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 March 31, 2022 2021 SALES ( NOTE 3 ) $ 222,041 $ 191,447 Costs and Expenses Cost of sales ( 160,979 ) ( 151,378 ) Selling and general expenses ( 14,760 ) ( 14,032 ) Other operating (expense) income, net ( Note 15 ) ( 984 ) 2,448 ( 176,723 ) ( 162,962 ) OPERATING INCOME 45,318 28,485 Interest expense ( 8,337 ) ( 10,028 ) Interest and other miscellaneous expense, net ( 468 ) ( 4 ) INCOME BEFORE INCOME TAXES 36,513 18,453 Income tax expense ( Note 17 ) ( 5,515 ) ( 3,421 ) NET INCOME 30,998 15,032 Less: Net income attributable to noncontrolling interests in the operating partnership ( 669 ) ( 341 ) Less: Net income attributable to noncontrolling interests in consolidated affiliates ( 1,012 ) ( 3,843 ) NET INCOME ATTRIBUTABLE TO RAYONIER INC. 29,317 10,848 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment, net of income tax effect of $ 0 and $ 0 6,458 ( 14,288 ) Cash flow hedges, net of income tax effect of $ 1,022 and $ 1,059 40,427 61,001 Amortization of pension and postretirement plans, net of income tax expense of $ 0 and $ 0 188 294 Total other comprehensive income 47,073 47,007 COMPREHENSIVE INCOME 78,071 62,039 Less: Comprehensive income attributable to noncontrolling interests in the operating partnership ( 1,686 ) ( 1,872 ) Less: Comprehensive income attributable to noncontrolling interests in consolidated affiliates ( 2,408 ) ( 580 ) COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC. $ 73,977 $ 59,587 EARNINGS PER COMMON SHARE ( NOTE 5 ) Basic earnings per share attributable to Rayonier Inc. $ 0.20 $ 0.08 Diluted earnings per share attributable to Rayonier Inc. $ 0.20 $ 0.08 See Notes to Consolidated Financial Statements. 1 Table of Contents RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) March 31, 2022 December 31, 2021 ASSETS CURRENT ASSETS Cash and cash equivalents, excluding Timber Funds $ 256,537 $ 358,680 Cash and cash equivalents, Timber Funds 3,185 3,493 Total cash and cash equivalents 259,722 362,173 Restricted cash, Timber Funds ( Note 19 ) 5,464 6,341 Accounts receivable, less allowance for doubtful accounts of $ 66 and $ 59 52,906 30,018 Inventory ( Note 14 ) 33,290 28,523 Prepaid expenses 20,088 18,528 Assets held for sale ( Note 20 ) 2,466 5,099 Other current assets 1,162 749 Total current assets 375,098 451,431 TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION 2,869,194 2,894,996 HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS ( NOTE 13 ) 111,445 106,878 PROPERTY, PLANT AND EQUIPMENT Land 6,400 6,401 Buildings 31,198 31,168 Machinery and equipment 6,497 6,494 Construction in progress 510 460 Total property, plant and equipment, gross 44,605 44,523 Less — accumulated depreciation ( 15,699 ) ( 14,900 ) Total property, plant and equipment, net 28,906 29,623 RESTRICTED CASH, EXCLUDING TIMBER FUNDS ( NOTE 19 ) 625 625 RIGHT-OF-USE ASSETS 104,183 101,837 OTHER ASSETS 70,413 50,966 TOTAL ASSETS $ 3,559,864 $ 3,636,356 LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 31,131 $ 23,447 Current maturities of long-term debt, net, ( Note 6 ) 2,087 124,965 Accrued taxes 2,754 12,446 Accrued payroll and benefits 6,068 14,514 Accrued interest 6,677 6,343 Deferred revenue 13,699 17,802 Distribution payable, Timber Funds 5,464 6,341 Other current liabilities 24,782 25,863 Total current liabilities 92,662 231,721 LONG-TERM DEBT, NET, ( NOTE 6 ) 1,243,673 1,242,819 PENSION AND OTHER POSTRETIREMENT BENEFITS ( NOTE 16 ) 10,201 10,478 LONG-TERM LEASE LIABILITY 95,543 93,416 OTHER NON-CURRENT LIABILITIES 99,907 108,521 COMMITMENTS AND CONTINGENCIES ( NOTES 9 and 10 ) NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP ( NOTE 4 ) 136,239 133,823 SHAREHOLDERS’ EQUITY Common Shares, 480,000,000 shares authorized, 146,107,688 and 145,372,961 shares issued and outstanding 1,421,946 1,389,073 Retained earnings 389,077 402,307 Accumulated other comprehensive income (loss) ( Note 18 ) 25,973 ( 19,604 ) TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY 1,836,996 1,771,776 Noncontrolling interests in consolidated affiliates ( Note 4 ) 44,643 43,802 TOTAL SHAREHOLDERS’ EQUITY 1,881,639 1,815,578 TOTAL LIABILITIES, NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP AND SHAREHOLDERS’ EQUITY $ 3,559,864 $ 3,636,356 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 Income (Loss) Noncontrolling Interests in Consolidated Affiliates Shareholders’ Equity Shares Amount Balance, January 1, 2022 145,372,961 $ 1,389,073 $ 402,307 ($ 19,604 ) $ 43,802 $ 1,815,578 Net income — — 29,986 — 1,012 30,998 Net income attributable to noncontrolling interests in the operating partnership — — ( 669 ) — — ( 669 ) Dividends ($ 0.27 per share) (a) — — ( 39,902 ) — — ( 39,902 ) Issuance of shares under the “at-the-market” equity offering, net of commissions and offering costs of $ 339 726,248 29,771 — — — 29,771 Issuance of shares under incentive stock plans 11,364 415 — — — 415 Stock-based compensation — 2,797 — — — 2,797 Repurchase of common shares ( 5,420 ) ( 214 ) — — — ( 214 ) Adjustment of noncontrolling interests in the operating partnership — — ( 2,645 ) — — ( 2,645 ) Conversion of units into common shares 2,535 104 — — — 104 Amortization of pension and postretirement plan liabilities — — — 188 — 188 Foreign currency translation adjustment — — — 5,668 790 6,458 Cash flow hedges — — — 39,822 605 40,427 Allocation of other comprehensive income to noncontrolling interests in the operating partnership — — — ( 101 ) — ( 101 ) Distributions to noncontrolling interests in consolidated affiliates — — — — ( 1,566 ) ( 1,566 ) Balance, March 31, 2022 146,107,688 $ 1,421,946 $ 389,077 $ 25,973 $ 44,643 $ 1,881,639 (a) For information regarding distributions to noncontrolling interests in the operating partnership, see the Rayonier Inc. Consolidated Statements of Cash Flows and Note 4 — Noncontrolling Interests . 3 Table of Contents RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (CONTINUED) (Unaudited) (Dollars in thousands, except share data) Common Shares Retained Earnings Accumulated Other Comprehensive Income (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 (a) For information regarding distributions to noncontrolling interests in the operating partnership, see the Rayonier Inc. Consolidated Statements of Cash Flows and Note 4 — Noncontrolling Interests . See Notes to Consolidated Financial Statements. 