NAREIT INVESTOR FORUM June 5, 2008 New York City POTLATCH CORPORATION Company Overview
Forward-Looking Statements This presentation contains certain forward-looking statements within the meaning of the Private Litigation Reform Act of 1995 as amended, including without limitation, statements about a potential spin-off of our pulp-based businesses, future company performance, future earnings and cash flow, future land acquisitions, land sales and closings, future dividend growth, harvest volumes, log pricing and direction of markets. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, changes in timberland values; changes in timber harvest levels on the company s lands; changes in timber prices; changes in policy regarding governmental timber sales; changes in the United States and international economies; changes in exchange rates between the U.S. dollar and other currencies; changes in the level of construction activity; changes in tariffs, quotas and trade agreements involving wood products; changes in worldwide demand for Potlatch s products; changes in worldwide production and production capacity in the forest products industry; competitive pricing pressures for the company s products; unanticipated manufacturing disruptions; changes in general and industry-specific environmental laws and regulations; unforeseen environmental liabilities or expenditures; weather conditions; changes in raw material, energy, and other costs; the ability to satisfy complex rules in order to remain qualified as a REIT; changes in tax laws that could reduce the benefits associated with REIT status; and other risks and uncertainties described from time to time in the company s public filings with the Securities and Exchange Commission. The company does not undertake to update any forward-looking statements. 2
Potlatch is one of three publicly traded Timber REITS Unique Value Attributes Pure play timber REIT following the potential spin-off of pulp-based manufacturing businesses Timber harvest profile that is growing in value and volume Emerging real estate business Strong balance sheet metrics Debt to Total Capitalization = 41% Interest Coverage = 6.1 X Attractive $2.04 annual dividend, 4.3% yield 3
Company Overview 2007 Revenues 2007 EBITDDA Real Estate 1% Consumer Product s 27% Resour ce 8% Consumer Products 15% Wood Product s 27% Pulp & Paperboard 31% Resource 40% Pulp & Paperboard 37% Wood Products 7% Real Estate 7% Total Consolidated Revenues: $1,654 Million Total Consolidated EBITDDA: $196 Million Note: EBITDDA is a non-gaap measure See Appendix for definition and reconciliation. 4
Company Overview - EBITDDA by Business Segment Cash Generation Improves Over Time $ in Millions $300 $250 $200 $150 $100 $50 $0 2003 Actual 2004 Actual 2005 Actual 2006 Actual 2007 Actual Resource Real Estate Wood Products Pulp & Paperboard Consumer Products Note: EBITDDA is a non-gaap measure See Appendix for definition and reconciliation. Wood Products 2006 results exclude $39.3 million associated with the Canadian lumber settlement. 5
Potential Spinoff of Pulp-Based Businesses On April 17, 2008, the Company s Board of Directors authorized the evaluation of a potential tax-free spin-off of the pulp-based businesses. A spin-off would create two stand-alone, publicly traded entities. A timber REIT: A verified forest practices leader with 1.7 million acres of forest land in Arkansas, Idaho, Minnesota, Wisconsin, and six wood products manufacturing facilities. A pulp-based manufacturing company: It would include all pulp and paperboard operations in Lewiston, Idaho and Cypress Bend, Arkansas; the consumer products operations in Lewiston, Las Vegas, Nevada and Elwood, Illinois; and one sawmill in Lewiston. The combined revenues of the businesses being evaluated for a spin-off were approximately $1.2 billion in 2007. The spin-off transaction, if pursued, would likely be completed during the fourth quarter of 2008, subject to market, regulatory and other conditions. 6
