FORWARD-LOOKING STATEMENTS

This report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including without limitation, statements regarding future revenues, cash flows, energy costs, wood fiber costs, future dividends, manufacturing output, additional corporate overhead and administrative expenses associated with being a stand-alone company, benefit plan funding levels, the effect of recent accounting standards on our financial condition and results of operations, our expectation that we will receive substantial alternative fuel refundable tax credits, our expectation regarding the need to periodically draw upon our credit facility to meet cash requirements and capital expenditures. 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 are based on management's current expectations, estimates, assumptions and projections that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause or contribute to such differences include the risk factors described in Item 1A of

• changes in the United States and international economies;

• cyclical industry conditions;

• changes in raw material costs and energy availability and costs;

• changes in the alternative fuel mixture tax credit regulations, our eligibility for such credits and the tax treatment associated with receipt of such credits;

• unanticipated manufacturing disruptions;

• the loss of business from any of our three largest Consumer Products segment customers;

• changes in freight costs and disruptions in transportation services;

• our inability to implement our strategies;

• changes in exchange rates between the U.S. dollar and other currencies;

• competitive pricing pressures for our products;

• changes in the relationship between supply and demand in the forest products industry, including the amount of available manufacturing capacity and wood fiber used in manufacturing products;

• changes in the level of construction activity;

• our inability to refinance or pay indebtedness;

• changes in laws, regulations or industry standards affecting our business;

• labor disruptions;

• unforeseen environmental liabilities or expenditures; and

• damage to our manufacturing facilities caused by fire or weather related events.

Forward-looking statements contained in this report present management's 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 management's views to reflect events or circumstances occurring after the date of this report.

OVERVIEW

Executive summary. We reported net earnings for the second quarter of 2009 of $75.4 million, or $6.43 per diluted common share, compared to net earnings of $5.0 million, or $0.44 per diluted common share, for the second quarter of 2008. Results for the second quarter of 2009 included the following items:

• $76.4 million of pre-tax income from alternative fuel mixture tax credits;

• renewable energy tax credits of $9.8 million attributable to the federal tax credit allowed with respect to electricity produced from qualified energy resources and sold to an unrelated person for the tax years 2006 through 2008;

• $6.3 million of debt retirement costs.

Compared to the second quarter of 2008, and excluding the above items, the increase in net earnings for the second quarter of 2009 resulted primarily from:

• higher net selling prices for our consumer tissue and paperboard products;

• increased shipments of consumer tissue products and pulp;

• lower input costs for wood fiber, which includes pulp for our Consumer Products segment, wood chips, sawdust and purchased pulp for our Pulp and Paperboard segment, and logs for our Wood Products segment;

• lower input costs for freight, energy and chemicals; and

• lower costs associated with decreased shipments of our paperboard and lumber products.

Net sales were $316.9 million for the second quarter of 2009, slightly higher than the $316.0 million of net sales for the same period in 2008. Higher net selling prices for consumer tissue and paperboard products and increased shipments of tissue and pulp to external customers were nearly offset by decreased shipments of paperboard and lower net selling prices and decreased shipments of lumber.

For the first six months of 2009, we reported net earnings of $89.1 million, or $7.68 per diluted common share, compared to net earnings of $7.2 million, or $0.64 per diluted common share for the first six months of 2008. First half 2009 results also included the $76.4 million of pre-tax alternative fuel mixture tax credit income, the $9.8 million of renewable energy tax credits, the $3.6 million state investment credit related tax valuation adjustment and the $6.3 million of debt retirement costs. Compared to the first half of 2008, and excluding these items, net earnings for the first half of 2009 were favorably affected by the following:

• higher net selling prices for our consumer tissue and paperboard products;

• lower input costs for wood fiber, freight, energy and chemicals; and

• lower costs associated with decreased shipments of our paperboard and lumber products.

