Good day everyone and welcome to the Rayonier Second Quarter Earnings Results Conference Call. Today's conference is being recorded by Rayonier and is a copyrighted material. It cannot be recorded or rebroadcast without our expressed permission. You participation on this call constitutes implied consent. Please hang up now if you do not consent to being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to the Senior Vice President, Mr. Hans Vanden Noort. Please go ahead, sir.

Thank you and good afternoon. Welcome to Rayonier's investor teleconference covering second quarter earnings. Our earnings statements and supplemental materials were released this morning and are available on our website at rayonier.com. I would like to remind you that in these presentations we include forward-looking statements, made pursuant to Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, and other federal securities laws. Our earnings release as well as our Form 10-K filed with SEC lists some of the factors which may cause actual results to differ materially from the forward-looking statements, we may make. They are also referenced on page two of our supplemental material. Please familiarize yourselves with them. Also this conference is being webcast and can be accessed through our homepage. With that, let's start our teleconference, with opening comments from Lee Thomas, Chairman, President, CEO. Lee?

Thanks Hans. First I'll make a few overall comments, here for the second quarter of 2008 compared to the second quarter of last year. Hans will then take you through the financials, after which I'll review our Forest Resources business, since Tim Brannon is traveling this week. Charlie Margiotta, our Senior Vice President and Head of our Real Estate business and Paul Boynton, Senior Vice President for Performance Fibers & Wood Products will then review those business segments. Overall, we're pleased with our second quarter results. Continued interest in our non-strategic timberlands, strong demand in Performance Fibers, was only partially offset by ongoing softness in saw log markets and higher costs in performance fibers. First in Timber; saw log prices remain depressed due to the weak housing market and an abundant supply of blowdown timber in the Northwest. As a result, we continue to limit our saw timber harvest in both the West and that East, to preserve our high-value grade timber until our markets improve. In the East demand for pulpwood remain strong and we continued to adjust our harvest to take advantage of this favorable market. Second in Real Estate, we continue to shift emphasis from sales of development lands to rural HBU in non-strategic timberlands sales. In particular, demand for our non-strategic timberlands remains strong and we sold over 6000 acres in the second quarter, as a part of our strategy to sell timberlands that don't meet our investment criteria. And third, in Performance Fibers; market conditions remained very strong for both cellulose specialties and absorbent materials. We had solid pricing for both products. However, we are seeing unprecedented increases in our energy, wood and chemical costs. Now with that, let me turn it back to Hans for a review of the financials. Hans?

Thanks Lee. Let's start on page three with our overall financial highlights. Our second quarter was in line with our guidance. Sales totaled $305 million, resulting in operating income of $54 million and net income of $37 million or $0.47 per share, which was below prior year's second quarter pro forma results. On the bottom of page three, we provide an outline of cash resources and liquidity. Our cash flow remained strong, with adjusted EBITDA of a $191 million, and cash available for distribution of $97 million, despite challenging market conditions. Our debt and debt-to-capital ratio increased from year end, reflecting additional debt proceeds to fund a portion of our $213 million Western Timber acquisition that closed on April, 3rd. We ended the quarter with approximately $21 million in cash. So, on a net debt basis we finished at $774 million, $205 million above year end. Most of the cash on hand at year end was applied towards the Western Timber acquisition. Moving now to page four, we've prepared a sequential quarterly variance analysis. The major drivers here are reduced timber income, due to softness in saw log pricing, and lower real estate operating income, reflecting a per acre price decrease in our rural HBU sales due to a change in the geographic mix of property sold. We also reflect a marketable tax rate, driven by a projected mixed change of income between our taxable REIT subsidiary, and NAREIT. Let's move on to page five to briefly cover the year-over-year variances. Here, we begin with last year's second quarter pro forma earnings at $0.55 per share. Our timber income was $12 million below last year, mainly due to reduced saw log prices and a mix shift to more pulpwood in the Southeast. Next, our real estate results were $9 million below the second quarter last year, reflecting the absence of any development property sales in lower rural prices, partially offset by increased non-strategic timberland and rural acres sold. The Performance Fibers' results reflect improved prices in both cellulose specialties and absorbent materials. However, costs were unfavorable, driven by higher raw materials and maintenance costs, partially mitigated by lower depreciation expense. Finally, taxes were below second quarter last year for the same reason noted earlier. These amounts bring us to current quarter's result of $0.47 per share. These drivers also were at out of [ph] first half comparison shown on the right side of the chart. Let's now turn to page six, to look at cash available for distribution. On this page, we reconcile from the cash provided by operating activities which is a GAAP measure to our non-GAAP metric of cash available for distribution. As noted earlier, cash flow remains strong. Overall, CAD [Cash Available for Distribution] was about $10 million below 2007, primarily due to increased capital spending. With that, let me turn the conference back to over to Lee, to cover Timber.

