Report Finalized: April 29, 2005 Assessment Date: April 8, 2005 Assessment Team: John Hodges

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1 Certified by: SmartWood Headquarters 65 Millet St. Suite 201 Richmond, VT USA Tel: Fax: Certification Assessment Performed by: US Region Office 101 East 5th, Suite 208 rthfield, MN Tel: Fax: Contact person: Emily Jaklitsch Chain-of-Custody Certification Assessment Report for: Potlatch Corporation Arkansas Papermill in McGehee, Arkansas Report Finalized: April 29, 2005 Assessment Date: April 8, 2005 Assessment Team: John Hodges ACCREDITED FSC-SECR Forest Stewardship Council A.C. Type of certificate: Single CoC Certificate issued: May 3, 2005 Certificate code: Report for FSC-STD SW-COC-1498 Operation Contact: Nick Koulianos Address: Potlatch Corporation, 810 W. Pine Street, Warren, AR 71671

2 I. INTRODUCTION The purpose of this report is to assess the capability of Potlatch Corporation Arkansas Papermill, hereafter referred to as Company in section I, to ensure that Chain-of-Custody (CoC) procedures are being followed for the handling, processing, and marking/labeling of certified forest products. Complete CoC control systems and the corresponding documentation allow for the tracking of a product from the raw material growing in the forest, through every step of processing, to the final product in the marketplace. SmartWood CoC certification is a confidential, third party verification process that is accredited by the Forest Stewardship Council (FSC). Upon certification by SmartWood, Company may purchase, process, and/or sell certified wood from other FSCcertified suppliers. The SmartWood CoC certification of Company is based on the contents of this report and subsequent audits for verification. If SmartWood-certified companies encounter organizations or individuals having concerns or comments about SmartWood, the FSC, CoC, or other certification topics, these parties are strongly encouraged to contact SmartWood headquarters or the FSC directly. Formal complaints or concerns should be sent in writing, if possible. A. Monitoring SmartWood audits certified companies at least once every year on-site. The purpose of this visit is to verify compliance with FSC chain-of-custody tracking and handling procedures within the company s operation. SmartWood reserves the right to visit the facilities of the company at any time, but usually provides prior notification and arranges for audit scheduling. See Appendix C for details on what is involved in annual audits and how to prepare. As part of the FSC accreditation and auditing process of SmartWood, the FSC reserves the right to visit SmartWood-certified operations on a random basis. The SmartWood certification contract with certified operations requires that these operations agree to random visits by FSC auditors for the purposes of evaluating the adequacy of the SmartWood certification system upon notice by either SmartWood or the FSC. II. COMPANY INFORMATION A. SmartWood Primary Contacts Primary Contact for Certification, Title: Nick Koulianos, Jr., Wood Flow and Marketing General Manager Address: Potlatch Corp., 810 W. Pine St., Warren, AR Tel: Fax: Nick.Koulianos@potlatchcorp.com Certification Agreement Signatory, Title: Nick Koulianos, Jr., Wood Flow and Marketing General Manager Address: Potlatch Corp., 810 W. Pine St., Warren, AR Nick.Koulianos@potlatchcorp.com B. SmartWood Customer Fact Sheet Contact The SmartWood website maintains a Customer Fact Sheet for each certified company. This information will be used in your Customer Fact Sheet and is posted upon certification at Public Contact, Title: Bill Johnson, Director of Sales Address: Potlatch Corp., 65 Germantown Court, Ste 311, Cordova, TN SmartWood Program Page 2

3 Tel: Fax: Website: Services: Bleached paperboard C. Certificate Scope: (te: this information is to be communicated to the FSC) 1. Type of certificate: single certificate. This report covers a single certificate of a single legal entity only. 2. Number of sites included in this certificate: 1 3. Details of sites included in this certificate: Location (address) Operation Type Annual Volume of FSC Inputs (App.) Inputs for FSC Product Group 5082 Hwy 4 rth Secondary 37,560 tons Southern hardwoods Arkansas City, AR Manufacturer and southern yellow pine chips *FSC product group must be based on terminology used in the UN/CEFACT coding system FSC Product Group* (include brief description) FSC Mixed Bleached paperboard, Southern Yellow Pine and Southern hardwoods 4. Size class of certificate holder: (for FSC AAF purposes) Check AAF Size Annual Turnover ($US) Class Class 1 < $200,000 Class 2 $200,001 1,000,000 Class 3 $1,000,001 5,000,000 Class 4 $5,000,001 25,000,000 Class 5 $25,000, ,000,000 Class 6 > $100,000, Location where certification related records will be kept: Mill site at Cypress Bend 6. Additional details for the scope of the certificate: D. Certified Sources 1. Has the company purchased certified wood: 2. Company name and FSC certification number of certified suppliers: Potlatch Company lands and from Anderson-Tully - SW-COC Potential certified suppliers and certification numbers, if known: Potlatch company lands, Anderson-Tully Company, SW-COC Total estimated volume of certified inputs (see Appendix D for metric conversions): 37,560 tons E. Markets Certified Products will be sold in 1. Regions: United States and Europe 2. Companies: 3. List any companies to send certification literature: Additional comments: F. Company Background Including n-certified Information 1. Company history and profile: SmartWood Program Page 3

