Western Forest Products Inc.
TSX : WEF

Western Forest Products Inc.

March 04, 2008 23:53 ET

Western Forest Products Fourth Quarter 2007 Reflects Post-Strike Period Also Affected by Weak U.S. Market and Strong Canadian Dollar

DUNCAN, BRITISH COLUMBIA--(Marketwire - March 4, 2008) - Western Forest Products Inc. (TSX:WEF) ("Western" or "the Company") today announced results for the fourth quarter and full year 2007. The Company reported a net loss of $42.9 million ($0.21 per share) and EBITDA of negative $28.4 million in the quarter and net loss for the year of $55.8 million ($0.27 per share).

The Fourth Quarter Report for 2007 is available on SEDAR and on the Company's website at www.westernforest.com.

TELECONFERENCE CALL NOTIFICATION: Friday, March 7, 2008 at 10:00 a.m. PST/1:00 p.m. EST

On Friday, March 7, 2008, Western Forest Products Inc. will host a teleconference call at 10:00 a.m. PST (1:00 p.m. EST). To participate in the teleconference please dial 1-800-594-3790 in Canada and the U.S. (toll free) and in Toronto or Internationally, 416-644-3424 before 10:00 a.m. PST (1:00 p.m. EST). This call will be taped, available one hour after the teleconference, and on replay until March 21, 2008. To hear a complete replay, please call 1-877-289-8525 in Canada and the U.S. (toll free), Passcode 21264396# or in Toronto and Internationally, 416-640-1917, Passcode 21264396#. This call will also be webcast from Western's website at www.westernforest.com.

Western Forest Products

Western is an integrated Canadian forest products company and the largest coastal British Columbia woodland operator and lumber producer with an annual available harvest of approximately 7.5 million cubic metres of timber of which 7.3 million cubic metres is from Crown lands and lumber capacity in excess of 1.5 billion board feet from eight sawmills and four remanufacturing plants. Principal activities conducted by the Company include timber harvesting, reforestation, sawmilling logs into lumber and wood chips and value-added remanufacturing. Substantially all of Western's operations, employees and corporate facilities are located in the coastal region of British Columbia while its products are sold in over 30 countries worldwide.

Western Forest Products Inc.

2007 Fourth Quarter Report

Management's Discussion & Analysis

The following discussion and analysis reports and comments on the financial condition and results of operations of Western Forest Products Inc. ("Company", "Western", "us", "we", or "our"), on a consolidated basis, for our fourth quarter ended December 31, 2007 to help security holders and other readers understand our Company and the key factors underlying our financial results. This discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and related notes thereto for the fourth quarter and twelve months ended December 31, 2007, and our audited annual consolidated financial statements and management's discussion and analysis ("MD&A") for the year ended December 31, 2006 (the "2006 Annual Report"), all of which can be found on the System for Electronic Document Analysis and Retrieval (SEDAR), at http://www.sedar.com.

We have prepared the financial information contained in this discussion and analysis in accordance with Canadian generally accepted accounting principles ("GAAP"). Reference is also made to EBITDA(1). EBITDA is defined as operating income (loss) plus amortization of property, plant and equipment and the write-down of property, plant and equipment and operating restructuring costs. We use EBITDA as a benchmark measurement of our own operating results and as a benchmark relative to our competitors. We consider EBITDA to be a meaningful supplement to operating income as a performance measure primarily because amortization expense and property write-downs are not cash costs, and vary widely from company to company in a manner that we consider largely independent of the underlying cost efficiency of their operating facilities. Further, operating restructuring costs are not expected to occur on a regular basis and may make comparisons of our operating results between periods more difficult. We also believe EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

EBITDA does not represent cash generated from operations as defined by Canadian GAAP and it is not necessarily indicative of cash available to fund cash needs. Furthermore, EBITDA does not reflect the impact of a number of items that affect our net income (loss). EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to measures of performance under GAAP. Moreover, because all companies do not calculate EBITDA in the same manner, EBITDA as calculated by us may differ from EBITDA as calculated by other companies.

This management's discussion and analysis contains statements which constitute forward-looking statements and forward-looking information within the meaning of applicable securities laws. Those statements and information appear in a number of places in this document and include statements and information regarding our intent, belief or current expectations primarily with respect to market and general economic conditions, future costs, expenditures, available harvest levels and our future operating performance. Such statements and information may be indicated by words such as "estimate", "expect", "anticipate", "plan", "intend", "believe", "should", "may" and similar words and phrases. Readers are cautioned that any such forward-looking statements and information are not guarantees and may involve known and unknown risks and uncertainties, and that actual results may differ from those expressed or implied in the forward-looking statements or information as a result of various factors. Such risks and uncertainties include, among others: general economic conditions, competition and selling prices, changes in foreign currency exchange rates, labour disruptions, natural disasters, relations with First Nations groups, changes in laws, regulations or public policy, misjudgments in the course of preparing forward-looking statements or information and other factors referenced under the "Risk Factors" section in our Annual Information Form dated March 30, 2007 and under the "Risks and Uncertainties" section of our MD&A in our 2006 Annual Report. All written and oral forward-looking statements or information attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements. Except as required by law, Western does not expect to update forward-looking statements or information as conditions change.

Unless otherwise noted, the information in this discussion and analysis is updated to March 4, 2008. All financial references are in millions of Canadian dollars unless otherwise noted.

