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Rayonier Reports Third Quarter 2006 Results

October 24, 2006

JACKSONVILLE, Fla.--(BUSINESS WIRE)--Oct. 24, 2006--Rayonier (NYSE:RYN) 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 per share.

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.

Timber

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 quarter 2005.

Real Estate

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.

Performance Fibers

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.

Wood Products

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.

Other Operations

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.

Other Items

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 quarter.

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).

Outlook

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."

About Rayonier

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.

Except for historical information, the statements made in this press release are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements, which include statements regarding anticipated earnings, revenues, volumes, pricing, costs and other statements relating to Rayonier's financial and operational performance, in some cases are identified by the use of words such as "may," "will," "should," "expect," "estimate," "believe," "anticipate" and other similar language. The following important factors, among others, could cause actual results to differ materially from those expressed in the forward-looking statements contained in this release: 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 entry into or closing of real estate sale transactions; changes in law, policy or political environment that might condition, 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 continue to qualify as a REIT; 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, timber harvesting, 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 Tuesday, 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 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 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, 2006 (unaudited)
         (millions of dollars, except per share information)

                        Three Months Ended         Nine Months Ended
                  ----------------------------------------------------
                  Sept. 30,  June 30,  Sept. 30, Sept. 30,  Sept. 30,
                    2006      2006      2005       2006       2005
                  --------- --------- --------------------------------
Profitability
  Sales             $312.0    $312.1     $299.5     $901.3     $864.8
  Operating income   $65.7     $51.0      $51.0     $154.0     $147.2
  Income from
   continuing
   operations        $55.0     $42.8      $74.9     $121.1     $151.3
  Discontinued
   operations           $-        $-       $0.1         $-     $(24.9)
  Net income         $55.0     $42.8      $75.0     $121.1     $126.4
  Income per
   diluted common
   share
     Continuing
      operations     $0.70     $0.55      $0.96      $1.55      $1.95
     Net income      $0.70     $0.55      $0.96      $1.55      $1.63
     Pro forma
      income from
      continuing
      operations
      (a)            $0.63     $0.47      $0.46      $1.40      $1.23
  Operating income
   as a percent of
   sales              21.1%     16.3%      17.0%      17.1%      17.0%
  ROE (b)             15.0%     12.9%      14.7%      15.0%      14.7%


                                           Nine Months Ended Sept. 30,
                                           ---------------------------
                                                2006         2005
                                             ------------ -----------
 Capital Resources and Liquidity
   Continuing operations:
      Cash provided by operating activities       $222.3      $206.1
      Cash used for investing activities          $(99.4)     $(77.9)
      Cash used for financing activities         $(101.5)    $(150.0)
   Adjusted EBITDA (c) (e)                        $263.5      $275.0
   Cash Available for Distribution (CAD)
    (d) (e)                                       $146.3      $161.6
   (Repayment)/borrowing of debt, net              $(2.7)     $(67.8)

                                                09/30/06    12/31/05
                                             ------------ -----------
   Debt                                           $556.3      $558.5
   Debt / capital                                   37.8%       38.7%
   Cash                                           $168.8      $146.2
   Average diluted shares outstanding
    (millions)                                      78.0        77.6

(a), (b), (c), (d) and (e), see
Schedule B.


                                    - A -
                               RAYONIER
                       FOOTNOTES FOR SCHEDULE A
                    SEPTEMBER 30, 2006 (unaudited)


 (a) Pro forma income from continuing operations is a non-GAAP
      measure. See Schedule H for reconciliation to the nearest GAAP
      measure.

 (b) Year-to-date percentages are annualized; major land sales are
      not.

 (c) 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.

 (d) Cash Available for Distribution (CAD) is defined as cash provided
      by operating activities of continuing operations less capital
      spending, adjusted for equity based compensation amounts,
      proceeds from matured energy forward contracts, the 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.

 (e) 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.