Forest Resources; for the West, on page eight, volumes were up sequentially and when compared to second quarter 2007, as we concentrated on harvesting lower value of salvage timber from December 2007 storm event. Prices declined compared to first quarter 2008 and second quarter of 2007, due to the soft housing market and two effects from the storm damage. First, additional supply into an already saturated market and second, salvage wood that it led primarily into the pulp market. For the third quarter, volumes are expected to be down on a sequential basis and flat to third quarter of 2007 levels, due to seasonal effects and the soft housing market. Prices are expected to be reasonably flat sequentially, but down considerably from third quarter '07. Stumpage prices on average for 2008 were expected to be lower about 30% to 35% compared to 2007. During quarter four, stumpage will be predominantly salvage wood as we complete our clean-up operations and result in prices 15% to 20% below quarter two. As a result of weak demand, we've reduced our harvest of our mature standing saw timber, now that we have decided to advance our salvage operations and now estimate our overall harvest will be down approximately 8% from 2007. Moving on to the East, volumes were up... and that's on page nine, volumes were up sequentially as well as compared to second quarter of 2007. Grade markets remained depressed due to lumber mill curtailments driven by the weak housing market. However, we continued to experience strong pulpwood demand, due to favourable global pulp markets and the lack of residual chips from sawmills. As a result, we've improved aggressively on harvesting stands with a higher proportion of pulpwood, and have advanced our spending [ph] program. This significant product mix shift resulted in sequentially lower prices, when compared to second quarter 2007. For the third quarter of 2008, current volumes in the East are expected to be down sequentially and comparable to third quarter of 2007. And our prices are expected to be in line with second quarter 2008, as we continue to focus on the strong pulpwood markets. With the strength in the parent pulpwood market, we are now expecting 2008 volumes to be flat to 2007 volumes. While we have ramped up thinnings in pulpwood sales, we have deferred the harvest of approximately 20% of our normal saw timber volume. Average prices for the year are expected to be down slightly reflecting the strong pulpwood mix. Now with that, let me turn it over to Charlie to review our Real Estate business.

Thank you, Lee. The second quarter real estate results were driven by the sales of both rural properties and non-strategic timberlands, and as expected, there were no development properties sold during the quarter. Our focus in the development area is primarily on our Flagler Three Lakes and NASA projects. The Flagler property will be annexed into the City of Palm Coasts likely in August. The 5400 acres sold in the second quarter, as shown on page ten, were in part a result of a successful auction of scattered rural parcels in the Florida Panhandle. The sale was managed by a national auction company. There were over 100 registered bidders and all parcels were sold. Just prior to the auction, we negotiated to sell approximately 1000 acres to Nature Conservancy to expand Florida State Forest. I believe this had a positive impact on the bid. Turning to page 11, average sales priced of approximately $2300 per acre was below prior quarters. However, this was a function of location of properties sold. Per acre prices ranged from approximately $2100 per acre for the Nature Conservancy property to $5000 per acre for some flyovers rail tracks. As I mentioned, the auction parcels which influenced the quarter results, were relatively lowered values scattered parcels in the Florida Panhandle. During the second quarter, we sold approximately $6200 acres of non-strategic timberlands in Washington State and Alabama, that's shown on page 12, at an average price of $1758 per acre. The Washington State properties consisted of about 30 small scattered parcels, with little merchantable timber. The parcels were purchased by a number of local buyers. The Alabama property was acquired by TIMO, in what I would describe as very competitive bid process, at nearly $1,600 per acre. As a result of our success, we plan to…