4 Between 1850 and 1880, America s population soared from 23 million to over 50 million, driving demand for lumber to new heights. Homesteads and farmland began to replace wild forests around the Great Lakes, and lumber companies set their sights beyond the Midwest to the yellow pine forests of the South. Arkansas had particular appeal. t only was 96 percent of its land forested, the state offered the additional incentive of a newly laid 2,200-mile rail network that provided access both to timber and major lumber markets in the United States. In 1882, these assets attracted two Midwestern lumbermen Charles R. Ainsworth of Moline, Illinois, and James E. Lindsay of Davenport, Iowa who established the Lindsay Land and Timber Company near Warren, Arkansas. The cost of maintaining some 40,000 acres, however, proved burdensome, and over the next two decades the pair welcomed new investors: David N. Richardson, a Davenport newspaperman, and the Weyerhaeuser and Denkman Company, a thriving Minnesota lumber business. In 1902, the partners incorporated the Southern Lumber Company in Warren, with F.E. Weyerhaeuser as its first president. This enterprise was the nucleus of what is today Potlatch in Arkansas. From the start, the residents of Warren assumed that the businessmen from the Midwest would follow the usual cut out and get out pattern of other pine lumber mills in the state. Indeed, a survey done in the 1930s showed that 90 percent of the 22 million acres of forestland in Arkansas had been cut over. The future of commercial forestry in the state looked grim, but Southern Lumber Company made it clear that it had no intention of moving on. Adopting the latest forest management concepts, the company formed a woodlands department in 1937 and began implementing progressive reforestation initiatives. As a result of these early efforts, third- and fourth-generation softwood forests now thrive on Potlatch s Arkansas lands. The company s commitment to the region was put to the test on December 27, 1939, when a fire virtually destroyed the Southern Lumber mill. Warren residents braced themselves for a pullout, but the company immediately announced it would rebuild. New general manager W. R. Warner, who moved to Warren from Cloquet, Minnesota, just after the fire, recognized that getting the company back to profitability would be no easy task. Building a state-of-the-art facility would require that Southern Lumber s operating expenses exceed its operating income for a number of years. Rather than sink the company deeper into debt, Warner asked the board and shareholders in January 1940 to forego dividends for ten years so the money could be used for operating capital. Warner won their support, and within ten years, Southern Lumber was not only on a sound financial footing, its sawmill was viewed as a model for the industry. In the rebuilding, Southern Lumber introduced a number of manufacturing innovations, including the first pneumatic debarker in rth America. Even so, the company realized that becoming a significant player in the forest products industry would require expansion of its technical expertise and capital resources. It began looking for a partner that shared its vision. In vember 1956, it merged with what was then called Potlatch Forests, Inc. Southern Lumber brought to the merger a modern manufacturing plant in Warren, two smaller sawmills, a fingerjointing lumber operation and approximately 137,000 acres of timberland. In 1958, Potlatch moved into the hardwood business with the acquisition of the Bradley Lumber Company. Also located in Warren, the Bradley mill produced lumber and a range of specialty products from a variety of hardwoods and pines. Two years later, the company expanded its hardwood capacity with the purchase of the Woods SmartWood Program Page 4

5 Lumber Company in Clarendon. (The Woods mill burned down in 1975.) During the 1950s, Potlatch s timberland base in southern Arkansas had also grown to 350,000 acres. The company went on to acquire the Ozan Lumber Company, which operated a pine sawmill in Prescott, in 1966, and a mill in Stuttgart that made prefinished hardwood plank paneling under the name Townsend in By the end of the 1970s, these and other acquisitions brought Potlatch s softwood and hardwood timberland ownership in Arkansas to more than 500,000 acres. Age and changing industry economics led to the closure or sale of some of the mills. Since the mid-1990s, Potlatch s lumber manufacturing in Arkansas has been concentrated at pine mills in Warren and Prescott and the Bradley hardwood operation in Warren. At the same time, the company implemented a modernization program to ensure these mills would be competitive well into the future. The pine sawmill in Warren has been completely rebuilt, and major upgrades have been made to the pine sawmill in Prescott. These improvements have resulted in better resource utilization, higher product quality and lower operating costs. Potlatch s pine operations are now regarded as the South s most efficient. The Bradley hardwood mill has undergone a major modernization as well and has gained efficiencies by concentrating on production of high-valued red and white oak boards. As a result, annual capacity at the two Warren sawmills has more than doubled, from 90 million board feet to 210 million board feet. Prescott s capacity has also more than doubled, from 80 million board feet to 170 million board feet. From its initial entry into Arkansas in the 1950s, Potlatch envisioned a fully integrated forest products operation, using residual sawmill byproducts as economical raw material for a bleached kraft pulp and paperboard mill. As early as 1955, Potlatch representatives began scouting appropriate sites for such a mill. An area called Cypress Bend, located on the Mississippi River near McGehee and Arkansas City, met the necessary criteria, and in 1958 the company signed an option on 517 acres of open land. For a variety of reasons, construction did not move forward for nearly two decades, but in 1977, a 450-ton-a-day bleached pulp and paperboard mill went into operation at the site. Supplied with chips brought by rail from Potlatch sawmills as well as others, the Cypress Bend plant began manufacturing paperboard for conversion into folding cartons, plates, cups, and other food-safe products. In the years since, Potlatch has invested in the Cypress Bend complex to ensure that it remains one of the lowest-cost manufacturers of high-quality pulp and paperboard in the industry. Periodic improvements have increased capacity to 750 tons per day from the initial 450 tons. In late 2000, upgrades to the paperboard machine improved the surface quality and printability of the mill s paperboard, which has added to its appeal for packaging of some 5,000 products worldwide. Concurrently, the recovery boiler was retrofitted to meet the mill s future pulp production capacity needs and enhance environmental performance. Today Cypress Bend s paperboard is competitive with the finest paperboard available and is in demand for high-end packaging of pharmaceuticals and luxury items such as cosmetics and perfumes. Cypress Bend s long-standing reputation for excellence extends to manufacturing quality standards. In 1993, it became one of the first mills in the paperboard industry to receive International Standards Organization (ISO) 9002 certification. The mill also is in full compliance with the U.S. Environmental Protection Agency s tough new Cluster Rules. SmartWood Program Page 5

