SPOKANE, Wash. Feb. 4, 2008 - Potlatch Corporation today reported financial results for the fourth quarter and full year ended December 31, 2007.

Q4 2007 FINANCIAL SUMMARY

- Earnings from continuing operations after taxes for the quarter were $11.2 million, or $0.28 per diluted common share, compared to $47.4 million, or $1.22 per diluted common share for the fourth quarter of 2006.

- Earnings from continuing operations for the fourth quarter of 2006 included $39.3 million, or $24.0 million net of tax ($0.62 per diluted common share), representing the company's total share of the negotiated settlement of the softwood lumber trade dispute between the U.S. and Canada. This was partially offset by an income tax adjustment of $3.9 million, or $0.10 per diluted common share, primarily related to the transfer of assets from the Real Estate Investment Trust (REIT) subsidiary to the company's taxable REIT subsidiary, which holds all of the company's manufacturing businesses.

- Net earnings for the fourth quarter 2007, including discontinued operations related to the company's former Boardman, Oregon, hybrid poplar tree farm, were $11.2 million, or $0.28 per diluted common share, compared to $45.3 million or $1.16 per diluted common share for the fourth quarter of 2006.

2007 FULL YEAR FINANCIAL SUMMARY

- Earnings from continuing operations before taxes for the full year 2007 were $87.2 million compared to $69.0 million for the full year 2006, excluding the $39.3 million related to the Canadian softwood settlement.

- The $18.2 million increase in pre-tax earnings reflects excellent performances from the Pulp and Paperboard and Real Estate segments.

- Cash provided by operating activities from continuing operations for the full year ended December 31, 2007, was $145.7 million.

"During the fourth quarter, we made the decision to reduce the pace of timber harvesting from the accelerated harvest levels we experienced during the first three quarters of the year when markets and operating conditions were good. We have seen minor fluctuations in log prices, with sawlogs trending modestly lower due to the housing market and pulpwood up due to the strength in the pulp and paper markets," said Michael J. Covey, chairman, president and chief executive officer.

"It was a very good fourth quarter for our Real Estate segment and we are very pleased with our 2007 performance following the intensive land value stratification process that was completed in December 2006. For the year, we sold 16,175 acres of non-strategic land at approximately $1,500 per acre, generating more than $24 million in real estate revenue.

"Our Pulp and Paperboard segment continued to generate very strong results in the fourth quarter. Paperboard pricing in the high-end folding carton segment continued to be strong due in part to very high industry-wide capacity utilization and the weak U.S. dollar. We had outstanding operating performance during the quarter at both paperboard mills, ending the year with record production and shipments.

"Our Consumer Products segment also had an exceptional quarter, with record production and sales volume. Further, this segment has been successfully undergoing a product mix shift away from relatively low margin parent roll sales towards higher margin finished goods sales, and we were successful in eliminating all parent roll sales in the fourth quarter.

"Our Wood Products segment had a disappointing fourth quarter primarily as a result of poor lumber pricing and market related downtime taken at our two southern yellow pine mills.

"To sum it up, it was a very good year for Potlatch Corporation. In 2007 we raised the dividend 4.1 percent, and completed two strategic acquisitions that increased our timberland base by 18 percent to a total ownership of 1.7 million acres," concluded Mr. Covey.

FOURTH QUARTER 2007 BUSINESS PERFORMANCE

Resource

- Operating income for the segment was $10.6 million, compared to $22.0 million earned in the fourth quarter of 2006.

- Log markets in the Southern region retreated, but only marginally due to strong pulpwood prices. Harvest levels in the region were reduced in the fourth quarter to avoid an unnecessary buildup of log inventories.

- Fee harvest levels in the Southern region decreased 12 percent in the quarter relative to the fourth quarter of 2006, and decreased 40 percent compared to the third quarter of 2007.

- In the Southern region, overall prices rose 26 percent due to significantly higher pulpwood log prices coupled with a higher percentage of sawlogs sold in the fourth quarter of 2007 compared to the fourth quarter of 2006. However, overall prices were off one percent compared to third quarter of 2007.

