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Potlatch Second Quarter Earnings Dip Slightly

July 31, 2006 (Press Release) - Potlatch Corporation today reported net earnings of $8.0 million, or $.21 per diluted common share, for the second quarter of 2006, compared to net earnings of $8.2 million for the second quarter of 2005. The slight decrease in earnings was due to lower results for the Wood Products and Resource segments, which were nearly offset by better results for the Consumer Products and Pulp and Paperboard segments. The company also had a lower income tax provision during the current quarter.

Net revenues for the second quarter of 2006 were $414.6 million, compared with $368.5 million recorded in the second quarter of 2005.

Net earnings for the first six months of 2006 totaled $70.8 million, or $2.06 per diluted common share, compared to net earnings of $12.0 million, or $.41 per diluted common share, for the first six months of 2005. Results for the first six months of 2006 included a net tax benefit of $51.2 million, or $1.49 per diluted common share, related to the company's January 1, 2006, conversion to a real estate investment trust (REIT).

The Resource segment reported operating income of $9.8 million for the second quarter of 2006, compared with $13.5 million earned in the second quarter of 2005. The lower earnings were primarily due to a decreased harvest of fee timber in Arkansas and a loss at the company's Boardman, Oregon, hybrid poplar operation. The Boardman operation was in a development stage in the second quarter of 2005, and most of the expenses were capitalized in that quarter. Following the start of harvesting operations in late 2005, most operating costs are now expensed against income. An increased fee harvest and higher sales prices for logs in Idaho partially offset the unfavorable comparison.

The Land Sales and Development segment, which is a new segment beginning in 2006, reported operating income of $1.5 million for the second quarter of 2006, compared with operating income of $0.5 million for 2005's second quarter. The improved results were due to the sale of a conservation easement in Minnesota recorded in the second quarter of 2006.

Operating income for the Wood Products segment was $3.5 million for the second quarter of 2006, compared with income of $13.7 million for the second quarter of 2005. "Depressed markets for our southern lumber products and higher log costs, especially in Idaho, were largely responsible for the decline in Wood Products earnings," noted Michael J. Covey, Potlatch president and chief executive officer. "These unfavorable comparisons were partially offset by continued strong markets for cedar products produced in our Idaho sawmills," added Covey.

For the second quarter of 2006, the Pulp and Paperboard segment reported operating income of $3.9 million, versus an operating loss of $0.1 million for the second quarter of 2005. "Pulp and Paperboard results were favorably affected by higher selling prices and increased shipments of both paperboard and pulp, as well as lower wood fiber and maintenance costs," Covey remarked.

The Consumer Products segment reported operating income of $7.0 million for the second quarter of 2006, compared with operating income of $1.8 million reported for the second quarter of 2005. "The higher earnings were attributable to a 20% increase in shipments and higher net selling prices for our consumer tissue products compared to 2005's second quarter," noted Covey. The higher net selling prices were due to a combination of price increases and sheet count reductions.

The company recorded an income tax provision of $1.3 million for the second quarter of 2006, compared with an income tax provision of $5.1 million for the same period in 2005. The lower provision was largely the result of the company's conversion to a REIT in 2006, as our qualified REIT activities are generally not subject to federal corporate level income taxes.

SOURCE: Potlatch Corp.




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