provide a history of the environmental matters in Port Gamble, Washington:
Discovery and Initial Actions:
In Port Gamble, Washington, hazardous substances were previously discovered requiring environmental remediation under federal and state environmental laws. The real estate subject to environmental remediation requirements was the location of a sawmill operated by Pope & Talbot, Inc. (“P&T”) from 1853 to 1995. P&T continued to lease various portions of the site for its operations until 2002. During the time P&T operated in Port Gamble, it also conducted shipping, log storage, and log transfer operations in the tidal and subtidal waters of Port Gamble Bay, some of which were under a lease from the Washington State Department of Natural Resources (“DNR”) that lasted from 1974 to 2004. P&T’s operations resulted in the release of hazardous
55
substances that impacted the upland and submerged portions of the site. These substances include various hydrocarbons, cadmium, and toxins associated with wood waste and the production of wood products.
Following the mill closure, the Washington State Department of Ecology (the “DOE”) began to examine the environmental conditions at Port Gamble. Under Washington law, both Pope Resources and P&T were considered by the DOE to be “potentially liable persons” (“PLPs”); Pope Resources because of its ownership of certain portions of the site, and P&T because of its historical ownership and operation of the site. P&T and Pope Resources entered into a settlement agreement in 2002 that allocated responsibility for environmental contamination at the townsite, millsite, a solid waste landfill, and adjacent water to Pope Resources, with P&T assuming responsibility for funding cleanup in the Port Gamble Bay and the other areas of the site that were impacted by its historical operations.
In 2005, both Pope Resources and P&T received Environmental Excellence Awards from DOE for their work in remediating the contamination that had existed at the Port Gamble townsite and landfill. DOE also issued letters to both parties in 2006 indicating that the agency expected to take no further action regarding conditions at those portions of the site. Pope Resources continued cleaning up the remaining contamination at the millsite. By late 2005, the millsite portion of the site had largely been cleaned and the remaining aspects of that project consisted of test well monitoring and modest additional remediation. The Port Gamble Bay area and related tidelands, for which P&T was responsible under the parties’ settlement agreement, had not yet been remediated. In 2007, P&T filed for bankruptcy protection and was eventually liquidated, leaving Pope Resources as the only remaining PLP. Because environmental liabilities are joint and several as between PLPs, the result of P&T’s bankruptcy was to leave the liability with Pope Resources as the only remaining solvent PLP.
In-water cleanup
Beginning in 2010, DOE began to reconsider its expectations regarding the level of cleanup that would be required for Port Gamble Bay, largely because of input from interested citizens and groups, one of the most prominent being the Port Gamble S’Klallam Tribe. In response to input from these groups, DOE adopted remediation levels that were far more stringent than either DOE or Pope Resources had contemplated previously. In December 2013, Pope Resources and DOE entered into a consent decree that included a cleanup action plan (“CAP”) requiring the removal of docks and pilings, excavation and backfilling of intertidal areas, subtidal dredging and monitoring, and other specific remediation steps. The construction phase of the cleanup of the Port Gamble Bay area and related tidelands began in September 2015 and the in-water portion of the cleanup was completed in January 2017.
Millsite Cleanup
With the in-water portion of the cleanup completed, there is expected to be relatively modest cleanup activity on the millsite and a monitoring period. In February 2018, Pope Resources and DOE entered into an agreed order with respect to the millsite under which Pope Resources performed a remedial investigation and feasibility study (“RI/FS”) which it submitted to DOE for review in January 2019. Following the finalization of the RI/FS, Pope Resources worked with DOE to develop a CAP. As with the in-water portion of the project, the CAP will define the scope of the remediation activity for the millsite. Once the CAP is approved by DOE, it will be codified in a consent decree.
Natural Resources Damages
In addition to the cleanup costs discussed previously, certain environmental laws allow state, federal, and tribal trustees (collectively, the “Trustees”) to bring suit against property owners to recover natural resource damages (“NRD”). Similar to cleanup responsibility, liability for NRD can attach to a property owner simply because an injury to natural resources resulted from releases of hazardous substances on the owner’s property, regardless of culpability for the release. Trustees have alleged that Pope Resources had NRD liability because of releases that occurred on its property. Prior to the merger with Rayonier, Pope Resources began negotiations with the Trustees for the purpose of identifying NRD restoration projects. Those negotiations are ongoing and will ultimately result in agreement as to requested mitigation activities.


56
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 and Timber Funds segments rely primarily on domestic customers but also export a significant volume of timber, particularly to China. The Southern, Pacific Northwest Timber and Timber Funds 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 novel coronavirus (“COVID-19”) pandemic continues to evolve, the expected duration and the extent of economic disruption it may ultimately cause remain uncertain. On March 19, 2020, the U.S. Department of Homeland Security issued a memorandum identifying the forest products industry as a “critical infrastructure industry,” which is expected to continue operating through the duration of the pandemic. In New Zealand, production has returned to pre-COVID-19 levels after a government-mandated shutdown of roughly one month that adversely affected our second quarter results. During the second quarter, strong pulpwood demand in the Southern Timber segment was primarily driven by a surge in demand for essential products such as toilet paper and packaging. In the Pacific Northwest and Timber Funds segments, weaker export demand has contributed to lower export and domestic pricing. New Zealand Timber experienced a short-lived surge in export prices following the government-mandated shutdown but has since returned to pre-COVID-19 levels. Local, state and federal governments continue to evaluate policies and restrictions in order to reopen the economy while keeping COVID-19 cases minimized and future government mandated shutdowns or shelter-in-place orders in markets in which we operate would negatively affect our future results. 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 the strength of U.S. timber markets. We will continue to monitor COVID-19 and its impact on the markets in which we operate going forward.
        We are also subject to the risk of price fluctuations in our major cost components. The primary components of our cost of sales are the cost basis of timber sold (depletion), the cost basis of real estate sold and logging and transportation costs (cut and haul). Depletion includes the amortization of capitalized costs (site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs). Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes, fire prevention and real estate commissions and closing costs.
For additional information on market conditions impacting our business, see Results of Operations.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
        The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. For a full description of our critical accounting policies, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2019 Form 10-K.
57

DISCUSSION OF TIMBER INVENTORY AND SUSTAINABLE YIELD
        See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in the Company’s 2019 Form 10-K.
OUR TIMBERLANDS
        Our timber operations are comprised of our core timberland holdings, which are disaggregated into three geographically distinct reporting segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber in addition to our timber fund holdings, which represents our ownership in Timber Funds II, III and IV. The following tables provide a breakdown of our timberland holdings as of June 30, 2020 and December 31, 2019:

Core Timberland Holdings
(acres in 000s)
As of June 30, 2020
As of December 31, 2019
OwnedLeasedTotalOwnedLeasedTotal
Southern
Alabama226  14  240  226  14  240  
Arkansas—  7  7  —  7  7  
Florida328  63  391  331  63  394  
Georgia616  75  691  628  77  705  
Louisiana140  —  140  128  —  128  
Mississippi—  —  —  67  —  67  
Oklahoma92  —  92  92  —  92  
South Carolina18  —  18  18  —  18  
Texas184  —  184  184  —  184  
1,604  159  1,763  1,674  161  1,835  
Pacific Northwest
Oregon61  —  61  61  —  61  
Washington442  4  446  318  —  318  
503  4  507  379  —  379  
New Zealand (a)185  231  416  185  229  414  
Total2,292  394  2,686  2,238  390  2,628  

(a)Represents legal acres owned and leased by the New Zealand subsidiary, in which we own a 77% interest. As of June 30, 2020, legal acres in New Zealand consisted of 296,000 plantable acres and 120,000 non-productive acres.

Timber Fund Holdings
(acres in 000s)As of June 30, 2020As of December 31, 2019
TotalLook-throughTotalLook-through
Timber Funds
Oregon51  7  —  —  
Washington71  9  —  —  
California19  1  —  —  
Total141  17  —  —  

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Total Timberland under Management
(acres in 000s)As of June 30, 2020As of December 31, 2019
TotalTotal
Southern1,763  1,835  
Pacific Northwest507  379  
New Zealand416  414  
Timber Funds141  —  
Total2,827  2,628  

The following tables detail activity for owned and leased acres in our core timberland holdings by state from December 31, 2019 to June 30, 2020:
(acres in 000s)Acres Owned
December 31, 2019AcquisitionsSalesOtherJune 30, 2020
Southern
Alabama226  —  —  —  226  
Florida331  —  (8) 5  328  
Georgia628  —  (12) —  616  
Louisiana128  12  —  —  140  
Mississippi67  —  (67) —  —  
Oklahoma92  —  —  —  92  
South Carolina18  —  —  —  18  
Texas184  —  —  —  184  
1,674  12  (87) 5  1,604  
Pacific Northwest
Oregon61  —  —  —  61  
Washington318  120  —  4  442  
379  120  —  4  503  
New Zealand (a)185  —  —  —  185  
Total 2,238  132  (87) 9  2,292  
        
(a)Represents legal acres owned by the New Zealand subsidiary, in which we have a 77% interest.
(acres in 000s)Acres Leased
December 31, 2019New LeasesSold/Expired Leases (a)Other June 30, 2020
Southern
Alabama14  —  —  —  14  
Arkansas7  —  —  —  7  
Florida63  —  —  —  63  
Georgia77  —  (2) —  75  
161  —  (2) —  159  
Pacific Northwest
Washington (b)—  4  —  —  4  
New Zealand (c)2292  —  —  231  
Total 390  6  (2) —  394  

