Canfor Corporation
TSX : CFP

Canfor Corporation

May 04, 2011 22:29 ET

Canfor Reports Results for First Quarter of 2011

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 4, 2011) - Canfor Corporation

(TSX:CFP) today reported net income of $32.3 million for the first quarter of

2011, compared to $55.4 million for the fourth quarter of 2010 and $35.5

million for the first quarter of 2010. The Company's net income attributable

to shareholders ("shareholder net income") for the first quarter of 2011 was

$7.0 million, or $0.05 per share, down from $31.4 million, or $0.22 per share,

for the fourth quarter of 2010 and down from $18.3 million, or $0.13 per

share, reported for the first quarter of 2010.

The Company's results for the first quarter of 2011 are presented in

accordance with International Financial Reporting Standards ("IFRS") for the

first time, and comparative information in 2010 has been restated accordingly.

Full details of the adjustments resulting from the Company's conversion to

IFRS, including reconciliations to amounts previously recorded for 2010

comparative periods under previous Canadian generally accepted accounting

principles, are presented in the Company's interim financial statements for

the first quarter of 2011.

Shareholder net income for the first quarter of 2011 included several items

affecting comparability with prior periods, which had an overall positive

impact of $6.9 million, or $0.05 per share. After adjusting for all items

affecting comparability, the Company effectively broke even in the first

quarter of 2011. Similarly adjusted shareholder net income for the fourth

quarter of 2010 was $13.6 million, or $0.10 per share, and adjusted

shareholder net income for the first quarter of 2010 of $13.1 million, or

$0.09 per share.

Reported EBITDA for the first quarter of 2011 was $72.9 million, down $10.6

million from the fourth quarter of 2010. EBITDA for the lumber segment was

$18.0 million, down $3.7 million from the previous quarter, while EBITDA for

the pulp and paper segment decreased $2.4 million to $64.0 million. Weaker

panels results accounted for the majority of the remaining shortfall.

In the first quarter of 2011, a stagnant U.S. housing sector and severe winter

weather conditions across much of North America weighed heavily on home

construction activity and the Company's ability to deliver lumber to

customers. While the Company's lumber production in the current quarter was up

7%, shipments of lumber were down 3% reflecting the major disruption to

transportation networks caused by the adverse winter conditions. For offshore

markets, lumber demand remained at high levels and continued to support higher

prices for narrower dimensions in North America, with the average benchmark

Western SPF (Spruce/Pine/Fir) 2x4 #2&Btr price up US$27, or 10%, from the

previous quarter. As was the case in the previous quarter, however, these

price increases were not replicated across wider dimensions and all higher

grades. Northern Bleached Softwood Kraft ("NBSK") pulp market conditions

remained favourable in the first quarter, with list prices to North America

and Europe approaching US$1,000 per tonne towards the end of the period. Sales

realizations across all products were negatively impacted by the strengthening

of the Canadian dollar through the quarter.

Lumber unit manufacturing costs were down slightly from the previous quarter

mostly reflecting more operating days (with Christmas shuts taken in the prior

quarter) and productivity gains, which offset increased log costs that

reflected higher diesel and purchased wood costs. Pulp unit manufacturing

costs in the current quarter were also down, mostly as a result of lower whole

log chip costs.

Commenting on the quarter, Canfor's President and CEO, Jim Shepard, said, "We

continue to believe that the road to recovery for the U.S. housing market is

likely to be a long one, but we are clearly seeing the benefits of the work we

have done in developing our Asian markets, particularly China."

Canfor's strategic capital spending focus continued in the quarter. In

addition to further work on the Company's Fort St. John sawmill and planer

rebuild, the Company commenced several new high-return projects which form

part of a three year, $300 million capital investment program for its lumber

operations. "We are very pleased with the progress being made on our Fort St.

John rebuild, which remains on schedule for completion in the second quarter,"

commented Shepard.

Despite a projected seasonal uplift in home construction and repair and

renovation activity over the remaining spring months, the U.S. housing market

is not forecast to show any significant recovery through the balance of the

year given the current high levels of mortgage delinquencies, home

foreclosures and home inventories. The Canadian housing market, although flat

in the first quarter, is forecast to show moderate improvement in the second

quarter. The strength of demand from China is projected to continue through

the balance of the year, while the near-term outlook for Japan is more

uncertain in the aftermath of the devastating earthquake and tsunami in March.

The global softwood pulp market is forecast to remain tight through the second

quarter of 2011 as demand remains solid with continued strong shipments to

China. In addition, annual maintenance downtime coupled with extended outages

in Canada due to several large capital projects funded under the Canadian

Federal Government Green Transformation Program, are projected to curtail

supply.

"The past four years have shown that Canfor has the strength to endure the

worst markets in many decades. That's why I can confidently say that Canfor is

ready to take advantage of the opportunities and respond to the challenges

that lie ahead," said Shepard, who will retire at the Company's annual general

meeting later today. "I am very confident that this Company will continue to

prosper under the very able direction of the incoming President and CEO, Don

Kayne, and the management team. The future of Canfor is in very capable

hands."

Additional Information and Conference Call

A conference call to discuss the first quarter's financial and operating

results will be held on Friday, May 6, 2011 at 8:00 AM Pacific time. To

participate in the call, please dial 416-340-8530 or Toll-Free 877-240-9772.

For instant replay access until May 31, 2011, please dial 905-694-9451 or 800-

408-3053 and enter participant pass code 5672504#. The conference call will be

webcast live and will be available at www.canfor.com. This news release, the

attached financial statements and a presentation used during the conference

call can be accessed via the Company's website at

http://www.canfor.ca/investors/webcasts.asp.

Forward Looking Statements

Certain statements in this press release constitute "forward-looking

statements" which involve known and unknown risks, uncertainties and other

factors that may cause actual results to be materially different from any

future results, performance or achievements expressed or implied by such

statements. Words such as "expects", "anticipates", "projects", "intends",

"plans", "will", "believes", "seeks", "estimates", "should", "may", "could",

and variations of such words and similar expressions are intended to identify

such forward-looking statements. These statements are based on management's

current expectations and beliefs and actual events or results may differ

materially. There are many factors that could cause such actual events or

results expressed or implied by such forward-looking statements to differ

materially from any future results expressed or implied by such statements.

Forward-looking statements are based on current expectations and the Company

assumes no obligation to update such information to reflect later events or

developments, except as required by law.

Canfor is a leading integrated forest products company based in Vancouver,

British Columbia (BC) with interests in BC, Alberta, Quebec, Washington state,

and North and South Carolina. The Company produces primarily softwood lumber

and also produces oriented strand board (OSB), remanufactured lumber products

and specialized wood products. Canfor also owns a 50.2% interest in Canfor

Pulp Limited Partnership, which is one of the largest producers of northern

softwood kraft pulp in Canada and a leading producer of high performance kraft

paper. Canfor shares are traded on the Toronto Stock Exchange under the symbol

CFP.

Canfor Corporation

First Quarter 2011

Management's Discussion and Analysis

This interim Management's Discussion and Analysis ("MD&A") provides a review

of Canfor Corporation's ("Canfor" or "the Company") financial performance for

the quarter ended March 31, 2011 relative to the quarters ended December 31,

2010 and March 31, 2010, and the financial position of the Company at March

31, 2011. It should be read in conjunction with Canfor's unaudited interim

consolidated financial statements and accompanying notes for the quarters

ended March 31, 2011 and 2010, as well as the 2010 annual MD&A and the 2010

audited consolidated financial statements and notes thereto, which are

included in Canfor's Annual Report for the year ended December 31, 2010

(available at www.canfor.com). The financial information in this interim MD&A

has been prepared in accordance with International Financial Reporting

Standards ("IFRS"), which as of January 1, 2011 is the required reporting

framework for Canadian publicly accountable enterprises.

Throughout this discussion, reference is made to EBITDA (calculated as

operating income before amortization) which Canfor considers to be a relevant

indicator for measuring trends in the performance of each of its operating

segments and the Company's ability to generate funds to meet its debt

repayment and capital expenditure requirements. Reference is also made to

Adjusted Shareholder Net Income (Loss) (calculated as Shareholder Net income

(loss) less specific items affecting comparability with prior periods - for

the full calculation, see reconciliation included in the section "Analysis of

Specific Items Affecting Comparability of Shareholder Net Income") and

Adjusted Shareholder Net Income (Loss) per Share (calculated as Adjusted

Shareholder Net Income (Loss) divided by the weighted average number of shares

outstanding during the period). EBITDA, Adjusted Shareholder Net Income (Loss)

and Adjusted Shareholder Net Income (Loss) per Share are not generally

accepted earnings measures and should not be considered as an alternative to

net income or cash flows as determined in accordance with IFRS. As there is no

standardized method of calculating these measures, Canfor's EBITDA, Adjusted

Shareholder Net Income (Loss) and Adjusted Shareholder Net Income (Loss) per

Share may not be directly comparable with similarly titled measures used by

other companies. Reconciliations of EBITDA and Adjusted Shareholder Net Income

(Loss) to net income (loss) reported in accordance with IFRS are included in

this MD&A.

Factors that could impact future operations are also discussed. These factors

may be influenced by both known and unknown risks and uncertainties that could

cause the actual results to be materially different from those stated in this

discussion. Factors that could have a material impact on any future oriented

statements made herein include, but are not limited to: general economic,

market and business conditions; product selling prices; raw material and

operating costs; currency exchange rates; interest rates; changes in law and

public policy; the outcome of labour and trade disputes; and opportunities

available to or pursued by Canfor.

2010 prior period comparative financial information throughout this report has

been restated, and is shown in accordance with IFRS. All financial references

are in millions of Canadian dollars unless otherwise noted. The information in

this report is as at May 4, 2011.

Forward Looking Statements

Certain statements in this MD&A constitute "forward-looking statements" which

involve known and unknown risks, uncertainties and other factors that may

cause actual results to be materially different from any future results,

performance or achievements expressed or implied by such statements. Words

such as "expects", "anticipates", "projects", "intends", "plans", "will",

"believes", "seeks", "estimates", "should", "may", "could", and variations of

such words and similar expressions are intended to identify such forward-

looking statements. These statements are based on management's current

expectations and beliefs and actual events or results may differ materially.

There are many factors that could cause such actual events or results

expressed or implied by such forward-looking statements to differ materially

from any future results expressed or implied by such statements. Forward-

looking statements are based on current expectations and the Company assumes

no obligation to update such information to reflect later events or

developments, except as required by law.

FIRST QUARTER 2011 EARNINGS OVERVIEW
Selected Financial Information and Statistics(1)
                                                         Q1      Q4      Q1
(millions of dollars, except for per share amounts)    2011    2010    2010
----------------------------------------------------------------------------
Sales                                               $ 624.0 $ 629.1 $ 577.9
EBITDA                                              $  72.9 $  83.5 $  85.7
Operating income                                    $  31.4 $  41.7 $  43.9
Foreign exchange gain on long-term debt and         $   4.7 $   9.8 $   8.8
 investments, net
Gain (loss) on derivative financial instruments(2)  $   4.7 $   1.8 $  (1.2)
Net income                                          $  32.3 $  55.4 $  35.5
Net income attributable to equity shareholders of   $   7.0 $  31.4 $  18.3
 Company
Net income per share attributable to equity         $  0.05 $  0.22 $  0.13
 shareholders of Company, basic and diluted
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average exchange rate (US$/CDN$)(3)                 $ 1.014 $ 0.987 $ 0.961
----------------------------------------------------------------------------
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(1) Prior period amounts have been restated, and are shown in accordance
with International Financial Reporting Standards ("IFRS").
(2) Includes gains (losses) from natural gas, diesel, foreign exchange and
lumber future derivative financial instruments (see "Unallocated and Other"
section for more details).
(3) Source - Bank of Canada (average noon rate for the period).

The Company's shareholder net income and adjusted shareholder net income,

together with the related adjustments, are detailed in the table below:

Analysis of Specific Items Affecting Comparability of Shareholder Net
 Income
After-tax impact, net of non-controlling
 interests
(millions of dollars, except for per share             Q1       Q4       Q1
 amounts)                                            2011     2010     2010
----------------------------------------------------------------------------
Shareholder Net Income                            $   7.0  $  31.4  $  18.3
Foreign exchange gain on long-term debt and
 investments, net                                 $  (3.0) $  (6.9) $  (6.2)
(Gain) loss on derivative financial instruments   $  (2.9) $  (0.5) $   1.0
Gain on sale of operating assets of Howe Sound    $     -  $  (4.9)  $     -
 Pulp and Paper Limited Partnership
Increase in fair value of asset-backed commercial
 paper                                            $  (1.0) $  (5.5) $     -
----------------------------------------------------------------------------
Net impact of above items                         $  (6.9) $ (17.8) $  (5.2)
----------------------------------------------------------------------------
Adjusted Shareholder Net Income                   $   0.1  $  13.6  $  13.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholder net income per share (EPS), as        $  0.05  $  0.22  $  0.13
 reported
Net impact of above items per share               $ (0.05) $ (0.12) $ (0.04)
----------------------------------------------------------------------------
Adjusted Shareholder Net Income per share         $  0.00  $  0.10  $  0.09
----------------------------------------------------------------------------
----------------------------------------------------------------------------

EBITDA

The following table reconciles the Company's net income, as reported in

accordance with IFRS, to EBITDA:

                                                       Q1       Q4       Q1
(millions of dollars)                                2011     2010     2010
----------------------------------------------------------------------------
Net income, as reported                           $  32.3  $  55.4  $  35.5
Add (subtract):
Amortization                                      $  41.5  $  41.8  $  41.8
Finance expense, net                              $   6.3  $   6.6  $   7.7
Foreign exchange gain on long-term debt and
 investments, net                                 $  (4.7) $  (9.8) $  (8.8)
(Gain) loss on derivative financial instruments   $  (4.7) $  (1.8) $   1.2
Other expense (income)                            $  (1.7) $ (11.0) $   2.9
Income tax expense                                $   0.5  $   2.3  $   5.4
----------------------------------------------------------------------------
EBITDA, as reported                               $  72.9  $  83.5  $  85.7
Included in above:
Negative (positive) impact of inventory valuation
 adjustments(4)                                   $   2.9  $  (0.1) $ (23.0)
----------------------------------------------------------------------------
EBITDA excluding impact of inventory valuation
 adjustments                                      $  75.8  $  83.4  $  62.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(4) In accordance with IFRS, Canfor records its log and finished product
inventories at the lower of cost and net realizable value ("NRV").
Significant movements in inventory volumes occur due to the seasonal build
and drawdown of logs in the first and second quarters each year,
respectively. In periods where market prices are depressed and NRVs are
below cost, this movement in log inventory volumes can result in large
swings in inventory write-down amounts recorded in those periods. In
addition, changes in market prices, foreign exchange rates, and costs over
the respective reporting periods affect inventory write-downs.

Reported EBITDA for the first quarter of 2011 was $72.9 million, down $10.6

million from the fourth quarter of 2010. EBITDA for the lumber segment was

$18.0 million, down $3.7 million from the previous quarter, while EBITDA for

the pulp and paper segment decreased $2.4 million to $64.0 million. Weaker

panels results accounted for the majority of the remaining shortfall.

