Rayonier
Annual Report 2018

Plain-text annual report

TM 2018 ANNUAL REPORT 2.6 MILLION ACRES $3.6B MARKET CAP AS OF 12/31/2018 100% CERTIFIED www.sfiprogram.org SFI-00023 www.fsc.org FSC® A000522 350 >> EMPLOYEES At Rayonier, our people are the foundation of our success. Our culture is centered on empowering individuals to work effectively as a team across functional and regional boundaries to achieve our mission. $1.6B ACQUISITIONS SINCE 2011 VALUE-ADDED REAL ESTATE & LAND RESOURCES PLATFORM SUSTAINABLE YIELD OF ~10,000,000 TONS ANNUALLY $338MM ADJ. EBITDA (2018) FINANCIAL HIGHLIGHTS (Dollars in millions) SALES & EARNINGS Sales Pro Forma Sales(a) Operating Income Pro Forma Operating Income(a) Net Income Net Income attributable to Rayonier Inc. Pro Forma Net Income(a) ADJUSTED EBITDA BY SEGMENT (b) Southern Timber Pacific Northwest Timber New Zealand Timber* Real Estate* Trading (–) Corporate/Other Total Adjusted EBITDA CASH FLOW Cash provided by Operating Activities Cash Available for Distribution(b) DEBT & DEBT RATIOS Debt(c) Cash Net Debt Net Debt to Enterprise Value(d) 1926 2018 92 YEARS 2018 2017 2016 $ 816.1 816.1 170.1 170.1 117.3 102.2 102.2 $ 102.8 40.9 90.8 123.4 1.0 (21.1) $ 337.7 $ 310.1 240.1 $ 975.0 148.4 826.6 $ 819.6 724.2 215.5 149.2 161.5 148.8 82.5 $ 91.6 33.1 85.1 95.5 4.6 (19.4) $ 815.9 608.6 255.8 112.9 217.8 212.0 69.1 $ 92.9 21.2 56.5 86.6 2.0 (19.4) $ 290.5 $ 239.7 $ 256.3 188.7 $ 203.8 144.3 $1,028.4 112.7 915.7 $1,065.5 85.9 979.6 19% 18% 23% (a) These non-GAAP measures are defined and reconciled on page 11. (b) Adjusted EBITDA and Cash Available for Distribution (CAD) are non-GAAP measures defined and reconciled on pages 29 and 46, respectively, within this Annual Report on Form 10-K. (c) Total debt as of December 31, 2018, 2017 and 2016 is presented gross of deferred financing costs of $2.4 million, $3.0 million and $3.6 million, respectively. (d) Enterprise Value based on equity market capitalization plus net debt at year end. * During 2018, management changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments. ADJUSTED EBITDA(b) (Dollars in millions) TOTAL HARVEST (Tons in millions) CAD(b) (Dollars in millions) $350 280 210 140 70 – 10 8 6 4 2 $250 200 150 100 50 – ’16 ’17 ’18 ’16 ’17 ’18 ’16 ’17 ’18 2018 ANNUAL REPORT // PG 03 / DEAR FELLOW SHAREHOLDERS: I am inspired by the teamwork and collaboration I see every day at Rayonier. Our team is working together across geographic, functional, and business line boundaries to solve problems and improve performance to ultimately fulfill our mission of generating industry-leading financial returns for our shareholders while serving as a responsible steward of our lands. Our team has continued to build upon the numerous strategic initiatives that we’ve undertaken over the past few years in an effort to grow our cash flow and sustainable yield, improve the quality of our timberland portfolio through active portfolio management, and extract superior value from higher-and- better-use (HBU) land sales. We have achieved this while working diligently to improve work processes, realize greater efficiencies, and push decision-making down deeper into the organization. I am pleased to report to you that in 2018, all this hard work translated into record post- spin-off full-year Adjusted EBITDA of $338 million. Notably, each of our four major operating segments also generated record post-spin-off full-year Adjusted EBITDA. These results are a testament to the quality and diversity of our portfolio, the strength of the markets in which we operate, and most importantly, the dedication of our people. I am very proud of our team for this accom- plishment, particularly given the challenges we faced this past year. In 2018, we experienced extraordinary volatility in lumber markets, which translated into corresponding volatility in log pricing in some of our markets. In addition, the China trade dispute and the resulting DAVID L. NUNES President and Chief Executive Officer tariffs on log exports out of the U.S. greatly constrained export log flows and put further pressure on export and domestic log prices. At a macro level, rising interest rates and tight labor markets also had a disruptive effect on various parts of our business. Lastly, we had to contend with the market impacts of two major hurricanes in the U.S. South. Our team did an outstanding job overcoming and responding to these market headwinds. We pride ourselves on being nimble, and our team certainly demonstrated this during 2018. For example, we accelerated planned harvest in the Pacific Northwest into the first half of the year as we saw extraordinarily strong pricing. Conversely, we decided in the fourth quarter to defer a combined 250,000 tons of harvest in the U.S. South and Pacific Northwest into 2019 as we saw markets conditions deteri- orate amid the aftermath of Hurricane Michael and the uncertainty associated with the China trade dispute. Lastly, we capitalized on a number of attractive HBU land sale opportunities at very strong pricing. Our ability to adapt to changing market conditions during the course of the year ultimately contributed to our strong full-year financial results. 2018 in Review Full-year 2018 net income attributable to Rayonier was $102 million, or $0.79 per share, compared to $149 million, or $1.16 per share, in 2017. The full-year results for 2017 included $67 million from Large Dispositions and $1 million of costs related to shareholder litigation. Excluding these items, pro forma net income for full-year 2017 was $83 million, or $0.65 per share. 2018 ANNUAL REPORT // PG 05 / Our total Adjusted EBITDA was $338 million in 2018, which was 16% higher than the prior year total of $291 million, after adjusting for the impact from Large Dispositions in 2017. Full-year cash available for distribution (CAD) increased to $240 million in 2018, representing a 27% increase over the $189 million of CAD we generated in 2017. Culture—The Key to Our Success Rayonier strives to be the preferred employer in the forestry industry. In order to achieve this goal, we must foster a culture that provides all of our employees with a sense of purpose and professional enrichment. While Rayonier is best known for its strong and diverse asset base, comprising 2.6 million acres in the U.S. and New Zealand, we know that our land and trees alone cannot deliver strong financial results and investor returns. It is our people, working within a strong and supportive culture along with an aligned measurement system, who really make the difference in terms of our performance. In my nearly five years with Rayonier, I have grown to appreciate the power of our culture more and more each year. Just as our forest- ers work to nurture the trees in our forests, the leadership team at Rayonier works hard to nurture our people and our culture. We are inspired by the passion of our people and the pride they have in making Rayonier better each year. Our culture, which we have dubbed ” OO One Rayonier” to reinforce the need to work together to solve problems and improve per- formance, is centered on empowering our people to do the right thing and make sound decisions that will ultimately build long-term value per share. Given the long-term nature of our business, our foresters often will not be around to see the seedlings they’ve planted reach ultimate harvest age. However, their dedication to practicing sound forest management princi- ples and bringing a long-term stewardship mindset to their work assures that our forests will be managed sustainably for generations to come. We view our culture as nurturing our people just as our foresters nurture a young stand of trees. We strive to create a sense of ownership that fosters best-in-class PG 06 // RAYONIER INC. work and reinforces the long-term aspect of our business. ” t We recognize that we’re in a commodity business and that all our competitors have access to similar technologies, systems, and talent. Thus, for Rayonier to succeed in generating industry-leading financial returns, we have to do a lot of little things a little bit better than our competitors, over and over again, year after year. Internally, we describe this operational philosophy as clipping basis points” of return, and we try to foster a mindset across the orga- nization that each and every employee has the ability to make a meaningful contribution to this objective. Ultimately, we want to create an environment where employees feel empow- ered to act like owners, working together to maximize the long-term value of our assets by continuously streamlining decision-making, improving efficiencies, and lowering costs. For our culture to be effective, however, we must also have an aligned measurement system. To reinforce the long-term nature of our business, we designed an incentive system that puts greater emphasis on long-term value creation and correspondingly de-emphasizes short-term results. This measurement system is complemented by an ownership ethic through- out our organization and further reinforced by high share ownership requirements for Rayonier’s officers. I firmly believe that our culture will play a pivotal role in our long-term success and our ability to achieve sustainable financial outperformance. I further believe that our culture will allow us to continue to attract and retain the talented and dedicated professionals we need to lead the company forward in an increasingly dynamic and competitive marketplace. I invite readers to learn more about our culture, our people and our brand by visiting our newly revamped website (www.rayonier.com). Portfolio Construction as a Key Differentiator Rayonier strives to have best-in-class assets and operations. In order to achieve this goal, we must continuously focus on active portfolio management. We take great pride in our tim- berland portfolio encompassing some of the most productive softwood timber growing regions and most tensioned log markets in the U.S. South, U.S. Pacific Northwest and New Zealand. But we also have a mindset that we should never be complacent nor satisfied with our portfolio. We are always looking to improve the construction of our portfolio, either through addition or subtraction. To this end, we strive to gain a competitive advantage in portfolio management with superior market intelligence—that is, by better understanding log market dynamics, soil productivity characteristics, and long-term HBU opportunities. We also feel that we have more flexibility as a pure-play timber REIT because we do not have to incorporate internal consumption of our logs into portfolio management decisions. The diversity of our portfolio, from the per- spective of both species and regional log markets, is an area on which we focus a lot of attention, and this diversity has been a key factor in our strong performance over the past few years. In the U.S. South, we enjoy tensioned log markets in certain sub-regions driven by strong underlying pulpwood demand, growing sawlog consumption, and a burgeoning log export market. In the U.S. Pacific Northwest, we enjoy both species and regional diversification with western hemlock and Douglas-fir flowing into domestic markets in Washington and Oregon as well as export markets in the Pacific Rim. Lastly, we have unique market exposure within the timber REIT sector to New Zealand, where we grow primarily radiata pine for markets in New Zealand, China, South Korea, and India. Our log market diversification is complemented by also having strong non-timber forest products markets as well as HBU land sales markets to augment our core timber harvesting returns. Our diverse footprint comprised of highly productive timberlands in strong markets also positions us well for future market uncer- tainty. Following the Global Financial Crisis, we saw a considerable build in merchantable timber inventory across parts of the U.S. South. This build in inventory was quite differ- ential and therefore resulted in differential log price elasticity across various regional sub-markets as housing starts and sawlog demand recovered. This, in turn, resulted in highly differential log pricing across the U.S. South (as measured using a composite stumpage mix of 50% pulpwood, 30% chip-n- saw, and 20% sawlogs). For example, in 2018, the strongest market in the U.S. South reported an average composite stumpage price that was roughly double the average composite stumpage price reported in the weakest market (based on Timber Mart-South data). We believe that this stumpage price differential will persist for an extended period of time, particularly given the lack of pulpwood outlets and new sawmill capacity in some of the markets that have seen the greatest build in merchantable timber inventory. Fortunately, Rayonier is very well-positioned relative to our peers, as 59% of our U.S. South footprint is in the top three markets, as measured by composite stumpage prices. Operating commercial timberland properties requires a very long-term perspective. That said, we can’t possibly know with certainty what future market conditions will look like 25+ years from now as we’re planting seedlings today. In order to mitigate against this natural market uncertainty, we aim to diversify our portfolio from a number of perspectives, including geography, topography, species, log mix, age-class, and anticipated downstream log markets. It’s rather easy to prepare for and capitalize on strong markets, as all participants benefit to some degree. However, preparing for the longer-term market uncertainty inherent in the 25- to 50-year growth and planning cycle of timberland investments requires signifi- cantly more effort and a thoughtful approach to portfolio diversification. Today, Rayonier maintains a large-scale, diverse portfolio of lands growing multiple species for various global markets. In this sense, we feel very well-positioned and well-prepared for a dynamic, albeit uncertain, future. Nimble Capital Allocation Rayonier strives to be the preferred timberland investment vehicle for institutional investors. In order to achieve this goal, we must demonstrate to the investment community our ability to build long-term value per share through effective capital allocation. Over the past nearly five years, we’ve stressed the importance of remaining nimble with respect to our capital allocation alternatives. We’ve invested in our business in the form of 2018 ANNUAL REPORT // PG 07 committing capital to our market-driven pre- cision silviculture strategy, where we are matching the right capital to specific soil and market conditions to optimize our return on investment. We’ve invested nearly $900 mil- lion in new timberland acquisitions since 2014, with an eye towards improving the quality of our timberland portfolio. We’ve both bought back our stock on the open mar- ket in 2015 and issued equity associated with a major acquisition in 2017. We increased our quarterly dividend by 8% in the second quar- ter of 2018 after getting comfortable with our ability to fully fund the dividend in both good times and bad. Lastly, we’ve managed our bal- ance sheet by bringing down our ratio of net debt to Adjusted EBITDA to 2.4x at year-end 2018, fixed essentially all of our long-term debt at a weighted average interest rate of 3.3%, and extended the weighted average maturity of our long-term debt. Our balance sheet is strong, and we therefore enjoy considerable flexibility to grow our port- folio. Based on our stated intent to remain an investment grade credit, we believe we have up to $500 million of potential additional debt capacity at our disposal. In addition, we have the ability to issue equity if we see a compelling opportunity to do so. Lastly, as we did in 2016 and 2017, we also have the flexibility to fund an acquisition with a Large Disposition if we believe it will lead to a net improvement in our overall portfolio. However, while we have multiple levers available to facilitate growth, we also believe it’s extremely important to be judicious about what opportunities we pursue. We are very mindful of the competitive nature of the tim- berland acquisition environment and the perils of overpaying for assets. Our mission is to gen- erate industry-leading financial returns for our shareholders, not to grow for growth’s sake. When assessing the timberland acquisition environment, we continuously compare the valuation metrics of prospective acquisition targets versus an internal view of our own net asset value (NAV) to gauge the relative attractiveness of acquiring timberlands versus buying back our own shares. Across a number of recent transactions, we’ve observed that the market for timberlands, especially for larger properties brought to market via public auction, has been pretty fully valued. As such, we had a relatively quiet year with respect to acquisitions in 2018 and shifted our focus to smaller, bolt-on opportunities that we believed had greater potential for long-term NAV accre- tion. Discipline is a core tenet of our portfolio management strategy, and we remain focused on finding the right opportunities to build value per share through active portfolio management. Differentiated Real Estate Strategy For years, the timber REIT sector has sold timberland—often at timberland values—to generate capital for either asset repositioning or dividend funding. Unfortunately, this return of capital has sometimes been misconstrued as return on capital. Shortly after our new leadership team was in place in 2014, we unveiled a new Real Estate strategy for Rayonier that de-emphasized the sale of timberland at timberland values to fund the dividend. As part of this effort, we lowered the dividend in 2014 and set about funding it through recurring cash flows from timberland operations and real estate sales that focused on generating a meaningful premium to tim- berland values. Further, in order to preserve the option to periodically sell timberland for capital allocation purposes without distorting our financial results, we introduced a new cat- egory of real estate sales, Large Dispositions, for which we exclude the associated financial contribution from our Adjusted EBITDA and pro forma financial results. We’ve completed a few such sales in the past three years, primarily to fund new acquisitions that we believed had more favorable prospects for long-term NAV growth. Our focus is now squarely on generating HBU land sale premiums relative to underlying timberland values. We focus primarily on sales of rural HBU properties in the U.S. South, but also augment this business with sales of small, non-strategic parcels that don’t fit well within our portfolio, core timberland properties where we can achieve a meaning- ful premium to our hold value, unimproved development properties where we have made limited investments in obtaining entitlements, and improved development properties where we have made more significant investments 2018 ANNUAL REPORT // PG 09 effort to redefine our financial reporting and investor relations disclosures to both match the way in which we think about our business and to improve the transparency of our results. As we enter 2019, our intent is to take a similar approach to ESG disclosure by developing a reporting framework that is informative, transparent, and most importantly, sincere. Well-Positioned to Achieve Our Vision Our long-term vision has four key cornerstones. First, we want to have the best-in-class assets, operations, disclosure and transparency. Second, we want to be the preferred employer for for-rr estry and land management professionals. Third, we want to be the preferred timberland investment vehicle for institutional investors. Finally, we want to be a responsible steward of the environment and have a positive impact on the communities in which we operate. I have touched on each of these four key corner- stones in this letter with the intent of sharing our thinking on how we are progressing toward achieving Rayonier’s vision. As I look back over the past nearly five years since the spin-off of the Performance Fibers business, I am pleased with the progress we have made toward achieving our vision. Our employees are engaged, energized, and work- ing together to build long-term value per share. In addition, we’re coming off our strongest year of Adjusted EBITDA since the spin-off. Finally, with our well-diversified portfolio, we are very well-positioned for the future. I would like to thank our dedicated employees and our supportive leadership team and Board for working together to position Rayonier for future success. Lastly, I would like to thank our shareholders for your continued trust in our stewardship of your investment in Rayonier. As always, we welcome your input and feedback. David L. Nunes President and Chief Executive Officer in horizontal infrastructure to unlock HBU values, primarily within two large contiguous ownerships north of Jacksonville, Florida and south of Savannah, Georgia. We are happy with the results of this new direction and feel that it is delivering a differ- entiated real estate strategy and incremental financial returns relative to our peers. Last year, excluding the higher-valued improved development sales in our Wildlight project north of Jacksonville, we sold 33,570 acres for a weighted average value of $3,878 per acre, representing a significant premium to underly- ing timberland values. Our team is very focused on generating these HBU premiums, and we feel this approach has made a meaningful contribution toward our mission of generating industry-leading financial returns. Trend Toward Greater ESG Disclosure Rayonier strives to be a responsible steward of the environment and to have a positive impact on the communities in which we operate. We take our commitment to upholding environmental best practices and regulations, as well as being viewed as a long-term part- ner in the communities in which we operate, very seriously. Timberland investments are not portable, so when we make investments in communities—often over multiple decades— our employees set down roots, and our com- munities naturally become stakeholders in our long-term success and sustainability. In 2019, we will celebrate the 93rd anniversary of our founding. As we near the century mark as a company, we reflect on our legacy as a responsible timberland operator and community partner. For Rayonier, the pursuit of financial returns in concert with a thoughtful and responsible approach to environmental, social and gover- nance (ESG) issues is not simply a trend—it’s the way we do business and a core part of our corporate identity. Thus, we welcome the push for greater ESG disclosure and reporting by public companies. While we have not formally reported ESG statistics in the past, we are eager to tell our story of responsible corporate stewardship and sustainable management. Following the spin-off of the Performance Fibers business in 2014, we embarked on an PG 10 // RAYONIER INC. (Dollars in millions, except per share amounts) 2018 2017 2016 PRO FORMA SALES(a) Sales Large Dispositions(b) Pro Forma Sales PRO FORMA OPERATING INCOME(c) Operating Income Large Dispositions(b) Costs related to shareholder litigation(d) Gain on foreign currency derivatives(e) Pro Forma Operating Income PRO FORMA NET INCOME(f) Net Income attributable to Rayonier Inc. Costs related to shareholder litigation(d) Large Dispositions(b) Gain on foreign currency derivatives(e) $816.1 — $816.1 $170.1 — — — $170.1 $102.2 — — — $819.6 (95.4) $724.2 $215.5 (67.0) 0.7 — $149.2 $148.8 0.7 (67.0) — $ 815.9 (207.3) $ 608.6 $ 255.8 (143.9) 2.2 (1.2) $ 112.9 $ 212.0 2.2 (143.9) (1.2) Per diluted share $ 1.16 0.01 (0.52) — Per diluted share $ 1.73 0.02 (1.18) (0.01) Per diluted share $0.79 — — — Pro Forma Net Income $102.2 $0.79 $ 82.5 $ 0.65 $ 69.1 $ 0.56 (a) Pro Forma Sales is defined as revenue adjusted for Large Dispositions. Rayonier believes that this non-GAAP financial measure provides investors with useful information to evaluate our core business operations because it excludes specific items that are not indicative of ongoing operating results. (b) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. (c) Pro Forma Operating Income is defined as operating income adjusted for costs related to shareholder litigation, the gain on foreign currency derivatives and Large Dispositions. Rayonier believes that this non-GAAP financial measure provides investors with useful information to evaluate our core business operations because it excludes specific items that are not indicative of ongoing operating results. (d) Costs related to shareholder litigation is defined as expenses incurred as a result of the securities litigation, shareholder derivative demands and Rayonier’s response to an SEC subpoena. See Note 10—Contingencies of Item 8—Financial Statements and Supplementary Data and page 29 within this Annual Report on Form 10-K. (e) Gain on foreign currency derivatives is the gain resulting from the foreign exchange derivatives the Company used to mitigate the risk of fluctuations in foreign exchange rates while awaiting the capital contribution to the New Zealand subsidiary. (f) Pro Forma Net Income is defined as net income attributable to Rayonier Inc. adjusted for costs related to shareholder litigation, the gain on foreign currency derivatives and Large Dispositions. Rayonier believes that this non-GAAP financial measure provides investors with useful information to evaluate our core business operations because it excludes specific items that are not indicative of ongoing operating results. 2018 ANNUAL REPORT // PG 11 U.S. SOUTH HARVEST VOLUME (Tons in thousands) ADJUSTED EBITDA (Dollars in millions) ADJ. EBITDA/TON (Dollars per ton) » Acreage: 1.8mm acres » SuSuststaiainanablblee YiYieleld:d: 5.9–6.3mm tons » Planted//PlP antable: 67% » Average Site Index(1)xx : 73 feet 6,000 4,800 3,600 2,400 1,200 – $120 96 72 48 24 – $20 16 12 8 4 – ’16 ’17 ’18 ’16 ’17 ’18 ’16 ’17 ’18 U.S. PACIFIC NORTHWEST HARVEST VOLUME (Tons in thousands) ADJUSTED EBITDA (Dollars in millions) ADJ. EBITDA/TON (Dollars per ton) » Acreage: 378,000 acres » Sustainable Yield: 1.4mm tons » Planted/Plantable: 77% » Average Site Index(2)xx : 109 feet 1,500 1,200 900 600 300 – $50 40 30 20 10 – $35 28 21 14 7 – ’16 ’17 ’18 ’16 ’17 ’18 ’16 ’17 ’18 PG 12 // RAYONIER INC. (1) SitSite ine indexdex refl ) ) (2) Site index reflects the average height of the dominant and codominant trees at a base age of 50. rees atat a baa base ase age oge of 25f 25.. rage heiheightght of tof the dhe domin reflectsects thethe aveaverage ominantant andand codo codominaminant tnt trees We are committed to the responsible management of every acre of our working forests. NEW ZEALAND HARVEST VOLUME (Tons in thousands) ADJUSTED EBITDA* (Dollars in millions) ADJ. EBITDA/TON* (Dollars per ton) » Acreage: 408,000000000000 aaaaaaaaacrccrcrcrcrcc esesessssessse » SuSuststaiainanablblee YiYieleld:d: 2.4–2.6mm tonsn » Planted/Plantable: 71% » Average Site Index(3)xx : 94 feet 3,000 2,400 1,800 1,200 600 – $100 80 60 40 20 – $35 28 21 14 7 – ’16 ’17 ’18 ’16 ’17 ’18 ’16 ’17 ’18 REAL ESTATE ACRES SOLD(4) (Acres in thousands) ADJUSTED EBITDA(4)* (Dollars in millions) PRICE/ACRE(5)* (Dollars per acre) » Focused on Monetizing Higher- and-Better-Use Timberlands » ~200,000 Acres in I-95 Coastal Corridor » ~56,000 Acres with Land Use Entitlements » Two Active Development Projects: Wildlight and Richmond Hill 40 32 24 16 8 – $150 120 90 60 60 – $4,000 3,200 2,400 1,600 800 – ’16 ’17 ’18 ’16 ’17 ’18 ’16 ’17 ’18 ominantant andand codo reflectsects thethe aveaverage rage heiheightght of tof the dhe domin (3) SitSite ine indexdex refl ) (4) Excludes Large Dispositions. ) ) (5) Excludes Large Dispositions and Improved Development. * During 2018, management changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments. rees atat a baa base ase age oge of 20f 20.. codominaminant tnt trees 2018 ANNUAL REPORT // PG 13 TM FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 1-6780 TM Incorporated in the State of North Carolina I.R.S. Employer Identification No. 13-2607329 1 RAYONIER WAY WILDLIGHT, FL 32097 (Principal Executive Office) Telephone Number: (904) 357-9100 Securities registered pursuant to Section 12(b) of the Exchange Act, all of which are registered on the New York Stock Exchange: Common Shares Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES NO Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer Non-accelerated filer Accelerated filer Smaller reporting company Emerging growth company Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES NO The aggregate market value of the Common Shares of the registrant held by non-affiliates at the close of business on June 30, 2018 was $4,984,846,064 based on the closing sale price as reported on the New York Stock Exchange. As of February 15, 2019, there were outstanding 129,488,661 Common Shares of the registrant. Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the 2019 annual meeting of the shareholders of the registrant scheduled to be held May 16, 2019, are incorporated by reference in Part III hereof. Page 1 13 20 21 24 24 25 27 30 47 50 105 105 105 106 106 106 106 106 107 107 Item TABLE OF CONTENTS 1. 1A. 1B. 2. 3. 4. PART I Business .............................................................................................................................................. Risk Factors ........................................................................................................................................ Unresolved Staff Comments ................................................................................................................ Properties ............................................................................................................................................ Legal Proceedings ............................................................................................................................... Mine Safety Disclosures ...................................................................................................................... PART II Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities .................................................................................................................................. 6. Selected Financial Data ....................................................................................................................... 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ................ 7A. Quantitative and Qualitative Disclosures about Market Risk ............................................................... 8. Financial Statements and Supplementary Data .................................................................................. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............... 9A. Controls and Procedures ..................................................................................................................... 9B. Other Information ................................................................................................................................ 5. 9. PART III Directors, Executive Officers and Corporate Governance ................................................................... Executive Compensation ..................................................................................................................... Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................................................................................................................................................ Certain Relationships and Related Transactions, and Director Independence .................................... Principal Accounting Fees and Services .............................................................................................. PART IV Exhibits, Financial Statement Schedules ............................................................................................. Form 10-K Summary ........................................................................................................................... 10. 11. 12. 13. 14. 15. 16. i PART I When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier,” we mean Rayonier Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” or “Note” refer to the Notes to the Consolidated Financial Statements of Rayonier Inc. included in Item 8 of this Report. NOTE ABOUT FORWARD-LOOKING STATEMENTS Certain statements in this document regarding anticipated financial outcomes, including Rayonier’s earnings guidance, if any, business and market conditions, outlook, expected dividend rate, Rayonier’s business strategies, including expected harvest schedules, timberland acquisitions, sales of non-strategic timberlands, the anticipated benefits of Rayonier’s business strategies, and other similar statements relating to Rayonier’s future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “project,” “anticipate” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While management believes that these forward- looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. The risk factors contained in Item 1A — Risk Factors in this Annual Report on Form 10-K and similar discussions included in other reports that we subsequently file with the SEC, among others, could cause actual results or events to differ materially from the Company’s historical experience and those expressed in forward-looking statements made in this document. Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any subsequent disclosures the Company makes on related subjects in its subsequent reports filed with the SEC. Item 1. BUSINESS GENERAL We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the U.S. and New Zealand. The focus of our business is to invest in timberlands and to actively manage them to provide current income and attractive long-term returns to our shareholders. As of December 31, 2018, we owned, leased or managed approximately 2.6 million acres of timberlands located in the U.S. South (1.81 million acres), U.S. Pacific Northwest (378,000 acres) and New Zealand (408,000 gross acres, or 289,000 net plantable acres). In addition, we engage in the trading of logs from New Zealand and Australia to Pacific Rim markets, primarily to support our New Zealand export operations. We have an added focus to maximize the value of our land portfolio by pursuing higher and better use (“HBU”) land sales opportunities. We originated as the Rainier Pulp & Paper Company founded in Shelton, Washington in 1926. On June 27, 2014, Rayonier completed the tax-free spin-off of its Performance Fibers manufacturing business from its timberland and real estate operations, thereby becoming a “pure-play” timberland REIT. Under our REIT structure, we are generally not required to pay U.S. federal income taxes on our earnings from timber harvest operations and other REIT-qualifying activities contingent upon meeting applicable distribution, income, asset, shareholder and other tests. As of December 31, 2018 and as of the date of the filing of this Annual Report on Form 10-K, we believe the Company is in compliance with all REIT tests. See Note 9 —Income Taxes for further discussion of REIT and non-REIT qualifying operations. Our shares are publicly traded on the NYSE under the symbol RYN. We are a North Carolina corporation with executive offices located at 1 Rayonier Way, Wildlight, Florida 32097. Our telephone number is (904) 357-9100. 1 OUR COMPETITIVE STRENGTHS We believe that we distinguish ourselves from other timberland owners and managers through the following competitive strengths: • • • • • • Leading Pure-Play Timberland REIT. We are differentiated from other publicly-traded timberland REITs in that we are invested exclusively in timberlands and real estate and do not own any pulp, paper or wood products manufacturing assets. We are the largest publicly-traded “pure-play” timberland REIT, which provides our investors with a focused, large-scale timberland investment alternative without taking on the risks and volatility inherent in direct ownership of forest products manufacturing assets. Located in Premier Softwood Growing Regions with Access to Strong Markets. Our geographically diverse timberland holdings are strategically located in core softwood producing regions, including the U.S. South, U.S. Pacific Northwest and New Zealand. Our most significant timberland holdings are located in the U.S. South, in close proximity to a variety of established pulp, paper and wood products manufacturing facilities, which provide a steady source of competitive demand for both pulpwood and higher-value sawtimber products. Our Pacific Northwest and New Zealand timberlands benefit from strong domestic sawmilling markets and are located near ports to capitalize on export markets serving the Pacific Rim. Sophisticated Log Marketing Capabilities Serving Various Pacific Rim Markets. We conduct a log trading operation based in New Zealand that serves timberland owners in New Zealand and Australia, providing access to key export markets in China, South Korea and India. This operation provides us with superior market intelligence and economies of scale, both of which add value to our New Zealand timber portfolio. It also provides additional market intelligence that helps our Southern and Pacific Northwest export log marketing and contributes to the Company’s earnings and cash flows, with minimal investment. Attractive Land Portfolio with HBU Potential. We own approximately 200,000 acres of timberlands located in the vicinity of Interstate 95 primarily north of Daytona Beach, FL and south of Savannah, GA, some of which have the potential to transition to HBU over time as market conditions support increased demand. These properties provide us with select opportunities to add value to our portfolio through real estate development activities, which we believe will allow us to periodically sell parcels of such land at favorable valuations relative to timberland values through one of our taxable REIT subsidiaries. Dedicated HBU Platform with Established Track Record. We have a dedicated HBU platform led by an experienced team with an established track record of selling rural and development HBU properties across our U.S. South holdings at strong premiums to timberland values. We maintain a detailed land classification analysis of our portfolio, which allows us to identify the highest-value use of our lands and then capitalize on identified HBU opportunities through strategies uniquely tailored to maximize value, including selectively pursuing land-use entitlements and infrastructure improvements. Advantageous Structure and Capitalization. Under our REIT structure, we are generally not required to pay federal income taxes on our earnings from timber harvest operations and other REIT-qualifying activities, which allows us to optimize the value of our portfolio in a tax efficient manner. We also maintain a strong credit profile and have an investment grade debt rating. As of December 31, 2018, our net debt to enterprise value was 19%. We believe that our advantageous REIT structure and conservative capitalization provide us with a competitive cost of capital and significant financial flexibility to pursue growth initiatives. 2 OUR STRATEGY Our business strategy consists of the following key elements: • Manage our Timberlands on a Sustainable Yield Basis for Long-term Results. We generate recurring income and cash flow from the harvest and sale of timber and intend to actively manage our timberlands to maximize net present value over the long term by achieving an optimal balance among biological timber growth, generation of cash flow from harvesting activities, and responsible environmental stewardship. Our harvesting strategy is designed to produce a long-term, sustainable yield, although we may adjust harvest levels periodically in response to then-current market conditions. • • Apply Advanced Silviculture to Increase the Productivity of our Timberlands. We use our forestry expertise and disciplined financial approach to determine the appropriate silviculture programs and investments to maximize returns. This includes re-planting a significant portion of our harvested acres with improved seedlings we have developed through decades of research and cultivation. Over time, we expect these improved seedlings will result in higher volumes per acre and a higher value product mix. Increase the Size and Quality of our Timberland Holdings through Acquisitions. We intend to selectively pursue timberland acquisition opportunities that improve the average productivity of our timberland holdings and support cash flow generation from our annual harvesting activities. We expect there will be an ample supply of attractive timberlands available for sale as a result of anticipated sales from a number of Timberland Investment Management Organizations (“TIMOs”). Our acquisition strategy employs a disciplined approach with rigorous adherence to strategic and financial metrics. Generally, we expect to focus our acquisition efforts on the most commercially desirable timber-producing regions of the U.S. South, the U.S. Pacific Northwest and New Zealand, particularly on timberlands with a geographic distribution and age-class profile that are complementary to our existing timberland holdings. We acquired 26,000 acres of fee timberland in 2018, 90,000 acres in 2017 and 111,000 acres in 2016. Additionally, we acquired leases or long-term forestry rights covering approximately 4,000 acres in 2018, 19,000 acres in 2017, and 2,000 acres in 2016. • Optimize our Portfolio Value. We continuously assess potential alternative uses of our timberlands, as some of our properties may become more valuable for development, residential, recreation or other purposes. We intend to capitalize on such higher-valued uses by opportunistically monetizing HBU properties in our portfolio. While the majority of our 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 fully realize the enhanced long-term value potential of such properties. For selected development properties, we also invest in infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties. We generally expect that sales of HBU property will comprise approximately 1% to 2% of our Southern timberland holdings on an annual basis. • • Focus on Timberland Operations to Support Cash Flow Generation. As described above, we rely primarily on annual harvesting activities and ongoing sales of HBU properties to generate cash flow from our timberland holdings. However, we also periodically generate income and cash flow from the sale of non-strategic and/or non-HBU timberlands, in particular as we seek to optimize our portfolio by disposing of less desirable properties or to fund capital allocation priorities, including share repurchases, debt repayment or acquisitions. Our strategy is to limit reliance on planned sales of non-HBU timberlands to augment cash flow generation and instead rely primarily on supporting cash flow from the operation, rather than sale, of our timberlands. We believe this strategy will support the sustainability of our harvesting activities over the long term. Promote Best-in-Class Disclosure and Responsible Stewardship. We intend to be an industry leader in transparent disclosure, particularly relating to our timberland holdings, harvest schedules, inventory and age- class profiles. In addition, we are committed to responsible stewardship and environmentally and economically sustainable forestry. We believe our continued commitment to transparency and the stewardship of our assets and capital will allow us to maintain our timberlands’ productivity, more effectively attract and deploy capital and enhance our reputation as a preferred timber supplier. 3 SEGMENT INFORMATION Rayonier operates in five reportable business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. See Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 4 — Segment and Geographical Information for information on sales and operating income by reportable segment and geographic region. TIMBER The Company’s timber businesses are disaggregated into Southern Timber, Pacific Northwest Timber and New Zealand Timber segments. Sales in the Timber segments include all activities related to the harvesting of timber in addition to lease and license activities, other non-timber activities and carbon credit sales. DISCUSSION OF TIMBER INVENTORY AND SUSTAINABLE YIELD We define gross timber inventory as an estimate of all standing timber volume beyond the specified age at which we commence calculating our timber inventory for inclusion in our inventory tracking systems. The age at which we commence calculating our timber inventory is 10 years for our Southern timberlands, 20 years for our Pacific Northwest timberlands, and 20 years for our New Zealand timberlands. Our estimate of gross timber inventory is based on an inventory system that involves periodic statistical sampling and growth modeling. Periodic adjustments are made on the basis of growth estimates, harvest information, and environmental and operational restrictions. Gross timber inventory includes certain timber that we do not deem to be of a merchantable age as well as certain timber located in restricted, environmentally sensitive or economically inaccessible areas. We define merchantable timber inventory as an estimate of timber volume beyond a specified age that approximates such timber’s earliest economically harvestable age. Our estimate includes certain timber located in restricted or environmentally sensitive areas based on an estimate of lawfully recoverable volumes from such areas. The estimate does not include volumes in restricted or environmentally sensitive areas that may not be lawfully harvested or volumes located in economically inaccessible areas. The merchantable age (i.e., the age at which timber moves from pre- merchantable to merchantable) is 15 years for our Southern timberlands, with the exception of Oklahoma which is 17 years, 35 years for our Pacific Northwest timberlands, and 20 years for radiata pine and 30 years for Douglas-fir in our New Zealand timberlands. Our estimated merchantable timber inventory changes over time as timber is harvested, as pre-merchantable timber transitions to merchantable timber, as existing merchantable timber inventory grows, as we acquire and sell timberland and as we periodically update our statistical sampling and growth and yield models. We estimate our merchantable timber inventory annually for purposes of calculating per unit depletion rates. Timber inventory is generally measured and expressed in short green tons (SGT) in our Southern timberlands, in thousand board feet (MBF) or million board feet (MMBF) in our Pacific Northwest timberlands, and in cubic meters (m3) in our New Zealand timberlands. For conversion purposes, one MBF and one m3 is equal to approximately 8.0(cid:3) and 1.12 short green tons, respectively. For comparison purposes, we provide inventory estimates for our Pacific Northwest and New Zealand timberlands in MBF and cubic meters, respectively, as well as in short green tons. 4 The following table sets forth the estimated volumes of merchantable timber inventory by location in short green tons as of September 30, 2018 for the South and Pacific Northwest and as of December 31, 2018 for New Zealand: (volumes in thousands of SGT) Location South ................................................................................................................................... Pacific Northwest ................................................................................................................. New Zealand ....................................................................................................................... Merchantable Inventory (a) 65,640 6,872 16,038 88,550 % 74 8 18 100 (a) For all regions, depletion rate calculations for the upcoming year are based on estimated volumes of merchantable inventory at December 31, 2018. We define sustainable yield as the average harvest level that can be sustained into perpetuity based on our estimates of biological growth and the expected productivity resulting from our reforestation and silvicultural efforts. Our estimated sustainable yield may change over time based on changes in silvicultural techniques and resulting timber yields, changes in environmental laws and restrictions, changes in the statistical sampling and estimates of our merchantable timber inventory, acquisitions and dispositions of timberlands, the expiration or renewal of timberland leases, casualty losses, and other factors. Moreover, our harvest level in any given year may deviate from our estimated sustainable yield due to variations in the age class of our timberlands, the product mix of our harvest (i.e., pulpwood versus sawtimber), our deliberate acceleration or deferral of harvest in response to market conditions, our thinning activity (in which we periodically remove some smaller trees from a stand to enhance long-term sawtimber potential of the remaining timber), or other factors. We manage our U.S. timberlands in accordance with the requirements of the Sustainable Forestry Initiative® (“SFI”) program. The timberland holdings of the New Zealand subsidiary are certified under the Forest Stewardship Certification® (“FSC”) program. Both programs are a comprehensive system of environmental principles, objectives and performance measures that combine the perpetual growing and harvesting of trees with the protection of wildlife, plants, soil and water quality. Through application of our site-specific silvicultural expertise and financial discipline, we manage timber in a way that is designed to optimize site preparation, tree species selection, competition control, fertilization, timing of thinning and final harvest. We also have a genetic seedling improvement program to enhance the productivity and quality of our timberlands and overall forest health. In addition, non-timber income opportunities associated with our timberlands such as recreational licenses, as well as considerations for the future higher and better uses of the land, are integral parts of our site-specific management philosophy. All these activities are designed to maximize value while complying with SFI and FSC requirements. 