4 Table of Contents RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2022 2021 OPERATING ACTIVITIES Net income $ 30,998 $ 15,032 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization 47,419 45,213 Non-cash cost of land and improved development 5,359 1,813 Stock-based incentive compensation expense 2,797 2,156 Deferred income taxes ( 8,014 ) ( 1,128 ) Amortization of losses from pension and postretirement plans 188 294 Other ( 2,244 ) ( 3,681 ) Changes in operating assets and liabilities: Receivables ( 27,837 ) ( 3,697 ) Inventories ( 4,875 ) ( 3,512 ) Accounts payable 7,376 6,684 All other operating activities ( 1,500 ) ( 5,306 ) CASH PROVIDED BY OPERATING ACTIVITIES 49,667 53,868 INVESTING ACTIVITIES Capital expenditures ( 15,597 ) ( 15,831 ) Real estate development investments ( 3,137 ) ( 3,011 ) Purchase of timberlands ( 2,830 ) ( 29,938 ) Other 2,619 4,356 CASH USED FOR INVESTING ACTIVITIES ( 18,945 ) ( 44,424 ) FINANCING ACTIVITIES Issuance of debt 404,018 — Repayment of debt ( 526,948 ) — Dividends paid on common shares ( 39,444 ) ( 37,490 ) Distributions to noncontrolling interests in the operating partnership ( 895 ) ( 1,155 ) Proceeds from the issuance of common shares under incentive stock plan 579 1,166 Proceeds from the issuance of common shares under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs 30,918 32,545 Repurchase of common shares to pay withholding taxes on vested incentive stock awards ( 214 ) ( 155 ) Distributions to noncontrolling interests in consolidated affiliates ( 2,684 ) ( 8,737 ) CASH USED FOR FINANCING ACTIVITIES ( 134,670 ) ( 13,826 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH 620 ( 5 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash ( 103,328 ) ( 4,387 ) Balance, beginning of year 369,139 87,482 Balance, end of period $ 265,811 $ 83,095 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period: Interest (a) $ 3,935 $ 2,945 Income taxes 14,042 4,838 Non-cash investing activity: Capital assets purchased on account 4,511 4,814 (a) Interest paid is presented net of patronage paymen ts received of $ 5.5 million a n d $ 6.2 million for the three months ended March 31, 2022 and March 31, 2021, respectively. For additional information on patronage payments, see Note 10 — Debt in the 2021 Form 10-K. See Notes to Consolidated Financial Statements. 5 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 March 31, 2022 2021 SALES ( NOTE 3 ) $ 222,041 $ 191,447 Costs and Expenses Cost of sales ( 160,979 ) ( 151,378 ) Selling and general expenses ( 14,760 ) ( 14,032 ) Other operating (expense) income, net ( Note 15 ) ( 984 ) 2,448 ( 176,723 ) ( 162,962 ) OPERATING INCOME 45,318 28,485 Interest expense ( 8,337 ) ( 10,028 ) Interest and other miscellaneous expense, net ( 468 ) ( 4 ) INCOME BEFORE INCOME TAXES 36,513 18,453 Income tax expense ( Note 17 ) ( 5,515 ) ( 3,421 ) NET INCOME 30,998 15,032 Less: Net income attributable to noncontrolling interests in consolidated affiliates ( 1,012 ) ( 3,843 ) NET INCOME ATTRIBUTABLE TO RAYONIER, L.P. UNITHOLDERS 29,986 11,189 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment, net of income tax effect of $ 0 and $ 0 6,458 ( 14,288 ) Cash flow hedges, net of income tax effect of $ 1,022 and $ 1,059 40,427 61,001 Amortization of pension and postretirement plans, net of income tax expense of $ 0 and $ 0 188 294 Total other comprehensive income 47,073 47,007 COMPREHENSIVE INCOME 78,071 62,039 Less: Comprehensive income attributable to noncontrolling interests in consolidated affiliates ( 2,408 ) ( 580 ) COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER, L.P. UNITHOLDERS $ 75,663 $ 61,459 EARNINGS PER UNIT ( NOTE 5 ) Basic earnings per unit attributable to Rayonier, L.P. $ 0.20 $ 0.08 Diluted earnings per unit attributable to Rayonier, L.P. $ 0.20 $ 0.08 See Notes to Consolidated Financial Statements. 6 Table of Contents RAYONIER, L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands) March 31, 2022 December 31, 2021 ASSETS CURRENT ASSETS Cash and cash equivalents, excluding Timber Funds $ 256,537 $ 358,680 Cash and cash equivalents, Timber Funds 3,185 3,493 Total cash and cash equivalents 259,722 362,173 Restricted cash, Timber Funds ( Note 19 ) 5,464 6,341 Accounts receivable, less allowance for doubtful accounts of $ 66 and $ 59 52,906 30,018 Inventory ( Note 14 ) 33,290 28,523 Prepaid expenses 20,088 18,528 Assets held for sale ( Note 20 ) 2,466 5,099 Other current assets 1,162 749 Total current assets 375,098 451,431 TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION 2,869,194 2,894,996 HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS ( NOTE 13 ) 111,445 106,878 PROPERTY, PLANT AND EQUIPMENT Land 6,400 6,401 Buildings 31,198 31,168 Machinery and equipment 6,497 6,494 Construction in progress 510 460 Total property, plant and equipment, gross 44,605 44,523 Less — accumulated depreciation ( 15,699 ) ( 14,900 ) Total property, plant and equipment, net 28,906 29,623 RESTRICTED CASH, EXCLUDING TIMBER FUNDS ( NOTE 19 ) 625 625 RIGHT-OF-USE ASSETS 104,183 101,837 OTHER ASSETS 70,413 50,966 TOTAL ASSETS $ 3,559,864 $ 3,636,356 LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL CURRENT LIABILITIES Accounts payable $ 31,131 $ 23,447 Current maturities of long-term debt, net, ( Note 6 ) 2,087 124,965 Accrued taxes 2,754 12,446 Accrued payroll and benefits 6,068 14,514 Accrued interest 6,677 6,343 Deferred revenue 13,699 17,802 Distribution payable, Timber Funds 5,464 6,341 Other current liabilities 24,782 25,863 Total current liabilities 92,662 231,721 LONG-TERM DEBT, NET, ( NOTE 6 ) 1,243,673 1,242,819 PENSION AND OTHER POSTRETIREMENT BENEFITS ( NOTE 16 ) 10,201 10,478 LONG-TERM LEASE LIABILITY 95,543 93,416 OTHER NON-CURRENT LIABILITIES 99,907 108,521 COMMITMENTS AND CONTINGENCIES ( NOTES 9 and 10 ) REDEEMABLE OPERATING PARTNERSHIP UNITS ( NOTE 4 ) 3,313,206 and 3,315,741 Units outstanding, respectively 136,239 133,823 CAPITAL General partners’ capital 18,068 17,872 Limited partners’ capital 1,788,713 1,769,367 Accumulated other comprehensive income (loss) ( Note 18 ) 30,215 ( 15,463 ) TOTAL CONTROLLING INTEREST CAPITAL 1,836,996 1,771,776 Noncontrolling interests in consolidated affiliates ( Note 4 ) 44,643 43,802 TOTAL CAPITAL 1,881,639 1,815,578 TOTAL LIABILITIES, REDEEMABLE OPERATING PARTNERSHIP UNITS AND CAPITAL $ 3,559,864 $ 3,636,356 See Notes to Consolidated Financial Statements. 