Rayonier Reports Decline in Third Quarter Income
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
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.
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
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.
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.
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.
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.
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
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).
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."
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.