UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________ 
Form 10-Q

(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2014
Or  
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from             to             
Commission File Number 1-32729
 

  POTLATCH CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
82-0156045
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
601 West First Avenue, Suite 1600
 
 
Spokane, Washington
 
99201
(Address of principal executive offices)
 
(Zip Code)
(509) 835-1500
(Registrant’s telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes    x      No    ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes    x      No    ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
x
 
Accelerated filer
o
Non-accelerated filer
 
o   (Do not check if a smaller reporting company)
 
Smaller reporting company
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    ¨      No    x
The number of shares of common stock of the registrant outstanding as of July 21, 2014 was 40,591,415 .
 



POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
 
 
 
 
Page  Number
PART I. - FINANCIAL INFORMATION
 
ITEM 1.
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
PART II. - OTHER INFORMATION
 
ITEM 1.
ITEM 1A.
ITEM 6.




Part I

ITEM 1. FINANCIAL STATEMENTS
 
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Statements of Income
Unaudited (Dollars in thousands, except per-share amounts)
 

 
Quarter Ended   June 30,
 
Six Months Ended   June 30,
  
 
 
2014
 
2013
 
2014
 
2013
Revenues
$
143,919

 
$
133,212

 
$
283,498

 
$
272,465

Costs and expenses:
 
 
 
 
 
 
 
Cost of goods sold
101,849

 
91,904

 
200,442

 
190,203

Selling, general and administrative expenses
12,345

 
10,117

 
22,022

 
23,713

Environmental remediation charge
—

 
1,750

 
—

 
2,500

 
114,194

 
103,771

 
222,464

 
216,416

Operating income
29,725

 
29,441

 
61,034

 
56,049

Interest expense, net
(5,509
)
 
(5,667
)
 
(10,969
)
 
(12,003
)
Income before income taxes
24,216

 
23,774

 
50,065

 
44,046

Income taxes
(7,946
)
 
(4,592
)
 
(13,445
)
 
(9,377
)
Net income
$
16,270

 
$
19,182

 
$
36,620

 
$
34,669

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
0.40

 
$
0.47

 
$
0.90

 
$
0.86

Diluted
0.40

 
0.47

 
0.90

 
0.85

Distributions per share
$
0.35

 
$
0.31

 
$
0.70

 
$
0.62

Weighted average shares outstanding (in thousands):
 
 
 
 
 
 
 
Basic
40,741

 
40,509

 
40,726

 
40,474

Diluted
40,850

 
40,694

 
40,833

 
40,655

The accompanying notes are an integral part of these consolidated financial statements.



2


 
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Statements of Comprehensive Income
Unaudited (Dollars in thousands)
 

 
Quarter Ended   June 30,
 
Six Months Ended   June 30,
  
 
 
2014
 
2013
 
2014
 
2013
Net income
$
16,270

 
$
19,182

 
$
36,620

 
$
34,669

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Pension and other postretirement employee benefits:
 
 
 
 
 
 
 
Amortization of prior service credit included in net periodic cost, net of tax of $(867) and $(871), $(1,734) and $(1,741)
(1,356
)
 
(1,361
)
 
(2,712
)
 
(2,723
)
Amortization of actuarial loss included in net periodic cost, net of tax of $1,568 and $2,267, $3,245 and $4,513
2,452

 
3,544

 
5,074

 
7,057

Other comprehensive income, net of tax
1,096

 
2,183

 
2,362

 
4,334

Comprehensive income
$
17,366

 
$
21,365

 
$
38,982

 
$
39,003

Amortization of prior service credit and amortization of actuarial loss are included in the computation of net periodic cost. See Note 7: Pension Plans and Other Postretirement Employee Benefits for additional information.
The accompanying notes are an integral part of these consolidated financial statements.



3


 
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Condensed Balance Sheets
Unaudited (Dollars in thousands, except per-share amounts)
 

 
June 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
9,252

 
$
5,586

Short-term investments
73,916

 
52,251

Receivables, net
20,629

 
16,572

Inventories
26,071

 
36,275

Deferred tax assets
7,724

 
7,724

Other assets
7,584

 
11,961

Total current assets
145,176

 
130,369

Property, plant and equipment, net
62,402

 
59,976

Timber and timberlands, net
452,763

 
455,871

Deferred tax assets
16,728

 
21,576

Other assets
12,556

 
12,738

Total assets
$
689,625

 
$
680,530

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Current installments on long-term debt
$
—

 
$
—

Accounts payable and accrued liabilities
54,937

 
50,318

Total current liabilities
54,937

 
50,318

Long-term debt
320,003

 
320,092

Liability for pension and other postretirement employee benefits
74,792

 
83,619

Other long-term obligations
15,557

 
22,353

Stockholders’ equity
224,336

 
204,148

Total liabilities and stockholders' equity
$
689,625

 
$
680,530

 
 
 
 
Shares outstanding (in thousands)
40,591

 
40,537

Working capital
$
90,239

 
$
80,051

Current ratio
2.6:1

 
2.6:1

The accompanying notes are an integral part of these consolidated financial statements.


4


 
Potlatch Corporation and Consolidated Subsidiaries
Consolidated Condensed Statements of Cash Flows
Unaudited (Dollars in thousands)
 

 
Six Months Ended   June 30,
 
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
36,620

 
$
34,669

Adjustments to reconcile net income to net cash from operating activities:
 
 
 
Depreciation, depletion and amortization
11,002

 
12,025

Basis of real estate sold
6,834

 
907

Change in deferred taxes
536

 
(338
)
Employee benefit plans
(267
)
 
3,484

Employee equity-based compensation expense
2,032

 
2,101

Other, net
(1,161
)
 
(61
)
Working capital and operating related activities
12,836

 
(11,272
)
Net cash from operating activities
68,432

 
41,515

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Change in short-term investments
(21,665
)
 
19,032

Additions to property, plant and equipment
(6,508
)
 
(5,792
)
Additions to timber and timberlands
(5,887
)
 
(4,683
)
Other, net
334

 
(654
)
Net cash from investing activities
(33,726
)
 
7,903

CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Distributions to common stockholders
(28,413
)
 
(25,115
)
Repayment of long-term debt
—

 
(36,663
)
Exercises of stock options
15

 
1,798

Employee tax withholdings on equity-based compensation
(1,079
)
 
(1,700
)
Change in book overdrafts
(1,424
)
 
1,723

Other, net
(139
)
 
(40
)
Net cash from financing activities
(31,040
)
 
(59,997
)
Change in cash
3,666

 
(10,579
)
Cash at beginning of period
5,586

 
16,985

Cash at end of period
$
9,252

 
$
6,406

SUPPLEMENTAL CASH FLOW INFORMATION
 
 
 
Cash paid during the period for:
 
 
 
Interest, net of amount capitalized
$
10,431

 
$
11,673

Income taxes, net
6,546

 
11,890

The accompanying notes are an integral part of these consolidated financial statements.

5



INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
Page Number
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Note 10.

NOTE 1. BASIS OF PRESENTATION
For purposes of this report, any reference to “Potlatch,” “the company,” “we,” “us,” and “our” means Potlatch Corporation and all of its wholly owned subsidiaries, except where the context indicates otherwise.
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements; certain disclosures normally provided in accordance with generally accepted accounting principles in the United States have been omitted. This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2013 , as filed with the Securities and Exchange Commission on February 14, 2014 . We believe that all adjustments necessary for a fair statement of the results of such interim periods have been included.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09 Revenue from Contr a cts with Customers . This update was issued as Accounting Standards Codification Topic 606. The core principle of this amendment is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with earlier adoption not permitted. The guidance permits two implementation approaches, one requiring retrospective application of the new standard with restatement of prior years an d one requiring prospective application of the new standard with disclosure of results under old standards. The adoption of this guidance is not expected to have a significant effect on our consolidated financial statements.


6


NOTE 3. INCOME TAXES
As a real estate investment trust (REIT), we generally are not subject to federal and state corporate income taxes on income of the REIT that we distribute to our shareholders. We are, however, subject to corporate taxes on built-in gains (the excess of fair market value over tax basis on January 1, 2006) on sales of real property held by the REIT during the first ten years following the REIT conversion. The sale of standing timber is not subject to built-in gains tax. The Small Business Jobs Act of 2010 modified the built-in gains provisions to exempt sales of real properties in 2011, if five years of the recognition period had elapsed before January 1, 2011. The American Taxpayer Relief Act of 2012 extended the reduced five -year holding period for sales occurring in 2012 and 2013. Accordingly, the built-in gains tax did not apply to sales of real property that occurred in 2011, 2012 and 2013.
We conduct certain activities through our taxable REIT subsidiaries (TRS), which are subject to corporate level federal and state income taxes. These activities are principally comprised of our wood products manufacturing operations and certain real estate investments. Income taxes for all periods presented in this Quarterly Report on Form 10-Q were primarily due to income of the TRS.




NOTE 4. EARNINGS PER SHARE
The following table reconciles the number of shares used in calculating the basic and diluted earnings per share for the quarters and six months ended June 30 :
 
Quarter Ended   June 30,
 
Six Months Ended   June 30,
 
 
(Dollars in thousands, except per-share amounts)
2014
 
2013
 
2014
 
2013
Net income
$
16,270


$
19,182

 
$
36,620

 
$
34,669

 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
40,740,979

 
40,508,872

 
40,726,397

 
40,473,705

Incremental shares due to:
 
 
 
 
 
 
 
Performance shares
82,013

 
107,391

 
77,139

 
109,258

Restricted stock units
24,642

 
70,089

 
26,727

 
65,319

Stock options
2,619

 
7,389

 
2,778

 
7,134

Diluted weighted average shares outstanding
40,850,253

 
40,693,741

 
40,833,041

 
40,655,416

 
 
 
 
 
 
 
 
Basic net income per share
$
0.40

 
$
0.47

 
$
0.90

 
$
0.86

Diluted net income per share
$
0.40

 
$
0.47

 
$
0.90

 
$
0.85

 
 
 
 
 
 
 
 
Antidilutive shares excluded from the calculation:
 
 
 
 
 
 
 
Performance shares
13,322

 
10,311

 
38,776

 
18,474

Restricted stock units
369

 
—

 
—

 
432

Total antidilutive shares excluded from the calculation
13,691

 
10,311

 
38,776

 
18,906




7


NOTE 5. EQUITY-BASED COMPENSATION
As of June 30, 2014 , we had three stock incentive plans under which performance share grants, restricted stock unit (RSU) grants and stock options were outstanding, with approximately 1,082,161 shares authorized for future use under the 2014 Long-Term Incentive Plan.
On May 8, 2014, our board approved changes to our director compensation program. This amendment states that upon a director's separation from the company, all deferred awards will be settled in company stock and no longer settled in cash. This resulted in a reclassification of the related $4.3 million liability to shareholder equity.
As of June 30, 2014 , there were 111,306 shares that will be distributed to directors in the future.
The following table details our equity-based compensation expense and director deferred compensation expense for the quarters and six months ended June 30 :
 
Quarter Ended   June 30,
 
Six Months Ended   June 30,
 
 
(Dollars in thousands)
2014
 
2013
 
2014
 
2013
Employee equity-based compensation expense:
 
 
 
 
 
 
 
Performance shares
$
961

 
$
891

 
$
1,695

 
$
1,753

Restricted stock units
163

 
138

 
337

 
348

Total employee equity-based compensation expense
$
1,124

 
$
1,029

 
$
2,032

 
$
2,101

 
 
 
 
 
 
 
 
Total tax benefit recognized
$
81

 
$
64

 
$
155

 
$
140

 
 
 
 
 
 
 
 
Director deferred compensation (income) expense
$
427

 
$
(940
)
 
$
(14
)
 
$
350

PERFORMANCE SHARES
The following table presents the key inputs used in the Monte Carlo simulation method to calculate the fair value of the performance share awards in 2014 and 2013 , and the resulting fair values:
 
2014
 
2013
Shares granted
87,441

 
83,111

Stock price as of valuation date
$
39.76

 
$
45.31

Risk-free rate
0.72
%
 
0.40
%
Fair value of a performance share
$
45.57

 
$
62.78

The following table summarizes outstanding performance share awards as of June 30, 2014 , and changes during the six months ended June 30, 2014 :
(Dollars in thousands, except grant date fair value)
Shares
 
Weighted Avg.
Grant Date
Fair Value
 
Aggregate
Intrinsic Value
Unvested shares outstanding at January 1
155,814

 
$
48.73

 
 
Granted
87,441

 
45.57

 
 
Forfeited
—

 


 
 
Unvested shares outstanding at June 30
243,255

 
47.60

 
$
10,071

As of June 30, 2014 , there was $6.2 million of unrecognized compensation cost related to unvested performance share awards, which is expected to be recognized over a weighted average period of 1.5 years.





