UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
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
(State or other jurisdiction of incorporation or organization)
601 West 1st Ave., Suite 1600
Spokane, Washington
(Address of principal executive offices)
82-0156045
(IRS Employer Identification No.)
99201
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
Registrant’s telephone number, including area code: (509) 835-1500
TITLE OF EACH CLASS
Common Stock
($1 par value)
NAME OF EACH EXCHANGE ON WHICH
REGISTERED
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act
Yes
No
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
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
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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
company)
Smaller reporting company
Accelerated filer
Non-accelerated filer (Do not check if a smaller reporting
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the common stock held by non-affiliates of the registrant at June 30, 2015, was approximately
$1,436.7 million, based on the closing price of $35.32.
As of January 31, 2016, 40,680,713 shares of the registrant's common stock, par value $1 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2015 annual meeting of stockholders expected to be filed with the Commission
on or about April 1, 2016 are incorporated by reference in Part III hereof.
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Table of Contents
PART I
BUSINESS
ITEM 1.
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
ITEM 4.
PART II
ITEM 5.
ITEM 6.
ITEM 7.
LEGAL PROCEEDINGS
MINE SAFETY DISCLOSURES
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED FINANCIAL DATA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION
PART III
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
SIGNATURES
PAGE
NUMBER
3
9
17
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19
21
22
36
38
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40
41
42
43
44
67
67
67
69
69
70
70
70
71
75
EXPLANATORY NOTE
For purposes of this report, any references to "the company,” “us,” “we,” and “our” include Potlatch Corporation and
its consolidated subsidiaries.
CAUTIONARY STATEMENT REGARDING 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:
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timber inventory;
increasing lumber demand and pricing in North America in 2016;
increased North American housing starts and repair and remodel activity;
increased lumber production in 2016;
the expected positive effect on timber prices of increased lumber demand and higher lumber prices;
expected sawlog prices in 2016;
expected timber harvest level of between 4.0 million and 4.8 million tons each year over the next several
years;
expected 2016 overall timber harvest of 4.4 million tons;
expected sale of 38% of Northern region timber volume under log supply agreements in 2016;
expected sales of 75,000 acres of higher and better use (HBU) property,130,000 acres of rural real estate
property and 80,000 acres of non-strategic timberland over the next decade or more;
funding of our dividends in 2016;
compliance with REIT tax rules;
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• Forest Steward Council® (FSC®) and Sustainable Forest Initiative® (SFI®) certification of our timberlands;
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expectations regarding premium prices for FSC®-certified logs and FSC®-certified lumber;
realization of deferred tax assets;
expected capital expenditures in 2016;
expectations regarding funding of our pension plans in 2016;
expectations regarding supplemental pension plan payments in 2016;
estimated future benefit payments;
estimated future payments under operating leases;
estimated long-term rate of return on pension assets;
estimated future debt payments; and
expected liquidity in 2016 to fund our operations, regular stockholder dividends, capital expenditures and
debt service obligations and related 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. Important factors that could cause or contribute to such
differences include, but are not limited to, the following:
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changes in timber growth rates;
changes in silviculture;
timber cruising variables;
changes in state forest acts or best management practices;
changes in timber harvest levels on our lands;
changes in timber prices;
changes in timberland values;
changes in policy regarding governmental timber sales;
changes in the United States and international economies;
changes in interest rates and discount rates;
changes in exchange rates;
changes in requirements for FSC® or SFI® certification;
changes in the level of residential and commercial construction and remodeling activity;
changes in tariffs, quotas and trade agreements involving wood products;
2015 FORM 10-K / 1
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• weather conditions;
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changes in demand for our products;
changes in production and production capacity in the forest products industry;
competitive pricing pressures for our products;
unanticipated manufacturing disruptions;
changes in general and industry-specific environmental laws and regulations;
unforeseen environmental liabilities or expenditures;
changes in raw material and other costs;
collectability of amounts owed by customers;
changes in federal and state tax laws;
the ability to satisfy complex rules in order to remain qualified as a REIT; and
changes in tax laws that could reduce the benefits associated with REIT status.
For a discussion of some of the factors that may affect our business, results and prospects, see Part 1 - Item 1A.
Risk Factors.
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.
2 / POTLATCH CORPORATION
Part I
ITEM 1. BUSINESS
General
Potlatch Corporation is a real estate investment trust (REIT) that owns approximately 1.6 million acres of
timberlands in Alabama, Arkansas, Idaho, Minnesota and Mississippi. We derive much of our income from
investments in real estate, including the sale of standing timber. Through wholly owned taxable REIT subsidiaries,
which we refer to collectively in this report as Potlatch TRS, we operate a real estate sales business and five wood
products manufacturing facilities that produce lumber and plywood.
Our businesses are organized into three operating segments:
• Resource: Our Resource segment manages our timberlands to optimize revenue producing opportunities
while adhering to our strict stewardship standards. Management activities include planting and harvesting
trees and building and maintaining roads. The Resource segment also generates revenues from activities
such as hunting leases, recreation permits and leases, mineral rights leases, biomass production and
carbon sequestration.
• Wood Products: Our Wood Products segment manufactures and markets lumber, plywood and residual
products.
• Real Estate: The business of our Real Estate segment consists primarily of the sale of land holdings
deemed non-strategic or identified as having higher and better use alternatives. The Real Estate segment
engages in real estate sales and limited subdivision activity through Potlatch TRS.
Additional information regarding each of our operating segments is included in this section, as well as in
Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 15: Segment
Information in the Notes to Consolidated Financial Statements.
We are focused on the ownership of timberland, which we view as a unique and attractive asset due to the
renewable nature of timber resources and timber’s long-term history of price appreciation in excess of inflation. Our
primary objectives include using our timberland investments to generate income and maximizing the long-term
value of our assets. We pursue these objectives by adhering to the following strategies:
• Managing our timberlands to improve their long-term sustainable yield. We manage our timberlands in a
manner designed to optimize the balance among timber growth, prudent environmental management and
current cash flow, in order to achieve increasing levels of sustainable yield over the long-term. We may
choose to harvest timber at levels above or below our current estimate of sustainability for short periods of
time, for the purpose of improving the long-term productivity of certain timber stands or in response to
market conditions. In addition, we focus on optimizing timber returns by continually improving productivity
and yields through advanced silvicultural practices that take into account soil, climate and biological
considerations.
• Pursuing attractive acquisitions. We actively pursue timberland acquisitions that meet our financial and
strategic criteria. The critical elements of our acquisition strategy generally include acquiring properties that
complement our existing land base, are immediately cash flow accretive and have attractive timber or
higher and better use (HBU) values.
• Maximizing the value of our timberland real estate. A portion of our acreage is more valuable for
recreational purposes or to other timberland or real estate investors rather than for growing timber. We
continually assess the potential uses of our lands and manage them proactively for the highest value. We
have identified approximately 20% of our timberlands as having values that are potentially greater than
timberland values.
• Practicing sound environmental stewardship. We pursue a program of environmental stewardship and
active involvement in federal, state and local policymaking to maximize our assets’ long-term value. We
manage our timberlands in a manner consistent with the principles set forth by SFI® or FSC®.
2015 FORM 10-K / 3
Potlatch Corporation, formerly known as Potlatch Holdings, Inc., was incorporated in Delaware in September 2005
to facilitate a restructuring to qualify for treatment as a REIT for federal income tax purposes. It is the successor to
the business of the original Potlatch Corporation, which was incorporated in Maine in 1903.
Effective January 1, 2006, we restructured our operations to qualify for treatment as a REIT. As a REIT, we
generally are not subject to federal and state corporate income taxes on our income from investments in real estate
that we distribute to our stockholders, including the income derived from the sale of standing timber. As of January
1, 2016, we are no longer subject to corporate taxes on certain built-in gains (the excess of fair market value over
tax basis on real property held since January 1, 2006) on sales of real property held by the REIT. We are required
to pay federal corporate income taxes on income from our non-real estate investments, principally the operations of
Potlatch TRS.
Available Information
We make our periodic and current reports that we file with, or furnish to, the Securities and Exchange Commission
(SEC) available on or through our website, www.potlatchcorp.com (under “Investor Resources – Financial
Information”), at no charge as soon as reasonably practicable after we electronically file the information with, or
furnish it to, the SEC. Information on our website is not part of this report. In addition, the reports and materials that
we file with the SEC are available at the SEC’s website (www.sec.gov) and at the SEC’s Public Reference Room at
100 F Street, N.E., Washington DC 20549. Interested parties may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330.
Business Segments
Resource Segment
Industry Background. The demand for timber depends primarily upon the markets for wood related products,
including lumber, panel products, paper and other pulp-based products. The end uses for timber vary widely,
depending on species, size and quality. Historically, timber demand has experienced cyclical fluctuations, although
sometimes at different times and rates for products or geographic regions. The demand for sawlogs, lumber and
other manufactured wood products is significantly dependent upon the level of new residential construction and
remodeling activity, which, in turn, is affected by general economic and demographic factors, including population
growth, new household formations, interest rates for home mortgages and construction loans, and credit availability.
Increases in residential construction and remodeling activities are generally followed by higher lumber prices, which
are usually followed by higher log prices. The demand for pulpwood is dependent on the paper and pulp-based
manufacturing industries. Both pulpwood and sawlogs are affected by domestic and international economic
conditions, global population growth and other demographic factors, industry capacity and the value of the U.S.
dollar in relation to foreign currencies. Locally, timber demand also fluctuates due to the expansion or closure of
individual wood products and pulp-based manufacturing facilities.
Timber supplies can fluctuate depending upon factors such as changes in weather conditions and harvest
strategies, as well as occasionally high timber salvage efforts due to storm damage, unusual pest infestations such
as the mountain pine beetle, or fires. Local timber supplies also change in response to prevailing timber prices.
Rising timber prices often lead to increased harvesting on private timberlands, including lands not previously made
available for commercial timber operations. The supply of timber generally is adequate to meet demand, although
this could tighten in the event of higher demand due to U.S. housing starts, increased log and lumber exports, and
the impacts from a natural disaster, such as fire, hurricane, earthquake, insect infestation, drought, disease, ice
storms, windstorms, flooding or other factors.
Timberland Acquisition. On December 7, 2014, we acquired approximately 201,000 acres of timberland in
Alabama and Mississippi for $384 million. The acquisition complemented our existing ownership in our Southern
Region. The acquired timber consisted of approximately 73% softwood and 27% hardwoods. We bought the
timberland subject to three supply agreements. In addition, we assumed recreational leases that cover
approximately 90% of the timberlands acquired. They are generally annual leases that are subject to renewal and
generate approximately $1.5 million in annual revenues.
4 / POTLATCH CORPORATION
Ownership. The Resource segment manages approximately 1.6 million acres of timberlands including
approximately 20,000 acres under long-term leases. We are the largest private landowner in Idaho. The following
table provides additional information about our timberlands.
(Acres in thousands)
REGION
STATE
Northern
region
Idaho
DESCRIPTION
Variety of commercially viable softwood species, such as grand fir, Douglas fir, inland
red cedar and other associated softwoods
ACRES
790
Minnesota
Primarily aspen, pine and other mixed hardwoods
Southern
region
Alabama
Primarily southern yellow pine and other hardwoods
Arkansas
Mississippi
Primarily southern yellow pine and other hardwoods
Primarily southern yellow pine and other hardwoods
Total Northern region
Total Southern region
169
959
98
415
100
613
Total
1,572
Operation. The primary business of the Resource segment is the management of our timberlands to optimize the
value of all possible revenue producing opportunities while adhering to our strict stewardship standards.
Management activities include planting and harvesting trees and building and maintaining roads. The segment also
generates revenue from non-timber resources such as from hunting leases, recreation permits and leases, mineral
rights leases, biomass production and carbon sequestration.
We strive to maximize cash flow while managing our timberlands sustainably over the long-term. From time to time,
we may choose, within the parameters of our environmental commitments, to harvest timber at levels above or
below our estimate of sustainability for short periods in order to take advantage of strong demand or to adjust to
weak demand. To maximize our timberlands' long-term value, we manage them intensively, based upon timber
species and local growing conditions. Our harvest plans take into account changing market conditions, are
designed to contribute to the growth of the remaining timber, and reflect our policy of environmental stewardship.
We reforest our acreage in a timely fashion to enhance its long-term value. We employ silvicultural techniques to
improve timber growth rates, including vegetation control, fertilization and thinning. In deciding whether to
implement any silvicultural practice, we analyze the associated costs and long-term benefits, with the goal of
achieving an attractive return over time.
Inventory. As of the end of 2015, our estimated standing merchantable timber inventory was 66 million tons,
including 36 million tons in the North and 30 million tons in the South. This estimate is derived using methods
consistent with industry practice and is based on statistical methods and field sampling. The estimated inventory
volume includes timber in environmentally sensitive areas where the timberlands are managed in a manner
consistent with best management practices, state forest practice acts and the SFI® or FSC® forest management
standards.
The aggregate estimated volume of current standing merchantable timber inventory is updated annually to reflect
increases due to reclassification of young growth to merchantable timber when the young growth meets defined
diameter specifications, the annual growth rates of merchantable timber and the acquisition of additional
merchantable timber, and to reflect decreases due to timber harvests and land sales. Timber volumes are estimated
from cruises of the timber tracts, which are generally completed on a five to ten year cycle. Since the individual
cruises collect field data at different times for specific sites, the growth model projects standing inventory from the
cruise date to a common reporting date. Annual growth rates for the merchantable inventory have historically been
in the range of 2% to 5% in the North and 6% to 9% in the South.
Harvest. Our short-term and long-term harvest plans are critical factors in our long-term management process.
Each year, we prepare a harvest plan designating the timber tracts and volumes to be harvested during that
particular year. Each harvest plan reflects our analysis of the age, size and species distribution of our timber, as well
as our expectations about harvest methods, growth rates, the volume of each species to be harvested, anticipated
acquisitions and dispositions, thinning operations, regulatory constraints and other relevant information. Among
other things, the optimal harvest cycles, or rotations, for timber vary by location and species and tend to change
over time as a result of silvicultural advances, changes in the markets for different sizes and ages of timber and
other factors. Since harvest plans are based on projections of weather, timber growth rates, regulatory constraints
and other assumptions, many of which are beyond our control, there can be no assurance that we will be able to
harvest the volumes projected or the specific timber stands designated in our harvest plans.
2015 FORM 10-K / 5
Detailed harvest information by region and product is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations. The following table presents a summary of our total 2015 timber
harvest by region.
(Tons in thousands)
Northern region
Southern region
Total
SAWLOGS
1,993
736
2,729
TIMBER HARVESTED
PULPWOOD
195
1,128
1,323
STUMPAGE
24
321
345
TOTAL
2,212
2,185
4,397
We expect our harvest level to range between 4.0 million and 4.8 million tons each year over the next several
years, depending on market conditions and other factors, assuming no significant timberland acquisitions or
dispositions. Based on our current projections, which are based on constant timberland holdings, and that take into
consideration such factors as market conditions, the ages of our timber stands and recent timberland sales and
acquisitions, we expect to harvest approximately 4.4 million tons in 2016.
The Resource segment sells a portion of its logs at market prices to our wood products manufacturing facilities.
Intersegment sales to our wood products manufacturing facilities in 2015 were approximately 20% of our total
Resource segment revenues. The segment also sells sawlogs and pulpwood to a variety of forest products
companies located near our timberlands. The segment’s customers range in size from small operators to
multinational corporations. Idaho Forest Group, LLC operates five sawmills in Idaho and represented slightly more
than 10% of our consolidated revenues in 2015, 2014 and 2013. The segment competes with owners of
timberlands that operate in areas near our timberlands, ranging from private owners of small tracts of land to some
of the largest timberland companies in the United States. The segment competes principally on the basis of
distance to market, price, log quality and customer service.
In 2015, approximately 38% of our harvest volumes in both the Northern and Southern regions were sold under log
supply agreements. We expect approximately the same amount to be sold under log supply agreements in 2016. In
general, our log supply contracts require a specified volume of timber to be delivered to defined customer facilities
at prices that are adjusted periodically to reflect market conditions. Prices in our Northern region contracts are
adjusted periodically by species to prevailing market prices for logs, lumber, wood chips and other residuals. Prices
in our Southern region contracts are adjusted every three months for pine and hardwood logs based on prevailing
market prices for logs. Currently our log supply agreements are in place for one to six years.
Other. Our timberlands include a wide diversity of softwood and hardwood species and are certified to either the
SFI® or FSC® standards. We adhere to principles that include commitments to sustainable forestry, responsible
practices, forest health and productivity, and protection of special sites. We are generally able to sell some
FSC®-certified logs at premium prices.
Our operations are subject to numerous federal, state and local laws and regulations, including those relating to the
environment, endangered species, our forestry activities and health and safety. Due to the significance of regulation
to our business, we integrate wildlife, habitat and watershed management into our resource management practices.
We also take an active approach to regulatory developments by participating in standard-setting where possible.
We work cooperatively with regulators to create voluntary conservation plans that address environmental concerns
while preserving our ability to operate our timberlands efficiently. Despite our active participation in governmental
policymaking and regulatory standard-setting, there can be no assurance that endangered species, environmental
and other laws will not restrict our operations or impose significant costs, damages, penalties and liabilities on us. In
particular, we anticipate that endangered species and environmental laws will generally become increasingly
stringent.
The volume and value of timber that can be harvested from our lands may be affected by natural disasters such as
fire, insect infestation, disease, ice storms, hurricanes, wind storms, floods and other weather conditions and
causes. We assume substantially all risk of loss to the standing timber we own from fire and other hazards,
consistent with industry practice in the United States, because insuring for such losses is not practicable.
Wood Products Segment
Our Wood Products segment manufactures and markets lumber, plywood and residual products at five mills located
in Arkansas, Idaho, Michigan and Minnesota. The segment’s products are largely commodity products, which are
sold through our sales offices to end users, retailers or wholesalers for nationwide distribution primarily for use in
home building, industrial products and other construction activity.
6 / POTLATCH CORPORATION
A description of our wood products manufacturing facilities, which are all owned by us, together with their respective
2015 capacities and actual production, are as follows:
Sawmills:
Warren, Arkansas
St. Maries, Idaho
Gwinn, Michigan
Bemidji, Minnesota
Plywood Mill:
St. Maries, Idaho
ANNUAL
CAPACITY1,2
PRODUCTION2
175 mmbf
165 mmbf
175 mmbf
135 mmbf
175 mmbf
170 mmbf
166 mmbf
123 mmbf
150 mmsf
161 mmsf
1 Capacity represents the proven annual production capabilities of the facility under normal operating conditions and producing
a normal product mix. Normal operating conditions are based on the configuration, efficiency and the number of shifts worked
at each individual facility. In general, the definition includes two shifts per day for five days (two 40-hour shifts) per week at
each facility, which is consistent with industry-wide recognized measures. Production can exceed capacity due to efficiency
gains and overtime.
2 mmbf stands for million board feet; mmsf stands for million square feet, 3/8 inch panel thickness basis.
We are the eighth largest lumber manufacturer in the U.S. We believe that competitiveness in this industry is largely
based on individual mill efficiency and on the availability of competitively priced raw materials on a facility-by-facility
basis, rather than the number of mills operated. This is due to the fact that it is generally not economical to transfer
logs between or among facilities, which might permit a greater degree of specialization and operating efficiencies.
Instead, each facility must utilize the raw materials that are available to it in a relatively limited geographic area. For
these reasons, we believe we are able to compete effectively with companies that have a larger number of mills.
We compete based on product quality, customer service and price. We can produce and sell FSC®-certified
products that generally command premium pricing.
For our Wood Products operations, the principal raw material used is logs, which are obtained from our Resource
segment or purchased on the open market. We generally do not maintain long-term supply contracts for a
significant volume of logs. During 2015, 2014 and 2013, 33%, 38% and 39% of our log purchases, respectively,
were provided by our Resource segment.
Real Estate Segment
The activities of our Real Estate segment consist primarily of the sale of selected non-core timberland real estate,
which consists of three categories of property: HBU, rural recreational real estate and non-strategic.
• HBU properties have characteristics that provide primarily home site or other development potential as a
result of superior location or other attractive amenities. These properties tend to have a much higher value
than timberlands.
• Rural recreational real estate properties also have a higher value than timberlands, but do not have the
same developmental potential as HBU properties. For example, these properties may be appropriate for
hunting, conservation or secondary rural housing.
• Non-strategic properties often have locational or operational disadvantages for us, and are typically on the
fringe of our ownership areas.
The Real Estate segment engages in real estate sales and limited subdivision activities through Potlatch TRS.
From time to time, we also take advantage of opportunities to sell timberland where we believe pricing to be
particularly attractive, to match a sale with a purchase of more desirable property while deferring taxes in a like-kind
exchange (LKE) transaction, or to meet various other financial or strategic objectives. Sales of conservation
properties and conservation easements on our properties are also included in this segment. Results for the
segment depend on the demand for our non-core timberlands, the types of properties sold, the basis of these
properties and the timing of closings of property sales. Although large sales of non-strategic properties can cause
results that are not comparable or predictable between periods, we have maintained a relatively consistent level of
rural real estate and HBU sales.
2015 FORM 10-K / 7
A main focus of this segment is to continually assess the highest value use of our lands. We conduct periodic
stratification assessments on our lands and as new lands are acquired. The following tools are used in assessing
our lands:
•
•
•
on-the-ground analysis and verification of modeling assumptions;
electronic analysis, using geographic information systems; and
certain measured and ranked attributes, such as timber potential, recreational opportunities, accessibility,
special features and population and demographic trends.
We have identified approximately 285,000 acres of non-core timberland real estate. This includes approximately
75,000 acres of HBU property, 80,000 acres of non-strategic timberland and 130,000 acres of rural recreational real
estate property. Sales of these lands are expected to occur over a decade or more, with the goal of utilizing LKE
transactions or other tax-advantaged methods when it is appropriate.
Seasonality
Log and pulpwood sales volumes in our Resource segment are typically lower in the first half of each year as winter
rains in the Southern region and spring thaw in the Northern region limit timber harvesting operations due to
softened roadbeds and wet logging conditions that restrict access to logging sites. The third quarter is typically our
Resource segment's strongest production quarter. Real Estate dispositions and acquisitions can be adversely
affected when access to any properties to be sold or considered for acquisition is limited due to adverse weather
conditions. Demand for our manufactured wood products typically decreases in the winter months when
construction activity is slower and increases in the spring, summer and fall when construction activity is generally
higher.
Geographic Areas
All of our timberlands, wood products manufacturing facilities and other real estate assets are located within the
continental United States. In 2015, 2014 and 2013, approximately 1%, 1%, and 2% of the respective year's Wood
Products' segment revenues were derived from sales of manufactured wood products to Canada and Mexico. The
remainder of our revenues were from domestic sales.
Environmental Regulation
Our operations are subject to laws and regulations, including those relating to the environment, endangered
species, our forestry activities and health and safety. Due to the significance of regulation to our business, we
integrate wildlife, habitat and watershed management into our resource management practices. We also take an
active approach to regulatory developments by participating in standard-setting where possible. We work
cooperatively with regulators to create voluntary conservation plans that address environmental concerns while
preserving our ability to operate our timberlands efficiently.
Enactment of new environmental laws or regulations, or changes in existing laws or regulations, particularly relating
to air and water quality, or their enforcement, may require significant expenditures by us or may adversely affect our
timberland management and harvesting activities.