(1) Earnings Before Interest, Tax, Depreciation and Amortization



Summary of Selected Quarterly Results

Three Three Three Twelve Twelve
Months Months Months Months Months
(millions of Ended Ended Ended Ended Ended
dollars December September December December December
except per 31, 30, 31, 31, 31,
share amounts) 2007 2007 2006 2007 2006
--------------------------------------------------------------------------
Sales $ 136.6 $ 176.5 $ 279.1 $ 890.5 $ 896.8
Export tax and
lumber duties
expensed $ (2.0) $ (4.3) $ (3.6) $ (15.7) $ (19.5)
EBITDA $ (28.4) $ (29.8) $ 120.4 $ (13.8) $ 138.2
EBITDA before lumber
duty refund $ (28.4) $ (29.8) $ 10.1 $ (13.8) $ 27.9
EBITDA margin (before
lumber duty refund) (20.8)% (16.9)% 3.6% (1.5)% 3.1%
Lumber duty refund $ - $ - $ 110.3 $ - $ 110.3
Operating income (loss) $ (36.3) $ (36.6) $ 108.3 $ (46.6) $ 93.5
Interest expense $ (5.9) $ (6.0) $ (9.2) $ (24.6) $ (41.1)
Foreign exchange gain
(loss) long-term debt $ 0.1 $ 5.6 $ (6.0) $ 12.7 $ 2.5
Premium and unamortized
discount bond redemption $ - $ - $ - $ - $ (27.9)
Interest income on lumber
duty refund $ - $ - $ 14.1 $ - $ 14.1
Net income (loss) from
continuing operations $ (41.9) $ (37.2) $ 109.3 $ (57.1) $ 43.9
Net income (loss) from
discontinued operations $ (1.0) $ (0.5) $ (1.0) $ 1.3 $ (10.8)
Net income (loss) and
comprehensive income $ (42.9) $ (37.7) $ 108.3 $ (55.8) $ 33.1
--------------------------------------------------------------------------
Per share -
basic and diluted:
--------------------------------------------------------------------------
Net income (loss)
from continuing
operations $ (0.21) $ (0.18) $ 0.53 $ (0.28) $ 0.30
Net income (loss) $ (0.21) $ (0.18) $ 0.53 $ (0.27) $ 0.23
--------------------------------------------------------------------------
Cash provided (used) by
continuing operations $ (51.7) $ (18.0) $ 100.6 $ (52.0) $ 69.6
--------------------------------------------------------------------------


Overview

The results of operations for the twelve months ended December 31, 2006 include certain former Cascadia operations from the acquisition date of May 1, 2006 and, accordingly, are not directly comparable to the twelve months ended December 31, 2007. In addition, 2006 is not directly comparable to 2007 as the Company changed its accounting policy for the costing of sawlogs and lumber inventories effective January 1, 2007 on a retrospective basis without restatement of prior periods, as the detailed information required to implement the policy on a retrospective basis was not available.

The Company recorded a net loss from continuing operations of $41.9 million ($0.21 per share) in the fourth quarter of 2007 compared to net income from continuing operations of $109.3 million ($0.53 per share) in the fourth quarter of 2006. EBITDA was negative $28.4 million in the fourth quarter of 2007 compared to $120.4 million in the fourth quarter of 2006. In 2006, net income and EBITDA in the fourth quarter and year benefited from the settlement of the softwood lumber dispute pursuant to which Western received $124.4 million (US$109.6 million) in interest and refunds of anti-dumping duties and countervailing duties previously collected by the United States. Excluding the lumber duty refund, EBITDA was $10.1 million for the fourth quarter of 2006.

The strike action taken on July 20, 2007 by the United Steelworkers Union against Forest Industrial Relations (FIR) member companies, which included Western, continued to impact Western's results into the fourth quarter. While the strike was resolved on October 21, 2007, depleted lumber inventories constrained sales in the fourth quarter of 2007. During the remainder of the quarter, logging and sawmilling operations focused on a safe and productive return to work. Other items that impacted earnings during the quarter included:

- Lumber sales fell from $141.6 million in the third quarter of 2007 to $93.3 million in the fourth quarter of 2007 largely as a direct result of low lumber inventories that were depleted during the aforementioned labour action. Although market prices for Western's lumber products remained relatively stable during the quarter compared to the previous quarter, the Company sold less high grade douglas fir, cedar and custom cut cypress products and a greater proportion of lower grade products, which reduced average net prices for lumber.

- From October 1, 2007 until the strike ended on October 21, 2007, the Company continued to directly expense fixed costs and certain other costs that otherwise would have been capitalized in inventory during that period.

- In anticipation of further deterioration of the U.S. structural dimension market and the continued strengthening of the Canadian dollar relative to the US dollar, the Company reduced its exposure to the U.S. market by restricting dimension lumber sales to the U.S.

- The Canadian dollar continued to strengthen against the US dollar during the fourth quarter, rising by approximately six cents. The US dollar is the billing currency for over 50% of the Company's sales. The Canadian dollar to the US dollar averaged $0.9809 in the fourth quarter of 2007, $1.0446 in the third quarter of 2007 and $1.1277 in the fourth quarter of 2006. A one cent increase or decrease in the value of the Canadian dollar compared to the US dollar reduces or increases, respectively, EBITDA by approximately $4.0-$6.0 million on an annualized basis depending on the proportion of US dollar denominated sales within total sales.

Continuing Operations



Three Three Three Twelve Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
(millions of December September December December December
dollars except 31, 30, 31, 31, 31,
where noted) 2007 2007 2006 2007 2006
--------------------------------------------------------------------------
Lumber sales $ 93.3 $ 141.6 $ 217.8 $ 650.1 $ 677.1
Log sales 29.6 26.5 44.6 184.6 162.1
By-product sales 13.7 8.4 16.7 55.8 57.6
------------------------------------------------
$ 136.6 $ 176.5 $ 279.1 $ 890.5 $ 896.8
------------------------------------------------

Lumber production -
millions of board feet 169 107 271 804 1,000
Lumber sales - millions
of board feet 131 174 278 829 976

Log production -
thousands of
cubic metres 1,075 607 1,585 5,299 5,762
Log purchases - thousands
of cubic metres 210 203 242 967 654
Log sales - thousands of
cubic metres 412 364 625 2,369 2,084
Internal log consumption -
thousands of
cubic metres 725 470 1,138 3,452 4,169

Average lumber sales
revenue per thousand
board feet $ 712 $ 814 $ 783 $ 784 $ 694
Average log sales
revenue per cubic metre $ 72 $ 73 $ 71 $ 78 $ 78


During the fourth quarter of 2007 and after the conclusion of the strike, significant attention was given to a safe startup of business operations while replenishing the supply pipeline for both logs and lumber. We also executed a shift toward alternative product and geographic segments away from the U.S. dimension lumber market in light of the weakening demand in the U.S., the strengthening of the Canadian dollar and an export tax rate of 15%.

Compared to the third quarter of 2007, total lumber sales volume dropped by 24% due to strike-depleted lumber inventories and the decision to reduce dimension lumber sales to the U.S. In addition, the average net lumber price fell from $814/mfbm in the third quarter of 2007 to $712/mfbm in the fourth quarter due to lower sales of high grade lumber products, particularly cedar. On a comparative basis, higher average lumber selling prices in the fourth quarter of 2006 of $783/mfbm were driven largely by a weaker Canadian dollar.

Sales to the U.S. structural dimension market continue to be hampered by reduced housing starts, high levels of unsold housing inventory and the strengthening Canadian dollar. The "Random Lengths Framing Lumber Composite Index" ("Index") fell from US$280/mfbm in September to US$264/mfbm by mid-December. The export tax rate varies according to the price of lumber based on the Index, with a 15% tax applicable when the Index is below US$315/mfbm.

