Rayonier - 10-Q quarterly report FY2020 Q1

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Table of Contents

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 March 31, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


			For the transition period from to

Commission File Number 1-6780

RAYONIER INC.

(Exact name of registrant as specified in its charter)

Incorporated in the State of North Carolina

I.R.S. Employer Identification No. 13-2607329

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 class	Trading Symbol	Exchange
COMMON SHARES, NO PAR VALUE	RYN	New 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.

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).

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.

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of April 24, 2020, there were outstanding 129,232,312 Common Shares of the registrant.

Table of Contents

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

RAYONIER INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(Unaudited)

(Dollars in thousands, except per share amounts)


	Three Months Ended March 31,
	2020	2019
SALES (NOTE 2)	$259,130	$191,546
Costs and Expenses
Cost of sales	(209,499)	(143,251)
Selling and general expenses	(9,968)	(9,810)
Other operating (expense) income, net (Note 16)	(1,111)	35
	(220,578)	(153,026)
OPERATING INCOME	38,552	38,520
Interest expense	(8,216)	(7,710)
Interest and other miscellaneous (expense) income, net	(209)	1,332
INCOME BEFORE INCOME TAXES	30,127	32,142
Income tax expense (Note 9)	(3,706)	(4,349)
NET INCOME	26,421	27,793
Less: Net income attributable to noncontrolling interest	(567)	(2,999)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.	25,854	24,794
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment, net of income tax effect of $0, and $0	(44,023)	6,033
Cash flow hedges, net of income tax effect of $1,857 and $335	(83,475)	(10,686)
Amortization of pension and postretirement plans, net of income tax expense of $0 and $0	217	112
Total other comprehensive loss	(127,281)	(4,541)
COMPREHENSIVE (LOSS) INCOME	(100,860)	23,252
Less: Comprehensive loss (income) attributable to noncontrolling interest	10,661	(4,551)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.	($90,199)	$18,701
EARNINGS PER COMMON SHARE (NOTE 12)
Basic earnings per share attributable to Rayonier Inc.	$0.20	$0.19
Diluted earnings per share attributable to Rayonier Inc.	$0.20	$0.19

See Notes to Consolidated Financial Statements.

Table of Contents

RAYONIER INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Dollars in thousands)


	March 31, 2020	December 31, 2019
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$132,362	$68,735
Accounts receivable, less allowance for doubtful accounts of $25 and $24	28,295	27,127

Inventory (Note 17)	13,093	14,518

Prepaid expenses	14,941	14,728

Other current assets	384	867
Total current assets	189,075	125,975
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION	2,355,581	2,482,047
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS (NOTE 7)	88,833	81,791
PROPERTY, PLANT AND EQUIPMENT
Land	4,131	4,131
Buildings	22,933	23,095
Machinery and equipment	4,346	4,339
Construction in progress	349	348
Total property, plant and equipment, gross	31,759	31,913
Less — accumulated depreciation	(9,950)	(9,662)
Total property, plant and equipment, net	21,809	22,251
RESTRICTED CASH (NOTE 18)	475	1,233
RIGHT-OF-USE ASSETS (NOTE 3)	91,953	99,942
OTHER ASSETS	40,024	47,757
TOTAL ASSETS	$2,787,750	$2,860,996
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$20,837	$18,160

Current maturities of long-term debt (Note 6)	—	82,000
Accrued taxes	3,416	3,032

Accrued payroll and benefits	3,802	8,869
Accrued interest	8,042	5,205
Deferred revenue	6,718	11,440
Other current liabilities	26,459	22,480
Total current liabilities	69,274	151,186
LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS (NOTE 6)	1,055,270	973,129
PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 15)	24,658	25,311
LONG-TERM LEASE LIABILITY (NOTE 3)	83,358	90,481
OTHER NON-CURRENT LIABILITIES	155,522	83,247
COMMITMENTS AND CONTINGENCIES (NOTES 8 and 10)
SHAREHOLDERS’ EQUITY
Common Shares, 480,000,000 shares authorized,129,181,239 and 129,331,069 shares issued and outstanding	889,753	888,177
Retained earnings	570,895	583,006
Accumulated other comprehensive loss (Note 19)	(147,255)	(31,202)
TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY	1,313,393	1,439,981
Noncontrolling interest	86,275	97,661
TOTAL SHAREHOLDERS’ EQUITY	1,399,668	1,537,642
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$2,787,750	$2,860,996

See Notes to Consolidated Financial Statements.

Table of Contents

RAYONIER INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(Dollars in thousands, except share data)


	Common Shares			Retained Earnings	Accumulated Other Comprehensive Loss	Non-controlling Interest	Shareholders’ Equity
	Shares	Amount
Balance, January 1, 2020	129,331,069	$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	(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)
Distribution to minority shareholder	—	—	—	—	(725)	(725)
Balance, March 31, 2020	129,181,239	$889,753	$570,895	($147,255)	$86,275	$1,399,668


	Common Shares			Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Non-controlling Interest	Shareholders’ Equity
	Shares	Amount
Balance, January 1, 2019	129,488,675	$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)

Distribution to minority shareholder	—	—	—	—	(3,594)	(3,594)
Balance, March 31, 2019	129,513,566	$886,304	$662,116	($5,853)	$98,633	$1,641,200

See Notes to Consolidated Financial Statements.

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RAYONIER INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)


	Three Months Ended March 31,
	2020	2019
OPERATING ACTIVITIES
Net income	$26,421	$27,793
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation, depletion and amortization	34,329	36,491
Non-cash cost of land and improved development	412	4,030
Stock-based incentive compensation expense	1,510	1,477
Deferred income taxes	3,361	3,705
Amortization of losses from pension and postretirement plans	217	112
Gain on sale of large disposition of timberlands	(28,655)	—
Other	568	1,491
Changes in operating assets and liabilities:
Receivables	(5,316)	(8,195)
Inventories	(3,618)	(1,343)
Accounts payable	3,353	6,389

All other operating activities	(3,403)	(1,033)
CASH PROVIDED BY OPERATING ACTIVITIES	29,179	70,917
INVESTING ACTIVITIES
Capital expenditures	(17,176)	(14,122)

Real estate development investments	(1,727)	(1,677)
Purchase of timberlands	(24,122)	(12,349)

Net proceeds from large disposition of timberlands	115,666	—


Other	2,070	2,337
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	74,711	(25,811)
FINANCING ACTIVITIES
Issuance of debt	20,000	—
Repayment of debt	(20,000)	—
Dividends paid	(34,907)	(34,877)
Proceeds from the issuance of common shares under incentive stock plan	66	597


Repurchase of common shares	—	(33)




Repurchase of common shares made under repurchase program	(3,152)	—

Distribution to minority shareholder	(725)	(3,594)
Other	—	(16)
CASH USED FOR FINANCING ACTIVITIES	(38,718)	(37,923)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(2,303)	843
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash	62,869	8,026
Balance, beginning of year	69,968	156,454
Balance, end of period	$132,837	$164,480
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period:
Interest (a)	$2,595	$2,120
Income taxes	185	631
Non-cash investing activity:
Capital assets purchased on account	4,215	3,354

(a)Interest paid is presented net of patronage payments received of $4.3 million and $3.9 million for the three months ended March 31, 2020 and March 31, 2019, respectively. For additional information on patronage payments, see Note 6 — Debt in the 2019 Form 10-K.

See Notes to Consolidated Financial Statements.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

1.BASIS OF PRESENTATION

The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries (“Rayonier” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The 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”).

SUMMARY OF UPDATES TO SIGNIFICANT ACCOUNTING POLICIES

For a full description of our other significant accounting policies, see Note 1 — Summary of Significant Accounting Policies in the 2019 Form 10-K.

RECENTLY ADOPTED STANDARDS

The Company 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 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. The Company is currently evaluating its 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. The Company is currently evaluating the impact of adopting this new accounting guidance on our consolidated financial statements.

SUBSEQUENT EVENTS

Entry into Debt Agreements

See Note 6 — Debt for information regarding subsequent events related to the Company’s debt agreements.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

2. REVENUE

PERFORMANCE OBLIGATIONS

The Company recognizes revenues when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected in exchange for those goods or services (“transaction price”). The Company generally satisfies performance obligations within a year of entering into a contract and therefore has applied the disclosure exemption found under ASC 606-10-50-14. Unsatisfied performance obligations as of March 31, 2020 are primarily due to advances on stumpage contracts and unearned license revenue. These performance obligations are expected to be satisfied within the next twelve months. The Company generally collects payment within a year of satisfying performance obligations and therefore has 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 the Company has 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) the Company performs under the contract.

The following table summarizes revenue recognized during the three months ended March 31, 2020 and 2019 that was included in the contract liability balance at the beginning of each year:


	Three Months Ended March 31,
	2020	2019
Revenue recognized from contract liability balance at the beginning of the year (a)	$6,425	$5,356

(a) Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(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 months ended March 31, 2020 and 2019:


Three Months Ended	Southern Timber	Pacific Northwest Timber	New Zealand Timber	Real Estate	Trading	Elim.	Total
March 31, 2020
Pulpwood	$27,493	$3,127	$4,847	—	$2,530	—	$37,997
Sawtimber	19,509	27,445	30,788	—	16,112	—	93,854
Hardwood	481	—	—	—	—	—	481
Total Timber Sales	47,483	30,572	35,635	—	18,642	—	132,332
License Revenue, Primarily From Hunting	4,589	97	57	—	—	—	4,743
Other Non-Timber/Carbon Revenue	910	406	1,846	—	—	—	3,162
Agency Fee Income	—	—	—	—	329	—	329
Total Non-Timber Sales	5,499	503	1,903	—	329	—	8,234
Improved Development	—	—	—	—	—	—	—
Unimproved Development	—	—	—	—	—	—	—
Rural	—	—	—	2,397	—	—	2,397
Timberlands & Non-Strategic	—	—	—	—	—	—	—
Other	—	—	—	140	—	—	140
Large Dispositions	—	—	—	116,027	—	—	116,027
Total Real Estate Sales	—	—	—	118,564	—	—	118,564

Revenue from Contracts with Customers	52,982	31,075	37,538	118,564	18,971	—	259,130
Intersegment	—	—	—	—	13	(13)	—
Total Revenue	$52,982	$31,075	$37,538	$118,564	$18,984	($13)	$259,130

March 31, 2019
Pulpwood	$26,799	$2,820	$8,767	—	$4,326	—	$42,712
Sawtimber	23,152	17,277	45,863	—	27,512	—	113,804
Hardwood	1,086	—	—	—	—	—	1,086
Total Timber Sales	51,037	20,097	54,630	—	31,838	—	157,602
License Revenue, Primarily from Hunting	4,026	4	53	—	—	—	4,083
Other Non-Timber/Carbon Revenue	5,783	434	2,447	—	—	—	8,664
Agency Fee Income	—	—	—	—	198	—	198
Total Non-Timber Sales	9,809	438	2,500	—	198	—	12,945
Improved Development	—	—	—	341	—	—	341
Unimproved Development	—	—	—	1,000	—	—	1,000
Rural	—	—	—	12,665	—	—	12,665
Timberlands & Non-Strategic	—	—	—	6,934	—	—	6,934
Other	—	—	—	59	—	—	59

Total Real Estate Sales	—	—	—	20,999	—	—	20,999

Revenue from Contracts with Customers	60,846	20,535	57,130	20,999	32,036	—	191,546
Intersegment	—	—	—	—	29	(29)	—
Total Revenue	$60,846	$20,535	$57,130	$20,999	$32,065	($29)	$191,546

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

The following tables present our timber sales disaggregated by contract type for the three months ended March 31, 2020 and 2019:


Three Months Ended	Southern Timber	Pacific Northwest Timber	New Zealand Timber	Trading	Total
March 31, 2020
Stumpage Pay-as-Cut	$25,407	—	—	—	$25,407
Stumpage Lump Sum	388	5,131	—	—	5,519

Total Stumpage	25,795	5,131	—	—	30,926

Delivered Wood (Domestic)	21,060	25,441	13,691	472	60,664
Delivered Wood (Export)	628	—	21,944	18,170	40,742
Total Delivered	21,688	25,441	35,635	18,642	101,406

Total Timber Sales	$47,483	$30,572	$35,635	$18,642	$132,332

March 31, 2019
Stumpage Pay-as-Cut	$28,008	—	—	—	$28,008
Stumpage Lump Sum	2,095	—	—	—	2,095

Total Stumpage	30,103	—	—	—	30,103

Delivered Wood (Domestic)	19,338	20,097	20,700	2,124	62,259
Delivered Wood (Export)	1,596	—	33,930	29,714	65,240
Total Delivered	20,934	20,097	54,630	31,838	127,499

Total Timber Sales	$51,037	$20,097	$54,630	$31,838	$157,602

3. 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 March 31, 2020, the New Zealand subsidiary has two CFLs comprising 9,000 acres under termination notice that are being relinquished as harvest activities are concluded, as well as two fixed-term CFLs comprising 3,000 acres expiring in 2062. Additionally, the New Zealand subsidiary has two forestry rights comprising 32,000 acres under termination notice that are being relinquished as harvest activities are concluded.