5 SOUTHERN TIMBER As of December 31, 2018, our Southern timberlands acreage consisted of approximately 1.81 million acres (including approximately 177,000 acres of leased lands) located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee and Texas. Approximately two-thirds of this land supports intensively managed plantations of predominantly loblolly and slash pine. The other one-third of this land is too wet to support pine plantations, but supports productive natural stands primarily consisting of natural pine and a variety of hardwood species. Rotation ages typically range from 21 to 28 years for pine plantations and from 35 to 60 years for natural stands. Key consumers of our timber include pulp, paper, wood products and biomass facilities. We estimate that the gross timber inventory and merchantable timber inventory of our Southern timberlands was 84 million tons and 66 million tons, respectively, as of September 30, 2018. We estimate that the sustainable yield of our Southern timberlands, including both pine and hardwoods, is approximately 5.9 to 6.3 million tons annually. We expect that the average annual harvest volume of our Southern timberlands over the next five years (2019 to 2023) will be generally in line with our sustainable yield. For additional information, see Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield and Item 1A — Risk Factors. In 2018, we acquired approximately 26,000 acres of timberland in the Southern region. For additional information, see Note 3 — Timberland Acquisitions. The following table provides a breakdown of our Southern timberlands acreage and timber inventory by product and age class as of September 30, 2018 (inventory volumes are estimated at December 31 to calculate a depletion rate for the upcoming year): Acres (000’s) Pine Pulpwood Pine Sawtimber Hardwood Pulpwood Hardwood Sawtimber Total (volumes in thousands of SGT) Age Class Pine Plantation 0 to 4 years (a) ....................................... 5 to 9 years ............................................ 10 to 14 years ........................................ 15 to 19 years ........................................ 20 to 24 years ........................................ 25 to 29 years ........................................ 30 + years .............................................. 212 183 235 267 172 64 40 Total Pine Plantation ................................ 1,173 Natural Pine (Plantable) (b) ................... Natural Mixed Pine/Hardwood (c) ......... Forested Acres and Gross Inventory ... Plus: Non-Forested Acres (d) .................. Gross Acres ........................................... 45 531 1,749 63 1,812 — — 9,679 12,975 6,485 2,268 1,120 32,527 494 4,142 37,163 — — 1,136 4,918 6,458 3,141 2,665 18,318 1,087 6,858 26,263 — — 34 104 95 82 98 413 916 15,063 16,392 — — 1 2 3 2 3 11 280 4,063 4,354 — — 10,850 17,999 13,041 5,493 3,886 51,269 2,777 30,126 84,172 (11,147) (7,385) Less: Pre-Merchantable Age Class Inventory (e) ................................................................................................................................................................. Less: Volume in Environmentally Sensitive/Legally Restricted Areas ............................................................................................................................... Merchantable Timber Inventory ................................................................................................................................ 65,640 (a) 0 to 4 years includes clearcut acres not yet replanted. (b) Consists of natural stands that are convertible into pine plantations once harvested. (c) Consists of all non-plantable natural stands, including those that are in environmentally sensitive or economically inaccessible areas. (d) (e) Includes roads, rights of way and all other non-forested areas. Includes inventory that is less than 15 years old or less than 17 years old in Oklahoma. 6 PACIFIC NORTHWEST TIMBER As of December 31, 2018, our Pacific Northwest timberlands consisted of approximately 378,000 acres located in Oregon and Washington, of which approximately 297,000 acres were designated as productive acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. These timberlands primarily comprise second and third rotation western hemlock and Douglas-fir, as well as a small amount of other softwood species, such as western red cedar. A small percentage also consists of natural hardwood stands of predominantly red alder. In the Pacific Northwest, rotation ages typically range from 35 to 50 years. Our product mix in the Pacific Northwest is heavily weighted to sawtimber, which is sold to domestic wood products facilities as well as exported primarily to Pacific Rim markets. We estimate that the gross timber inventory and merchantable timber inventory of our Pacific Northwest timberlands was 2,826 MMBF and 860 MMBF, respectively, as of September 30, 2018. We estimate that the sustainable yield of our Pacific Northwest timberlands is approximately 175 to 180 MMBF (or 1.4 million tons) annually. We expect that the average annual harvest volume of our Pacific Northwest timberlands over the next five years (2019 to 2023) will be approximately 160 to 165 MMBF (or 1.3 million tons). For additional information, see Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield and Item 1A — Risk Factors. In 2018, we did not acquire any additional acres of timberlands in the Pacific Northwest region. For additional information, see Note 3 — Timberland Acquisitions. The following table provides a breakdown of our Pacific Northwest timberlands acreage and timber inventory by product and age class as of September 30, 2018 (inventory volumes are estimated at December 31 to calculate a depletion rate for the upcoming year): (volumes in MBF, except as noted) Acres (000’s) Softwood Pulpwood (e) Softwood Sawtimber (e) Age Class Commercial Forest 0 to 4 years (a) .................................................................. 5 to 9 years ....................................................................... 10 to 14 years ................................................................... 15 to 19 years ................................................................... 20 to 24 years ................................................................... 25 to 29 years ................................................................... 30 to 34 years ................................................................... 35 to 39 years ................................................................... 40 to 44 years ................................................................... 45 to 49 years ................................................................... 50+ years .......................................................................... Total Commercial Forest ..................................................... Non-Commercial Forest (b) .............................................. Productive Forested Acres .................................................. Restricted Forest (c) ......................................................... Total Forested Acres and Gross Inventory ..................... Plus: Non-Forested Acres (d) .............................................. Gross Acres ...................................................................... Less: Pre-Merchantable Age Class Inventory ................................................................................................... Less: Restricted Forest Inventory ..................................................................................................................... Total Merchantable Timber ............................................................................................................................ Conversion factor for MBF to SGT ................................................................................................................... .......................................................................................... Total Merchantable Timber (thousands of SGT) — — — — 51,796 288,984 615,238 337,215 144,266 57,720 180,485 1,675,704 35,921 — — — — 26,562 61,187 102,889 47,854 20,368 8,440 23,147 290,447 5,481 49 41 35 28 20 33 45 21 8 4 8 292 5 297 67 364 14 378 718,493 2,430,118 99,824 395,752 Total — — — — 78,358 350,171 718,127 385,069 164,634 66,160 203,632 1,966,151 41,402 818,317 2,825,870 (1,147,526) (818,317) 860,027 7.99 6,872 (a) 0 to 4 years includes clearcut acres not yet replanted. (b) (c) (d) (e) Includes non-commercial forests with limited productivity. Includes significant portions of riparian management zones, legally restricted forests, and environmentally sensitive areas. Includes roads, rights of way, and all other non-forested areas. Includes a minor component of hardwood in red alder and other species. 7 NEW ZEALAND TIMBER As of December 31, 2018, our New Zealand timberlands consisted of approximately 408,000 acres (including approximately 230,000 acres of leased lands), of which approximately 289,000 acres (including approximately 154,000 acres of leased lands) were designated as productive or plantation acres, meaning land that is capable of growing merchantable timber and where the harvesting of timber is not constrained by physical, environmental or regulatory restrictions. The leased acres are generally leased through long-term arrangements including Crown Forest Licenses (“CFLs”), forestry rights and other leases. Our New Zealand timberlands serve a domestic sawmilling market and also export logs to Pacific Rim markets. Our New Zealand timber operations are conducted by Matariki Forestry Group, a joint venture with Stafford Capital Partners Limited. The Company maintains a controlling financial interest of 77% in the New Zealand subsidiary and, accordingly, consolidates the New Zealand subsidiary’s balance sheet and results of operations. The minority owner’s interest in the New Zealand subsidiary and its earnings are reported as noncontrolling interest in our financial statements. Rayonier’s wholly-owned subsidiary, Rayonier New Zealand Limited (“RNZ”), serves as the manager of the New Zealand subsidiary. For additional information, see Note 7 — New Zealand Subsidiary. We estimate that the gross timber inventory and merchantable timber inventory of our New Zealand timberlands were both 14.4 million cubic meters as of December 31, 2018. We estimate that the sustainable yield of our New Zealand timberlands is approximately 2.1 to 2.3 million cubic meters (or 2.4 to 2.6 million tons) annually. We expect that the average annual harvest volume of our New Zealand timberlands over the next five years (2019 to 2023) will be at the higher end of our sustainable yield range. For additional information, see Item 1 — Business — Discussion of Timber Inventory and Sustainable Yield and Item 1A — Risk Factors. In 2018, we acquired approximately 4,000 acres of timberland in New Zealand. For additional information, see Note 3 — Timberland Acquisitions. The following table provides a breakdown of our New Zealand timberlands acreage and timber inventory by product and age class as of December 31, 2018 (inventory volumes at December 31 are used to calculate a depletion rate for the upcoming year): (volumes in thousands of m3, except as noted) Age Class Radiata Pine 0 to 4 years (a) ............................................................................ 5 to 9 years ................................................................................. 10 to 14 years .............................................................................. 15 to 19 years .............................................................................. 20 to 24 years .............................................................................. 25 to 29 years .............................................................................. 30 + years ................................................................................... Total Radiata Pine ....................................................................... Other (b) ....................................................................................... Forested Acres and Merchantable Timber Inventory ............... Conversion factor for m3 to SGT ................................................... Total Merchantable Timber (thousands of SGT) ....................... Plus: Non-Productive Acres (c) ..................................................... Gross Acres ................................................................................. (a) 0 to 4 years includes clearcut acres not yet replanted. Includes primarily Douglas-fir age 30 and over. (b) Includes natural forest and other non-planted acres. (c) Acres (000’s) Pulpwood Sawtimber Total — — — — 1,717 408 233 2,358 1,133 3,491 — — — — 7,508 1,585 575 9,668 1,195 10,863 — — — — 9,225 1,993 808 12,026 2,328 14,354 1.12 16,038 55 44 40 54 47 9 4 253 36 289 119 408 8 REAL ESTATE All of our U.S. and New Zealand land or leasehold sales, including HBU and non-HBU, are reported in our Real Estate segment. See Note 1 — Summary of Significant Accounting Policies for a discussion of the current year reclassification of New Zealand land sales from the New Zealand Timber segment to the Real Estate segment. We report our Real Estate sales in five categories: • • • • • Improved Development, Unimproved Development, Rural, Non-Strategic / Timberlands, and Large Dispositions. The Improved Development category comprises properties sold for development for which Rayonier, through a taxable REIT subsidiary, has invested in site improvements such as infrastructure, roadways, utilities, amenities and/ or other improvements designed to enhance marketability and create parcels, pads and/or lots for sale. The Unimproved Development category comprises properties sold for development for which Rayonier has obtained entitlements but not invested in site improvements. The Rural category comprises properties sold in rural markets to buyers interested in the property for rural residential or recreational use. The Non-Strategic / Timberlands category includes U.S. and New Zealand: 1) sales of non-core timberlands that do not meet our strategic criteria, 2) sales of core timberlands for which we obtain attractive values, and 3) sales of properties to conservation interests that wish to preserve the land for habitat, public recreation, natural growth, buffer zones or other environmental purposes. The Large Dispositions category includes sales of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. Proceeds from Large Dispositions are generally used to fund capital allocation priorities, such as share repurchases, debt repayment or acquisitions. Sales designated as Large Dispositions are excluded from cash flow from operations and the calculation of Adjusted EBITDA and Cash Available for Distribution (“CAD”). See Item 7 — Performance and Liquidity Indicators for the definition of Adjusted EBITDA and CAD. We maintain a detailed land classification analysis for all of our timberland and HBU acres. The vast majority of our HBU properties are managed as timberland and generate cash flow from timber operations prior to their sale or, in the case of Improved Development properties, prior to improvement. TRADING Our Trading segment reflects log trading activities in New Zealand and Australia conducted by our New Zealand subsidiary. Our Trading segment complements the New Zealand Timber segment by providing added market intelligence, increasing the scale of export operations and achieving cost savings that directly benefit the New Zealand Timber segment. It also provides additional market intelligence that benefits our Southern and Pacific Northwest export log marketing. Trading activities are broadly categorized as either managed export services or procured logs. For managed export services, the New Zealand subsidiary does not take title to the log cargo but arranges sales, shipping and export documentation services for other forest owners for an agreed commission. For procured logs, the New Zealand subsidiary buys logs directly from other forest owners at New Zealand ports and exports them in its own name. Income from this business is generated by achieving a sales margin over the purchase price of the procured logs. The New Zealand subsidiary, through the Trading segment, also purchases standing timber from time to time, whereby it manages the harvest and sale of the logs for approximately one to three years. In these instances, the cost of standing timber is capitalized as a current asset on the Consolidated Balance Sheets and recognized as non-depletion cost of sales when sold. The Trading segment generally utilizes a managed export service arrangement for logs sourced from third parties outside of New Zealand, and generally utilizes a procured log arrangement for logs sourced from third parties within New Zealand. For managed export services, Trading segment revenues reflect only the commission earned on the sale. For procured log sales, Trading segment revenues reflect the full sales price of the logs. 9 In 2018, Trading volume from both managed export services and procured log sales was approximately 1.75 million tons. Approximately 665,000 tons were sourced from outside New Zealand, primarily Australia, of which 68% were undertaken through managed export service arrangements. Approximately 887,000 tons were purchased directly from third parties in New Zealand through procured log arrangements, with 53% purchased from two key suppliers. Additionally, 71,000 tons were harvested from stumpage purchases. Approximately 71% of third-party purchases in New Zealand were purchased at spot prices, with the New Zealand subsidiary thereby assuming some price risk on subsequent resale. The remaining 29% were purchased on a fixed margin basis, with the New Zealand subsidiary thereby earning a spread on the resale price irrespective of subsequent price fluctuations. The New Zealand subsidiary generally seeks to mitigate its risk of loss on procured logs by securing export orders prior to or concurrent with its spot purchases of logs. FOREIGN SALES AND OPERATIONS Sales from non-U.S. operations occur in our Real Estate, New Zealand Timber and Trading segments and comprised approximately 52% of consolidated 2018 sales. See Note 4 — Segment and Geographical Information for additional information. COMPETITION TIMBER Timber markets in our Southern and Pacific Northwest regions are relatively fragmented with price being the principal method of competition. In New Zealand, there are four other major private timberland owners accounting for approximately 34% of New Zealand planted forests. The following table provides an overview of certain major competitors in each of our Timber segments: Segment Southern Timber (a) Competitors Weyerhaeuser Company CatchMark Timber Trust Hancock Timber Resource Group Resource Management Service Forest Investment Associates Campbell Global Pacific Northwest Timber (a) Weyerhaeuser Company Hancock Timber Resource Group Green Diamond Resource Company Campbell Global Port Blakely Tree Farms Pope Resources State of Washington Department of Natural Resources Bureau of Indian Affairs New Zealand (b) Hancock Natural Resource Group Kaingaroa Timberlands Ernslaw One OneFortyOne Plantations In addition to the competitors listed, we also compete with numerous other large and small privately held timber companies. (a) (b) The New Zealand subsidiary competes with these and other smaller New Zealand timber companies for supply into New Zealand domestic and export markets, predominantly China, South Korea and India. Logs supplied into Asian markets also compete with export supply from other regions, including Russia and North America. 10 REAL ESTATE In our Real Estate business, we compete with other owners of entitled and unentitled properties. Each property has unique attributes, but overall quantity of supply and price for residential, commercial, industrial and rural properties in the geographic areas in which we operate are the most significant competitive drivers. TRADING Our log trading operations are based out of New Zealand and performed by our New Zealand subsidiary. The New Zealand market remains very competitive with over 20 entities competing for export log supply at different ports across the country. We are one of the larger log trading companies in the region with access to multiple export ports and a range of different export markets. CUSTOMERS In 2018, no individual customer (or group of customers under common control) represented 10% or more of 2018 consolidated sales. SEASONALITY Across all our segments, results are normally not impacted significantly by seasonal changes. However, significant wet weather in areas of our Southern Timber operations can hinder access for harvesting, thereby temporarily reducing supply in the affected areas and generally strengthening prices. Conversely, extended dry weather in an area tends to suppress prices as timber is more accessible for harvesting. ENVIRONMENTAL MATTERS See Item 1A — Risk Factors. RESEARCH AND DEVELOPMENT The research and development activities of our timber operations include genetic seedling improvement, growth and yield modeling, and applied silvicultural programs to identify management practices that will improve financial returns from our timberlands. We also contribute to research cooperatives that undertake forestry research and development. EXECUTIVE OFFICERS David L. Nunes, 57, Mr. Nunes joined the Company in June 2014 as Chief Operating Officer, and shortly thereafter assumed the role of President and CEO following the Company’s spin-off of its Performance Fibers business. Prior to joining the Company, Mr. Nunes served as President and CEO of Pope Resources/Olympic Resource Management from 2002 to 2014. He joined Pope in 1997 as director of portfolio management, working with third-party investors and timberland owners to develop and manage timberland investment portfolios. The following year, he was named Vice President of portfolio development, and then served two years as Senior Vice President of acquisitions and portfolio development before being named President and COO in 2000. Previously, Mr. Nunes spent nine years with the Weyerhaeuser Company, joining the organization in 1988 as a business analyst and advancing through a number of leadership roles to become director of corporate strategic planning. During his time with Weyerhaeuser, he gained extensive experience involving export log sales and marketing, timberland acquisitions, mergers and acquisitions, and capital planning. Mr. Nunes holds a Bachelors of Arts and Economics from Pomona College and an MBA from the Tepper School of Business at Carnegie Mellon University. Mark D. McHugh, 43, Mr. McHugh was appointed Senior Vice President and Chief Financial Officer in December 2014. He was previously Managing Director in the Real Estate Investment Banking group at Raymond James, where he worked since 2008. Prior to joining Raymond James, Mr. McHugh was a Director in the Paper & Forest Products Group at Credit Suisse, where he worked from 2000 to 2008. Mr. McHugh received his B.S.B.A. in Finance from the University of Central Florida and his JD from Harvard Law School. 11 Douglas M. Long, 48, Mr. Long was appointed to Senior Vice President, U.S. Operations in December 2015. He was named Vice President, U.S. Operations in November 2014. Prior to such appointment, Mr. Long served as Director, Atlantic Region, U.S. Forest Resources. He joined the Company in 1995 as a GIS Forestry Analyst and has held multiple positions of increasing responsibility within the forestry division. Mr. Long holds bachelor’s and master’s degrees in Forest Resources and Conservation from the University of Florida. Christopher T. Corr, 55, Mr. Corr joined the Company in July 2013 and currently serves as Senior Vice President, Real Estate Development and President, Raydient LLC. Prior to joining Rayonier, he served as Executive Vice President, Buildings and Places for AECOM from 2008 to 2013. Prior to that, Mr. Corr held various positions with The St. Joe Company between 1998 and 2008, most recently as Executive Vice President. From 1992 to 1998, Mr. Corr was a senior manager with The Walt Disney Company, where he was a key member of the team that developed the visionary town of Celebration near Orlando, Florida. From 1990-1992, Mr. Corr served as an elected member of the Florida House of Representatives. He holds a Bachelor of Arts degree from the University of Florida and has completed programs with the Harvard Real Estate Institute and the Wharton School of Business at University of Pennsylvania. Mark R. Bridwell, 56, Mr. Bridwell was promoted to Vice President and General Counsel in June 2014 and assumed the role of Corporate Secretary in March 2015. He joined the Company in 2006 as Associate General Counsel for Performance Fibers. In 2009, he became Associate General Counsel for Timber and Real Estate and in 2012 was promoted to Assistant General Counsel for Land Resources. Prior to joining Rayonier, Mr. Bridwell served as counsel for six years at Siemens Corporation. Previously, he was an attorney for five years with the international law firms of Jones, Day, Reavis & Pogue and Seyfarth, Shaw, Fairweather & Geraldson. Mr. Bridwell has a B.S.B.A. in Finance from the University of Central Florida, and an MBA and JD from Emory University. Shelby L. Pyatt, 48, Ms. Pyatt was named Vice President, Human Resources and Information Technology in July 2014. Ms. Pyatt joined Rayonier in 2003 as Manager, Compensation and became Director, Compensation and Employee Services in 2006. She was named Director, Compensation, Benefits and Employee Services in 2009 before being promoted to her current position. Prior to joining Rayonier, Ms. Pyatt held human resources positions with CSX Corporation and Barnett Bank. Ms. Pyatt holds a bachelor’s degree in Business Management. W. Rhett Rogers, 42, Mr. Rogers was appointed to Vice President, Portfolio Management in February 2017. Mr. Rogers(cid:3) oversees the Company’s acquisition and disposition activities, including HBU and non-strategic land sales, as well as(cid:3) its land information systems function. He joined Rayonier in 2001 as a District Technical Forester, and has held numerous(cid:3) roles of increasing responsibility, most recently as Director, Land Asset Management before being promoted to his(cid:3) current position. Mr. Rogers holds a BS in Forestry from Louisiana Tech University, and both an MBA and MS in Forest(cid:3) Resources from Mississippi State University. April J. Tice, 45, Ms. Tice was appointed as the Company’s Controller in November 2016. In this position, she acts as the Company’s principal accounting officer. She joined Rayonier in 2010 and has worked in various roles within the finance and financial reporting departments since that time. Prior to joining Rayonier, Ms. Tice served in various accounting and/or audit roles at Deloitte & Touche, the State of Florida and two private companies located in Florida. Ms. Tice holds a Bachelor of Fine Arts from Florida State University and a Master of Accountancy with a tax concentration from the University of North Florida. Ms. Tice is a Certified Public Accountant in the State of Florida. EMPLOYEE RELATIONS We employ 349 people, of which 259 are in the United States. We believe relations with our employees are satisfactory. AVAILABILITY OF REPORTS AND OTHER INFORMATION Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Sections 13(a) or 14 of the Securities Exchange Act of 1934 are made available to the public free of charge in the Investor Relations section of our website www.rayonier.com, shortly after we electronically file such material with, or furnish them to, the Securities and Exchange Commission (“SEC”). Our corporate governance guidelines and charters of all committees of our board of directors are also available on our website. The information on the Company’s website is not incorporated by reference into this Annual Report on Form 10-K. 12 Item 1A. RISK FACTORS Our operations are subject to a number of risks. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in this Annual Report on Form 10-K. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. We are exposed to the cyclicality of the markets in which we operate and other factors beyond our control, which could adversely affect our results of operations. Some of the industries in which our end-use customers participate, such as the construction and home building industries, the global pulp, packaging and paper industries and the real estate industry, are cyclical in nature, exposing us to risks beyond our control, including general macroeconomic conditions, both in the U.S. and globally, as well as local economic conditions. In our Timber segments, the level of new residential construction activity and, to a lesser extent, home repair and remodeling activity, is the primary driver of sawtimber demand. In addition, demand for logs can be affected by the demand for wood chips in the pulp and paper and engineered wood products markets, as well as the bio-energy production markets. The ongoing level of activity in these markets is subject to fluctuation due to future changes in economic conditions, interest rates, credit availability, population growth, weather conditions and other factors. Changes in global economic conditions, such as new timber supply sources and changes in currency exchange rates, foreign interest rates and foreign and domestic trade policies, can also negatively impact demand for our timber and logs. In addition, the industries in which our customers participate are highly competitive and may experience overcapacity or reductions in demand, all of which may affect demand for and pricing of our products. In our Real Estate segment, our inability to sell our HBU properties at attractive prices could have a significant effect on our results of operations. Demand for real estate can be affected by the availability of capital, changes in interest rates, availability and terms of financing, changes in governmental agencies, changes in developer confidence, actions by conservation organizations, our ability to obtain land use entitlements and other permits necessary for our development activities, local real estate market economic conditions, competition from other sellers of land and real estate developers, the relative illiquidity of real estate investments, employment rates, new housing starts, population growth, demographics and federal, state and local land use, zoning and environmental protections laws or regulations (including any changes in laws or regulations). In addition, changes in investor interest in purchasing timberlands could reduce our ability to execute sales of non-strategic timberlands. These macroeconomic and cyclical factors impacting our operations are beyond our control and, if such conditions deteriorate or do not continue to improve, could have an adverse effect on our business. Weather and other natural conditions may limit our timber harvest and sales. Weather conditions, changes in timber growth cycles, limitations on access (for example, due to prolonged wet conditions) and other factors, including damage by fire, insect infestation, disease, prolonged drought and natural disasters such as wind storms and hurricanes, may limit harvesting of our timberlands. The volume and value of timber that can be harvested from our timberlands may be reduced by any such occurrence and other causes beyond our control. As is typical in the forestry industry, we do not maintain insurance for any loss to our timber, including losses due to fire and these other causes. These and other factors beyond our control could reduce our timber inventory and accordingly, our sustainable yield, thereby adversely affecting our financial results and cash flows. 13 Entitlement and development of real estate entail a lengthy, uncertain and costly approval process, which could adversely affect our ability to grow the businesses in our Real Estate segment. Entitlement and development of real estate entail extensive approval processes involving multiple regulatory jurisdictions. It is common for a project to require multiple approvals, permits and consents from U.S. federal, state and local governing and regulatory bodies. For example, in Florida, real estate projects must generally comply with the provisions of the Community Planning Act and local land use, zoning and development regulations. In addition, development projects in Florida that exceed certain specified regulatory thresholds (and are not located in a jurisdiction classified as a dense urban land area or otherwise statutorily exempt) may require approval pursuant to the Comprehensive Plan process standards. Compliance with these and other regulations and standards is more time intensive and costly and may require additional long range infrastructure review and approvals which can add to project cost. In addition, development of properties containing delineated wetlands may be affected by revisions to the definition of wetlands subject to state and/or federal regulation and may require one or more permits from the U.S. federal government and/or state and local governmental agencies. Any of these issues can materially affect the cost, timing and economic viability of our real estate projects. The real estate entitlement process is frequently a political one, which involves uncertainty and often extensive negotiation and concessions in order to secure and maintain the necessary approvals and permits. In the U.S., a significant amount of our development property is located in counties in which local governments face challenging issues relating to growth and development, including zoning and future land use, public services, water availability, transportation and other infrastructure, and funding for same, and the requirements of state law, especially in the case of Florida under the Community Planning Act process standards. In addition, anti-development groups are active, especially in Florida, in filing litigation to oppose particular entitlement activities and development projects, and in seeking legislation and other anti-development limitations on real estate development activities. We expect this type of anti-development activity to continue in the future. Issues affecting real estate development also include the availability of potable water for new development projects. For example, the Georgia Legislature enacted the Comprehensive Statewide Watershed Management Planning Act, which, among other things, created a governmental entity called the Georgia Water Council which was charged with preparing a comprehensive water management plan for the state and presenting it to the Georgia Legislature. It is unclear at this time how the plan will affect the cost and timing of real estate development along the southern Georgia coast, where the Company has significant timberland holdings with downstream real estate development potential. Concerns about the availability of potable water also exist in certain Florida counties, which could impact future growth opportunities. Changes in the laws, or interpretation or enforcement thereof, regarding the use and development of real estate, changes in the political composition of state and local governmental bodies, and the identification of new facts regarding our properties could lead to new or greater costs and delays and liabilities that could materially adversely affect our business, profitability or financial condition. Changes in energy and fuel costs could affect our results of operations and financial condition. Energy costs are a significant operating expense for our logging and hauling contractors and for the contractors who support the customers of our standing timber. Energy costs can be volatile and are susceptible to rapid and substantial increases or decreases due to factors beyond our control, such as changing economic conditions, changing environmental regulations, political unrest, instability in energy-producing nations, and supply and demand considerations. Although the price of oil has remained relatively stable in recent years, increases in the price of oil could adversely affect our business, financial condition and results of operations. In addition, an increase in fuel costs, and its impact on the cost and availability of transportation for our products, both domestically and internationally, and the cost and availability of third-party logging and hauling contractors, could have a material adverse effect on the operating costs of our contractors and our standing timber customers, as well as in defining economically accessible timber stands. Such factors could in turn have a material adverse effect on our business, financial condition and results of operations, particularly in our Timber segments and Trading segment. 14 We depend on third parties for logging and transportation services and increases in the costs or decreases in the availability of quality service providers could adversely affect our business. Our Timber segments depend on logging and transportation services provided by third parties, both domestically and internationally, including by railroad, trucks, or ships. If any of our transportation providers were to fail to deliver timber supply or logs to our customers in a timely manner, or were to damage timber supply or logs during transport, we may be unable to sell it at full value, or at all. During the global financial crisis and subsequent downturn in U.S. housing starts, timber harvest volumes declined significantly. As a result, many logging contractors, particularly cable logging operators in the western U.S., permanently shut down their operations. As harvest levels have returned to higher levels with the recovery in U.S. housing starts, this shortage of logging contractors has resulted in sharp increases in logging costs and in the availability of logging contractors. It is expected that the supply of qualified logging contractors will be impacted by the availability of debt financing for equipment purchases as well as a sufficient supply of adequately trained loggers. As housing starts continue to recover, harvest levels are expected to increase, placing more pressure on the existing supply of logging contractors. Any significant failure or unavailability of third-party logging or transportation providers, or increases in transportation rates or fuel costs, may result in higher logging costs or the inability to capitalize on stronger log prices to the extent logging contractors cannot be secured at a competitive cost. Such events could harm our reputation, negatively affect our customer relationships and adversely affect our business. We are subject to risks associated with doing business outside of the U.S. Although the majority of our customers are in the U.S., a significant portion of our sales are to end markets outside of the U.S., including China, South Korea, Japan, Taiwan, India, Vietnam and New Zealand. The export of our products into international markets results in risks inherent in conducting business pursuant to international laws, regulations and customs. We expect that international sales will continue to contribute to future growth. The risks associated with our business outside the U.S. include: • • • • • • • • • • changes in and reinterpretations of the laws, regulations and enforcement priorities of the countries in which our products are sold; responsibility to comply with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti- bribery laws in other jurisdictions; trade protection laws, policies and measures and other regulatory requirements affecting trade and investment, including loss or modification of exemptions for taxes and tariffs, imposition of new tariffs and duties and import and export licensing requirements; continuing and potentially increasing negative impacts from the imposition and/or threatened imposition of substantial tariffs on forest products imports into China in connection with current trade tensions between China and the U.S.; difficulty in establishing, staffing and managing non-U.S. operations; product damage or losses incurred during shipping; potentially negative consequences from changes in or interpretations of tax laws; economic or political instability, inflation, recessions and interest rate and exchange rate fluctuations; uncertainties regarding non-U.S. judicial systems, rules and procedures; and uncertainties regarding trade policies implemented and/or under consideration by the current U.S. presidential administration. These risks could adversely affect our business, financial condition and results of operations. 15 Our estimates of timber inventories and growth rates may be inaccurate, include risks inherent to such estimates and may impair our ability to realize expected revenues. We rely upon estimates of merchantable timber inventories (which include judgments regarding inventories that may be lawfully and economically harvested), timber growth rates and end-product yields when acquiring and managing working forests. These estimates, which are inherently inexact and uncertain in nature, are central to forecasting our anticipated timber revenues and expected cash flows. Growth rates and end-product yield estimates are developed using statistical sampling, harvest results and growth and yield modeling, in conjunction with industry research cooperatives and by in-house forest biometricians, using measurements of trees in research plots spread across our timberland holdings. The growth equations predict the rate of height and diameter growth of trees so that foresters can estimate the volume of timber that may be present in a tree stand at a given age. Tree growth varies by soil type, geographic area, and climate. Inappropriate application of growth equations in forest management planning may lead to inaccurate estimates of future volumes. If the assumptions we rely upon change or these estimates are inaccurate, our ability to manage our timberlands in a sustainable or profitable manner may be diminished, which may cause our results of operations and our stock price to be adversely affected. Our businesses are subject to extensive environmental laws and regulations that may restrict or adversely affect our ability to conduct our business. Environmental laws and regulations are constantly changing and are generally becoming more restrictive. Laws, regulations and related judicial decisions and administrative interpretations affecting our business are subject to change, and new laws and regulations are frequently enacted. These changes may adversely affect our ability to harvest and sell timber, remediate contaminated properties and/or entitle real estate. These laws and regulations may relate to, among other things, the protection of timberlands and endangered species, recreation and aesthetics, protection and restoration of natural resources, surface water quality, timber harvesting practices, and remedial standards for contaminated property and groundwater. Over time, the complexity and stringency of these laws and regulations have increased and the enforcement of these laws and regulations has intensified. For example, the U.S. Environmental Protection Agency (“EPA”) has pursued a number of initiatives that, if implemented, could impose additional operational and pollution control obligations on industrial facilities like those of Rayonier’s customers, especially in the area of air emissions and wastewater and stormwater control. In addition, as a result of certain judicial rulings and state and federal initiatives, including some that would require timberland operators to obtain permits to conduct certain ordinary course forestry activities, silvicultural practices on our timberlands could be impacted in the future. Environmental laws and regulations will likely continue to become more restrictive and over time could adversely affect our business, financial condition and results of operations. If regulatory and environmental permits are delayed, restricted or rejected, a variety of our operations could be adversely affected. We are required to seek permission from government agencies in the states and countries in which we operate to perform certain activities related to our properties. Any of these agencies could delay review of, or reject, any of our filings. In our Southern Timber, Pacific Northwest Timber and New Zealand Timber segments, any delay associated with a filing could result in a delay or restriction in replanting, thinning, insect control, fire control or harvesting, any of which could have an adverse effect on our operating results. For example, in Washington State, we are required to file a Forest Practice Application for each unit of timberland to be harvested. These applications may be denied, conditioned or restricted by the regulatory agency. Actions by the regulatory agencies could delay or restrict timber harvest activities pursuant to these permits. Delays or harvest restrictions on a significant number of applications could have an adverse effect on our operating results. Environmental groups and interested individuals may seek to delay or prevent a variety of operations. We expect that environmental groups and interested individuals will intervene with increasing frequency in the regulatory processes in the states and countries where we own, lease or manage timberlands. For example, in Washington State, environmental groups and interested individuals may appeal individual forest practice applications or file petitions with the Forest Practices Board to challenge the regulations under which forest practices are approved. These and other challenges could materially delay or prevent operations on our properties. For example, interveners at times may bring legal action in Florida in opposition to entitlement and change of use of timberlands to commercial, industrial or residential use. Delays or restrictions due to the intervention of environmental groups or interested individuals could adversely affect our operating results. In addition to intervention in regulatory proceedings, interested groups and individuals may file or threaten to file lawsuits that seek to prevent us from obtaining permits, implementing capital improvements or pursuing operating plans. Any threatened or actual lawsuit could delay harvesting on our timberlands, affect how we operate or limit our ability to modify or invest in our real estate. Among the remedies that could be enforced in a lawsuit is a judgment preventing or restricting harvesting on a portion of our timberlands. 16 Third-party operators may create environmental liabilities. We lease and/or grant easements across some of our properties to third-party operators for the purpose of operating communications towers, generating renewable energy (wind and solar), operating pipelines for the transport of gases and liquids, and exploring, extracting, developing and producing oil, gas, rock and other minerals. These activities are subject to federal, state and local laws and regulations. These operations may also create risk of environmental liabilities for an unlawful discharge of oil, gas, chemicals or other materials into the air, soil or water. Generally, these third-party operators indemnify us against any such liability, and we require that they maintain liability insurance to the extent practical to do so. However, if for any reason our third-party operators are not able to honor their obligations to us, or if insurance is not in effect, then it is possible that we could be responsible for costs associated with environmental liability caused by such third-party operators. The impact of existing regulatory restrictions on future harvesting activities may be significant. U.S. federal, state and local laws and regulations, as well as those of other countries, which are intended to protect threatened and endangered species, as well as waterways and wetlands, limit and may prevent timber harvesting, road building and other activities on our timberlands. Restrictions relating to threatened and endangered species apply to activities that would adversely impact a protected species or significantly degrade its habitat. The size of the restricted area varies depending on the protected species, the time of year and other factors, but can range from less than one acre to several thousand acres. A number of species that naturally live on or near our timberlands, including, among others, the northern spotted owl, marbled murrelet, several species of salmon and trout in the Pacific Northwest, and the red cockaded woodpecker, red hills salamander and eastern indigo snake in the Southeast, are protected under the Federal Endangered Species Act (the “ESA”) or similar U.S. federal and state laws. A significant number of other species, such as the southeastern gopher tortoise and certain species of southern pine snake are currently under review for possible protection under the ESA. As we gain additional information regarding the presence of threatened or endangered species on our timberlands, or if other regulations, such as those that require buffers to protect water bodies, become more restrictive, the amount of our timberlands subject to harvest restrictions could increase. We formerly owned or operated or may own or acquire timberlands or properties that may require environmental remediation or otherwise be subject to environmental and other liabilities. We owned or operated manufacturing facilities and discontinued operations that we do not currently own, and we may currently own or may acquire timberlands and other properties in the future that are subject to environmental liabilities, such as remediation of soil, sediment and groundwater contamination and other existing or potential liabilities. In connection with the spin-off of our Performance Fibers business, and pursuant to the related Separation and Distribution Agreement between us and Rayonier Advanced Materials, Rayonier Advanced Materials has assumed any environmental liability of ours in connection with the manufacturing facilities and discontinued operations related to the Performance Fibers business and has agreed to indemnify and hold us harmless in connection with such environmental liabilities. However, in the event we seek indemnification from Rayonier Advanced Materials, we cannot provide any assurance that a court will enforce our indemnification right if challenged by Rayonier Advanced Materials or that Rayonier Advanced Materials will be able to fund any amounts for indemnification owed to us. In addition, the cost of investigation and remediation of contaminated timberlands and properties that we currently own or acquire in the future could increase operating costs and adversely affect financial results. We could also incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting our operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), clean-up and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations related to such timberlands or properties. The industries in which we operate are highly competitive. The markets in which we operate are highly competitive, and we compete with companies that have substantially greater financial resources than we do in each of these businesses. The competitive pressures relating to our Timber segments are primarily driven by quantity of product supply and quality of the timber offered by competitors in the domestic and export markets, each of which may impact pricing. With respect to our Real Estate segment, we compete with other owners of entitled and unentitled properties. Each property has unique attributes, but overall quantity of supply and price for residential, commercial, industrial and rural properties in the geographic areas in which we operate are the most significant competitive drivers. The market in which our Trading segment operates remains very competitive with numerous entities competing for export log supply at different ports across New Zealand. 