(a)Includes acres previously under lease that have been harvested and activity for the relinquishment of leased acres.
(b)Primarily timber reservations acquired in the merger with Pope Resources.
(c)Represents legal acres leased by the New Zealand subsidiary, in which we have a 77% interest.
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The following table details activity in our timber fund holdings by state from December 31, 2019 to June 30, 2020:
(acres in 000s)Acres Owned
December 31, 2019AcquisitionsSalesOtherJune 30, 2020
Fund II
Oregon—  18  —  —  18  
Washington—  13  —  —  13  
Total Fund II—  31  —  —  31  
Look-through share of Fund II—  6  —  —  6  
Fund III
Oregon—  13  —  —  13  
Washington—  25  —  —  25  
California—  19  —  —  19  
Total Fund III—  57  —  —  57  
Look-through share of Fund III—  3  —  —  3  
Fund IV
Oregon—  20  —  —  20  
Washington—  33  —  —  33  
Total Fund IV—  53  —  —  53  
Look-through share of Fund IV—  8  —  —  8  
Total Timber Funds—  141  —  —  141  
Look-through share of Funds—  17  —  —  17  


60

RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
The following table provides key financial information by segment and on a consolidated basis:
Three Months Ended
June 30,		Six Months Ended
June 30,
Financial Information (in millions)2020201920202019
Sales
Southern Timber$46.8  $46.2  $99.7  $107.0  
Pacific Northwest Timber26.2  18.6  57.2  39.1  
New Zealand Timber 41.8  62.1  79.3  119.3  
Timber Funds7.5  —  7.5  —  
Real Estate
Improved Development6.4  0.2  6.4  0.5  
Unimproved Development 8.4  14.4  8.4  15.4  
Rural (a)27.2  7.1  29.6  26.3  
Timberlands & Non-Strategic (a)9.6  0.8  9.6  1.2  
Deferred Revenue/Other (b)(1.7) —  (1.5) 0.1  
Large Dispositions—  —  116.0  —  
Total Real Estate50.0  22.5  168.6  43.5  
Trading24.3  35.5  43.3  67.5  
Intersegment Eliminations(1.0) (0.1) (0.9) (0.1) 
Total Sales$195.6  $184.8  $454.8  $376.3  
Operating Income (Loss)
Southern Timber$11.2  $14.7  $26.3  $36.3  
Pacific Northwest Timber(6.7) (3.8) (7.6) (7.6) 
New Zealand Timber 5.0  12.8  10.4  28.5  
Timber Funds(1.9) —  (1.9) —  
Real Estate (b)(c)24.8  15.5  51.6  25.5  
Trading0.1  (0.2) 0.1  0.3  
Corporate and Other (20.9) (7.6) (28.6) (13.1) 
Operating Income11.7  31.4  50.2  69.9  
Interest expense, interest income and other(8.3) (6.9) (16.6) (13.2) 
Income tax expense(2.9) (3.6) (6.7) (8.0) 
Net Income0.5  20.9  26.9  48.7  
Less: Net loss (income) attributable to noncontrolling interest in consolidated affiliates
1.4  (2.1) 0.9  (5.2) 
Net Income Attributable to Rayonier, L.P.$1.9  $18.8  $27.8  $43.5  
Less: Net income attributable to noncontrolling interest in the Operating Partnership
(0.2) —  (0.2) —  
Net Income Attributable to Rayonier Inc.$1.7  $18.8  $27.6  $43.5  
Adjusted EBITDA (d)
Southern Timber$26.4  $27.6  $59.7  $68.9  
Pacific Northwest Timber3.9  2.2  13.7  5.3  
New Zealand Timber9.9  20.0  20.1  42.0  
Timber Funds0.7  —  0.7  —  
Real Estate44.6  18.3  43.5  35.7  
Trading0.1  (0.2) 0.1  0.3  
Corporate and Other(7.0) (7.3) (12.0) (12.5) 
Total Adjusted EBITDA$78.6  $60.6  $125.7  $139.7  

(a)The three and six months ended June 30, 2019 reflects the reclassification of certain real estate sales between the Rural and Timberlands & Non-Strategic sales categories to better align with the way management internally evaluates real estate sales. See Note 3 — Revenue for additional information.
(b)Includes deferred revenue adjustments and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.
(c)The six months ended June 30, 2020 include $28.7 million from a Large Disposition.
(d)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
61


Three Months Ended
June 30,		Six Months Ended
June 30,
Southern Timber Overview2020201920202019
Sales Volume (in thousands of tons)
Pine Pulpwood1,003  755  2,136  1,877  
Pine Sawtimber497  462  1,177  1,206  
Total Pine Volume1,500  1,217  3,313  3,083  
Hardwood35  57  65  127  
Total Volume1,535  1,274  3,379  3,209  
Percentage Delivered Sales41 %40 %36 %32 %
Percentage Stumpage Sales59 %60 %64 %68 %
Net Stumpage Pricing (dollars per ton)
Pine Pulpwood$15.94  $17.16  $16.00  $17.63  
Pine Sawtimber25.48  25.82  26.16  26.16  
Weighted Average Pine$19.11  $20.45  $19.61  $20.97  
Hardwood10.80  16.86  11.68  15.17  
Weighted Average Total$18.91  $20.29  $19.45  $20.74  
Summary Financial Data (in millions of dollars)
Timber Sales$41.6  $37.0  $89.0  $88.0  
Less: Cut, Haul & Freight(12.5) (11.1) (23.3) (21.5) 
Net Stumpage Sales$29.0  $25.9  $65.7  $66.6  
Non-Timber Sales5.2  9.2  10.7  19.0  
Total Sales$46.8  $46.2  $99.7  $107.0  
Operating Income$11.2  $14.7  $26.3  $36.3  
(+) Depreciation, depletion and amortization15.2  12.9  33.4  32.6  
Adjusted EBITDA (a)$26.4  $27.6  $59.7  $68.9  
Other Data
Period-End Acres (in thousands)1,763  1,808  1,763  1,808  

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









62


Three Months Ended
June 30,		Six Months Ended
June 30,
Pacific Northwest Timber Overview2020201920202019
Sales Volume (in thousands of tons)
Pulpwood86  54  168  116  
Sawtimber299  197  693  417  
Total Volume385  250  861  533  
Sales Volume (converted to MBF)
Pulpwood8,152  5,076  15,941  11,009  
Sawtimber39,847  26,603  90,253  55,548  
Total Volume47,999  31,679  106,193  66,557  
Percentage Delivered Sales98 %100 %87 %100 %
Percentage Sawtimber Sales78 %79 %81 %78 %
Delivered Log Pricing (in dollars per ton)
Pulpwood$36.92  $42.26  $37.47  $43.81  
Sawtimber75.39  78.35  75.40  78.41  
Weighted Average Log Price$66.74  $70.61  $67.51  $70.88  
Summary Financial Data (in millions of dollars)
Timber Sales$25.5  $17.7  $56.0  $37.8  
Less: Cut and Haul(14.5) (10.5) (28.6) (22.5) 
Net Stumpage Sales$11.0  $7.2  $27.4  $15.3  
Non-Timber Sales0.7  0.9  1.2  1.3  
Total Sales$26.2  $18.6  $57.2  $39.1  
Operating Loss($6.7) ($3.8) ($7.6) ($7.6) 
(+) Depreciation, depletion and amortization10.6  6.0  21.3  12.9  
Adjusted EBITDA (a)$3.9  $2.2  $13.7  $5.3  
Other Data
Period-End Acres (in thousands)507  379  507  379  
Sawtimber (in dollars per MBF)$579  $587  $594  $599  
Estimated Percentage of Export Volume20 %26 %11 %21 %

(a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
63


Three Months Ended
June 30,		Six Months Ended
June 30,
New Zealand Timber Overview2020201920202019
Sales Volume (in thousands of tons)
Domestic Pulpwood (Delivered)106  125  207  238  
Domestic Sawtimber (Delivered)130  204  277  400  
Export Pulpwood (Delivered)27  37  44  77  
Export Sawtimber (Delivered)266  318  482  573  
Total Volume529  684  1,010  1,288  
Delivered Log Pricing (in dollars per ton)
Domestic Pulpwood$32.10  $39.10  $32.95  $39.16  
Domestic Sawtimber66.95  82.66  68.55  83.03  
Export Sawtimber98.75  111.81  97.00  113.78  
Weighted Average Log Price$76.92  $89.16  $75.60  $89.78  
Summary Financial Data (in millions of dollars)
Timber Sales$40.7  $61.0  $76.4  $115.6  
Less: Cut and Haul(15.6) (22.9) (30.8) (43.1) 
Less: Port and Freight Costs(8.4) (12.6) (16.5) (22.3) 
Net Stumpage Sales$16.7  $25.5  $29.1  $50.2  
Non-Timber Sales / Carbon Credits1.0  1.1  2.9  3.6  
Total Sales$41.8  $62.1  $79.3  $119.3  
Operating Income$5.0  $12.8  $10.4  $28.5  
(+) Depreciation, depletion and amortization4.9  7.2  9.7  13.5  
Adjusted EBITDA (a)$9.9  $20.0  $20.1  $42.0  
Other Data
New Zealand Dollar to U.S. Dollar Exchange Rate (b)0.6157  0.6659  0.6338  0.6745  
Net Plantable Period-End Acres (in thousands)296  292  296  292  
Export Sawtimber (in dollars per JAS m3)
$114.82  $130.00  $112.79  $132.29  
Domestic Sawtimber (in $NZD per tonne)$119.60  $136.55  $118.96  $135.47  