6 Over the past few decades, Potlatch has been able to modernize and expand its lumber and pulp and paperboard operations in the state knowing that it could count on a sustainable supply of timber. Along with intensifying forest management of company timberland, Potlatch established a seed orchard in 1976 at Warren to produce superior loblolly pine seeds. Today the tree improvement program has progressed to the point where seeds from the newest orchard produce trees capable of growing 35 percent faster than the average native pines. What s more, the trees exhibit straighter stems, which are ideal for higher-value sawlogs. 2. Range of products: Bleached paperboard 3. Average production volume: 155,000 tons 4. Markets and companies sold to: United States and Europe 5. Other schemes company is certified for: (ISO, PEFC, SFI, etc.) Papermill has ISO 9000 certification and Potlatch lands has SFI and ISO1400 certification III. ASSESSMENT PROCESS A. Assessors (name, qualifications, affiliations) John Hodges is a lead assessor and auditor for SmartWood. His undergraduate training is in forest management and his graduate training was in ecology and plant physiology. John has had a broad array of experiences, including as a researcher for the USFS, professor at Mississippi State University and VP of Lands for Anderson Tully Company. He has served as team leader on numerous FM, RM, and COC assessments and as auditor on numerous FM and COC audits. B. Assessment Details 1. Assessment dates: April 8, Length of assessment (hours, days): 1 day 3. Facilities and places inspected: Office and papermill at Cypress Bend, AR and previous visit to the chip mill at Warren. AR 4. People interviewed including titles: Nick Koulianos, Wood Flow and Marketing Regional Manager Bill Horne, Pulp and Power Manager Michael Bass, Production Manager Cecil Stone, Accounting Analyst Sheila Morgan Traffic Manager Raegene Evans, Business Analyst Technician 5. Brief description of assessment process: On April 7 and the early morning of April 8 the Assessor met with Nick Koulianos and discussed the assessment process for the papermill and documentation that would be needed, On the morning of April 8 the Assessor met with all the above individuals at the office and papermill site at Cypress Bend, Arkansas. The audit process and what was to be accomplished was explained and then information and documentation necessary to evaluate the proposed COC procedures was obtained. One of the chip mills supplying chips to the papermill had been previously visited by the auditor. C. Prior Assessments 1. Has the company been assessed before: Details, if yes: SmartWood Program Page 6

7 2. Are there other operations within this company that have been assessed: Details, if yes: Potlatch Arkansas lands have been assessed and certified and the sawmill is in process. IV. Compliance with FSC Chain of custody Requirements The following section summarizes the company s compliance with FSC chain of custody requirements. The checklist is directly based on FSC standard (STD FSC chain of custody standard for companies manufacturing FSC-certified products (version 1.0) References to the specific FSC standard number are included in parenthesis at the end of each standard e.g. (1.1). Selected references are also made to FSC-STD FSC on-product labelling requirements (version 1). Part 1: Quality System Requirements Standard Requirement SmartWood Program Page 7 Compliance 1.1 Documented procedures exist that cover all elements of the Standard including (3.1): a) Personnel responsible for implementing each part of the control system and key procedures (3.2); b) Scope of the CoC system including definition of FSC product groups (2.1); c) Classification of wood inputs according to FSC defined categories (6.1); d) Tracking and handling of all wood categories e) Forms and records used (2.5); f) Compilation of volume summary data; g) Keeping accurate, complete, up-to-date and accessible records and reports covering all aspects of the standard (4.1); h) Staff training requirements related to the standard (5.1). Findings: COC procedures that meet FSC standards have been developed. These procedures, supporting documents and records cover all the points listed above, with the exception of staff training that has thus far not been done (Exhibit 1). 1.2 The company has appointed one person (or position) with overall responsibility for the company s compliance with all aspects of the standard (1.1): Findings: That person is Nick Koulianos, Wood Flow and Marketing Regional Manager 1.3 All key personnel (employees and contractors) demonstrate understanding of their specific responsibilities in order to implement all the requirements of the standard (1.2): Findings: They understand what has to be done in the capacity they hold in order to meet FSC certification, but no training sessions have been held. 1.4 The company s FSC CoC control system (policies, systems, procedures, work instructions, etc.) is implemented as designed and is sufficient to ensure that all products specified in the company s FSC product group schedule meet all of the requirements of the standard at all times (2.5): Findings: The COC procedures have not been implemented, but they appear to be adequate to meet all requirements of the standard. 1.5 The company maintains an up-to-date FSC product group schedule of all product groups included in the company s FSC CoC control system (2.1 and 2.3): Findings: The company will manufacture only one product - bleached paperboard- and the process for keeping a product schedule is in place (Exhibit 5). 1.6 Company classifies each product group as either a) FSC-pure, b) FSC-mixed, or c) FSC-recycled (2.4): Findings: The paperboard manufactured at Potlatch Papermill will be labeled as FSC-mixed when certified material is sold. 1.7 Company retains all records and reports for at least five (5) years (4.2): Findings: Company has agreed to maintain records and reports for at least 5 years.

8 1.8 Company provides training to staff in relation to implementation of the defined CoC procedures and policies (5.2): Findings: Company has plans to develop training procedures and implement a training program for those involved in the CoC procedures, but thus far no training has been provided. See CAR 1/ Company keeps records of the training provided to staff in relation to the standard (5.3): Findings: Company will keep records of all training activities when they occur. See CAR1/05. Part 2: Wood Sourcing Standard Requirement Input specifications 2.1 For the purposes of FSC CoC control and on-product labelling, the company has adopted and uses the definitions of wood, fiber or other materials (e.g. FSC-pure, FSCmixed, post-consumer reclaimed wood, etc.) as specified in the standard (6.1): Compliance Findings: The company will use only FSC-pure wood from their certified lands and from Anderson-Tully's certified lands to meet the requirements for their FSC-mixed product category. 2.2 All wood used by the company in the manufacture of any FSC product group is classified into one or more of the following categories (6.2): a) FSC-pure b) FSC-mixed c) post-consumer reclaimed d) other reclaimed e) controlled Findings: All wood used for certified products will be FSC-pure and controlled wood. 2.3 Company classifies as uncontrolled wood all material that it is not clearly identifiable as one of the permitted FSC categories specified in 2.2 above for the purposes of FSC CoC control and maintains this material separate (6.3): Findings: Company has developed a policy and procedures to assure that no uncontrolled wood is used. If there is a question about the wood being uncontrolled, it will be stored separately from other sources until the status can be determined (Exhibit 4). Specifications for FSC-certified material 2.4 Company has written specifications for the purchase of all FSC-certified material which includes the following requirements (6.4): a) The company supplying the FSC-certified material shall have a valid FSC FM/COC or CoC certificate; b) Material to be supplied shall be identified as FSC-pure or FSC-mixed; c) Material to be supplied shall be covered by the scope of the supplying company s FSC certificate; d) Transport documentation and invoices issued for the FSC-certified material shall quote the supplying company s FSC certificate code. Findings: These specifications are covered in the company's document on COC procedures. The only source of certified wood, other than company lands, will be Anderson-Tully Company whose lands are certified (Exhibit 1). Specifications for reclaimed wood 2.5 Company has written specifications for the purchase of all reclaimed material which include the following requirements (6.5): a) The reclaimed wood and fiber material shall be correctly described in accordance with FSC definitions (see SW CoC Standard); b) All post-consumer reclaimed material shall be verified with respect to its quantity and compliance with the specified definitions (see SW CoC Standard) through independent verification or through other credible documentation; c) The shipping documentation and invoices issued for independently verified material shall quote the supplying company s certificate registration code or equivalent proof of independent verification. SmartWood Program Page 8