8


RESTRICTED STOCK UNITS
The following table summarizes outstanding RSU awards as of June 30, 2014 , and changes during the six months ended June 30, 2014 :
(Dollars in thousands, except grant date fair value)
Shares
 
Weighted Avg.
Grant Date
Fair Value
 
Aggregate
Intrinsic Value
Unvested shares outstanding at January 1
37,461

 
$
38.69

 
 
Granted
13,349

 
39.66

 
 
Vested
(4,350
)
 
44.31

 
 
Forfeited
—

 
—

 
 
Unvested shares outstanding at June 30
46,460

 
38.44

 
$
1,923

The fair value of each RSU equaled our common share price on the date of grant. The total fair value of RSU awards vested during the six months ended June 30, 2014 was $0.2 million . As of June 30, 2014 , there was $0.9 million of total unrecognized compensation cost related to unvested RSU awards, which is expected to be recognized over a weighted average period of 1.4 years.
STOCK OPTIONS
The following table summarizes outstanding stock options as of June 30, 2014 , and changes during the six months ended June 30, 2014 :
(Dollars in thousands, except exercise prices)
Shares
 
Weighted Avg.
Exercise Price
 
Aggregate
Intrinsic Value
Outstanding at January 1
12,859

 
$
30.92

 
 
Shares exercised
(493
)
 
30.92

 
 
Shares canceled or expired
—

 
—

 
 
Outstanding and exercisable at June 30
12,366

 
30.92

 
$
130

The following table summarizes outstanding stock options as of June 30, 2014 :
 
Options Outstanding and Exercisable
Exercise Price
Outstanding
 
Weighted Avg.
Remaining
Contractual Life
$30.9204
12,366

 
0.42 years


NOTE 6. INVENTORIES
The following table details the composition of our inventories:
(Dollars in thousands)
June 30,   2014
 
December 31, 2013
Inventories:
 
 
 
Lumber and other manufactured wood products
$
16,723

 
$
15,967

Logs
3,876

 
14,975

Materials and supplies
5,472

 
5,333

 
$
26,071

 
$
36,275




9


NOTE 7. PENSION AND OTHER POSTRETIREMENT EMPLOYEE BENEFITS
The following tables detail the components of net periodic cost (benefit) of our pension plans and other postretirement employee benefits (OPEB) for the quarters and six months ended June 30 :
 
Quarters Ended June 30
 
Pension
 
OPEB
(Dollars in thousands)
2014
 
2013
 
2014
 
2013
Service cost (credit)
$
1,339

 
$
1,246

 
$
(11
)
 
$
23

Interest cost
4,783

 
4,458

 
372

 
447

Expected return on plan assets
(6,126
)
 
(6,522
)
 
—

 
—

Amortization of prior service cost (credit)
187

 
195

 
(2,410
)
 
(2,427
)
Amortization of actuarial loss
3,606

 
5,021

 
414

 
790

Net periodic cost (benefit)
$
3,789

 
$
4,398

 
$
(1,635
)
 
$
(1,167
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30
 
Pension
 
OPEB
(Dollars in thousands)
2014
 
2013
 
2014
 
2013
Service cost
$
2,540

 
$
2,659

 
$
12

 
$
46

Interest cost
9,592

 
8,912

 
871

 
905

Expected return on plan assets
(12,256
)
 
(13,046
)
 
—

 
—

Amortization of prior service cost (credit)
374

 
390

 
(4,820
)
 
(4,854
)
Amortization of actuarial loss
7,226

 
9,965

 
1,093

 
1,605

Net periodic cost (benefit)
$
7,476

 
$
8,880

 
$
(2,844
)
 
$
(2,298
)
 
 
 
 
 
 
 
 
During the six months ended June 30, 2014 , we made non-qualified supplemental pension plan payments of $0.9 million . We expect to make a contribution of $3.6 million to our qualified pension plans in 2014.

10


The following tables detail the changes in accumulated other comprehensive loss (AOCL) by component for the quarters and six months ended June 30 :
 
Quarter Ended June 30, 2014
(Dollars in thousands)
Pension
 
OPEB
 
Total
AOCL at April 1
 
 
 
 
$
97,454

Amortization of defined benefit items, net of tax: (1)
 
 
 
 
 
Prior service credit (cost)
$
(114
)
 
$
1,470

 
1,356

Actuarial loss
(2,200
)
 
(252
)
 
(2,452
)
Total reclassification for the period
$
(2,314
)
 
$
1,218

 
(1,096
)
AOCL at June 30
 
 
 
 
$
96,358

 
 
 
 
 
 
 
Quarter Ended June 30, 2013
(Dollars in thousands)
Pension
 
OPEB
 
Total
AOCL at April 1
 
 
 
 
$
138,747

Amortization of defined benefit items, net of tax: (1)
 
 
 
 
 
Prior service credit (cost)
$
(119
)
 
$
1,480

 
1,361

Actuarial loss
(3,063
)
 
(481
)
 
(3,544
)
Total reclassification for the period
$
(3,182
)
 
$
999

 
(2,183
)
AOCL at June 30
 
 
 
 
$
136,564

 
 
 
 
 
 
 
Six Months Ended June 30, 2014
(Dollars in thousands)
Pension
 
OPEB
 
Total
AOCL at January 1
 
 
 
 
$
98,720

Amortization of defined benefit items, net of tax: (1)
 
 
 
 
 
Prior service credit (cost)
$
(228
)
 
$
2,940

 
2,712

Actuarial loss
(4,408
)
 
(666
)
 
(5,074
)
Total reclassification for the period
$
(4,636
)
 
$
2,274

 
(2,362
)
AOCL at June 30
 
 
 
 
$
96,358

 
 
 
 
 
 
 
Six Months Ended June 30, 2013
(Dollars in thousands)
Pension
 
OPEB
 
Total
AOCL at January 1
 
 
 
 
$
140,898

Amortization of defined benefit items, net of tax: (1)
 
 
 
 
 
Prior service credit (cost)
$
(238
)
 
$
2,961

 
2,723

Actuarial loss
(6,078
)
 
(979
)
 
(7,057
)
Total reclassification for the period
$
(6,316
)
 
$
1,982

 
(4,334
)
AOCL at June 30
 
 
 
 
$
136,564

 
 
 
 
 
 
(1) Amortization of prior service cost (credit) and amortization of actuarial loss are included in the computation of net periodic cost.



11


NOTE 8. FINANCIAL INSTRUMENTS
The following table presents the estimated fair values of our financial instruments:
 
June 30, 2014
 
December 31, 2013
(Dollars in thousands)
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Cash and short-term investments (Level 1)
$
83,168

 
$
83,168

 
$
57,837

 
$
57,837

Derivative asset related to interest rate swaps (Level 2)
1,597

 
1,597

 
1,830

 
1,830

Long-term debt, including fair value adjustments related to fair value hedges (Level 2)
320,003

 
351,712

 
320,092

 
347,869

FAIR VALUE HEDGES OF INTEREST RATE RISK
The following table presents the gross fair values of derivative instruments on our Consolidated Condensed Balance Sheets as of the balance sheet dates:
(Dollars in thousands)
Balance Sheet Location
 
June 30,
2014
 
December 31,
2013
Derivatives designated as hedging instruments:
 
 
 
 
 
Interest rate contracts
Other noncurrent assets
 
$
1,597

 
$
1,830

Total derivatives designated as hedging instruments
 
 
$
1,597

 
$
1,830


The following table details the effect of derivatives on the Consolidated Statements of Income for the quarters and six months ended June 30 :
 
Location of Gain Recognized in Income
 
Gain Recognized in Income
 
 
 
Quarters Ended 
 June 30,
 
Six Months Ended 
 June 30,
 
 
 
(Dollars in thousands)
 
 
2014
 
2013
 
2014
 
2013
Derivatives designated in fair value hedging relationships:
 
 
 
 
 
 
 
 
 
Realized gain on interest rate contract (1)
Interest expense
 
$
247

 
$
241

 
$
501

 
$
487

Net gain recognized in income from fair value hedges
 
 
$
247

 
$
241

 
$
501

 
$
487

 
(1)  
Realized gain on hedging instrument consists of net cash settlements and interest accruals on the interest rate swaps during the periods.
No net unrealized gain or loss associated with the interest rate swaps was recognized in income for any of the periods presented because we recognized no hedge ineffectiveness.


NOTE 9. COMMITMENTS AND CONTINGENCIES
There have been no material changes to our commitments and contingencies as reported in " Note 15: Commitments and Contingencies" in the Notes to Consolidated Financial Statements in our 2013 Annual Report on Form 10-K.



12


NOTE 10. SEGMENT INFORMATION
The following table summarizes information by business segment for the quarters and six months ended June 30 :
 
Quarter Ended   June 30,
 
Six Months Ended   June 30,
 
 
(Dollars in thousands)
2014
 
2013
 
2014
 
2013
Revenues:
 
 
 
 
 
 
 
Resource
$
39,512

 
$
45,269

 
$
91,417

 
$
100,237

Wood Products
100,572

 
94,982

 
188,376

 
186,526

Real Estate
15,737

 
5,809

 
30,176

 
10,444

 
155,821

 
146,060

 
309,969

 
297,207

Elimination of intersegment revenues - Resource
(11,902
)
 
(12,848
)
 
(26,471
)
 
(24,742
)
Total consolidated revenues
$
143,919

 
$
133,212

 
$
283,498

 
$
272,465

 
 
 
 
 
 
 
 
Operating income:
 
 
 
 
 
 
 
Resource
$
10,818

 
$
14,467

 
$
27,042

 
$
29,992

Wood Products
14,870

 
19,725

 
27,577

 
38,635

Real Estate
12,378

 
4,116

 
20,649

 
7,199

Eliminations and adjustments
788

 
235

 
1,630

 
724

 
38,854

 
38,543

 
76,898

 
76,550

Corporate
(9,129
)
 
(9,102
)
 
(15,864
)
 
(20,501
)
Operating income
29,725

 
29,441

 
61,034

 
56,049

Interest expense, net
(5,509
)
 
(5,667
)
 
(10,969
)
 
(12,003
)
Income before income taxes
$
24,216

 
$
23,774

 
$
50,065


$
44,046

 
 
 
 
 
 
 
 
Depreciation, depletion and amortization:
 
 
 
 
 
 
 
Resource
$
2,728

 
$
3,040

 
$
6,644

 
$
7,632

Wood Products
1,515

 
1,520

 
3,044

 
3,029

Real Estate
14

 
14

 
29

 
27

 
4,257

 
4,574

 
9,717

 
10,688

Corporate
641

 
584

 
1,285

 
1,337

Total depreciation, depletion and amortization
$
4,898

 
$
5,158

 
$
11,002

 
$
12,025

 
 
 
 
 
 
 
 
Basis of real estate sold:
 
 
 
 
 
 
 
Real Estate
$
2,242

 
$
584

 
$
7,409

 
$
1,200

Eliminations and adjustments
(30
)
 
(134
)
 
(575
)
 
(293
)
Total basis of real estate sold
$
2,212

 
$
450

 
$
6,834

 
$
907



13


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Information
This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including without limitation, statements regarding recognition of compensation costs relating to our performance shares and RSUs, U.S. housing market conditions, housing starts and recovery, real estate demand and pricing, log prices, lumber demand and prices, business conditions for our business segments, Resource segment results, Wood Products segment results, Real Estate segment results, and similar matters. Words such as “anticipate,” “expect,” “will,” “intend,” “plan,” “target,” “project,” “believe,” “seek,” “schedule,” “estimate,” “could,” “can,” “may” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements reflect our current views regarding future events based on estimates and assumptions and are therefore subject to known and unknown risks and uncertainties and are not guarantees of future performance. Our actual results of operations could differ materially from our historical results or those expressed or implied by forward-looking statements contained in this report. For a nonexclusive listing of forward-looking statements and potential factors affecting our business, refer to “Cautionary Statement Regarding Forward-Looking Information” on page 1 and “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 .
Forward-looking statements contained in this report present our views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of our views to reflect events or circumstances occurring after the date of this report.