Pulp & Paperboard Segment Overview of Operations Arkansas Idaho Map of Operations Location Cypress Bend Lewiston Capacity 300,000 tons Pulp 545,000 tons Pulp 325,000 tons Paperboard 430,000 tons Paperboard Lewiston, Idaho Products Folding Carton Cup Plate Folding Carton Cup & Plate Liquid Packaging NBSK Baled Pulp Slush Pulp Cypress Bend, Arkansas 7
Pulp & Paperboard Segment Overview ($ in Millions) Strong Demand Drives EBITDDA Growth $80 $76.6 $70 $60 $59.1 $50 $46.4 $40 $30 $34.8 $20 $22.3 2003 2004 2005 2006 2007 Note: EBITDDA is a non-gaap measure See Appendix for definition and reconciliation. 8
Consumer Products Segment Overview of Operations Map of Operations Capacity by Facility Tissue Mills: Lewiston, ID 180,000 tons Las Vegas, NV 35,000 tons 215,000 tons Tissue Converting Facilities: Lewiston, ID 100,000 tons Las Vegas, NV 50,000 tons Elwood, IL 47,000 tons 197,000 tons 9
Consumer Products Segment Overview Strong historical growth with significant expansion opportunities Geographic expansion into Midwest driving growth in sales Approximately 18% average annual sales growth since 2004 High-quality private label products produced to match quality of branded products 10
Consumer Products Segment Overview High Pulp Costs Adversely Affects EBITDDA ($ in Millions) $50 $43.1 $40 $30 $26.2 $35.5 $20 $10 $13.5 $- $4.0 2003 2004 2005 2006 2007 Note: EBITDDA is a non-gaap measure See Appendix for definition and reconciliation. 11
Resource Segment Overview Potlatch Land and Timber Holdings Capture Geographic & Market Diversity 1 2 3 4 Idaho Timberlands: 840,000 acres Arkansas Timberlands: 468,000 acres Minnesota Timberlands: 287,000 acres Wisconsin Timberlands: 74,000 acres 12
Resource Segment Overview Key Strategies Increase harvest levels and reduce rotation ages to maximize NPV Defer timber harvest in weak markets Seek acquisitions that: Complement the existing land base Are immediately cash flow accretive Have a blend of timber and real estate values Maintain highest stewardship standards in the industry 13
Resource Segment Overview Fee Harvest Log Volumes Increase Over Time Tons in Millions 6.0 Saw Logs Pulp 5.0 Compound Annual Growth Rate Over 9% 4.0 3.0 2.0 1.0 0.0 2004 Actual 2005 Actual 2006 Actual 2007 Actual 2008 Estimate 2009 Estimate 2010 Estimate 14
Resource Segment Overview Price/Ton Fee Harvest Log Prices Remain Stable Over Time $80 $70 $60 $50 $40 $30 $20 $10 Saw Log Price/Ton Pulp Log Price/Ton Wtd. Avg. Price/Ton $0 2005 Actual 2006 Actual 2007 Actual 2008 Estimate 2009 Estimate 2010 Estimate 15
Resource Segment Overview We Are A Verified Forest Practices Leader Potlatch is the only major, publicly traded, forest landowner whose core lands are 100% certified by the Forest Stewardship Council (FSC) * and audited by third-party organizations such as Smartwood, a subsidiary of the Rainforest Alliance. * The FSC certification process for our new central Idaho lands is currently underway. 16
Resource Segment Overview Improved Business Model Continues to Drive EBITDDA Growth ($ in Millions) $100 $95 $90 $92.6 $97.2 $85 $80 $75 $72.3 $70 $65 $63.5 $60 $61.7 2003 2004 2005 2006 2007 Note: EBITDDA is a non-gaap measure See Appendix for definition and reconciliation. 17
