Welcome and thank you for joining Rayonier's First Quarter 2011 Teleconference Call. {Operator instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now I'll turn the meeting over to your host, Mr. Hans Vanden Noort, CFO. Sir, you may begin.

Thank you and good afternoon. Welcome to Rayonier’s investor teleconference covering first quarter earnings. Our earnings statement and presentation materials were released this morning and are available on our website at rayonier.com. I'd like to remind you that in these presentations we include forward-looking statements made pursuant to the Safe Harbor provisions of the Federal Securities laws. Our earnings release as well as our Form 10-K filed with the 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 2 of our presentation material. With that, let's start our teleconference with opening comments from Paul Boynton, President and CEO. Paul?

Thanks, Hans. I’m only going to make a few overall comments before turning it back over to Hans to review our financial results. Then we’re going to ask Lynn Wilson, Senior Vice President of our U.S. Forest Resources, to comment on our timber results. Following our review of Forest Resources, Charlie Margiotta, Senior Vice President of Real Estate, will discuss our land sales results and then Jack Kriesel, Senior Vice President of Performance Fibers, will take us through the cellulose fibers business. We’re pleased to report earnings of share of $0.42 as results from each business unit exceeded our expectations for the quarter. Our operating cash flow continues to be strong with cash available for distribution of $0.71 per share, substantially above our $0.40 per share dividend. Now, in addition to good financial performance this quarter, we also achieved operation milestones that lay the groundwork for improved performance over the course of the year. Our Forest Resources team quickly completed the operational integration of 320,000 acres of highly productive forest we acquired last year giving us additional flexibility to take advantage of attractive local markets throughout our footprint and to defer harvest in less robust areas. We also completed major maintenance shutdowns at our two Performance Fibers mills, investing in a number of high return projects. For example, in Fernandina we completed tie-ins required for a new turban generator which will allow us to achieve 100% energy self sufficiency and allow us the sale of green power back to the grid later in the year. In Jessup, we successfully completed over 250 electrical and mechanical tie-ins and installed some of the key equipment required for the conversion of our absorbent materials line to cellulose specialties. This paves the way to a completion of this project during next year’s shutdown. Our balance sheet and cash flows are strong as recognized by Moody’s in their recent upgrade to Baa1, as well as our successful issuance of $325 million of ten-year bonds at a very attractive coupon. So, overall, we’re off to a very positive start for the year and with that, let’s turn it over to Hans and review the financials.

Thanks, Paul. Let’s start on Page 3 with the overall financial highlights. As Paul noted we kicked off 2012 with a very solid first quarter. Sales totaled $356 million while operating income totaled $84 million and net income was $53 million or $0.42 per share. There were no special items this quarter. However in the fourth quarter of 2011 we had a $6.5 million non-cash charge for estimated future clean-up costs at our former Port Angeles mill site. This charge has been excluded to arrive at the pro forma amounts used for the comparisons throughout this call. On the bottom of Page 3 we provide an outline of capital resources from liquidity. Our cash flow was strong with the EBITDA of $115 million and cash available for distribution of $87 million. During the quarter we issued $325 million of ten-year senior notes with a 3.75% coupon. $150 million of the proceeds were used to repay borrowings outstanding under our credit facility. We ended the quarter with approximately $1 billion of debt and $237 million in cash. So on a net debt basis we finished at $787 million. As Paul mentioned, Moody's raised our rating to Baa1 stable during the quarter so we feel very comfortable with our current balance sheet and liquidity. Let's now run through the variance analyses. On Page 4 we prepare a typical sequential quarterly variance analysis. In forest resources, as expected operating income decreased. The negative variance primarily results from lower recreational license income which is largely recognized in the fourth quarter. We also had some price softness in the northwest, although our volumes there increased. In Real Estate, our income was comparable. Moving to Performance Fibers you can see significant price improvement in cellulose specialties reflecting our January 1 price increases. Volumes were unfavorable due to the timing of customer shipments. Input costs were also unfavorable led by higher energy and chemical costs. Finally, we had a favorable variance as in the fourth quarter we took a $6 million charge for a write-off of environmental equipment no longer required due to our cellulose specialties expansion project. Our woods products business improved by $2 million, which was all price driven. However, our other operations which is largely log trading was unfavorable, primarily due to foreign exchange losses. Finally, corporate and other expenses were about $2 million above the fourth quarter due to the timing of stock-based incentive compensation accruals associated with the prior CEO's retirement.