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



64

Three Months Ended
June 30,		Six Months Ended
June 30,
Timber Funds Overview2020201920202019
Sales Volume (in thousands of tons)
Pulpwood10  —  10  —  
Sawtimber80  —  80  —  
Total Volume90  —  90  —  
Summary Financial Data (in millions of dollars)
Timber Sales$6.6  —  $6.6  —  
Less: Cut and Haul(2.9) —  (2.9) —  
Net Stumpage Sales$3.7  —  $3.7  —  
Timberland Management Fees0.9  —  0.9  —  
Total Sales$7.5  —  $7.5  —  
Operating Loss($1.9) —  ($1.9) —  
Operating loss attributable to NCI in Timber Funds2.0  —  2.0  —  
(+) Depreciation, depletion and amortization (“Look-through”)0.5  —  0.5  —  
Adjusted EBITDA (a)$0.7  —  $0.7  —  
Other Data
Period-End Acres (in thousands)141  —  141  —  
“Look-through” Period-End Acres (in thousands)17  —  17  —  


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

Three Months Ended
June 30,		Six Months Ended
June 30,
Trading Overview2020201920202019
Sales Volume (in thousands of tons)
NZ Trading - Domestic7  33  15  58  
NZ Trading - Export259  292  458  548  
Total Volume266  325  473  606  
Summary Financial Data (in millions of dollars)
Trading Sales$24.3  $35.2  $42.9  $67.0  
Non-Timber Sales0.1  0.3  0.4  0.5  
Total Sales$24.3  $35.5  $43.3  $67.5  
Operating Income (Loss)$0.1  ($0.2) $0.1  $0.3  
(+) Depreciation, depletion and amortization—  —  —  —  
Adjusted EBITDA (a)$0.1  ($0.2) $0.1  $0.3  

(a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
65


Three Months Ended
June 30,		Six Months Ended
June 30,
Real Estate Overview2020201920202019
Sales (in millions of dollars)
Improved Development$6.4  $0.2  $6.4  $0.5  
Unimproved Development8.4  14.4  8.4  15.4  
Rural (a)27.2  7.1  29.6  26.3  
Timberlands & Non-Strategic - U.S. (a)9.6  0.8  9.6  1.2  
Large Dispositions (b)—  —  116.0  —  
Deferred Revenue/Other (c)(1.7) —  (1.5) 0.1  
Total Sales$50.0  $22.5  $168.6  $43.5  
Acres Sold
Improved Development122.0  0.9  122.0  2.0  
Unimproved Development 570  784  570  791  
Rural (a)7,710  1,886  8,334  7,386  
Timberlands & Non-Strategic - U.S. (a)11,907  594  11,907  765  
Large Dispositions (b)—  —  66,946  —  
Total Acres Sold20,310  3,265  87,879  8,944  
Gross Price per Acre (dollars per acre)
Improved Development$52,672  $198,276  $52,672  $251,961  
Unimproved Development 14,780  18,402  14,780  19,507  
Rural (a)3,532  3,768  3,555  3,563  
Timberlands & Non-Strategic - U.S. (a)807  1,373  807  1,578  
Large Dispositions (b)—  —  1,733  —  
Weighted Average (Total) (d)$2,545  $6,899  $2,584  $4,860  
Weighted Average (Adjusted) (e)$2,242  $6,848  $2,290  $4,803  
Sales (Excluding Large Dispositions)$50.0  $22.5  $52.5  $43.5  
Operating Income$24.8  $15.5  $51.6  $25.5  
(+) Depreciation, depletion and amortization - U.S.6.7  1.2  7.1  4.5  
(+) Non-cash cost of land and improved development - U.S.13.0  1.6  13.4  5.6  
(–) Large Dispositions (b)—  —  (28.7) —  
Adjusted EBITDA (f)$44.6  $18.3  $43.5  $35.7  

(a)The three and six months ended June 30, 2019 reflects the reclassification of certain real estate sales between the Rural and Timberlands & Non-Strategic sales categories to better align with the way management internally evaluates real estate sales. See Note 3 - Revenue for additional information.
(b)Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In March 2020, we completed the disposition of approximately 67,000 acres located in Mississippi for a sales price and gain of approximately $116.0 million and $28.7 million, respectively.
(c)Includes deferred revenue adjustments and marketing fees related to Improved Development sales in addition to residential and commercial lease revenue.
(d)Excludes Large Dispositions.
(e)Excludes Improved Development and Large Dispositions.
(f)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators.
66


Three Months Ended
June 30,		Six Months Ended
June 30,
Capital Expenditures By Segment (in millions of dollars)2020201920202019
Timber Capital Expenditures
Southern Timber
Reforestation, silviculture and other capital expenditures$2.6  $5.7  $9.7  $8.5  
Property taxes1.7  1.8  3.4  3.6  
Lease payments0.2  0.3  1.3  1.9  
Allocated overhead1.0  0.9  2.2  2.2  
Subtotal Southern Timber$5.5  $8.7  $16.7  $16.1  
Pacific Northwest Timber
Reforestation, silviculture and other capital expenditures0.9  0.8  3.3  3.6  
Property taxes0.2  0.2  0.4  0.4  
Allocated overhead1.0  0.8  1.8  1.6  
Subtotal Pacific Northwest Timber$2.2  $1.8  $5.5  $5.6  
New Zealand Timber
Reforestation, silviculture and other capital expenditures2.0  2.3  3.5  4.0  
Property taxes0.1  0.1  0.3  0.3  
Lease payments0.9  1.7  1.3  2.1  
Allocated overhead0.6  0.7  1.3  1.3  
Subtotal New Zealand Timber$3.7  $4.8  $6.3  $7.7  
Total Timber Segments Capital Expenditures$11.4  $15.3  $28.5  $29.4  
Timber Funds (“Look-through”) (a)0.1  —  0.1  —  
Real Estate0.1  0.1  0.2  0.1  
Total Capital Expenditures$11.6  $15.4  $28.8  $29.5  
Timberland Acquisitions
Southern Timber$0.1  $14.0  $24.2  $15.9  
Pacific Northwest Timber—  —  —  3.6  
New Zealand Timber—  —  —  6.9  
Timberland Acquisitions$0.1  $14.0  $24.2  $26.4  
Real Estate Development Investments (b)$1.9  ($0.7) $3.6  $1.0  

(a)Excludes $0.6 million in capital expenditures attributable to noncontrolling interests in Timber Funds.
(b)The three and six months ended June 30, 2019 includes $3.7 million of reimbursements from community development bonds.
67

        The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances for June 30, 2020 versus June 30, 2019 (millions of dollars):

SalesSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingIntersegment EliminationsTotal
Three Months Ended
June 30, 2019		$46.2  $18.6  $62.1  —  $22.5  $35.5  ($0.1) $184.8  
Volume5.3  3.9  (13.4) —  117.6  (6.4) —  107.0  
Price(2.1) (0.1) (3.4) —  (88.4) (4.6) —  (98.6) 
Non-timber sales(4.0) (0.2) —  —  —  (0.2) —  (4.4) 
Foreign exchange (a)—  —  (1.7) —  —  —  —  (1.7) 
Other1.4  (b)4.0  (b)(1.8) (c)7.5  (d)(1.7) (e)—  (0.9) (f)8.5  
Three Months Ended
June 30, 2020		$46.8  $26.2  $41.8  $7.5  $50.0  $24.3  ($1.0) $195.6  

(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 is a new segment in Q2 2020. Includes $5.8 million of sales attributable to noncontrolling interests in the Timber Funds.    Also includes $0.9 million of sales related to timberland investment management fees paid to us by the timber funds.
(e) Includes $1.9 million of deferred revenue adjustments, partially offset by a $0.2 million increase in marketing fees.
(f) Includes $0.9 million of Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment.

SalesSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingIntersegment EliminationsTotal
Six Months Ended
June 30, 2019		$107.0  $39.1  $119.3  —  $43.5  $67.5  ($0.1) $376.3  
Volume3.5  9.4  (24.4) —  58.3  (14.6) —  32.2  
Price(4.3) 2.7  (10.7) —  (47.6) (9.5) —  (69.4) 
Non-timber sales(8.3) —  (0.5) —  —  (0.1) —  (8.9) 
Foreign exchange (a)—  —  (2.8) —  —  —  —  (2.8) 
Other1.8  (b)6.0  (b)(1.6) (c)7.5  (d)114.4  (e)—  (0.8) (f)127.4  
Six Months Ended
June 30, 2020		$99.7  $57.2  $79.3  $7.5  $168.6  $43.3  ($0.9) $454.8  

(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 is a new segment in Q2 2020. Includes $5.8 million of sales attributable to noncontrolling interests in the Timber Funds. Also includes $0.9 million of sales related to timberland investment management fees paid to us by the timber funds.
(e) Real Estate includes $116.0 million in Large Dispositions and a $0.1 million increase in marketing fees, partially offset by $1.7 million of deferred revenue adjustments.
(f) Includes $0.9 million of Intersegment eliminations related to timberland management fees paid to us by the timber funds and reported as sales within the Timber Funds segment.
68

Operating Income (Loss)Southern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingCorporate and OtherTotal
Three Months Ended
June 30, 2019		$14.7  ($3.8) $12.8  —  $15.5  ($0.2) ($7.6) $31.4  
Volume2.6  (0.2) (4.5) —  98.5  —  —  96.4  
Price(2.1) (0.1) (3.4) —  (88.4) —  —  (94.0) 
Cost(0.4) (1.1) 0.3  —  3.0  0.5  0.3  2.6  
Non-timber income(3.9) (0.1) 0.1  —  —  (0.2) —  (4.1) 
Foreign exchange (a)—  —  (0.6) —  —  —  —  (0.6) 
Depreciation, depletion & amortization0.3  (1.4) 0.3  —  0.3  —  (0.1) (0.6) 
Non-cash cost of land and improved development—  —  —  —  (3.6) —  —  (3.6) 
Other (b)—  —  —  (1.9) (0.5) —  (13.5) (15.9) 
Three Months Ended
June 30, 2020		$11.2  ($6.7) $5.0  ($1.9) $24.8  $0.1  ($20.9) $11.7  

(a) Net of currency hedging impact.
(b) Timber Funds is a new segment in Q2 2020 and includes a $2.0 million operating loss attributable to noncontrolling interests in Timber Funds. Real Estate includes $0.5 million of deferred revenue adjustments for Improved Development sales. Corporate and Other includes $13.5 million in costs related to the merger with Pope Resources.

Operating Income (Loss)Southern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingCorporate and OtherTotal
Six Months Ended
June 30, 2019		$36.3  ($7.6) $28.5  —  $25.5  $0.3  ($13.1) $69.9  
Volume1.7  (0.6) (8.4) —  42.6  —  —  35.3  
Price(4.3) 2.7  (10.7) —  (47.6) —  —  (59.9) 
Cost —  (1.5) (0.4) —  0.7  (0.1) 0.5  (0.8) 
Non-timber income(8.3) —  (0.3) —  —  (0.1) —  (8.7) 
Foreign exchange (a)—  —  1.3  —  —  —  —  1.3  
Depreciation, depletion & amortization0.9  (0.6) 0.4  —  3.3  —  —  4.0  
Non-cash cost of land and improved development—  —  —  —  (1.1) —  —  (1.1) 
Other (b)—  —  —  (1.9) 28.2  —  (16.0) 10.2  
Six Months Ended
June 30, 2020		$26.3  ($7.6) $10.4  ($1.9) $51.6  $0.1  ($28.6) $50.2  

(a) Net of currency hedging impact.
(b) Timber Funds is a new segment in Q2 2020 and includes a $2.0 million operating loss attributable to noncontrolling interests in Timber Funds. Real Estate includes $28.7 million of operating income from a Large Disposition, offset by $0.5 million of deferred revenue adjustments for Improved Development sales. Corporate and Other includes $16.0 million in costs related to the merger with Pope Resources.
Adjusted EBITDA (a) Southern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingCorporate and OtherTotal
Three Months Ended
June 30, 2019		$27.6  $2.2  $20.0  —  $18.3  ($0.2) ($7.3) $60.6  
Volume5.2  3.0  (5.9) —  113.6  —  —  115.9  
Price(2.1) (0.1) (3.4) —  (88.4) —  —  (94.0) 
Cost (0.4) (1.1) 0.3  —  3.0  0.5  0.3  2.6  
Non-timber income(3.9) (0.1) 0.1  —  —  (0.2) —  (4.1) 
Foreign exchange (b)—  —  (1.2) —  —  —  —  (1.2) 
Other (c)—  —  —  0.7  (1.9) —  (1.2) 
Three Months Ended
June 30, 2020		$26.4  $3.9  $9.9  $0.7  $44.6  $0.1  ($7.0) $78.6  

(a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.
(b)Net of currency hedging impact.
(c)Timber Funds is a new segment in Q2 2020. Real Estate includes $1.9 million of deferred revenue adjustments.
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Adjusted EBITDA (a) Southern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingCorporate and OtherTotal
Six Months Ended
June 30, 2019		$68.9  $5.3  $42.0  —  $35.7  $0.3  ($12.5) $139.7  
Volume3.4  7.2  (11.0) —  56.6  —  —  56.2  
Price(4.3) 2.7  (10.7) —  (47.6) —  —  (59.9) 
Cost—  (1.5) (0.4) —  0.7  (0.1) 0.5  (0.8) 
Non-timber income(8.3) —  (0.3) —  —  (0.1) —  (8.7) 
Foreign exchange (b)—  —  0.5  —  —  —  —  0.5  
Other (c)—  —  —  0.7  (1.9) —  (1.2) 
Six Months Ended
June 30, 2020		$59.7  $13.7  $20.1  $0.7  $43.5  $0.1  ($12.0) $125.7  

(a)Adjusted EBITDA is a non-GAAP measure defined and reconciled in Performance and Liquidity Indicators below.
(b)Net of currency hedging impact.
(c)Timber Funds is a new segment in Q2 2020. Real Estate includes $1.9 million of deferred revenue adjustments.


SOUTHERN TIMBER
        Second quarter sales of $46.8 million increased $0.6 million, or 1%, versus the prior year period primarily due to higher volumes, partially offset by lower pipeline easement revenue. Harvest volumes increased 20% to 1.54 million tons versus 1.27 million tons in the prior year period, primarily due to strong pulpwood demand. Average pine sawtimber stumpage prices decreased 1% to $25.48 per ton versus $25.82 per ton in the prior year period as lower chip-n-saw prices were partially offset by higher prices for larger diameter sawlogs due to the resurgence in southern yellow pine exports to China. Average pine pulpwood stumpage prices decreased 7% to $15.94 per ton versus $17.16 per ton in the prior year period primarily due to an increase in available log supply resulting from drier ground conditions in the current quarter versus the prior year period. Overall, weighted-average stumpage prices (including hardwood) decreased 7% to $18.91 per ton versus $20.29 per ton in the prior year period, primarily driven by lower pulpwood prices coupled with a 5% increase in the pulpwood mix. Operating income of $11.2 million decreased $3.5 million versus the prior year period as lower non-timber income ($3.9 million), lower net stumpage prices ($2.1 million) and higher indirect and overhead expenses ($0.4 million) were partially offset by higher volumes ($2.6 million) and lower depletion rates ($0.3 million). Second quarter Adjusted EBITDA of $26.4 million was $1.2 million below the prior year period.

Year-to-date sales of $99.7 million decreased $7.3 million, or 7% versus the prior year period. Harvest volumes increased 5% to 3.38 million tons versus 3.21 million tons in the prior year period, primarily due to strong pulpwood demand. Average pine sawtimber stumpage prices were flat at $26.16 per ton. Average pine pulpwood stumpage prices decreased 9% to $16.00 per ton versus $17.63 per ton in the prior year period, primarily due to an increase in available log supply resulting from drier ground conditions versus the prior year period. Overall, weighted-average stumpage prices (including hardwood) decreased 6% to $19.45 per ton versus $20.74 per ton in the prior year period. Operating income of $26.3 million decreased $10.0 million versus the prior year period as a result of lower non-timber income ($8.3 million) and lower net stumpage prices ($4.3 million), partially offset by higher volumes ($1.7 million) and lower depletion rates ($0.9 million).







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PACIFIC NORTHWEST TIMBER
        Second quarter sales of $26.2 million increased $7.6 million, or 41%, versus the prior year period. Harvest volumes increased 54% to 385,000 tons versus 250,000 tons in the prior year period primarily due to comparatively light harvest activity in the prior year quarter coupled with 55,000 tons of incremental volume from the acquired Pope Resources timberlands. Average delivered sawtimber prices decreased 4% to $75.39 per ton versus $78.35 per ton in the prior year period due to a higher mix of chip-n-saw volume in the current quarter, partially offset by a higher percentage of Douglas-fir sawtimber. Average delivered pulpwood prices decreased 13% to $36.92 per ton versus $42.26 per ton in the prior year period due to the deterioration of pulp export markets, which resulted in market related downtime at domestic pulp mills. Operating loss of $6.7 million increased $2.9 million versus the prior year period due to higher depletion rates ($1.4 million), higher overhead and other costs ($1.1 million), lower net stumpage prices ($0.1 million), lower non-timber income ($0.1 million) and an increase in other variable costs ($0.2 million). Second quarter Adjusted EBITDA of $3.9 million was $1.7 million above the prior year period.