Similarly, a number of species indigenous to our timberlands have been listed as threatened or endangered or have
been proposed for one or the other status under the Endangered Species Act. As a result, our activities in or
adjacent to the habitat of these species may be subject to restrictions on the harvesting of timber, reforestation
activities and the construction and use of roads.
We expect legislative and regulatory developments in the area of climate change to address carbon dioxide
emissions and renewable energy and fuel standards. It is unclear as of this date how any such developments will
affect our business.
At this time, we believe that federal and state laws and regulations related to the protection of endangered species
and air and water quality will not have a material adverse effect on our financial position, results of operations or
liquidity. We anticipate, however, that increasingly strict laws and regulations relating to the environment, natural
resources and forestry operations, as well as increased social concern over environmental issues, may result in
additional restrictions on us, leading to increased costs, additional capital expenditures and reduced operating
flexibility.
8 / POTLATCH CORPORATION
There is extensive federal and state environmental regulation with respect to air emissions, wastewater discharges,
solid and hazardous waste management, site remediation, forestry operations, and threatened and endangered
species. We are also subject to the requirements of the Federal Occupational Safety and Health Act and
comparable state statutes relating to the health and safety of our employees. We maintain environmental and safety
compliance programs and conduct regular internal and independent third-party audits of our facilities and
timberlands to monitor compliance with these laws and regulations. Compliance with environmental regulations is a
significant factor in our business and requires capital expenditures as well as additional operating costs.
We believe that our manufacturing facilities and timberland operations are currently in substantial compliance with
applicable environmental laws and regulations. We cannot be certain, however, that situations that give rise to
material environmental liabilities will not be discovered.
Information regarding potentially material environmental proceedings is included in Note 14: Commitments and
Contingencies in the Notes to Consolidated Financial Statements contained in this report and incorporated herein
by reference.
Employees
As of December 31, 2015, we had 927 employees. The workforce consisted of 231 salaried, 661 hourly and 35
temporary or part-time employees. As of December 31, 2015, 18% of the workforce was covered under one
collective bargaining agreement, which expires in May 2016.
ITEM 1A. RISK FACTORS
Investing in our common stock involves a significant degree of risk. Our business, financial condition, results of
operations or liquidity could be materially adversely affected by any of the following risks and, as a result, the
trading price of our common stock could decline. The risks described below are not the only ones we face.
Additional risks not presently known to us or that we currently deem immaterial may also impair our business,
financial condition, results of operations or liquidity. In addition to the risk factors discussed below, investors should
carefully consider the risks and uncertainties presented in Part 1 - Item 1. Business.
Business and Operating Risks
Our cash dividends are not guaranteed and may fluctuate, which could adversely affect our stock
price.
Under the REIT rules, to remain qualified as a REIT, a REIT must distribute, within a certain period after the end of
each year, 90% of its ordinary taxable income for such year. Our REIT income, however, consists primarily of net
capital gains resulting from payments received under timber cutting contracts with Potlatch TRS and third parties,
rather than ordinary taxable income. Therefore, unlike most REITs, we are not required to distribute material
amounts of cash to remain qualified as a REIT. If, after giving effect to our dividends, we have not distributed an
amount equal to 100% of our REIT taxable income, then we would be required to pay tax on the undistributed
portion of such taxable income at regular corporate tax rates and our stockholders would be required to include
their proportionate share of any undistributed capital gain in income and would receive a credit or refund for their
share of the tax paid by us.
Our Board of Directors, in its sole discretion, determines the actual amount of dividends to be made to stockholders
based on consideration of a number of factors, including, but not limited to, our results of operations, cash flow and
capital requirements, economic conditions in our industry and in the markets for our products, tax considerations,
borrowing capacity, debt covenant restrictions, timber prices, harvest levels on our timberlands, market demand for
timberlands, including timberland properties we have identified as potentially having a higher and better use, and
future acquisitions and dispositions. For a description of debt covenants that could limit our ability to make
dividends to stockholders in the future, see Liquidity and Capital Resources in Management’s Discussion and
Analysis of Financial Condition and Results of Operations. Consequently, the level of future dividends to our
stockholders may fluctuate, and any reduction in the dividend rate may adversely affect our stock price.
The cyclical nature of our business could adversely affect our results of operations.
The financial performance of our operations is affected by the cyclical nature of our business. The markets for
timber, manufactured wood products and real estate are influenced by a variety of factors beyond our control. The
demand for our timber and manufactured wood products is affected by the level of new residential construction
activity and, to a lesser extent, home repair and remodeling activity, which are subject to fluctuations due to
2015 FORM 10-K / 9
changes in economic conditions, interest rates, credit availability, population growth, weather conditions and other
factors. The demand for logs is also affected by the demand for wood chips in the pulp and paper markets. The
supply of timber and logs has historically increased during favorable pricing environments, which then causes
downward pressure on prices. Historical prices for our manufactured wood products have been volatile, and we
have limited direct influence over the timing and extent of price changes for our manufactured wood products. The
demand for real estate can be affected by changes in factors such as interest rates, credit availability and economic
conditions, as well as by the impact of federal, state and local land use and environmental protection laws.
All of our timberlands are located in Alabama, Arkansas, Idaho, Minnesota, and Mississippi. As a result, we may be
susceptible to adverse economic and other developments in these regions, including industry slowdowns, business
layoffs or downsizing, relocations of businesses, changes in demographics, increases in real estate and other taxes
and increased regulation, any of which could have a material adverse effect on us.
In addition, the geographic concentration of our property makes us more susceptible to adverse impacts from a
single natural disaster such as fire, hurricane, earthquake, insect infestation, drought, disease, ice storms,
windstorms, flooding and other factors that could negatively impact our timber production.
Our operating results and cash flows will be materially affected by supply and demand for timber.
A variety of factors affect prices for timber, including factors affecting demand, such as changes in economic
conditions, the level of domestic new construction and remodeling activity, foreign demand, interest rates, credit
availability, population growth, weather conditions and pest infestation, as well as changes in timber supply and
other factors. All of these factors can vary by region, timber type (sawlogs or pulpwood logs) and species.
Timber prices are affected by changes in demand on a local, national or international level. The closure of a mill in
the regions where we own timber can have a material adverse effect on demand and therefore pricing. As the
demand for paper nationwide continues to decline, closures of pulp mills have adversely affected the demand for
pulpwood and wood chips in certain of the regions in which we operate. Also, demand in other parts of the world
may affect timber prices in the markets in which we compete. For example, during the past year, demand from Asia
has declined from previous years, and although we do not sell into the Asian markets, Asian demand has affected
supply and demand in the markets in which we participate. The recent decrease in Asian demand has had a
negative impact on lumber and timber prices in the markets in which we compete.
Timber prices are also affected by changes in timber availability at the local, national and international level. Our
timberland ownership is currently concentrated in Alabama, Arkansas, Idaho, Minnesota and Mississippi. In
Alabama, Arkansas, Minnesota and Mississippi, most timberlands are privately owned. Historically, increases in
timber prices have often resulted in substantial increases in harvesting on private timberlands, including lands not
previously made available for commercial timber operations, causing a short-term increase in supply that has
tended to moderate price increases. Decreases in timber prices have often resulted in lower harvest levels, causing
short-term decreases in supply that have tended to moderate price decreases. In the South, harvest deferrals
during recent years have led to an oversupply of timber in the region, which has reduced prices. In Idaho, where a
greater proportion of timberland is government owned, any substantial increase in timber harvesting from
government-owned land could significantly reduce timber prices, which would harm our results of operations. For
more than 20 years, environmental concerns and other factors have limited timber sales by federal agencies, which
historically had been major suppliers of timber to the U.S. forest products industry, particularly in the West. Any
reversal of policy that substantially increases timber sales from government-owned land could have a material
adverse effect on our results of operations and cash flows.
On a local level, timber supplies can fluctuate depending upon factors such as changes in weather conditions and
harvest strategies of local timberland owners, as well as occasionally high timber salvage efforts due to events such
as unusual pest infestations or fires.
Our wood products are commodities that are widely available from other producers.
Because commodity products have few distinguishing properties from producer to producer, competition for these
products is based primarily on price, which is determined by supply relative to demand and competition from
substitute products. Prices for our products are affected by many factors outside of our control, and we have no
influence over the timing and extent of price changes, which often are volatile. Our profitability with respect to these
products depends, in part, on managing our costs, particularly raw material and energy costs, which represent
significant components of our operating costs and can fluctuate based upon factors beyond our control.
10 / POTLATCH CORPORATION
The wood products industry is highly competitive.
The markets for our wood products are highly competitive and companies that have substantially greater financial
resources than we do compete with us in each of our lines of business. Our wood products are subject to
competition from wood products manufacturers in the United States and Canada. Recently, a strong U.S. dollar
relative to the Canadian dollar has led to rising imports of Canadian lumber to the United States, depressing U.S.
lumber prices. After years of trade disputes over Canadian softwood lumber imports, the United States and Canada
signed a Softwood Lumber Agreement in 2006, which expired in October 2015. The agreement established a
system of tiered taxes and volume restrictions relating to Canadian lumber imports to the United States. There is no
assurance that this agreement will be renewed or renegotiated in the future. With the expiration of the agreement,
the United States is subject to a one-year standstill on trade litigation and we currently have little recourse to
address the import of Canadian lumber into the United States that may compete unfairly with our products. Even if
the Softwood Lumber Agreement is renegotiated, there can be no assurance that it will at all times, or at any time,
effectively create a fair trade environment.
In addition, our wood products manufacturing facilities are relatively capital intensive, which leads to high fixed
costs and generally results in continued production as long as prices are sufficient to cover variable costs. These
conditions have contributed to substantial price competition, particularly during periods of reduced demand. Some
of our wood products competitors may currently be lower-cost producers than we are, or in the case of Canadian
competitors, are currently benefiting from a weak Canadian dollar relative to the U.S. dollar, and accordingly these
competitors may be less adversely affected than we are by price decreases. Wood products also are subject to
significant competition from a variety of substitute products, including non-wood and engineered wood products. To
the extent there is a significant increase in competitive pressure from substitute products or other domestic or
foreign suppliers, our business could be adversely affected.
Changes in demand for our real estate and delays in the timing of real estate transactions may
affect our revenues and operating results.
A number of factors, including availability of credit, a slowing of residential real estate development, population
shifts and changes in demographics could reduce the demand for our real estate and negatively affect our results of
operations. Changes in investor interest in purchasing timberlands could reduce our ability to execute sales of non-
strategic timberlands and could also negatively affect our results of operations. In addition, changes in the
interpretation or enforcement of current laws, or the enactment of new laws, regarding the use and development of
real estate, or changes in the political composition of federal, state and local governmental bodies could lead to new
or greater costs, delays and liabilities that could materially adversely affect our real estate business, profitability or
financial condition.
In addition, there are inherent uncertainties in the timing of real estate transactions that could adversely affect our
operating results in any particular quarter. The timing of real estate sales is a function of many factors, including the
general state of the economy, demand in local real estate markets, the number of properties listed for sale, the
seasonal nature of sales, the plans of adjacent landowners and our expectations of future price appreciation.
Delays in the completion of transactions or the termination of potential transactions may be beyond our control.
These events could adversely affect our operating results.
We may be unable to harvest timber or we may elect to reduce harvest levels due to market
conditions, either of which could adversely affect our results of operations and cash flows.
Our timber harvest levels and sales may be limited due to weather conditions, timber growth cycles, restrictions on
access, availability of contract loggers and regulatory requirements associated with the protection of wildlife and
water resources, as well as by other factors, including damage by fire, pest infestation, disease and natural
disasters such as ice storms, wind storms, tornados, hurricanes and floods. Changes in global climate conditions
could intensify one or more of these factors. Although damage from such natural causes usually is localized,
affecting only a limited percentage of our timber, there can be no assurance that any damage affecting our
timberlands will be limited. We typically experience seasonally lower harvest activity during the winter and early
spring due to weather conditions. Severe weather conditions and other natural disasters can also reduce the
productivity of timberlands and disrupt the harvesting and delivery of logs. Our financial results and cash flows are
dependent to a significant extent on our continued ability to harvest timber at adequate levels.
2015 FORM 10-K / 11
On a short-term basis, we may adjust our timber harvest levels in response to market conditions. Longer term, our
timber harvest levels will be affected by acquisitions of additional timberlands, sales of existing timberlands and
shifts in harvest from one region to another. In addition to timberland acquisitions and sales, future timber harvest
levels may be affected by changes in estimates of long-term sustainable yield because of silvicultural advances,
natural disasters, fires, pests, insects and other hazards, regulatory constraints and other factors beyond our
control.
We do not insure against losses of standing timber from fire or any other causes.
The volume and value of timber that can be harvested from our lands may be affected by natural disasters such as
fire, pest infestation, disease, ice storms, wind storms, tornados, hurricanes, floods and other weather conditions
and causes beyond our control. As is typical in the forest industry, we assume substantially all risk of loss to the
standing timber we own from fire and other hazards because insuring for such losses is not practicable.
Consequently, a reduction in our timber inventory could adversely affect our financial results and cash flows.
A material disruption at one of our manufacturing facilities could prevent us from meeting
customer demand, reduce our sales or negatively affect our results of operations and financial
condition.
Any of our manufacturing facilities, or any of our machines within an otherwise operational facility, could cease
operations unexpectedly due to a number of events, including unscheduled maintenance outages, prolonged power
failures, equipment failures, labor difficulties, disruptions in the transportation infrastructure, such as roads, bridges,
railroad tracks and tunnels, fire, ice storms, floods, windstorms, tornados, hurricanes or other catastrophes,
terrorism or threats of terrorism, governmental regulations and other operational problems.
Any such downtime or facility damage could prevent us from meeting customer demand for our products and/or
require us to make unplanned capital expenditures. If one of these machines or facilities were to incur significant
downtime, our ability to meet our production targets and satisfy customer requirements could be impaired, resulting
in lower sales and income.
Our businesses are affected by transportation availability and costs.
Our business depends on the availability of logging contractors and providers of transportation of wood products,
and is materially affected by the cost of these service providers. Therefore, increases in the cost of fuel could
negatively impact our financial results by increasing the cost associated with logging activities and transportation
services, and could also result in an overall reduction in the availability of these services.
We may be unsuccessful in carrying out our acquisition strategy.
We have pursued, and may continue to pursue, acquisitions of strategic timberland properties and other forest
products assets. We compete with buyers that have substantially greater financial resources than we have for
acquisition opportunities. We intend to finance acquisitions through cash from operations, borrowings under our
credit facility, proceeds from equity or debt offerings, proceeds from asset dispositions, or any combination thereof.
In addition, it is uncertain whether any acquisitions we make will perform in accordance with our expectations. The
failure to identify and complete acquisitions of suitable properties, our inability to finance future acquisitions on
favorable terms or our inability to complete like-kind exchanges, could adversely affect our operating results and
cash flows.
Our businesses are subject to extensive environmental laws and regulations.
Our operations are subject to a variety of federal, state and local laws and regulations regarding protection of the
environment, including those relating to the protection of timberlands, endangered species, timber harvesting
practices, recreation and aesthetics, protection and restoration of natural resources, air and water quality and
remedial standards for contaminated soil, sediments and groundwater. Failure to comply with these requirements
can result in significant fines or penalties, as well as liabilities for remediation of contaminated sites, natural
resource damages or alleged personal injury or property damage claims.
Laws, regulations and related judicial decisions and administrative interpretations affecting our business are subject
to change and new laws and regulations that may affect our business are frequently enacted. These changes may
adversely affect our ability to harvest and sell timber and operate our manufacturing facilities and may adversely
affect the ability of others to develop property we intend to sell for higher and better use purposes. Over time, the
complexity and stringency of these laws and regulations have increased markedly and the enforcement of these
laws and regulations has intensified. We believe that these laws and regulations will continue to become more
12 / POTLATCH CORPORATION
restrictive and over time could adversely affect our operating results. Regulatory restrictions on future harvesting
activities may be significant. Federal, state and local laws and regulations, which are intended to protect threatened
and endangered species, as well as waterways and wetlands, limit and may prevent timber harvesting, road
building and other activities on our timberlands. For example, the Clean Water Act and comparable state laws,
regulations and best management practices programs protect water quality. As a result, our resource management
activities adjacent to rivers and streams, as well as the point source discharges from our manufacturing facilities,
are subject to strict regulation and there can be no assurance that our forest management and manufacturing
activities will not be subject to increased regulation under the Clean Water Act in the future.
Similarly, the threatened and endangered species restrictions apply to activities that would adversely impact a
protected species or significantly degrade its habitat. A number of species on our timberlands have been, and in the
future may be, protected under these laws. If current or future regulations or their enforcement become more
restrictive, the amount of our timberlands subject to harvest restrictions could increase.
We anticipate that increasingly strict laws and regulations relating to the environment, natural resources and
forestry operations, as well as increased social concern over environmental issues, may result in additional
restrictions on us leading to increased costs, additional capital expenditures and reduced operating flexibility.
Our manufacturing operations are subject to stringent environmental laws, regulations and permits covering air
emissions, wastewater discharge, water usage and waste handling and disposal that govern how we operate our
facilities. These laws, regulations and permits, now and in the future, may restrict our current production and limit
our ability to increase production, and impose significant costs on our operations with respect to environmental
compliance. Overall, it is expected that environmental compliance costs will likely increase over time as
environmental requirements become more stringent and as the expectations of the communities in which we
operate become more demanding.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (CERCLA) impose strict, and under certain circumstances joint and several, liability on responsible parties,
including current and former owners and operators of contaminated sites, for costs of investigation and remediation
of contamination. They also impose liability for related damages to natural resources. We have in the past been
identified by the Environmental Protection Agency (EPA) as a potentially responsible party under CERCLA at
various locations, and we are currently identified as a potentially responsible party in connection with one of our
properties. Additional information regarding this matter is included in Note 14: Commitments and Contingencies in
the Notes to Consolidated Financial Statements included in this report, and that information is incorporated herein
by reference. It is possible that other facilities we own or operate, or formerly owned or operated, or timberlands we
now own or acquire, could also become subject to liabilities under these laws. The cost of investigation and
remediation of contaminated properties could increase operating costs and adversely affect our financial results.
Although we believe we have appropriate reserves recorded for the investigation and remediation of known matters,
there can be no assurance that actual expenditures will not exceed our expectations and that reserves will not be
increased or that other unknown liabilities will not be discovered in the future.
Environmental groups and interested individuals may intervene in the regulatory processes in the locations where
we own timberlands and operate our wood products mills. Delays or restrictions on our operations due to the
intervention of environmental groups or interested individuals could adversely affect our operating results. In
addition to intervention in regulatory proceedings, interested parties may file or threaten to file lawsuits that seek to
prevent us from obtaining permits, harvesting timber under contract with federal or state agencies, implementing
capital improvements or pursuing operating plans or require us to obtain permits before pursuing operating plans.
Any lawsuit, or even a threatened lawsuit, could delay harvesting on our timberlands or impact our ability to operate
or invest in our wood products mills.
Our defined benefit pension plans are currently underfunded.
As a result of the steep downturn in the stock market in 2008 and the resulting effects on long-term interest rates
and discount rates, our defined benefit pension plans have been underfunded since December 31, 2008, as the
projected benefit obligation exceeds the aggregate fair value of plan assets. As a result of the underfunding, we
may be required to make contributions to our qualified pension plans. Based on estimated year-end asset values
and projections of plan liabilities, we expect we will not be required to make a contribution to our qualified pension
plans in 2016. Our non-qualified pension plan and post retirement employee benefit plans are unfunded and benefit
payments are paid from our general assets. During 2016, we estimate that we will make supplemental pension plan
payments of $1.8 million and postretirement employee benefits payments of $4.2 million.
2015 FORM 10-K / 13
The determination of pension plan expense and the requirements for funding our pension plans are based on a
number of actuarial assumptions. Two critical assumptions are the expected rate of return on plan assets and the
discount rate applied to pension plan obligations. Pension plan assets primarily consist of equity and fixed income
investments; therefore, fluctuations in actual equity market returns and changes in long-term interest rates may
result in increased pension costs in future periods. Changes in assumptions regarding discount rates and expected
rates of return on plan assets could also increase future pension costs. Changes in any of these factors may
significantly impact future contribution requirements.
We depend on external sources of capital for future growth.
Our ability to finance growth is dependent to a significant degree on external sources of capital. Our ability to
access such capital on favorable terms could be hampered by a number of factors, many of which are outside of
our control, including a decline in general market conditions, decreased market liquidity, a downgrade to our public
debt rating, increases in interest rates, an unfavorable market perception of our growth potential, a decrease in our
current or estimated future earnings or a decrease in the market price of our common stock. In addition, our ability
to access additional capital may also be limited by the terms of our existing indebtedness, which, among other
things, restricts our incurrence of debt and the payment of dividends. Any of these factors, individually or in
combination, could prevent us from being able to obtain the capital we require on terms that are acceptable to us,
and the failure to obtain necessary capital could materially adversely affect our future growth.
A strike or other work stoppage, or our inability to renew collective bargaining agreements on
favorable terms, could adversely affect our financial results.
As of December 31, 2015, approximately 18% of our workforce was covered by one collective bargaining
agreement, which expires in May 2016. While we believe our relations with our employees are satisfactory, we
cannot be certain that we will be able to negotiate a new collective bargaining agreement on favorable terms. If we
are unable to negotiate an acceptable new agreement with the union upon expiration of the existing contract, we
could experience a strike or work stoppage. Even if we are successful in negotiating a new agreement, the new
agreement could call for higher wages or benefits paid to union members, which would increase our operating costs
and could adversely affect our profitability. If our unionized workers were to engage in a strike or other work
stoppage, or other non-unionized operations were to become unionized, we could experience a significant
disruption of operations at our facilities or higher ongoing labor costs. A strike or other work stoppage in the facilities
of any of our major customers or suppliers could also have similar effects on us.
Risks Related to Our Indebtedness
Our indebtedness could materially adversely affect our ability to generate sufficient cash to make
dividends to stockholders and fulfill our debt obligations, our ability to react to changes in our
business and our ability to incur additional indebtedness to fund future needs.
Our debt requires interest and principal payments. As of December 31, 2015, we had long-term debt of
$607.6 million, including $5.0 million due in February 2016. We also had $30.0 million outstanding under our
revolving line of credit. Subject to the limits contained in our debt instruments, we may be able to incur additional
debt from time to time to finance working capital, capital expenditures, investments or acquisitions or for other
purposes. If we do so, the risks related to our indebtedness could intensify.
Our indebtedness increases the possibility that we may be unable to generate cash sufficient to pay, when due, the
principal of, interest on or other amounts due in respect of our indebtedness or to make dividends to our
stockholders. Our indebtedness, combined with our other financial obligations and contractual commitments, could
have important consequences for stockholders. For example, it could:
• make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to
comply with the obligations under any of our debt instruments, including restrictive covenants, could result
in an event of default under the agreements governing such indebtedness;
•
•
require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing funds available for dividends to stockholders, working capital, capital
expenditures, acquisitions and other purposes;
increase our vulnerability to adverse economic and industry conditions, which could place us at a
competitive disadvantage compared with our competitors that have relatively less indebtedness;
14 / POTLATCH CORPORATION
•
•
limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we
operate; and
limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for dividends to
stockholders, working capital, capital expenditures, acquisitions and other corporate purposes.
Changes in credit ratings issued by nationally recognized statistical rating organizations could
adversely affect our cost of financing and have an adverse effect on the market price of our
securities.