Overview
The operating results of our Resource, Wood Products and Real Estate business segments have been and will continue to be influenced by a variety of factors, including the cyclical nature of the forest products industry, which is largely dependent on the economy and U.S. housing starts, changes in timber prices and in harvest levels from our timberlands, competition, timberland valuations, demand for our non-strategic timberland for higher and better use purposes, the efficiency and level of capacity utilization of our wood products manufacturing operations, changes in our principal expenses such as log costs and fuel costs, asset dispositions or acquisitions, and other factors.
Operating results were affected by lower harvest volumes, primarily in Idaho. We pulled forward a portion of the harvest planned for the second half of 2013 into the first quarter to take advantage of higher log prices in Idaho. In addition, drier weather in Idaho during the second quarter of 2013 allowed for additional logging days. Consequently, harvest levels were lower in 2014 compared to 2013. Adverse winter weather conditions affected demand for our lumber during the first quarter of 2014, but resulted in increased shipments during the second quarter. We had two large rural real estate transactions in the first six months of 2014.
 
Results of Operations
Our business is organized into three reporting segments: Resource, Wood Products and Real Estate. Sales between segments are recorded as intersegment revenues based on prevailing market prices. Because our Resource segment supplies our Wood Products segment with a portion of its wood fiber needs, intersegment revenues typically represent a significant portion of the Resource segment’s total revenues. Our other segments generally do not generate intersegment revenues.
In the analysis of our consolidated results of operations, revenues are reported after elimination of intersegment revenues. In the analysis by business segments, each segment's revenues are presented before elimination of intersegment revenues.




14


Consolidated Results Comparing the Quarters Ended June 30, 2014 and 2013
The following table sets forth period-to-period changes in items included in our Consolidated Statements of Income for the quarters ended June 30 :
(Dollars in thousands)
2014

2013

 
Amount of Change

Percent Change

Revenues
$
143,919

$
133,212

 
$
10,707

8
 %
Costs and expenses:
 
 
 
 
 
Cost of goods sold
101,849

91,904

 
9,945

11
 %
Selling, general and administrative expenses
12,345

10,117

 
2,228

22
 %
Environmental remediation charge
—

1,750

 
(1,750
)
(100
)%
 
114,194

103,771

 
10,423

10
 %
Operating income
29,725

29,441

 
284

1
 %
Interest expense, net
(5,509
)
(5,667
)
 
158

3
 %
Income before income taxes
24,216

23,774

 
442

2
 %
Income tax provision
(7,946
)
(4,592
)
 
(3,354
)
(73
)%
Net income
$
16,270

$
19,182

 
$
(2,912
)
(15
)%
Revenues – Revenues increased in the second quarter of 2014 over the same period in 2013 due to a large rural real estate transaction and increased Wood Products shipments, partially offset by decreased revenues that resulted from lower harvest volumes. A more detailed analysis of revenues follows in the operating results by business segments.
Cost of goods sold – Cost of goods sold increased in the second quarter of 2014 over the second quarter of 2013 , due to the higher cost of logs consumed in our Wood Products segment, related to both increased shipments and higher per-unit costs, and increased basis of land sold by our Real Estate segment, partially offset by decreased logging and hauling costs and depletion expenses in our Resource segment due to decreased harvest volumes.
Selling, general and administrative expenses – Selling, general and administrative expenses increased in the second quarter of 2014 over the same period in 2013 primarily due to non-cash mark-to-market adjustments related to our deferred compensation plans and higher incentive plan expenses.
Environmental remediation charge – In the second quarter of 2013 we recorded a pre-tax charge of $1.8 million related to remediation costs associated with our Avery Landing site in Idaho.
Interest expense, net – Net interest expense decreased in the second quarter of 2014 from the same period in 2013 due to debt redemptions in 2013.
Income tax provision – Our consolidated effective tax rate for the second quarter of 2014 was 32.8% compared to 19.3% in the second quarter of 2013 . The increase between periods resulted from proportionately higher operating income in the TRS compared to the REIT.



15


Business Segment Results Comparing the Quarters Ended June 30, 2014 and 2013
Resource Segment
 
 
Quarters Ended June 30,
 
 
 
(Dollars in thousands)
2014

2013

 
Increase
(Decrease)

Percent Change

Revenues (before elimination of intersegment revenues)
$
39,512

$
45,269

 
$
(5,757
)
(13
)%
Operating income
$
10,818

$
14,467

 
$
(3,649
)
(25
)%
 
 
 
 
 
 
Harvest Volumes (in tons)
 
 
 
 
 
Northern region
 
 
 
 
 
 
Sawlog
279,831

333,924

 
(54,093
)
(16
)%
 
Pulpwood
30,124

21,904

 
8,220

38
 %
 
Stumpage
2,475

1,489

 
986

66
 %
 
  Total
312,430

357,317

 
(44,887
)
(13
)%
 
 
 
 
 
 
 
Southern region
 
 
 
 
 
 
Sawlog
115,855

161,410

 
(45,555
)
(28
)%
 
Pulpwood
171,136

182,262

 
(11,126
)
(6
)%
 
Stumpage
952

—

 
952

n/m

 
  Total
287,943

343,672

 
(55,729
)
(16
)%
 
 
 
 
 
 
 
Total harvest volume
600,373

700,989

 
(100,616
)
(14
)%
 
 
 
 
 
 
 
Sales Price/Unit ($ per ton)




 
 
 
Northern region
 
 
 
 
 
 
Sawlog
$
91

$
92

 
$
(1
)
(1
)%
 
Pulpwood
$
43

$
37

 
$
6

16
 %
 
 
 
 
 
 
 
Southern region
 
 
 
 
 
 
Sawlog
$
43

$
42

 
$
1

2
 %
 
Pulpwood
$
33

$
33

 
$
—

—
 %
Revenues decreased in the second quarter of 2014 from the same period in 2013 due to lower harvest volumes in both regions and slightly lower sawlog prices in Idaho. Decreased harvest volumes and the lower Idaho sawlog prices accounted for $6.4 million and $0.6 million, respectively, of the negative revenue variance.
In our Northern region, drier weather in Idaho during the second quarter of 2013 allowed for additional logging days in 2013, resulting in comparatively lower harvest volumes in 2014. Pulpwood shipments and prices increased in the second quarter of 2014 over the second quarter of 2013 due to stronger demand. An oversupply of residuals and chips in the Northwest in the second quarter of 2013 resulted in decreased pulpwood prices, which led us to minimize pulpwood production in that period.
In our Southern region, unusually wet weather in the second quarter of 2014 negatively affected both sawlog and pulpwood production volumes, but had a positive effect on sawlog prices.
Expenses for the segment decreased $2.1 million, or 7%, in the second quarter of 2014 from the same period in 2013, primarily due to lower logging and hauling costs and depletion expense resulting from the decreased harvest volumes.



16


Wood Products Segment
 
Quarters Ended June 30,
 
 
 
(Dollars in thousands)
2014

2013

 
Increase
(Decrease)

Percent Change

Revenues
$
100,572

$
94,982

 
$
5,590

6
 %
Operating income
$
14,870

$
19,725

 
$
(4,855
)
(25
)%
 
 
 
 
 
 
Lumber shipments (MBF)
176,046

151,967

 
24,079

16
 %
Lumber sales prices ($ per MBF)
$
407

$
423

 
$
(16
)
(4
)%
Revenues for the segment increased in the second quarter of 2014 compared to the same period in 2013 due to increased shipments, partially offset by lower average lumber prices. Expenses for the segment increased $10.4 million, or 14%, due primarily to the higher cost of logs consumed, which was related to increased shipments and higher per-unit costs.
Real Estate Segment
 
Quarters Ended June 30,
 
 
(Dollars in thousands)
2014

2013

 
Increase
(Decrease)

Percent Change

Revenues
$
15,737

$
5,809

 
$
9,928

n/m

Operating income
$
12,378

$
4,116

 
$
8,262

n/m

 
 
 
 
 
 
   
2014
 
2013
   
Acres Sold

Average
Price/Acre

 
Acres Sold

Average
Price/Acre

Higher and better use (HBU)
1,424

$
2,025

 
534

$
2,053

Rural real estate
10,821

$
1,125

 
3,110

$
1,279

Non-strategic timberland
838

$
807

 
1,128

$
652

Total
13,083

 
 
4,772

 
Revenues increased $9.9 million, expenses increased $1.7 million and operating income increased $8.3 million in the second quarter of 2014 compared to the same period of 2013, due primarily to the sale of 9,400 acres of rural real estate in Minnesota during the second quarter of 2014.


17


Consolidated Results Comparing the Six Months Ended June 30, 2014 and 2013
The following table sets forth period-to-period changes in items included in our Consolidated Statements of Income for the six months ended June 30 :
(Dollars in thousands)
2014

2013

 
Amount of Change

Percent Change

Revenues
$
283,498

$
272,465

 
$
11,033

4
 %
Costs and expenses:
 
 
 
 
 
Cost of goods sold
200,442

190,203

 
10,239

5
 %
Selling, general and administrative expenses
22,022

23,713

 
(1,691
)
(7
)%
Environmental remediation charge
—

2,500

 
(2,500
)
(100
)%
 
222,464

216,416

 
6,048

3
 %
Operating income
61,034

56,049

 
4,985

9
 %
Interest expense, net
(10,969
)
(12,003
)
 
1,034

9
 %
Income before income taxes
50,065

44,046

 
6,019

14
 %
Income tax provision
(13,445
)
(9,377
)
 
(4,068
)
(43
)%
Net income
$
36,620

$
34,669

 
$
1,951

6
 %
Revenues – Revenues increased in the first six months of 2014 over the same period in 2013 as a result of two large rural real estate transactions and slightly increased Wood Products shipments, partially offset by reduced revenues due to lower harvest volumes. A more detailed analysis of revenues follows in the operating results by business segments.
Cost of goods sold – Cost of goods sold increased in the first six months of 2014 over the same period in 2013 , due to the higher cost of logs consumed in our Wood Products segment, primarily related to increased prices for sawlogs in Idaho and increased shipments, and increased basis of real estate sold, partially offset by decreased logging and hauling costs and depletion expenses in our Resource segment due to decreased harvest volumes.
Selling, general and administrative expenses – Selling, general and administrative expenses decreased in the first six months of 2014 from the same period in 2013 primarily due to lower incentive plan expenses and non-cash mark-to-market adjustments related to our deferred compensation plans.
Environmental remediation charge – In the first six months of 2013 we recorded pre-tax charges totaling $2.5 million related to remediation costs associated with our Avery Landing site in Idaho.
Interest expense, net – Net interest expense decreased in the first six months of 2014 from the same period in 2013 due to debt redemptions in 2013.
Income tax provision – Our consolidated effective tax rate for the first six months of 2014 was 26.9% compared to 21.3% in the first six months of 2013 . The increase between periods resulted from proportionately higher operating income in the TRS compared to the REIT.



