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Rayonier Fourth Quarter Earnings Up

Jan. 24, 2006 (Press Release) - Rayonier today reported fourth quarter income from continuing operations of $56.4 million, or 73 cents per share. This compares to $74.9 million, or 96 cents per share, in the third quarter and $14 million, or 18 cents per share, in fourth quarter 2004. Full-year 2005 income from continuing operations was $207.8 million, or $2.68 per share, compared to $160.1 million, or $2.09 per share, in 2004.

Net income in the fourth quarter was also $56.4 million, or 73 cents per share, compared to $75 million, or 96 cents per share, in third quarter 2005, and $13.5 million, or 18 cents per share, in fourth quarter 2004. Full-year 2005 net income was $182.8 million, or $2.36 per share, compared to $156.9 million, or $2.05 per share, in 2004.

Lee Nutter, Chairman, President and CEO, said: "We had another very good year with strong performances from our core businesses as we continued to deliver on our strategies to create value for shareholders. We formed a real estate subsidiary, TerraPointe, to capture the growing value of our extensive higher-and-better-use properties, monetized our New Zealand timberlands and simultaneously expanded our presence there with a REIT-qualifying joint venture, increased production of our high-value cellulose specialties and sold non-core businesses. Our shareholders benefited from two dividend increases totaling 26 percent and a 22 percent increase in share price."

The fourth quarter included a special item gain of $30.5 million, or 39 cents per share, on the sale of New Zealand timber assets to the joint venture while third quarter items totaled $39.1 million, or 50 cents per share. Special items totaled $86.3 million, or $1.11 per share, in full-year 2005 and $49.7 million, or 65 cents per share, in 2004 (see Schedule H for details).

Excluding special items, fourth quarter income from continuing operations was below third quarter, primarily due to higher performance fibers manufacturing costs and reduced real estate sales partly offset by increased timber volume. On the same basis, earnings improved compared to fourth quarter 2004, primarily due to increased timber prices and real estate sales. Fourth quarter 2005 results included a $3 million charge, or 2 cents per share, to increase disposition reserves related to the closed Port Angeles, Washington, mill.

Sales for the fourth quarter increased to $316 million from $300 million in the third quarter and $285 million in fourth quarter 2004. Sales for the year of $1.2 billion were comparable to 2004.

Cash provided by operating activities for 2005 of $263 million was $30 million below 2004 due to working capital increases partly offset by higher operating earnings. Cash Available for Distribution (CAD) of $167 million for 2005 was comparable to 2004. (CAD is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.)

Debt at year-end of $559 million was $100 million below year-end 2004 primarily due to strong operating cash flow, net proceeds from the monetization of the New Zealand timber assets and sale of the medium-density-fiberboard business. The debt-to-capital ratio was 38.7 percent compared to 45.3 percent at prior year-end. Debt less cash was $412 million, a reduction of $163 million. Cash at December 31, 2005, was $146 million.

Timber

Sales of $56 million and operating income of $24 million were $10 million and $7 million above third quarter, respectively, primarily due to higher U.S. timber volume, increased Southeast prices and income from timberland-related activities partly offset by an operating loss incurred during startup of the New Zealand joint venture. Compared to fourth quarter 2004, sales and operating income increased $12 million and $7 million, respectively, mainly due to higher U.S. timber prices and volume partly offset by the joint venture's operating results.

Real Estate

Sales of $20 million and operating income of $16 million were $8 million and $6 million below third quarter, respectively, primarily due to reduced sales of development and rural properties partly offset by higher per acre prices for development properties. The company previously announced that a fourth quarter transaction had been terminated and that it now plans to develop the property. Compared to fourth quarter 2004, sales and operating income increased $5 million and $4 million, respectively, mainly due to higher per acre prices for development properties.

Performance Fibers

Sales of $173 million were $14 million above third quarter but operating income of $7 million declined $9 million due to increased raw material costs and lower absorbent materials selling prices. Compared to fourth quarter 2004, sales and operating income improved $18 million and $1 million, respectively, primarily due to higher volume and cellulose specialties prices mostly offset by increased raw material costs.

Wood Products

Sales and operating income of $34 million and $3 million, respectively, were both $2 million below third quarter, primarily due to lower prices. Compared to fourth quarter 2004, sales and operating income were up $3 million and $2 million, respectively, mainly due to higher prices.

Other Operations

Sales of $34 million were $2 million above third quarter while slightly positive operating results were essentially unchanged. Compared to fourth quarter 2004, sales and operating income declined $7 million and $1 million, respectively, mainly due to lower trading activity.

Other Items

Corporate expenses of $10.4 million were comparable to third quarter and $1 million above fourth quarter 2004.

Intersegment eliminations and other expense of $2.9 million was $5.1 million and $3 million more than third quarter 2005 and fourth quarter 2004, respectively, primarily due to the previously noted $3 million increase in disposition reserves. Third quarter also included $1.9 million in proceeds from an insurance settlement.

Interest expense of $12 million was $2.2 million above third quarter, primarily due to favorable tax audit related adjustments in that quarter, and was comparable to fourth quarter 2004.

Interest and other income of $4.2 million was $7.7 million below the third quarter, which included a $7.8 million arbitration award, but $5.5 million above fourth quarter 2004, primarily due to higher interest income and a gain on sale of a manufacturing asset.

The full-year effective tax rate, before discrete items, was 14.2 percent compared to 11.6 percent for 2004, primarily due to reduced like-kind-exchange and non-U.S. operations tax benefits. Fourth quarter 2005 income tax expense of $8.8 million included $6.5 million relating to the sale of the New Zealand timber assets and a $1.5 million discrete tax benefit from favorable adjustments of costs between taxable and non-taxable entities. Fourth quarter 2004 included a net tax benefit of $1.1 million, primarily due to a 9 percent appreciation in the New Zealand dollar and a favorable change in the mix of income between taxable and non-taxable entities (see Schedule J for details).

Outlook

"Entering 2006, we have well-positioned core businesses and continue to experience strong demand and pricing for most of our products, particularly real estate properties and our premium cellulose specialties," Nutter said. "As a result, excluding special items, we expect another very good year with full-year earnings somewhat above 2005, despite a first quarter that will be below fourth quarter 2005, primarily due to the timing of real estate transactions.

"In real estate, we continue to focus on moving up the value chain, while in performance fibers we recently implemented price increases for 2006 for cellulose specialties. In addition, contracts for most of our cellulose specialties volume, including all acetate sales, provide for a surcharge to help offset the sharp rise in energy costs."

Rayonier owns, leases or manages 2.5 million acres of timberland in the U.S., New Zealand and Australia. Its real estate subsidiary, TerraPointe LLC, is focused on maximizing the value of its extensive higher-and-better use properties, particularly in the fast growing counties along Interstate 95 between Savannah, Georgia, and Daytona Beach, Florida, where Rayonier owns approximately 200,000 acres. The company is also the world's leading producer of high performance cellulose specialty products. Approximately 40 percent of Rayonier's sales are outside the U.S. to customers in more than 50 countries.

SOURCE: Rayonier




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