Net sales were $603.6 million for the six months ended June 30, 2009, or 3.2% less than the $623.4 million of net sales for the same period in 2008. The reduction in net sales was due primarily to decreased shipments of paperboard, lumber and pulp to external customers, combined with lower selling prices for pulp and lumber, partially offset by higher net selling prices for our consumer tissue and paperboard products.

Corporate allocations. Historically, we shared corporate functions with Potlatch for a variety of services, including treasury, accounting, tax, legal, internal audit, human resources, information systems and public and investor relations. Upon completion of the spin-off, we became a stand-alone company and our expenses include payment for services provided by Potlatch under a transition services agreement. These services include employee benefits administration, information systems, accounting and other services for a period of up to eighteen months following the spin-off. Charges for these services have been set based on actual cost and will be partially offset by charges for certain accounts payable, purchasing, human resources, transportation, treasury, accounting, payroll and information systems related services we provide to Potlatch under the transition services agreement. We have been, and will continue to be, in the process of setting up stand-alone functions during the period of the transition services agreement, and we may incur some duplicative expenses in this process.

Our historical financial statements, prior to December 16, 2008, contain allocations of direct and indirect corporate overhead expenses, including costs for services of the type covered by the transition services agreement, as well as allocations for administrative and selling expenses based on the relative revenues of our wood products operations in relation to Potlatch's Wood Products segment. We were allocated corporate overhead and wood products administrative and selling expenses of $2.1 million for the second quarter 2008 and $5.0 million for the six months ended June 30, 2008. We believe that the methodology applied to the allocation of these expenses was reasonable. However, on a comparable basis we expect to incur approximately $10 million of additional costs in 2009, compared to 2008, associated with being an independent, publicly traded company, not including additional expenses associated with incentive compensation based on company performance.

Except for interest expense associated with our note payable to Potlatch (in connection with our retained debt obligation further described below under the heading "Debt Arrangements"), no interest expense or interest income was allocated from Potlatch to us prior to the spin-off.

Significant changes could have occurred in our funding and operations if we had operated as an independent stand-alone entity, including a possible change in our capital structure, for example the incurrence of debt, which could have had a significant impact on our financial position and results of operations.

Components of Net Sales and Expenses

Net sales. Net sales consist of sales of consumer tissue, pulp and paperboard and wood products, net of discounts, returns and allowances and any sales taxes collected. Sales taxes, when collected, are recorded as a current liability until remitted to the appropriate governmental entities.

Cost of sales. Cost of sales expenses consist primarily of personnel costs and the cost of raw materials, including wood fiber, energy and chemicals, depreciation and repair and maintenance expenses related to our facilities and freight associated with customer shipments.

Selling, general and administrative expenses. Selling, general and administrative expenses primarily consist of compensation and associated costs for sales and administrative personnel, as well as commission expenses related to sales of our products.

Alternative fuel mixture tax credits. We are registered with the IRS as an alternative fuel mixer and have received refundable tax credit payments in connection with our use of "black liquor," a by-product of the pulp manufacturing process, in an alternative fuel mixture to produce energy at our pulp mills. The amount of the refundable tax credit is equal to $0.50 per gallon of alternative fuel mixture used. We recorded $76.4 million of pre-tax income during the second quarter of 2009 related to the alternative fuel mixture tax credit. This income was for the period from late January through June 30, 2009. The portion of the alternative fuel mixture tax credit attributable to operations occurring during the second quarter was $45.0 million. Through June 30, 2009, we had received refundable tax credit payments totaling $57.6 million.

The income for the alternative fuel mixture tax credits has been recorded as taxable income in our financial statements, including a provision for income taxes. However, we are still evaluating the likelihood that any credits received would be subject to corporate income tax, as well as the manner in which we will report the credits on our corporate income tax returns.

