On the 11th floor of the Seafirst Financial Center downtown, the wallboard is still bare in places and unpacked boxes outnumber employees, but Spokanes newest corporate headquarters offices there are up and running.


They are those of Potlatch Corp., the big forest-products company that moved here this fall from San Francisco. With 1996 revenues of $1.6 billion and total employment of around 6,700, Potlatch has become Spokanes largest locally based corporation, with sales roughly 70 percent larger than those of Washington Water Power Co.


Potlatchs unpretentious offices here, however, reflect a 2-year-old corporate initiative to cut costs throughout the companys operations, which are located in Idaho, Minnesota, Arkansas, and Nevada. The move to Spokane alone is expected to save Potlatch $1.5 million a year.


Potlatchs move to Spokane is consistent with our drive to become a low-cost producer in all our operations, says John M. Richards, the companys chairman and CEO and a North Idaho native. This is the immediate and continuing goal that is reshaping our culture and business practices.


Being a low-cost producer is a key Potlatch strategy because the venerable company, whose origins date back to 1903 in the tiny North Idaho town that shares its name, competes mostly in commodity-based industries that routinely are rocked by price volatility.


Potlatchs four primary business segments are:


Wood-products, in which it produces dimensional and specialty lumber as well as panel products such as plywood, particleboard, and oriented strand board (OSB). Potlatch operates sawmills in Idaho, Minnesota, and Arkansas; particleboard and plywood plants in Idaho; and OSB plants in Minnesota. The products are sold both to the construction industry and to industrial users.


Pulp and paperboard, in which it produces bleached paperboard products for use in a wide variety of packaging, from milk cartons and frozen-food boxes to paper plates and software boxes. It operates pulp and paperboard mills in Lewiston, Idaho, and Cypress Bend, Ark.


Printing papers, in which it produces high-end, coated printing paper, used for annual reports, fine brochures, and art books. Its two printing-paper mills are located in Brainerd and Cloquet, Minn., and it operates a pulp mill in Cloquet.


Consumer products, in which it produces a variety of tissue products, most of which are sold to retail chains and distributors that sell the products under their own names. Its sole tissue mill is in Lewiston, but it also operates facilities both in Lewiston and Las Vegas that convert bulk tissue into the final forms in which they will be sold.


In addition, Potlatch owns about 1.5 million acres of timberland in Idaho, Arkansas, and Minnesota. About 75 percent of the logs used by Potlatchs sawmills come from its own timberlands.


Potlatchs pulp mills, however, are more dependent on outside sources for chips, which the company must buy from other mills to make pulp. To become more self-sufficient in that regard, Potlatch has planted its own fiber farm, a plantation of fast-growing hybrid poplars, or cottonwoods, that will be chipped for its pulp mills. Its first crop from that northeastern Oregon plantation is expected to be ready for harvest in about two years, says Potlatch spokesman Michael Sullivan.


Though it had been headquartered in San Francisco since 1965, Potlatch is a well-known name in North Idaho. It employs about 3,000 people in Idaho, where it operates a particleboard plant in Post Falls, a plywood plant and lumber mill in St. Maries, another plywood plant near Pierce, and a sawmill, pulp mill, tissue mill, paperboard mill, and tissue-converting facility all in Lewiston.


Lewiston was home to Potlatchs corporate offices for 34 years, starting in 1931. Its first mill was in the town of Potlatch, about 75 miles southeast of Spokane, but it moved to Lewiston when it merged with Edward Rutledge Co., of Coeur dAlene, and Clearwater Lumber Co., of Lewiston, to form Potlatch Forests Inc. The company changed its name to Potlatch Corp. in 1973.Steady financialsThough Potlatch does business in industries that tend to see big shifts in fortune, its financial condition has remained relatively stable in recent years. So far this decade, its sales have gained modestly at about a 4 percent annualized rate, while its net income has bounced between $40 million and $110 million a year.


The companys stock, which is traded both on the New York Stock Exchange and the Pacific Stock Exchange, has traded between about $39 and $52 per share in the past 12 months, and was selling for about $49 earlier this week. Potlatch says that investors earned a return of about 12 percent last year on the stock, counting dividends and stock appreciation. The company has boosted its dividend in 19 of the past 20 years.


As of Sept. 30, Potlatch had assets of $2.3 billion, long-term debt of $672 million, and working capital of about $102 million.


The company has very well-respected market-share positions in high-line coated paper, OSB, bleached paperboard, and, to a lesser extent, private-label tissue, says Steven Dietrich, an analyst with Jensen Securities Co., of Portland. Underlying all that, they have quite a lot of timberland.


Dietrich says that Potlatchs stock, on its face, is a good investment among cyclical natural-resource-based stocks, but also believes the companys timberland is greatly undervalued in its current stock price, making it perhaps a more attractive company.


He says that in respect to its cyclical industry, Potlatch is a steady performer that could do even better. It really doesnt lose money at the bottom of the cycle, but is it making as much money at the top of the cycle as it could? We are all hopeful that Potlatch is getting leaner and meaner and will be able to do that, he says.