Demand for western red cedar and high grade hemlock was strong during the fourth quarter of 2007. Certain key cedar customers have committed to purchases through the end of the second quarter of 2008 and prices are anticipated to remain stable during that time.

A shortage of both kiln dried and green hemlock squares in Japan as a consequence of the strike increased prices for both products during the fourth quarter. Housing starts in Japan improved from the third quarter of 2007, with post & beam housing starts in October 2007 being the best since June 2007, when newly introduced building standards eroded housing starts. Toward the end of the fourth quarter, however, the Japanese market experienced some seasonal slowdown and increased competition from U.S. log and lumber producers looking for alternative markets for their products.

With the resumption of business operations after the strike, log harvesting recommenced and 1,075,000 cubic metres were produced in the fourth quarter of 2007 compared to 607,000 cubic metrics in the third quarter of 2007. However, log production was significantly lower than in the same period of 2006 as logging operations in 2007 were substantially dormant until the end of the strike. From that date, Western continued to focus on harvesting higher value logs from higher elevations, and as a result the percentage of more expensive helicopter logging was greater in the fourth quarter. Inventory levels at December 31, 2007 for all log sorts were satisfactory compared to the previous year-end, when severe storm conditions in December 2006 restricted harvesting activities, preventing the replenishment of inventories. The Company believes that inventory levels at December 31, 2007 were more consistent with historical levels, better positioning Western for the ensuing quarter when compared to inventory at December 31, 2006 or September 30, 2007.

Cost of sales in the fourth quarter includes a provision of $0.7 million against a receivable of $0.9 million from one of the pulp mills owned by Pope & Talbot, which entered into creditor protection proceedings during the quarter. Western will pursue appropriate actions to recover the debt, although there is no assurance that full or any recovery will occur.

The volume of log sales increased by 14% during the fourth quarter compared to the preceding quarter. The vast majority of the sales were pulp logs sold to pulp and paper companies. The average selling price of logs at $72/m3 remained virtually unchanged from the previous quarter and the comparable quarter in 2006 at $73/m3 and $71/m3 respectively as the domestic log markets remained strong due to lack of available supply and high pulp log prices.

Selling and administration expense of $9.4 million in the fourth quarter compares to $9.8 million in the third quarter of 2007 and $12.0 million in the fourth quarter of 2006. The expense in the last quarter of 2007 reflects continued efforts to reduce selling and administrative expenses.

Interest expense of $5.9 million in the fourth quarter of 2007 is virtually unchanged from the third quarter of 2007, but represents a significant reduction from the 2006 fourth quarter interest expense of $9.2 million. The decrease from the fourth quarter of 2006 is attributable to a reduction in the Company's long-term debt outstanding during the fourth quarter of 2006 and the first quarter of 2007 as well as a reduction in the interest rate on the portion of the debt payable in US dollars, which became effective in the first quarter of 2007.

The unrealized foreign exchange gain on long-term debt decreased to $0.1 million in the fourth quarter of 2007 compared to $5.6 million in the third quarter of 2007 and a loss of $6.0 million in the fourth quarter of 2006. This reflects changes in the principal amount of debt outstanding and changes in the period-end exchange rate. The period-end exchange rate of the Canadian dollar at December 2007 was $0.9913 to the US dollar, virtually unchanged from the September 2007 period-end rate of $0.9948 to the US dollar, but was significantly stronger than the $1.1654 December 2006 period-end rate.

Discontinued Operations

The net loss from discontinued operations during the fourth quarter of 2007 was $1.0 million, compared to a net loss of $0.5 million in the third quarter of 2007 and a loss of $1.0 million in the fourth quarter of 2006. The increase in loss, compared to the third quarter of 2007, was due to the higher than expected environmental remediation work performed in the fourth quarter of 2007. The fourth quarter loss of $1.0 million represents costs associated with environmental remediation, ongoing supervision, security and property taxes in respect of the 213-acre site of the former Woodfibre pulp mill located at Squamish on the mainland coast of B.C. Such costs are expected to continue to be incurred until the property is sold. The Company is currently focused on site remediation and expects to list the property for sale in the second half of 2008.

Changes in Financial Position and Liquidity



Three Three Three Twelve Twelve
Months Months Months Months Months
Ended Ended Ended Ended Ended
(millions of December September December December December
dollars except 31, 30, 31, 31, 31,
where noted) 2007 2007 2006 2007 2006
--------------------------------------------------------------------------
Cash provided (used) by
continuing operations $ (51.7) $ (18.0) $ 100.6 $ (52.0) $ 69.6
Cash provided (used) by
investing activities $ (4.5) $ (2.8) $ 7.3 $ 0.4 $ (191.6)
Cash provided (used) by
financing activities $ 47.7 $ 1.9 $ (96.2) $ 17.1 $ 140.8
Additions to property,
plant and equipment $ (2.7) $ (2.5) $ (6.3) $ (13.2) $ (21.6)
Additions to
capitalized roads $ (3.4) $ (2.5) $ (3.8) $ (13.3) $ (15.9)
Change in revolving
credit facility $ 47.7 $ 0.9 $ 3.6 $ 45.0 $ (76.5)
Total liquidity(1) $ 67.4 $ 120.1 $ 143.5 $ 67.4 $ 143.5
Financial ratios:
Current assets to
current liabilities 1.35 1.72 3.18 1.35 3.18
Net debt(2) to
shareholders equity 0.54 0.36 0.37 0.54 0.37
Net debt(2) to market
capitalization 0.67 0.38 0.43 0.67 0.43

(1) Total liquidity comprises cash and cash equivalents and available
credit under the Company's revolving credit facility.
(2) Net debt defined as the sum of long-term debt, current portion of long
term debt, revolving credit facility, less cash and cash equivalents.


Cash flow from continuing operations in the fourth quarter of 2007 was negative $51.7 million compared to negative $18.0 million in the third quarter of 2007 and positive $100.6 million in the fourth quarter of 2006. The increased draw on cash compared to the third quarter of 2007 is the direct result of the post-strike startup of operations on October 21, 2007 and the subsequent buildup of non-cash working capital balances, including inventory, required to replenish the supply chain. Cash flow from continuing operations in the fourth quarter of 2006 benefited from $124.4 million (US$109.6 million) in interest and refunds of anti-dumping duties and countervailing duties previously collected by the United States.