OTHER NON-TIMBERLAND LEASES

In addition to timberland holdings, the Company leases 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.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

LEASE MATURITIES, LEASE COST AND OTHER LEASE INFORMATION

The following table details the Company’s undiscounted lease obligations as of March 31, 2020 by type of lease and year of expiration:


		Year of Expiration
Lease obligations	Total	Remaining 2020	2021	2022	2023	2024	Thereafter
Operating lease liabilities	$171,497	$7,274	$8,700	$7,852	$7,799	$7,667	$132,205

Total Undiscounted Cash Flows	$171,497	$7,274	$8,700	$7,852	$7,799	$7,667	$132,205
Imputed interest	(78,964)
Balance at March 31, 2020	92,533
Less: Current portion	(9,175)
Non-current portion at March 31, 2020	$83,358

The following table details components of the Company’s lease cost for the three months ended March 31, 2020 and March 31, 2019:


	Three Months Ended March 31,
Lease Cost Components	2020	2019
Operating lease cost	$2,098	$2,437
Variable lease cost (a)	78	76
Total lease cost (b)	$2,176	$2,513

(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 three months ended March 31, 2020.

The following table provides supplemental cash flow information related to the Company’s leases for the three months ended March 31, 2020 and March 31, 2019:


	Three Months Ended March 31,
Supplemental cash flow information related to leases:	2020		2019

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases	$741		$973
Investing cash flows from operating leases	1,357		1,464
Total cash flows from operating leases	$2,098		$2,437




Weighted-average remaining lease term in years - operating leases	28		29

Weighted-average discount rate - operating leases	5	%	5	%

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

The Company applies the following practical expedients as allowed under ASC 842:


Practical Expedient						Description
Short-term leases						The Company does 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 components						The Company does 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.

4. NEW ZEALAND SUBSIDIARY

The Company maintains a 77% controlling financial interest in Matariki Forestry Group (the “New Zealand subsidiary”), a joint venture that owns or leases approximately 415,000 legal acres of New Zealand timberland. Accordingly, the Company consolidates 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 shown separately within the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Shareholders’ Equity. Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the New Zealand subsidiary.

5. SEGMENT AND GEOGRAPHICAL INFORMATION

Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on segment operating income (loss) and Adjusted EBITDA. Asset information is not reported by segment, as the Company does 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.”

The following tables summarize the segment information for the three months ended March 31, 2020 and 2019:


	Three Months Ended March 31,
SALES	2020	2019
Southern Timber	$52,982	$60,846
Pacific Northwest Timber	31,075	20,535
New Zealand Timber	37,538	57,130
Real Estate (a)	118,564	20,999
Trading	18,984	32,065
Intersegment Eliminations	(13)	(29)
Total	$259,130	$191,546

(a) The three months ended March 31, 2020 includes $116.0 million from a Large Disposition.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)


	Three Months Ended March 31,
OPERATING INCOME (LOSS)	2020	2019
Southern Timber	$15,070	$21,520
Pacific Northwest Timber	(948)	(3,741)
New Zealand Timber	5,448	15,720
Real Estate (a)	26,774	10,027
Trading	(19)	480
Corporate and Other	(7,773)	(5,486)
Total Operating Income	38,552	38,520
Unallocated interest expense and other	(8,425)	(6,378)
Total Income before Income Taxes	$30,127	$32,142

(a) The three months ended March 31, 2020 includes $28.7 million from a Large Disposition.


	Three Months Ended March 31,
DEPRECIATION, DEPLETION AND AMORTIZATION	2020	2019
Southern Timber	$18,182	$19,727
Pacific Northwest Timber	10,702	6,826
New Zealand Timber	4,774	6,319
Real Estate (a)	35,745	3,335

Corporate and Other	297	284
Total	$69,700	$36,491

(a) The three months ended March 31, 2020 includes $35.4 million from a Large Disposition.


	Three Months Ended March 31,
NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT	2020	2019



Real Estate (a)	$52,051	$4,030


Total	$52,051	$4,030

(a) The three months ended March 31, 2020 includes $51.6 million from a Large Disposition.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

6. DEBT

Rayonier’s debt consisted of the following at March 31, 2020:


			March 31, 2020
Term Credit Agreement borrowings due 2024 at a variable interest rate of 3.0% at March 31, 2020 (a)(c)			$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 3.5% at March 31, 2020 (b)			300,000
Revolving Credit Facility borrowings due 2020 at an average variable interest rate of 3.5% at March 31, 2020 (c)(d)			82,000


Total debt			1,057,000

Less: Deferred financing costs			(1,730)
Long-term debt, net of deferred financing costs			$1,055,270

(a) As of March 31, 2020 the periodic interest rate on the term loan facility was LIBOR plus 1.625%. The Company estimates the effective fixed interest rate on the term loan facility to be approximately 3.3% after consideration of interest rate swaps and estimated patronage refunds.

(b) As of March 31, 2020, the periodic interest rate on the incremental term loan was LIBOR plus 1.900%. The Company estimates 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) Due dates do not reflect amendments entered into after March 31, 2020. For additional information, see Subsequent Events Relating to Debt Agreements within this footnote below.

(d) The outstanding balance on the Revolving Credit Facility is classified as noncurrent in the Company’s Consolidated Balance Sheets at March 31, 2020, as Rayonier has entered into an agreement to extend its maturity date. For additional information, see Subsequent Events Relating to Debt Agreements within this footnote below.

Principal payments due during the next five years and thereafter are as follows:


2020 (a)			$82,000
2021			—
2022			325,000
2023			—
2024			350,000
Thereafter			300,000
Total Debt			$1,057,000

(a) The outstanding balance on the Revolving Credit Facility is classified as noncurrent in the Company’s Consolidated Balance Sheets at March 31, 2020, as Rayonier has entered into an agreement to extend its maturity date. For additional information, see Subsequent Events Relating to Debt Agreements within this footnote below.

2020 DEBT ACTIVITY

During the three months ended March 31, 2020, the Company made borrowings and repayments of $20.0 million on its Revolving Credit Facility. At March 31, 2020, the Company had available borrowings of $116.5 million under the Revolving Credit Facility, net of $1.5 million to secure its outstanding letters of credit.

During the three months ended March 31, 2020, the New Zealand subsidiary made no borrowings or repayments on its working capital facility. At March 31, 2020, the New Zealand subsidiary had NZ$20.0 million of available borrowings under its working capital facility.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

DEBT COVENANTS

In connection with the Company’s $350 million term credit agreement (the “Term Credit Agreement”), $300 million incremental term loan agreement (the “Incremental Term Loan Agreement”) and $200 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 March 31, 2020, are calculated on a trailing 12-month basis:


	Covenant Requirement		Actual Ratio		Favorable
Covenant EBITDA to consolidated interest expense should not be less than	2.5 to 1		10.3 to 1		7.8
Covenant debt to covenant net worth plus covenant debt shall not exceed	65	%	43	%	22	%

In addition to these financial covenants listed above, the Senior Notes, Term Credit Agreement, Incremental Term Loan Agreement and Revolving Credit Facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At March 31, 2020, the Company was in compliance with all applicable covenants.

SUBSEQUENT EVENTS RELATING TO DEBT AGREEMENTS

On April 1, 2020, the Company entered into a Second Amendment to Credit Agreement to increase the limit on its 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. The extension of the maturity dates of the Revolving Credit Facility and the Term Credit Agreement have been recognized in the Company’s consolidated financial statements as of March 31, 2020.

On April 13, 2020, the Company 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, the Company 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 Company intends to use the proceeds from the 2020 Incremental Term Loan Facility to fund its anticipated second quarter acquisition of Pope Resources.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

7. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS

Rayonier continuously assesses potential alternative uses of its timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. The Company periodically transfers, 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. The Company also acquires 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, the Company also selectively pursues 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, Rayonier also invests in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties.

Changes in higher and better use timberlands and real estate development investments from December 31, 2019 to March 31, 2020 are shown below:


	Higher and Better Use Timberlands and Real Estate Development Investments
	Land and Timber	Development Investments	Total
Non-current portion at December 31, 2019	$58,091	$23,700	$81,791
Plus: Current portion (a)	274	12,389	12,663
Total Balance at December 31, 2019	58,365	36,089	94,454
Non-cash cost of land and improved development	(111)	(156)	(267)
Timber depletion from harvesting activities and basis of timber sold in real estate sales	(85)	—	(85)
Capitalized real estate development investments (b)	—	1,727	1,727
Capital expenditures (silviculture)	54	—	54

Intersegment transfers	33	—	33

Total Balance at March 31, 2020	58,256	37,660	95,916
Less: Current portion (a)	(209)	(6,874)	(7,083)
Non-current portion at March 31, 2020	$58,047	$30,786	$88,833

(a)The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 17 — Inventory for additional information.

(b)Capitalized real estate development investments include $0.1 million of capitalized interest.

8. COMMITMENTS

At March 31, 2020, the future minimum payments under non-cancellable commitments were as follows:


	Development Projects (a)	Pension Contributions (b)	Commitments (c)	Total
Remaining 2020	$3,584	$3,157	$8,576	$15,317
2021	161	681	4,143	4,985
2022	220	—	4,581	4,801
2023	232	—	4,821	5,053
2024	232	—	3,508	3,740
Thereafter	2,770	—	11,496	14,266
	$7,199	$3,838	$37,125	$48,162

(a)Primarily consisting of payments expected to be made on the Company’s Wildlight and Richmond Hill development projects.

(b)Pension contribution requirements are based on actuarially determined estimates and IRS minimum funding requirements.

(c)Commitments include payments expected to be made on foreign exchange contracts, timberland deeds and other purchase obligations.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

9. INCOME TAXES

The Company’s timber operations are primarily conducted by the Company’s REIT entity, which is generally not subject to U.S. federal and state income tax. The New Zealand timber operations are conducted by the New Zealand subsidiary, which is subject to corporate-level tax in New Zealand. Non-REIT qualifying operations, which are subject to corporate-level tax, are conducted by various TRS entities. These operations include log trading and certain real estate activities, such as the sale, entitlement and development of HBU properties.