Real Estate Segment Overview Coeur d Alene Boundary Waters Canoe Area Boise McCall Sun Valley Little Rock Hot Springs Brainerd Minneapolis -Milwaukee St. Paul Milwaukee Chicago Chicago Idaho: 840,000 acres Potlatch Timberlands Arkansas: 468,000 acres Minnesota: 287,000 acres Wisconsin: 74,000 acres Overview: We own more than 3,000 miles of desirable water frontage, as well as other highly desirable recreational properties. More than 13 million people live within our four current states of ownership. We are the largest private landowner in Idaho and the third largest private landowner in Arkansas. 18
Real Estate Segment Overview New Business Model Contributes to EBITDDA Growth In 2006, identified 250,000 300,000 acres of non- strategic and higher value land to sell over 10 years Additional 75,000 100,000 acres identified in recent acquisitions in Idaho & Wisconsin Continue to add real estate expertise to the team Rural recreational land sales began in 2007and are gaining traction Acres Sold $ / Acre 2007 16,175 $1,500 2008 estimate* 20,000+ $1,900 *Excluding 43,000 acre land sale in Minnesota in 1Q 2008 and 2Q 2008 (2 phases) 19
Central Idaho Timberland Acquisition Transaction Overview Timberland purchase of 179,000 acres in south-central Idaho Purchase price of $215 million, or $1,200 per acre Combination of timberlands and HBU acreage Immediately cash flow accretive 20
Wisconsin Timberland Acquisition Transaction Overview Purchased 76,000 acres near Rhinelander, Wisconsin Purchase price of $65 million or $850 per acre Added hardwood mix and HBU acreage 21
Wood Products Segment Overview Focus on Quality and Higher Margin Products Our company operates five sawmills in Idaho, Arkansas, Minnesota and Michigan, as well as one industrial-grade plywood mill and one particleboard mill in Idaho. Facilities produce and sell Forest Stewardship Council (FSC) products FSC-certified products currently command a price premium. Meet Leadership in Energy and Environmental Design (LEED) building standards. 22
Wood Products Segment Overview ($ in Millions) $90 EBITDDA Levels Off During Very Difficult Cycle $80 $79.4 $70 $60 $50 $40 $43.3 $30 $20 $16.6 $16.3 $15.9 $10 2003 2004 2005 2006 2007 Note: EBITDDA is a non-gaap measure See Appendix for definition and reconciliation. 23
Investment Thesis Timber provides portfolio diversification Timber values have outpaced inflation over a long period The timber asset class has relatively low volatility and is uncorrelated to other asset classes Growing harvest profile will support future dividend growth Rural recreational real estate demand remains strong REIT structure is tax efficient and provides liquidity Conservative balance sheet backed by real assets 24
Total Shareholder Return Since converting to a REIT on January 1, 2006, we have provided a total shareholder return of 35.5%. During this same period, we have significantly outperformed our peer group as well as the S&P 500. PERFORMANCE GRAPH Comparison of Five-Year Total Returns* $350 $300 $250 $200 $150 $100 $50 Potlatch Corporation NCREIF Timberland Index (1) NAREIT Equity Index S&P 500 Composite $0 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 (1) National Council of Real Estate Investment Fiduciaries (NCREIF) Timberland Index --------------- * Assumes $100 was invested on December 31, 2002. Total return assumes quarterly reinvestment of dividends. 25
NAREIT INVESTOR FORUM June 5, 2008 New York City Appendix
Appendix - Definition of Non-GAAP Measure EBITDDA is a non-gaap measure that management uses to evaluate the cash generating capacity of the company. The most directly comparable GAAP measure is net earnings. EBITDDA, as we define it, is net earnings adjusted for net interest expense, provision (benefit) for income taxes, depreciation, depletion and amortization. It should not be considered as an alternative to net earnings computed under GAAP. 27