17 Our strategy will be adversely affected if we are unable to make future acquisitions. We have pursued, and intend to continue to pursue, acquisitions of timberland and real estate properties that meet our investment criteria and achieve our strategic goals of growing the size and average quality of our land base. The ability to grow through acquisitions or other investments depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions or joint venture arrangements. In addition, the discount rate we use in our acquisition underwriting has to meet our internal hurdle rate while also being competitive with that of other timberland investors. In particular, our future success and growth depend upon our ability to make acquisitions that increase merchantable timber inventory and complement the existing age-class structure of our ownership. If we are unable to make acquisitions on acceptable terms or that do not support our strategic goals, our revenues and cash flows may stagnate or decline. Our inability to access the capital markets could adversely affect our business strategy and competitive position. Due to the REIT income distribution requirements, we rely significantly on external sources of capital to finance growth and acquisitions. Both our ability to obtain financing and the related costs of borrowing are affected by a number of factors, many of which are outside of our control, including a decline in general market conditions, decreased market liquidity, a downgrade to our public debt rating, increases in interest rates, an unfavorable market perception of our growth potential, a decrease in our current or estimated future earnings or a decrease in the market price of our common stock. If capital is not available when needed, or is available only on unfavorable terms relative to other timberland REITs or TIMOs, or not at all, we may be unable to complete acquisitions or otherwise take advantage of business opportunities or respond to competitive pressures. As of December 31, 2018, our credit ratings from S&P and Moody’s Investors Service (Moody’s) were BBB- and Baa3, respectively. Any combination of the factors described above, including our failure to maintain our investment grade credit rating, could prevent us from obtaining the capital we require on terms that are acceptable to us, or at all, which could adversely affect our business, liquidity and competitive position. We are subject to risks associated with an increase in market interest rates. One of the factors that may influence the price of our common shares is our annual dividend yield as compared to yields on other financial instruments. Thus, an increase in market interest rates could result in higher yields on other financial instruments and could adversely affect relative attractiveness of an investment in the Company and, accordingly, the trading price of our common shares. An increase in market interest rates could cause increases in discount rates and, accordingly, a decline in property values and total returns for timberland assets. An increase in market interest rates would also negatively impact financing costs on our floating rate debt as well as any additional debt we may raise. The impacts of climate-related initiatives, at the international, U.S. federal and state levels, remain uncertain at this time. There continue to be numerous international, U.S. federal and state-level initiatives and proposals to address domestic and global climate issues. Within the U.S., most of these proposals would regulate and/or tax the production of carbon dioxide and other “greenhouse gases” to facilitate the reduction of carbon compound emissions into the atmosphere, and provide tax and other incentives to produce and use “cleaner” energy. In late 2009, the EPA issued an “endangerment finding” under the Clean Air Act with respect to certain greenhouse gases, leading to the regulation of carbon dioxide as a pollutant under the Clean Air Act and having significant ramifications for Rayonier and the industry in general. In this regard, the EPA has published various regulations, affecting the operation of existing and new industrial facilities that emit carbon dioxide. As a result of the EPA’s decision to regulate greenhouse gases under the Clean Air Act, states will now have to consider them in permitting new or modified facilities. Overall, it is reasonably likely that legislative and regulatory activity in this area will in some way affect Rayonier and the U.S. customers of our Southern Timber and Pacific Northwest Timber segments, but it is unclear at this time what the nature of the impact will be. We continue to monitor political and regulatory developments in this area, but their overall impact on Rayonier, from a cost, benefit and financial performance standpoint remains uncertain at this time. In addition, the EPA has yet to finalize the treatment of biomass under greenhouse gas regulatory schemes, leaving Rayonier’s biomass customers in a position of uncertainty. 18 REIT AND TAX-RELATED RISKS Loss of our REIT status would adversely affect our cash flow and stock price. We intend to continue to operate in accordance with REIT requirements pursuant to the Internal Revenue Code of 1986, as amended (the “Code”), and related U.S. Treasury regulations and administrative guidance. Qualification as a REIT involves the application of highly technical and complex provisions of the Code, which are subject to change, perhaps retroactively, and which are not within our control. We cannot assure that we will remain qualified as a REIT or that new legislation, U.S. Treasury regulations, administrative interpretations or court decisions will not significantly affect our ability to remain qualified as a REIT or the U.S. federal income tax consequences of such qualification. We continually monitor and test our compliance with all REIT requirements. In particular, we regularly test our compliance with the REIT “asset tests,” which require generally that, at the close of each calendar quarter, (1) at least 75% of the market value of our total assets must consist of REIT-qualifying interests in real property (such as timberlands), including leaseholds and options to acquire real property and leaseholds, as well as cash and cash items and certain other specified assets, (2) no more than 25% of the market value of our total assets may consist of other assets that are not qualifying assets for purposes of the 75% test in clause (1) above and (3) no more than 20% (25% for calendar years prior to 2018) of the market value of our total assets may consist of the securities of one or more “taxable REIT subsidiaries.” If in any taxable year we fail to qualify as a REIT and are not entitled to relief under the Code, we will not be allowed a deduction for dividends paid to shareholders in computing our taxable income and we will be subject to U.S. federal income tax on our REIT taxable income. In addition, we will be disqualified from qualification as a REIT for the four taxable years following the year during which the qualification was lost, unless we are entitled to relief under certain provisions of the Code. As a result, our net income and the cash available for distribution to our shareholders could be reduced for up to five years or longer, which could have a material adverse effect on our financial condition. As of December 31, 2018, Rayonier is in compliance with the asset tests described above. If we fail to remain qualified as a REIT, we may need to borrow funds or liquidate some investments or assets to pay any resulting additional tax liability. Accordingly, cash available for distribution to our shareholders would be reduced. Certain of our business activities are potentially subject to prohibited transactions tax. As a REIT, we will be subject to a 100% tax on any net income from “prohibited transactions.” In general, prohibited transactions are sales or other dispositions of property to customers in the ordinary course of business. Sales of logs, and dealer sales of timberlands or other real estate, constitute prohibited transactions unless the sale satisfies certain safe harbor provisions in the Code. We intend to avoid the 100% prohibited transactions tax by complying with the prohibited transaction safe harbor provisions and conducting activities that would otherwise be prohibited transactions through one or more taxable REIT subsidiaries. We may not, however, always be able to identify timberland properties that become part of our “dealer” real estate sales business. Therefore, if we sell timberlands which we incorrectly identify as property not held for sale to customers in the ordinary course of business, we may be subject to the 100% prohibited transactions tax. Our cash dividends are not guaranteed and may fluctuate. Generally, REITs are required to distribute 90% of their ordinary taxable income, but not their net capital gains income. Accordingly, we do not generally believe that we are required to distribute material amounts of cash since substantially all of our taxable income is generally treated as capital gains income. However, a REIT must pay corporate level tax on its undistributed taxable income and capital gains. Our Board of Directors, in its sole discretion, determines the amount of quarterly dividends to be paid to our shareholders based on consideration of a number of factors. These factors include, but are not limited to, our results of operations, cash flow and capital requirements, economic conditions, tax considerations, borrowing capacity and other factors, including debt covenant restrictions that may impose limitations on cash payments, future acquisitions and divestitures, harvest levels, changes in the price and demand for our products and general market demand for timberlands, including those timberland properties that have higher and better uses. Consequently, our dividend levels may fluctuate. 19 Lack of shareholder ownership and transfer restrictions in our articles of incorporation may affect our ability to qualify as a REIT. In order to qualify as a REIT, an entity cannot have five or fewer individuals who own, directly or indirectly after applying attribution of ownership rules, 50% or more of the value of its outstanding shares during the last six months in each calendar year. Although it is not required by law or the REIT provisions of the Code, almost all REITs have adopted ownership and transfer restrictions in their articles of incorporation or organizational documents which seek to assure compliance with that rule. While we are not in violation of the ownership rules, we do not have, nor do we have any current plans to adopt, share ownership and transfer restrictions. As such, the possibility exists that five or fewer individuals could acquire 50% or more of the value of our outstanding shares, which could result in our disqualification as a REIT. Item 1B. UNRESOLVED STAFF COMMENTS None. 20 Item 2. PROPERTIES The following table provides a breakdown of our timberland holdings as of September 30, 2018 and December 31, 2018: (acres in 000s) Southern Alabama Arkansas Florida Georgia Louisiana Mississippi Oklahoma South Carolina Tennessee Texas Pacific Northwest Oregon Washington New Zealand (a) Total As of September 30, 2018 Leased Total Owned As of December 31, 2018 Leased Total Owned 229 — 287 620 129 67 92 18 1 180 1,623 61 316 377 179 2,179 14 11 82 82 — — — — — — 243 11 369 702 129 67 92 18 1 180 229 — 290 622 129 67 92 18 — 182 14 9 73 81 — — — — — — 243 9 363 703 129 67 92 18 — 182 189 1,812 1,629 177 1,806 — 1 1 228 418 61 317 378 407 2,597 61 316 377 178 2,184 — 1 1 230 408 61 317 378 408 2,592 (a) Represents legal acres owned and leased by the New Zealand subsidiary, in which Rayonier owns a 77% interest. As of December 31, 2018, legal acres in New Zealand were comprised of 289,000 plantable acres and 119,000 non-productive acres. 21 The following tables details changes in our portfolio of owned and leased timberlands by state from December 31, 2017 to December 31, 2018: (acres in 000s) Southern Alabama Florida Georgia Louisiana Mississippi Oklahoma South Carolina Tennessee Texas Pacific Northwest Oregon Washington New Zealand (a) Total December 31, 2017 Acquisitions Sales Other December 31, 2018 Acres Owned 229 274 622 144 67 92 18 1 182 1,629 61 316 377 179 2,185 — 21 2 — — — — — 3 26 — — — — 26 — (10) (1) (15) — — — (1) (3) (30) — — — — (30) — 5 (1) — — — — — — 4 — — — (1) 3 229 290 622 129 67 92 18 — 182 1,629 61 316 377 178 2,184 (a) Represents legal acres owned by the New Zealand subsidiary, in which Rayonier has a 77% interest. (acres in 000s) Southern Alabama Arkansas Florida Georgia Louisiana Pacific Northwest Washington New Zealand (c) Total December 31, 2017 New Leases Acres Leased Sold/Expired Leases (a) Other (b) December 31, 2018 14 11 83 82 1 191 1 231 423 — — — — — — — 4 4 — (2) (10) (1) (1) (14) — (7) (21) — — — — — — — 2 2 14 9 73 81 — 177 1 230 408 (a) (b) Includes acres previously under lease that have been harvested and activity for the relinquishment of leased acres. Includes leased acres acquired by Rayonier and adjustments for land mapping reviews. (c) Represents legal acres leased by the New Zealand subsidiary, in which Rayonier has a 77% interest. 22 TIMBERLAND LEASES U.S. timberland leases typically have initial terms of approximately 30 to 65 years, with renewal provisions in some cases. New Zealand timberland lease terms typically range between 30 and 99 years. New Zealand lease arrangements are generally comprised of Crown Forest Licenses (“CFLs”), forestry rights and land leases. A CFL is a license arrangement with the New Zealand government to use public or government-owned land to operate a commercial forest. CFLs generally extend indefinitely and may only be terminated upon a 35-year termination notice from the government. If no termination notice is given, the CFLs renew automatically each year for a one-year term. Alternatively, some CFLs extend for a specific term. Once a CFL is terminated, the Company may be able to obtain a forestry right from the subsequent owner. A forestry right is a license arrangement with a private entity or native tribal group to use their lands to operate a commercial forest. Forestry rights terminate either upon the issuance of a termination notice (which can last 35 to 45 years), completion of harvest, or a specified termination date. As of December 31, 2018, the New Zealand subsidiary has two CFLs comprising 9,000 acres under termination notice that are currently being relinquished as harvest activities are concluding, as well as two fixed-term CFLs comprising 3,000 acres expiring in 2062. Additionally, the New Zealand subsidiary has two forestry rights comprising 35,000 acres under termination notice, terminating in 2028 and 2031. The following table details the Company’s acres under lease as of December 31, 2018 by type of lease and estimated lease expiration: (acres in 000s) Location Southern ................. Fixed Term Type of Lease Fixed Term with Renewal Option Pacific Northwest .... Fixed Term New Zealand .......... CFL - Perpetual (a) CFL - Fixed Term (a) CFL - Terminating (a) Forestry Right (a) Fixed Term Land Leases Total Acres under Long-term Leases .......................... Lease Expiration Total 2019-2028 2029-2038 2039-2048 Thereafter 159 109 18 1 77 3 9 125 16 408 18 1 — — — 26 — 154 44 — — — — — 17 1 62 — — — — — 8 6 — 14 6 — — 77 3 1 76 15 178 (a) Estimated lease expiration / termination based on the earlier of: (1) the scheduled expiration / termination date, or (2) the estimated year of final harvest before such expiration / termination date. 23 The following table details the Company’s estimated leased acres, lease expirations and lease costs over the next five years: (acres and dollars in 000s, except per acre amounts) Location Southern .................... 2019 2020 2021 2022 2023 Pacific Northwest (b) .. New Zealand .............. Leased Acres Expiring Year-end Leased Acres Estimated Annual Lease Cost (a) Average Lease Cost per Acre Leased Acres Expiring Year-End Leased Acres Leased Acres Expiring Year-end Leased Acres Estimated Annual Lease Cost (a)(d) Average Lease Cost per Acre (c)(d) 12 165 $5,188 $24.53 1 — 1 229 $4,058 $24.67 7 158 $4,861 $24.78 — — — 229 $4,044 $24.45 6 152 $4,842 $26.26 — — — 229 $4,031 $23.66 11 141 $4,618 $27.47 — — 3 226 $4,031 $25.00 36 105 $4,117 $24.53 — — 1 225 $4,022 $25.00 (a) Represents capitalized and expensed lease payments. (b) The 659-acre lease in the Pacific Northwest expires in 2019 and does not require a lease payment. (c) Excludes lump sum payments. (d) Translated using the year-end foreign exchange rate. OTHER NON-TIMBERLAND LEASES In addition to our timberland holdings, we lease properties for certain office locations. Our significant leased properties include a regional office in Lufkin, Texas; our Pacific Northwest Timber offices in Hoquiam, Washington and our New Zealand Timber and Trading headquarters in Auckland, New Zealand. Item 3. LEGAL PROCEEDINGS The information set forth under Note 10 — Contingencies is incorporated herein by reference. Item 4. MINE SAFETY DISCLOSURES Not applicable. 24 PART II Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET FOR THE REGISTRANT’S COMMON EQUITY The Company’s common shares are publicly traded on the NYSE, the only exchange on which our shares are listed, under the trading symbol RYN. Shares of the Company have a $0.00 par value. TAX CHARACTERISTICS OF DIVIDENDS The table below summarizes the tax characteristics of the dividend paid to shareholders on a percentage basis for the three years ended December 31, 2018: Total cash dividend per common share ..................................................... Tax characteristics: .................................................................................... Capital gain ............................................................................................... 2018 $1.06 2017 $1.00 2016 $1.00 100% 100% 100% HOLDERS There were approximately 5,657 shareholders of record of our common shares on February 15, 2019. ISSUER REPURCHASES In February 2016, the Board of Directors approved the repurchase of up to $100 million of Rayonier’s common shares (the “share repurchase program”) to be made at management’s and the Board of Directors’ discretion. The program has no time limit and may be suspended or discontinued at any time. There were no shares repurchased under this program in the fourth quarter of 2018. As of December 31, 2018, there was $99.3 million, or approximately 3,586,508 shares based on the period-end closing stock price of $27.69, remaining under the program. In 1996, we began a common share repurchase program (the “anti-dilutive program”) to minimize the dilutive effect of our employee incentive stock plans on earnings per share. This program limits the number of shares that may be purchased each year to the greater of 1.5% of outstanding shares at the beginning of the year or the number of incentive shares issued to employees during the year. In October 2000, July 2003 and October 2011, our Board of Directors authorized the purchase of shares under the program totaling 2.1 million shares. The anti-dilutive program does not have an expiration date. There were no shares purchased under this program in the fourth quarter of 2018 and there were 3,869,621 shares available for purchase at December 31, 2018. The following table provides information regarding our purchases of Rayonier common shares during the quarter ended December 31, 2018: Period October 1 to October 31................................ November 1 to November 30 ........................ December 1 to December 31 ........................ Total ................................. Total Number of Shares Purchased (a) 99 28 — 127 Average Price Paid per Share $30.68 $31.17 — Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b) — — — — 7,456,129 7,456,129 7,456,129 (a) Includes 127 common shares purchased in October and November from employees in non-open market transactions. The shares of stock were sold by employees of the Company in exchange for cash that was used to pay withholding taxes associated with the vesting of restricted stock awards under the Company’s stock incentive plan. The price per share surrendered is based on the closing price of the Company’s common shares on the respective vesting dates of the awards. (b) Maximum number of shares authorized to be purchased as of December 31, 2018 includes 3,869,621 under the anti-dilutive program and approximately 3,586,508 under the share repurchase program. 25 STOCK PERFORMANCE GRAPH The following graph compares the performance of Rayonier’s common shares (assuming reinvestment of dividends) with a broad-based market index (Standard & Poor’s (“S&P”) 500), and two industry-specific indices (the S&P Global Timber and Forestry Index and the S&P 1500 Real Estate Index).1 This graph has been adjusted to reflect the spin-off of the Performance Fibers business in 2014. The table and related information shall not be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing. The data in the following table was used to create the above graph as of December 31: 2013 Rayonier Inc. ................................................................................... $100 S&P 500® Index ............................................................................... 100 S&P® Global Timber and Forestry Index .......................................... S&P® 1500 Real Estate Sector Index1 ............................................. 100 100 2014 $94 114 100 131 2015 $78 115 91 141 2016 $97 129 100 151 2017 $120 157 132 172 2018 $108 150 106 171 1 Based on constituents as of December 31, 2018 and excludes entities that were not publicly traded for the entire comparative period. 26 Item 6. SELECTED FINANCIAL DATA The following financial data should be read in conjunction with our Consolidated Financial Statements. At or For the Years Ended December 31, 2014 2016 2018 (dollar amounts in millions, except per share data) 2015 2017 Profitability: Sales (a) ................................................................................................. Operating income (b) .............................................................................. Income from continuing operations attributable to Rayonier Inc. (b)........ Diluted earnings per common share from continuing operations ............. $816.1 $819.6 $815.9 $568.8 $624.0 170.1 102.2 0.79 215.5 148.8 1.16 255.8 212.0 1.73 77.8 46.2 0.37 98.3 55.9 0.43 Financial Condition: Total assets ............................................................................................. $2,780.7 ................................................................................................ Total debt 972.6 Shareholders’ equity ............................................................................... Shareholders’ equity — per share ........................................................... Cash Flows: Cash provided by operating activities ...................................................... Cash used for investing activities (c) ....................................................... Cash used for (provided by) for financing activities ................................. Depreciation, depletion and amortization ................................................ Cash dividends paid ............................................................................... Dividends paid — per share .................................................................... 1,654.6 12.78 $310.1 132.9 193.7 144.1 136.8 $1.06 $2,858.5 $2,685.8 $2,315.9 $2,449.9 1,025.4 1,693.0 13.13 1,061.9 1,496.9 12.18 830.6 748.3 1,361.7 1,575.2 11.09 12.51 $256.3 235.3 6.9 127.6 127.1 $1.00 $203.8 235.0 (114.4) 115.1 122.8 $1.00 $177.2 $320.4 149.5 116.5 113.7 124.9 $1.00 258.9 161.4 120.0 257.5 $2.03 Non-GAAP Financial Measures: Adjusted EBITDA (d) Southern Timber .............................................................................. $102.8 $91.6 $92.9 $101.0 $97.9 Pacific Northwest Timber ................................................................. New Zealand Timber ........................................................................ Real Estate ...................................................................................... Trading ............................................................................................ Corporate and other ......................................................................... 40.9 90.8 123.4 1.0 (21.1) 33.1 85.1 95.5 4.6 21.2 56.5 86.6 2.0 21.7 27.1 76.7 1.2 50.8 40.9 53.5 1.7 (19.4) (19.4) (19.6) (31.3) Total Adjusted EBITDA (d) ...................................................... $337.7 $290.5 $239.7 $208.1 $213.5 Other: Timberland and real estate acres — owned, leased, or managed, in millions of acres .................................................................................. 2.6 2.6 2.7 2.7 2.7 27 Selected Operating Data: Timber Sales volume (thousands of tons) Southern .................................................................................... Pacific Northwest ....................................................................... New Zealand Domestic ............................................................. New Zealand Export .................................................................. Total Sales Volume ............................................................... Real Estate — acres sold Improved Development ............................................................. Unimproved Development ......................................................... Rural ......................................................................................... Non-Strategic / Timberlands ...................................................... Large Dispositions (e) ................................................................ Total Acres Sold .................................................................... 2018 5,718 1,305 1,371 1,304 9,698 44 751 5,008 27,811 — 33,614 For the Years Ended December 31, 2016 2015 2017 5,314 1,247 1,300 1,239 9,100 23 1,449 6,344 25,653 49,599 83,068 5,317 1,195 1,204 1,017 8,733 47 206 6,684 28,751 92,434 5,492 1,243 1,346 1,065 9,146 74 699 8,754 29,737 — 128,121 39,264 2014 5,296 1,664 1,462 898 9,320 — 852 18,077 8,919 19,556 47,404 (a) The 2017, 2016 and 2014 results included sales of $95.4 million, $207.3 million and $22.0 million, respectively, related to Large Dispositions. (b) The 2017, 2016 and 2014 results included a gain of $67.0 million, $143.9 million and $21.4 million, respectively, related to Large Dispositions. (c) Due to the adoption of ASU No. 2016-18, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior period amounts have been restated to conform to current period presentation. (d) Adjusted EBITDA is a non-GAAP financial measure and is defined as earnings before interest, taxes, depreciation, depletion, amortization, the non- cash cost of land and improved development, non-operating income and expense, costs related to shareholder litigation, the gain on foreign currency derivatives, Large Dispositions, costs related to the spin-off of the Performance Fibers business, internal review and restatement costs and discontinued operations. A reconciliation of Adjusted EBITDA to Operating Income (Loss) and Net Income, respectively, is included in the following pages and Item 7 — Performance and Liquidity Indicators. (e) 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. Sales designated as Large Dispositions are excluded from our calculation of Adjusted EBITDA and CAD. 28 Reconciliation of Operating Income (Loss) by Segment to Adjusted EBITDA by Segment (dollars in millions) Southern Timber Pacific Northwest Timber New Zealand Timber Real Estate Trading Corporate and other Total 2018 Operating income ................................................................ Add: Add: Depreciation, depletion and amortization ............... Non-cash cost of land and improved development $44.2 58.6 — $8.1 32.8 — $62.8 $76.2 $1.0 ($22.3) $170.1 28.0 — 23.6 23.6 — — 1.2 — 144.1 23.6 Adjusted EBITDA ................................................................ $102.8 $40.9 $90.8 $123.4 $1.0 ($21.1) $337.7 2017 Operating income ................................................................ Add: Add: Add: Depreciation, depletion and amortization ............... Non-cash cost of land and improved development Costs related to shareholder litigation (a)............... Less: Large Dispositions ................................................. $42.2 49.4 — — — $1.1 32.0 — — — Adjusted EBITDA ................................................................ $91.6 $33.1 $85.1 2016 $57.6 $130.9 $4.6 ($20.9) $215.5 27.5 — — — 17.9 13.7 — (67.0) $95.5 — — — — 0.8 — 0.7 — 127.6 13.7 0.7 (67.0) $4.6 ($19.4) $290.5 Operating income (loss) ...................................................... Add: Add: Depreciation, depletion and amortization ............... Non-cash cost of land and improved development Less: Costs related to shareholder litigation (a)............... Add: Gain on foreign currency derivatives (b) ................ Less: Large Dispositions ................................................. $43.1 49.8 — — — — ($4.0) 25.2 — — — — $33.0 $202.4 $2.0 ($20.8) $255.8 23.4 — — — — 16.3 11.7 — — (143.9) — — — — — 0.4 — 2.2 (1.2) 115.1 11.7 2.2 (1.2) (143.9) Adjusted EBITDA ................................................................ $92.9 $21.2 $56.5 $86.6 $2.0 ($19.4) $239.7 2015 Operating income ................................................................ Add: Add: Depreciation, depletion and amortization ............... Non-cash cost of land and improved development Less: Costs related to shareholder litigation (a)............... $46.7 54.3 — — $6.9 14.8 — — $1.6 25.5 — — $45.5 $1.2 ($24.1) 18.7 12.5 — — — — 0.4 — 4.1 $77.8 113.7 12.5 4.1 Adjusted EBITDA ................................................................ $101.0 $21.7 $27.1 $76.7 $1.2 ($19.6) $208.1 2014 Operating income ................................................................ Add: Depreciation, depletion and amortization ............... Add: Non-cash cost of land and improved development Less: Large Dispositions ................................................. Less: Internal review and restatement costs.................... $45.7 52.2 — — — $29.5 21.3 — — — $8.7 32.2 — — — $48.3 13.4 13.2 (21.4) — $1.7 ($35.6) — — — — 0.9 — — 3.4 $98.3 120.0 13.2 (21.4) 3.4 Adjusted EBITDA ................................................................ $97.9 $50.8 $40.9 $53.5 $1.7 ($31.3) $213.5 (a) Costs related to shareholder litigation include expenses incurred as a result of the shareholder derivative demands. See Note 10 — Contingencies. In addition, these costs include the costs associated with class action securities litigation brought against the Company in a case styled In re Rayonier Inc. Securities Litigation, filed in the United States District Court for the Middle District of Florida (Case No. 3:14-cv01395-RJC-JBT) and the Company’s response to a subpoena it received from the SEC in November 2014. In July 2016, the Division of Enforcement of the SEC notified the Company that it had concluded its investigation into the Company. In October 2017, the court entered orders approving the settlement of the class action securities litigation and dismissing the case against all defendants with prejudice. (b) The Company used foreign exchange derivatives to mitigate the risk of fluctuations in foreign exchange rates while awaiting the planned capital contribution to the New Zealand subsidiary. 29 Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXECUTIVE SUMMARY OUR COMPANY We are a leading timberland real estate investment trust (“REIT”) with assets located in some of the most productive softwood timber growing regions in the U.S. and New Zealand. Our revenues, operating income and cash flows are primarily derived from the following core business segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. We own or lease under long-term agreements approximately 2.2 million acres of timberland and real estate in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma, Oregon, South Carolina, Tennessee, Texas and Washington. We also have a 77% ownership interest in Matariki Forestry Group, a joint venture (“New Zealand subsidiary”), that owns or leases approximately 408,000 gross acres (289,000 net plantable acres) of timberlands in New Zealand. Across our timberland management segments, we sell standing timber (primarily at auction to third parties) and delivered logs. Sales from our timber segments include all activities related to the harvesting of timber and other value- added activities such as the licensing of properties for hunting and the leasing of properties for mineral extraction and cell towers. We believe we are the second largest publicly-traded timberland REIT and the fifth largest private landowner in the United States. Our Real Estate business manages all property sales and seeks to maximize the value of our properties that are more valuable for development, recreational or residential uses than for growing timber, and opportunistically sells non-strategic timberlands. Our Trading segment, also part of the New Zealand subsidiary, markets and sells timber owned or acquired from third parties in New Zealand and Australia. CURRENT YEAR DEVELOPMENTS During 2018, we acquired approximately 30,000 acres of timberlands for $57.6 million. For additional information on acquisitions, see Note 3 — Timberland Acquisitions. INDUSTRY AND MARKET CONDITIONS The demand for timber is directly related to the underlying demand for pulp, paper, packaging, lumber and other wood products. The significant majority of timber sold in our Southern Timber segment is consumed domestically. With a higher proportion of pulpwood, our Southern Timber segment relies heavily on downstream markets for pulp and paper, and to a lesser extent wood pellet markets. Our Pacific Northwest Timber segment relies primarily on domestic customers but also exports a significant volume of timber, particularly to China. Both the Southern and Pacific Northwest Timber segments rely on the strength of U.S. lumber markets as well as underlying housing starts. Our New Zealand Timber segment sells timber to domestic New Zealand wood products mills and also exports a significant portion of its volume to markets in China, South Korea and India. In addition to market dynamics in the Pacific Rim, the New Zealand Timber segment is subject to foreign exchange fluctuations, which can impact the operating results of the segment in U.S. dollar terms. In 2018, pricing in the U.S. South remained relatively flat to prior year. In 2019, we anticipate pricing to improve modestly in certain southern markets driven by stronger overall demand in the U.S. South. Continued strong demand from both export and domestic markets drove increases in delivered sawtimber pricing in the Pacific Northwest for the first three quarters of the year with a significant decline in the fourth quarter driven by the implementation of tariffs on log exports to China in August as well as concern regarding a potential increase in Chinese tariffs in 2019. In 2019, we expect meaningfully lower average sawtimber prices driven by reduced export demand and market uncertainty regarding China tariffs in the Pacific Northwest. In New Zealand, export and domestic sawtimber pricing improved throughout the first half of the year followed by modest declines in the second half of the year due to market uncertainty regarding China tariffs. In 2019, we expect continued strong demand and pricing as Chinese customers seek supply from non-tariff countries will be offset by increased shipping and logging costs. In Real Estate, we expect steady demand for rural properties and a strengthening interest in selected development properties, particularly within Wildlight, our East Nassau mixed-use development project. 30 CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES The preparation of financial statements requires us to establish accounting policies and make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our Annual Report on Form 10-K. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates. CAPITALIZED COSTS INCLUDED IN TIMBER BASIS Timber is stated at the lower of cost or market value. Costs relating to acquiring, planting and growing timber including real estate taxes, site preparation and direct support costs relating to facilities, vehicles and supplies are capitalized. Annual lease payments are allocated between capital and expense based on the proportion of acres that the Company will be able to harvest prior to lease expiration. Lease payments made within one year of expiration are expensed as incurred. Payroll costs are capitalized for time spent on timber growing activities, while interest or any other intangible costs are not capitalized. MERCHANTABLE INVENTORY AND DEPLETION COSTS AS DETERMINED BY TIMBER HARVEST MODELS An annual depletion rate is established for each particular region by dividing the cost of merchantable inventory (including costs described above) by standing merchantable inventory volume. Pre-merchantable records are maintained for each planted year age class, recording acres planted, stems per acre and costs of planting and tending. Significant assumptions and estimates are used in the recording of timber inventory and depletion costs. Factors that can impact timber volume include weather changes, losses due to natural causes, differences in actual versus estimated growth rates and changes in the age when timber is considered merchantable. A 3% company-wide change in estimated standing merchantable inventory would have caused an estimated change of approximately $3.7 million to 2018 depletion expense. Merchantable standing timber inventory is estimated by our land information services group annually, using industry- standard computer software. The inventory calculation takes into account growth, in-growth (annual transfer of oldest pre-merchantable age class into merchantable inventory), timberland sales and the annual harvest specific to each business unit. The age at which timber is considered merchantable is reviewed periodically and updated for changing harvest practices, future harvest age profiles and biological growth factors. Acquisitions of timberland can also affect the depletion rate. Upon the acquisition of timberland, we make a determination whether to combine the newly-acquired merchantable timber with an existing depletion pool or to create a new pool. The determination is based on the geographic location of the new timber, the customers/markets that will be served and species mix. During 2018, we acquired 30,000 acres of timberlands in Florida, Georgia, Texas and New Zealand. These acquisitions did not have a material impact on 2018 depletion rates. REVENUE RECOGNITION See Note 1 - Summary of Significant Accounting Policies. DETERMINING THE ADEQUACY OF PENSION AND OTHER POSTRETIREMENT BENEFIT ASSETS AND LIABILITIES 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. The qualified and unfunded plans are closed to new participants. In 2018, we recognized $0.2 million of pension and postretirement benefit credit due to the expected return on plan assets offsetting interest costs and amortization of losses (gains). Numerous estimates and assumptions are required to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements. The key assumptions include discount rate, return on assets, health care cost trends, mortality rates and longevity of employees. Although there is authoritative guidance on how to select most of the assumptions, some degree of judgment is exercised in selecting these assumptions. Different assumptions, as well as actual versus expected results, would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements. Effective December 31, 2016, the Company froze benefits for all employees participating in the pension plans. See Note 15 — Employee Benefit Plans for additional information. 31 DEFERRED TAX ITEMS The Timber and Real Estate operations conducted within our REIT are generally not subject to U.S. income taxation. We expect any variability in our effective tax rate and the amount of cash taxes to be paid to be driven by our New Zealand Timber and Trading segments as our other business operations are conducted within our U.S. REIT subsidiaries. However, the assessment of the ability to realize certain deferred tax assets, or estimate deferred tax liabilities, remains subjective. See Note 9 — Income Taxes for additional information about our unrecognized tax benefits. RESULTS OF OPERATIONS Summary of our results of operations for the three years ended December 31: Financial Information (in millions) Sales 2018 2017 2016 Southern Timber ................................................................................................................ $170.0 $144.5 $151.2 Pacific Northwest Timber ................................................................................................... New Zealand Timber .......................................................................................................... 109.8 249.0 91.9 223.3 Real Estate Improved Development ...................................................................................................... Unimproved Development .................................................................................................. Rural .................................................................................................................................. Non-Strategic / Timberlands - U.S. ..................................................................................... Non-Strategic / Timberlands - N.Z. ..................................................................................... Large Dispositions ............................................................................................................. Total Real Estate ................................................................................................................ Trading ........................................................................................................................................ Total Sales ................................................................................................................................. 8.4 8.6 22.7 71.0 27.9 — 6.3 16.4 18.6 46.3 24.3 95.4 138.6 148.8 207.3 152.6 $816.1 $819.7 $815.9 77.8 176.0 1.7 5.5 18.8 66.1 1.8 207.3 301.2 109.7 Operating Income Southern Timber .......................................................................................................................... Pacific Northwest Timber ............................................................................................................. New Zealand Timber ................................................................................................................... Real Estate (a) ............................................................................................................................ Trading ........................................................................................................................................ Corporate and other .................................................................................................................... Operating Income ...................................................................................................................... Interest Expense ......................................................................................................................... Interest/Other Income (Expense) ................................................................................................. Income Tax Expense ................................................................................................................... Net Income (a) ........................................................................................................................... Less: Net Income Attributable to Noncontrolling Interest ........................................................... Net Income Attributable to Rayonier Inc. (a) ........................................................................... $44.2 $42.2 $43.1 8.1 62.8 76.2 1.0 (22.3) 170.1 (32.1) 4.6 (25.3) 117.3 (15.1) 1.1 57.6 (4.0) 33.0 130.9 202.4 4.6 (20.9) 215.5 (34.1) 1.9 (21.8) 161.5 (12.7) 2.0 (20.8) 255.8 (32.2) (0.8) (5.0) 217.8 (5.8) $102.2 $148.8 $212.0 Adjusted EBITDA (b) Southern Timber .......................................................................................................................... Pacific Northwest Timber ............................................................................................................. New Zealand Timber ................................................................................................................... Real Estate ................................................................................................................................. Trading ........................................................................................................................................ Corporate and other .................................................................................................................... $102.8 $91.6 $92.9 40.9 90.8 123.4 1.0 33.1 85.1 95.5 4.6 21.2 56.5 86.6 2.0 (21.1) (19.4) (19.4) Total Adjusted EBITDA (b) ........................................................................................................ $337.7 $290.5 $239.7 (a) (b) The 2017 and 2016 results included $67.0 million and $143.9 million related to Large Dispositions, respectively. Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. 32 Southern Timber Overview Sales Volume (in thousands of tons) Pine Pulpwood ...................................................................... Pine Sawtimber .................................................................... Total Pine Volume ............................................................... Hardwood ............................................................................. Total Volume ........................................................................ 2018 2017 2016 3,444 2,034 5,478 240 5,718 3,103 1,933 5,036 278 5,314 3,376 1,587 4,963 354 5,317 Percentage Delivered Sales ................................................. Percentage Stumpage Sales ................................................ 30% 70% 22% 78% 27% 73% Net Stumpage Prices (dollars per ton) Pine Pulpwood ...................................................................... Pine Sawtimber .................................................................... Weighted Average Pine ...................................................... Hardwood ............................................................................. Weighted Average Total ..................................................... Summary Financial Data (in millions of dollars) Timber Sales ......................................................................... Less: Cut, Haul & Freight ...................................................... Net Stumpage Sales ........................................................... Non-Timber Sales Total Sales Operating Income ................................................................. (+) Depreciation, depletion and amortization ........................ Adjusted EBITDA (a) ............................................................ $16.20 25.59 $19.69 12.27 $19.37 $143.9 (33.1) $110.8 $26.1 $170.0 $44.2 58.6 $102.8 $16.14 25.64 $19.79 12.58 $19.41 $122.6 (19.5) $103.1 $21.9 $144.5 $42.2 49.4 $91.6 $17.76 26.76 $20.64 13.91 $20.18 $132.9 (25.6) $107.3 $18.3 $151.2 $43.1 49.8 $92.9 Other Data Year-End Acres (in thousands) ............................................. 1,807 1,820 1,849 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. 33 Pacific Northwest Timber Overview Sales Volume (in thousands of tons) Pulpwood .............................................................................. Sawtimber ............................................................................. Total Volume ........................................................................ Sales Volume (converted to MBF) Pulpwood .............................................................................. Sawtimber ............................................................................. Total Volume ........................................................................ 2018 2017 2016 299 1,007 1,305 28,307 132,795 161,102 276 971 1,247 25,973 125,577 151,550 319 876 1,195 30,200 114,091 144,291 Percentage Delivered Sales ................................................. Percentage Sawtimber Sales ............................................... 86% 77% 83% 78% 91% 73% Delivered Log Pricing (in dollars per ton) Pulpwood .............................................................................. Sawtimber ............................................................................. Weighted Average Log Price ................................................ Summary Financial Data (in millions of dollars) Timber Sales ......................................................................... Less: Cut and Haul ............................................................... Net Stumpage Sales ........................................................... Non-Timber Sales Total Sales Operating Income (Loss) ...................................................... (+) Depreciation, depletion and amortization ........................ Adjusted EBITDA (a) ............................................................ Other Data Year-End Acres (in thousands) ............................................. Sawtimber (in dollars per MBF) (b) ....................................... Estimated Percentage of Export Volume .............................. $47.82 96.24 $84.29 $106.5 (44.9) $61.5 $3.4 $109.8 $8.1 32.8 $40.9 $40.62 84.55 $73.89 $41.97 73.44 $64.68 $88.7 (36.7) $52.0 $3.2 $91.9 $1.1 32.0 $33.1 $75.2 (34.7) $40.5 $2.6 $77.8 ($4.0) 25.2 $21.2 378 $725 23% 378 $665 26% 378 $566 24% (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. (b) Delivered sawtimber excluding chip-n-saw. 34 New Zealand Timber Overview Sales Volume (in thousands of tons) Domestic Pulpwood (Delivered) .......................................... Domestic Sawtimber (Delivered) ......................................... Export Pulpwood (Delivered) ............................................... Export Sawtimber (Delivered) ............................................. Stumpage ............................................................................ Total Volume ...................................................................... Delivered Log Pricing (in dollars per ton) Domestic Pulpwood ............................................................ Domestic Sawtimber ........................................................... Export Sawtimber ................................................................ Weighted Average Log Price ............................................... Summary Financial Data (in millions of dollars) Timber Sales ....................................................................... Less: Cut and Haul .............................................................. Less: Port and Freight Costs ............................................... Net Stumpage Sales .......................................................... Non-Timber Sales / Carbon Credits .................................... Total Sales ......................................................................... Operating Income ................................................................ (+) Depreciation, depletion and amortization....................... Adjusted EBITDA (a) ........................................................... Other Data New Zealand Dollar to U.S. Dollar Exchange Rate (b)........ Net Plantable Year-End Acres (in thousands) ..................... Export Sawtimber (in dollars per JAS m3) ........................... Domestic Sawtimber (in $NZD per tonne) ........................... 2018 2017 2016 507 864 94 1,210 — 2,675 $37.00 $83.29 $117.03 $90.44 $241.9 (85.9) (49.5) $106.5 7.1 $249.0 $62.8 28.0 $90.8 0.6935 289 $136.07 $132.22 448 852 106 1,133 — 2,539 $33.84 $81.12 $112.74 $87.61 $222.5 (80.6) (39.7) $102.2 0.8 $223.3 $57.6 27.5 $85.1 0.7108 293 $131.08 $125.43 374 820 85 932 10 2,221 $31.75 $72.68 $98.32 $76.88 $170.7 (70.9) (28.0) $71.8 5.3 $176.0 $33.0 23.4 $56.5 0.6971 299 $114.27 $114.54 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. (b) Represents the average of the month-end exchange rates for each year. 35 Real Estate Overview Sales (in millions of dollars) Improved Development (a) .................................................... Unimproved Development ..................................................... Rural ...................................................................................... Non-Strategic / Timberlands - U.S. ........................................ Non-Strategic / Timberlands - N.Z. ........................................ Large Dispositions (b) ........................................................... Total Sales ............................................................................ Acres Sold Improved Development (a) .................................................... Unimproved Development ..................................................... Rural ...................................................................................... Non-Strategic / Timberlands - U.S. ........................................ Non-Strategic / Timberlands - N.Z. (c) ................................... Large Dispositions (b) ........................................................... Total Acres Sold .................................................................. Price per Acre (dollars per acre) Improved Development (a) Unimproved Development ..................................................... Rural ...................................................................................... Non-Strategic / Timberlands - U.S. ........................................ Non-Strategic / Timberlands - N.Z. (d)................................... Large Dispositions (b) ........................................................... Weighted Average (Total) (e) ................................................. Weighted Average (Adjusted) (f) ........................................... Total Sales (Excluding Large Dispositions) ........................... Operating Income .................................................................. (+) Depreciation, depletion and amortization - U.S................ (+) Depreciation, depletion and amortization - N.Z. ............... (+) Non-cash cost of land and improved development - U.S. (+) Non-cash cost of land and improved development - N.Z. (–) Large Dispositions (b) ...................................................... Adjusted EBITDA (g) ............................................................. 2018 2017 2016 $8.4 8.6 22.7 71.0 27.9 — $138.6 44 751 5,008 22,815 4,996 — 33,614 $6.3 16.4 18.6 46.3 24.3 95.4 $207.3 23 1,449 6,344 16,007 9,645 49,599 83,068 $189,154 11,486 $296,550 11,318 4,530 3,110 5,588 — $4,121 $3,878 $138.6 $76.2 19.1 4.5 23.6 — — $123.4 2,937 2,891 2,520 1,922 $3,362 $3,158 $111.9 $130.9 9.0 8.9 13.6 0.1 (67.0) $95.5 $1.7 5.5 18.8 66.1 1.8 207.3 $301.2 47 206 6,684 28,743 9 92,434 128,121 $37,353 26,959 2,794 2,301 3,761 2,242 $2,632 $2,587 $93.9 $202.4 16.3 — 9.9 1.8 (143.9) $86.6 (a) Reflects land with capital invested in infrastructure improvements. Sales for the year ended December 31, 2017 are presented net of $0.6 million of deferred revenue adjustments due to remaining performance obligations. Price per acre is calculated on gross sales of $6.9 million for the year ended December 31, 2017. (b) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. In 2017, the Company completed two dispositions of approximately 50,000 total acres for a combined sales price and gain of approximately $95.4 million and $67.0 million, respectively. In 2016, the Company completed two dispositions of approximately 92,000 total acres for a combined sales price and gain of approximately $207.3 million and $143.9 million, respectively. (c) New Zealand Non-Strategic / Timberlands represents productive acres. (d) 2016 New Zealand Non-Strategic / Timberlands price per acre excludes the impact related to the relinquishment of a forestry right. (e) Excludes Large Dispositions. (f) Excludes Improved Development and Large Dispositions. (g) Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. 36 Capital Expenditures By Segment Timber Capital Expenditures (in millions of dollars) Southern Timber Reforestation, silvicultural and other capital expenditures ........ Property taxes .......................................................................... Lease payments ....................................................................... Allocated overhead ................................................................... Subtotal Southern Timber .......................................................... Pacific Northwest Timber Reforestation, silvicultural and other capital expenditures ........ Property taxes .......................................................................... Allocated overhead ................................................................... Subtotal Pacific Northwest Timber ............................................ New Zealand Timber Reforestation, silvicultural and other capital expenditures ........ Property taxes .......................................................................... Lease payments ....................................................................... Allocated overhead ................................................................... Subtotal New Zealand Timber .................................................... Total Timber Segments Capital Expenditures .......................... Real Estate ................................................................................... Corporate ...................................................................................... Total Capital Expenditures..................................................... Timberland Acquisitions Southern Timber ........................................................................... Pacific Northwest Timber .............................................................. New Zealand Timber ..................................................................... Total Timberland Acquisitions ............................................... Real Estate Development Investments ..................................... Rayonier Office Building ............................................................ 2018 2017 2016 $20.0 6.6 4.6 4.2 $35.4 6.2 0.8 2.4 $9.3 9.7 0.7 4.1 2.8 $17.3 $62.0 0.3 — $62.3 $45.9 — 11.7 $57.6 $9.5 — $17.9 8.1 4.8 3.7 $34.5 7.3 0.9 2.0 $10.2 9.1 0.7 4.4 2.9 $17.1 $61.8 1.3 2.2 $65.3 $220.0 1.5 21.4 $242.9 $15.8 $6.1 $19.2 5.0 5.2 4.2 $33.6 5.8 0.7 1.5 $8.0 8.6 0.6 4.2 2.6 $16.0 $57.6 0.3 0.8 $58.7 $104.0 262.5 — $366.5 $8.7 $6.3 37 RESULTS OF OPERATIONS, 2018 VERSUS 2017 (millions of dollars) The following tables summarize sales, operating income and Adjusted EBITDA variances for 2018 versus 2017: Sales 2017 ...................................................... Volume .................................................. Price ..................................................... Non-timber sales ................................... Foreign exchange (a) ............................ Southern Timber $144.5 7.9 (0.3) 4.3 — Pacific Northwest Timber New Zealand Timber Real Estate Trading Total $91.9 $223.3 $207.3 $152.6 $819.6 2.4 7.1 0.2 — 11.5 10.0 6.3 (2.1) — 0.6 25.5 — — (94.8) (c) (10.2) 7.0 (0.6) — — 12.2 49.3 10.2 (2.1) (73.1) Other ..................................................... 13.6 (b) 8.2 (b) 2018 ...................................................... $170.0 $109.8 $249.0 $138.6 $148.8 $816.1 (a) Net of currency hedging impact. (b) (c) Real Estate includes $95.4 million of sales from Large Dispositions in 2017, offset by $0.6 million of deferred revenue in 2017. Includes variance due to stumpage versus delivered sales. Operating Income 2017 ...................................... Volume .................................. Price ..................................... Cost ...................................... Non-timber income ................ Foreign exchange (a) ............ Depreciation, depletion & amortization .......................... Non-cash cost of land and improved development .......... Other ..................................... 2018 ...................................... Southern Timber $42.2 4.1 (0.3) (0.4) 4.2 — (5.6) — — Pacific Northwest Timber New Zealand Timber Real Estate Trading Corporate and Other Total $1.1 0.6 7.1 (1.6) 0.2 — 0.7 — — $57.6 $130.9 $4.6 ($20.9) $215.5 4.0 (1.3) (1.9) 5.9 (1.2) 0.1 — 0.2 25.5 1.4 — — (5.5) (9.3) (0.4) (b) (67.0) (c) — — (3.6) — — — — — — — (1.0) — — 8.9 31.0 (7.1) 10.3 (1.2) (0.4) (10.7) — — (9.3) (67.4) $44.2 $8.1 $62.8 $76.2 $1.0 ($22.3) $170.1 (a) Net of currency hedging impact. (b) New Zealand Timber includes $0.4 million from a settlement received in 2017. (c) Real Estate includes $67.0 million million of operating income from two Large Dispositions in 2017. Adjusted EBITDA (a) 2017 ...................................... Volume .................................. Price ...................................... Cost ....................................... Non-timber income ................ Foreign exchange (b) ............ Other ..................................... 2018 ...................................... Southern Timber Pacific Northwest Timber New Zealand Timber Real Estate Trading Corporate and Other Total $91.6 $33.1 $85.1 $95.5 $4.6 ($19.4) $290.5 7.7 (0.3) (0.4) 4.2 — — 2.1 7.1 (1.6) 0.2 — — 5.3 (1.3) (1.9) 5.9 (1.9) 0.4 25.5 1.4 — — (0.4) (c) 0.6 (d) — — (3.6) — — — — — (1.7) — — — 15.5 31.0 (7.8) 10.3 (1.9) 0.2 $102.8 $40.9 $90.8 $123.4 $1.0 ($21.1) $337.7 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. (b) Net of currency hedging impact. (c) New Zealand Timber includes $0.4 million of operating income from a settlement received in 2017. (d) Real Estate includes $0.6 million of deferred revenue in 2017. 38 SOUTHERN TIMBER Full-year sales of $170.0 million increased $25.5 million, or 18%, versus the prior year. This increase in sales includes a $4.3 million increase in non-timber sales versus the prior year. Harvest volumes increased 8% to 5.72 million tons in the current year versus 5.31 million tons in the prior year. Average pine sawtimber and pulpwood stumpage prices of $25.59 per ton and $16.20 per ton, respectively, were relatively flat to the prior year. Operating income of $44.2 million increased $2.0 million versus the prior year due to favorable volumes ($4.1 million), higher non-timber income ($4.2 million), partially offset by higher depletion rates ($5.6 million), higher costs ($0.4 million), and modestly lower prices ($0.3 million) due to product mix. Full-year Adjusted EBITDA of $102.8 million was $11.2 million above the prior year. PACIFIC NORTHWEST TIMBER Full-year sales of $109.8 million increased $17.9 million, or 19%, versus the prior year. Included in this increase is a $0.2 million increase in non-timber sales versus the prior year. Harvest volumes increased 5% to 1.31 million tons versus 1.25 million tons in the prior year as demand for timber was strong in the Pacific Northwest during the first three quarters of the year. Average delivered sawtimber prices increased 14% to $96.24 per ton versus $84.55 per ton in the prior year, while average delivered pulpwood prices increased 18% to $47.82 per ton versus $40.62 per ton in the prior year. Sawtimber prices reflected strong export and domestic sawtimber markets for most of the year before market conditions deteriorated in the fourth quarter due to tariffs on log exports to China.The increase in average pulpwood prices was due to species mix and a decrease in supply of wood chip residuals from sawmills. Operating income of $8.1 million versus $1.1 million in the prior year was primarily due to higher prices ($7.1 million), higher volumes ($0.6 million), lower depletion rates ($0.7 million), and higher non-timber income ($0.2 million), partially offset by unfavorable costs ($1.6 million). Full-year Adjusted EBITDA of $40.9 million was $7.8 million above the prior year. NEW ZEALAND TIMBER Full-year sales of $249.0 million increased $25.7 million, or 12%, versus the prior year. This increase in sales includes a $6.3 million increase in non-timber/carbon credit sales versus the prior year. Harvest volumes increased 5% to 2.68 million tons versus 2.54 million tons in the prior year due to incremental volume from recent acquisitions. Average delivered prices for export sawtimber increased 4% to $117.03 per ton versus $112.74 per ton in the prior year, while average delivered prices for domestic sawtimber increased 3% to $83.29 per ton versus $81.12 in the prior year. The increase in export sawtimber prices was primarily due to stronger demand from China, while the increase in domestic sawtimber prices (in U.S. dollar terms) was driven primarily by stronger local demand for construction materials, partially offset by a modest decline in the NZ$/US$ exchange rate (US$0.69 per NZ$1.00 versus US$0.71 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 5% from the prior year. Operating income of $62.8 million increased $5.2 million versus the prior year due to higher non-timber and carbon credit income ($5.9 million), higher volumes ($4.0 million), and lower depletion rates ($0.1 million), which were partially offset by higher forest management costs ($1.9 million), lower prices ($1.3 million), unfavorable foreign exchange impacts ($1.2 million) and a settlement received in 2017 ($0.4 million). Full-year Adjusted EBITDA of $90.8 million was $5.7 million above the prior year. REAL ESTATE Full-year sales of $138.6 million decreased $68.8 million versus the prior year, while operating income of $76.2 million decreased $54.6 million versus the prior year. Full-year 2017 sales and operating income include $95.4 million and $67.0 million, respectively, from Large Dispositions. Sales and operating income decreased primarily due to lower volumes (33,614 acres sold versus 83,068 acres sold in the prior year), partially offset by higher weighted average prices ($4,121 per acre versus $2,502 per acre in the prior year). Full-year Adjusted EBITDA of $123.4 million was $27.9 million above the prior year. TRADING Full-year sales of $148.8 million decreased $3.8 million versus the prior year due to lower volumes, partially offset by higher prices. Sales volumes decreased 7% to 1.31 million tons versus 1.41 million tons in the prior year period. Average prices increased 5% to $112.96 per ton versus $107.60 per ton in the prior year primarily due to stronger demand from China. Operating income of $1.0 million decreased $3.6 million versus the prior year. 39 CORPORATE AND OTHER EXPENSE/ELIMINATIONS Full-year corporate and other operating expense of $22.3 million increased $1.4 million versus the prior year due to higher selling, general and administrative costs ($1.7 million), higher depreciation expense ($0.4 million). These increases were partially offset by lower costs related to shareholder litigation ($0.7 million). INTEREST EXPENSE Full-year interest expense of $32.1 million decreased $2.0 million versus the prior year period due to lower average outstanding debt versus the prior year period. INTEREST AND MISCELLANEOUS INCOME (EXPENSE), NET Other non-operating income was $4.6 million in 2018 versus income of $1.9 million in 2017. The 2018 results were comprised of favorable mark-to-market adjustments on foreign currency exchange contracts related to shareholder distributions from the New Zealand subsidiary, interest income and net periodic pension credits. INCOME TAX EXPENSE Full-year income tax expense of $25.2 million increased $3.6 million versus the prior year period. The increase in income tax expense versus the prior year was due to improved results from the New Zealand subsidiary, which is the primary driver of income tax expense. OUTLOOK FOR 2019 In 2019, we expect to achieve harvest volumes in our Southern Timber segment of 6.2 to 6.3 million tons, while we expect modest pricing improvements in certain regions driven by stronger overall demand. In our Pacific Northwest Timber segment, we expect to achieve harvest volumes of 1.3 to 1.4 million tons, while we expect meaningfully lower average sawtimber prices driven by reduced export demand and market uncertainty regarding China tariffs. In our New Zealand Timber segment, we expect to achieve harvest volumes of 2.7 to 2.8 million tons, while we expect continued strong demand and pricing as Chinese customers seek supply from non-tariff countries, which we expect will be offset by increased shipping and logging costs. In our Real Estate segment, we remain focused on opportunistically unlocking the long-term value of our HBU development and rural property portfolio, and thus continue to expect that period-to-period results will be uneven. Following outsized Real Estate results in 2018, we currently anticipate more normalized transaction activity in 2019. Our 2019 outlook is subject to a number of variables and uncertainties, including those discussed at Item 1A — Risk Factors. RESULTS OF OPERATIONS, 2017 VERSUS 2016 (millions of dollars) The following tables summarize the sales, operating income and Adjusted EBITDA variances for 2017 versus 2016: Sales 2016 ........................................... Volume ....................................... Price ........................................... Non-timber sales ......................... Foreign exchange (a) .................. Other (b) ..................................... 2017 ........................................... Southern Timber $151.2 (0.1) (4.2) 3.6 — Pacific Northwest Timber New Zealand Timber Real Estate Trading Total $77.8 $176.0 $301.2 $109.7 $815.9 1.8 9.7 0.6 — 24.6 26.3 (4.7) 1.1 — (5.8) 24.4 — — (112.5) (c) 25.5 17.4 — — — (6.0) (b) 2.0 (b) $144.5 $91.9 $223.3 $207.3 $152.6 46.0 73.6 (0.5) 1.1 (116.5) $819.7 (a) Net of currency hedging impact. (b) (c) Real Estate includes $95.4 million of sales from Large Dispositions in 2017, offset by $207.3 million of sales from Large Dispositions in Includes variance due to stumpage versus delivered sales. 2016 and $0.6 million of deferred revenue in 2017. 40 Operating Income 2016 ................................... Volume ............................... Price ................................... Cost .................................... Non-timber income ............. Foreign exchange (a) ......... Depreciation, depletion & amortization ........................ Non-cash cost of land and real estate sold ................... Other (b) ............................. Southern Timber Pacific Northwest Timber New Zealand Timber $43.1 ($4.0) (0.2) (4.2) 0.6 2.4 — 0.5 — — 0.4 9.7 0.3 0.4 — (5.7) — — $33.0 7.2 20.3 (1.2) (4.1) 2.5 (0.5) — Real Estate $202.4 (3.9) 24.4 (0.5) — — (2.6) (2.7) Trading Corporate and Other Total $2.0 — — 2.6 — — — — — ($20.8) $255.8 — — 0.3 — — 3.5 50.2 2.1 (1.3) 2.5 (0.4) (8.7) — — (2.7) (85.8) 0.4 (b) (86.2) (c) 2017 ................................... $42.2 $1.1 $57.6 $130.9 $4.6 ($20.9) $215.5 (a) Net of currency hedging impact. (b) New Zealand Timber includes $0.4 million from a settlement received in 2017. (c) Real Estate included $67.0 million of operating income from two Large Dispositions in 2017, offset by $0.6 million of deferred operating income in 2017, $143.9 million of operating income from Large Dispositions in 2016 and receipt of $8.7 million in deferred payments with respect to prior land sales. Adjusted EBITDA (a) Southern Timber Pacific Northwest Timber New Zealand Timber 2016 ........................................ $92.9 $21.2 $56.5 Volume .................................... Price ........................................ Cost ......................................... Non-timber income .................. Foreign exchange (b) ............... Other ....................................... (0.1) (4.2) 0.6 2.4 — — 1.5 9.7 0.3 0.4 — — 10.3 20.3 (1.2) (4.1) 2.9 Real Estate $86.6 (5.7) 24.4 (0.5) — — Trading Corporate and Other Total $2.0 ($19.4) $239.7 — — 2.6 — — — — — — — — — 6.0 50.2 1.8 (1.3) 2.9 (8.9) 0.4 (c) (9.3) (d) 2017 ........................................ $91.6 $33.1 $85.1 $95.5 $4.6 ($19.4) $290.5 (a) Adjusted EBITDA is a non-GAAP measure defined and reconciled at Item 6 — Selected Financial Data. (b) Net of currency hedging impact. (c) New Zealand Timber includes $0.4 million of operating income from a settlement received in 2017. (d) Real Estate includes $0.6 million of deferred revenue in 2017 and receipt of $8.7 million in deferred payments in 2016 with respect to prior land sales. SOUTHERN TIMBER Full-year 2017 sales of $144.5 million decreased $6.7 million, or 4%, versus the prior year. This decrease in sales includes a $3.6 million increase in non-timber sales versus the prior year. Harvest volumes were relatively flat at 5.31 million tons versus 5.32 million tons in the prior year. Average pine sawtimber stumpage prices decreased 4% to $25.64 per ton versus $26.76 per ton in the prior year, while average pine pulpwood stumpage prices decreased 9% to $16.14 per ton versus $17.76 per ton in the prior year. The modest decrease in average sawtimber prices was driven by lower demand in the Gulf states as well as geographic mix due to hurricanes affecting the ability to harvest volume in one of the Company’s higher-priced sawtimber regions. The decrease in average pulpwood prices was due to salvage volume from the West Mims fire and increased supply as a result of extended dry weather along the east coast during the first half of the year. Overall, weighted-average stumpage prices (including hardwood) decreased 4% to $19.41 per ton versus $20.18 per ton in the prior year. Operating income of $42.2 million decreased $0.9 million versus the prior year due to lower weighted-average stumpage prices ($4.2 million), lower volumes ($0.2 million), higher severance and franchise taxes ($0.4 million) and higher lease land expenses ($0.4 million), which were partially offset by higher non-timber income ($2.4 million), lower depreciation and amortization ($0.5 million), and lower overhead expense ($1.4 million). Full-year Adjusted EBITDA of $91.6 million was $1.3 million below the prior year. 41 PACIFIC NORTHWEST TIMBER Full-year 2017 sales of $91.9 million increased $14.1 million, or 18%, versus the prior year. Included in this increase is a $0.6 million increase in non-timber sales versus the prior year. Harvest volumes increased 4% to 1.25 million tons versus 1.20 million tons in the prior year. Average delivered sawtimber prices increased 15% to $84.55 per ton versus $73.44 per ton in the prior year, while average delivered pulpwood prices decreased 3% to $40.62 per ton versus $41.97 per ton in the prior year. The increase in average sawtimber prices was due to stronger domestic and export sawtimber markets as well as a more favorable species mix. The decrease in average pulpwood prices was due to an increase in volume from a lower-priced region and an increase in the availability of wood chip residuals from lumber mills, which in turn reduced the demand for pulpwood logs. Operating income of $1.1 million versus operating loss of $4.0 million in the prior year was primarily due to higher prices ($9.7 million), lower overhead expense ($0.6 million), higher volumes ($0.4 million) and higher non- timber income ($0.4 million), partially offset by higher depletion rates resulting from our Menasha acquisition ($5.7 million) and higher road maintenance and other costs ($0.3 million), Full-year Adjusted EBITDA of $33.1 million was $11.9 million above the prior year. NEW ZEALAND TIMBER Full-year 2017 sales of $223.3 million increased $47.3 million, or 27%, versus the prior year. This increase in sales includes a $4.7 million decrease in non-timber sales versus the prior year. Harvest volumes increased 14% to 2.54 million tons versus 2.22 million tons in the prior year due to incremental volume from recent acquisitions. Average delivered prices for export sawtimber increased 15% to $112.74 per ton versus $98.32 per ton in the prior year, while average delivered prices for domestic sawtimber increased 12% to $81.12 per ton versus $72.68 in the prior year. The increase in export sawtimber prices was primarily due to stronger demand from China, while the increase in domestic sawtimber prices (in U.S. dollar terms) was driven primarily by stronger local demand for construction materials and a modest rise in the NZ$/US$ exchange rate (US$0.71 per NZ$1.00 versus US$0.70 per NZ$1.00). Excluding the impact of foreign exchange rates, domestic sawtimber prices increased 10% from the prior year. Operating income of $57.6 million increased $24.6 million versus the prior year due to higher prices ($20.3 million), higher volumes ($7.2 million), favorable foreign exchange impacts ($2.5 million) and higher other income ($0.4 million), which were partially offset by lower carbon sales ($4.1 million), higher forest management costs ($1.2 million) and higher depletion rates ($0.5 million). Full-year Adjusted EBITDA of $85.1 million was $28.6 million above the prior year. REAL ESTATE Full-year 2017 sales of $207.3 million decreased $93.9 million versus the prior year, while operating income of $130.9 million decreased $71.5 million versus the prior year. Full-year sales and operating income include $95.4 million and $67.0 million, respectively, from Large Dispositions in 2017 and $207.3 million and $143.9 million in the prior year. Sales and operating income decreased primarily due to lower volumes (83,068 acres sold versus 128,121 acres sold in the prior year), partially offset by higher weighted average prices ($2,502 per acre versus $2,351 per acre in the prior year). Full-year operating income also decreased due to the receipt of $8.7 million in deferred payments in 2016 with respect to prior land sales. Full-year Adjusted EBITDA of $95.5 million was $8.9 million above the prior year. TRADING Full-year 2017 sales of $152.6 million increased $42.9 million versus the prior year due to higher volumes and prices. Sales volumes increased 24% to 1.41 million tons versus 1.14 million tons in the prior year due to increased volume from existing suppliers and stumpage blocks purchased from third-parties, coupled with improving export market demand. Average prices increased 13% to $107.60 per ton versus $95.22 per ton in the prior year primarily due to stronger demand from China. Operating income of $4.6 million increased $2.6 million versus the prior year. CORPORATE AND OTHER EXPENSE/ELIMINATIONS Full-year 2017 corporate and other operating expense of $20.9 million increased $0.1 million versus the prior year due to higher depreciation expense ($0.4 million), the prior year gain on foreign currency derivatives ($1.2 million), higher selling, general and administrative costs ($0.2 million) and a reduction in overhead costs historically allocated to operating segments ($4.1 million) as a result of pension and organizational changes made in the fourth quarter of 2016. These increases were partially offset by lower costs related to shareholder litigation ($1.5 million), the prior year transaction costs related to the Menasha acquisition ($1.0 million), and lower pension costs ($3.3 million). 42 INTEREST EXPENSE Interest expense of $34.1 million in 2017 increased $1.9 million versus the prior year period due to higher average outstanding debt versus the prior year period. INTEREST AND MISCELLANEOUS INCOME (EXPENSE), NET Other non-operating income was $1.9 million in 2017 versus expense of $0.8 million in 2016. The 2016 results were comprised of unfavorable mark-to-market adjustments on New Zealand subsidiary interest rate swaps. INCOME TAX (EXPENSE) BENEFIT Full-year 2017 income tax expense of $21.8 million increased $16.8 million versus the prior year period. The increase in income tax expense versus the prior year was due to improved results from the New Zealand subsidiary, which is the primary driver of income tax expense. LIQUIDITY AND CAPITAL RESOURCES Our principal source of cash is cash flow from operations, primarily the harvesting of timber and sales of real estate. As a REIT, our main use of cash is dividends. We also use cash to maintain the productivity of our timberlands through replanting and silviculture. Our operations have generally produced consistent cash flow and required limited capital resources. Short-term borrowings have helped fund working capital needs while acquisitions of timberlands generally require funding from external sources or Large Dispositions. SUMMARY OF LIQUIDITY AND FINANCING COMMITMENTS 2018 (in millions of dollars) $148.4 Cash and cash equivalents .................................................................................. Total debt (a) ........................................................................................................ 975.0 Shareholders’ equity ............................................................................................ 1,654.6 102.2 Net Income Attributable to Rayonier Inc. .............................................................. 337.7 Adjusted EBITDA (b) ............................................................................................ Total capitalization (total debt plus equity)............................................................ 2,629.6 Debt to capital ratio .............................................................................................. Debt to Adjusted EBITDA (b) ................................................................................ Net debt to Adjusted EBITDA (b)(c) ..................................................................... Net debt to enterprise value (c)(d) ....................................................................... 37% 2.9 2.4 19% As of December 31, 2017 $112.7 1,028.4 1,693.0 148.8 290.5 2,721.4 2016 $85.9 1,065.5 1,496.9 212.0 239.7 2,562.4 38% 3.5 3.2 18% 42% 4.4 4.1 23% (a) (b) (c) (d) Total debt as of December 31, 2018, 2017 and 2016 is presented gross of deferred financing costs of $2.4 million, $3.0 million and $3.6 million, respectively. For a reconciliation of Adjusted EBITDA to net income see Management’s Discussion and Analysis of Financial Condition and Results of Operations—Performance and Liquidity Indicators. Net debt is calculated as total debt less cash and cash equivalents. Enterprise value is calculated as the number of shares outstanding multiplied by the Company’s share price, plus net debt, at December 31, 2018. LIQUIDITY FACILITIES See Note 5 — Debt for information on liquidity facilities and other outstanding debt, as well as for information on covenants that must be met in connection with our Senior Notes, Term Credit Agreement, Incremental Term Loan Agreement and the Revolving Credit Facility. 43 CASH FLOWS The following table summarizes our cash flows from operating, investing and financing activities for each of the three years ended December 31 (in millions of dollars): Total cash provided by (used for): Operating activities .................................................................................................. $310.1 (132.9) Investing activities .................................................................................................... (193.7) Financing activities ................................................................................................... 0.6 Effect of exchange rate changes on cash ................................................................ ($15.9) Change in cash, cash equivalents and restricted cash .............................................. $256.3 (235.3) (6.9) 0.6 $14.7 $203.8 (235.0) 114.4 (0.9) $82.3 2018 2017 2016 CASH PROVIDED BY OPERATING ACTIVITIES Cash provided by operating activities increased $53.8 million versus the prior year due to favorable operating results. CASH USED FOR INVESTING ACTIVITIES Cash used for investing activities decreased $102.4 million versus the prior year primarily due to a $90.1 million decrease in cash used for acquisitions (net of proceeds from Large Dispositions), a $6.3 million decrease in real estate development investments, a $6.1 million decrease in the construction costs on the Rayonier office building and a $3.0 million decrease in capital expenditures. CASH USED FOR FINANCING ACTIVITIES Cash used for financing activities in 2018 reflects dividend payments of $136.8 million, net repayments of $53.4 million in debt, $11.2 million of distributions to the minority shareholder, offset by $8.6 million of proceeds from the issuance of common stock under the incentive stock plan. RESTRICTED CASH See Note 19 — Restricted Cash for further information regarding funds deposited with a third-party intermediary. CREDIT RATINGS Both our ability to obtain financing and the related costs of borrowing are affected by our credit ratings, which are periodically reviewed by the rating agencies. As of December 31, 2018, our credit ratings from S&P and Moody’s were “BBB-” and “Baa3,” respectively, with both services listing our outlook as “Stable.” STRATEGY We continuously evaluate our capital structure. Our strategy is to maintain a weighted-average cost of capital competitive with other timberland REITs and TIMOs, while maintaining an investment grade debt rating as well as retaining the flexibility to actively pursue capital allocation opportunities as they become available. Overall, we believe we have adequate liquidity and sources of capital to run our businesses efficiently and effectively and to maximize the value of our timberland and real estate assets under management. EXPECTED 2019 EXPENDITURES Capital expenditures in 2019 are forecasted to be between $65 million and $69 million, excluding any strategic timberland acquisitions we may make. Capital expenditures are expected to be primarily comprised of seedling planting, fertilization and other silvicultural activities, property taxes, lease payments, allocated overhead and other capitalized costs. Aside from capital expenditures, we may also acquire timberland as we actively evaluate acquisition opportunities. Real estate development investments in 2019 are expected to be between $8 million and $11 million, net of anticipated reimbursements from community development bonds. Expected real estate development investments are primarily related to Wildlight, our mixed-use community development project located north of Jacksonville, Florida at the interchange of I-95 and State Road A1A. Our 2019 dividend payments are expected to be approximately $140 million assuming no change in the quarterly dividend rate of $0.27 per share or material changes in the number of shares outstanding. Future share repurchases, if any, will depend on the Company’s liquidity and cash flow, as well as general market conditions and other considerations including capital allocation priorities. 44 We made $2.7 million of required pension contributions in 2018. We have approximately $1.4 million of pension contribution requirements in 2019 and may make discretionary contributions in the future. Cash income tax payments in 2019 are expected to be approximately $3 million, primarily due to the New Zealand subsidiary. PERFORMANCE AND LIQUIDITY INDICATORS The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes two measures of financial results: Adjusted Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (“Adjusted EBITDA”), and Cash Available for Distribution (“CAD”). These measures are not defined by Generally Accepted Accounting Principles (“GAAP”) and the discussion of Adjusted EBITDA and CAD is not intended to conflict with or change any of the GAAP disclosures described above. Management considers these measures to be important to estimate the enterprise and shareholder values of the Company as a whole and of its core segments, and for allocating capital resources. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Management uses Adjusted EBITDA as a performance measure and CAD as a liquidity measure. Adjusted EBITDA and CAD as defined may not be comparable to similarly titled measures reported by other companies. These measures should not be considered in isolation from, and are not intended to represent an alternative to, our results reported in accordance with GAAP. Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, depletion, amortization, the non-cash cost of land and improved development, non-operating income and expense, costs related to shareholder litigation, the gain on foreign currency derivatives, Large Dispositions, costs related to the spin-off of the Performance Fibers business, internal review and restatement costs and discontinued operations. Below is a reconciliation of Net Income to Adjusted EBITDA for the five years ended December 31 (in millions of dollars): 2018 2017 2016 2015 2014 Net Income to Adjusted EBITDA Reconciliation Net Income .................................................................................... $117.3 29.7 25.2 144.1 23.6 (2.2) — — — — — — Adjusted EBITDA ........................................................................... $337.7 Interest, net, continuing operations ....................................... Income tax expense (benefit), continuing operations ............ Depreciation, depletion and amortization .............................. Non-cash cost of land and improved development ............... Non-operating (income) expense .......................................... Costs related to shareholder litigation (a) ............................. Gain on foreign currency derivatives (b) ............................... Large Dispositions (c) ........................................................... Cost related to spin-off of Performance Fibers...................... Internal review and restatement costs .................................. Net income from discontinued operations ............................. $161.5 32.2 21.8 127.6 13.7 — 0.7 — (67.0) — — — $290.5 $217.8 33.0 5.0 115.1 11.7 — 2.2 (1.2) (143.9) — — — $239.7 $43.9 34.7 (0.9) 113.7 12.5 0.1 4.1 — — — — — $208.1 $97.8 49.7 (9.6) 120.0 13.2 — — — (21.4) 3.8 3.4 (43.4) $213.5 (a) Costs related to shareholder litigation include expenses incurred as a result of the shareholder derivative demands. See Note 10 — Contingencies. In addition, these costs include the costs associated with class action securities litigation brought against the Company in a case styled In re Rayonier Inc. Securities Litigation, filed in the United States District Court for the Middle District of Florida (Case No. 3:14- cv01395-RJC-JBT) and the Company’s response to a subpoena it received from the SEC in November 2014. In July 2016, the Division of Enforcement of the SEC notified the Company that it had concluded its investigation into the Company. In October 2017, the court entered orders approving the settlement of the class action securities litigation and dismissing the case against all defendants with prejudice. (b) Gain on foreign currency derivatives is the gain resulting from the foreign exchange derivatives the Company used to mitigate the risk of fluctuations in foreign exchange rates while awaiting the capital contribution to the New Zealand subsidiary. (c) 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. See Item 6 — Selected Financial Data for a reconciliation of Adjusted EBITDA to Operating Income by segment as well as Item 7 — Results of Operations for an analysis of changes in Adjusted EBITDA from the prior year. 45 CAD is a non-GAAP measure of cash generated during a period which is available for common stock dividends, distributions to the New Zealand minority shareholder, repurchase of the Company’s common shares, debt reduction and strategic acquisitions. We define CAD as Cash Provided by Operating Activities adjusted for capital spending (excluding timberland acquisitions, real estate development investments and spending on the Rayonier office building), Large Dispositions, cash provided by discontinued operations and working capital and other balance sheet changes. In compliance with SEC requirements for non-GAAP measures, we reduce CAD by mandatory debt repayments which results in the measure entitled “Adjusted CAD.” CAD and Adjusted CAD generated in any period is not necessarily indicative of the amounts that may be generated in future periods. Below is a reconciliation of Cash Provided by Operating Activities to Adjusted CAD for the five years ended December 31 (in millions): Cash provided by operating activities Capital expenditures from continuing operations (a) Large Dispositions (b) Cash flow from discontinued operations Working capital and other balance sheet changes CAD Mandatory debt repayments (c) Adjusted CAD 2018 $310.1 (62.3) — — (7.7) $240.1 — $240.1 2017 $256.3 (65.3) — — (2.3) $188.7 — $188.7 2016 $203.8 (58.7) — — (0.8) $144.3 (31.5) $112.8 2015 $177.2 (57.3) — — (2.5) $117.4 (131.0) ($13.6) 2014 $320.4 (63.7) (21.4) (102.4) (39.5) $93.4 — $93.4 Cash used for investing activities (d) ($132.9) ($235.3) ($235.0) ($149.5) ($258.9) Cash (used for) provided by financing activities ($193.7) ($6.9) $114.4 ($116.5) ($161.4) (a) Capital expenditures exclude timberland acquisitions, real estate development investments and spending on the Rayonier office building. (b) Large Dispositions are defined as transactions involving the sale of timberland that exceed $20 million in size and do not have a demonstrable premium relative to timberland value. (c) Excludes debt repayments on the New Zealand subsidiary noncontrolling interest shareholder loan. See Note 5 — Debt for additional information. (d) Due to the adoption of ASU No. 2016-18, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of- period and end-of-period total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior period amounts have been restated to conform to current period presentation. The following table provides supplemental cash flow data for the five years ended December 31 (in millions): Purchase of timberlands Real Estate Development Investments Distributions to New Zealand minority shareholder (a) Rayonier Office Building 2018 2017 2016 2015 2014 ($57.6) ($242.9) ($366.5) ($98.4) ($130.9) (9.5) (14.4) — (15.8) (15.8) (6.1) (8.7) (4.9) (6.3) (2.7) (1.4) (0.9) (3.7) (1.2) — (a) Includes debt repayments on the New Zealand subsidiary noncontrolling interest shareholder loan. See Note 5 — Debt for additional information. OFF-BALANCE SHEET ARRANGEMENTS We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, and collateral for certain self-insurance programs that we maintain. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 11 — Guarantees for further discussion. 46 CONTRACTUAL FINANCIAL OBLIGATIONS In addition to using cash flow from operations and proceeds from Large Dispositions, we finance our operations and acquisitions through the issuance of debt and by entering into leases. These financial obligations are recorded in accordance with accounting rules applicable to the underlying transaction, with the result that some are recorded as liabilities on the Consolidated Balance Sheets, while others are required to be disclosed in the Notes to Consolidated Financial Statements and Management’s Discussion and Analysis. The following table aggregates our contractual financial obligations as of December 31, 2018 and anticipated cash spending by period: Contractual Financial Obligations (in millions) Long-term debt (a) ....................................................... Interest payments on long-term debt (b) ...................... Operating leases — timberland .................................... Operating leases — PP&E, offices............................... Commitments — derivatives (c) Commitments — other (d) ............................................ Total $975.0 211.3 178.8 4.6 1.6 2.9 Total contractual cash obligations ........................ $1,374.2 2019 — 38.9 8.8 1.2 1.6 2.6 $53.1 Payments Due by Period 2020-2021 — 77.9 16.7 2.0 — 0.3 $96.9 2022-2023 $325.0 56.6 15.7 1.4 — — $398.7 Thereafter $650.0 37.9 137.6 — — — $825.5 (a) The book value of long-term debt, net of deferred financing costs, is currently recorded at $972.6 million on the Company’s Consolidated Balance Sheet, but upon maturity the liability will be $975.0 million. (b) Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of December 31, 2018. (c) Commitments — derivatives represent payments expected to be made on derivative financial instruments (foreign exchange contracts and interest rate swaps). See Note 13 — Derivative Financial Instruments and Hedging Activities. (d) Commitments — other include $1.4 million of pension contribution requirements in 2019 based on actuarially determined estimates and IRS minimum funding requirements, payments expected to be made on the construction of the Wildlight development project and other purchase obligations. For additional information on the pension contribution see Note 15 — Employee Benefit Plans. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including changes in interest rates, commodity prices and foreign exchange rates. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of the Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. We do not enter into financial instruments for trading or speculative purposes. Interest Rate Risk We are exposed to interest rate risk through our variable rate debt, primarily due to changes in LIBOR. However, we use interest rate swaps to manage our exposure to interest rate movements on our term credit agreements by swapping existing and anticipated future borrowings from floating rates to fixed rates. As of December 31, 2018 we had $650 million of U.S. long-term variable rate debt. The notional amount of outstanding interest rate swap contracts with respect to this debt at December 31, 2018 was also $650 million. The term credit agreement and associated interest rate swaps mature in August 2024 and the incremental term loan agreement and associated interest rate swaps mature in May 2026. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in no corresponding increase/decrease in interest payments and expense over a 12-month period. The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. The estimated fair value of our long-term fixed rate debt at December 31, 2018 was $326 million compared to the $325 million principal amount. We use interest rates of debt with similar terms and maturities to estimate the fair value of our debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise. A hypothetical one-percentage point increase/decrease in prevailing interest rates at December 31, 2018 would result in a corresponding decrease/increase in the fair value of our long-term fixed rate debt of approximately $10 million. We estimate the periodic effective interest rate on our U.S. long-term fixed and variable rate debt to be approximately 3.3% after consideration of interest rate swaps and estimated patronage refunds, excluding unused commitment fees on the revolving credit facility. 