9 Findings: Purchase of reclaimed material will not take place. On-site reclaimed material may be used by the company, although the amount will be extremely small. If reclaimed material is used, the company will develop written specifications for its use as controlled ingredient to the mix. Specifications for controlled wood 2.6 Company uses controlled wood (non FSC-certified material) in FSC product groups in compliance with FSC controlled wood requirements (6.6, 6.7): NOTE: if company utilizes controlled wood in FSC product groups, an additional evaluation of compliance with the FSC controlled wood standard is required (FSC-STD ). Findings: Bleached paperboard is only product and it is made from controlled wood and FSC-pure wood from Anderson-Tully land and Potlatch Company lands. See Appendix D for the findings on the controlled wood standard. Specifications for generating reclaimed material on-site 2.7 Company generates and collects reclaimed material on-site which is used for further processing or for sale. This material is classified into one of the following categories (7.1): a) FSC-pure material b) FSC-mixed material c) post-consumer reclaimed material d) other reclaimed material e) controlled material f) uncontrolled material Findings: Some reclaimed material may be collected on site. If this occurs, it will be classified as other reclaimed material or controlled. 2.8 Company has defined procedures and/or work instructions for the collection and storage of reclaimed material that is generated on site. The category to which the material belongs shall be clearly identified (7.2): te: if it is not possible for the company to identify FSC-Pure from FSC-Mixed, then all material must be classified as FSC-Mixed. If it is not possible to identify post-consumer reclaimed from other reclaimed material then all material must be classified as other reclaimed material. (7.3, 7.4) Findings: The procedures or work instruction for collection and storage of reclaimed on-site material will be developed before sale of certified paperboard. Potlatch will not use this material in FSC product mix until procedures for the collection and storage of this material is defined and then will include it in the controlled category. See CAR 3/05. Companies collecting or trading in post-consumer reclaimed material 2.9 Company collects and/or trades in post-consumer reclaimed wood for inclusion in FSC-labelled products (8.1): Findings: 2.10 Company clearly demonstrates that wood reclaimed from consumers/end users (by either themselves or by suppliers) meets the FSC definition of post-consumer reclaimed material (8.2): te: if materials are mixed prior to sale, then CoC requirements must be applied. (8.3, 8.4) Findings: Receipt and storage of material 2.11 The company shall check all received material on arrival to ensure that the wood/fiber has been clearly classified into a wood category according to FSC Definitions (see SW CoC standards) (9.1): Findings: Company COC procedures clearly state that this will be done and document the process to be used. SmartWood Program Page 9

10 2.12 The company shall check on arrival that all wood products are accompanied by shipping documents that include: For FSC-Pure and FSC-Mixed: the correct and valid FSC certificate code. (9.1) Post-consumer reclaimed wood: a valid certificate number or equivalent identification as post-consumer reclaimed. (9.2) Controlled Wood: supplier documentation is sufficient to assess risk as per the controlled wood standard. (9.3) Findings: Company will receive FSC-pure wood or chips from company lands and from ATCO and CoC procedures state that wood from ATCO will be accompanied by a valid FSC certificate code. The white security ticket has information sufficient for Potlatch to assess risk of uncontrolled wood (Exhibit 3) Company ensures that all FSC-Pure material received that is to be used in FSC-Pure products is clearly identified and/or stored separately from the other material categories (9.4): Findings: Company will not manufacture FSC-pure products 2.14 Company ensures that all material that cannot be identified as one of the categories in 2.7 above shall be kept separate from material for use in FSC product groups (9.5): Findings: Company plans to do so, but procedures have not been established (Exhibit 4) Company record keeping systems provide current and accurate information on inventory for each category: Findings: The inventory system permits query of inputs, inventory, and outputs at any time and over any time period. Part 3: Production Control and Records Standard Requirement Information collection and records 3.1 For each product group, the company records the quantity (by volume or weight) of FSC-pure, FSC-mixed, post-consumer reclaimed, other reclaimed, and/or controlled material on a monthly* basis (10.1): a) received as stock for production; b) used for the manufacture of each FSC product group; and c) sold as FSC-certified (FSC-pure, FSC-mixed, or FSC-recycled). Compliance * te: Company may reduce time period to less than one month for sporadic or limited orders (10.2, 10.7). Findings: Company produces only one product, so this information is always current in their inventory system. Identification of rolling average 3.2 Company procedures define the methodology for determining the rolling average and the claim period for each FSC product group (10.6): Findings: The procedures do not specifically speak to this methodology, but because they produce only one product, the current inventory system is capable of providing this information. The procedures for and maintenance of a credit account will require calculation of the rolling average, see CAR 4/ Company maintains documented calculations of the rolling average of FSC-certified material for each product group from the specified starting date to the date on which a claim is made (10.3): Findings: Company produces only one product and the rolling average of FSC certified material can be obtained at any time from the inventory system used. 3.4 Company produces for each product group a monthly record of the rolling average of the FSC material used in the product group (10.4): Findings: Monthly records will be produced when certified sales of paperboard begin 3.5 The company assigns a number (e.g. a batch number) or other unique identifier by which it is possible to identify all products in the FSC product group (10.5): Findings: Company will produce only one product. 3.6 For each product group the company shall specify an FSC claim period of up to12 calendar months (10.6): SmartWood Program Page 10