PROVISION FOR INCOME TAXES

The Company’s 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 on the Consolidated Statements of Income and Comprehensive Income:


	Three Months Ended March 31,
	2020	2019
Income tax expense	($3,706)	($4,349)

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:


	Three Months Ended March 31,
	2020		2019
Annualized effective tax rate after discrete items	12.1	%	12.7	%

10. CONTINGENCIES

The Company has been named as a defendant in various lawsuits and claims arising in the normal course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, it has in certain cases retained some risk through the operation of 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 the Company’s financial position, results of operations, or cash flow.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

11. GUARANTEES

The Company provides financial guarantees as required by creditors, insurance programs, and various governmental agencies.

As of March 31, 2020, the following financial guarantees were outstanding:

Financial Commitments (a)

Maximum Potential
Payment

Standby letters of credit (b)

$1,509

Surety bonds (c)

5,212

Total financial commitments

$6,721

(a)The Company has 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 the Company’s own performance.

(b)Approximately $0.5 million of the standby letters of credit serve as credit support for infrastructure at the Company’s Wildlight development project. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation. These letters of credit will expire at various dates during 2020 and will be renewed as required.

(c)Rayonier issues surety bonds primarily to secure performance obligations related to various operational activities and to provide collateral for the Company’s Wildlight development project in Nassau County, Florida. These surety bonds expire at various dates during 2020, 2021 and 2022 and are expected to be renewed as required.

12. EARNINGS PER COMMON SHARE

The following table provides details of the calculations of basic and diluted earnings per common share:


	Three Months Ended March 31,
	2020	2019
Net Income	$26,421	$27,793
Less: Net income attributable to noncontrolling interest	(567)	(2,999)
Net income attributable to Rayonier Inc.	$25,854	$24,794

Shares used for determining basic earnings per common share	129,137,494	129,172,925
Dilutive effect of:
Stock options	1,075	19,696
Performance shares, restricted shares and restricted stock units	209,481	557,660


Shares used for determining diluted earnings per common share	129,348,050	129,750,281

Basic earnings per common share attributable to Rayonier Inc.:	$0.20	$0.19

Diluted earnings per common share attributable to Rayonier Inc.:	$0.20	$0.19


	Three Months Ended March 31,
	2020	2019
Anti-dilutive shares excluded from the computations of diluted earnings per share:
Stock options, performance shares, restricted shares and restricted stock units	406,326	438,273


Total	406,326	438,273

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. The Company uses 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, the Company records its derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive (loss) income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the Company’s investment in its New Zealand operations 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’s wholly-owned subsidiary, 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. 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 March 31, 2020, foreign currency exchange contracts and foreign currency option contracts had maturity dates through September 2021 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. The Company may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive (loss) income for de-designated hedges remains in accumulated other comprehensive (loss) income until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings.

INTEREST RATE SWAPS

The Company is exposed to cash flow interest rate risk on its variable-rate Term Credit Agreement and Incremental Term Loan Agreement and uses variable-to-fixed interest rate swaps to hedge this exposure. For these derivative instruments, the Company reports the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassifies them to earnings as interest expense in the same period in which the hedged interest payments affect earnings.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

The following table contains information on the outstanding interest rate swaps as of March 31, 2020:


Outstanding Interest Rate Swaps (a)
Date Entered Into	Term	Notional Amount	Related Debt Facility	Fixed Rate of Swap		Bank Margin on Debt		Total Effective Interest Rate (b)
August 2015	9 years	$170,000	Term Credit Agreement	2.20	%	1.63	%	3.83	%
August 2015	9 years	180,000	Term Credit Agreement	2.35	%	1.63	%	3.98	%
April 2016	10 years	100,000	Incremental Term Loan	1.60	%	1.90	%	3.50	%
April 2016	10 years	100,000	Incremental Term Loan	1.60	%	1.90	%	3.50	%
July 2016	10 years	100,000	Incremental Term Loan	1.26	%	1.90	%	3.16	%

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

(b) Rate is before estimated patronage payments.

TREASURY LOCKS

During the first quarter, the Company 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, the Company de-designated and settled the treasury locks by converting them into interest rate swap lock agreements (discussed below). To the extent the Company de-designates or terminates 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) income 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) income 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 period ending March 31, 2020:

Converted Treasury Rate Locks (a)

Date Entered Into

Term

Notional Amount

Rate

Related Debt Facility (b)

Expiration Date

January 2020

10 years

$100,000

1.53%

2020 Incremental Term Loan Facility

March 31, 2020

January 2020

10 years

100,000

1.53%

2020 Incremental Term Loan Facility

March 31, 2020

February 2020

10 years

50,000

1.35%

2020 Incremental Term Loan Facility

March 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, the Company 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 6 — Debt for information regarding subsequent events. The Company anticipates 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, the Company 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. The Company reports the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassifies them to earnings as interest expense in the same period in which the hedged interest payments affect earnings.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

The following table contains information on the outstanding interest rate swap lock agreements as of March 31, 2020:

Outstanding Interest Rate Swap Locks (a)

Date Entered Into

Term

Notional Amount

Fixed Rate of Swap Lock (b)

Related Debt Facility (c)

Effective Date

March 2020

10 years

$100,000

1.56%

2020 Incremental Term Loan Facility

July 31, 2020

March 2020

10 years

100,000

1.59%

2020 Incremental Term Loan Facility

June 30, 2020

March 2020

10 years

50,000

1.41%

2020 Incremental Term Loan Facility

June 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, the Company 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 6 — Debt for information regarding subsequent events. The Company anticipates extending the term of the 2020 Incremental Term Loan facility for an additional five-year term upon maturity.

FORWARD-STARTING INTEREST RATE SWAPS

The Company is exposed to cash flow interest rate risk on anticipated debt issuances and uses 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, the Company reports the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassifies 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 March 31, 2020:

Outstanding Forward-Starting Interest Rate Swaps (a)

Date Entered Into

Term

Notional Amount

Fixed Rate of Swap

Related Debt Facility

Forward Date

Maximum Period Ending for Forecasted Issuance Date

February 2020

10 years

$325,000

1.40

Anticipated refinancing of Senior Notes due 2022

April 2022

March 2020

4 years

100,000

0.88

Anticipated extension of Term Credit Agreement

August 2024

April 2020(b)

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

(b) On April 1, 2020, the maturity date of the Term Credit Agreement was extended from August 5, 2024 to April 1, 2028. See Note 6 — Debt for information regarding subsequent events. On April 8, 2020, the terms of this forward-starting swap were modified to match the maturity date of the Term Credit Agreement.

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 (expense) income, net” as the contracts did not qualify for hedge accounting treatment. As of March 31, 2020, carbon option contracts had maturity dates through June 2020.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(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 three months ended March 31, 2020 and 2019:


		Three Months Ended March 31,
	Income Statement Location	2020	2019
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts	Other comprehensive (loss)	($5,480)	$1,119
Foreign currency option contracts	Other comprehensive (loss)	(1,149)	77
Interest rate swaps	Other comprehensive (loss)	(38,998)	(11,548)
Treasury locks	Other comprehensive (loss)	(20,846)	—
Interest rate swap locks	Other comprehensive (loss)	854	—
Forward-starting interest rate swaps	Other comprehensive (loss)	(19,710)	—





Derivatives not designated as hedging instruments:



Foreign currency exchange contracts	Interest and other miscellaneous (expense) income, net	—	(16)
Carbon option contracts	Interest and other miscellaneous (expense) income, net	549	402

During the next 12 months, the amount of the March 31, 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 $3.4 million.

The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets:


	Notional Amount
	March 31, 2020	December 31, 2019
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts	$60,350	$56,350
Foreign currency option contracts	36,000	22,000
Interest rate swaps	650,000	650,000
Interest rate swap locks	250,000	—
Forward-starting interest rate swaps	425,000	—






Derivative not designated as a hedging instrument:
Foreign currency exchange contracts	—	—
Carbon options (a)	5,070	9,592

(a) Notional amount for carbon options is calculated as the number of units outstanding multiplied by the spot price as of March 31, 2020.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets:


	Location on Balance Sheet	Fair Value Assets / (Liabilities) (a)
		March 31, 2020	December 31, 2019
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts	Other current assets	$79	$424
	Other assets	—	390
	Other current liabilities	(4,319)	(172)
	Other non-current liabilities	(599)	—
Foreign currency option contracts	Other current assets	68	151
	Other assets	129	209
	Other current liabilities	(546)	(27)
	Other non-current liabilities	(497)	(30)
Interest rate swaps	Other assets	—	2,614
	Other non-current liabilities	(47,452)	(11,068)





Interest rate swap locks	Other non-current liabilities	(19,992)	—
Forward-starting interest rate swaps	Other non-current liabilities	(19,710)	—

Derivative not designated as a hedging instrument:


Carbon options	Other current liabilities	(14)	(607)


Total derivative contracts:
Other current assets		$147	$575
Other assets		129	3,213
Total derivative assets		$276	$3,788

Other current liabilities		(4,879)	(806)
Other non-current liabilities		(88,250)	(11,098)
Total derivative liabilities		($93,129)	($11,904)

(a) See Note 14 — Fair Value Measurements for further information on the fair value of the Company’s derivatives including their classification within the fair value hierarchy.

OFFSETTING DERIVATIVES

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

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

14. 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 financial instruments held by the Company at March 31, 2020 and December 31, 2019, using market information and what the Company believes to be appropriate valuation methodologies under GAAP:


	March 31, 2020							December 31, 2019
Asset (Liability) (a)	Carrying Amount	Fair Value					Carrying Amount	Fair Value
				Level 1		Level 2			Level 1	Level 2
Cash and cash equivalents	$132,362	$132,362	—		$68,735		$68,735	—
Restricted cash (b)	475	475	—		1,233		1,233	—
Current maturities of long-term debt	—	—	—		(82,000)		—	(82,000)
Long-term debt (c)	(1,055,270)	—	(1,048,030)		(973,129)		—	(981,500)
Interest rate swaps (d)	(47,452)	—	(47,452)		(8,454)		—	(8,454)
Interest rate swap locks (d)	(19,992)	—	(19,992)		—		—	—
Forward-starting interest rate swaps (d)	(19,710)	—	(19,710)		—		—	—
Foreign currency exchange contracts (d)	(4,839)	—	(4,839)		642		—	642
Foreign currency option contracts (d)	(846)	—	(846)		303		—	303
Carbon option contracts (d)	(14)	—	(14)		(607)		—	(607)
Marketable equity securities (e)	9,610	9,610	—		10,582		10,582	—

(a)The Company did not have Level 3 assets or liabilities at March 31, 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 18 — 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 6 — Debt for additional information.

(d)See Note 13 — Derivative Financial Instruments and Hedging Activities for information regarding the Consolidated Balance Sheets classification of the Company’s derivative financial instruments.

(e)The Company’s investments in marketable securities are classified in “Other Assets” based on the nature of the securities and their availability for use in current operations.

Rayonier uses the following methods and assumptions in estimating the fair value of its 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.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

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.