18


Business Segment Results Comparing the Six Months Ended June 30, 2014 and 2013
Resource Segment
 
 
 Six Months Ended June 30,
 
 
 
(Dollars in thousands)
2014

2013

 
Increase
(Decrease)

Percent Change

Revenues (before elimination of intersegment revenues)
$
91,417

$
100,237

 
$
(8,820
)
(9
)%
Operating income
$
27,042

$
29,992

 
$
(2,950
)
(10
)%
 
 
 
 
 
 
Harvest Volumes (in tons)
 
 
 
 
 
Northern region
 
 
 
 
 
 
Sawlog
722,915

841,270

 
(118,355
)
(14
)%
 
Pulpwood
90,703

94,263

 
(3,560
)
(4
)%
 
Stumpage
13,443

21,959

 
(8,516
)
(39
)%
 
  Total
827,061

957,492

 
(130,431
)
(14
)%
 
 
 
 
 
 
 
Southern region
 
 
 
 
 
 
Sawlog
237,765

314,690

 
(76,925
)
(24
)%
 
Pulpwood
368,965

365,180

 
3,785

1
 %
 
Stumpage
5,927

—

 
5,927

n/m

 
  Total
612,657

679,870

 
(67,213
)
(10
)%
 
 
 
 
 
 
 
Total harvest volume
1,439,718

1,637,362

 
(197,644
)
(12
)%
 
 
 
 
 
 
 
Sales Price/Unit ($ per ton)




 
 
 
Northern region
 
 
 
 
 
 
Sawlog
$
86

$
83

 
$
3

4
 %
 
Pulpwood
$
42

$
36

 
$
6

17
 %
 
 
 
 
 
 
 
Southern region
 
 
 
 
 
 
Sawlog
$
42

$
41

 
$
1

2
 %
 
Pulpwood
$
32

$
33

 
$
(1
)
(3
)%
Revenues decreased in the first six months of 2014 from the same period in 2013 due to lower harvest volumes, primarily in Idaho, partially offset by increased prices in Idaho. The decrease in harvest volumes accounted for a negative $11.8 million revenue variance, which was partially offset by a positive pricing variance of $1.8 million.
In our Northern region, we pulled forward a portion of the harvest planned for the second half of 2013 into the first quarter to take advantage of higher prices. In addition, drier weather in Idaho during the second quarter of 2013 allowed for additional logging days in 2013. Consequently, we had comparatively lower harvest volumes in 2014. Sawlog prices increased in 2014, particularly in the first quarter, due to improved markets. Pulpwood prices increased in the first six months of 2014 over the same period in 2013 due to improved demand. An oversupply of residuals and chips in the Northwest in the second quarter of 2013 resulted in decreased pulpwood costs, which led us to minimize pulpwood production in that period.
In our Southern region, the sawlog harvest was lower in 2014 due to wet weather and a shift to harvest regions that contained less pine sawlog volumes in the first quarter. Pulpwood harvest volumes increased due to additional pine plantation thinnings in the first quarter of 2014, partially offset by wet weather in the second quarter. Prices for both sawlogs and pulpwood were basically unchanged between periods.


19


Expenses for the segment decreased $5.9 million, or 8%, in the first six months of 2014 from the same period in 2013, primarily due to lower logging and hauling costs and depletion expense resulting from the decreased harvest volumes.
Wood Products Segment
 
Six Months Ended June 30,
 
 
 
(Dollars in thousands)
2014

2013

 
Increase
(Decrease)

Percent Change

Revenues
$
188,376

$
186,526

 
$
1,850

1
 %
Operating income
$
27,577

$
38,635

 
$
(11,058
)
(29
)%
 
 
 
 
 
 
Lumber shipments (MBF)
331,642

304,829

 
26,813

9
 %
Lumber sales prices ($ per MBF)
$
403

$
418

 
$
(15
)
(4
)%
Revenues for the segment increased in the first six months of 2014 compared to the same period in 2013 due to increased shipments, partially offset by lower average lumber prices. Expenses for the segment increased $12.9 million, or 9%, due primarily to the higher cost of logs consumed, mainly related to increased prices for sawlogs in Idaho and increased shipments.
Real Estate Segment
 
Six Months Ended June 30,
 
 
(Dollars in thousands)
2014

2013

 
Increase
(Decrease)

Percent Change

Revenues
$
30,176

$
10,444

 
$
19,732

n/m

Operating income
$
20,649

$
7,199

 
$
13,450

n/m

 
 
 
 
 
 
   
2014
 
2013
   
Acres Sold

Average
Price/Acre

 
Acres Sold

Average
Price/Acre

Higher and better use (HBU)
1,492

$
2,059

 
763

$
2,277

Rural real estate
24,024

$
1,093

 
5,388

$
1,337

Non-strategic timberland
1,066

$
804

 
2,107

$
713

Total
26,582

 
 
8,258

 
Revenues increased $19.7 million, expenses increased $6.3 million and operating income increased $13.5 million in the first six months of 2014 compared to the same period of 2013, due primarily to sales of 9,400 acres of rural real estate in Minnesota in the second quarter of 2014 and 11,000 acres of rural real estate in Idaho in the first quarter of 2014.

Liquidity and Capital Resources
Overview
At June 30, 2014 , our financial position included long-term debt of $320.0 million . Cash and short-term investments totaled $83.2 million at June 30, 2014 compared to $57.8 million at December 31, 2013.
Net Cash from Operations
Net cash provided from operating activities was:
•
$68.4 million in 2014 and
•
$41.5 million in 2013.
Net cash from operations increased primarily due to increased cash received from Real Estate transactions. See Note 10: Segment Information for additional information.

20


Net Cash Flows from Investing Activities
Net cash used for investing activities was $33.7 million for the six months ending June 30, 2014, compared to net cash provided by investing activities of $7.9 million for the same period in 2013. In 2014, we increased short-term investments $21.7 million , compared to a decrease of $19.0 million in 2013.
Net Cash Flows from Financing Activities
Net cash used for financing activities was $31.0 million and $60.0 million for the six months ending June 30, 2014 and 2013, respectively. In 2014, net cash used for financing activities was primarily attributable to paying our quarterly distribution to shareholders of $28.4 million . Net cash used for financing activities in 2013 was primarily for our quarterly distribution to shareholders of $25.1 million and debt redemptions of $36.7 million .
Unsecured Credit Agreement
As of June 30, 2014 , there were no borrowings outstanding under our revolving line of credit, and approximately $1.4 million of the letter of credit subfacility was being used to support several outstanding letters of credit. Available borrowing capacity at June 30, 2014 was $248.6 million.
The following table sets forth the financial covenants in the bank credit facility and our status with respect to these covenants as of June 30, 2014 :
 
Covenant Requirements
 
Actual Ratios at
June 30, 2014
Minimum Interest Coverage Ratio
3.00 to 1.00
 
 
6.80 to 1.00
Minimum Timberland Coverage Ratio
3.00 to 1.00
 
 
5.85 to 1.00
Maximum Leverage Ratio
5.00 to 1.00
*
 
2.14 to 1.00
* Commencing January 1, 2015, the Maximum Leverage Ratio will decrease to 4.50 to 1.00.

Senior Notes
Our cumulative Funds Available for Distribution (FAD), as defined in our senior notes' covenants, less our dividends paid was $69.3 million at June 30, 2014 . The remaining balance of the basket above FAD available for the payment of future dividends pursuant to the covenants was $90.1 million at June 30, 2014 .
Contractual Obligations
There have been no material changes to our contractual obligations in the six months ended June 30, 2014 outside the ordinary course of business.
Off-Balance Sheet Arrangements
We currently are not a party to off-balance sheet arrangements that would require disclosure under this section.













21


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposures to market risk have not changed materially since December 31, 2013 . For quantitative and qualitative disclosures about market risk, see Item 7A – “Quantitative and Qualitative Disclosure about Market Risk” in our 2013 Annual Report on Form 10-K.
Quantitative Information about Market Risks
The following table summarizes our outstanding debt, interest rate swaps and average interest rates as of June 30, 2014:
(Dollars in thousands)
2014
2015
2016
2017
2018
THEREAFTER
TOTAL
Fixed rate debt:
 
 
 
 
 
 
 
Principal due
$
—

$
22,500

$
5,000

$
11,000

$
14,250

$
267,335

$
320,085

Average interest rate
—

6.95
%
8.80
%
5.64
%
8.88
%
6.80
%
6.90
%
Fair value at 6/30/2014
 
 
 
 
 
 
$
351,712

Interest rate swaps: (1)
 
 
 
 
 
 
 
Fixed to variable
$
—

$
568

$
136

$
217

$
676

$
—

$
1,597

Fair value at 6/30/2014
 
 
 
 
 
 
$
1,597

(1)
Interest rate swaps are included in long-term debt and the offsetting derivative asset is included in other noncurrent assets on the Consolidated Condensed Balance Sheets . See Note 8: Financial Instruments for additional information.

ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, or the Exchange Act), under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) as of June 30, 2014 . These disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that this information is accumulated and communicated to management, including the principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of June 30, 2014 .
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Internal Control Over Financial Reporting
In the six months ended June 30, 2014 there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.



22


Part II
ITEM 1. LEGAL PROCEEDINGS
We do not believe there is any pending or threatened litigation that could have a material adverse effect on our financial position, operations or liquidity.

ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013 .

ITEM 6. EXHIBITS
Exhibits are listed in the exhibit index .

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
POTLATCH CORPORATION
 
 
(Registrant)
 
 
 
 
 
 
By
   /s/ Jerald W. Richards
 
 
 
Jerald W. Richards
 
 
 
Vice President and Chief Financial Officer
 
 
 
(Duly Authorized; Principal Financial Officer and Principal Accounting Officer)
 
 
 
 
Date:
July 24, 2014
 
 



24


POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES

EXHIBIT INDEX
 
EXHIBIT
NUMBER
 
DESCRIPTION
 
 
 
(3)(a)*
 
Second Restated Certificate of Incorporation of the Registrant, effective February 3, 2006, filed as Exhibit 99.2 to the Current Report on Form 8-K filed by the Registrant on February 6, 2006.
 
 
 
(3)(b)*
 
Bylaws of the Registrant, as amended through February 18, 2009, filed as Exhibit (3)(b) to the Current Report on Form 8K filed by the Registrant on February 20, 2009.
 
 
 
(4)
 
Registrant undertakes to furnish to the Commission, upon request, any instrument defining the rights of holders of long-term debt.
 
 
 
(10)(a)*
 
Potlatch Corporation Director Compensation, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on May 13, 2014.

 
 
 
(10)(b)*
 
Potlatch Corporation Deferred Compensation Plan for Directors II, amended and restated effective January 1, 2014, filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on May 13, 2014.
 
 
 
(10)(c)
 
Potlatch Corporation 2014 Long-Term Incentive Plan, effective May 5, 2014.

 
 
 
(10)(d)*
 
Potlatch Corporation 2014 Form of Performance Share Award Notice and Agreement, filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the Registrant on May 9, 2014.
 
 
 
(10)(e)*
 
Potlatch Corporation 2014 Form of RSU Award Notice and Award Agreement, filed as Exhibit 10.3 to the Current Report on Form 8-K filed by the Registrant on May 9, 2014.
 
 
 
(31)
 
Rule 13a-14(a)/15d-14(a) Certifications.
 