Credit rating agencies rate our debt securities on factors that include our operating results, actions that we take,
their view of the general outlook for our industry and their view of the general outlook for the economy. Actions
taken by the rating agencies can include maintaining, upgrading or downgrading the current rating or placing the
company on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or
placing us on a watch list for possible future downgrading could limit our access to the credit markets, increase our
cost of financing, and have an adverse effect on the market price of our securities. For additional detail on our credit
ratings, see Liquidity and Capital Resources in Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
REIT and Tax-Related Risks
If we fail to remain qualified as a REIT, income from our timberlands will be subject to taxation at
regular corporate rates and we will have reduced funds available for dividends to our
stockholders.
Qualification as a REIT involves the application of highly technical and complex provisions of the Internal Revenue
Code to our operations, including satisfaction of certain asset, income, organizational, dividends, stockholder
ownership and other requirements, on a continuing basis. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations and the possibility of future changes in our circumstances,
no assurance can be given that we will remain qualified as a REIT.
In addition, the rules dealing with federal income taxation are constantly under review by persons involved in the
legislative process and by the IRS and the U.S. Department of the Treasury (Treasury). Changes to the tax laws
affecting REITs or taxable REIT subsidiaries, which may have retroactive application, could adversely affect our
stockholders or us. We cannot predict how changes in the tax laws might affect our stockholders or us. Accordingly,
we cannot provide assurance that new legislation, Treasury regulations, administrative interpretations or court
decisions will not significantly affect our ability to remain qualified as a REIT, the federal income tax consequences
of such qualification, the determination of the amount of REIT taxable income or the amount of tax paid by the TRS.
If in any taxable year we fail to remain qualified as a REIT:
• we would not be allowed a deduction for dividends to stockholders in computing our taxable income; and
• we would be subject to federal income tax on our taxable income at regular corporate rates, including any
applicable alternative minimum tax.
Any such corporate tax liability could be substantial and would reduce the amount of cash available for dividends to
our stockholders, which in turn could have an adverse impact on the value of our common stock. In addition, we
would be disqualified from treatment as a REIT for the four taxable years following the year during which the
qualification was lost, unless we are entitled to relief under certain statutory provisions. As a result, net income and
the funds available for dividends to our stockholders could be reduced for up to five years, which would have an
adverse impact on the value of our common stock.
Certain of our business activities are potentially subject to a prohibited transactions tax on 100%
of our net income derived from such activities, which would reduce our cash flow and impair our
ability to make dividends.
REITs are generally intended to be passive entities and can thus only engage in those activities permitted by the
Internal Revenue Code, which for us generally include owning and managing a timberland portfolio, growing timber
and selling standing timber.
Accordingly, the manufacture and sale of wood products, certain types of timberland sales, and the harvest and
sale of logs are conducted through Potlatch TRS because such activities generate non-qualifying REIT income and
2015 FORM 10-K / 15
could constitute “prohibited transactions” if such activities were engaged in directly by the REIT. In general,
prohibited transactions are defined by the Internal Revenue Code to be sales or other dispositions of property held
primarily for sale to customers in the ordinary course of a trade or business.
By conducting our business in this manner, we believe we will satisfy the REIT requirements of the Internal
Revenue Code and thus avoid the 100% tax that could be imposed if a REIT were to conduct a prohibited
transaction. We may not always be successful, however, in limiting such activities to Potlatch TRS. Therefore, we
could be subject to the 100% prohibited transactions tax if such instances were to occur, which would adversely
affect our cash flow and impair our ability to make quarterly dividends.
Our REIT structure may limit our ability to invest in our non-REIT qualifying operations.
Our use of Potlatch TRS enables us to continue to engage in non-REIT qualifying business activities consisting
primarily of our manufacturing facilities, assets used for the harvesting of timber and the sale of logs and selected
land parcels that we expect to be sold or developed for higher and better use purposes. However, under the Internal
Revenue Code, no more than 25% of the value of the assets of a REIT may be represented by securities of our
taxable REIT subsidiaries. This threshold decreases to 20% in 2018. This may limit our ability to make investments
in our wood products manufacturing operations or in other non-REIT qualifying operations.
Our ability to fund dividends and service our indebtedness using cash generated through our
taxable REIT subsidiary may be limited.
The rules with which we must comply to maintain our status as a REIT limit our ability to use dividends from
Potlatch TRS for the payment of stockholder dividends and to service our indebtedness. In particular, at least 75%
of our gross income for each taxable year as a REIT must be derived from sales of our standing timber and other
types of real estate income. No more than 25% of our gross income may consist of dividends from Potlatch TRS
and other non-qualifying types of income. This requirement may limit our ability to receive dividends from Potlatch
TRS and may impact our ability to fund dividends to stockholders and service the REIT's indebtedness using cash
from Potlatch TRS.
We may not be able to complete desired like-kind exchange transactions for property we sell.
We sometimes seek to match sales and acquisitions of properties, which allows us to use Internal Revenue Code
section 1031 like-kind exchange tax-deferred treatment. The matching of sales and purchases provides us with
significant tax benefits, primarily the deferral of any gain on the property sold until the ultimate disposition or harvest
of the replacement property. While we may attempt to complete like-kind exchanges when it is appropriate, it is
unlikely that we will be able to do so in all instances due to various factors, including the lack of availability of
suitable replacement property on acceptable terms and the inability to complete a qualifying like-kind exchange
transaction within the time frames required by the Internal Revenue Code. The inability to obtain like-kind exchange
treatment could result in the payment of taxes with respect to TRS property, and a corresponding reduction in
income and cash available for dividends to stockholders.
We may not be able to realize our deferred tax assets.
We may not have sufficient future taxable income to realize all our deferred tax assets. The ultimate realization of
deferred tax assets depends on the generation of future taxable income during the periods in which our temporary
differences are deductible as governed by the tax code. The amount of our deferred tax assets could be reduced in
the near term if future taxable income does not materialize or management is unable to implement one or more
strategies that it has identified to generate taxable income. See Note 13: Income Taxes in the Notes to
Consolidated Financial Statements contained in this report for additional information about our deferred tax assets.
16 / POTLATCH CORPORATION
Risks Related to Ownership of Our Common Stock
The price of our common stock may be volatile.
The market price of our common stock may be influenced by many factors, some of which are beyond our control,
including those described above under Business and Operating Risks and the following: actual or anticipated
fluctuations in our operating results or our competitors’ operating results, announcements by us or our competitors
of capacity changes, acquisitions or strategic investments, our growth rate and our competitors’ growth rates, the
financial markets, interest rates and general economic conditions, changes in stock market analyst
recommendations regarding us, our competitors or the forest products industry generally, or lack of analyst
coverage of our common stock, failure to pay cash dividends or the amount of cash dividends paid, sales of our
common stock by our executive officers, directors and significant stockholders or sales of substantial amounts of
common stock, changes in accounting principles and changes in tax laws and regulations.
Certain provisions of our certificate of incorporation and bylaws and of Delaware law may make it
difficult for stockholders to change the composition of our board of directors and may
discourage hostile takeover attempts that some of our stockholders may consider to be
beneficial.
Certain provisions of our certificate of incorporation and bylaws and Delaware law may have the effect of delaying
or preventing changes in control if our board of directors determines that such changes in control are not in the best
interest of us and our stockholders. The provisions in our certificate of incorporation and bylaws include, among
other things, the following:
•
•
•
•
•
•
•
•
•
a classified board of directors with three-year staggered terms;
the ability of our board of directors to issue shares of preferred stock and to determine the price and other
terms, including preferences and voting rights, of those shares without stockholder approval;
stockholder action can only be taken at a special or regular meeting and not by written consent and
stockholders cannot call a special meeting except upon the written request of stockholders entitled to cast
not less than a majority of all of the votes entitled to be cast at the meeting;
advance notice procedures for nominating candidates to our board of directors or presenting matters at
stockholder meetings;
removal of directors only for cause;
allowing only our board of directors to fill vacancies on our board of directors;
in order to facilitate the preservation of our status as a REIT under the Internal Revenue Code, a prohibition
on any single stockholder, or any group of affiliated stockholders, from beneficially owning more than 9.8%
of our outstanding common or preferred stock, unless our board waives or modifies this ownership
limitation;
unless approved by the vote of at least 80% of our outstanding shares, we may not engage in business
combinations, including mergers, dispositions of assets, certain issuances of shares of stock and other
specified transactions, with a person owning or controlling, directly or indirectly, 5% or more of the voting
power of our outstanding common stock; and
supermajority voting requirements to amend our bylaws and certain provisions of our certificate of
incorporation.
While these provisions have the effect of encouraging persons seeking to acquire control of our company to
negotiate with our board of directors, they could enable the board of directors to hinder or frustrate a transaction
that stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to
remove and replace incumbent directors. We are also subject to Delaware laws that could have similar effects. One
of these laws prohibits us from engaging in a business combination with a significant stockholder unless specific
conditions are met.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
2015 FORM 10-K / 17
ITEM 2. PROPERTIES
Information on our locations and facilities is included in Part I - Item 1. Business under each of the respective
segment headers.
ITEM 3. LEGAL PROCEEDINGS
Other than the environmental proceedings described in Note 14: Commitments and Contingencies in the Notes to
Consolidated Financial Statements, which is incorporated herein by reference, we believe there is no pending or
threatened litigation that would have a material adverse effect on our financial position, operations or liquidity.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
18 / POTLATCH CORPORATION
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on The Nasdaq Global Select Market (NASDAQ). The quarterly high and low sales price
per share of our common stock and the quarterly cash dividend payments per share for 2015 and 2014, were as
follows:
QUARTER
1st
2nd
3rd
4th
2015
2014
HIGH
LOW
$
43.55 $
40.11
36.34
34.24
37.95 $
35.00
28.40
28.00
CASH
DIVIDENDS
HIGH
LOW
CASH
DIVIDENDS
0.375 $
0.375
0.375
0.375
42.44 $
41.80
43.20
44.20
37.52 $
37.04
39.83
39.89
0.35
0.35
0.35
0.375
There were approximately 1,105 stockholders of record at January 31, 2016.
Our Board of Directors, in its sole discretion, determines the actual amount of dividends to be made to stockholders
based on consideration of a number of factors, including, but not limited to, our results of operations, cash flow and
capital requirements, economic conditions in our industry and in the markets for our products, tax considerations,
borrowing capacity, debt covenant restrictions, timber prices, harvest levels on our timberlands, market demand for
timberlands, including timberland properties we have identified as potentially having a higher and better use, and
future acquisitions and dispositions. Consequently, the level of dividends to our stockholders may fluctuate and any
reduction in the dividend rate may adversely affect our stock price.
Reference is made to the discussion in Liquidity and Capital Resources in Management’s Discussion and Analysis
of Financial Condition and Results of Operations of (i) the covenants in our credit facility and term loan and the
indenture governing our senior notes with which we must comply in order to make cash dividends and (ii) the REIT
tax rules, which under certain circumstances may restrict our ability to receive dividends from Potlatch TRS, our
taxable REIT subsidiary.
There are currently no authorized repurchase programs in effect under which we may repurchase shares.
The following table provides certain information as of December 31, 2015, with respect to our equity compensation
plans:
INFORMATION ABOUT SECURITIES AUTHORIZED FOR ISSUANCE UNDER OUR EQUITY COMPENSATION PLAN
PLAN CATEGORY
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders
Total
NUMBER OF SECURITIES
TO BE ISSUED UPON
EXERCISE OF
OUTSTANDING OPTIONS,
WARRANTS OR RIGHTS1
WEIGHTED AVERAGE
EXERCISE PRICE OF
OUTSTANDING OPTIONS,
WARRANTS OR RIGHTS2
NUMBER OF SECURITIES
REMAINING AVAILABLE
FOR FUTURE ISSUANCE
UNDER EQUITY
COMPENSATION PLANS
422,208
—
422,208
$ —
—
$ —
1,264,065
—
1,264,065
1 Includes 161,049 performance shares and 53,216 restricted stock units, or RSUs, which are the maximum number of shares
that can be awarded under the performance share and RSU programs, not including future dividend equivalents. Also includes
207,943 deferred compensation stock equivalent units.
2 Performance shares and RSUs do not have exercise prices and are therefore not included in the weighted average exercise
price calculation.
2015 FORM 10-K / 19
Company Stock Price Performance
The following graph and table show a five year comparison of cumulative total stockholder returns for the company,
the NAREIT Equity Index, the Standard & Poor’s 500 Composite Index and a group of six companies that we refer
to as our Peer Group for the period ended December 31, 2015. The total stockholder return assumes $100 invested
at December 31, 2010, with quarterly reinvestment of all dividends.
Potlatch Corporation
NAREIT Equity Index
S&P 500 Composite
2015 Peer Group1
2011
2012
AT DECEMBER 31,
2013
2014
$
101 $
108
102
104
131 $
128
118
143
144 $
131
157
152
150 $
170
178
162
2015
113
176
181
154
1 Our Peer Group companies are Deltic Timber Corp., Plum Creek Timber Co., Inc., Rayonier Inc., St. Joe Co., Universal Forest
Products Inc. and Weyerhaeuser Co. Returns are weighted based on market capitalizations as of the beginning of each year.
The performance graph above is being furnished solely to accompany this Report pursuant to Item 201(e) of
Regulation S-K and is not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as
amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after
the date hereof, regardless of any general incorporation in such filing.
20 / POTLATCH CORPORATION
ITEM 6. SELECTED FINANCIAL DATA
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
(Dollars in thousands – except per share
amounts)
Revenues
Net income
Total assets1,2
Working capital2
Long-term debt (including current portion)1,2
Total stockholders’ equity
2015
2014
2013
$ 575,336 $ 606,950 $ 570,289 $ 525,134 $ 497,421
40,266
42,594
89,910
70,581
31,714
2011
2012
$ 1,016,612 $ 1,031,746 $ 677,202 $ 714,787 $ 740,548
55,806
360,731
142,138
(9,967)
603,881
203,736
79,044
316,764
204,148
73,444
353,465
138,643
20,298
625,668
225,066
Current ratio
Long-term debt to stockholders’ equity ratio
0.9 to 1
3.0 to 1
1.3 to 1
2.8 to 1
2.6 to 1
1.6 to 1
2.2 to 1
2.6 to 1
1.7 to 1
2.6 to 1
Capital expenditures:3
Property, plant and equipment, net
Timberlands reforestation and roads, net
Total capital expenditures
Net income per share:
Basic
Diluted
Weighted-average shares outstanding (in
thousands):
Basic
Diluted
$
$
$
18,987 $
13,745
32,732 $
13,261 $
10,971
24,232 $
10,280 $
12,313
22,593 $
5,636 $
11,774
17,410 $
5,338
11,158
16,496
0.78 $
0.77
2.21 $
2.20
1.74 $
1.73
1.06 $
1.05
1.00
1.00
Dividends per share
$
1.50 $
1.425 $
1.28 $
1.24 $
40,842
40,988
40,749
40,894
40,503
40,709
40,333
40,553
40,159
40,383
1.84
1 In December 2014, we acquired approximately 201,000 acres of timberland in Alabama and Mississippi for a total purchase
price of $384 million, which was funded with $310 million of new term loans and cash on hand.
2 Debt issuance costs in 2011 - 2014 were reclassified to conform with the 2015 presentation.
3 Excludes the acquisition of timber and timberlands.
2015 FORM 10-K / 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Factors Influencing Our Results of Operations and Cash Flows
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,
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, lumber prices, the efficiency and level of capacity
utilization of our wood products manufacturing operations, changes in our principal expenses such as log costs,
asset dispositions or acquisitions and other factors. See Part I - Item 1. Business for additional information.
Overview
During 2015, the Resource and Wood Products segment results were affected by lower lumber prices resulting
from excess supply in the lumber markets due to several factors. In early 2015, adverse weather in the eastern part
of the United States slowed housing starts, while a mild winter in the western part of the United States allowed
strong log and lumber production volumes. A decrease in lumber exported by Canada to China, coupled with a
weak Canadian dollar relative to the U.S. dollar, resulted in higher Canadian lumber sales into the United States.
Following the December 2014 acquisition of timberlands in Alabama and Mississippi, harvest volumes increased in
2015, as well as associated logging, hauling, depletion and amortization costs.
During 2015, we completed large capital projects at each of our lumber mills, which will increase log utilization,
recovery of higher grade lumber, and production. These capital projects resulted in lower production volumes due to
down time taken during installation. We also encountered higher log costs in Michigan and Minnesota.
According to industry forecasts, the 2016 housing market is expected to continue improving at a moderate pace.
This is expected to provide a modest increase in 2016 lumber prices. We anticipate harvest volumes will remain flat
at 4.4 million tons with little variation among our regions. We also expect our lumber mill production will increase as
a result of the capital projects we completed in 2015.
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. For 2015, the
Resource segment's sales to Wood Products was 20%. Our other segments generally do not generate
intersegment revenues.
In the period-to-period discussions of our consolidated results of operations, our revenues are reported after
elimination of intersegment revenues. In the business segment discussions, each segment’s revenues are
presented before elimination of intersegment revenues.
22 / POTLATCH CORPORATION
CONSOLIDATED RESULTS COMPARING 2015 WITH 2014
The following table sets forth year-to-year changes in items included in our Consolidated Statements of Income for
the years ended December 31:
(Dollars in thousands)
Revenues
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Operating income
Interest expense, net
Income before income taxes
Income tax benefit (provision)
Net income
Revenues
2015
$ 575,336
2014
$ 606,950
CHANGE
$
(31,614)
(5)%
470,037
46,392
516,429
58,907
(32,761)
26,146
5,568
31,714
429,789
44,655
474,444
132,506
(22,909)
109,597
(19,687)
89,910
$
$
40,248
1,737
41,985
(73,599)
(9,852)
(83,451)
25,255
(58,196)
9 %
4 %
9 %
(56)%
(43)%
(76)%
128 %
(65)%
$
The decrease in revenues in 2015, compared with 2014, was due to lower log and lumber prices across all of our
regions. Saw log prices decreased an average of 6% while pulpwood prices decreased an average of 2%,
compared with 2014. Lumber sales prices decreased 14% in 2015, compared with 2014. The decrease in revenues
was partially offset by a 20% increase in harvest volumes as a result of our acquisition of Alabama and Mississippi
timberlands in December 2014. Real Estate revenues decreased $11.5 million due to less acres sold in 2015. A
more detailed discussion of revenues follows in the operating results by business segments.
Cost of goods sold
Cost of goods sold increased 9% in 2015, compared with 2014, as a result of increased logging, hauling
depreciation, depletion and amortization as a result of our acquisition of Alabama and Mississippi timberlands in
December 2014, as well as higher fiber and lumber manufacturing costs. A more detailed discussion of cost of
goods sold follows in the operating results by business segments.
Selling, general and administrative expenses
The increase in selling, general and administrative expenses in 2015, compared with 2014, is primarily due to
higher pension expense resulting from the adoption of new mortality tables at December 31, 2014, partially offset by
the absence of an annual cash incentive compensation expense in 2015.
Income taxes
Income taxes are primarily due to income or loss from Potlatch TRS. For 2015, the income tax benefit of $5.6
million is primarily the result of Potlatch TRS's loss before income tax of $14.2 million. For 2014, the income tax
expense of $19.7 million was the result of Potlatch TRS's income before income tax of $61.6 million.
2015 FORM 10-K / 23
BUSINESS SEGMENT RESULTS COMPARING 2015 WITH 2014
Resource Segment
(Dollars in thousands)
Revenues1
Cost of goods sold:
Logging and hauling
Depreciation, depletion and amortization
Other
Selling, general and administrative expenses
YEARS ENDED DECEMBER 31,
2015
2014
CHANGE
$
263,875
$
252,581
$
11,294
4 %
126,085
28,583
26,289
180,957
6,568
117,938
17,428
25,815
161,181
6,424
8,147
11,155
474
19,776
144
7 %
64 %
2 %
12 %
2 %
Operating income
$
76,350
$
84,976
$
(8,626)
(10)%
Harvest Volumes (in tons)
Northern region
Sawlog
Pulpwood
Stumpage
Total
Southern region
Sawlog
Pulpwood
Stumpage
Total
1,992,965
1,982,113
194,902
23,574
201,926
16,312
2,211,441
2,200,351
736,333
1,127,561
321,172
619,750
817,408
21,798
2,185,066
1,458,956
10,852
(7,024)
7,262
11,090
116,583
310,153
299,374
726,110
1 %
(3)%
45 %
1 %
19 %
38 %
n/m
50 %
Total harvest volume
4,396,507
3,659,307
737,200
20 %
Sales Price/Unit ($ per ton)
Northern region2
Sawlog
Pulpwood
Stumpage
Southern region2
Sawlog
Pulpwood
Stumpage
$
$
$
$
$
$
87
42
9
43
33
19
$
$
$
$
$
$
91
43
11
46
34
14
$
$
$
$
$
$
(4)
(1)
(2)
(3)
(1)
5
(4)%
(2)%
(18)%
(7)%
(3)%
36 %
1 Prior to elimination of intersegment fiber revenues of $53.7 million in 2015 and $62.3 million in 2014.
2 Sawlog and pulpwood sales prices are on a delivered basis, which includes contracted logging and hauling costs charged to
the customer. Stumpage sales provide our customers the right to harvest standing timber. As such, the customer contracts the
logging and hauling and bears such costs.
24 / POTLATCH CORPORATION
Revenues increased 4% in 2015, compared with 2014, due to a 20% increase in harvest volumes as a result of our
acquisition of Alabama and Mississippi timberlands in December 2014. This increase was partially offset by a
decrease in sawlog and pulpwood prices of 6% and 3%, respectively.
Volumes in our Northern region remained relatively flat consistent with our planned harvest volumes. Lower
Northern region sawlog prices were the result of lower lumber prices as approximately two-thirds of our Northern
sawlog sales are indexed to the price of lumber.
Harvest volumes in our Southern region were approximately 100,000 tons lower than planned harvest volumes due
to weather constraints. Sawlog prices decreased 7% due to a decline in hardwood sawlog prices. Pulpwood prices
were fairly constant with an increase in pine pulpwood partially offset by hardwood pulpwood. Stumpage prices
fluctuate based on the mix of pulpwood and sawlog volume.
Logging, hauling and depletion expense increased due to higher harvest volumes. This was partially offset by lower
fuel costs in the Northern region.
Wood Products Segment
(Dollars in thousands)
Revenues
Cost of goods sold1:
Fiber costs
Manufacturing cost
Finished goods inventory change
Other2
Selling, general and administrative expenses
Operating income (loss)
Lumber shipments (MBF)
Lumber sales prices ($ per MBF)
YEARS ENDED DECEMBER 31,
2015
336,214
$
2014
376,239
$
CHANGE
$
(40,025)
(11)%
180,971
127,998
1,548
25,675
336,192
5,257
176,782
118,104
(2,370)
26,804
319,320
4,477
4,189
9,894
3,918
(1,129)
16,872
780
2 %
8 %
(165)%
(4)%
5 %
17 %
(5,235)
$
52,442
$
(57,677)
(110)%
626,630
659,583
(32,953)
(5)%
346
$
402
$
(56)
(14)%
$
$
1 Prior to elimination of intersegment fiber costs of $53.7 million in 2015 and $62.3 million in 2014.
2
Other cost of goods sold is primarily customer freight.
Revenues decreased 11% in 2015, compared with 2014. Of this decrease, 8% was due to lower lumber prices and
3% was due to fewer lumber shipments. Decreased shipments were primarily due to mill down time for large capital
projects installations at each of our four lumber mills as well as downtime taken at certain mills near year end to
balance supply with demand.
Cost of goods sold fluctuated based on the following factors:
• Fiber costs increased $4.2 million primarily due to higher log costs in Minnesota and Michigan as a result of
strong demand by pulp and paper manufacturers, partially offset by lower production volumes.