Capital spending on property, plant and equipment in the fourth quarter remained virtually unchanged from the previous quarter at $2.7 million, and compares to $6.3 million in the fourth quarter of 2006. The 2007 fourth quarter capital spending was predominantly composed of upgrades to the Cowichan Bay and Saltair sawmills, and implementation costs of a new sales and inventory system. Spending on capital roads was $3.4 million in the fourth quarter of 2007, compared to $2.5 million in the third quarter of 2007 and $3.8 million in the fourth quarter of 2006. Cash from investing activities in the fourth quarter of 2006 benefited from the proceeds received from the sale of the site of the former Silvertree sawmill in the amount of $13.1 million.

Cash provided by financing activities increased to $47.7 million in the quarter, compared to $1.9 million in the third quarter of 2007 and $96.2 million cash used in the fourth quarter of 2006. The additional financing was provided by drawing on the Company's revolving credit facility after the strike. In the fourth quarter of 2006, cash used substantially represents US$88.0 million ($99.8 million) of the U.S. duty refund being applied against the Company's US dollar long-term debt. At December 31, 2007 the Company had cash of $4.9 million and unused availability under its secured revolving credit facility of $62.5 million.

Selected Quarterly Information

To assist shareholders and other readers in understanding our business, we have included as Appendix A to this MD&A a table of the financial results and operating data for the Company for the last eight quarters.

In a normal operating year, there is some seasonality to the Company's operations with higher lumber sales in the second and third quarters as construction activity, particularly in the U.S., has historically tended to be higher. Logging activity may also vary depending on weather conditions due to rain, snow and ice in the winter and the threat of forest fires in the summer.

Changes in Accounting Policies

Inventories

On January 1, 2007, the Company changed its accounting policy for the costing of sawlogs and lumber inventories to better reflect its new management operating philosophy. Under the new policy, costs of products produced jointly as a result of the same process are allocated according to the value of those products. This compares to the former policy, which allocated costs based on volumes produced.

This new accounting policy, which was implemented effective January 1, 2007 on a retrospective basis without restatement of prior periods, results in inventory increasing by $11.9 million to $227.6 million from $215.7 million and the deficit decreasing to $100.1 million from $112.0 million as at December 31, 2006. Prior periods have not been restated as the detailed information required to implement the new policy on a retrospective basis was not available.

Financial Instruments

During the first quarter the Company adopted the following new recommendations of the Canadian Institute of Chartered Accountants ("CICA"):

- Section 1530 - Comprehensive Income

- Section 3251 - Equity

- Section 3855 - Financial instruments - Recognition and Measurement

- Section 3861 - Financial instruments - Disclosure and Presentation; and

- Section 3865 - Hedges

Section 3855 provides guidance on costs incurred upon issuance of financial liabilities. Transaction costs are now deducted from the financial liability and amortized using the effective interest method over the expected life of the related liability. Accordingly, $4.8 million of unamortized financing costs at December 31, 2006 have been reclassified against long-term debt, reducing other assets to $9.0 million from $13.8 million and reducing long-term debt to $205.7 million from $210.5 million. The remaining CICA handbook sections adopted have not had a material impact on the Company's consolidated financial statements.

Internal Control over Financial Reporting

In 2006, following the acquisitions of Cascadia and Englewood, the Company initiated projects to consolidate and standardize its business systems and processes including its log, lumber, payroll and general ledger accounting systems. The implementation of the log and payroll systems was substantially completed during 2006. The new general ledger accounting system was implemented on January 1, 2007 and replaced three general ledger systems previously used by the Company. In addition to the new general ledger system, the Company implemented a new accounting policy with respect to the costing of its inventories and a new chart of accounts covering all of its operations. These system implementations were accompanied by new processes and procedures. The implementation of the new lumber system is ongoing.

The Company identified weaknesses in internal controls during the first quarter of 2007 relating to the implementation of the new systems and related accounting processes and procedures. Management implemented additional manual procedures to compensate for the weaknesses and corrective actions were implemented providing reasonable assurance that the controls operate effectively. The CEO and CFO confirm that there were no changes in the fourth quarter of 2007 in controls that materially affect, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Risks and Uncertainties

The business of the Company is subject to a number of risks and uncertainties, including those described in the 2006 Annual Report and the Annual Information Form dated March 30, 2007, both of which can be found on the System for Electronic Document Analysis and Retrieval (SEDAR), at http://www.sedar.com. Any of the risks and uncertainties described in the above-noted documents could have a material adverse affect on our operations and financial condition and cash flow and, accordingly, should be carefully considered in evaluating Western's business. The Company has the following additional comments as at the date of this report.

Due to the significant shortage of break-bulk shipping space and the subsequent increase in freight rates, for 2008 the Company is shifting a significant portion of overseas shipments from break-bulk to containers. Whereas this change provides a more competitive cost alternative in a market of increasing rates, it should be noted that contrary to traditional break-bulk freight space, which is contracted under two- to three-year terms, container freight is booked on a shorter-term basis and consequently both space availability and rates are more volatile.

The current contract with the Pulp, Paper and Woodworkers of Canada, representing Western's employees at one sawmill and a remanufacturing plant, ends in June 2008. Should the Company be unsuccessful in renegotiating a new contract, business operations at these sites may suffer from work stoppages or a strike.

With the general deterioration of economic conditions and its impact on the forestry industry, there may be a greater potential for major suppliers, including logging contractors, or customers to seek creditor protection, which may have an adverse impact on the Company.

The Province of British Columbia and the Council of the Haida Nation have entered into a Strategic Land Use Agreement ("SLUA") regarding land use objectives and new protected areas on the Queen Charlotte Islands. Western currently has an allowable annual cut on the Queen Charlotte Islands of approximately 509,000 cubic metres, not including the area temporarily protected under Part 13. At the present time, the impact of the SLUA on Western's operations is unknown because a number of issues remain to be determined though a further process of detailed strategic planning which is expected to take up to two years to complete. However, Western believes that a substantial portion of its current cut level on the Queen Charlotte Islands could be adversely affected. Preliminary conversations have begun with Government with respect to the form and process through which compensation should be provided for reduction in the harvest level, but there can be no assurance that adequate compensation will be received.