Thanks, Jack. Now I'd like to update some key statistics to assist you in refining your models for Rayonier. So we expect depreciation, depletion and amortization of $148 million in the non cash cost basis of land sold of about $6 million or approximately a $154 million in total, consistent with our prior guidance. Capital expenditures, excluding strategic investments for timberland acquisitions in the cellulose specialties expansion are expected to total about $154 million, slightly above the 2011 spending of $145 million. This increase will primarily occur in performance fibers on cost reduction in efficiency projects and in civil cultural investments in our newly acquired property. We still expect 2012 spending on the cellulose expansion to range between $200 million and $210 million. We expect interest expense, net of interest income of about $50 million. This is net of about $9 million of capitalized interest related to the cellulose expansion project. Finally, our effective tax rate guidance remains in the range between 24% and 26%. When you put all of these elements together, we again anticipate very strong cash flow. We expect EBITDA to be about 10% above 2011. Cash available for distribution should range between $285 million and $310 million dollars. Operating income is expected to be about 10% above 2011. However, because of the effective tax rate changes discussed last call, we expect EPS to be comparable to 2011. We are maintaining that full year guidance, despite being somewhat ahead of plan in the first quarter, as most of that app side was driven by timing. Overall, we still anticipate that 2012 earnings will be weighted more heavily to the back half of the year reflecting both Performance Fiber shutdowns occurring in the first quarter, our expectations around Real Estate closings and the timing of timber volumes, particularly exports in the Northwest. Now let me turn it back to Paul for some summary comments.

All right, thanks. As you've heard we're off to a good start in 2012. We expect to build momentum over the course of the year with growth in operating income of 10% compared to the prior year. We are also pleased with the progress we've made on our strategic initiatives. We are on pace to complete our 190,000 ton cellulose specialties expansion by mid-2013 and, as Jack stated, we have substantial commitments for this new volume. This project, alone with our investments in product quality and technical expertise demonstrates our commitment to maintaining our global leadership in this high value market. We remain committed to our strategy of expanding our timberland ownership over time with a very disciplined acquisition approach of seeking only properties that enhance our holdings and generate attractive returns. In short, we're competent that we are well positioned to drive cash flow and value creation in 2012. With that I'd like to close the formal part of the presentation and turn the call back to the operator for questions. Thank you.

Thanks you. (Operator instructions) Your first question comes from Michael Roxland, Bank of America. Your line is open.

Thanks very much. Congratulations on the quarter. Just trying to understand your guidance for 2012. If Q1 volumes and performance values were lower due to timing, yet you still had a record quarter in performance fibers that implicitly means that the remaining quarter should be stronger as well and I'd assume that the full year would be higher as well relative to prior guidance. So what do you expect to happen such that you're re-affirming your 2012 guidance?

Well, Mike, I think there are a couple things here concerning Performance Fibers. We were lower on a year-over-year basis. We actually did a little bit better price wise from the mix of shipments that went and so we were a little stronger on the price side of Performance Fibers coming out than what we thought back in January. And that's just going to depend on the products that are being shipped and what goes through. So really with respect to the other business units, I mean certainly we pulled more volume in the Lindz area, we recognized some stronger markets and pulled some volume into the quarter and then, as Charlie mentioned, we had been working on the one sale in central Florida and had initially thought it would be an early Q2 closing and we're going to actually be able to complete that transaction in Q1. That's, again, we backed most of the, I would say most of the Q1 upside is probably more of timing on things that we had visibility on back in January.