 
 
(32)
 
Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C. Section 1350.
 
 
 
101
 
The following financial information from Potlatch Corporation’s Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2014, filed on July 24, 2014, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the quarters and six months ended June 30, 2014 and 2013, (ii) the Consolidated Statements of Comprehensive Income for the quarters and six months ended June 30, 2014 and 2013, (iii) the Consolidated Condensed Balance Sheets at June 30, 2014 and December 31, 2013, (iv) the Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2014 and 2013, and (v) the Notes to Consolidated Financial Statements.

  * Incorporated by reference


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APPENDIX A

POTLATCH CORPORATION
2014 LONG-TERM INCENTIVE PLAN

SECTION 1.
PURPOSE
The purpose of the Potlatch Corporation 2014 Long-Term Incentive Plan is to attract, retain and motivate employees, officers and directors of the Company and its Related Companies by providing them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company’s stockholders.
SECTION 2.
DEFINITIONS
As used in the Plan, the following definitions apply to the terms indicated below:
“ Acquired Entity ” means any entity acquired by the Company or a Related Company or with which the Company or a Related Company merges or combines.
“ Award ” means any Stock Award, Restricted Stock, Stock Unit, Performance Share, Performance Unit, cash-based award or other incentive payable in cash or in shares of Common Stock as may be designated by the Committee from time to time.
“ Board ” means the Board of Directors of the Company.
“ Business Combination ” has the meaning set forth in the definition of Change in Control.
“ Cause ,” unless otherwise defined in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means dishonesty, fraud, serious or willful misconduct, unauthorized use or disclosure of confidential information or trade secrets, or conduct prohibited by law (except minor violations), in each case as determined by the Company’s Vice President, Human Resources or other person performing that function or, in the case of directors and executive officers, the Committee, whose determination shall be conclusive and binding.
“ Change in Control ,” unless the Committee determines otherwise with respect to an Award at the time the Award is granted or unless otherwise defined for purposes of an Award in a written employment, services or other agreement between the Participant and the Company, means the occurrence of any of the following events:
(i)      The consummation of a merger or consolidation involving the Company (a “ Business Combination ”), in each case, unless, following such Business Combination,
(A)      all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the “ Outstanding Common Stock ”) and the then outstanding voting securities of the Company

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entitled to vote generally in the election of directors (the “ Outstanding Voting Securities ”) immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation or other entity resulting from such Business Combination (including, without limitation, a corporation or other entity which as a result of such transaction owns the Company either directly or through one (1) or more subsidiaries),
(B)      no individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (a “ Person ”) (excluding any corporation or other entity resulting from such Business Combination or any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or such other corporation or other entity resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then outstanding shares of common stock or common equity of the corporation or other entity resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation or other entity except to the extent that such ownership is based on the beneficial ownership, directly or indirectly, of Outstanding Common Stock or Outstanding Voting Securities immediately prior to the Business Combination, or
(C)      at least a majority of the members of the board of directors or similar governing body of the corporation or other entity resulting from such Business Combination were members of the Board at the time of the execution of the initial agreement providing for, or of the action of the Board to approve, such Business Combination; or
(ii)      Individuals who, as of May 6, 2013 constitute the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director of the Company subsequent to May 6, 2013 whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the directors of the Company then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors of the Company, an actual or threatened solicitation of proxies or consents or any other actual or threatened action by, or on behalf of any Person other than the Board; or
(iii)      The acquisition by any Person of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty percent (30%) or more of either
(A)      the then Outstanding Common Stock, or
(B)      the combined voting power of the Outstanding Voting Securities,
provided, however, that the following acquisitions shall not be deemed to be covered by this paragraph (iii):

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(1)      any acquisition of Outstanding Common Stock or Outstanding Voting Securities by the Company;
(2)      any acquisition of Outstanding Common Stock or Outstanding Voting Securities by any employee benefit plan (or related trust) sponsored or maintained by the Company; and
(3)      any acquisition of Outstanding Common Stock or Outstanding Voting Securities by any corporation pursuant to a transaction that complies with clauses (A), (B) and (C) of paragraph (i) of this definition; or

(iv)      The consummation of the sale, lease or exchange of all or substantially all of the assets of the Company.
“ Code ” means the United States Internal Revenue Code of 1986, as amended from time to time.
“ Committee ” has the meaning set forth in Section 3.2.
“ Common Stock ” means the common stock, par value $0.001 per share, of the Company.
“ Company ” means Potlatch Corporation, a Delaware corporation.
“ Compensation Committee ” means the Executive Compensation and Personnel Policies Committee of the Board.
“ Covered Employee ” means a “covered employee” as that term is defined for purposes of Section 162(m)(3) of the Code or any successor provision.
“ Disability ,” unless otherwise defined by the Committee for purposes of the Plan in the instrument evidencing an Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means a Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, in each case as determined by the Company’s Vice President, Human Resources or other person performing that function or, in the case of directors and executive officers, the Committee, whose determination shall be conclusive and binding.
“ Effective Date ” has the meaning set forth in Section 17.
“ Eligible Person ” means any person eligible to receive an Award as set forth in Section 5.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended from time to time.

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“ Fair Market Value ” means the closing price for the Common Stock on any given date during regular trading, or if not trading on that date, such price on the last preceding date on which the Common Stock was traded, unless determined otherwise by the Committee using such methods or procedures as it may establish.
“ Grant Date ” means the later of (i) the date on which the Committee completes the corporate action authorizing the grant of an Award or such later date specified by the Committee and (ii) the date on which all conditions precedent to an Award have been satisfied, provided that conditions to the exercisability or vesting of Awards shall not defer the Grant Date.
“ Incumbent Board ” has the meaning set forth in the definition of Change in Control.
“ Nonemployee Director ” means a director who is not an employee of the Company.
“ Outstanding Common Stock ” has the meaning set forth in the definition of Change in Control.
“ Outstanding Voting Securities ” has the meaning set forth in the definition of Change in Control.
“ Parent Company ” means a company or other entity which as a result of a Business Combination owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries.
“ Participant ” means any Eligible Person to whom an Award is granted.
“ Performance Award ” means an Award of Performance Shares or Performance Units granted under Section 8.
“ Performance Criteria ” has the meaning set forth in Section 13.1.
“ Performance Share ” means an Award of units denominated in shares of Common Stock granted under Section 8.1.
“ Performance Unit ” means an Award of units denominated in cash or property other than shares of Common Stock granted under Section 8.2.
“ Person ” has the meaning set forth in the definition of Change in Control.
“ Plan ” means the Potlatch Corporation 2014 Long-Term Incentive Plan, as amended from time to time.
“ Prior Plan ” has the meaning set forth in Section 4.1(b).

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“ Related Company ” means any corporation in which the Company owns, directly or indirectly, at least 50% of the total combined voting power of all classes of stock, or any other entity (including, but not limited to, limited liability companies, partnerships and joint ventures) in which the Company owns, directly or indirectly, at least 50% of the combined equity thereof.
“ Restricted Stock ” means an Award of shares of Common Stock granted under Section 7, the rights of ownership of which are subject to restrictions prescribed by the Committee.
“ Restricted Stock Unit ” means a Stock Unit subject to restrictions prescribed by the Committee.
“ Retirement ,” unless otherwise defined in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, means early, normal or deferred retirement under the Retirement Plan.
“ Retirement Plan ” means the Potlatch Salaried Retirement Plan.
“ Section 409A ” means Section 409A of the Code, including regulations and guidance promulgated thereunder.
“ Securities Act ” means the Securities Act of 1933, as amended from time to time.
“ Stock Award ” means an Award of shares of Common Stock granted under Section 7, the rights of ownership of which are not subject to restrictions prescribed by the Committee.
“ Stock Unit ,” means an Award denominated in units of Common Stock granted under Section 7 (including, without limitation, a Restricted Stock Unit).
“ Substitute Awards ” means Awards granted or shares of Common Stock issued by the Company in substitution or exchange for awards previously granted by an Acquired Entity.
“ Successor Company ” means the surviving company, the successor company or Parent Company, as applicable, in connection with a Business Combination.
“ Termination of Service ,” unless the Committee determines otherwise with respect to an Award, means a termination of employment or service relationship with the Company or a Related Company for any reason, whether voluntary or involuntary, including by reason of death, Disability or Retirement. Any question as to whether and when there has been a Termination of Service for the purposes of an Award and the cause of such Termination of Service shall be determined by the Company’s Vice President, Human Resources or other person performing that function or, with respect to directors and executive officers, by the Committee, whose determination shall be conclusive and binding. Transfer of a Participant’s employment or service relationship between the Company and any Related Company shall not be considered a Termination of Service for purposes of an Award. Unless the Committee determines otherwise, a Termination of Service shall be deemed to occur if the Participant’s employment or service relationship is with an entity that has ceased to be a Related Company. A Participant’s change in status from an employee of the Company or a Related Company to a nonemployee director, of

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the Company or a Related Company or a change in status from a nonemployee director of the Company or a Related Company to an employee of the Company or a Related Company, shall not be considered a Termination of Service.
SECTION 3.
ADMINISTRATION
1.
Administration of the Plan
The Plan shall be administered by (a) the Board or (b) the Compensation Committee of the Board; provided, however, that with respect to Nonemployee Directors, the Plan shall be administered by the Nominating and Corporate Governance Committee of the Board unless otherwise determined by the Board.
(a) If any member of the Compensation Committee does not qualify as an “outside director” for purposes of Section 162(m) of the Code, Awards under the Plan for the Covered Employees shall be administered by a subcommittee consisting of each Compensation Committee member who qualifies as an “outside director.” If fewer than two Compensation Committee members qualify as “outside directors,” the Board shall appoint one or more other Board members to such subcommittee who do qualify as “outside directors,” so that the subcommittee will at all times consist of two or more members all of whom qualify as “outside directors” for purposes of Section 162(m) of the Code.
(b) If any member of the Compensation Committee (or the Nominating and Corporate Governance Committee if applicable), does not qualify as a “non-employee director” for purposes of Rule 16b-3 promulgated under the Exchange Act, then Awards under the Plan for the executive officers of the Company and Directors shall be administered by a subcommittee consisting of each Compensation Committee member (or Nominating and Corporate Governance Committee members if applicable) who qualifies as a “non-employee director.” If fewer than two Compensation Committee members (or Nominating and Corporate Governance Committee members if applicable) qualify as “non-employee directors,” then the Board shall appoint one or more other Board members to such subcommittee who do qualify as “non-employee directors,” so that the subcommittee will at all times consist of two or more members all of whom qualify as “non-employee directors” for purposes of Rule 16b-3 promulgated under the Exchange Act.