In the first quarter of 2011, a stagnant U.S. housing sector and severe winter

weather conditions across much of North America weighed heavily on home

construction activity and the Company's ability to deliver lumber to

customers. While the Company's lumber production in the current quarter was up

7%, shipments of lumber were down 3% reflecting the major disruption to

transportation networks caused by the adverse winter conditions. For offshore

markets, lumber demand remained at high levels and continued to support higher

prices for narrower dimensions in North America, with the average benchmark

Western SPF (Spruce/Pine/Fir) 2x4 #2&Btr price up US$27, or 10%, from the

previous quarter. As was the case in the previous quarter, however, these

price increases were not replicated across wider dimensions and all higher

grades. Northern Bleached Softwood Kraft ("NBSK") pulp market conditions

remained favourable in the first quarter, with list prices to North America

and Europe approaching US$1,000 per tonne towards the end of the period. Sales

realizations across all products were negatively impacted by the strengthening

of the Canadian dollar through the quarter.

Lumber unit manufacturing costs were down slightly from the previous quarter

mostly reflecting more operating days (with Christmas shuts taken in the prior

quarter) and productivity gains, which offset increased log costs that

reflected higher diesel and purchased wood costs. Pulp unit manufacturing

costs in the current quarter were also down, mostly as a result of lower whole

log chip costs.

Compared to the first quarter of 2010, EBITDA was down $12.8 million, but

excluding the impact of inventory valuation adjustments, which were

significant in the 2010 comparative period, EBITDA was up $13.1 million. The

improved results compared to the first quarter of 2010 reflect improved sales

realizations for Western SPF lumber and NBSK pulp products, offset in part by

weaker southern yellow pine ("SYP") lumber and bleached chemi-thermo

mechanical pulp ("BCTMP") sales realizations, as well as higher fibre costs.

OPERATING RESULTS BY BUSINESS SEGMENT

Lumber

Selected Financial Information and Statistics - Lumber
                                                       Q1       Q4       Q1
(millions of dollars unless otherwise noted)         2011     2010     2010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales                                             $ 328.6  $ 318.0  $ 292.0
Operating income (loss)                           $  (2.3) $   0.7  $  15.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
EBITDA, as reported                               $  18.0  $  21.7  $  36.3
Negative (positive) impact of inventory valuation
 adjustments                                      $   0.1  $  (0.7) $ (22.4)
----------------------------------------------------------------------------
EBITDA excluding impact of inventory valuation
 adjustments                                      $  18.1  $  21.0  $  13.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Average SPF 2x4 #2&Btr lumber price in US$(5)     $   296  $   269  $   268
Average SPF price in Cdn$                         $   292  $   273  $   279
Average SYP 2x4 #2 lumber price in US$(6)         $   302  $   256  $   329
Average SYP price in Cdn$                         $   298  $   259  $   342
----------------------------------------------------------------------------
U.S. housing starts (million units SAAR) (6)        0.563    0.534    0.617
----------------------------------------------------------------------------
Production - SPF lumber (MMfbm)                     772.3    725.1    696.0
Production - SYP lumber (MMfbm)                      94.8     82.9     85.0
Shipments - SPF lumber (MMfbm)(8)                   715.3    760.1    672.7
Shipments - SYP lumber (MMfbm)(8)                    90.9     93.4     85.6
Shipments - wholesale lumber (MMfbm)                 59.2     41.6     38.8
----------------------------------------------------------------------------
(5) Western Spruce/Pine/Fir, per thousand board feet (Source - Random
Lengths Publications, Inc.)
(6) Southern Yellow Pine, Eastside, per thousand board feet (Source - Random
Lengths Publications, Inc.)
(7) Source - U.S. Census Bureau, seasonally adjusted annual rate ("SAAR")
(8) Canfor-produced lumber, including lumber purchased for remanufacture.

Overview

Reported EBITDA for the lumber segment was $18.0 million for the first quarter

of 2011, down $3.7 million from the fourth quarter of 2010. Total shipments of

Canfor-produced lumber of 806 million board feet for the first quarter were

down 6% from the previous quarter as severe winter weather conditions across

much of North America disrupted home construction activity and transportation

networks, adding to the existing challenges presented by the continued weak

U.S. housing sector. Revenues in the lumber segment were up $10.6 million from

the previous quarter, with lower sales of Canfor-produced lumber being more

than offset by higher wholesale lumber and log sales.

Benchmark 2x4 prices for Western SPF and SYP lumber saw solid increases during

the quarter. However, as in the previous quarter, these price movements were

not matched across most other grades and dimensions in North America and in

offshore markets, where prices in some cases rose by no more than a few

dollars. In addition, price increases were partially offset by the stronger

Canadian dollar and higher freight costs. Unit lumber conversion costs were

down from the previous quarter and helped to offset increased log costs.

Compared to the first quarter of 2010, reported EBITDA for the lumber segment

was down $18.3 million but results for the first quarter of 2010 were

positively impacted by an inventory valuation adjustment related to increasing

market prices in that quarter. Excluding the impact of the inventory valuation

adjustment, EBITDA in the first quarter of 2011 was up $4.2 million. Improved

sales realizations for most Western SPF products, particularly to offshore

markets, and higher shipment levels more than offset weaker SYP prices and

higher log costs.

Markets

The underlying structural challenges affecting the U.S. housing market, as

evidenced by elevated housing inventory levels, high foreclosure rates and

falling home prices, continued to overshadow the lumber market during the

first quarter of 2011. In addition, the adverse weather conditions delayed the

delivery of finished lumber products to market and adversely impacted new home

construction. As a result, U.S housing starts in February fell to one of the

lowest levels on record, at 512,000 units(9) (seasonally adjusted annual rate

- SAAR) before recording a 7% increase in March.

For the first quarter as a whole, U.S housing starts averaged 563,000 units

SAAR, an increase of 5% from the previous quarter. Single family starts, which

consume a higher proportion of lumber, were 415,000 units SAAR, down 5%

compared to the previous quarter, while multi-family starts were up 50% at

148,000 units SAAR. Compared to the same quarter last year, total housing

starts were 9% lower, with single family starts down 21% and multi-family

starts up almost 60%.

In Canada, lumber consumption eased in the first quarter of 2011, resulting

from a seasonal slowdown and concern over housing affordability in some

regions. Housing starts averaged 178,000 units SAAR(10), comparable with the

previous quarter, and down 17,000, or 9%, compared to the first quarter of

2010.

Canfor's offshore lumber shipments remained at high levels, but were down

slightly from the record setting performance from the previous quarter, mostly

as a result of transportation constraints. Strong lumber demand from Asia saw

a 50% rise in Canfor's offshore shipments from the same quarter of 2010. China

continued to lead all offshore shipment volumes.

(9) U.S. Census Bureau

(10) CMHC - Canada Mortgage and Housing Corporation

Sales

Sales for the lumber segment in the first quarter of 2011 were $328.6 million,

up $10.6 million, or 3%, from the previous quarter, and up $36.6 million, or

13%, compared to the first quarter of 2010.

Total shipments for the first quarter of 2011 were 865 million board feet,

down 3% compared to the previous quarter, largely reflecting the impact of the

severe winter weather conditions. Shipments to China represented 23% of total

shipments, down slightly from 26% in the previous quarter. Compared to the

first quarter of 2010, total shipment levels were up 9%, mostly reflecting the

increased China demand, a significant amount of which has been supplied from

the Company's Quesnel mill which re-opened in June 2010 after a five month

curtailment.

Despite the struggling U.S. housing sector, the continued strong demand for

2x4 lumber product from China supported higher 2x4 prices in the quarter. The

benchmark Random Lengths Western SPF 2x4 #2&Btr price averaged US$296 per

Mfbm, up 10% from the fourth quarter of 2010. However, this level of increase

was not seen across all other dimensions, as evidenced by the 2x6, 2x8 and

2x10 benchmark prices which moved up 5%, 1% and 4% respectively. For SYP, the

benchmark 2x4 price was up 18% to US$302 per Mfbm but this was more than

double price increases for most wider dimensions. Overall, offshore prices saw

modest increases compared to the previous quarter, with improved market

pricing more than offsetting the impact of the stronger Canadian dollar.

Rising freight costs for all markets, reflecting tight truck availability and

higher diesel costs, also eroded some of the market price gains.

Compared to the first quarter of 2010, price movements were mixed, with

narrower Western SPF dimensions seeing moderate gains while wider Western SPF

and all SYP dimensions saw price declines. Overall, sales realizations for

Western SPF products in North America showed a modest increase, but more

substantial increases were seen in offshore markets despite a stronger

Canadian dollar. Increased freight costs also offset some of the pricing

gains.

The average value of the Canadian dollar compared to the US dollar in the

first quarter was up 2.7 cents, or 3%, from the previous quarter, and up 5.3

cents, or 6% compared to the first quarter of 2010, offsetting some of the

improvements in US dollar pricing for SPF lumber products.

The Random Lengths Framing Lumber Composite price averaged US$297 per Mfbm for

the first quarter of 2011, up US$26, or 10%, compared to the previous quarter,

but was still below the trigger price of US$315 required to reduce the export

tax rate on all U.S. bound shipments below the current rate of 15%.

Total residual fibre revenue was up compared to the previous quarter

reflecting higher production volumes in the quarter, offset in part by lower

sawmill chip prices, partially related to a modest decline in pulp sales

realizations. Compared to the first quarter of 2010, residual fibre revenue

was up reflecting higher sawmill residual chip prices linked to higher average

NBSK pulp prices, as well as higher operating rates.

Operations

The Company's lumber production was 867 million board feet for the quarter, or

72% of capacity, up 7% from the fourth quarter of 2010. The increase reflected

the Christmas downtime taken at most mills in the previous quarter, offset in

part by the permanent closure of the Clear Lake sawmill in January 2011.

Compared to the first quarter of 2010, production was up 86 million board

feet, or 11%, mostly reflecting market curtailment taken at the Chetwynd and

Quesnel sawmills in the first quarter of 2010, offset in part by the Clear

Lake closure in the current quarter. The Company's Mackenzie sawmill also

moved from one to two shifts during the first quarter of 2010.

Overall, the Company's lumber unit manufacturing costs were down marginally

from the previous quarter, with decreases in unit cash conversion costs more

than offsetting increases in unit log costs. The improvement in unit cash

conversion costs principally reflected the higher number of operating days and

increased productivity, as well as the closure of the higher-cost Clear Lake

sawmill. Increased log costs reflected higher diesel costs and increased

competition for purchased wood.

Compared to the first quarter of 2010, unit manufacturing costs were up 2%,

mostly as a result of higher logging and hauling costs, in part driven by the

sharp rise in diesel costs as well as increased purchased wood prices.

Restructuring, mill closure and severance costs in the current quarter were

$1.5 million, similar to those for the previous quarter, and $2.7 million

lower than the first quarter of 2010 when the Quesnel and Chetwynd mills were

also curtailed.

In the first quarter of 2010 the Company recorded a $22.4 million recovery of

previously recorded write-downs, resulting from the improved market prices in

the first quarter of 2010 compared to the end of 2009. Inventory valuation

adjustments were minimal in the current period.

Pulp and Paper

Selected Financial Information and Statistics - Pulp and Paper(11)
                                                          Q1      Q4      Q1
(millions of dollars unless otherwise noted)            2011    2010    2010
----------------------------------------------------------------------------
Sales                                                $ 283.0 $ 300.8 $ 269.7
Operating income                                     $  47.2 $  50.0 $  34.4
EBITDA                                               $  64.0 $  66.4 $  51.0
----------------------------------------------------------------------------
Average pulp price delivered to U.S. - US$(12)       $   970 $   967 $   880
Average price in Cdn$                                $   957 $   980 $   916
----------------------------------------------------------------------------
Production - pulp (000 mt)                             316.9   320.6   307.1
Production - paper (000 mt)                             34.5    34.7    31.0
Shipments - Canfor-produced pulp (000 mt)              318.4   331.1   315.6
  Pulp marketed on behalf of HSLP (000 mt)(13)             -       -    91.5
Shipments - paper (000 mt)                              32.6    39.0    37.7
----------------------------------------------------------------------------
(11) Includes the Taylor pulp mill and 100% of Canfor Pulp Limited
Partnership ("CPLP"), which is consolidated in Canfor's results. Pulp
production and shipment volumes presented are for both northern bleached
softwood kraft ("NBSK") and bleached chemi-thermo mechanical pulp ("BCTMP").
(12) Per tonne, NBSK pulp list price delivered to U.S. (Resource Information
Systems, Inc.).
(13) Howe Sound Pulp and Paper Limited Partnership pulp mill.

Overview

EBITDA for the pulp and paper segment for the first quarter of 2011 was $64.0

million, slightly less than EBITDA of $66.4 million reported for the previous

quarter. US dollar pulp market prices remained in line with the previous

quarter, but the stronger Canadian dollar led to lower sales realizations.

Lower pulp shipments and higher chemical costs also contributed to the

decrease in EBITDA but were offset by lower fibre costs and reduced operating

costs. Investment tax credits totalling $3.4 million were also recorded in the

fourth quarter of 2010.

Compared to the first quarter of 2010, EBITDA was up $13.0 million principally

as a result of higher NBSK pulp US dollar prices, partially offset by lower

BCTMP market prices and the stronger Canadian dollar, as well as higher fibre

and chemical costs. The increase in fibre costs reflected higher prices paid

for sawmill residual chips, partially offset by reduced whole log chip costs.

Markets

Global softwood pulp demand remained very strong in the first quarter of 2011

with record shipments in March 2011 led by demand from China. According to the

World 20 report(14), global bleached softwood pulp shipments for March were

20% higher when compared to the same period in 2010 and for the first quarter

in 2011 were 10% higher than in the same period in 2010. PPPC(15) statistics

reported an increase in global demand for printing and writing papers of 1%

for February 2011 year-to-date as compared to the same period in 2010.

Global softwood producer inventories remained tight as the strong global

shipments in the first quarter of 2011 were partially offset by seasonally

strong supply. At the end of March 2011, World 20 producers of bleached

softwood pulp inventories were at 24 days of supply, a drop of one day from

December 2010. Market conditions are generally considered balanced when

inventories fall in the 27-30 days of supply range.

(14)World 20 data is based on twenty producing countries representing 80% of

world chemical market pulp capacity and is based on information compiled and

prepared by the PPPC.

(15)Pulp and Paper Products Council ("PPPC").

Sales

Shipments of Canfor-produced pulp in the first quarter of 2011 were 318,000

tonnes, down 13,000 tonnes, or 4%, from the previous quarter. Shipments were

up marginally compared to the first quarter of 2010.

NBSK markets remained tight in the first quarter of 2011, with prices

increasing towards the end of the quarter. U.S. and Europe NBSK pulp list

prices averaged US$970 and US$960 per tonne, respectively, up slightly from

the previous quarter. CPLP's NBSK pulp list prices to China showed solid

gains, moving up US$37 to US$870 per tonne. The stronger Canadian dollar,

however, more than offset these gains, resulting in lower sales realizations.

BCTMP realizations were also down compared to the fourth quarter of 2010, with

flat US dollar pricing and the stronger Canadian dollar.

Compared to the first quarter of 2010, NBSK pulp list prices to the U.S. were

up US$90 per tonne, or 10%, reflecting the overall improvement in the markets

over the year. However, a 6% increase in the value of the Canadian dollar

reduced the net benefit of this increase for Canadian producers to

approximately $40 per tonne. Prices to Europe and China were up US$100 per

tonne and US$120 per tonne, respectively.

