RAYONIER INC 10-Q

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 September 30, Nine Months Ended September 30, 2021 2020 2021 2020 SALES ( NOTE 4 ) $ 364,726 $ 198,875 $ 847,604 $ 653,635 Costs and Expenses Cost of sales ( 233,308 ) ( 180,944 ) ( 578,937 ) ( 545,333 ) Selling and general expenses ( 13,174 ) ( 14,498 ) ( 41,899 ) ( 37,036 ) Other operating income (expense), net ( Note 18 ) 5,070 ( 1,653 ) 9,474 ( 19,247 ) ( 241,412 ) ( 197,095 ) ( 611,362 ) ( 601,616 ) OPERATING INCOME 123,314 1,780 236,242 52,019 Interest expense ( 11,265 ) ( 10,421 ) ( 34,292 ) ( 28,457 ) Interest and other miscellaneous income (expense), net 1,274 ( 137 ) 127 1,232 INCOME (LOSS) BEFORE INCOME TAXES 113,323 ( 8,778 ) 202,077 24,794 Income tax expense ( Note 20 ) ( 2,811 ) ( 720 ) ( 13,114 ) ( 7,416 ) NET INCOME (LOSS) 110,512 ( 9,498 ) 188,963 17,378 Less: Net (income) loss attributable to noncontrolling interests in the Operating Partnership ( 2,210 ) 25 ( 4,303 ) ( 195 ) Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates ( 32,471 ) 8,715 ( 40,775 ) 9,647 NET INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC. 75,831 ( 758 ) 143,885 26,830 OTHER COMPREHENSIVE (LOSS) INCOME Foreign currency translation adjustment, net of income tax effect of $ 0 , $ 0 , $ 0 , and $ 0 ( 6,622 ) 12,476 ( 19,670 ) ( 8,290 ) Cash flow hedges, net of income tax effect of $ 833 , $ 645 , $ 2,207 and $ 530 1,711 7,861 52,693 ( 82,890 ) Amortization of pension and postretirement plans, net of income tax expense of $ 0 , $ 0 , $ 0 and $ 0 294 217 881 652 Total other comprehensive (loss) income ( 4,617 ) 20,554 33,904 ( 90,528 ) COMPREHENSIVE INCOME (LOSS) 105,895 11,056 222,867 ( 73,150 ) Less: Comprehensive income attributable to noncontrolling interests in the Operating Partnership ( 2,118 ) ( 508 ) ( 5,490 ) ( 1,184 ) Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates ( 31,099 ) 5,017 ( 36,168 ) 10,761 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER INC. $ 72,678 $ 15,565 $ 181,209 ($ 63,573 ) EARNINGS PER COMMON SHARE ( NOTE 8 ) Basic earnings (loss) per share attributable to Rayonier Inc. $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 Diluted earnings (loss) per share attributable to Rayonier Inc. $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 See Notes to Consolidated Financial Statements. 1 Table of Contents RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 30, 2021 December 31, 2020 ASSETS CURRENT ASSETS Cash and cash equivalents, excluding Timber Funds $ 419,604 $ 80,454 Cash and cash equivalents, Timber Funds 12,202 4,053 Total cash and cash equivalents 431,806 84,507 Restricted cash, Timber Funds ( No te 22 ) 49,209 — Accounts receivable, less allowance for doubtful accounts of $ 81 and $ 25 42,352 49,082 Inventory ( Note 17 ) 18,592 10,594 Prepaid expenses 19,362 16,168 Assets held for sale ( Note 23 ) 56,397 3,449 Other current assets 2,212 6,765 Total current assets 619,930 170,565 TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION 2,788,991 3,262,126 HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS ( NOTE 16 ) 110,592 108,518 PROPERTY, PLANT AND EQUIPMENT Land 6,569 6,548 Buildings 31,028 31,024 Machinery and equipment 4,392 4,615 Construction in progress 710 452 Total property, plant and equipment, gross 42,699 42,639 Less — accumulated depreciation ( 14,167 ) ( 12,238 ) Total property, plant and equipment, net 28,532 30,401 RESTRICTED CASH, EXCLUDING TIMBER FUNDS ( NOTE 22 ) 625 2,975 RIGHT-OF-USE ASSETS 107,631 108,992 OTHER ASSETS 50,113 45,156 TOTAL ASSETS $ 3,706,414 $ 3,728,733 LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 27,989 $ 24,790 Current maturities of long-term debt, net, excluding Timber Funds ( Note 9 ) 199,887 — Accrued taxes 18,503 7,347 Accrued payroll and benefits 11,210 12,327 Accrued interest 12,555 6,325 Deferred revenue 19,899 11,112 Distribution payable, Timber Funds 49,209 — Other current liabilities 28,983 29,234 Total current liabilities 368,235 91,135 LONG-TERM DEBT, NET, EXCLUDING TIMBER FUNDS ( NOTE 9 ) 1,167,967 1,300,336 LONG-TERM DEBT, NET, TIMBER FUNDS ( NOTE 9 ) — 60,179 PENSION AND OTHER POSTRETIREMENT BENEFITS ( NOTE 19 ) 22,173 23,344 LONG-TERM LEASE LIABILITY 99,275 100,251 OTHER NON-CURRENT LIABILITIES 115,749 160,722 COMMITMENTS AND CONTINGENCIES ( NOTES 12 and 13 ) NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP ( NOTE 6 ) 140,555 130,121 SHAREHOLDERS’ EQUITY Common Shares, 480,000,000 shares authorized, 143,049,458 and 137,678,822 shares issued and outstanding 1,296,877 1,101,675 Retained earnings 450,076 446,267 Accumulated other comprehensive loss ( Note 21 ) ( 36,560 ) ( 73,885 ) TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY 1,710,393 1,474,057 Noncontrolling interests in consolidated affiliates ( Note 6 ) 82,067 388,588 TOTAL SHAREHOLDERS’ EQUITY 1,792,460 1,862,645 TOTAL LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY $ 3,706,414 $ 3,728,733 See Notes to Consolidated Financial Statements. 2 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 Noncontrolling Interests in Consolidated Affiliates Shareholders’ Equity Shares Amount Balance, January 1, 2021 137,678,822 $ 1,101,675 $ 446,267 ($ 73,885 ) $ 388,588 $ 1,862,645 Net income — — 11,189 — 3,843 15,032 Net income attributable to noncontrolling interests in the Operating Partnership — — ( 341 ) — — ( 341 ) Dividends ($ 0.27 per share) (a) — — ( 37,532 ) — — ( 37,532 ) Issuance of shares under the “at-the-market” equity offering, net of commissions and offering costs of $ 197 1,107,814 36,708 — — — 36,708 Issuance of shares under incentive stock plans 39,140 1,166 — — — 1,166 Stock-based compensation — 2,156 — — — 2,156 Repurchase of common shares ( 5,020 ) ( 155 ) — — — ( 155 ) Measurement period adjustment of noncontrolling interests in consolidated affiliates — — — — 655 655 Adjustment of noncontrolling interests in the Operating Partnership — — ( 11,867 ) — — ( 11,867 ) Conversion of units into common shares 150,134 4,715 — — — 4,715 Amortization of pension and postretirement plan liabilities — — — 294 — 294 Foreign currency translation adjustment — — — ( 11,652 ) ( 2,636 ) ( 14,288 ) Cash flow hedges — — — 61,628 ( 627 ) 61,001 Allocation of other comprehensive income to noncontrolling interests in the Operating Partnership — — — ( 1,531 ) — ( 1,531 ) Distributions to noncontrolling interests in consolidated affiliates — — — — ( 8,737 ) ( 8,737 ) Balance, March 31, 2021 138,970,890 $ 1,146,265 $ 407,716 ($ 25,146 ) $ 381,086 $ 1,909,921 Net income — — 58,959 — 4,461 63,420 Net income attributable to noncontrolling interests in the Operating Partnership — — ( 1,753 ) — — ( 1,753 ) Dividends ($ 0.27 per share) (a) — — ( 37,981 ) — — ( 37,981 ) Issuance of shares under the “at-the-market” equity offering, net of commissions and offering costs of $ 927 2,199,459 79,994 — — — 79,994 Issuance of shares under incentive stock plans 185,544 3,325 — — — 3,325 Stock-based compensation — 2,852 — — — 2,852 Repurchase of common shares ( 42,425 ) ( 1,453 ) — — — ( 1,453 ) Measurement period adjustment of noncontrolling interests in consolidated affiliates — — — — 9,034 9,034 Adjustment of noncontrolling interests in the Operating Partnership — — ( 15,410 ) — — ( 15,410 ) Conversion of units into common shares 6,439 241 — — — 241 Amortization of pension and postretirement plan liabilities — — — 294 — 294 Foreign currency translation adjustment — — — 1,025 214 1,239 Cash flow hedges — — — ( 9,833 ) ( 186 ) ( 10,019 ) Allocation of other comprehensive loss to noncontrolling interests in the Operating Partnership — — — 253 — 253 Distributions to noncontrolling interests in consolidated affiliates — — — — ( 6,474 ) ( 6,474 ) Balance, June 30, 2021 141,319,907 $ 1,231,224 $ 411,531 ($ 33,407 ) $ 388,135 $ 1,997,483 3 Table of Contents Balance, June 30, 2021 141,319,907 $ 1,231,224 $ 411,531 ($ 33,407 ) $ 388,135 $ 1,997,483 Net income — — 78,041 — 32,471 110,512 Net income attributable to noncontrolling interests in the Operating Partnership — — ( 2,210 ) — — ( 2,210 ) Dividends ($ 0.27 per share) (a) — — ( 39,032 ) — — ( 39,032 ) Issuance of shares under the “at-the-market” equity offering, net of commissions and offering costs of $ 691 1,390,968 51,132 — — — 51,132 Issuance of shares under incentive stock plans 5,740 183 — — — 183 Stock-based compensation — 2,086 — — — 2,086 Repurchase of common shares ( 175 ) ( 6 ) — — — ( 6 ) Disposition of noncontrolling interests in consolidated affiliates — — — — ( 255,486 ) ( 255,486 ) Adjustment of noncontrolling interests in the Operating Partnership — — 1,746 — — 1,746 Conversion of common units to common shares 333,018 12,258 — — — 12,258 Amortization of pension and postretirement plan liabilities — — — 294 — 294 Foreign currency translation adjustment — — — ( 5,743 ) ( 879 ) ( 6,622 ) Cash flow hedges — — — 2,204 ( 493 ) 1,711 Allocation of other comprehensive loss to noncontrolling interests in the Operating Partnership — — — 92 — 92 Distributions to noncontrolling interests in consolidated affiliates — — — — ( 53,562 ) ( 53,562 ) Noncontrolling interests in consolidated affiliates redemption of shares — — — — ( 28,119 ) ( 28,119 ) Balance, September 30, 2021 143,049,458 $ 1,296,877 $ 450,076 ($ 36,560 ) $ 82,067 $ 1,792,460 4 Table of Contents Common Shares Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interests in Consolidated Affiliates 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 ) Distributions to noncontrolling interests in consolidated affiliates — — — — ( 725 ) ( 725 ) Balance, March 31, 2020 129,181,239 $ 889,753 $ 570,895 ($ 147,255 ) $ 86,275 $ 1,399,668 Issuances of shares associated with the merger with Pope Resources 7,181,071 172,418 — — — 172,418 Net income (loss) — — 1,954 — ( 1,499 ) 455 Net income attributable to noncontrolling interests in the Operating Partnership — — ( 219 ) — — ( 219 ) Dividends ($ 0.27 per share) (a) — — ( 36,957 ) — — ( 36,957 ) Issuance of shares under incentive stock plans 215,970 222 — — — 222 Stock-based compensation — 2,668 — — — 2,668 Repurchase of common shares ( 66,168 ) ( 1,572 ) — — — ( 1,572 ) Acquisition of noncontrolling interests in consolidated affiliates — — — — 372,381 372,381 Adjustment of noncontrolling interests in the Operating Partnership — — ( 3,992 ) — — ( 3,992 ) Amortization of pension and postretirement plan liabilities — — — 217 — 217 Foreign currency translation adjustment — — — 17,872 5,386 23,258 Cash flow hedges — — — ( 8,306 ) 1,030 ( 7,276 ) Allocation of other comprehensive income to noncontrolling interests in the Operating Partnership — — — ( 457 ) — ( 457 ) Distributions to noncontrolling interests in consolidated affiliates — — — — ( 6,856 ) ( 6,856 ) Balance, June 30, 2020 136,512,112 $ 1,063,489 $ 531,681 ($ 137,929 ) $ 456,717 $ 1,913,958 5 Table of Contents Balance, June 30, 2020 136,512,112 $ 1,063,489 $ 531,681 ($ 137,929 ) $ 456,717 $ 1,913,958 Net loss — — ( 783 ) — ( 8,715 ) ( 9,498 ) Net loss attributable to noncontrolling interests in the Operating Partnership — — 25 — — 25 Dividends ($ 0.27 per share) (a) — — ( 37,257 ) — — ( 37,257 ) Costs associated with the “At-the-Market” (ATM) offering program — ( 456 ) — — — ( 456 ) Issuance of shares under incentive stock plans 6,079 167 — — — 167 Stock-based compensation — 1,965 — — — 1,965 Repurchase of common shares ( 1,185 ) ( 4 ) — — — ( 4 ) Measurement period adjustment of noncontrolling interests in consolidated affiliates — — — — ( 701 ) ( 701 ) Adjustment of noncontrolling interests in the Operating Partnership — — ( 8,030 ) — — ( 8,030 ) Conversion of common units to common shares 1,000 27 — — — 27 Amortization of pension and postretirement plan liabilities — — — 217 — 217 Foreign currency translation adjustment — — — 9,160 3,316 12,476 Cash flow hedges — — — 7,479 382 7,861 Allocation of other comprehensive income to noncontrolling interests in the Operating Partnership — — — ( 532 ) — ( 532 ) Distributions to noncontrolling interests in consolidated affiliates — — — — ( 667 ) ( 667 ) Noncontrolling interests in consolidated affiliates redemption of shares — — — — ( 28,403 ) ( 28,403 ) Balance, September 30, 2020 136,518,006 $ 1,065,188 $ 485,636 ($ 121,605 ) $ 421,929 $ 1,851,148 (a) For information regarding distributions to noncontrolling interests in the Operating Partnership, see the Rayonier Inc. Consolidated Statements of Cash Flows and Note 6 — Noncontrolling Interests . See Notes to Consolidated Financial Statements. 6 Table of Contents RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine Months Ended September 30, 2021 2020 OPERATING ACTIVITIES Net income $ 188,963 $ 17,378 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization 121,234 119,479 Non-cash cost of land and improved development 22,818 20,701 Stock-based incentive compensation expense 7,094 6,143 Deferred income taxes 7,618 10,267 Amortization of losses from pension and postretirement plans 881 652 Timber write-offs due to casualty events — 15,203 Gain on sale of large disposition of timberlands ( 44,800 ) ( 28,655 ) Gain on sale of Timber Funds III & IV ( 3,729 ) — Gain on Fund II timberland dispositions ( 35,951 ) — Other 12,161 ( 6,986 ) Changes in operating assets and liabilities: Receivables 3,192 ( 14,089 ) Inventories ( 1,081 ) ( 2,310 ) Accounts payable 3,350 6,553 All other operating activities ( 4,306 ) ( 6,352 ) CASH PROVIDED BY OPERATING ACTIVITIES 277,444 137,984 INVESTING ACTIVITIES Capital expenditures ( 47,497 ) ( 44,679 ) Real estate development investments ( 9,165 ) ( 5,448 ) Purchase of timberlands ( 51,921 ) ( 24,379 ) Net proceeds from large disposition of timberlands 54,698 115,666 Net proceeds from sale of Timber Funds III & IV 31,068 — Net proceeds from Fund II timberland dispositions 85,199 — Net cash consideration for merger with Pope Resources — ( 231,068 ) Other 6,952 5,127 CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 69,334 ( 184,781 ) FINANCING ACTIVITIES Issuance of debt 446,378 320,000 Repayment of debt ( 420,000 ) ( 132,000 ) Dividends paid on common stock ( 114,261 ) ( 109,136 ) Distributions to noncontrolling interests in the Operating Partnership ( 3,373 ) ( 2,401 ) Proceeds from the issuance of common shares under incentive stock plan 4,674 233 Proceeds from the issuance of common shares under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs 166,549 ( 456 ) Repurchase of common shares ( 1,614 ) ( 1,577 ) Debt issuance costs ( 4,829 ) ( 2,483 ) Repurchase of common shares made under repurchase program — ( 3,152 ) Noncontrolling interests in consolidated affiliates redemption of shares — ( 5,113 ) Distributions to noncontrolling interests in consolidated affiliates ( 19,564 ) ( 8,247 ) Make-whole fee on NWFCS debt prepayment ( 6,234 ) — CASH PROVIDED BY FINANCING ACTIVITIES 47,726 55,668 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 346 ) ( 213 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash 394,158 8,658 Balance, beginning of year 87,482 69,968 Balance, end of period $ 481,640 $ 78,626 7 Table of Contents SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period: Interest (a) $ 24,680 $ 25,546 Income taxes 7,306 621 Non-cash investing activity: Capital assets purchased on account 4,726 3,250 Non-cash financing activity: Equity consideration for merger with Pope Resources — $ 172,640 Redeemable Operating Partnership Unit consideration for merger with Pope Resources — 106,752 (a) Interest paid is presented net of patronage paymen ts received of $ 6.8 million a n d $ 4.7 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. For additional information on patronage payments, see Note 8 — Debt in the 2020 Form 10-K. See Notes to Consolidated Financial Statements. 