The alternative fuel mixture tax credit is currently set to expire on December 31, 2009, and legislation has been proposed that would terminate the credit with respect to black liquor prior to that time. There is relatively little guidance regarding the alternative fuel mixture tax credits and the law governing the issue is complex. Accordingly, there can be no assurance that the alternative fuel mixture tax credit for the use of black liquor will continue in effect, that we will remain qualified to receive the tax credits, that our applications for additional payments will be approved and paid, or that we will be entitled to retain the amounts we receive. In addition, there can be no assurance as to whether or not the amounts we receive will be subject to taxation or subject to further review by the IRS.

Interest expense. Interest expense is the interest related to the $100 million note payable to Potlatch in connection with our retained obligation agreement, prior to the satisfaction of that obligation in June 2009, as well as interest associated with $150 million of senior notes issued by us in June 2009 and with our credit facility.

Income taxes. Income taxes are based on reported earnings and tax rates in the jurisdictions in which our operations occur and offices are located, adjusted for available credits, changes in valuation allowances and differences between reported earnings and taxable income using current tax laws and rates.

RESULTS OF OPERATIONS

Our results of operations and financial condition discussed below for the quarter and six months ended June 30, 2008, were prepared on a combined basis from Potlatch's consolidated financial statements. The historical results of operations and book value of the assets and liabilities of Potlatch's Consumer Products and Pulp and Paperboard business and its Wood Products operations at Lewiston, Idaho, were used and give effect to allocations of expenses from Potlatch. This information is not necessarily indicative of what our financial position and results of operations would have been had we operated as a separate, stand-alone entity during the quarter and six months ended June 30, 2008.

At June 30, 2009, our business was organized into three reporting segments:
Consumer Products, Pulp and Paperboard, and Wood Products. Sales or transfers between segments are recorded as intersegment net sales based on prevailing market prices.

Quarter Ended June 30, 2009 Compared to Quarter Ended June 30, 2008

The following table sets forth period-to-period changes in items included in our
Condensed Statements of Operations for the quarters ended June 30, 2009 and
2008.



                                                                    Quarter Ended
                                                                      June 30,
(Dollars in thousands)                                   2009           2008          Change
Net sales                                              $ 316,905      $ 315,988      $     917
Costs and expenses:
Cost of sales                                            267,022        293,848        (26,826 )
Selling, general and administrative expenses              18,198         11,198          7,000

                                                         285,220        305,046        (19,826 )

Alternative fuel mixture tax credits                      76,373             -          76,373

Earnings before interest, debt retirements costs and
income taxes                                             108,058         10,942         97,116
Interest expense, net                                     (3,431 )       (3,250 )         (181 )
Debt retirement costs                                     (6,250 )           -          (6,250 )

Earnings before income taxes                              98,377          7,692         90,685
Income tax provision                                      22,929          2,716         20,213

Net earnings                                           $  75,448      $   4,976      $  70,472

Net sales-We experienced higher net selling prices for our consumer tissue and paperboard products and increased shipments of our consumer tissue products and pulp to external customers in the second quarter of 2009, compared to the same period in 2008. These improvements were largely offset by decreased shipments of paperboard and lumber, combined with lower selling prices for pulp and lumber. These items are discussed further below under "Business Segment Discussion."

Cost of sales-Cost of sales was 84.3% of net sales for the quarter ended June 30, 2009, and 93.0% of net sales for the same period in 2008. The decrease of $26.8 million, or 9.1%, in the 2009 period compared to 2008 was primarily due to the following items:

• lower input costs for wood fiber, freight, energy and chemicals; and

• lower overall expenses associated with decreased paperboard and lumber shipments.

Selling, general and administrative expenses-Selling, general and administrative expenses increased 62.5% for the quarter ended June 30, 2009 compared to the same period in 2008. The increase was primarily due to additional corporate administration expenses associated with being an independent, publicly traded company, as well as higher incentive compensation related expenses recorded in the second quarter of 2009.

Alternative fuel mixture tax credits-For the quarter ended June 30, 2009, we recorded $76.4 million of income related to alternative fuel mixture tax credits for the period from late January 2009 through June 2009. The portion of the alternative fuel mixture tax credit attributable to operations occurring during the second quarter was approximately $45.0 million.

