SPOKANE, Wash.--July 18, 2001--Potlatch Corporation today reported a loss for the second quarter of 2001, largely as a result of continuing poor market conditions for most of its pulp-based products, higher energy costs and interest expense compared to the same period in 2000. However, the current quarter results were a substantial improvement over the results for 2001's first quarter, primarily due to improved wood products pricing and the company's recent efforts to conserve energy and increase electrical generation. The company incurred a net loss of $9.8 million or $.35 per diluted common share for the second quarter of 2001, compared to a loss of $9.4 million or $.32 per diluted common share for the same period in 2000. Included in the 2000 results is an after-tax charge totaling $15.9 million or $.55 per diluted common share for costs associated with a company-wide reduction in its salaried workforce. The company incurred a loss of $31.4 million or $1.11 per diluted common share in the first quarter of 2001. Net sales for the second quarter of 2001 were $456.4 million, down slightly from $462.5 million recorded in the second quarter of 2000. The company's net loss for the first half of 2001 totaled $41.2 million or $1.46 per diluted common share. The net loss for the first half of 2000 was $7.0 million or $.24 per diluted common share, which includes the salaried workforce reduction charge. Net sales for the first half of 2001 were $900.5 million, compared with $937.1 million for 2000's first half. The resource segment reported operating income of $10.0 million for the second quarter of 2001, down from the $12.0 million earned in the second quarter of 2000. The results reflect a decrease in sawlog production in Idaho, which was partially offset by higher production in Arkansas. Operating income for the wood products segment was $7.2 million for the second quarter of 2001, compared to $13.9 million earned in the second quarter of 2000. "The primary reason for the unfavorable comparison to the prior year was lower net sales realizations for all of our wood products, especially oriented strand board, which declined 31 percent,'' stated L. Pendleton Siegel, Potlatch chairman and chief executive officer. "Although still below last year's levels, net sales realizations for lumber and oriented strand board showed significant improvement and increased 19 percent and 24 percent, respectively, over the poor prices experienced during the first three months of 2001,'' Siegel added. The printing papers segment recorded a second quarter operating loss of $9.3 million, versus income of $.3 million reported a year ago. "Lower net sales realizations for printing papers and pulp as well as higher energy costs were largely responsible for the decline,'' Siegel said. Markets for coated printing papers have remained soft throughout the year and net sales realizations for the company's products declined 7 percent from first quarter 2001 levels. Market pulp prices have steadily declined from the beginning of the year, and were 19 percent lower in the second quarter compared to the first quarter of 2001 and more than 30 percent lower since January. Coated paper shipments were comparable to the second quarter of 2000 while market pulp shipments increased 62 percent due to increased production at the Cloquet, Minnesota, pulp mill. The pulp and paper segment reported operating income for the second quarter of $4.7 million, compared to $6.5 million for 2000's second quarter. "Higher energy costs continued to have a negative effect on earnings during the quarter, although the company has made significant strides in reducing these costs in the second quarter as a result of increased energy production and reduced consumption,'' Siegel noted. "Shipments of paperboard, consumer tissue and market pulp increased 5 percent, 9 percent and 40 percent, respectively, compared to the second quarter of 2000 and helped to offset lower net sales realizations for paperboard of 5 percent and pulp of 47 percent,'' Siegel added. Net sales realizations for consumer tissue have held steady during the year, modestly above the year ago levels. The company's operating costs for the current quarter include higher energy costs compared to the second quarter of 2000. Included in these costs is a $4.8 million charge for a mark-to-market adjustment for energy hedging contracts to be settled in the future. Despite this charge, energy costs for the second quarter were substantially lower than in the first quarter of 2001. The company incurred significantly greater interest expense and accelerated amortization related to debt refinancing in the second quarter of 2001 compared to the same period last year. The higher interest expense was due largely to the greater amount of debt the company currently has outstanding compared to last year and to a reduction in the amount of interest capitalized for major construction projects. Potlatch is a diversified forest products company with timberlands in Arkansas, Idaho and Minnesota.