Operations

Pulp production in the first quarter of 2011 was 317,000 tonnes, down

marginally from the previous quarter and up 3% from the first quarter of 2010.

The increase compared to the first quarter of 2010 largely related to a

maintenance outage at the Prince George pulp mill which extended into the

comparative period.

Unit manufacturing costs were down in the first quarter of 2011 compared to

the fourth quarter of 2010. Lower fibre costs and reduced spending on

operating supplies and services contributed to the lower unit costs. The

reduced fibre costs were largely attributable to lower prices paid for whole

log and sawmill residual chips. Higher chemical prices offset some of these

improvements. In addition, non-manufacturing costs in the previous quarter

reflected increased short-term incentive compensation costs and expenses

related to the conversion of Canfor Pulp Income Fund to a corporation (Canfor

Pulp Products Inc.) on January 1, 2011.

Unit manufacturing costs were up slightly from the first quarter of 2010 with

increased fibre and chemical costs offsetting the impact of higher production

volumes. The increase in fibre costs reflected higher prices for sawmill

residual chips, for the most part due to higher NBSK pulp prices, partially

offset by reductions in the cost and volume of whole log chips.

Unallocated and Other Items
                                                       Q1       Q4       Q1
(millions of dollars)                                2011     2010     2010
----------------------------------------------------------------------------
Operating loss of Panels operations(16)           $  (5.7) $  (2.8) $  (0.5)
Corporate costs                                   $  (7.8) $  (6.2) $  (5.8)
Finance expense, net                              $  (6.3) $  (6.6) $  (7.7)
Foreign exchange gain on long-term debt and
 investments, net                                 $   4.7  $   9.8  $   8.8
Gain (loss) on derivative financial instruments   $   4.7  $   1.8  $  (1.2)
Other income (expense), net                       $  (1.7) $  11.0  $  (2.9)
----------------------------------------------------------------------------
(16) The Panels operations include the Peace Valley OSB (Oriented Strand
Board) joint venture, the only facility currently operating, and the
Company's Tackama plywood and PolarBoard OSB plants, both of which are
currently indefinitely idled.

The panels operations reported an operating loss of $5.7 million for the first

quarter, compared to a loss of $2.8 million for the previous quarter. The

first quarter results included a $2.0 million expense for inventory valuation

adjustments, reflecting continued low market prices for OSB product and the

seasonal build up of log inventories in advance of spring break up. Excluding

the impact of inventory valuation adjustments, as well as certain non-

recurring items in the previous quarter, the operating loss for the first

quarter was down $0.9 million reflecting improved sales realizations and lower

conversion costs in the period. The higher loss compared to the first quarter

of 2010 reflected weaker prices and the stronger Canadian dollar, as well as

the inventory devaluation adjustment in the current quarter.

Corporate costs were $7.8 million in the first quarter of 2011, up $1.6

million from the previous quarter and $2.0 million from the first quarter of

2010. The increased costs compared to both periods primarily reflected higher

share-based compensation and short-term incentive compensation costs recorded

in the current quarter, as well as a non-recurring pension credit adjustment

in the fourth quarter of 2010.

Net finance expense of $6.3 million for the first quarter of 2011 was down

slightly from the previous quarter, and down $1.4 million from the first

quarter of 2010, largely as a result of lower long-term debt balances and the

positive impact from the stronger Canadian dollar.

The Company recorded a foreign exchange translation gain on its US dollar

denominated debt, net of investments, of $4.7 million for the first quarter of

2011 as a result of a 2% increase in the value of the Canadian dollar against

the US dollar at the respective quarter ends. This gain was lower than gains

recorded in both comparable periods, which saw the Canadian dollar strengthen

further against its U.S. counterpart.

The Company uses a variety of derivative financial instruments as partial

economic hedges against unfavourable changes in natural gas and diesel costs,

foreign exchange rates and lumber prices. For the first quarter of 2011, the

Company recorded a net gain of $4.7 million on its derivative instruments,

principally reflecting gains attributable to the stronger Canadian dollar and

higher market diesel prices, as well as gains on lumber futures due to falling

market prices. The following table summarizes the gains (losses) on derivative

financial instruments for the comparable periods.

                                                       Q1       Q4       Q1
(millions of dollars)                                2011     2010     2010
----------------------------------------------------------------------------
Foreign exchange collars and forward contracts    $   1.9  $   3.3  $   5.8
Natural gas swaps                                 $  (0.1) $     -  $  (3.7)
Diesel options and swaps                          $   1.0  $   0.6  $   0.4
Lumber futures                                    $   1.9  $  (2.1) $  (3.7)
----------------------------------------------------------------------------
                                                  $   4.7  $   1.8  $  (1.2)
----------------------------------------------------------------------------

Other expense, net of $1.7 million for the first quarter of 2011 included a

net foreign exchange loss of $2.5 million on working capital balances,

compared to $3.7 million in the previous quarter and $2.8 million in the first

quarter of 2010. This expense was partially offset in the current quarter by a

$1.1 million increase in the fair value of the Company's investment in asset-

backed commercial paper ("ABCP"). Other income in the fourth quarter of 2010

included $6.3 million in relation to the ABCP and a $5.5 million gain on the

sale of the operating assets of Howe Sound Pulp and Paper Limited Partnership.

SUMMARY OF FINANCIAL POSITION

The following table summarizes Canfor's cash flow and selected ratios for and

as at the end of the following periods:

                                                  Q1          Q4         Q1
(millions of dollars)                           2011        2010       2010
----------------------------------------------------------------------------
Increase (decrease) in cash and cash
 equivalents                               $   (87.8)  $    37.2  $   (39.3)
  Operating activities                     $    (5.7)  $   100.7  $    27.8
  Financing activities                     $   (75.0)  $   (37.1) $   (52.6)
  Investing activities                     $    (6.8)  $   (25.9) $   (14.3)
Ratio of current assets to current
 liabilities                                 2.0 : 1     2.0 : 1    2.4 : 1
Net debt to capitalization                       6.6%        3.8%      13.8%
ROCE - Consolidated(17)                          0.9%        2.3%       1.6%
ROCE - Canfor solid wood business(18)           (0.3)%       1.3%       1.0%
----------------------------------------------------------------------------
(17) Consolidated Return on Capital Employed ("ROCE") is equal to
shareholder net income for the period plus finance expense, after tax,
divided by the average capital employed during the period. Capital employed
consists of current bank loans, current portion of long-term debt,
long-term debt and shareholders' equity, less cash and cash equivalents and
temporary investments.
(18) ROCE for the Canfor solid wood business represents consolidated ROCE
adjusted to remove the results and capital employed of the Company's
interest in the Peace Valley OSB Joint Venture and pulp and paper
operations, including CPLP and the Taylor pulp mill.

Changes in Financial Position

Operating activities used cash of $5.7 million in the first quarter of 2011,

compared to cash generated of $100.7 million in the previous quarter. The

variance resulted principally from working capital movements, most

significantly the Company's seasonal build of log inventory ahead of spring

break-up. Working capital movements in the prior quarter also included cash

received in relation to the sale of the operating assets of Howe Sound Pulp

and Paper Limited Partnership. Cash generated from operating activities in the

first quarter of 2010 included $28.7 million of income taxes received, which

related to tax loss carry-backs.

Financing activities used cash of $75.0 million in the first quarter of 2011,

compared to $37.1 million in the previous quarter and $52.6 million in the

first quarter of 2010. The current quarter's outflows included the repayment

of long-term debt of $33.8 million (Q4 2010: $1.4 million; Q1 2010: $33.7

million) and cash distributions to non-controlling interests of $38.0 million

(Q4 2010: $28.2 million; Q1 2010: $11.2 million). Interest payments of $3.5

million in the current quarter were down by just under $4.5 million from both

the fourth and first quarters of 2010, reflecting lower debt levels and timing

of payments.

Investing activities used $6.8 million in the first quarter of 2011, compared

to $25.9 million in the previous quarter and $14.3 million in the first

quarter of 2010. The Company received cash of $29.7 million from the

redemption of certain ABCP in the current quarter. Cash used for capital

additions was $48.9 million in the current quarter, slightly higher than the

previous quarter, and included further work on the Company's Fort St. John

sawmill and planer rebuild, and various other lumber mill upgrade projects,

including new energy systems at the Prince George and Plateau sawmill

operations.

Capital expenditures at CPLP principally reflected projects relating to the

government funded Green Transformation Program (the "Program"). CPLP received

cash of $9.6 million in the first quarter as reimbursement for capital

additions under the Program, compared to $19.1 million in the previous

quarter. CPLP has received Program approval to proceed with four projects

totaling $157.4 million, of which $122.2 million will be funded under the

Program. As of March 31, 2011 CPLP had incurred $55.8 million and received

reimbursements totaling $29.8 million, with the majority of the outstanding

balance expected to be received during the second quarter.

Liquidity and Financial Requirements

At March 31, 2011, the Company on a consolidated basis had cash and cash

equivalents of $172.5 million and $446.7 million of bank operating lines of

credit, which were undrawn, with $30.8 million reserved for several standby

letters of credit. Included in these operating lines is a $30 million bridge

loan credit facility negotiated in the period by CPLP to temporarily fund

capital projects that are being reimbursed by the Program. The Company and

CPLP remained in compliance with the covenants relating to its operating lines

of credit and long-term debt during the quarter, and expect to remain so for

the foreseeable future.

The Company's consolidated net debt to total capitalization at the end of the

first quarter of 2011 was 6.6%.

Scheduled debt repayments in the second quarter of 2011 include US$50.0

million, which was paid on April 1. There are no further long-term debt

repayments due over the balance of 2011.

Softwood Lumber Agreement ("SLA") Update

On January 18, 2011, the U.S. triggered the arbitration provision of the 2006

SLA by delivering a Request for Arbitration. The U.S. claims that BC has not

properly applied the timber pricing system grandparented in the SLA. The U.S.

also claims that subsequent to 2006, BC made additional changes to the timber

pricing system which had the effect of reducing timber prices. The claim

focuses on substantial increases in Grade 4 (non sawlog or low grade) volumes

commencing in 2007. It is alleged that timber was scaled and graded as Grade 4

that did not meet the criteria for that grade, and was accordingly priced too

low.

As the arbitration is a state-to-state international dispute under the SLA,

Canada is preparing a defence to the claim with the assistance of the BC

provincial government and the BC lumber industry. To date, the U.S. has not

filed a detailed statement of claim with the arbitration panel. It is not

possible at this time to predict the outcome or the value of the claim, and

accordingly no provision has been recorded by the Company.

OUTLOOK

Lumber

Despite a projected seasonal uplift in home construction and repair and

renovation activity over the remaining spring months, the U.S. housing market

is not forecast to show any significant recovery through the balance of the

year given the current high levels of mortgage delinquencies, home

foreclosures and home inventories. The Canadian housing market, although flat

in the first quarter, is forecast to show moderate improvement in the second

quarter.

The strength of China demand is projected to continue through the balance of

the year, and should help to support higher North American 2x4 SPF prices. The

Company's sales volumes to China are forecast to surpass the record shipment

levels in 2010 as the two primary segments, remanufacturing and concrete

forming, remain strong. In addition, further development of the wood frame

construction market is anticipated to lead to increased use of higher grade

lumber.

After the tragic earthquake and tsunami, the Japanese market near-term outlook

is more uncertain as the country focuses on clean-up efforts and providing

temporary shelter to its citizens. The rebuilding of the devastated areas is

projected to lead to increased Western SPF lumber demand in time, but this is

currently not anticipated to begin for at least 12 months.

Pulp and Paper

The global softwood pulp market is forecast to remain tight through the second

quarter of 2011. A price increase of US$30 per tonne was announced for all

markets effective April 1, 2011. Demand remains solid with continued strong

shipments to China. In the second quarter of 2011, annual maintenance downtime

coupled with extended outages in Canada due to several large capital projects

funded under the Canadian Federal Government Green Transformation Program, are

projected to curtail supply.

OUTSTANDING SHARES

At May 4, 2011, there were 142,705,764 common shares outstanding.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with International

Financial Reporting Standards requires management to make estimates and

assumptions that affect the amounts recorded in the financial statements. On

an ongoing basis, management reviews its estimates, including those related to

useful lives for amortization, impairment of long-lived assets, certain

accounts receivable, pension and other employee future benefit plans and asset

retirement obligations based upon currently available information. While it is

reasonably possible that circumstances may arise which cause actual results to

differ from these estimates, management does not believe it is likely that any

such differences will materially affect the Company's financial condition.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

For interim and annual periods in 2011 and beyond, Canfor is required to

prepare financial statements in accordance with International Financial

Reporting Standards ("IFRS"). The Company's financial statements for the first

quarter of 2011 are the first to be prepared in accordance with IFRS.

The principal impacts of the transition to IFRS on the net income of the

Company are the reduction in employee future benefit and amortization expenses

which substantially result from opening balance sheet adjustments recorded to

equity at January 1, 2010. In addition, certain costs of CPLP have been

reclassified from manufacturing and product costs to amortization, thereby

increasing EBITDA. The impacts of the transition to IFRS are set out in Note

14 to the Condensed Consolidated Interim Financial Statements for the first

quarter of 2011.

To ensure accurate and efficient reporting under IFRS, the Company developed a

conversion implementation plan in 2008, which was designed to identify

differences between previous Canadian GAAP and IFRS that affect Canfor and any

required changes to accounting processes and controls (including information

technology systems). No significant impacts were identified in relation to the

Company's information systems or day-to-day accounting processes and controls.

Canfor reviewed its disclosure controls and procedures and updated these as

required to ensure that they are appropriate for reporting under IFRS.

Reporting in accordance with IFRS has now been embedded into the Company's

systems and procedures.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the quarter ended March 31, 2011, there were no changes in the

Company's internal controls over financial reporting that materially affected,

or would be reasonably likely to materially affect, such controls.

RISKS AND UNCERTAINTIES

A comprehensive discussion of risks and uncertainties is included in the

Company's 2010 annual statutory reports which are available on www.canfor.com

or www.sedar.com.

SELECTED QUARTERLY FINANCIAL INFORMATION

                ------------------------------------------------------------
                 International Financial Reporting     Previous Canadian
                           Standards(19)                   GAAP(19)
----------------------------------------------------------------------------
                     Q1     Q4     Q3     Q2     Q1      Q4      Q3      Q2
                   2011   2010   2010   2010   2010    2009    2009    2009
----------------------------------------------------------------------------
Sales and income
 (millions of
 dollars)
Sales            $624.0 $629.1 $588.7 $634.7 $577.9 $ 549.6  $521.3  $530.3
Operating income
 (loss)          $ 31.4 $ 41.7 $ 32.0 $ 69.1 $ 43.9 $ (23.6) $(31.4) $(31.2)
Net income
 (loss)          $ 32.3 $ 55.4 $ 37.2 $ 43.7 $ 35.5 $  (9.1) $  4.1  $ 12.1
Shareholder net
 income (loss)   $  7.0 $ 31.4 $  9.1 $ 21.1 $ 18.3 $ (17.0) $ (5.2) $ 10.5
Per common share
 (dollars)
Shareholder net
 income (loss) -
 basic and
 diluted         $ 0.05 $ 0.22 $ 0.06 $ 0.15 $ 0.13 $ (0.12) $(0.04) $ 0.07
----------------------------------------------------------------------------
Statistics
Lumber shipments
 (MMfbm)            865    895    877    875    797     887     837     884
OSB shipments
 (MMsf 3/8")         63     57     58     72     72      63      69      61
Pulp shipments
 (000 mt)           318    331    277    301    316     315     307     344
----------------------------------------------------------------------------
Average exchange
 rate - US$/Cdn$ $1.014 $0.987 $0.962 $0.973 $0.961 $ 0.947  $0.912  $0.858
----------------------------------------------------------------------------
Average Western
 SPF 2x4 #2&Btr
 lumber price
 (US$)           $  296 $  269 $  223 $  266 $  268 $   205  $  191  $  174
Average SYP
 (East) 2x4 #2
 lumber price
 (US$)           $  302 $  256 $  243 $  379 $  329 $   231  $  230  $  236
Average OSB
 price - North
 Central (US$)   $  199 $  191 $  178 $  295 $  214 $   172  $  178  $  145
Average NBSK
 pulp list price
 delivered to
 U.S. (US$)      $  970 $  967 $1,000 $  993 $  880 $   820  $  733  $  645
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(19) Financial information for 2010 has been restated to be shown in
accordance with IFRS. Financial information for 2009 has not been restated,
and is shown above in accordance with previous Canadian GAAP.