With respect to Performance Fibers specifically, would you say that you'll have a lower quality mix potentially in Q2 and Q3 relative to Q1 such that pricing to your point, Hans, that pricing will be lower?

Hard to say exactly on the mix. I think if you go back just to the overall guidance for the year, I mean we still are expecting year-over-year to be that 12% to 13% up on the CS pricing as the best way to look at it.

Okay. Then just quickly on timberland, it seems Rayonier acquired some timberland in Q1. Can you go and just provide some color around the land location, species, stocking levels if you don't mind?

Yeah, Mike, let me ask Charlie to comment on that.

Yeah, that was a relatively small property in east Texas that we were actually working on last year, but it closed this year and its predominately loblolly pine.

Got you.

Hi, guys. It's George Staphos on Mike's line. One last quick question for Lynn. Lynn, could you give a bit more color in terms in what you're seeing in terms of Asian timber demand and why it appears we're expecting to improve harvest as the year goes on? Thank you.

Certainly. The consensus outlook for 2012 is that we expect the construction to be flat inside, but we also see that most of the economists expecting for the government to hold their policies firm on the investment in high-end housing, but what we're seeing is that they're easing the credit for first-time home buyers. So many of the banks are offering discounts for lending for those first-time home buyers and, in addition, there's still a large push by the government to really apply for available, adequate housing and it's a top policy priority, so its viewed as essential to address our social issues. There's currently a shortage of 60 million to 70 million housing units in the urban areas. The latest census data suggesting that the urban households are going to grow by 5 million per year, particularly in the near term we expect that to pick up. Just more recently with our team in China, both from our New Zealand operations and the team that's on the ground there, we're seeing that the core inventories are starting to decline, so Radiata has declined to a one-month supply inventory, as well as we're starting to see volume and ships moving out of the Pacific Northwest.

Okay. Thank you very much, Lynn. We'll turn it over.

Thanks, guys.

Your next question comes from the Chip Dillon, Vertical Research Partners. Your line is open.

Yes and good afternoon. I know about a year ago and my numbers may be a little rusty, but that's the last I recall seeing an update on sort of how you view your acres that are not core and I would guess that development's still around 200,000 acres, but could you just update us on how you would view the number of acres you consider to be either recreational HBU or, and separately, non-strategic?

The best way to describe our non-strategic is the plan going forward is substantially smaller than it was in the last three or four years. I think we've signaled that. You know you always find additional non-strategic and we're canvassing the property we bought to be sure it all fits perfectly. So, all I can say is that on an annual basis we'll continue to sell non-strategic, but at a program level that's smaller. I don't believe we've given out a rural recreational acreage number except to say that we believe this year's rural recreation land sales will be above last year and I think between last year's acreage and this year will be a reasonable running rate going forward.

Got you, so sort of average the two years of everything that's not development and that's sort of a perpetual level, even with the acquisition from last year.

Yeah, you know, we had I think it was 15,000 acres two years ago. Let me look at the numbers.

Yeah, that's right.

About 15?

Yeah, we had about 15,000 of rural last year. I think we've guided.

About 15 the year before and we're saying it's going to be up a bit this year so that sort of 15 to 20 is a good run rate for us. We've done that for a long time.

Got you. And that, is that, should that be considered something other than non-strategic? And I guess non-strategic, are you done with what you would consider non-strategic as a separate category or should we not even look at it that way?

We're, it's just a lot smaller program. I think one way to think about it is our rural recreational acres are mostly bought by people who pay a rural recreational price as opposed to a non-strategic acre which is a timberland acre that just doesn't fit us very well and it really is worth more to someone else.

Got you, got you. And then just another question on the New Zealand joint venture that you have a 26% interest in, what is the debt on that joint venture roughly right now?

I think the debt right now is roughly $240 million, New Zealand's.