7 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 Income (Loss) Noncontrolling Interests in Consolidated Affiliates Total Capital General Partners’ Capital Limited Partners’ Capital Balance, January 1, 2022 $ 17,872 $ 1,769,367 ($ 15,463 ) $ 43,802 $ 1,815,578 Net income 300 29,686 — 1,012 30,998 Distributions on units ($ 0.27 per unit) ( 408 ) ( 40,388 ) — — ( 40,796 ) Issuance of units under the “at-the-market” equity offering, net of commissions and offering costs of $ 339 298 29,473 — — 29,771 Issuance of units under incentive stock plans 4 411 — — 415 Stock-based compensation 28 2,769 — — 2,797 Repurchase of units ( 2 ) ( 212 ) — — ( 214 ) Adjustment of Redeemable Operating Partnership Units ( 25 ) ( 2,496 ) — — ( 2,521 ) Conversion of units into common shares 1 103 — — 104 Amortization of pension and postretirement plan liabilities — — 188 — 188 Foreign currency translation adjustment — — 5,668 790 6,458 Cash flow hedges — — 39,822 605 40,427 Distributions to noncontrolling interests in consolidated affiliates — — — ( 1,566 ) ( 1,566 ) Balance, March 31, 2022 $ 18,068 $ 1,788,713 $ 30,215 $ 44,643 $ 1,881,639 Units Accumulated Other Comprehensive Income (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 shares 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 See Notes to Consolidated Financial Statements. 8 Table of Contents RAYONIER, L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) Three Months Ended March 31, 2022 2021 OPERATING ACTIVITIES Net income $ 30,998 $ 15,032 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization 47,419 45,213 Non-cash cost of land and improved development 5,359 1,813 Stock-based incentive compensation expense 2,797 2,156 Deferred income taxes ( 8,014 ) ( 1,128 ) Amortization of losses from pension and postretirement plans 188 294 Other ( 2,244 ) ( 3,681 ) Changes in operating assets and liabilities: Receivables ( 27,837 ) ( 3,697 ) Inventories ( 4,875 ) ( 3,512 ) Accounts payable 7,376 6,684 All other operating activities ( 1,500 ) ( 5,306 ) CASH PROVIDED BY OPERATING ACTIVITIES 49,667 53,868 INVESTING ACTIVITIES Capital expenditures ( 15,597 ) ( 15,831 ) Real estate development investments ( 3,137 ) ( 3,011 ) Purchase of timberlands ( 2,830 ) ( 29,938 ) Other 2,619 4,356 CASH USED FOR INVESTING ACTIVITIES ( 18,945 ) ( 44,424 ) FINANCING ACTIVITIES Issuance of debt 404,018 — Repayment of debt ( 526,948 ) — Distributions on units ( 40,339 ) ( 38,645 ) Proceeds from the issuance of units under incentive stock plan 579 1,166 Proceeds from the issuance of units under the “at-the-market” (ATM) equity offering program, net of commissions and offering costs 30,918 32,545 Repurchase of units to pay withholding taxes on vested incentive stock awards ( 214 ) ( 155 ) Distributions to noncontrolling interests in consolidated affiliates ( 2,684 ) ( 8,737 ) CASH USED FOR FINANCING ACTIVITIES ( 134,670 ) ( 13,826 ) EFFECT OF EXCHANGE RATE CHANGES ON CASH 620 ( 5 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash ( 103,328 ) ( 4,387 ) Balance, beginning of year 369,139 87,482 Balance, end of period $ 265,811 $ 83,095 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period: Interest (a) $ 3,935 $ 2,945 Income taxes 14,042 4,838 Non-cash investing activity: Capital assets purchased on account 4,511 4,814 (a) Interest paid is presented net of patronage paymen ts received of $ 5.5 million an d $ 6.2 million for the three months ended March 31, 2022 and March 31, 2021, respectively. For additional information on patronage payments, see Note 10 — Debt in the 2021 Form 10-K. See Notes to Consolidated Financial Statements. 9 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, 2021, as filed with the SEC (the “2021 Form 10-K”). As of March 31, 2022, the Company owned a 97.8 % interest in the Operating Partnership, with the remaining 2.2 % interest owned by limited partners of the Operating Partnership. As the sole general partner of the Operating Partnership, Rayonier Inc. has exclusive control of the day-to-day management of the Operating Partnership. 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 2021 Form 10-K. 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. We have 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. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The pronouncement eliminates the requirement that contracts legally permitting settlement in registered shares be classified as temporary equity. As a result, Redeemable Operating Partnership Units may be classified as permanent partners’ capital in the Operating Partnership’s accompanying balance sheets and the related noncontrolling interest as permanent equity in the accompanying balance sheets of Rayonier, Inc. However, the corresponding SEC guidance on equity classification has remained unchanged. We will continue to monitor any developments in this area and may reclassify the temporary partners’ capital and noncontrolling interest to permanent upon agreement in guidance. Recent accounting pronouncements adopted or pending adoption not discussed above are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations, or cash flows. SUBSEQUENT EVENTS On April 1, 2022, 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 10 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) 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 $ 27.9 million due in 2027 at a fixed rate of 6.48 %. 2. 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 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 months ended March 31, 2022 and 2021: Three Months Ended March 31, SALES 2022 2021 Southern Timber $ 76,763 $ 51,677 Pacific Northwest Timber 46,281 41,522 New Zealand Timber 51,389 57,579 Timber Funds (a) — 14,939 Real Estate 34,195 10,504 Trading 13,461 16,665 Intersegment Eliminations (b) ( 48 ) ( 1,439 ) Total $ 222,041 $ 191,447 (a) The three months ended March 31, 2021 includes $ 11.9 million of sales attributable to noncontrolling interests in Timber Funds. (b) Primarily consists of the elimination of timberland investment management fees paid to us by the timber funds, which were 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. Three Months Ended March 31, OPERATING INCOME 2022 2021 Southern Timber $ 30,342 $ 17,347 Pacific Northwest Timber 6,606 1,350 New Zealand Timber 5,392 13,944 Timber Funds (a) — 1,501 Real Estate 10,181 1,687 Trading 351 244 Corporate and Other ( 7,554 ) ( 7,588 ) Total Operating Income 45,318 28,485 Unallocated interest expense and other ( 8,805 ) ( 10,032 ) Total Income before Income Taxes $ 36,513 $ 18,453 (a) The three months ended March 31, 2021 includes $ 1.1 million of operating income attributable to noncontrolling interests in Timber Funds. 