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.

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.

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.

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.



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

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.



	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			$867
Foreign currency option contracts	Other comprehensive income (loss)	(180		)	(52		)	1,035
Interest rate swaps	Other comprehensive income (loss)	8,296			4,214			21,422

Derivatives designated as a net investment hedge:
Foreign currency exchange contract	Other comprehensive income (loss)	(344		)	—			—
Foreign currency option contracts	Other comprehensive income (loss)	—			—			(4,606		)

Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	Other operating income, net	—			—			895
	Interest income and miscellaneous income (expense), net	2,183			47			—
Foreign currency option contracts	Other operating income, net	—			—			258
Carbon options	Interest income and miscellaneous income (expense), net	(158		)	—			—
Interest rate swaps	Interest income and miscellaneous income (expense), net	—			—			(1,219		)



	Notional Amount
	2018		2017
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts		$69,950		$107,400
Foreign currency option contracts	24,000		48,000
Interest rate swaps	650,000		650,000

Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	9,396		18,439
Carbon options (a)	2,517		—

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:



		Fair Value Assets (Liabilities) (a)
	Location on Balance Sheet	2018			2017
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts	Other current assets	—				$2,286
	Other assets	—			538
	Other current liabilities	(1,569		)	(37		)
Foreign currency option contracts	Other current assets	217			389
	Other assets	102			137
	Other current liabilities	(106		)	(119		)
	Other non-current liabilities	(68		)	(55		)
Interest rate swaps	Other assets	23,735			17,473
	Other non-current liabilities	—			(2,033		)

Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	Other current assets	152			209
	Other current liabilities	(24		)	(189		)
Carbon options (a)	Other current liabilities	(322		)	—

Total derivative contracts:
Other current assets			$369			$2,884
Other assets		23,837			18,148
Total derivative assets			$24,206			$21,032

Other current liabilities		(2,021		)	(345		)
Other non-current liabilities		(68		)	(2,088		)
Total derivative liabilities			($2,089	)		($2,433	)