                                   - B -
                               RAYONIER
             CONDENSED STATEMENTS OF CONSOLIDATED INCOME
                    SEPTEMBER 30, 2006 (unaudited)
         (millions of dollars, except per share information)

                    Three Months Ended            Nine Months Ended
           ----------------------------------- -----------------------
            Sept. 30,    June 30,   Sept. 30,   Sept. 30,   Sept. 30,
              2006        2006        2005        2006        2005
           ----------- ----------- ----------- ----------- -----------

Sales          $312.0      $312.1      $299.5      $901.3      $864.8
           ----------- ----------- ----------- ----------- -----------
Costs and
 expenses
 Cost of
  sales         231.5       247.4       237.7       703.1       682.1
 Selling
  and
  general
  expenses       14.5        14.4        16.9        45.1        46.7
 Other
  operating
  loss/
 (income),
  net             0.3        (0.7)       (6.1)       (0.9)      (11.2)
           ----------- ----------- ----------- ----------- -----------
Operating
 income          65.7        51.0        51.0       154.0       147.2
Gain on
 sale of
 portion of
 New
 Zealand JV         -         7.8           -         7.8           -
           ----------- ----------- ----------- ----------- -----------
Income from
 conti-
nuing
 opera-
tions,
 including
 gain on
 sale of
 portion of
 New
 Zealand
 joint
 venture         65.7        58.8        51.0       161.8       147.2
Interest
 expense        (11.0)      (11.9)       (9.8)      (35.1)      (35.0)
Interest
 and other
 income,
 net              3.0         1.8        11.9         7.0        13.4
           ----------- ----------- ----------- ----------- -----------
Income
 before
 taxes           57.7        48.7        53.1       133.7       125.6
Income tax
 (expense)/
benefit          (2.7)       (5.9)       21.8       (12.6)       25.7
           ----------- ----------- ----------- ----------- -----------
Income from
 continuing
 operations     $55.0       $42.8       $74.9      $121.1      $151.3
Dis-
continued
 oper-
ations, net         -           -         0.1           -       (24.9)
           ----------- ----------- ----------- ----------- -----------
Net income      $55.0       $42.8       $75.0      $121.1      $126.4
           =========== =========== =========== =========== ===========

Income per
 Common
 Share:
 Basic
  From
   conti-
  nuing
   opera-
  tions         $0.71       $0.56       $0.99       $1.58       $2.00
           =========== =========== =========== =========== ===========
  Net
   income       $0.71       $0.56       $0.99       $1.58       $1.67
           =========== =========== =========== =========== ===========
 Diluted
  From
   conti-
  nuing
   opera-
  tions         $0.70       $0.55       $0.96       $1.55       $1.95
           =========== =========== =========== =========== ===========
  Net
   income       $0.70       $0.55       $0.96       $1.55       $1.63
           =========== =========== =========== =========== ===========

 Pro forma
  income
  from
  conti-
 nuing
  opera-
 tions (a)
  Adjusted
   basic
   EPS          $0.64       $0.48       $0.47       $1.43       $1.25
           =========== =========== =========== =========== ===========
  Adjusted
   diluted
   EPS          $0.63       $0.47       $0.46       $1.40       $1.23
           =========== =========== =========== =========== ===========

Weighted
 average
 Common
 Shares
 used for
 determi-
ning
 Basic EPS 76,508,135  76,465,269  75,658,512  76,421,839  75,390,193
           =========== =========== =========== =========== ===========
 Diluted
  EPS      78,062,219  77,969,132  77,753,165  78,039,382  77,490,723
           =========== =========== =========== =========== ===========


(a) See Schedule H for a reconciliation to the nearest GAAP measure.