2.
Delegation
Notwithstanding the foregoing, the Board may delegate concurrent responsibility for administering the Plan, including with respect to designated classes of Eligible Persons, to different committees consisting of one or more members of the Board, subject to such limitations as the Board deems appropriate, except with respect to grants of Awards to Participants who are subject to Section 16 of the Exchange Act or Awards granted pursuant to Section 13 of the Plan. Members of any committee shall serve for such term as the Board may determine, subject to removal by the Board at any time. To the extent consistent with applicable law, the Board or the Compensation Committee may authorize one or more officers of the Company to grant Awards to designated classes of Eligible Persons, within limits specifically prescribed by the Board or the Compensation Committee; provided, however, that no such officer shall have or obtain

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authority to grant Awards to himself or herself or to any person subject to Section 16 of the Exchange Act.
All references in the Plan to the “ Committee ” shall be, as applicable, to the Board, the Compensation Committee, the Nominating and Corporate Governance Committee of the Board or any other committee or any officer to whom authority has been delegated to administer the Plan.
The Board may delegate to the Chief Executive Officer of the Company the authority to grant Awards under the Plan to employees who are not Covered Employees or executive officers of the Company subject to the reporting requirements of Section 16 of the Exchange Act.
3.
Administration and Interpretation by Committee
(a) Except for the terms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or a Committee composed of members of the Board, to (i) select the Eligible Persons to whom Awards may from time to time be granted under the Plan; (ii) determine the type or types of Awards to be granted to each Participant under the Plan; (iii) determine the number of shares of Common Stock to be covered by each Award granted under the Plan; (iv) determine the terms and conditions of any Award granted under the Plan; (v) approve the forms of notice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Common Stock or other property or canceled or suspended; (vii) determine whether, to what extent and under what circumstances cash, shares of Common Stock, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant; (viii)  interpret and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (ix) establish such rules, regulations and sub-plans as it shall deem appropriate for the proper administration and operation of the Plan; (x) delegate ministerial duties to such of the Company’s employees as it so determines; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan.
(b) The effect on the vesting of an Award of a Company-approved leave of absence or a Participant’s reduction in hours of employment or service shall be determined by the Company’s Vice President, Human Resources or other person performing that function or, with respect to directors or executive officers, by the Committee, whose determination shall be final.
(c) Decisions of the Committee shall be final, conclusive and binding on all persons, including the Company, any Participant, any stockholder and any Eligible Person. A majority of the members of the Committee may determine its actions.

SECTION 4.
SHARES SUBJECT TO THE PLAN
1.
Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 12.1, the aggregate maximum number of shares of Common Stock available for issuance under the Plan shall be:

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(a) 1,000,000 shares; plus
(b) (i) any shares set aside and reserved for issuance, but not issued or subject to outstanding awards, under the Company’s 2005 Stock Incentive Plan (the “ Prior Plan ”) on the Effective Date and (ii)  any shares subject to outstanding awards under the Prior Plan on the Effective Date that cease to be subject to such awards following the Effective Date (other than by reason of exercise or settlement of the awards to the extent they are exercised for or settled in vested or nonforfeitable shares) shall cease to be set aside or reserved for issuance pursuant to the Prior Plan, and shall instead be set aside and reserved for issuance pursuant to the Plan, effective on the respective dates on which such shares may be added to the Plan by reason of this paragraph (b), up to an aggregate maximum of 793,437 shares.
Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares.
2.
Share Usage
(a) If any Award lapses, expires, terminates or is canceled prior to the issuance of shares thereunder or if shares of Common Stock are issued under the Plan to a Participant and thereafter are forfeited to the Company, the shares subject to such Awards and the forfeited shares shall again be available for issuance under the Plan. Any shares of Common Stock (i) tendered by a Participant or retained by the Company as full or partial payment to the Company for the purchase price of an Award or to satisfy tax withholding obligations in connection with an Award or (ii) covered by an Award that is settled in cash, or in a manner such that some or all of the shares of Common Stock covered by the Award are not issued, shall not be available for Awards under the Plan.
(b) The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company.
(c) Notwithstanding any other provision of the Plan to the contrary, the Committee may grant Substitute Awards under the Plan. Substitute Awards shall not reduce the number of shares authorized for issuance under the Plan. In the event that an Acquired Entity has shares available for awards or grants under one or more preexisting plans not adopted in contemplation of such acquisition or combination, then, to the extent determined by the Board or the Committee, the shares available for grant pursuant to the terms of such preexisting plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio or formula used in such acquisition or combination to determine the consideration payable to holders of common stock of the entities that are parties to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Common Stock authorized for issuance under the Plan; provided, however, that Awards using such available shares shall not be made after the date awards or grants could have been made under the terms of such preexisting plans, absent the acquisition or combination, and shall only be made to individuals who were not employees or directors of the Company or a Related Company prior to such acquisition or combination. In the event that a written agreement between the Company and an Acquired Entity pursuant to which a merger or consolidation is completed is approved by the Board and that agreement sets forth the terms and conditions of the substitution for or assumption of outstanding awards of the Acquired Entity, those terms and conditions shall be deemed to be the action of the Committee without any further action by the Committee, except

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as may be required for compliance with Rule 16b-3 under the Exchange Act, and the persons holding such awards shall be deemed to be Participants.

3.
Limitations
(a) Subject to adjustment as provided in Section 12.1, the aggregate number of shares that may be issued pursuant to Awards granted under the Plan (that either (i) contain no restrictions or restrictions based solely on continuous employment or services over fewer than three years (except if accelerated pursuant to a Change in Control or in the event of a Termination of Service) or (ii) vest over less than one year (except if accelerated pursuant to a Change in Control or in the event of a Termination of Service) based on factors other than solely continuous employment or services shall not exceed 10% of the aggregate maximum number of shares specified in Section 4.1. In addition, if and to the extent the Committee accelerates vesting or exercisability of an Award or otherwise acts to waive or lapse any restriction on an Award, other than in connection with a Participant’s death, Disability or Retirement or a Change in Control, the shares covered by such Committee action shall similarly count towards the foregoing 10% limitation.
(b)      Notwithstanding anything contained herein to the contrary, no Participant may receive Common Stock pursuant to or in connection with the payment of any Award to the extent it would result in a violation of the stock ownership limitations set forth in the Company’s Restated Certificate of Incorporation or would impair the Company’s status as a “real estate investment trust” within the meaning of Sections 856 through 860 of the Code.
SECTION 5.
ELIGIBILITY
An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects.
SECTION 6.
AWARDS
1.
Form, Grant and Settlement of Awards
The Committee shall have the authority, in its sole discretion, to determine the type or types of Awards to be granted under the Plan. Such Awards may be granted either alone or in addition to or in tandem with any other type of Award. Any Award settlement may be subject to such conditions, restrictions and contingencies as the Committee shall determine.
2.
Evidence of Awards
Awards granted under the Plan shall be evidenced by a written, including an electronic, instrument that shall contain such terms, conditions, limitations and restrictions as the Committee shall deem advisable and that are not inconsistent with the Plan.
3.
Deferrals
The Committee may permit or require a Participant to defer receipt of the payment of any Award. If any such deferral election is permitted or required, the Committee, in its sole discretion, shall establish rules and procedures for such payment deferrals, which may include the grant of additional Awards or provisions for the payment or crediting of interest or dividend equivalents, including converting such credits to deferred stock unit equivalents. Deferral of any

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Award or payment thereunder shall satisfy the requirements for exemption from Section 409A or satisfy the requirements of Section 409A as determined by the Committee prior to such deferral.
4.
Dividends and Distributions
Participants may, if the Committee so determines, be credited with dividends or dividend equivalents paid with respect to shares of Common Stock underlying an Award in a manner determined by the Committee in its sole discretion. The Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividends or dividend equivalents, including cash, shares of Common Stock, Restricted Stock or Stock Units. Notwithstanding the foregoing, if any Award for which dividends or dividend equivalents have been granted has its vesting, payment or grant dependent on the achievement of one or more performance goals, then the dividends or dividend equivalents shall accrue and be paid only to the extent the Award becomes vested or payable. Also notwithstanding the foregoing, the crediting of dividends or dividend equivalents must comply with or qualify for an exemption under Section 409A.
SECTION 7.
STOCK AWARDS, RESTRICTED STOCK AND STOCK UNITS
1.
Grant of Stock Awards, Restricted Stock and Stock Units
The Committee may grant Stock Awards, Restricted Stock and Stock Units on such terms and conditions and subject to such repurchase or forfeiture restrictions, if any, which may be based on continuous service with the Company or a Related Company or the achievement of any performance goals, as the Committee shall determine in its sole discretion, which terms, conditions and restrictions shall be set forth in the instrument evidencing the Award.
2.
Vesting of Restricted Stock and Stock Units
Upon the satisfaction of any terms, conditions and restrictions prescribed with respect to Restricted Stock or Stock Units, or upon a Participant’s release from any terms, conditions and restrictions on Restricted Stock or Stock Units, as determined by the Committee, and subject to the provisions of Section 11, (a) the shares covered by each Award of Restricted Stock shall become freely transferable by the Participant, and (b) Stock Units shall be paid in shares of Common Stock or, if set forth in the instrument evidencing the Awards, in cash or a combination of cash and shares of Common Stock. Any fractional shares subject to such Awards shall be paid as provided in the policy adopted by the Committee or, if none, in the instrument evidencing the Award.
3.
Waiver of Restrictions
The Committee, in its sole discretion, may waive the repurchase or forfeiture period and any other terms, conditions or restrictions on any Restricted Stock or Stock Unit under such circumstances and subject to such terms and conditions as the Committee shall deem appropriate.
SECTION 8.
PERFORMANCE AWARDS
1.
Performance Shares
The Committee may grant Awards of Performance Shares, designate the Participants to whom Performance Shares are to be awarded and determine the number of Performance Shares and the terms and conditions of each such Award. Performance Shares shall consist of a unit valued by reference to a designated number of shares of Common Stock, the value of which may

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be paid to the Participant by delivery of shares of Common Stock or, if set forth in the instrument evidencing the Award, of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. Notwithstanding the foregoing, the amount to be paid under an Award of Performance Shares may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.
2.
Performance Units
The Committee may grant Awards of Performance Units, designate the Participants to whom Performance Units are to be awarded and determine the number of Performance Units and the terms and conditions of each such Award. Performance Units shall consist of a unit valued by reference to a designated amount of property other than shares of Common Stock, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including, without limitation, cash, shares of Common Stock, other property, or any combination thereof, upon the attainment of performance goals, as established by the Committee, and other terms and conditions specified by the Committee. Notwithstanding the foregoing, the amount to be paid under an Award of Performance Units may be adjusted on the basis of such further consideration as the Committee shall determine in its sole discretion.
SECTION 9.
OTHER STOCK OR CASH-BASED AWARDS
Subject to the terms of the Plan and such other terms and conditions as the Committee deems appropriate, the Committee may grant other incentives payable in cash or in shares of Common Stock under the Plan.
SECTION 10.
WITHHOLDING
1.
Payment of Tax Withholding and Other Obligations
The Company may require the Participant to pay to the Company or a Related Company, as applicable, the amount of (a) any taxes that the Company or a Related Company is required by applicable federal, state, local or foreign law to withhold with respect to the grant, vesting or exercise of an Award (“ tax withholding obligations ”) and (b) any amounts due from the Participant to the Company or to any Related Company (“ other obligations ”). Notwithstanding any other provision of the Plan to the contrary, the Company shall not be required to issue any shares of Common Stock or otherwise settle an Award under the Plan until such tax withholding obligations and other obligations are satisfied.
2.
Payment Methods
The Committee may permit or require a Participant to satisfy all or part of the Participant’s tax withholding obligations and other obligations by: (a) paying cash to the Company or a Related Company, (b) having the Company or a Related Company, as applicable, withhold an amount from any cash amounts otherwise due or to become due from the Company or a Related Company to the Participant, (c) having the Company withhold a number of shares of Common Stock that would otherwise be issued to the Participant (or become vested, in the case of Restricted Stock) having a Fair Market Value equal to the tax withholding obligations and other obligations, (d) surrendering a number of shares of Common Stock the Participant already