47 The following table summarizes our outstanding debt, interest rate swaps and average interest rates, by year of expected maturity and their fair values at December 31, 2018: (Dollars in thousands) 2019 2020 2021 2022 2023 Thereafter Total Fair Value Variable rate debt: Principal amounts Average interest rate (a)(b) Fixed rate debt: Principal amounts Average interest rate (b) Interest rate swaps: Notional amount Average pay rate Average receive rate (b) — — — — — — — (a) Excludes estimated patronage refunds. Interest rates as of December 31, 2018. (b) Foreign Currency Exchange Rate Risk — — — — — — — — — — — — — — — — $325,000 3.75% — — — — — — — — — — $650,000 $650,000 $650,000 4.12% 4.12% — — — $325,000 $325,845 3.75% — $650,000 $650,000 $23,735 1.91% 2.37% 1.91% 2.37% — — The functional currency of the Company’s New Zealand-based operations and New Zealand subsidiary is the New Zealand dollar. Through these operations and our ownership in the New Zealand subsidiary, we are exposed to foreign currency risk on cash held in foreign currencies, shareholder distributions which are denominated in U.S. dollars and on foreign export sales and ocean freight payments that are predominantly denominated in U.S. dollars. To mitigate these risks, the New Zealand subsidiary routinely enters into foreign currency exchange contracts and foreign currency option contracts to hedge a portion of the New Zealand subsidiary’s foreign exchange exposure. Sales and Expense Exposure At December 31, 2018, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of $70 million and foreign currency option contracts with a notional amount of $24 million outstanding related to foreign export sales and ocean freight payments. The amount hedged represents 44% of forecast U.S. dollar denominated harvesting sales proceeds over the next 18 months and 89% of log trading sales proceeds over the next 3 months. At December 31, 2018, the New Zealand subsidiary also had foreign currency exchange contracts with a notional amount of $1 million outstanding on behalf of suppliers. Shareholder Distributions At December 31, 2018, the New Zealand subsidiary had foreign currency exchange contracts with a notional amount of NZ$14 million representing a portion of anticipated shareholder distribution payments over the next 12 months. Net Investment In March 2018, we entered into a foreign currency exchange contract with a notional amount of NZ$37 million to mitigate the risk of foreign currency exchange rate fluctuations on the cash portion of the Company’s net investment in New Zealand. The foreign currency exchange contract matured April 2018 and the cash was repatriated. For additional information regarding our derivative balances and activity, see Note 13 — Derivative Financial Instruments and Hedging Activities. 48 The following table summarizes our outstanding foreign currency exchange rate risk contracts at December 31, 2018: (Dollars in thousands) 0-1 months 1-2 months 2-3 months 3-6 months 6-12 months 12-18 months Total Fair Value Foreign exchange contracts to sell U.S. dollar for New Zealand dollar Notional amount ............................... $11,450 $4,500 $5,000 $19,000 $30,000 Average contract rate ....................... 1.4607 1.4687 1.4511 1.4458 1.4501 — — $69,950 ($1,569) 1.4519 Foreign currency option contracts to sell U.S. dollar for New Zealand dollar Notional amount ............................... $2,000 $2,000 $2,000 $4,000 $8,000 $6,000 $24,000 $145 Average strike price .......................... 1.4705 1.4710 1.4717 1.5227 1.5344 1.5100 1.5101 Foreign exchange contracts to sell New Zealand dollar for U.S. dollar Notional amount (NZ$) ..................... — Average contract rate ....................... — — — $14,000 — 0.6814 — — — — $14,000 $128 0.6814 49 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO FINANCIAL STATEMENTS Management’s Report on Internal Control over Financial Reporting .............................................................. Reports of Independent Registered Public Accounting Firm .......................................................................... Consolidated Statements of Income and Comprehensive Income for the Three Years Ended December 31, 2018 ........................................................................................................................................ Consolidated Balance Sheets as of December 31, 2018 and 2017 ............................................................... Consolidated Statements of Shareholders’ Equity as of December 31, 2016, 2017, and 2018 ..................... Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2018 ............................ Notes to Consolidated Financial Statements .................................................................................................. Note 1 - Summary of Significant Accounting Policies .............................................................................. Note 2 - Revenue ..................................................................................................................................... Note 3 - Timberland Acquisitions ............................................................................................................. Note 4 - Segment and Geographical Information ..................................................................................... Note 5 - Debt ........................................................................................................................................... Note 6 - Higher and Better Use Timberlands and Real Estate Development Investments ...................... Note 7 - New Zealand Subsidiary ............................................................................................................ Note 8 - Commitments ............................................................................................................................. Note 9 - Income Taxes ............................................................................................................................. Note 10 - Contingencies .......................................................................................................................... Note 11 - Guarantees .............................................................................................................................. Note 12 - Earnings Per Common Share .................................................................................................. Note 13 - Derivative Financial Instruments and Hedging Activities .......................................................... Note 14 - Fair Value Measurements ........................................................................................................ Note 15 - Employee Benefit Plans ........................................................................................................... Note 16 - Incentive Stock Plans ............................................................................................................... Note 17 - Other Operating Income, Net ................................................................................................... Note 18 - Inventory .................................................................................................................................. Note 19 - Restricted Cash ....................................................................................................................... Note 20 - Other Assets ............................................................................................................................ Note 21 - Accumulated Other Comprehensive Income/(Loss) ................................................................. Note 22 - Quarterly Results for 2018 and 2017 (Unaudited) .................................................................... Note 23 - Consolidating Financial Statements ......................................................................................... Page 51 52 54 55 56 57 59 59 66 68 69 71 74 74 75 76 79 80 80 81 85 86 90 93 93 93 94 95 96 97 50 MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING To Our Shareholders: The management of Rayonier Inc. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our system of internal controls over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of the inherent limitations of internal control over financial reporting, misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Rayonier Inc.’s management, under the supervision of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, we used the framework included in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2018. Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an audit report on the Company’s internal control over financial reporting as of December 31, 2018. The report on the Company’s internal control over financial reporting as of December 31, 2018, is on page 52. RAYONIER INC. By:(cid:3) /s/ DAVID L. NUNES David L. Nunes President and Chief Executive Officer (Principal Executive Officer) February 22, 2019 By: /s/ MARK MCHUGH Mark McHugh Senior Vice President and Chief Financial Officer (Principal Financial Officer) February 22, 2019 By: /s/ APRIL TICE April Tice Director, Financial Services and Corporate Controller (Principal Accounting Officer) February 22, 2019 51 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Rayonier Inc. Opinion on Internal Control over Financial Reporting We have audited Rayonier Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Rayonier Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of income and comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and schedule and our report dated February 22, 2019 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Jacksonville, Florida February 22, 2019 52 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Rayonier Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Rayonier Inc. and Subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 22, 2019 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Jacksonville, Florida February 22, 2019 /s/ Ernst & Young LLP We have served as the Company’s auditor since 2012. 53 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Years Ended December 31, (Thousands of dollars, except per share data) SALES ................................................................................................................. Costs and Expenses Cost of sales ............................................................................................... Selling and general expenses ..................................................................... Other operating income, net (Note 17) OPERATING INCOME ......................................................................................... Interest expense ................................................................................................... Interest income and miscellaneous income (expense), net ................................. INCOME BEFORE INCOME TAXES ................................................................... Income tax expense (Note 9) ........................................................................... NET INCOME ....................................................................................................... Less: Net income attributable to noncontrolling interest .................................... NET INCOME ATTRIBUTABLE TO RAYONIER INC. ......................................... OTHER COMPREHENSIVE INCOME (LOSS) Foreign currency translation adjustment, net of income tax effect of $0, $0 and $0 ................................................................................................. Cash flow hedges, net of income tax effect of $1,270, $594 and $545....... Actuarial change and amortization of pension and postretirement plan liabilities, net of income tax effect of $711, $0 and $0 .............................. COMPREHENSIVE INCOME .............................................................................. Less: Comprehensive income attributable to noncontrolling interest ................... COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC.................. EARNINGS PER COMMON SHARE (NOTE 12) 2018 $816,138 2017 $819,596 2016 $815,915 (605,259) (41,951) 1,140 (646,070) 170,068 (32,066) 4,564 142,566 (25,236) 117,330 (15,114) 102,216 (22,759) 5,029 (1,630) (19,360) 97,970 (8,931) $89,039 (568,253) (40,245) 4,393 (604,105) 215,491 (34,071) 1,840 183,260 (21,681) 161,579 (12,737) 148,842 (526,439) (42,785) 9,086 (560,138) 255,777 (32,245) (698) 222,834 (5,064) 217,770 (5,798) 211,972 9,114 5,693 6,322 22,822 (208) 14,599 176,178 (14,775) $161,403 5,533 34,677 252,447 (9,555) $242,892 Basic earnings per share attributable to Rayonier Inc. Diluted earnings per share attributable to Rayonier Inc. $0.79 $0.79 $1.17 $1.16 $1.73 $1.73 See Notes to Consolidated Financial Statements. 54 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 31, (Thousands of dollars) ASSETS CURRENT ASSETS Cash and cash equivalents .............................................................................................. Accounts receivable, less allowance for doubtful accounts of $8 and $23 ....................... Inventory (Note 18) ........................................................................................................... Prepaid logging roads ...................................................................................................... Prepaid expenses ............................................................................................................. Other current assets ......................................................................................................... Total current assets ................................................................................................. TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION ....................... HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS (NOTE 6) PROPERTY, PLANT AND EQUIPMENT 2018 2017 $148,374 26,151 15,703 11,976 5,040 609 207,853 2,401,327 $112,653 27,693 24,141 11,207 4,786 3,047 183,527 2,462,066 85,609 80,797 Land ................................................................................................................................. Buildings ........................................................................................................................... Machinery and equipment ................................................................................................ Construction in progress .................................................................................................. Total property, plant and equipment, gross ............................................................. Less—accumulated depreciation ..................................................................................... Total property, plant and equipment, net ................................................................. RESTRICTED CASH (NOTE 19) .............................................................................................. OTHER ASSETS (NOTE 20) .................................................................................................... 4,131 22,503 3,534 567 30,735 (7,984) 22,751 8,080 55,046 TOTAL ASSETS ..................................................................................................... $2,780,666 3,962 23,618 4,440 627 32,647 (9,269) 23,378 59,703 49,010 $2,858,481 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable ............................................................................................................. Current maturities of long-term debt (Note 5) ................................................................... Accrued taxes ................................................................................................................... Accrued payroll and benefits ............................................................................................ Accrued interest ............................................................................................................... Deferred revenue ............................................................................................................. Other current liabilities ...................................................................................................... Total current liabilities .............................................................................................. LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS (NOTE 5) ............................ PENSION AND OTHER POSTRETIREMENT BENEFITS (NOTE 15) ..................................... OTHER NON-CURRENT LIABILITIES ..................................................................................... COMMITMENTS AND CONTINGENCIES (NOTES 8 and 10) SHAREHOLDERS’ EQUITY $18,019 — 3,178 10,416 5,007 10,447 16,474 63,541 972,567 29,800 60,208 $25,148 3,375 3,781 9,662 5,054 9,721 11,807 68,548 1,022,004 31,905 43,084 Common Shares, 480,000,000 shares authorized, 129,488,675 and 128,970,776 shares 884,263 issued and outstanding ................................................................................................... 672,371 Retained earnings .............................................................................................................. 239 Accumulated other comprehensive income (Note 21) ........................................................ 1,556,873 TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY.................................................. 97,677 Noncontrolling interest ....................................................................................................... TOTAL SHAREHOLDERS’ EQUITY ............................................................................. 1,654,550 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ............................................... $2,780,666 872,228 707,378 13,417 1,593,023 99,917 1,692,940 $2,858,481 See Notes to Consolidated Financial Statements. 55 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Thousands of dollars, except share data) Balance, December 31, 2015 ............................ 122,770,217 $708,827 $612,760 ($33,503) $73,656 $1,361,740 Common Shares Shares Amount Retained Earnings Accumulated Other Comprehensive Income/(Loss) Non- controlling Interest Shareholders’ Equity Net income .......................................................... Dividends ($1.00 per share) ................................ — — — — 211,972 (123,155) Issuance of shares under incentive stock plans .. 179,743 Stock-based compensation ................................. — Repurchase of common shares........................... (45,592) Actuarial change and amortization of pension and postretirement plan liabilities .................... Foreign currency translation adjustment ............. Cash flow hedges ................................................ Recapitalization of New Zealand Joint Venture ... Recapitalization costs .......................................... — — — — — 1,576 5,136 (178) — — — (5,398) (96) — — (690) — — — — — Balance, December 31, 2016 ............................ 122,904,368 $709,867 $700,887 Cumulative-effect adjustment due to adoption of ASU No. 2016-16 ................................................ Net income .......................................................... Dividends ($1.00 per share) ................................ — — — — — — (14,365) 148,842 (127,986) Issuance of shares under incentive stock plans .. 322,314 Stock-based compensation ................................. Repurchase of common shares........................... Actuarial change and amortization of pension and postretirement plan liabilities .................... Foreign currency translation adjustment ............. Cash flow hedges ................................................ — (5,906) — — — Issuance of shares under equity offering, net of costs .................................................................... Balance, December 31, 2017 ............................ 128,970,776 5,750,000 Cumulative-effect adjustment due to adoption of ASU No. 2018-02 ................................................ Net income .......................................................... Dividends ($1.06 per share) ................................ — — — Issuance of shares under incentive stock plans .. 599,422 Stock-based compensation ................................. — Repurchase of common shares........................... (81,523) (2,984) Actuarial change and amortization of pension and postretirement plan liabilities .................... Foreign currency translation adjustment ............. Cash flow hedges ................................................ Distribution to minority shareholder ..................... — — — — — — — — Balance, December 31, 2018 ............................ 129,488,675 $884,263 $672,371 4,751 5,396 (176) — — — 152,390 — — — — — — — — — — 8,591 6,428 711 102,216 (137,934) — — — — — — — — — — — — 5,533 2,780 22,608 3,438 — $856 — — — — — — (208) 7,416 5,353 5,798 — — — — — 3,542 214 1,960 (28) 217,770 (123,155) 1,576 5,136 (868) 5,533 6,322 22,822 — (124) $85,142 $1,496,752 — 12,737 — — — — — 1,698 340 (14,365) 161,579 (127,986) 4,751 5,396 (176) (208) 9,114 5,693 — — 152,390 (711) — — — — — (919) (17,329) 5,781 — $239 — 15,114 — — — — — (5,430) (752) (11,172) — 117,330 (137,934) 8,591 6,428 (2,984) (919) (22,759) 5,029 (11,172) $97,677 $1,654,550 $872,228 $707,378 $13,417 $99,917 $1,692,940 See Notes to Consolidated Financial Statements. 56 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, (Thousands of dollars) 2018 2017 2016 OPERATING ACTIVITIES Net income ...................................................................................................................................... $117,330 $161,579 $217,770 Adjustments to reconcile net income to cash provided by operating activities: Depreciation, depletion and amortization .............................................................................. Non-cash cost of land and improved development ............................................................... Stock-based incentive compensation expense ..................................................................... Amortization of debt discount/premium ................................................................................. Deferred income taxes .......................................................................................................... Amortization of losses from pension and postretirement plans ............................................. Gain on sale of large disposition of timberlands ................................................................... 144,121 23,553 6,428 — 22,832 675 — 127,566 13,684 5,396 — 21,980 465 115,142 11,690 5,136 (462) 5,170 2,513 (66,994) (143,933) Other .................................................................................................................................... (2,613) (716) 336 Changes in operating assets and liabilities: 2,517 (1,175) (559) (206) (10,138) 203,801 (58,723) (8,746) Receivables .......................................................................................................................... Inventories ............................................................................................................................ Accounts payable ................................................................................................................. Income tax receivable/payable ............................................................................................. All other operating activities .................................................................................................. 765 1,773 (4,626) — (142) (6,362) (1,384) 3,435 (434) (1,931) CASH PROVIDED BY OPERATING ACTIVITIES ................................................................ 310,096 256,284 INVESTING ACTIVITIES Capital expenditures ........................................................................................................................ Real estate development investments ............................................................................................. Purchase of timberlands .................................................................................................................. Assets purchased in business acquisition ....................................................................................... Net proceeds from large disposition of timberlands ......................................................................... Rayonier office building under construction ..................................................................................... (62,325) (9,501) (57,608) — — — Other ............................................................................................................................................... (3,421) (65,345) (15,784) (242,910) (366,481) — 95,243 (6,084) (373) (887) 203,862 (6,307) 2,311 CASH USED FOR INVESTING ACTIVITIES ........................................................................ (132,855) (235,253) (234,971) FINANCING ACTIVITIES Issuance of debt .............................................................................................................................. Repayment of debt .......................................................................................................................... Dividends paid ................................................................................................................................. Proceeds from the issuance of common shares under incentive stock plan .................................... Proceeds from the issuance of common shares from equity offering, net of costs .......................... Repurchase of common shares ....................................................................................................... Proceeds from shareholder distribution hedge ................................................................................ Distribution to minority shareholder ................................................................................................. Debt issuance costs ........................................................................................................................ Other ............................................................................................................................................... CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES ............................................ EFFECT OF EXCHANGE RATE CHANGES ON CASH ................................................................. CASH, CASH EQUIVALENTS AND RESTRICTED CASH (a) 1,014 (54,416) (136,772) 8,591 — (2,984) 2,025 (11,172) — — 63,389 (100,157) (127,069) 4,751 152,390 (176) — — — — 695,916 (458,415) (122,845) 1,576 — (690) — — (818) (301) (193,714) 571 (6,872) 580 114,423 (938) Change in cash, cash equivalents and restricted cash .................................................................... Balance, beginning of year .............................................................................................................. (15,902) 172,356 14,739 157,617 82,315 75,302 Balance, end of year ....................................................................................................................... $156,454 $172,356 $157,617 See Notes to Consolidated Financial Statements. 57 RAYONIER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) For the Years Ended December 31, (Thousands of dollars) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year: Interest (b) ............................................................................................................................ Income taxes ........................................................................................................................ $33,120 2,150 $36,041 514 $36,289 501 Non-cash investing activity: Capital assets purchased on account ................................................................................... 2,001 3,809 4,683 2018 2017 2016 (a) Due to the adoption of ASU No. 2016-08, restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-year and end-of-year total amounts shown and therefore changes in restricted cash are no longer reported as investing activities. Prior year amounts have been restated to conform to current year presentation. For additional information and a reconciliation of cash, see Note 19 — Restricted Cash. (b) Interest paid is presented net of patronage payments received of $4.1 million and $3.0 million for the years ended December 31, 2018 and December 31, 2017, respectively. For additional information on patronage payments, see Note 5 — Debt. See Notes to Consolidated Financial Statements. 58 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands unless otherwise stated) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These statements include the accounts of Rayonier Inc. and its subsidiaries, in which it has a majority ownership or controlling interest. As of April 2013, the Company held a controlling interest (65%) in the New Zealand subsidiary, and, as such, consolidates its results of operations and Balance Sheet. In March 2016, the Company made a capital contribution into the New Zealand subsidiary, and as a result, the Company’s ownership interest increased to 77%. The Company records a noncontrolling interest in its consolidated financial statements representing the minority ownership interest (23%) of the New Zealand subsidiary’s results of operations and equity. All intercompany balances and transactions are eliminated. RECLASSIFICATIONS During 2018, management changed how it internally evaluates the business performance of its New Zealand Timber segment. In order to align segment reporting, the Company has reclassified New Zealand timberland sales from the New Zealand Timber segment to the Real Estate segment. All prior period amounts previously reported have been reclassified to reflect the realigned segments. See Note 4 — Segment and Geographic Information. USE OF ESTIMATES The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. There are risks inherent in estimating and therefore actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include time deposits with original maturities of three months or less. The consolidated cash balance includes time deposits of $26.7 million at December 31, 2017. No cash was held in time deposits at December 31, 2018. ACCOUNTS RECEIVABLE Accounts receivable are primarily amounts due to the Company for the sale of timber and are presented net of an allowance for doubtful accounts. INVENTORY HBU real estate properties that are expected to be sold within one year are included in inventory at lower of cost or net realizable value. HBU properties that are expected to be sold after one year are included in a separate balance sheet line, entitled “Higher and Better Use Timberlands and Real Estate Development Investments.” See below for additional information. Inventory also includes logs available to be sold by the Trading segment. Log inventory is recorded at the lower of cost or net realizable value and expensed to cost of sales when sold to third-party buyers. See Note 18 — Inventory for additional information. PREPAID LOGGING ROADS Costs for roads built in the Pacific Northwest and New Zealand to access particular tracts to be harvested in the upcoming 24 months to 60 months are recorded as prepaid logging roads. The Company charges such costs to expense as timber is harvested using an amortization rate determined annually as the total cost of prepaid roads divided by the estimated tons of timber to be accessed by those roads. The prepaid balance is classified as short-term or long-term based on the upcoming harvest schedule. See Note 20 — Other Assets for additional information. 59 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) DEFFERED FINANCING COSTS Deferred financing costs related to revolving debt are capitalized and amortized to interest expense over the term of the revolving debt using a method that approximates the effective interest method. See Note 20 — Other Assets for additional information on deferred financing costs related to revolving debt. See Note 5 — Debt for additional information on deferred financing costs related to term debt. CAPITALIZED SOFTWARE COSTS Software costs are capitalized and amortized over a period not exceeding five years using the straight-line method. TIMBER AND TIMBERLANDS Timber is stated at the lower of cost or net realizable value. Costs relating to acquiring, planting and growing timber including real estate taxes, site preparation and direct support costs relating to facilities, vehicles and supplies are capitalized. Annual lease payments are capitalized or expensed based on the proportion of acres that the Company will be able to harvest prior to lease expiration. Lease payments made within one year of expiration are expensed as incurred. Payroll costs are capitalized for time spent on timber growing activities, while interest or any other intangible costs are not capitalized. An annual depletion rate is established for each particular region by dividing merchantable inventory cost by standing merchantable inventory volume, which is estimated annually. The Company charges accumulated costs attributed to merchantable timber to depletion expense (cost of sales), at the time the timber is harvested or when the underlying timberland is sold. Upon the acquisition of timberland, the Company makes a determination on whether to combine the newly acquired merchantable timber with an existing depletion pool or to create a new, separate pool. This determination is based on the geographic location of the new timber, the customers/markets that will be served and the species mix. If the acquisition is similar, the cost of the acquired timber is combined into an existing depletion pool and a new depletion rate is calculated for the pool. This determination and depletion rate adjustment normally occurs in the quarter following the acquisition. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS HBU timberland is recorded at the lower of cost or net realizable value. These properties are managed as timberlands until sold or developed with sales and depletion expense related to the harvesting of timber accounted for within the respective timber segment. At the time of sale, the cost basis of any unharvested timber is recorded as depletion expense, a component of cost of sales, within the Real Estate segment. Real estate development investments include capitalized costs for targeted infrastructure improvements, such as roadways and utilities. HBU timberland and real estate development investments expected to be sold within twelve months are recorded as inventory. See Note 6 — Higher and Better Use Timberlands and Real Estate Development Investments for additional information. PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION Property, plant and equipment additions are recorded at cost, including applicable freight, interest, construction and installation costs. The Company depreciates its assets, including office and transportation equipment, using the straight-line depreciation method over 3 to 25 years. Buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years, respectively. Gains and losses on the retirement of assets are included in operating income. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is the amount the carrying value exceeds the fair value of the assets, which is based on a discounted cash flow model. Assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. 60 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) FAIR VALUE MEASUREMENTS Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level hierarchy that prioritizes the inputs used to measure fair value was established 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, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. 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. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. GOODWILL Goodwill represents the excess of the acquisition cost of the New Zealand Timber segment over the fair value of the net assets acquired. Goodwill is not amortized, but is periodically reviewed for impairment. An impairment test for this reporting unit’s goodwill is performed annually and whenever events or circumstances indicate that the value of goodwill may be impaired. The Company compares the fair value of the New Zealand Timber segment, using an independent valuation for the New Zealand forest assets, to its carrying value including goodwill. The independent valuation of the New Zealand forest assets is based on discounted cash flow models where the fair value is calculated using cash flows from sustainable forest management plans. The fair value of the forest assets is measured as the present value of cash flows from one growth cycle based on the productive forest land, taking into consideration environmental, operational, and market restrictions. These cash flow valuations involve a number of estimates that require broad assumptions and significant judgment regarding future performance. The annual impairment test was performed as of October 1, 2018; the estimated fair value of the New Zealand Timber segment exceeded its carrying value and no impairment was recorded. Except for changes in the New Zealand foreign exchange rate, there have been no adjustments to the carrying value of goodwill since the initial recognition. Note 20 — Other Assets for additional information. FOREIGN CURRENCY TRANSLATION The functional currency of the Company’s New Zealand-based operations is the New Zealand dollar. All assets and liabilities are translated into U.S. dollars at the exchange rate in effect at the respective balance sheet dates. Translation gains and losses are recorded as a separate component of Accumulated Other Comprehensive Income (“AOCI”), within Shareholders’ Equity. U.S. denominated transactions of the New Zealand subsidiary are translated into New Zealand dollars at the exchange rate in effect on the date of the transaction and recognized in earnings, net of related cash flow hedges. All income statement items of the New Zealand subsidiary are translated into U.S. dollars for reporting purposes using monthly average exchange rates with translation gains and losses being recorded as a separate component of AOCI, within Shareholders’ Equity. 61 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) REVENUE RECOGNITION The Company recognizes revenues when control of promised goods or services (“performance obligations”) is transferred to customers, in an amount that reflects the consideration expected in exchange for those goods or services (“transaction price”). The Company generally satisfies performance obligations within a year of entering into a contract and therefore has applied the disclosure exemption found under ASC 606-10-50-14. Unsatisfied performance obligations as of December 31, 2018 are primarily due to advances on stumpage contracts and unearned hunt license revenue. These performance obligations are expected to be satisfied within the next twelve months. The Company generally collects payment within a year of satisfying performance obligations and therefore has elected not to adjust revenues for a financing component. TIMBER SALES Revenue from the sale of timber is recognized when control passes to the buyer. The Company utilizes two primary methods or sales channels for the sale of timber – a stumpage/standing timber model and a delivered log model. The sales method the Company employs depends upon local market conditions and which method management believes will provide the best overall margins. Under the stumpage model, standing timber is sold primarily under pay-as-cut contracts, with specified duration (typically one year or less) and fixed prices, whereby revenue is recognized as timber is severed and the sales volume is determined. The Company also sells stumpage under lump-sum contracts for specified parcels where the Company receives cash for the full agreed value of the timber prior to harvest and control passes to the buyer upon signing the contract. The Company retains interest in the land, slash products, and the use of the land for recreational and other purposes. Any uncut timber remaining at the end of the contract period reverts to the Company. Revenue is recognized for lump-sum timber sales when payment is received, the contract is signed and control passes to the buyer. A third type of stumpage sale the Company utilizes is an agreed-volume sale, whereby revenue is recognized using the output method, as periodic physical observations are made of the percentage of acreage harvested. Under the delivered log model, the Company hires third-party loggers and haulers to harvest timber and deliver it to a buyer. Sales of domestic logs generally do not require an initial payment and are made to third-party customers on open credit terms. Sales of export logs generally require a letter of credit from an approved bank. Revenue is recognized when the logs are delivered and control has passed to the buyer. For domestic log sales, control is considered passed to the buyer as the logs are delivered to the customer’s facility. For export log sales (primarily in New Zealand), control is considered passed to the buyer upon delivery onto the export vessel. The following table summarizes revenue recognition and general payment terms for timber sales: Contract Type Performance Obligation Timing of Revenue Recognition General Payment Terms Stumpage Pay-as-Cut Stumpage Lump Sum Stumpage Agreed Volume Right to harvest a unit (i.e. ton, MBF, JAS m3) of standing timber Right to harvest an agreed upon acreage of standing timber Right to harvest an agreed upon volume of standing timber As timber is severed (point-in-time) Initial payment between 5% and 20% of estimated contract value; collection generally within 10 days of severance Contract execution (point-in-time) Full payment due upon contract execution As timber is severed (over-time) Delivered Wood (Domestic) Delivery of a unit (i.e. ton, MBF, JAS m3) of timber to customer’s facility Upon delivery to customer’s facility (point-in-time) Delivered Wood (Export) Delivery of a unit (i.e. ton, MBF, JAS m3) onto export vessel Upon delivery onto export vessel (point-in-time) 62 Payments made throughout contract term at the earlier of a specified harvest percentage or time elapsed No initial payment and on open credit terms; collection generally within 30 days of invoice Letter of credit from an approved bank; collection generally within 30 days of delivery RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) NON-TIMBER SALES Non-timber income is primarily comprised of hunting and recreational licenses. Such income and any related cost are recognized ratably over the term of the agreement and included in “Sales” and “Cost of sales”, respectively. Payment is generally due upon contract execution. LOG TRADING Log trading revenue is generally recognized when procured logs are delivered to the buyer and control has passed. For domestic log trading, control is considered passed to the buyer as the logs are delivered to the customer’s facility. For export log trading, control is considered passed to the buyer upon delivery onto the export vessel. The Trading segment also includes sales from log agency contracts, whereby the Company acts as an agent managing export services on behalf of third parties. Revenue for log agency fees are recognized net of related costs. REAL ESTATE The Company recognizes revenue on sales of real estate generally at the point in time when cash has been received, the sale has closed, and control has passed to the buyer. A deposit of 5% is generally required at the time a purchase and sale agreement is executed, with the balance due at closing. On sales of real estate containing future performance obligations, revenue is recognized using the input method based on costs incurred to date relative to the total costs expected to fulfill the performance obligations in the contract with the customer. COST OF SALES Cost of sales associated with timber operations primarily include the cost basis of timber sold (depletion) and logging and transportation costs (cut and haul). Depletion includes the amortization of capitalized costs (site preparation, planting and fertilization, real estate taxes, timberland lease payments and certain payroll costs). Other costs include amortization of capitalized costs related to road and bridge construction and software, depreciation of fixed assets and equipment, road maintenance, severance and excise taxes and fire prevention. Cost of sales associated with real estate sold includes the cost of the land, the cost of any timber on the property that was conveyed to the buyer, any real estate development costs and any closing costs including sales commissions that may be borne by the Company. As allowed under GAAP, the Company expenses closing costs, including sales commissions, when incurred for all real estate sales with future performance obligations expected to be satisfied within one year. When developed residential or commercial land is sold, the cost of sales includes actual costs incurred and estimates of future development costs benefiting the property sold through completion. Costs are allocated to each sold unit or lot based upon the relative sales value. For purposes of allocating development costs, estimates of future revenues and development costs are re-evaluated periodically throughout the year, with adjustments being allocated prospectively to the remaining units available for sale. EMPLOYEE BENEFIT PLANS The determination of expense and funding requirements for Rayonier’s defined benefit pension plan, its unfunded excess pension plan and its postretirement life insurance plan are largely based on a number of actuarial assumptions. The key assumptions include discount rate, return on assets, salary increases, mortality rates and longevity of employees. See Note 15 — Employee Benefit Plans for assumptions used to determine benefit obligations, and the net periodic benefit cost for the year ended December 31, 2018. Periodic pension and other postretirement expense is included in “Cost of sales” and “Selling and general expenses” in the Consolidated Statements of Income and Comprehensive Income. At December 31, 2018 and 2017, the Company’s pension plans were in a net liability position (underfunded) of $28.6 million and $30.6 million, respectively. The estimated amount to be paid in the next 12 months is recorded in “Accrued payroll and benefits” on the Consolidated Balance Sheets, with the remainder recorded as a long-term liability in “Pension and Other Postretirement Benefits.” Changes in the funded status of the Company’s plans are recorded through other comprehensive income (loss) in the year in which the changes occur. The Company measures plan assets and benefit obligations as of the fiscal year- end. See Note 15 — Employee Benefit Plans for additional information. 63 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. The Company recognizes the effect of a change in income tax rates on deferred tax assets and liabilities in the Consolidated Statements of Income and Comprehensive Income in the period that includes the enactment date of the rate change. The Company records a valuation allowance to reduce the carrying amounts of deferred tax assets if it is more-likely-than-not that such deferred tax assets will not be realized. In determining the provision for income taxes, the Company computes an annual effective income tax rate based on annual income by legal entity, permanent differences between book and tax, and statutory income tax rates by jurisdiction. Inherent in the effective tax rate is an assessment of the ultimate outcome of current period uncertain tax positions. The Company adjusts its annual effective tax rate as additional information on outcomes or events becomes available. Discrete items such as taxing authority examination findings or legislative changes are recognized in the period in which they occur. The Company’s income tax returns are subject to audit by U.S. federal, state and foreign taxing authorities. In evaluating the tax benefits associated with various tax filing positions, the Company records a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue. The Company records a liability for an uncertain tax position that does not meet this criterion. The Company adjusts its liabilities for uncertain tax benefits in the period in which it is determined the issue is settled with the taxing authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information becomes available. See Note 9 — Income Taxes for additional information. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-02, Income Statement — Reporting Comprehensive Income (Topic 220) Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income . This standard allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act. ASU No. 2018-02 is effective for the Company's reporting period beginning on January 1, 2019; early adoption is permitted. The Company elected to adopt ASU No. 2018-02 during the third quarter of 2018, and elected to reclassify the income tax effects of the Tax Cuts and Jobs Act from AOCI to retained earnings. The reclassification decreased AOCI and increased retained earnings by $0.7 million, with zero net effect on total shareholders’ equity. The Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018. The Company elected to apply the modified retrospective method to contracts that were not completed at the date of adoption. The Company also elected not to retrospectively restate contracts modified prior to January 1, 2018. A cumulative effect of adoption adjustment to the opening balance of retained earnings was not recorded as there was no accounting impact to any contracts with customers not completed at the date of adoption. See Note 2 — Revenue for additional information. In March 2017, the FASB issued ASU No. 2017-07, Compensation — Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires that an employer report the service cost component of net periodic benefit cost in the Consolidated Statements of Income in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. Additionally, the other components of net periodic benefit cost (interest cost, expected return on plan assets and amortization of losses or gains) are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. ASU No. 2017-07 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, and is required to be applied retrospectively to all periods presented beginning in the period of adoption. Rayonier adopted ASU No. 2017-07 during the first quarter ended March 31, 2018 and applied the update retrospectively to all periods presented. See Note 15 — Employee Benefit Plans for the components of net periodic benefit cost and the location of these items in the Consolidated Statements of Income and Comprehensive Income. 64 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Consolidated Statements of Cash Flows. ASU No. 