From time to time, First Nations groups have made claims of aboriginal rights and title to substantial portions of land in British Columbia, including areas where Western's timber tenures and operations are situated, creating uncertainty as to the status of competing property rights and the scope of the authority of the Province and Canada to infringe asserted aboriginal rights and title. The jurisprudence and government policy regarding aboriginal rights and title and government duties of consultation and accommodation will continue to evolve and we cannot predict the potential impacts of these claims on our tenures and forest practices. In the fourth quarter of 2007, the British Columbia Supreme Court released a judgment in an aboriginal rights and title claim made by the Tsilhqot'in Nation and Chief Roger William regarding lands and forests in the Interior of British Columbia (the "William decision"). In the William decision, the court made a declaration of aboriginal rights to hunt, trap and trade in the claimed territory but declined, on procedural grounds, to make the declaration of aboriginal title that had been sought by the Tsilhqot'in Nation. The court offered the opinion that aboriginal title exists in the claimed area and found that the present provisions of the British Columbia Forest Act do not apply to areas that meet the test for aboriginal title and that the jurisdiction to legislate in respect of the granting of rights to harvest timber on such lands lies with the federal government. In the court's view, prior to a finding of aboriginal title there is a presumption that non-private forest lands are Crown lands for the purposes of the provincial Forest Act and provincial legislative provisions apply, even where aboriginal title and other rights are alleged to exist.
When aboriginal title or rights are claimed, the Crown's duty to consult First Nations is engaged. In the court's view, if that duty of consultation is properly discharged, it gives adequate protection to alleged aboriginal interests. If there is a later declaration of rights or title there is a serious risk that, without proper consultation and accommodation, such rights may be infringed. In the court's view, those persons whose aboriginal rights or title have been so compromised as a result of government action will have their remedy in damages. Following the William decision, in January 2008 the Ditidaht First Nation commenced litigation against the Province of British Columbia, Canada, certain other First Nations and two forestry companies, including the Company, seeking amongst other things declarations of aboriginal title and rights in areas of Vancouver Island that include areas covered by timber tenures held by the Company and declarations that provincial forestry legislation and the Company's timber tenures are of no force or effect on the claimed aboriginal title lands. The legal principles enunciated in the William decision, if confirmed on any appeal or applied in subsequent decisions on aboriginal title, could ultimately have a negative impact on all of Western's Crown timber tenures or its financial condition, but the extent of any such impact is uncertain at present. Western remains committed to work with both the Provincial Government and First Nations as relationships are further developed on the lands on which we operate.

Outlook and Strategy

The Canadian forest products industry continues to face significant challenges in the near future. The Canadian dollar remains at close to par with the US dollar. The U.S. structural dimension lumber markets show little promise for recovery in 2008. Given the large surplus of housing inventory and the consequent reduction in housing starts, pressure on U.S. lumber prices is expected to continue into 2008. The downturn of U.S. markets may also spill over into other markets, including Japan, where we anticipate increased competition from producers who traditionally supply U.S. markets. The Company is shifting from break-bulk to container shipments for a significant portion of Japanese volumes due to the sharp increase in break-bulk shipping rates associated with the shortage of break-bulk ships. This shift may diminish sales to Japan while logistics of the change are streamlined on both the shipping and receiving sides. Western anticipates that the traditional seasonal slowdown of the Japanese market during the first part of 2008 and the aforementioned influences may curtail early 2008 sales. However, the markets for the Company's cedar and high grade hemlock business continue to be strong, with prices anticipated to remain stable and demand solid into the second quarter of 2008.

The Company plans to respond to these market conditions by limiting exposure to the U.S. housing market through a reduction in the harvest of mid-grade hemlock logs, which are typically destined for the U.S. structural dimension market. Western also expects to focus on diversification of its product offering both in terms of product attributes and geographic selling destinations. Another focus in the first quarter of 2008 will be to optimize production of cedar products while controlling conversion costs. Work continues on driving down costs and improving cash flow through restrained capital spending and close monitoring of working capital, including inventory. Furthermore, some operations may occasionally take market-related down-time.

Western has formally advised Forestry Industrial Relations ("FIR") that the Company will withdraw as a member, effective March 1, 2008. As Western's business strategies and philosophies have diverged from those common to other FIR members, labour negotiation by association may not best meet Western's needs. The Company will, however, continue to work with FIR and others within the forestry industry on issues of common interest.

The Company continues to work on refinancing strategies related to the $101.1 million Canadian dollar denominated portion of the Company's long-term debt that matures in March 2008. We anticipate finalization of appropriate arrangements during the first quarter of 2008.

Asset Sales Initiative

The Company is continuing to work through the process of selling non-core assets that have an estimated value of between $150 million and $180 million. In the second quarter of 2007 the Company sold the Duke Point merchandiser site for $8.2 million. Towards the end of the first quarter of 2008 the Company anticipates closing the sale for cash of the site of the former New Westminster sawmill for $42.6 million, expected to generate a gain upon close of approximately $11.0 million. This sale is subject to the Company providing the purchaser a Certificate of Compliance following the remediation of the site. In addition, the Company and a prospective buyer have agreed on a non-binding letter of intent for the sale of approximately 2,500 hectares of Higher and Better Use lands situated in the south of Vancouver Island. The withdrawal of these properties from Tree Farm Licences has led to some controversy and the Capital Regional District has commenced down-zoning proceedings that could reduce the value of the lands. There is no assurance that this intended transaction will close or that other land sales will be completed, or when they may ultimately be completed. Furthermore, the Company is assessing the marketability of approximately 26,000 hectares of freehold forestry lands situated on Vancouver Island, and should any future proposed transaction offer sufficient added value to Western, the lands may be sold. Proceeds from asset sales are expected to be applied primarily against the Company's outstanding long-term debt.

Outstanding Share Data

As of March 4, 2008, there are 119,842,359 Common Shares and 84,571,206 Non-Voting Shares issued and outstanding.

In addition, the Company has 569,373 Tranche 1 Class C Warrants, 854,146 Tranche 2 Class C Warrants, and 1,423,743 Tranche 3 Class C Warrants (collectively, the "Class C Warrants") outstanding. The Company has reserved up to 2,847,262 Common Shares for issuance upon the exercise of the Class C Warrants. Western has also reserved 10,000,000 Common Shares for issuance upon the exercise of options granted under the Company's incentive stock option plan. As of March 4, 2008, 4,233,060 options were outstanding under the Company's incentive stock option plan.

Other Matters

Tricap Management Limited ("Tricap") owns 49% of the Company's Common Shares and 100% of the Non-Voting Shares. By virtue of the Brookfield Asset Management Inc. ("BAM") voting arrangements with Tricap, BAM is related to the Company. Western has certain arrangements with entities related to BAM to provide financing, acquire and sell logs, lease certain facilities, provide access to roads and other areas, and acquire other services including insurance, all in the normal course and at market rates or at cost. During the fourth quarter of 2007, the Company paid entities related to BAM $12.4 million and received $1.6 million in connection with these arrangements.

Public Securities Filings

Readers may access other information about the Company, including the Annual Information Form and additional disclosure documents, reports, statements and other information that are filed with the Canadian securities regulatory authorities, on SEDAR at www.sedar.com.