Year-to-date sales of $57.2 million increased $18.2 million, or 46%, versus the prior year period. Harvest volumes increased 61% to 861,000 tons versus 533,000 tons in the the prior year period primarily due to an increase in lump-sum stumpage sales, higher delivered volumes and 55,000 tons of incremental volume from the acquired Pope Resources timberlands. Average delivered sawtimber prices decreased 4% to $75.40 per ton versus $78.41 per ton in the prior year period, primarily due to a higher mix of chip-n-saw volume and reduced demand resulting from the COVID-19 pandemic, partially offset by a higher percentage of Douglas fir sawtimber. Average delivered pulpwood decreased 14% to $37.47 per ton versus $43.81 per ton in the prior year period, primarily due to excess supply resulting from a weaker pulp export market and downtime at domestic pulp mills. Operating loss of $7.6 million was flat versus the prior year period due to higher overhead and other costs ($1.5 million), higher depletion rates ($0.6 million) and higher other variable costs ($0.6 million), partially offset by higher net stumpage prices ($2.7 million).
NEW ZEALAND TIMBER
        Second quarter sales of $41.8 million decreased $20.3 million, or 33%, versus the prior year period. Harvest volumes decreased 23% to 529,000 tons versus 684,000 tons in the prior year period, primarily due to the government-mandated shutdown of all non-essential activity in New Zealand (including the harvesting and transport of logs) from late-March through late-April. Average delivered prices for export sawtimber decreased 12% to $98.75 per ton versus $111.81 per ton in the prior year period, while average delivered prices for domestic sawtimber decreased 19% to $66.95 per ton versus $82.66 per ton in the prior year period. The decrease in export sawtimber prices was driven primarily by lower demand and the buildup of log inventories in China as a result of COVID-19 lockdowns. The decrease in domestic sawtimber prices (in U.S. dollar terms) was driven in part by the fall in the NZ$/US$ exchange rate (US$0.62 per NZ$1.00 versus US$0.67 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 12% versus the prior year period, generally following the negative trend in the export market. Operating income of $5.0 million decreased $7.8 million versus the prior year period as a result of lower volumes ($4.5 million), lower net stumpage prices ($3.4 million) and unfavorable foreign exchange impacts ($0.6 million), partially offset by lower depletion rates ($0.3 million), lower roading costs ($0.2 million), lower overhead costs ($0.1 million) and higher non-timber income ($0.1 million). Second quarter Adjusted EBITDA of $9.9 million was $10.1 million below the prior year period.

Year-to-date sales of $79.3 million decreased $39.9 million, or 33% versus the prior year. Harvest volumes decreased 22% to 1.01 million tons versus 1.29 million tons in the prior year, primarily due to the government-mandated shutdown of all non-essential activity (including the harvesting and transport of logs) from late-March through late-April. Average delivered prices for export sawtimber decreased 15% to $97.00 per ton versus $113.78 per ton in the prior year period, while average delivered prices for domestic sawtimber decreased 17% to $68.55 per ton versus $83.03 per ton in the prior year. The decrease in export sawtimber prices was driven primarily by lower demand resulting from the COVID-19 lockdown in China. The decrease in domestic sawtimber prices (in US dollars terms) was driven in part by the fall in the NZ$/US$ exchange rate (US$0.63 per NZ$1.00 versus US$0.67 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices decreased 12% versus the prior year period, generally following the negative trend of the export market. Operating Income of $10.4 million decreased $18.1 million versus the prior year period as a result of lower net stumpage prices ($10.7 million), lower volumes ($8.4 million), higher costs ($0.4 million) and lower non-timber income ($0.3 million), partially offset by favorable foreign exchange impacts ($1.3 million) and lower depletion rates ($0.4 million). Year-to-date Adjusted EBITDA of $20.1 million was $21.9 million below the prior year period.
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TIMBER FUNDS
The Timber Funds segment generated second quarter harvest volumes of 90,000 tons, sales of $7.5 million and operating loss of $1.9 million. Adjusting for the portion of the Timber Funds segment attributable to noncontrolling interests and fee revenue to Rayonier, pro forma sales and pro forma operating income were $1.7 million and $0.1 million, respectively. Second quarter Adjusted EBITDA was $0.7 million.
REAL ESTATE
Real Estate Sales Category Reclassification
Effective April 1, 2020, the Company changed the composition of its Rural and Timberland & Non-Strategic sales categories to better align with the way management internally evaluates real estate sales. The Rural category now includes all real estate sales (excluding development sales) representing a demonstrable premium above timberland value. The Timberland & Non-Strategic category now includes all real estate sales representing little to no premium to timberland value. This category consists primarily of sales of property that management views as non-strategic to our long-term portfolio as well as sales of property for capital allocation purposes that do not fit the definition of a Large Disposition. All prior period amounts have been reclassified to reflect the new composition of these two sales categories. The Improved Development, Unimproved Development and Large Disposition categories remain unchanged, and this reclassification had no impact on overall segment results.
        Second quarter sales of $50.0 million increased $27.5 million versus the prior year period while operating income of $24.8 million increased $9.4 million versus the prior year period due to a higher number of acres sold (20,310 acres sold versus 3,265 acres sold in the prior year period), partially offset by a decrease in weighted-average prices ($2,545 per acre versus $6,899 per acre in the prior year period).
        Improved Development sales of $6.4 million included a $5.4 million sale in the Belfast Commerce Park development project south of Savannah, Georgia consisting of 119 acres at a price of $45,000 per acre in addition to $1.1 million of sales in the Wildlight development project north of Jacksonville, Florida consisting of 17 residential lots ($63,118 per lot or $367,466 per acre). This compares to prior year period sales of $0.2 million in the Wildlight development project, which consisted of six residential townhome lots ($28,750 per lot or $198,000 per acre).
        Unimproved Development sales of $8.4 million consisted of a 570 acre sale in St. Johns County, Florida for $14,780 per acre. This compares to prior year period sales of $14.4 million, which consisted of a 784 acre sale in St. Johns County, Florida for $18,402 per acre.
        Rural sales of $27.2 million consisted of 7,710 acres at an average price of $3,532 per acre. This compares to prior year period sales of $7.1 million, which consisted of 1,886 acres at an average price of $3,768 per acre.
        Timberland and Non-Strategic sales of $9.6 million consisted of 11,907 acres at an average price of $807 per acre. This compares to prior year period sales of $0.8 million, which consisted of 594 acres at an average price of $1,373 per acre. Timberland and Non-Strategic sales in the quarter included several low-value, geographically-isolated parcels with limited plantability and long-term harvest potential.
Second quarter Adjusted EBITDA of $44.6 million was $26.3 million above the prior year period.

Year-to-date sales of $168.6 million increased $125.0 million versus the prior year period, while operating income of $51.6 million increased $26.1 million versus the prior year period. Year-to-date sales and operating income includes $116.0 million and $28.7 million, respectively, from Large Dispositions. Sales and operating income increased in the first six months primarily due to higher volumes (87,879 acres sold versus 8,944 acres sold in the prior year period), partially offset by lower weighted-average prices. Year-to-date Adjusted EBITDA of $43.5 million increased $7.8 million versus the prior year.

TRADING
        Second quarter sales of $24.3 million decreased $11.1 million versus the prior year period due to lower volumes and prices resulting from the government-mandated shutdown in New Zealand and lower export demand as a result of the COVID-19 pandemic. Sales volumes decreased 18% to 267,000 tons versus 325,000 tons in the prior year period. The Trading segment generated operating income of $0.1 million versus operating loss of $0.2 million in the prior year period.

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Year-to-date sales of $43.3 million decreased $24.2 million versus the prior year primarily due to lower volumes and prices resulting from the government-mandated shutdown in New Zealand and lower export demand as a result of the COVID-19 pandemic. Sales volumes decreased 22% to 474,000 versus 606,000 tons in the prior year period. Operating income and Adjusted EBITDA of $0.1 million decreased $0.2 million versus the prior year.
OTHER ITEMS
CORPORATE AND OTHER EXPENSE / ELIMINATIONS
        Second quarter corporate and other operating expenses of $20.9 million increased $13.2 million versus the prior year period, primarily due to costs related to the Pope Resources merger ($13.5 million), partially offset by lower overhead costs ($0.3 million).
Year-to-date corporate and other operating expenses of $28.6 million increased $15.5 million versus the prior year period due to costs related to the Pope Resources merger ($16.0 million), partially offset by lower overhead costs ($0.5 million).
INTEREST EXPENSE
        Second quarter and year-to-date interest expense of $9.8 million and $18.0 million, respectively, increased $1.9 million and $2.4 million, respectively, versus the prior year periods due to higher outstanding debt following the closing of the Pope Resources merger.
INTEREST AND OTHER MISCELLANEOUS INCOME, NET
        Second quarter and year-to date interest and other miscellaneous income, net of $1.5 million and $1.4 million, respectively, includes favorable mark-to-market adjustments on marketable equity securities and carbon options.
INCOME TAX EXPENSE
        Second quarter and year-to-date income tax expense of $3.0 million and $6.7 million decreased $0.6 million and $1.3 million versus the prior year period as a result of lower taxable income. The New Zealand subsidiary is the primary driver of income tax expense. 
COVID 19 RESPONSE & REVISED OUTLOOK
As we continue to adapt to the impacts of the COVID-19 pandemic, our highest priority remains the health and safety of our employees and contractors, as well as their families and communities. Overall, we are very pleased with the level of productivity and engagement that our employees have sustained over the last several months as we’ve operated under a work-from-home model for office employees and under enhanced safety protocols for field employees. This allowed us to remain nimble and respond to ever evolving market conditions as the economy emerged from the shutdown. In the midst of the pandemic, we also had to focus our efforts on the critical task of closing the Pope Resources acquisition as well as integrating Pope Resources’ assets and people into Rayonier.
Overall, we have been encouraged by the resiliency of our business and industry amid this pandemic. Housing construction and repair and remodeling activity have rebounded sharply, driving record highs for wood products prices throughout the U.S. Longer-term, we expect that this will translate to improved log prices, which tend to lag wood products pricing trends.
In our Southern Timber segment, we expect increases in export volume and strong sawtimber demand. We further expect that average pricing in Southern Timber will be relatively flat, as improved sawtimber demand driven by strong lumber pricing is generally expected to offset lower pulpwood pricing due to anticipated mill downtime, an increased supply of wood chip residuals and geographic mix. In our Pacific Northwest Timber segment, we expect higher full-year harvest volumes due to incremental volume from the acquired Pope Resources timberlands. We further expect that Pacific Northwest sawtimber pricing will improve due to strengthening end markets and a higher-value species mix; however, we anticipate pulpwood pricing will be relatively flat and dependent on the duration of domestic mill curtailments. In our New Zealand Timber segment, we expect higher full-year harvest volumes primarily due to the shorter-than-anticipated shutdown of economic activity in New Zealand. We expect New Zealand pricing to remain relatively flat with higher seasonal demand offset by continued competition from alternative supply sources. In our Real Estate segment, we expect continued strong demand for rural properties as well as an improved demand outlook for development properties.