Thanks Paul. With that, let's turn to page 15 to review our earnings trends. Based on current market conditions, we expect full year 2008 earnings to be below the 2007 pro forma EPS of $2.35 per share, with lower timber and real estate results, somewhat offset by stronger Performance Fibers' earnings. We expect the third quarter earnings to be somewhat below second quarter 2008 earnings of $0.47 per share, due to lower timber volumes, partially offset by the improved Performance Fibers results. Now I would like to share a few key statistics to assist you in updating your model for Rayonier. First for 2008, we expect depreciation, depletion and amortization of a $158 million and a non-cash cost basis of land sold of $12 million, for approximately $17o million in total. This would be a net $7 million increase from 2007 and $13 million above previous guidance, driven by additional depletion, resulting from increased non-strategic timberland sales. Capital expenditures, excluding acquisitions are expected to range between $105 million and $110 million, $8 million to $13 million above 2007, with the increased focus in Performance Fibers and operational and reliability improvements in environmental projects. Looking at our New Zealand investment for the year; we expect about $1 million of equity income from the joint venture and cash flow of approximately $6 million. We expect interest expense, net of interest income to range between $43 million and $45 million. Finally, our full-year effective tax rate is expected to be approximately 16% to 17%. The effective rate can very significantly be based on the mix of income between our REIT and TRS businesses, and lifetime exchange benefits. This effective rate is below previous guidance and that reflects the impact of higher costs in our Performance Fibers business, thereby reducing a portion of TRS income to total income. When we put all these elements together, we continue to anticipate a strong cash flow year, although CAD will be below last year primarily due to the higher capital expenditures and slightly lower EBITDA. However, we expect CAD to be well above our forecasted 2008 dividend requirements. Now let me turn it back to Lee for some summary comments.

Thanks Hans. Let me conclude by saying that we continue to benefit from the diversity and balance of our three core businesses and we will continue to benefit from that over the course for the remainder of this year. We anticipate strong demand in Performance Fibers and continued interest in our non-strategic timberlands. As Charlie mentioned, we expect to sell additional non-strategic timberlands, especially in the fourth quarter and take advantage of this robust market. These factors will be somewhat offset by softness in the housing market which continues... continue to put pressure on our saw log business. We also anticipate further cost increases in Performance Fibers. However, our strong balance sheet, tax sufficient REIT structure will allow us to continue to focus on building shareholder value for the long term. With that, I'd like to close the formal part of the presentation and turn the teleconference back to the conference operator for questions from the audience. Question And Answer

Thank you. [Operator Instructions]. We'll go first to Hamzah Mazari with Credit Suisse.

Yes, good afternoon. Just a couple of questions; first, there's quite a bit of land coming to market in the near term from a couple large TIMOs that we can think of as well as one of your competitors. Curious to see if you would look at any of that land, and what your view is on how that additional supply may affect valuation, timberland values?

Well Hamzah, we take a look at property on a continuing basis to see if it fits our overall criteria for acquisition. As you know, we acquired two pieces of property earlier this year. I must say though that given some of the pricings we continue to see, it's difficult for us to reach a point of deciding to acquire unless it really fits not only the kind of return criteria we want, but fits with our overall strategic location criteria, as well as giving us like kind of exchange opportunities. So I think it would probably be difficult for us to reach the kind of numbers that I would anticipate in some of that auction-based property; the properties that we've acquired have been more negotiated sales. At this point as far as supply and demand is concerned and evidenced by what we saw for, our own non-strategic timberlands that we put on the market in the quarter, we have seen no diminishing demand and we have seen excellent pricing.

Okay. Also I just wanted to get your thoughts; is it fair to say that properties between 1600 to 5000 an acre, are moving pretty quick, but any thing higher than that, you are seeing a slowdown in, in terms of land sales in the markets that you are operating in?

We are not seeing any development sales and on the other hand periodically we see pieces of property, for instance the industrial land sales that we have made, that as you know went for a 15,000 an acre that was towards the end of last year. So periodically, you see depending on the location and the intended use of the property higher sales. But in terms of sales of development property for residential housing, that's just not happening.

Okay. Just one last question; on your Performance Fibers division, the lower absorbent volumes are during the quarter. Your mills ran pretty well, but is that just a function of the market or are you focusing more on swinging tonnage from cellulose to absorbent... from absorbent to cellulose sorry? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: No that was a function of the maintenance shutdown, the plant maintenance shutdown at Jessup facility, which is where we make all of our absorbent material volumes. So that was just purely a result of plant maintenance shutdown.