• Manufacturing costs increased primarily due to higher payroll and maintenance expense, largely the result
of overtime and temporary labor associated with projects at the mills, as well as higher pension costs
related to the adoption of updated mortality tables and a reduction in the discount rate at the end of 2014.
Depreciation also increased as a result of the large capital project installations at our lumber mills.
•
Inventory fluctuates based on a combination of production volume, fiber costs, manufacturing costs and
shipments.
2015 FORM 10-K / 25
Real Estate Segment
(Dollars in thousands)
Revenues
Cost of goods sold:
Basis of real estate sold
Other
Selling, general and administrative expenses
Operating income
HBU
Rural real estate
Non-strategic timberland
Total
YEARS ENDED DECEMBER 31,
2015
2014
CHANGE
$
28,989
$
40,460
$
(11,471)
(28)%
7,394
2,519
9,913
2,227
16,849
9,355
2,050
11,405
2,110
26,945
(1,961)
469
(1,492)
117
(10,096)
(21)%
23 %
(13)%
6 %
(37)%
2015
2014
ACRES SOLD
4,599
9,036
1,753
15,388
AVERAGE
PRICE/ACRE
3,340
$
$
$
1,329
900
ACRES SOLD
3,784
AVERAGE
PRICE/
ACRE
$ 2,129
28,059
$ 1,112
1,560
$
779
33,403
Real Estate revenues were 28% lower in 2015, compared with 2014, due to less acres sold in Minnesota and
Idaho, partially offset by the sale of HBU commercial sites and higher acres sold in the South. In 2014, we had two
large sales consisting of 9,400 acres in Minnesota and 11,000 acres in Idaho. The increase in acres sold in the
South is the result of properties identified as HBU during our acquisition of Alabama and Mississippi timberlands in
December 2014.
CONSOLIDATED RESULTS COMPARING 2014 WITH 2013
The following table sets forth year-to-year changes in items included in our Consolidated Statements of Income for
the years ended December 31:
(Dollars in thousands)
Revenues
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Environmental remediation charge
Operating income
Interest expense, net
Income before income taxes
Income tax provision
Net income
2014
$ 606,950
2013
$ 570,289
CHANGE
$
36,661
6 %
429,789
44,655
—
474,444
132,506
(22,909)
109,597
(19,687)
89,910
$
408,772
50,397
3,522
462,691
107,598
(23,132)
84,466
(13,885)
70,581
$
$
21,017
(5,742)
(3,522)
11,753
24,908
223
25,131
(5,802)
19,329
5 %
(11)%
n/m
3 %
23 %
1 %
30 %
42 %
27 %
Revenues. Revenues from all three business segments increased in 2014 over 2013. Resource and Wood
Products segment revenues increased primarily due to higher sales prices. The Real Estate segment sold more
acres in 2014, compared with 2013. A more detailed discussion of revenues follows in the operating results by
business segments.
Cost of goods sold. Cost of goods sold increased in 2014 over 2013 primarily due to higher fiber costs and labor-
related expenses due to increased shipments by our Wood Products segment, increased acres sold by our Real
Estate segment, and higher forest management and road costs in our Resource business. A more detailed
discussion of cost of goods sold follows in the operating results by business segments.
26 / POTLATCH CORPORATION
Selling, general and administrative expenses. Selling, general and administrative expenses decreased in 2014,
compared with 2013, primarily due to lower bonus and incentive plan expenses and non-cash mark-to-market
adjustments related to our deferred compensation plans.
Environmental remediation charge. In 2013, we recorded pre-tax charges of $3.5 million for remediation costs
related to our Avery Landing site in Idaho. Physical clean-up activities at the site were completed in 2013.
Income taxes. Our effective tax rate for 2014 was 18% compared with 16% in 2013. The increase resulted
primarily from proportionately higher operating income in Potlatch TRS.
2015 FORM 10-K / 27
BUSINESS SEGMENT RESULTS COMPARING 2014 WITH 2013
Resource Segment
(Dollars in thousands)
Revenues1
Cost of goods sold:
Logging and hauling
Depreciation, depletion and amortization
Other
Selling, general and administrative expenses
YEARS ENDED DECEMBER 31,
2014
252,581
$
2013
238,228
$
CHANGE
$
14,353
6 %
117,938
17,428
25,815
161,181
6,424
117,529
17,440
24,010
158,979
5,824
409
(12)
1,805
2,202
600
— %
— %
8 %
1 %
10 %
16 %
Operating income
$
84,976
$
73,425
$
11,551
Harvest Volumes (in tons)
Northern region
Sawlog
Pulpwood
Stumpage
Total
Southern region
Sawlog
Pulpwood
Stumpage
Total
1,982,113
2,031,637
201,926
16,312
127,998
25,397
2,200,351
2,185,032
(49,524)
73,928
(2)%
58 %
(9,085)
(36)%
15,319
1 %
619,750
817,408
21,798
694,147
821,781
8,353
(74,397)
(11)%
(4,373)
(1)%
13,445
161 %
1,458,956
1,524,281
(65,325)
(4)%
Total harvest volume
3,659,307
3,709,313
(50,006)
(1)%
Sales Price/Unit ($ per ton)
Northern region2
Sawlog
Pulpwood
Stumpage
Southern region2
Sawlog
Pulpwood
Stumpage
$
$
$
$
$
$
91
43
11
46
34
14
$
$
$
$
$
$
85
36
8
43
32
12
$
$
$
$
$
$
6
7
3
3
2
2
7 %
19 %
38 %
7 %
6 %
17 %
1 Prior to elimination of intersegment fiber revenues of $62.3 million in 2014 and $60.1 million in 2013.
2 Sawlog and pulpwood sales prices are on a delivered basis, which includes contracted logging and hauling costs charged to the
customer. Stumpage sales provides our customers the right to harvest standing timber. As such, the customer contracts the
logging and hauling and bears such costs.
Resource revenues increased in 2014, compared with 2013, due to increased sales prices, primarily for sawlogs
and pulpwood in Idaho, and increased volume of pulpwood harvested in Idaho.
28 / POTLATCH CORPORATION
In our Northern region, approximately two-thirds of our sawlog sales are indexed to the price of lumber. Sawlog
prices increased due to improved lumber prices and stronger demand. Sawlog harvest volumes were down slightly
from 2013. Pulpwood volumes and prices increased in 2014 primarily due to lower production in 2013. During 2013,
an oversupply of residuals and chips in the Northwest market lowered pulpwood prices. As a result of the lower
pulpwood prices, we minimized pulpwood production in 2013.
In our Southern region, sawlog volumes decreased in 2014, compared with 2013, as wet weather conditions limited
access to hardwood stands. Sawlog prices increased primarily due to a higher mix of hardwoods, which have a
higher price compared with pine. Pulpwood prices increased as a result of improved demand for hardwood
pulpwood.
Expenses increased $2.8 million, or 2%, in 2014, compared with 2013, primarily due to increased forest
management and road costs.
Wood Products Segment
(Dollars in thousands)
Revenues
Cost of goods sold1:
Fiber costs
Manufacturing cost
Finished goods inventory change
Other2
Selling, general and administrative expenses
Operating income
Lumber shipments (MBF)
Lumber sales prices ($ per MBF)
YEARS ENDED DECEMBER 31,
2014
376,239
2013
366,015
$
$
CHANGE
$
10,224
3 %
176,782
118,104
(2,370)
26,804
319,320
4,477
169,556
112,260
(4,496)
25,178
302,498
4,625
7,226
5,844
2,126
1,626
16,822
(148)
4 %
5 %
(47)%
6 %
6 %
(3)%
52,442
$
58,892
$
(6,450)
(11)%
659,583
641,217
402
$
392
$
18,366
10
3 %
3 %
$
$
1 Prior to elimination of intersegment fiber costs of $62.3 million in 2014 and $60.1 million in 2013.
2 Other cost of goods sold is primarily customer freight.
Revenues increased 3% in 2014, compared with 2013, due to a 3% increase in both lumber sales prices and
shipments.
Cost of goods sold fluctuated based on the following factors:
• Fiber costs increased $7.2 million due to a 7% increase in log costs, primarily in Idaho, and higher lumber
shipments.
• Manufacturing costs increased primarily due to labor-related expenses and other variable costs due to
increased production and sales volumes.
•
Inventory fluctuates based on a combination of production volume, fiber costs, manufacturing costs and
shipments.
2015 FORM 10-K / 29
Real Estate Segment
(Dollars in thousands)
Revenues
Cost of goods sold:
Basis of real estate sold
Other
Selling, general and administrative expenses
YEARS ENDED DECEMBER 31,
2014
2013
CHANGE
$
40,460
$
26,160
$
14,300
55 %
9,355
2,050
11,405
2,110
3,536
2,280
5,816
2,078
5,819
(230)
5,589
32
165 %
(10)%
96 %
2 %
48 %
Operating income
$
26,945
$
18,266
$
8,679
HBU
Rural real estate
Non-strategic timberland
Total
2014
2013
ACRES SOLD
3,784
28,059
1,560
33,403
AVERAGE
PRICE/ACRE
2,129
$
$
$
1,112
779
AVERAGE
PRICE/ACRE
2,033
$
$
$
1,310
849
ACRES SOLD
4,799
9,494
4,669
18,962
Revenues increased $14.3 million, expenses increased $5.6 million and operating income increased $8.7 million in
2014, compared with 2013, primarily due to increased acres sold in 2014 and product mix. In 2014, we had two
large sales consisting of 9,400 acres in Minnesota and 11,000 acres in Idaho.
Liquidity and Capital Resources
Overview
At December 31, 2015, our financial position included long-term debt of $603.9 million, compared with $625.7
million at December 31, 2014. We also had $30.0 million outstanding on our revolving line of credit at the end of
2015. Our current ratio at December 31, 2015 was 0.9 to 1, compared with 1.3 to 1 at December 31, 2014. At
December 31, 2015, we had $218.6 million available on our revolving line of credit. Dividends to stockholders in
2015 totaled $61.0 million, compared with $57.8 million in 2014.
Net Cash From Operations
Net cash provided from operating activities were:
•
•
•
$74.0 million in 2015,
$131.4 million in 2014 and
$90.3 million in 2013.
Year ended December 31, 2015 compared with year ended December 31, 2014
Net cash from operating activities in 2015 decreased $57.4 million from 2014:
• Cash received from customers decreased $42.5 million, primarily due to lower log and lumber prices. A
more detailed discussion of revenues is included in the Business Segment Results section.
• Cash paid to employees, suppliers and others increased $26.2 million in 2015 from 2014 primarily due to
increased logging and hauling expense as a result of our acquisition of Alabama and Mississippi
timberlands in December 2014, as well as higher fiber and lumber manufacturing costs.
• Cash paid for interest increased $8.8 million as a result of $310.0 million of long-term debt incurred in
December 2014 for the acquisition of timberlands in Alabama and Mississippi. Net cash paid for interest
expense in 2015 was $29.7 million compared with $20.9 million in 2014.
30 / POTLATCH CORPORATION
Partially offsetting the decrease was:
• Net cash outflows related to income taxes decreased $16.5 million. In 2015 cash paid for taxes was $1.6
million, compared with $18.1 million in 2014.
• Cash contributions to our qualified pension plans decreased $3.6 million in 2015 from 2014. We did not
make a qualified pension plan contribution in 2015.
Year ended December 31, 2014 compared with year ended December 31, 2013
Net cash from operating activities in 2014 increased $41.1 million from 2013:
• Cash received from customers increased $49.6 million, primarily due to increased sales and cash received
by the Resource, Wood Products and Real Estate segments. A more detailed discussion of revenues is
included in the Business Segment Results section.
• Net cash outflows related to income taxes decreased $2.0 million. Net cash paid for taxes in 2014 was
$18.1 million compared with $20.1 million in 2013.
Partially offsetting the increase was:
• Cash paid to employees, suppliers and others increased $8.2 million in 2014 from 2013 primarily due to
higher log costs and labor-related expenses due to increased shipments by our Wood Products segment.
• Cash contributions to our qualified pension plans increased $3.6 million in 2014 from 2013, as we did not
make a qualified pension plan contribution in 2013.
Net Cash Flows from Investing Activities
Net cash used for investing activities was $14.3 million in 2015, $382.7 million in 2014 and $12.0 million in 2013. In
2015, we used $32.7 million for capital expenditures and $10.2 million for the acquisition of timber and timberlands,
partially offset by $26.3 million provided by short-term investments. In 2014, we used $389.0 million for the
acquisition of timber and timberlands and $24.2 million for capital expenditures, partially offset by $25.9 million
provided by the reduction in short-term investments. In 2013, we used $22.6 million for capital expenditures partially
offset by $10.8 million provided by the reduction in short-term investments.
We anticipate that we will spend $19 million for capital expenditures in 2016. Our capital spending is primarily
related to reforestation expenditures, logging road construction and high-return discretionary projects and routine
general replacement projects for our wood products manufacturing facilities.
Net Cash Flow from Financing Activities
Net cash used in financing activities was $56.5 million in 2015. Net cash provided by financing activities was $250.4
million in 2014. Net cash used in financing activities was $89.6 million in 2013. Net cash used in financing activities
in 2015 was primarily attributable to dividends to stockholders, which totaled $61.0 million, and the maturity and
redemption of $22.5 million of debentures, partially offset by $30.0 million provided by our revolving line of credit. In
2014, proceeds from the borrowing of long-term debt provided $310.0 million used to acquire timberlands, partially
offset by dividends to stockholders of $57.8 million. In 2013, net cash used for financing activities was primarily
attributable to paying dividends to stockholders of $51.9 million and the redemption of $36.7 million of debt.
Credit Agreement
On August 12, 2014, we entered into an amended and restated credit agreement with an expiration date of
February 12, 2020. This credit agreement provides for a revolving line of credit with an initial aggregate principal
amount not to exceed $250 million, which may be increased by up to an additional $250 million, subject to certain
conditions and agreement of the lenders. It also includes a sublimit of $40 million for the issuance of standby letters
of credit and a sublimit of $15 million for swing line loans. Usage under either or both subfacilities reduces
availability under the revolving line of credit. At December 31, 2015, there was $30.0 million in borrowings
outstanding under the revolving line of credit and approximately $1.4 million of the letter of credit subfacility was
being used to support outstanding standby letters of credit. Available borrowing capacity at December 31, 2015 was
$218.6 million.
We may use the funds borrowed under the credit agreement, among other things, to refinance existing
indebtedness, fund working capital needs and capital expenditures, and for other general corporate purposes,
including acquisitions.
The agreement governing our bank credit facility contains certain covenants that limit our ability and that of our
subsidiaries to create liens, merge or consolidate, dispose of assets, incur indebtedness and guarantees,
2015 FORM 10-K / 31
repurchase or redeem capital stock and indebtedness, make certain investments or acquisitions, enter into certain
transactions with affiliates or change the nature of our business. The bank credit facility also contains financial
maintenance covenants including the maintenance of a minimum interest coverage ratio, a maximum leverage ratio
and maximum allowable acres that may be sold. We will be permitted to pay dividends to our stockholders under
the terms of the bank credit facility so long as we expect to remain in compliance with the financial maintenance
covenants.
In January 2015, a financial covenant in the credit agreement was amended to increase the maximum allowable
acres that may be sold during the term of the agreement due to the acquisition of additional timberlands in Alabama
and Mississippi in December 2014. In November 2015, the credit agreement was amended to increase the
maximum allowable amount of Potlatch capital stock the Company may repurchase from $50 million to $100 million.
Term Loans
In December 2014, we entered into an amended and restated term loan agreement. The amended term loan
agreement provided additional term loan facilities of $310 million to fund the acquisition of timberlands in Alabama
and Mississippi. The amended term loan agreement totaling $322 million contains covenants similar to the credit
agreement discussed above.
Senior Notes
In 2009, we sold $150 million aggregate principal amount of 7.5% senior notes. The terms of these notes limit our
ability, and the ability of any subsidiary guarantors, to borrow money, pay dividends, redeem or repurchase capital
stock, enter into sale and leaseback transactions, and create liens. Dividends and the repurchase of our capital
stock, are permitted as follows:
• We may use 100% of our Funds Available for Distribution, or FAD, for the period January 1, 2010 through
the end of the quarter preceding the payment date, less cumulative restricted payments previously made
from FAD during that period, to make restricted payments. Our cumulative FAD less our dividends paid was
$77.5 million at December 31, 2015.
•
•
If our cumulative FAD, less cumulative restricted payments previously made from FAD, is insufficient to
cover a restricted payment, then we are permitted to make payments from a basket amount, which was
approximately $90.1 million at December 31, 2015.
If our cumulative FAD less our aggregate restricted payments made from FAD is insufficient to cover a
restricted payment and we have depleted the basket, we may still make a restricted payment, so long as,
after giving effect to the payment, our ratio of indebtedness to earnings before interest, taxes, depreciation,
depletion, amortization and basis of real estate sold, or EBITDDA, from continuing operations for the
preceding four full fiscal quarters does not exceed 4.25 to 1.00.
FAD, as defined in the indenture governing the senior notes, is earnings from continuing operations, plus
depreciation, depletion and amortization, plus basis of real estate sold, and minus capital expenditures. For
purposes of this definition, capital expenditures exclude all expenditures relating to direct or indirect timberland
purchases in excess of $5 million.
Financial Covenants
The table below sets forth the financial covenants in the credit and term loan agreements and our status with
respect to these covenants as of December 31, 2015:
Minimum Interest Coverage Ratio
Maximum Leverage Ratio
Maximum Allowable Acres that may be sold
CREDIT AGREEMENT
COVENANT
REQUIREMENTS
3.00 to 1.00
40%
480,000
TERM LOAN COVENANT
REQUIRMENTS
3.00 to 1.00
40%
475,407
ACTUALS AT
DECEMBER 31, 2015
3.28 to 1.00
25%
22,210
The Interest Coverage Ratio is EBITDDA, which is defined as net income adjusted for interest expense, income
taxes, depreciation, depletion and amortization, the basis of real estate sold and non-cash equity compensation
expense, divided by interest expense for the same period.
The Leverage Ratio is our Total Funded Indebtedness divided by our Total Asset Value. Our Total Funded
Indebtedness consists of our long-term debt, including any current portion of long-term debt, revolving line of credit
32 / POTLATCH CORPORATION
borrowings, plus the total amount outstanding under the letter of credit subfacility. Our Total Asset Value per the
credit agreement is defined as the value of our timberlands, the book basis of our wood products manufacturing
facilities, cash and cash equivalents, short-term investments, and the cash value of our company-owned life
insurance (COLI). The book basis of our Wood Products manufacturing facilities and the cash value of our COLI are
each limited to 5% of Total Asset Value.
Future Cash Requirements
Based on our outlook for 2016 and taking into account planned harvest activities, we expect to fund a majority of
our 2016 annual cash dividends using the cash flows from our REIT-qualifying timberland operations and from cash
and short-term investments on hand. We will also utilize cash dividends from Potlatch TRS to fund our cash
dividends, while maintaining compliance with the limits imposed by our REIT status. In particular, at least 75% of
our gross income for each taxable year as a REIT must be derived from sales of our standing timber and other
types of real estate income. No more than 25% of our gross income may consist of dividends from Potlatch TRS
and other non-qualifying types of income. This requirement may limit our ability to receive dividends from Potlatch
TRS and may impact our ability to fund dividends to stockholders using cash flows from Potlatch TRS.
Dividends to Shareholders
The following table summarizes the historical tax characteristics of dividends to shareholders for the years ended
December 31:
(Amounts per share)
Capital gain dividends
Non-taxable return of capital
Total dividends
Credit Ratings
2015
2014
2013
$
$
1.28
0.22
1.50
$
$
1.425
—
1.425
$
$
1.28
—
1.28
Two major debt rating agencies routinely evaluate our debt and our cost of borrowing can increase or decrease
depending on our credit rating. In November 2015, Moody’s affirmed our debt rating of 'Baa3', with a negative
outlook. In November 2015, Standard & Poor's downgraded our rating to 'BB', with a stable outlook.
Off-Balance Sheet Arrangements
We had no off-balance sheet financing agreements or guarantees as defined by Item 303 of Regulation S-K at
December 31, 2015 and December 31, 2014 that we believe are reasonably likely to have a current or future effect
on our financial condition, results of operations, or cash flows.
2015 FORM 10-K / 33
Contractual Obligations
The following table summarizes our contractual obligations as of December 31, 2015:
(Dollars in thousands)
Long-term debt1
Interest on long-term debt2
Revolving line of credit borrowings1
Operating leases3
Purchase obligations4
Other long-term liabilities5
PAYMENTS DUE BY PERIOD
TOTAL
$ 607,585
WITHIN
1 YEAR
$
5,000
1-3 YEARS
25,250
$
4-5 YEARS
$ 236,000
MORE THAN
5 YEARS
$ 341,335
180,586
30,000
9,618
18,074
139,748
28,427
30,000
3,601
10,617
56,181
41,197
54,781
—
4,960
5,641
—
969
1,816
43,432
—
88
—
74,131
—
22,185
Total
$ 985,611
$
77,645
$ 114,217
$ 323,414
$ 470,335
1 See Note 8: Debt in the Notes to Consolidated Financial Statements.
2 Amounts presented for interest payments assume that all long-term debt outstanding as of December 31, 2015 will remain
outstanding until maturity, and interest rates on variable debt in effect as of December 31, 2015 will remain in effect until
maturity. Estimated cash flows related to interest rate swaps are also included in this category.
3 See Note 14: Commitments and Contingencies in the Notes to Consolidated Financial Statements.
4 Purchase obligations primarily include open purchase orders for goods or services that are legally binding on the company
and that specify fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the
approximate timing of the transaction. Purchase obligations exclude arrangements that the company can cancel without
penalty.
5 Other long-term liabilities include the liability associated with cost share logging roads, employee-related obligations, qualified
pension contributions, supplemental pension payments and payments for other postretirement employee benefit obligations.
See Note 7. Accounts Payable and Accrued Liabilities, Note 9. Other Long-Term Obligations and Note 11: Savings Plans,
Pension Plans and Other Postretirement Employee Benefits, in the Notes to Consolidated Financial Statements for additional
detail.
Critical Accounting Policies and Estimates
Our accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles
generally accepted in the United States, which require management to make estimates that affect the amounts of
revenues, expenses, assets and liabilities reported. The following are critical accounting policies which are both
very important to the portrayal of our financial condition and results of operations and which require some of
management’s most difficult, subjective and complex judgments. The accounting for these matters involves forming
estimates based on current facts, circumstances and assumptions which, in management’s judgment, could change
in a manner that would materially affect management’s future estimates with respect to such matters and,
accordingly, could cause our future reported financial condition and results of operations to differ materially from
financial results reported based on management’s current estimates.
Timber and timberlands. Timber and timberlands are recorded at cost, net of depletion. Expenditures for
reforestation, including all costs related to stand establishment, such as site preparation, costs of seeds or
seedlings and tree planting, are capitalized. Expenditures for forest management, consisting of regularly recurring
items necessary to the ownership and administration of our timber and timberlands, are accounted for as current
operating expenses. Our depletion is determined based on costs capitalized and the related current estimated
timber volume. The volume does not include anticipated future growth.
There are currently no authoritative accounting rules relating to costs to be capitalized for timber and timberlands.
We have used relevant portions of current accounting rules, industry practices and our judgment in determining
costs to be capitalized or expensed. Alternate interpretations and judgments could significantly affect the amounts
capitalized. Additionally, models and observations used to estimate the current timber volume on our lands are
subject to judgments that could significantly affect volume estimates.