11 Findings: The claim period will be 12 months. Part 4: Requirements for Labeling Standard Requirement SmartWood Program Page 11 Compliance 4.1 Company will use FSC on-product labels/logos (12.1): Company s FSC product groups qualify for the following labels: FSC-Pure FSC-Mixed FSC-Recycled Findings: Rolls of fiberboard will have a label showing certification number and FSC-Mixed Eligibility for on-product use of the FSC trademarks 4.2 Company has met eligibility requirements for on product use of FSC trademarks: a) The company complies with parts 1-3 of the standard; b) The product to be labeled is included in the company s FSC product group schedule (11.1); c) FSC labels are used only on products eligible for the specific label (FSC-STD sections 1.2, 4.8, 4.9, 4.10). Findings: These requirements have been met or will be before certified material is offered for sale. Requirements for labelling with the FSC-pure label 4.3 Company labeling procedures are in compliance with FSC policy (section 12) and uses only 100% FSC-pure material during the entire claim period (12.2 and FSC-STD ): Findings: Requirements for labeling with the FSC-mixed label (Threshold System) 4.5 Company procedures for labeling based on a threshold system are in compliance with FSC policy (Section 12.3 and FSC-STD ): Findings: Requirements for labelling with the FSC-mixed label (Credit System) Company procedures for labeling based on a credit system are in compliance with FSC policy (Section 12.4, 12.5, 13 and FSC-STD ): te: Company must demonstrate compliance with the FSC Credit System section below (14) Findings: The proposed system is in compliance with FSC policy on FSC-Mixed label. Requirements for labeling with the FSC-recycled label 4.7 Company labeling procedures are in compliance with FSC policy (section 12) and uses only 100% post-consumer reclaimed wood/fiber during the claim period (12.6 and FSC- STD ): Findings: Approval of labels and claims 4.8 Company demonstrates compliance with FSC on-product labeling requirements (FSC- STD ) for all on-product FSC labels and claims (15.1): Findings: Company will comply with on-product labeling before any certified fiberboard is shipped. 4.9 Company procedures include: a) Provisions for submission to and approval by SmartWood for on-product labels and/or off-product claims that make use of the FSC trademarks, prior to the labels or material being printed (15.2 and FSC-STD sec 1.4). b) Controls to ensure that FSC trademarks are not used for the promotion of products which do not meet the thresholds for labelling outlined in Part 4 of the standard (16.6, 16.8): Findings: Company has agreed to follow SW procedures for submission and approval for all product labeling. The company will develop controls to prevent mis-labeling of paperboard rolls but those procedures are not in place at this time. See CAR 5/ Company maintains on file records of all SmartWood approvals of logo use and

12 labels (15.3): Findings: Company has agreed to maintain files relating to approval of logo use Company procedures for use of FSC labels include the following provisions: a) FSC labels are not used on-product with the logos or names of other forestry certification schemes (FSC-STD sec 1.9). b) FSC labels are applied directly to the certified product or packaging and are clearly visible (FSC-STD sec 1.12). c) FSC-labelled products do not carry additional claims referring to the sustainability of the source forest (FSC-STD sec 1.11). d) Removal when there is use of simplified FSC labels for internal segregation of certified materials during processing before sale if the labels do not meet all of the FSC requirements (FSC-STD sec 2.2). e) Translation of labels is approved by SmartWood prior to use (FSC-STD sec 2.3). Findings: Company has agreed to abide by these procedures when certified material is shipped but the company does not have the procedures in place. See CAR 5/05. Arrangements for printing and applying labels between certificate holders 4.12 If Company will request certified suppliers to label products with Company s FSC certification code (or if Company is requested by buyer to label with buyer s code), then company procedures shall include provisions that: a) Both buyer and manufacturer inform their certification body of the agreement and receive written authorization from the certifier. b) The manufacturer is responsible for final approval of the product label and to ensure that the buyer s label only appears on products supplied to said buyer. c) The buyer makes available background information on the labelling arrangement to all affiliate group companies selling the products in question (FSC-STD sec 5.1). Findings: FSC-Credit System check if section not applicable Standard Requirement 4.13 Company has documented procedures for the establishment and maintenance of an FSC-credit account. Written procedures specify: The methodology for creation and management of an FSC credit account for each FSC product group, including forms and recordkeeping. Compliance Findings: Company will have written procedures specifying creation and maintenance of an FSC credit account before certified material is produced. See CAR 4/ Company has documented procedures for the labelling of products under the credit system, including specifications that: a) If the FSC content in a product group falls below the minimum 10% rolling average for labeling then the FSC trademarks shall not be used on-product until the rolling average again meets the specified minimum (12.5, 13.1). b) Labelling shall not be based on future predictions of purchases of FSC-certified material which exceed the FSC-credit achieved to date (13.2, 14.10). c) On-product labelling does not exceed the total accumulated credit available in the FSC-credit account for that product group at the end of the preceding month (14.5). Findings: These procedures will be developed before manufacture and sale of certified products. See CAR 4/05. FSC-credit accounts 4.15 Company has established an account for each FSC product group. For each account, the company has: a) Identified the inputs for which FSC-credit will be attributed according to different components; b) Identified the conversion factor for each individual component (14.1). Findings: Company has only one product group and can easily identify the inputs from their inventory system. SmartWood Program Page 12

13 Entering inputs to an FSC-credit-based account 4.16 Company records in the FSC credit account on a monthly basis: a) The FSC credit amount for each FSC product group with the FSC-input entered for each component of the product group. I.e. the FSC credit shall be calculated on the basis of the information specified on the invoice for the purchase of the FSC material (14.2, 14.3). b) The converted amount for each component of the FSC product group. I.e. the converted amount is calculated to reflect the transformation of the component (14.4). Findings: The inventory system will permit these type records and the company will record the information on a monthly basis. Withdrawing FSC-credit from the FSC-credit account 4.17 Company calculates and records: a) The amount of product (volume or weight) sold as FSC during the month, and deducts this amount from the total FSC credit available at the end of the preceding month (14.6). b) The invoice reference of the FSC labelled products sold in the FSC-credit account (14.7.). Findings: The inventory system will permit doing this and the procedures for establishing the credit account indicate that it will be done The company written procedures and or work instructions include provisions to ensure that the FSC-credit account shall not be overdrawn (14.11): Findings: Potlatch needs to develop these procedures. See CAR 4/05. Deducting expired credit from an FSC-credit account 4.19 At the end of each month the company: a) Deducts from the FSC-credit account any remaining credit that was entered more than 12 months previously (14.8.); b) Calculates the total FSC-credit remaining in the FSC-credit account (14.9.). Findings: Current inventory will permit doing this. Part 5: Invoicing, Sales, and Shipping Documentation Standard Requirement 5.1 Company invoices issued for sales of products on the FSC product group schedule include the following required information (16.1): a) The name and address of the buyer; b) The date on which the invoice was issued; c) Description of the product which is the same as the description of the same product on the FSC product group schedule; d) The quantity of the products sold. e) The correct FSC certification code; f) Reference to the product s batch and/or to related shipping documentation, sufficient to link the invoice to the goods received by the customer. SmartWood Program Page 13 Compliance Findings: Before selling any certified material, the company will modify the current invoice, as necessary, to insure that the above information is included on the invoice. See CAR 6/ Company invoices meet the following requirements: a) The registration code number on invoices is clearly linked to the certified products; b) When several codes cover different certified products on an invoice, there shall be a clear link between the products and their respective code; c) Clear identification of which products appearing on the invoice are FSC-certified and which are not (16.2); d) The statement FSC-pure is only used on invoices accompanying material sold as FSC-pure (16.3); e) For FSC-mixed products from the threshold system, include the minimum percentage of FSC material claimed for the product group over the labelling period (16.4); f) For FSC-mixed products from the credit system, include the statement FSC-credit material (16.5).