In addition to exposure to changes in product prices and foreign exchange, the

Company's financial results are impacted by seasonal factors such as weather

and building activity. Adverse weather conditions can cause logging

curtailments, which can affect the supply of raw materials to manufacturing

facilities. Market demand also varies seasonally to some degree. For example,

building activity and repair and renovation work, which affects demand for

lumber products, is generally stronger in the spring and summer months. These

factors, along with global supply and demand conditions, affect the Company's

shipment volumes. Also, operating losses for the quarters in 2009 reflect the

impact of a global economic slowdown.

Other factors that impact the comparability of the quarters are noted below:

----------------------------------------------------------------------------
After-tax
 impact, net
 of non-
 controlling    International Financial Reporting      Previous Canadian
 interests                Standards(20)                     GAAP(20)
             ---------------------------------------------------------------
(millions of
 dollars,
 except for
 per share        Q1      Q4      Q3      Q2     Q1      Q4      Q3      Q2
 amounts)       2011    2010    2010    2010   2010    2009    2009    2009
--------------------------------------------------- ------------------------
Shareholder
 net income
 (loss), as
 reported     $  7.0  $ 31.4  $  9.1  $ 21.1 $ 18.3  $(17.0) $ (5.2) $ 10.5 
Foreign
 exchange
 (gain) loss
 on long-term
 debt and
 investments,
 net          $ (3.0) $ (6.9) $ (6.3) $  9.0 $ (6.2) $ (5.8) $(19.6) $(19.7)
(Gain) loss
 on
 derivative
 financial
 instruments  $ (2.9) $ (0.5) $ (1.1) $  1.1 $  1.0  $ (1.4) $(12.7) $(17.3)
Gain on sale
 of operating
 assets of
 Howe Sound
 Pulp and
 Paper
 Limited
 Partnership  $    -  $ (4.9) $    -  $    - $    -  $    -  $    -  $    -
Increase in
 fair value
 of asset-
 backed
 commercial
 paper        $ (1.0) $ (5.5) $    -  $    - $    -  $    -  $    -  $    -
Clear Lake
 permanent
 closure
 provision    $    -  $    -  $ 13.4  $    - $    -  $    -  $    -  $    -
North Central
 Plywoods
 mill fire,
 net          $    -  $    -  $    -  $    - $    -  $    -  $    -  $  2.0
----------------------------------------------------------------------------
Net impact of
 above items  $ (6.9) $(17.8) $  6.0  $ 10.1 $ (5.2) $ (7.2) $(32.3) $(35.0)
----------------------------------------------------------------------------
Adjusted
 shareholder
 net income
 (loss)       $  0.1  $ 13.6  $ 15.1  $ 31.2 $ 13.1  $(24.2) $(37.5) $(24.5)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Shareholder
 net income
 (loss) per
 share (EPS),
 as reported  $ 0.05  $ 0.22  $ 0.06  $ 0.15 $ 0.13  $(0.12) $(0.04) $ 0.07
Net impact of
 above items
 per share    $(0.05) $(0.12) $ 0.04  $ 0.07 $(0.04) $(0.05) $(0.22) $(0.24)
----------------------------------------------------------------------------
Adjusted
 shareholder
 net income
 (loss) per
 share        $ 0.00  $ 0.10  $ 0.10  $ 0.22 $ 0.09  $(0.17) $(0.26) $(0.17)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(20) Financial information for 2010 has been restated to be shown in
accordance with IFRS. Financial information for 2009 has not been restated,
and is shown above in accordance with previous Canadian GAAP.
Canfor Corporation
Condensed Consolidated Balance Sheets
                                                  As at     As at      As at
                                                  March  December    January
(millions of dollars, unaudited)               31, 2011  31, 2010    1, 2010
----------------------------------------------------------------------------
ASSETS                                                             (Note 14)
Current assets
Cash and cash equivalents                     $   172.5 $   260.3 $    133.4
Accounts receivable - Trade                       166.7     146.9      137.2
                    - Other                        56.4      54.2       41.9
Income taxes recoverable                              -         -       45.5
Inventories (Note 4)                              402.4     325.8      310.5
Prepaid expenses                                   25.7      28.1       21.0
----------------------------------------------------------------------------
Total current assets                              823.7     815.3      689.5
----------------------------------------------------------------------------
Property, plant and equipment                   1,039.6   1,049.1    1,077.7
Timber licenses                                   542.4     546.7      563.7
Goodwill and other intangible assets               81.0      84.5       92.4
Long-term investments and other (Note 5)           59.8      89.1       75.7
----------------------------------------------------------------------------
Total assets                                  $ 2,546.5 $ 2,584.7 $  2,499.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES
Current liabilities
Operating bank loans (Note 6(a))              $       - $       - $      0.6
Accounts payable and accrued liabilities          290.8     292.9      211.4
Current portion of long-term debt (Note
 (6(b))                                            97.2      82.5       34.0
Current portion of deferred reforestation
 obligation                                        31.5      31.6       27.8
----------------------------------------------------------------------------
Total current liabilities                         419.5     407.0      273.8
----------------------------------------------------------------------------
Long-term debt (Note 6(b))                        179.9     235.6      333.3
Retirement benefit obligations                    261.1     272.2      233.5
Deferred reforestation obligation                  66.4      54.3       59.0
Other long-term liabilities                        18.3      16.4       17.3
Deferred income taxes, net                        124.9     123.7      126.0
----------------------------------------------------------------------------
Total liabilities                             $ 1,070.1 $ 1,109.2 $  1,042.9
----------------------------------------------------------------------------
EQUITY
Share capital                                 $ 1,125.7 $ 1,125.4 $  1,124.7
Contributed surplus                                31.9      31.9       31.9
Retained earnings                                  88.3      79.0       40.2
Accumulated foreign exchange translation
 differences                                      (16.5)    (10.3)         -
----------------------------------------------------------------------------
Total equity attributable to equity holders
 of the Company                                 1,229.4   1,226.0    1,196.8
Non-controlling interests                         247.0     249.5      259.3
----------------------------------------------------------------------------
Total equity                                  $ 1,476.4 $ 1,475.5 $  1,456.1
----------------------------------------------------------------------------
Total liabilities and equity                  $ 2,546.5 $ 2,584.7 $  2,499.0
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Contingency (Note 13)
The accompanying notes are an integral part of these condensed consolidated
financial statements.
APPROVED BY THE BOARD
"R.S. Smith"
Director, R.S. Smith
"J.F. Shepard"
Director, J.F. Shepard
Canfor Corporation
Condensed Consolidated Statements of Income
                                                              Three months
                                                            ended March 31,
(millions of dollars, unaudited)                               2011    2010
----------------------------------------------------------------------------
Sales                                                        $624.0  $577.9
Costs and expenses
  Manufacturing and product costs                             409.1   358.2
  Freight and other distribution costs                        112.6   101.2
  Export taxes                                                 10.8    11.6
  Amortization                                                 41.5    41.8
  Selling and administration costs                             15.8    15.6
  Restructuring, mill closure and severance costs               2.8     5.6
----------------------------------------------------------------------------
                                                              592.6   534.0
----------------------------------------------------------------------------
Operating income                                               31.4    43.9
Finance expense, net                                           (6.3)   (7.7)
Foreign exchange gain on long-term debt and investments, net    4.7     8.8
Gain (loss) on derivative financial instruments (Note 8)        4.7    (1.2)
Other expense, net                                             (1.7)   (2.9)
----------------------------------------------------------------------------
Net income (loss) before income taxes                          32.8    40.9
Income tax expense (Note 9)                                    (0.5)   (5.4)
----------------------------------------------------------------------------
Net income                                                   $ 32.3  $ 35.5
----------------------------------------------------------------------------
Net income attributable to:
Equity shareholders of Company                               $  7.0  $ 18.3
Non-controlling interests                                      25.3    17.2
----------------------------------------------------------------------------
Net income                                                   $ 32.3  $ 35.5
----------------------------------------------------------------------------
Net income per common share: (in dollars)
Attributable to equity shareholders of Company
 - Basic and diluted (Note 10)                               $ 0.05  $ 0.13
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Corporation
Condensed Consolidated Statements of Other Comprehensive Income (Loss)
                                                             3 months ended
                                                                March 31,
(millions of dollars, unaudited)                             2011      2010
----------------------------------------------------------------------------
Net income                                               $   32.3  $   35.5
Other comprehensive income (loss)
 Foreign exchange translation differences for foreign
  operations                                                 (6.2)     (8.0)
 Defined benefit plan actuarial gains (losses)                3.0     (47.3)
  Income tax (expense) recovery on defined benefit plan
   actuarial losses                                          (0.8)     10.6
----------------------------------------------------------------------------
Other comprehensive income (loss), net of tax                (4.0)    (44.7)
----------------------------------------------------------------------------
Total comprehensive income (loss)                        $   28.3  $   (9.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total comprehensive income (loss) attributable to:
Equity shareholders of Company                           $    3.1  $  (21.7)
Non-controlling interests                                    25.2      12.5
----------------------------------------------------------------------------
Total comprehensive income (loss)                        $   28.3  $   (9.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Condensed Consolidated Statements of Changes in Equity
                                                       3 months ended March
                                                               31,
(millions of dollars, unaudited)                            2011       2010
----------------------------------------------------------------------------
Share capital
Balance at beginning of period                         $ 1,125.4  $ 1,124.7
Common shares issued on exercise of stock options            0.3          -
----------------------------------------------------------------------------
Balance at end of period                               $ 1,125.7  $ 1,124.7
----------------------------------------------------------------------------
Contributed surplus
----------------------------------------------------------------------------
Balance at beginning and end of period                 $    31.9  $    31.9
----------------------------------------------------------------------------
Retained earnings
Balance at beginning of period                         $    79.0  $    40.2
Net income attributable to equity
 shareholders of Company                                     7.0       18.3
Defined benefit plan actuarial gains
 (losses), net of tax                                        2.3      (32.0)
----------------------------------------------------------------------------
Balance at end of period                               $    88.3  $    26.5
----------------------------------------------------------------------------
Accumulated foreign exchange translation differences
Balance at beginning of period                         $   (10.3) $       -
Foreign exchange translation differences for foreign
 operations                                                 (6.2)      (8.0)
----------------------------------------------------------------------------
Balance at end of period                               $   (16.5) $    (8.0)
----------------------------------------------------------------------------
Total equity attributable to equity holders of Company $ 1,229.4  $ 1,175.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Non-controlling interests
Balance at beginning of period                         $   249.5  $   259.3
Net income attributable to non-controlling interests        25.3       17.2
Defined benefit plan actuarial losses attributable to
 non-controlling interests                                  (0.1)      (4.7)
Distributions to non-controlling interests                 (27.7)     (11.7)
----------------------------------------------------------------------------
Balance at end of period                               $   247.0  $   260.1
----------------------------------------------------------------------------
Total equity                                           $ 1,476.4  $ 1,435.2
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Canfor Corporation
Condensed Consolidated Statements of Cash Flows
                                                             3 months ended
                                                                 March 31,
(millions of dollars, unaudited)                              2011     2010
----------------------------------------------------------------------------
Cash generated from (used in)
Operating activities
   Net income                                              $  32.3  $  35.5
   Items not affecting cash:
    Amortization                                              41.5     41.8
    Income tax expense                                         0.5      5.4
    Long-term portion of deferred reforestation obligation    12.1      8.6
    Foreign exchange (gain) loss on long-term debt and
     investments, net                                         (4.7)    (8.8)
    Changes in mark-to-market value of derivative
     financial instruments                                    (3.7)     0.6
    Employee future benefits                                   0.4      1.6
    Net finance expense                                        6.3      7.7
    Other, net                                                (0.8)       -
   Salary pension plan contributions                          (9.7)    (1.7)
   Income taxes recovered (paid), net                         (0.7)    28.7
   Net change in non-cash working capital (Note 11)          (79.2)   (91.6)
----------------------------------------------------------------------------
                                                              (5.7)    27.8
----------------------------------------------------------------------------
Financing activities
   Repayment of long-term debt (Note 6(b))                   (33.8)   (33.7)
   Finance expenses paid                                      (3.5)    (7.8)
   Cash distributions paid to non-controlling interests      (38.0)   (11.2)
   Other, net                                                  0.3      0.1
----------------------------------------------------------------------------
                                                             (75.0)   (52.6)
----------------------------------------------------------------------------
Investing activities
   Additions to property, plant and equipment                (48.9)   (17.2)
   Reimbursements from Government under Green
    Transformation Program                                     9.6        -
   Proceeds from redemption of asset-backed commercial
    paper (Note 5)                                            29.7      1.7
   Other, net                                                  2.8      1.2
----------------------------------------------------------------------------
                                                              (6.8)   (14.3)
----------------------------------------------------------------------------
  Foreign exchange gain (loss) on cash and cash
   equivalents of subsidiaries with different functional
   currency                                                   (0.3)    (0.2)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents             (87.8)   (39.3)
Cash and cash equivalents at beginning of period             260.3    133.4
----------------------------------------------------------------------------
Cash and cash equivalents at end of period                 $ 172.5  $  94.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these condensed consolidated
financial statements.

Canfor Corporation

Notes to the Condensed Consolidated Financial Statements

(unaudited, millions of dollars unless otherwise noted)

1. Basis of preparation and transition to International Financial Reporting

Standards ("IFRS")

These condensed consolidated interim financial statements have been prepared

in accordance with International Accounting Standard 34 Interim financial

reporting, and include the accounts of Canfor Corporation and its subsidiary

entities, hereinafter referred to as "Canfor" or "the Company".

These financial statements are the first interim condensed consolidated

financial statements prepared by the Company under International Financial

Reporting Standards ("IFRS"), which is the required reporting framework for

Canadian publicly accountable enterprises. The financial statements have been

prepared using accounting policies determined in accordance with IFRS that the

Company expects to apply in its annual financial statements for the year ended

December 31, 2011, as disclosed in note 3.

Canfor's transition date to IFRS was January 1, 2010. Various reconciliations

between previous Canadian generally acceptable accounting principles ("GAAP")

and IFRS related to the transition and subsequent reporting periods are set

out in note 14, together with explanatory notes. Additional disclosures

relating to these first interim financial statements under IFRS are contained

in notes 2, 3 and 15 of these statements.

