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Rayonier fourth quarter income dips slightly

Jan. 23, 2007 - Rayonier today reported fourth quarter income from continuing operations of $50.0 million, or 64 cents per share. This compares to $55.0 million, or 70 cents per share, in the third quarter and $56.4 million, or 73 cents per share, in fourth quarter 2005. Full-year 2006 income from continuing operations was $171.1 million, or $2.19 per share, compared to $207.8 million, or $2.68 per share, in 2005.

Fourth quarter 2006 included a special item gain of $3.7 million, or 5 cents per share, for a deferred tax adjustment. Third quarter included special item gains of $5.3 million, or 7 cents per share, and fourth quarter 2005 included special item gains of $30.1 million, or 39 cents per share. In 2006 special items totaled $15.5 million, or 20 cents per share, compared to $85.9 million, or $1.11 per share, in 2005. (See Schedule H for details.)

Lee Nutter, Chairman, President and CEO, said: "We had another very successful year with strong and improved results in each of our three core businesses.

"In Timber, we increased the geographic footprint of our holdings with the purchase of 228,000 acres in six states and are now the 5th largest private timberland owner in the U.S. Also, we monetized 20 percent of our equity interest in a 354,000 acre Rayonier-managed New Zealand joint venture and, with a 40 percent interest, we remain the largest investor.

"In Performance Fibers, we continued to see very strong demand for our high-value cellulose specialties and secured long-term contracts for 80 percent of that production into 2011 with the world's largest manufacturers of acetate-based products and other key customers.

"In Real Estate, despite a softening in residential markets, operating income for the year was 39 percent higher than 2005 due to continued interest in our extensive and diverse development and rural properties. Also, as part of our strategy to move up the real estate value chain we entered into our first 'participation' agreements with two premier developers."

Net income in the fourth quarter was $55.3 million, or 71 cents per share, compared to $55.0 million, or 70 cents per share, in third quarter 2006, and $56.4 million, or 73 cents per share, in fourth quarter 2005. Fourth quarter 2006 included income from discontinued operations of $5.3 million, or 7 cents per share, reflecting a reduction in environmental reserves. Full-year 2006 net income was $176.4 million, or $2.26 per share, compared to $182.8 million, or $2.36 per share, in 2005.

Excluding special items, fourth quarter income from continuing operations was below third quarter primarily due to lower Real Estate sales partly offset by improved Performance Fibers results. On the same basis, earnings improved compared to fourth quarter 2005 primarily due to stronger Performance Fibers results and increased Real Estate sales partly offset by lower Northwest timber volume and Southeast timber prices.

Sales for the fourth quarter increased to $329 million from $312 million in the third quarter and $316 million in fourth quarter 2005. Sales for the year of $1.2 billion were 4 percent higher than in 2005.

Cash provided by operating activities for 2006 of $307 million was $53 million above 2005 due to higher operating earnings and lower working capital requirements. Cash Available for Distribution (CAD) of $178 million for 2006 was $9 million above 2005 mainly due to higher operating earnings. (CAD is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.)

Debt at year-end of $659 million was $101 million above year-end 2005 largely due to timberland acquisitions. The debt-to-capital ratio was 42.1 percent compared to 38.7 percent at prior year-end. Cash was $40 million compared to $146 million at year-end 2005.

Timber

Sales of $47 million and operating income of $19 million were $3 million and $2 million above third quarter, respectively, primarily due to higher Southeast volume and hunting lease income partly offset by lower Southeast prices and Northwest volume. Compared to fourth quarter 2005, sales and operating income decreased $9 million and $5 million, respectively, mainly due to lower Northwest volume and Southeast prices.

Real Estate

Sales of $35 million and operating income of $30 million were $12 million and $8 million below third quarter, respectively, primarily due to fewer development acres sold, partially offset by an increase in the price and number of rural acres sold. Compared to fourth quarter 2005, sales and operating income increased $15 million and $14 million, respectively, mainly due to an increase in development and rural acres sold and improved rural prices.

Performance Fibers

Sales and operating income of $196 million and $33 million, respectively, were $33 million and $12 million above third quarter primarily due to increased volume. Operating income also benefited from lower manufacturing costs, including a favorable property tax settlement which resulted in the reversal of $4.9 million in accruals from prior years. Compared to fourth quarter 2005, sales and operating income improved $23 million and $26 million, respectively, largely due to higher cellulose specialties prices and volume, while operating income also benefited from the property tax settlement and lower manufacturing costs.

Wood Products

Sales of $21 million were $5 million below third quarter due to a decline in volume and prices, while an operating loss of $4 million was unfavorable to third quarter by $1 million due to reduced prices partly offset by lower manufacturing costs. Compared to fourth quarter 2005, sales and operating income declined $13 million and $7 million, respectively, also due to weaker prices partially offset by lower manufacturing costs.

Other Operations

Sales of $29 million were $3 million below third quarter and $4 million lower than fourth quarter 2005, however, operating income of $1 million was up from essentially break even results in both comparative periods primarily due to settlement of a coal royalty dispute.

Other Items

Corporate expenses of $11.3 million were $4.2 million above third quarter mainly due to higher stock-price based incentive compensation and business development expenses. Compared to fourth quarter 2005, expenses increased $0.9 million largely due to higher incentive compensation.

Intersegment eliminations and other of $0.5 million income was comparable to third quarter and $3.4 million favorable to fourth quarter 2005 primarily due to an increase in disposition reserves in that quarter.

Interest expense of $13.8 million was $2.8 million above third quarter due to a litigation-related accrual and higher debt. Compared to fourth quarter 2005, interest expense increased $1.8 million mainly due to the legal matter.

Interest and other income of $2.5 million was $0.5 million below third quarter. Compared to fourth quarter 2005, it was $1.7 lower largely due to a gain on sale of a manufacturing asset in that quarter.

Income from discontinued operations was $5.3 million in fourth quarter 2006 due to a more cost-effective remediation plan at a closed facility resulting in a reduction in environmental reserves.

The full-year and fourth quarter 2006 effective tax rates, before discrete items, were 16.3 and 20.7 percent, respectively, compared to 14.2 and 14.9 percent in the 2005 comparable periods. The increase was primarily due to lower tax benefits from foreign operations, partly offset by higher REIT income. The 2005 rates included a $6.5 million tax benefit from the sale of New Zealand timber assets. Including discrete items, the full year and fourth quarter 2006 rates were 10.0 and 11.4 percent, respectively. (See Schedule J for details.)

Outlook

"Our focus this year is on integrating the 2006 timberland acquisitions into our operations, continuing to move up the value chain in real estate through additional 'participation' agreements and on high-return cost improvement projects at our Performance Fibers mills," Nutter said.

"Our mix of core businesses gives Rayonier strength and balance. As a result, excluding special items, we expect another good year with earnings generally in line with 2006. While the housing slowdown will put pressure on timber and real estate markets in the near term, the impact should be mostly offset by the strength of our Performance Fibers business. First quarter results are expected to be slightly below first quarter 2006 primarily due to lower timber earnings.

SOURCE: Rayonier




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