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Rayonier Reports Third Quarter 2005 Results

October 24, 2005

JACKSONVILLE, Fla.--(BUSINESS WIRE)--Oct. 24, 2005--Rayonier (NYSE:RYN) today reported third quarter income from continuing operations of $74.9 million, or 96 cents per share. This compares to $41.6 million, or 54 cents per share, in second quarter 2005 and $25.1 million, or 33 cents per share, in third quarter 2004. Net income for the quarter was $75.0 million, or 96 cents per share. All earnings-per-share data reflect the three-for-two stock split completed October 17, 2005.

Third quarter 2005 results included the following special items:

  • An income tax benefit of $25.8 million, or 33 cents per share, associated with the repatriation of foreign earnings.


  • Tax and related interest benefits of $8.1 million, or 10 cents per share, from the favorable resolution of tax audits for prior years.


  • A gain of $5.2 million, or 7 cents per share, from an arbitration award related to the sharing of insurance proceeds by the company's former parent.

Second quarter 2005 special items included a tax benefit of $7.2 million, or 9 cents per share, related to an IRS audit settlement.

Also, both third and second quarter 2005 results included tax benefits from like-kind exchange (LKE) transactions of approximately $1 million compared to $10 million, or 13 cents per share, in third quarter 2004.

Lee Nutter, Chairman, President and CEO, said: "With strong demand and pricing across all product lines, income from continuing operations was above both the second quarter and last year's third quarter, despite higher raw material and energy costs. Cash flow, including proceeds from the sale of our medium-density-fiberboard business, remained strong, enabling us to reduce debt by 14 percent from the end of the prior quarter."

Excluding the special items, third quarter income from continuing operations was above second quarter primarily due to higher real estate sales, somewhat offset by a normal seasonal decline in Northwest timber sales. On the same basis, compared to third quarter 2004, earnings improved primarily due to increased real estate sales and Northwest timber prices, partially offset by reduced LKE tax benefits.

Cash provided by operating activities for the nine months ended September 30 of $206 million was $26 million below the comparable period in 2004 due to working capital increases. However, Cash Available for Distribution (CAD) of $159 million was $11 million above last year. (CAD is a non-GAAP measure defined and reconciled to GAAP measures in the attached exhibits.)

Sales for the third quarter of $300 million were $9 million and $32 million above second quarter 2005 and third quarter 2004, respectively.

Debt at quarter-end of $590 million was $69 million below year end 2004 primarily due to strong cash flow and proceeds of $40 million from the sale of the medium-density-fiberboard business. Debt less cash of $480 million declined $94 million from year end. The debt-to-capital ratio of 42.2 percent strengthened from 45.3 percent at year end. Cash at September 30, 2005, was $110 million.

Timber

Sales of $46 million and operating income of $16 million were $9 million and $7 million below second quarter, respectively, primarily due to the normal seasonal decline in Northwest volume and higher costs. Compared to third quarter 2004, sales and operating income improved $6 million and $4 million, respectively, mainly due to higher Northwest prices partially offset by lower volume and increased costs.

Real Estate

Sales of $28 million and operating income of $22 million were $13 million and $11 million above second quarter, respectively, and $20 million and $17 million higher than third quarter 2004, respectively, due to increased sales of development and rural properties and higher per acre prices for development properties.

Performance Fibers

Sales of $159 million were $6 million and $16 million above second quarter 2005 and third quarter 2004, respectively, primarily due to higher prices for absorbent materials and cellulose specialty products and increased volumes of cellulose specialty products. However, operating income of $16 million decreased $3 million and $1 million compared to second quarter 2005 and third quarter 2004, respectively, due to higher wood, chemical, and energy costs.

Wood Products

Sales of $36 million and operating income of $5 million were each $1 million below the second quarter. Sales improved $2 million from third quarter 2004 while operating income was essentially unchanged as higher prices were offset by increased manufacturing costs.

Other Operations

Sales of $32 million and essentially breakeven operating results were both $1 million above second quarter. Sales declined $14 million from third quarter 2004 due to weaker trading activity while operating income was unchanged.

Other Items

Corporate expenses of $10.2 million were $1.9 million and $2.2 million above second quarter 2005 and third quarter 2004, respectively, largely due to higher stock price-based incentive compensation.

Intersegment eliminations and other of $2.2 million was $2.6 million and $2 million favorable to second quarter 2005 and third quarter 2004, respectively, primarily due to proceeds from an insurance settlement.

Interest and miscellaneous income of $11.9 million was $10.9 million and $11.2 million above second quarter 2005 and third quarter 2004, respectively, mainly due to the previously noted arbitration award and interest benefits associated with the favorable resolution of tax audits.

The year-to-date effective tax rate, before discrete items, was 13.9 percent compared to 16.3 percent for the same period in 2004, primarily due to reduced taxes on U.S. manufacturing operations from 2004 tax law changes and lower taxes on foreign operations (see Schedule J for details).

The overall third quarter 2005 income tax benefit of $21.8 million included the impact on taxes of the following previously noted special items: a $25.8 million income tax benefit associated with the repatriation of foreign earnings, a $3.1 million net tax benefit related to favorable tax audits for prior years and a $3.0 million tax expense related to the arbitration award.