Okay. Got you. Thank you very much.

We will go next to Chip Dillon with Citigroup.

Yes, good afternoon. My first question is, and I might have just missed this number. You mentioned that you expected the... I think the performance, I'm sorry the specialty dissolving pulps the cellulose specialties to be up 3% to 5% in volume for the year. And you mentioned fluffier to be up big in the third versus second quarter. What you expect fluff volumes to do for the full year '08 versus '07? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: Chip, this is Paul. I think you look at our volume for absorbent materials; year-to-year would be roughly comparable, for '07 to '08.

Got you, okay. And then, in the... I remember on the last call that, excuse me, I think Charlie had mentioned that the non-strategic sales would be about what you now I think said the second half would be. I think you were looking for like 20 to 30. And now it looks like it's going to be 40 to 50 for the year, if that's correct. And what caused that to accelerate? Is it just that there is more receptivity in the marketplace, or is it more to offset the cash you might not be getting from selling saw timber this year?

Sure, Chip. We expected to have a good result on our second quarter sale and the result was even better than we thought. And the way I would describe it there is a fair amount of TIMOs went home from our sale without any timber, so... any timberland. So we've decided that as strong as the market appears, I mean we don't have to sell it. But as strong as the market appears, it just seems like the prudent thing to do. And so we've decided to sell. But we're in the process of identifying it now, another 20,000 to 30,000 acres, sometime in the late third or early fourth quarter. So just taking advantage of what appears to be a very vibrant market.

And, welllet's say you get these deals done. Are you also in the market to buy more, do you need to buy more for Section 1031 purpose, is that the right Section 1031 purposes?

The right kind of exchange opportunities that we have, really we've got a quite a good advantage form the purchases, we did first of this year. So we are not at a point where we feel we need to do that. As a matter of fact, we are in good shape in that regard. We have always got some additional opportunity there. But there is no compelling reason in that regard for us to look to acquire additional properties.

Okay. And then the last question is, when you look at the development part. I mean obviously with the headlines it makes full sense to not push to your point too hard here, but what are your... what is your current on-the-ground experience in Southern Georgia, and Northern Florida. Have... is it sort of getting worse in terms of the pricing or the environment for real estate or has it shown any signs of flattening out yet?

Chip, I'd say flattening out. This is a predominantly primary home market. So in that regard, we're fortunate that we didn't have a lot of speculative buying and we don't have a lot of second home buying. It's certainly not a great market like anywhere else. But I would say it's flat; we can't predict how long it's going to be flat. And we're waiting for the turnaround.

Got you. Another, one last question again; I noticed two of the other specialty cellulose producers out there, have announced surcharges. My understanding is that, generally pricing is set at the beginning of the calendar year. So this is something that's extraordinary. Have you all followed or done an announcement like that, a freight surcharge or... and how are you... are there other ways you can get your prices to reflect what the costs in specialties? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: Chip, this is Paul. Our cellulose specialties business is fairly unique and we do adjust pricing as we noted on an annual basis, with significant advanced notice in direction and magnitude of the change. And my customers really appreciate the stability this pricing mechanism gives them. And so we do everything we can to maintain that stability. However, we've been experiencing costs in this past year that we haven't seen before. As you noted, we have said year-to-year, at our last analyst call that would be about 8% in cash cost and now this time we are looking at our 13% up in cash cost from year-to-year.

Per tonne? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: Per tonne. So we are working with our customers on these issues and having that dialog with them currently.

Got you. Thank you.

We'll go next to Ross Gilardi with Merrill Lynch

Thanks guys. Good afternoon. Just had a couple of questions; you've touched on some of these issues in your formal commentary. But I was just surprised to see your harvest up as much as it was particularly in the Southeast, but also in the Northwest. If you could just comment a little bit more there. And I have a follow up after that?