34 / POTLATCH CORPORATION
Different assumptions for either the cost or volume estimates, or both, could have a significant effect upon amounts
reported in our Consolidated Financial Statements. Because of the number of variables involved and the
interrelationship between the variables, sensitivity analysis of individual variables is not practical.
Long-lived assets. A significant portion of our total assets are invested in our timber and timberlands and our wood
products manufacturing facilities. The cyclical patterns of our businesses cause cash flows to fluctuate by varying
degrees from period to period. As a result, an impairment could materially affect our financial position or results of
operation.
Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, as measured by its undiscounted estimated future cash flows.
We use our operational budgets to estimate future cash flows. Budgets are inherently uncertain estimates of future
performance due to the fact that all inputs, including revenues, costs and capital spending, are subject to frequent
change for many reasons, including those described above in "timber and timberlands."
Income taxes. We believe it is more likely than not that we will have sufficient future taxable income to realize our
deferred tax assets. The ultimate realization of deferred tax assets depends on the generation of future taxable
income during the periods in which temporary differences are deductible. In making this assessment, we consider
the scheduled reversal of deferred tax liabilities (including the impact of available carryforward periods), projected
taxable income and tax planning strategies. Based on projected taxable income for Potlatch TRS over the periods
for which the deferred tax assets are deductible, as well as certain tax planning strategies that management has
undertaken and expects to have the ability to undertake in the future, we have recorded a $0.5 million valuation
allowance on certain Idaho Investment Tax Credits. With the exception of the valuation allowance, we believe that it
is more likely than not that we will realize the remaining $65.7 million in benefits of these deductible differences and
carryforwards at December 31, 2015. The amount of the deferred tax assets considered realizable, however, could
be reduced in the near term if estimates of future taxable income during the carryforward period are reduced or
management is unable to implement one or more tax planning strategies.
Contingent liabilities. We are subject to lawsuits, investigations and other claims related to environmental, product
and other matters, and are required to assess the likelihood of any adverse judgments or outcomes to these
matters, as well as potential ranges of probable losses. We record contingent liabilities when it becomes probable
that we will have to make payments and the amount of loss can be reasonably estimated. Assessing probability and
estimating losses requires analysis of multiple factors, including historical experience, judgments about the potential
actions of third party claimants and courts and recommendations of legal counsel. In addition to contingent liabilities
recorded for probable losses, we disclose contingent liabilities when there is a reasonable possibility that an
ultimate loss may occur.
Recorded contingent liabilities are based on the best information available and actual losses in any future period
are inherently uncertain. If estimated probable future losses or actual losses exceed our recorded liability for such
claims, we would record additional charges. These exposures and proceedings can be significant and the ultimate
negative outcomes could be material to our financial position, operating results or cash flow in any given quarter or
year. See Note 14: Commitments and Contingencies in the Notes to Consolidated Financial Statements for more
information.
Pension and postretirement employee benefits. The determination of pension plan expense and the
requirements for funding our pension plans are based on a number of actuarial assumptions. Two critical
assumptions are the discount rate applied to pension plan obligations and the expected rate of return on plan
assets. For other postretirement employee benefit (OPEB) obligations related to certain health care and life
insurance benefits provided to qualified retired employees, critical assumptions in determining OPEB expense are
the discount rate applied to benefit obligations and the assumed health care cost trend rates used in the calculation
of benefit obligations.
Note 11: Savings Plans, Pension Plans and Other Postretirement Employee Benefits in the Notes to Consolidated
Financial Statements includes information on the components of pension and OPEB expense and the underlying
actuarial assumptions used to calculate periodic expense for the three years ended December 31, 2015, as well as
the funded status of our pension plans and OPEB obligations as of December 31, 2015 and 2014.
The discount rate used in the determination of pension and OPEB benefit obligations in 2015, 2014 and 2013 was
calculated using hypothetical bond portfolios consisting of “AA” or better rated securities that match the expected
monthly pension and OPEB benefit payments. The portfolios were well-diversified over corporate industrial,
corporate financial, municipal, federal and foreign government issuers. At December 31, 2015, we calculated
2015 FORM 10-K / 35
pension obligations using a 4.65% discount rate. We used a discount rate of 4.25% and 5.10% at December 31,
2014 and 2013, respectively.
To determine the expected long-term rate of return on pension assets, we employ a process that analyzes historical
long-term returns for various investment categories, as measured by appropriate indices. These indices are
weighted based upon the extent to which plan assets are invested in the particular categories in arriving at our
determination of a composite expected return. The expected long-term rates of return on pension plan assets was
6.75% for the year ended December 31, 2015, and 7.50% and 8.00% for the years ended December 31, 2014 and
December 31, 2013. We reduced the expected long-term rate of return to 6.50% for 2016 to reflect lower expected
future rates of return.
Net periodic pension plan cost in 2015 was $20.9 million. A decrease in the discount rate or the rate of expected
return on plan assets, all other assumptions remaining the same, would increase net periodic cost. A 25 basis point
decrease in the discount rate would increase net periodic cost by approximately $0.8 million in 2016 and increase
the projected benefit obligation by approximately $10.1 million at December 31, 2015. A 25 basis point decrease in
the assumption for the expected return on plan assets would increase net periodic cost by approximately $0.7
million in 2016. The actual rates of return on plan assets may vary significantly from the assumption used.
For our OPEB obligations, the net periodic benefit for 2015 was $5.8 million. The discount rate used to calculate
OPEB obligations, which was determined using the same methodology we used for our pension plans, was 4.25%,
3.90% and 4.45% at December 31, 2015, 2014 and 2013, respectively. The assumed health care cost trend rate
used to calculate OPEB obligations as of December 31, 2015 was 7.70% for a certain group of participants under
age 65 in our hourly plan and our Arkansas participants covered by a collective bargaining agreement, grading
ratably to an assumption of 4.40% in 2075.
A decrease in the discount rate or increase in the health care cost trend rate assumption, all other assumptions
remaining the same, would increase our OPEB liability. A 25 basis point decrease in the OPEB discount rate would
have a de minimis increase on net periodic cost. A 1% increase in the health care cost trend rate assumption would
have affected our OPEB obligation by approximately $63.2 million, as reported in Note 11: Savings Plans, Pension
Plans and Other Postretirement Employee Benefits in the Notes to Consolidated Financial Statements. The actual
rates of health care cost increases may vary significantly from the assumption used because of unanticipated
changes in health care costs.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
See prospective accounting pronouncements in Note 1: Summary of Significant Accounting Policies in the Notes to
Consolidated Financial Statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposure on financial instruments includes interest rate risk on our short-term investments, bank
credit facility, term loans and interest rate swap agreements. All market risk sensitive instruments were entered into
for purposes other than trading purposes.
Our short-term investments consist of diversified depository accounts, money market funds and variable rate
demand obligations, all of which have very short maturity periods, and therefore earn an interest rate
commensurate with low-risk instruments. We do not attempt to hedge our exposure to interest rate risk for our
short-term investments.
The interest rates applied to borrowings under our credit facility adjust often and therefore react quickly to any
movement in the general trend of market interest rates. We do not attempt to mitigate the effects of short-term
interest rate fluctuations on our credit facility borrowings through the use of derivative financial instruments.
Outstanding borrowings under our credit facility were $30.0 million at December 31, 2015.
We are exposed to interest rate risk through our variable rate debt instruments. At December 31, 2015, we had six
separate interest rate swaps with notional amounts totaling $74.3 million. The swaps convert interest payments with
fixed rates ranging between 7.50% and 8.89% to three-month LIBOR plus a spread between 5.84% and 6.52%.
The interest rate swaps terminate at various dates between February 2016 and November 2019. See Note 10:
Financial Instruments in the Notes to Consolidated Financial Statements for additional information.
36 / POTLATCH CORPORATION
Quantitative Information about Market Risks
The following table summarizes our outstanding debt, interest rate swaps and average interest rates as of
December 31, 2015:
(Dollars in thousands)
2016
2017
2018
2019
2020
THEREAFTER
TOTAL
EXPECTED MATURITY DATE
Variable rate debt:
Principal due
Average interest
rate
Fair value at
12/31/15
Fixed rate debt:
Principal due
Average interest
rate
Fair value at
12/31/15
Interest rate swaps1:
Fixed to variable
Fair value at
12/31/15
$ — $
— $
— $ 40,000
$ 40,000
$
40,000
$ 120,000
1.98%
2.23%
2.23%
2.14%
$ 120,000
$ 5,000
$ 11,000
$ 14,250
$ 150,000
$
6,000
$ 301,335
$ 487,585
8.80%
5.64%
8.88%
7.50%
3.70%
5.09%
5.98%
$ 506,021
$
7
$
107
$
421
$
46
$
— $
— $
$
581
581
1 The fair value of interest rate swaps are included in current and long-term debt on the Consolidated Balance Sheets. The derivative
assets are included in the other assets and current receivables on the Consolidated Balance Sheets.
A hypothetical increase or decrease of 50 and 100 basis points (BPS) related to our interest rate swap agreements
would have the following effects on fair value:
(Dollars in thousands)
Maturing in:
2016
2017
2018
2019
Total
INTEREST RATE SWAP AGREEMENTS - FAIR VALUE1
Current
+50 BPS
+100 BPS
-50 BPS
-100 BPS
NOTIONAL
AMOUNT
$
5,000
5,000
14,250
50,000
$
14
$
115
446
155
730
$
14
83
308
(758)
14
51
172
$
14
$
148
586
(1,652)
1,088
14
174
737
2,054
2,979
$ 74,250
$
$
(353) $ (1,415) $
1,836
$
1
Fair value for this table is calculated on a termination value basis. Accrued interest is included and a credit value adjustment,
which is used for GAAP purposes, is excluded.
2015 FORM 10-K / 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Potlatch Corporation:
We have audited the accompanying consolidated balance sheets of Potlatch Corporation and subsidiaries as of
December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, cash flows,
and stockholders’ equity for each of the years in the
period ended December 31, 2015. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Potlatch Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their
operations and their cash flows for each of the years in the
period ended December 31, 2015, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), Potlatch Corporation’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), and our report dated February 12, 2016 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
Seattle, Washington
February 12, 2016
38 / POTLATCH CORPORATION
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except per share amounts)
Revenues
Costs and expenses:
Cost of goods sold
Selling, general and administrative expenses
Environmental remediation charges
Operating income
Interest expense, net
Income before income taxes
Income tax benefit (provision)
Net income
Net income per share:
Basic
Diluted
Dividends per share
FOR THE YEARS ENDED DECEMBER 31,
2015
$ 575,336
2014
$ 606,950
2013
$ 570,289
470,037
46,392
—
516,429
58,907
(32,761)
26,146
5,568
429,789
44,655
—
474,444
132,506
(22,909)
109,597
(19,687)
408,772
50,397
3,522
462,691
107,598
(23,132)
84,466
(13,885)
$
31,714
$
89,910
$
70,581
$
$
$
0.78
0.77
$
2.21
2.20
1.74
1.73
1.50
$
1.425
$
1.28
The accompanying notes are an integral part of these consolidated financial statements.
2015 FORM 10-K / 39
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Net income
Other comprehensive income (loss), net of tax:
Pension and other postretirement employee benefits:
Net gain (loss) arising during the period, net of tax expense
(benefit) of $(1,913), $(15,598) and $21,424
Amortization of actuarial loss included in net periodic cost, net of
tax expense of $7,794, $6,488 and $9,024
Amortization of prior service credit included in net periodic cost,
net of tax benefit of $(3,396), $(3,468) and $(3,482)
Other comprehensive income (loss), net of tax
Comprehensive income
FOR THE YEARS ENDED DECEMBER 31,
2015
31,714
$
2014
89,910
$
2013
70,581
$
(2,990)
(24,396)
33,510
12,190
10,149
14,114
(5,311)
3,889
(5,425)
(19,672)
(5,446)
42,178
$
35,603
$
70,238
$ 112,759
The accompanying notes are an integral part of these consolidated financial statements.
40 / POTLATCH CORPORATION
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except per share amounts)
ASSETS
Current assets:
Cash
Short-term investments
Receivables, net of allowance for doubtful accounts of $440 and $450
Inventories
Deferred tax assets, net1
Other assets2
Total current assets
Property, plant and equipment, net
Timber and timberlands, net
Deferred tax assets, net1
Other assets2
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Revolving line of credit borrowings
Current portion of long-term debt
Accounts payable and accrued liabilities
Current liability for pensions and other postretirement employee benefits
Total current liabilities
Long-term debt2
Liability for pensions and other postretirement employee benefits
Other long-term obligations
Total liabilities
Commitments and contingencies
Stockholders’ equity:
AT DECEMBER 31,
2015
2014
$
7,886
$
39
13,420
35,162
—
14,246
70,753
75,285
816,599
46,600
7,375
4,644
26,368
9,928
31,490
6,168
13,894
92,492
65,749
828,420
37,228
7,857
$ 1,016,612
$ 1,031,746
$ 30,000
$
—
5,007
39,740
5,973
80,720
598,874
119,369
13,913
812,876
22,870
43,064
6,260
72,194
602,798
115,936
15,752
806,680
Preferred stock, authorized 4,000,000 shares, no shares issued
—
—
Common stock, $1 par value, authorized 100,000,000 shares, issued 40,680,713
and 40,605,179 shares
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders' equity
40,681
350,541
40,605
346,441
(72,983)
(43,588)
(114,503)
(118,392)
203,736
225,066
$ 1,016,612
$ 1,031,746
1 Current deferred tax assets were classified as noncurrent in 2015 due to the adoption of ASU No. 2015-17.
2 Debt issuance costs in 2014 were reclassified to conform with the 2015 presentation.
The accompanying notes are an integral part of these consolidated financial statements.
2015 FORM 10-K / 41
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash from operating activities:
Depreciation, depletion and amortization
Basis of real estate sold
Change in deferred taxes
Employee benefit plans
Equity-based compensation expense
Other, net
Change in:
Receivables
Inventories
Other assets
Accounts payable and accrued liabilities
Funding of qualified pension plans
Timber deposits and cost share roads
Net cash from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Change in short-term investments
Transfer from company owned life insurance (COLI)
Transfer to COLI
Property, plant and equipment
Timberlands reforestation and roads
Acquisition of timber and timberlands
Other, net
Net cash from investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to common stockholders
Revolving line of credit borrowings
Repayment of long-term debt
Proceeds from issuance of long-term debt
Issuance of common stock
Change in book overdrafts
Employee tax withholdings on vested performance share awards
Deferred financing costs
Other, net
Net cash from financing activities
Increase (decrease) in cash
Cash at beginning of year
Cash at end of year
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest, net of amounts capitalized
Income taxes, net
FOR THE YEARS ENDED DECEMBER 31,
2015
2014
2013
$
31,714
$
89,910
$
70,581
38,105
7,012
(5,696)
4,986
4,758
(2,046)
(3,864)
(3,672)
898
267
—
1,552
74,014
26,329
1,492
—
(18,987)
(13,745)
(10,230)
886
(14,255)
(61,017)
30,000
(22,500)
—
—
(1,549)
(1,453)
(45)
47
(56,517)
3,242
4,644
7,886
29,676
1,576
$
$
26,749
8,646
(1,616)
2,122
4,137
(2,191)
7,016
4,785
(1,421)
(2,388)
(3,550)
(827)
131,372
25,883
28,870
(25,515)
(13,261)
(10,971)
(388,952)
1,263
(382,683)
(57,848)
—
—
310,000
398
1,465
(1,104)
(2,388)
(154)
250,369
(942)
5,586
4,644
20,918
18,104
$
$
26,962
2,904
(2,467)
7,561
4,377
(1,972)
(5,904)
(7,347)
1,668
(3,468)
—
(2,643)
90,252
10,826
—
—
(10,280)
(12,313)
(1,060)
823
(12,004)
(51,868)
—
(36,663)
—
1,904
(955)
(1,738)
(25)
(302)
(89,647)
(11,399)
16,985
5,586
22,229
20,097
$
$
The accompanying notes are an integral part of these consolidated financial statements.
2015 FORM 10-K / 42
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders’ Equity
(Dollars in thousands, except per share amounts)
COMMON STOCK
SHARES
AMOUNT
ADDITIONAL
PAID-IN
CAPITAL
ACCUMULATED
DEFICIT
ACCUMULATED
OTHER
COMPREHENSIVE
LOSS
TOTAL
STOCKHOLDERS'
EQUITY
BALANCE, DECEMBER 31, 2012
40,389,180
$
40,389
$
333,348
$
(94,196) $
(140,898) $
138,643
Exercise of stock options and
stock awards
Performance share and
restricted stock unit awards
Net income
Pension plans and OPEB
obligations
Common dividends, $1.28 per
share
70,968
76,731
—
—
—
71
77
—
—
—
1,833
2,706
—
—
—
—
(73)
70,581
—
(51,868)
—
—
—
42,178
1,904
2,710
70,581
42,178
—
(51,868)
BALANCE, DECEMBER 31, 2013
40,536,879
$
40,537
$
337,887
$
(75,556) $
(98,720) $
204,148
Exercise of stock options and
stock awards
Performance share and
restricted stock unit awards
Net income
Director deferred stock awards
Pension plans and OPEB
obligations
Common dividends, $1.425
per share
12,859
55,441
—
—
—
—
13
55
—
—
—
—
385
2,974
—
5,195
—
—
—
(94)
89,910
—
—
—
—
—
—
398
2,935
89,910
5,195
(19,672)
(19,672)
(57,848)
—
(57,848)
BALANCE, DECEMBER 31, 2014
40,605,179
$
40,605
$
346,441
$
(43,588) $
(118,392) $
225,066
Performance share and
restricted stock unit awards
75,534
Net income
Director deferred stock awards
Pension plans and OPEB
obligations
Transfer of assets from REIT
to subsidiary
Common dividends, $1.50 per
share
—
—
—
—
—
76
—
—
—
—
—
3,406
—
701
—
(7)
—
(92)
31,714
—
—
—
(61,017)
—
—
—
3,889
—
—
3,390
31,714
701
3,889
(7)
(61,017)
BALANCE, DECEMBER 31, 2015
40,680,713
$
40,681
$
350,541
$
(72,983) $
(114,503) $
203,736
The accompanying notes are an integral part of these consolidated financial statements.
2015 FORM 10-K / 43
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
We are primarily engaged in activities associated with timberland management, including the sale of timber, the
management of approximately 1.6 million acres of timberlands and the purchase and sale of timberlands. We are
also engaged in the manufacture and sale of wood products. Our timberlands and all of our wood products facilities
are located within the continental United States. The primary market for our products is the United States. We
converted to a Real Estate Investment Trust (REIT) effective January 1, 2006.
CONSOLIDATION
The Consolidated Financial Statements include the accounts of Potlatch Corporation and its subsidiaries after
elimination of significant intercompany transactions and accounts. There are no unconsolidated subsidiaries.
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America, which we refer to in this report as U.S. GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and assumptions.
Significant estimates are described in further detail below. Significant estimates include timber volumes,
assumptions utilized for asset and disposal group impairment tests, income projections and tax planning strategies
used to support realization of deferred tax assets, environmental liabilities, pension and postretirement obligation
assumptions and fair value of derivative instruments.
SHORT-TERM INVESTMENTS
Short-term investments consist of diversified depository accounts, money market funds and variable rate demand
obligations, all of which have very short maturity periods and therefore earn an interest rate commensurate with
low-risk instruments. We classify our short-term investments as "available for sale." There is no significant
difference between cost and fair value. All short-term investments of REIT funds are made in compliance with the
requirements of the Internal Revenue Code with respect to qualifying REIT investments.
INVENTORIES
Inventories are stated at the lower of cost or market. The last-in, first-out method is used to determine cost of logs,
lumber and plywood for most of our operations. The average cost method is used to determine the cost of all other
inventories. Expenses associated with idle capacity or other curtailments of production are reflected in cost of
goods sold in the periods incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are valued at cost less accumulated depreciation. Depreciation of buildings,
equipment and other depreciable assets is determined using the straight-line method of depreciation. Estimated
useful lives range from 30 to 40 years for buildings and structures and 2 to 25 years for equipment.
Major improvements and replacements of property are capitalized. Maintenance, repairs and minor improvements
and replacements are expensed. Upon retirement or other disposition of property, applicable cost and accumulated
depreciation or amortization are removed from the accounts. Any gains or losses are included in earnings.
TIMBER AND TIMBERLANDS
Timber and timberlands are valued at cost less accumulated depletion and amortization. For fee timber, the
capitalized cost includes costs related to stand establishment, including costs of preparing the land for planting, cost
of seeds or seedlings and tree planting, including labor, materials, depreciation of company-owned equipment and
the cost of contract services. Upon completion of planting activities and field inspection to assure the planting
44 / POTLATCH CORPORATION
operation was successful, a plantation will be considered “established.” Subsequent expenditures made to maintain
the integrity or enhance the growth of an established plantation or stand are expensed. Post-establishment
expenses include release spray treatments, pest control activities, thinning operations, fertilization and replanting
seedlings lost through mortality. Expenditures for forest management consist of regularly recurring items necessary
for ownership and administration of timber producing property such as fire protection, property taxes and insurance,
silviculture costs incurred subsequent to stand establishment, cruising (physical inventory), property maintenance
and salaries, supplies, travel, record-keeping and other normal recurring administrative personnel costs. These
expenditures are accounted for as current operating expenses. Timberland acquisitions are capitalized and the cost
is allocated to timberland, merchantable sawlogs, merchantable pulpwood, reproduction (young growth not yet
merchantable), logging roads and other land improvements, generally based on relative appraised values.
The aggregate estimated volume of current standing merchantable timber inventory is updated at least annually to
reflect increases due to reclassification of young growth to merchantable timber when the young growth meets
defined diameter specifications, the annual growth of merchantable timber and the acquisition of additional
merchantable timber and to reflect decreases due to timber harvests and land sales. Timber volumes are estimated
from cruises of the timber tracts, which are completed on our timberlands on approximately a five to ten year cycle.
Since the individual cruises collect field data at different times for specific sites, the growth model projects standing
inventory from the cruise date to a common reporting date. Annual growth rates for the merchantable inventory
have historically been in the range of 2%-5% in the North and 6%-9% in the South.
Depletion represents the amount charged to expense as fee timber is harvested. Rates at which timber is depleted
are calculated annually for each of our depletion pools by dividing the beginning of year balance of the
merchantable timber accounts by the forest inventory volume, after inventory updates for growth projection
adjustments and new timber cruises.
The base cost of logging roads, such as the clearing, grading, and ditching, is not amortized and remains a
capitalized item until obliteration or other disposition. Other portions of the initial logging road cost, such as bridges,
culverts and gravel surfacing are amortized over their useful lives, which range from 5 to 20 years. Costs
associated with temporary logging roads that will not remain part of our road system are expensed as incurred.
REAL ESTATE SALES
Sales of non-core timberland are considered to be part of our normal operations. We therefore classify revenue and
costs associated with real estate sold in revenues and cost of goods sold, respectively, in our Consolidated
Statements of Income. Cash generated from real estate sales is included as an operating activity in our
Consolidated Statements of Cash Flows.
LIKE-KIND EXCHANGES AND RESTRICTED CASH
In order to acquire and sell assets, primarily timberlands, in a tax efficient manner, we sometimes enter into like-
kind exchange (LKE) tax-deferred transactions. There are two main types of LKE transactions: forward
transactions, in which property is sold and the proceeds are reinvested by acquiring similar property; and reverse
transactions, in which property is acquired and similar property is subsequently sold by us. Both forward and
reverse transactions must be completed within prescribed time periods under Internal Revenue Code section 1031.