Outlook

Fourth quarter 2005 results are expected to be well above fourth quarter 2004 due to increased real estate sales and higher prices for U.S. timber and cellulose specialty products, but somewhat below third quarter 2005 (excluding the aforementioned special items) due to increased performance fibers manufacturing costs partially offset by higher volumes of cellulose specialty products and Northwest timber.

"Global demand for our cellulose specialty products is particularly strong and is expected to result in further price improvement in January 2006 with the completion of annual pricing negotiations under multi-year contracts," Nutter said.

Fourth quarter results will include net cash proceeds of $65 million and a gain of approximately $30 million, or 39 cents per share, from the previously announced sale of the company's New Zealand timberlands to a consortium in which Rayonier holds a 49.7 percent interest. The transaction closed October 3, 2005.

As previously announced, the quarterly cash dividend, beginning with the fourth quarter, has been increased 13.7 percent to 47 cents per share on a post-split basis.

Rayonier has 2.2 million acres of prime timberland and real estate in the U.S. and New Zealand. Its real estate subsidiary, TerraPointe LLC, is charged with maximizing the value of its extensive higher-and-better use properties, particularly in the fast growing counties along Interstate 95 between Savannah, Georgia, and Daytona Beach, Florida, where Rayonier owns approximately 200,000 acres. Rayonier is also the world's leading producer of high performance cellulose specialty products. Approximately 40 percent of the company's sales are outside the U.S. to customers in more than 50 countries.

Reported results are preliminary and not final until filing of the third quarter 2005 Form 10-Q with the Securities and Exchange Commission and, therefore, remain subject to adjustment. Statements regarding anticipated demand, pricing, manufacturing costs, earnings, and real estate sales are "forward-looking statements" made pursuant to the safe harbor provisions of federal securities laws. The following important factors, among others, could cause actual results to differ materially from those expressed in the forward-looking statements: changes in global market trends and world events; interest rate and currency movements; fluctuations in demand for, or supply of, cellulose specialty products, absorbent materials, timber, wood products or real estate and entry of new competitors into these markets; adverse weather conditions affecting production, timber availability and sales, or distribution; changes in production costs for wood products or performance fibers, particularly for raw materials such as wood, energy and chemicals; unexpected delays in the closing of real estate sale transactions; changes in law or policy that might limit or restrict the development of real estate; the ability of the company to identify and complete timberland and higher-value real estate acquisitions; the company's ability to satisfy complex rules in order to qualify as a REIT; the availability of tax deductions and the ability of the company to complete tax-efficient exchanges of real estate; and implementation or revision of governmental policies and regulations affecting the environment, endangered species, import and export controls or taxes, including changes in tax laws that could reduce the benefits associated with REIT status. For additional factors that could impact future results, please see the company's most recent Form 10-K on file with the Securities and Exchange Commission. Rayonier assumes no obligation to update these statements except as may be required by law.

A conference call will be held on Monday, October 24, at 2:00 p.m. EDT to discuss these results. Interested parties are invited to listen to the live webcast by logging onto http://www.rayonier.com and following the link. Supplemental materials will be available at the website. A replay will be available on the site shortly after the call where it will be archived for one month. Also, investors may access the "listen only" conference call by dialing 913-981-5584.

For further information, visit the company's web site at http://www.rayonier.com. Complimentary copies of Rayonier press releases and other financial documents are also available by mail or fax by calling 1-800-RYN-7611.

                               RAYONIER
                         FINANCIAL  HIGHLIGHTS
                    SEPTEMBER 30, 2005  (unaudited)

          (millions of dollars, except per share information)

                       Three Months Ended          Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,   June 30,  Sept. 30,  Sept. 30,  Sept. 30,
                   2005       2005       2004       2005       2004
                ---------- ---------- ---------- ---------- ----------
Profitability
  Sales          $  299.5   $  290.3   $  267.9   $  864.8   $  878.3
  Operating
   income        $   51.0   $   48.9   $   32.1   $  147.2   $  146.4
  Income from
   continuing
   operations    $   74.9   $   41.6   $   25.1   $  151.3   $  146.1
  Discontinued
   operations    $    0.1   $  (24.7)  $   (1.0)  $  (24.9)  $   (2.7)
  Net income     $   75.0   $   16.9   $   24.1   $  126.4   $  143.4
  Income per
   diluted
   common share
    Continuing
     operations  $   0.96   $   0.54   $   0.33   $   1.95   $   1.90
    Net income   $   0.96   $   0.22   $   0.32   $   1.63   $   1.87
    Pro forma
     income
     from
     continuing
     operations
     (see
     schedule H) $   0.46   $   0.45   $   0.33   $   1.23   $   1.25
  Operating
   income as a
   percent of
   sales             17.0%      16.8%      12.0%      17.0%      16.7%
  ROE
   (annualized)
   (a)               14.7%      13.4%      16.6%      14.7%      16.6%


                              Nine Months Ended
                                September 30,
                           ----------------------
                              2005       2004
                           ---------- ----------
Capital
 Resources and
 Liquidity
  Continuing
   operations:
    Cash provided
     by operating
     activities             $  206.1   $  232.4
    Cash used for
     investing
     activities             $  (77.9)  $ (141.9)
    Cash used for
     financing
     activities             $ (150.0)  $  (71.4)
  Adjusted
   EBITDA (b)(d)            $  280.1   $  268.6
  Cash Available
   for Distribution
   (CAD)(c)(d)              $  159.4   $  148.9
  Repayment of
   debt, net                $  (67.8)  $   (2.8)
  Debt                      $  589.8   $  615.5
  Debt / capital                42.2%      43.7%
  Cash                      $  109.6   $   41.6

(a), (b), (c) and (d), see Schedule C.