11 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 March 31, DEPRECIATION, DEPLETION AND AMORTIZATION 2022 2021 Southern Timber $ 18,059 $ 14,359 Pacific Northwest Timber 14,916 16,284 New Zealand Timber 4,989 7,250 Timber Funds (a) — 5,500 Real Estate 9,145 1,557 Corporate and Other 310 263 Total $ 47,419 $ 45,213 (a) The three months ended March 31, 2021 includes $ 4.9 million of depreciation, depletion and amortization attributable to noncontrolling interests in Timber Funds. Three Months Ended March 31, NON-CASH COST OF LAND AND IMPROVED DEVELOPMENT 2022 2021 Real Estate $ 5,359 $ 1,813 Total $ 5,359 $ 1,813 3. 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 March 31, 2022 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 months ended March 31, 2022 and 2021 that was included in the contract liability balance at the beginning of each year: Three Months Ended March 31, 2022 2021 Revenue recognized from contract liability balance at the beginning of the year (a) $ 7,533 $ 5,920 (a) Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales. 12 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 months ended March 31, 2022 and 2021: Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Elim. Total March 31, 2022 Pulpwood $ 37,611 $ 2,918 $ 7,595 — — $ 1,525 — $ 49,649 Sawtimber 27,516 42,215 42,100 — — 11,538 — 123,369 Hardwood 5,849 — — — — — — 5,849 Total Timber Sales 70,976 45,133 49,695 — — 13,063 — 178,867 License Revenue, Primarily From Hunting 4,688 116 62 — — — — 4,866 Other Non-Timber/Carbon Revenue 1,099 1,032 1,632 — — — — 3,763 Agency Fee Income — — — — — 350 — 350 Total Non-Timber Sales 5,787 1,148 1,694 — — 350 — 8,979 Improved Development — — — — 4,966 — — 4,966 Rural — — — — 16,950 — — 16,950 Timberland & Non-Strategic — — — — 11,400 — — 11,400 Deferred Revenue/Other (a) — — — — 636 — — 636 Total Real Estate Sales — — — — 33,952 — — 33,952 Revenue from Contracts with Customers 76,763 46,281 51,389 — 33,952 13,413 — 221,798 Lease Revenue — — — — 243 — — 243 Intersegment — — — — — 48 ( 48 ) — Total Revenue $ 76,763 $ 46,281 $ 51,389 — $ 34,195 $ 13,461 ($ 48 ) $ 222,041 Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Real Estate Trading Elim. Total March 31, 2021 Pulpwood $ 21,856 $ 2,495 $ 9,542 $ 260 — $ 1,835 — $ 35,988 Sawtimber 21,963 37,758 47,792 13,308 — 14,389 — 135,210 Hardwood 405 — — — — — — 405 Total Timber Sales 44,224 40,253 57,334 13,568 — 16,224 — 171,603 License Revenue, Primarily from Hunting 4,417 91 58 3 — — — 4,569 Other Non-Timber/Carbon Revenue 3,036 1,178 187 14 — — — 4,415 Agency Fee Income — — — — — 356 — 356 Total Non-Timber Sales 7,453 1,269 245 17 — 356 — 9,340 Improved Development — — — — 252 — — 252 Rural — — — — 9,765 — — 9,765 Deferred Revenue/Other (a) — — — — 255 — — 255 Total Real Estate Sales — — — — 10,272 — — 10,272 Revenue from Contracts with Customers 51,677 41,522 57,579 13,585 10,272 16,580 — 191,215 Lease Revenue — — — — 232 — — 232 Intersegment — — — 1,354 — 85 ( 1,439 ) — Total Revenue $ 51,677 $ 41,522 $ 57,579 $ 14,939 $ 10,504 $ 16,665 ($ 1,439 ) $ 191,447 (a) Includes deferred revenue adjustments, revenue true-ups and marketing fees related to Improved Development sales. 13 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 months ended March 31, 2022 and 2021: Three Months Ended Southern Timber Pacific Northwest Timber New Zealand Timber Timber Funds Trading Total March 31, 2022 Stumpage Pay-as-Cut $ 36,206 — — — — $ 36,206 Stumpage Lump Sum — 5,388 — — — 5,388 Total Stumpage 36,206 5,388 — — — 41,594 Delivered Wood (Domestic) 32,128 39,446 13,481 — 625 85,680 Delivered Wood (Export) 2,642 299 36,214 — 12,438 51,593 Total Delivered 34,770 39,745 49,695 — 13,063 137,273 Total Timber Sales $ 70,976 $ 45,133 $ 49,695 — $ 13,063 $ 178,867 March 31, 2021 Stumpage Pay-as-Cut $ 21,257 — — — — $ 21,257 Stumpage Lump Sum 3 6,131 — — — 6,134 Total Stumpage 21,260 6,131 — — — 27,391 Delivered Wood (Domestic) 18,059 34,122 17,106 13,568 1,091 83,946 Delivered Wood (Export) 4,905 — 40,228 — 15,133 60,266 Total Delivered 22,964 34,122 57,334 13,568 16,224 144,212 Total Timber Sales $ 44,224 $ 40,253 $ 57,334 $ 13,568 $ 16,224 $ 171,603 14 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) 4. NONCONTROLLING INTERESTS NONCONTROLLING INTERESTS IN CONSOLIDATED AFFILIATES Matariki Forestry Group We maintain a 77 % controlling financial interest in Matariki Forestry Group (the “New Zealand subsidiary”), a joint venture that owns or leases approximately 419,000 legal acres of New Zealand timberland. Accordingly, we consolidate the New Zealand subsidiary’s balance sheet and results of operations. 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. NONCONTROLLING INTERESTS IN THE OPERATING PARTNERSHIP Noncontrolling interests in the operating partnership relate to the third-party ownership of Redeemable Operating Partnership Units. Net income attributable to the noncontrolling interests in the operating partnership is computed by applying the weighted average Redeemable Operating Partnership Units outstanding during the period as a percentage of the weighted average total units outstanding to the Operating Partnership’s net income for the period. If a noncontrolling unitholder redeems a unit for a registered common share of Rayonier or cash, the noncontrolling interests in the operating partnership will be reduced and the Company’s share in the Operating Partnership will be increased by the fair value of each security at the time of redemption. The following table sets forth the Company’s noncontrolling interests in the operating partnership: Three Months Ended March 31, 2022 2021 Beginning noncontrolling interests in the operating partnership $ 133,823 $ 130,121 Adjustment of noncontrolling interests in the operating partnership 2,645 11,867 