- Log markets in the Northern region also softened.

- Fee harvest in the Northern region decreased 14 percent relative to the fourth quarter of 2006 and declined 34 percent compared to the third quarter 2007 levels, primarily related to favorable logging conditions experienced in the third quarter of 2007.

- Prices remained relatively flat compared to the fourth quarter of 2006, while prices declined seven percent in the Northern region compared to the third quarter of 2007.

Real Estate

- Operating income for the segment was $7.9 million, compared with $9.1 million for the fourth quarter of 2006. Compared to the fourth quarter of 2006, the fourth quarter of 2007 results included the sale of more acres of non-strategic lands, but income was higher in the fourth quarter of 2006 as a result of the sale of a large conservation easement in Arkansas.

Wood Products

- Operating loss for the segment was $9.1 million, compared to an operating loss of $5.7 million for the fourth quarter of 2006, after excluding the $39.3 million of income associated with the negotiated settlement of the Canadian softwood lumber agreement.

- The weakness in the housing market continues to negatively impact the segment.

- Wood costs were slightly lower during the quarter compared to fourth quarter 2006.

- Market-related downtime at the company's two Arkansas mills resulted in a reduction of 18 million board feet of southern yellow pine production and an increase in conversion costs during the quarter.

- Fourth quarter 2007 was significantly impacted by lower selling prices for the company's framing lumber products compared to the fourth quarter of 2006.

Pulp and Paperboard

- Operating income for the segment was $15.7 million, compared to $9.2 million for the fourth quarter of 2006.

- Market prices for both pulp and paperboard products increased in the fourth quarter compared to the same period last year. Pulp prices rose six percent and paperboard prices increased five percent compared to the fourth quarter of 2006.

- The weaker U.S. dollar and general global demand for pulp continued to fuel the best global pulp market in more than a decade.

- Record aggregate shipments of pulp and paperboard were attained during the quarter. Total shipments were seven percent higher than the fourth quarter of 2006. Export shipments of paperboard to Europe increased during the fourth quarter.

Consumer Products

- Operating income for the segment was $5.2 million for the fourth quarter of 2007, compared to $7.2 million for the same period last year.

- Finished goods sales tonnage increased 2 percent sequentially and increased 12 percent compared to the fourth quarter of 2006.

- Pulp prices increased by 6 percent, resulting in a $2.6 million increase in costs for the fourth quarter compared to the same period last year. Higher energy costs also negatively impacted earnings by $2.3 million for the quarter.

- The ramp up in production at the segment's Midwest converting facility continues to reduce Midwest and total freight expenses.

Other Items

In the fourth quarter of 2007, the company recorded an income tax benefit of $4.4 million related to continuing operations. The income tax benefit was primarily the result of a pre-tax loss for the company's taxable REIT subsidiary.

Dividend Distribution

During the fourth quarter of 2007, Potlatch increased the quarterly distribution on the company's common stock by 4.1 percent, resulting in the payment of a regular quarterly distribution on the company's common stock of $0.51 per share.

OUTLOOK

"Potlatch's real estate business is performing well and we expect to see increased earnings and cash flow from the segment in 2008, with the planned sale of approximately 18,000 to 22,000 acres. Due to price increases currently being implemented, the outlook for our pulp-based businesses is excellent and we expect year-over-year improvement in cash flow from our Pulp and Paperboard and Consumer Products segments.

"The main concern we face in the coming year is downward pressure on sawlog prices caused by a weak lumber market. While we are seeing evidence of price pressure on sawlogs, it should be partially offset by very strong demand and strong pricing for pulpwood. In total, we expect 2008 fee harvest volumes to be up 300,000 to 500,000 tons over 2007. We expect timber pricing to be down in 2008 relative to 2007, but we don't believe it will be down enough to defer harvests. We will watch this closely as the year progresses and adjust our harvest plans as market conditions change," concluded Mr. Covey.