The currency of presentation for these financial statements is the Canadian

dollar.

2. Reporting entity

Canfor Corporation is a company incorporated and domiciled in Canada and

listed on the Toronto Stock Exchange. The address of the Company's registered

office is 100-1700 West 75th Avenue, Vancouver, British Columbia, Canada V6P

6G2.

Canfor is an integrated forest products company with facilities in Canada and

the United States. The Company produces softwood lumber, pulp and paper

products, oriented strand board, plywood, remanufactured lumber products and

specialized wood products.

3. Significant accounting policies

The following accounting policies have been applied to the financial

information presented.

Basis of consolidation

Subsidiaries are entities controlled by the Company. Control exists when

Canfor is able to govern the financial and operating activities of those other

entities to generate returns for the Company. Inter-company transactions,

balances and unrealized gains and losses on transactions between different

entities within the Company are eliminated. Significant subsidiaries include

Canadian Forest Products Ltd., New South Companies Inc., and Canfor Pulp

Limited Partnership ("CPLP"), which is 50.2% owned. There were no changes to

the percentage ownership interest during 2011 or 2010 for these entities.

Joint ventures are those entities over whose activities Canfor has joint

control, established by contractual agreement and requiring unanimous consent

for strategic financial and operating decisions. Joint ventures are

proportionally consolidated. Canfor's joint ventures include a 50% interest in

Canfor-LP OSB Limited Partnership.

Associates are those entities in which Canfor exercises significant influence,

but not control, over financial and operating policies. Unless circumstances

indicate otherwise, significant influence is presumed to exist when Canfor

holds between 20 and 50 percent of the voting power of another entity.

Associates are accounted for using the equity method and are recognized

initially at cost. The consolidated financial statements include Canfor's

share of the post-acquisition income and expenses and equity movement of these

equity accounted investees.

Use of estimates

The preparation of financial statements in conformity with IFRS requires

management to make estimates and assumptions that affect the amounts reported

in the financial statements and accompanying notes. Canfor regularly reviews

its estimates and assumptions; however, it is possible that circumstances may

arise which cause actual results to differ from management estimates, and

these differences could be material.

Significant areas requiring the use of management estimates include the

allowance for doubtful accounts, income tax provisions, inventory valuations,

amortization rates, deferred reforestation obligations, asset retirement

obligations, environmental remediation obligations, provisions for insurance

claims, pension and other benefit plan assumptions, and the valuation of

goodwill, long-lived assets, and financial instruments, including asset-backed

commercial paper ("ABCP") and other investments.

Financial instruments

Non-derivative financial instruments

Non-derivative financial instruments comprise investments in equity

securities, trade and other receivables, cash and cash equivalents, loans and

borrowings, and trade and other payables. Non-derivative financial instruments

are recognized initially at fair value plus, for instruments not at fair value

through net income, any directly attributable transaction costs. Subsequent to

initial recognition non-derivative financial instruments are measured as

described below:

Financial assets at fair value through net income - An instrument is

classified at fair value through net income if it is held for trading or is

designated as such upon initial recognition. Financial instruments at fair

value through net income are measured at fair value, and changes therein are

recognized in net income, with attributable transaction costs being recognized

in net income when incurred. Included within this category are cash and cash

equivalents and ABCP. Cash and cash equivalents include cash in bank accounts

and highly liquid money market instruments with maturities of three months or

less from the date of acquisition

Available-for-sale financial assets - Canfor's investments in equity

securities are classified as available-for-sale financial assets where it does

not have control or significant influence over the investee. These instruments

do not have a quoted market price in an active market, and are therefore

measured at cost subsequent to initial recognition. Any impairment loss on

these investments is recorded through net income.

Loans and receivables - Loans and receivables are non-derivative financial

assets with fixed or determinable payments that are not quoted in an active

market. These are measured at amortized cost using the effective interest

method, less any impairment losses. The effective interest method is used to

spread the total costs of or income from a financial instrument over the life

of the instrument. Financial assets included within this category for Canfor

are trade and other receivables.

Other liabilities - All of Canfor's financial liabilities are measured at

amortized cost using the effective interest method.

Derivative financial instruments

Canfor uses derivative financial instruments in the normal course of its

operations as a means to manage its foreign exchange, energy and commodity

price risk. Canfor's policy is not to utilize derivative financial instruments

for trading or speculative purposes.

Canfor's derivative financial instruments are not designated as hedges for

accounting purposes. Consequently, such derivatives for which hedge accounting

is not applied are carried on the Consolidated Balance Sheet at fair value,

with changes in fair value (realized and unrealized) being recognized in the

Consolidated Statements of Income outside of operating income as 'Gain (loss)

on derivative financial instruments'.

The fair value of the derivatives is determined with reference to period end

market trading prices for derivatives with comparable characteristics.

Inventories

Inventories include logs, lumber, panels, pulp, kraft paper, chips and

processing materials and supplies. These are measured at the lower of cost and

net realizable value. The cost of inventories is based on the weighted average

cost principle, and includes raw materials, direct labour, other direct costs

and related production overheads (based on normal operating capacity). Net

realizable value is the estimated selling price in the ordinary course of

business, less estimated costs of completion and selling expenses.

Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated

amortization and impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of

the asset. The cost of self-constructed assets includes the cost of materials

and direct labour, borrowing costs, any other costs directly attributable to

bringing assets to be used in the manner intended by management.

The cost of replacing a major component of an item of property, plant and

equipment is recognized in the carrying amount of the item if it is probable

that the future economic benefits embodied within the part will flow to Canfor

and its cost can be measured reliably. The carrying amount of the replaced

component is removed. The costs of the day-to-day servicing of property, plant

and equipment are recognized in net income as incurred.

Amortization is recognized in net income on a straight-line basis over the

estimated useful lives of each part of an item of property, plant and

equipment, as set out in the table below. Land is not amortized. The

significant majority of Canfor's amortization expense relates to manufacturing

and product costs.

Amortization methods, useful lives and residual values are reviewed, and

adjusted if appropriate, each reporting date. The following rates have been

applied to Canfor's capital assets:

----------------------------------------------------------------------------
Buildings                                                      5 to 50 years
Pulp and kraft paper machinery and equipment                        20 years
Sawmill machinery and equipment                                5 to 15 years
Oriented strand board machinery and equipment                 10 to 20 years
Logging machinery and equipment                                4 to 20 years
Logging roads and bridges                                      5 to 25 years
Mobile and other equipment                                           5 years
----------------------------------------------------------------------------

Timber licenses

Timber licenses include tree farm licenses, forest licenses and timber

licenses that are renewable with the Province of British Columbia when the

relevant conditions are met. Timber licenses are carried at cost less

accumulated amortization. Renewable licenses are amortized using the straight-

line method over 50 years, while non-renewable licenses are amortized over the

period of the license.

Other intangible assets

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair

value of Canfor's share of the net identifiable assets of the acquired

subsidiary at the date of acquisition. Goodwill is tested annually for

impairment and carried at cost less any accumulated impairment losses.

On transition to IFRS, Canfor elected not to restate any business combinations

under IFRS that occurred before the transition date of January 1, 2010. In

respect of acquisitions prior to January 1, 2010, goodwill represents the

amount recognized under previous Canadian GAAP.

Customer agreements

Canfor's customer agreements were acquired as part of the purchase of New

South Companies Inc., and were recognized at fair value at the acquisition

date. The customer agreements have a finite useful life and are carried at

cost less accumulated amortization, which is recorded on a straight-line basis

over 10 years.

Computer software

Software development costs relate to major software systems purchased or

developed by the Company. These costs are amortized on a straight-line basis

over a period not exceeding five years.

Government assistance

Government assistance relating to the acquisition of property, plant and

equipment is recorded as a reduction of the cost of the asset to which it

relates, with any amortization calculated on the net amount. Government

assistance related to non-capital projects is recorded as a reduction of the

related expenses.

Asset impairment

Canfor's property, plant and equipment, timber licenses and other intangible

assets are reviewed for impairment whenever events or circumstances indicate

that the carrying amount may not be recoverable, except for goodwill which is

reviewed annually.

An impairment loss is recognized in net income at the amount the asset's

carrying amount exceeds its recoverable amount. The recoverable amount is the

higher of an asset's fair value less costs to sell and value in use. For the

purposes of assessing impairment, assets are grouped at the lowest levels for

which there are separately identifiable cash inflows that are largely

independent of cash inflows from other assets or groups of assets (cash-

generating units).

Non-financial assets, other than goodwill, for which an impairment was

recorded in a prior period are reviewed for possible reversal of the

impairment at each reporting date. When an impairment loss is reversed, the

increased carrying amount of the asset cannot exceed the carrying amount that

would have been determined (net of amortization) had no impairment loss been

recognized in prior years.

For the purpose of impairment testing, goodwill is allocated to the Company's

operating divisions which represent the lowest level within the Company at

which the goodwill is monitored for internal management purposes.

Financial assets are reviewed at each reporting date to determine whether

there is evidence indicating they are impaired. A financial asset is

considered to be impaired if objective evidence indicates that one or more

events have had a negative impact on estimated future cash flows from that

asset. An impairment loss in respect of a financial asset measured at

amortized cost is calculated as the difference between its carrying amount and

the present value of the estimated future cash flows discounted at the

original effective interest rate. All impairment losses are recognized in net

income.

Employee benefits

Defined Contribution Plans

A defined contribution plan is a post-employment benefit plan under which an

entity makes contributions to a separate entity and has no legal or

constructive obligation to pay further amounts. Obligations for contributions

to defined contribution pension plans are recognized as an employee benefit

expense in net income when they are due.

Defined Benefit Plans

A defined benefit plan is a post-employment benefit plan other than a defined

contribution plan. Canfor has various defined benefit plans that provide both

pension and other retirement benefits to most of its salaried employees and

certain hourly employees not covered by forest industry union plans. Canfor

also provides certain health care benefits and pension bridging benefits to

eligible retired employees.

The liability recognized in the balance sheet in respect of a defined benefit

pension plan is the net of the accrued benefit obligation and the fair value

of the plan assets. The accrued benefit obligation is calculated separately

for each plan by estimating the amount of future benefit earned by employees

in respect of their service in the current and prior periods; that benefit is

discounted to determine its present value. The discount rate used to determine

the present value of the obligation is the yield at the reporting date on high

quality corporate bonds that have maturity dates approximating the terms of

Canfor's obligations. The calculation is performed annually by a qualified

actuary using the projected unit credit method and a measurement date of

December 31. The pension deficit or surplus is adjusted on a quarterly basis

for any material changes in underlying assumptions.

Canfor recognizes all actuarial gains and losses arising from defined benefit

plans in other comprehensive income in the year in which they occur.

Provisions

Canfor recognizes a provision if, as a result of a past event, it has a

present legal or constructive obligation that can be estimated reliably, and

it is probable that an outflow of economic benefits will be required to settle

the obligation. The provision recorded is management's best estimate of the

expenditure required to settle the present obligation at the end of the

reporting period. Provisions are determined by discounting the expected future

cash flows at a pre-tax rate that reflects current market assessments of the

time value of money and the risks specific to the liability. The expense

arising from the unwinding of the discount due to the passage of time is

recorded as a finance cost. The main classes of provision recognized by Canfor

are as follows:

Asset retirement obligations

Canfor recognizes a liability for asset retirement obligations in the period

in which they are incurred. The site restoration costs are capitalized as part

of the cost of the related item of property, plant and equipment and amortized

on a basis consistent with the expected useful life of the related asset.

Deferred reforestation obligation

Forestry legislation in British Columbia and Alberta requires Canfor to incur

the cost of reforestation of its forest, timber and tree farm licenses and

forest management agreements. Accordingly, Canfor records a liability for the

costs of reforestation in the period in which the timber is harvested. In

periods subsequent to the initial measurement, changes in the liability

resulting from the passage of time and revisions to management's estimates are

recognized in net income as they occur.

Restructuring

A provision for restructuring is recognized when Canfor has approved a

detailed and formal restructuring plan, which may include the indefinite or

permanent closure of one of its operations, and the restructuring either has

commenced or has been announced publicly. Provisions are not recognized for

future operating costs.

Share-based compensation

Canfor has three share-based compensation plans, as described in the Company's

financial statements for the year ended December 31, 2010.

Compensation expense is recognized for Canfor's Deferred Share Unit ("DSU")

Plans when the DSUs are granted, with a corresponding increase to liabilities.

The liability is remeasured at each reporting date and at settlement date,

with any changes in the fair value of the liability recognized as compensation

expense in net income. The fair value of the DSUs is determined with reference

to the market price of Canfor's shares as at the date of valuation.

Compensation expense is recognized for Canfor's contributions to the Employee

Share or Unit Purchase Plans when the related payments are made.

The Company has a Stock Option Performance Plan, under which no stock options

have been granted since 2002. As discussed in note 14, the Company has adopted

the IFRS 1 exemption in relation to share-based payment transactions and has

not restated any amount recorded in relation to its Stock Option Performance

Plan on transition to IFRS, as all grants are fully vested at the date of

transition. Cash consideration received from employees when they exercise the

options is credited to share capital.

Revenue recognition

Canfor's revenues are derived from the sale of the following major product

lines: lumber, oriented strand board, pulp, kraft paper, residual fibre and

logs. Revenue is measured at the fair value of the consideration received or

receivable net of applicable sales taxes, returns, rebates and discounts and

after eliminating sales within the Company. Revenue is recognized when the

significant risks and rewards of ownership have been transferred to the buyer,

recovery of the consideration is probable, the associated costs and possible

returns of the goods can be estimated reliably, there is no continuing

management involvement with the goods, and the amounts of revenue can be

measured reliably.

Amounts charged to customers for shipping and handling are recognized as

revenue, and shipping and handling costs incurred by Canfor are reported as a

component of cost of sales. Lumber export taxes are recorded as a component of

cost of sales.

Income taxes

Income tax expense comprises current and deferred tax. Current and deferred

tax are recognized in net income except to the extent that they relate to

items recognized directly in equity or in other comprehensive income.

Current tax is the expected tax payable or receivable on the taxable income or

loss for the period, using the tax rates enacted or substantively enacted at

the reporting date, and any adjustment to tax payable in respect of previous

periods.

Canfor recognizes deferred income tax in respect of temporary differences

between the carrying amounts of assets and liabilities for financial reporting

purposes and the amounts used for taxation purposes. Deferred income tax is

measured at tax rates expected to be applied to the temporary differences when

they reverse, based on the laws that have been enacted or substantively

enacted by the reporting date.

A deferred income tax asset is recognized for unused tax losses, tax credits

and deductible temporary differences, to the extent that it is probable that

future taxable profits will be available against which they can be utilized.

Deferred income tax assets are reviewed at each reporting date and are reduced

to the extent that it is no longer probable that the related tax benefit will

be realized.

Investment tax credits are credited to manufacturing and product costs in the

period in which it becomes reasonably assured that the Company is entitled to

them. Unused investment tax credits are recorded as other current or long term

assets in the Company's balance sheet, depending upon when the benefit is

expected to be received.

Foreign currency translation

Items included in the financial statements of each of the Company's entities

are measured using the currency of the primary economic environment in which

the entity operates (the "functional currency"). The consolidated financial

statements are presented in Canadian dollars, which is the Company's

functional currency.