14 Findings: Current invoices meet most of these requirements and will be modified to meet all before certified material is shipped. Shipping documentation 5.3 Company shipping documents issued for deliveries of products containing FSCcertified or post-consumer reclaimed material include (17.2): a) The correct FSC certification code; b) The percentage of FSC-certified material claimed for the product group as applicable. Findings: Current shipping documents will be modified to contain this information. 5.4 Company shipping documents include the following when invoices do not physically accompany FSC-certified products (17.1): a) The name and address of the buyer; b) The date on which the invoice was issued; c) A description of the product which is the same as the description of the same product on the FSC product group schedule; d) The quantity of the products included in the shipment; e) Reference to the sales invoice for the products delivered, sufficient to link the goods shipped to the specific invoice for the goods. Findings: The current shipping documents contain most of this information. Before shipping of certified material the documents will be modified to cover all the above information. Sales records 5.5 The company maintains a record of all its buyers of FSC-certified material in the product group schedule as well as volumes of material sold as FSC-certified material (pure, mixed, recycled). This record is available upon request by SW or the FSC (18.1): Findings: Such records are already maintained and it will be possible to "break out" the FSC buyers and amounts using the current inventory system. SmartWood Program Page 14

15 V. CERTIFICATION RECOMMENDATION A. Assessor Recommendation 1. Based on compliance performance with the Chain-of-Custody standards, the assessor recommends that Company be: Approved for certification upon successful completion of the pre-conditions and agreement to comply with the CARs below. Approved for certification upon agreement to comply with the CARs detailed below. Approved for certification. 2. Company is applying to be certified as exclusive or non-exclusive. B. Pre-conditions pre-conditions C. Follow-up Actions by Company to Meet Certification D. Corrective Action Requests CAR #: 1/05 Reference Standard #: 1.2; 5.1; 5.2; 5.3 n-compliance Major: Minor: X Company has developed adequate COC procedures but responsible people have not always been notified of their responsibilities and no training programs have been written or training sessions held. Corrective Action Request: Potlatch Corporation Papermill shall prepare a training document that specifies procedures for each step of the COC process and use that document as a basis for training of personnel involved in the COC. Records of these training sessions shall be maintained by the company and provided to SmartWood. Timeline for compliance: Must be completed before manufacture of any material to be sold as FSC certified or within 3 months of the certificate date, whichever comes first. = CAR #: 2/05 n-compliance Major: Minor: X Reference Standard #: 3.7; 8.2; 9.3 under controlled wood Although likelihood of receiving wood from high-risk areas is very low, the company has not developed procedures or performed a risk assessment of their wood source area. Corrective Action Request: Company shall revise its controlled wood procedures to include risk assessment procedures and a requirement for suppliers to provide a declaration that wood is controlled. Company shall complete a risk assessment of their wood source area as per the procedures developed. Timeline for compliance: Before acceptance of wood that may be sold as controlled wood or included with FSC as a mixed product, or by the first annual audit, whichever comes first. CAR #: 3/05 Reference Standard #: 7.1; 7.2 n-compliance Potlatch Paperboard mill does a small percentage of on-site reclaiming of Major: Minor X: material, but procedures to be used for collection, storage and use have not been defined. Corrective Action Request: Potlatch Paperboard shall define procedures and/or work instruction for the SmartWood Program Page 15

16 collection and storage of reclaimed material generated on site, and must allocate the material to the proper product category. Timeline for Compliance: Procedures must be developed before any on-site reclaimed material is used in products to be sold as FSC certified. CAR #: 4/05 Reference Standard #: 10.4 n-compliance Major: Minor: X written procedures or work instructions for establishment, maintenance, monthly recording procedures, and measures to insure that FSC-credit account is not overdrawn have been developed. Corrective Action Request: Potlatch Corporation Papermill shall establish a written procedure for use of the credit system that includes establishment, monthly recording, and measures that insures the FSCcredit account will not be overdrawn. Timeline for Compliance: Must be completed before the manufacture of any material to be sold as FSC certified or within 3 months of the certificate date, whichever comes first. CAR #: 5/05 Reference Standard #:15.1; 16.6;16.8 n-compliance Product labels or rules for use of the labels have not been established, nor Major: Minor: X labeling of products under the credit system. Corrective Action Request: Company shall obtain approval for use of on-product labels and for use of labels in advertising of any type. Documented instructions for labeling of products to be sold under the credit system shall be prepared. Timeline for Compliance: Must be completed before shipment of certified products or within 3 months of the certificate date, whichever comes first. CAR #: 6/05 Reference Standard #: 16.1; 17.1; 17.2 n-compliance Current company invoices and shipping documents may not meet standards. Major: Minor: X Corrective Action Request: Company invoices shall be modified to include the information specified in sections 16.1, 17.1, and 17.2 of the COC standards. Timeline for Compliance: Invoices and shipping documents shall be modified before shipment of certified products or within 3 months of the certificate date, whichever comes first. SmartWood Program Page 16