                                - C -
                               RAYONIER
          BUSINESS SEGMENT SALES AND OPERATING INCOME (LOSS)
                    SEPTEMBER 30, 2006 (unaudited)
                        (millions of dollars)

                        Three Months Ended         Nine Months Ended
                 ------------------------------- ---------------------
                  Sept. 30,  June 30,  Sept. 30,  Sept. 30,  Sept. 30,
                   2006       2006      2005       2006       2005
                 ---------- --------- ---------- ---------- ----------
Sales
 Timber              $44.3     $61.1      $45.5     $159.8     $151.9

 Real Estate          46.3      17.8       27.6       77.2       65.9

 Performance
  Fibers
  Cellulose
   specialties       120.3     126.4      114.8      353.4      323.9
  Absorbent
   materials          43.2      39.4       44.3      121.9      131.4
                 ---------- --------- ---------- ---------- ----------
    Total
     Performance
     Fibers          163.5     165.8      159.1      475.3      455.3
                 ---------- --------- ---------- ---------- ----------

 Wood Products        26.3      32.2       35.6       90.1      102.5

 Other
  Operations          31.7      35.3       32.1       99.1       89.9

 Intersegment
  eliminations        (0.1)     (0.1)      (0.4)      (0.2)      (0.7)
                 ---------- --------- ---------- ---------- ----------

    Total sales     $312.0    $312.1     $299.5     $901.3     $864.8
                 ========== ========= ========== ========== ==========

Operating
 income/(loss)
 Timber              $17.1     $29.8      $16.4      $70.7      $63.2

 Real Estate          37.6      10.9       21.8       58.7       47.8

 Performance
  Fibers              21.2      15.7       15.6       47.2       46.5

 Wood Products        (3.3)      2.0        4.6        1.3       13.6

 Other
  Operations           0.1       0.4        0.6        0.1        0.4

 Corporate            (7.1)     (7.1)     (10.2)     (23.7)     (26.1)

 Intersegment
  eliminations
  and other
  (Including
  Corporate FX)        0.1      (0.7)       2.2       (0.3)       1.8
                 ---------- --------- ---------- ---------- ----------

    Total
     operating
     income          $65.7     $51.0      $51.0     $154.0     $147.2
                 ========== ========= ========== ========== ==========


                                - D -
                               RAYONIER
  CONDENSED CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
                    SEPTEMBER 30, 2006 (unaudited)
                        (millions of dollars)

 CONDENSED CONSOLIDATED BALANCE SHEETS
                                              Sept. 30,     Dec. 31,
                                                 2006         2005
                                              ------------ -----------
 Assets
  Current assets                                   $390.8      $354.1
  Timber, timberlands and logging roads,
     net of depletion and amortization              906.9       927.0
  Property, plant and equipment                   1,392.1     1,352.4
  Less - accumulated depreciation                (1,032.2)     (991.1)
                                              ------------ -----------
                                                    359.9       361.3
                                              ------------ -----------
  Investment in New Zealand JV                       58.7        81.7
  Other assets                                      155.7       115.0
                                              ------------ -----------
                                                 $1,872.0    $1,839.1
                                              ============ ===========
 Liabilities and Shareholders' Equity
  Current liabilities                              $185.9      $170.1
  Deferred income taxes                              25.2        32.2
  Long-term debt                                    555.1       555.2
  Non-current reserves for dispositions and
   discontinued operations                          121.3       128.0
  Other non-current liabilities                      69.5        68.7
  Shareholders' equity                              915.0       884.9
                                              ------------ -----------
                                                 $1,872.0    $1,839.1
                                              ============ ===========