The following table presents marketable securities that have been in a continuous unrealized gain position for less than 12 months and for 12 months or greater at March 31, 2020 and December 31, 2019:


	March 31, 2020								December 31, 2019
	Carrying Amount		Less than 12 Months	12 Months or Greater	Total	Carrying Amount	Less than 12 Months	12 Months or Greater	Total
Fair value of marketable equity securities	$	9,610	9,610	—	9,610	$10,582	10,582	—	10,582
Unrealized (losses) gains	—		(972)	—	(972)	—	3,043	—	3,043

15. EMPLOYEE BENEFIT PLANS

The Company has one qualified non-contributory defined benefit pension plan covering a portion of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plan. Both plans are closed to new participants. Effective December 31, 2016, the Company froze benefits for all employees participating in the pension plan. In lieu of the pension plan, the Company provides 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 March 31, 2020, the Company has paid $0.4 million of the approximately $3.6 million in current year mandatory pension contribution requirements (based on actuarial estimates and IRS minimum funding requirements).

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 Location	Pension			Postretirement
			Three Months Ended March 31,			Three Months Ended March 31,
			2020	2019	2020	2019
Service cost	Selling and general expenses	—	—	$2	$1
Interest cost	Interest and other miscellaneous (expense) income, net	677	800	13	14
Expected return on plan assets (a)	Interest and other miscellaneous (expense) income, net	(876)	(777)	—	—

Amortization of losses	Interest and other miscellaneous (expense) income, net	215	112	2	—

Net periodic benefit cost		$16	$135	$17	$15

(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%.

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

16. OTHER OPERATING (EXPENSE) INCOME, NET

Other operating (expense) income, net consisted of the following:


	Three Months Ended March 31,
	2020	2019
Gain on foreign currency remeasurement, net of cash flow hedges	$1,433	$30
Gain on sale or disposal of property and equipment	3	21



Log trading marketing fees	47	57
Costs related to the merger with Pope Resources	(2,487)	—

Miscellaneous expense, net	(107)	(73)
Total	($1,111)	$35

17. INVENTORY

As of March 31, 2020 and December 31, 2019, Rayonier’s inventory consisted entirely of finished goods, as follows:


	March 31, 2020	December 31, 2019
Finished goods inventory
Real estate inventory (a)	$7,083	$12,663
Log inventory	6,010	1,855
Total inventory	$13,093	$14,518

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

See Note 7 — Higher And Better Use Timberlands and Real Estate Development Investments for additional information.

18. 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 the Company after 180 days and reclassified as available cash. As of March 31, 2020 and December 31, 2019, the Company 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 three months ended March 31, 2020:


			March 31, 2020

Restricted cash held in escrow			$475
Total restricted cash shown in the Consolidated Balance Sheets			475
Cash and cash equivalents			132,362
Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows			$132,837

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

19. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following table summarizes the changes in AOCI by component for the three months ended March 31, 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) gains	Net investment hedges of New Zealand subsidiary	Cash flow hedges		Employee benefit plans		Total
Balance as of December 31, 2018	($1,010)	$1,321	$21,965		($22,037)		$239
Other comprehensive (loss) income before reclassifications	784	—	(31,547)		(1,799)		(32,562)
Amounts reclassified from accumulated other comprehensive (loss) income	—	—	672		449	(b)	1,121
Net other comprehensive (loss) income	784	—	(30,875)		(1,350)		(31,441)
Balance as of December 31, 2019	($226)	$1,321	($8,910)		($23,387)		($31,202)
Other comprehensive (loss) income before reclassifications	(33,894)	—	(82,391)	(a)	—	(b)	(116,285)
Amounts reclassified from accumulated other comprehensive (loss) income	—	—	15		217		232
Net other comprehensive (loss) income	(33,894)	—	(82,376)		217		(116,053)
Balance as of March 31, 2020	($34,120)	$1,321	($91,286)		($23,170)		($147,255)

(a)Includes $78.7 million of other comprehensive loss related to interest rate swaps, treasury locks, interest rate swap locks and forward-starting interest rate swaps. See Note 13 — 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 15 — 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 three months ended March 31, 2020 and March 31, 2019:


Details about accumulated other comprehensive (loss) income components	Amount reclassified from accumulated other comprehensive (loss) income					Affected line item in the income statement
		March 31, 2020		March 31, 2019
Realized loss (gain) on foreign currency exchange contracts	$18		($412)		Other operating (expense) income, net
Realized loss (gain) on foreign currency option contracts	9		(14)		Other operating (expense) income, net
Noncontrolling interest	(6)		98		Comprehensive (loss) income attributable to noncontrolling interest
Income tax (benefit) expense from gain on foreign currency contracts	(6)		92		Income tax expense


Net loss (gain) from accumulated other comprehensive income	$15		($236)

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)

20. CONSOLIDATING FINANCIAL STATEMENTS

The condensed consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly-owned subsidiaries, which are eliminated upon consolidation, and the allocation of certain expenses of Rayonier Inc. incurred for the benefit of its subsidiaries.

In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. In connection with these notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.

The subsidiary guarantors, Rayonier Operating Company LLC (“ROC”) and Rayonier TRS Holdings Inc., are wholly-owned by the parent company, Rayonier Inc. The notes are fully and unconditionally guaranteed on a joint and several basis by the guarantor subsidiaries.


	CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
	Three Months Ended March 31, 2020
	Rayonier Inc. (Parent Issuer)	Subsidiary Guarantors	Non- guarantors	Consolidating Adjustments	Total Consolidated
SALES	—	—	$259,130	—	$259,130
Costs and Expenses
Cost of sales	—	—	(209,499)	—	(209,499)
Selling and general expenses	—	(5,060)	(4,908)	—	(9,968)
Other operating expense, net	—	(2,524)	1,413	—	(1,111)
	—	(7,584)	(212,994)	—	(220,578)
OPERATING (LOSS) INCOME	—	(7,584)	46,136	—	38,552
Interest expense	(3,139)	(5,063)	(14)	—	(8,216)
Interest and miscellaneous income (expense), net	(457)	500	(252)	—	(209)
Equity in income from subsidiaries	29,450	41,809	—	(71,259)	—
INCOME BEFORE INCOME TAXES	25,854	29,662	45,870	(71,259)	30,127
Income tax expense	—	(212)	(3,494)	—	(3,706)
NET INCOME	25,854	29,450	42,376	(71,259)	26,421
Less: Net income attributable to noncontrolling interest	—	—	(567)	—	(567)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.	25,854	29,450	41,809	(71,259)	25,854
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment, net of income tax	(33,894)	—	(44,023)	33,894	(44,023)
Cash flow hedges, net of income tax	(82,376)	(78,699)	(4,776)	82,376	(83,475)
Amortization of pension and postretirement plans, net of income tax	217	217	—	(217)	217
Total other comprehensive loss	(116,053)	(78,482)	(48,799)	116,053	(127,281)
COMPREHENSIVE (LOSS) INCOME	(90,199)	(49,032)	(6,423)	44,794	(100,860)
Less: Comprehensive loss attributable to noncontrolling interest	—	—	10,661	—	10,661
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO RAYONIER INC.	($90,199)	($49,032)	$4,238	$44,794	($90,199)

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)


	CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
	Three Months Ended March 31, 2019
	Rayonier Inc. (Parent Issuer)	Subsidiary Guarantors	Non- guarantors	Consolidating Adjustments	Total Consolidated
SALES	—	—	$191,546	—	$191,546
Costs and Expenses
Cost of sales	—	—	(143,251)	—	(143,251)
Selling and general expenses	—	(4,843)	(4,967)	—	(9,810)
Other operating (expense) income, net	—	—	35	—	35
	—	(4,843)	(148,183)	—	(153,026)
OPERATING (LOSS) INCOME	—	(4,843)	43,363	—	38,520
Interest expense	(3,138)	(4,547)	(25)	—	(7,710)
Interest and miscellaneous income (expense), net	(457)	964	825	—	1,332
Equity in income from subsidiaries	28,389	37,432	—	(65,821)	—
INCOME BEFORE INCOME TAXES	24,794	29,006	44,163	(65,821)	32,142
Income tax expense	—	(617)	(3,732)	—	(4,349)



NET INCOME	24,794	28,389	40,431	(65,821)	27,793
Less: Net income attributable to noncontrolling interest	—	—	(2,999)	—	(2,999)
NET INCOME ATTRIBUTABLE TO RAYONIER INC.	24,794	28,389	37,432	(65,821)	24,794
OTHER COMPREHENSIVE (LOSS) INCOME
Foreign currency translation adjustment, net of income tax	4,679	(90)	6,122	(4,678)	6,033
Cash flow hedges, net of income tax	(10,884)	(11,548)	862	10,884	(10,686)
Amortization of pension and postretirement plans, net of income tax	112	112	—	(112)	112
Total other comprehensive (loss) income	(6,093)	(11,526)	6,984	6,094	(4,541)
COMPREHENSIVE INCOME	18,701	16,863	47,415	(59,727)	23,252
Less: Comprehensive loss attributable to noncontrolling interest	—	—	(4,551)	—	(4,551)
COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.	$18,701	$16,863	$42,864	($59,727)	$18,701

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)


	CONDENSED CONSOLIDATING BALANCE SHEETS
	As of March 31, 2020
	Rayonier Inc. (Parent Issuer)	Subsidiary Guarantors	Non- guarantors	Consolidating Adjustments	Total Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$6,102	$107,482	$18,778	—	$132,362
Accounts receivable, less allowance for doubtful accounts	—	1,015	27,280	—	28,295
Inventory	—	—	13,093	—	13,093
Prepaid expenses	—	1,237	13,704	—	14,941
Other current assets	—	93	291	—	384
Total current assets	6,102	109,827	73,146	—	189,075
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION	—	—	2,355,581	—	2,355,581
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS	—	—	88,833	—	88,833
NET PROPERTY, PLANT AND EQUIPMENT	—	16,305	5,504	—	21,809
RESTRICTED CASH	—	—	475	—	475
RIGHT-OF-USE ASSETS	—	31,075	60,878	—	91,953
INVESTMENT IN SUBSIDIARIES	1,660,850	3,019,260	—	(4,680,110)	—
INTERCOMPANY RECEIVABLE	(23,204)	(621,951)	645,155	—	—
OTHER ASSETS	2	(2,331)	42,353	—	40,024
TOTAL ASSETS	$1,643,750	$2,552,185	$3,271,925	($4,680,110)	$2,787,750
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	—	$4,243	$16,594	—	$20,837
Accrued taxes	—	127	3,289	—	3,416
Accrued payroll and benefits	—	2,291	1,511	—	3,802
Accrued interest	6,094	1,948	—	—	8,042
Deferred revenue	—	—	6,718	—	6,718
Other current liabilities	—	4,761	21,698	—	26,459
Total current liabilities	6,094	13,370	49,810	—	69,274
LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS	324,263	731,007	—	—	1,055,270
PENSION AND OTHER POSTRETIREMENT BENEFITS	—	25,342	(684)	—	24,658
LONG-TERM LEASE LIABILITY	—	26,842	56,516	—	83,358
OTHER NON-CURRENT LIABILITIES	—	94,774	60,748	—	155,522

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY	1,313,393	1,660,850	3,019,260	(4,680,110)	1,313,393
Noncontrolling interest	—	—	86,275	—	86,275
TOTAL SHAREHOLDERS’ EQUITY	1,313,393	1,660,850	3,105,535	(4,680,110)	1,399,668
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$1,643,750	$2,552,185	$3,271,925	($4,680,110)	$2,787,750

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)


	CONDENSED CONSOLIDATING BALANCE SHEETS
	As of December 31, 2019
	Rayonier Inc. (Parent Issuer)	Subsidiary Guarantors	Non- guarantors	Consolidating Adjustments	Total Consolidated
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$303	$45,792	$22,640	—	$68,735
Accounts receivable, less allowance for doubtful accounts	—	4,113	23,014	—	27,127
Inventory	—	—	14,518	—	14,518