Got you, got you. And then last question, I know that the last call I think that you had gotten up to ballpark 75%, 80% of the incremental special capacities that you're going to get up and running next year had been presold. Any date on where you see that number and then could you sort of tell us, let's say you throw the switch middle of next year, how the transition will work in terms of that 190,000 tons going from, you know, how much will it first be specialties, how much will be in the lower end and then how will that eventually ramp up to be all at the high alpha end?

Chip, when you look at the total volume, last time we talked about 85%. About 75% is in the high CS and then 15% is in the commodities viscose. Since our last call, we have made good progress with discussions with various customers. But at the current time we're staying with the 85% and remember that we plan to not sell out the entire volume, but keep a little bit of that volume in hand to meet our customer demands. As far as going when the line comes up mid-2013, the second half of 2013 will largely be sales in the commodity viscose. We're going to use that time frame to qualify with various customers and then when you look at 2014 it's safe to say that the majority of the volume in 2014 will be into the higher SC value type products.

Got you. Thank you.

Thanks, Chip.

You're next question comes from Mark Wilde, Deutsche Bank. Your line is open.

Good afternoon and congratulations on a good quarter.

Thanks, Mark.

Just curious, first of all Charlie, any sign of any pick up of any real estate activity in the Southeast there. I know you were working on some unique situations maybe around the Savannah area. Anything to report there?

I wish I had better news on the development side, and we continue to make some sales to developers to well capitalize, and we continue to get a real solid interest in our industrial properties. I think that will lead. But we are not yet seeing any large, larger Greenfield development projects yet. We're optimistic but not yet. Our rural land sales program has been really steady and we're starting to see some larger sales there. That's really encouraging.

Okay. Lynn, can you give us just a bit of a forward look on what you're expecting in terms of not only southern volume but where you might see pricing moving through the balance of the year for both pulp wood and saw timber in the South? Because they seem to me they're still quite low by any kind of historic standard.

What we're seeing right now from a volume standpoint and a capacity standpoint is consistent with 2011. So on the pulp wood side, we still have consistent demand. And saw mills are running at the same capacity it appears as 2011. Pricing, we see flat pricing on our grade pine logs. But as far as pulp wood, we see that we'll finish the year slightly up across the region in particular, we've shifted some of our volume to the Gulf states and we see upside on the pulp wood market from Alabama West.

Okay. And then the final question I have and maybe for either Paul or for Jack, I think there's been some concern as some of these players maybe like Fortress that are restarting old pulp mills are talking about coming into some of your markets. I wondered if you could recap for people what the ways in which you view your businesses defensive and how you might think about the entrance of any new competitors into the higher end markets?

Yeah, Mark let me take a shot at it and then Jack, I'm sure, will have something to add to it. First of all, we need to understand that these businesses are related but they're not interchangeable and that's pace for several reasons. Number one is the customer intimacy part of it. We have very close working relationships with all of our customers and that's not only research and development folks, it's technical support folks. That's something that's not very easily duplicated. And with that, that qualification process at that customer, it tends to be very lengthy and very extensive. So the customer side of things has a pretty difficult hurdle. The second part, Mark, as you know, we've got great process knowledge. We've got 85 years of doing this. Two different facilities running both sulfate and sulfite processes. Again, understanding that and the knowledge we have around that is something we kind of consider our own secret recipe, and again, hard to duplicate out there in the market place. So not anybody just coming in would understand how to do that. And then the final point I would say is on the capital side. It's a real significant difference to what we're doing in our expansion, to what we see Buckeye doing in their expansion where they are investing $1700 a ton. We're maybe at maybe $1600 a ton. And the folks like Fortress and others are in the range of $600 to $800 a ton. It's just a totally different investment process and therefore it's not really apples to oranges when you go make the comparison there. Or apples to apples in the comparison there. So I'd say those things, then again a great example of that if you look at our South African competitor, they've been trying to do this for quite some time and I think it just demonstrates it's not an easy hurdle to get past these three issues. Now let me back up and also say Mark that anytime the viscous market is poor, you're going to turn the attention towards Rayonier and towards our cellulose specialties competitors. But you've heard me say before that we manage this PF business with a high degree of paranoia. So our teams are very focused on investments in quality, raising the performance bar all this time, and only further leading our position or creating a leading position in this area. So we feel very comfortable even though we'll see some more pressure like this. One, it doesn't really compete directly. Two, there's significant barriers to get there. And three, we're going to press on and always move the bar a little bit higher. I said a lot there but I'll turn it back over to Jack to see if he's got anything to add to it.