Potlatchs revenues and earnings both fell last year due partly to a softening in its markets and to operational problems. In the first nine months of this year, sales edged up slightly, to about $1.19 billion from $1.18 billion in the year-earlier period, but earnings fell to $30.3 million for the period, compared to $39.7 million in the first nine months of 1996.


Potlatch has been hurt in the past year or so by an industry oversupply of oriented strand board, which is used heavily in the construction industry. The company operates three OSB plants, all in Minnesota, and has put off for now a decision of whether to expand the smallest of the three. Still, Potlatch believes that future prospects for OSB are good.


We continue to be convinced that OSB is a strong market, says Sullivan. The current oversupply and price softening has affected us financially, but it appears to be improving.


The market moves of OSB, which Sullivan says has replaced plywood as the sheathing of choice for homes, has triggered other new Potlatch strategies. Last year, the company began converting its plywood plants from production of the lower-priced, three-ply sheathing to industrial plywood, which is five- to seven-ply thick and is used in such industrial applications as the manufacturing of RVs and boats and for products such as nailing strips used in carpet installation.


The higher-grade industrial plywood is expected to have greater sales-growth potential and carries a higher price and profit margin than sheathing plywood, says Sullivan. That strategy reflects a companywide emphasis to focus on higher-value product lines that are less likely to be affected by the cyclical nature of basic lumber and pulp.Big investmentsSome of Potlatchs operations are in business segments that require huge capital investments. The company currently is in the midst of a $500 million upgrade and expansion of its Cloquet, Minn., pulp mill. That project, which is expected to be completed within the next three years, will double the facilitys pulp capacity to about 1,150 tons per day.


Potlatch made a similar investment in the 1980s and early 1990s at its Lewiston pulp and tissue operations. Some of that investmentroughly $100 millionwas for new tissue-making equipment that now enables Potlatch to compete, in terms of quality, with the higher-end U.S. tissue makers. The rest of the Lewiston upgrades were at the companys pulp mill, the inner workings of which essentially were replaced over the multiyear project. That project wasnt without its hiccups.


The pulp mills big new pulp washers ended up not working properly, which significantly hurt production at the mill, and ultimately Potlatchs earnings, the company says. The company has since replaced most of those washers, and production now is adequate, says Sullivan. Meanwhile, Potlatch was awarded a $95 million judgment last summer against the supplier of the washers, Beloit Corp. The judgment since has been appealed to the Idaho Supreme Court.ExportsMost of Potlatchs products are sold in the U.S., through a variety of distribution channels. However, a growing amountmostly bleached paperboardis being sold internationally. Last year, Potlatch exported about $197 million worth of products, or 13 percent of its overall sales.


The bulk of those exports, says Sullivan, came from the companys Lewiston operations, where paperboard is shipped by barge from that inland seaport to Portland, and by rail to Seattle-area ports. The product is sold primarily in Pacific Rim countries, especially in Japan but increasingly in China, where Potlatch has made inroads in recent years.


The company says it is working to enlarge its market position throughout Southeast Asia.EmploymentEmployment at Potlatch has been relatively stable during the past few years, but the company today has far fewer workers than it did in the 1970s, when its operations were much more far-flung and diversified. Sullivan says the company made a conscious decision to return to its core specialties and divest its other interests.


Last week, however, Potlatch announced 40 layoffs at its plants in St. Maries and near Pierce, and said more cuts could be coming at those facilities. Sullivan says the layoffs, which the company hopes will be temporary, were due to operational changes stemming from Potlatchs efforts to manufacture higher-end products at the two plants. He says that if those strategies succeed, Potlatch could bring back those workers.


Meanwhile, Sullivan says that Potlatch, overall, doesnt expect significant changes in employment, and has no current plans to close any operations or establish new ones.


Potlatchs cost-cutting initiatives largely have involved a consolidating of services. For years, says Sullivan, the companys operations were decentralized, meaning that individual mills and plants were pretty much self-sufficient. Now, he says, Potlatch is looking for ways to consolidate some tasks, and thus take advantage of economies of scale. Sullivan says that strategy isnt likely to shift more workers to Potlatchs new Spokane headquarters, though.


Potlatch will employ about 40 people here, 20 of whom already are on the job. The other 20 people are expected to come on board at the companys headquarters early this month. Most of the headquarters staff is being transferred here from Potlatchs former headquarters offices in San Francisco and from its human resources office in Walnut Creek, which also is in the Bay Area. Sullivan says that although the human resources department is being moved to Spokane, a marketing services staff will remain in the Walnut Creek office.


While corporate overhead was one reason Potlatch decided to move to Spokane, the other factor was that the company was having difficulty persuading executives promoted from its manufacturing operations, which generally are in rural settings, to move to San Francisco, which is among the nations most expensive places to live.


The company also believes that Spokane, being more of a mid-sized city, will be more inviting to such managers and executives. It really is a lifestyle issue, Sullivan says.