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Rayonier 3rd Quarter '09 Earnings Up

Oct. 27, 2009 - Rayonier today reported third quarter net income of $81 million, or $1.01 per share. Year-to-date net income was $215 million, or $2.69 per share.

The 2009 results include a special item for earnings related to the alternative fuel mixture credit (“AFMC”) of $49 million, or 61 cents per share and $128 million, or $1.61 per share, for the three and nine months ended September 30, 2009, respectively. Excluding the AFMC, third quarter earnings were $32 million, or 40 cents per share, compared to $29 million, or 36 cents per share, in the prior year period. Earnings for the nine months ended September 30, 2009, excluding the AFMC, were $86 million, or $1.08 per share, compared to $105 million, or $1.32 per share, in the first nine months of 2008.

Cash provided by operating activities was $214 million for the nine months ended September 30, 2009 compared to $248 million in 2008. Year-to-date cash available for distribution1 was $163 million compared to $164 million in 2008. (See Schedule D for more details.)

Lee M. Thomas, Chairman, President and CEO said, "We generated solid cash flows in the third quarter as strong Performance Fibers sales and continued interest in our rural properties helped offset the negative impact of the housing market on our timber segment.

“Additionally, in the third quarter, we successfully issued $173 million of six-year, 4.5 percent Senior Exchangeable Notes and are using a portion of the proceeds to pay off a maturing note in December. Overall, our unique business mix, manageable debt maturities, and ample liquidity continue to provide good operating flexibility,” said Thomas.

Timber

Third quarter sales and operating income of $46 million and $1 million increased $4 million and $2 million from the prior year period, respectively. Year-to-date sales of $125 million declined $20 million from prior year, while operating income decreased $21 million to an operating loss of $1 million.

In the Eastern region, sales and operating income increased from the prior year periods reflecting higher volumes and lower costs. However, these improvements were largely offset by a sales mix shift from sawtimber to lower-price pulpwood. The year-to-date results also benefited from increased non-timber income.

In the Western region, sales declined but operating results improved for the third quarter compared to the prior year. The results reflected lower sales prices and improved logging and transportation costs. Year-to-date sales and operating income decreased from 2008 due to lower prices and volumes from weak markets and planned harvest reductions. Additionally, operating income was impacted by higher depletion expense, partially offset by lower other costs.

Real Estate

Sales of $22 million were $4 million below third quarter 2008, while operating income of $13 million declined $1 million. Increased rural property sales were more than offset by lower non-strategic timberland and development acres, as well as, reduced rural prices.

For the nine month period, sales of $90 million were $11 million above the prior year period, while operating income of $51 million increased $1 million. Higher non-strategic timberland volumes were partially offset by lower per acre prices due to sales mix and reduced rural property sales primarily due to timing.

Performance Fibers

For the quarter, sales of $217 million were $7 million above the prior year period, while operating income of $50 million increased $6 million. The results reflect higher cellulose specialties prices somewhat offset by lower fluff prices and increased costs.

For the nine month period, sales of $598 million were $25 million higher than 2008, while operating income of $125 million increased $8 million. The results reflect higher cellulose specialties prices mostly offset by increased costs, declines in fluff prices and lower cellulose specialties volumes as many customers delayed orders into the back half of 2009.

Other Items

Excluding the impact of the AFMC, Corporate and other expenses were $6 million and $21 million for the quarter and nine months ended September 2009, respectively. Third quarter and year-to-date expenses declined $1 million from the prior year periods primarily due to a third quarter 2009 insurance recovery partially offset by foreign exchange losses.

Interest and other expenses were $1 million and $2 million higher for the three and nine months ended September 2009 compared to 2008, respectively. The third quarter of 2008 included a $1 million favorable IRS settlement. The year-to-date results reflect higher average net debt balances, partially offset by lower interest rates.

Third quarter effective tax rates before discrete items were 25.2 percent and 14.3 percent in 2009 and 2008, respectively. For the nine months ended, the effective tax rates before discrete items were 22.1 percent and 15.5 percent in 2009 and 2008, respectively. The increased rates in 2009 were due to proportionately higher earnings from the taxable REIT subsidiary (“TRS”).

Including discrete items, the effective tax rates for the quarter and year-to-date were 17.8 percent and 14.6 percent compared to 23.0 percent and 17.9 percent in 2008, respectively. In the third quarter of 2008, the Company recorded discrete tax items related to its New Zealand operations.

For the nine months ended 2009, $12 million of the AFMC was used to offset the TRS’ federal estimated income tax payments. An additional $9 million is expected to be applied against income tax payments during the fourth quarter; a cash refund for the remaining AFMC is anticipated to be received in 2010 after filing of the 2009 tax return.

Outlook

“We remain encouraged by signs of economic improvement, including solid demand for our Performance Fibers products and stable pulpwood markets. Our expectation of a gradual recovery in housing leads us to continue to hold off harvest of our more valuable sawtimber until pricing improves,” said Thomas.

“For the full year 2009, we anticipate EBITDA to be approximately 10 percent below 2008, and EPS (excluding AFMC) to be about 20 percent below 2008. Cash generation is expected to remain strong, with CAD comparable to 2008 and well above our $2.00 per share dividend,” Thomas concluded.

SOURCE: Rayonier




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