On behalf of the Board of Directors



John MacIntyre Reynold Hert
Chairman President and Chief Executive Officer

Duncan, BC
March 4, 2008


Management's Discussion and Analysis - Appendix A
--------------------------------------------------------------------------
Summary of Selected Results for the Last Eight Quarters (Unaudited)

(millions of
dollars except 2007 2006
per share ---------------------------------------------------------
amounts and 4th 3rd 2nd 1st 4th 3rd 2nd 1st
where noted) ---------------------------------------------------------

---------------------------------------------------------
Average Exchange
Rate - Cdn $
to purchase
one US $ $ 0.9809 1.0446 1.0983 1.1725 1.1277 1.1178 1.1292 1.1462
Sales
Lumber $ 93.3 141.6 210.0 205.2 217.8 214.0 158.1 87.2
Logs 29.6 26.5 72.9 55.6 44.6 44.8 49.0 23.7
By-Products 13.7 8.4 18.2 15.5 16.7 20.7 12.9 7.3
---------------------------------------------------------
$ 136.6 176.5 301.1 276.3 279.1 279.5 220.0 118.2
---------------------------------------------------------
---------------------------------------------------------

Lumber
Production -
millions of
board feet 169 107 277 251 271 326 250 153
Sales -
millions of
board feet 131 174 273 251 278 291 243 164
Logging
Production - m3
(000's) 1,075 607 2,016 1,601 1,585 1,617 1,898 662
Purchases - m3
(000's) 210 203 360 194 242 169 143 100
Sales - m3
(000's) 412 364 943 650 625 592 605 262
Internal
consumption -
m3 (000's) 725 470 1,176 1,081 1,138 1,350 1,031 650
Sales prices
Lumber - per
thousand board
feet $ 712 814 769 818 782 739 648 533
Logs - per
cubic metre $ 72 73 77 86 71 76 81 90

Net income
(loss)
from continuing
operations $ (41.9) (37.2) 13.8 8.2 109.3 (11.4) (7.5) (46.5)

Discontinued
pulp operations
Sales $ - - - - - - (0.1) 20.0
Income (loss) $ (1.0) (0.5) 3.8 (1.0) (1.0) (0.8) (1.9) (7.1)
Pulp
production -
tonnes (000's) - - - - - - - 18
Pulp sales -
tonnes (000's) - - - - - - - 34
Pulp sales price
per tonne $ - - - - - - - 586

Net income
(loss) $ (42.9) (37.7) 17.6 7.2 108.3 (12.2) (9.4) (53.6)

Net income
(loss) per
share from
continuing
operations $ (0.21) (0.18) 0.07 0.04 0.53 (0.06) (0.05) (1.81)
Net income
(loss) per
share - basic
and diluted $ (0.21) (0.18) 0.09 0.04 0.53 (0.06) (0.06) (2.09)

Reconciliation
of EBITDA to net
income (loss)
from continuing
operations:
EBITDA before
lumber duty
refund $ (28.4) (29.8) 21.1 23.3 10.1 10.2 7.7 (0.1)
Lumber duty
refund - - - - 110.3 - - -
---------------------------------------------------------
EBITDA (28.4) (29.8) 21.1 23.3 120.4 10.2 7.7 (0.1)
Amortization of
property, plant
& equipment (7.9) (6.8) (10.8) (9.9) (9.7) (10.3) (10.8) (5.9)
Restructuring &
other items - - 2.6 - (2.4) (0.7) (4.9) -
Interest expense (5.9) (6.0) (5.9) (6.8) (9.2) (10.9) (9.9) (11.1)
F/X on long-term
debt 0.1 5.6 6.3 0.7 (6.0) (0.3) 9.7 (0.9)
Premium &
unamortized
discount - - - - - - - (27.9)
Interest and
other
income
(expense) 0.9 (0.1) 0.5 1.2 16.7 0.9 0.5 (0.4)
Income taxes (0.7) (0.1) - (0.3) (0.5) (0.3) 0.2 (0.2)
---------------------------------------------------------
Net income
(loss) from
continuing
operations $ (41.9) (37.2) 13.8 8.2 109.3 (11.4) (7.5) (46.5)
---------------------------------------------------------
---------------------------------------------------------


Consolidated Balance Sheets (Unaudited)
(Expressed in millions of Canadian dollars)
--------------------------------------------------------------------------
December 31, December 31,
2007 2006
-------------------------
(Restated-
note 2)
Assets
Current assets:
Cash and cash equivalents $ 4.9 $ 41.6
Accounts receivable 55.9 102.4
Inventory 253.2 227.6
Prepaid expenses and other assets 8.4 11.7
Discontinued operations (note 9) - 0.7
-------------------------
322.4 384.0

Property, plant and equipment 484.4 505.4
Other assets 8.9 9.0
-------------------------

$ 815.7 $ 898.4
-------------------------
-------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Revolving credit facility $ 48.6 $ 3.6
Accounts payable and accrued liabilities 85.7 110.8
Current portion of long-term debt (note 3) 101.1 -
Discontinued operations (note 9) 4.1 6.4
-------------------------
239.5 120.8
Long-term debt (note 3) 69.7 205.7
Other liabilities 34.1 42.6
Deferred revenue 76.4 78.4
-------------------------
419.7 447.5
Shareholders' equity:
Common shares 410.6 410.6
Non-voting shares 139.6 139.6
Contributed surplus 1.7 0.8
Deficit (155.9) (100.1)
-------------------------
396.0 450.9
-------------------------

$ 815.7 $ 898.4
-------------------------
-------------------------

See accompanying notes to these consolidated financial statements.

Approved on behalf of the Board:

"Reynold Hert" Director

"John MacIntyre" Director


Consolidated Statements of Operations, Comprehensive Income (Loss) and
Deficit (Unaudited)
(Expressed in millions of Canadian dollars except for share and per share
amounts)
--------------------------------------------------------------------------

Three months ended Twelve months ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------
Sales $ 136.6 $ 279.1 $ 890.5 $ 896.8

Cost and expenses:
Cost of goods sold 144.3 235.3 790.1 740.8
Export tax 2.0 3.2 15.7 3.2
Anti-dumping and countervailing
duties - 0.4 - 16.3
Freight expenses 9.3 18.1 58.0 68.6
Selling and administration 9.4 12.0 40.5 40.0
Amortization of property, plant
and equipment 7.9 9.7 35.4 36.7
---------------------------------------
172.9 278.7 939.7 905.6
---------------------------------------

Operating income (loss) before
unusual items (36.3) 0.4 (49.2) (8.8)

