April 24, 2007 (Press Release) - Rayonier today reported first quarter net income of $35.1 million, or 45 cents per share. This compares to $55.2 million, or 71 cents per share, in fourth quarter 2006 and $23.2 million, or 30 cents per share, in first quarter 2006. Fourth quarter 2006 results included special item gains of $9.0 million, or 12 cents per share.

Lee Thomas, President and CEO, said: "First quarter results were quite good. Demand continued to be very strong and prices increased for our Performance Fibers products; in Timber, volumes were up as some customers advanced their harvests to take advantage of strong U.S. pulp and Northwest log export markets; and Real Estate results benefited from a sale that had been expected to close later in the year."

First quarter income was below fourth quarter 2006, excluding special items, primarily due to lower Real Estate and Performance Fibers results partly offset by improved earnings in Northwest timber. Earnings improved compared to first quarter 2006 primarily due to stronger Performance Fibers and Real Estate results partly offset by weaker lumber markets.

Sales for the first quarter of $300 million were $29 million below fourth quarter 2006 but $23 million above first quarter 2006.

Cash provided by operating activities of $52 million was $1 million above first quarter 2006. Cash Available for Distribution (CAD) of $61 million was $37 million above first quarter 2006 mainly due to higher operating earnings and lower capital expenditures. (CAD is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.)

Debt of $671 million was $12 million above year-end 2006. The debt-to-capital ratio of 42.0 percent was comparable to year-end 2006. Cash at March 31, 2007 was $28 million compared to $40 million at December 31, 2006.

Timber

Sales of $65 million and operating income of $26 million were $18 million and $7 million above fourth quarter 2006, respectively, primarily due to higher timber volumes driven by strong U.S. pulp and Northwest log export markets. Compared to first quarter 2006, sales and operating income increased $11 million and $2 million, respectively, mainly due to stronger U.S. timber volumes. Volumes compared to both previous quarters also increased due to harvesting on timberland we acquired last year.

Real Estate

Sales of $21 million and operating income of $15 million were $14 million and $15 million below fourth quarter 2006, respectively, primarily due to fewer development acres sold, partially offset by an increase in rural acres sold. Compared to first quarter 2006, sales and operating income increased $8 million and $5 million, respectively, mainly due to an increase in rural acres sold and improved overall prices partly offset by a decrease in development acres sold.

Performance Fibers

Due primarily to planned maintenance downtime, sales and operating income of $166 million and $27 million, respectively, were $30 million and $6 million below fourth quarter 2006, with lower volumes partially offset by higher prices for both cellulose specialties and absorbent materials. The operating income variance was also impacted by a property tax settlement that benefited fourth quarter 2006 and higher manufacturing costs in the current quarter. Compared to first quarter 2006, sales and operating income improved $20 million and $17 million, respectively, largely due to higher prices for both cellulose specialties and absorbent materials.

Wood Products

Sales of $20 million were $2 million below fourth quarter 2006 due to a decline in volume, while the operating loss of $3 million was $1 million less than in the fourth quarter due to slightly improved prices. Compared to first quarter 2006, sales and operating income declined $12 million and $6 million, respectively, due to significantly weaker prices partially offset by lower manufacturing costs.

Other Operations

Sales of $28 million were $2 million below fourth quarter 2006 and $4 million lower than first quarter 2006. The operating loss of $1 million was unfavorable by $2 million compared to fourth quarter 2006 primarily due to the impact of legal settlements in that quarter, and $1 million below first quarter 2006.

Other Items

Corporate expenses of $9.1 million were $2.2 million below fourth quarter 2006 mainly due to decreased business development expenses but comparable to first quarter 2006.

Interest expense of $13.6 million was essentially unchanged from fourth quarter 2006. Compared to first quarter 2006, interest expense increased $1.4 million mainly due to higher debt partially offset by lower interest rates.

Interest and other income of $1.0 million was $1.5 million and $1.2 million below fourth quarter and first quarter 2006, respectively, primarily due to lower interest income.

There was no impact from discontinued operations in first quarter 2007 and 2006, however, fourth quarter 2006 included income of $5.3 million due to a reduction in environmental reserves as a result of the approval of a more cost-effective remediation plan at a closed facility.

The first quarter effective tax rate, before discrete items, was 16.7 percent, compared to 16.4 percent in first quarter 2006. Including discrete items, the effective tax rate increased to 17.6 percent compared to 14.6 percent in first quarter 2006.

Outlook

"Rayonier's mix of core businesses continues to provide us with strength and balance and we look forward to another good year with earnings comparable to 2006, excluding special items," Thomas said. "Although the housing slowdown continues to put pressure on our Timber and Real Estate businesses, we expect the impact will be offset by the strength of Performance Fibers.

"However, we are closely monitoring the ongoing wildfires in Southeast Georgia which have affected about 26,000 acres of our timberland and are not yet fully contained. Our preliminary estimate of the impact on second quarter earnings is $5 to $7 million, or 6 to 9 cents per share. Once the area is fully accessible, we will be able to more accurately assess the damage."

Rayonier is a leading international forest products company with three core businesses: Timber, Real Estate and Performance Fibers. It owns, leases or manages 2.7 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 fibers. Approximately 40 percent of the company's sales are outside the U.S. to customers in more than 50 countries. Rayonier is structured as a real estate investment trust.

SOURCE: Rayonier