Ross, there are really two reasons in the Northwest it is the blowdown timber, the hemlock that blew down in that December storm. We've advanced our salvage; we decided to try to get all our salvage work done this year. So, that would account for a lot of what you are seeing as far as volume in the Northwest. As I indicated, we've actually backed off on our saw log harvest in the Northwest. In the East, it is all about pulpwood. We've had an overall thinning problem that we've again over a year ago as a part of our normal harvesting regime, had a lot of opportunity there. But because of the strength of the pulpwood markets, and the fact that we didn't want to harvest saw timber, we've really going after not only thinning, but our primary pulpwood tracks. So it's a blowdown salvage work in the Northwest and it's a strength of the pulpwood markets in the East.

Could you give us a little better sense as to how much your pulpwood harvest was up year-over-year, in the south versus yours... what happened with your saw timber harvest?

Yes, typically in the South, you would expect of 50% of pulpwood and we are up to I mean 70% pulpwood; so up 20% from where we would normally expect.

Okay, thank you. And next years just talk about the dividend. Is that a question we might see an increase this year or is that still a possibility granted realizing you're under... operating in a very, very challenging conditions right now?

I'll tell you, we look at the dividend and our Board takes a look at it periodically. We particularly look at in a context at the annual review of our long range plan. Obviously, we want to ensure sustainability on dividends. So that will be done over the course of the third and fourth quarter look that will be taken with our Board.

Thank you

We'll go next to Christopher Chun with Deutsche Bank.

Yes, thanks. Good Afternoon, guys.

Hey Chris.

Hey, on the Real Estate side; you talked about how... the reason for the slightly lower per acre realization on your... on the land was due to mix and you touched on that. But can you talk a little bit more about, where this land was and the qualities of this land compared to some of the higher priced rural land that you've sold in the past?

So Chris, as I mentioned we have that auction which represented about 60% of the acres for the quarter and those are acres that were sold in the Florida Panhandle. We have had that property a long time, small scattered low-value properties and said we had a very positive auction, but relatively low-value properties. About 20% of the properties were in Florida, which were relatively solid prices. But that's the mix. So Florida Panhandle was an unusual high percent and 20%, 25% came from Alabama, Georgia and Texas, which tend to average lower than our Florida rural properties. So it was just... it was skewed towards non-Florida rural properties.

Yes. Okay. And then you actually got what seems like a quite good price for that the large block of non-strategic land that you sold. And actually the realizations weren't that different between those two categories. Can you talk a little bit about what land belongs in each of those two buckets?

Yes, I will try. In non-strategic timberlands, our properties... we pretty much use two criteria. One criteria is properties where clearly the returns don't meet our expectations but based on our market they will reach someone else's. So that's one and second is the nature of the properties just don't fit operationally what works for us. So that's what goes into the non-strategic bucket. The rural bucket tends to be smaller scattered parcel that we can market... directly market to people. We probably have potentially a somewhat different and used recreation or selling. For non-strategic, I generally felt that buyers are going to continue to manage it as timberland and rural you just really don't know. It does... it is a bit of a subtle difference, but we pretty much define them separately.

Okay and then in terms of the relationship of those two categories to the amount of land that you have in total. Is there any way at this stage to give us an idea of approximately how much acreage might be in each of those two buckets?

There really isn't. On the non-strategic it's just an ongoing identification process and in the rural... remember some portion of our rural sales are unsolicited offers. And so it just... it's somewhat hard to define where that next sale is going to come from. So I really can't. We have not... I'd say completed a full assessment of every non-strategic acre we have.

Yes okay that's fair. And then moving onto Performance Fibres; Paul you touched on the second half outlook a little bit. But I was wondering if you might be able to sort of define or estimate that how you think that second half is shaping up relative to last year on a EBITDA basis? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: Well I think, looking at the second half of the year. I think we should look at it relatively comparable on a EBITDA basis if you look at year-to-year. So, Hans is going to add anything to that.

Yes that's probably a fair assessment.

Yes okay. And would that assessment depend on whether or not you decide to go for any fuel surcharges or anything like that? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: I think that's part of the consideration out there. We'll have to continue to look at that.

Yes. Okay, thanks for your help.

We will go next to Jonathon Lipp with Land and Building Investment Management [ph].

Yes hi guys, just had a couple of questions; on the non-strategic land, Hans what's the dollar amount of that, that you guys have that you think you might sell over time?

We haven't completed... this is Lee, we haven't completed an overall assessment of our property. We'll determine exactly how much will be in it. We have identified property we're going to sell this year. We actually have pulled some additional of that property that we were thinking about next year into the third and fourth quarter of this year. But we haven't finished the full assessment.