The majority of Canfor's sales and long-term debt is denominated in foreign

currencies, principally the US dollar. Transactions in foreign currencies are

translated to the functional currencies of the respective entities at exchange

rates at the dates of transactions. Monetary assets and liabilities

denominated in foreign currencies at the reporting date are re-translated to

the functional currency at the exchange rate on that date. Foreign currency

differences arising on re-translation are recognized in net income.

The assets and liabilities of foreign operations, including goodwill and fair

value adjustments arising on acquisition, are translated to the Canadian

dollar at exchange rates at the reporting date. The income and expenses of

foreign operations are translated to the Canadian dollar at exchange rates at

the transaction dates. Foreign exchange differences are recognized in other

comprehensive income, and recorded to the accumulated foreign exchange

translation account. Canfor's foreign operations include New South Companies,

Inc. and Canfor USA, both of which are wholly-owned subsidiaries based in the

U.S.

Accounting standards issued and not applied

The following International Financial Reporting Standards ("IFRS") have been

issued by the International Accounting Standards Board, and adopted for use in

Canada by the Accounting Standards Board, but have not been applied by the

Company as their use is not yet mandatory.

IFRS 9 - Financial Instruments

This Standard will be mandatory for years commencing on or after January 1,

2013. The new Standard changes the categories for classification of financial

instruments and, in certain cases, their measurement. IFRS 9 is not expected

to have a material impact on the financial statements of Canfor.

4. Inventories

                                                        As at         As at
                                          As at   December 31,    January 1,
(millions of dollars)             March 31, 2011          2010          2010
----------------------------------------------------------------------------
Logs                                     $ 112.5       $  53.9       $  39.9
Finished products                          193.2         169.7         164.7
Residual fibre                              11.7          17.4          22.3
Processing materials and supplies           85.0          84.8          83.6
----------------------------------------------------------------------------
                                         $ 402.4       $ 325.8       $ 310.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The above inventory balances are stated after inventory write-downs from cost

to net realizable value. Write-downs at March 31, 2011 totaled $6.1 million

(December 31, 2010 - $3.2 million; January 1, 2010 - $25.7 million).

5. Long-term Investments and Other

                                                        As at         As at
                                          As at   December 31,    January 1,
(millions of dollars)             March 31, 2011          2010          2010
----------------------------------------------------------------------------
Asset-backed commercial paper
 ("ABCP")                                $  12.1       $  40.9       $  41.1
Other investments                           24.5          26.5          27.3
Investment tax credits                       6.8           6.4             -
Defined benefit plan assets                  4.6           3.4           4.2
Other deposits, loans and advances          11.8          11.9           3.1
----------------------------------------------------------------------------
                                         $  59.8       $  89.1       $  75.7
----------------------------------------------------------------------------
----------------------------------------------------------------------------

During the first quarter of 2011, net proceeds of $29.7 million were received

from the redemption of certain ABCP assets. In addition, a pre-tax gain of

$1.2 million was recorded due to an increase in the fair value of the

remaining ABCP during the quarter.

6. Operating Loans and Long-Term Debt

(a) Operating Loans

                                           As at        As at        As at
                                         March 31, December 31,   January 1,
(millions of dollars)                        2011         2010         2010
----------------------------------------------------------------------------
Canfor (excluding CPLP)
Principal operating lines                 $ 350.0      $ 350.0      $ 355.0
Facility A                                   12.4         12.7         13.5
Facility B                                      -         29.7         35.7
Other                                         1.1          1.1          1.4
----------------------------------------------------------------------------
Total operating lines - Canfor
 (excluding CPLP)                           363.5        393.5        405.6
Drawn                                           -            -         (0.6)
Letters of credit (principally
 unregistered pension plans)                (17.1)       (17.3)       (18.1)
----------------------------------------------------------------------------
Total available operating lines -
 Canfor (excluding CPLP)                  $ 346.4      $ 376.2      $ 386.9
----------------------------------------------------------------------------
CPLP
Main bank loan facility                   $  40.0      $  40.0      $  40.0
Bridge loan credit facility                  30.0            -            -
Facility for BC Hydro letter of
 credit                                      13.2         13.2         16.0
----------------------------------------------------------------------------
Total operating lines - CPLP                 83.2         53.2         56.0
Letters of credit for general
 business purposes                           (0.5)        (0.5)        (0.5)
BC Hydro letter of credit                   (13.2)       (13.2)       (16.0)
----------------------------------------------------------------------------
Total available operating lines -
 CPLP                                     $  69.5      $  39.5      $  39.5
----------------------------------------------------------------------------
Consolidated
Total operating lines                     $ 446.7      $ 446.7      $ 461.6
Total available operating lines           $ 415.9      $ 415.7      $ 426.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For Canfor, excluding CPLP, the principal operating lines mature on October

31, 2013 with interest payable at floating rates based on lenders' Canadian

prime rate, bankers acceptances, US dollar base rate or US dollar LIBOR rate,

plus a margin that varies with the Company's net debt to total capitalization

ratio.

Facility A, which was for US$12.8 million at March 31, 2011, expires in

January 2012, and is non-recourse to the Company under normal circumstances,

except for an amount of US$6.7 million. The ABCP assets of the Company have

been pledged as security to support this credit facility. Facility A has

similar terms to the other operating lines, except that the interest rate is

plus or minus a margin.

The maturity date of CPLP's principal bank loan facility was extended to

November 30, 2013 during the quarter. The terms of this financing include

interest payable at floating rates that vary depending on the ratio of net

debt to operating earnings before interest, taxes, depreciation, amortization

and certain other non-cash items, and is based on lenders' Canadian prime

rate, bankers acceptances, US dollar base rate or US dollar LIBOR rate, plus a

margin.

During the quarter, CPLP arranged a new $30.0 million bridge loan credit

facility to fund capital projects that are being funded by the Canadian

Federal Government Green Transformation Program. The bridge facility terms are

similar to CPLP's main facility, with interest and other costs at prevailing

market rates. CPLP also has a separate facility with a maturity date of

November 30, 2011 to cover a $13.2 million standby letter of credit issued to

BC Hydro.

As at March 31, 2011, the Company and CPLP were in compliance with all

covenants relating to their operating lines of credit.

All borrowings of CPLP (operating loans and long-term debt) are non-recourse

to other entities within the Company.

(b) Long-Term Debt

On March 1, 2011, the Company repaid $31.5 million (US$32.3 million) of 8.03%

interest rate privately placed senior notes. The Company also repaid $2.3

million of other long-term debt obligations during the quarter.

At March 31, 2011, the fair value of the Company's long-term debt, which was

measured at its amortized cost of $277.1 million, was $290.3 million. The fair

value of long-term debt was determined based on prevailing market rates for

long-term debt with similar characteristics and risk profile.

Subsequent to quarter end, on April 1, 2011, the Company repaid $48.1 million

(US$50.0 million) of 6.18% interest rate privately placed senior notes.

7. Employee Future Benefits

Actuarial valuations of Canfor's defined benefit plans are obtained annually

for accounting purposes with a measurement date of December 31. At the end of

each interim reporting period, the Company estimates movements in its accrued

benefit liabilities based upon movements in discount rates and the rates of

return on plan assets, as well as any significant changes to the plans.

Adjustments are also made for payments made and current service and interest

costs.

For the quarter ended March 31, 2011, an amount of $3.0 million, before tax,

was credited to other comprehensive income in relation to defined benefit

plans. This relates principally to the merging of two of the Company's smaller

defined benefit pension plans. For the quarter ended March 31, 2010 a pre-tax

amount of $47.3 million was charged to other comprehensive income, principally

reflecting a 0.5% reduction in the discount rate used to value the accrued

benefit obligations during the quarter.

The assumptions used to estimate the changes in net accrued benefit

liabilities were as follows:

(weighted average assumptions)
----------------------------------------------------------------------------
Pension Benefit Plans
Discount rate
  March 31, 2011                                                       5.50%
  December 31, 2010                                                    5.50%
  March 31, 2010                                                       5.75%
  January 1, 2010                                                      6.25%
Rate of return on plan assets
  3 months ended March 31, 2011                                        1.65%
  3 months ended March 31, 2010                                        1.50%
----------------------------------------------------------------------------
Other Benefit Plans
Discount rate
  March 31, 2011                                                       5.75%
  December 31, 2010                                                    5.75%
  March 31, 2010                                                       6.00%
  January 1, 2010                                                      6.75%
----------------------------------------------------------------------------
----------------------------------------------------------------------------

8. Derivative Financial Instruments

The Company uses a variety of derivative financial instruments to reduce its

exposure to risks associated with fluctuations in foreign exchange rates,

lumber prices and energy costs. At March 31, 2011, the fair value of

derivative financial instruments was a net liability of $0.5 million (December

31, 2010 - net liability of $4.1 million; January 1, 2010 - net liability of

$5.8 million). The fair value of these financial instruments was determined

based on prevailing market rates for instruments with similar characteristics.

The following table summarizes the gain (loss) on derivative financial

instruments for the three month periods ended March 31, 2011 and 2010:

                                                    3 months ended March 31,
(millions of dollars)                                    2011          2010
----------------------------------------------------------------------------
Foreign exchange collars and forward contracts        $   1.9       $   5.8
Natural gas swaps                                        (0.1)         (3.7)
Diesel options and swaps                                  1.0           0.4
Lumber futures                                            1.9          (3.7)
----------------------------------------------------------------------------
                                                      $   4.7       $  (1.2)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following table summarizes the fair value of the derivative financial

instruments included in the balance sheet at March 31, 2011, December 31, 2010

and January 1, 2010:

                                           As at        As at        As at
                                         March 31, December 31,   January 1,
(millions of dollars)                        2011         2010         2010
----------------------------------------------------------------------------
Foreign exchange collars and forward
 contracts                                $   0.6      $   1.6      $   1.6
Natural gas swaps                            (2.7)        (4.7)        (6.8)
Diesel options and swaps                      1.5          1.0         (0.9)
Lumber futures                                0.1         (2.0)         0.3
----------------------------------------------------------------------------
Total asset (liability)                      (0.5)        (4.1)        (5.8)
Less: current portion                        (0.5)        (4.1)        (3.5)
----------------------------------------------------------------------------
Long-term portion                         $     -      $     -      $  (2.3)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

9. Income taxes

                                                  3 months ended March 31,
(millions of dollars)                                    2011          2010
----------------------------------------------------------------------------
Current                                              $   (0.2)     $    0.2
Deferred                                                 (0.3)         (5.6)
----------------------------------------------------------------------------
Income tax expense                                   $   (0.5)     $   (5.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The reconciliation of income taxes calculated at the statutory rate to the

actual income tax provision is as follows:

                                                   3 months ended March 31,
(millions of dollars)                                     2011         2010
----------------------------------------------------------------------------
Income tax expense at statutory rate
 2011 - 26.5% (2010 - 28.5%)                           $  (8.7)     $ (11.7)
Add (deduct):
  Non-taxable income related to non-controlling
   interests in limited partnerships                       6.7          4.9
  Entities with different income tax rates and
   other tax adjustments                                   0.1         (0.3)
  Tax recovery at rates other than statutory rate          0.2          0.7
  Permanent difference from capital gains and
   losses and other non-deductible items                   1.2          1.0
----------------------------------------------------------------------------
Income tax expense                                     $  (0.5)     $  (5.4)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In addition to the amounts recorded to net income, a tax expense of $0.8

million was recorded to other comprehensive income in relation to the

actuarial gains on defined benefit employee compensation plans (three months

ended March 31, 2010 - recovery of $10.6 million).

10. Earnings per share

Basic net income (loss) per share is calculated by dividing the net income

(loss) available to common shareholders by the weighted average number of

common shares outstanding during the period. Diluted net income (loss) per

share is calculated by dividing the net income (loss) available to common

shareholders by the weighted average number of common shares during the period

using the treasury stock method. Under this method, proceeds from the

potential exercise of stock options are assumed to be used to purchase the

Company's common shares. When there is a net loss, the exercise of stock

options would result in a calculated diluted net loss per share that is anti-

dilutive.

                                                    3 months ended March 31,
                                                            2011        2010
----------------------------------------------------------------------------
Weighted average number of common shares             142,676,805 142,589,297
Incremental shares from potential exercise of
 options                                                  12,457       1,720
----------------------------------------------------------------------------
Diluted number of common shares                      142,689,262 142,591,017
----------------------------------------------------------------------------
----------------------------------------------------------------------------

11. Net Change in Non-Cash Working Capital

                                                   3 months ended March 31,
(millions of dollars)                                     2011         2010
----------------------------------------------------------------------------
Accounts receivable                                    $ (14.4)     $ (38.0)
Inventories                                              (77.4)       (89.0)
Prepaid expenses                                           2.3          0.9
Accounts payable, accrued liabilities and current
 portion of deferred reforestation obligation             10.3         34.5
----------------------------------------------------------------------------
Net increase in working capital                        $ (79.2)     $ (91.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

12. Segment information

Canfor has two reportable segments, as described below, which offer different

products and are managed separately because they require different production

processes and marketing strategies. The following summary describes the

operations of each of the Company's reportable segments:

--  Lumber - Includes logging operations, and manufacture and sale of
    various grades, widths and lengths of lumber products.
--  Pulp and paper - Includes purchase of residual fibre, and production and
    sale of pulp and paper products, including northern bleached softwood
    kraft ("NBSK") and bleached chemi-thermo mechanical pulp ("BCTMP"). This
    segment includes 100% of Canfor Pulp Limited Partnership and the Taylor
    Pulp mill.

Sales between segments are accounted for at prices that approximate fair

value. These include sales of residual fibre from the lumber segment to the

pulp and paper segment for use in the pulp production process.

Sales in the panels business (which does not meet the criteria to be a

separate reportable segment) for the three months ended March 31, 2011 were

$12.4 million (three months ended March 31, 2010 - $16.2 million).

                               Pulp & Unallocated  Elimination
(millions of dollars)   Lumber  Paper     & Other   Adjustment  Consolidated
----------------------------------------------------------------------------
3 months ended March
 31, 2011
Sales to external
 customers            $  328.6  283.0        12.4            -  $      624.0
Sales to other
 segments             $   29.5      -           -        (29.5) $          -
Operating income
 (loss)               $   (2.3)  47.2       (13.5)           -  $       31.4
Amortization          $   20.3   16.8         4.4            -  $       41.5
Capital
 expenditures(i)      $   25.6   23.3           -            -  $       48.9
Identifiable assets   $1,415.0  848.7       282.8            -  $    2,546.5
----------------------------------------------------------------------------
3 months ended March
 31, 2010
Sales to external
 customers            $  292.0  269.7        16.2            -  $      577.9
Sales to other
 segments             $   35.5      -           -        (35.5) $          -
Operating income
 (loss)               $   15.8   34.4        (6.3)           -  $       43.9
Amortization          $   20.5   16.6         4.7            -  $       41.8
Capital expenditures  $   10.8    6.4           -            -  $       17.2
Identifiable assets   $1,380.8  872.8       278.7            -  $    2,532.3
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(i) Includes capital expenditures made by CPLP that are financed by the
government-funded Green Transformation Program.

13. Contingency

On January 18, 2011, the U.S. triggered the arbitration provision of the 2006

Softwood Lumber Agreement ("SLA") by delivering a Request for Arbitration. The

U.S. claims that BC has not properly applied the timber pricing system

grandparented in the SLA. The U.S. also claims that subsequent to 2006, BC

made additional changes to the timber pricing system which had the effect of

reducing timber prices. The claim focuses on substantial increases in Grade 4

(non sawlog or low grade) volumes commencing in 2007. It is alleged that

timber was scaled and graded as Grade 4 that did not meet the criteria for

that grade, and was accordingly priced too low.