                                 - A -
                               RAYONIER
             CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                    SEPTEMBER 30, 2005 (unaudited)

          (millions of dollars, except per share information)

                    Three Months Ended            Nine Months Ended
           ----------------------------------- -----------------------
            Sept. 30,   June 30,    Sept. 30,   Sept. 30,   Sept. 30,
              2005        2005        2004        2005        2004
           ----------- ----------- ----------- ----------- -----------

Sales       $   299.5   $   290.3   $   267.9   $   864.8   $   878.3
           ----------- ----------- ----------- ----------- -----------
Costs and
 expenses
  Cost of
   sales        237.7       227.0       224.6       682.1       689.1
  Selling
   and
   general
   expenses      16.9        15.3        12.7        46.7        44.9
  Other
  operating
   income,
   net           (6.1)       (0.9)       (1.5)      (11.2)       (2.1)
           ----------- ----------- ----------- ----------- -----------
Operating
 income          51.0        48.9        32.1       147.2       146.4

Interest
 expense         (9.8)      (12.8)      (11.5)      (35.0)      (34.6)
Interest and
 miscellaneous
 income, net     11.9         1.0         0.7        13.4         1.8
           ----------- ----------- ----------- ----------- -----------
Income before
 taxes           53.1        37.1        21.3       125.6       113.6
Income tax
 benefit (a)     21.8         4.5         3.8        25.7        32.5
           ----------- ----------- ----------- ----------- -----------
Income from
 continuing
 operations $    74.9   $    41.6   $    25.1   $   151.3   $   146.1
Discontinued
 operations,
 net              0.1       (24.7)       (1.0)      (24.9)       (2.7)
           ----------- ----------- ----------- ----------- -----------
Net income
 (a)        $    75.0   $    16.9   $    24.1   $   126.4   $   143.4
           =========== =========== =========== =========== ===========

Income per
 Common Share:
 Basic
  From
   continuing
   opera-
   tions    $    0.99   $    0.55   $    0.34   $    2.00   $    1.96
           =========== =========== =========== =========== ===========
  Net
   income   $    0.99   $    0.22   $    0.33   $    1.67   $    1.92
           =========== =========== =========== =========== ===========
 Diluted
  From
   continuing
   opera-
   tions    $    0.96   $    0.54   $    0.33   $    1.95   $    1.90
           =========== =========== =========== =========== ===========
  Net
   income   $    0.96   $    0.22   $    0.32   $    1.63   $    1.87
           =========== =========== =========== =========== ===========

 Pro forma
  income from
  continuing
  operations
  (b)
  Adjusted
   basic
   EPS      $    0.47   $    0.45   $    0.34   $    1.25   $    1.29
           =========== =========== =========== =========== ===========
 Adjusted
  diluted
  EPS       $    0.46   $    0.45   $    0.33   $    1.23   $    1.25
           =========== =========== =========== =========== ===========

Weighted
 average
 Common
 Shares
 used for
 determining
  Basic
   EPS     75,658,512  75,326,922  74,580,075  75,390,193  74,309,063
           =========== =========== =========== =========== ===========
  Diluted
   EPS     77,753,165  77,412,110  76,685,147  77,490,723  76,401,050
           =========== =========== =========== =========== ===========

(a) and (b), see Schedule C.

                                 - B -
                               RAYONIER
                   FOOTNOTES FOR SCHEDULES A AND B
                    SEPTEMBER 30, 2005  (unaudited)

          (millions of dollars, except per share information)

Schedule A

  (a) Based on year-to-date percent; major land sales and REIT
      conversion costs are not annualized.

  (b) Adjusted EBITDA is defined as earnings from continuing
      operations before interest, taxes, depreciation, depletion,
      amortization and the non-cash cost basis of real estate sold.
      Adjusted EBITDA is a non-GAAP measure of operating cash
      generating capacity of the Company. See reconciliation on
      Schedule I.

  (c) Cash Available for Distribution (CAD) is defined as cash
      provided by operating activities less capital spending, the tax
      benefit on the exercise of stock options, tax benefits
      associated with certain strategic acquisitions and the change
      in committed cash. CAD is a non-GAAP measure of cash generated
      during a period that is available for dividend distribution,
      repurchase of the Company's common shares, debt reduction and
      for strategic acquisitions net of associated financing. See
      reconciliation on Schedule H.

  (d) Management considers these measures to be important to estimate
      the enterprise and shareholder values of the Company as a whole
      and of its core segments, and for allocating capital resources.
      In addition, analysts, investors and creditors use these
      measures when analyzing the financial condition and cash
      generating ability of the Company.


