DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

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 (loss) income (“AOCI”) and reclassified into earnings when the hedged transaction materializes. Gains and losses on derivatives that are designated and qualify for net investment hedge accounting are recorded as a component of AOCI and will not be reclassified into earnings until the Company’s investment in its New Zealand operations is partially or completely liquidated. The 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 50% to 90% of its estimated foreign currency exposure with respect to the following twelve months forecasted sales and purchases less distributions and up to 75% of the forward twelve 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, 2019, foreign currency exchange contracts and foreign currency option contracts had maturity dates through April 2021 and March 2021, respectively.

Foreign currency exchange and option contracts hedging foreign currency risk on export sales and ocean freight payments qualify for cash flow hedge accounting. The Company may de-designate these cash flow hedge relationships in advance or at the occurrence of the forecasted transaction. The portion of gains or losses on the derivative instrument previously accumulated in other comprehensive (loss) income for de-designated hedges remains in accumulated other comprehensive (loss) income until the forecasted transaction affects earnings. Changes in the value of derivative instruments after de-designation are recorded in earnings.

INTEREST RATE SWAPS

The Company is exposed to cash flow interest rate risk on its variable-rate Term Credit Agreement and Incremental Term Loan (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 6 — Debt.

The following table contains information on the outstanding interest rate swaps as of December 31, 2019:

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

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

(b) Rate is before estimated patronage payments.

CARBON OPTIONS

The New Zealand subsidiary enters into carbon options from time to time to sell carbon assets at certain prices. Changes in fair value of the carbon option contracts are recorded in “Interest and other miscellaneous income, net” as the contracts do not qualify for hedge accounting treatment. As of December 31, 2019, carbon option contracts had maturity dates through June 2020.

The following table demonstrates the impact, gross of tax, of the Company’s derivatives on the Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017.

	Location on Statement of Income and Comprehensive Income	2019			2018			2017
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts	Other comprehensive (loss) income		$2,211			($4,357	)		$2,100
Foreign currency option contracts	Other comprehensive (loss) income	159			(180		)	(52		)
Interest rate swaps	Other comprehensive (loss) income	(32,189		)	8,296			4,214
Derivatives designated as a net investment hedge:
Foreign currency exchange contract	Other comprehensive (loss) income	—			(344		)	—
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	Interest and other miscellaneous income, net		$135			$2,183			$47
Carbon options	Interest and other miscellaneous income, net	(105		)	(158		)	—

During the next 12 months, the amount of the December 31, 2019 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 gain of approximately $0.3 million.

The following table contains the notional amounts of the derivative financial instruments recorded in the Consolidated Balance Sheets at December 31, 2019 and 2018:

	Notional Amount
	2019		2018
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts		$56,350		$69,950
Foreign currency option contracts	22,000		24,000
Interest rate swaps	650,000		650,000
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	—		9,396
Carbon options (a)	9,592		2,517

(a) Notional amount for carbon options is calculated as the number of units outstanding multiplied by the spot price as of December 31, 2019.

The following table contains the fair values of the derivative financial instruments recorded in the Consolidated Balance Sheets at December 31, 2019 and 2018. 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	2019			2018
Derivatives designated as cash flow hedges:
Foreign currency exchange contracts	Other current assets	424			—
	Other assets	390			—
	Other current liabilities	(172		)	(1,569		)
Foreign currency option contracts	Other current assets	151			217
	Other assets	209			102
	Other current liabilities	(27		)	(106		)
	Other non-current liabilities	(30		)	(68		)
Interest rate swaps	Other assets	2,614			23,735
	Other non-current liabilities	(11,068		)	—
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts	Other current assets	—			152
	Other current liabilities	—			(24		)
Carbon options (a)	Other current liabilities	(607		)	(322		)
Total derivative contracts:
Other current assets			$575			$369
Other assets		3,213			23,837
Total derivative assets			$3,788			$24,206
Other current liabilities		(806		)	(2,021		)
Other non-current liabilities		(11,098		)	(68		)
Total derivative liabilities			($11,904	)		($2,089	)

(a) See Note 15 — 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.