 CONDENSED CONSOLIDATED STATEMENTS OF CASH
  FLOWS
                                                  Nine Months Ended
                                              ------------------------
                                                Sept. 30,   Sept. 30,
                                                 2006         2005
                                              ------------ -----------
 Cash provided by operating activities of
  continuing operations:
    Income from continuing operations              $121.1      $151.3
    Depreciation, depletion, amortization and
     non-cash cost basis of real estate sold        109.6       119.6
    Other non-cash items included in income          (7.5)      (34.0)
    Changes in working capital and other
     assets and liabilities                          (0.9)      (30.8)
                                              ------------ -----------
                                                    222.3       206.1
                                              ------------ -----------
 Cash used for investing activities of
  continuing operations:
    Capital expenditures, net of sales and
     retirements                                    (87.9)      (51.5)
    Purchase of timberlands and properties
     previously leased                              (30.5)      (12.9)
    Proceeds from sale of portion of New
     Zealand JV                                      21.7           -
    Increase in restricted cash                      (3.6)      (13.5)
    Proceeds from matured energy forward
     contracts                                        0.9           -
                                              ------------ -----------
                                                    (99.4)      (77.9)
                                              ------------ -----------
 Cash used for financing activities:
    (Repayment)/borrowing of debt, net               (2.7)      (67.8)
    Dividends paid                                 (107.8)      (93.5)
    Issuance of common shares                         7.0        11.3
    Repurchase of common shares                      (0.5)          -
    Excess tax benefits from equity-based
     compensation(a)                                  2.5           -
                                              ------------ -----------
                                                   (101.5)     (150.0)
                                              ------------ -----------
 Effect of exchange rate changes on cash              1.2        (0.1)
                                              ------------ -----------
 Cash provided by discontinued operations               -        47.4
                                              ------------ -----------
 Cash and cash equivalents:
    Increase in cash and cash equivalents            22.6        25.5
    Balance, beginning of year                      146.2        84.1
                                              ------------ -----------
    Balance, end of period                         $168.8      $109.6
                                              ============ ===========

(a) SFAS No. 123R requires the excess tax
 benefits on equity-based compensation to be
 included as a financing activity. Since the
 Company did not adopt SFAS No. 123R until
 January 1, 2006, no adjustment is required
 for the nine months ended September 30, 2005.


                                 - E -
                               RAYONIER
                 SELECTED SUPPLEMENTAL FINANCIAL DATA
                    SEPTEMBER 30, 2006 (unaudited)
                        (millions of dollars)

                       Three Months Ended          Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,   June 30,  Sept. 30,  Sept. 30,  Sept. 30,
                   2006       2006      2005       2006       2005
                ----------- --------- ---------- ---------- ----------

Geographical
 Data (Non-
 U.S.)
  Sales
   New Zealand        $8.5      $8.2      $13.1      $22.2      $36.1
   Other               3.5       3.7        1.6       11.7        7.1
                ----------- --------- ---------- ---------- ----------
      Total          $12.0     $11.9      $14.7      $33.9      $43.2
                =========== ========= ========== ========== ==========

  Operating
   income
   (loss)
   New Zealand       $(0.1)    $(0.3)      $1.5      $(1.5)      $3.0
   Other              (0.3)     (0.5)      (0.8)      (1.2)      (1.4)
                ----------- --------- ---------- ---------- ----------
      Total          $(0.4)    $(0.8)      $0.7      $(2.7)      $1.6
                =========== ========= ========== ========== ==========

Timber
  Sales
   Northwest
    U.S.             $24.4     $35.2      $18.8      $86.7      $71.1
   Southeast
    U.S.              17.2      23.5       19.1       65.7       61.6
   New Zealand         2.7       2.4        7.6        7.4       19.2
                ----------- --------- ---------- ---------- ----------
      Total          $44.3     $61.1      $45.5     $159.8     $151.9
                =========== ========= ========== ========== ==========

  Operating
   income
   Northwest
    U.S.             $12.6     $21.4       $8.8      $50.0      $41.2
   Southeast
    U.S.               4.3       8.8        5.9       22.0       18.1
   New Zealand         0.2      (0.4)       1.7       (1.3)       3.9
                ----------- --------- ---------- ---------- ----------
      Total          $17.1     $29.8      $16.4      $70.7      $63.2
                =========== ========= ========== ========== ==========

Adjusted
 EBITDA by
 Segment(a)
  Timber             $27.3     $43.3      $31.0     $109.4     $107.7
  Real Estate         43.9      15.5       27.0       70.9       62.1
  Performance
   Fibers             40.9      33.1       35.2       99.4      100.9
  Wood
   Products           (1.4)      3.8        6.4        6.7       19.0
  Other
   Operations          0.3       0.5        1.1        0.6        1.5
  Corporate
   and other          (6.7)     (7.9)      (0.1)     (23.5)     (16.2)
                ----------- --------- ---------- ---------- ----------
   Total            $104.3     $88.3     $100.6     $263.5     $275.0
                =========== ========= ========== ========== ==========

(a) Adjusted EBITDA is a non-GAAP measure, see Schedule I for
 reconciliation to nearest GAAP measure.