Conversions of Redeemable Operating Partnership Units to Common Shares ( 104 ) ( 4,715 ) Net Income attributable to noncontrolling interests in the operating partnership 669 341 Other Comprehensive Income attributable to noncontrolling interests in the operating partnership 101 1,531 Distributions to noncontrolling interests in the operating partnership ( 895 ) ( 1,155 ) Total noncontrolling interests in the operating partnership $ 136,239 $ 137,990 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) 5. EARNINGS PER SHARE AND PER UNIT The following table provides details of the calculations of basic and diluted earnings per common share of the Company: Three Months Ended March 31, 2022 2021 Earnings per common share - basic Numerator: Net Income $ 30,998 $ 15,032 Less: Net income attributable to noncontrolling interests in the operating partnership ( 669 ) ( 341 ) Less: Net income attributable to noncontrolling interests in consolidated affiliates ( 1,012 ) ( 3,843 ) Net income attributable to Rayonier Inc. $ 29,317 $ 10,848 Denominator: Denominator for basic earnings per common share - weighted average shares 145,430,171 137,870,821 Basic earnings per common share attributable to Rayonier Inc.: $ 0.20 $ 0.08 Earnings per common share - diluted Numerator: Net Income $ 30,998 $ 15,032 Less: Net income attributable to noncontrolling interests in consolidated affiliates ( 1,012 ) ( 3,843 ) Net income attributable to Rayonier Inc., before net income attributable to noncontrolling interests in the operating partnership $ 29,986 $ 11,189 Denominator: Denominator for basic earnings per common share - weighted average shares 145,430,171 137,870,821 Add: Dilutive effect of: Stock options 7,229 4,051 Performance shares, restricted shares and restricted stock units 794,892 353,131 Noncontrolling interests in operating partnership units 3,314,784 4,330,794 Denominator for diluted earnings per common share - adjusted weighted average shares 149,547,076 142,558,797 Diluted earnings per common share attributable to Rayonier Inc.: $ 0.20 $ 0.08 Three Months Ended March 31, 2022 2021 Anti-dilutive shares excluded from the computations of diluted earnings per common share: Stock options, performance shares, restricted shares and restricted stock units 254 194,256 Total 254 194,256 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) The following table provides details of the calculations of basic and diluted earnings per unit of the Operating Partnership: Three Months Ended March 31, 2022 2021 Earnings per unit - basic Numerator: Net Income $ 30,998 $ 15,032 Less: Net income attributable to noncontrolling interests in consolidated affiliates ( 1,012 ) ( 3,843 ) Net income available to unitholders $ 29,986 $ 11,189 Denominator: Denominator for basic earnings per unit - weighted average units 148,744,955 142,201,615 Basic earnings per unit attributable to Rayonier, L.P.: $ 0.20 $ 0.08 Earnings per unit - diluted Numerator: Net Income $ 30,998 $ 15,032 Less: Net income attributable to noncontrolling interests in consolidated affiliates ( 1,012 ) ( 3,843 ) Net income available to unitholders $ 29,986 $ 11,189 Denominator: Denominator for basic earnings per unit - weighted average units 148,744,955 142,201,615 Add: Dilutive effect of unit equivalents: Stock options 7,229 4,051 Performance shares, restricted shares and restricted stock units 794,892 353,131 Denominator for diluted earnings per unit - adjusted weighted average units 149,547,076 142,558,797 Diluted earnings per unit attributable to Rayonier, L.P.: $ 0.20 $ 0.08 Three Months Ended March 31, 2022 2021 Anti-dilutive unit equivalents excluded from the computations of diluted earnings per unit: Stock options, performance shares, restricted shares and restricted stock units 254 194,256 Total 254 194,256 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) 6. DEBT Our debt consisted of the following at March 31, 2022: March 31, 2022 Debt Term Credit Agreement borrowings due 2028 at a variable interest rate of 1.9 % at March 31, 2022 (a) $ 350,000 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 1.9 % at March 31, 2022 (b) 200,000 2021 Incremental Term Loan Facility Borrowings due 2029 at a variable interest rate of 1.8 % at March 31, 2022 (c) 200,000 New Zealand subsidiary noncontrolling interests shareholder loan due 2025 at a fixed interest rate of 2.95 % (d) 24,005 New Zealand subsidiary noncontrolling interests shareholder loan due 2026 at a fixed interest rate of 3.64 % (d) 28,006 New Zealand Working Capital Facility due 2022 at a variable interest rate of 2.1 % at March 31, 2022 2,087 Total principal debt 1,254,098 Less: Unamortized discounts ( 3,346 ) Less: Current maturities of long-term debt ( 2,087 ) Less: Deferred financing costs ( 4,992 ) Total long-term debt $ 1,243,673 (a) As of March 31, 2022, 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 3.0 % after consideration of interest rate swaps and estimated patronage refunds. (b) As of March 31, 2022, 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. (c) As of March 31, 2022, the periodic interest rate on the 2021 incremental term loan (the “2021 Incremental Term Loan Facility”) was LIBOR plus 1.550 %. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately 1.5 % after consideration of interest rate swaps and estimated patronage refunds. (d) Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of the shareholder loans since inception. Principal payments due during the next five years and thereafter are as follows: Total 2022 $ 2,087 2023 — 2024 — 2025 24,005 2026 228,006 Thereafter 1,000,000 Total Debt $ 1,254,098 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) 2022 DEBT ACTIVITY U.S. Debt On January 3, 2022, we drew $ 200.0 million on our Revolving Credit Facility. On January 4, 2022, we repaid the $ 325.0 million Senior Notes due 2022 with $ 125.0 million of cash and the $ 200.0 million previously drawn on the Revolving Credit Facility. We then made a $ 200.0 million draw on our 2021 Incremental Term Loan Facility and simultaneously repaid the outstanding principal on our Revolving Credit Facility. The periodic interest rate on the 2021 Incremental Term Loan agreement is subject to a pricing grid based on our leverage ratio, as defined in the credit agreement. As of March 31, 2022, the periodic interest rate