Prepaid expenses	—	1,361	13,367	—	14,728

Other current assets	—	111	756	—	867
Total current assets	303	51,377	74,295	—	125,975
TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION	—	—	2,482,047	—	2,482,047
HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS	—	—	81,791	—	81,791
NET PROPERTY, PLANT AND EQUIPMENT	—	16,568	5,683	—	22,251
RESTRICTED CASH	—	—	1,233	—	1,233
RIGHT-OF-USE ASSET	—	32,253	67,689	—	99,942
INVESTMENT IN SUBSIDIARIES	1,709,958	3,072,304	—	(4,782,262)	—
INTERCOMPANY RECEIVABLE	56,935	(643,960)	587,025	—	—
OTHER ASSETS	2	(67)	47,822	—	47,757
TOTAL ASSETS	$1,767,198	$2,528,475	$3,347,585	($4,782,262)	$2,860,996
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	—	$2,866	$15,294	—	$18,160
Current maturities of long-term debt	—	82,000	—	—	82,000
Accrued taxes	—	59	2,973	—	3,032
Accrued payroll and benefits	—	5,585	3,284	—	8,869
Accrued interest	3,047	2,158	—	—	5,205
Deferred revenue	—	—	11,440	—	11,440
Other current liabilities	—	4,453	18,027	—	22,480
Total current liabilities	3,047	97,121	51,018	—	151,186
LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS	324,170	648,959	—	—	973,129
PENSION AND OTHER POSTRETIREMENT BENEFITS	—	25,996	(685)	—	25,311
LONG-TERM LEASE LIABILITY	—	28,001	62,480	—	90,481
OTHER NON-CURRENT LIABILITIES	—	18,440	64,807	—	83,247

TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY	1,439,981	1,709,958	3,072,304	(4,782,262)	1,439,981
Noncontrolling interest	—	—	97,661	—	97,661
TOTAL SHAREHOLDERS’ EQUITY	1,439,981	1,709,958	3,169,965	(4,782,262)	1,537,642
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$1,767,198	$2,528,475	$3,347,585	($4,782,262)	$2,860,996

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)


	CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
	Three Months Ended March 31, 2020
	Rayonier Inc. (Parent Issuer)	Subsidiary Guarantors	Non- guarantors	Consolidating Adjustments	Total Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	$79,682	$16,257	($66,760)	—	$29,179
INVESTING ACTIVITIES
Capital expenditures	—	—	(17,176)	—	(17,176)
Real estate development investments	—	—	(1,727)	—	(1,727)
Purchase of timberlands	—	—	(24,122)	—	(24,122)
Net proceeds from large disposition of timberlands	—	—	115,666	—	115,666
Investment in subsidiaries	—	4,237	—	(4,237)	—
Other	—	—	2,070	—	2,070
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	—	4,237	74,711	(4,237)	74,711
FINANCING ACTIVITIES
Issuance of debt	—	20,000	—	—	20,000
Repayment of debt	—	(20,000)	—	—	(20,000)
Dividends paid	(34,841)	(2,524)	2,458	—	(34,907)
Proceeds from the issuance of common shares under incentive stock plan	66	—	—	—	66
Repurchase of common shares	—	—	—	—	—
Repurchase of common shares made under repurchase program	—	(3,152)	—	—	(3,152)

Distribution to minority shareholder	—	—	(725)	—	(725)

Intercompany distributions	(39,108)	46,872	(12,001)	4,237	—

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	(73,883)	41,196	(10,268)	4,237	(38,718)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	—	—	(2,303)	—	(2,303)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash	5,799	61,690	(4,620)	—	62,869
Balance, beginning of year	303	45,792	23,873	—	69,968
Balance, end of period	$6,102	$107,482	$19,253	—	$132,837

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RAYONIER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

(Dollar amounts in thousands unless otherwise stated)


	CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
	Three Months Ended March 31, 2019
	Rayonier Inc. (Parent Issuer)	Subsidiary Guarantors	Non- guarantors	Consolidating Adjustments	Total Consolidated
CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES	($7,623)	($2,265)	$80,805	—	$70,917
INVESTING ACTIVITIES
Capital expenditures	—	—	(14,122)	—	(14,122)
Real estate development investments	—	—	(1,677)	—	(1,677)
Purchase of timberlands	—	—	(12,349)	—	(12,349)




Investment in subsidiaries	—	6,495	—	(6,495)	—
Other	—	—	2,337	—	2,337
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES	—	6,495	(25,811)	(6,495)	(25,811)
FINANCING ACTIVITIES


Dividends paid	(34,858)	(19)	—	—	(34,877)
Proceeds from the issuance of common shares under incentive stock plan	597	—	—	—	597


Repurchase of common shares	(33)	—	—	—	(33)
Other	—	—	(16)	—	(16)
Distribution to minority shareholder	—	—	(3,594)	—	(3,594)


Intercompany distributions	58,146	(10,183)	(54,458)	6,495	—

CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES	23,852	(10,202)	(58,068)	6,495	(37,923)
EFFECT OF EXCHANGE RATE CHANGES ON CASH	—	—	843	—	843
CASH, CASH EQUIVALENTS AND RESTRICTED CASH
Change in cash, cash equivalents and restricted cash	16,229	(5,972)	(2,231)	—	8,026
Balance, beginning of year	361	104,777	51,316	—	156,454
Balance, end of period	$16,590	$98,805	$49,085	—	$164,480

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)

When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier,” we mean Rayonier Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to Consolidated Financial Statements of Rayonier Inc. included in Item 1 of this report.

This MD&A is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity, and certain other factors which may affect future results. Our MD&A should be read in conjunction with our Consolidated Financial Statements included in Item 1 of this report, our Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”) and information contained in our subsequent reports filed with the Securities and Exchange Commission (the “SEC”).

FORWARD-LOOKING STATEMENTS

Certain statements in this document regarding anticipated financial outcomes, including Rayonier’s earnings guidance, if any, business and market conditions, outlook, expected dividend rate, Rayonier’s business strategies, including expected harvest schedules, timberland acquisitions and dispositions, the anticipated benefits of Rayonier’s business strategies, and other similar statements relating to Rayonier’s future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in the 2019 Form 10-K 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 the Company’s 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 the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any subsequent disclosures the Company makes on related subjects in its subsequent reports filed with the SEC.

NON-GAAP MEASURES

To supplement Rayonier’s financial statements presented in accordance with generally accepted accounting principles in the United States (“GAAP”), Rayonier uses 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. Rayonier’s 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.

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. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. As of March 31, 2020, we owned or leased under long-term agreements approximately 2.6 million acres of timberlands located in the U.S. South (1.8 million acres), U.S. Pacific Northwest (384,000 acres) and New Zealand (415,000 gross acres or 295,000 net plantable acres). 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.

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SEGMENT INFORMATION

The Southern Timber, Pacific Northwest Timber and New Zealand Timber segments include all activities related to the harvesting of timber and other non-timber income activities, such as the licensing of properties for hunting, the leasing of properties for mineral extraction and cell towers, and carbon credit sales.

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.

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.

INDUSTRY AND MARKET CONDITIONS

The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on domestic customers but also exports a significant volume of timber, particularly to China. Both the Southern and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to markets in China, South Korea and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms.

There are many uncertainties regarding the current novel coronavirus (COVID-19) pandemic, including the expected duration of the pandemic and the extent of economic disruption it may cause. During the first quarter, the spread of COVID-19 led to a lockdown in China as well as the shutdown of forestry activities in New Zealand, which resulted in an immediate reduction in volumes and prices of exports to China. 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. Domestic impacts in our U.S. Timber segments have been relatively modest thus far; however, prolonged stay-at-home orders and the continued shutdown of businesses deemed non-essential could cause significant damage to the underlying economy, which would likely impact the strength of U.S. timber markets. COVID-19 is a rapidly evolving situation that the Company will continue to monitor going forward.

The Company is also subject to the risk of price fluctuations in its major cost components. The primary components of the Company's 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 2019 Form 10-K.

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DISCUSSION OF TIMBER INVENTORY AND SUSTAINABLE YIELD

See Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield in the 2019 Form 10-K.

OUR TIMBERLANDS

Our timber operations are disaggregated into three geographically distinct segments: Southern Timber, Pacific Northwest Timber and New Zealand Timber. The following table provides a breakdown of our timberland holdings as of March 31, 2020 and December 31, 2019:


(acres in 000s)	As of March 31, 2020					As of December 31, 2019
	Owned	Leased	Total	Owned	Leased	Total
Southern
Alabama	226	14	240	226	14	240
Arkansas	—	7	7	—	7	7
Florida	331	63	394	331	63	394
Georgia	628	77	705	628	77	705
Louisiana	140	—	140	128	—	128

Mississippi	—	—	—	67	—	67
Oklahoma	92	—	92	92	—	92
South Carolina	18	—	18	18	—	18

Texas	184	—	184	184	—	184
	1,619	161	1,780	1,674	161	1,835

Pacific Northwest
Oregon	61	—	61	61	—	61
Washington	323	—	323	318	—	318
	384	—	384	379	—	379

New Zealand (a)	185	230	415	185	229	414
Total	2,188	391	2,579	2,238	390	2,628

(a)Represents legal acres owned and leased by the New Zealand subsidiary, in which Rayonier owns a 77% interest. As of March 31, 2020, legal acres in New Zealand consisted of 295,000 plantable acres and 120,000 non-productive acres.

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The following tables detail activity for owned and leased acres in our timberland holdings by state from December 31, 2019 to March 31, 2020:


(acres in 000s)	Acres Owned
	December 31, 2019	Acquisitions	Sales	Other (a)	March 31, 2020
Southern
Alabama	226	—	—	—	226
Florida	331	—	—	—	331
Georgia	628	—	—	—	628
Louisiana	128	12	—	—	140
Mississippi	67	—	(67)	—	—
Oklahoma	92	—	—	—	92
South Carolina	18	—	—	—	18

Texas	184	—	—	—	184
	1,674	12	(67)	—	1,619

Pacific Northwest
Oregon	61	—	—	—	61
Washington	318	—	—	5	323
	379	—	—	5	384

New Zealand (b)	185	—	—	—	185
Total	2,238	12	(67)	5	2,188

(a)Includes adjustments for land mapping reviews.

(b)Represents legal acres owned by the New Zealand subsidiary, in which Rayonier has a 77% interest.


(acres in 000s)	Acres Leased
	December 31, 2019	New Leases	Sold/Expired Leases (a)	Other	March 31, 2020
Southern
Alabama	14	—	—	—	14
Arkansas	7	—	—	—	7
Florida	63	—	—	—	63
Georgia	77	—	—	—	77

	161	—	—	—	161




New Zealand (b)	229	1	—	—	230
Total	390	1	—	—	391

(a)Includes acres previously under lease that have been harvested and activity for the relinquishment of leased acres.

(b)Represents legal acres leased by the New Zealand subsidiary, in which Rayonier has a 77% interest.