And can you comment on the, kind of the yield that those assets are selling at or the amount of income that goes away and given on the... let's say what you sold in the second quarter, the amount of income that's going to go away as a result of the sale?

This is Charlie. I would say it's certainly not significant. One of the criteria for non-strategic is that it generally doesn't have much timber on it... much merchantable timber. It will have pre-merch, so not a lot of short-term financial impact. And I guess the only thing I'd say is we were surprised by the allocation of the dirt value, at least based on our analysis that when so much people are putting in the underlying dirt for these properties. So not a lot of negative, very little negative short-term financial impact weigh... outweighed by the benefits you get from selling it. And all I could say on the discount rates is they're certainly, I think that they're at the low single-digits.

And interest rate, would that be like the cap rates?

Well, we think people are using to acquire. We think these TIMOs might be using to acquire these timberlands are... it's got to be pretty aggressive discount rate.

Are they getting financing to buy this land or are they paying all cash? Is there financing available to buy this type of land?

All I could say is that sales of cash are closing. So, we don't really get into their financing. They... we have no terms if it's just cash and so we don't... that's really transparent to us.

You had mentioned that your CAD is sufficient to cover your dividend. I guess I have two questions; one, when you calculate taxable income. What percentage of your CAD is taxable income or the amount that you have to pay out under the REIT rates?

Yes, right now really under the Regs we don't have... we basically have ordinary laws unlike most REITs or the nature of our taxable income is all capital. So we are typically in that 95% bucket of payout before we run into the excise tax.

Right. So you're paying out well over the minimum, you need to payout than the intended REIT tax.

Yes.

And then I guess the timberland sales get replenished when the trees grow et cetera. But when you sell some of this land, whether it's HBU land or non-strategic land or row, that's gone permanently; when you calculate your CAD, are you including the income from the real estate sale in CAD?

Yes we do. I mean basically what we're looking at is... I mean we look at our holding is twice the total portfolio, and we're continuously looking to upgrade the portfolio. So we had non-strategic timber sales, but also on acquisitions buying higher quality holdings and then obviously others moving to a higher and better user category. So it is pretty much a continuous cycle for us, just part of our regular business.

Okay, that's great. Thank you.

We'll go next to Peter Rushmeier with Lehman Brothers.

Good afternoon.

Hey, Pete.

I was hoping if you could elaborate a little bit on your comment about the dirt values rising, and if you could help us with some reference points in the East and the West, in terms of recent dirt values that you think you've seen, and how that might compare to a number of years ago?

Charlie.

Alright. I think if you look at the average price we achieved in the Southeast, and you assume that there's not a lot of timber and pre-merch on the property, or some pre-merch but not a lot of timber. We would... we're seeing dirt values over a $1000 an acre, and five years ago, it was probably closer to $500 an acre or less. So dirt values... obviously timber values haven't gone up that much in the last two years. So the escalation in timberland prices we believe is attributable mostly to the dirt. Out West maybe not quite as much run up but also a substantial run up.

Andcan you help us with the 6200 acres; I think you said it was primarily a split between Washington and Alabama. And whether Washington lands primary dirt value and can you help us spilt of the acres?

The spilt was pretty close to 50-50. I am probably not going to give... can't give out much more than that. Again the dirt value is I think in the South a bit higher. I think the property out West has maybe a slightly higher component or pre-merchantable timber with that long rotation, you get lot a more pre-merch. That's all, I think that's as far much information we can give out.

Okay. That's helpful. I guess on log markets, I am curious on your New Zealand operation. If you can help us to better understand what you're seeing there in terms of demand and price trends and whether there is still some transportation challenges. But what are you seeing in terms of end-market demand and pricing trends for that business?

I think overall that the... we haven't seen big changes there over the course of this quarter over the first. I mean demand is fairly steady. As you know, most everything there is exported, whether its logs or whether it's the lumber from the logs. And the biggest challenge we've had has been transportation cost and availability of ships. We have gotten... we have begun to see additional inquiries coming in from Asia. I think as a result of the Russian tariff and so we are anticipating potentially that demand picking up. As it appears, Russia is in pay down [ph] going forward with an increase in that tariff next year. But the big challenge we've had in this New Zealand has been the... has been the transportation cost, shipping cost.