8 Table of Contents RAYONIER, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands, except per unit amounts) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 SALES ( NOTE 4 ) $ 364,726 $ 198,875 $ 847,604 $ 653,635 Costs and Expenses Cost of sales ( 233,308 ) ( 180,944 ) ( 578,937 ) ( 545,333 ) Selling and general expenses ( 13,174 ) ( 14,498 ) ( 41,899 ) ( 37,036 ) Other operating income (expense), net ( Note 18 ) 5,070 ( 1,653 ) 9,474 ( 19,247 ) ( 241,412 ) ( 197,095 ) ( 611,362 ) ( 601,616 ) OPERATING INCOME 123,314 1,780 236,242 52,019 Interest expense ( 11,265 ) ( 10,421 ) ( 34,292 ) ( 28,457 ) Interest and other miscellaneous income (expense), net 1,274 ( 137 ) 127 1,232 INCOME (LOSS) BEFORE INCOME TAXES 113,323 ( 8,778 ) 202,077 24,794 Income tax expense ( Note 20 ) ( 2,811 ) ( 720 ) ( 13,114 ) ( 7,416 ) NET INCOME (LOSS) 110,512 ( 9,498 ) 188,963 17,378 Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates ( 32,471 ) 8,715 ( 40,775 ) 9,647 NET INCOME (LOSS) ATTRIBUTABLE TO RAYONIER, L.P. UNITHOLDERS 78,041 ( 783 ) 148,188 27,025 OTHER COMPREHENSIVE (LOSS) INCOME Foreign currency translation adjustment, net of income tax effect of $ 0 , $ 0 , $ 0 and $ 0 ( 6,622 ) 12,476 ( 19,670 ) ( 8,290 ) Cash flow hedges, net of income tax effect of $ 833 , $ 645 , $ 2,207 and $ 530 1,711 7,861 52,693 ( 82,890 ) Amortization of pension and postretirement plans, net of income tax expense of $ 0 , $ 0 , $ 0 and $ 0 294 217 881 652 Total other comprehensive (loss) income ( 4,617 ) 20,554 33,904 ( 90,528 ) COMPREHENSIVE INCOME (LOSS) 105,895 11,056 222,867 ( 73,150 ) Less: Comprehensive (income) loss attributable to noncontrolling interests in consolidated affiliates ( 31,099 ) 5,017 ( 36,168 ) 10,761 COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO RAYONIER, L.P. UNITHOLDERS $ 74,796 $ 16,073 $ 186,699 ($ 62,389 ) EARNINGS PER UNIT ( NOTE 8 ) Basic earnings (loss) per unit attributable to Rayonier, L.P. $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 Diluted earnings (loss) per unit attributable to Rayonier, L.P. $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 See Notes to Consolidated Financial Statements. 9 Table of Contents RAYONIER, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) September 30, 2021 December 31, 2020 ASSETS CURRENT ASSETS Cash and cash equivalents, excluding Timber Funds $ 419,604 $ 80,454 Cash and cash equivalents, Timber Funds 12,202 4,053 Total cash and cash equivalents 431,806 84,507 Restricted cash, Timber Funds ( Note 22 ) 49,209 — Accounts receivable, less allowance for doubtful accounts of $ 81 and $ 25 42,352 49,082 Inventory ( Note 17 ) 18,592 10,594 Prepaid expenses 19,362 16,168 Assets held for sale ( Note 23 ) 56,397 3,449 Other current assets 2,212 6,765 Total current assets 619,930 170,565 TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION 2,788,991 3,262,126 HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS ( NOTE 16 ) 110,592 108,518 PROPERTY, PLANT AND EQUIPMENT Land 6,569 6,548 Buildings 31,028 31,024 Machinery and equipment 4,392 4,615 Construction in progress 710 452 Total property, plant and equipment, gross 42,699 42,639 Less — accumulated depreciation ( 14,167 ) ( 12,238 ) Total property, plant and equipment, net 28,532 30,401 RESTRICTED CASH, EXCLUDING TIMBER FUNDS ( NOTE 22 ) 625 2,975 RIGHT-OF-USE ASSETS 107,631 108,992 OTHER ASSETS 50,113 45,156 TOTAL ASSETS $ 3,706,414 $ 3,728,733 LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL CURRENT LIABILITIES Accounts payable $ 27,989 $ 24,790 Current maturities of long-term debt, net, excluding Timber Funds ( Note 9 ) 199,887 — Accrued taxes 18,503 7,347 Accrued payroll and benefits 11,210 12,327 Accrued interest 12,555 6,325 Deferred revenue 19,899 11,112 Distribution payable, Timber Funds 49,209 — Other current liabilities 28,983 29,234 Total current liabilities 368,235 91,135 LONG-TERM DEBT, NET, EXCLUDING TIMBER FUNDS ( NOTE 9 ) 1,167,967 1,300,336 LONG-TERM DEBT, NET, TIMBER FUNDS ( NOTE 9 ) — 60,179 PENSION AND OTHER POSTRETIREMENT BENEFITS ( NOTE 19 ) 22,173 23,344 LONG-TERM LEASE LIABILITY 99,275 100,251 OTHER NON-CURRENT LIABILITIES 115,749 160,722 COMMITMENTS AND CONTINGENCIES ( NOTES 12 and 13 ) REDEEMABLE OPERATING PARTNERSHIP UNITS ( NOTE 6 ) 3,939,309 and 4,428,900 Units outstanding, respectively 140,555 130,121 CAPITAL General partners’ capital 17,432 15,454 Limited partners’ capital 1,725,795 1,529,948 Accumulated other comprehensive loss ( Note 21 ) ( 32,834 ) ( 71,345 ) TOTAL CONTROLLING INTEREST CAPITAL 1,710,393 1,474,057 Noncontrolling interests in consolidated affiliates ( Note 6 ) 82,067 388,588 TOTAL CAPITAL 1,792,460 1,862,645 TOTAL LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL $ 3,706,414 $ 3,728,733 See Notes to Consolidated Financial Statements. 10 Table of Contents RAYONIER, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN CAPITAL (Unaudited) (Dollars in thousands, except share data) Units Accumulated Other Comprehensive Loss Noncontrolling Interests in Consolidated Affiliates Total Capital General Partners’ Capital Limited Partners’ Capital Balance, January 1, 2021 $ 15,454 $ 1,529,948 ($ 71,345 ) $ 388,588 $ 1,862,645 Net income 112 11,077 — 3,843 15,032 Distributions on units ($ 0.27 per unit) ( 387 ) ( 38,300 ) — — ( 38,687 ) Issuance of units under the “at-the-market” equity offering, net of commissions and offering costs of $ 197 367 36,341 — — 36,708 Issuance of units under incentive stock plans 12 1,154 — — 1,166 Stock-based compensation 22 2,134 — — 2,156 Repurchase of units ( 2 ) ( 153 ) — — ( 155 ) Adjustment of Redeemable Operating Partnership Units ( 126 ) ( 12,458 ) — — ( 12,584 ) Conversion of units into common shares 47 4,668 — — 4,715 Measurement period adjustment of noncontrolling interests in consolidated affiliates — — — 655 655 Amortization of pension and postretirement plan liabilities — — 294 — 294 Foreign currency translation adjustment — — ( 11,652 ) ( 2,636 ) ( 14,288 ) Cash flow hedges — — 61,628 ( 627 ) 61,001 Distributions to noncontrolling interests in consolidated affiliates — — — ( 8,737 ) ( 8,737 ) Balance, March 31, 2021 $ 15,499 $ 1,534,411 ($ 21,075 ) $ 381,086 $ 1,909,921 Net income 590 58,369 — 4,461 63,420 Distributions on units ($ 0.27 per unit) ( 391 ) ( 38,744 ) — — ( 39,135 ) Issuance of units under the “at-the-market” equity offering, net of commissions and offering costs of $ 927 800 79,194 — — 79,994 Issuance of units under incentive stock plans 33 3,292 — — 3,325 Stock-based compensation 29 2,823 — — 2,852 Repurchase of units ( 15 ) ( 1,438 ) — — ( 1,453 ) Adjustment of Redeemable Operating Partnership Units ( 158 ) ( 15,598 ) — — ( 15,756 ) Conversion of units into common shares 2 239 — — 241 Measurement period adjustment of noncontrolling interests in consolidated affiliates — — — 9,034 9,034 Amortization of pension and postretirement plan liabilities — — 294 — 294 Foreign currency translation adjustment — — 1,025 214 1,239 Cash flow hedges — — ( 9,833 ) ( 186 ) ( 10,019 ) Distributions to noncontrolling interests in consolidated affiliates — — — ( 6,474 ) ( 6,474 ) Balance, June 30, 2021 $ 16,389 $ 1,622,548 ($ 29,589 ) $ 388,135 $ 1,997,483 11 Table of Contents Balance, June 30, 2021 $ 16,389 $ 1,622,548 ($ 29,589 ) $ 388,135 $ 1,997,483 Net income 780 77,261 — 32,471 110,512 Distributions on units ($ 0.27 per unit) ( 401 ) ( 39,695 ) — — ( 40,096 ) Issuance of units under the “at-the-market” equity offering, net of commissions and offering costs of $ 691 511 50,621 — — 51,132 Issuance of units under incentive stock plans 2 181 — — 183 Stock-based compensation 21 2,065 — — 2,086 Repurchase of units — ( 6 ) — — ( 6 ) Adjustment of Redeemable Operating Partnership Units 7 685 — — 692 Conversion of units into common shares 123 12,135 — — 12,258 Disposition of noncontrolling interests in consolidated affiliates — — — ( 255,486 ) ( 255,486 ) Amortization of pension and postretirement plan liabilities — — 294 — 294 Foreign currency translation adjustment — — ( 5,743 ) ( 879 ) ( 6,622 ) Cash flow hedges — — 2,204 ( 493 ) 1,711 Distributions to noncontrolling interests in consolidated affiliates — — — ( 53,562 ) ( 53,562 ) Noncontrolling interests in consolidated affiliates redemption of unit equivalents — — — ( 28,119 ) ( 28,119 ) Balance, September 30, 2021 $ 17,432 $ 1,725,795 ($ 32,834 ) $ 82,067 $ 1,792,460 12 Table of Contents Units Accumulated Other Comprehensive Loss Noncontrolling Interests in Consolidated Affiliates Total Capital General Partners’ Capital Limited Partners’ Capital Balance, January 1, 2020 $ 14,712 $ 1,456,471 ($ 31,202 ) $ 97,661 $ 1,537,642 Net income 259 25,595 — 567 26,421 Distributions on units ($ 0.27 per unit) ( 349 ) ( 34,464 ) — — ( 34,813 ) Issuance of units under incentive stock plans 1 65 — — 66 Stock-based compensation 15 1,495 — — 1,510 Repurchase of units ( 32 ) ( 3,120 ) — — ( 3,152 ) Amortization of pension and postretirement plan liabilities — — 217 — 217 Foreign currency translation adjustment — — ( 33,894 ) ( 10,129 ) ( 44,023 ) Cash flow hedges — — ( 82,376 ) ( 1,099 ) ( 83,475 ) Distributions to noncontrolling interests in consolidated affiliates — — — ( 725 ) ( 725 ) Balance, March 31, 2020 $ 14,606 $ 1,446,042 ($ 147,255 ) $ 86,275 $ 1,399,668 Issuance of units associated with the merger with Pope Resources 1,724 170,694 — — 172,418 Net income (loss) 20 1,934 — ( 1,499 ) 455 Distributions on units ($ 0.27 per unit) ( 382 ) ( 37,775 ) — — ( 38,157 ) Issuance of units under incentive stock plans 2 220 — — 222 Stock-based compensation 27 2,641 — — 2,668 Repurchase of units ( 15 ) ( 1,557 ) — — ( 1,572 ) Adjustment of Redeemable Operating Partnership Units ( 35 ) ( 3,433 ) — — ( 3,468 ) Acquisition of noncontrolling interests in consolidated affiliates — — — 372,381 372,381 Amortization of pension and postretirement plan liabilities — — 217 — 217 Foreign currency translation adjustment — — 17,872 5,386 23,258 Cash flow hedges — — ( 8,306 ) 1,030 ( 7,276 ) Distribution to noncontrolling interests in consolidated affiliates — — — ( 6,856 ) ( 6,856 ) Balance, June 30, 2020 $ 15,947 $ 1,578,766 ($ 137,472 ) $ 456,717 $ 1,913,958 Net loss ( 8 ) ( 775 ) — ( 8,715 ) ( 9,498 ) Distributions on units ($ 0.27 per unit) ( 385 ) ( 38,072 ) — — ( 38,457 ) Costs associated with the “At-the-Market” (ATM) program ( 5 ) ( 451 ) — — ( 456 ) Issuance of units under incentive stock plans 2 165 — — 167 Stock-based compensation 20 1,945 — — 1,965 Repurchase of units — ( 4 ) — — ( 4 ) Adjustment of Redeemable Operating Partnership Units ( 73 ) ( 7,264 ) — — ( 7,337 ) Conversion of units into common shares — 27 — — 27 Measurement period adjustment of noncontrolling interests in consolidated affiliates — — — ( 701 ) ( 701 ) Amortization of pension and postretirement plan liabilities — — 217 — 217 Foreign currency translation adjustment — — 9,160 3,316 12,476 Cash flow hedges — — 7,479 382 7,861 Distributions to noncontrolling interests in consolidated affiliates — — — ( 667 ) ( 667 ) Noncontrolling interests in consolidated affiliates redemption of unit equivalents — — — ( 28,403 ) ( 28,403 ) Balance, September 30, 2020 $ 15,498 $ 1,534,337 ($ 120,616 ) $ 421,929 $ 1,851,148 See Notes to Consolidated Financial Statements. 13 Table of Contents RAYONIER, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Nine Months Ended September 30, 2021 2020 OPERATING ACTIVITIES Net income $ 188,963 $ 17,378 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization 121,234 119,479 Non-cash cost of land and improved development 22,818 20,701 Stock-based incentive compensation expense 7,094 6,143 Deferred income taxes 7,618 10,267 Amortization of losses from pension and postretirement plans 881 652 Timber write-offs due to casualty events — 15,203 Gain on sale of large disposition of timberlands ( 44,800 ) ( 28,655 ) Gain on sale of Timber Funds III & IV ( 3,729 ) — Gain on Fund II timberland dispositions ( 35,951 ) — Other 12,161 ( 6,986 ) Changes in operating assets and liabilities: Receivables 3,192 ( 14,089 ) Inventories ( 1,081 ) ( 2,310 ) Accounts payable 3,350 6,553 All other operating activities ( 4,306 ) ( 6,352 ) CASH PROVIDED BY OPERATING ACTIVITIES 277,444 137,984 INVESTING ACTIVITIES Capital expenditures ( 47,497 ) ( 44,679 ) Real estate development investments ( 9,165 ) ( 5,448 ) Purchase of timberlands ( 51,921 ) ( 24,379 ) Net proceeds from large disposition of timberlands 54,698 115,666 Net proceeds from sale of Timber Funds III & IV 31,068 — Net proceeds from Fund II timberland dispositions 85,199 — Cash consideration for merger with Pope Resources, net of cash acquired — ( 231,068 ) Other 6,952 5,127 CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 69,334 ( 184,781 ) FINANCING ACTIVITIES Issuance of debt 446,378 320,000 Repayment of debt ( 420,000 ) ( 132,000 ) Distributions on units ( 117,634 ) ( 111,537 ) Proceeds from the issuance of units under incentive stock plan 4,674 233 Proceeds from the issuance of units under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs 166,549 ( 456 ) Repurchase of units ( 1,614 ) ( 1,577 ) Debt issuance costs ( 4,829 ) ( 2,483 ) Repurchase of units made under repurchase program — ( 3,152 ) Noncontrolling interests in consolidated affiliates redemption of shares — ( 5,113 ) Distributions to noncontrolling interests in consolidated affiliates ( 19,564 ) ( 8,247 ) Make-whole fee on NWFCS debt prepayment ( 6,234 ) — CASH PROVIDED BY FINANCING ACTIVITIES 47,726 55,668 EFFECT OF EXCHANGE RATE CHANGES ON CASH ( 346 ) ( 213 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash 394,158 8,658 Balance, beginning of year 87,482 69,968 Balance, end of period $ 481,640 $ 78,626 14 Table of Contents SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period: Interest (a) $ 24,680 $ 25,546 Income taxes 7,306 621 Non-cash investing activity: Capital assets purchased on account 4,726 3,250 Non-cash financing activity: Equity consideration for merger with Pope Resources — $ 172,640 Redeemable Operating Partnership Unit consideration for merger with Pope Resources — 106,752 (a) Interest paid is presented net of patronage paymen ts received of $ 6.8 million an d $ 4.7 million for the nine months ended September 30, 2021 and September 30, 2020, respectively. For additional information on patronage payments, see Note 8 — Debt in the 2020 Form 10-K. See Notes to Consolidated Financial Statements. 