                                - F -
                               RAYONIER
                    SELECTED OPERATING INFORMATION
                    SEPTEMBER 30, 2006 (unaudited)

                        Three Months Ended         Nine Months Ended
                 ------------------------------- ---------------------
                  Sept. 30,  June 30,  Sept. 30,  Sept. 30,  Sept. 30,
                   2006       2006      2005       2006       2005
                 ---------- --------- ---------- ---------- ----------
Timber
 Northwest U.S.,
  in millions of
  board feet            59        89         48        223        193
 Southeast U.S.,
  in thousands
  of short green
  tons                 926     1,204      1,080      3,377      3,507

Real Estate
 Acres sold
  Development        4,606         7      2,411      5,357      4,937
  Rural              1,426     9,613      7,930     13,699     22,107
  Northwest U.S.        58         4         44         62        275
                 ---------- --------- ---------- ---------- ----------
  Total              6,090     9,624     10,385     19,118     27,319

Performance
 Fibers
 Sales Volume
  Cellulose
   specialties,
   in thousands
   of metric
   tons                112       121        120        337        340
  Absorbent
   materials, in
   thousands of
   metric tons          68        63         65        196        201
 Production as a
  percent of
  capacity           101.9%     99.2%     100.9%     100.1%     100.2%

Lumber
 Sales volume,
  in millions of
  board feet            91        92         89        267        262




                                - G -
                               RAYONIER
                 RECONCILIATION OF NON-GAAP MEASURES
                    SEPTEMBER 30, 2006 (unaudited)
         (millions of dollars, except per share information)

CASH AVAILABLE FOR DISTRIBUTION:
                                               Nine Months Ended
                                            ----------------------
                                              Sept. 30,  Sept. 30,
                                               2006       2005
                                             ---------- ----------
 Cash provided by operating activities          $222.3     $206.1
 Capital spending (a)                            (87.9)     (51.5)
 Proceeds from matured forward energy
  contracts                                        0.9          -
 Decrease in committed cash                       10.9       10.0
 Equity based compensation adjustments             4.2       (1.0)
 Like-kind exchange tax benefits on third
  party real estate sales (b)                     (4.1)      (2.0)
                                             ---------- ----------
 Cash Available for Distribution                $146.3     $161.6
                                             ========== ==========

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


PRO FORMA
 INCOME FROM
 CONTINUING
 OPERATIONS:
                       Three Months Ended          Nine Months Ended
                -------------------------------- ---------------------
                 Sept. 30,  June 30,   Sept. 30,  Sept. 30,  Sept. 30,
                  2006       2006       2005       2006       2005
                ---------- ---------- ---------- ---------- ----------
Income from
 Continuing
  Operations
   per Common
   Share
   Basic EPS        $0.71      $0.56      $0.99      $1.58      $2.00
                ========== ========== ========== ========== ==========
   Diluted EPS      $0.70      $0.55      $0.96      $1.55      $1.95
                ========== ========== ========== ========== ==========

   Sale of
    portion of
    New Zealand
    JV
    Basic EPS           -      (0.08)         -      (0.08)         -
                ========== ========== ========== ========== ==========
    Diluted EPS         -      (0.08)         -      (0.08)         -
                ========== ========== ========== ========== ==========

   IRS audit
    settlements
    including
    adjustment
    of accrued
    interest
    Basic EPS       (0.07)         -      (0.11)     (0.07)     (0.34)
                ========== ========== ========== ========== ==========
    Diluted EPS     (0.07)         -      (0.10)     (0.07)     (0.32)
                ========== ========== ========== ========== ==========

   Tax
    associated
    with
    repatria-
   tion of
    foreign
    earnings
    Basic EPS           -          -      (0.34)         -      (0.34)
                ========== ========== ========== ========== ==========
    Diluted EPS         -          -      (0.33)         -      (0.33)
                ========== ========== ========== ========== ==========