As the arbitration is a state-to-state international dispute under the SLA,

Canada is preparing a defence to the claim with the assistance of the BC

provincial government and the BC lumber industry. To date, the U.S. has not

filed a detailed statement of claim with the arbitration panel. It is not

possible at this time to predict the outcome or the value of the claim, and

accordingly no provision has been recorded by the Company.

14. Transition to International Financial Reporting Standards ("IFRS")

These financial statements are the first interim condensed consolidated

financial statements prepared by the Company under IFRS. The Company's

transition date to IFRS was January 1, 2010 and accordingly the Company has

prepared its provisional opening IFRS balance sheet as at that date. In

preparing its opening IFRS balance sheet and comparative information for 2010,

the Company has adjusted amounts previously reported in financial statements

prepared in accordance with previous Canadian GAAP ("previous GAAP").

The differences identified are detailed in the following sections, which

include a reconciliation of the Company's closing balance sheet at the end of

2009 under previous GAAP with its provisional opening balance sheet under IFRS

on January 1, 2010. Reconciliations of total comprehensive income and equity

from previous GAAP to IFRS for the quarter ending March 31, 2010 and the year

ending December 31, 2010 then follow.

The accounting changes resulting from the transition to IFRS do not impact the

Company's compliance with any of its financial covenants with respect to its

debt obligations.

14.1 Optional exemptions from full retrospective application followed by the

Company

The Company has applied IFRS 1 First-time adoption of IFRS in preparing these

condensed consolidated interim financial statements. Canfor has elected to

apply the following optional exemptions from full retrospective application

under IFRS.

a. Business combinations exemption

Canfor has applied the business combinations exemption and accordingly has not

restated business combinations that took place prior to the January 1, 2010

transition date.

b. Employee benefits exemption

Canfor has elected to recognize all cumulative actuarial gains and losses on

its various defined benefit pension and post-retirement non-pension plans as

at January 1, 2010.

c. Accumulated foreign currency translation differences exemption

Canfor has elected to set its cumulative foreign exchange translation amount

to zero at January 1, 2010. Under previous GAAP, this amount was included in

Accumulated Other Comprehensive Income (Loss). This exemption has been applied

to all foreign subsidiaries with functional currency other than Canadian

dollars.

d. Share-based payments exemption

The Company has elected to apply the share-based payment exemption. IFRS 2

Share-based Payment has not been applied to the options granted under the

Stock Option Performance Plan as these were all fully vested as at January 1,

2010.

In addition to these optional exemptions, Canfor has also ensured that all

estimates at January 1, 2010 are consistent with estimates made at the same

date under previous GAAP, as required by IFRS 1.

14.2 Presentation of non-controlling interests

Under previous GAAP, the Company adopted, as of January 1, 2010, three new

inter-related accounting standards issued by the Canadian Institute of

Chartered Accountants ("CICA"). These were Handbook Sections 1582 Business

Combinations, 1601 Consolidated Financial Statements, and 1602 Non-controlling

Interests.

The adoption of Section 1602 resulted in the reclassification of non-

controlling interests on Canfor's balance sheet from long-term liabilities

into equity. As this adjustment was made under previous GAAP as of January 1,

2010, it is not included in the opening balance sheet reconciliation included

below, but should be taken into account when comparing the December 31, 2009

financial statements to the opening IFRS balance sheet as at January 1, 2010.

14.3 Reconciliations between IFRS and previous Canadian GAAP

This section consists of a number of reconciliations between IFRS and previous

Canadian GAAP which quantify the effect of the Company's transition to IFRS.

The reconciliations include balance sheets as at January 1, 2010 and December

31, 2010, and equity as at March 31, 2010. Reconciliations of total

comprehensive income under previous GAAP to IFRS for the three months ended

March 31, 2010 and the year ended December 31, 2010, and an explanation of the

material adjustments to the statement of cash flows, are also provided.

i.  Reconciliation of opening balance sheet as at January 1, 2010
                                    Previous     Note   Effect of
As at January 1, 2010 (millions     Canadian (section  transition
of dollars, unaudited)                  GAAP       vi)    to IFRS      IFRS
---------------------------------------------------------------------------
ASSETS                                                                     
Current assets
Cash and cash equivalents        $     133.4          $         - $   133.4
---------------------------------------------------------------------------
Accounts receivable - Trade            137.2                    -     137.2
---------------------------------------------------------------------------
                    - Other             41.9                    -      41.9
---------------------------------------------------------------------------
Income taxes recoverable                45.5                    -      45.5
---------------------------------------------------------------------------
Deferred income taxes, net              11.4        a       (11.4)        -
---------------------------------------------------------------------------
Inventories                            311.3        c        (0.8)    310.5
---------------------------------------------------------------------------
Prepaid expenses                        36.4        b       (15.4)     21.0
---------------------------------------------------------------------------
Total current assets                   717.1                (27.6)    689.5
---------------------------------------------------------------------------
Property, plant and equipment                       b        20.8
                                                    c        (9.4)
                                                    d      (610.3)
                                                       ----------
                                     1,676.6              (598.9)   1,077.7
---------------------------------------------------------------------------
Timber licenses                                     c       (46.6)
                                                    d       610.3
                                                       ----------
                                           -                563.7     563.7
---------------------------------------------------------------------------
Goodwill and other intangible
assets                                              e      (114.8)
                                                    d        16.8
                                                       ----------
                                       190.4               (98.0)      92.4
---------------------------------------------------------------------------
Long term investments and other                     b        (5.4)
                                                    d       (16.8)
                                                    e         4.2
                                                       ----------
                                        93.7                (18.0)     75.7
---------------------------------------------------------------------------
                                 $   2,677.8          $   (178.8) $ 2,499.0
---------------------------------------------------------------------------
LIABILITIES
Current liabilities
Operating bank loans             $       0.6          $         - $     0.6
---------------------------------------------------------------------------
Accounts payable and accrued
 liabilities                           211.4                    -     211.4
---------------------------------------------------------------------------
Current portion of long-term
 debt                                   34.0                    -      34.0
---------------------------------------------------------------------------
Current portion of deferred
 reforestation obligation               27.8                    -      27.8
---------------------------------------------------------------------------
Total current liabilities              273.8                    -     273.8
---------------------------------------------------------------------------
Long-term debt                         333.3                    -     333.3
---------------------------------------------------------------------------
Retirement benefit obligations                      e       101.3
                                                    e       132.2
                                                       ----------
                                           -                233.5     233.5
---------------------------------------------------------------------------
Deferred reforestation
 obligation                                         f        60.3
                                                    f        (1.3)
                                                       ----------
                                           -                 59.0      59.0
---------------------------------------------------------------------------
Other long-term liabilities                         f       (60.3)
                                                    e      (132.2)
                                                       ----------
                                       209.8               (192.5)     17.3
---------------------------------------------------------------------------
Deferred income taxes, net                          a       (11.4)
                                                    c       (14.2)
                                                    e       (49.5)
                                                    f         0.3
                                                       ----------
                                       200.8                (74.8)    126.0
---------------------------------------------------------------------------
                                 $   1,017.7          $      25.2 $ 1,042.9
---------------------------------------------------------------------------
EQUITY
Share capital                    $   1,124.7          $         - $ 1,124.7
---------------------------------------------------------------------------
Contributed surplus                     31.9                    -      31.9
---------------------------------------------------------------------------
Retained earnings                                   c       (42.6)
                                                    e      (148.4)
                                                    f         1.0
                                                    g       (16.0)
                                                       ----------
                                       246.2               (206.0)     40.2
---------------------------------------------------------------------------
Accumulated foreign exchange
 translation differences               (16.0)       g        16.0         -
---------------------------------------------------------------------------
Total equity attributable to
 equity holders of the Company       1,386.8               (190.0)  1,196.8
Non-controlling interests              273.3        e       (14.0)    259.3
---------------------------------------------------------------------------
Total equity                     $   1,660.1          $    (204.0) $1,456.1
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                 $   2,677.8          $    (178.8)  $2,499.0
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(ii) Reconciliation of comprehensive income for three months ended March 31,

2010

                                                                   3 months
                                                           Note       ended
                                                       (section    March 31,
(millions of Canadian dollars, unaudited)                    vi)       2010
---------------------------------------------------------------------------
Net income
Previous Canadian GAAP                                          $      32.5
Lower amortization of property, plant and equipment
 and timber licenses in period, net of tax                    c         1.1
Lower pension expense for period, net of tax                  e         1.9
---------------------------------------------------------------------------
Net income under IFRS                                           $      35.5
---------------------------------------------------------------------------
Other comprehensive income (loss)
Previous Canadian GAAP                                          $      (8.0)
Actuarial gains (losses) on defined benefit plans
 during the period, net of tax                                e       (36.7)
---------------------------------------------------------------------------
Other comprehensive income (loss) under IFRS                    $     (44.7)
---------------------------------------------------------------------------

(iii) Reconciliation of equity at March 31, 2010

                                                           Note       As at
                                                       (section    March 31,
(millions of Canadian dollars, unaudited)                    vi)       2010
---------------------------------------------------------------------------
Previous Canadian GAAP - Total equity                           $   1,672.9
Recognition of unamortized actuarial losses at date
 of transition                                                e      (162.4)
Lower pension expense for quarter ended March 31,
 2010, net of tax                                             e         1.9
Actuarial gains (losses) on defined benefit plans for
 quarter ended March 31, 2010, net of tax                     e       (36.7)
Recognition of impairment provisions at date of
 transition                                                   c       (42.6)
Lower amortization of timber licenses and property,
 plant and equipment for quarter ended March 31, 2010,
 net of tax                                                   c         1.1
Effect of change in discount rate for deferred
 reforestation obligation recognized on transition            f         1.0
---------------------------------------------------------------------------
IFRS - Total equity                                             $   1,435.2
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(iv) Reconciliation of comprehensive income for year ended December 31, 2010

                                                           Note  Year ended
                                                       (section   December
(millions of Canadian dollars, unaudited)                   vi)    31, 2010
---------------------------------------------------------------------------
Net income
Previous Canadian GAAP                                               $161.3
Lower amortization of property, plant and equipment
 and timber licenses in period, net of tax                    c         5.2
Lower pension expense for period, net of tax                  e         7.3
Effect of change in discount rate for deferred
 reforestation obligation recognized on transition            f        (2.0)
---------------------------------------------------------------------------
Net income under IFRS                                                $171.8
---------------------------------------------------------------------------
Other comprehensive income (loss)
Previous Canadian GAAP                                               $(10.3)
Actuarial losses on defined benefit plans during the
 period, net of tax                                           e       (48.0)
---------------------------------------------------------------------------
Other comprehensive income (loss) under IFRS                         $(58.3)
---------------------------------------------------------------------------

(v) Reconciliation of balance sheet at December 31, 2010

                                   Previous      Note  Effect of
As at December 31, 2010            Canadian  (section transition
(millions of dollars, unaudited)       GAAP        vi)   to IFRS       IFRS
---------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents       $     260.3          $         -$     260.3
---------------------------------------------------------------------------
Accounts receivable - Trade           146.9                    -      146.9
---------------------------------------------------------------------------
                    - Other            54.2                    -       54.2
---------------------------------------------------------------------------
Deferred income taxes, net             12.4         a      (12.4)         -
---------------------------------------------------------------------------
Inventories                           326.6         c       (0.8)     325.8
---------------------------------------------------------------------------
Prepaid expenses                       38.8         b      (10.7)      28.1
---------------------------------------------------------------------------
Total current assets                  839.2                (23.9)     815.3
---------------------------------------------------------------------------
Property, plant and equipment                       b       13.8
                                                    c       (7.6)
                                                    d     (588.1)
                                                      ----------
                                    1,631.0               (581.9)   1,049.1
---------------------------------------------------------------------------
Timber licenses                                     c      (41.4)
                                                    d      588.1
                                                      ----------
                                          -                546.7      546.7
---------------------------------------------------------------------------
Goodwill and other intangible
assets                                              e     (134.8)
                                                    d       13.4
                                                      ----------
                                      205.9               (121.4)      84.5
---------------------------------------------------------------------------
Long term investments and other                     b       (3.1)
                                                    d      (13.4)
                                                    e        3.4
                                                      ----------
                                      102.2                (13.1)      89.1
---------------------------------------------------------------------------
                                $   2,778.3          $    (193.6) $ 2,584.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILITIES
Current liabilities
---------------------------------------------------------------------------
Accounts payable and accrued
 liabilities                    $     292.9          $         -  $   292.9
---------------------------------------------------------------------------
Current portion of long-term
 debt                                  82.5                    -       82.5
---------------------------------------------------------------------------
Current portion of deferred
 reforestation obligation              31.6                    -       31.6
---------------------------------------------------------------------------
Total current liabilities             407.0                    -      407.0
---------------------------------------------------------------------------
Long-term debt                        235.6                    -      235.6
---------------------------------------------------------------------------
Retirement benefit obligations                      e      132.3
                                                    e      139.9
                                                      ----------
                                          -                272.2      272.2
---------------------------------------------------------------------------
Deferred reforestation
 obligation                                         f       53.0
                                                    f        1.3
                                                      ----------
                                          -                 54.3       54.3
---------------------------------------------------------------------------
Other long-term liabilities                         f      (53.0)
                                                    e     (139.9)
                                                      ----------
                                      209.3               (192.9)      16.4
---------------------------------------------------------------------------
Deferred income taxes, net                          a      (12.4)
                                                    c      (12.3)
                                                    e      (60.6)
                                                    f       (0.3)
                                                      ----------
                                      209.3                (85.6)     123.7
---------------------------------------------------------------------------
                                $   1,061.2          $      48.0 $  1,109.2
---------------------------------------------------------------------------
EQUITY
Share capital                   $   1,125.4          $         - $  1,125.4
---------------------------------------------------------------------------
Contributed surplus                    31.9                    -       31.9
---------------------------------------------------------------------------
Retained earnings                                   c      (37.5)
                                                    e     (182.7)
                                                    f       (1.0)
                                                    g      (16.0)
                                                      ----------
                                      316.2               (237.2)      79.0
---------------------------------------------------------------------------
Accumulated foreign exchange
 translation differences              (26.3)        g       16.0      (10.3)
---------------------------------------------------------------------------
Total equity attributable to
 equity holders of the Company      1,447.2               (221.2)   1,226.0
Non-controlling interests             269.9         e      (20.4)     249.5
---------------------------------------------------------------------------
Total equity                    $   1,717.1          $    (241.6) $ 1,475.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                $   2,778.3          $    (193.6) $ 2,584.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------

(vi) Explanatory notes for reconciliations

The following explanations are referenced in the reconciliations in sections

(i) to (v) of this note:

a. Classification of all deferred income taxes as non-current assets

(liabilities)

International Accounting Standard 1 ("IAS 1") requires that all deferred

income tax balances be presented as non-current assets or liabilities on the

balance sheet under IFRS. Previous GAAP required amounts to be shown as

current assets or liabilities depending on the classification of the assets

and liabilities to which the deferred income tax balances relate.