Interest expense-Interest expense increased 5.6% in the second quarter of 2009 compared to the second quarter of 2008. Interest expense on the note payable to Potlatch was $2.1 million in the second quarter of 2009, compared to $3.3 million in the second quarter of 2008. During the second quarter, we issued $150 million of senior notes and in turn satisfied our $100 million note payable obligation to Potlatch. Interest expense on the $150 million senior notes was $0.9 million in the second quarter of 2009. In the second quarter of 2009, we also recorded approximately $0.4 million of interest related to our credit facility.

Debt retirement costs-We recorded $6.3 million of expenses in the second quarter of 2009 associated with the retirement of our $100 million note payable obligation to Potlatch. The $100 million note payable represented the principal amount of credit sensitive debentures originally issued by an affiliate of Potlatch. Prior to our spin-off, we agreed to retain the obligation to pay all amounts due to the holders of these debentures. The $6.3 million represents our current estimate of the interest payment that will be required on the December 1, 2009, maturity date of the credit sensitive debentures.

Income tax provision-Our income tax provision increased $20.2 million for the quarter ended June 30, 2009, compared to the same period in 2008, due to increased operating earnings and pre-tax income of $76.4 million from alternative fuel mixture tax credits. The increase in the income tax provision was partially offset by the recognition of federal renewable energy tax credits of $9.8 million and the reduction of a valuation allowance of $3.6 million previously established with respect to state investment credit carryovers in the second quarter of 2009. Excluding these items, the effective tax rate was 36.9% for the second quarter of 2009, compared to an effective tax rate of 35.3% for the second quarter of 2008. The tax provision for the second quarter of 2008 was calculated on a carve-out accounting basis, whereas the 2009 tax provision is reflective of the company's operations and tax attributes as a stand-alone entity.

BUSINESS SEGMENT DISCUSSION

Consumer Products



                                                                Quarter Ended
                                                                   June 30,
  (Dollars in thousands)                                     2009           2008
  Net sales (before intersegment net sales eliminations)   $ 139,350      $ 122,888
  Operating income                                            32,182          7,082
  Percent of net sales                                          23.1 %          5.8 %

The Consumer Products segment reported a 13.4% increase in net sales (before intersegment net sales eliminations) and a $25.1 million increase in operating income for the second quarter of 2009 compared to the second quarter of 2008. The significant increase in operating income was due to the combination of increased net sales, which were attributable to higher net selling prices, increased shipments, and decreased costs. Average net selling prices for the second quarter of 2009 were 7.3% higher than the average for the second quarter of 2008 due to higher overall pricing. Shipment volumes were 5.6% higher in the second quarter of 2009 compared to the same period in 2008 due largely to increased production at our tissue converting facilities.

Operating costs for the segment were $8.6 million lower in the second quarter of 2009 versus the same period in 2008, or a 7.5% decrease. The decrease was due primarily to lower pulp, freight and energy costs. Equipment maintenance and repair costs, including labor, were $5.7 million for the second quarter of 2009, compared to $4.7 million for the second quarter of 2008.

Pulp and Paperboard



                                                                Quarter Ended
                                                                   June 30,
  (Dollars in thousands)                                     2009           2008
  Net sales (before intersegment net sales eliminations)   $ 174,409      $ 185,112
  Operating income                                            87,758          6,030
  Percent of net sales                                          50.3 %          3.3 %

Operating income for the Pulp and Paperboard segment increased $81.7 million in the second quarter of 2009 compared to the second quarter of 2008. The significant increase in income for the segment was due to the $76.4 million of pre-tax income recorded in the second quarter of 2009 associated with the alternative fuel mixture tax credit, as previously discussed. Excluding the alternative fuel mixture tax credits income, operating income for the segment was $11.4 million in the second quarter of 2009, or 88.8% higher than the operating income for the second quarter of 2008.