Just a couple of more points. One is this is not unusual. When the market softens you see a lot of these swing players come in, they knock on our customers doors and say that they're going to be there in the long-term and it doesn't really play out that way. So our customers are very aware of this. Also if you recall, at least many of you were at the Jessup meeting we had last fall. Shared with you a chart that showed the pricing of commodity viscous versus the pricing of CS and there's just no correlation to it, to each other. I guess those are the only other couple of things I would add to it.

Okay. That's really helpful. Just finally on that, can you give us some sense of how some of these customer contracts may work just in terms of their duration with kind of key customers, especially in the higher end business?

The last half dozen years or so we have moved to long term contracts and these long-term contracts are typically three to five years in length. And as we're contracting for this new volume, that's the same type of contractual length that we're looking at, three to five years.

Okay. That's fair and helpful. Thanks.

Thanks, Mark.

Your next question comes from Steve Chercover - D. A. Davidson. Your line is open.

Thanks. With the projects, or at least the maintenance, already under your belt at Jessup and Fernandina Beach, can you transition any of your fluff into specialty at this time, or do you have to wait until the Jessup conversion is done.

For the most part, no, we can't make any changes in the high value CS; however, we can and we do take advantage when the market is right to produce some commodity viscose on that fluff line.

I'll add to that, Jack, but that's a very small amount. We do occasionally insist on about a spot interest.

And I guess it's not even worth the effort at this time with the way commodity viscose is.

It's very close to... either one is a break even type scenario for that.

And I was just hoping that Lynn could elaborate on the Asian opportunity. I assume it's not going to be nearly as good as last year, but do you think it was mainly an issue with the ports being full? Or is the slow down biting as well, or did bite already?

We saw the volume that was delivered in the second half of 2011 really filled the whole supply chain, so we believe the fundamentals of the China economy will continue and really, Steve, what we are seeing is that now that the port and the supply chains are clearing out that that will continue that slow. And I agree that we wont see the big spike in pricing, we believe, as we did in 2011, but we still think that overall there will just be a modest difference between 2011 and 2012 when we look at the full year.

Steve, let me add to that. Again, we're very optimistic and confident in the mid- to long-term view of the Asian fiber supply demand situation, particularly China. There's a net deficit there, so mid-long-term we're confident there. Short-term is harder to gauge exactly where that comes back in. And again, to support Lynn's comment, it's fundamentally got some change in the economic positions there in the country, but we see some both statistical data as well as anecdotal observations that would support that we see a little bit of change happening now and that we should hope to see that flow more in the back half of this year. Again, we already have 16% of our volume off the northwest exported, as Lynn noted, this quarter, and we'd expect to see that rise. The majority of that is going to China.

I appreciate that incremental color. Do you get the same benefits down in New Zealand?

It will be a similar situation down in New Zealand, yes.

OK. Thanks very much.

Thanks, Steve.

Your next question comes from Josh Barbor, Stifel Nicolaus. Your line is open.

Thank you, good afternoon. Most of my questions have been asked. Just a couple of quick ones. Charlie, can you guys talk about your entitlements that you're looking at on the real estate side for the next couple of years? I know you were able to get a bunch of them last year, but what's the process looking like for this year and how many higher value acres do you think you can get entitled to the next 18 to 24 months?