Okay, that's helpful. One last question if I could Lee. I'm curious in the East your pulpwood volume is clearly very strong. I'm curious if you can comment on just order of magnitude. How much of your pulpwood, much you'd be selling today to some of the palletized wood operations and for that matter maybe cellulosic ethanol and how do you see that evolving if you look out two or three years from now?

Peter, I think today it's a very small part of our volume. And over the next two to three years I think the potential is significant. It has developed in the last year, even the last six months much faster than we anticipated. Not particularly things like palletized fuel although that is developing with a lot of plants under construction and some under operation. But with demand from utilities and all those, they are looking at coal-firing boilers that they fire it with coal, now with biomass. And we are beginning to see some increased demand for slash. It's ground up in the field after we harvest which is really a good news for us, cleans that field up quickly. But I think a lot of that is being driven by just the increased cost of fossil fuels, particularly coal. And so we are beginning to see quite a demand inquiries coming from a range of sources that I think over the next several years have the potential of being a substantial demand for our pulpwood.

Okay, that's helpful. Can I just finish up with a clarification maybe for Hans; I think you said for the third quarter, your charts says you'll be below year-ago levels which was $0.90. And I think you also said, you'd be below the third quarter level... I'm sorry the second quarter level $0.47, is that correct?

That's correct Peter.

Superb. Thanks guys.

Okay thanks.

We'll go next to Steve Chercover, D. A. Davidson

Going to have to be a little faster on this game show. First question for Paul please; if I recall properly, your expectations where the fluff pulp prices are going to erode in the second half. So this is nice that the bigger players have raised prices, do you expect it sustainable? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: Yes, it's a good question. You are right and kind of led my thought process to last discussion. I think what we are seeing out there and the input costs, that I am less pessimistic and I think we probably should see prices hold pretty firm steady through the balance of the year.

So there's really nothing on the supply-demand spectrum that's changed. So is it cost pushed, you think that's justified it? Paul G. Boynton - Senior Vice President, Performance Fibers & Wood Products: I think a lot of it is cost push. I think there is a healthy demand out there for the product. But there is also just cost push keeping those prices where they are at.

Great. And just following on specialties; am I correct that the depreciations dropped by around $3 million or $4 million per quarter?

Per quarter, yes about $16 million on the year... $15 million.

Great. So if you're going to have same EBITDA then it's the earnings just, where it's coming from, that's great. And then one for Hans please; if the inflation that's impacting your taxable businesses does not subside, is it reasonable to think that in '09 the tax rate might be a little below 20% as well?

I wouldn't want to speculate on that. I mean there is a lot of things that could affect our tax rate in '09. So it's going to depend on what the timber markets are and what we do with harvest levels. You know our REIT property can depend on the mix of properties on the real estate side about what's coming from the TRS versus what's coming directly from the REIT. So we are little far off from that right now, I think for me to kind of guess on that one.

Thanks very much.

[Operator Instructions]. We will go to Mark Weintraub with Buckingham Research.

If you were not to use 1031s would you have to be paying any taxes on the non-strategic land sales that you are doing.

Yes. We would, I think if we look at our CAD reconciliation, you will see we're actually recognizing about $5.7 million on a year-to-date basis. So effectively we are reducing our CAD saying if we hadn't made these investments, then we wouldn't have that benefit. So that give you a rough... that process is basically a six month result.

Okayand I know that this is a tough one for you. It's really a question for the guys... the TIMOs who are doing it; but any thought as to why the... there's been this escalation in dirt values that's taken place over the last few years?

Again that's a $100 million question. I... and everyone has their own opinion, and our view is there's just a lot of liquidity out there chasing what is a very stable investment and asset class that's become quite attractive in a lot of TIMOs and so, as I said, I'm not going to give up the number, but we had... we had very nice competition on our sale, and one TIMO bought it, but there were a number of other TIMOs that bid and the bidding was very tight.

Okay great. Thanks very much.

Having no further questions, I'd like to turn the conference back over to management for any additional or closing comments.

Nothing additional. We'd just like to thank everybody for joining us, and please contact Carl Kraus with any follow-up questions. Thanks again.

This does conclude today's conference. Thank you for your participation. You may now disconnect.