JOINT VENTURE INVESTMENT

On April 4, 2013 (the “acquisition date”), the Company acquired an additional 39 percent ownership interest in Matariki Forestry Group , a New Zealand JV that owns or leases approximately 0.3 million acres of New Zealand timberlands. As a result of the acquisition, Rayonier is a 65 percent owner of the New Zealand JV and 100 percent of the results of its operations subsequent to April 4, 2013 have been included in the Company’s consolidated financial statements, along with 100 percent of the JV’s assets and liabilities at December 31, 2013. The portions of the consolidated financial position and results of operations attributable to the New Zealand JV’s 35 percent noncontrolling interest are also shown separately. Rayonier’s wholly owned subsidiary, Rayonier New Zealand Limited (“RNZ”) continues to serve as the manager of the New Zealand JV forests.

The purchase price of the additional interest in the New Zealand JV was $139.9 million, which included $3.3 million of contingent consideration and was financed through our term credit agreement. As the purchase price was in New Zealand dollars, the Company purchased foreign currency forward contracts to mitigate foreign currency risk on the purchase price. As a result, the Company recorded a benefit of $1.7 million and received that amount upon maturity of the contracts on April 2, 2013.

The contingent consideration arrangement required the Company to pay additional consideration to the New Zealand JV’s selling (former) shareholders equal to a multiple of the increase in log prices for a six month period beginning in November 2012. We estimated the fair value of the contingent consideration arrangement at the acquisition date to be $3.3 million. Fair value was determined using an average of the cost and freight (CFR) selling price of China A-grade 3.8 meter logs. In the second quarter of 2013, the contingent consideration was determined and paid in the amount of $3.3 million.

Prior to the acquisition date, the Company accounted for its 26 percent interest in the New Zealand JV as an equity method investment. The additional 39 percent interest acquired resulted in the Company obtaining a controlling financial interest in the New Zealand JV and accordingly, the purchase was accounted for as a step-acquisition. Upon consolidation, the Company recognized a $10.1 million deferred gain, which resulted from the original sale of its New Zealand operations to the joint venture in 2005 and a $6 million benefit due to the required fair market value remeasurement of the Company’s equity interest in the New Zealand JV held before the purchase of the additional interest. Both gains are included in the line item “Gain related to consolidation of New Zealand joint venture” in the Consolidated Statements of Income and Comprehensive Income. The acquisition-date fair value of the previous equity interest was $93.3 million.

We have applied estimates and judgments in order to determine the fair value of assets acquired and liabilities assumed at the acquisition date. In determining fair value we utilized valuation methodologies including discounted cash flow analysis. The assumptions made in performing these valuations include assumptions as to discount rates, foreign exchange rates, and commodity prices. In the fourth quarter of 2013, the Company completed its valuation of the assets acquired and liabilities assumed in the business combination resulting in the following measurement period adjustments to the provisional amounts since the acquisition date. The effect of these measurement period adjustments has been reflected in the consolidated financial statements for the period ended December 31, 2013.



Provisional amount of adjustments	Increase/(Decrease)
Timber and timberlands, net	$	10,348
Goodwill	10,496
Deferred tax liabilities	$	20,844

The fair value of the identifiable net assets acquired was $129.4 million, which was $10.5 million below the purchase price of $139.9 million. Accordingly, the excess of the purchase price over the fair value of the identifiable net assets (including deferred taxes) was recorded as goodwill within “Other Assets”on the Consolidated Balance Sheets. In a business combination, deferred tax liabilities are not recognized at fair value. As the deferred tax liabilities were not discounted to present value, the book value exceeded the market value resulting in non-core goodwill. The goodwill was assigned to the Forest Resources segment and is not deductible for tax purposes. Based on significant positive cash flow, forecasted financial results and a third party timber valuation, there is no indication of potential impairment of goodwill as of December 31, 2013.

The following table summarizes the final fair values of the assets acquired and liabilities assumed at the acquisition date, including the measurement period adjustments discussed above:



	April 4, 2013
Accounts receivable, net	$	9,777
Inventory	2,465
Other current assets	6,767
Timber and timberlands, net	555,635
Other assets	11,415
Total identifiable assets acquired	586,059
Accounts payable	11,679
Current maturities of long-term debt	3,843
Accrued interest	2,038
Other current liabilities	3,624
Long-term debt (third party)	196,319
Long-term debt (shareholders) (a)	125,532
Other non-current liabilities	20,388
Total liabilities assumed	363,423
Net identifiable assets	222,636
Plus: Goodwill	10,496
Less: Fair value of equity method investment	(93,253		)
Purchase price	$	139,879


(a)	Long-term debt included $125.5 million of shareholder loans payable to the noncontrolling interest by the New Zealand JV. Subsequent to the acquisition date, $96.0 million of the noncontrolling interest’s shareholder loans were converted to preferred equity.

The Company’s operating results for the year ended December 31, 2013 reflect 26 percent of the New Zealand JV’s income prior to the acquisition date, as reported in “Equity in income of New Zealand joint venture” in the Consolidated Statements of Income and Comprehensive Income. The amounts of revenue and earnings of the New Zealand JV included in the Company’s Consolidated Statements of Income and Comprehensive Income from the acquisition date through December 31, 2013 are as follows:



	Revenue and earnings from April 4, 2013 to December 31, 2013
Sales	$	145,719
Net Income	5,435

The following represents the pro forma consolidated sales and net income for the two years ended December 31, 2013 as if the additional interest in the New Zealand JV had been acquired on January 1, 2012.



	2013		2012
Sales	$	1,742,348	$	1,683,776
Net Income	372,039		271,589