Schedule B

  (a) Three months ended September 30, 2005 includes: a tax benefit of
      $25.8 million associated with the repatriation of foreign
      earnings; tax benefits and adjustment of accrued interest
      expense/income of $8.1 million resulting from IRS audit
      settlements; and a favorable non-operating income adjustment of
      $5.2 million resulting from an arbitration award. Nine months
      ended September 30, 2005 also includes tax benefits of $16.7
      million resulting from IRS audit settlements. Nine months ended
      September 30, 2004 includes reversal of deferred taxes not
      required after REIT conversion of $77.9 million and additional
      taxes for repatriation of foreign earnings of ($28.2) million
      for a net effect of $49.7 million.

  (b) Three months ended September 30, 2005 excludes: a tax benefit of
      $0.33 per share associated with the repatriation of foreign
      earnings; tax benefits and adjustment of accrued interest
      expense/income of $0.10 per share resulting from IRS audit
      settlements; and a favorable non-operating income adjustment of
      $0.07 per share, resulting from an arbitration award.  Nine
      months ended September 30, 2005 also excludes tax benefits of
      $0.22 per share, resulting from IRS audit settlements. Nine
      months ended September 30, 2004 includes reversal of deferred
      taxes not required after REIT conversion of $1.02 per share and
      additional taxes for repatriation of foreign earnings of ($0.37)
      per share, for a net effect of $0.65 per share. See
      reconciliation on Schedule H.

                                - C -
                               RAYONIER
          BUSINESS SEGMENT SALES AND OPERATING INCOME (LOSS)
                    SEPTEMBER 30, 2005 (unaudited)

                         (millions of dollars)

                       Three Months Ended          Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,   June 30,  Sept. 30,  Sept. 30,  Sept. 30,
                   2005       2005       2004       2005       2004
                ---------- ---------- ---------- ---------- ----------
Sales
  Timber         $   45.5   $   54.5   $   39.2   $  151.9   $  141.6

  Real Estate        27.6       14.7        7.3       65.9       81.0

  Performance
   Fibers
  Cellulose
   specialties      114.8      108.0      103.3      323.9      303.6
  Absorbent
   materials         44.3       45.2       39.4      131.4      124.4
                ---------- ---------- ---------- ---------- ----------
    Total
     Performance
     Fibers         159.1      153.2      142.7      455.3      428.0
                ---------- ---------- ---------- ---------- ----------

  Wood Products      35.6       36.4       33.2      102.5       95.3

  Other
   Operations        32.1       31.5       45.8       89.9      133.0

  Intersegment
   eliminations      (0.4)         -       (0.3)      (0.7)      (0.6)
                ---------- ---------- ---------- ---------- ----------

    Total sales  $  299.5   $  290.3   $  267.9   $  864.8   $  878.3
                ========== ========== ========== ========== ==========

Operating
 income (loss)
  Timber         $   16.4   $   23.1   $   12.6   $   63.2   $   55.5

  Real Estate        21.8       10.7        4.9       47.8       63.6

  Performance
   Fibers            15.6       18.5       16.7       46.5       41.2

  Wood Products       4.6        5.7        5.0       13.6       12.3

  Other
   Operations         0.6       (0.4)       0.7        0.4        5.0

  Corporate         (10.2)      (8.3)      (8.0)     (26.1)     (30.9)

  Intersegment
   eliminations
   and other
    (Including
     Corporate FX)    2.2       (0.4)       0.2        1.8       (0.3)
                ---------- ---------- ---------- ---------- ----------

     Total
      operating
      income     $   51.0   $   48.9   $   32.1   $  147.2   $  146.4
                ========== ========== ========== ========== ==========

                                 - D -
                               RAYONIER
  CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
                    SEPTEMBER 30, 2005 (unaudited)
                         (millions of dollars)

CONDENSED CONSOLIDATED BALANCE SHEETS
                                                 Sept. 30,   Dec. 31,
                                                   2005        2004
                                                ----------  ----------
 Assets
 Current assets                                  $  341.6   $   369.4
 Timber, timberlands and logging roads,
  net of depletion and amortization               1,035.4     1,053.5
 Property, plant and equipment                    1,352.4     1,333.3
 Less - accumulated depreciation                   (986.7)     (936.2)
                                                ----------  ----------
                                                    365.7       397.1
                                                ----------  ----------
 Other assets                                       113.6       113.9
                                                ----------  ----------
                                                 $1,856.3   $ 1,933.9
                                                ==========  ==========
 Liabilities and Shareholders' Equity
 Current liabilities                             $  259.3   $   246.7
 Deferred income taxes                                5.1        46.5
 Long-term debt                                     556.2       610.3
 Non-current reserves for dispositions and
  discontinued operations                           126.2       133.9
 Other non-current liabilities                      102.3       100.1
 Shareholders' equity                               807.2       796.4
                                                ----------  ----------
                                                 $1,856.3   $ 1,933.9
                                                ==========  ==========