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owns having a value equal to the tax withholding obligations and other obligations, (e) selling shares of Common Stock issued under an Award on the open market or to the Company, or (f) taking such other action as may be necessary in the opinion of the Committee to satisfy any applicable tax withholding obligations. The value of the shares so withheld or surrendered may not exceed the employer’s minimum required tax withholding rate, or such other applicable rate as is necessary to avoid adverse treatment for financial accounting purposes, as determined by the Committee its sole discretion.
SECTION 11.
ASSIGNABILITY
No Award or interest in an Award may be sold, assigned, pledged (as collateral for a loan or as security for the performance of an obligation or for any other purpose) or transferred by a Participant or made subject to attachment or similar proceedings otherwise than by will or by the applicable laws of descent and distribution, except to the extent, at the discretion of the Committee, the instrument evidencing the Award permits the Participant to designate one or more beneficiaries on a Company-approved form who may exercise the Award or receive payment under the Award after the Participant’s death. Notwithstanding the foregoing, the Committee, in its sole discretion, may permit a Participant to assign or transfer an Award without consideration, subject to such terms and conditions as the Committee shall specify.
SECTION 12.
ADJUSTMENTS
1.
Adjustment of Shares
(a) In the event that, at any time or from time to time, a stock dividend, stock split, spin off, combination or exchange of shares, recapitalization, merger, consolidation, distribution to stockholders other than a normal cash dividend, or other change in the Company’s corporate or capital structure results in (i) the outstanding shares of Common Stock, or any securities exchanged therefor or received in their place, being exchanged for a different number or kind of securities of the Company or (ii) new, different or additional securities of the Company or any other company being received by the holders of shares of Common Stock, or the declaration of a dividend payable in cash that has a material effect on the price of issued shares, then the Committee shall make proportional adjustments in (A) the maximum number and kind of securities available for issuance under the Plan; (B) the maximum numbers and kind of securities set forth in Section 13.3; (C) the maximum number and kind of securities set forth in Section 4.3; and (D) the number and kind of securities that are subject to any outstanding Award and, if applicable, the per share price of such securities.
(b)      Adjustments, if any, and any determinations or interpretations made by the Committee as to whether any adjustment shall be made, including any determination of whether a distribution is other than a normal cash dividend or is a cash dividend that will have a material effect on the price of issued shares, and the terms of any of the foregoing adjustments shall be conclusive and binding.
(c)      Notwithstanding the foregoing, the issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services rendered, either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be

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made with respect to, outstanding Awards. Also notwithstanding the foregoing, a dissolution or liquidation of the Company or a Change in Control shall not be governed by this Section 12.1 but shall be governed by Sections 12.2 and 12.3, respectively.
2.
Dissolution or Liquidation
To the extent not previously exercised or settled, and unless otherwise determined by the Committee in its sole discretion, Awards shall terminate immediately prior to the dissolution or liquidation of the Company. To the extent a vesting condition, forfeiture provision or repurchase right applicable to an Award has not been waived by the Committee, the Award shall be forfeited immediately prior to the consummation of the dissolution or liquidation.
3.
Change in Control
Notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine otherwise in the instrument evidencing the Award or in a written employment, services or other agreement between the Participant and the Company or a Related Company, in the event of a Change in Control:
(a) If the Change in Control is a Business Combination in which Awards could be converted, assumed, substituted for or replaced by the Successor Company, then, if and to the extent that the Successor Company converts, assumes, substitutes or replaces an Award, other than Performance Shares, Performance Units and other outstanding Awards that are subject to vesting based on the achievement of specified performance goals, the vesting restrictions or forfeiture provisions applicable to such Award shall not be accelerated or lapse, and all such vesting restrictions or forfeiture provisions shall continue with respect to any shares of the Successor Company or other consideration that may be received with respect to such Award. If and to the extent that Awards, other than Performance Shares, Performance Units and other outstanding Awards that are subject to vesting based on the achievement of specified performance goals, are not converted, assumed, substituted for or replaced by the Successor Company, such Awards shall become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change in Control and such Awards shall terminate at the effective time of the Change in Control.
If the Change in Control is not a Business Combination in which Awards could be converted, assumed, substituted for or replaced by the Successor Company, all outstanding Awards, other than Performance Shares, Performance Units and other outstanding Awards that are subject to vesting based on the achievement of specified performance goals, shall become fully vested and exercisable or payable, and all applicable restrictions or forfeiture provisions shall lapse, immediately prior to the Change in Control and shall terminate at the effective time of the Change in Control.
For the purposes of this Section 12.3(a), an Award shall be considered converted, assumed, substituted for or replaced by the Successor Company if following the Business Combination the right confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Business Combination, the consideration (whether stock, cash or other securities or property) received in the Business Combination by holders of Common Stock for each share held on the effective date of the transaction (and if holders were

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offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the Business Combination is not solely common stock of the Successor Company, the Committee may, with the consent of the Successor Company, provide for the consideration to be received pursuant to the Award, for each share of Common Stock subject thereto, to be solely common stock of the Successor Company substantially equal in Fair Market Value to the per share consideration received by holders of Common Stock in the Business Combination. The determination of such substantial equality of value of consideration shall be made by the Committee, and its determination shall be conclusive and binding.
(b) All Performance Shares or Performance Units or other outstanding Awards that are subject to vesting based on the achievement of specified performance goals and that are earned and outstanding as of the date the Change in Control is determined to have occurred and for which the payout level has been determined shall be payable in full in accordance with the payout schedule pursuant to the instrument evidencing the Award or a program adopted pursuant to the Plan. Any remaining outstanding Performance Shares or Performance Units or other outstanding Awards that are subject to vesting based on the achievement of specified performance goals (including any applicable performance period) for which the payout level has not been determined shall be payable in accordance with the terms and payout schedule pursuant to the instrument evidencing the Award. Any existing deferrals or other restrictions not waived by the Committee in its sole discretion shall remain in effect.
(c) Notwithstanding the foregoing, the Committee, in its sole discretion, may instead provide in the event of a Change in Control that is a Business Combination that a Participant’s outstanding Awards shall terminate upon or immediately prior to such Business Combination and that such Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (x) the value of the per share consideration received by holders of Common Stock in the Business Combination, or, in the event the Business Combination is one of the transactions listed under subsection (c) in the definition of Business Combination or otherwise does not result in direct receipt of consideration by holders of Common Stock, the value of the deemed per share consideration received, in each case as determined by the Committee in its sole discretion, multiplied by the number of shares of Common Stock subject to such outstanding Awards (to the extent then vested and exercisable or whether or not then vested and exercisable, as determined by the Committee in its sole discretion) exceeds (y) if applicable, the respective aggregate exercise price or grant price for such Awards.
(d) For the avoidance of doubt, nothing in this Section 12.3 requires all outstanding Awards to be treated similarly.

4.
Further Adjustment of Awards
Subject to Sections 12.2 and 12.3, the Committee shall have the discretion, exercisable at any time before a sale, merger, consolidation, reorganization, liquidation, dissolution or change of control of the Company, as defined by the Committee, to take such further action as it determines to be necessary or advisable with respect to Awards. Such authorized action may include (but shall not be limited to) establishing, amending or waiving the type, terms, conditions or duration of, or restrictions on, Awards so as to provide for earlier, later, extended or additional time for exercise, lifting restrictions and other modifications, and the Committee may take such

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actions with respect to all Participants, to certain categories of Participants or only to individual Participants. The Committee may take such action before or after granting Awards to which the action relates and before or after any public announcement with respect to such sale, merger, consolidation, reorganization, liquidation, dissolution or change of control that is the reason for such action.
5.
No Limitations
The grant of Awards shall in no way affect the Company’s right to adjust, reclassify, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer all or any part of its business or assets.
6.
No Fractional Shares
In the event of any adjustment in the number of shares covered by any Award, each such Award shall cover only the number of full shares resulting from such adjustment, and any fractional shares resulting from such adjustment shall be disregarded.
7.
Section 409A
Notwithstanding any other provision of the Plan to the contrary, (a) any adjustments made pursuant to this Section 12 to Awards that are considered “deferred compensation” within the meaning of Section 409A shall be made in compliance with the requirements of Section 409A and (b) any adjustments made pursuant to this Section 12 to Awards that are not considered “deferred compensation” subject to Section 409A shall be made in such a manner as to ensure that after such adjustment the Awards either (i) continue not to be subject to Section 409A or (ii) comply with the requirements of Section 409A.
SECTION 13.
CODE SECTION 162(m) PROVISIONS
Notwithstanding any other provision of the Plan to the contrary, if the Committee determines, at the time Awards are granted to a Participant who is, or is likely to be as of the end of the tax year in which the Company would claim a tax deduction in connection with such Award, a Covered Employee, then the Committee may provide that this Section 13 is applicable to such Award.
1.
Performance Criteria
(a) If an Award is subject to this Section 13, then the lapsing of restrictions thereon and the distribution of cash, shares of Common Stock or other property pursuant thereto, as applicable, shall be subject to the achievement of one or more objective performance goals established by the Committee, which shall be based on the attainment of specified levels of one of or any combination of the following “performance criteria” for the Company as a whole or any business unit of the Company, as reported or calculated by the Company: total stockholder return, stock price increase, return on equity, return on capital, earnings per share, EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization or earnings before interest, taxes, depreciation and amortization and cost basis in real property sold), EBITDDA (earnings before interest, taxes, depletion, depreciation and amortization or earnings before interest, taxes, depletion, depreciation and amortization and cost basis in real property sold), ongoing earnings, cash flow (including operating cash flow, free cash flow, discounted cash flow return on investment, and cash flow in excess of costs of capital),

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EVA (economic value added), economic profit (net operating profit after tax, less a cost of capital charge), FFO (funds from operations equal to net income plus non-cash charges for depletion, depreciation and amortization and the cost basis in real property sold), SVA (stockholder value added), revenues, net income, operating income, pre-tax profit margin, performance against business plan, market share, operating margins, credit rating, dividend payments, expenses, retained earnings, working capital, financial ratios, yield on investment, completion of acquisitions, divestitures and corporate restructurings (together, the “ Performance Criteria ”).
(b) Such performance goals also may be based on the achievement of specified levels of Company performance (or performance of an applicable affiliate or business unit of the Company) under one or more of the Performance Criteria described above relative to the performance of other corporations. Such performance goals shall be set by the Committee within the time period prescribed by, and shall otherwise comply with the requirements of, Section 162(m) of the Code, or any successor provision thereto, and the regulations thereunder.
(c) The Committee may provide in any such Award that any evaluation of performance may include or exclude any of the following events that occurs during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax laws, accounting principles, or other laws or provisions affecting reported results, (iv) any reorganization and restructuring programs, (v) extraordinary nonrecurring items as described in Accounting Standards Codification 225-20 (or any successor provision) and/or in Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in the Company’s annual report to stockholders for the applicable year, (vi) acquisitions or divestitures, (vii) foreign exchange gains and losses, (viii) gains and losses on asset sales, and (ix) impairments. To the extent such inclusions or exclusions affect Awards to Covered Employees, they shall be prescribed in a form that satisfies the requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.
2.
Compensation Committee Certification; Adjustment of Awards
(a) After the completion of each performance period, the Compensation Committee shall certify the extent to which any performance goal established under this Section 13 has been satisfied, and the amount payable as a result thereof, prior to payment, settlement or vesting, as applicable, of any Award subject to this Section 13.
(b) Notwithstanding any provision of the Plan other than Section 12, with respect to any Award that is subject to this Section 13, the Committee may adjust downwards, but not upwards, the amount payable pursuant to such Award, and the Committee may not waive the achievement of the applicable performance goals except in the case of the death or disability of the Covered Employee.
3.
Limitations
(a) No Covered Employee may be granted Awards other than Performance Units subject to this Section 13 in the aggregate in any calendar-year period with respect to more than 300,000 shares of Common Stock for such Awards, except that the Company may make additional one-time grants of such Awards for up to 300,000 shares to newly hired or newly promoted individuals, which numbers shall be calculated and adjusted pursuant to Section 12.1 in a manner that satisfies the requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto. The maximum dollar value payable with respect to Performance Units or other awards payable in

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cash subject to this Section 13 and granted to any Covered Employee in any calendar-year period is $10,000,000.
(b) The Committee shall have the power to impose such other restrictions on Awards subject to this Section 13 as it may deem necessary or appropriate to ensure that such Awards satisfy all requirements for “performance-based compensation” within the meaning of Section 162(m)(4)(C) of the Code, or any successor provision thereto.