We use a qualified intermediary to facilitate LKE transactions. Proceeds from forward transactions are held by the
intermediary and are classified as restricted cash within non-current other assets, because we intend to reinvest the
funds in similar properties. If the acquisition of suitable LKE properties is not completed within 180 days of the sale
of the company-owned property, the proceeds are distributed to us by the intermediary and are reclassified as
available cash and applicable income taxes are determined. In the case of reverse transactions in which we have
not yet completed LKE sales of company-owned land to match with property purchased on our behalf by the
intermediary, the amount associated with the property purchased on our behalf but not yet matched with LKE sales
is classified as a non-current asset and included in “Timber and timberlands, net” in our Consolidated Balance
Sheets and as “Acquisition of timber and timberlands” in the investing activities section of our Consolidated
Statements of Cash Flows.
LONG-LIVED ASSETS
Our long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable, as measured by its undiscounted estimated future cash flows.
We use our operational budgets to estimate future cash flows. The estimates are adjusted periodically to reflect
2015 FORM 10-K / 45
changing business conditions. Impaired assets are written down to fair value. Assets to be disposed of are reported
at the lower of carrying amount or fair value less cost to sell.
We recognize a liability and an asset equal to the fair value of our legal obligations to perform asset retirement
activities if the amount can be reasonably estimated. We review these obligations annually and do not expect them
to have a material effect on our financial position, results of operations or cash flows.
INCOME TAXES
We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards
and tax credit carryforwards. Deferred tax assets and liabilities are measured pursuant to tax laws using rates
expected to apply to taxable income in the years in which the temporary differences are expected to be recovered
or settled. We recognize the effect of a change in income tax rates on deferred tax assets and liabilities in the
Consolidated Statements of Income and Consolidated Statements of Comprehensive Income in the period that
includes the enactment date of the rate change. We record a valuation allowance to reduce the carrying amounts of
deferred tax assets if it is more likely than not that such deferred tax assets will not be realized.
REVENUE RECOGNITION
We recognize revenue from the sale of timber when risk of loss transfers to the buyer and the quantity sold is
determinable. These sales take the form of delivered logs, pay-as-cut contracts, timber deeds and lump sum
contracts. On delivered log sales, revenue includes amounts billed for logging and hauling and is recognized at the
point the logs are delivered and scaled. Revenue is recognized on timber deeds and lump sum contracts generally
upon closing or when the contracts are effective, which is the point at which the buyer assumes risk of loss
associated with the standing timber.
We receive cash consideration in full and recognize revenue at closing on substantially all our real estate sales.
We recognize revenue from the sale of manufactured wood products and residual by-products when there is
persuasive evidence of a sales agreement, the price to the customer is fixed and determinable, collection is
reasonably assured, and title and the risk of loss passes to the customer. Shipping terms generally indicate when
title and the risk of loss have passed. Revenue is recognized at shipment for sales when shipping terms are FOB
(free on board) shipping point. For sales where shipping terms are FOB destination, revenue is recognized when
the goods are received by the customer.
Revenue is recognized net of any sales taxes collected. Sales taxes, when collected, are recorded as a current
liability and remitted to the appropriate governmental entities.
Costs for shipping and handling are included in cost of goods sold in our Consolidated Statements of Income.
EQUITY-BASED COMPENSATION
Equity-based awards are measured at fair value on the dates they are granted or modified. These measurements
establish the cost of the equity-based awards for accounting purposes. The cost of the equity-based award is then
recognized in the Consolidated Statements of Income over each employee’s required service period. See Note 12:
Equity-Based Compensation Plans for more information about our equity-based compensation.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.
2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), which requires an entity to recognize
revenue when promised goods or services are transferred to customers in an amount that reflects the consideration
that is expected to be received for those goods or services. The guidance permits either a retrospective application
of the new standard with restatement of prior years or prospective application of the new standard with disclosure of
results under old standards. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with
Customers (Topic 606) - Deferral of the Effective Date, which deferred the effective date of ASU No. 2014-09 by
one year. Therefore, ASU No. 2014-09 is effective for us on January 1, 2018. The adoption of this guidance is not
expected to have a significant effect on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest, Simplifying the Presentation of
Debt Issuance Costs. The amendments in ASU No. 2015-03 require that debt issuance cost related to a recognized
debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt. In
46 / POTLATCH CORPORATION
August, the FASB issued ASU No. 2015-15, Interest-Imputation of Interest (Subtopic 835-30) Presentation and
Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, Amendments to
SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting, which clarified that debt
issuance costs related to a line-of-credit arrangement may be deferred and presented as an asset and
subsequently amortized ratably over the term of the line-of-credit arrangement, regardless of whether there is any
outstanding borrowings on the line-of-credit arrangement. ASU No. 2015-03 is effective for us January 1, 2016, with
early adoption permitted. We have adopted ASU No. 2015-03 and ASU No. 2015-15 on a retrospective basis as of
and for the year-ended December 31, 2015. To conform to this new presentation, debt issuance costs of $3.7
million at December 31, 2014 have been reclassed from other current assets and other long-term assets to long-
term debt.
In May 2015, the FASB issued ASU No. 2015-07, Disclosures for Investments in Certain Entities that Calculate Net
Asset Value per Share (or Its Equivalent), which removes the requirement to categorize within the fair value
hierarchy investments for which fair value is measured using the net asset value per share practical expedient and,
instead, permits separate disclosure. This ASU is effective for us on January 1, 2016 and will impact disclosure of
investments in certain pension assets in Note 11: Savings Plans, Pension Plans and Other Postretirement
Employee Benefits.
In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330) - Simplifying the Measurement of Inventory.
The amendments in ASU No. 2015-11 apply to inventory measured using first-in, first-out (FIFO) or average cost
and will require entities to measure inventory at the lower of cost or net realizable value. Net realizable value is the
estimated selling price in the normal course of business, minus the cost of completion, disposal and transportation.
Replacement cost and net realizable value less a normal profit margin will no longer be considered. ASU No.
2015-11 is effective for us on January 1, 2017, with early adoption permitted. We adopted ASU No. 2015-11 as of
October 1, 2015 with no impact on our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740), which requires deferred tax
assets and liabilities to be classified as noncurrent on the balance sheet. ASU No. 2015-17 may be applied either
prospectively to all deferred tax assets and liabilities or retrospectively to all periods presented. ASU No. 2015-17 is
effective for us on January 1, 2017 with early application permitted. We have adopted ASU No. 2015-17
prospectively as of December 31, 2015. As allowed by the guidance, prior periods have not been reclassified.
NOTE 2. EARNINGS PER SHARE
The following table reconciles the number of shares used in calculating the basic and diluted earnings per share for
the years ended December 31:
(Dollars in thousands, except per share amounts)
2015
2014
2013
Net income
$
31,714
$
89,910
$
70,581
Basic weighted-average shares outstanding
40,842,126
40,748,924
40,502,878
Incremental shares due to:
Performance shares
Restricted stock units
Stock options
122,334
23,359
—
117,830
27,628
—
133,766
69,076
3,567
Diluted weighted-average shares outstanding
40,987,819
40,894,382
40,709,287
Basic net income per share
Diluted net income per share
$
$
0.78
0.77
$
$
2.21
2.20
$
$
1.74
1.73
For stock-based awards, the dilutive effect is calculated using the treasury stock method. Under this method, the
dilutive effect is computed as if the awards were exercised at the beginning of the period (or at time of issuance, if
later) and assumes the related proceeds were used to repurchase common stock at the average market price
during the period. Related proceeds include the amount the employee must pay upon exercise, future
compensation cost associated with the stock award and the amount of excess tax benefits, if any.
2015 FORM 10-K / 47
At December 31, 2015, there were no anti-dilutive stock-based awards. At December 31, 2014 and 2013, there
were 1,216 and 3,441 stock-based awards, respectively, excluded from the calculation of diluted earnings per share
because they were anti-dilutive.
NOTE 3. INVENTORIES
(Dollars in thousands)
Logs
Wood products finished goods
Materials and supplies
Valued at lower of cost or market:
Last-in, first-out basis
Average cost basis
Total inventories
2015
2014
9,920
16,932
8,310
35,162
16,686
18,476
35,162
$
$
$
$
7,930
17,286
6,274
31,490
16,874
14,616
31,490
$
$
$
$
If the last-in, first-out inventory had been carried at average cost, the values would have been approximately
$10.6 million, $11.0 million, and $11.3 million higher at December 31, 2015, 2014, and 2013, respectively.
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
(Dollars in thousands)
Land and land improvements
Buildings and structures
Machinery and equipment
Construction in progress
Less: accumulated depreciation
Total property, plant and equipment, net
2015
18,194
36,364
193,968
224
248,750
(173,465)
75,285
$
$
2014
18,374
36,174
176,085
5,878
236,511
(170,762)
65,749
$
$
Depreciation charged against operating income totaled $8.2 million, $8.1 million and $8.2 million in 2015, 2014 and
2013, respectively.
Interest expense capitalized was $0.2 million and $0.1 million in 2015 and 2014, respectively. No interest expense
was capitalized in 2013.
NOTE 5. TIMBER AND TIMBERLANDS
(Dollars in thousands)
Timber and timberlands
Logging roads
Total timber and timberlands, net
2015
745,634
70,965
816,599
$
$
2014
760,431
67,989
828,420
$
$
Depletion from company-owned lands totaled $25.3 million, $14.5 million and $14.6 million in 2015, 2014 and 2013,
respectively. Amortization of certain road costs, such as bridges, culverts and gravel surfacing, totaled $3.1 million,
$2.8 million and $2.7 million in 2015, 2014 and 2013, respectively.
Future payments due under timber cutting contracts total $5.1 million, $2.9 million, $1.5 million and $1.8 million in
2016, 2017, 2018 and 2019, respectively.
48 / POTLATCH CORPORATION
NOTE 6. OTHER ASSETS
Current Other Assets
(Dollars in thousands)
Real estate held for sale
Prepaid expenses
Total current other assets
Noncurrent Other Assets
(Dollars in thousands)
Deferred real estate development costs
Debt issuance costs - revolving line of credit
Investment in company owned life insurance (COLI)
Other
Total noncurrent other assets
NOTE 7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
(Dollars in thousands)
Wages, salaries and employee benefits
Trade accounts payable
Interest
Property and other taxes
Logging related expenses
Book overdrafts
Deferred recreational lease income
Other accrued liabilities
Total
NOTE 8. DEBT
(Dollars in thousands)
Term loans, variable rate 1.98% to 2.23% due 2019 through 2021 and fixed rate
2.95% to 4.64% due 2017 through 2024
Senior notes, 7.50%, due 2019
Revenue bonds, 5.90% to 6.95%, due 2024 and 2026
Debentures, 6.95%, due 2015
Medium-term notes, 8.75% to 8.89%, due 2016 through 2022
Interest rate swaps (See Note 10: Financial Instruments)
Less debt issuance costs
Less unamortized discounts
Total long-term debt (includes current portion)
Less current portion of long-term debt
Long-term debt
TERM LOANS
$
$
$
$
2015
2014
$
$
$
$
12,708
1,538
14,246
2015
3,309
2,094
687
1,285
7,375
2015
9,509
6,351
6,797
5,304
4,127
2,836
1,575
3,241
39,740
$
$
$
$
$
$
11,529
2,365
13,894
2014
3,320
2,606
877
1,054
7,857
2014
14,667
5,656
4,811
5,663
2,983
4,385
1,616
3,283
43,064
2015
2014
322,000
150,000
108,335
—
27,250
607,585
581
(3,037)
(1,248)
603,881
(5,007)
598,874
$
$
322,000
150,000
108,335
22,500
27,250
630,085
793
(3,675)
(1,535)
625,668
(22,870)
602,798
In December 2014, we entered into an amended and restated term loan agreement totaling $322 million. The
amended term loan agreement includes eight tranches consisting of the following:
•
two $6 million tranches, with rates of 2.95% maturing in 2017 and 3.70% maturing in 2020,
2015 FORM 10-K / 49
•
•
•
three $40 million tranches maturing each year from 2019 through 2021 at variable rates based on 3-month
LIBOR plus a spread between 1.65% and 1.90%,
two $40 million tranches with rates of 4.29% maturing in 2022 and 4.49% maturing in 2023 and
one tranche of $110 million with a rate of 4.64% maturing in 2024.
We were in compliance with all term loan debt covenants at December 31, 2015 and 2014.
SENIOR NOTES
In 2009, we sold $150 million aggregate principal amount of 7.5% senior notes. The terms of these notes limit our
ability, and the ability of any subsidiary guarantors, to borrow money, pay dividends, redeem or repurchase capital
stock, enter into sale and leaseback transactions and create liens.
REVENUE BONDS AND MEDIUM-TERM NOTES
The revenue bonds were originally issued in 1996. The medium term notes were originally issued during 1991 and
1992.
DEBT ISSUANCE COSTS
Debt issuance costs represent the capitalized direct costs incurred related to the issuance of debt. These costs are
amortized to interest expense over the terms of the respective borrowings using the effective interest method.
DEBT MATURITIES
Scheduled principal payments due on long-term debt subsequent to December 31, 2015, are as follows:
(Dollars in thousands)
2016
2017
2018
2019
2020
Thereafter
Total
$
$
5,000
11,000
14,250
190,000
46,000
341,335
607,585
Principal repayments on long-term debt occur at maturity.
CREDIT AGREEMENT
On August 12, 2014, we entered into an amended and restated credit agreement with an expiration date of
February 12, 2020. The credit agreement provides for a revolving line of credit with an initial aggregate principal
amount not to exceed $250 million, which may be increased by up to an additional $250 million. It also includes a
sublimit of $40 million for the issuance of standby letters of credit and a sublimit of $25 million for swing line loans.
Usage under either or both subfacilities reduces availability under the revolving line of credit. As of December 31,
2015, there was $30 million in borrowings outstanding under the revolving line of credit with a weighted-average
interest rate of 1.79%, 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 December 31, 2015 was $218.6 million.
Pricing is set according to the type of borrowing. LIBOR Loans are issued at a rate equal to the British Bankers
Association LIBOR Rate, while Base Rate Loans are issued at a rate equal to the Base Rate, which is a fluctuating
rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1.00%, (b) the rate of interest in effect
for such day as publicly announced from time to time by KeyBank as its “prime rate,” and (c) the sum of the LIBOR
that would apply to a one month Interest Period plus 1.00%. The interest rates we pay for borrowings under either
type of loan include an additional Applicable Rate, which can range from 0.875% to 1.70% for LIBOR loans and
from 0% to 0.70% for Base Rate loans, depending on our current credit rating. As of December 31, 2015, we were
able to borrow under the bank credit facility with the additional applicable rate of 1.50% for LIBOR Loans and 0.50%
for Base Rate Loans, with facility fees of 0.25% on the $250 million of the bank credit facility.
We were in compliance with all credit facility debt covenants at December 31, 2015 and 2014.
50 / POTLATCH CORPORATION
NOTE 9. OTHER LONG-TERM OBLIGATIONS
(Dollars in thousands)
Employee benefits and related liabilities
Cost share logging roads
Other
Total
NOTE 10. FINANCIAL INSTRUMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS
2015
2014
6,832
6,384
697
13,913
$
$
8,839
5,894
1,019
15,752
$
$
Estimated fair values of our financial instruments as of December 31 are as follows:
(Dollars in thousands)
Cash and short-term investments (Level 1)
Net derivative asset related to interest rate swaps (Level 2)
Long-term debt (including current portion of long-term debt and
fair value adjustments related to fair value swaps) (Level 2)
Company owned life insurance (COLI) (Level 3)
2015
CARRYING
AMOUNT
7,925
$
$
581
$
$
2014
FAIR
VALUE
7,925
CARRYING
AMOUNT
$ 31,012
FAIR
VALUE
$ 31,012
581
$
793
$
793
$ 603,881
$ 626,021
$ 625,668
$ 657,943
$
687
$
687
$
877
$
877
A framework has been established for measuring fair value, which provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described
below.
Level 1
Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in
active markets.
Level 2
Inputs to the valuation methodology include:
• Quoted prices for similar assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in inactive markets;
• Inputs other than quoted prices that are observable for the asset or liability; and
• Inputs that are derived principally from or corroborated by observable market data by correlation or
other means.
If the asset or liability has a specified (contractual) term, the Level 2 input must be observed for
substantially the full term of the asset or liability.
Level 3
Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs
and minimize the use of unobservable inputs.
For cash and short-term investments, the carrying amount approximates fair value due to the short-term nature of
these financial instruments. The fair value of the interest rate swaps was determined using discounted cash flow
analysis on the expected cash flows of each derivative. The analysis reflects the contractual terms of the
derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate
forward curves. The fair value of our long-term debt is estimated based upon the quoted market prices for the same
or similar debt issues, or estimated based on average market prices for comparable debt when there is no quoted
market price. Contract value of our COLI, the amount at which it could be redeemed, is used as a practical
expedient to estimate fair value because market prices are not readily available.
2015 FORM 10-K / 51
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We record all derivatives on our balance sheet at fair value. Derivatives designated and qualifying as a hedge of the
exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such
as interest rate risk, are considered fair value hedges. Hedge accounting generally provides for the matching of the
timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of
the hedged asset or liability that is attributable to the hedged risk in a fair value hedge.
We formally document all relationships between hedging instruments and hedged items, as well as the risk-
management objective and strategy for undertaking various hedge transactions.
FAIR VALUE HEDGES OF INTEREST RATE RISK
As of December 31, 2015, we had six separate interest rate swaps with notional amounts totaling $74.3 million
associated with $24.3 million of our medium-term notes and $50.0 million of our senior notes. The objective of these
swaps is to manage our exposure to fluctuations in market interest rates on our debt balances. The swaps convert
interest payments with fixed rates ranging between 7.50% and 8.89% to a variable rate of 3-month LIBOR plus a
spread between 5.84% and 6.52%. The interest rate swaps terminate at various dates between February 2016 and
November 2019.
BALANCE SHEET AND INCOME EFFECTS OF DERIVATIVES
The fair values of derivative instruments on our Consolidated Balance Sheets as of December 31 are as follows:
(Dollars in thousands)
Derivatives designated as hedging instruments:
Interest rate contracts
Interest rate contracts
Total derivatives designated as hedging instruments
DERIVATIVE ASSETS
2015
2014
BALANCE SHEET LOCATION
FAIR VALUE
FAIR VALUE
Other assets, current
Other assets, non-current
$
$
7
574
581
$
$
—
793
793
The effect of derivatives on the Consolidated Statements of Income for the years ended December 31, 2015, 2014
and 2013 are as follows:
(Dollars in thousands)
Derivatives designated in fair value hedging relationships:
Interest rate contracts
LOCATION OF GAIN
RECOGNIZED IN
INCOME
AMOUNT OF GAIN
RECOGNIZED IN INCOME
2015
2014
2013
Realized gain on hedging instruments1
Net gain recognized in income from fair value hedges
Interest expense
$ 1,534
$ 1,534
$
$
979
979
$
$
960
960
1 The realized gain on hedging instruments consist of net cash settlements and interest accruals on the interest rate swaps during
the period, which are recognized in interest expense.
COMPANY OWNED LIFE INSURANCE
We are the beneficiary of insurance policies on the lives of certain of our current and past officers and employees.
We have recognized the amount that could be realized upon surrender of the insurance policies in other assets in
our Consolidated Balance Sheets. COLI income is included in selling, general and administrative expenses in the
Consolidated Statements of Income and was not significant for the years ended December 31, 2015, 2014 and
2013. Cash receipts and disbursements are recorded as investing activities in the Consolidated Statements of Cash
Flows.
52 / POTLATCH CORPORATION
NOTE 11. SAVINGS PLANS, PENSION PLANS AND OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
SAVINGS PLANS
Substantially all of our employees are eligible to participate in 401(k) savings plans. In 2015, 2014 and 2013, we
made matching 401(k) contributions on behalf of our employees of $2.1 million, $2.0 million and $1.8 million,
respectively.
PENSION PLANS AND OTHER POSTRETIREMENT BENEFITS
On January 1, 2011, we froze our pension plans to any new salaried and hourly non-represented employees hired
after that date.
In late 2009, we restructured our health care and life insurance plans for the majority of our retirees, with the
changes effective January 1, 2010. The level of subsidy was frozen for retirees so that all future increments in
health care costs will be borne by the retirees. In addition, the retiree medical plans were redesigned for all retirees.
For retirees under age 65, a high deductible medical plan was created and all other existing medical plans were
terminated. These retirees were transferred to the new medical plan effective January 1, 2010. For retirees age 65
or over, the medical plan is divided into two components, with the company continuing to self-insure prescription
drugs and providing a fully-insured medical supplemental plan through AARP/United Healthcare. Both medical
plans require the retiree to contribute the amounts in excess of the company subsidy in order to continue coverage.
Finally, vision, dental and life insurance coverage for these retirees were terminated. The effect of these retiree plan
changes was a reduction in the accumulated postretirement benefit obligation of $76.7 million, which was
recognized as of December 31, 2009. The retirees from our Arkansas wood products manufacturing facility are
represented by a bargaining group and their retiree medical plan is covered by the collective bargaining agreement.
We use a December 31 measurement date for our benefit plans and obligations. We recognize the underfunded
status of our defined benefit pension plans and other postretirement employee benefit obligations on our
Consolidated Balance Sheets. We recognize the changes in the funded status in the year in which changes occur
through our Consolidated Statements of Comprehensive Income.
2015 FORM 10-K / 53
The change in benefit obligation, change in plan assets and funded status for company-sponsored benefit plans
and obligations are as follows:
(Dollars in thousands)
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial gain (loss)
Benefits paid
PENSION PLANS
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
2015
2014
2015
2014
$(417,694) $ (393,565)
$ (41,561) $ (47,343)
(6,159)
(17,012)
27,094
31,700
(5,081)
(19,184)
(49,990)
50,126
(22)
(25)
(1,456)
(1,741)
3,778
3,790
3,229
4,319
Benefit obligation at end of year
$(382,071) $ (417,694)
$ (35,471) $ (41,561)
Fair value of plan assets at beginning of year
$ 337,059
$ 350,588
$
— $
Actual return on plan assets
Employer contributions and benefit payments
Benefits paid
Fair value of plan assets at end of year
(14,970)
1,811
31,280
5,317
(31,700)
(50,126)
—
3,790
(3,790)
$ 292,200
$ 337,059
$
— $
—
—
—
4,319
(4,319)
Amounts recognized in the consolidated balance sheets:
Current liabilities
Noncurrent liabilities
Funded status
$
(1,791) $
(1,774)
$
(4,182) $
(4,486)
(88,080)
(78,861)
(31,289)
(37,075)
$ (89,871) $ (80,635)
$ (35,471) $ (41,561)
The accumulated benefit obligation for all defined benefit pension plans is determined using the actuarial present
value and was $375.5 million and $410.4 million at December 31, 2015 and 2014, respectively.
PENSION ASSETS
We utilize formal investment policy guidelines for our company-sponsored pension plan assets. Management
insures that the investment policy and guidelines are adhered to and the investment objectives are met.