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   Nine Months Ended
                                               -----------------------
                                                 Sept. 30,   Sept. 30,
                                                   2005        2004
                                                ----------  ----------
 Cash provided by operating activities of
  continuing operations:
   Income from continuing operations             $  151.3   $   146.1
   Depreciation, depletion, amortization and
    non-cash cost basis of real estate sold         119.6       120.4
   Other non-cash items included in income(1)       (34.0)      (46.8)
   Changes in working capital and other assets
    and liabilities                                 (30.8)       12.7
                                                ----------  ----------
                                                    206.1       232.4
                                                ----------  ----------
 Cash used for investing activities of
  continuing operations:
   Capital expenditures, net of sales and
    retirements                                     (51.5)      (52.7)
   Purchase of timberlands                          (12.9)      (89.2)
   Increase in restricted cash                      (13.5)          -
                                                ----------  ----------
                                                    (77.9)     (141.9)
                                                ----------  ----------
 Cash used for financing activities:
   Repayment of debt, net                           (67.8)       (2.8)
   Dividends paid                                   (93.5)      (83.3)
   Issuance of common shares                         11.3        14.7
                                                ----------  ----------
                                                   (150.0)      (71.4)
                                                ----------  ----------
 Effect of exchange rate changes on cash             (0.1)        0.3
                                                ----------  ----------
 Cash provided by discontinued operations            47.4         0.8
                                                ----------  ----------
 Cash and cash equivalents:
   Increase in cash and cash equivalents             25.5        20.2
   Balance, beginning of year                        84.1        21.4
                                                ----------  ----------
   Balance, end of period                        $  109.6    $   41.6
                                                ==========  ==========

 (1) 2005 - mainly the U.S. tax benefit on repatriation of foreign
     earnings and favorable tax settlements, including interest. 2004
     - mainly reversal of deferred taxes not required after REIT
     conversion of ($77.9) million and additional taxes for
     repatriation of foreign earnings of $28.2 million, for a net
     effect of ($49.7) million.

                                 - E -
                               RAYONIER
                 SELECTED SUPPLEMENTAL FINANCIAL DATA
                    SEPTEMBER 30, 2005 (unaudited)

                         (millions of dollars)

                       Three Months Ended          Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,  June 30,   Sept. 30,  Sept. 30, Sept. 30,
                   2005       2005       2004       2005       2004
                ---------- ---------- ---------- ---------- ----------

Geographical
 Data (Non-U.S.)
 Sales
   New Zealand   $   13.1   $   14.1   $   12.2   $   36.1   $   36.2
   Other              1.6        2.8        7.1        7.1       22.5
                ---------- ---------- ---------- ---------- ----------
      Total      $   14.7   $   16.9   $   19.3   $   43.2   $   58.7
                ========== ========== ========== ========== ==========

 Operating
  income (loss)
   New Zealand   $    1.5   $    0.8   $    1.8   $    3.0   $    3.6
   Other             (0.8)      (0.5)      (1.0)      (1.4)      (2.0)
                ---------- ---------- ---------- ---------- ----------
      Total      $    0.7   $    0.3   $    0.8   $    1.6   $    1.6
                ========== ========== ========== ========== ==========

Timber
 Sales
   Northwest
    U.S.         $   18.8   $   26.0   $   17.0   $   71.1   $   63.2
   Southeast
    U.S.             19.1       21.6       14.9       61.6       59.0
   New Zealand        7.6        6.9        7.3       19.2       19.4
                ---------- ---------- ---------- ---------- ----------
      Total      $   45.5   $   54.5   $   39.2   $  151.9   $  141.6
                ========== ========== ========== ========== ==========

 Operating
  income
   Northwest
    U.S.         $    8.8   $   16.0   $    8.0   $   41.2   $   33.8
   Southeast
    U.S.              5.9        5.8        2.7       18.1       17.2
   New Zealand        1.7        1.3        1.9        3.9        4.5
                ---------- ---------- ---------- ---------- ----------
      Total      $   16.4   $   23.1   $   12.6   $   63.2   $   55.5
                ========== ========== ========== ========== ==========

Adjusted EBITDA
 by Segment
 Timber and Real
  Estate(1)      $   58.4   $   51.7   $   30.1   $  170.9   $  173.6
 Performance
  Fibers             35.3       37.2       37.2      100.9      100.8
 Wood Products        6.4        7.5        7.6       19.0       18.7
 Other
  Operations          1.2        0.1        1.2        1.5        5.9
 Corporate and
  other               3.2       (8.3)      (7.3)     (12.2)     (30.4)
                ---------- ---------- ---------- ---------- ----------
      Total      $  104.5   $   88.2   $   68.8   $  280.1   $  268.6
                ========== ========== ========== ========== ==========

 (1) The Company is in the process of creating separate balance sheet
     information for the Timber and Real Estate segments.