Unusual items:
Anti-dumping and countervailing
duty refund - 110.3 - 110.3
Operating restructuring income
(loss) (note 7) - (2.4) 2.6 (8.0)
---------------------------------------

Operating income (loss) (36.3) 108.3 (46.6) 93.5

Interest expense (5.9) (9.2) (24.6) (41.1)
Foreign exchange gain (loss) on
long-term debt 0.1 (6.0) 12.7 2.5
Premium and unamortized discount
on bond redemption - - - (27.9)
Interest and other income 0.9 16.7 2.5 17.7
---------------------------------------

Income (loss) before income taxes (41.2) 109.8 (56.0) 44.7
Income tax expense (0.7) (0.5) (1.1) (0.8)
---------------------------------------

Net income (loss) from continuing
operations (41.9) 109.3 (57.1) 43.9
Net income (loss) from discontinued
operations (note 9) (1.0) (1.0) 1.3 (10.8)
---------------------------------------

Net income (loss) and comprehensive
income (loss) (42.9) 108.3 (55.8) 33.1

Deficit, beginning of period as
previously reported (113.0) (220.3) (112.0) (145.1)
Change in accounting policy for
costing of inventories (note 2) - - 11.9 -
---------------------------------------

Deficit, beginning of period as
restated (113.0) (220.3) (100.1) (145.1)
---------------------------------------

Deficit, end of period $ (155.9) $ (112.0) $ (155.9) $ (112.0)
---------------------------------------
---------------------------------------

Net income (loss) per share -
basic and diluted:
From continuing operations $ (0.21) $ 0.53 $ (0.28) $ 0.30
From discontinued operations - - 0.01 (0.07)
---------------------------------------

Net income (loss) $ (0.21) $ 0.53 $ (0.27) $ 0.23
---------------------------------------
---------------------------------------

Weighted average number of shares
outstanding (thousands of shares) 204,414 204,414 204,414 145,637

See accompanying notes to these consolidated financial statements.


Consolidated Statements of Cash Flows (Unaudited)
(Expressed in millions of Canadian dollars)
--------------------------------------------------------------------------
Three months ended Twelve months ended
December 31 December 31
2007 2006 2007 2006
---------------------------------------
Cash provided by (used in):
Operating activities:
Net income (loss) from continuing
operations $ (41.9) $ 109.3 $ (57.1) $ 43.9
Items not involving cash:
Amortization of property, plant
and equipment 7.9 9.7 35.4 36.7
Write-down of property, plant
and equipment - 1.9 - 2.6
Foreign exchange (gain) loss on
long-term debt (0.1) 6.0 (12.7) (2.5)
Premium and unamortized discount
on bond redemption - - - 27.9
(Gain) loss on disposal of
property, plant and equipment (4.0) (1.7) (4.0) (1.7)
Interest deferred on long-term
debt - 2.8 - (0.8)
Other 4.2 3.8 1.7 5.7
---------------------------------------
(33.9) 131.8 (36.7) 111.8
---------------------------------------

Changes in non-cash working capital
items:
Accounts receivable 4.8 (16.9) 35.9 17.8
Inventory (40.8) (6.8) (26.7) (18.0)
Prepaid expenses 0.8 4.8 0.7 3.1
Accounts payable and accrued
liabilities 17.4 (12.3) (25.2) (45.1)
---------------------------------------
(17.8) (31.2) (15.3) (42.2)
---------------------------------------
Cash provided (used) by continuing
operations (51.7) 100.6 (52.0) 69.6
---------------------------------------

Investing activities:
Additions to property, plant
and equipment (2.7) (6.3) (13.2) (21.6)
Additions to capitalized roads (3.4) (3.8) (13.3) (15.9)
Proceeds on disposals of property,
plant and equipment 0.9 13.4 11.2 14.5
Restricted cash - 1.8 - 12.0
Acquisition of Cascadia, net of
cash acquired - - 12.5 (214.7)
Acquisition of Englewood Logging
Division - - - (3.4)
Price premium prepayment on
long-term fibre agreement - - - 35.0
Other 0.7 2.2 3.2 2.5
---------------------------------------
(4.5) 7.3 0.4 (191.6)
---------------------------------------

Financing activities:
Proceeds from (repayment of)
revolving credit facility 47.7 3.6 45.0 (76.5)
Redemption of 15% Secured Bonds - - - (275.9)
Proceeds from term loans - - - 307.8
Repayment of term loans - (99.8) (25.5) (104.5)
Proceeds from share issuance - - - 295.0
Other - - (2.4) (5.1)
---------------------------------------
47.7 (96.2) 17.1 140.8
---------------------------------------

Cash provided (used) by
discontinued operations (note 9) 1.3 - (2.2) (6.8)
---------------------------------------
Increase (decrease) in cash and
cash equivalents (7.2) 11.7 (36.7) 12.0
Cash and cash equivalents,
beginning of period 12.1 29.9 41.6 29.6
---------------------------------------
Cash and cash equivalents, end
of period $ 4.9 $ 41.6 $ 4.9 $ 41.6
---------------------------------------
---------------------------------------

Supplementary information:
Non-cash item - Acquisition of
Englewood Logging Division $ - $ - $ - $ 45.0
Cash interest paid 4.5 9.2 22.3 41.6

See accompanying notes to these consolidated financial statements.


Notes to Unaudited Quarterly Consolidated Financial Statements

(Tabular amounts expressed in millions of Canadian dollars)

The business of Western Forest Products Inc. (the Company or Western) is timber harvesting and lumber manufacturing for worldwide markets. Western's operations are located in the coastal region of British Columbia.

1. Significant Accounting Policies

These quarterly consolidated financial statements do not include all disclosures required by Canadian generally accepted accounting principles for annual financial statements and, accordingly, should be read in conjunction with the Company's most recent audited annual consolidated financial statements. These quarterly consolidated financial statements follow the same accounting policies and methods of application used in the Company's consolidated financial statements as at December 31, 2006 and for the year then ended except that the Company has adopted new accounting policies with respect to financial instruments and inventory costing as described below.

2. Adoption of New Accounting Policies

(a) Financial Instruments

Effective January 1, 2007, the Company adopted the new recommendations of the Canadian Institute of Chartered Accountants ("CICA") Handbook Sections 1530, Comprehensive Income, Section 3251, Equity, Section 3855, Financial Instruments - Recognition and Measurement, Section 3861, Financial Instruments - Disclosure and Presentation, and Section 3865, Hedges. Other than the reclassification of transaction costs discussed below, the adoption of these new recommendations has not impacted the Company's financial statements.