17 APPENDICES Appendix A: Summary of Company s CoC Process and Risk Analysis Certified Product Flow Table with Risk Analysis This table provides an overview of the Company s CoC procedures with control measures that are in place to prevent the mixing of certified and noncertified materials. Handling Step Purchasing Procedure FSC certified wood comes from company lands and from ATCO lands. Controlled wood comes from sales purchased and harvested by the company (contract) and gatewood. Contamination Risk Factor and Control Measure The only risk factors from purchasing through production are that: (1) the stated percentage of FSC certified wood is not maintained, or (2) wood from an uncontrolled source is purchased and the chips mixed with the certified and controlled wood. The control measures to prevent contamination are accurate record keeping (weight) of all sources of material and assurance that wood is not purchased from high risk areas. Tracking and Documentation (Exhibit # when applicable) Exhibits 1, 2, and 3. Control will primarily come through use of security tickets delivered with each truck load of logs at the Warren, AR and Mississippi chipmills. Green tickets are used for loads delivered from company lands and purchased sales and white tickets for gatewood. The white tickets will also have information on ownership and location from which the wood was harvested. FSC certified wood from ATCO will be accompanied by shipping documents showing certification status, weight of wood, and ATCO s COC number. SmartWood Program Page 17

18 Receiving Production Shipping and Sales All wood for the papermill is delivered as chips that come from 3 chip mills one in Mississippi, one at Warren, AR, and another at the papermill site. The chip mill in Warren, AR will chip FSC certified wood from company lands and controlled gatewood. The chip mill in Mississippi will deliver controlled wood, and the chip mill at the papermill site will chip FSC certified wood from ATCO (mostly by barge) and controlled gatewood. When delivered to the papermill site, the chips from all three mills are mixed or in some cases used directly from the rail cars. Chips for paper production are selected at random without regard to FSC certified source or chipmill. Over a period of time, (e.g., one month) the percentage of FSC certified material in the mix will be the same as that received, chipped and shipped from the chipmills. The minimum percentage of certified wood will be 10% but for most periods it will be well above that percentage Under the Credit System, the papermill can sell and ship a percentage of their output of paperboard (rolls) as FSC certified that is equal to the percentage input of FSC certified wood. Sale and shipment of more paperboard than justified by the percentage of FSC certified wood in the mix. Prevented by proper use of the credit system, i.e., very accurate tracking of inputs and outputs of FSC certified wood Rolls of paperboard sold as certified will contain the proper label showing FSC certification number. SmartWood Program Page 18

19 Appendix B: Summary of Exhibits Collected and Included with this Report Exhibit 1: Potlatch Chain of Custody Procedures for Handling Certified Material for AR Pulp and Paper Exhibit 2: Potlatch Load Ticket Exhibit 3: Potlatch Trip Ticket Exhibit 4: Controlled Wood Definition Exhibit 5: Certified and Controlled Wood Record SmartWood Program Page 19

20 Appendix C: Conversion Table Standard Conversions 1 mbf = 5.1 m 3 1 cord = 2.55 m 3 1 Gallon (US) = Liters 1 acre = hectares 1 foot = Meters 1 mile = Kilometers All Information is Kept Confidential SmartWood Program Page 20

21 Appendix D: VERIFICATION SYSTEM FOR CONTROLLED WOOD 1.0 Quality System Requirements Standard Requirement Compliance 1.1 Documented procedures include all elements of the controlled wood standard including (2.0): i) Origin of wood verification and documentation (6.0) j) Requirements for supplier declarations (7.0) k) Completing a risk assessment (8.0) l) Evaluating high risk sources (9.0) Findings: Company will complete a risk assessment and develop a procedure for evaluating high-risk sources before any sale of certified material. See CAR 2/ The company has an updated list of all incoming controlled wood materials (1.0). Findings: The inventory system used by the company is capable of supplying this information. 2.0 Company Requirements Standard Requirement Company Policy 2.1 Company has a publicly available written policy commitment endorsed by a senior executive to exclude wood harvested from the following sources (5.1): a) wood harvested from forest areas where traditional or civil rights are violated; b) wood harvested from non FSC-certified forest areas having high conservation values which are threatened; c) wood harvested from genetically modified (GM) trees; d) illegally harvested wood; e) natural forest that has been converted to plantations or non-forest use. Findings: This company policy and procedures relating to uncontrolled wood are given in Exhibit #4. Compliance Origin of Wood Inputs 2.2 Company has a publicly available list that identifies and records the countries and district of origin of its incoming controlled wood and wood fiber (6.1). Findings: The origin of controlled wood is given on the security tickets collected by the weigh master upon delivery of every truck load of wood (Exhibit 3). 2.3 Company identifies and records the documentation that its suppliers shall have available to confirm the origin of controlled wood to district level (6.2). Findings: This information is given on the white security tickets collected by the weigh master for each load of logs (Exhibit 3). 2.4 Company s suppliers of controlled wood have agreed to provide such information on request (6.3). Findings: All suppliers of gatewood must submit a white security ticket for each load of logs. This has been the policy of the company for many years. 2.5 Company has implemented a verification system for transport and purchase documents on sampling basis to confirm the country and district of origin of controlled wood and fiber (6.4). Findings: The white security tickets constitute a verification system that is easily tracked and is required of all incoming loads of chips (Exhibit 3). SmartWood Program Page 21

22 Incoming wood 2.6 For all incoming controlled wood, Company requires supplying companies to provide: a) declaration confirming the origin of the wood or fiber to district level. b) declaration that the wood or wood fiber in the shipment is controlled to avoid sources specified in FSC-STD (FSC standard for forest managers for controlled wood) (7.1). Findings: The white ticket specifies the State, County, and Landowner for the origin of the wood. The suppliers are not required to make a declaration, but the information on the ticket is sufficient to insure that the wood is not from a prohibited source (Exhibit 3). A declaration statement needs to be added to the ticket. See CAR 2/05. Risk Assessment 2.7 Company evaluates all forest areas from which non FSC-certified controlled wood is sourced in accordance with the criteria for identifying high-risk forest areas as specified in annex 2 of the standard (8.1). Findings: There are no known high-risk areas that would be logged in the wood supply area, but company will do a survey and if present the areas will be listed so the company can check against the white security tickets when wood is delivered. See CAR 2/05 for development of risk assessment procedures. 2.8 Company has a system for evaluating wood from forest areas which are high-risk in relation to the categories listed in section 4.1 of FSC-STD FSC standard for forest managers for controlled wood, in accordance with 2.10 to 2.13 below (8.2). Findings: From information on the white security tickets, the company can check against any possible highrisk areas. Since company will not accept wood from high risk areas, evaluation of these forest areas is not applicable. See 2.11 below. 2.9 Company re-evaluates the source and justifies the basis on which it has been categorized in case the categorization of high risk and low risk forests are challenged and evidence provided thereof e.g. by external party (8.4) Findings: The company believes there is little chance that wood will ever come from high-risk areas, but they agree to re-evaluate the source if there is a question concerning the category of the area. Evaluating High Risk 2.10 In case of sourcing controlled wood and fiber from high risk areas company has implemented a program for evaluation incoming wood (9.2). Findings: Company has developed a policy concerning uncontrolled wood (wood from high-risk areas), and use of the white security tickets will allow determination of incoming wood. Since company will not accept wood from high risk areas, evaluation of these forest areas is not applicable. See 2.11 below For controlled wood and fiber coming from high-risk forest areas, the Company has either: a) required the supplier to provide it with independent verification by an FSC accredited certification body to confirm that the source in question is controlled for the categories identified in FSC-STD FSC Requirements for forest managers for controlled wood; or b) ascertained the forest management unit of origin of the wood or wood fibre and include the source in the Company program of verification to confirm that (for the category or categories of high-risk forest areas identified) such sources comply with FSC-STD FSC requirements for forest managers for controlled wood (9.3). Findings: Company will not knowingly accept wood from high risk areas. They will determine if high risk areas exist in their supply area and will check white security tickets to see that wood does not come from those areas if they exist If the Company carries out verification as specified in 2.11.b, the company undertakes field inspections on the basis of sampling in accordance with the requirements outlined in Annex 3 of the Standard. Field inspections investigate that wood or wood supplied complies with the requirements outlined in STD FSC requirements for forest managers for controlled wood (9.4). Findings: SmartWood Program Page 22