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RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

The following table provides key financial information by segment and on a consolidated basis:


	Three Months Ended March 31,
Financial Information (in millions)	2020	2019
Sales
Southern Timber	$53.0	$60.8
Pacific Northwest Timber	31.1	20.5
New Zealand Timber	37.5	57.1
Real Estate
Improved Development	—	0.3
Unimproved Development	—	1.0
Rural	2.4	12.7
Timberlands & Non-Strategic	—	6.9
Other (a)	0.1	0.1
Large Dispositions	116.0	—
Total Real Estate	118.5	21.0
Trading	19.0	32.1

Total Sales	$259.1	$191.5

Operating Income (Loss)
Southern Timber	$15.1	$21.5
Pacific Northwest Timber	(0.9)	(3.7)
New Zealand Timber	5.4	15.7
Real Estate (b)	26.8	10.0
Trading	—	0.5
Corporate and Other	(7.8)	(5.5)
Operating Income	38.6	38.5
Interest expense, interest income and other	(8.5)	(6.4)
Income tax expense	(3.7)	(4.3)
Net Income	26.4	27.8
Less: Net income attributable to noncontrolling interest	(0.5)	(3.0)
Net Income Attributable to Rayonier Inc.	$25.9	$24.8

Adjusted EBITDA (c)
Southern Timber	$33.3	$41.2
Pacific Northwest Timber	9.8	3.1
New Zealand Timber	10.2	22.0
Real Estate	(1.1)	17.4
Trading	—	0.5
Corporate and Other	(5.0)	(5.2)
Total Adjusted EBITDA	$47.1	$79.0

(a)Includes marketing fees and deferred revenue adjustments related to Improved Development sales.

(b)The three months ended March 31, 2020 include $28.7 million from a Large Disposition.

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

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	Three Months Ended March 31,
Southern Timber Overview	2020		2019
Sales Volume (in thousands of tons)
Pine Pulpwood	1,133		1,122
Pine Sawtimber	680		744
Total Pine Volume	1,813		1,865
Hardwood	30		70
Total Volume	1,843		1,935

Percentage Delivered Sales	32	%	27	%
Percentage Stumpage Sales	68	%	73	%

Net Stumpage Pricing (dollars per ton)
Pine Pulpwood	$16.05		$17.94
Pine Sawtimber	26.67		26.38
Weighted Average Pine	$20.03		$21.31
Hardwood	12.74		13.80
Weighted Average Total	$19.91		$21.03

Summary Financial Data (in millions of dollars)
Timber Sales	$47.5		$51.0
Less: Cut, Haul & Freight	(10.8)		(10.3)

Net Stumpage Sales	$36.7		$40.7

Non-Timber Sales	5.5		9.8
Total Sales	$53.0		$60.8

Operating Income	$15.1		$21.5
(+) Depreciation, depletion and amortization	18.2		19.7
Adjusted EBITDA (a)	$33.3		$41.2

Other Data

Period-End Acres (in thousands)	1,780		1,803

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

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	Three Months Ended March 31,
Pacific Northwest Timber Overview	2020		2019
Sales Volume (in thousands of tons)
Pulpwood	82		62
Sawtimber	393		220


Total Volume	476		283

Sales Volume (converted to MBF)
Pulpwood	7,789		5,933
Sawtimber	50,406		28,945
Total Volume	58,194		34,878

Percentage Delivered Sales	78	%	100	%
Percentage Sawtimber Sales	83	%	78	%

Delivered Log Pricing (in dollars per ton)
Pulpwood	$38.11		$45.15
Sawtimber	75.40		78.47
Weighted Average Log Price	$68.29		$71.11

Summary Financial Data (in millions of dollars)
Timber Sales	$30.6		$20.1
Less: Cut and Haul	(14.2)		(12.0)
Net Stumpage Sales	$16.4		$8.1

Non-Timber Sales	0.5		0.4
Total Sales	$31.1		$20.5

Operating Loss	($0.9)		($3.7)
(+) Depreciation, depletion and amortization	10.7		6.8
Adjusted EBITDA (a)	$9.8		$3.1

Other Data

Period-End Acres (in thousands)	384		379
Sawtimber (in dollars per MBF)	$611		$609
Estimated Percentage of Export Volume	2	%	16	%

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

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	Three Months Ended March 31,
New Zealand Timber Overview	2020	2019
Sales Volume (in thousands of tons)
Domestic Pulpwood (Delivered)	101	113
Domestic Sawtimber (Delivered)	147	195
Export Pulpwood (Delivered)	16	41
Export Sawtimber (Delivered)	216	255

Total Volume	481	604




Delivered Log Pricing (in dollars per ton)
Domestic Pulpwood	$33.84	$39.23
Domestic Sawtimber	69.97	83.42
Export Sawtimber	94.86	116.24
Weighted Average Log Price	$74.16	$90.49

Summary Financial Data (in millions of dollars)
Timber Sales	$35.6	$54.6
Less: Cut and Haul	(15.2)	(20.2)
Less: Port and Freight Costs	(8.0)	(9.7)
Net Stumpage Sales	$12.4	$24.7


Non-Timber Sales / Carbon Credits	1.9	2.5
Total Sales	$37.5	$57.1

Operating Income	$5.4	$15.7

(+) Depreciation, depletion and amortization	4.8	6.3

Adjusted EBITDA (a)	$10.2	$22.0

Other Data
New Zealand Dollar to U.S. Dollar Exchange Rate (b)	0.6500	0.6831
Net Plantable Period-End Acres (in thousands)	295	291
Export Sawtimber (in dollars per JAS m³)	$110.29	$135.15
Domestic Sawtimber (in $NZD per tonne)	$118.41	$134.33

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

(b)Represents the period average rate.

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	Three Months Ended March 31,
Real Estate Overview	2020	2019
Sales (in millions of dollars)
Improved Development	—	$0.3
Unimproved Development	—	1.0
Rural	2.4	12.7
Timberlands & Non-Strategic - U.S.	—	6.9

Large Dispositions (a)	116.0	—

Other (b)	0.1	0.1
Total Sales	$118.5	$21.0


Acres Sold
Improved Development	—	1.2
Unimproved Development	—	7
Rural	624	3,338
Timberlands & Non-Strategic - U.S.	—	2,333

Large Dispositions (a)	66,946	—
Total Acres Sold	67,570	5,679


Gross Price per Acre (dollars per acre)
Improved Development	—	$291,880
Unimproved Development	—	145,773
Rural	3,842	3,794
Timberlands & Non-Strategic - U.S.	—	2,972

Large Dispositions (a)	1,733	—
Weighted Average (Total) (c)	$3,842	$3,687
Weighted Average (Adjusted) (d)	$3,842	$3,628

Sales (Excluding Large Dispositions)	$2.5	$21.0












Operating Income	$26.8	$10.0
(+) Depreciation, depletion and amortization - U.S.	0.4	3.3

(+) Non-cash cost of land and improved development - U.S.	0.4	4.0



(–) Large Dispositions (a)	(28.7)	—
Adjusted EBITDA (e)	($1.1)	$17.4

(a)Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In March 2020, the Company completed a 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.

(b)Includes marketing fees and deferred revenue adjustments related to Improved Development sales.

(c)Excludes Large Dispositions.

(d)Excludes Improved Development and Large Dispositions.

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

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	Three Months Ended March 31,
Capital Expenditures By Segment (in millions of dollars)	2020	2019
Timber Capital Expenditures
Southern Timber



Reforestation, silviculture and other capital expenditures	$7.1	$2.8
Property taxes	1.7	1.8
Lease payments	1.1	1.6
Allocated overhead	1.3	1.2
Subtotal Southern Timber	$11.1	$7.4
Pacific Northwest Timber


Reforestation, silviculture and other capital expenditures	2.3	2.8
Property taxes	0.2	0.2

Allocated overhead	0.8	0.8
Subtotal Pacific Northwest Timber	$3.3	$3.8
New Zealand Timber
Reforestation, silviculture and other capital expenditures	1.5	1.7
Property taxes	0.2	0.2
Lease payments	0.4	0.3
Allocated overhead	0.6	0.7
Subtotal New Zealand Timber	$2.7	$2.9
Total Timber Segments Capital Expenditures	$17.1	$14.1
Real Estate	0.1	—

Total Capital Expenditures	$17.2	$14.1

Timberland Acquisitions
Southern Timber	$24.1	$1.8
Pacific Northwest Timber	—	3.6
New Zealand Timber	—	6.9

Subtotal Timberland Acquisitions	$24.1	$12.3


Real Estate Development Investments	$1.7	$1.7

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The following tables summarize sales, operating income (loss) and Adjusted EBITDA variances for March 31, 2020 versus March 31, 2019 (millions of dollars):


Sales	Southern Timber		Pacific Northwest Timber		New Zealand Timber		Real Estate		Trading	Intersegment Eliminations	Total
Three Months Ended March 31, 2019	$60.8		$20.5		$57.1		$21.0		$32.1	—	$191.5
Volume	(1.9)		5.5		(10.9)		(18.6)		(8.4)	—	(34.3)
Price	(2.1)		2.8		(7.4)		0.1		(4.8)	—	(11.4)
Non-timber sales	(4.3)		0.1		(0.5)		—		0.1	—	(4.6)
Foreign exchange (a)	—		—		(1.1)		—		—	—	(1.1)
Other	0.5	(b)	2.2	(b)	0.3	(c)	116.0	(d)	—	—	119.0
Three Months Ended March 31, 2020	$53.0		$31.1		$37.5		$118.5		$19.0	—	$259.1

(a) Net of currency hedging impact.

(b) Includes variance due to stumpage versus delivered sales.

(d) Includes $116.0 million of sales from a Large Disposition.


Operating Income (Loss)	Southern Timber	Pacific Northwest Timber	New Zealand Timber	Real Estate	Trading	Corporate and Other	Total
Three Months Ended March 31, 2019	$21.5	($3.7)	$15.7	$10.0	$0.5	($5.5)	$38.5
Volume	(0.9)	(0.4)	(4.0)	(11.6)	—	—	(16.9)
Price	(2.1)	2.8	(7.4)	0.1	—	—	(6.6)
Cost	0.3	(0.4)	(0.7)	(0.6)	(0.6)	0.2	(1.8)
Non-timber income	(4.3)	0.1	(0.4)	—	0.1	—	(4.5)
Foreign exchange (a)	—	—	2.1	—	—	—	2.1
Depreciation, depletion & amortization	0.6	0.7	0.1	0.1	—	—	1.5
Non-cash cost of land and improved development	—	—	—	0.1	—	—	0.1
Other (b)	—	—	—	28.7	—	(2.5)	26.2
Three Months Ended March 31, 2020	$15.1	($0.9)	$5.4	$26.8	—	($7.8)	$38.6

(a) Net of currency hedging impact.

(b) Real Estate includes $28.7 million of operating income from a Large Disposition. Corporate and Other includes $2.5 million in costs related to the merger with Pope Resources.


Adjusted EBITDA (a)	Southern Timber	Pacific Northwest Timber	New Zealand Timber	Real Estate	Trading	Corporate and Other	Total
Three Months Ended March 31, 2019	$41.2	$3.1	$22.0	$17.4	$0.5	($5.2)	$79.0
Volume	(1.8)	4.2	(5.1)	(18.0)	—	—	(20.7)
Price	(2.1)	2.8	(7.4)	0.1	—	—	(6.6)
Cost	0.3	(0.4)	(0.7)	(0.6)	(0.6)	0.2	(1.8)
Non-timber income	(4.3)	0.1	(0.4)	—	0.1	—	(4.5)
Foreign exchange (b)	—	—	1.8	—	—	—	1.8

Three Months Ended March 31, 2020	$33.3	$9.8	$10.2	($1.1)	—	($5.0)	$47.1

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

(b)Net of currency hedging impact.