The effect of this reclassification on the Company's opening balance sheet was

to move $11.4 million of deferred income taxes included within current assets

to be offset against deferred income taxes in non-current liabilities. At

December 31, 2010, the amount reclassified was $12.4 million.

b. Reclassification of deferred maintenance costs to property, plant and

equipment

CPLP carries out scheduled major maintenance shutdowns at its mills at regular

intervals where the period between shuts can be longer than 12 months. Under

previous GAAP, the costs of such shutdowns were initially recorded as a

prepaid expense (with current and long term components) and amortized over the

period until the next scheduled major shutdown. Under IFRS, these costs are

considered to be a part of property, plant and equipment, and are also

amortized over the period between shutdowns.

The effect of this on the Company's opening balance sheet was to reclassify

$20.8 million into property, plant and equipment, with $15.4 million being

removed from prepaids, and $5.4 million from long-term investments and other

(reflecting the long-term portion). At December 31, 2010, $13.8 million was

reclassified into property, plant and equipment with $10.7 million from

prepaids and $3.1 million from long-term investments and other.

The reclassification of these maintenance costs results in the related expense

being moved from manufacturing and product costs to amortization. In the first

quarter of 2010 the amount of the reclassification on the income statement was

$4.7 million, and the full year 2010 amount was $18.7 million.

c. Recognition of impairment provisions against property, plant and equipment

and timber licenses

There are differences in the methodology used to determine if an asset should

be impaired under IFRS compared to that under previous GAAP. The previous GAAP

rules provided for a two-step test, with no impairment being required if the

undiscounted future expected cash flows relating to an asset exceeded the

carrying value of that asset. Under IFRS, the undiscounted cash flows are not

considered and an impairment is recorded where the recoverable amount (defined

as the higher of 'value in use' and 'fair value less costs to sell') is below

the asset's carrying value. As a result, impairments were required for certain

assets under IFRS that were not recorded under previous GAAP.

The effect at the date of transition was to decrease the book value of certain

sawmill assets included within property, plant and equipment by $9.4 million

and timber licenses by $46.6 million. An impairment of $0.8 million was also

recorded against capital spares inventory. A corresponding adjustment to

deferred income taxes of $14.2 million was also recorded, with the net amount

of $42.6 million being charged to opening equity.

These impairments had the impact of reducing the overall amortization expense

by $1.1 million for the first quarter of 2010, and $5.2 million for the 2010

year.

At December 31, 2010 the impact of these opening balance sheet impairments,

after amortization, was to reduce property, plant and equipment by $7.6

million, timber licenses by $41.4 million and capital spares inventory by $0.8

million. The deferred income tax adjustment was $12.3 million, with the net

amount of $37.5 million being charged to equity. No additional impairments

were required at December 31, 2010 under IFRS.

d. Reclassification of timber licenses and customer agreements

Under previous GAAP, the Company reported its timber licenses as a component

of property, plant, equipment and timber. This is inconsistent with IFRS, and

accordingly these balances have been reclassified to intangible assets. As a

result of this reclassification, $610.3 million (before the above impairment)

has been moved from property, plant, equipment and timber to timber licenses

in the opening balance sheet, and $588.1 million at December 31, 2010.

In addition, customer agreements of $16.8 million in the opening balance sheet

(December 31, 2010 - $13.4 million) have been reclassified from long-term

investments and other to intangible assets.

e. Recognition of unamortized actuarial losses at date of transition to IFRS

into equity

Under IFRS, the Company's accounting policy is to recognize all actuarial

gains and losses, arising on its defined benefit pension and other non-pension

post retirement plans, immediately in other comprehensive income. At the date

of transition, all previously unrecognized cumulative actuarial gains and

losses were recognized in retained earnings.

This resulted in a charge to retained earnings in the opening balance sheet of

$148.4 million, and a charge to non-controlling interests of $14.0 million

reflecting non-controlling interests in CPLP. Pension assets recorded under

previous GAAP of $110.6 million were removed, and liabilities of $101.3

million were recorded to reflect the actual funding position of the defined

benefit pension plans. Remaining pension assets of $4.2 million were

transferred from deferred charges to long-term investments and other. The

long-term deferred income tax liability was reduced by $49.5 million as result

of these adjustments. In addition, $132.2 million was reclassified from other

long-term liabilities into the retirement benefit obligations line item on the

balance sheet, reflecting liabilities in relation to non-pension post-

retirement plans.

Under previous GAAP, actuarial gains and losses were deferred and taken

through the income statement over a number of years. As Canfor has elected to

recognize these immediately through other comprehensive income under IFRS, the

defined benefit expense in the income statement is reduced by $1.9 million for

the first quarter of 2010 and $7.3 million for the full year. The after-tax

charge through other comprehensive income was $36.7 million in the first

quarter of 2010, and $48.0 million for the full year.

At December 31, 2010 the differences in retained earnings and non-controlling

interests under IFRS compared to previous GAAP were $182.7 million and $20.4

million, respectively. Pension assets of $131.4 million were removed and a

liability of $132.3 million was recorded, with remaining pension assets of

$3.4 million reclassified to long-term investments and other. The long-term

deferred income tax liability was reduced by $60.6 million as a result of

these adjustments. $139.9 million was reclassified in relation to non-pension

post-retirement plans.

f. Reclassification of long-term deferred reforestation obligation to separate

balance sheet line item

The Company has elected to present the long-term deferred reforestation

provision as a separate item on the balance sheet in the current year.

Previously, this was included in other long-term liabilities. In addition, the

amount of this provision of $60.3 million at January 1, 2010 was reduced in

the opening balance sheet by $1.3 million due to a change in discount rate

required to value the obligation under IFRS as compared to previous GAAP.

During 2010, the difference in discount rates used resulted in an after-tax

expense that was $2.0 million higher under IFRS than under previous GAAP. In

addition, the expense related to the unwinding over time of the discount on

the Company's deferred reforestation obligation was reclassified from

manufacturing and product costs into finance expense.

At December 31, 2010, the provision under previous GAAP of $53.0 million was

reclassified, and was increased by $1.3 million due to different discount

rates being used.

g. Reset of the accumulated foreign translation account to zero at transition

In accordance with IFRS 1, the Company has elected to deem all foreign

currency translation differences that arose prior to the date of transition in

respect of entities with functional currencies other than the Canadian dollar

to be nil at the date of transition. This resulted in a credit of $16.0

million to accumulated foreign translation differences and a charge of the

same amount to retained earnings.

(vii) Explanation of material adjustments to the statement of cash flows

The impact of the transition to IFRS on the statement of cash flows is to

reclassify certain items between cash flow categories. One of the main

reclassifications relates to interest payments and receipts which were

classified as operating activities under previous GAAP, but are shown as

financing and investing activities, respectively, under IFRS.

In addition, the reclassification of certain of CPLP's major maintenance costs

to property, plant and equipment under IFRS has an impact on the statement of

cash flows. Under previous GAAP these costs were shown under operating

activities as deferred maintenance spending, whereas under IFRS they are

included in additions to property, plant and equipment under investing

activities.

15. Supplemental IFRS disclosures for the year ended December 31, 2010

The following disclosures provide further information relating to Canfor's

financial statements as at, and for the year ended, December 31, 2010. This

additional disclosure is provided as a reference to aid the understanding of

these first interim condensed consolidated financial statements prepared under

IFRS.

15.1 Impairment of capital assets and timber licenses

In its opening balance sheet as at January 1, 2010, the Company recorded

impairments of $46.6 million in relation to timber licenses and $9.4 million

in relation to property, plant and equipment. These impairments all relate to

the lumber segment. No impairment was recorded in connection with goodwill of

$73.3 million at January 1, 2010 (December 31, 2010 - $69.6 million) resulting

from the Company's acquisition of operations in the U.S. in 2006.

The opening balance sheet impairments principally reflect the impact of the

Mountain Pine Beetle epidemic on the Company's B.C. Interior operations. The

recoverable amounts of capital assets, timber licenses and goodwill for

impairment assessment purposes have been determined using a discounted cash

flow calculation to estimate their fair value less costs to sell, using cash

flows forecast for periods up to 10 years. Key assumptions used in these cash

flow forecasts include forecast prices and foreign exchange rates which

Canfor's management determined with reference to external publications. A pre-

tax discount rate of 11.0% was also used for the purposes of this calculation.

15.2 Employee Future Benefits

Canfor has several funded and unfunded defined benefit plans, as well as

defined contribution plans, that provide pension, other retirement and post-

employment benefits to substantially all salaried employees and certain hourly

employees. The defined benefit plans are based on years of service and final

average salary. Canfor's other post-retirement benefit plans are non-

contributory and include a range of health care and other benefits. Canfor

also provides pension bridge benefits to certain eligible former employees.

Defined Benefit Plans

Canfor obtains actuarial valuations for its accrued benefit obligations and

the fair value of plan assets for accounting purposes under IFRS as at

December 31 of each year. In addition, the Company estimates movements in its

accrued benefit liabilities at the end of each interim reporting period, based

upon movements in discount rates and the rates of return on plan assets, as

well as any significant changes to the plans. Adjustments are also made for

payments made and benefits earned.

In 2010, Canfor had six registered defined benefit plans, for which actuarial

valuations are performed every three years. The most recent actuarial

valuation for funding purposes of Canfor's single largest pension plan was as

of December 31, 2009, and the next required plan valuation is currently

scheduled for December 31, 2012.

Information about Canfor's defined benefit plans, in aggregate, is as follows:

                                                             2010
---------------------------------------------------------------------------
                                                     Pension          Other
                                                     Benefit        Benefit
(millions of dollars)                                  Plans          Plans
---------------------------------------------------------------------------
Defined Benefit Plan Assets
Fair market value of plan assets
Beginning of year                                $     466.8    $         -
Actual return on plan assets                            45.6              -
Canfor contributions                                    38.7            5.1
Employee contributions                                   0.9              -
Benefit payments                                       (38.5)          (5.1)
---------------------------------------------------------------------------
End of year                                      $     513.5    $         -
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                             2010
---------------------------------------------------------------------------
                                                     Pension          Other
                                                     Benefit        Benefit
(millions of dollars)                                  Plans          Plans
---------------------------------------------------------------------------
Defined Benefit Plan Obligations
Accrued benefit obligation
Beginning of year                                $     553.6    $     123.7
Current service cost                                     8.8            1.7
Interest cost                                           33.7            8.0
Employee Contributions                                   0.9              -
Benefit payments                                       (38.5)          (5.1)
Actuarial loss (gain)                                   49.5           22.0
Other                                                      -            0.5
---------------------------------------------------------------------------
End of year                                      $     608.0    $     150.8
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Of the defined benefit plan obligation of $608.0 million (January 1, 2010 -

$553.6 million), $12.3 million relates to plans that are wholly unfunded and

$595.7 million relates to plans that are wholly or partly funded (January 1,

2010 - $11.7 million and $541.9 million, respectively). At December 31, 2010,

certain liabilities for wholly unfunded pension plans were secured by a letter

of credit in the amount of $12.2 million (January 1, 2010 - $12.9 million).

The total obligation for the other benefit plans of $150.8 million (January 1,

2010 - $123.7 million) is unfunded.

Reconciliation of Funded Status of Benefit Plans to Amounts Recorded in the
Financial Statements
                                December 31, 2010        January 1, 2010
---------------------------------------------------------------------------
                                Pension       Other     Pension       Other
                                Benefit     Benefit     Benefit     Benefit
(millions of dollars)             Plans       Plans       Plans       Plans
---------------------------------------------------------------------------
Fair market value of plans
 assets                      $    513.5  $        -  $    466.8  $        -
Accrued benefit obligation       (608.0)     (150.8)     (553.6)     (123.7)
---------------------------------------------------------------------------
Funded status of plans -
 surplus (deficit)                (94.5)     (150.8)      (86.8)     (123.7)
Unamortized past service
 costs                                -           -           -         0.1
Effect of limit on
 recognition of asset              (4.1)          -        (3.8)          -
---------------------------------------------------------------------------
Accrued benefit liability         (98.6)     (150.8)      (90.6)     (123.6)
Pension bridge benefits           (18.4)          -       (15.9)          -
Other pension plans                (1.0)          -         0.8           -
---------------------------------------------------------------------------
Total accrued benefit
liability, net               $   (118.0) $   (150.8) $   (105.7) $   (123.6)
---------------------------------------------------------------------------
The net accrued benefit liability is included in
Canfor's balance sheet as follows:
Long-term investments and
 other                       $      3.4   $       -  $      4.2  $        -
Retirement benefit
 obligations                     (121.4)     (150.8)     (109.9)     (123.6)
---------------------------------------------------------------------------
Total accrued benefit
 liability, net              $   (118.0)  $  (150.8) $   (105.7) $   (123.6)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Components of pension cost

The following table shows the before tax impact on net income and other

comprehensive income of the Company's pension and other defined benefit plans.

                                                            2010
---------------------------------------------------------------------------
                                                      Pension         Other
                                                      Benefit       Benefit
(millions of dollars)                                   Plans         Plans
---------------------------------------------------------------------------
Recognized in net income
Current service cost                            $         8.8 $         1.7
Interest cost                                            33.7           8.0
Expected return on plan assets                          (33.9)            -
Other                                                       -           0.5
---------------------------------------------------------------------------
Total pension cost recognized in net income     $         8.6 $        10.2
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Recognized in other comprehensive income
Actuarial loss (gain) immediately recognized    $        33.7 $        22.0
Effect of limit on recognition of asset                   0.4             -
Curtailment loss (gain)                                   4.0             -
---------------------------------------------------------------------------
Total pension cost recognized in other
 comprehensive income                           $        38.1 $        22.0
---------------------------------------------------------------------------
---------------------------------------------------------------------------

In addition to the amounts shown above, the expense recorded in net income for

the bridge benefits in 2010 was $2.6 million, and $1.4 million was charged to

other comprehensive income.

The expected return on plan assets is determined by taking into account the

expected returns on the assets based on the Company's current investment

policy.

Significant assumptions

The actuarial assumptions used in measuring Canfor's benefit plan provisions

are as follows:

                                     December 31, 2010    January 1, 2010
---------------------------------------------------------------------------
                                      Pension     Other   Pension     Other
                                      Benefit   Benefit   Benefit   Benefit
(weighted average assumptions)          Plans     Plans     Plans     Plans
---------------------------------------------------------------------------
Accrued benefit obligation at
 reporting date:
Discount rate                           5.50%     5.75%     6.25%     6.75%
Rate of compensation increase           3.00%       n/a     3.00%       n/a
Benefit costs for year ended
 December 31:
Discount rate                           6.25%     6.75%       n/a       n/a
Expected rate of return on plan
 assets                                 7.50%       n/a       n/a       n/a
Future salary increases                 3.00%       n/a       n/a       n/a
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Assumed health care cost trend rates

(weighted average assumptions)          December 31, 2010   January 1, 2010
---------------------------------------------------------------------------
Initial health care cost trend rate                 6.95%             7.15%
Ultimate health care trend rate                     4.20%             4.20%
Year ultimate rate is reached                        2029              2029
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Sensitivity analysis

Assumed health care cost trend rates have a significant effect on the amounts

reported for the other benefit plans. A one percentage-point change in assumed

health care cost trend rates would have the following effects for 2010:

(millions of dollars)                            1% Increase    1% Decrease
---------------------------------------------------------------------------
Effect on defined benefit obligation          $         23.7  $       (19.3)
Effect on the aggregate service and interest
 cost                                         $          2.0  $        (1.6)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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