   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      $0.64      $0.48      $0.47      $1.43      $1.25
                ========== ========== ========== ========== ==========
    Adjusted
     diluted
     EPS            $0.63      $0.47      $0.46      $1.40      $1.23
                ========== ========== ========== ========== ==========



                                   - H -
                               RAYONIER
               RECONCILIATION OF NON-GAAP MEASURES (a)
                    SEPTEMBER 30, 2006 (unaudited)
                         (millions of dollars)

ADJUSTED EBITDA:


                                                        Corp-
                                Perfor- Wood   Other   orate
                       Real      mance   Prod-  Opera-   and
               Timber  Estate   Fibers   ucts   tions   other   Total
              ------- -------- -------- ------ ------- ------- -------
Three Months
 Ended
September 30,
 2006
 Cash
  provided by
  operating
  activities   $24.7    $39.8    $37.7   $0.8   $(2.0) $(11.8)  $89.2
 Income tax
  expense          -        -        -      -       -     2.7     2.7
 Interest,
  net              -        -        -      -       -     8.1     8.1
 Working
  capital
  increases
  (decreases)   (1.3)     0.7      2.4   (2.2)    2.1   (14.8)  (13.1)
 Other
  balance
  sheet
  changes        3.9      3.4      0.8      -     0.2     9.1    17.4
              ------- -------- -------- ------ ------- ------- -------
 Adjusted
  EBITDA       $27.3    $43.9    $40.9  $(1.4)   $0.3   $(6.7) $104.3
              ======= ======== ======== ====== ======= ======= =======

June 30, 2006
 Cash
  provided by
  operating
  activities   $53.1    $18.3    $14.8   $6.3    $7.1  $(17.3)  $82.3
 Income tax
  expense          -        -        -      -       -     5.9     5.9
 Interest,
  net              -        -        -      -       -     9.9     9.9
 Working
  capital
  increases
  (decreases)   (6.8)    (3.8)    18.5   (2.5)   (6.4)   (0.5)   (1.5)
 Other
  balance
  sheet
  changes       (3.0)     1.0     (0.2)     -    (0.2)   (5.9)   (8.3)
              ------- -------- -------- ------ ------- ------- -------
 Adjusted
  EBITDA       $43.3    $15.5    $33.1   $3.8    $0.5   $(7.9)  $88.3
              ======= ======== ======== ====== ======= ======= =======

September 30,
 2005
 Cash
  provided by
  operating
  activities   $32.0    $29.8    $19.6   $8.6    $2.5   $(9.3)  $83.2
 Income tax
  benefit          -        -        -      -       -   (21.9)  (21.9)
 Interest,
  net              -        -        -      -       -     5.7     5.7
 Working
  capital
  increases
  (decreases)   (0.4)     1.0     16.3   (2.2)   (1.4)   (3.5)    9.8
 Other
  balance
  sheet
  changes       (0.6)    (3.8)    (0.7)     -       -    28.9    23.8
              ------- -------- -------- ------ ------- ------- -------
 Adjusted
  EBITDA       $31.0    $27.0    $35.2   $6.4    $1.1   $(0.1) $100.6
              ======= ======== ======== ====== ======= ======= =======

Nine Months
 Ended
September 30,
 2006
 Cash
  provided by
  operating
  activities  $121.6    $65.6    $82.1   $7.8    $5.6  $(60.4) $222.3
 Income tax
  expense          -        -        -      -       -    12.6    12.6
 Interest,
  net              -        -        -      -       -    28.0    28.0
 Working
  capital
  increases
  (decreases)   (3.6)     1.6     16.7   (1.1)   (5.2)  (12.5)   (4.1)
 Other
  balance
  sheet
  changes       (8.6)     3.7      0.6      -     0.2     8.8     4.7
              ------- -------- -------- ------ ------- ------- -------
 Adjusted
  EBITDA      $109.4    $70.9    $99.4   $6.7    $0.6  $(23.5) $263.5
              ======= ======== ======== ====== ======= ======= =======