on the 2021 Incremental Term Loan is LIBOR plus 1.55 %. Monthly payments of interest only are due on this loan through maturity. On February 1, 2022, our $ 200.0 million notional forward-starting interest rate swap matured into an active interest rate swap. This interest rate swap will fix the cost of the 2021 Incremental Term Loan Facility over its seven-year term. We estimate the effective interest rate on the 2021 Incremental Term Loan Facility to be approximately 1.5 % after consideration of interest rate swaps and estimated patronage refunds. At March 31, 2022, we had available borrowings of $ 299.1 million under the Revolving Credit Facility, net of $ 0.9 million to secure our outstanding letters of credit. New Zealand Debt During the three months ended March 31, 2022, the New Zealand subsidiary made $ 2.1 million of borrowings, net of repayments and changes in exchange rates, on its working capital facility (the “New Zealand Working Capital Facility”). At March 31, 2022, the New Zealand subsidiary had NZ$ 17.0 million of available borrowings under its working capital facility. Subsequent Event In April 2022, the New Zealand subsidiary recorded a noncontrolling interest share redemption and loan payable in the amount of $ 27.9 million. The shareholder loan is due in 2027 at a fixed rate of 6.48 %. See Note 1 — Basis of Presentation for more information regarding subsequent events related to the New Zealand subsidiary. DEBT COVENANTS 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 March 31, 2022, 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 13.6 to 1 11.1 Covenant debt to covenant net worth plus covenant debt shall not exceed 65 % 40 % 25 % In addition to these financial covenants listed above, 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 March 31, 2022, we were in compliance with all applicable covenants. 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) 7. 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 March 31, 2022, foreign currency exchange contracts and foreign currency option contracts had maturity dates through February 2024 and December 2023, respectively. Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments qualify for cash flow hedge accounting. We may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive 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. 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) 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 The following table contains information on the outstanding interest rate swaps as of March 31, 2022: 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 % May 2021 (c)(d) 7 years 200,000 2021 Incremental Term Loan Facility 0.77 % 1.55 % 2.32 % (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. (c) On February 1, 2022, our $ 200.0 million notional forward-starting interest rate swap matured into an active interest rate swap. See Note 6 - De bt for additional information. (d) The $ 200.0 million notional interest rate swap 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. FORWARD-STARTING INTEREST RATE SWAPS The following table contains information on the outstanding forward-starting interest rate swaps as of March 31, 2022: Outstanding Forward-Starting Interest Rate Swaps (a) Date Entered Into Term Notional Amount Fixed Rate of Swap Related Debt Facility Forward Date Maximum Period Ending for Forecasted Issuance Date April 2020 4 years $ 100,000 0.88 % Term Credit Agreement August 2024 N/A May 2020 4 years 50,000 0.74 % Term Credit Agreement August 2024 N/A (a) All forward-starting interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting. 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) The following tables demonstrate the impact, gross of tax, of our derivatives on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2022 and 2021: Three Months Ended March 31, Income Statement Location 2022 2021 Derivatives designated as cash flow hedges: Foreign currency exchange contracts Other comprehensive (loss) income $ 3,514 ($ 2,852 ) Foreign currency option contracts Other comprehensive (loss) income 136 ( 929 ) Interest rate products Other comprehensive (loss) income 35,129 59,731 Interest expense 2,670 3,994 Three Months Ended March 31, During the next 12 months, the amount of the March 31, 2022 AOCI balance, net of tax, expected to be reclassified into earnings is a gain of approximately $ 0.3 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 $ 246 Interest rate products 56 Total estimated gain on derivatives contracts $ 302 The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets: Notional Amount March 31, 2022 December 31, 2021 Derivatives designated as cash flow hedges: Foreign currency exchange contracts $ 149,500 $ 149,250 Foreign currency option contracts 14,000 14,000 Interest rate swaps 750,000 550,000 Forward-starting interest rate swaps 150,000 350,000 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) The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets at March 31, 2022 and December 31, 2021. Changes in balances of derivative financial instruments are recorded as operating activities in the Consolidated Statements of Cash Flows: Location on Balance Sheet Fair Value Assets / (Liabilities) (a) March 31, 2022 December 31, 2021 Derivatives designated as cash flow hedges: Foreign currency exchange contracts Other current assets $ 712 $ 721 Other assets 1,241 86 Other current liabilities ( 369 ) ( 2,061 ) Other non-current liabilities ( 18 ) ( 694 ) Foreign currency option contracts Other assets 318 228 Other non-current liabilities ( 224 ) ( 270 ) Interest rate swaps Other assets 26,912 — Interest rate swaps Other non-current liabilities — ( 15,582 ) Forward-starting interest rate swaps Other assets 6,699 11,482 Total derivative contracts: Other current assets $ 712 $ 721 Other assets 35,170 11,796 Total derivative assets $ 35,882 $ 12,517 Other current liabilities ( 369 ) ( 2,061 ) Other non-current liabilities ( 242 ) ( 16,546 ) Total derivative liabilities ($ 611 ) ($ 18,607 ) (a) See Note 8 — 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. 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) 8. 