The general policy states that plan assets will be invested to seek the greatest return consistent with the fiduciary
character of the pension funds and to allow the plans to meet the need for timely pension benefit payments. The
specific investment guidelines stipulate that management will maintain adequate liquidity for meeting expected
benefit payments by reviewing, on a timely basis, contribution and benefit payment levels and appropriately revise
long-term and short-term asset allocations. Management takes reasonable and prudent steps to preserve the value
of pension fund assets and to avoid the risk of large losses. Major steps taken to provide this protection include the
following:
• Assets are diversified among various asset classes, such as domestic equities, global equities, fixed
income, convertible securities and liquid reserves. The long-term asset allocation ranges are as follows:
Domestic and international equities
Fixed income securities
Alternatives, which may include equities and fixed income securities
Cash
24% - 48%
38% - 58%
12% - 18%
0% - 5%
• Periodic reviews of allocations within these ranges are made to determine what adjustments should be
made based on changing economic and market conditions and specific liquidity requirements.
• Assets are managed by professional investment managers and may be invested in separately managed
accounts or commingled funds. Assets are diversified by selecting different investment managers for each
asset class and by limiting assets under each manager to no more than 25% of the total pension fund.
• Assets are not invested in Potlatch stock.
54 / POTLATCH CORPORATION
The investment guidelines also provide that the individual investment managers are expected to achieve a
reasonable rate of return over a market cycle. Emphasis will be placed on long-term performance versus short-term
market aberrations. Factors to be considered in determining reasonable rates of return include performance
achieved by a diverse cross section of other investment managers, performance of commonly used benchmarks
(e.g., Russell 3000 Index, Barclays Long Credit Index, Morgan Stanley Capital International Indexes), actuarial
assumptions for return on plan investments and specific performance guidelines given to individual investment
managers.
The asset allocations of the pension benefit plans’ assets at December 31 by asset category are as follows:
ASSET CATEGORY
Domestic and international equities
Fixed income securities
Other (includes alternatives not classified as equities and fixed income securities)
Total
PENSION PLANS
2015
2014
35%
48
17
100%
36%
48
16
100%
The pension assets are stated at fair value. Refer to Note 10. Financial Instruments for discussion of the framework
used to measure fair value.
Following is a description of the valuation methodologies used for assets measured at fair value:
• Corporate common and preferred stocks are valued at quoted market prices reported on the major
securities markets, and are classified in Level 1. Investments in registered investment company funds for
which market quotations are generally readily available are valued at the last reported sale price, official
closing price or publicly available net asset value (NAV), or its equivalent on the primary market or
exchange on which they are traded, and are classified in Level 1.
•
•
Investments in common and collective trust funds and hedge funds are generally valued based on their
respective NAV (or its equivalent), as a practical expedient to estimate fair value due to the absence of
readily available market prices. Investments that may be fully redeemed at NAV in the near-term are
generally classified in Level 2.
Investments in funds that may not be fully redeemed at NAV in the near-term are generally classified in
Level 3. We had no Level 3 investments at December 31, 2015 or 2014.
2015 FORM 10-K / 55
Fair value measurements are as follows:
(Dollars in thousands)
Asset Category
Cash and equivalents
Domestic equity securities1
International equity securities2
Emerging markets3
Fixed income securities4
Alternatives5
Total
(Dollars in thousands)
Asset Category
Cash and equivalents
Equity securities:
U.S. small/mid cap6
International companies
Mutual funds7
Collective investments:
U.S. large cap8
Developed markets9
Emerging markets10
Total
DECEMBER 31, 2015
Level 1
Level 2
Total
$
5,591
$
— $
26,253
411
1,831
138,906
—
25,619
25,733
23,681
—
44,175
$
172,992
$
119,208
$
5,591
51,872
26,144
25,512
138,906
44,175
292,200
DECEMBER 31, 2014
Level 1
Level 2
Total
$
6,586
$
— $
6,586
1,136
13,782
226,710
—
—
—
$
248,214
$
—
—
—
30,005
29,879
28,961
88,845
1,136
13,782
226,710
30,005
29,879
28,961
$
337,059
1 Level 1 assets are managed investments in U.S. small/mid-cap equities that track the Russell 2500 Growth index or Russell
2500 Value index. Level 2 assets are collective investments, which are invested in U.S. large-cap equities that track the S&P
500.
2 These collective investments are invested in equity funds of developed markets outside of the U.S. and Canada that track the
MSCI EAFE Value index or MSCI EAFE Growth index.
3 Level 1 assets are mutual funds which are invested in the common stock of companies located (or with primary operations) in
emerging markets that track the MSCI Emerging Markets index. Level 2 assets are collective investments in the common
stock of companies located (or with primary operations) in emerging markets that track the MSCI Emerging Markets index.
4 These are mutual funds and investments in a diversified portfolio of fixed income instruments of varying maturities
representing corporates, sovereign debt, U.S. treasuries, and municipals that track the Barclay's Long Term Credit index.
5 These are collective investments in inflation-indexed bonds, securities of real estate companies, commodity index-linked
notes, fixed income securities, foreign currencies, securities of natural resource companies, master limited partnerships,
publicly listed infrastructure companies, floating-rate debt, securities of global agriculture companies and securities of global
timber companies.
6 These are managed investments in U.S. small/mid cap equities that track the Russell 2500 Growth index.
7 The mutual funds were 72% invested in high-quality intermediate and long-term investment grade securities, 22% invested in
a diversified portfolio of fixed-income instruments of varying maturities, which may be represented by forwards or derivatives
such as options, futures contracts or swap agreements and debt securities, and 6% invested in U.S. small/mid-cap equities
that track the Russell 2500 Growth index.
8 These collective investments are invested in U.S. large cap equities that track the S&P 500.
9 These collective investments are invested in equity funds of developed markets outside of the United States & Canada, which
track the MSCI EAFE Value or MSCI EAFE Growth index.
10 These collective investments are invested in equity funds of emerging markets outside of the United States & Canada, which
track the MSCI Emerging Markets index.
At January 1, 2014, $10.6 million in plan assets were held in hedge funds (level 3), which were sold and settled
during 2014.
56 / POTLATCH CORPORATION
PLAN ACTIVITY
Pre-tax components of net periodic cost (benefit) recognized in our Consolidated Statements of Income were as
follows:
(Dollars in thousands)
Service cost
Interest cost
PENSION PLANS
2015
$ 6,159
17,012
2014
$ 5,081
19,184
2013
$ 5,318
17,826
Expected return on plan assets
(20,804)
(24,512)
(26,092)
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
2015
2014
2013
$
22
$
25
$
94
1,456
—
1,741
—
1,810
—
Amortization of prior service cost (credit)
Amortization of actuarial loss
Net periodic cost (benefit)
605
17,937
$ 20,909
748
14,451
$ 14,952
779
(9,312)
(9,641)
(9,708)
19,929
2,047
2,186
3,209
$ 17,760
$ (5,787) $ (5,689) $ (4,595)
Other amounts recognized in our Consolidated Statements of Comprehensive Income were as follows:
(Dollars in thousands)
Net amount at beginning of year
Amounts arising during the period:
PENSION PLANS
2015
$134,261
2014
$117,167
2013
$161,667
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
2015
2014
$ (15,869) $ (18,447) $ (20,769)
2013
Net loss (gain)
Taxes
Net amount arising during the period
8,680
(3,386)
5,294
43,223
(16,857)
26,366
(52,242)
20,374
(31,868)
(3,777)
1,473
(2,304)
(3,229)
1,259
(1,970)
(2,692)
1,050
(1,642)
Amounts reclassified during the period:
Amortization of prior service (cost) credit
Amortization of actuarial loss
Taxes
Net reclassifications during the period
Net amount at end of year
(605)
(17,937)
7,231
(11,311)
$128,244
(748)
(14,451)
5,927
(9,272)
(779)
(19,929)
8,076
(12,632)
9,312
(2,047)
(2,833)
4,432
9,641
(2,186)
(2,907)
4,548
9,708
(3,209)
(2,535)
3,964
$134,261
$117,167
$ (13,741) $ (15,869) $ (18,447)
Amounts recognized in accumulated other comprehensive loss on our Consolidated Balance Sheets, net of tax,
consist of:
(Dollars in thousands)
Net loss
Prior service cost (credit)
Net amount recognized
PENSION PLANS
2015
$ 127,307
937
$ 128,244
2014
$ 134,717
(456)
$ 134,261
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
$
2015
2014
$ (21,750)
5,881
$ (13,741) $ (15,869)
9,634
(23,375)
The estimated net loss and prior service cost for the defined benefit pension plans that will be amortized from
accumulated other comprehensive loss into net periodic benefit cost over the next year are $15.7 million and $0.5
million, respectively. The estimated net loss and prior service credit for OPEB obligations that will be amortized from
accumulated other comprehensive loss into net periodic benefit over the next year are $1.7 million and $8.9 million,
respectively.
EXPECTED FUNDING AND BENEFIT PAYMENTS
We are not required to make contributions to our qualified pension plans in 2016. Our non-qualified pension plan
and postretirement employee benefit plans are unfunded and benefit payments are paid from our general assets.
We estimate that we will make supplemental pension plan payments of $1.8 million in 2016.
2015 FORM 10-K / 57
Estimated future benefit payments, which reflect expected future service are as follows for the years indicated:
(Dollars in thousands)
2016
2017
2018
2019
2020
2021– 2025
PENSION PLANS
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
$
$
28,602
28,250
27,926
27,673
27,478
132,612
4,182
3,917
3,634
3,380
3,176
12,584
ACTUARIAL ASSUMPTIONS
The weighted average assumptions used to determine the benefit obligation as of December 31 were:
PENSION PLANS
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
Discount rate
Rate of salaried compensation increase
2014
2015
4.65% 4.25% 5.10% 4.25% 3.90% 4.45%
3.00% 3.00% 3.00%
2013
2015
2013
2014
—
—
—
The weighted average assumptions used to determine the net periodic benefit (cost) for the years ended
December 31 were:
PENSION PLANS
OTHER POSTRETIREMENT
EMPLOYEE BENEFITS
Discount rate
Expected return on plan assets
Rate of salaried compensation increase
2014
2013
2015
4.25% 5.10% 4.15% 3.90% 4.45% 3.70%
6.75% 7.50% 8.00%
3.00% 3.00% 3.50%
—
—
—
—
—
—
2013
2015
2014
The discount rate used in the determination of pension and other postretirement employee benefit obligations was
calculated using hypothetical bond portfolios to match the expected benefit payments under each of our pension
plans and other postretirement employee benefit obligations based on bonds available at each year-end with a
rating of "AA" or better. The portfolios were well-diversified over corporate industrial, corporate financial, municipal,
federal and foreign government issuers.
The expected return on plan assets assumption is based upon an analysis of historical long-term returns for various
investment categories, as measured by appropriate indices. These indices are weighted based upon the extent to
which plan assets are invested in the particular categories in arriving at our determination of a composite expected
return. The expected rate of return assumption that will be used to determine net periodic cost for 2016 is 6.50%.
The assumed health care cost trend rate used to calculate other postretirement employee benefit obligations as of
December 31, 2015 was 7.70% for a certain group of participants under age 65 in our hourly plan and our Arkansas
participants covered by a collective bargaining agreement, grading ratably to an assumption of 4.40% in 2075.
A one percentage point change in the health care cost trend rates would have the following effects on our
December 31, 2015 Consolidated Financial Statements:
(Dollars in thousands)
Effect on total service cost plus interest cost
Effect on accumulated postretirement benefit obligation
$
1% INCREASE
3,397
63,216
$
1% DECREASE
(3,262)
(63,216)
58 / POTLATCH CORPORATION
NOTE 12. EQUITY-BASED COMPENSATION PLANS
As of December 31, 2015, we had two stock incentive plans under which performance shares, restricted stock units
(RSUs), or deferred compensation stock equivalent units were outstanding. All of these plans have received
shareholder approval. We were originally authorized to issue up to 1.6 million shares and 1.0 million shares under
our 2005 Stock Incentive Plan and 2014 Stock Incentive Plan, respectively. At December 31, 2015, approximately
1.3 million shares were authorized for future use. We issue new shares of common stock to settle performance
shares, restricted stock units and deferred compensation stock equivalent units.
The following table details our compensation expense and the related income tax benefit as of December 31:
(Dollars in thousands)
Employee equity-based compensation expense:
Performance shares
Restricted stock units
Total employee equity-based compensation expense
Deferred compensation stock equivalent units expense
Total tax benefit recognized for shared-based payment awards
PERFORMANCE SHARES
2015
2014
2013
3,877
881
4,758
376
319
$
$
$
3,515
622
4,137
345
280
$
$
$
3,635
742
4,377
1,265
71
$
$
$
Performance share awards granted under the stock incentive plans have a three-year performance period and
shares are issued at the end of the period if the performance measure is met. The performance measure is based
on the percentile ranking of our total shareholder return relative to the total shareholder return performance of both
a selected peer group of companies and a larger group of indexed companies over the three-year performance
period. The number of shares actually issued, as a percentage of the amount subject to the performance share
award, could range from 0% to 200%. Performance share awards granted under our stock incentive plans do not
have voting rights unless and until shares are issued upon settlement. If shares are issued at the end of the three-
year performance measurement period, the recipients will receive dividend equivalents in the form of additional
shares at the time of payment equal to the dividends that would have been paid on the shares earned had the
recipients owned the shares during the three-year period. Therefore, the shares are not considered participating
securities.
A Monte Carlo simulation method is used to estimate the stock prices of Potlatch and the selected peer companies
at the end of the three-year performance period. The expected volatility of each company’s stock price and
covariance of returns among the peer companies are key assumptions within the Monte Carlo simulation. Historical
volatility over a term similar to the performance period is considered a reasonable proxy for forecasted volatility.
Likewise, because the returns of Potlatch and the peer group companies are correlated, the covariance, a measure
of how two variables tend to move together, is calculated over a historical term similar to the performance period
and applied in the simulations. The simulations use the stock prices of Potlatch and the peer group of companies as
of the award date as a starting point. Multiple simulations are generated, resulting in share prices and total
shareholder return values for Potlatch and the peer group of companies. For each simulation, the total shareholder
return of Potlatch is ranked against that of the peer group of companies. The future value of the performance share
unit is calculated based on a multiplier for the percentile ranking and then discounted to present value. The discount
rate is the risk-free rate as of the award date for a term consistent with the performance period. Awards are also
credited with dividend equivalents at the end of the performance period, and as a result, award values are not
adjusted for dividends.
The following table presents the key inputs used in calculating the fair value of the performance share awards in
2015, 2014 and 2013, and the resulting fair values:
Stock price as of valuation date
Risk-free rate
2015
$ 40.00
2014
$ 39.76
2013
$ 45.31
1.07%
0.72%
0.40%
2015 FORM 10-K / 59
The following table summarizes outstanding performance share awards as of December 31, 2015, 2014 and 2013,
and changes during those years:
(Dollars in thousands, except
per share amounts)
Unvested shares
outstanding at January 1
Granted
Vested
Forfeited
Unvested shares
outstanding at December 31
2015
WEIGHTED AVG.
GRANT DATE
FAIR VALUE
SHARES
2014
WEIGHTED AVG.
GRANT DATE
FAIR VALUE
2013
WEIGHTED AVG.
GRANT DATE
FAIR VALUE
SHARES
SHARES
160,233 $
78,974
(77,078)
(1,080)
53.86
36.71
62.78
41.29
155,814 $
87,441
(76,202)
(6,820)
48.73
45.57
34.24
49.75
160,214 $
83,111
(71,861)
(15,650)
161,049
41.26
160,233
53.86
155,814
44.50
62.78
55.84
47.32
48.73
Total grant date fair value of
share awards vested during
the year
Aggregate intrinsic value of
unvested share awards at
December 31
$
$
4,839
4,697
$
$
2,609
6,709
$
$
4,013
6,504
As of December 31, 2015, there was $3.1 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.
RESTRICTED STOCK UNITS
Our 2005 Stock Incentive Plan and 2014 Stock Incentive Plan also allow for awards to be issued in the form of RSU
grants. During 2015, 2014 and 2013, certain officers and other select employees of the company were granted RSU
awards that will accrue dividend equivalents based on dividends paid during the RSU vesting period. The dividend
equivalents will be converted into additional RSUs that will vest in the same manner as the underlying RSUs to
which they relate. Therefore, the shares are not considered participating securities. The terms of the awards state
that the RSUs will vest in a given time period of one to three years, and the terms of certain awards follow a vesting
schedule within the given time period.
A summary of the status of outstanding RSU awards as of December 31, 2015, 2014 and 2013, and changes
during these years is presented below:
Unvested shares outstanding
at January 1
Granted
Vested
Forfeited
Unvested shares outstanding
at December 31
Total grant date fair value of
RSU awards vested during
the year (in thousands)
Aggregate intrinsic value of
unvested RSU awards at
December 31 (in thousands)
2015
WEIGHTED AVE.
GRANT DATE
FAIR VALUE
SHARES
2014
WEIGHTED AVE.
GRANT DATE
FAIR VALUE
SHARES
2013
WEIGHTED AVE.
GRANT DATE
FAIR VALUE
SHARES
32,455 $
27,820
(15,385)
(359)
42.24
39.99
44.50
40.27
37,461 $
19,599
(21,333)
(3,272)
38.69
40.51
34.46
42.06
40,219 $
23,449
(19,796)
(6,411)
44,531
40.95
32,455
42.24
37,461
34.82
44.41
38.19
36.91
38.69
$
289
$
735
$
756
$
1,347
$
1,359
$
2,511
As of December 31, 2015, there was $1.0 million of total unrecognized compensation cost related to outstanding
RSU awards, which is expected to be recognized over a weighted average period of 1.8 years.
60 / POTLATCH CORPORATION
STOCK OPTIONS
No new stock options were granted in 2015, 2014 or 2013. No stock options were outstanding as of December 31,
2015 and 2014. Stock options were granted with an exercise price equal to the market price on the date of grant,
were fully exercisable after two years and expired not later than 10 years from the date of grant.
A summary of the status of outstanding stock options as of December 31 2014 and 2013 and changes during those
years is presented below:
Outstanding at January 1
Shares exercised
Outstanding and exercisable at December 31
2014
2013
SHARES
12,859
(12,859)
WEIGHTED AVG.
EXERCISE PRICE
$30.92
30.92
SHARES
83,827
(70,968)
WEIGHTED AVG.
EXERCISE PRICE
$27.46
26.25
—
—
12,859
30.92
Total intrinsic value of options exercised during the
year (in thousands)
$
150
$
1,423
Cash received from stock option exercises for the years ended December 31, 2014 and 2013 was $0.4 million and
$1.9 million, respectively.
DEFERRED COMPENSATION STOCK EQUIVALENT UNITS
A long-term incentive award is granted annually to our directors, and payable upon a director's separation from
service. Directors may also elect to defer their annual retainers, payable in the form of stock. All stock unit
equivalent accounts are credited with dividend equivalents. As of December 31, 2015, there were 144,059 shares
outstanding that will be distributed in the future to directors as common stock.
Issuance of restricted stock units awarded to certain officers and select employees may also be deferred. All stock
unit equivalent accounts are credited with dividend equivalents. As of December 31, 2015, there were 63,884
RSUs which had vested, but issuance of the related stock had been deferred.
NOTE 13. INCOME TAXES
As a 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 conduct certain activities through taxable REIT subsidiaries (TRS) that 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 held for sale.
Upon REIT election, which was January 1, 2006, we were subject to corporate income taxes on built-in gains (the
excess of fair market value over tax basis) for 10 years on sales of real property that were held upon REIT election.
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 reduced five-year holding
period was extended each year through 2014, and was made permanent in 2015. Accordingly, the built-in gains tax
did not apply to Potlatch sales of real property that occurred in 2011 through 2015.
We reflect accrued interest related to tax obligations, as well as penalties, in our provision for income taxes. For the
years ended December 31, 2015, 2014 and 2013, we recognized insignificant amounts related to interest and
penalties in our tax provision. At December 31, 2015 and 2014, we had no accrued interest related to tax
obligations and no accrued interest receivable with respect to open tax refunds.
Income tax expense consists of the following for the years ended December 31:
(Dollars in thousands)
Current
Deferred
Net operating loss carryforwards
Income tax (benefit) provision
2015
2014
2013
$
$
128
1,097
(6,793)
(5,568)
$
$
21,205
(2,143)
625
19,687
$
$
16,352
(2,754)
287
13,885
2015 FORM 10-K / 61
Income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35% to
income before income taxes due to the following for the years ended December 31:
(Dollars in thousands)
U.S. federal statutory income tax
REIT income not subject to federal income tax
Change in valuation allowance
State income taxes, net of federal income tax
Domestic production activities deduction
Permanent book-tax differences
All other items
Income taxes
2015
9,151
(14,110)
488
(838)
—
(70)
(189)
(5,568)
$
$
2014
38,359
(16,812)
(1,818)
2,234
(1,055)
(1,073)
(148)
19,687
$
$
2013
29,563
(13,918)
(683)
942
(1,579)
(384)
(56)
13,885
$
$
Effective tax rate
(21.3)%
18.0%
16.4%
The tax effects of significant temporary differences creating deferred tax assets and liabilities at December 31 were:
(Dollars in thousands)
Deferred tax assets:
Pensions
Other postretirement employee benefits
Net operating loss carryforwards
Inventories
Tax credits
Nondeductible accruals
Incentive compensation
Employee benefits
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
Deferred tax liabilities:
Timber and timberlands, net
Property, plant and equipment, net
Total deferred tax liabilities
Net deferred tax assets
2015
2014
$
35,066
13,834
6,935
2,325
2,123
2,041
2,009
1,769
116
66,218
(488)
65,730
31,527
16,209
142
2,720
1,904
2,033
2,544
1,839
224
59,142
—
59,142
(5,010)
(14,120)
(19,130)
46,600
$
(5,120)
(10,626)
(15,746)
43,396
$
$
As of December 31, 2015, we have a federal net operating loss carryforward of $17.4 million that expires in 2035,
state net operating loss carryforwards of $18.1 million that expire from 2016 through 2035, and Idaho Investment
Tax Credits of $3.2 million that expire from 2016 through 2029. We use the flow-through method of accounting for
investment tax credits.
With the exception of the valuation allowance discussed below, we believe it is more likely than not that we will have
sufficient future taxable income to realize our deferred tax assets.
The valuation allowance on our deferred tax assets increased during 2015, and was $0.5 million as of December
31, 2015. The valuation allowance is related to certain Idaho Investment Tax Credit carryforwards we expect will
expire prior to realization. During 2014, the valuation allowance decreased from $2.2 million to zero, with $1.8
million of the decrease due to the actual use and expected future use of certain Idaho Investment Tax Credits.
62 / POTLATCH CORPORATION
The following table summarizes the tax years subject to examination by major taxing jurisdictions:
Jurisdiction
Federal
Arkansas
Michigan
Minnesota
Idaho
YEARS
2012 - 2015
2012 - 2015
2011 - 2015
2011 - 2015
2012 - 2015
As of December 31, 2015 and 2014, we had no liabilities for unrecognized tax benefits. We do not currently believe
there is a reasonable possibility of recording a liability for unrecognized tax benefits within the next twelve months.
NOTE 14. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
We have operating leases covering office space, equipment, land and vehicles expiring at various dates through
2028. As leases expire, it can be expected that certain leases will be renewed or replaced in the normal course of
business.
As of December 31, 2015, the future minimum rental payments required under our operating leases are as
follows:
(Dollars in thousands)
2016
2017
2018
2019
2020
2021 and thereafter
Total
$
$
3,601
3,496
1,464
717
252
88
9,618
Operating lease expense was $4.6 million, $4.0 million and $3.6 million for the years ended December 31, 2015,
2014 and 2013, respectively.