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those annual periods. ASU No. 2016-18 is required to be applied retrospectively to all periods presented beginning in the period of adoption. Rayonier adopted ASU No. 2016-18 in the first quarter ended March 31, 2018 and applied the update retrospectively to all periods presented. Restricted cash is now included with cash and cash equivalents when reconciling the beginning-of-year and end-of-period total amounts shown on the Consolidated Statements of Cash Flows, and therefore changes in restricted cash are no longer reported as cash flow activities. See Note 19 — Restricted Cash for additional information, including the nature of restrictions on the Company’s cash, cash equivalents, and restricted cash. The Company adopted ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Receipts and Cash Payments in the first quarter ended March 31, 2018 with no material impact on the consolidated financial statements. The Company adopted ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic 825-10) in the third quarter ended September 30, 2018 with no material impact on the consolidated financial statements. NEW ACCOUNTING PRONOUNCEMENTS In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which currently requires lessees to recognize most leases on their balance sheets related to the rights and obligations created by those leases. ASU No. 2016-02 also requires additional qualitative and quantitative disclosures related to the nature, timing and uncertainty of cash flows arising from leases. In January 2018, the FASB issued ASU No. 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842. This update provides an optional transition practical expedient to not evaluate existing or expired land easements that were not previously accounted for as leases under the current leases guidance. An entity that elects this practical expedient should evaluate new or modified land easements under ASU No. 2016-02, once adopted. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of ASU No. 2016-02 to assess whether they meet the definition of a lease. In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors. This update provides a policy election to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs, clarify the accounting for certain lessor costs and require lessors to allocate (rather than recognize) certain variable payments to lease and nonlease components when the changes in facts and circumstances on which a variable payment is based occurs. This standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and is required to be applied on a modified retrospective basis beginning at the earliest period presented. The Company has elected to apply a practical expedient offered in the updated guidance which allows entities to apply the guidance on January 1, 2019 and comparative periods are not restated. The Company also expects to elect the transition practical expedient package available in the guidance whereby we will not reassess whether any of our expired or existing contracts contain a lease, the classification for any expired or existing leases or the initial direct costs for any existing leases. The Company is finalizing its evaluation of its operating lease inventory and other provisions of the updated guidance, but currently expects to recognize additional lease liabilities and corresponding right-of-use assets of less than five percent of our total assets on our Consolidated Balance Sheet, representing the present value of the remaining minimum lease payments at January 1, 2019 with an assumed 20-year term on Crown Forest Licenses. Based on the Company’s assessment, the impact of adoption of the updated guidance is not expected to have a material effect on its results of operations. See Note 8 — Commitments, for information about our lease commitments. 65 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which will make more financial and non-financial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. ASU No. 2017-12 is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted and the amended presentation and disclosure guidance is required to be applied on a prospective basis. The Company does not expect a material impact on the Company’s Consolidated Financial Statements. In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018-13 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements. In August 2018, the FASB issued ASU No. 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans. This ASU makes minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans. ASU 2018-14 is effective for fiscal years ending after December 15, 2020; early adoption is permitted. As ASU 2018-14 only revises disclosure requirements, it will not have a material impact on the Company’s Consolidated Financial Statements. SUBSEQUENT EVENTS The Company has evaluated events occurring from December 31, 2018 to the date of issuance for potential recognition or disclosure in the consolidated financial statements. No events were identified that warranted recognition or disclosure. 2. REVENUE ADOPTION OF ASC 606 For information on the adoption of ASC 606, including changes to significant accounting policies and required transition disclosures, see Note 1 — Summary of Significant Accounting Policies. Contract Balances The timing of revenue recognition, invoicing and cash collections results in accounts receivable and deferred revenue (contract liabilities) on the Consolidated Balance Sheets. Accounts receivable are recorded when the Company has an unconditional right to consideration for completed performance under the contract. Contract liabilities relate to payments received in advance of performance under the contract. Contract liabilities are recognized as revenue as (or when) the Company performs under the contract. The following table summarizes revenue recognized during the years ended December 31, 2018 and 2017 that was included in the contract liability balance at the beginning of each year: Revenue recognized from contract liability balance at the beginning of the year (a) ........... $9,004 $8,701 (a) Revenue recognized was primarily from hunting licenses and the use of advances on pay-as-cut timber sales. Year Ended December 31, 2018 2017 66 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) The following tables present our revenue from contracts with customers disaggregated by product type for the years ended December 31, 2018, 2017 and 2016: Year Ended December 31, 2018 Pulpwood ...................................................... Sawtimber ..................................................... Hardwood ...................................................... Total Timber Sales .............................. License Revenue, Primarily From Hunting .... Other Non-Timber/Carbon Revenue ............. Agency Fee Income ...................................... Total Non-Timber Sales ...................... Improved Development ................................. Unimproved Development ............................. Rural ............................................................. Non-strategic / Timberlands .......................... Total Real Estate Sales ....................... Southern Timber Pacific Northwest Timber New Zealand Timber Real Estate Trading Elim. Total $80,134 60,295 3,433 143,863 16,285 9,030 — 25,315 — — — — — $14,305 92,166 — 106,471 709 2,375 — 3,084 — — — — — $28,737 213,206 — 241,943 401 6,670 — 7,071 — — — — — — — — — — — — — 8,393 8,621 22,689 98,872 138,575 $13,771 134,299 — 148,070 — — 652 652 — — — — — — $136,947 499,966 — 3,433 — 640,347 — 17,395 — 18,075 — 652 — 36,122 — 8,393 — 8,621 — 22,689 — 98,872 — 138,575 — Revenue from Contracts with Customers...... Other Non-Timber Sales, Primarily Lease..... Intersegment ................................................. Total Revenue ...................................... 169,178 817 — $169,995 109,555 277 — $109,832 249,014 — — $249,014 138,575 — — $138,575 148,722 — 92 $148,814 — — (92) ($92) 815,044 1,094 — $816,138 December 31, 2017 Pulpwood ...................................................... Sawtimber ..................................................... Hardwood ...................................................... Total Timber Sales .............................. License Revenue, Primarily from Hunting ..... Other Non-Timber Revenue .......................... Agency Fee Income ...................................... Total Non-Timber Sales ...................... Improved Development ................................. Unimproved Development ............................. Rural ............................................................. Non-strategic / Timberlands .......................... Large Dispositions ........................................ Total Real Estate Sales ....................... $67,836 50,891 3,912 122,639 16,004 5,061 — 21,065 — — — — — — Revenue from Contracts with Customers...... Other Non-Timber Sales, Primarily Lease..... Total Revenue ...................................... 143,704 806 $144,510 December 31, 2016 Pulpwood ...................................................... Sawtimber ..................................................... Hardwood ...................................................... Total Timber Sales .............................. License Revenue, Primarily from Hunting ..... Other Non-Timber Revenue .......................... Agency Fee Income ...................................... Total Non-Timber Sales ...................... Improved Development ................................. Unimproved Development ............................. Rural ............................................................. Non-strategic / Timberlands .......................... Large Dispositions ........................................ Total Real Estate Sales ....................... $80,248 46,600 6,052 132,854 14,313 3,267 — 17,580 — — — — — — Revenue from Contracts with Customers...... Other Non-Timber Sales, Primarily Lease ..... Total Revenue ...................................... 150,434 758 $151,192 $24,934 197,521 — 222,455 227 617 — 844 — — — — — — — — — — — — — — 6,348 16,405 18,632 70,590 95,351 207,326 $13,352 137,854 — 151,206 — — 1,378 1,378 — — — — — — 223,299 — $223,299 207,326 — $207,326 152,584 — $152,584 $18,993 151,747 — 170,740 279 5,022 — 5,301 — — — — — — — — — — — — — — 1,740 5,540 18,672 67,981 207,265 301,198 $8,793 99,520 — 108,313 — — 1,369 1,369 — — — — — — 176,041 — $176,041 301,198 — $301,198 109,682 — $109,682 $11,242 77,477 — 88,719 646 2,243 — 2,889 — — — — — — 91,608 269 $91,877 $13,202 61,985 — 75,187 503 1,832 — 2,335 — — — — — — 77,522 280 $77,802 67 — $117,364 463,743 — 3,912 — 585,019 — 16,877 — 7,921 — 1,378 — 26,176 — 6,348 — 16,405 — 18,632 — 70,590 — 95,351 — 207,326 — 818,521 — 1,075 — — $819,596 — $121,236 359,852 — 6,052 — 487,094 — 15,095 — 10,121 — 1,369 — 26,585 — 1,740 — 5,540 — 18,672 — 67,981 — 207,265 — 301,198 — 814,877 — 1,038 — — $815,915 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) The following tables present our timber sales disaggregated by contract type for the years ended December 31, 2018, 2017 and 2016: Year Ended December 31, 2018 Southern Timber Pacific Northwest Timber New Zealand Timber Trading Total Stumpage Pay-as-Cut ................................................. Stumpage Lump Sum ................................................. Stumpage Agreed Volume .......................................... Total Stumpage ................................................... Delivered Wood (Domestic) ........................................ Delivered Wood (Export) ............................................. Total Delivered .................................................... $72,385 4,988 — 77,373 60,931 5,559 66,490 — 11,854 — 11,854 94,617 — 94,617 — — — — — — — — 90,631 151,312 241,943 6,141 141,929 148,070 $72,385 16,842 — 89,227 252,320 298,800 551,120 Total Timber Sales ...................................................... $143,863 $106,471 $241,943 $148,070 $640,347 December 31, 2017 Stumpage Pay-as-Cut ................................................. Stumpage Lump Sum ................................................. Stumpage Agreed Volume .......................................... Total Stumpage ................................................... Delivered Wood (Domestic) ........................................ Delivered Wood (Export) ............................................. Total Delivered .................................................... $71,120 9,093 — 80,213 42,426 — 42,426 — 10,628 1,234 11,862 76,857 — 76,857 — — — — — — — — 84,221 138,234 222,455 6,044 145,162 151,206 $71,120 19,721 1,234 92,075 209,548 283,396 492,944 Total Timber Sales ...................................................... $122,639 $88,719 $222,455 $151,206 $585,019 December 31, 2016 Stumpage Pay-as-Cut ................................................. Stumpage Lump Sum ................................................. Stumpage Agreed Volume .......................................... Total Stumpage ................................................... Delivered Wood (Domestic) ........................................ Delivered Wood (Export) ............................................. Total Delivered .................................................... $73,673 4,341 — 78,014 54,840 — 54,840 — 2,121 2,492 4,613 70,574 — 70,574 — 767 — 767 — — — — 71,294 98,679 169,973 3,757 104,556 108,313 $73,673 7,229 2,492 83,394 200,465 203,235 403,700 Total Timber Sales ...................................................... $132,854 $75,187 $170,740 $108,313 $487,094 3. TIMBERLAND ACQUISITIONS In 2018, the Company acquired approximately 26,000 acres of timberland in Florida, Georgia, and Texas for $45.9 million of like-kind exchange proceeds. Additionally, in two transactions during 2018, the Company acquired forestry rights covering approximately 4,000 acres of timberland in New Zealand for approximately $11.7 million. These acquisitions were funded from operating cash flow and use of the New Zealand subsidiary’s working capital facility. See Note 5 — Debt. In 2017, the Company acquired approximately 95,100 acres of timberlands (including approximately 11,000 acres of leased lands) in Florida, Georgia and South Carolina for $214.3 million using proceeds from the offering and sale of 5.75 million shares under the universal shelf registration along with like-kind exchange proceeds. In five additional transactions throughout 2017, Rayonier purchased approximately 7,000 acres of timberland located in Georgia and Washington for approximately $7.2 million, which were funded with like-kind exchange proceeds. All acquisitions were accounted for as asset purchases. 68 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) Additionally, in two transactions during 2017, the Company acquired forestry rights covering approximately 8,000 acres of timberland with mature timber in New Zealand for approximately $21.4 million. These acquisitions were funded through the short-term working capital facility, which was fully repaid during the year. The following table summarizes the timberland acquisitions at December 31, 2018 and 2017: Florida ................................................................................................. Georgia ............................................................................................... South Carolina .................................................................................... Texas ................................................................................................... Washington ......................................................................................... New Zealand ....................................................................................... Total Acquisitions .............................................................................. 4. SEGMENT AND GEOGRAPHICAL INFORMATION 2018 2017 Cost $35,560 2,532 — 7,851 — 11,665 $57,608 Acres 20,513 2,232 — 3,279 — 3,833 29,857 Cost $32,334 147,833 39,884 — 1,483 21,376 $242,910 Acres 15,382 68,473 17,651 — 481 7,546 109,533 Rayonier operates in five reportable segments: Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. See Item 1 — Business for a discussion of each of the Company’s reportable segments. See Note 1 — Summary of Significant Accounting Policies for a discussion of the current year reclassification of New Zealand land sales from the New Zealand Timber segment to the Real Estate segment. Sales between operating segments are made based on estimated fair market value, and intercompany sales, purchases and profits (losses) are eliminated in consolidation. The Company evaluates financial performance based on segment operating income and Adjusted EBITDA. Asset information is not reported by segment, as the company does not produce asset information by segment internally. Operating income as presented in the Consolidated Statements of Income and Comprehensive Income is equal to segment income. Certain income (loss) items in the Consolidated Statements of Income and Comprehensive Income are not allocated to segments. These items, which include interest income (expense), miscellaneous income (expense) and income tax expense, are not considered by management to be part of segment operations and are included under “Corporate and other.” Segment information for each of the three years ended December 31, 2018 follows: Sales by Product Line 2017 2016 2018 Southern Timber ................................................................................................................. $169,995 Pacific Northwest Timber .................................................................................................... 109,832 $144,510 $151,192 91,877 77,802 New Zealand Timber .......................................................................................................... 249,014 223,299 176,041 Real Estate Improved Development ............................................................................................. Unimproved Development ......................................................................................... Rural ......................................................................................................................... Non-Strategic / Timberlands ...................................................................................... Large Dispositions .................................................................................................... Total Real Estate ................................................................................................................ Trading ............................................................................................................................... 8,393 8,621 22,689 98,872 — 138,575 148,814 Intersegment eliminations .................................................................................................. (92) Total Sales ............................................................................................................... $816,138 6,348 16,405 18,632 70,590 95,351 207,326 152,584 — 1,740 5,540 18,672 67,981 207,265 301,198 109,682 — $819,596 $815,915 69 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) Operating Income/(Loss) 2017 2016 2018 Southern Timber Pacific Northwest Timber ................................................................................................................ ................................................................................................... New Zealand Timber .......................................................................................................... Real Estate (a) ................................................................................................................... Trading .............................................................................................................................. Corporate and other ........................................................................................................... Total Operating Income ............................................................................................ Unallocated interest expense and other ............................................................................. Total Income before Income Taxes ..................................................................................... $44,245 $42,254 $43,098 8,137 62,754 76,240 953 1,127 57,567 (3,992) 33,049 130,856 202,402 4,578 2,002 (22,261) (20,891) (20,782) 170,068 215,491 255,777 (27,502) (32,231) (32,943) $142,566 $183,260 $222,834 (a) The years 2017 and 2016 include Large Dispositions of $67.0 million and $143.9 million, respectively. Capital Expenditures (a) Southern Timber .................................................................................................................. Pacific Northwest Timber ..................................................................................................... New Zealand Timber ........................................................................................................... Real Estate .......................................................................................................................... Corporate and other ............................................................................................................ $35,388 $34,476 $33,487 9,311 17,318 284 24 10,254 17,046 1,348 2,221 8,036 16,095 315 790 Total capital expenditures ........................................................................................... $62,325 $65,345 $58,723 Gross Capital Expenditures 2016 2017 2018 Timberland Acquisitions Southern Timber .................................................................................................................. Pacific Northwest Timber ..................................................................................................... New Zealand Timber ........................................................................................................... Total timberland acquisitions ...................................................................................... $45,943 $220,051 $103,947 — 1,483 262,534 11,665 21,376 — $57,608 $242,910 $366,481 Total Gross Capital Expenditures .................................................................................... $119,933 $308,255 $425,204 (a) Excludes timberland acquisitions presented separately in addition to spending on the Rayonier office building of $6.1 million and $6.3 million in the years 2017 and 2016, respectively, and real estate development investments of $9.5 million, $15.8 million and $8.7 million in the years 2018, 2017 and 2016, respectively. Southern Timber .................................................................................................................. Pacific Northwest Timber ..................................................................................................... New Zealand Timber ........................................................................................................... Real Estate (a) Corporate and other .................................................................................................................... ............................................................................................................ 1,160 ........................................................................................................................... $144,121 Total Depreciation, Depletion and Amortization 2016 2017 2018 $58,609 $49,357 $49,747 32,779 28,007 23,566 32,008 27,499 36,343 794 25,246 23,447 52,304 402 $146,001 $151,146 The years 2017 and 2016 include Large Dispositions of $18.4 million and $36.1 million, respectively. 70 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) Non-Cash Cost of Land and Improved Development 2017 2018 2016 Real Estate (a) ......................................................................................................................... 23,553 23,498 33,862 (a) The years 2017 and 2016 include Large Dispositions of $9.8 million and $22.2 million, respectively. Geographical Operating Information 2018 Sales 2017 2016 2018 Operating Income 2017 2016 Identifiable Assets 2017 2018 United States .......... $390,396 New Zealand .......... 425,742 Total .............. $816,138 $419,402 $528,345 $83,357 $138,528 $220,703 $2,282,480 $2,331,230 400,194 287,570 86,711 76,963 35,074 498,186 527,251 $819,596 $815,915 $170,068 $215,491 $255,777 $2,780,666 $2,858,481 5. DEBT Rayonier’s debt consisted of the following at December 31, 2018 and 2017: Term Credit Agreement due 2024 at a variable interest rate of 4.0% at December 31, 2018 $350,000 $350,000 2018 2017 Senior Notes due 2022 at a fixed interest rate of 3.75% Incremental Term Loan Agreement due 2026 at a variable interest rate of 4.2% at December 31, 2018 Revolving Credit Facility due 2020 at a variable interest rate of 2.8% at December 31, 2017 New Zealand subsidiary noncontrolling interest shareholder loan at 0% interest rate Total debt Less: Current maturities of long-term debt Less: Deferred financing costs Long-term debt, net of deferred financing costs 325,000 325,000 300,000 300,000 — — 50,000 3,375 975,000 1,028,375 — (2,433) (3,375) (2,996) $972,567 $1,022,004 Principal payments due during the next five years and thereafter are as follows: 2019 ......................................................................................................................................................................... 2020 ......................................................................................................................................................................... 2021 ......................................................................................................................................................................... 2022 ......................................................................................................................................................................... 2023 ......................................................................................................................................................................... Thereafter ................................................................................................................................................................ Total debt ................................................................................................................................................................. — — — 325,000 — 650,000 $975,000 71 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) TERM CREDIT AGREEMENT In August 2015, the Company entered into a credit agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions and other commercial banks to provide $550 million of new credit facilities, including a nine-year $350 million term loan facility. The periodic interest rate on the term loan facility is subject to a pricing grid based on the Company’s leverage ratio, as defined in the credit agreement. As of December 31, 2018, the periodic interest rate on the term loan facility was LIBOR plus 1.625%. Monthly payments of interest only are due on this loan through maturity. Following the closing of the term loan, the Company entered into several interest rate swap transactions to fix the cost of the term loan facility over its nine-year term. The term credit agreement allows the Company to receive annual patronage payments, which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user. The Company estimates the effective interest rate on the term loan facility to be approximately 3.3% after consideration of the interest rate swaps and estimated patronage refunds. For additional information on the Company’s interest rate swaps see Note 13 — Derivative Financial Instruments and Hedging Activities. 3.75% SENIOR NOTES ISSUED MARCH 2012 In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022, guaranteed by certain subsidiaries. Semi-annual payments of interest only are due on these notes through maturity. See Note 23 - Consolidating Financial Statements for further information regarding the subsidiary guarantors. INCREMENTAL TERM LOAN AGREEMENT In April 2016, the Company entered into an incremental term loan agreement with CoBank, ACB, as administrative agent, and a syndicate of Farm Credit institutions to provide a 10-year, $300 million incremental term loan. The periodic interest rate on the incremental term loan agreement is subject to a pricing grid based on the Company’s leverage ratio, as defined in the credit agreement. As of December 31, 2018, the periodic interest rate on the incremental term loan was LIBOR plus 1.900%. Monthly payments of interest only are due on this loan through maturity. Following the closing of the incremental term loan, the Company entered into several interest rate swap transactions to fix the cost of the facility over its 10-year term. The Company estimates the effective interest rate on the incremental term loan facility to be approximately 2.8% after consideration of the interest rate swaps and estimated patronage payments. For additional information on the Company’s interest rate swaps see Note 13 — Derivative Financial Instruments and Hedging Activities. REVOLVING CREDIT FACILITY In August 2015, the Company entered into a five-year $200 million unsecured revolving credit facility, replacing the previous $200 million revolving credit facility and $100 million farm credit facility which were scheduled to expire in April 2016 and December 2019, respectively. The periodic interest rate on the revolving credit facility is subject to a pricing grid based on the Company’s leverage ratio, as defined in the credit agreement. As of December 31, 2018, the periodic interest rate on the revolving credit facility was LIBOR plus 1.250%, with an unused commitment fee of 0.175%. Monthly payments of interest only are due on this loan through maturity. At December 31, 2018, the Company had $189.8 million of available borrowings under this facility, net of $10.2 million to secure its outstanding letters of credit. NEW ZEALAND SUBSIDIARY DEBT In April 2013, Rayonier acquired an additional 39% interest in its New Zealand subsidiary, bringing its total ownership to 65%, and as a result, the New Zealand subsidiary’s debt was consolidated effective on that date. On March 3, 2016, as a result of a capital contribution, the Company’s ownership interest in the New Zealand subsidiary increased to 77%. See Note 7 — New Zealand Subsidiary for further information. SHAREHOLDER LOAN The shareholder loan, which was fully repaid in the first quarter of 2018, was an interest-free loan from the noncontrolling New Zealand subsidiary partner. The loan was unsecured and subordinated to the Working Capital Facilities of the New Zealand subsidiary. Although Rayonier Inc. was not liable for this loan, the shareholder loan instrument contained features with characteristics of both debt and equity and was therefore required to be classified 72 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) as debt and consolidated. As the loan was effectively at par, the carrying amount was deemed to be the fair value. The entire balance of the shareholder loan was classified as short-term debt at December 31, 2017. WORKING CAPITAL FACILITIES In June 2016, the New Zealand subsidiary entered into a 12-month NZ$20 million working capital facility and an 18-month NZ$20 million working capital facility. Both working capital facilities were renewed in 2017 for a total of NZ $40 million. In June 2018, one working capital facility was renewed for an additional 12-month term. The second facility lapsed on December 31, 2018. The NZ$20 million Working Capital Facility is available for short-term operating cash flow needs of the New Zealand subsidiary. This facility holds a variable interest rate indexed to the 90-day New Zealand Bank Bill rate (“BKBM”). The margins are set for the term of the facility. During the year ended December 31, 2018, the New Zealand subsidiary made borrowings and repayments of $1.0 million on its working capital facility. At December 31, 2018, there was no outstanding balance on the working capital facility. DEBT COVENANTS In connection with the Company’s $350 million term credit agreement (the “Term Credit Agreement”), $300 million incremental term loan agreement (the “Incremental Term Loan Agreement”) and $200 million revolving credit facility (the “Revolving Credit Facility”), customary covenants must be met, the most significant of which include interest coverage and leverage ratios. In addition to these financial covenants listed above, the Senior Notes, Term Credit Agreement, Incremental Term Loan Agreement and Revolving Credit Facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At December 31, 2018, the Company was in compliance with all covenants. 73 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 6. HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS Rayonier continuously assesses potential alternative uses of its timberlands, as some properties may become more valuable for development, residential, recreation or other purposes. The Company periodically transfers, via a sale or contribution from the REIT to taxable REIT subsidiaries (“TRS”), HBU timberlands to enable land-use entitlement, development or marketing activities. The Company also acquires HBU properties in connection with timberland acquisitions. These properties are managed as timberlands until sold or developed. While the majority of HBU sales involve rural and recreational land, the Company also selectively pursues various land-use entitlements on certain properties for residential, commercial and industrial development in order to enhance the long-term value of such properties. For selected development properties, Rayonier also invests in targeted infrastructure improvements, such as roadways and utilities, to accelerate the marketability and improve the value of such properties. An analysis of higher and better use timberlands and real estate development investments from December 31, 2017 to December 31, 2018 is shown below: Higher and Better Use Timberlands and Real Estate Development Investments Non-current portion at December 31, 2017 Plus: Current portion (a) Total Balance at December 31, 2017 Non-cash cost of land and improved development Timber depletion from harvesting activities and basis of timber sold in real estate sales Capitalized real estate development investments (b) Capital expenditures (silviculture) Intersegment transfers Other Total Balance at December 31, 2018 Less: Current portion (a) Land and Timber Development Investments $59,653 $21,144 6,702 66,355 (2,193) (2,450) — 254 1,467 (5) 63,428 (4,239) 11,648 32,792 (8,192) — 9,501 — — (1) 34,100 (7,680) Non-current portion at December 31, 2018 $59,189 $26,420 Total $80,797 18,350 99,147 (10,385) (2,450) 9,501 254 1,467 (6) 97,528 (11,919) $85,609 (a) The current portion of Higher and Better Use Timberlands and Real Estate Development Investments is recorded in Inventory. See Note 18 — Inventory for additional information. (b) Capitalized real estate development investments includes $0.6 million of capitalized interest. 7. NEW ZEALAND SUBSIDIARY The Company maintains a 77% controlling financial interest in Matariki Forestry Group (the “New Zealand subsidiary”), a joint venture that owns or leases approximately 408,000 legal acres of New Zealand timberland. Accordingly, the Company consolidates the New Zealand subsidiary’s balance sheet and results of operations. The portions of the consolidated financial position and results of operations attributable to the New Zealand subsidiary’s 23% noncontrolling interest are shown separately within the Consolidated Statements of Income and Comprehensive Income and Consolidated Statements of Shareholders’ Equity. Rayonier New Zealand Limited (“RNZ”), a wholly-owned subsidiary of Rayonier Inc., serves as the manager of the New Zealand subsidiary. 74 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 8. COMMITMENTS The Company leases certain buildings, machinery and equipment under various operating leases. Total rental expense for operating leases for the three years ended December 31: Operating Leases ............................................................................................... 2018 $1,320 2017 $1,992 2016 $2,049 The Company also has long-term lease agreements on certain timberlands in the Southern U.S. and New Zealand. U.S. leases typically have initial terms of approximately 30 to 65 years, with renewal provisions in some cases. New Zealand timberland lease terms range between 30 and 99 years. Such leases are generally non-cancellable and require minimum annual rental payments. Total expenditures for long-term leases and deeds on timberlands (including Crown Forest Licenses) for the three years ended December 31: Long-Term Leases and Deeds on Timberlands .................................................. 2018 $9,521 2017 $10,731 2016 $10,710 At December 31, 2018, the future minimum payments under non-cancellable operating leases, timberland leases and other commitments were as follows: 2019 ......................................................................... 2020 ......................................................................... 2021 ......................................................................... 2022 ......................................................................... 2023 ......................................................................... Thereafter (c) ............................................................ Operating Leases Timberland Leases (a) Commitments (b) $1,234 1,071 898 710 649 40 $4,602 $8,775 8,384 8,365 8,128 7,618 137,586 $178,856 $4,184 229 25 — — — $4,438 Total $14,193 9,684 9,288 8,838 8,267 137,626 $187,896 (a) The majority of timberland leases are subject to increases or decreases based on either the Consumer Price Index, Producer Price Index or market rates. (b) Commitments include $1.4 million of pension contribution requirements in 2019 based on actuarially determined estimates and IRS minimum funding requirements, payments expected to be made on derivative financial instruments (foreign exchange contracts and interest rate swaps), construction of the Wildlight development project and other purchase obligations. For additional information on the pension contribution see Note 15 — Employee Benefit Plans. (c) Includes 20 years of future minimum payments for perpetual Crown Forest Licenses (“CFL”). A CFL consists of a license to use public or government owned land to operate a commercial forest. The CFL's extend indefinitely and may only be terminated upon a 35-year termination notice from the government. If no termination notice is given, the CFLs renew automatically each year for a one-year term. As of December 31, 2018, the New Zealand subsidiary has two CFL’s under termination notice that are currently being relinquished as harvest activities are concluding, as well as two fixed term CFL’s expiring in 2062. The annual license fee is determined based on current market rental value, with triennial rent reviews. 75 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 9. INCOME TAXES Our U.S. timber operations are primarily conducted by our REIT entity and is generally not subject to U.S. federal and state income taxation. Our New Zealand timber operations are conducted by the New Zealand subsidiary which is subject to corporate level tax in New Zealand. Our non-REIT qualifying operations, which are subject to corporate- level tax, are held by various TRS. These operations include our log trading business and certain real estate activities, such as the sale , entitlement and development of HBU properties. PROVISION FOR INCOME TAXES FROM CONTINUING OPERATIONS The provision for income taxes for each of the three years ended December 31 follows: Current U.S. federal ................................................................................................ State ........................................................................................................... Foreign ....................................................................................................... Deferred U.S. federal ................................................................................................ State ........................................................................................................... Foreign ....................................................................................................... Changes in valuation allowance ......................................................................... Total .................................................................................................................... 2018 2017 2016 $2 37 (1,914) (1,875) $261 (38) (245) (22) — (254) (241) (495) 3,803 146 (23,360) (19,411) (3,950) ($25,236) 13,028 — (21,659) (8,631) (13,028) ($21,681) 5,403 (280) (6,079) (956) (3,613) ($5,064) A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate for each of the three years ended December 31 follows: U.S. federal statutory income tax rate ................................... ($29,939) (21.0)% ($64,141) (35.0)% ($77,992) (35.0)% U.S. and foreign REIT income ............................................ 32,949 23.1 63,813 34.8 82,037 36.8 Matariki Group and Rayonier New Zealand Ltd .................. (23,166) (16.2) (19,182) (10.5) (4,799) (2.2) 2018 2017 2016 Transition tax ...................................................................... — — (3,506) Change in valuation allowance ........................................... (3,950) (2.8) (13,028) ASU No. 2016-16 adoption impact ...................................... Deemed repatriation of unremitted foreign earnings ........... Reduction of deferred tax asset for statutory rate change ... — — — — — — Foreign income tax withholding ........................................... (1,848) (1.3) Other .................................................................................. 718 0.5 (1.9) (7.1) 9.1 4.0 16,631 7,368 (10,499) (5.7) — 863 — 0.5 — — (3,613) (1.6) — — — — — — — — (697) (0.3) Income tax (expense) benefit as reported for net income ...... ($25,236) (17.7)% ($21,681) (11.8)% ($5,064) (2.3)% The Company’s effective tax rate is below the 21 percent U.S. statutory rate primarily due to tax benefits associated with being a REIT. 76 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) DEFERRED TAXES Deferred income taxes result from differences between the timing of recognizing revenues and expenses for financial book purposes versus income tax purposes. The nature of the temporary differences and the resulting net deferred tax asset/liability for the two years ended December 31 follows: 2018 2017 Gross deferred tax assets: Pension, postretirement and other employee benefits ................................................... New Zealand subsidiary ................................................................................................. CBPC tax credit carry forwards ...................................................................................... Capitalized real estate costs .......................................................................................... U.S. TRS net operating loss ........................................................................................... Land basis difference ..................................................................................................... Other .............................................................................................................................. Total gross deferred tax assets ...................................................................................... Less: Valuation allowance .............................................................................................. Total deferred tax assets after valuation allowance ........................................................ $1,791 14,252 14,555 7,386 5,747 11,282 4,047 59,060 (38,839) $20,221 $1,017 40,224 14,641 7,058 1,872 11,090 5,079 80,981 (34,889) $46,092 Gross deferred tax liabilities: Accelerated depreciation ................................................................................................ New Zealand subsidiary ................................................................................................. Timber installment sale .................................................................................................. Other .............................................................................................................................. Total gross deferred tax liabilities ................................................................................... Net deferred tax liability reported as noncurrent ..................................................................... (73) (66,430) (4,823) (1,272) (72,598) ($52,377) (35) (72,527) (4,706) (1,270) (78,538) ($32,446) Foreign net operating loss (“NOL”) and tax credit carryforwards as of the two years ended December 31 follows: 2018 New Zealand subsidiary NOL carryforwards .................................................. U.S. net deferred tax asset ............................................................................ Cellulosic Biofuel Producer Credit .................................................................. Total Valuation Allowance ...................................................................... 2017 New Zealand subsidiary NOL carryforwards .................................................. U.S. net deferred tax asset ............................................................................ Cellulosic Biofuel Producer Credit .................................................................. Total Valuation Allowance ...................................................................... Gross Amount Valuation Allowance Expiration $31,052 24,284 14,555 $137,949 20,248 14,641 — (24,284) (14,555) ($38,839) — (20,248) (14,641) ($34,889) None None 2019 None None 2019 77 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) UNRECOGNIZED TAX BENEFITS A reconciliation of the beginning and ending unrecognized tax benefits for the three years ended December 31 follows: Balance at January 1, ............................................................................................... Decreases related to prior year tax positions (a) ...................................................... Increases related to prior year tax positions ............................................................. Balance at December 31, ......................................................................................... 2018 2017 2016 — — — — $135 (135) — — $135 — — $135 (a) Result of a lapse of the applicable statute of limitations. The Company records interest (and penalties, if applicable) related to unrecognized tax benefits in non-operating expense. The Company recorded no benefit to interest expense in 2018, 2017 and 2016, respectively and had no recorded liabilities for the payment of interest at December 31, 2018 and 2017. TAX STATUTES The following table provides detail of the tax years that remain open to examination by the IRS and other significant taxing jurisdictions: Taxing Jurisdiction U.S. Internal Revenue Service ........................................................................................... New Zealand Inland Revenue ............................................................................................ Open Tax Years 2015 - 2017 2013 - 2017 U.S. TAX REFORM The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017 making significant changes to the Internal Revenue Code. Changes include a permanent reduction in the U.S. corporate income tax rate from 35% to 21% effective January 1, 2018 and a one-time transition tax on the deemed repatriation of deferred foreign earnings in 2017. The Company has completed its assessment of the accounting implications of the Act. As a result of the reduction in the U.S. corporate tax rate, the Company remeasured its U.S. deferred tax assets and liabilities and recorded zero tax expense due to a full valuation allowance. The deemed repatriation on deferred foreign income was de minimis as the income inclusion was offset by net operating losses (“NOL”). Effective January 1, 2018, the Act subjects a U.S. shareholder to current tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The Company’s REIT entity has a GILTI income inclusion of $0.8 million in the current year. The Company has made the policy election to account for the tax effects of GILTI as a component of income tax expense in the period the tax arises, to the extent applicable. ADOPTION OF ASU 2018-02 See Note 1 — Summary of Significant Accounting Policies for discussion on the adoption of ASU 2018-02. 