Net sales, before intersegment net sales eliminations, were 5.8% lower in the second quarter of 2009 compared to the second quarter of 2008. The decrease in net sales was due to an 8.0% decrease in paperboard shipments and significantly lower net selling prices for pulp, partially offset by 2.6% higher net selling prices for paperboard and increased shipments of pulp to external customers and our Consumer Products segment. The higher paperboard selling prices were primarily attributable to price increases implemented in 2008, while the lower pulp net selling prices were largely due to the weakening of pulp markets beginning in the second half of 2008 and continuing through the second quarter of 2009.

The decrease in net sales discussed above was largely offset by a $16.1 million decrease in operating expenses for the segment. In addition to lower costs associated with the decreased shipments of paperboard, operating expenses for the second quarter of 2009 were favorably affected by lower input costs for wood fiber, chemicals, energy and freight. Cost levels for wood chips to supply our Lewiston, Idaho, pulp and paperboard mill have moderated some in 2009 but remain at historically high levels, due largely to the limited supplies resulting from the slowdown or shutdown of operations of many lumber mills in response to the continued U.S. economic and home construction market downturn. Equipment maintenance and repair expenses, including labor, for the segment were $14.9 million in the second quarter of 2009, compared to $12.4 million in the second quarter of 2008. The maintenance and repair expenses for the 2009 quarter included $1.8 million of major maintenance costs, while in the second quarter of 2008 no such costs were incurred. During the second quarter of 2009, we took eight days of downtime on one of our paperboard machines and five days of downtime on one of our pulp lines, both in Idaho. We utilized a portion of the downtime to shift certain major maintenance work originally planned for the third quarter of 2009 to the second quarter.

Wood Products



                                                                Quarter Ended
                                                                   June 30,
   (Dollars in thousands)                                     2009          2008
   Net sales (before intersegment net sales eliminations)   $ 16,587      $ 27,652
   Operating loss                                             (4,480 )      (3,646 )
   Percent of net sales                                          N/A           N/A

The Wood Products segment reported an operating loss of $4.5 million for the second quarter of 2009, compared to an operating loss of $3.6 million recorded in the same period of 2008. The continued and prolonged downturn in the housing market had a significant negative effect on the results in both quarters. The larger loss for the segment in the 2009 period was due to a significant decrease in net sales, before intersegment net sales eliminations, which was attributable to a 26.4% decrease in shipments and 17.2% lower average net selling prices. The decreased shipments and lower average net selling prices were due to unfavorable pricing and a lower percentage of higher-value cedar product sales. During the second quarter of 2009, our lumber mill in Lewiston, Idaho operated on a reduced production schedule and took six days of downtime.

The decreased net sales in the second quarter of 2009 were partially offset by a $10.2 million decrease in segment expenses, which were primarily due to lower log costs and lower overall costs associated with the decreased lumber shipments.

Corporate and Eliminations

Corporate expenses and eliminations were $7.4 million for the second quarter of 2009, compared to income of $1.5 million for the second quarter of 2008. The corporate and eliminations income amount for the second quarter of 2008 was the result of a positive intra-company inventory adjustment, partially offset by corporate administration and other expenses calculated on a carve-out basis. Excluding the positive intra-company inventory adjustment in the second quarter of 2008, the increase in the second quarter of 2009 was due largely to increased corporate administration expenses primarily associated with being an independent, publicly traded company after our spin-off on December 16, 2008, as well as higher incentive compensation related expenses recorded in the second quarter of 2009.

Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008

The following table sets forth period-to-period changes in items included in our
Condensed Statements of Operations for the six months ended June 30, 2009 and
2008.



                                                                  Six Months Ended
                                                                      June 30,
(Dollars in thousands)                                   2009           2008          Change
Net sales                                              $ 603,605      $ 623,425      $ (19,820 )
Costs and expenses:
Cost of sales                                            512,667        581,953        (69,286 )
Selling, general and administrative expenses              34,028         23,932         10,096
. . .