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LIQUIDITY AND CAPITAL RESOURCES
        Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As an UPREIT, our main use of cash is dividends and unitholder distributions. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources or Large Dispositions.
SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS
June 30,December 31,
(millions of dollars)20202019
Cash and cash equivalents (excluding Timber Funds)$87.8  $68.7  
Total debt (excluding Timber Funds) (a)1,305.0  1,057.0  
Noncontrolling interest in Operating Partnership110.2  —  
Shareholders’ equity1,914.0  1,537.6  
Total capitalization (total debt plus permanent and temporary equity)3,329.2  2,594.6  
Debt to capital ratio39 %41 %
Net debt to enterprise value (b)(c)26 %19 %

(a)Total debt as of June 30, 2020 and December 31, 2019 reflects principal on long-term debt, gross of deferred financing costs and net of fair market value adjustments.
(b)Net debt is calculated as total debt less cash and cash equivalents.
(c)Enterprise value is calculated as the number of shares outstanding multiplied by the Company’s share price plus net debt as of June 30, 2020 and December 31, 2019.
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SUMMARY OF GUARANTOR FINANCIAL INFORMATION
In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022 (the “2022 Notes”). 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 2022 Notes and Rayonier Inc. agreed to irrevocably, fully and unconditionally guarantee jointly and severally, the obligations of Rayonier, L.P. under the Indenture, including the 2020 Notes. Rayonier L.P. is the current issuer of the 2022 Notes.
The subsidiary guarantor, Rayonier TRS Holdings Inc., and parent guarantor, Rayonier Inc., have guaranteed the notes fully and unconditionally on a joint and several basis. As 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 summarized balance sheet information for the consolidated obligor group of debt issued by Rayonier, L.P. for six months ended June 30, 2020 and year ended December 31, 2019 are provided in the table below:
(in millions)June 30, 2020December 31, 2019
Current assets$68.4  $51.7  
Non-current assets47.2  48.8  
Current liabilities19.2  100.2  
Non-current liabilities2,057.4  1,632.7  
Due to non-guarantors652.1  587.0  
The summarized results of operations information for the consolidated obligor group of debt issued by Rayonier, L.P. for six months ended June 30, 2020 and year ended December 31, 2019 are provided in the table below:
(in millions)June 30, 2020December 31, 2019
Cost and expenses($28.1) ($22.0) 
Operating loss(28.1) (22.0) 
Net loss(47.0) (54.2) 
Revenue from non-guarantors454.8  711.6  

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CASH FLOWS
The following table summarizes our cash flows from operating, investing and financing activities for the six months ended June 30, 2020 and 2019:
(millions of dollars)20202019
Cash provided by (used for):
Operating activities$82.6  $117.0  
Investing activities(170.8) (60.8) 
Financing activities114.9  (78.0) 
CASH PROVIDED BY OPERATING ACTIVITIES
        Cash provided by operating activities decreased $34.4 million primarily due to lower operating results.
CASH USED FOR INVESTING ACTIVITIES
        Cash used for investing activities increased $110.0 million versus the prior year period primarily due to the net cash consideration transferred in our merger with Pope Resources ($231.1 million) and higher real estate development investments ($2.6 million), partially offset by proceeds from a Large Disposition ($115.7 million), a decrease in timberland acquisitions ($2.2 million), lower capital expenditures ($0.1 million) and other investing activities ($5.8 million).
CASH PROVIDED BY FINANCING ACTIVITIES
        Cash provided by financing activities increased $192.9 million from the prior year period primarily due to an increase in net borrowings ($203.0 million), partially offset by increases in debt issuance costs ($2.5 million), share repurchases ($0.5 million), dividends paid on common stock ($1.1 million), distributions to consolidated affiliates ($4.0 million), distributions to noncontrolling interests in the Operating Partnership ($1.2 million) and decreases in proceeds from the issuance of common shares under the Company’s incentive stock plan ($0.8 million).
EXPECTED 2020 EXPENDITURES
Capital expenditures in 2020 are expected to be between $63 million and $66 million, excluding capital expenditures attributable to the Timber Funds and any strategic timberland acquisitions we may make. Capital expenditures are expected to primarily consist of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities.
We anticipate real estate development investments in 2020 to be between $11 million and $13 million, net of reimbursements from community development bonds. Expected real estate development investments include approximately $3.6 million of committed spending primarily related to Wildlight, our mixed-use community development project located north of Jacksonville, Florida and our Richmond Hill mixed-use development project located south of Savannah, Georgia. Uncommitted real estate developments can be managed as market conditions change. We are continuing to monitor the impacts of the COVID-19 pandemic on our real estate development business and expect to periodically adjust our 2020 real estate development investments based on end market conditions and the anticipated timing of improved development sales.
Including shares issued in the merger with Pope Resources, the Company’s 2020 dividend payments are expected to be approximately $145 million assuming no change in the quarterly dividend rate of $0.27 per share or material changes in the number of shares outstanding. Additionally, distributions to noncontrolling interests in the Operating Partnership are expected to be approximately $3.6 million assuming no material changes in the number of Redeemable Common Units outstanding.
Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations including capital allocation priorities.
We have paid $1.1 million of the approximately $3.6 million in current year mandatory pension contribution requirements.
Cash tax payments in 2020 are expected to be approximately $1.1 million, primarily related to the New Zealand subsidiary.
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PERFORMANCE AND LIQUIDITY INDICATORS
        The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, and ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”) and Cash Available for Distribution (“CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”), and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above.
        Management uses CAD as a liquidity measure. CAD is a non-GAAP measure of cash generated during a period that is available for common stock dividends, distributions to noncontrolling interests in the Operating Partnership, distributions to the New Zealand minority shareholder, repurchase of the Company’s common shares, debt reduction, timberland acquisitions and real estate development investments. CAD is defined as cash provided by operating activities adjusted for capital spending (excluding timberland acquisitions and real estate development investments), CAD attributable to noncontrolling interest in Timber Funds and working capital and other balance sheet changes. CAD is not necessarily indicative of the CAD that may be generated in future periods.
        Management uses Adjusted EBITDA as a performance measure. Adjusted EBITDA is a non-GAAP measure that management uses to make strategic decisions about the business and that investors can use to evaluate the operational performance of the assets under management. It removes the impact of specific items that management believes do not directly reflect the core business operations on an ongoing basis attributable to Rayonier. We define Adjusted EBITDA as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land and improved development, non-operating income and expense, operating loss attributable to noncontrolling interest in Timber Funds, costs related to the merger with Pope Resources and Large Dispositions.
We reconcile Adjusted EBITDA to Net Income for the consolidated Company and to Operating Income (Loss) for the segments, as those are the most comparable GAAP measures for each. The following table provides a reconciliation of Net Income to Adjusted EBITDA for the respective periods (in millions of dollars):

Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Net Income to Adjusted EBITDA Reconciliation
Net income$0.5  $20.9  $26.9  $48.7  
Interest, net and miscellaneous income9.7  7.1  17.8  13.8  
Income tax expense3.0  3.6  6.7  8.0  
Depreciation, depletion and amortization38.3  27.6  72.6  64.1  
Non-cash cost of land and improved development13.0  1.6  13.4  5.6  
Operating loss attributable to NCI in Timber Funds2.0  —  2.0  —  
Non-operating income(1.5) (0.3) (1.1) (0.6) 
Costs related to the merger with Pope Resources (a)13.5  —  16.0  —  
Large Dispositions (b)—  —  (28.7) —  
Adjusted EBITDA$78.6  $60.6  $125.7  $139.7  

(a) Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.
(b) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In March 2020, we completed the disposition of approximately 67,000 acres located in Mississippi for a sales price and gain of approximately $116.0 million and $28.7 million, respectively.


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The following tables provide a reconciliation of Operating Income (Loss) by segment to Adjusted EBITDA by segment for the respective periods (in millions of dollars):
Three Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingCorporate
and
Other		Total
June 30, 2020
Operating income (loss)$11.2  ($6.7) $5.0  ($1.9) $24.8  $0.1  ($20.9) $11.7  
Operating loss attributable to NCI in Timber Funds—  —  —  2.0  —  —  —  2.0  
Depreciation, depletion and amortization
15.2  10.6  4.9  0.5  6.7  —  0.3  38.3  
Non-cash cost of land and improved development
—  —  —  —  13.0  —  —  13.0  
Costs related to the merger with Pope Resources (a)—  —  —  —  —  —  13.5  13.5  
Adjusted EBITDA $26.4  $3.9  $9.9  $0.7  $44.6  $0.1  ($7.0) $78.6  
June 30, 2019
Operating income (loss)$14.7  ($3.8) $12.8  —  $15.5  ($0.2) ($7.6) $31.4  
Depreciation, depletion and amortization
12.9  6.0  7.2  —  1.2  —  0.3  27.6  
Non-cash cost of land and improved development
—  —  —  —  1.6  —  —  1.6  
Adjusted EBITDA$27.6  $2.2  $20.0  —  $18.3  ($0.2) ($7.3) $60.6  

(a) Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.