                                 - F -
                               RAYONIER
                    SELECTED OPERATING INFORMATION
                    SEPTEMBER 30, 2005 (unaudited)

                        Three Months Ended         Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,  June 30,   Sept. 30,  Sept. 30, Sept. 30,
                   2005       2005       2004       2005       2004
                ---------- ---------- ---------- ---------- ----------
Timber
 Sales volume -
  Timber
   Northwest U.S.,
    in millions
    of board feet      48         69         61        193        230
   Southeast U.S.,
    in thousands
    of short
    green tons      1,080      1,206        842      3,507      3,231
   New Zealand,
    in thousands
    of metric
    tons              191        143        173        428        437

 Timber sales
  volume -
  Intercompany
   Southeast U.S.,
    in thousands
    of short green
    tons               18          2          8         41         29
   New Zealand,
    in thousands
    of metric
    tons                1          1          7          3          7

Real Estate
 Acres sold
   TerraPointe -
    Development     2,411      1,006        675      4,937      3,500
   TerraPointe -
    Rural           7,930      5,028      1,284     22,107     26,297
   Northwest U.S.      44        151        174        275        217
                ---------- ---------- ---------- ---------- ----------
   Total           10,385      6,185      2,133     27,319   30,014(1)

Performance Fibers
 Sales Volume
   Cellulose
    specialties,
    in thousands
    of metric
    tons              120        113        112        340        328
   Absorbent
    materials,
    in thousands
    of metric
    tons               65         69         61        201        204
 Production as a
  percent of
  capacity          103.8%     102.8%      98.5%     103.1%      98.9%

Lumber
 Sales volume,
  in millions of
  board feet           89         90         87        262        261

(1) Includes 5,487 acres associated with a Northeast Florida sale
    ($26 million) of timber lease rights.

                                 - G -
                               RAYONIER
                 RECONCILIATION OF NON-GAAP MEASURES
                    SEPTEMBER 30, 2005 (unaudited)

          (millions of dollars, except per share information)

                             Nine Months Ended
                            --------------------
                            Sept. 30,  Sept. 30,
                              2005       2004
                           ---------- ----------
 Cash Available for
  Distribution
 Cash provided by
  operating activities      $  206.1   $  232.4
 Capital spending (a)          (51.5)     (52.7)
 Like-kind exchange tax
  benefits on third party
  land sales (b)                (2.0)      (9.9)
 Like-kind exchange tax
  benefits on intercompany
  land sales (b)                   -      (20.2)
 Decrease in committed cash     10.0        2.8
 Tax benefit on exercise of
  stock options                 (3.2)      (3.5)
                           ---------- ----------
 Cash Available for
  Distribution              $  159.4   $  148.9
                           ========== ==========

(a) Capital Spending is net of sales and retirements and excludes
    strategic acquisitions.
(b) Represents taxes that would have been paid if the Company had not
    completed LKE transactions.


                       Three Months Ended          Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,  June 30,   Sept. 30,  Sept. 30, Sept. 30,
                  2005       2005       2004       2005       2004
                ---------- ---------- ---------- ---------- ----------
Income from
 Continuing
 Operations per
 Common Share
   Basic EPS     $   0.99   $   0.55   $   0.34   $   2.00   $   1.96
                ========== ========== ========== ========== ==========
   Diluted EPS   $   0.96   $   0.54   $   0.33   $   1.95   $   1.90
                ========== ========== ========== ========== ==========

   Deferred taxes
    not required
    after REIT
    conversion
   Basic EPS            -          -          -          -      (1.05)
                ========== ========== ========== ========== ==========
   Diluted EPS          -          -          -          -      (1.02)
                ========== ========== ========== ========== ==========

   Taxes associated
    with
    repatriation
    of foreign
    earnings
   Basic EPS        (0.34)         -          -      (0.34)      0.38
                ========== ========== ========== ========== ==========
   Diluted EPS      (0.33)         -          -      (0.33)      0.37
                ========== ========== ========== ========== ==========

   IRS audit
    settlements
    including
    adjustment
    of accrued
    interest
   Basic EPS        (0.11)     (0.10)         -      (0.34)         -
                ========== ========== ========== ========== ==========
   Diluted EPS      (0.10)     (0.09)         -      (0.32)         -
                ========== ========== ========== ========== ==========

   Arbitration
    award
   Basic EPS        (0.07)         -          -      (0.07)         -
                ========== ========== ========== ========== ==========
   Diluted EPS      (0.07)         -          -      (0.07)         -
                ========== ========== ========== ========== ==========

Pro forma income
 from Continuing
 Operations per
 Common Share
   Adjusted
    basic EPS    $   0.47   $   0.45   $   0.34   $   1.25   $   1.29
                ========== ========== ========== ========== ==========
   Adjusted
    diluted EPS  $   0.46   $   0.45   $   0.33   $   1.23   $   1.25
                ========== ========== ========== ========== ==========

                                 - H -
                               RAYONIER
               RECONCILIATION OF NON-GAAP MEASURES (1)
                    SEPTEMBER 30, 2005 (unaudited)

                         (millions of dollars)

                                   Timber and  Performance    Wood
                                   Real Estate   Fibers     Products
                                   ----------- ----------- -----------
 Adjusted EBITDA

 Three Months Ended
 September 30, 2005
  Cash provided by operating
   activities                       $    61.8   $    19.7   $     8.6
  Income tax benefit                        -           -           -
  Interest expense                          -           -           -
  Working capital increases
   (decreases)                            1.0        16.3        (2.2)
  Other balance sheet changes            (4.4)       (0.7)          -
                                   ----------- ----------- -----------
  Adjusted EBITDA                   $    58.4   $    35.3   $     6.4
                                   =========== =========== ===========