Section 1530, Comprehensive Income, requires that changes in equity from transactions and other events and circumstances from non-owner sources be recorded and reported in the statement of comprehensive income. Comprehensive income is comprised of the traditional concept of 'net income' as well as the income effect of derivative instruments ('other comprehensive income'). Section 3251, Equity, requires that the accumulation of other comprehensive income be presented as a component of the equity section. Section 3855, Financial Instruments - Recognition and Measurement and Section 3861, Financial Instruments - Disclosure and Presentation requires that all financial instruments be recognized on the balance sheet using the appropriate measurement model and disclosed in the notes to the financial statements. Section 3865, Hedges, requires that all financial assets and liabilities be presented in accordance with the recommendations of the financial instruments recommendations except where the derivative instrument has been designated as a hedge by management.

Section 3855 provides guidance on costs incurred upon issuance of financial liabilities. Transaction costs are now deducted from the financial liability and amortized using the effective interest method over the expected life of the related liability. Accordingly, $4.8 million of unamortized financing costs at December 31, 2006 have been reclassified against long-term debt reducing other assets to $9.0 million from $13.8 million and reducing long-term debt to $205.7 million from $210.5 million.

(b) Inventory Costing

On January 1, 2007, the Company changed its accounting policy for the costing of sawlogs and lumber inventories to better reflect its new management operating philosophy. Under the new policy, costs of products produced jointly as a result of the same process are allocated according to the value of those products. This compares to the former policy, which allocated costs based on volumes produced.

This new accounting policy, which was implemented effective January 1, 2007 on a retrospective basis without restatement of prior periods, results in inventory increasing by $11.9 million to $227.6 million from $215.7 million and the deficit decreasing to $100.1 million from $112.0 million as at December 31, 2006. Prior periods have not been restated as the detailed information required to implement the new policy on a retrospective basis was not available.

(c) Adoption of future accounting standards

Effective January 1, 2008, the Company will adopt the new recommendations of the CICA Handbook Section 3030 on Inventories. Western has not completed an analysis of the new standard but initial indications are that the new standard will not materially impact the financial statements.

3. Long-Term Debt



--------------------------------------------------------------------------
As at As at
December 31, December 31,
(millions of dollars) 2007 2006
--------------------------------------------------------------------------

US debt $ 72.9 $ 111.0
Associated transaction costs (3.2) (2.6)
-------------------------
$ 69.7 $ 108.4
-------------------------

Canadian debt $ 101.8 $ 99.5
Associated transaction costs (0.7) (2.2)
-------------------------
$ 101.1 $ 97.3
-------------------------

-------------------------
$ 170.8 $ 205.7
Less current portion 101.1 -
-------------------------
-------------------------
$ 69.7 $ 205.7
-------------------------
-------------------------


In March 2007, the Company renegotiated its US dollar denominated term-debt with the Brookfield Bridge Lending Fund ("BBLF"), paying down US$21.8 million to reduce the principal outstanding from US$95.3 million to US$73.5 million and reducing the interest rate from floating one-month LIBOR plus 8.15% to floating one-month LIBOR plus 3%. As at December 31, 2007, the principal outstanding remained at US$73.5.

In March 2007, the Company also exercised an option to extend the maturity date of the Canadian dollar term-debt with BBLF to March 10, 2008 on payment of an extension fee of $2.0 million. The Company began paying interest in cash on $45.0 million of the Canadian dollar term-debt effective March 1, 2007 and on the total Canadian dollar term-debt effective April 1, 2007. Previously, this interest was deferred and added to the outstanding principal.

BBLF is related to the Company by virtue of a common relationship with Brookfield Asset Management ("BAM").

4. Stock-Based Compensation Plan

On December 18, 2007, 300,000 options were granted with an exercise price of $1.40 per Common Share. At December 31, 2007, 4,233,060 options were outstanding with a weighted average exercise price of $2.45 per Common Share.

5. Pension Expense



Three months ended Twelve months ended
December 31 December 31
--------------------------------------------------------------------------
(millions of dollars) 2007 2006 2007 2006
--------------------------------------------------------------------------
Pension expense $ 3.0 $ 6.1 $ 12.6 $ 15.8
---------------------------------------
---------------------------------------


6. Segmented Information

The Company is an integrated Canadian forest products company operating in one industry segment comprising timber harvesting, reforestation, sawmilling, value-added lumber remanufacturing and lumber marketing operations. Until January 26, 2006, the Company also operated in the pulp segment that comprised the Company's NBSK pulp manufacturing and sales operations (note 9 - discontinued operations).

7. Operating Restructuring Income (Costs)

Operating restructuring income (costs) for 2007 comprises the gain on the sale of the Company's log merchandiser facility less costs of timberlands restructuring. For 2006, operating restructuring costs comprise severance and other costs associated with the closure of the Company's log merchandiser facility, severance and restructuring costs of certain timberlands operations.

8. Non-Core Asset Sale

The Company entered into an agreement to sell for cash the site of its former New Westminster sawmill for $42.6 million, which is expected to result in a gain of approximately $11.0 million upon close. The sale is subject to the Company providing the purchaser a Certificate of Compliance following the remediation of the site and is expected to close in the first quarter of 2008.

9. Discontinued Operations

On December 15, 2005, the Company announced the closure of its Squamish pulp mill and its exit from the pulp business. On January 26, 2006, production at the pulp mill ceased and on March 9, 2006, the majority of the workforce completed their employment with the Company. The Company continues to incur ongoing costs such as for supervision, security, property taxes as well as remediation expenditures. These costs are expensed as incurred.

The following table provides additional information with respect to the discontinued operations:



Three months ended Twelve months ended
December 31 December 31
--------------------------------------------------------------------------
(millions of dollars) 2007 2006 2007 2006
--------------------------------------------------------------------------
Sales $ - $ - $ - $ 19.9
---------------------------------------
---------------------------------------
Net income (loss) from
discontinued operations
before income taxes (1.0) (1.0) 1.3 (10.8)
---------------------------------------
Net income (loss) from
discontinued operations $ (1.0) $ (1.0) $ 1.3 $ (10.8)
---------------------------------------
---------------------------------------

Cash provided (used) by:
Operating activities $ 1.3 $ - $ (2.2) $ (6.8)
Investing activities - - -
---------------------------------------
---------------------------------------
Cash used by discontinued
operations $ 1.3 $ - $ (2.2) $ (6.8)
---------------------------------------
---------------------------------------


During the first quarter of 2007, the Company sold the majority of the pulp mill equipment and certain spare parts for proceeds of $5.5 million, netting to a gain of $5.2 million.

Contact Information