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SOUTHERN TIMBER

First quarter sales of $53.0 million decreased $7.8 million, or 13%, versus the prior year period primarily due to lower net stumpage prices, lower volumes and lower pipeline easement revenue. Harvest volumes decreased 5% to 1.84 million tons versus 1.94 million tons in the prior year period. Average pine sawtimber stumpage prices increased 1% to $26.67 per ton versus $26.38 per ton in the prior year period due to geographic mix. Average pine pulpwood stumpage prices decreased 11% to $16.05 per ton versus $17.94 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 5% to $19.91 per ton versus $21.03 per ton in the prior year period. Operating income of $15.1 million decreased $6.4 million versus the prior year period as lower non-timber income ($4.3 million), lower net stumpage prices ($2.1 million), lower volumes ($0.9 million) and higher indirect and overhead expenses ($0.5 million) were partially offset by lower lease-related expenses ($0.8 million) and lower depletion rates ($0.6 million). First quarter Adjusted EBITDA of $33.3 million was $7.9 million below the prior year period.

PACIFIC NORTHWEST TIMBER

First quarter sales of $31.1 million increased $10.6 million, or 51%, versus the prior year period. Harvest volumes increased 68% to 476,000 tons versus 283,000 tons in the prior year period due to a significant increase in lump-sum stumpage sales and higher delivered volumes to meet improved market demand. Average delivered sawtimber prices decreased 4% to $75.40 per ton versus $78.47 per ton in the prior year period due to a higher mix of chip-n-saw volume in the current quarter coupled with reduced demand as the COVID-19 pandemic led to production curtailments at many domestic sawmills toward the end of the quarter. However, the announcement of temporary relief from tariffs in China coupled with reduced exports from Europe and New Zealand led to increasing China demand for export logs toward the end of the quarter. Average delivered pulpwood prices decreased 16% to $38.11 per ton versus $45.15 per ton in the prior year period, driven primarily by excess chip supply in the market. Operating loss of $0.9 million decreased $2.8 million versus the prior year period as higher net stumpage prices ($2.8 million), lower depletion rates ($0.7 million) and higher non-timber income ($0.1 million) were partially offset by higher overhead costs ($0.4 million) and an increase in other variable costs ($0.4 million). First quarter Adjusted EBITDA of $9.8 million was $6.7 million above the prior year period.

NEW ZEALAND TIMBER

First quarter sales of $37.5 million decreased $19.6 million, or 34%, versus the prior year period. Harvest volumes decreased 20% to 481,000 tons versus 604,000 tons in the prior year period, as the COVID-19 pandemic began disrupting export markets in January and ultimately resulted in a government-mandated shutdown of all non-essential activity (including the harvesting and transport of logs) in New Zealand by late March. Average delivered prices for export sawtimber decreased 18% to $94.86 per ton versus $116.24 per ton in the prior year period, while average delivered prices for domestic sawtimber decreased 16% to $69.97 per ton versus $83.42 per ton in the prior year period. The decrease in export sawtimber prices was driven primarily by lower demand and challenging freight logistics resulting from the COVID-19 lockdown in China. The decrease in domestic sawtimber prices (in U.S. dollar terms) was driven in part by the fall in the NZ$/US$ exchange rate (US$0.65 per NZ$1.00 versus US$0.68 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 $5.4 million decreased $10.3 million versus the prior year period as a result of lower net stumpage prices ($7.4 million), lower volumes ($4.0 million), higher roading costs ($0.5 million), lower non-timber income ($0.4 million) and higher overhead costs ($0.2 million), partially offset by favorable foreign exchange impacts ($2.1 million) and lower depreciation and software amortization expenses ($0.1 million). First quarter Adjusted EBITDA of $10.2 million was $11.8 million below the prior year period.

REAL ESTATE

First quarter sales of $118.5 million increased $97.5 million versus the prior year period, while operating income of $26.8 million increased $16.7 million versus the prior year period. First quarter sales and operating income included $116.0 million and $28.7 million, respectively, from Large Dispositions. Excluding this item, pro forma sales were $2.5 million, while pro forma operating loss was $1.9 million due to fewer acres sold (624 acres sold versus 5,679 acres sold in the prior year period), partially offset by an increase in weighted-average prices ($3,842 per acre versus $3,687 per acre in the prior year period).

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There were no Improved Development sales in the first quarter. This compares to prior year period sales of $0.3 million, which consisted of eight residential lots ($42,688 per lot or $292,000 per acre) in the Wildlight development project north of Jacksonville, Florida.

There were no Unimproved Development sales in the first quarter. This compares to prior year period sales of $1.0 million, which consisted of a 7 acre tract in Bryan County, Georgia for $145,773 per acre.

Rural sales of $2.4 million consisted of 624 acres at an average price of $3,842 per acre. This compares to prior year period sales of $12.7 million, which consisted of 3,338 acres at an average price of $3,794 per acre.

There were no Timberland and Non-Strategic sales in the first quarter. This compares to prior year period sales of $6.9 million, which consisted of 2,333 acres at an average price of $2,972 per acre.

Large Disposition sales of $116.0 million were comprised of 66,946 acres in Mississippi at an average price of $1,733 per acre.

First quarter Adjusted EBITDA of ($1.1) million was $18.5 million below the prior year period.

TRADING

First quarter sales of $19.0 million decreased $13.1 million versus the prior year period due to lower volumes and prices resulting from the impacts of the COVID-19 pandemic on key export markets. Sales volumes decreased 26% to 207,000 tons versus 282,000 tons in the prior year period. The Trading segment generated breakeven results versus operating income of $0.5 million in the prior year period.

OTHER ITEMS

CORPORATE AND OTHER EXPENSE / ELIMINATIONS

First quarter corporate and other operating expenses of $7.8 million increased $2.3 million versus the prior year period, primarily due to costs related to the Pope Resources merger ($2.5 million), partially offset by lower overhead costs ($0.2 million).

INTEREST EXPENSE

First quarter interest expense of $8.3 million increased $0.5 million versus the prior year period due to higher outstanding debt.

INTEREST AND OTHER MISCELLANEOUS (EXPENSE) INCOME, NET

First quarter non-operating expense of $0.2 million includes unfavorable mark-to-market adjustments on marketable equity securities ($1.0 million), partially offset by favorable mark-to-market adjustments on carbon options ($0.5 million), interest income ($0.1 million), dividend income ($0.1 million) and other income ($0.1 million).

INCOME TAX EXPENSE

First quarter income tax expense of $3.7 million decreased $0.6 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

At Rayonier, our first priority is the health and safety of our employees and contractors. We are currently working hard to balance this priority with the designation of the U.S. forest products industry as an essential critical infrastructure industry in order to keep our business running while observing the necessary social distancing and safety protocols to mitigate the further spread of COVID-19. To this end, we have implemented a work-from-home model for office employees and instituted enhanced safety guidelines for field employees. Overall, we believe that these arrangements are working well and are allowing our company and industry to continue to supply essential forest products in the U.S. while optimizing workplace safety. In New Zealand, we are currently in the process of restarting operations following the government-mandated lockdown, while employing similar safety procedures.

Despite the significant challenges being experienced by global economies as a result of the COVID-19 pandemic, Rayonier believes it is well-positioned to weather this storm. The forest products industry has been designated as a critical infrastructure industry by the U.S. Department of Homeland Security, and Rayonier has therefore been able to maintain our U.S. forestry operations in order to continue to supply fiber for the

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manufacturing of essential products, including tissue paper, cardboard boxes and structural lumber. As a pure-play timberland REIT, we enjoy strong margins and substantially less volatility than downstream manufacturing businesses, and we have a geographically diverse portfolio that further mitigates our exposure to any single region or product category. We expect that the diversity and optionality of our portfolio will be further enhanced when we close the Pope Resources merger transaction in the second quarter, pending the successful vote of Pope’s unitholders.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As a REIT, our main use of cash is dividends. 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


	March 31,		December 31,
(millions of dollars)	2020		2019
Cash and cash equivalents	$132.4		$68.7

Total debt (a)	1,057.0		1,057.0
Shareholders’ equity	1,399.7		1,537.6

Total capitalization (total debt plus equity)	2,456.7		2,594.6
Debt to capital ratio	43	%	41	%
Net debt to enterprise value (b)(c)	23	%	19	%

(a)Total debt as of March 31, 2020 and December 31, 2019 is presented gross of deferred financing costs of $1.7 million and $1.9 million, respectively.

(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 March 31, 2020 and December 31, 2019.

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CASH FLOWS

The following table summarizes our cash flows from operating, investing and financing activities for the three months ended March 31, 2020 and 2019:


(millions of dollars)	2020	2019
Cash provided by (used for):
Operating activities	$29.2	$70.9
Investing activities	74.7	(25.8)
Financing activities	(38.7)	(37.9)

CASH PROVIDED BY OPERATING ACTIVITIES

Cash provided by operating activities decreased $41.7 million primarily due to lower operating results.

CASH PROVIDED BY INVESTING ACTIVITIES

Cash provided by investing activities increased $100.5 million versus the prior year period primarily due to the proceeds from a Large Disposition ($115.7 million), partially offset by an increase in timberland acquisitions ($11.8 million), higher capital expenditures ($3.1 million) and other investing activities ($0.3 million).

CASH USED FOR FINANCING ACTIVITIES

Cash used for financing activities increased $0.8 million from the prior year period due to current period share repurchases ($3.2 million) and lower proceeds from the issuance of common shares under the Company’s incentive stock plan ($0.5 million), partially offset by a decrease in minority shareholder distributions ($2.9 million).

EXPECTED 2020 EXPENDITURES

Capital expenditures in 2020 are expected to be between $60 million and $64 million, excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to primarily consist of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities.

We had previously anticipated real estate development investments in 2020 to be between $12 million and $15 million, net of reimbursements from community development bonds. Expected real estate development investments include approximately $2 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.

Excluding the anticipated merger with Pope Resources, our 2020 dividend payments are expected to be approximately $139 million assuming no change in the quarterly dividend rate of $0.27 per share or material changes in the number of shares 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 $0.4 million of the approximately $3.6 million in current year mandatory pension contribution requirements.

Cash tax payments in 2020 are expected to be approximately $2 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 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) 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. 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, 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 March 31,
	2020	2019
Net Income to Adjusted EBITDA Reconciliation
Net income	$26.4	$27.8
Interest, net and miscellaneous income	8.1	6.7
Income tax expense	3.7	4.3
Depreciation, depletion and amortization	34.3	36.5
Non-cash cost of land and improved development	0.4	4.0
Non-operating expense (income)	0.3	(0.3)





Costs related to the merger with Pope Resources (a)	2.5	—

Large Dispositions (b)	(28.7)	—
Adjusted EBITDA	$47.1	$79.0

(a) Costs related to the merger with Pope Resources include legal, accounting and due diligence, consulting and other costs related to the previously announced definitive merger agreement with Pope Resources, which is expected to close on May 8, 2020.

(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, the Company completed a 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 Ended	Southern Timber	Pacific Northwest Timber	New Zealand Timber	Real Estate	Trading	Corporate and Other	Total
March 31, 2020
Operating income (loss)	$15.1	($0.9)	$5.4	$26.8	—	($7.8)	$38.6


Depreciation, depletion and amortization	18.2	10.7	4.8	0.4	—	0.3	34.3
Non-cash cost of land and improved development	—	—	—	0.4	—	—	0.4
Costs related to the merger with Pope Resources (a)	—	—	—	—	—	2.5	2.5

Large Dispositions (b)	—	—	—	(28.7)	—	—	(28.7)
Adjusted EBITDA	$33.3	$9.8	$10.2	($1.1)	—	($5.0)	$47.1

March 31, 2019
Operating income (loss)	$21.5	($3.7)	$15.7	$10.0	$0.5	($5.5)	$38.5

Depreciation, depletion and amortization	19.7	6.8	6.3	3.3	—	0.3	36.5
Non-cash cost of land and improved development	—	—	—	4.0	—	—	4.0


Adjusted EBITDA	$41.2	$3.1	$22.0	$17.4	$0.5	($5.2)	$79.0

The following table provides a reconciliation of Cash Provided by Operating Activities to Adjusted CAD (in millions of dollars):


	Three Months Ended March 31,
	2020	2019
Cash provided by operating activities	$29.2	$70.9
Capital expenditures (a)	(17.2)	(14.1)
Working capital and other balance sheet changes	15.2	5.4
CAD	27.2	62.2
Mandatory debt repayments	—	—
CAD after mandatory debt repayments	27.2	62.2


Cash provided by (used for) investing activities	$74.7	($25.8)
Cash used for financing activities	($38.7)	($37.9)

(a) Capital expenditures exclude timberland acquisitions.