September 30,
 2005
 Cash
  provided by
  operating
  activities  $115.1    $65.4    $74.3  $17.1    $1.0  $(66.8) $206.1
 Income tax
  benefit          -        -        -      -       -   (25.7)  (25.7)
 Interest,
  net              -        -        -      -       -    29.0    29.0
 Working
  capital
  increases
  (decreases)   (6.6)    (1.3)    27.3    1.9    (1.0)    9.6    29.9
 Other
  balance
  sheet
  changes       (0.8)    (2.0)    (0.7)     -     1.5    37.7    35.7
              ------- -------- -------- ------ ------- ------- -------
 Adjusted
  EBITDA      $107.7    $62.1   $100.9  $19.0    $1.5  $(16.2) $275.0
              ======= ======== ======== ====== ======= ======= =======

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



                                 - I -
                     RAYONIER
RECONCILIATION OF STATUTORY INCOME TAX TO REPORTED
                     INCOME TAX
          SEPTEMBER 30, 2006 (unaudited)
     (millions of dollars, except percentages)

                                   Three Months Ended
                      --------------------------------------------
                        Sept. 30,       June 30,      Sept. 30,
                          2006           2006           2005
                      -------------- -------------- --------------
                         $      %       $      %       $      %
                      ------- ------ ------- ------ ------- ------

Income tax provision
 at the U.S.
 statutory rate       $(20.2) (35.0) $(17.0) (35.0) $(18.6) (35.0)

REIT income not
 subject to federal
 tax                    14.4   25.0    11.4   23.4    10.4   19.6

Lost deduction on
 REIT interest
 expense and overhead
 expenses associated
 with REIT activities   (2.8)  (4.9)   (2.7)  (5.6)   (3.2)  (6.0)

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




Foreign, state and
 local income taxes,
 foreign exchange
 rate changes and
 permanent
 differences             0.5    0.7     1.5    3.2     2.3    4.3
                      ------- ------ ------- ------ ------- ------

Income tax (expense)
 benefit before
 discrete items        $(8.1) (14.2)  $(6.8) (14.0)  $(4.2) (10.6)

Favorable IRS audit
 settlements             4.8    8.3       -      -     3.1    6.9 (a)

Reversal of prior
 year built-in gain
 reserve                 2.8    4.9       -      -       -      -

Return to accrual
 adjustments            (1.2)  (2.1)    0.9    1.9    (0.1)  (0.2)

Prior year foreign
 tax credit reserve     (1.0)  (1.7)      -      -       -      -

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

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

Exchange rate changes
 on tax on
 undistributed
 foreign earnings          -      -       -      -     0.2    0.4

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

Income tax (expense)
 benefit               $(2.7)  (4.8)  $(5.9) (12.1)  $21.8   41.2
                      ======= ====== ======= ====== ======= ======

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











                                            Nine Months Ended
                                     ------------------------------
                                        Sept. 30,      Sept. 30,
                                          2006           2005
                                     --------------- --------------
                                         $      %       $      %
                                     -------- ------ ------- ------

Income tax provision at the U.S.
 statutory rate                       $(46.8) (35.0) $(44.0) (35.0)

REIT income not subject to federal
 tax                                    33.8   25.3    28.8   22.9

Lost deduction on REIT interest
 expense and overhead expenses
 associated with REIT activities        (8.7)  (6.5)   (8.7)  (6.8)



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




Foreign, state and local income
 taxes, foreign exchange rate changes
 and permanent differences               2.3    1.6     3.5    2.8
                                     -------- ------ ------- ------

Income tax (expense) benefit before
 discrete items                       $(19.4) (14.6) $(15.5) (13.9)


Favorable IRS audit settlements          5.3    4.0    19.8   16.4 (a)

Reversal of prior year built-in gain
 reserve                                 2.8    2.1       -      -

Return to accrual adjustments           (0.3)  (0.2)   (0.1)  (0.1)

Prior year foreign tax credit reserve   (1.0)  (0.7)      -      -

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


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


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

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

Income tax (expense) benefit          $(12.6)  (9.4)  $25.7   20.4
                                     ======== ====== ======= ======

(a) 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:

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