Sure, we're predominantly finished. We have a project in what we call our Nassau project where we have a land use change and we're drilling down to a portion of that property to get land use agreements so that we could proceed with some industrial, commercial and possibly residential sales. But for the most part, our two major industrial projects, one in Florida and one in Georgia, are fully entitled. Our Georgia residential property is fully entitled. We have a fully entitled Florida property. So for the most part, with that one exception, we're pretty much finished and really don't intend on entitling a lot more right now.

That's helpful, thank you. And one other question, Lynn, regarding the export sales in the back half of the year. I know your business is primarily China, what's your outlook on Japan right now, especially with the post earthquake rebuild and do you think you can get any market share there if that ends up picking up in the back half of the year.

We've had some modest success in first quarter of 2012 with Japan and plan to continue that. In first quarter we had 67% China exports, 23% to Korea and then 10% to Japan, which was all Douglas fir. But we see that that for the total year would still be below the 10% probably in the 3% to 5 % of our total volume as we ramp up China, which would be consistent with 2011.

And, Josh, I'll add to that, from a New Zealand perspective, we continue to see Korea as a viable market and a strong market. In addition, India as an emerging market and our sales there have picked up nicely over the last several years. Albeit small, but we like the momentum we see coming out of India.

Great, thanks. That's very helpful. One last question. How much cash has been spent year to date, or excuse me, project to date on Jessup, as about 100 million of the 300 million planned been spent.

No, it's, I think it's about $85 million through the end of the first quarter. 85, 86 million.

Great. Thank you very much.

Thanks, Josh.

Your next question comes from Paul Quinn, RBC Capital Markets. Your line is open.

Yeah, thanks and congratulations on the good start. I guess the question for Lynn, Lynn you gave the breakdown in q1 log export sales, do you have those numbers for 2011, as well?

I do. In 2011, Paul, we had 90% went to China and for the remainder of the volume it was split between Japan and Korea.

So, in terms of the way forward do you see, I guess your seeing just from Q1 China percentage to come down, Korea and Japan to pick up, but predominately going forward you expect China to be your main market, right?

Yes. Well, we expect as we ramp up production in the second half of the year that China would be the draw on that volume, Paul.

Okay. And the second question just on overall timberland market you guys have been acquiring in just the last little while, what's some color or flavor on the market overall you've seen transactions accelerate a piece of property, you know, for sale or is that moving up, as well?

Sure Paul, let me ask Charlie to comment on that since Charlie and team are leading that effort for us.

I just maybe a little data that we hadn't shared before that you might find interesting. In 2011, we looked at over 40 properties and made offers on 13 or about a third and so we're pretty disciplined about not only what we look at, but what we off on it. And then in '12, we looked at 15 properties already and only offered on five, or about a third again. So what that tells us is that there certainly are properties out there. Not many of which meet our criteria but there is certainly some activity. Of course, in '11, we had two large transactions of the 40 we evaluated and in 2012, of the 15 evaluated we only have purchased one. So there's certainly activity but there's also, you know, we're very disciplined and we have very specific target areas we're trying to fill.

Great. That's all I had, thanks guys.

(Operator instructions) Your next question comes from Mark Weintraub, Buckingham Research. Your line is open.

Thanks. Just following up quickly, Charlie, is it right to understand that in 2011, you offered on 13 and on how many of those were you the successful bidder? Was that just the two you were referring to?

Well, we were successful on eight properties, but two of the eight made up 90% of the acres. So it's a little distorted. Frankly, we bought a couple of distressed, small properties here in the Florida/Georgia coast that really fit well at really good prices, but they were really small. So it's a little distorted. We had to relatively large transactions that we've disclosed.

Okay. In curiosity, do you know the 27 or some odd properties last year that you didn't make offers on, did many of them change hands or were most of those pulled?

Oh, I have to honestly say once we pass we don't follow it so much. I just don't want to, it'd be speculation.

Okay. Thank you.

Thanks, George.

I will now turn the call back to Mr. Vanden Noort for closing comments.

Thanks for all your questions and for any follow-up please contact Carl Kraus. Thank you.

This does conclude today's conference. Thank you for attending. You may disconnect at this time.