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 March 31, 2022 and December 31, 2021, using market information and what we believe to be appropriate valuation methodologies under GAAP: March 31, 2022 December 31, 2021 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 $ 256,537 $ 256,537 — $ 358,680 $ 358,680 — Cash and cash equivalents, Timber Funds 3,185 3,185 — 3,493 3,493 — Restricted cash, Timber Funds (b) 5,464 5,464 — 6,341 6,341 — Restricted cash, excluding Timber Funds (c) 625 625 — 625 625 — Current maturities of long-term debt (d) ( 2,087 ) — ( 2,087 ) ( 124,965 ) — ( 125,288 ) Long-term debt (d) ( 1,243,673 ) — ( 1,209,595 ) ( 1,242,819 ) — ( 1,245,148 ) Interest rate swaps (e) 26,912 — 26,912 ( 15,582 ) — ( 15,582 ) Forward-starting interest rate swaps (e) 6,699 — 6,699 11,482 — 11,482 Foreign currency exchange contracts (e) 1,566 — 1,566 ( 1,948 ) — ( 1,948 ) Foreign currency option contracts (e) 94 — 94 ( 42 ) — ( 42 ) Noncontrolling interests in the operating partnership (f) 136,239 136,239 — 133,823 133,823 — (a) We did not have Level 3 assets or liabilities at March 31, 2022 and December 31, 2021. (b) Restricted cash, Timber Funds represents the portion of proceeds from Fund II Timberland Dispositions required to be distributed to noncontrolling interests. See Note 19 — Restricted Cash for additional information. (c) Restricted cash, excluding Timber Funds represents cash held in escrow. See Note 19 — Restricted Cash for additional information. (d) The carrying amount of long-term debt is presented net of deferred financing costs and unamortized discounts on non-revolving debt. See Note 6 — Debt for additional information. (e) See Note 7 — 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 nor liability and is classified as temporary equity in the Company’s Consolidated Balance Sheets. This relates to the ownership of Rayonier, L.P. units by various individuals and entities other than the Company. See Note 4 — Noncontrolling Interests for additional information. 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. 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) 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. 9. COMMITMENTS At March 31, 2022, the future minimum payments under non-cancellable commitments were as follows: Environmental Remediation (a) Development Projects (b) Commitments (c) Total Remaining 2022 $ 740 $ 17,803 $ 9,002 $ 27,545 2023 3,873 3,239 11,174 18,286 2024 3,840 267 8,233 12,340 2025 1,036 267 4,494 5,797 2026 460 267 2,558 3,285 Thereafter 1,374 3,944 3,306 8,624 $ 11,323 $ 25,787 $ 38,767 $ 75,877 (a) Environmental remediation represents our estimate of potential liability associated with environmental contamination and Natural Resource Damages (NRD) in Port Gamble, Washington. See Note 11 - Environmental and Natural Resource Damage Liabilities for additional information. (b) Primarily consisting of payments expected to be made on our Wildlight and Heartwood 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. 10. 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. 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) 11. 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. Changes in environmental and NRD liabilities from December 31, 2021 to March 31, 2022 are shown below: Port Gamble, WA Non-current portion at December 31, 2021 $ 10,110 Plus: Current portion 695 Total Balance at December 31, 2021 10,805 Expenditures charged to liabilities ( 136 ) Increase to liabilities 654 Total Balance at March 31, 2022 11,323 Less: Current portion ( 774 ) Non-current portion at March 31, 2022 $ 10,549 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 9 - Commitments . 12. GUARANTEES We provide financial guarantees as required by creditors, insurance programs, and various governmental agencies. As of March 31, 2022, the following financial guarantees were outstanding: Financial Commitments (a) Maximum Potential Payment Standby letters of credit $ 885 Surety bonds (b) 23,920 Total financial commitments $ 24,805 (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 2022, 2023, 2024 and 2025 and are expected to be renewed as required. 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) 13. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS We routinely 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, 2021 to March 31, 2022 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, 2021 $ 87,910 $ 18,968 $ 106,878 Plus: Current portion (a) 718 24,022 24,740 Total Balance at December 31, 2021 88,628 42,990 131,618 Non-cash cost of land and improved development ( 378 ) ( 2,308 ) ( 2,686 ) Amortization of parcel real estate development investments — ( 1,964 ) ( 1,964 ) Timber depletion from harvesting activities and basis of timber sold in real estate sales ( 445 ) — ( 445 ) Capitalized real estate development investments (b) — 4,435 4,435 Capital expenditures (silviculture) 139 — 139 Intersegment transfers 3,977 — 3,977 Total Balance at March 31, 2022 91,921 43,153 135,074 Less: Current portion (a) ( 415 ) ( 23,214 ) ( 23,629 ) Non-current portion at March 31, 2022 $ 91,506 $ 19,939 $ 111,445 (a) The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 14 — Inventory for additional information. (b) Capitalized real estate development investments include $ 0.2 million of capitalized interest and $ 1.3 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. 14. INVENTORY As of March 31, 2022 and December 31, 2021, our inventory consisted entirely of finished goods, as follows: March 31, 2022 December 31, 2021 Finished goods inventory Real estate inventory (a) $ 23,629 $ 24,740 Log inventory 9,661 3,783 Total inventory $ 33,290 $ 28,523 (a) Represents the cost of HBU real estate (including capitalized development investments) under contract to be sold. See Note 13 — Higher And Better Use Timberlands and Real Estate Development Investments for additional information. 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) 15. OTHER OPERATING (EXPENSE) INCOME, NET Other operating (expense) income, net consisted of the following: Three Months Ended March 31, 2022 2021 (Loss) gain on foreign currency remeasurement, net of cash flow hedges ($ 571 ) $ 2,429 Gain on sale or disposal of property and equipment 25 90 Log trading marketing fees — 6 Equity (loss) income related to Bainbridge Landing LLC joint venture ( 227 ) 19 Miscellaneous expense, net ( 211 ) ( 96 ) Total ($ 984 ) $ 2,448 16. 