The following table provides supplemental cash flow data (in millions):


	Three Months Ended March 31,
	2020	2019
Purchase of timberlands	($24.1)	($12.3)
Real Estate Development Investments	(1.7)	(1.7)
Distributions to New Zealand minority shareholder	(0.7)	(3.6)

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LIQUIDITY FACILITIES

2020 DEBT ACTIVITY

See Note 6 — 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 the Company’s 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 11 — Guarantees for details on the letters of credit and surety bonds as of March 31, 2020.

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 March 31, 2020 and anticipated cash spending by period:


Contractual Financial Obligations (in millions)	Total	Payments Due by Period
				Remaining 2020		2021-2022		2023-2024	Thereafter
Long-term debt (a)	$1,057.0	$82.0	$325.0		$350.0		$300.0

Interest payments on long-term debt (b)	137.8	26.2	60.2		37.5		13.9
Operating leases — timberland (c)	162.3	5.8	14.8		13.4		128.3

Operating leases — PP&E, offices (c)	7.2	1.6	2.1		1.5		2.0

Commitments — derivatives (d)	36.4	8.4	8.2		8.3		11.5
Commitments — other (e)	11.8	6.9	1.6		0.5		2.8
Total contractual cash obligations	$1,412.5	$130.9	$411.9		$411.2		$458.5

(a)The book value of long-term debt, net of deferred financing costs, is currently recorded at $1,055.3 million on the Company’s Consolidated Balance Sheet, but upon maturity the liability will be $1,057.0 million. See Note 6 — Debt for additional information.

(b)Projected interest payments for variable rate debt were calculated based on outstanding principal amounts and interest rates as of March 31, 2020.

(c)Excludes anticipated renewal options.

(d)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 13 — Derivative Financial Instruments and Hedging Activities.

(e)Commitments — other includes pension contribution requirements based on actuarially determined estimates and IRS minimum funding requirements, payments expected to be made on the Company’s 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 March 31, 2020, we had $732 million of U.S. variable rate debt, including $82 million outstanding on our revolving credit facility and $650 million outstanding on our term credit agreements. See Note 6 — Debt for information regarding subsequent debt activity and balance sheet classification of the revolving credit facility as of March 31, 2020.

The notional amount of outstanding interest rate swap contracts with respect to our term credit agreements at March 31, 2020 was $650 million. The term credit agreement and associated interest rate swaps mature in August 2024 and the incremental term loan agreement and associated interest rate swaps mature in May 2026. 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 $0.8 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 at March 31, 2020 was $316 million compared to the $325 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 March 31, 2020 would result in a corresponding decrease/increase in the fair value of our long-term fixed rate debt of approximately $6 million.

We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt to be approximately 3.3% after consideration of interest rate swaps and estimated patronage refunds, excluding unused commitment fees on the revolving credit facility.

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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 March 31, 2020:


(Dollars in thousands)	2020		2021	2022		2023	2024		Thereafter		Total		Fair Value
Variable rate debt:
Principal amounts (d)	$82,000		—	—		—	$350,000		$300,000		$732,000		$732,000
Average interest rate (a)(b)	3.50	%	—	—		—	3.00	%	3.48	%	3.25	%	—
Fixed rate debt:
Principal amounts	—		—	$325,000		—	—		—		$325,000		$316,030
Average interest rate (b)	—		—	3.75	%	—	—		—		3.75	%	—
Interest rate swaps:
Notional amount	—		—	—		—	$350,000		$300,000		$650,000		($47,452)
Average pay rate (b)	—		—	—		—	2.28	%	1.49	%	1.91	%	—
Average receive rate (b)	—		—	—		—	1.38	%	1.58	%	1.47	%	—
Interest rate swap-locks
Notional amount	—		—	—		—	—		$250,000		$250,000		($19,992)
Average pay rate (b)(c)	—		—	—		—	—		1.49	%	1.49	%	—
Average receive rate (b)	—		—	—		—	—		1.43	%	1.43	%	—
Forward-starting interest rate swaps
Notional amount	—		—	—		—	—		$425,000		$425,000		($19,710)
Average pay rate (b)	—		—	—		—	—		1.28	%	1.28	%	—
Average receive rate (b)	—		—	—		—	—		0.98	%	0.98	%	—

(a) Excludes estimated patronage refunds.

(b) Interest rates as of March 31, 2020.

(c) 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.

(d) Due dates do not reflect amendments entered into after March 31, 2020. For additional information, see Subsequent Events Relating to Debt Agreements in Note 6 - Debt.

Foreign Currency Exchange Rate Risk

The functional currency of the Company’s 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 March 31, 2020, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $60 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 18 months and next 3 months, respectively.

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The following table summarizes our outstanding foreign currency exchange rate risk contracts at March 31, 2020:


(Dollars in thousands)	0-1 months	1-2 months	2-3 months	3-6 months	6-12 months	12-18 months	Total	Fair Value
Foreign exchange contracts to sell U.S. dollar for New Zealand dollar
Notional amount	$8,350	$7,500	$6,000	$14,000	$15,000	$9,500	$60,350	($4,839)
Average contract rate	1.6576	1.6580	1.6584	1.6591	1.6611	1.6638	1.6599

Foreign currency option contracts to sell U.S. dollar for New Zealand dollar
Notional amount	—	—	—	$4,000	$16,000	$16,000	$36,000	($846)
Average strike price	—	—	—	1.5246	1.5785	1.5848	1.5753

Item 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Rayonier management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934 (the “Exchange Act”), are designed with the objective of ensuring information required to be disclosed by the Company in reports filed under the Exchange Act, such as this quarterly report on Form 10-Q, 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 our 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 March 31, 2020.

In the quarter ended March 31, 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.

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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 2019 Form 10-K.

Coronavirus Disease (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.

Item 1. LEGAL PROCEEDINGS

The information set forth in Note 10 — 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

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 152,223 shares repurchased under this program in the first quarter of 2020. Based on the period-end closing stock price of $23.55 at March 31, 2020, there was $87.7 million, or approximately 3,725,200 shares, remaining under this program.

The following table provides information regarding our purchases of Rayonier common shares during the quarter ended March 31, 2020:


Period	Total Number of Shares Purchased (a)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (b)	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (c)
January 1 to January 31	14	$32.32	—	2,991,461
February 1 to February 29	—	—	—	3,425,578
March 1 to March 31	152,223	20.71	152,223	3,725,200
Total	152,237		152,223

(a)Includes 14 shares of the Company’s common shares purchased in January from current employees in non-open market transactions. The shares were sold by current 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 January, February and March are based on month-end closing stock prices of $30.38, $26.53 and $23.55, respectively.

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Item 6. EXHIBITS


2.1	Agreement and Plan of Merger, dated as of January 14, 2020, by and among Rayonier Inc., Rayonier Operating Company LLC, Pacific GP Merger Sub I, LLC, Pacific GP Merger Sub II, LLC, Pacific LP Merger Sub III, LLC, Pope Resources, a Delaware limited partnership, Pope MGP, Inc. and Pope EGP, Inc.	Incorporated by reference to Exhibit 2.1 to the Registrant’s January 15, 2020 Form 8-K
2.2	Amendment No. 1, dated as of April 1, 2020, to the Agreement and Plan of Merger, by and among Rayonier Inc., Rayonier, L.P., Rayonier Operating Company LLC, Rayonier Operating Holdings, LLC, Pacific GP Merger Sub I, LLC, Pacific GP Merger Sub II, LLC, Pacific LP Merger Sub III, LLC, Pope Resources, a Delaware limited partnership, Pope MGP, Inc. and Pope EGP, Inc.	Incorporated by reference to Exhibit 2.1 to the Registrant’s April 1, 2020 Form 8-K
10.1	Voting and Support Agreement, dated as of January 14, 2020 by and among Rayonier Inc, PT Pope Properties LLC, PMG Family Limited Partnership and Maria M. Pope.	Incorporated by reference to Exhibit 10.1 to the Registrant’s January 15, 2020 Form 8-K
10.2	Voting and Support Agreement, dated as of January 14, 2020 by and among Rayonier Inc, Emily T. Andrews 1987 Revocable Trust, Gordon Andrews and Gordon Pope Andrews Separate Property Revocable Trust U/T/D 5/9/2013.	Incorporated by reference to Exhibit 10.2 to the Registrant’s January 15, 2020 Form 8-K
10.3	2020 Performance Share Award Program*	Filed herewith
10.4	Second Amendment to Credit Agreement, dated as of April 1, 2020, by and among Rayonier Inc., Rayonier TRS Holdings Inc. and Rayonier Operating Company LLC, as borrowers, the several banks, financial institutions and other institutional lenders party thereto and CoBank, ACB as administrative agent, swing line lender and issuing bank	Filed herewith
10.5	Annex A to Second Amendment to Credit Agreement	Filed herewith
10.6	Accordion Increase Agreement, dated as of April 13, 2020, by and among Rayonier Inc., Rayonier TRS Holdings Inc., and Rayonier Operating Company LLC, as borrowers, the several banks, financial institutions and other institutional lenders party thereto and CoBank, ACB as administrative agent, swing line lender and issuing bank	Filed herewith
10.7	Third Amendment and Incremental Term Loan Agreement, dated as of April 16, 2020, by and among Rayonier Inc., Rayonier TRS Holdings Inc., and Rayonier Operating Company LLC, as borrowers, the several banks, financial institutions and other institutional lenders party thereto and CoBank, ACB as administrative agent	Filed herewith
31.1	Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32	Certification of Periodic Financial Reports Under Section 906 of the Sarbanes-Oxley Act of 2002	Furnished herewith
101	The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019; (ii) the Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019; (iii) the Consolidated Statements of Changes in Shareholders’ Equity for the Quarters Ended March 31, 2020 and 2019; (iv) the Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019; and (v) the Notes to Consolidated Financial Statements	Filed herewith
104	The cover page from the Company’s Quarterly Report on Form 10-Q from the quarter ended March 31, 2020, formatted in Inline XBRL (included as Exhibit 101).

*Management contract or compensatory plan

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


						RAYONIER INC.
						(Registrant)

			By:			/s/ APRIL TICE
						April Tice Vice President, Financial Services and Corporate Controller (Duly Authorized Officer, Principal Accounting Officer)

Date: May 1, 2020

Rayonier - 10-Q quarterly report FY2020 Q1

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Item		Page
	PART I - FINANCIAL INFORMATION
1.	Financial Statements (unaudited)	1
	Consolidated Statements of Income and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019	1
	Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019	2
	Consolidated Statements of Changes in Shareholders’ Equity for the Quarters ended March 31, 2020 and 2019	3
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	4
	Notes to Consolidated Financial Statements	5
2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
3.	Quantitative and Qualitative Disclosures about Market Risk	49
4.	Controls and Procedures	52
	PART II - OTHER INFORMATION
1A.	Risk Factors	53
1.	Legal Proceedings	53
2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
6.	Exhibits	55
	Signature	56