SECTION 1.
RECOVERY OF COMPENSATION
Notwithstanding any other provision of the Plan to the contrary and to the maximum extent allowed by law, Awards granted under the Plan shall be subject to (a) the Potlatch Corporation Incentive Compensation Recovery Policy, as it may be amended from time to time, and (b) any other compensation recovery policies as may be adopted from time to time by the Company to comply with applicable law and/or stock exchange requirements, or otherwise, to the extent determined by the Committee in its discretion to be applicable to a Participant.
SECTION 14.
AMENDMENT AND TERMINATION
1.
Amendment, Suspension or Termination
The Board or the Compensation Committee may amend, suspend or terminate the Plan or any portion of the Plan at any time and in such respects as it shall deem advisable; provided, however, that, to the extent required by applicable law, regulation or stock exchange rule, stockholder approval shall be required for any amendment to the Plan; and provided, further, that any amendment that requires stockholder approval may be made only by the Board. Subject to Section 15.3, the Committee may amend the terms of any outstanding Award, prospectively or retroactively.
2.
Term of the Plan
Unless sooner terminated as provided herein, the Plan shall automatically terminate ten years from the Effective Date. After the Plan is terminated, no future Awards may be granted, but Awards previously granted shall remain outstanding in accordance with their terms and conditions and the Plan’s terms and conditions.
3.
Consent of Participant
The amendment, suspension or termination of the Plan or a portion thereof or the amendment of an outstanding Award shall not, without the Participant’s consent, materially adversely affect any rights under any Award theretofore granted to the Participant under the Plan. Notwithstanding the foregoing, any adjustments made pursuant to Section 12 shall not be subject to these restrictions.
SECTION 15.
GENERAL
1.
No Individual Rights
(a) No individual or Participant shall have any claim to be granted any Award under the Plan, and the Company has no obligation for uniformity of treatment of Participants under the Plan.

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(b) Furthermore, nothing in the Plan or any Award granted under the Plan shall be deemed to constitute an employment contract or confer or be deemed to confer on any Participant any right to continue in the employ of, or to continue any other relationship with, the Company or any Related Company or limit in any way the right of the Company or any Related Company to terminate a Participant’s employment or other relationship at any time, with or without cause.

2.
Issuance of Shares
(a) Notwithstanding any other provision of the Plan, the Company shall have no obligation to issue or deliver any shares of Common Stock under the Plan or make any other distribution of benefits under the Plan unless, in the opinion of the Company’s counsel, such issuance, delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act or the laws of any state or foreign jurisdiction) and the applicable requirements of any securities exchange or similar entity.
(b) The Company shall be under no obligation to any Participant to register for offering or resale or to qualify for exemption under the Securities Act, or to register or qualify under the laws of any state or foreign jurisdiction, any shares of Common Stock, security or interest in a security paid or issued under, or created by, the Plan, or to continue in effect any such registrations or qualifications if made.
(c) The inability of the Company or impracticability for the Company, as determined by the Committee in its sole discretion, to obtain or maintain approval from any regulatory body having jurisdiction or to comply with applicable requirements, which approval and compliance are deemed by the Company’s counsel to be necessary to the lawful issuance, delivery, and sale of any shares of Common Stock, shall relieve the Company of any liability in respect of the failure to issue, deliver, or sell such shares as to which the requisite approval has not been obtained or as to which any necessary requirements are not met.
(d) As a condition to the receipt of Common Stock pursuant to an Award under the Plan, the Company may require (i) the Participant to represent and warrant at the time of any such exercise or receipt that such shares are being purchased or received only for the Participant’s own account and without any present intention to sell or distribute such shares and (ii) such other action or agreement by the Participant as may from time to time be necessary to comply with federal, state and foreign securities laws. At the option of the Company, a stop-transfer order against any such shares may be placed on the official stock books and records of the Company, and a legend indicating that such shares may not be pledged, sold or otherwise transferred, unless an opinion of counsel is provided (concurred in by counsel for the Company) stating that such transfer is not in violation of any applicable law or regulation, may be stamped on stock certificates to ensure exemption from registration. The Committee may also require the Participant to execute and deliver to the Company a purchase agreement or such other agreement as may be in use by the Company at such time that describes certain terms and conditions applicable to the shares.
(e) To the extent the Plan or any instrument evidencing an Award provides for issuance of stock certificates to reflect the issuance of shares of Common Stock, the issuance may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange.

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3.
Indemnification
(a) Each person who is or shall have been a member of the Board, the Compensation Committee or a committee of the Board, or an officer of the Company to whom authority was delegated in accordance with Section 3, shall be indemnified and held harmless by the Company against and from any loss, cost, liability or expense that may be imposed upon or reasonably incurred by such person in connection with or resulting from any claim, action, suit or proceeding to which such person may be a party or in which such person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by such person in settlement thereof, with the Company’s approval, or paid by such person in satisfaction of any judgment in any such claim, action, suit or proceeding against such person; provided, however, unless such loss, cost, liability or expense is a result of such person’s own willful misconduct or except as expressly provided by statute, that such person shall give the Company an opportunity, at its own expense, to handle and defend the same before such person undertakes to handle and defend it on such person’s own behalf.
(b) The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such person may be entitled under the Company’s certificate of incorporation or bylaws, as a matter of law, or otherwise, or of any power that the Company may have to indemnify or hold harmless.

4.
No Rights as a Stockholder
Unless otherwise provided by the Committee or in the instrument evidencing the Award or in a written employment, services or other agreement, no Award, other than a Stock Award or Restricted Stock Award, shall entitle the Participant to any cash dividend, voting or other right of a stockholder unless and until the date of issuance under the Plan of the shares that are the subject of such Award.
5.
Compliance with Laws and Regulations
(a) The Plan and Awards granted under the Plan are intended to be exempt from the requirements of Section 409A to the maximum extent possible, whether pursuant to the short-term deferral exception described in Treasury Regulation Section 1.409A-1(b)(4) or otherwise. To the extent Section 409A is applicable to the Plan or any Award granted under the Plan, it is intended that the Plan and any Awards granted under the Plan comply with the deferral, payout and other limitations and restrictions imposed under Section 409A. Notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, the Plan and any Award granted under the Plan shall be interpreted, operated and administered in a manner consistent with such intentions. Without limiting the generality of the foregoing, and notwithstanding any other provision of the Plan or any Award granted under the Plan to the contrary, (i) with respect to any payments and benefits under the Plan or any Award granted under the Plan to which Section 409A applies, all references in the Plan or any Award granted under the Plan to the termination of the Participant’s employment or service are intended to mean the Participant’s “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of the Code, and (ii) each payment made under this Plan and any Award granted under the Plan shall be treated as a separate payment and the right to a series of installment payments under this Plan or any such Award shall be treated as a right to a series of separate payments. In addition, if the Participant is a “specified employee,” within the meaning of Section 409A, then to the extent

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necessary to avoid subjecting the Participant to the imposition of any additional tax under Section 409A, amounts that would otherwise be payable under the Plan or any Award granted under the Plan during the six-month period immediately following the Participant’s “separation from service,” within the meaning of Section 409A(a)(2)(A)(i) of the Code, shall not be paid to the Participant during such period, but shall instead be accumulated and paid to the Participant (or, in the event of the Participant’s death, the Participant’s estate) in a lump sum on the first business day after the earlier of the date that is six months following the Participant’s separation from service or the Participant’s death. Notwithstanding any other provision of the Plan to the contrary, the Committee, to the extent it deems necessary or advisable in its sole discretion, reserves the right, but shall not be required, to unilaterally amend or modify the Plan and any Award granted under the Plan so that the Award qualifies for exemption from or complies with Section 409A of the Code; provided, however, that the Committee makes no representations that Awards granted under the Plan shall be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A from applying to Awards granted under the Plan.
(b) Also notwithstanding any other provision of the Plan to the contrary, the Board or the Committee shall have broad authority to amend the Plan or any outstanding Award without the consent of the Participant to the extent the Board or the Committee deems necessary or advisable to comply with, or take into account, changes in applicable tax laws, securities laws, accounting rules or other applicable laws, rules or regulations.

6.
Participants in Other Countries or Jurisdictions
Without amending the Plan, the Committee may grant Awards to Eligible Persons who are foreign nationals on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan and shall have the authority to adopt such modifications, procedures, subplans and the like as may be necessary or desirable to comply with provisions of the laws or regulations of other countries or jurisdictions in which the Company or any Related Company may operate or have employees to ensure the viability of the benefits from Awards granted to Participants employed in such countries or jurisdictions, meet the requirements that permit the Plan to operate in a qualified or tax-efficient manner, comply with applicable foreign laws or regulations and meet the objectives of the Plan.
7.
No Trust or Fund
The Plan is intended to constitute an “unfunded” plan. Nothing contained herein shall require the Company to segregate any monies or other property, or shares of Common Stock, or to create any trusts, or to make any special deposits for any immediate or deferred amounts payable to any Participant, and no Participant shall have any rights that are greater than those of a general unsecured creditor of the Company.
8.
Successors
All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all the business and/or assets of the Company.

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9.
Severability
If any provision of the Plan or any Award is determined to be invalid, illegal or unenforceable in any jurisdiction, or as to any person, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or, if it cannot be so construed or deemed amended without, in the Committee’s determination, materially altering the intent of the Plan or the Award, such provision shall be stricken as to such jurisdiction, person or Award, and the remainder of the Plan and any such Award shall remain in full force and effect.
10.
Choice of Law and Venue
The Plan, all Awards granted thereunder and all determinations made and actions taken pursuant hereto, to the extent not otherwise governed by the laws of the United States, shall be governed by the laws of the State of Washington without giving effect to principles of conflicts of law. Participants irrevocably consent to the nonexclusive jurisdiction and venue of the state and federal courts located in the State of Washington.
11.
Legal Requirements
The granting of Awards and the issuance of shares of Common Stock under the Plan are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required, whether located in the United States or a foreign jurisdiction.
SECTION 16.
EFFECTIVE DATE
The effective date (the “ Effective Date ”) is the date on which the Plan is approved by the stockholders of the Company.


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Exhibit (31)
CERTIFICATIONS

I, Michael J. Covey, certify that:
1.
I have reviewed this report on Form 10-Q of Potlatch Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
July 24, 2014
 
 
 
/S/ MICHAEL J. COVEY
 
 
 
 
 
Michael J. Covey
 
 
 
 
 
Chief Executive Officer





CERTIFICATIONS

I, Jerald W. Richards, certify that:
1.
I have reviewed this report on Form 10-Q of Potlatch Corporation;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
July 24, 2014
 
 
 
/S/ JERALD W. RICHARDS
 
 
 
 
 
Jerald W. Richards
 
 
 
 
 
Vice President and Chief Financial Officer






Exhibit (32)
STATEMENT OF CHIEF EXECUTIVE OFFICER UNDER 18 U.S.C. § 1350

I, Michael J. Covey, Chief Executive Officer of Potlatch Corporation (the Company), certify pursuant to section 1350 of Chapter 63 of Title 18 of the United States Code that, to my knowledge:

(1)
the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the Report), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/S/ MICHAEL J. COVEY
Michael J. Covey
Chief Executive Officer
July 24, 2014

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.






STATEMENT OF CHIEF FINANCIAL OFFICER UNDER 18 U.S.C. § 1350

I, Jerald W. Richards, Vice President and Chief Financial Officer of Potlatch Corporation (the Company), certify pursuant to section 1350 of Chapter 63 of Title 18 of the United States Code that, to my knowledge:
(1)
the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2014 , as filed with the Securities and Exchange Commission on the date hereof (the Report), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/S/ JERALD W. RICHARDS
Jerald W. Richards
Vice President and Chief Financial Officer
July 24, 2014

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.