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 plans. We closed enrollment in the pension plans to salaried employees hired after December 31, 2005. Effective December 31, 2016, we froze benefits for all employees participating in the pension plan. In lieu of the pension plan, we provide those employees with an enhanced 401(k) plan match similar to what is currently provided to employees hired after December 31, 2005. Employee benefit plan liabilities are calculated using actuarial estimates and management assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes in assumptions, as well as changes in actual experience, could cause the estimates to change. We are not required to make mandatory 2022 pension contributions due to our plan’s improved funding status and have made no pension contribution payments during the three months ended March 31, 2022. 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 March 31, Three Months Ended March 31, 2022 2021 2022 2021 Service cost Selling and general expenses — — $ 2 $ 2 Interest cost Interest and other miscellaneous expense, net 609 557 13 11 Expected return on plan assets (a) Interest and other miscellaneous expense, net ( 872 ) ( 936 ) — — Amortization of losses Interest and other miscellaneous expense, net 184 288 4 5 Net periodic benefit (credit) cost ($ 79 ) ($ 91 ) $ 19 $ 18 Components of Net Periodic Benefit (Credit) Cost Income Statement Location Pension Postretirement (a) The weighted-average expected long-term rate of return on plan assets used in computing 2022 net periodic benefit cost for pension benefit s i s 5.0 %. 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) 17. 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 March 31, 2022, Rayonier owns a 97.8 % interest in the Operating Partnership and conducts substantially all of its timberland operations through the Operating Partnership. The taxable income or loss generated by the Operating Partnership is passed through and reported to its 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 March 31, 2022 2021 Income tax expense ($ 5,515 ) ($ 3,421 ) ANNUAL EFFECTIVE TAX RATE The Company’s 2022 effective tax rate after discrete items is below the 21.0% U.S. statutory rate due to tax benefits associated with being a REIT. The following table contains the Company’s annualized effective tax rate after discrete items: Three Months Ended March 31, 2022 2021 Annualized effective tax rate after discrete items 10.5 % 11.6 % 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) 18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes in AOCI by component for the three months ended March 31, 2022 and the year ended December 31, 2021. 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, 2020 $ 22,702 $ 1,321 ($ 71,056 ) ($ 24,312 ) ($ 71,345 ) ( 2,540 ) ($ 73,885 ) Other comprehensive income (loss) before reclassifications ( 18,487 ) — 44,899 (a) 11,302 37,714 ( 1,080 ) 36,634 Amounts reclassified from accumulated other comprehensive income (loss) — — 16,994 1,174 (b) 18,168 ( 521 ) 17,647 Net other comprehensive income (loss) ( 18,487 ) — 61,893 12,476 55,882 ( 1,601 ) 54,281 Balance as of December 31, 2021 $ 4,215 $ 1,321 ($ 9,163 ) ($ 11,836 ) ($ 15,463 ) ($ 4,141 ) ($ 19,604 ) Other comprehensive (loss) income before reclassifications 5,668 — 37,147 (a) — 42,815 ( 954 ) 41,861 Amounts reclassified from accumulated other comprehensive income (loss) — — 2,675 188 (b) 2,863 853 3,716 Net other comprehensive income (loss) 5,668 — 39,822 188 45,678 ( 101 ) 45,577 Balance as of March 31, 2022 $ 9,883 $ 1,321 $ 30,659 ($ 11,648 ) $ 30,215 ($ 4,242 ) $ 25,973 (a) The year ended December 31, 2021 and the three months ended March 31, 2022 include $ 52.5 million and $ 35.1 million, respectively, of other comprehensive income related to interest rate products. See Note 7 — Derivative Financial Instruments and Hedging Activities for additional information. (b) This component of other comprehensive income (loss) is included in the computation of net periodic pension and post-retirement costs. See Note 16 — Employee Benefit Plans for additional information. 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) The following table presents details of the amounts reclassified in their entirety from AOCI to net income for the three months ended March 31, 2022 and March 31, 2021: Details about accumulated other comprehensive income (loss) components Amount reclassified from accumulated other comprehensive income (loss) Affected line item in the income statement March 31, 2022 March 31, 2021 Realized loss on foreign currency exchange contracts $ 9 $ 1,205 Other operating (expense) income, net Realized loss on foreign currency option contracts — 594 Other operating (expense) income, net Noncontrolling interests ( 2 ) ( 414 ) Comprehensive income attributable to noncontrolling interests Realized loss on interest rate contracts 2,670 3,994 Interest expense Income tax effect from net loss on foreign currency contracts ( 2 ) ( 388 ) Income tax expense Net loss on cash flow hedges reclassified from accumulated other comprehensive income $ 2,675 $ 4,991 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) 19. 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 Heartwood 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 three months ended March 31, 2022 and 2021: Three Months Ended March 31, 2022 2021 Cash and cash equivalents $ 259,722 $ 82,620 Restricted cash, Timber Funds 5,464 — 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 $ 265,811 $ 83,095 20. 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 March 31, 2022 and December 31, 2021, the basis in properties meeting this classification was $ 2.5 million and $ 5.1 million, respectively. Since the basis in these properties was less than the fair value, including costs to sell, no impairment was recognized. 21. 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 for the sale of 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 months ended: Three Months Ended March 31, Related Party Transaction Location on Statement of Income and Comprehensive Income 2022 2021 Mattamy Contract Sales (a) $ 174 $ 42 (a) The three months ended March 31, 2021 exclude approximately $ 0.1 million of cash received from Mattamy Jacksonville LLC under this agreement for the reimbursement of local impact fees. 32 Table of Contents