Oct. 24, 2006 (Press Release) - Rayonier today reported third quarter net income of $55.0 million, or 70 cents per share. This compares to $42.8 million, or 55 cents per share, in the second quarter and $75.0 million, or 96 cents per share, in third quarter 2005.

Results included a special item gain of $5.3 million, or 7 cents per share, for prior years' IRS audit settlements, including associated interest expense. Second quarter included a special item gain of $6.5 million, or 8 cents per share, while third quarter 2005 included three special item gains totaling $39.1 million, or 50 cents per share.

Lee Nutter, Chairman, President and CEO, said: "As expected, results were very good, reflecting the balance of our three core businesses. Particularly strong results were achieved by Performance Fibers, which continues to experience growing demand for its high-value cellulose specialties, and our Real Estate business, which closed several significant transactions - including our first participation agreement. In addition to realizing immediate proceeds from the sale, the agreement allows us to share in future revenues generated from the developed property."

Third quarter results, excluding special items, were above the second quarter primarily due to the increased value of real estate transactions and reduced performance fibers costs, partly offset by a normal seasonal decline in Northwest timber sales volume and lower prices. Compared to third quarter 2005, earnings improved primarily due to higher real estate sales and stronger cellulose specialties prices, partly offset by lumber prices.

Sales for the third quarter of $312 million were comparable to the second quarter and $13 million above third quarter 2005.

Cash provided by operating activities of $222 million for the nine months ended September 30 was $16 million above the comparable period in 2005 primarily due to lower working capital requirements. For the same period, Cash Available for Distribution (CAD) of $146 million was $15 million below 2005 mainly due to capital spending for a major energy cost reduction project, partly offset by reduced working capital requirements. (CAD is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.)

Debt of $556 million and a debt-to-capital ratio of 37.8 percent at quarter-end were $2 million and 0.9 percent below year-end 2005, respectively. Cash at September 30 was $169 million.

Timber

Sales of $44 million and operating income of $17 million were $17 million and $13 million below second quarter, respectively, primarily due to the normal seasonal decline in the Northwest and unfavorable volume and price in the Southeast, but were comparable to third quarter 2005.

Real Estate

Sales of $46 million and operating income of $38 million were $29 million and $27 million above second quarter, respectively, due to a significant increase in the number of higher value development acres sold, partly offset by fewer rural acres sold. Sales and operating income rose $19 million and $16 million, respectively, over third quarter 2005, due to an increase in both the quantity and per acre price of development acres sold, partially offset by fewer rural acres sold. The strong average per acre price for development property primarily was due to location.

Performance Fibers

Sales of $164 million were $2 million below second quarter but operating income increased $6 million to $21 million primarily due to improved production resulting in lower manufacturing costs, partially offset by sales mix. Compared to third quarter 2005, sales increased $4 million mainly due to higher cellulose specialties prices, partly offset by the sales mix. Operating income improved $6 million primarily due to the higher cellulose specialties prices, partly offset by energy costs.

Wood Products

Due to a dramatic drop in lumber prices, sales of $26 million and an operating loss of $3 million were $6 million and $5 million below second quarter, respectively, and $9 million and $8 million below third quarter 2005.

Other Operations

Sales of $32 million were $4 million below second quarter while essentially breakeven operating income was unchanged. Sales and operating income were basically unchanged from third quarter 2005.

Other Items

Corporate expenses of $7.1 million were comparable to second quarter and $3.1 million below third quarter 2005, primarily due to lower stock price-based incentive compensation.

Interest expense of $11.0 million was $0.9 million below second quarter primarily due to lower tax interest expense, but $1.2 million above third quarter 2005 mainly due to increased tax interest expense and higher interest rates.

Interest and other income of $3.0 million was $1.2 million above second quarter mainly due to higher interest income, but $8.9 million below third quarter 2005, largely due to an arbitration award in that quarter.

Excluding discrete items, the year-to-date effective tax rate was 14.6 percent compared to 13.9 percent for the same period in 2005 due to the absence of research and development credits. The third quarter tax expense of $2.7 million included the previously noted favorable settlement of tax audits for prior years of $4.8 million (excluding interest). Additionally, three other discrete items netted to a $0.6 million benefit in the quarter (see Schedule J for details).

Outlook

The company said it continues to expect that full year earnings will be above 2005. Fourth quarter results should be less than the third quarter (excluding special items), primarily due to lower real estate sales, but somewhat above fourth quarter 2005 because of higher cellulose specialties prices, reduced Performance Fibers costs and increased real estate sales, partly offset by weaker lumber prices.

"Although real estate and timber markets are somewhat uncertain, we remain optimistic given the mix of our businesses, their geographic breadth and the balance they provide," Nutter said. "Global demand remains exceptionally strong for our high-value specialty cellulose products and is expected to result in significant price improvement with the completion of annual pricing negotiations under multi-year contracts. In Real Estate, we will continue to focus on maximizing the value of our diverse properties, including the pursuit of additional participation transactions. Although our Timber business has begun to feel some effects of the housing slowdown, we expect the impact will be softened somewhat by the geographical diversity of our holdings."

About Rayonier

Rayonier is a leading international forest products company with three core businesses: Timber, Real Estate and Performance Fibers. It owns, leases or manages 2.5 million acres of timber and land in the U.S., New Zealand and Australia. The company's holdings include approximately 200,000 acres with residential and commercial development potential along the fast-growing Interstate 95 corridor between Savannah, Georgia, and Daytona Beach, Florida. Its Performance Fibers business is the world's leading producer of high-value specialty cellulose. Approximately 40 percent of the company's sales are outside the U.S. to customers in more than 50 countries.

SOURCE: Rayonier