Appendix - 2007 Revenues and Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (EBITDDA) (Dollars of thousands) % of Total Intersegment Consolidated Consolidated Revenues: Revenues Revenues Revenues Revenues Resource $ 296,821 $ (170,825) $ 125,996 8% Real Estate 24,116-24,116 1% Wood Products 464,593 (20,059) 444,534 27% Pulp and Paperboard 670,622 (55,838) 614,784 37% Consumer Products 444,699 (108) 444,591 27% Total Company Consolidated Revenue $ 1,654 million $ 1,900,851 $ (246,830) $ 1,654,021 100% Operating Depreciation, EBITDDA % of Income Depletion, and from Consolidated EBITDDA: from Cont. Ops Amortization Continuing Ops EBITDDA Resource $ 81,836 $ 15,365 $ 97,201 40% Real Estate 17,303-17,303 7% Wood Products 1,901 14,446 16,347 7% Pulp and Paperboard 44,260 32,388 76,648 31% Consumer Products 19,194 16,268 35,462 15% Total Company Consolidated EBITDDA $ 196 million $ 164,494 $ 78,467 $ 242,961 100% Note: EBITDDA is a non-gaap measure See page 30 for definition. 28
Appendix Reconciliation of Non-GAAP Measure Earnings before Interest, Taxes, Depreciation, Depletion and Amortization (EBITDDA) Continuing Real Wood Pulp & Consumer Corporate Operations Discontinued (Dollars in thousands) Resource Estate Products Paperboard Products & Other Total Operations Total Year ended December 31, 2007 Net income $ 81,836 $ 17,303 $ 1,901 $ 44,260 $ 19,194 (71,340) $ 93,154 $ (36,722) $ 56,432 Income tax provision (benefit) - - - - - (5,977) (5,977) (2,833) (8,810) Interest expense, net - - - - - 28,428 28,428-28,428 Depreciation, depletion & amortization (1) 15,365-14,446 32,388 16,268 1,617 80,084 3,329 83,413 EBITDDA $ 97,201 $ 17,303 $ 16,347 $ 76,648 $ 35,462 $ (47,272) $ 195,689 $ (36,226) $ 159,463 Year ended December 31, 2006 Net income $ 81,344 $ 11,917 $ 39,465 $ 23,562 $ 27,269 (27,511) $ 156,046 $ (16,936) $ 139,110 Income tax provision (benefit) - - - - - (47,705) (47,705) (1,372) (49,077) Interest expense, net - - - - - 27,191 27,191-27,191 Depreciation, depletion & amortization (1) 11,261-15,790 35,547 15,800 1,388 79,786 11,235 91,021 EBITDDA $ 92,605 $ 11,917 $ 55,255 $ 59,109 $ 43,069 $ (46,637) $ 215,318 $ (7,073) $ 208,245 WP EBITDDA excl. Cdn. Lbr. Settlement $ 15,935 Year ended December 31, 2005 Net income $ 61,791 $ 22,441 $ 28,594 $ (1,621) $ 10,628 (85,573) $ 36,260 $ (3,296) $ 32,964 Income tax provision (benefit) - - - - - 16,784 16,784 (2,108) 14,676 Interest expense, net - - - - - 26,539 26,539-26,539 Depreciation, depletion & amortization (1) 10,551-14,741 36,407 15,587 1,056 78,342 4,868 83,210 EBITDDA $ 72,342 $ 22,441 $ 43,335 $ 34,786 $ 26,215 $ (41,194) $ 157,925 $ (536) $ 157,389 Year ended December 31, 2004 (2)(3) Net income $ 49,703 $ 19,407 $ 66,650 $ 9,191 $ (11,151) (118,470) $ 15,330 $ 255,919 $ 271,249 Income tax provision (benefit) 9,967 9,967 166,098 176,065 Interest expense, net 42,246 42,246-42,246 Depreciation, depletion & amortization (1) 11,961-12,709 37,240 15,239 3,510 80,659 10,377 91,036 EBITDDA $ 61,664 $ 19,407 $ 79,359 $ 46,431 $ 4,088 $ (62,747) $ 148,202 $ 432,394 $ 580,596 Year ended December 31, 2003 (2)(3) Net income $ 42,298 $ 23,213 $ 4,078 $ (15,104) $ 1,266 (59,593) $ (3,842) $ 54,569 $ 50,727 Income tax provision (benefit) (9,148) (9,148) 34,887 25,739 Interest expense, net 34,082 34,082-34,082 Depreciation, depletion & amortization (4) 20,917-13,177 38,171 12,585 4,137 88,987 15,872 104,859 EBITDDA $ 63,215 $ 23,213 $ 17,255 $ 23,067 $ 13,851 $ (30,522) $ 110,079 $ 105,328 $ 215,407 (1) Depreciation, depletion and amortization excludes cost of permit timber harvested. (2) Excludes charges to segments for certain management performance programs (2004 and 2003 only). (3) Years 2004 and 2003 include Boardman in continuing operations. (4) Depreciation, depletion and amoritization includes cost of permit timber harvested, as previously reported. 29
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