 June 30, 2005
  Cash provided by operating
   activities                       $    37.6   $    28.8   $     6.9
  Income tax benefit                        -           -           -
  Interest expense                          -           -           -
  Working capital increases
   (decreases)                            9.4         8.3         0.7
  Other balance sheet changes             4.7         0.1        (0.1)
                                   ----------- ----------- -----------
  Adjusted EBITDA                   $    51.7   $    37.2   $     7.5
                                   =========== =========== ===========

 September 30, 2004
  Cash provided by operating
   activities                       $    26.9   $    47.0   $     8.2
  Income tax benefit                        -           -           -
  Interest expense                          -           -           -
  Working capital increases
   (decreases)                           (0.1)       (9.5)       (0.6)
  Other balance sheet changes             3.3        (0.3)          -
                                   ----------- ----------- -----------
  Adjusted EBITDA                   $    30.1   $    37.2   $     7.6
                                   =========== =========== ===========

 Nine Months Ended
 September 30, 2005
  Cash provided by operating
   activities                       $   171.8   $    74.3   $    17.1
  Income tax benefit                        -           -           -
  Interest expense                          -           -           -
  Working capital increases
   (decreases)                            1.9        27.3         1.9
  Other balance sheet changes            (2.8)       (0.7)          -
                                   ----------- ----------- -----------
  Adjusted EBITDA                   $   170.9   $   100.9   $    19.0
                                   =========== =========== ===========

 September 30, 2004
  Cash provided by operating
   activities                       $   180.9   $    93.3   $    17.0
  Income tax benefit                        -           -           -
  Interest expense                          -           -           -
  Working capital increases
   (decreases)                          (11.5)        6.4         1.7
  Other balance sheet changes             4.2         1.1           -
                                   ----------- ----------- -----------
  Adjusted EBITDA                   $   173.6   $   100.8   $    18.7
                                   =========== =========== ===========


                                      Other     Corporate
                                   Operations   and other      Total
                                   ----------- -----------   ---------
 Adjusted EBITDA

 Three Months Ended
 September 30, 2005
  Cash provided by operating
   activities                       $     2.8   $    (9.7)   $   83.2
  Income tax benefit                        -       (21.8)      (21.8)
  Interest expense                          -         9.8         9.8
  Working capital increases
   (decreases)                           (1.7)       (3.6)        9.8
  Other balance sheet changes               -        28.6 (a)    23.5
                                   ----------- -----------   ---------
  Adjusted EBITDA                   $     1.1   $     3.3    $  104.5
                                   =========== ===========   =========

 June 30, 2005
  Cash provided by operating
   activities                       $     2.5   $   (28.3)   $   47.5
  Income tax benefit                        -        (4.5)       (4.5)
  Interest expense                          -        12.8        12.8
  Working capital increases
   (decreases)                           (2.0)        4.6        21.0
  Other balance sheet changes            (0.4)        7.1        11.4
                                   ----------- -----------   ---------
  Adjusted EBITDA                   $     0.1   $    (8.3)   $   88.2
                                   =========== ===========   =========

 September 30, 2004
  Cash provided by operating
   activities                       $     6.2   $   (13.6)   $   74.7
  Income tax benefit                        -        (3.8)       (3.8)
  Interest expense                          -        11.5        11.5
  Working capital increases
   (decreases)                           (5.1)       (5.4)      (20.7)
  Other balance sheet changes             0.1         4.0         7.1
                                   ----------- -----------   ---------
  Adjusted EBITDA                   $     1.2   $    (7.3)   $   68.8
                                   =========== ===========   =========

 Nine Months Ended
 September 30, 2005
  Cash provided by operating
   activities                       $     1.6   $   (58.7)   $  206.1
  Income tax benefit                        -       (25.7)      (25.7)
  Interest expense                          -        35.0        35.0
  Working capital increases
   (decreases)                           (1.6)        0.4        29.9
  Other balance sheet changes             1.5        36.8 (a)    34.8
                                   ----------- -----------   ---------
  Adjusted EBITDA                   $     1.5   $   (12.2)   $  280.1
                                   =========== ===========   =========

 September 30, 2004
  Cash provided by operating
   activities                       $    12.2   $   (71.0)   $  232.4
  Income tax benefit                        -       (32.5)      (32.5)
  Interest expense                          -        34.6        34.6
  Working capital increases
   (decreases)                           (5.7)      (19.4)      (28.5)
  Other balance sheet changes            (0.6)       57.9 (b)    62.6
                                   ----------- -----------   ---------
  Adjusted EBITDA                   $     5.9   $   (30.4)   $  268.6
                                   =========== ===========   =========

(1) Unusual, non-trade intercompany items between the segments have
    been eliminated.

 (a) Includes U.S. tax benefit on repatriation of foreign earnings of
     ($25.8) million and favorable tax settlements, net of interest.
 (b) Includes reversal of deferred taxes not required after REIT
     conversion of ($77.9) million partly offset by additional taxes
     for repatriation of foreign earnings of $28.2 million.