15 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 1. BASIS OF PRESENTATION The unaudited consolidated financial statements and notes thereto of Rayonier Inc. and its subsidiaries and Rayonier, L.P. have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Rayonier Inc. and Rayonier, L.P. year-end balance sheet information was derived from audited financial statements not included herein. In the opinion of management, these financial statements and notes reflect any adjustments (all of which are normal recurring adjustments) necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the financial statements and supplementary data included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC (the “2020 Form 10-K”). On May 8, 2020, Rayonier, L.P. acquired Pope Resources and became the general partner of Pope Resources. As of September 30, 2021, the Company owned a 97.3 % interest in the Operating Partnership, with the remaining 2.7 % interest owned by limited partners of the Operating Partnership. As the sole general partner of the Operating Partnership, Rayonier Inc. has exclusive control of the day-to-day management of the Operating Partnership. Please see Note 2 - Merger with Pope Resources and Note 24 - Charges for Integration and Restructuring for further information pertaining to the merger. SUMMARY OF UPDATES TO SIGNIFICANT ACCOUNTING POLICIES For a full description of our other significant accounting policies, see Note 1 — Summary of Significant Accounting Policies in our 2020 Form 10-K. DISPOSITION OF TIMBER FUNDS Upon completion of the Pope Resources merger, we became the manager of three private equity timber funds, Fund II, Fund III, and Fund IV, consisting of 141,000 acres in the Pacific Northwest, and obtained ownership interests in the Funds of 20 %, 5 %, and 15 %, respectively. On July 21, 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds to BTG Pactual’s Timberland Investment Group (TIG) for an aggregate purchase price of $ 35.9 million. On September 30, 2021, we sold approximately 13,000 acres of timberlands in Washington held by Fund II for $ 87.1 million. We classified the remaining portion of Fund II’s timber and timberland as assets held for sale in our Consolidated Balance Sheets as of September 30, 2021, as a process to liquidate Fund II had commenced. See Note 6 — Noncontrolling Interests , Note 23 — Assets Held for Sale and the subsequent events section of this note below for additional information. NEW ACCOUNTING STANDARDS In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-04, Reference Rate Reform (Topic 848) , which provides optional guidance to ease the potential burden in accounting due to reference rate reform. ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During Q2 2020, we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In August 2020, the FASB issued ASU 2020-06, Debt–Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging–Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt 16 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options , that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. We are currently in the process of evaluating the effects of the provisions of ASU 2020-06 on our financial statements. SUBSEQUENT EVENTS On October 5, 2021, we sold approximately 5,000 acres of Fund II timberland assets in Oregon for an aggregate purchase price of approximately $ 37.2 million. This sale will not have a material effect on our consolidated financial statements. On November 1, 2021, we sold the remaining 13,000 acres of Fund II timberland assets in Oregon for an aggregate purchase price of approximately $ 32.5 million. This sale will not have a material effect on our consolidated financial statements. This transaction completes the liquidation of Fund II assets, with capital expected to be distributed to investors during the fourth quarter. 2. MERGER WITH POPE RESOURCES On May 8, 2020, Rayonier Inc. and Rayonier, L.P. acquired Pope Resources and became the general partner of Pope Resources. Pope Resources was a master limited partnership that primarily owned and managed timberlands in the U.S. Pacific Northwest. Pope Resources also managed and co-invested in three private equity timber funds and developed and sold real estate properties. For additional information about the merger, see Note 2 - Merger with Pope Resources in the 2020 Form 10-K. The total purchase price was as follows: Cash consideration $ 247,318 Equity consideration 172,640 Redeemable Operating Partnership Unit consideration 106,752 Fair value of Pope Resources units held by us (a) 11,211 Total purchase price $ 537,921 (a) Based on the closing price of Pope Resources units on the NASDAQ on May 7, 2020. We recognized approximately $ 2.5 million, $ 13.5 million, and $ 0.4 million of merger-related costs that were expensed during the first, second and third quarters of 2020, respectively. See Note 24 — Charges for Integration and Restructuring for descriptions of the components of merger-related costs. The acquisition of Pope Resources was accounted for as a business combination under ASC 805, Business Combinations , (“ASC 805”). Pursuant to ASC 805, we recorded an allocation of the assets acquired and liabilities assumed in the merger with Pope Resources based on their fair values as of May 8, 2020. We completed our assessment of the fair value of the assets acquired and liabilities assumed within the one-year period from the date of acquisition. We recorded measurement period adjustments due to additional information received primarily related to higher and better use timberlands and real estate development investments, as well as timber and timberlands. 17 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) As a result of refinements to the purchase price allocation, higher and better use timberlands increased by approximately $ 8.2 million. This includes development properties in the town of Port Gamble, Washington, development projects in Gig Harbor, Kingston, and Bremerton, Washington and various other assets. Additionally, refinements to the purchase price allocation resulted in an overall increase of $ 1.1 million to timber and timberlands, with the valuation of core timberlands decreasing by $ 15.5 million and Timber Funds timber and timberlands increasing by $ 16.6 million from the preliminary purchase price allocation reported in Note 2 - Merger with Pope Resources in the 2020 Form 10-K. As a result of refinements to timberlands preliminarily recorded values, we recognized the following decreases in depletion expense during the nine months ended September 30, 2021: Nine months ended September 30, 2021 Pacific Northwest Timber Timber Funds Total Depletion ($ 182 ) ($ 1,202 ) ($ 1,384 ) Total ($ 182 ) ($ 1,202 ) ($ 1,384 ) The fair values of the assets acquired and liabilities assumed were determined using the income, cost or market approaches. The fair value measurements were generally based on significant inputs that are not observable in the market and thus represent Level 3 measurements as defined in ASC 820, Fair Value Measurement , (“ASC 820”) with the exception of certain long-term debt instruments assumed in the merger that can be valued using observable market inputs and are therefore Level 2 measurements. See Note 11 — Fair Value Measurements for further information on the fair value hierarchy. 18 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The final allocation of purchase price to the identifiable assets acquired and liabilities assumed is as follows: Core Timberlands Timber Funds Total Timberland and Real Estate Business Cash $ 7,380 $ 8,870 $ 16,250 Accounts receivable 2,459 1,787 4,246 Other current assets 703 260 963 Timber and Timberlands 498,630 449,073 947,703 Higher and Better Use Timberlands and Real Estate Development Investments 34,748 — 34,748 Property, plant and equipment 11,616 — 11,616 Other assets (a) 3,737 2,194 5,931 Total identifiable assets acquired $ 559,273 $ 462,184 $ 1,021,457 Accounts payable 274 293 567 Current maturities of long-term debt — 25,084 25,084 Accrued interest 244 275 519 Other current liabilities 9,038 2,080 11,118 Long-term debt 53,502 35,759 89,261 Long-term environmental liabilities 10,748 — 10,748 Other non-current liabilities (b) 2,724 461 3,185 Total liabilities assumed $ 76,530 $ 63,952 $ 140,482 Net identifiable assets $ 482,743 $ 398,232 $ 880,975 Less: noncontrolling interests ( 3,816 ) ( 339,238 ) ( 343,054 ) Total net assets acquired $ 478,927 $ 58,994 $ 537,921 (a) Other assets includes a $ 1.9 million intangible asset in connection with the Timberland Investment Management business. (b) Other non-current liabilities includes a $ 3.2 million deferred income tax liability resulting from the fair value adjustment to Pope Resources’ assets and liabilities. 19 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Pursuant to ASC 805, unaudited supplemental pro forma results of operations for the three and nine months ended September 30, 2020, assuming the acquisition had occurred as of January 1, 2020, are presented below (in thousands, except per share and unit amounts): Three Months Ended Nine Months Ended September 30, 2020 Sales $ 198,975 $ 684,900 Net income attributable to Rayonier Inc. ($ 1,110 ) $ 25,800 Basic earnings per share attributable to Rayonier Inc. ($ 0.01 ) $ 0.19 Diluted earnings per share attributable to Rayonier Inc. ($ 0.01 ) $ 0.19 Net income attributable to Rayonier, L.P. ($ 1,147 ) $ 26,648 Basic earnings per unit attributable to Rayonier, L.P. ($ 0.01 ) $ 0.19 Diluted earnings per unit attributable to Rayonier, L.P. ($ 0.01 ) $ 0.19 The unaudited pro forma results include certain pro forma adjustments to net earnings that were directly attributable to the acquisition, assuming the acquisition had occurred on January 1, 2020, including the following: • additional depletion expense that would have been recognized relating to the basis increase in the acquired Timber and Timberlands; • adjustment to interest expense to reflect the removal of Pope Resources debt and the additional borrowings we incurred in conjunction with the acquisition; and • a reduction in expenses for the three and nine months ended September 30, 2020 of $ 0.4 million and $ 31.6 million for acquisition-related transaction costs. Pro forma data may not be indicative of the results that would have been obtained had these events occurred at the beginning of the periods presented, nor is it intended to be a projection of future results. 20 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 3. 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. We evaluate financial performance based on segment operating income (loss) and Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”). Asset information is not reported by segment, as we do not produce asset information by segment internally. Operating income as presented in the Consolidated Statements of Income and Comprehensive Income is equal to segment income. Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include interest income (expense), miscellaneous income (expense) and income tax expense, are not considered by management to be part of segment operations and are included under “unallocated interest expense and other.” The following tables summarize the segment information for the three and nine months ended September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, SALES 2021 2020 2021 2020 Southern Timber $ 44,818 $ 47,653 $ 145,789 $ 147,402 Pacific Northwest Timber 31,513 28,885 108,357 86,131 New Zealand Timber 75,558 62,804 213,696 142,112 Timber Funds (a) 94,469 9,907 128,054 17,431 Real Estate (b) 93,375 28,791 178,409 197,364 Trading 25,583 22,201 76,795 65,505 Intersegment Eliminations (c) ( 590 ) ( 1,366 ) ( 3,496 ) ( 2,310 ) Total $ 364,726 $ 198,875 $ 847,604 $ 653,635 (a) The three and nine months ended September 30, 2021 include $ 75.4 million and $ 102.1 million, respectively, of sales attributable to noncontrolling interests in Timber Funds. Included in sales attributable to noncontrolling interests in Timber Funds for the three and nine months ended September 30, 2021 is $ 69.7 million from Fund II Timberland Dispositions attributable to noncontrolling interests in Timber Funds. The three and nine months ended September 30, 2021 also include $ 17.4 million from Fund II Timberland Dispositions attributable to Rayonier. The three and nine months ended September 30, 2020 include $ 7.7 million and $ 13.5 million of sales attributable to noncontrolling interests in Timber Funds. (b) The three and nine months ended September 30, 2021 include $ 20.0 million and $ 56.0 million, respectively, from Large Dispositions. The nine months ended September 30, 2020 includes $ 116.0 million from a Large Disposition. 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. (c) Primarily consists of the elimination of timberland investment management fees paid to us by the timber funds which are initially recognized as sales and cost of sales within the Timber Funds segment, as well as log marketing fees paid to our Trading segment from our Southern Timber and Pacific Northwest Timber segments for marketing log export sales. 21 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Three Months Ended September 30, Nine Months Ended September 30, OPERATING INCOME (LOSS) 2021 2020 2021 2020 Southern Timber (a) $ 12,778 $ 5,090 $ 47,105 $ 31,368 Pacific Northwest Timber 2,071 ( 1,825 ) 5,293 ( 9,453 ) New Zealand Timber 13,302 10,720 47,959 21,142 Timber Funds (b) 41,285 ( 12,370 ) 44,778 ( 14,262 ) Real Estate (c) 60,617 9,459 112,816 61,081 Trading ( 33 ) ( 557 ) 628 ( 474 ) Corporate and Other (d) ( 6,706 ) ( 8,737 ) ( 22,337 ) ( 37,383 ) Total Operating Income 123,314 1,780 236,242 52,019 Unallocated interest expense and other ( 9,991 ) ( 10,558 ) ( 34,165 ) ( 27,225 ) Total Income before Income Taxes $ 113,323 ($ 8,778 ) $ 202,077 $ 24,794 (a) The three and nine months ended September 30, 2020 includes $ 6.0 million of timber write-offs resulting from casualty events. Timber write-offs resulting from casualty events are recorded within the Consolidated Statements of Income and Comprehensive Income under the caption “Cost of sales”. (b) The three and nine months ended September 30, 2021 include $ 30.5 million and $ 33.3 million, respectively, of operating income attributable to noncontrolling interests in Timber Funds. Included in operating income attributable to noncontrolling interests in Timber Funds for the three and nine months ended September 30, 2021 is a $ 28.8 million gain on Fund II Timberland Dispositions attributable to noncontrolling interests in Timber Funds. The three and nine months ended September 30, 2021 also include a $ 7.2 million gain on Fund II Timberland Dispositions attributable to Rayonier and a $ 3.7 million gain on investment in Timber Funds. The three and nine months ended September 30, 2020 include $ 10.3 million and $ 12.3 million, respectively, of operating loss attributable to noncontrolling interests in Timber Funds. Included in operating loss attributable to noncontrolling interests in Timber Funds for the three and nine months ended September 30, 2020 is $ 7.3 million related to timber write-offs resulting from casualty events attributable to noncontrolling interests in Timber Funds. The three and nine months ended September 30, 2020 also include $ 1.8 million of timber write-offs resulting from casualty events attributable to Rayonier. Timber write-offs resulting from casualty events are recorded within the Consolidated Statements of Income and Comprehensive Income under the caption “Cost of sales”. (c) The three and nine months ended September 30, 2021 include $ 14.5 million and $ 44.8 million from Large Dispositions. The nine months ended September 30, 2020 includes $ 28.7 million from a Large Disposition. (d) The three and nine months ended September 30, 2020 include $ 0.4 million and $ 16.4 million, respectively, of integration and restructuring costs related to the merger with Pope Resources. See Note 24 — Charges for Integration and Restructuring for additional details. Three Months Ended September 30, Nine Months Ended September 30, DEPRECIATION, DEPLETION AND AMORTIZATION 2021 2020 2021 2020 Southern Timber $ 11,604 $ 14,954 $ 39,539 $ 48,368 Pacific Northwest Timber 10,479 10,912 38,795 32,221 New Zealand Timber 6,555 7,345 20,757 17,062 Timber Funds (a) 43,158 4,170 54,780 8,239 Real Estate (b) 6,797 5,527 16,889 47,950 Corporate and Other 316 375 892 1,011 Total $ 78,909 $ 43,283 $ 171,652 $ 154,851 (a) The three and nine months ended September 30, 2021 include $ 34.4 million and $ 44.4 million, respectively, of depreciation, depletion and amortization attributable to noncontrolling interests in Timber Funds. Included in depreciation, depletion, and amortization attributable to noncontrolling interests in Timber Funds for the three and nine months ended September 30, 2021 is $ 32.5 million related to Fund II Timberland Dispositions attributable to noncontrolling interests in Timber Funds. The three and nine months ended September 30, 2021 also include $ 8.1 million related to Fund II Timberland Dispositions attributable to Rayonier. The three and nine months ended September 30, 2020 include $ 3.7 million and $ 7.2 million, respectively, of depreciation, depletion and amortization attributable to noncontrolling interests in Timber Funds. (b) The three and nine months ended September 30, 2021 includes $ 5.0 million and $ 9.8 million, respectively, from Large Dispositions. The nine months ended September 30, 2020 includes $ 35.4 million from a Large Disposition. 