LEGAL MATTERS
In January 2007, the Environmental Protection Agency (EPA) notified us that we are a potentially responsible party
under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and the
Clean Water Act for cleanup of a site known as Avery Landing in northern Idaho. We own a portion of the land at the
Avery Landing site, which we acquired in 1980 from the Milwaukee Railroad. The land we own at the site and
adjacent properties were contaminated with petroleum as a result of the Milwaukee Railroad's operations at the site
prior to 1980. On July 5, 2011, the EPA issued an Action Memorandum for the Avery Landing Site selecting
contaminant extraction and off-site disposal as the remedial alternative. On May 23, 2012, we signed a consent
order with the EPA pursuant to which we agreed to provide $1.75 million in funding for EPA cleanup on a portion of
our property (including the adjacent riverbank owned by the Idaho Department of Lands). The EPA cleanup was
completed in October 2012. On April 4, 2013, the EPA issued a unilateral administrative order requiring us to
remediate the portion of the Avery Landing site that we own. Our remediation was completed in October 2013. On
September 25, 2015 the EPA sent us a letter asserting that the EPA and the Department of Transportation (the
current owner of a portion of the adjacent property remediated by the EPA) had incurred $9.8 million in
unreimbursed response costs associated with the site and that we were liable for such costs. We believe we have
meritorious defenses to this claim and we intend to defend ourselves vigorously. We have reserved all of our rights
to seek reimbursement for the costs of remediation from all parties potentially responsible. We have executed a
tolling agreement with the EPA and DOT suspending the statute of limitations on the claim until June 2016 in order
to facilitate negotiations of a final settlement and release. We have not recorded a liability related to this matter
2015 FORM 10-K / 63
and while it is reasonably possible that we may incur some liability in respect of this claim, we are unable to
estimate at this time the amount of charges, if any, which may be required for this matter in the future.
NOTE 15. SEGMENT INFORMATION
Our businesses are organized into three reportable operating segments: Resource, Wood Products and Real
Estate. The Resource segment manages our timberlands to optimize revenue producing opportunities while
adhering to our strict stewardship standards. Management activities include planting and harvesting trees and
building and maintaining roads. The Resource segment also generates revenues from non-timber resources such
as hunting leases, recreation permits and leases, mineral rights leases, biomass production and carbon
sequestration. The Wood Products segment manufactures and markets lumber and plywood. The business of our
Real Estate segment consists primarily of the sale of land holdings deemed non-strategic or identified as having
higher and better use alternatives. The Real Estate segment engages in real estate subdivision activities through
Potlatch TRS.
The reporting segments follow the same accounting policies used for our Consolidated Financial Statements, as
described in the summary of significant accounting policies, with the exception of the valuation of inventories. All
segment inventories are reported using the average cost method, while the LIFO reserve is recorded at the
corporate level. Management evaluates a segment’s performance based upon profit or loss from operations before
income taxes. Intersegment revenues are recorded based on prevailing market prices.
64 / POTLATCH CORPORATION
The following table presents business segment information for each of the past three years. Corporate information
is included to reconcile segment data to the Consolidated Financial Statements.
(Dollars in thousands)
Revenues:
Resource
Wood Products
Real Estate
Elimination of intersegment revenues - Resource1
Total consolidated revenues
Operating Income (loss):
Resource
Wood Products
Real Estate
Eliminations and adjustments
Corporate
Operating income
Interest expense, net
Income before income taxes
Depreciation, depletion and amortization:
Resource
Wood Products
Real Estate
Corporate
Total depreciation, depletion and amortization
Basis of real estate sold:
Real Estate
Elimination and adjustments
Total basis of real estate sold
Assets:
Resource and Real Estate2
Wood Products
Corporate
Total consolidated assets
Capital Expenditures:3
Resource and Real Estate
Wood Products
Corporate
Total capital expenditures
2015
2014
2013
$ 263,875
336,214
28,989
629,078
(53,742)
$ 575,336
$ 252,581
376,239
40,460
669,280
(62,330)
$ 606,950
$ 238,228
366,015
26,160
630,403
(60,114)
$ 570,289
$
$
$
$
$
$
76,350
(5,235)
16,849
3,283
91,247
(32,340)
58,907
(32,761)
26,146
$
84,976
52,442
26,945
(190)
164,173
(31,667)
132,506
(22,909)
$ 109,597
28,807
6,810
56
35,673
2,432
38,105
7,394
(382)
7,012
$
$
$
$
17,847
6,176
59
24,082
2,667
26,749
9,355
(709)
8,646
$
$
$
$
$
$
73,425
58,892
18,266
(907)
149,676
(42,078)
107,598
(23,132)
84,466
18,103
6,194
56
24,353
2,609
26,962
3,536
(632)
2,904
$ 837,630
131,103
968,733
47,879
$1,016,612
$ 847,873
118,674
966,547
65,199
$1,031,746
$ 476,628
115,664
592,292
84,910
$ 677,202
$
$
13,681
18,482
32,163
569
32,732
$
$
11,116
12,551
23,667
565
24,232
$
$
12,449
9,013
21,462
1,131
22,593
1 Intersegment revenues were based on prevailing market prices of logs sold by our Resource segment to the Wood Products
segment.
2 Assets are shown on a combined basis for the Resource and Real Estate segments, as we do not produce information
separately for those segments for internal purposes.
3 Excludes acquisition of timber and timberlands.
2015 FORM 10-K / 65
All of our wood products facilities and all other assets are located within the continental United States. Geographic
information regarding our revenues is summarized as follows:
(Dollars in thousands)
United States
Canada
Mexico
Other
Total consolidated revenues
2015
$ 573,398
851
919
168
$ 575,336
2014
$ 601,738
2,618
2,594
—
$ 606,950
2013
$ 558,138
9,645
2,506
—
$ 570,289
One customer within our Resource segment accounted for slightly more than 10% of our revenues in the years
ended December 31, 2015, 2014 and 2013.
NOTE 16. FINANCIAL RESULTS BY QUARTER (UNAUDITED)
(Dollars in thousands, except per
share amounts)
Revenues
Operating income
Net income
Net income per share1
THREE MONTHS ENDED
MARCH 31
JUNE 30
SEPTEMBER 30
DECEMBER 31
2015
$134,125
$ 14,027
$ 5,656
2014
$139,579
$ 31,309
$ 20,350
2015
$128,747
$ 7,311
711
$
2014
$143,919
$ 29,725
$ 16,270
2015
$174,475
$ 27,714
$ 21,798
2014
$177,215
$ 44,869
$ 33,154
2015
$137,989
$ 9,855
$ 3,549
2014
$146,237
$ 26,603
$ 20,136
Basic
Diluted
$
$
0.14
0.14
$
$
0.50
0.50
$
$
0.02
0.02
$
$
0.40
0.40
$
$
0.53
0.53
$
$
0.81
0.81
$
$
0.09
0.09
$
$
0.49
0.49
1 Per share amounts are computed independently for each of the quarters presented. Therefore, the sum of the quarterly per
share amounts may not equal the total computed for the year.
66 / POTLATCH CORPORATION
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
We conducted an evaluation (pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange
Act)), under the supervision and with the participation of management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of our disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Exchange Act) as of December 31, 2015. 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 CEO
and CFO have concluded that these disclosure controls and procedures were effective as of December 31, 2015.
Management's Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Rule 13a-15(f) under the Exchange Act of 1934.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
Our management, with the participation of our CEO and CFO, assessed the effectiveness of our internal control
over financial reporting as of December 31, 2015. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated
Framework (2013).
Based on our assessment, management believes that, as of December 31, 2015, our internal control over financial
reporting is effective based on those criteria.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the latest fiscal quarter
that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION
None.
2015 FORM 10-K / 67
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Potlatch Corporation:
We have audited Potlatch Corporation’s internal control over financial reporting as of December 31, 2015, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Potlatch Corporation’s management is responsible for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists,and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit
also included performing such other procedures as we considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, Potlatch Corporation maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated balance sheets of Potlatch Corporation and subsidiaries as of December 31, 2015 and 2014,
and the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity for
each of the years in the
period ended December 31, 2015, and our report dated February 12, 2016 expressed
an unqualified opinion on those consolidated financial statements.
/s/ KPMG LLP
Seattle, Washington
February 12, 2016
68 / POTLATCH CORPORATION
Part III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Certain of the information required by this item is incorporated by reference to the information appearing under the
headings "Board of Directors," "Corporate Governance" and "Security Ownership of Certain Beneficial Owners and
Management – Section 16(a) Beneficial Ownership Reporting Compliance" from our definitive Proxy Statement to
be filed with the Commission on or about April 1, 2016.
Our Corporate Conduct and Ethics Code, which is applicable to all directors, officers and employees, can be found
on our website at www.potlatchcorp.com. We post any amendments to or waivers from our Corporate Conduct and
Ethics Code on our website.
Executive Officers of the Registrant
As of February 12, 2016, information on our executive officers is as follows:
Michael J. Covey (age 58), has served as Chief Executive Officer since February 2006 and served as President
and Chief Executive Officer from 2006 to March 2013. He has been a director of the company since February 2006
and has served as Chairman of the Board of the company since January 2007.
Eric J. Cremers (age 52), has served as President and Chief Operating Officer and a director of the company since
March 2013, as Executive Vice President and Chief Financial Officer from March 2012 to March 2013, and as Vice
President, Finance and Chief Financial Officer from July 2007 to March 2012.
Jerald W. Richards (age 47), has served as Vice President and Chief Financial Officer since September 2013. He
was employed by Weyerhaeuser Company and served as Chief Accounting Officer from October 2010 to August
2013, and corporate segment controller from 2008 to October 2010.
William R. DeReu (age 49), has served as Vice President, Real Estate and Lake States Resource since February
2012 and as Vice President, Real Estate from May 2006 to February 2012.
Lorrie D. Scott (age 61), has served as Vice President, General Counsel and Corporate Secretary since July 2010.
Prior to July 2010, she was employed by Weyerhaeuser Realty Investors, Inc. and served as Senior Vice President
and General Counsel from October 2007 to July 2010.
Thomas J. Temple (age 59), has served as Vice President, Wood Products and Southern Resource since February
2012 and as Vice President, Wood Products from January 2009 to February 2012.
Stephanie A. Brady (age 48), has served as Controller and Principal Accounting Officer since April 2015. She was
employed by Itron, Inc. and served as North America Controller from January 2012 to March 2015 and Director of
External Reporting from January 2004 to December 2011.
The term of office of the officers of the company expires at the annual meeting of our board and each officer holds
office until the officer’s successor is duly elected and qualified or until the earlier of the officer’s death, resignation,
retirement, removal by the board or as otherwise provided in our bylaws.
ITEM 11. EXECUTIVE COMPENSATION
Information set forth under the headings "Report of the Executive Compensation and Personnel Policies
Committee," "Compensation Discussion and Analysis," "Executive Compensation Tables," "Compensation of Non-
Employee Directors" and "Corporate Governance - Compensation Committee Interlocks and Insider Participation"
in our definitive Proxy Statement to be filed with the Commission on or about April 1, 2016, is incorporated herein by
reference.
2015 FORM 10-K / 69
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information regarding any person or group known by us to be the beneficial owner of more than five percent of our
common stock as well as the security ownership of management set forth under the heading "Security Ownership
of Certain Beneficial Owners and Management" in our definitive Proxy Statement to be filed with the Commission
on or about April 1, 2016, is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
The information required by this item regarding certain relationships and related transactions is included under the
heading "Corporate Governance - Transactions with Related Persons" in our definitive Proxy Statement to be filed
with the Commission on or about April 1, 2016, and is incorporated herein by reference.
The information required by this item regarding director independence is included under the headings "Board of
Directors" and "Corporate Governance - Director Independence" in our definitive Proxy Statement to be filed with
the Commission on or about April 1, 2016, and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item regarding principal accounting fees and services is included under the
heading "Fees Paid to Independent Registered Public Accounting Firm in 2015 and 2014" in our definitive Proxy
Statement to be filed with the Commission on or about April 1, 2016, and is incorporated herein by reference.
70 / POTLATCH CORPORATION
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial Statements:
The financial statements required by this item are submitted in Item 8 of this Annual Report on Form 10-K.
(a) (2) Financial Statement Schedule:
Financial Statement Schedules have been omitted because of the absence of conditions under which they are
required or because the required information is included in the Consolidated Financial Statements or the Notes
thereto.
(a) (3) Exhibits:
POTLATCH CORPORATION AND CONSOLIDATED SUBSIDIARIES
EXHIBIT NUMBER
DESCRIPTION
(3)(a)*
(3)(b)*
(4)
(4)(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.
Bylaws of the Registrant, as amended through February 18, 2009, filed as Exhibit (3)(b) to the
Current Report on Form 8-K filed by the Registrant on February 20, 2009.
See Exhibits (3)(a) and (3)(b). The Registrant also undertakes to furnish to the Commission,
upon request, any instrument defining the rights of holders of long-term debt.
Indenture, dated as of November 3, 2009, between the Registrant and U.S. Bank National
Association, as trustee, filed as Exhibit 4.1 to the Current Report on Form 8-K filed by the
Registrant on November 9, 2009.
(4)(a)(i)*
Form of 7 1/2% Senior Notes due 2019 (included as Exhibit A to the Indenture filed as Exhibit 4
(a)).
(4)(a)(ii)*
(4)(b)*
(4)(b)(i)*
(4)(b)(ii)*
Registration Rights Agreement, dated as of November 3, 2009, between the Registrant and the
parties named therein, filed as Exhibit 4.1 to the Current Report on Form 8-K filed by the
Registrant on November 9, 2009.
Indenture, dated as of November 27, 1990, between Original Potlatch and Deutsche Bank
National Trust Company (successor in interest to Bankers Trust Company of California, National
Association), as trustee, filed as Exhibit (4)(a) to the Original Potlatch Annual Report on Form 10-
K for the fiscal year ended December 31, 2000. (SEC File No. 001-05313)
Officer’s Certificate, dated January 24, 1991, filed as Exhibit (4)(a)(i) to the Original Potlatch
Annual Report on Form 10-K for the fiscal year ended December 31, 2000. (SEC File No.
001-05313)
Officer’s Certificate, dated December 12, 1991, filed as Exhibit (4)(a)(i) to the Original Potlatch
Annual Report on Form 10-K for the fiscal year ended December 31, 1996. (SEC File No.
001-05313)
2015 FORM 10-K / 71
(10)(a)1*
Potlatch Corporation Management Performance Award Plan, as amended effective December 2,
2004, filed as Exhibit (10)(a) to the Annual Report on Form 10-K filed by Original Potlatch for the
fiscal year ended December 31, 2004. (SEC File No. 001-05313)
(10)(a)(i)1*
Amendment to Potlatch Corporation Management Performance Award Plan, filed as Exhibit 10.6
to the Current Report on Form 8-K filed by the Registrant on December 11, 2008.
(10)(b)1*
(10)(c)1*
Potlatch Corporation Severance Program for Executive Employees, amended and restated
effective February 14, 2014, filed as Exhibit (10)(b) to the Annual Report on Form 10-K for the
fiscal year ended December 31, 2013.
Potlatch Corporation Salaried Employees’ Supplemental Benefit Plan, as amended and restated
effective January 1, 1989, and as amended through May 24, 2005, filed as Exhibit (10)(d) to the
Quarterly Report on Form 10-Q filed by Original Potlatch for the quarter ended June 30, 2005.
(10)(c)(i)1*
Amendment, effective as of January 1, 1998, to Plan described in Exhibit (10)(d), filed as Exhibit
(10)(d)(i) to the Annual Report on Form 10-K filed by Original Potlatch for the fiscal year ended
December 31, 2003. (SEC File No. 001-5313)
(10)(c)(ii)1*
Amendment, effective as of December 5, 2008, to Plan described in Exhibit (10)(d), filed as
Exhibit 10.5 to the Current Report on Form 8-K filed by the Registrant on December 11, 2008.
(10)(d)1*
(10)(e)1*
(10)(f)1*
Potlatch Corporation Deferred Compensation Plan for Directors, as amended through May 24,
2005, filed as Exhibit (10)(g) to the Quarterly Report on Form 10-Q filed by Original Potlatch for
the quarter ended June 30, 2005.
Potlatch Corporation Deferred Compensation Plan II for Directors, as amended and restated
effective May 8, 2014, filed as Exhibit 10.2 to the Current Report on Form 8-K filed by the
Registrant on May 13, 2014.
Potlatch Corporation Benefits Protection Trust Agreement, amended and restated effective
February 14, 2014, filed as Exhibit (10)(h) to the Annual Report on Form 10-K for the fiscal year
ended December 31, 2013.
(10)(g)1*
Summary of Director Compensation, effective as of May 8, 2014, filed as Exhibit 10.1 to the
Current Report on Form 8-K filed by the Registrant on May 13, 2014.
(10)(h)1*
(10)(i)1*
(10)(i)(i)1*
(10)(i)(ii)1*
Form of Indemnification Agreement with each director of the Registrant and with each executive
officer of the Registrant, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by the
Registrant on September 23, 2009.
Potlatch Corporation 2005 Stock Incentive Plan, as amended and restated May 19, 2006, filed as
Exhibit (10)(r) to the Quarterly Report on Form 10-Q filed by the Registrant for the quarter ended
June 30, 2006, and as further amended and restated effective September 16, 2006, filed as
Exhibit (10)(e) to the Current Report on Form 8-K filed by the Registrant on September 21, 2006.
Form of Restricted Stock Unit Agreement (2005 Stock Incentive Plan), as amended and restated
May 19, 2006, to be used for restricted stock unit awards to be granted subsequent to May 19,
2006, filed as Exhibit (10)(r)(i) to the Quarterly Report on Form 10-Q filed by the Registrant for
the quarter ended June 30, 2006.
Form of Performance Share Agreement (2005 Stock Incentive Plan), as amended and restated
May 19, 2006, to be used for performance share awards to be granted subsequent to May 19,
2006, filed as Exhibit (10)(r)(ii) to the Quarterly Report on Form 10-Q filed by the Registrant for
the quarter ended June 30, 2006, and as further amended on January 17, 2007, filed as Exhibit
(10)(r)(ii) to the Current Report on Form 8-K filed by the Registrant on January 19, 2007.
72 / POTLATCH CORPORATION
(10)(j)1*
Potlatch Corporation 2014 Stock Incentive Plan, filed as Exhibit 10.C to the Quarterly Report on
Form 10-Q filed by the Registrant for the quarter ended June 30, 2014.
(10)(j)(i)1*
Form of 2014 Performance Share Award Notice and Agreement filed as Exhibit 10.1 to the
Current Report on Form 8-K filed by the Registrant on May 9, 2014.
(10)(j)(ii)1*
Form of 2014 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.
(10)(k)(i)1*
Form of 2015 Performance Share Award Notice and Agreement filed as Exhibit 10.2 to the
Current Report on Form 8-K filed by the Registrant on February 18, 2015.
(10)(k)(i)2*
Form of 2015 RSU Award Notice and Agreement filed as Exhibit 10.1 to the Current Report on
Form 8-K filed by the Registrant on February 18, 2015.
(10)(l)(iv)1*
Potlatch Corporation Management Performance Award Plan II, as amended through February 20,
2008, filed as Exhibit (10)(r)(iv) to the Current Report on Form 8-K filed by the Registrant on
February 26, 2008.
(10)(l)(v)1*
Amendment to Potlatch Corporation Management Performance Award Plan II, effective June 1,
2008, filed as Exhibit (10)(r)(v) to the Current Report on Form 8-K filed by the Registrant on May
21, 2008.
(10)(m)1*
Potlatch Corporation Salaried Supplemental Benefit Plan II, effective December 5, 2008, and
amended and restated as of February 14, 2014, filed as Exhibit (10)(t) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 2013.
(10)(n)(i)1*
Potlatch Corporation Annual Incentive Plan, amended and restated effective January 1, 2014,
filed as Exhibit (10)(w)(i) to the Annual Report on Form 10-K for the fiscal year ended December
31, 2013.
(10)(o)1*
(10)(p) *
Potlatch Corporation Management Deferred Compensation Plan, effective June 1, 2008,
amended and restated on February 14, 2014, filed as Exhibit (10)(x) to the Annual Report on
Form 10-K for the fiscal year ended December 31, 2013.
Amended and Restated Credit Agreement, dated as of August 12, 2014, among the Registrant
and its wholly owned subsidiaries, as borrowers, KeyBank National Association, as administrative
agent, swing line lender and L/C issuer, the Guarantors from time to time party thereto and the
Lenders from time to time party thereto, filed as Exhibit 10.1 to the Current Report on Form 8-K
filed by the Registrant on August 14, 2014.
(10)(q) *
First Amendment to the Amended and Restated Credit Agreement dated January 16, 2015, filed
as Exhibit (10)(c) to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.
(10)(r)
Second Amendment to the Amended and Restated Credit Agreement dated November 9, 2015.
(10)(s) *
Amended and Restated Term Loan Agreement, dated as of December 5, 2014, by and among
the Registrant and Potlatch Forest Holdings, Inc., as borrowers, Northwest Farm Credit Services,
PCA as administrative agent, the Guarantors from time to time party thereto and the Lenders
from time to time party thereto, filed as Exhibit 10.1 to the Current Report on Form 8-K filed by
the Registrant on December 9, 2014.
(12)
Computation of Ratio of Earnings to Fixed Charges.
2015 FORM 10-K / 73
(21)
(23)
(24)
(31)
(32)
101
Potlatch Corporation Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Powers of Attorney.
Rule 13a-14(a)/15d-14(a) Certifications.
Furnished statements of the Chief Executive Officer and Chief Financial Officer under 18 U.S.C.
Section 1350.
The following financial information from Potlatch Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2015, filed on February 12, 2016, formatted in XBRL (Extensible
Business Reporting Language): (i) the Consolidated Statements of Income for the years ended
December 31, 2015, 2014 and 2013, (ii) the Consolidated Statements of Comprehensive Income
for the years ended December 31, 2015, 2014 and 2013, (iii) the Consolidated Balance Sheets at
December 31, 2015 and 2014, (iv) the Consolidated Statements of Cash Flows for the years
ended December 31, 2015, 2014 and 2013, (v) the Consolidated Statements of Stockholders’
Equity for the years ended December 31, 2015, 2014 and 2013 and (vi) the Notes to
Consolidated Financial Statements.
* Incorporated by reference.
1 Management contract or compensatory plan, contract or arrangement.
74 / POTLATCH CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/ MICHAEL J. COVEY
Michael J. Covey
Chairman of the Board and Chief
Executive Officer
Date: February 12, 2016
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on
February 12, 2016, by the following persons on behalf of the registrant in the capacities indicated.
BY
BY
BY
/S/ MICHAEL J. COVEY
Michael J. Covey
/S/ ERIC J. CREMERS
Eric J. Cremers
/S/ JERALD W. RICHARDS
Jerald W. Richards
Director, Chairman of the Board, and Chief Executive Officer
(Principal Executive Officer)
Director, President and Chief Operating Officer
Vice President and Chief Financial Officer
BY
/S/ STEPHANIE A. BRADY
Controller (Principal Accounting Officer)
Stephanie A. Brady
*
Linda M. Breard
*
Boh A. Dickey
*
William L. Driscoll
*
Charles P. Grenier
*
John S. Moody
*
Lawrence S. Peiros
*
Gregory L. Quesnel
Director
Director
Director
Director
Director
Director
Director
*By
/S/ LORRIE D. SCOTT
Lorrie D. Scott
(Attorney-in-fact)
2015 FORM 10-K / 75