23 2.13 In case Company is unable to ascertain the forest management unit of origin of the wood or wood fiber in question the Company provides justification by which it has confirmed that that source has been controlled (9.5). Findings: The forest management unit (source) of the wood will always be identified on the white security ticket. Source can be compared against known high-risk areas (to be determined by the company). Records 2.14 Company maintains records that demonstrates compliance with 2.10 to 2.13 for a minimum of 5 years (10.1). Findings: Company has agreed to do so. Excluding Uncontrolled Wood 2.15 Company has procedures in place to ensure that where documentation relating to compliance with this standard is not provided or is incomplete or unreliable, or source evaluations reveal that the source cannot be confirmed as being controlled, such material shall not be mixed with controlled wood/fibre wood until the supplier can demonstrate full compliance with the specifications outlined in FSC-STD FSC requirements for forest managers for controlled wood for that material source (11.1). Findings: See Exhibit #4. CITES Species If incoming wood is from species listed in Annex 1, 2 or 3 of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) it is accompanied by relevant licences and/or export permits (12.1). Findings: Exhibits collected for this Exhibit 5; Exhibits 2.3, and 4 apply here as well as to Section 4. section: SmartWood Program Page 23

24 Exhibit 1 POTLATCH CORPORATION CHAIN OF CUSTODY PROCEDURES FOR HANDLING CERTIFIED MATERIAL FOR ARKASNAS PULP AND PAPER 1. Weighmaster/Scale House Truck drivers coming from Potlatch Corporation timberlands will have a green security ticket to identify each load coming into the chipmills. The green security ticket is given to the weighmaster and the contract number and green security ticket number is entered into the Baywood Log and Fiber System; the contract number, vendor number and green security ticket number appears on the computer screen in the scale house. The contract number for fee wood is a unique nine character alpha-numeric number that begins with the letter C and identifies wood coming from Potlatch Corporation lands as opposed to purchased wood. The contract number for Timber deed and PAC wood is a unique nine character alpha-numeric number that begins with the letter T and identifies wood coming from NIPF lands. A white trip ticket is used for controlled wood for gatewood. Verification of the controlled status of the gatewood is obtained by checking the sources of wood. Truck drivers delivering wood from Anderson Tully Certified (ATCO) lands are identified by contract number and supplier. The contract number is a unique nine character alpha-numeric number that begins with the letter M. ATCO Barge wood is delivered to a designated port where wood is unloaded and then reloaded on truck for delivery to Cypress Bend Chip LLC. Wood from ATCO Certified lands is identified by contract number, barge number and supplier. The contract number is a unique nine character alpha-numeric number that begins with the letter F. ATCO furnishes verification that wood is certified in writing on a load by load basis for truck wood and on each barge upon delivery to Potlatch. The weigh master will verify the certified status of the logs via the Potlatch contract number. The weight of the load will appear on the computer screen. The weigh master will then direct the driver to the chipmill log yard. If there is any question about the controlled status of the wood it is unloaded and stored in a separate location on the yard. 2 Log Yard/Scalers (Mixed Certification) For wood that is delivered from Potlatch Certified Lands the log scaler will enter the green security ticket number, stapled to load, into the Baywood Log and Fiber System at the time loads of wood are weighed in at chipmill. ATCO wood delivered by truck or by barge is identified by a Potlatch contract number and barge number as wood is weighed in at chipmill. Load data, volume and supplier is entered into the Baywood Log and Fiber System. The weigh master will print the scale ticket and give the truck driver a copy of the scale ticket. 3. Papermill Process Runs (Mixed Certification) Volume of certified wood is determined based on data from the Baywood Log and Fiber System which records all FSC certified receipts by name. The percent mix is based on percent of total volume received divided into FSC certified wood received. Percent of certified volume can be tracked at all times via the Baywood Log and Fiber System. All receipts and related supply activities can be and are continuously monitored and tracked through the Baywood Log and Fiber System. SmartWood Program Page 24

25 4. Warehouse/Inventory a. Roll labels featuring the FSC logo, certification code, and product category are attached to the finished roll. Exhibit 1 (continued) b. All rolls produced will be FSC Mixed but not all will be marked as such. Only those rolls applied to an order requesting FSC will be marked. 5. Order Entry a. Sales personnel will mark in the OTIS order entry system whether an order is for FSC Mixed or not. 6. Shipping a. When an FSC order is completed, roll labels that display the FSC logo and Potlatch s certification code are attached to the roll. b. Each bill of lading prepared will have the FSC logo, product category and Potlatch s certification code on it, either pre-printed or on a sticker. 7. Invoicing a. Paperboard invoices, both those sent to customers and file copies, will either be printed or have a sticker that displays the FSC logo and Potlatch s certification code. SmartWood Program Page 25

26 Exhibit 2 SmartWood Program Page 26

27 Exhibit 3 SmartWood Program Page 27