                                 - I -
                               RAYONIER
    RECONCILIATION OF STATUTORY INCOME TAX TO REPORTED INCOME TAX
                    SEPTEMBER 30, 2005 (unaudited)

               (millions of dollars, except percentages)

                                    Three Months Ended
                    --------------------------------------------------
                       Sept. 30,         June 30,         Sept. 30,
                         2005              2005             2004
                    ---------------   ---------------  ---------------
                       $       %         $       %        $       %
                    ------- -------   ------- -------  ------- -------

Income tax provision
 at the  U.S.
 statutory rate     $(18.6)  (35.0)   $(13.0)  (35.0)  $ (7.5)  (35.0)

REIT income not
 subject to federal
 tax                  10.4    19.6       9.9    26.7      9.7    45.3

Lost deduction on
 REIT interest
 expense and overhead
 expenses associated
 with REIT
 activities           (3.2)   (6.0)     (2.6)   (7.0)    (1.7)   (7.9)

Discrete items
 included in pretax
 income                4.9     6.5 (2)     -       -        -       -

State and local
 income taxes,
 foreign exchange
 rate changes
 and permanent
 differences           2.3     4.3       0.5     1.2      3.5    16.3
                    ------- -------   ------- -------  ------- -------

Income tax (expense)
 benefit before
 discrete items (1) $ (4.2)  (10.6)   $ (5.2)  (14.1)  $  4.0    18.7

U.S. tax benefit on
 repatriation
 of foreign
 earnings             25.8    48.6         -       -        -       -

Favorable IRS audit
 settlements,
 including adjustment
 of accrued
 interest expense /
 income                3.1     6.9 (2)   7.2    19.4        -       -

Tax on favorable
 arbitration
 award                (3.0)   (3.9)(2)     -       -        -       -

Exchange rate changes
 on tax on
 undistributed
 foreign earnings      0.2     0.4       2.5     6.7     (1.6)   (7.5)

Return to accrual
 adjustments          (0.1)   (0.2)        -       -      1.4     6.5

Non-realizability
 of New Zealand tax
 credits on U.S.
 withholding
 tax for prior years'
 intercompany
 note interest           -       -         -       -        -       -
                    ------- -------   ------- -------  ------- -------

Income tax benefit
 (expense) (1)      $ 21.8    41.2    $  4.5    12.0   $  3.8    17.7
                    ======= =======   ======= =======  ======= =======


                                             Nine Months Ended
                                     ---------------------------------
                                        Sept. 30,         Sept. 30,
                                          2005              2004
                                     ---------------   ---------------
                                        $       %         $       %
                                     ------- -------   ------- -------

Income tax provision
 at the U.S. statutory
 rate                                $(44.0)  (35.0)   $(39.8)  (35.0)

REIT income not subject
 to federal tax                        28.8    22.9      30.8    27.1

Lost deduction on REIT
 interest expense
 and overhead expenses
 associated with REIT
 activities                            (8.7)   (6.8)    (10.0)   (8.8)

Discrete items
 included in pretax
 income                                 4.9     2.2 (2)     -       -

State and local
 income taxes,
 foreign exchange
 rate changes and
 permanent
 differences                            3.5     2.8       0.4     0.4
                                     ------- -------   ------- -------

Income tax (expense)
 benefit before
 discrete items (1)                  $(15.5)  (13.9)   $(18.6)  (16.3)

U.S. tax benefit on
 repatriation
 of foreign
 earnings                              25.8    20.5         -       -

Favorable IRS audit
 settlements,
 including adjustment
 of accrued
 interest expense /
 income                                19.8    16.4 (2)     -       -

Tax on favorable
 arbitration
 award                                 (3.0)   (1.4)(2)     -       -

Exchange rate changes
 on tax on
 undistributed
 foreign earnings                       1.6     1.3         -       -

Return to accrual
 adjustments                           (0.1)   (0.1)      1.4     1.2

Non-realizability
 of New Zealand tax
 credits on U.S.
 withholding
 tax for prior years'
 intercompany
 note interest                         (2.9)   (2.4)        -       -
                                     ------- -------   ------- -------

Income tax benefit
 (expense) (1)                       $ 25.7    20.4    $(17.2)  (15.1)
                                     ======= =======   ======= =======

(1) Nine months ended September 30, 2004 excludes reversal of deferred
    taxes not required after REIT conversion of $77.9 million and
    additional taxes for repatriation of foreign earnings of ($28.2)
    million, for a net effect of $49.7 million.

(2) Adjusted for change in pretax income due to discrete items.

                                 - J -

CONTACT:
Rayonier, Jacksonville
Media Contact:
Jay Fredericksen, 904-357-9106
or
Investor Contact:
Parag Bhansali, 904-357-9155

SOURCE: Rayonier

Contact

Mark McHugh

Senior Vice President and Chief Financial Officer

Phone: (904) 357-9100

investorrelations@rayonier.com

Transfer Agent

For essential services such as change of address, lost certificates or dividend checks, or change in registered ownership, please write or call:

  • Regular Mail
  • Computershare
  • P.O. Box 43006
  • Providence, RI 02940-3006
  • United States
  • Overnight Delivery
  • Computershare
  • 250 Royall Street
  • Canton, MA 02021
  • United States

Inside the U.S.: (800) 659-0158

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For online inquiries, please visit https://www-us.computershare.com.

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