22 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Three Months Ended September 30, Nine Months Ended September 30, NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT 2021 2020 2021 2020 Timber Funds (a) $ 8,635 — $ 8,635 — Real Estate (b) 15,845 7,259 22,913 72,340 Total $ 24,480 $ 7,259 $ 31,548 $ 72,340 (a) The three and nine months ended September 30, 2021 includes $ 8.6 million of non-cash cost of land and improved development from Fund II Timberland Dispositions, of which $ 6.9 million was attributable to noncontrolling interests in Timber Funds and $ 1.7 million was attributable to Rayonier. (b) The nine months ended September 30, 2021 includes $ 0.1 million from Large Dispositions. The nine months ended September 30, 2020 includes $ 51.6 million from a Large Disposition. 4. REVENUE PERFORMANCE OBLIGATIONS We recognize revenue when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected in exchange for those goods or services (“transaction price”). We generally satisfy performance obligations within a year of entering into a contract and therefore have applied the disclosure exemption found under ASC 606-10-50-14. Unsatisfied performance obligations as of September 30, 2021 are primarily due to advances on stumpage contracts, unearned license revenue and post-closing obligations on real estate sales. These performance obligations are expected to be satisfied within the next twelve months . We generally collect payment within a year of satisfying performance obligations and therefore have elected not to adjust revenues for a financing component. CONTRACT BALANCES The timing of revenue recognition, invoicing and cash collections results in accounts receivable and deferred revenue (contract liabilities) on the Consolidated Balance Sheets. Accounts receivable are recorded when we have an unconditional right to consideration for completed performance under the contract. Contract liabilities relate to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) we perform under the contract. The following table summarizes revenue recognized during the three and nine months ended September 30, 2021 and 2020 that was included in the contract liability balance at the beginning of each year: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Revenue recognized from contract liability balance at the beginning of the year (a) $ 235 $ 690 $ 10,204 $ 10,296 (a) Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales. 23 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The following tables present our revenue from contracts with customers disaggregated by product type for the three and nine months ended September 30, 2021 and 2020: Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Elim. Total September 30, 2021 Pulpwood $ 21,358 $ 2,116 $ 10,746 $ 127 — $ 3,861 — $ 38,208 Sawtimber 17,680 28,134 64,562 6,707 — 21,281 — 138,364 Hardwood 247 — — — — — — 247 Total Timber Sales 39,285 30,250 75,308 6,834 — 25,142 — 176,819 License Revenue, Primarily from Hunting 4,588 298 161 11 — — — 5,058 Other Non-Timber/Carbon Revenue 945 965 89 25 — — — 2,024 Agency Fee Income — — — — — 350 — 350 Fund II Timberland Dispositions — — — 87,100 — — — 87,100 Total Non-Timber Sales 5,533 1,263 250 87,136 — 350 — 94,532 Improved Development — — — — 27,774 — — 27,774 Unimproved Development — — — — 37,500 — — 37,500 Rural — — — — 6,937 — — 6,937 Timberland & Non-Strategic — — — — 44 — — 44 Deferred Revenue/Other (a) — — — — 728 — — 728 Large Dispositions — — — — 20,048 — — 20,048 Total Real Estate Sales — — — — 93,031 — — 93,031 Revenue from Contracts with Customers 44,818 31,513 75,558 93,970 93,031 25,492 — 364,382 Lease Revenue — — — — 344 — — 344 Intersegment — — — 499 — 91 ( 590 ) — Total Revenue $ 44,818 $ 31,513 $ 75,558 $ 94,469 $ 93,375 $ 25,583 ($ 590 ) $ 364,726 Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Elim. Total September 30, 2020 Pulpwood $ 22,061 $ 1,963 $ 7,943 $ 227 — $ 2,534 — $ 34,728 Sawtimber 19,356 25,513 51,400 8,397 — 19,575 — 124,241 Hardwood 760 — — — — — — 760 Total Timber Sales 42,177 27,476 59,343 8,624 — 22,109 — 159,729 License Revenue, Primarily from Hunting 4,461 252 60 ( 6 ) — — — 4,767 Other Non-Timber/Carbon Revenue 1,015 1,157 3,401 15 — — — 5,588 Total Non-Timber Sales 5,476 1,409 3,461 9 — — — 10,355 Improved Development — — — — 1,344 — — 1,344 Unimproved Development — — — — — — — — Rural — — — — 23,245 — — 23,245 Timberland & Non-Strategic — — — — 42 — — 42 Conservation Easement — — — — 3,099 — — 3,099 Deferred Revenue/Other (a) — — — — 737 — — 737 Total Real Estate Sales — — — — 28,467 — — 28,467 Revenue from Contracts with Customers 47,653 28,885 62,804 8,633 28,467 22,109 — 198,551 Lease Revenue — — — — 324 — — 324 Intersegment — — — 1,274 — 92 ( 1,366 ) — Total Revenue $ 47,653 $ 28,885 $ 62,804 $ 9,907 $ 28,791 $ 22,201 ($ 1,366 ) $ 198,875 (a) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales. 24 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Nine Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Elim. Total September 30, 2021 Pulpwood $ 66,941 $ 6,689 $ 32,555 $ 783 — $ 9,372 — $ 116,340 Sawtimber 58,335 97,647 180,339 36,433 — 66,146 — 438,900 Hardwood 1,920 — — — — — — 1,920 Total Timber Sales 127,196 104,336 212,894 37,216 — 75,518 — 557,160 License Revenue, Primarily From Hunting 13,501 505 300 41 — — — 14,347 Other Non-Timber/Carbon Revenue 5,092 3,516 502 438 — — — 9,548 Agency Fee Income — — — — — 1,040 — 1,040 Fund II Timberland Dispositions — — — 87,100 — — — 87,100 Total Non-Timber Sales 18,593 4,021 802 87,579 — 1,040 — 112,035 Improved Development — — — — 47,366 — — 47,366 Unimproved Development — — — — 37,500 — — 37,500 Rural — — — — 36,999 — — 36,999 Timberland & Non-Strategic — — — — 44 — — 44 Conservation Easement — — — — 3,855 — — 3,855 Deferred Revenue/Other (a) — — — — ( 4,260 ) — — ( 4,260 ) Large Dispositions — — — — 56,048 — — 56,048 Total Real Estate Sales — — — — 177,552 — — 177,552 Revenue from Contracts with Customers 145,789 108,357 213,696 124,795 177,552 76,558 — 846,747 Lease Revenue — — — — 857 — — 857 Intersegment — — — 3,259 — 237 ( 3,496 ) — Total Revenue $ 145,789 $ 108,357 $ 213,696 $ 128,054 $ 178,409 $ 76,795 ($ 3,496 ) $ 847,604 Nine Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Elim. Total September 30, 2020 Pulpwood $ 74,239 $ 8,253 $ 18,545 $ 555 — $ 7,527 — $ 109,119 Sawtimber 55,224 75,255 117,157 14,701 — 57,493 — 319,830 Hardwood 1,752 — — — — — — 1,752 Total Timber Sales 131,215 83,508 135,702 15,256 — 65,020 — 430,701 License Revenue, Primarily from Hunting 13,386 444 200 4 — — — 14,034 Other Non-Timber/Carbon Revenue 2,801 2,179 6,210 19 — — — 11,209 Agency Fee Income — — — — — 327 — 327 Total Non-Timber Sales 16,187 2,623 6,410 23 — 327 — 25,570 Improved Development — — — — 7,771 — — 7,771 Unimproved Development — — — — 8,426 — — 8,426 Rural — — — — 52,876 — — 52,876 Timberland & Non-Strategic — — — — 9,647 — — 9,647 Conservation Easement — — — — 3,099 — — 3,099 Deferred Revenue/Other (a) — — — — ( 879 ) — — ( 879 ) Large Dispositions — — — — 116,027 — — 116,027 Total Real Estate Sales — — — — 196,967 — — 196,967 Revenue from Contracts with Customers 147,402 86,131 142,112 15,279 196,967 65,347 — 653,238 Lease Revenue — — — — 397 — — 397 Intersegment — — — 2,152 — 158 ( 2,310 ) — Total Revenue $ 147,402 $ 86,131 $ 142,112 $ 17,431 $ 197,364 $ 65,505 ($ 2,310 ) $ 653,635 (a) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales. 25 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The following tables present our timber sales disaggregated by contract type for the three and nine months ended September 30, 2021 and 2020: Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Trading Total September 30, 2021 Stumpage Pay-as-Cut $ 12,335 — — $ 131 — $ 12,466 Stumpage Lump Sum 392 1,846 — — — 2,238 Total Stumpage 12,727 1,846 — 131 — 14,704 Delivered Wood (Domestic) 19,515 28,404 20,614 6,703 817 76,053 Delivered Wood (Export) 7,043 — 54,694 — 24,325 86,062 Total Delivered 26,558 28,404 75,308 6,703 25,142 162,115 Total Timber Sales $ 39,285 $ 30,250 $ 75,308 $ 6,834 $ 25,142 $ 176,819 September 30, 2020 Stumpage Pay-as-Cut $ 14,518 — — $ 754 — $ 15,272 Stumpage Lump Sum 310 472 — — — 782 Total Stumpage 14,828 472 — 754 — 16,054 Delivered Wood (Domestic) 21,976 27,004 20,127 7,870 362 77,339 Delivered Wood (Export) 5,373 — 39,216 — 21,747 66,336 Total Delivered 27,349 27,004 59,343 7,870 22,109 143,675 Total Timber Sales $ 42,177 $ 27,476 $ 59,343 $ 8,624 $ 22,109 $ 159,729 26 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Nine Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Trading Total September 30, 2021 Stumpage Pay-as-Cut $ 48,775 — — $ 328 — $ 49,103 Stumpage Lump Sum 5,040 8,909 — — — 13,949 Total Stumpage 53,815 8,909 — 328 — 63,052 Delivered Wood (Domestic) 57,528 95,427 56,970 36,888 3,144 249,957 Delivered Wood (Export) 15,853 — 155,924 — 72,374 244,151 Total Delivered 73,381 95,427 212,894 36,888 75,518 494,108 Total Timber Sales $ 127,196 $ 104,336 $ 212,894 $ 37,216 $ 75,518 $ 557,160 September 30, 2020 Stumpage Pay-as-Cut $ 56,141 — — $ 1,285 — $ 57,426 Stumpage Lump Sum 1,561 5,929 — — — 7,490 Total Stumpage 57,702 5,929 — 1,285 — 64,916 Delivered Wood (Domestic) 64,473 77,579 45,944 13,971 1,296 203,263 Delivered Wood (Export) 9,040 — 89,758 — 63,724 162,522 Total Delivered 73,513 77,579 135,702 13,971 65,020 365,785 Total Timber Sales $ 131,215 $ 83,508 $ 135,702 $ 15,256 $ 65,020 $ 430,701 5. LEASES We lease commercial and residential properties primarily located in Port Gamble, Washington. Our leases are operating leases and primarily range between one and five years , and may be extended on a case by case basis. Income associated with commercial and residential property leases generally includes scheduled rent increases, but do not include variable payments based on indexes. The following table details our lease income for the three and nine months ended September 30, 2021 and 2020: Three Months Ended September 30, Nine Months Ended September 30, Lease Income Components 2021 2020 2021 2020 Operating lease income $ 344 $ 324 $ 857 $ 397 Total lease income $ 344 $ 324 $ 857 $ 397 27 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 6. NONCONTROLLING INTERESTS NONCONTROLLING INTERESTS IN CONSOLIDATED AFFILIATES Matariki Forestry Group We maintain a 77 % controlling financial interest in Matariki Forestry Group (the “New Zealand subsidiary”), a joint venture that owns or leases approximately 418,000 legal acres of New Zealand timberland. Accordingly, we consolidate the New Zealand subsidiary’s balance sheet and results of operations. Income attributable to the New Zealand subsidiary’s 23 % noncontrolling interests is reflected as an adjustment to income in our Consolidated Statements of Income and Comprehensive Income under the caption “Net income attributable to noncontrolling interests in consolidated affiliates.” Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary, serves as the manager of the New Zealand subsidiary. The following table sets forth the income attributable to the New Zealand subsidiary’s noncontrolling interests: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income attributable to noncontrolling interests in the New Zealand subsidiary $ 2,006 $ 2,066 $ 7,716 $ 3,326 ORM Timber Fund II, Inc. (Fund II), ORM Timber Fund III LLC (Fund III), and ORM Timber Fund IV LLC. (Fund IV) (Collectively, the “Funds”) Upon completion of the Pope Resources merger, we became the manager of three private equity timber funds, Fund II, Fund III, and Fund IV, consisting of 141,000 acres in the Pacific Northwest, and obtained ownership interests in the Funds of 20 %, 5 %, and 15 %, respectively. Prior to the merger with Pope Resources, the Funds were formed by ORM LLC for the purpose of generating a return on investment through the acquisition, management, value enhancement and sale of timberland properties. Based upon an analysis under the variable interest entity guidance, we determined that we had the power to direct the activities that most significantly impacted the Funds’ economic success. Therefore, we were considered the primary beneficiary and were required under ASC 810 — Consolidation to consolidate the Funds. Income attributed to third-party investors is reflected as an adjustment to income in our Consolidated Statements of Income and Comprehensive Income under the caption “Net income attributable to noncontrolling interests in consolidated affiliates.” On July 21, 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds to BTG Pactual’s Timberland Investment Group (TIG) for an aggregate purchase price of $ 35.9 million and recognized in our Consolidated Statements of Income and Comprehensive Income a gain on the sale of $ 3.7 million under the caption of other operating income (expense), net. Due to the sale of our rights to manage Fund III and Fund IV, we determined that we no longer have the power to direct the activities that most significantly impact the success of Fund III and Fund IV. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale. As of September 30, 2021, we continue to manage and maintain a 20 % ownership interest in Fund II, which is scheduled to terminate in March 2023. We continue to have the power to direct the activities that most significantly impact Fund II’s economic success. Therefore, we are considered the primary beneficiary and consolidate Fund II under ASC 810 — Consolidation . The obligations of Fund II do not have any recourse to the Company or the Operating Partnership and the assets of Fund II are not available to satisfy the Company or the Operating Partnership’s liabilities. On September 30, 2021, we sold approximately 13,000 acres of Fund II timberland assets in Washington for an aggregate purchase price of $ 87.1 million and recognized a gain of $ 36.0 million, of which $ 7.2 million was attributable to Rayonier. Due to Timber Fund II distribution requirements, we classified the portion of proceeds from Fund II Timberland Dispositions attributable to noncontrolling interests as a current asset under the caption “Restricted Cash, Timber Funds” on our Consolidated Balance Sheets. Additionally, we recognized a current liability under the caption “Distribution payable, Timber Funds” and a corresponding decrease in “Noncontrolling Interests in Consolidated Affiliates” on our Consolidated Balance Sheets. We classified the remaining portion of Fund II’s timber 28 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) and timberland as “Assets Held for Sale in our Consolidated Balance Sheets as of September 30, 2021, as a process to liquidate Fund II had commenced. See Note 1 — Basis of Presentation , Note 2 2 — Restricted Cash and Note 23 — Assets Held for Sale for additional information. Following the end of the third quarter, we completed the liquidation of Fund II assets through two additional timberland dispositions. See Note 1 - Basis of Presentation for additional information on the subsequent events. The following table sets forth the income attributable to the Funds’ noncontrolling interests: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income (loss) attributable to noncontrolling interests in the Funds $ 30,465 ($ 10,627 ) $ 32,929 ($ 12,773 ) Ferncliff Investors We maintain an ownership interest in Ferncliff Investors, a real estate joint venture entity. In 2017, Ferncliff Management and Ferncliff Investors were formed for the purpose of raising capital from third parties to invest in an unconsolidated real estate joint venture entity, Bainbridge Landing LLC, which is developing a five -acre parcel on Bainbridge Island, Washington into a multi-family community containing apartments and townhomes. Ferncliff Management is the manager and 33.33 % owner of Ferncliff Investors, with the remaining ownership interest in Ferncliff Investors held by third-party investors. Ferncliff Investors holds a 50 % interest in Bainbridge Landing LLC, the joint venture entity that owns and is developing the property. Based upon an analysis under the variable interest entity guidance, we have the power to direct the activities that most significantly impact the Ferncliff Investor’s economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate Ferncliff Investors. The obligations of Ferncliff Investors do not have any recourse to the Company or the Operating Partnership. Bainbridge Landing LLC is considered a voting interests entity. Ferncliff Investors accounts for its interest in the joint venture entity under the equity method because neither it nor the other member can exercise control over Bainbridge Landing LLC. The Ferncliff Investors joint venture agreement provides for liquidation rights and distribution priorities that are disproportionate to each member’s ownership interest. Due to the complex nature of cash distributions to members, net income of the joint venture is allocated to members, including us, using the Hypothetical Liquidation at Book Value (HLBV) method. Under the HLBV method, Ferncliff Investors income or loss is allocated to the members based on the period change in each member’s claim on the book value of net assets, excluding capital contributions and distributions made during the period. The following table sets forth the income attributable to Ferncliff Investors’ noncontrolling interests: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net (loss) income attributable to noncontrolling interests in Ferncliff Investors — ($ 153 ) $ 129 ($ 199 ) NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP Noncontrolling interests in the Operating Partnership relate to the third-party ownership of Redeemable Operating Partnership Units. Net income attributable to the noncontrolling interests in the Operating Partnership is computed by applying the weighted average Redeemable Operating Partnership Units outstanding during the period as a percentage of the weighted average total units outstanding to the Operating Partnership’s net income for the period. If a noncontrolling unitholder redeems a unit for a registered common share of Rayonier or cash, the noncontrolling interests in the Operating Partnership will be reduced and the Company’s share in the Operating Partnership will be increased by the fair value of each security at the time of redemption. 29 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The following table sets forth the Company’s noncontrolling interests in the Operating Partnership: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Beginning noncontrolling interests in the Operating Partnership $ 153,505 $ 110,220 $ 130,121 — Issuances of Redeemable Operating Partnership Units — — — 106,752 Adjustment of noncontrolling interests in the Operating Partnership ( 1,746 ) 8,030 25,531 12,022 Conversions of Redeemable Operating Partnership Units to Common Shares ( 12,258 ) ( 27 ) ( 17,214 ) ( 27 ) Net Income (Loss) attributable to noncontrolling interests in the Operating Partnership 2,210 ( 25 ) 4,303 195 Other Comprehensive (Loss) Income attributable to noncontrolling interests in the Operating Partnership ( 92 ) 532 1,187 989 Distributions to noncontrolling interests in the Operating Partnership ( 1,064 ) ( 1,200 ) ( 3,373 ) ( 2,401 ) Total noncontrolling interests in the Operating Partnership $ 140,555 $ 117,530 $ 140,555 $ 117,530 30 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 7. VARIABLE INTEREST ENTITIES ORM Timber Fund II, Inc. (Fund II), ORM Timber Fund III LLC (Fund III), and ORM Timber Fund IV LLC. (Fund IV) (Collectively, the “Funds”) As mentioned in Note 1 - Basis of Presentation and Note 6 — Noncontrolling Interests , we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds in July 2021. As a result, Timber Fund III and IV balance sheets and results of operations are only included in our consolidated financial statements through the date of the sale. As of September 30, 2021, we continue to maintain a 20 % ownership interest in Fund II. Based on an analysis of the variable interest entity guidance, we have the power to direct the activities that most significantly impact Fund II’s economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate Fund II. For further information on the Funds, see Note 6 — Noncontrolling Interests . The assets, liabilities and equity of Fund II as of September 30, 2021, were as follows: Timber Funds September 30, 2021 Assets: Cash and cash equivalents $ 12,202 Restricted Cash, Timber Funds ( Note 22 ) 49,209 Accounts receivable 513 Assets held for sale ( Note 23 ) (a) 54,926 Other current assets 79 Total current assets 116,929 Other assets 23 Total assets $ 116,952 Liabilities and Equity: Accounts payable $ 547 Intercompany payable (b) 160 Accrued taxes 71 Deferred revenue 164 Distribution payable, Timber Funds (c) 49,209 Other current liabilities 36 Total current liabilities 50,187 Funds’ equity 66,765 Total liabilities and equity $ 116,952 (a) Included in assets held for sale are timber and timberland assets. (b) Includes management fees and other expenses payable to the Operating Partnership. These amounts are eliminated in the Consolidated Balance Sheets. (c) Represents the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests. 31 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Ferncliff Investors We maintain an ownership interest in Ferncliff Investors, a real estate joint venture entity. Based upon an analysis under the variable interest entity guidance, we have the power to direct the activities that most significantly impact the joint venture’s economic success. Therefore, we are considered the primary beneficiary and are required under ASC 810 — Consolidation to consolidate Ferncliff Investors. For further information on Ferncliff Investors, see Note 6 — Noncontrolling Interests . The assets, liabilities and equity of Ferncliff Investors as of September 30, 2021, were as follows: Ferncliff Investors September 30, 2021 Assets: Cash and cash equivalents $ 391 Total current assets 391 Advances to real estate joint venture entity 1,000 Total assets $ 1,391 Liabilities and Equity: Total liabilities $ 1,897 Ferncliff Investors’ equity ( 506 ) Total liabilities and equity $ 1,391 32 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 8. EARNINGS (LOSS) PER SHARE AND PER UNIT The following table provides details of the calculations of basic and diluted earnings (loss) per common share of the Company: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Earnings (Loss) per common share - basic Numerator: Net Income (Loss) $ 110,512 ($ 9,498 ) $ 188,963 $ 17,378 Less: Net (income) loss attributable to noncontrolling interests in the Operating Partnership ( 2,210 ) 25 ( 4,303 ) ( 195 ) Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates ( 32,471 ) 8,715 ( 40,775 ) 9,647 Net income (loss) attributable to Rayonier Inc. $ 75,831 ($ 758 ) $ 143,885 $ 26,830 Denominator: Denominator for basic earnings (loss) per common share - weighted average shares 141,777,574 136,351,271 139,749,358 132,948,124 Basic earnings (loss) per common share attributable to Rayonier Inc.: $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 Earnings (Loss) per common share - diluted Numerator: Net Income (loss) $ 110,512 ($ 9,498 ) $ 188,963 $ 17,378 Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates ( 32,471 ) 8,715 ( 40,775 ) 9,647 Less: Net loss attributable to noncontrolling interests in the Operating Partnership — (a) 25 (a) — — Net income (loss) attributable to Rayonier Inc., before net income attributable to noncontrolling interests in the Operating Partnership $ 78,041 ($ 758 ) $ 148,188 $ 27,025 Denominator: Denominator for basic earnings (loss) per common share - weighted average shares 141,777,574 136,351,271 139,749,358 132,948,124 Add: Dilutive effect of: Stock options 9,803 — 8,833 492 Performance shares, restricted shares and restricted stock units 520,737 — 361,596 159,018 Noncontrolling interests in Redeemable Operating Partnership Units 4,131,454 — (a) 4,245,323 2,352,822 Denominator for diluted earnings per common share - adjusted weighted average shares 146,439,568 136,351,271 144,365,110 135,460,456 Diluted earnings (loss) per common share attributable to Rayonier Inc.: $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 (a) For the three months ended September 30, 2020, net loss attributable to noncontrolling interests in the Operating Partnership was included in the numerator for diluted earnings (loss) per share as the Company generated a net loss attributable to Rayonier Inc. during the quarter. Also, as a result of the net loss attributable to Rayonier Inc. during the three months ended September 30, 2020, the incremental shares related to noncontrolling interests in Redeemable Operating Partnership Units were excluded from the denominator of diluted loss per share. 33 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Anti-dilutive shares excluded from the computations of diluted earnings (loss) per common share: Stock options, performance shares, restricted shares, restricted stock units and noncontrolling interests in Redeemable Operating Partnership Units (a) 100,135 5,038,514 167,668 471,999 Total 100,135 5,038,514 167,668 471,999 (a) For the three months ended September 30, 2020, the incremental shares related to stock options, performance shares, restricted shares, restricted stock units and noncontrolling interests in Redeemable Operating Partnership Units were not included in the computation of diluted loss per share as their inclusion would have had an anti-dilutive effect. 34 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The following table provides details of the calculations of basic and diluted earnings (loss) per unit of the Operating Partnership: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Earnings (loss) per unit - basic Numerator: Net Income (Loss) $ 110,512 ($ 9,498 ) $ 188,963 $ 17,378 Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates ( 32,471 ) 8,715 ( 40,775 ) 9,647 Net income (loss) available to unitholders $ 78,041 ($ 783 ) $ 148,188 $ 27,025 Denominator: Denominator for basic earnings (loss) per unit - weighted average units 145,909,028 140,797,217 143,994,681 135,300,946 Basic earnings (loss) per unit attributable to Rayonier, L.P.: $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 Earnings (Loss) per unit - diluted Numerator: Net Income (Loss) $ 110,512 ($ 9,498 ) $ 188,963 $ 17,378 Less: Net (income) loss attributable to noncontrolling interests in consolidated affiliates ( 32,471 ) 8,715 ( 40,775 ) 9,647 Net income (loss) available to unitholders $ 78,041 ($ 783 ) $ 148,188 $ 27,025 Denominator: Denominator for basic earnings (loss) per unit - weighted average units 145,909,028 140,797,217 143,994,681 135,300,946 Add: Dilutive effect of unit equivalents: Stock options 9,803 — 8,833 492 Performance shares, restricted shares and restricted stock units 520,737 — 361,596 159,018 Denominator for diluted earnings (loss) per unit - adjusted weighted average units 146,439,568 140,797,217 144,365,110 135,460,456 Diluted earnings (loss) per unit attributable to Rayonier, L.P.: $ 0.53 ($ 0.01 ) $ 1.03 $ 0.20 Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Anti-dilutive unit equivalents excluded from the computations of diluted earnings (loss) per unit: Stock options, performance shares, restricted shares and restricted stock units (a) 100,135 592,568 167,668 471,999 Total 100,135 592,568 167,668 471,999 (a) For the three months ended September 30, 2020, the incremental unit equivalents related to stock options, performance shares, restricted shares and restricted stock units were not included in the computation of diluted loss per unit as their inclusion would have had an anti-dilutive effect. 35 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 9. DEBT Our debt consisted of the following at September 30, 2021: September 30, 2021 Debt, excluding Timber Funds: Term Credit Agreement borrowings due 2028 at a variable interest rate of 1.7 % at September 30, 2021 (a) $ 350,000 Senior Notes due 2022 at a fixed interest rate of 3.75 % 325,000 Senior Notes due 2031 at a fixed interest rate of 2.75 % 450,000 Incremental Term Loan Agreement borrowings due 2026 at a variable interest rate of 1.7 % at September 30, 2021 (b) 200,000 New Zealand subsidiary noncontrolling interests shareholder loan due 2025 at a fixed interest rate of 2.95 % 23,739 New Zealand subsidiary noncontrolling interests shareholder loan due 2026 at a fixed interest rate of 3.64 % 27,696 Total principal debt, excluding Timber Funds 1,376,435 Less: Unamortized discounts, excluding Timber Funds ( 3,505 ) Less: Current maturities of long-term debt, excluding Timber Funds ( 199,887 ) Less: Deferred financing costs, excluding Timber Funds ( 5,076 ) Total long-term debt, excluding Timber Funds 1,167,967 Total long-term debt, Timber Funds — Total long-term debt $ 1,167,967 (a) As of September 30, 2021, the periodic interest rate on the term credit agreement (the “Term Credit Agreement”) was LIBOR plus 1.600 %. We estimate the effective fixed interest rate on the term loan facility to be approximately 3.1 % after consideration of interest rate swaps and estimated patronage refunds. (b) As of September 30, 2021, the periodic interest rate on the incremental term loan (the “Incremental Term Loan Agreement”) was LIBOR plus 1.650 %. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately 2.4 % after consideration of interest rate swaps and estimated patronage refunds. Principal payments due during the next five years and thereafter are as follows: Excluding Timber Funds Timber Funds Total 2021 — — — 2022 325,000 — 325,000 2023 — — — 2024 — — — 2025 23,739 — 23,739 Thereafter 1,027,696 — 1,027,696 Total Debt $ 1,376,435 — $ 1,376,435 36 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 2021 DEBT ACTIVITY U.S. Debt — Excluding Timber Funds In May 2021, we issued and sold $ 450 million aggregate principal amount of 2.75 % senior notes due 2031 (the “Senior Notes due 2031”). The Senior Notes due 2031 were sold at an issue price of 99.195 % of their face value, before underwriters discount. Our net proceeds after deducting approximately $ 3.9 million of underwriting discounts and expenses, were approximately $ 442.5 million. The discount and debt issuance costs will be amortized to interest expense over the term of the notes using the effective interest method. A portion of the proceeds were used to repay $ 250 million outstanding under our 2020 Incremental Term Loan Agreement. The remainder will be used for general corporate purposes, which may also include repayment of our 3.75 % Senior Notes due 2022 at or prior to maturity. In May 2021, we repaid the $ 250 million outstanding under our 2020 Incremental Term Loan Agreement. We recognized a loss on early extinguishment of debt of $ 0.6 million, representing the write-off of unamortized deferred financing costs. The loss on early extinguishment of debt has been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income (expense), net.” In June 2021, we entered into a Fourth Amendment and Incremental Term Loan Agreement, to amend certain terms of the Credit Agreement and to provide a senior unsecured delayed draw incremental term loan facility (the “2021 Incremental Term Loan Facility”) in an aggregate amount of $ 200 million. The Fourth Amendment to the Credit Agreement provides for an extension of the maturity date of our $ 300 million Revolving Credit Facility from April 1, 2025 to June 1, 2026. In addition, the amendment provides for modifications to adjust the pricing grid under the credit agreement to decrease the applicable margin for our Revolving Credit Facility from LIBOR plus 1.500 % to LIBOR plus 1.2500 %. As a result of the revolver modification, approximately $ 0.3 million in lender fees have been deferred and will be amortized to interest expense over the term of the revolver. The Fourth Amendment to the Credit Agreement also provides for modifications to adjust the pricing grid under the credit agreement to decrease the applicable margin for our $ 300 million 2016 Incremental Term Loan Facility from LIBOR plus 1.900 % to LIBOR plus 1.6500 %. As a result of the debt modification, approximately $ 0.3 million in third-party expenses have been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income (expense), net.” The 2021 Incremental Term Loan Facility provides us the ability to make an advance of $ 200 million on or before June 1, 2022. As of September 30, 2021, no advance has been made under this facility. We expect to use a future advance of $ 125 million under the 2021 Incremental Term Loan Facility to refinance a portion of the 3.750 % Senior Notes due 2022 on a long-term basis, and as such, have excluded $ 125 million of principal from current maturities of long-term debt, net, in our Consolidated Balance Sheets. Any advance above $ 125 million may be used to repay other debt or for other general corporate purposes. We have deferred $ 0.3 million of commitment fees, which will be amortized to interest expense over the term of the access period, through June 1, 2022. Additionally, we deferred $ 0.2 million in debt issuance costs, which will be amortized to interest expense over the term of the facility, once any future advance is made. In June 2021, we prepaid $ 100 million on the $ 300 million Incremental Term Loan Agreement. In connection with the partial prepayment, we recognized a loss on early extinguishment of debt of $ 0.1 million, representing the write-off of one-third of the unamortized deferred financing costs. The loss on early extinguishment of debt has been recorded in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income (expense), net.” In September 2021, we repaid the $ 45 million outstanding under our credit facility with Northwest Farm Credit Services (NWFCS). We recognized a gain on early extinguishment of debt of $ 7.2 million, representing the net write-off of unamortized deferred financing costs and fair market value adjustments, partially offset by a $ 6.2 million loss related to a make-whole fee due to debt prepayment. The net gain on early extinguishment of debt of approximately $ 0.9 million has been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income (expense), net.” 37 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) During the nine months ended September 30, 2021, we made no borrowings or repayments on our Revolving Credit Facility . At September 30, 2021, we had available borrowings of $ 299.1 million under the Revolving Credit Facility, net of $ 0.9 million to secure our outstanding letters of credit. U.S. Debt — Timber Funds In July 2021, we sold the rights to manage Fund III and Fund IV, as well as our ownership interests in both funds for an aggregate purchase price of approximately $ 35.9 million and recognized a gain of $ 3.7 million, which was recorded in Other operating income (expense), net. Following the sale, the Fund III Mortgages Payable are no longer recognized in our Consolidated Balance Sheets as of September 30, 2021. See Note 6 — Noncontrolling Interests for more information regarding the Timber Funds. In September 2021, we repaid the $ 25 million outstanding under our Fund II Mortgages Payable. We recognized a loss on early extinguishment of debt of $ 6 thousand, representing the write-off of unamortized deferred financing costs. The loss on early extinguishment of debt has been recognized in the Consolidated Statements of Income and Comprehensive Income under the caption “Interest and other miscellaneous income (expense), net.” New Zealand Debt In June 2021, the New Zealand subsidiary renewed its NZ$ 20 million working capital facility for an additional 12 -month term. During the nine months ended September 30, 2021, the New Zealand subsidiary made no borrowings or repayments on its working capital facility. At September 30, 2021, the New Zealand subsidiary had NZ$ 20.0 million of available borrowings under its working capital facility. In July 2021, the New Zealand subsidiary made a capital distribution to its partners on a pro rata basis in order to redeem certain equity interests, which was reinvested by the partners in shareholder loans to the New Zealand subsidiary. Our capital distribution and portion of the shareholder loan are eliminated in consolidation. The capital distribution to the minority shareholder and its reinvestment in the shareholder loan resulted in the recording of a loan payable by the New Zealand subsidiary in the amount of $ 28.1 million due in 2026 at a fixed interest rate of 3.64 %. As of September 30, 2021, the outstanding balance on the shareholder loan due 2026 is $ 27.7 million. Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of the shareholder loan since its inception. See Note 6 — Noncontrolling Interests for more information regarding the New Zealand subsidiary. As of September 30, 2021, the outstanding balance on the shareholder loan due 2025 is $ 23.7 million. Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of the shareholder loan since its inception. See Note 6 — Noncontrolling Interests for more information regarding the New Zealand subsidiary. 38 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) DEBT COVENANTS — EXCLUDING TIMBER FUNDS In connection with our $ 350 million Term Credit Agreement, $ 200 million Incremental Term Loan Agreement, $ 200 million 2021 Incremental Term Loan Facility and $ 300 million Revolving Credit Facility, customary covenants must be met, the most significant of which include interest coverage and leverage ratios. The covenants listed below, which are the most significant financial covenants in effect as of September 30, 2021, are calculated on a trailing 12-month basis: Covenant Requirement Actual Ratio Favorable Covenant EBITDA to consolidated interest expense should not be less than 2.5 to 1 11.6 to 1 9.1 Covenant debt to covenant net worth plus covenant debt shall not exceed 65 % 44 % 21 % In addition to these financial covenants listed above, the Senior Notes due 2022, the Senior Notes due 2031, Term Credit Agreement, Incremental Term Loan Agreement, 2021 Incremental Term Loan Facility, and Revolving Credit Facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At September 30, 2021, we were in compliance with all applicable covenants. 10. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES We are exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. We use derivative financial instruments to mitigate the financial impact of exposure to these risks. Accounting for derivative financial instruments is governed by ASC Topic 815, Derivatives and Hedging , (“ASC 815”). In accordance with ASC 815, we record our derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the investment is partially or completely liquidated. The changes in the fair value of derivatives not designated as hedging instruments and those which are no longer effective as hedging instruments, are recognized immediately in earnings. FOREIGN CURRENCY EXCHANGE AND OPTION CONTRACTS The New Zealand subsidiary’s export sales are predominately denominated in U.S. dollars, and therefore its cash flows are affected by fluctuations in the exchange rate between the New Zealand dollar and the U.S. dollar. This exposure is partially managed by a natural currency hedge, as ocean freight payments and shareholder distributions are also paid in U.S. dollars. We manage any excess foreign exchange exposure through the use of derivative financial instruments. The New Zealand subsidiary typically hedges 50 % to 90 % of its estimated foreign currency exposure with respect to the following twelve months forecasted sales and purchases, less distributions, and up to 75 % of the forward 12 to 18 months. Additionally, the New Zealand subsidiary will occasionally hedge up to 50 % of its estimated foreign currency exposure with respect to the following 18 to 48 months forecasted sales and purchases, less distributions, when the New Zealand dollar is at a cyclical low versus the U.S. dollar. Foreign currency exposure from the New Zealand subsidiary’s trading operations is typically hedged based on the following three months forecasted sales and purchases. As of September 30, 2021, foreign currency exchange contracts had maturity dates through March 2023 and all previously existing foreign currency option contracts have expired. Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments qualify for cash flow hedge accounting. We may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive income for de-designated hedges remains in accumulated other comprehensive income until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings. 39 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) INTEREST RATE PRODUCTS We are exposed to cash flow interest rate risk on our variable-rate debt and on anticipated debt issuances. We use variable-to-fixed interest rate swaps and forward-starting interest rate swap agreements to hedge this exposure. For these derivative instruments, we report the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassify them to earnings as interest expense in the same period in which the hedged interest payments affect earnings. To the extent we de-designate or terminate a cash flow hedging relationship and the associated hedged item continues to exist, any unrealized gain or loss of the cash flow hedge at the time of de-designation remains in AOCI and is amortized using the straight-line method through interest expense over the remaining life of the hedged item. To the extent the associated hedged item is no longer effective, the gain or loss is reclassified out of AOCI to earnings immediately. INTEREST RATE SWAPS During the second quarter of 2021, we terminated and cash settled $ 250 million in notional value of our interest rate swaps, maturing in 2030, in connection with the repayment of $ 250 million outstanding under the 2020 Incremental Term Loan. Upon termination of the swap, we received $ 6.8 million from our counterparty. As of September 30, 2021, there was $ 16.3 million gain recorded in accumulated other comprehensive loss in connection with the terminated interest rate swap, which will be reclassified to earnings through interest expense over the remaining life of the hedged items, as the originally hedged cash flows remain probable. During the second quarter of 2021, we terminated and cash settled $ 100 million in notional value of our interest rate swaps, maturing in 2026, in connection with the prepayment of $ 100 million on the 2026 Incremental Term Loan. Upon termination of the swap, we paid $ 2.2 million to our counterparty that was recognized immediately into earnings as interest expense, as the forecasted cash flows will no longer occur. See Note 9 — Debt for additional information. The following table contains information on the outstanding interest rate swaps as of September 30, 2021: Outstanding Interest Rate Swaps (a) Date Entered Into Term Notional Amount Related Debt Facility Fixed Rate of Swap Bank Margin on Debt Total Effective Interest Rate (b) August 2015 9 years $ 170,000 Term Credit Agreement 2.20 % 1.60 % 3.80 % August 2015 9 years 180,000 Term Credit Agreement 2.35 % 1.60 % 3.95 % April 2016 10 years 100,000 Incremental Term Loan 1.60 % 1.65 % 3.25 % April 2016 10 years 100,000 Incremental Term Loan 1.60 % 1.65 % 3.25 % (a) All interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting. (b) Rate is before estimated patronage payments. TREASURY LOCKS During the first quarter of 2020, we entered into three treasury lock agreements, which were designated and qualified as cash flow hedges. Prior to expiration, we de-designated and settled the treasury locks by converting them into interest rate swap lock agreements (discussed below). As of September 30, 2021, there was $ 17.8 million loss recorded in accumulated other comprehensive loss in connection with the settled treasury locks, which will be reclassified to earnings as interest expense over the life of the hedged item. For additional information regarding the expired treasury lock agreements, see Note 16 - Derivative Instruments and Hedging Activities in our 2020 Form 10-K. INTEREST RATE SWAP LOCKS Upon de-designation, we converted the above treasury lock agreements to interest rate swap lock agreements, which were designated and qualified as cash flow hedges. During the second quarter of 2020, we de-designated and partially cash settled $ 11.1 million of the interest rate swap locks and converted them into an interest rate swap agreement. 