78 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 10. CONTINGENCIES Following the Company’s November 10, 2014 earnings release and filing of the restated interim financial statements for the quarterly periods ended March 31 and June 30, 2014, (the “November 2014 Announcement”), the Company received five separate letters from shareholders requesting that the Company investigate or pursue derivative claims against certain officers and directors related to the November 2014 Announcement (the “Derivative Claims”). Although these demands did not identify any claims against the Company, the Company has certain obligations to advance expenses and provide indemnification to certain current and former officers and directors of the Company. The Company has also incurred expenses as a result of costs arising from the investigation of the claims alleged in the various demands. Following the Company’s receipt of the Derivative Claims, it entered into a series of tolling agreements with the shareholders from whom it received demands (the “Demand Shareholders”). The last of these tolling agreements ended in March of 2017. On October 13, 2017, one of the Demand Shareholders filed an action in the United States District Court for the Middle District of Florida, styled Molloy v. Boynton, et al., Civil Action No. 3:17-cv-01157-TJC-MCR (the “Derivative Lawsuit”). The complaint alleged breaches of fiduciary duties and unjust enrichment and named as defendants certain former officers and directors of Rayonier (the former officers and directors named as defendants are collectively the “Individual Defendants”). In November 2017, the parties reached an agreement to resolve all claims brought in the Derivative Lawsuit and agreed to negotiate in good faith regarding the amount of attorneys’ fees and expenses to be paid to the Demand Shareholders’ counsel, subject to court approval. The parties executed a term sheet on November 27, 2017, and agreed to schedule a mediation regarding the amount of attorneys’ fees and expenses. On December 6, 2017, the Court entered an order staying the case, directing that the case be administratively closed, and ordering the parties to file a joint status report with the Court not later than March 15, 2018. At mediation on March 13, 2018, the parties reached an agreement in principle to settle the case and amended the term sheet to memorialize such agreement (the “Settlement”). On April 17, 2018, Plaintiff sought preliminary approval of the Settlement from the Court. Pursuant to the terms of the Settlement, the Company agreed to certain governance reforms and to cause certain of its directors’ and officers’ liability insurance carriers to fund a settlement payment for the Demand Shareholders’ attorneys’ fees and expenses as well as incentive awards to the Demand Shareholders in the aggregate amount of $1.995 million. On August 17, 2018, the Court granted preliminary approval, established notice requirements and scheduled the final hearing as to approval of the Settlement. On November 2, 2018, the granted final approval and dismissed the case with prejudice. Following the dismissal, Rayonier’s insurance carriers made timely payment as required by the Settlement. The period allowed to file an appeal of the Court’s dismissal of the case expired on December 3, 2018, and no timely appeal was filed. The Company has also been named as a defendant in various other lawsuits and claims arising in the normal course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, it has in certain cases retained some risk through the operation of large deductible insurance plans, primarily in the areas of executive risk, property, automobile and general liability. These pending lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flow. 79 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 11. GUARANTEES The Company provides financial guarantees as required by creditors, insurance programs, and various governmental agencies. As of December 31, 2018, the following financial guarantees were outstanding: Financial Commitments Standby letters of credit (a) ............................................................................... Guarantees (b) .................................................................................................. Surety bonds (c) ................................................................................................ Total financial commitments .............................................................................. Maximum Potential Payment Carrying Amount of Liability $10,176 2,254 3,185 $15,615 — 43 — $43 (a) Approximately $9.2 million of the standby letters of credit serve as credit support for infrastructure at the Company’s Wildlight development project. The remaining letters of credit support various insurance related agreements, primarily workers’ compensation. These letters of credit will expire at various dates during 2019 and will be renewed as required. (b) In conjunction with a timberland sale and note monetization in 2004, the Company issued a make-whole agreement pursuant to which it guaranteed $2.3 million of obligations of a special-purpose entity that was established to complete the monetization. At December 31, 2018, the Company has recorded a de minimis liability to reflect the fair market value of its obligation to perform under the make-whole agreement. (c) Rayonier issues surety bonds primarily to secure performance obligations related to various operational activities and to provide collateral for outstanding claims under the Company’s previous workers’ compensation self-insurance programs in Washington and Florida. These surety bonds expire at various dates during 2019 and are expected to be renewed as required. 12. EARNINGS PER COMMON SHARE Basic earnings per share (“EPS”) is calculated by dividing net income attributable to Rayonier by the weighted average number of common shares outstanding during the year. Diluted EPS is calculated by dividing net income attributable to Rayonier by the weighted average number of common shares outstanding adjusted to include the potentially dilutive effect of outstanding stock options, performance shares, restricted shares and convertible debt. The following table provides details of the calculation of basic and diluted EPS for the three years ended December 31: Net Income ............................................................................................ Less: Net income attributable to noncontrolling interest ......................... Net income attributable to Rayonier Inc. ................................................ 2018 2017 2016 $117,330 (15,114) $102,216 $161,579 (12,737) $148,842 $217,770 (5,798) $211,972 Shares used for determining basic earnings per common share ............ 129,043,627 127,367,608 122,585,200 Dilutive effect of: Stock options ................................................................................ Performance and restricted shares ............................................... 71,276 575,328 91,956 350,385 92,473 134,650 Shares used for determining diluted earnings per common share .......... 129,690,231 127,809,949 122,812,323 Basic earnings per common share attributable to Rayonier Inc.: ............ Diluted earnings per common share attributable to Rayonier Inc.: ......... $0.79 $0.79 $1.17 $1.16 $1.73 $1.73 Anti-dilutive shares excluded from computations of diluted earnings per share: Stock options, performance and restricted shares .......................................... 254,282 596,061 829,469 2018 2017 2016 80 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 13. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES The Company is exposed to market risk related to potential fluctuations in foreign currency exchange rates and interest rates. The Company uses derivative financial instruments to mitigate the financial impact of exposure to these risks. The Company also uses derivative financial instruments to mitigate exposure to foreign currency risk due to the translation of the investment in Rayonier’s New Zealand-based operations from New Zealand dollars to U.S. dollars. Accounting for derivative financial instruments is governed by Accounting Standards Codification Topic 815, Derivatives and Hedging, (“ASC 815”). In accordance with ASC 815, the Company records its derivative instruments at fair value as either assets or liabilities in the Consolidated Balance Sheets. Changes in the instruments’ fair value are accounted for based on their intended use. Gains and losses on derivatives that are designated and qualify for cash flow hedge accounting are recorded as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the Company’s investment in its New Zealand operations is partially or completely liquidated. The ineffective portion of any hedge, 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. The Company's hedge ineffectiveness was de minimis for all periods presented. FOREIGN CURRENCY EXCHANGE AND OPTION CONTRACTS The functional currency of Rayonier’s wholly-owned subsidiary, Rayonier New Zealand Limited, and the New Zealand subsidiary is the New Zealand dollar. The New Zealand subsidiary is exposed to foreign currency risk on export sales and ocean freight payments which are mainly denominated in U.S. dollars. The New Zealand subsidiary typically hedges 35% to 90% of its estimated foreign currency exposure with respect to the following three months forecasted sales and purchases, 25% to 75% of its forecasted sales and purchases for the forward three to 12 months and up to 50% of the forward 12 to 18 months. Foreign currency exposure from the New Zealand subsidiary’s trading operations is typically hedged based on the following three months forecasted sales and purchases. As of December 31, 2018, foreign currency exchange contracts and foreign currency option contracts had maturity dates through December 2019 and February 2020, respectively. Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments qualify for cash flow hedge accounting. The 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. The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model. The Company may de-designate 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 AOCI for de- designated hedges remains in AOCI until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings. Through our ownership in the New Zealand subsidiary, the Company is exposed to foreign currency risk on shareholder distribution payments which are denominated in N.Z. dollars. On behalf of the Company, the New Zealand subsidiary typically hedges 60% to 100% of its estimated foreign currency exposure with respect to the following three months forecasted distributions, up to 75% of forecasted distributions for the forward three to six months and up to 50% of the forward six to 12 months. For the years ended December 31, 2018 and 2017, the change in fair value of the foreign exchange forward contracts of $2.2 million and $0.1 million was recorded in “Interest income and miscellaneous income (expense), net” as the contracts did not qualify for hedge accounting treatment. As of December 31, 2018, foreign exchange forward contracts had maturity dates through March 2019. 81 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) In March 2018, the Company entered into a foreign currency exchange contract (notional amount of NZ$37 million) to mitigate the risk of fluctuations in foreign currency exchange rates when translating the New Zealand subsidiary’s balance sheet to U.S. dollars. This contract hedged the cash portion of the Company’s net investment in New Zealand and qualified as a net investment hedge. The fair value of this contract was 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. This hedge qualified for hedge accounting whereby fluctuations in fair market value during the life of the hedge are recorded in AOCI and remain there permanently unless a partial or full liquidation of the investment is made. At each reporting period, the Company reviewed the hedge for ineffectiveness. In April 2018, the foreign currency exchange contract matured and the Company repatriated the cash. The Company did not have any ineffectiveness during the life of the hedge. INTEREST RATE SWAPS The Company is exposed to cash flow interest rate risk on its variable-rate Term Credit Agreement and Incremental Term Loan (as discussed below), and uses variable-to-fixed interest rate swaps to hedge this exposure. For these derivative instruments, the Company reports the gains/losses from the fluctuations in the fair market value of the hedges in AOCI and reclassifies them to earnings as interest expense in the same period in which the hedged interest payments affect earnings. For additional information on the Company’s interest rate swaps see Note 5 — Debt. The following table contains information on the outstanding interest rate swaps as of December 31, 2018: Outstanding Interest Rate Swaps (a) Date Entered Into Term August 2015 August 2015 April 2016 April 2016 July 2016 9 years 9 years 10 years 10 years 10 years Notional Amount Related Debt Facility $170,000 Term Credit Agreement 180,000 100,000 100,000 100,000 Term Credit Agreement Incremental Term Loan Incremental Term Loan Incremental Term Loan Fixed Rate of Swap Bank Margin on Debt Total Effective Interest Rate (b) 2.20% 2.35% 1.60% 1.60% 1.26% 1.63% 1.63% 1.90% 1.90% 1.90% 3.83% 3.98% 3.50% 3.50% 3.16% (a) All interest rate swaps have been designated as interest rate cash flow hedges and qualify for hedge accounting. (b) Rate is before estimated patronage payments. CARBON OPTIONS The New Zealand subsidiary enters into carbon options from time to time to sell carbon assets at certain prices. The fair value of carbon options is determined by a mark-to-market valuation using the Black-Scholes option pricing model, which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. For the year ended December 31, 2018, the change in fair value of the carbon option contracts of $0.2 million was recorded as a loss in “Interest and other miscellaneous income, net” as the contracts did not qualify for hedge accounting treatment. As of December 31, 2018, carbon option contracts had maturity dates through March 2019. 82 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) The following table demonstrates the impact of the Company’s derivatives on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2018, 2017 and 2016. Location on Statement of Income and Comprehensive Income 2018 2017 2016 Derivatives designated as cash flow hedges: Foreign currency exchange contracts ................................. Other comprehensive income (loss) ($4,357) $2,100 Foreign currency option contracts ....................................... Other comprehensive income (loss) Interest rate swaps ............................................................. Other comprehensive income (loss) Derivatives designated as a net investment hedge: Foreign currency exchange contract ................................... Other comprehensive income (loss) Foreign currency option contracts ....................................... Other comprehensive income (loss) Derivatives not designated as hedging instruments: Foreign currency exchange contracts ................................. Other operating income, net Interest income and miscellaneous income (expense), net Foreign currency option contracts ....................................... Other operating income, net Carbon options ................................................................... Interest rate swaps ............................................................. Interest income and miscellaneous income (expense), net Interest income and miscellaneous income (expense), net (180) 8,296 (344) — — 2,183 — (158) — $867 1,035 (52) 4,214 21,422 — — — 47 — — — — (4,606) 895 — 258 — (1,219) During the next 12 months, the amount of the December 31, 2018 AOCI balance, net of tax, expected to be reclassified into earnings as a result of the maturation of the Company’s derivative instruments is a loss of approximately $1.1 million. The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets at December 31, 2018 and 2017: Notional Amount 2018 2017 Derivatives designated as cash flow hedges: Foreign currency exchange contracts ............................................................................... Foreign currency option contracts ..................................................................................... Interest rate swaps ........................................................................................................... $69,950 24,000 650,000 $107,400 48,000 650,000 Derivatives not designated as hedging instruments: Foreign currency exchange contracts ............................................................................... Carbon options (a) ............................................................................................................ 9,396 2,517 18,439 — (a) Notional amount for carbon options is calculated as the number of units outstanding multiplied by the spot price as of December 31, 2018. 83 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (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 December 31, 2018 and 2017. Changes in balances of derivative financial instruments are recorded as operating activities in the Consolidated Statements of Cash Flows: Location on Balance Sheet 2018 2017 Fair Value Assets (Liabilities) (a) Derivatives designated as cash flow hedges: Foreign currency exchange contracts .................................... Other current assets Foreign currency option contracts .......................................... Other current assets Other assets Other current liabilities Other assets Other current liabilities Other non-current liabilities Interest rate swaps ................................................................. Other assets Other non-current liabilities Derivatives not designated as hedging instruments: Foreign currency exchange contracts .................................... Other current assets Other current liabilities Carbon options (a) ................................................................. Other current liabilities Total derivative contracts: Other current assets ......................................................................................................................... Other assets ..................................................................................................................................... Total derivative assets ................................................................................................................. Other current liabilities ..................................................................................................................... Other non-current liabilities .............................................................................................................. Total derivative liabilities ............................................................................................................. — — (1,569) 217 102 (106) (68) 23,735 — 152 (24) (322) $369 23,837 $24,206 (2,021) (68) ($2,089) $2,286 538 (37) 389 137 (119) (55) 17,473 (2,033) 209 (189) — $2,884 18,148 $21,032 (345) (2,088) ($2,433) (a) See Note 14 — 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. The Company’s derivative financial instruments are not subject to master netting arrangements which would allow the right of offset. 84 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 14. FAIR VALUE MEASUREMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS A three-level hierarchy that prioritizes the inputs used to measure fair value was established in the Accounting Standards Codification as follows: Level 1 — Quoted prices in active markets for identical assets or liabilities. Level 2 — Observable inputs other than quoted prices included in Level 1. Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following table presents the carrying amount and estimated fair values of financial instruments held by the Company at December 31, 2018 and 2017, using market information and what the Company believes to be appropriate valuation methodologies under generally accepted accounting principles: Asset (liability) (a) December 31, 2018 December 31, 2017 Carrying Amount Fair Value Carrying Amount Fair Value Level 1 Level 2 Level 1 Level 2 Cash and cash equivalents ...................... $148,374 $148,374 Restricted cash (b) ................................... Current maturities of long-term debt ......... 8,080 — Long-term debt (c) .................................... (972,567) Interest rate swaps (d) ............................. Foreign currency exchange contracts (d) Foreign currency option contracts (d) ....... Carbon options contracts (d) .................... 23,735 (1,442) 145 (322) 8,080 — — — — — — — — — $112,653 $112,653 59,703 (3,375) 59,703 (975,845) (1,022,004) 23,735 (1,442) 145 (322) 15,440 2,807 352 — — — — (3,375) — (1,030,135) — — — — 15,440 2,807 352 — (a) The Company did not have Level 3 assets or liabilities at December 31, 2018 and 2017. (b) Restricted cash represents the proceeds from like-kind exchange sales deposited with a third-party intermediary and cash held in escrow for a real estate sale. See Note 19 - Restricted Cash for additional information. (c) The carrying amount of long-term debt is presented net of capitalized debt costs on non-revolving debt. See Note 5 — Debt for additional information. (d) See Note 13 — Derivative Financial Instruments and Hedging Activities for information regarding the Balance Sheet classification of the Company’s derivative financial instruments. Rayonier uses the following methods and assumptions in estimating the fair value of its financial instruments: Cash and cash equivalents and Restricted cash — The carrying amount is equal to fair market value. Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value. Interest rate swap agreements — The fair value of interest rate contracts is determined by discounting the expected future cash flows, for each instrument, at prevailing interest rates. Foreign currency exchange contracts — The fair value of foreign currency exchange contracts is determined by a mark-to-market valuation which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. Foreign currency option contracts — The fair value of foreign currency option contracts is based on a mark-to-market calculation using the Black-Scholes option pricing model. Carbon option contracts — The fair value of carbon option contracts is determined by a mark-to-market valuation using the Black-Scholes option pricing model, which estimates fair value by discounting the difference between the contracted forward price and the current forward price for the residual maturity of the contract using a risk-free interest rate. 85 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 15. EMPLOYEE BENEFIT PLANS The Company has one qualified non-contributory defined benefit pension plan covering a portion of its employees and an unfunded plan that provides benefits in excess of amounts allowable under current tax law in the qualified plans. The Company closed enrollment in its pension plans to salaried employees hired after December 31, 2005. Effective December 31, 2016, the Company froze benefits for all employees participating in the pension plan. In lieu of the pension plan, the Company provides those employees with an enhanced 401(k) plan match 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. The following tables set forth the change in the projected benefit obligation and plan assets and reconcile the funded status and the amounts recognized in the Consolidated Balance Sheets for the pension and postretirement benefit plans for the two years ended December 31: Pension 2018 2017 Postretirement 2017 2018 Change in Projected Benefit Obligation Projected benefit obligation at beginning of year ..................... Service cost ............................................................................. Interest cost ............................................................................. Actuarial (gain) loss ................................................................. Benefits paid ............................................................................ Projected benefit obligation at end of year ........................ $87,986 — 3,021 (8,160) (3,288) $79,559 Change in Plan Assets Fair value of plan assets at beginning of year ......................... Actual return on plan assets .................................................... Employer contributions ............................................................ Benefits paid ............................................................................ Other expense ......................................................................... Fair value of plan assets at end of year ......................... $57,377 (4,638) 2,829 (4,002) (617) $50,949 $81,752 — 3,259 6,123 (3,148) $87,986 $51,114 9,909 90 (3,148) (588) $57,377 $1,420 7 38 (149) (13) $1,303 $1,285 6 53 89 (13) $1,420 — — 13 (13) — — — — 13 (13) — — Funded Status at End of Year: Net accrued benefit cost .......................................................... ($28,610) ($30,609) ($1,303) ($1,420) Amounts Recognized in the Consolidated Balance Sheets Consist of: Current liabilities ...................................................................... Noncurrent liabilities ................................................................ Net amount recognized .................................................. ($86) (28,524) ($28,610) ($92) (30,517) ($30,609) ($27) (1,276) ($1,303) ($32) (1,388) ($1,420) Net gains or losses recognized in other comprehensive income for the three years ended December 31 are as follows: Net (losses) gains ............................................ 2018 ($1,743) Pension 2017 ($583) 2016 $3,119 Postretirement 2017 2016 2018 $149 ($89) ($99) 86 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) Net gains or losses and prior service costs or credits reclassified from other comprehensive income and recognized as a component of pension and postretirement expense for the three years ended December 31 are as follows: Amortization of losses (gains) ............................... Amortization of prior service cost .......................... 2018 $673 — Pension 2017 $466 — 2016 $2,526 — Postretirement 2017 2016 2018 $2 — ($1) — ($13) — Net losses that have not yet been included in pension and postretirement expense for the two years ended December 31, which have been recognized as a component of AOCI are as follows: Net (losses) gains ............................................................................. Deferred income tax benefit .............................................................. AOCI ......................................................................................... Pension 2018 ($23,252) 1,216 ($22,036) 2017 ($22,183) 1,927 ($20,256) Postretirement 2018 2017 ($7) 6 ($1) ($157) 6 ($151) For pension and postretirement plans with accumulated benefit obligations in excess of plan assets, the following table sets forth the projected and accumulated benefit obligations and the fair value of plan assets for the two years ended December 31: Projected benefit obligation ..................................................................................................... Accumulated benefit obligation ................................................................................................ Fair value of plan assets .......................................................................................................... 2018 $79,559 79,559 50,949 2017 $87,986 87,986 57,377 The following tables set forth the components of net pension and postretirement benefit (credit) cost that have been recognized during the three years ended December 31: Pension Postretirement 2018 2017 2016 2018 2017 2016 Components of Net Periodic Benefit (Credit) Cost Service cost .................................................. Interest cost .................................................. Expected return on plan assets .................... Amortization of prior service cost.................. Amortization of losses (gains)....................... Net periodic benefit (credit) cost ............................ — 3,021 (3,934) — 673 ($240) — $1,307 3,474 (4,030) — 2,526 $3,277 3,259 (3,781) — 466 ($56) $7 38 — — 2 $47 $6 53 — — (1) $58 $4 42 — — (13) $33 The estimated pre-tax amounts that will be amortized from AOCI into net periodic benefit cost in 2019 are as follows: Amortization of loss ...................................................................................................... $633 Pension Postretirement — 87 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) The following table sets forth the principal assumptions inherent in the determination of benefit obligations and net periodic benefit cost of the pension and postretirement benefit plans as of December 31: Pension Postretirement 2018 2017 2016 2018 2017 2016 Assumptions used to determine benefit obligations at December 31: Discount rate ............................................................................... 4.11% 3.48% 4.01% 4.18% 3.56% 4.12% Rate of compensation increase ................................................... — — 4.16% 4.50% 4.50% 4.50% Assumptions used to determine net periodic benefit cost for years ended December 31: Discount rate ............................................................................... 3.48% 4.01% 4.20% 3.56% 4.12% 4.34% Expected long-term return on plan assets ................................... 7.17% 7.17% 7.70% — — — Rate of compensation increase ................................................... — — 4.16% 4.50% 4.50% 4.50% At December 31, 2018, the pension plan’s discount rate was 4.1%, which closely approximates interest rates on high quality, long-term obligations. In 2018, the expected return on plan assets remained at 7.2%, which is based on historical and expected long-term rates of return on broad equity and bond indices and consideration of the actual annualized rate of return. The Company utilizes this information in developing assumptions for returns, and risks and correlation of asset classes, which are then used to establish the asset allocation ranges. INVESTMENT OF PLAN ASSETS The Company’s pension plans’ asset allocation (excluding short-term investments) at December 31, 2018 and 2017, and target allocation ranges by asset category are as follows: Asset Category Domestic equity securities .................................................................................... International equity securities ............................................................................... Domestic fixed income securities ......................................................................... International fixed income securities .................................................................... Real estate fund ................................................................................................... Total ...................................................................................................................... Percentage of Plan Assets 2018 2017 Target Allocation Range 39% 28% 26% 5% 2% 100% 41% 35-45% 26% 20-30% 26% 25-29% 3-7% 2-4% 4% 3% 100% The Company’s Pension and Savings Plan Committee and the Audit Committee of the Board of Directors oversee the pension plans’ investment program which is designed to maximize returns and provide sufficient liquidity to meet plan obligations while maintaining acceptable risk levels. The investment approach emphasizes diversification by allocating the plans’ assets among asset categories and selecting investment managers whose various investment methodologies will be minimally correlative with each other. Investments within the equity categories may include large capitalization, small capitalization and emerging market securities, while the international fixed income portfolio may include emerging markets debt. Pension assets did not include a direct investment in Rayonier common shares at December 31, 2018 or 2017. 88 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) FAIR VALUE MEASUREMENTS The following table sets forth by level, within the fair value hierarchy (see Note 1 — Summary of Significant Accounting Policies for definition), the assets of the plans as of December 31, 2018 and 2017. Asset Category Investments at Fair Value: Fair Value at December 31, 2018 Fair Value at December 31, 2017 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Mutual Funds .................................. — — — — $8,986 — — $8,986 Investments at Net Asset Value: Separate Investment Accounts........ Total Investments at Fair Value ......... 50,949 $50,949 48,391 $57,377 The valuation methodology used for measuring the fair value of these asset categories was as follows: Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the plan are open-end mutual funds that are registered with the U.S. Securities and Exchange Commission. These funds are required to publish their daily net asset value and to transact at that price. The mutual funds held by the plan are deemed to be actively traded and to be Level 1 investments. Separate investment accounts are measured using the unit value calculated based on the Net Asset Value (“NAV”) of the underlying assets. The NAV is based on the fair value of the underlying investments held by each fund less liabilities divided by the units outstanding as of the valuation date. These funds are not publicly traded; however, the unit price calculation is based on observable market inputs of the funds’ underlying assets. The Company did not have Level 2 or Level 3 assets at December 31, 2018 and 2017. CASH FLOWS Expected benefit payments to be made by the Company for the next 10 years are as follows: Pension Benefits Postretirement Benefits 2019 ........................................................................................................................... 2020 ........................................................................................................................... 2021 ........................................................................................................................... 2022 ........................................................................................................................... 2023 ........................................................................................................................... 2024-2028 .................................................................................................................. $3,512 3,717 3,836 4,035 4,114 22,167 $36 38 41 44 47 278 The Company has approximately $1.4 million of pension contribution requirements in 2019. DEFINED CONTRIBUTION PLANS The Company provides a defined contribution plan to all of its employees. Company match contributions charged to expense for these plans were $0.9 million, $0.8 million and $0.7 million for the years ended December 31, 2018, 2017 and 2016, respectively. The defined contribution plan includes Rayonier common shares with a fair market value of $9.7 million and $12.3 million at December 31, 2018 and 2017, respectively. As of June 1, 2016, the Rayonier Inc. Common Stock Fund was closed to new contributions. Transfers out of the fund will continue to be permitted, but no new investments or transfers into the fund are allowed. As discussed above, the defined benefit pension plan is currently frozen. In lieu of the pension plan, employees are eligible to receive an enhanced match contribution. Company enhanced match contributions charged to expense for the years ended December 31, 2018, 2017 and 2016 were $0.8 million, $0.8 million and $0.5 million, respectively. 89 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 16. INCENTIVE STOCK PLANS The Rayonier Incentive Stock Plan (the “Stock Plan”) provides up to 15.8 million shares to be granted for incentive stock options, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and restricted stock units, subject to certain limitations. At December 31, 2018, a total of 4.5 million shares were available for future grants under the Stock Plan. Under the Stock Plan, shares available for issuance are reduced by 1 share for each option or right granted and by 2.27 shares for each performance share, restricted share or restricted stock unit granted. The Company issues new shares of stock upon the exercise of stock options, the granting of restricted stock, and the vesting of performance shares. A summary of the Company’s stock-based compensation cost is presented below: Selling and general expenses ........................................................................ Cost of sales .................................................................................................. Timber and Timberlands, net (a) Total stock-based compensation .................................................................... 2018 $5,623 704 101 $6,428 2017 $4,784 556 56 $5,396 2016 $4,607 487 42 $5,136 Tax benefit recognized related to stock-based compensation expense (b) .... $338 $249 $483 (a) Represents amounts capitalized as part of the overhead allocation of timber-related costs. (b) A valuation allowance is recorded against the tax benefit recognized as the Company does not expect to be able to realize the benefit in the future. FAIR VALUE CALCULATIONS BY AWARD RESTRICTED STOCK Restricted stock granted to employees under the Stock Plan generally vests in fourths on the first, second, third and fourth anniversary of the grant date. Restricted stock granted to senior management generally vests in thirds on the third, fourth, and fifth anniversary of the grant date. Periodically, other one-time restricted stock grants are issued to employees for special purposes, such as new hire, promotion or retention, and can vest ratably over, or upon completion of, a defined period of time. Generally, holders of restricted stock receive dividend equivalent payments on outstanding restricted shares. Restricted stock granted to members of the board of directors generally vests immediately upon issuance and is subject to certain holding requirements. The fair value of each share granted is equal to the share price of the Company’s stock on the date of grant. Rayonier has elected to value each grant in total and recognize the expense on a straight-line basis from the grant date of the award to the latest vesting date. As of December 31, 2018, there was $4.6 million of unrecognized compensation cost solely attributable to Rayonier restricted stock held by Rayonier employees. The Company expects to recognize this cost over a weighted average period of 2.9 years. A summary of the Company’s restricted shares is presented below: Restricted shares granted ...................................................................................................... Weighted average price of restricted shares granted ............................................................. Intrinsic value of restricted stock outstanding (a) .................................................................... Grant date fair value of restricted stock vested ...................................................................... Cash used to purchase common shares from current and former employees to pay minimum withholding tax requirements on restricted shares vested ................................... 2018 2017 2016 87,924 $35.44 8,792 1,582 97,643 $28.18 8,906 1,198 106,326 $25.08 6,177 2,248 $334 $176 $178 (a) Intrinsic value of restricted stock outstanding is based on the market price of the Company’s stock at December 31, 2018. 90 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) Non-vested Restricted Shares at January 1, .................................................... Granted ............................................................................................................ Vested .............................................................................................................. Cancelled ......................................................................................................... Non-vested Restricted Shares at December 31, .............................................. PERFORMANCE SHARES UNITS 2018 Number of Shares 281,569 87,924 (49,780) (2,214) 317,499 Weighted Average Grant Date Fair Value $29.32 35.44 31.78 28.16 $30.64 The Company’s performance share units generally vest upon completion of a three-year period. The number of shares, if any, that are ultimately awarded is contingent upon Rayonier’s total shareholder return versus selected peer group companies. The performance share payout is based on a market condition and as such, the awards are valued using a Monte Carlo simulation model. The model generates the fair value of the award at the grant date, which is then recognized as expense on a straight-line basis over the vesting period. The Stock Plan allows for the cash settlement of the minimum required withholding tax on performance share unit awards. As of December 31, 2018, there was $5.0 million of unrecognized compensation cost related to the Company’s performance share unit awards, which is solely attributable to awards granted in 2016, 2017 and 2018 to Rayonier employees. This cost is expected to be recognized over a weighted average period of 1.8 years. A summary of the Company’s performance share units is presented below: Common shares reserved for performance shares granted during year .................................. Weighted average fair value of performance share units granted ............................................ Intrinsic value of outstanding performance share units (a) ...................................................... Fair value of performance shares vested ................................................................................ Cash used to purchase common shares from current and former employees to pay minimum withholding tax requirements on performance shares vested ............................... 2018 2017 2016 213,154 226,448 250,584 $40.27 9,229 5,670 2,651 $32.17 10,414 $28.79 7,482 — — — — (a) Intrinsic value of outstanding performance share units is based on the market price of the Company's stock at December 31, 2018. Outstanding Performance Share units at January 1, .......................................... Granted .............................................................................................................. Units Distributed ................................................................................................. Other Cancellations/Adjustments ....................................................................... Outstanding Performance Share units at December 31, .................................... 2018 Number of Units 329,239 106,577 (102,523) (11) 333,282 Weighted Average Grant Date Fair Value $30.21 40.27 29.62 30.24 $33.60 Expected volatility was estimated using daily returns on the Company’s common shares for the three-year period ending on the grant date. The risk-free rate was based on the 3-year U.S. treasury rate on the date of the award. The dividend yield was not used to calculate fair value as awards granted receive dividend equivalents. The following table provides an overview of the assumptions used in calculating the fair value of the awards granted for the three years ended December 31, 2018: Expected volatility ......................................................................................................... Risk-free rate ................................................................................................................ 91 2017 2018 20.8% 23.3% 1.5% 2.4% 2016 25.4% 0.9% RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) NON-QUALIFIED EMPLOYEE STOCK OPTIONS The exercise price of each non-qualified stock option granted under the Stock Plan is equal to the closing market price of the Company’s stock on the grant date. Under the Stock Plan, the maximum term is 10 years from the grant date. A summary of the status of the Company’s stock options as of and for the year ended December 31, 2018 is presented below. Options outstanding at January 1, ................................... Granted .................................................................. Exercised ............................................................... Cancelled or expired .............................................. Options outstanding at December 31, .............................. Options exercisable at December 31, .............................. Number of Shares 841,066 — (322,913) (8,031) 510,122 510,122 2018 Weighted Average Exercise Price (per common share) Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value $30.13 — 26.61 34.32 32.29 $32.29 3.6 3.6 $392 $392 A summary of additional information pertaining to the Company’s stock options is presented below: Intrinsic value of options exercised (a) .................................................................... Fair value of options vested ..................................................................................... Cash received from exercise of options ................................................................... 2018 $2,618 6,832 8,591 2017 $1,993 6,138 4,751 2016 $539 1,317 1,576 (a) Intrinsic value of options exercised is the amount by which the fair value of the stock on the exercise date exceeded the exercise price of the option. As of December 31, 2018, compensation cost related to stock options held by the Company’s employees was fully recognized. 92 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 17. OTHER OPERATING INCOME, NET The following table provides the composition of Other operating income, net for the three years ended December 31: Foreign currency (loss) income ......................................................................... Gain (loss) on sale or disposal of property plant & equipment .......................... Gain (loss) on foreign currency exchange and option contracts........................ Gain on foreign currency derivatives (a) ........................................................... Income from sale of unused Internet Protocol addresses ................................. Log trading marketing fees ................................................................................ Income from New Zealand Timber settlement ................................................... Deferred payments related to prior land sales ................................................... Costs related to business combination .............................................................. Miscellaneous expense, net .............................................................................. Total ............................................................................................................ 2018 2017 2016 $238 7 132 — 646 286 — — — (169) ($394) (68) 3,438 — — 1,222 420 — — (225) $283 85 (645) 1,153 — 951 — 8,658 (1,316) (83) $1,140 $4,393 $9,086 (a) The Company used foreign exchange derivatives to mitigate the risk of fluctuations in foreign exchange rates while awaiting the capital contribution to the New Zealand subsidiary. 18. INVENTORY As of December 31, 2018 and 2017, Rayonier’s inventory was solely comprised of finished goods, as follows: Finished goods inventory ....................................................................................................... Real estate inventory (a) ................................................................................................... Log inventory ..................................................................................................................... Total inventory ............................................................................................................... 2018 2017 $11,919 3,784 $15,703 $18,350 5,791 $24,141 (a) Represents cost of HBU real estate (including capitalized development investments) expected to be sold within 12 months. See Note 6 — Higher and Better Use Timberlands and Real Estate Development Investments for additional information. 19. RESTRICTED CASH In order to qualify for like-kind exchange (“LKE”) treatment, the proceeds from real estate sales must be deposited with a third-party intermediary. These proceeds are accounted for as restricted cash until a suitable replacement property is acquired. In the event that the LKE purchases are not completed, the proceeds are returned to the Company after 180 days and reclassified as available cash. As of December 31, 2018 and 2017, the Company had $8.1 million and $59.7 million, respectively, of proceeds from real estate sales classified as restricted cash which were deposited with an LKE intermediary as well as cash held in escrow for a real estate sale. The following table contains the amount of restricted cash recorded in the Consolidated Balance Sheets and Consolidated Statements of Cash Flows for the years ended December 31: Restricted cash deposited with LKE intermediary ................................................................. Restricted cash held in escrow Total restricted cash shown in the Consolidated Balance Sheets ......................................... Cash and cash equivalents ................................................................................................... Total cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows ........................................................................................................................... 2018 $7,530 550 8,080 148,374 2017 $59,153 550 59,703 112,653 $156,454 $172,356 93 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 20. OTHER ASSETS Included in Other Assets are derivatives, goodwill in the New Zealand subsidiary, long-term prepaid roads, and other deferred expenses including deferred financing costs related to revolving debt and capitalized software costs. See Note 13 — Derivative Financial Instruments and Hedging Activities for further information on derivatives including their classification on the Consolidated Balance Sheets. Changes in goodwill for the years ended December 31, 2018 and 2017 were: Balance, January 1 (net of $0 of accumulated impairment) ............................................... Changes to carrying amount 2018 $8,776 2017 $8,679 Acquisitions ............................................................................................................... Impairment ................................................................................................................ Foreign currency adjustment ..................................................................................... Balance, December 31 (net of $0 of accumulated impairment) ......................................... — — (469) $8,307 — — 97 $8,776 See Note 1 — Summary of Significant Accounting Policies for additional information on goodwill. As of December 31, 2018 and 2017, Rayonier’s prepaid logging and secondary roads follows: Long-term and prepaid and secondary roads .................................................................... Pacific Northwest long-term prepaid roads .................................................................... New Zealand long-term secondary roads ...................................................................... Total long-term prepaid and secondary roads ........................................................... 2018 2017 $4,000 3,072 $7,072 $3,696 2,667 $6,363 See Note 1 — Summary of Significant Accounting Policies for additional information on prepaid logging roads. As of December 31, 2018 and 2017, Rayonier’s deferred financing costs related to revolving debt follows: Deferred financing costs related to revolving debt ............................................................. $213 2018 2017 $341 See Note 1 — Summary of Significant Accounting Policies for additional information on deferred financing costs related to revolving debt. As of December 31, 2018 and 2017, Rayonier’s capitalized software costs follows: Capitalized software costs ................................................................................................. $3,776 2018 2017 $4,092 See Note 1 — Summary of Significant Accounting Policies for additional information on capitalized software costs. 94 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 21. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS) The following table summarizes the changes in AOCI by component for the years ended December 31, 2018 and 2017. All amounts are presented net of tax effect and exclude portions attributable to noncontrolling interest. Foreign currency translation gains/ (losses) Net investment hedges of New Zealand JV Cash flow hedges Employee benefit plans Total Balance as of December 31, 2016 .............. Other comprehensive income/(loss) before reclassifications ....................................... Amounts reclassified from accumulated other comprehensive income ................... Net other comprehensive income/(loss) ...... Balance as of December 31, 2017 .............. Other comprehensive (loss)/income before reclassifications ....................................... Amounts reclassified from accumulated other comprehensive income ................... Net other comprehensive (loss)/income ...... Balance as of December 31, 2018 .............. $8,559 $1,665 $10,831 ($20,199) $856 7,416 — 7,416 — — — 7,321 (1,968) 5,353 (673) 465 (208) 14,064 (1,503) 12,561 $15,975 $1,665 $16,184 ($20,407) $13,417 (16,985) — (16,985) ($1,010) (344) — (344) 5,944 (a) (1,594) (12,979) (163) 5,781 (36) (b) (199) (1,630) (13,178) $1,321 $21,965 ($22,037) $239 (a) Includes $8.3 million of other comprehensive gain related to interest rate swaps. See Note 13 — Derivative Financial Instruments and Hedging Activities for additional information. (b) This component of other comprehensive income is included in the computation of net periodic pension cost. See Note 15 — Employee Benefit Plans for additional information. Additionally, this component includes a $0.7 million adjustment related to the adoption of ASU 2018-02. See Note 1 — Summary of Significant Accounting Policies The following table presents details of the amounts reclassified in their entirety from AOCI for the years ended December 31, 2018 and 2017: Details about accumulated other comprehensive income (loss) components Realized (gain) loss on foreign currency exchange contracts ..................................... Realized (gain) loss on foreign currency option contracts ........................................... Noncontrolling interest .................................... Income tax expense (benefit) from foreign currency contracts ....................................... Net (gain) loss on cash flow hedges reclassified from accumulated other comprehensive income ............................... Amount reclassified from accumulated other comprehensive income (loss) 2018 2017 Affected line item in the income statement ($121) ($2,631) Other operating income, net (173) (919) Other operating income, net 68 63 Comprehensive income (loss) attributable 817 to noncontrolling interest 765 Income tax expense benefit (Note 9) ($163) ($1,968) 95 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 22. QUARTERLY RESULTS FOR 2018 and 2017 (UNAUDITED) (thousands of dollars, except per share amounts) 2018 Quarter Ended Mar. 31 June 30 Sept. 30 Dec. 31 Total Year Sales .................................................................. $203,196 $245,906 $200,890 $166,146 $816,138 Cost of sales ...................................................... (138,488) (184,418) (143,261) (139,092) (605,259) Net Income ........................................................ Net Income attributable to Rayonier Inc. ............ Basic EPS attributable to Rayonier Inc............... Diluted EPS attributable to Rayonier Inc. ........... 42,706 40,539 $0.31 $0.31 39,338 36,258 $0.28 $0.28 30,639 23,432 $0.18 $0.18 4,647 1,987 $0.02 $0.02 117,330 102,216 $0.79 $0.79 2017 Sales .................................................................. $194,491 $200,964 $184,419 $239,722 $819,596 Cost of sales ...................................................... (136,828) (144,610) (136,983) (149,832) (568,253) Net Income ........................................................ Net Income attributable to Rayonier Inc. ............ Basic EPS attributable to Rayonier Inc............... Diluted EPS attributable to Rayonier Inc. ........... 35,083 33,843 $0.27 $0.27 30,773 26,161 $0.20 $0.20 28,803 24,688 $0.19 $0.19 66,920 64,150 $0.50 $0.50 161,579 148,842 $1.17 $1.16 96 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) 23. CONSOLIDATING FINANCIAL STATEMENTS The condensed consolidating financial information below follows the same accounting policies as described in the consolidated financial statements, except for the use of the equity method of accounting to reflect ownership interests in wholly-owned subsidiaries, which are eliminated upon consolidation, and the allocation of certain expenses of Rayonier Inc. incurred for the benefit of its subsidiaries. In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022. In connection with these notes, the Company provides the following condensed consolidating financial information in accordance with SEC Regulation S-X Rule 3-10, Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered. The subsidiary guarantors, Rayonier Operating Company LLC (“ROC”) and Rayonier TRS Holdings Inc., are wholly- owned by the parent company, Rayonier Inc. The notes are fully and unconditionally guaranteed on a joint and several basis by the guarantor subsidiaries. CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Year Ended December 31, 2018 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated SALES ......................................................................................... Costs and Expenses Cost of sales ...................................................................... Selling and general expenses ............................................ Other operating (expense) income, net .............................. OPERATING (LOSS) INCOME .................................................... Interest expense ........................................................................... Interest and miscellaneous income (expense), net ....................... Equity in income from subsidiaries ............................................... INCOME BEFORE INCOME TAXES ........................................... — — — (12) (12) (12) (12,556) 6,648 108,136 102,216 — — $816,138 (605,259) (19,812) (22,139) 543 609 (19,269) (626,789) (19,269) (19,155) 3,863 144,916 110,355 189,349 (355) (5,947) — 183,047 — — — — — — — — (253,052) (253,052) Income tax expense ................................................................ — (2,219) (23,017) — $816,138 (605,259) (41,951) 1,140 (646,070) 170,068 (32,066) 4,564 — 142,566 (25,236) NET INCOME ............................................................................... 102,216 108,136 160,030 (253,052) 117,330 Less: Net income attributable to noncontrolling interest................ — — (15,114) — (15,114) NET INCOME ATTRIBUTABLE TO RAYONIER INC................... 102,216 108,136 144,916 (253,052) 102,216 OTHER COMPREHENSIVE (LOSS) INCOME Foreign currency translation adjustment, net of income tax .... Cash flow hedges, net of income tax ....................................... Actuarial change and amortization of pension and postretirement plan liabilities, net of income tax .................. Total other comprehensive (loss) income ........................... (17,329) 5,782 (1,630) (13,177) 386 8,296 (1,630) 7,052 (23,145) (3,267) — (26,412) 17,329 (5,782) 1,630 13,177 COMPREHENSIVE INCOME ....................................................... 89,039 115,188 133,618 (239,875) (22,759) 5,029 (1,630) (19,360) 97,970 Less: Comprehensive income attributable to noncontrolling interest ...................................................................................... COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC. .......................................................................................... — — (8,931) — (8,931) $89,039 $115,188 $124,687 ($239,875) $89,039 97 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Year Ended December 31, 2017 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated SALES .......................................................................................... Costs and Expenses Cost of sales ....................................................................... Selling and general expenses ............................................. Other operating (expense) income, net ............................... OPERATING (LOSS) INCOME ..................................................... Interest expense ............................................................................ Interest and miscellaneous income (expense), net ........................ Equity in income from subsidiaries ................................................ INCOME BEFORE INCOME TAXES ............................................ — — — — — — (12,556) 9,679 151,719 148,842 — — $819,596 (568,253) (16,797) (23,448) (479) 4,872 (17,276) (586,829) (17,276) (19,699) 2,878 186,388 152,291 232,767 (1,816) (10,717) — 220,234 — — — — — — — — (338,107) (338,107) Income tax expense ................................................................. — (572) (21,109) — $819,596 (568,253) (40,245) 4,393 (604,105) 215,491 (34,071) 1,840 — 183,260 (21,681) NET INCOME ................................................................................ 148,842 151,719 199,125 (338,107) 161,579 Less: Net income attributable to noncontrolling interest ................ — — (12,737) — (12,737) NET INCOME ATTRIBUTABLE TO RAYONIER INC.................... 148,842 151,719 186,388 (338,107) 148,842 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment, net of income tax ..... Cash flow hedges, net of income tax ........................................ Actuarial change and amortization of pension and postretirement plan liabilities, net of income tax ................... Total other comprehensive income ..................................... COMPREHENSIVE INCOME ........................................................ Less: Comprehensive income attributable to noncontrolling interest ....................................................................................... COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC. ........................................................................................... 7,416 5,353 (208) 12,561 161,403 — 4,214 (208) 4,006 155,725 9,114 1,479 — 10,593 209,718 (7,416) (5,353) 9,114 5,693 208 (208) (12,561) (350,668) 14,599 176,178 — — (14,775) — (14,775) $161,403 $155,725 $194,943 ($350,668) $161,403 98 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING STATEMENTS OF INCOME AND COMPREHENSIVE INCOME For the Year Ended December 31, 2016 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated SALES ......................................................................................... Costs and Expenses Cost of sales ...................................................................... Selling and general expenses ............................................ Other operating (expense) income, net .............................. OPERATING (LOSS) INCOME .................................................... Interest expense ........................................................................... Interest and miscellaneous income (expense), net ....................... Equity in income from subsidiaries ............................................... INCOME BEFORE INCOME TAXES ........................................... — — — — — — (12,555) 8,613 215,914 211,972 — — $815,915 (526,439) (15,253) (27,532) (448) 9,534 (15,701) (544,437) (15,701) (16,775) 2,750 246,193 216,467 271,478 (2,915) (12,061) — 256,502 — — — — — — — — (462,107) (462,107) Income tax expense ................................................................ — (553) (4,511) — $815,915 (526,439) (42,785) 9,086 (560,138) 255,777 (32,245) (698) — 222,834 (5,064) NET INCOME ............................................................................... 211,972 215,914 251,991 (462,107) 217,770 Less: Net income attributable to noncontrolling interest NET INCOME ATTRIBUTABLE TO RAYONIER INC. OTHER COMPREHENSIVE INCOME — — (5,798) — (5,798) 211,972 215,914 246,193 (462,107) 211,972 Foreign currency translation adjustment, net of income tax .... Cash flow hedges, net of income tax ....................................... Actuarial change and amortization of pension and postretirement plan liabilities, net of income tax .................. Total other comprehensive income .................................... 2,780 22,607 5,533 30,920 (4,606) 21,422 5,533 22,349 COMPREHENSIVE INCOME ....................................................... 242,892 238,263 10,930 1,401 — 12,331 264,322 (2,782) (22,608) (5,533) (30,923) 6,322 22,822 5,533 34,677 (493,030) 252,447 Less: Comprehensive income attributable to noncontrolling interest .......................................................................................... COMPREHENSIVE INCOME ATTRIBUTABLE TO RAYONIER INC. — — (9,555) — (9,555) $242,892 $238,263 $254,767 ($493,030) $242,892 99 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING BALANCE SHEETS As of December 31, 2018 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated ASSETS CURRENT ASSETS Cash and cash equivalents ................................................. $361 $104,777 $43,236 Accounts receivable, less allowance for doubtful accounts. Inventory ............................................................................. Prepaid logging roads ......................................................... Prepaid expenses ............................................................... Other current assets ........................................................... — — — — — 3,752 — — 977 108 Total current assets .................................................. 361 109,614 22,399 15,703 11,976 4,063 501 97,878 TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION ........................................................................ HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS ............................... NET PROPERTY, PLANT AND EQUIPMENT ............................... RESTRICTED CASH ..................................................................... — — — — — — 16,940 — 2,401,327 85,609 5,811 8,080 — — — — — — — — — — — INVESTMENT IN SUBSIDIARIES ................................................. 1,833,899 3,022,875 — (4,856,774) INTERCOMPANY RECEIVABLE ................................................... OTHER ASSETS ........................................................................... 49,461 (638,424) 588,963 2 19,244 35,800 — — $148,374 26,151 15,703 11,976 5,040 609 207,853 2,401,327 85,609 22,751 8,080 — — 55,046 TOTAL ASSETS ............................................................................ $1,883,723 $2,530,249 $3,223,468 ($4,856,774) $2,780,666 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable ............................................................... Accrued taxes ..................................................................... Accrued payroll and benefits ............................................... Accrued interest .................................................................. Deferred revenue ................................................................ Other current liabilities ........................................................ Total current liabilities ............................................... — — — 3,047 — — 3,047 LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS . 323,803 648,764 PENSION AND OTHER POSTRETIREMENT BENEFITS ............ OTHER NON-CURRENT LIABILITIES .......................................... INTERCOMPANY PAYABLE ......................................................... — — — 30,484 7,454 — $1,616 $16,403 8 5,848 1,960 — 216 9,648 3,170 4,568 — 10,447 16,258 50,846 — (684) 52,754 — — — — — — — — — — — — $18,019 3,178 10,416 5,007 10,447 16,474 63,541 972,567 29,800 60,208 — TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY................... 1,556,873 1,833,899 3,022,875 (4,856,774) 1,556,873 Noncontrolling interest ................................................................... — — 97,677 — 97,677 TOTAL SHAREHOLDERS’ EQUITY .............................................. 1,556,873 1,833,899 3,120,552 (4,856,774) 1,654,550 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ................. $1,883,723 $2,530,249 $3,223,468 ($4,856,774) $2,780,666 100 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING BALANCE SHEETS As of December 31, 2017 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated ASSETS CURRENT ASSETS Cash and cash equivalents ................................................. $48,564 $25,042 $39,047 Accounts receivable, less allowance for doubtful accounts. Inventory ............................................................................. Prepaid logging roads ......................................................... Prepaid expenses ............................................................... Other current assets ........................................................... — — — — — 3,726 — — 759 14 23,967 24,141 11,207 4,027 3,033 Total current assets .................................................. 48,564 29,541 105,422 TIMBER AND TIMBERLANDS, NET OF DEPLETION AND AMORTIZATION ........................................................................ HIGHER AND BETTER USE TIMBERLANDS AND REAL ESTATE DEVELOPMENT INVESTMENTS ............................... NET PROPERTY, PLANT AND EQUIPMENT ............................... RESTRICTED CASH ..................................................................... — — — — — — 21 — 2,462,066 80,797 23,357 59,703 — — — — — — — — — — — INVESTMENT IN SUBSIDIARIES ................................................. 1,531,156 2,814,408 — (4,345,564) INTERCOMPANY RECEIVABLES ................................................ OTHER ASSETS ........................................................................... 40,067 (628,167) 588,100 2 12,680 36,328 — — $112,653 27,693 24,141 11,207 4,786 3,047 183,527 2,462,066 80,797 23,378 59,703 — — 49,010 TOTAL ASSETS ............................................................................ $1,619,789 $2,228,483 $3,355,773 ($4,345,564) $2,858,481 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable ............................................................... Current maturities of long-term debt ................................... Accrued taxes ..................................................................... Accrued payroll and benefits ............................................... Accrued interest .................................................................. Deferred revenue ................................................................ Other current liabilities ........................................................ Total current liabilities ............................................... LONG-TERM DEBT, NET OF DEFERRED FINANCING COSTS . PENSION AND OTHER POSTRETIREMENT BENEFITS ............ OTHER NON-CURRENT LIABILITIES .......................................... $2,838 $22,310 — — — — 3,047 — — — 48 5,298 1,995 — 564 3,047 10,743 323,434 663,570 — — 32,589 9,386 3,375 3,733 4,364 12 9,721 11,243 54,758 35,000 (684) 33,698 — — — — — — — — — — — — $25,148 3,375 3,781 9,662 5,054 9,721 11,807 68,548 1,022,004 31,905 43,084 — INTERCOMPANY PAYABLE ......................................................... (299,715) (18,961) 318,676 TOTAL RAYONIER INC. SHAREHOLDERS’ EQUITY................... 1,593,023 1,531,156 2,814,408 (4,345,564) 1,593,023 Noncontrolling interest ................................................................... — — 99,917 — 99,917 TOTAL SHAREHOLDERS’ EQUITY .............................................. 1,593,023 1,531,156 2,914,325 (4,345,564) 1,692,940 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY ................. $1,619,789 $2,228,483 $3,355,773 ($4,345,564) $2,858,481 101 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2018 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated 6,069 (132,796) (6,128) (132,855) — — — — (6,128) — $310,096 (62,325) (9,501) (57,608) — (3,421) — — — — — — — — 6,128 6,128 — — — — 1,014 (54,416) (136,772) 8,591 (2,984) 2,025 (11,172) — — (193,714) 571 (15,902) 172,356 $156,454 CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES.. $284,781 $182,057 ($156,742) INVESTING ACTIVITIES Capital expenditures ..................................................................... Real estate development investments .......................................... Purchase of timberlands ............................................................... Investment in subsidiaries ............................................................ Other ............................................................................................ CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES .... FINANCING ACTIVITIES Issuance of debt ........................................................................... Repayment of debt ....................................................................... — — — — — — — — Dividends paid .............................................................................. (136,698) Proceeds from the issuance of common shares under incentive stock plan ..................................................................................... Repurchase of common shares .................................................... Proceeds from shareholder distribution hedge ............................. Distribution to minority shareholder .............................................. 8,591 (2,984) — — (59) (62,266) — — 6,128 — (9,501) (57,608) — (3,421) — (50,000) (74) — — — — 1,014 (4,416) — — — 2,025 (11,172) Issuance of intercompany notes ................................................... 299,715 18,961 (318,676) Intercompany distributions ............................................................ (501,608) (77,278) CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES.... (332,984) (108,391) EFFECT OF EXCHANGE RATE CHANGES ON CASH .............. — — CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash ................. Balance, beginning of year ........................................................... (48,203) 48,564 79,735 25,042 Balance, end of year ..................................................................... $361 $104,777 572,758 241,533 571 (47,434) 98,750 $51,316 102 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2017 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated 38,546 (235,253) (38,546) (235,253) — — — — — — (38,546) — $256,284 (65,345) (15,784) (242,910) 95,243 (6,084) — (373) — — — — — — — 38,546 38,546 — — — — 63,389 (100,157) (127,069) 4,751 152,390 (176) — — (6,872) 580 14,739 157,617 $172,356 CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES.. ($48,104) $111,431 $192,957 INVESTING ACTIVITIES Capital expenditures ..................................................................... Real estate development investments .......................................... Purchase of timberlands ............................................................... Net proceeds from large disposition of timberlands ...................... Rayonier office building under construction .................................. Investment in subsidiaries ............................................................ Other ............................................................................................ CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES .... FINANCING ACTIVITIES Issuance of debt ........................................................................... Repayment of debt ....................................................................... — — — — — — — — — — — — — — — 38,546 — (65,345) (15,784) (242,910) 95,243 (6,084) — (373) 25,000 38,389 (15,000) (85,157) Dividends paid .............................................................................. (127,069) Proceeds from the issuance of common shares under incentive stock plan ..................................................................................... Proceeds from the issuance of common shares from equity offering, net of costs ..................................................................... Repurchase of common shares .................................................... 4,751 152,390 (176) Issuance of intercompany notes ................................................... (32,000) — — — — — Intercompany distributions ............................................................ CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES.... EFFECT OF EXCHANGE RATE CHANGES ON CASH .............. CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash ................. Balance, beginning of year ........................................................... 77,319 75,215 — 27,111 21,453 (144,396) (134,396) — 15,581 9,461 Balance, end of year ..................................................................... $48,564 $25,042 — — — — 32,000 28,531 13,763 580 (27,953) 126,703 $98,750 103 RAYONIER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (Dollar amounts in thousands unless otherwise stated) CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS For the Year Ended December 31, 2016 Rayonier Inc. (Parent Issuer) Subsidiary Guarantors Non- guarantors Consolidating Adjustments Total Consolidated CASH (USED FOR) PROVIDED BY OPERATING ACTIVITIES.. ($7,480) $113,775 $97,506 INVESTING ACTIVITIES Capital expenditures ..................................................................... Real estate development investments .......................................... Purchase of timberlands ............................................................... Assets purchased in business acquisition Net proceeds from large disposition of timberlands ...................... Rayonier office building under construction .................................. Investment in subsidiaries ............................................................ Other ............................................................................................ CASH USED FOR INVESTING ACTIVITIES ................................ FINANCING ACTIVITIES Issuance of debt ........................................................................... Repayment of debt ....................................................................... — — — — — — — — — — — Dividends paid .............................................................................. (122,845) Proceeds from the issuance of common shares under incentive stock plan ..................................................................................... Repurchase of common shares .................................................... Debt issuance costs ..................................................................... 1,576 (690) — Issuance of intercompany notes ................................................... (12,000) — — — — — — (293,820) — (58,723) (8,746) (366,481) (887) 203,862 (6,307) — 2,311 — — — — — — — 293,820 — $203,801 (58,723) (8,746) (366,481) (887) 203,862 (6,307) — 2,311 (293,820) (234,971) 293,820 (234,971) 548,000 147,916 (140,000) (318,415) — — — (818) — — — — — 12,000 — — — — — — — 695,916 (458,415) (122,845) 1,576 (690) (818) — — Intercompany distributions ............................................................ 160,597 (230,893) 364,116 (293,820) Other ............................................................................................ (177) — (124) — (301) CASH PROVIDED BY FINANCING ACTIVITIES ......................... 26,461 176,289 205,493 (293,820) 114,423 EFFECT OF EXCHANGE RATE CHANGES ON CASH .............. — — (938) CASH, CASH EQUIVALENTS AND RESTRICTED CASH Change in cash, cash equivalents and restricted cash ................. Balance, beginning of year ........................................................... 18,981 2,472 Balance, end of year ..................................................................... $21,453 (3,756) 13,217 $9,461 67,090 59,613 $126,703 — — — — (938) 82,315 75,302 $157,617 104 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. Item 9A. CONTROLS AND PROCEDURES DISCLOSURE CONTROLS AND PROCEDURES Rayonier management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed with the objective of ensuring that information required to be disclosed by the Company in reports filed under the Exchange Act, such as this Annual Report on Form 10-K, is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance that their objectives are achieved. Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that the design and operation of the disclosure controls and procedures were effective as of December 31, 2018. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING In the year ended December 31, 2018, based upon the evaluation required by paragraph (d) of Rule 13a-15, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting. Item 9B. OTHER INFORMATION Not applicable. 105 PART III Certain information required by Part III is incorporated by reference from the Company’s Definitive Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company’s 2019 Annual Meeting of Shareholders (the “Proxy Statement”). We will make the Proxy Statement available on our website at www.rayonier.com as soon as it is filed with the SEC. Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE A list of our executive officers and their biographical information are found in Item 1 in this Annual Report on Form 10-K. Additional information required by this Item with respect to directors and other governance matters is incorporated by reference from the sections entitled “Proposal No. 1 - Election of Directors,” “Corporate Governance,” “Named Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Report of the Audit Committee” in the Proxy Statement. Our Standard of Ethics and Code of Corporate Conduct, which is applicable to our principal executive, financial and accounting officers, is available on our website, www.rayonier.com. Any amendments to or waivers of the Standard of Ethics and Code of Corporate Conduct will also be disclosed on our website. Item 11. EXECUTIVE COMPENSATION The information called for by Item 11 is incorporated herein by reference from the section and subsections entitled “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control,” “Director Compensation,” “Compensation Committee Interlocks and Insider Participation; Processes and Procedures” and “Report of the Compensation and Management Development Committee” in the Proxy Statement. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information called for by Item 12 is incorporated herein by reference from the section and subsections entitled “Ownership of and Trading in our Shares,” “Share Ownership of Certain Beneficial Owners,” “Share Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” in the Proxy Statement. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information called for by Item 13 is incorporated herein by reference from the section and subsections entitled “Proposal No. 1 - Election of Directors,” “Director Independence” and “Related Person Transactions” in the Proxy Statement. Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information called for by Item 14 is incorporated herein by reference from the subsection entitled “Information Regarding Independent Registered Public Accounting Firm” in the Proxy Statement. 106 Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Documents filed as a part of this report: PART IV (1) See Index to Financial Statements on page 50 for a list of the financial statements filed as part of this report. (2) Financial Statement Schedules: SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 2018, 2017, and 2016 (In Thousands) Description Allowance for doubtful accounts: Balance at Beginning of Year Additions Charged to Cost and Expenses Deductions Balance at End of Year Year ended December 31, 2018 ................................ Year ended December 31, 2017 ................................ Year ended December 31, 2016 ................................ $23 33 42 — — — ($15) (10) (9) $8 23 33 Deferred tax asset valuation allowance: Year ended December 31, 2018 ................................ Year ended December 31, 2017 ................................ Year ended December 31, 2016 ................................ $34,889 21,861 18,248 $3,950 (a) 13,028 (a) 3,613 (a) — — — $38,839 34,889 21,861 (a) The 2018, 2017 and 2016 increase is comprised of valuation allowance against the TRS deferred tax assets. All other financial statement schedules have been omitted because they are not applicable, the required matter is not present or the required information has otherwise been supplied in the financial statements or the notes thereto. (3) See Exhibit Index for a list of the exhibits filed or incorporated herein as part of this report. Exhibits that are incorporated by reference to documents filed previously by the Company under the Securities Exchange Act of 1934, as amended, are filed with the SEC under File No. 1-6780. Item 16. FORM 10-K SUMMARY None. 107 EXHIBIT INDEX The following is a list of exhibits filed as part of the Form 10-K. As permitted by the rules of the SEC, the Company has not filed certain instruments defining the rights of holders of long-term debt of the Company or its consolidated subsidiaries under which the total amount of securities authorized does not exceed 10 percent of the total assets of the Company and its consolidated subsidiaries. The Company agrees to furnish to the SEC, upon request, a copy of any omitted instrument. Exhibit No. Description Location 2.1 Contribution, Conveyance and Assumption Agreement dated December 18, 2003 by and among Rayonier Inc., Rayonier Timberlands Operating Company, L.P., Rayonier Timberlands, L.P., Rayonier Timberlands Management, LLC, Rayonier Forest Resources, LLC, Rayland, LLC, Rayonier TRS Holdings Inc., Rayonier Minerals, LLC, Rayonier Forest Properties, LLC, Rayonier Wood Products, LLC, Rayonier Wood Procurement, LLC, Rayonier International Wood Products, LLC, Rayonier Forest Operations, LLC, Rayonier Properties, LLC and Rayonier Performance Fibers, LLC Incorporated by reference to Exhibit 10.1 to the Registrant’s January 15, 2004 Form 8-K 2.2 Contribution, Conveyance and Assumption Agreement, dated July 29, 2010, between Rayonier Inc. and Rayonier Operating Company LLC Incorporated by reference to Exhibit 10.7 to the Registrant’s June 30, 2010 Form 10-Q 2.3 Separation and Distribution Agreement, dated May 28, 2014, by and between Rayonier Inc. and Rayonier Advanced Materials Inc.** Incorporated by reference to Exhibit 2.1 to the Registrant’s May 30, 2014 Form 8-K 3.1 Amended and Restated Articles of Incorporation 3.2 By-Laws 3.3 Limited Liability Company Agreement of Rayonier Operating Company LLC 4.1 Form S-4 Registration Statement 4.2 Amendment No. 1 to Form S-4 Registration Statement Incorporated by reference to Exhibit 3.1 to the Registrant’s May 23, 2012 Form 8-K Incorporated by reference to Exhibit 3.2 to the Registrant’s October 21, 2009 Form 8-K Incorporated by reference to Exhibit 3.3 to the Registrant’s June 30, 2010 Form 10-Q Incorporated by reference to the Registrant’s April 26, 2004 S-4 Filing Incorporated by reference to the Registrant’s May 6, 2004 S-4/A Filing 4.3 Indenture relating to the 3.75% Senior Notes due 2022, dated March 5, 2012, between Rayonier Inc., as issuer, and The Bank of New York Mellon Trust Company, N.A., as trustee Incorporated by reference to Exhibit 4.1 to the Registrant’s March 5, 2012 Form 8-K 4.4 First Supplemental Indenture relating to the 3.75% Senior Notes due 2022, dated March 5, 2012, among Rayonier Inc., as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee Incorporated by reference to Exhibit 4.2 to the Registrant’s March 5, 2012 Form 8-K 4.5 Second Supplemental Indenture relating to the 3.75% Senior Notes due 2022, dated March 5, 2012, among Rayonier Inc., as issuer, the subsidiary guarantors named therein and The Bank of New York Mellon Trust Company, N.A., as trustee Incorporated by reference to Exhibit 4.1 to the Registrant’s October 17, 2012 Form 8-K 4.6 Form of Note for 3.75% Senior Notes due 2022 (contained in Exhibit A to Exhibit 4.4) Incorporated by reference to Exhibit 4.2 to the Registrant’s March 5, 2012 Form 8-K 4.7 Indenture among Rayonier A.M. Products Inc., the guarantors party thereto from time to time and Wells Fargo Bank, National Association, as Trustee, dated as of May 22, 2014 Incorporated by reference to Exhibit 4.1 to the Registrant’s May 22, 2014 Form 8-K Exhibit No. Description Location 10.1 Rayonier Investment and Savings Plan for Salaried Employees effective March 1, 1994, amended and restated effective April 1, 2015 and further amended effective September 8, 2015* Incorporated by reference to Exhibit 10.2 to the Registrant’s December 31, 2015 Form 10-K 10.2 Amendment to Rayonier Investment and Savings Plan for Salaried Employees effective as of June 1, 2016, executed February 25, 2016* Incorporated by reference to Exhibit 10.1 to the Registrant’s March 31, 2016 Form 10-Q 10.3 Amendment to Rayonier Investment and Savings Plan for Salaried Employees effective as of January 1, 2017, executed October 24, 2016* Incorporated by reference to Exhibit 10.1 to the Registrant’s September 30, 2016 Form 10-Q 10.4 Amendment to Rayonier Investment and Savings Plan for Salaried Employees effective as of January 1, 2017, executed January 17, 2017* Incorporated by reference to Exhibit 10.1 to the Registrant’s March 31, 2017 Form 10-Q 10.5 Amendment to Rayonier Investment and Savings Plan for Salaried Employees effective as of January 1, 2017, executed July 20, 2017* Incorporated by reference to Exhibit 10.1 to the Registrant’s June 30, 2017 Form 10-Q 10.6 Amendment to Rayonier Investment and Savings Plan for Salaried Employees effective as of October 1, 2017, executed November 9, 2017* Incorporated by reference to Exhibit 10.6 to the Registrant’s December 31, 2017 Form 10-K 10.7 Amendment to Rayonier Investment and Savings Plan for Filed herewith Salaried Employees effective as of November 1, 2018, executed December 21, 2018* 10.8 Amended and Restated Retirement Plan for Salaried Employees of Rayonier Inc. effective January 1, 2014* Incorporated by reference to Exhibit 10.9 to the Registrant’s December 31, 2015 Form 10-K 10.9 First Amendment to the Retirement Plan for Salaried Employees of Rayonier Inc. effective as of December 31, 2016* Incorporated by reference to Exhibit 10.2 to the Registrant’s September 30, 2016 Form 10-Q 10.10 Rayonier Inc. Excess Benefit Plan, as amended* 10.11 Rayonier Inc. Excess Savings and Deferred Compensation Plan, as amended and restated* 10.12 Form of Rayonier Inc. Excess Savings and Deferred Compensation Plan Agreements* 10.13 Rayonier Non-Equity Incentive Plan* 10.14 Form of Rayonier Outside Directors Compensation Program/ Cash Deferral Option Agreement* Incorporated by reference to Exhibit 10.2 to the Registrant’s June 30, 2010 Form 10-Q Incorporated by reference to Exhibit 10.3 to the Registrant’s June 30, 2010 Form 10-Q Incorporated by reference to Exhibit 10.4 to the Registrant’s June 30, 2010 Form 10-Q Incorporated by reference to Appendix B to the Registrant’s March 31, 2008 Proxy Statement Incorporated by reference to Exhibit 10.24 to the Registrant’s December 31, 2006 Form 10-K 10.15 Trust Agreement for the Rayonier Inc. Legal Resources Trust* Incorporated by reference to Exhibit 10.16 Master Shareholder Agreement in Relation to Matariki Forests, dated July 15, 2005, by and among SAS Trustee Corporation, Deutshe Asset Management (Australia) Limited, Rayonier Canterbury LLC, Rayonier New Zealand Limited, Cameron and Company Limited, Matariki Forests Australia Pty Limited, Matariki Forestry Group and Matariki Forests 10.1 to the Registrant’s September 30, 2014 Form 10-Q Incorporated by reference to Exhibit 10.38 to the Registrant’s June 30, 2005 Form 10-Q Exhibit No. Description Location 10.17 Deed of Amendment and Restatement of Shareholder Agreement, dated April 22, 2014, by and among Rayonier Canterbury LLC, Waimarie Forests Pty Limited, Matariki Forestry Group, Matariki Forests and Phaunos Timber Fund Limited 10.18 Intellectual Property Agreement, dated June 27, 2014, by and between Rayonier Inc. and Rayonier Advanced Materials Inc. 10.19 Form of Indemnification Agreement between Rayonier Inc. and its Officers and Directors* 10.20 Rayonier Incentive Stock Plan, as amended* Incorporated by reference to Exhibit 10.11 to the Registrant’s June 30, 2014 Form 10-Q Incorporated by reference to Exhibit 10.4 to the Registrant’s June 30, 2014 Form 8-K Incorporated by reference to Exhibit 10.8 to the Registrant’s June 30, 2014 Form 10-Q Incorporated by reference to Exhibit 10.2 to the Registrant’s March 31, 2015 Form 10-Q 10.21 Rayonier Incentive Stock Plan, as amended* Filed herewith 10.22 Form of Rayonier Incentive Stock Plan Non-Qualified Stock Option Award Agreement* 10.23 Form of Rayonier Incentive Stock Plan Restricted Stock Award Agreement* 10.24 Form of Rayonier Incentive Stock Plan Supplemental Terms Applicable to the 2014 Equity Award Grant* 10.25 2015 Performance Share Award Program* 10.26 2016 Performance Share Award Program* 10.27 2017 Performance Share Award Program* 10.28 2018 Performance Share Award Program* 10.29 Rayonier Inc. Supplemental Savings Plan effective March 1, 2016* 10.30 Credit Agreement dated as of August 5, 2015 among Rayonier Inc., Rayonier TRS Holdings Inc. and Rayonier Operating Company LLC, as Borrowers, CoBank, ACB as Administrative Agent, Swing Line Lender and Issuing Bank, JPMorgan Chase Bank, N.A. and Farm Credit of Florida, ACA as Co-Syndication Agents, Credit Suisse AG and SunTrust Bank as Co-Documentation Agents and CoBank, ACB as Sole Lead Arranger and Sole Bookrunner 10.31 First Amendment and Incremental Term Loan Agreement dated as of April 28, 2016, by and among Rayonier Inc., Rayonier TRS Holdings Inc., Rayonier Operating Company LLC, as Borrowers, CoBank, ACB, as Administrative Agent and the several banks, financial institutions and other institutional lenders party thereto Incorporated by reference to Exhibit 10.19 to the Registrant’s December 31, 2008 Form 10-K Incorporated by reference to Exhibit 10.5 to the Registrant’s March 31, 2015 Form 10-Q Incorporated by reference to Exhibit 10.23 to the Registrant’s December 31, 2013 Form 10-K Incorporated by reference to Exhibit 10.3 to the Registrant’s March 31, 2015 Form 10-Q Incorporated by reference to Exhibit 10.44 to the Registrant’s December 31, 2015 Form 10-K Incorporated by reference to Exhibit 10.2 to the Registrant’s March 31, 2017 Form 10-Q Incorporated by reference to Exhibit 10.1 to the Registrant’s March 31, 2018 Form 10-Q Incorporated by reference to Exhibit 10.2 to the Registrant’s March 31, 2016 Form 10-Q Incorporated by reference to Exhibit 10.3 to the Registrant’s March 31, 2016 Form 10-Q Incorporated by reference to Exhibit 10.1 to the Registrant’s May 2, 2016 Form 8-K Exhibit No. Description Location 10.32 2016 Guarantee Agreement dated as of April 28, 2016 among Rayonier Inc., Rayonier TRS Holdings Inc. and COBANK, ACB, as Administrative Agent Incorporated by reference to Exhibit 10.2 to the Registrant’s May 2, 2016 Form 8-K 10.33 Amended and Restated Executive Severance Pay Plan effective as of December 31, 2016* 10.34 Rayonier Annual Bonus Program, as amended and restated, effective as of January 1, 2018* Incorporated by reference to Exhibit 10.3 to the Registrant’s September 30, 2016 Form 10-Q Incorporated by reference to Exhibit 10.31 to the Registrant’s December 31, 2017 Form 10-K 21 Subsidiaries of the registrant 23.1 Consent of Ernst & Young LLP 24 Powers of attorney 31.1 Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith Filed herewith Filed herewith Filed herewith 31.2 Chief Financial Officer’s Certification Pursuant to Rule Filed herewith 13a-14(a)/15d-14-(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32 Certification of Periodic Financial Reports Under Section 906 Furnished herewith of the Sarbanes-Oxley Act of 2002 Filed herewith 101 The following financial information from our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2018, 2017 and 2016; (ii) the Consolidated Balance Sheets as of December 31, 2018 and 2017; (iii) the Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2018, 2017 and 2016; (iv) the Consolidated Statements of Cash Flows for the Years Ended December 31, 2018, 2017 and 2016; and (v) the Notes to the Consolidated Financial Statements. * Management contract or compensatory plan. ** Certain schedules and similar attachments have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Rayonier will furnish supplemental copies of any such schedules or attachments to the U.S. Securities and Exchange Commission upon request. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES RAYONIER INC. By: /s/ MARK MCHUGH Mark McHugh Senior Vice President and Chief Financial Officer (Duly Authorized Officer, Principal Financial Officer) February 22, 2019 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ DAVID L. NUNES President and Chief Executive Officer February 22, 2019 David L. Nunes (Principal Executive Officer) /s/ MARK MCHUGH Senior Vice President and Chief Financial Officer February 22, 2019 Mark McHugh (Principal Financial Officer) /s/ APRIL TICE April Tice (Principal Accounting Officer) * Richard D. Kincaid * Keith E. Bass * Dod A. Fraser * Scott R. Jones * Bernard Lanigan, Jr. * Blanche L. Lincoln * V. Larkin Martin * Andrew G. Wiltshire *By: /s/ MARK R. BRIDWELL Mark R. Bridwell Attorney-In-Fact Director, Financial Services and Corporate Controller February 22, 2019 Chairman of the Board Director Director Director Director Director Director Director 112 February 22, 2019 SUBSIDIARIES OF RAYONIER INC. As of December 31, 2018 Name of Subsidiary Matariki Forests Matariki Forestry Group Rayonier Forest Resources, L.P. Rayonier Atlantic Timber Company Rayonier Washington Timber Company Rayonier Gulf Timberlands, LLC Rayonier Louisiana Timberlands, LLC Rayonier Mississippi Timberlands Company Rayonier Operating Company LLC Rayonier TRS Operating Company Rayonier TRS Forest Operations, LLC Rayonier TRS Holdings Inc. Raydient LLC EXHIBIT 21 State/Country of Incorporation/ Organization New Zealand New Zealand Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware In accordance with Item 601(b)(21) of Regulation S–K, we have omitted some subsidiaries that, if considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary as of December 31, 2018 under Rule 1–02(w) of Regulation S–X. EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the following Registration Statements of Rayonier Inc.: 1) Registration Statement (Form S-3 No. 333–225530), 2) Registration Statement (Form S-4 Amendment No. 1 to No. 333–114858), 3) Registration Statement (Form S-8 No. 333–129175) pertaining to the Rayonier 1994 Incentive Stock Plan, 4) Registration Statement (Form S-8 No. 333–129176) pertaining to the 2004 Rayonier Incentive Stock and Management Bonus Plan, and 5) Registration Statement (Form S-8 Amendment No. 2 to No. 333–152505) pertaining to the Rayonier Investment and Savings Plan for Salaried Employees; of our reports dated February 22, 2019, with respect to the consolidated financial statements and schedule of Rayonier Inc. and subsidiaries and the effectiveness of internal control over financial reporting of Rayonier Inc. and subsidiaries, included in this Annual Report (Form 10-K) of Rayonier Inc. for the year ended December 31, 2018. /s/ Ernst & Young LLP Jacksonville, FL February 22, 2019 EXHIBIT 31.1 I, David L. Nunes, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Rayonier Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: a. b. c. d. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 22, 2019 /S/ DAVID L. NUNES David L. Nunes President and Chief Executive Officer, Rayonier Inc. EXHIBIT 31.2 I, Mark McHugh, certify that: CERTIFICATION 1. 2. 3. 4. I have reviewed this annual report on Form 10-K of Rayonier Inc.; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have: a. b. c. d. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. b. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 22, 2019 /s/ MARK MCHUGH Mark McHugh Senior Vice President and Chief Financial Officer, Rayonier Inc. CERTIFICATION EXHIBIT 32 The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to our knowledge: 1. 2. The Annual Report on Form 10-K of Rayonier Inc. (the “Company”) for the period ended December 31, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and The information in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. February 22, 2019 /s/ DAVID L. NUNES David L. Nunes President and Chief Executive Officer, Rayonier Inc. /s/ MARK MCHUGH Mark McHugh Senior Vice President and Chief Financial Officer, Rayonier Inc. A signed original of this written statement required by Section 906 has been provided to Rayonier and will be retained by Rayonier and furnished to the Securities and Exchange Commission or its staff upon request. [THIS PAGE INTENTIONALLY LEFT BLANK] Rayonier Inc. 2018 BOARD OF DIRECTORS Richard D. Kincaid [A, C] Chairman of the Board President and Founder Because Foundation David L. Nunes President and Chief Executive Officer Rayonier Inc. Keith E. Bass [A, C] Managing Partner Mill Creek Capital LLC Dod A. Fraser [A, N] President Sackett Partners Scott R. Jones [C] Retired, President Forest Capital Partners Bernard Lanigan, Jr. [A, N] Chairman & CEO, Southeast Asset Advisors, Inc.; Founder and Chairman, Lanigan & Associates, P.C. Blanche L. Lincoln [C, N] Founder and Principal Lincoln Policy Group V. Larkin Martin [C, N] Managing Partner Martin Farm Andrew G. Wiltshire [A, N] Founding Partner, Folium Capital LLC; Management and Governance of private orchard and farming companies BOARD COMMITTEES: [A] Audit [C] Compensation and Management Development [N] Nominating and Corporate Governance EXECUTIVE OFFICERS David L. Nunes President and Chief Executive Officer Mark D. McHugh Senior Vice President and Chief Financial Officer Douglas M. Long Senior Vice President, Forest Resources Christopher T. Corr Senior Vice President, Real Estate Development Mark R. Bridwell Vice President, General Counsel and Corporate Secretary Shelby L. Pyatt Vice President, Human Resources and Information Technology W. Rhett Rogers Vice President, Portfolio Management April J. Tice Vice President, Financial Services and Corporate Controller Corporate Headquarters Rayonier Inc. 1 Rayonier Way Wildlight, FL 32097 904.357.9100 www.rayonier.com Investor and Media Relations Mark D. McHugh Senior Vice President and Chief Financial Officer CORPORATE INFORMATION Form 10-K Additional copies of this report and Rayonier’s report on Form 10-K are available without charge upon written request to: Rayonier Inc. Investor Relations 1 Rayonier Way Wildlight, FL 32097 Independent Registered Public Accounting Firm Ernst & Young, LLP 12926 Gran Bay Parkway West Suite 500 Jacksonville, FL 32258 Stock Information Listed: New York Stock Exchange Symbol: RYN CUSIP: 754 907 103 Transfer Agent and Registrar Rayonier Inc. c/o Computershare P.O. Box 505000 Louisville, KY 40233-5000 800.659.0158 (U.S.) 201.680.6578 (International) www.computershare.com/investor TM RAYONIER INC. 1 Rayonier Way Wildlight, Florida 32097 SFI-01682 The SFI label applies to the text and insert stock. 

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