Six Months EndedSouthern TimberPacific Northwest TimberNew Zealand TimberTimber FundsReal EstateTradingCorporate
and
Other		Total
June 30, 2020
Operating income (loss)$26.3  ($7.6) $10.4  ($1.9) $51.6  $0.1  ($28.6) $50.2  
Operating loss attributable to NCI in Timber Funds—  —  —  2.0  —  —  —  2.0  
Depreciation, depletion and amortization
33.4  21.3  9.7  0.5  7.1  —  0.6  72.6  
Non-cash cost of land and improved development
—  —  —  —  13.4  —  —  13.4  
Costs related to merger with Pope Resources (a)—  —  —  —  —  —  16.0  16.0  
Large Dispositions (b)—  —  —  —  (28.7) —  —  (28.7) 
Adjusted EBITDA $59.7  $13.7  $20.1  $0.7  $43.5  $0.1  ($12.0) $125.7  
June 30, 2019
Operating income (loss)$36.3  ($7.6) $28.5  —  $25.5  $0.3  ($13.1) $69.9  
Depreciation, depletion and amortization32.6  12.9  13.5  —  4.5  —  0.6  64.1  
Non-cash cost of land and improved development
—  —  —  —  5.6  —  —  5.6  
Adjusted EBITDA$68.9  $5.3  $42.0  —  $35.7  $0.3  ($12.5) $139.7  

(a) Costs related to the merger with Pope Resources include legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources.
(b) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In March 2020, we completed the disposition of approximately 67,000 acres located in Mississippi for a sales price and gain of approximately $116.0 million and $28.7 million, respectively.
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The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):
Six Months Ended June 30,
 20202019
Cash provided by operating activities$82.6  $117.0  
Capital expenditures (a)(29.4) (29.5) 
Costs related to the merger with Pope Resources (b)16.0  —  
CAD attributable to NCI in Timber Funds(0.9) —  
Working capital and other balance sheet changes11.4  7.6  
CAD79.7  95.1  
Mandatory debt repayments(25.0) —  
CAD after mandatory debt repayments54.7  95.1  

Cash used for investing activities($170.8) ($60.8) 
Cash provided by (used for) financing activities$114.9  ($78.0) 

(a) Capital expenditures during the six months ended June 30, 2020 exclude timberland acquisitions. Excluding the Pope Resources acquisition, timberland acquisitions were $24.2 million and $26.4 million, respectively, during the six months ended June 30, 2020 and June 30, 2019.
(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 (in millions):
Six Months Ended June 30,
 20202019
Purchase of timberlands (a)($24.2) ($26.4) 
Real Estate Development Investments (3.6) (1.0) 
Distributions to noncontrolling interest in consolidated affiliates(7.6) (3.6) 

(a) The six months ended June 30, 2020 excludes timberland acquired in the merger with Pope Resources. See Note 2 - Merger with Pope Resources for additional information.

LIQUIDITY FACILITIES
2020 DEBT ACTIVITY
        See Note 7 — Debt for additional information.

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 13 — Guarantees for details on the letters of credit and surety bonds as of June 30, 2020.

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CONTRACTUAL FINANCIAL OBLIGATIONS
        In addition to using cash flow from operations and proceeds from Large Dispositions, we finance our operations through the issuance of debt and by entering into leases. These financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction, with the result that some are recorded as liabilities on the Consolidated Balance Sheets, while others are required to be disclosed in the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis.
        The following table aggregates our contractual financial obligations as of June 30, 2020 and anticipated cash spending by period: 

Contractual Financial Obligations (in millions)TotalPayments Due by Period
Remaining 20202021-20222023-2024Thereafter
Long-term debt, excluding Timber Funds (a)$1,305.0  —  $325.0  —  $980.0  
Long-term debt, Timber Funds (b)32.4  —  —  32.4  —  
Current maturities of long-term debt, Timber Funds25.0  25.0  —  —  —  
Interest payments on long-term debt, excluding Timber Funds (c)159.2  16.2  58.5  40.2  44.3  
Interest payments on long-term debt, Timber Funds6.1  1.0  3.1  2.0  —  
Operating leases — timberland (d)170.2  5.0  15.3  13.8  136.1  
Operating leases — PP&E, offices (d)7.0  0.8  2.3  1.7  2.2  
Commitments — derivatives (e)110.5  7.7  30.3  32.6  39.9  
Commitments — environmental remediation (f)11.9  0.7  4.4  4.0  2.8  
Commitments — other (g)12.1  6.9  1.9  0.5  2.8  
Total contractual cash obligations$1,839.4  $63.3  $440.8  $127.2  $1,208.1  

(a)The book value of long-term debt, excluding Timber Funds, net of deferred financing costs and fair market value adjustments, is currently recorded at $1,310.5 million on our Consolidated Balance Sheet, but upon maturity the liability will be $1,305.0 million. See Note 7 — Debt for additional information.
(b)The book value of long-term debt for the Timber Funds, net of fair market value adjustments, is currently recorded at $35.6 million on our Consolidated Balance Sheet, but upon maturity the liability will be $32.4 million. See Note 7 - Debt for additional information
(c)Projected interest payments for variable rate debt were calculated based on outstanding principal amounts and interest rates as of June 30, 2020.
(d)Excludes anticipated renewal options.
(e)Commitments — derivatives represents payments expected to be made on derivative financial instruments (foreign exchange contracts, interest rate swaps, interest rate swap locks and forward-starting interest rate swaps). See Note 15 — Derivative Financial Instruments and Hedging Activities.
(f)Commitments - environmental remediation represents our estimate of potential liability associated with environmental contamination at Port Gamble. See Note 12 - Environmental Liabilities.
(g)Commitments — other includes pension contribution requirements based on actuarially determined estimates and IRS minimum funding requirements, payments expected to be made on the Wildlight and Richmond Hill development projects, payments made on timberland deeds and other purchase obligations.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
        We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes.
Interest Rate Risk
        We are exposed to interest rate risk through our variable rate debt, primarily due to changes in LIBOR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreements by swapping existing and anticipated future borrowings from floating rates to fixed rates. As of June 30, 2020, we had $935 million of U.S. variable rate debt, including $35 million outstanding on our revolving credit facility and $900 million outstanding on our term credit agreements.
The notional amount of outstanding interest rate swap contracts with respect to our term credit agreements at June 30, 2020 was $900 million. The maturity date of the Term Credit Agreement was extended from August 2024 to April 2028, with the associated interest rate swaps maturing in August 2024. We have entered into forward starting interest rate swaps to cover $150 million of the Term Credit Agreement through the extended maturity date. The Incremental Term Loan Agreement and associated interest rate swaps mature in May 2026, and the 2020 Incremental Term Loan Agreement matures in June 2025 and the associated interest rate swaps mature in June 2030. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in a corresponding increase/decrease in interest payments and expense of approximately $0.4 million over a 12-month period.
        The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our long-term fixed rate debt excluding the Timber Funds at June 30, 2020 was $363 million compared to the $370 million principal amount. The estimated fair value of our Timber Funds’ long-term fixed rate debt at June 30, 2020 was $60.8 million compared to the $57.4 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at June 30, 2020 would result in a corresponding decrease/increase in the fair value of our long-term fixed rate debt of approximately $11 million.
        We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt, excluding Timber Funds, to be approximately 3.1% after consideration of interest rate swaps and estimated patronage refunds, excluding unused commitment fees on the revolving credit facility. We estimate the periodic effective interest rate on our Timber Funds’ long-term fixed rate debt to be approximately 3.9% after consideration of estimated patronage refunds.
        
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        The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at June 30, 2020:

(Dollars in thousands)20202021202220232024ThereafterTotalFair Value
Variable rate debt:
Principal amounts—  —  —  —  —  $935,000  $935,000  $935,000  
Average interest rate (a)(b)—  —  —  —  —  1.94 %1.94 %
Fixed rate debt, excluding Timber Funds:
Principal amounts—  —  $325,000  —  —  $45,000  $370,000  $362,698  
Average interest rate (b)—  —  3.75 %—  —  5.22 %3.93 %
Fixed rate debt, Timber Funds:
Principal amounts$25,000  —  —  $17,980  $14,400  —  $57,380  $60,824  
Average interest rate (b)4.28 %—  —  5.10 %4.45 %—  4.58 %
Interest rate swaps:
Notional amount—  —  —  —  $350,000  $550,000  $900,000  ($65,381) 
Average pay rate (b)—  —  —  —  2.28 %1.31 %1.69 %
Average receive rate (b)—  —  —  —  0.17 %0.17 %0.17 %
Forward-starting interest rate swaps
Notional amount—  —  —  —  —  $475,000  $475,000  ($22,832) 
Average pay rate (b)—  —  —  —  —  1.22 %1.22 %
Average receive rate (b)—  —  —  —  —  0.16 %0.16 %

(a) Excludes estimated patronage refunds.
(b) Interest rates as of June 30, 2020.