40 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) As of September 30, 2021, there was $ 1.2 million loss recorded in accumulated other comprehensive loss in connection with settled interest rate swap locks, which will be reclassified to earnings as interest expense over the life of the hedged item. For additional information regarding the expired interest rate swap lock agreements, see Note 16 - Derivative Instruments and Hedging Activities in our 2020 Form 10-K. FORWARD-STARTING INTEREST RATE SWAPS During the second quarter of 2021, we de-designated and settled $ 325 million in notional value of our forward-starting interest rate swap, maturing in 2032, by converting it into a new forward-starting interest rate swap agreement. As of September 30, 2021, there was $ 9.9 million gain recorded in accumulated other comprehensive loss in connection with the converted forward-starting interest rate swap, which will be reclassified to earnings through interest expense over the remaining life of the hedged item. The following table contains information on the outstanding forward-starting interest rate swaps as of September 30, 2021: Outstanding Forward-Starting Interest Rate Swaps (a) Date Entered Into Term Notional Amount Fixed Rate of Swap Related Debt Facility Forward Date Maximum Period Ending for Forecasted Issuance Date March 2020 4 years $ 100,000 0.88 % Term Credit Agreement August 2024 N/A May 2020 4 years 50,000 0.74 % Term Credit Agreement August 2024 N/A May 2021 (b) 7 years 200,000 0.77 % Future Issuance Feb. 2022 N/A (a) All forward-starting interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting. (b) The forward-starting interest rate swap entered into in May 2021 contained an embedded mark-to-market gain, which we recovered through a reduced charge in the fixed rate over what would have been charged for an at-market swap. CARBON OPTIONS The New Zealand subsidiary enters into carbon options from time to time to sell carbon assets. Changes in fair value of the carbon option contracts are recorded in “Interest and other miscellaneous income (expense), net” as the contracts do not qualify for hedge accounting treatment. As of September 30, 2021, all previously existing carbon option contracts have expired. 41 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The following tables demonstrate the impact, gross of tax, of our derivatives on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended September 30, 2021 and 2020: Three Months Ended September 30, Income Statement Location 2021 2020 Derivatives designated as cash flow hedges: Foreign currency exchange contracts Other comprehensive (loss) income ($ 2,618 ) $ 1,946 Foreign currency option contracts Other comprehensive (loss) income ( 356 ) 358 Interest rate products Other comprehensive (loss) income 1,288 2,417 Interest expense 2,564 3,783 Nine Months Ended September 30, Income Statement Location 2021 2020 Derivatives designated as cash flow hedges: Foreign currency exchange contracts Other comprehensive (loss) income ($ 6,366 ) $ 1,806 Foreign currency option contracts Other comprehensive (loss) income ( 1,514 ) 85 Interest rate products Other comprehensive (loss) income 46,433 ( 91,203 ) Interest expense 11,935 6,951 Derivatives not designated as hedging instruments: Carbon option contracts Interest and other miscellaneous income (expense), net — 563 During the next 12 months, the amount of the September 30, 2021 AOCI balance, net of tax, expected to be reclassified into earnings is a loss of approximately $ 11.7 million. The following table contains details of the expected reclassified amounts into earnings: Amount expected to be reclassified into earnings in next 12 months Derivatives designated as cash flow hedges: Foreign currency exchange contracts $ 139 Interest rate products ( 11,842 ) Total estimated loss on derivatives contracts ($ 11,703 ) 42 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets: Notional Amount September 30, 2021 December 31, 2020 Derivatives designated as cash flow hedges: Foreign currency exchange contracts $ 144,000 $ 49,000 Foreign currency option contracts — 28,000 Interest rate swaps 550,000 900,000 Forward-starting interest rate swaps 350,000 475,000 The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets: Location on Balance Sheet Fair Value Assets / (Liabilities) (a) September 30, 2021 December 31, 2020 Derivatives designated as cash flow hedges: Foreign currency exchange contracts Other current assets $ 1,892 $ 4,968 Other assets 7 1,050 Other current liabilities ( 1,699 ) — Other non-current liabilities ( 549 ) — Foreign currency option contracts Other current assets — 1,526 Other current liabilities — ( 11 ) Interest rate swaps Other non-current liabilities ( 24,178 ) ( 51,580 ) Forward-starting interest rate swaps Other assets 11,206 513 Other non-current liabilities — ( 13,042 ) Total derivative contracts: Other current assets $ 1,892 $ 6,494 Other assets 11,213 1,563 Total derivative assets $ 13,105 $ 8,057 Other current liabilities ( 1,699 ) ( 11 ) Other non-current liabilities ( 24,727 ) ( 64,622 ) Total derivative liabilities ($ 26,426 ) ($ 64,633 ) (a) See Note 11 — Fair Value Measurements for further information on the fair value of our derivatives including their classification within the fair value hierarchy. OFFSETTING DERIVATIVES Derivative financial instruments are presented at their gross fair values in the Consolidated Balance Sheets. Our derivative financial instruments are not subject to master netting arrangements, which would allow the right of offset. 43 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 11. FAIR VALUE MEASUREMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than quoted prices included in Level 1. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table presents the carrying amount and estimated fair values of our financial instruments as of September 30, 2021 and December 31, 2020, using market information and what we believe to be appropriate valuation methodologies under GAAP: September 30, 2021 December 31, 2020 Asset (Liability) (a) Carrying Amount Fair Value Carrying Amount Fair Value Level 1 Level 2 Level 1 Level 2 Cash and cash equivalents, excluding Timber Funds $ 419,604 $ 419,604 — $ 80,454 $ 80,454 — Cash and cash equivalents, Timber Funds 12,202 12,202 — 4,053 4,053 — Restricted cash, Timber Funds (b) 49,209 49,209 — — — — Restricted cash, excluding Timber Funds (c) 625 625 — 2,975 2,975 — Current maturities of long-term debt, excluding Timber Funds (d) ( 199,887 ) — ( 201,440 ) — — — Long-term debt, excluding Timber Funds (d) ( 1,167,967 ) — ( 1,173,657 ) ( 1,300,336 ) — ( 1,313,631 ) Long-term debt, Timber Funds (d) — — — ( 60,179 ) — ( 60,474 ) Interest rate swaps (e) ( 24,178 ) — ( 24,178 ) ( 51,580 ) — ( 51,580 ) Forward-starting interest rate swaps (e) 11,206 — 11,206 ( 12,529 ) — ( 12,529 ) Foreign currency exchange contracts (e) ( 349 ) — ( 349 ) 6,018 — 6,018 Foreign currency option contracts (e) — — — 1,515 — 1,515 Noncontrolling Interests in the Operating Partnership (f) 140,555 140,555 — 130,121 130,121 — (a) We did not have Level 3 assets or liabilities at September 30, 2021 and December 31, 2020. (b) Restricted cash, Timber Funds represents the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests. See Note 22 — Restricted Cash for additional information. (c) Restricted cash, excluding Timber Funds represents cash held in escrow. See Note 22 — Restricted Cash for additional information. (d) The carrying amount of long-term debt is presented net of deferred financing costs, unamortized discounts and fair value adjustments on non-revolving debt. See Note 9 — Debt for additional information. (e) See Note 10 — Derivative Financial Instruments and Hedging Activities for information regarding the Consolidated Balance Sheets classification of our derivative financial instruments. (f) Noncontrolling Interests in the Operating Partnership is neither an asset or liability and is classified as temporary equity in the Company’s Consolidated Balance Sheets. This relates to the ownership of Rayonier, L.P. units by various individuals and entities other than the Company. We use the following methods and assumptions in estimating the fair value of our financial instruments: Cash and cash equivalents and Restricted cash — The carrying amount is equal to fair market value. Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value. Interest rate swap agreements — The fair value of interest rate contracts is determined by discounting the expected future cash flows, for each instrument, at prevailing interest rates. 44 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Foreign currency exchange contracts — The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation, which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. Foreign currency option contracts — The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model. Noncontrolling Interests in the Operating Partnership — The fair value of noncontrolling interests in the Operating Partnership is determined based on the period-end closing price of Rayonier Inc. common shares. 12. COMMITMENTS At September 30, 2021, the future minimum payments under non-cancellable commitments were as follows: Environmental Remediation (a) Development Projects (b) Commitments (c) Total Remaining 2021 $ 255 $ 11,113 $ 3,328 $ 14,696 2022 1,534 13,695 14,254 29,483 2023 3,188 267 12,449 15,904 2024 3,188 267 9,366 12,821 2025 519 267 5,534 6,320 Thereafter 2,266 3,916 8,242 14,424 $ 10,950 $ 29,525 $ 53,173 $ 93,648 (a) Environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages (NRD) in Port Gamble, Washington. See Note 14 - Environmental and Natural Resource Damage Liabilities for additional information. (b) Primarily consisting of payments expected to be made on our Wildlight and Richmond Hill development projects. (c) Commitments include payments expected to be made on financial instruments (foreign exchange contracts, interest rate swaps and forward-starting interest rate swaps) and other purchase obligations. 13. CONTINGENCIES We have been named as a defendant in various lawsuits and claims arising in the normal course of business. While we have procured reasonable and customary insurance covering risks normally occurring in connection with our businesses, we have in certain cases retained some risk through the operation of large deductible insurance plans, primarily in the areas of executive risk, property, automobile and general liability. These pending lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on our financial position, results of operations, or cash flow. 14. ENVIRONMENTAL AND NATURAL RESOURCE DAMAGE LIABILITIES Various federal and state environmental laws in the states in which we operate place cleanup or restoration liability on the current and former owners of affected real estate. These laws are often a source of “strict liability,” meaning that an owner or operator need not necessarily have caused, or even been aware of, the release of contaminated materials. Similarly, there are certain environmental laws that allow state, federal, and tribal trustees (collectively, the “Trustees”) to bring suit against property owners to recover damage for injuries to natural resources. Like the liability that attaches to current property owners in the cleanup context, liability for natural resource damages (“NRD”) can attach to a property simply because an injury to natural resources resulted from releases of contaminated materials on or from the owner’s property, regardless of culpability for the release. For additional information, see Note 13 - Environmental and Natural Resource Damage Liabilities in the 2020 Form 10-K. 45 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) Changes in environmental and NRD liabilities from December 31, 2020 to September 30, 2021 are shown below: Port Gamble, WA Non-current portion at December 31, 2020 $ 10,615 Plus: Current portion 1,026 Total Balance at December 31, 2020 11,641 Expenditures charged to liabilities ( 762 ) Increase to liabilities 71 Total Balance at September 30, 2021 10,950 Less: Current portion ( 1,095 ) Non-current portion at September 30, 2021 $ 9,855 These estimates were based on assumptions that we believe to be reasonable; however, actual results may differ from these estimates. See Note 2 - Merger with Pope Resources for information regarding the final allocation of fair value to environmental and NRD liabilities assumed in the merger with Pope Resources. It is expected that the upland mill site cleanup and NRD restoration will occur over the next two to three years , while the monitoring of Port Gamble Bay, mill site and landfills will continue for an additional 10 to 15 years. NRD costs are subject to change as the scope of the restoration projects become more clearly defined. It is reasonably possible that these components of the liability may increase as the project progresses. Management continues to monitor the Port Gamble cleanup process and will make adjustments as needed. Should any future circumstances result in a change to the estimated cost of the project, we will record an appropriate adjustment to the liability in the period it becomes known and when we can reasonably estimate the amount. For further information on the timing and amount of future payments related to our environmental remediation liabilities, see Note 12 - Commitments . 15. GUARANTEES We provide financial guarantees as required by creditors, insurance programs, and various governmental agencies. As of September 30, 2021, the following financial guarantees were outstanding: Financial Commitments (a) Maximum Potential Payment Standby letters of credit $ 885 Surety bonds (b) 12,429 Total financial commitments $ 13,314 (a) We have not recorded any liabilities for these financial commitments in our Consolidated Balance Sheets. The guarantees are not subject to measurement, as the guarantees are dependent on our own performance. (b) Surety bonds are issued primarily to secure performance obligations related to various operational activities, to provide collateral for our Wildlight development project in Nassau County, Florida and in connection with pending and completed sales from the Harbor Hill project in Gig Harbor, Washington. These surety bonds expire at various dates during 2021, 2022, 2023 and 2024 and are expected to be renewed as required. 46 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 16. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS We continuously assess potential alternative uses of our timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. We periodically transfer, via a sale or contribution from the real estate investment trust (“REIT”) entities to taxable REIT subsidiaries (“TRS”), higher and better use (“HBU”) timberlands to enable land-use entitlement, development or marketing activities. We also acquire HBU properties in connection with timberland acquisitions. These properties are managed as timberlands until sold or developed. While the majority of HBU sales involve rural and recreational land, we also selectively pursue various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value of such properties. For selected development properties, we also invest in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties. Changes in higher and better use timberlands and real estate development investments from December 31, 2020 to September 30, 2021 are shown below: Higher and Better Use Timberlands and Real Estate Development Investments Land and Timber Development Investments Total Non-current portion at December 31, 2020 $ 79,901 $ 28,617 $ 108,518 Plus: Current portion (a) 212 6,544 6,756 Total Balance at December 31, 2020 80,113 35,161 115,274 Non-cash cost of land and improved development ( 11,566 ) ( 6,956 ) ( 18,522 ) Amortization of parcel real estate development investments — ( 4,518 ) ( 4,518 ) Timber depletion from harvesting activities and basis of timber sold in real estate sales ( 948 ) — ( 948 ) Capitalized real estate development investments (b) — 16,871 16,871 Capital expenditures (silviculture) 76 — 76 Intersegment transfers 8,179 — 8,179 Purchase price allocation adjustment (c) 8,238 — 8,238 Total Balance at September 30, 2021 84,092 40,558 124,650 Less: Current portion (a) ( 601 ) ( 13,457 ) ( 14,058 ) Non-current portion at September 30, 2021 $ 83,491 $ 27,101 $ 110,592 (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 $ 0.4 million of capitalized interest and $ 7.7 million of parcel real estate development investments. Parcel real estate development investments represent investments made for specific lots and/or commercial parcels that are currently under contract or expected to be ready for market within a year. (c) Reflects measurement period adjustments on HBU properties acquired in the merger with Pope Resources. The final allocation of fair value to HBU properties acquired in the merger is approximately $ 34.7 million. This includes development properties in the town of Port Gamble, Washington, development projects in Gig Harbor, Kingston, and Bremerton, Washington and various other assets. See Note 2 - Merger with Pope Resources for additional information . 17. INVENTORY As of September 30, 2021 and December 31, 2020, our inventory consisted entirely of finished goods, as follows: September 30, 2021 December 31, 2020 Finished goods inventory Real estate inventory (a) $ 14,058 $ 6,756 Log inventory 4,534 3,838 Total inventory $ 18,592 $ 10,594 (a) Represents the cost of HBU real estate (including capitalized development investments) under contract to be sold. See Note 16 — Higher And Better Use Timberlands and Real Estate Development Investments for additional information. 47 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 18. OTHER OPERATING INCOME (EXPENSE), NET Other operating income (expense), net consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Gain (loss) on foreign currency remeasurement, net of cash flow hedges $ 1,379 ($ 976 ) $ 5,730 ($ 2,263 ) Gain on sale or disposal of property and equipment — 19 93 26 Gain on investment in Timber Funds (a) 3,729 — 3,729 — Log trading marketing fees — — 6 50 Costs related to the merger with Pope Resources (b) — ( 430 ) — ( 16,415 ) Equity income (loss) related to Bainbridge Landing LLC joint venture (c) 36 ( 214 ) 241 ( 273 ) Miscellaneous expense, net ( 74 ) ( 52 ) ( 325 ) ( 372 ) Total $ 5,070 ($ 1,653 ) $ 9,474 ($ 19,247 ) (a) See Note 6 - Noncontrolling Interests and Note 7 - Variable Interest Entities for additional information on Timber Funds. (b) Includes legal, accounting, due diligence, consulting and other costs related to the merger with Pope Resources. See Note 2 - Merger with Pope Resources and Note 24 - Charges for Integration and Restructuring for additional information. (c) See Note 6 - Noncontrolling Interests and Note 7 - Variable Interest Entities for additional information on Ferncliff Investors. 48 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 19. EMPLOYEE BENEFIT PLANS We have one qualified non-contributory defined benefit pension plan covering a portion of our employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plan. Both plans are closed to new participants. Effective December 31, 2016, we froze benefits for all employees participating in the pension plan. In lieu of the pension plan, we provide those employees with an enhanced 401(k) plan match. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change. We are not required to make mandatory 2021 pension contributions due to our plan’s improved funding status and have made no pension contribution payments during the three and nine months ended September 30, 2021. The net pension and postretirement benefit (credits) costs that have been recorded are shown in the following table: Components of Net Periodic Benefit (Credit) Cost Income Statement Location Pension Postretirement Three Months Ended September 30, Three Months Ended September 30, 2021 2020 2021 2020 Service cost Selling and general expenses — — $ 2 $ 2 Interest cost Interest and other miscellaneous income (expense), net 557 677 11 13 Expected return on plan assets (a) Interest and other miscellaneous income (expense), net ( 936 ) ( 876 ) — — Amortization of losses Interest and other miscellaneous income (expense), net 288 215 5 2 Net periodic benefit (credit) cost ($ 91 ) $ 16 $ 18 $ 17 Components of Net Periodic Benefit (Credit) Cost Income Statement Location Pension Postretirement Nine Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Service cost Selling and general expenses — — $ 6 $ 5 Interest cost Interest and other miscellaneous income (expense), net 1,671 2,029 34 38 Expected return on plan assets (a) Interest and other miscellaneous income (expense), net ( 2,809 ) ( 2,628 ) — — Amortization of losses Interest and other miscellaneous income (expense), net 865 646 15 6 Net periodic benefit (credit) cost ($ 273 ) $ 47 $ 55 $ 49 (a) The weighted-average expected long-term rate of return on plan assets used in computing 2021 net periodic benefit cost for pension benefit s i s 5.7 %. 49 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 20. INCOME TAXES Rayonier is a REIT under the Internal Revenue Code and therefore generally does not pay U.S. federal or state income tax. As of September 30, 2021, Rayonier owns a 97.3 % interest in the Operating Partnership and conducts substantially all of its timberland operations through the Operating Partnership. The taxable income or loss generated by the Operating Partnership is passed through and reported to its unit holders (including the Company) on a Schedule K-1 for inclusion in each unitholder’s income tax return. Certain operations, including log trading and certain real estate activities, such as the entitlement, development and sale of HBU properties, are conducted through our TRS. The TRS subsidiaries are subject to United States federal and state corporate income tax. The New Zealand timber operations are conducted by the New Zealand subsidiary, which is subject to corporate-level tax at 28% in New Zealand and is treated as a partnership for U.S. income tax purposes. PROVISION FOR INCOME TAXES The Company’s tax expense is principally related to corporate-level tax in New Zealand and non-resident withholding tax on repatriation of earnings from New Zealand. The following table contains the income tax expense recognized on the Consolidated Statements of Income and Comprehensive Income: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Income tax expense ($ 2,811 ) ($ 720 ) ($ 13,114 ) ($ 7,416 ) ANNUAL EFFECTIVE TAX RATE The Company’s 2021 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: Nine Months Ended September 30, 2021 2020 Annualized effective tax rate after discrete items 6.4 % 29.9 % 50 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 21. ACCUMULATED OTHER COMPREHENSIVE LOSS The following table summarizes the changes in AOCI by component for the nine months ended September 30, 2021 and the year ended December 31, 2020. All amounts are presented net of tax and exclude portions attributable to noncontrolling interests. Foreign currency translation (loss) gains Net investment hedges of New Zealand subsidiary Cash flow hedges Employee benefit plans Total Rayonier, L.P. Allocation to Operating Partnership Total Rayonier Inc. Balance as of December 31, 2019 ($ 226 ) $ 1,321 ($ 8,910 ) ($ 23,387 ) ($ 31,202 ) — ($ 31,202 ) Other comprehensive income (loss) before reclassifications 22,928 — ( 71,644 ) ( 1,794 ) ( 50,510 ) — ( 50,510 ) Amounts reclassified from accumulated other comprehensive loss — — 9,498 869 (b) 10,367 ( 2,540 ) 7,827 Net other comprehensive income (loss) 22,928 — ( 62,146 ) ( 925 ) ( 40,143 ) ( 2,540 ) ( 42,683 ) Balance as of December 31, 2020 $ 22,702 $ 1,321 ($ 71,056 ) ($ 24,312 ) ($ 71,345 ) ($ 2,540 ) ($ 73,885 ) Other comprehensive (loss) income before reclassifications ( 16,369 ) — 40,125 (a) — 23,756 — 23,756 Amounts reclassified from accumulated other comprehensive loss — — 13,874 881 (b) 14,755 ( 1,186 ) 13,569 Net other comprehensive (loss) income ( 16,369 ) — 53,999 881 38,511 ( 1,186 ) 37,325 Balance as of September 30, 2021 $ 6,333 $ 1,321 ($ 17,057 ) ($ 23,431 ) ($ 32,834 ) ($ 3,726 ) ($ 36,560 ) (a) Includes $ 46.4 million of other comprehensive income related to interest rate swaps and forward-starting interest rate swaps. See Note 10 — 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 19 — 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 nine months ended September 30, 2021 and September 30, 2020: Details about accumulated other comprehensive income (loss) components Amount reclassified from accumulated other comprehensive income (loss) Affected line item in the income statement September 30, 2021 September 30, 2020 Realized loss (gain) on foreign currency exchange contracts $ 2,322 ($ 2,568 ) Other operating income (expense), net Realized loss on foreign currency option contracts 1,177 ( 15 ) Other operating income (expense), net Noncontrolling interests ( 805 ) 594 Comprehensive (loss) income attributable to noncontrolling interests Realized loss on interest rate contracts 11,935 6,951 Interest expense Income tax effect from net (loss) gain on foreign currency contracts ( 755 ) 557 Income tax expense Net loss from accumulated other comprehensive income $ 13,874 $ 5,519 51 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 22. RESTRICTED CASH Restricted cash, Timber Funds includes the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests. Restricted cash, excluding Timber Funds, includes cash balances held in escrow as collateral for certain contractual obligations related to our Richmond Hill development project as well as cash held in escrow for real estate sales. The following table provides a reconciliation of cash, cash equivalents and restricted cash in the Consolidated Balance Sheets that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020: Nine Months Ended September 30, 2021 2020 Cash and cash equivalents $ 431,806 $ 78,151 Restricted cash, Timber Funds 49,209 — Restricted cash, excluding Timber Funds (Held in escrow) 625 475 Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows $ 481,640 $ 78,626 23. ASSETS HELD FOR SALE Assets held for sale is composed of properties under contract and expected to be sold within 12 months that also meet the other relevant held-for-sale criteria in accordance with ASC 360-10-45-9. As of September 30, 2021 and December 31, 2020, the basis in properties meeting this classification was $ 56.4 million and $ 3.4 million, respectively. Since the basis in these properties was less than the fair value, including costs to sell, no impairment was recognized. Included in assets held for sale as of September 30, 2021 are $ 54.9 million of timber and timberland assets owned by ORM Timber Fund II, Inc., in which we maintain a 20 % ownership interest. 52 Table of Contents RAYONIER INC. AND SUBSIDIARIES RAYONIER, L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollar amounts in thousands unless otherwise stated) 24. CHARGES FOR INTEGRATION AND RESTRUCTURING During 2020, we incurred and accrued for termination benefits (primarily severance) and accelerated share-based payment costs based upon actual and expected qualifying terminations of certain employees as a result of restructuring decisions made concurrent with and subsequent to the merger with Pope Resources. We also incurred non-recurring professional services costs for investment banking, legal, consulting, accounting and certain other fees directly attributable to the merger with Pope Resources. A summary of the charges for integration and restructuring related to the merger with Pope Resources is presented below: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Termination benefits — $ 70 — $ 651 Acceleration of share-based compensation related to qualifying terminations — 92 — 324 Professional services — 239 — 13,553 Other integration and restructuring costs — 29 — 1,887 Total integration and restructuring charges related to the merger with Pope Resources — $ 430 — $ 16,415 During the three and nine months ended September 30, 2020, we incurred $ 0.1 million and $ 0.7 million, respectively, in severance benefits related to restructuring associated with the Pope Resources merger. As of December 31, 2020, there was $ 0.1 million of accrued severance recorded within “Accrued Payroll and Benefits” in our Consolidated Balance Sheets. As of September 30, 2021, all severance associated with the merger with Pope Resources has been paid. 25. RELATED PARTY In January 2020, we entered into an agreement to sell developed lots to Mattamy Jacksonville LLC, a wholly owned subsidiary of Mattamy Homes, for an aggregate base purchase price of $ 4.45 million (subject to multiple takedowns over a 2 year period), plus additional consideration as to each lot to the extent the ultimate sales price of each finished home exceeds agreed price thresholds (the “Mattamy Contract”). In May 2021, we entered into an amendment to the original agreement, which sells additional lots to Mattamy for an aggregate base purchase price of $ 1.0 million. The Mattamy contract also includes marketing fee revenue based on a percentage of the sales price of each finished home. In September 2020, Keith Bass, a member of our Board of Directors, was named the Chief Executive Officer of Mattamy Homes US. Following this development, the Mattamy Contract and the ongoing obligations therein, were reviewed by the Nominating and Corporate Governance Committee in accordance with established policies and procedures regarding the authorization and approval of transactions with related parties. The following table demonstrates the impact, gross of tax, of our related party transactions on the Consolidated Statements of Income and Comprehensive Income for the three and nine months ended: Three Months Ended September 30, Nine Months Ended September 30, Related Party Transaction Location on Statement of Income and Comprehensive Income 2021 2020 2021 2020 Mattamy Contract Sales $ 1,022 — $ 2,510 — 53 Table of Contents