Foreign Currency Exchange Rate Risk
        The functional currency of our New Zealand-based operations and New Zealand subsidiary is the New Zealand dollar. Through these operations and our ownership in the New Zealand subsidiary, we are exposed to foreign currency risk on cash held in foreign currencies, shareholder distributions which are paid in U.S. dollars and on foreign export sales and ocean freight payments that are predominantly denominated in U.S. dollars. To mitigate these risks, the New Zealand subsidiary routinely enters into foreign currency exchange contracts and foreign currency option contracts to hedge a portion of the New Zealand subsidiary’s foreign exchange exposure.
Sales and Expense Exposure
        At June 30, 2020, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $62 million and foreign currency option contracts with a notional amount of $36 million outstanding related to foreign export sales and ocean freight payments. The amount hedged represents a portion of forecasted U.S. dollar denominated export timber and log trading sales proceeds over the next 24 months and next 3 months, respectively.
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        The following table summarizes our outstanding foreign currency exchange rate risk contracts at June 30, 2020:
(Dollars in thousands)0-1 months1-2 months2-3 months3-6 months6-12 months12-18 months18-24 monthsTotalFair Value
Foreign exchange contracts to sell U.S. dollar for New Zealand dollar
Notional amount$8,500$6,000$4,000$10,000$15,000$13,000$5,000$61,500$502
Average contract rate1.56191.56191.56201.56241.56351.56511.56631.5634
Foreign currency option contracts to sell U.S. dollar for New Zealand dollar
Notional amount—$2,000$2,000$4,000$20,000$8,000—$36,000$30
Average strike price—1.52501.52431.57791.57261.6063—1.5753

Item 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
Rayonier Inc.
Rayonier management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed with the objective of ensuring information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.
Based on an evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of June 30, 2020.
In the quarter ended June 30, 2020, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.

Rayonier, L.P.
The Operating Partnership is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed with the objective of ensuring information required to be disclosed by Rayonier, L.P. in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, is (1) recorded, processed, summarized and reported or submitted within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including Rayonier’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved.
Based on an evaluation of the Operating Partnership’s disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q, management, including Rayonier’s Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of June 30, 2020.
In the quarter ended June 30, 2020, based upon the evaluation required by Rule 13a-15(d) under the Exchange Act, there were no changes in internal controls over financial reporting that would materially affect or are reasonably likely to materially affect internal controls over financial reporting.
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PART II. OTHER INFORMATION

Item 1A.  RISK FACTORS
Our operations are subject to a number of risks. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in this Quarterly Report on Form 10-Q. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. The information presented below updates the risk factors set forth in Part I, “Item 1A. Risk Factors,” of the Company’s 2019 Form 10-K.

Coronavirus (COVID-19) Pandemic

The recent novel coronavirus (COVID-19) outbreak could materially adversely affect our financial condition and results of operations.
Epidemics, pandemics or other such crises or public health concerns in regions of the world where we have operations or sell products, could result in the disruption of our business. Specifically, the ongoing COVID-19 outbreak has resulted in increased travel restrictions and extended shutdowns of certain businesses around the world, as well as a deterioration of general economic conditions. These or any governmental or other regulatory developments or health concerns in countries in which we operate or export to could result in operational restrictions or social and economic instability, or labor shortages. At this point in time, there is substantial uncertainty relating to the potential impact of COVID-19 on our business. Infections may continue to spread, which could limit our ability to timely harvest, sell and transport our timber, restrict our operations or cause supply chain disruptions for us and our customers. In addition, we also face risks and costs associated with implementation of business continuity plans and modified work conditions, including making required resources available to our workforce to enable them to continue essential work. Any of these developments could have a negative impact on our business, financial condition and operating results. In addition, the COVID-19 pandemic could continue to adversely affect the economies and markets of many countries, resulting in a further economic downturn that could impact the pricing or demand for timber, real estate, and especially housing, which could have an adverse effect on our business, operating results and financial condition, as well as market value of our securities. Further, our customers may be negatively impacted due to the general decline in business and operating conditions and constraints on their own liquidity and access to capital relating to COVID-19, which could increase our counterparty credit exposure. The continued spread of COVID-19 has also led to disruption and volatility in the global capital markets. This could lead to further volatility in interest and exchange rates, increase our cost of capital, and adversely impact our access to capital, credit ratings or overall liquidity.

Failure of Operating Partnership to maintain status as a partnership for U.S. federal income tax purposes

We believe our Operating Partnership qualifies as a partnership for U.S. federal income tax purposes. As a partnership, our Operating Partnership is not subject to U.S. federal income tax on its income. Instead, each of the partners is allocated its share of our Operating Partnership’s income. We cannot assure you, however, that the IRS will not challenge the status of our Operating Partnership as a partnership for U.S. federal income tax purposes. If the IRS were to successfully challenge the status of our Operating Partnership as a partnership, it would be taxable as a corporation. In such event, this would reduce the amount of distributions that our Operating Partnership could make, which could have further implications as to our ability to maintain our status as a REIT. This would substantially reduce our cash available to pay distributions and the return on a unitholder and/or shareholder’s investment.


Item 1. LEGAL PROCEEDINGS

The information set forth in Note 11 — Contingencies in the “Notes to Consolidated Financial Statements” under Item 1 of Part I of this report is incorporated herein by reference. 

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Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Rayonier Inc.
ISSUER PURCHASES OF EQUITY SECURITIES

        In February 2016, the Board of Directors approved the repurchase of up to $100 million of Rayonier’s common shares (the “share repurchase program”) to be made at management’s discretion. The program has no time limit and may be suspended or discontinued at any time. There were no shares repurchased under this program in the second quarter of 2020. Based on the period-end closing stock price of $24.79 at June 30, 2020, there was $87.7 million, or approximately 3,538,864 shares, remaining under this program.
        The following table provides information regarding our purchases of Rayonier common shares during the quarter ended June 30, 2020:
PeriodTotal Number of Shares Purchased (a)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (c)
April 1 to April 30 64,379  23.72  —  3,650,788  
May 1 to May 311,769  25.15  —  3,693,829  
June 1 to June 3020  23.96  —  3,538,864  
Total66,168  —  

(a)Includes 66,168 shares of the Company’s common shares purchased in April, May and June from current and former employees in non-open market transactions. The shares were sold by current and former employees of the Company in exchange for cash that was used to pay withholding taxes associated with the vesting of share-based awards under the Company’s Incentive Stock Plan. The price per share surrendered is based on the closing price of the Company’s common shares on the respective vesting dates of the awards.
(b)Purchases made in open-market transactions under the $100 million share repurchase program announced on February 10, 2016.
(c)Maximum number of shares authorized to be purchased under the share repurchase program at the end of April, May and June are based on month-end closing stock prices of $24.03, $23.75 and $24.79, respectively.

Rayonier, L.P.

        During the second quarter of 2020, the Operating Partnership issued an aggregate of 4,446,153 Common Units as partial consideration in the merger with Pope Resources. The Common Units were issued in private offerings exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act to accredited investors under Rule 501 of the Securities Act.
85

Item 6. EXHIBITS
2.1  Incorporated by reference to Exhibit 2.1 to the Registrant’s April 1, 2020 Form 8-K
3.1  Incorporated by reference to Exhibit 3.1 to the Registrant’s May 13, 2020 Form 8-K
4.1  

Incorporated by reference to Exhibit 4.3 to the Registrant’s May 8, 2020 Form S-8
4.2  
Incorporated by reference to Exhibit 4.1 to the Registrant’s May 13, 2020 Form 8-K
10.1  Incorporated by reference to Exhibit 10.3 to the Registrant’s May 1, 2020 Form 10-Q
10.2  Incorporated by reference to Exhibit 10.4 to the Registrant’s May 1, 2020 Form 10-Q
10.3  Incorporated by reference to Exhibit 10.5 to the Registrant’s May 1, 2020 Form 10-Q
10.4  Incorporated by reference to Exhibit 10.6 to the Registrant’s May 1, 2020 Form 10-Q
10.5  Incorporated by reference to Exhibit 10.7 to the Registrant’s May 1, 2020 Form 10-Q
10.6  
Incorporated by reference to Exhibit 10.1 to the Registrant’s May 13, 2020 Form 8-K
10.7  Filed herewith
10.8  Filed herewith
10.9  Filed herewith
22.1  Filed herewith
86

31.1  Filed herewith
31.2  Filed herewith
31.3  Filed herewith
31.4  Filed herewith
32.1  Furnished herewith
32.2  Furnished herewith
101  The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2020, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019; (ii) the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019; (iii) the Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2020 and 2019; (iv) the Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019; and (v) the Notes to Consolidated Financial StatementsFiled herewith
104  The cover page from the Company’s Quarterly Report on Form 10-Q from the quarter ended June 30, 2020, formatted in Inline XBRL (included as Exhibit 101).
*Management contract or compensatory plan
87

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
RAYONIER INC.
By:
/s/ APRIL TICE
April Tice
Vice President, Financial Services and Corporate Controller
(Duly Authorized Officer, Principal Accounting Officer)
Date: August 10, 2020


RAYONIER, L.P.
By: RAYONIER INC., its sole general partner
By:
/s/ APRIL TICE
April Tice
Vice President, Financial Services and Corporate Controller
(Duly Authorized Officer, Principal Accounting Officer)
Date: August 10, 2020





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