TimberWest Announces 2007 Third Quarter Results



    Company announces quarterly distribution of $0.269 per Stapled Unit
    payable on January 15, 2008

    VANCOUVER, Oct. 30 /CNW/ - TimberWest lost distributable cash(1) of
$5.6 million or $0.07 per stapled unit for the third quarter of 2007. This
compares to $9.3 million of distributable cash generated for the third quarter
of 2006 or $0.12 per unit.

    The Company's operating performance during the quarter was affected by:

    
    -   the United Steelworkers ("USW") strike which curtailed more than two
        months of production,
    -   lower than anticipated real estate sales,
    -   weak log markets in the US and Japan that kept prices low, and
    -   the continued appreciation of the Canadian dollar against its US
        counterpart.
    

    Of the $14.9 million reduction in quarter over quarter distributable
cash, approximately 60% is strike-related.
    "US log and lumber markets remained difficult during the quarter with low
housing starts, high inventories of unsold homes, and on-going home price
deflation," said President and CEO Paul McElligott. "Many of our US log
customers took downtime and we expect this market to remain weak for some
time."
    In Japan, log and lumber markets remained oversupplied for the quarter as
US log sellers increased exports to this market. With the US dollar
depreciating against all major currencies, including the yen, this has
improved their competitive position in Japan against Canadian producers. This
condition is also likely to persist until the US housing market turns around.
In addition, the oversupply was exacerbated by delays in housing starts
related to revisions to Japan's Building Standards Act and the fact that
Russian exporters shipped significant volumes to Japan earlier in the year in
advance of their export tax increase in July. As well, coastal BC sawmillers
were in a strike situation for most of the quarter.
    A stronger Canadian dollar combined with the foregoing elements to lower
log sales realizations for TimberWest from $100/m(3) in the third quarter of
2006 to $95/m(3) in the third quarter of 2007. The decline would have been
more pronounced were it not for the fact that export sales, where premiums are
realized over domestic prices, represented 60% of sales volume this quarter
compared to 46% of sales volume in the equivalent prior year period.
    "Weak markets and a strong Canadian dollar underscore the BC Coast's
vulnerability to increasingly competitive global markets and make it
imperative for us to continue with efforts to lower costs and improve
productivity," said McElligott. "While this is a challenging time for our
organization, our contractors and their employees, it is necessary to find
ways to increase efficiencies as the Coast's market share continues to shrink
and its competitive position in producing both log and lumber products
diminishes. If the Coastal industry does not reverse this trend, it will be
difficult to stabilize the work force."
    The United Steelworkers (USW) and Forest Industrial Relations (FIR), an
employer bargaining association representing some 31 companies on the coast of
BC, settled on a new collective labour agreement in mid October. It has a
three year term and provides for wage increases of 7% over that term.
TimberWest's harvesting operations are performed by independent contractors
and those of them who are unionized are either members of FIR or have "me-too"
agreements patterned on the FIR settlement. They now have a new labour
agreement with the USW. Operations resumed on TimberWest lands on October 22,
2007, despite the fact that TimberWest itself has 29 foresters and engineers
represented by the USW still on strike.
    "As communicated in my previous unitholder letter, TimberWest tabled a
final offer and asked the BC Labour Relations Board ("LRB") to conduct a
secret ballot vote of its 29 foresters and engineers when it reached the point
of impasse in its negotiations with the USW," said McElligott. "One of the
principal features of that final offer was acquiring the right to subdivide
contractor operations into smaller work units operated by unionized crews.
Regrettably, the LRB denied that application as well as an amended application
designed to accommodate representational concerns raised by the LRB." In a
precedent-setting decision, the LRB ruled that former TimberWest logging
employees now working for contractors have a sufficient and continuing
interest in TimberWest's operation that qualifies them as employees in the
bargaining unit affected by the final offer even though they have no seniority
or recall rights with TimberWest. The company will appeal this decision. In
the interim, we will pursue other avenues to achieve our goal of subdivision.
This remains a key requirement for the renewal of our collective agreement. We
believe that a larger pool of smaller contractors will allow us to be more
competitive. While we are working on this issue and on strike, our trees
continue to grow.
    Our Elk Falls sawmill generated negative earnings and cash for the
quarter. Lumber sales revenue was down 65% over the equivalent prior year
period. Volumes and realizations were down due to the USW labour disruption,
strong Canadian dollar and market conditions in Japan. The sale process for
the sawmill continues and when bargaining resumes with the CEP for a new
collective labour agreement at the mill, we will continue to seek major cost
reductions.
    During the quarter, we generated $1.0 million from several small real
estate sales. "Our long term strategic plan for real estate will be completed
by calendar year-end with the assistance of EDAW, a large international real
estate consulting firm," added McElligott. "We are also expecting to appoint
some additional senior managers to our real estate group before year-end to
work with John Hendry, our recently appointed VP, Real Estate."
    During the quarter, TimberWest successfully refinanced its debt in the
bank market and despite tough credit conditions was able to reduce the
Company's cost of borrowing.
    Subsequent to the quarter, TimberWest appointed John Mitchell to the
position of Chief Forester and Director, Sustainability and Environment. John
will report directly to the CEO and his appointment strengthens our commitment
to our core values in these areas. John was our Operations Manager, North
Island, and has over 20 years of experience in the industry. We are very
pleased that John has agreed to take on this important role in our Company.

    
    ----------------------------
    (1) Distributable cash, earnings available for distribution and EBITDA
        are measures that do not have a standardized meaning prescribed by
        Canadian generally accepted accounting principles (GAAP) and may not
        be comparable to similar measures presented by other companies.
        Management believes that the presentation of these measures will
        enhance an investor's understanding of the Company's operating
        performance. A reconciliation of net earnings as determined in
        accordance with GAAP and distributable cash and earnings available
        for distribution is provided in the Summary of Financial Results and
        a reconciliation of net earnings as determined in accordance with
        GAAP and EBITDA is provided in the Supplemental Information included
        in this press release.

    Outlook

    While we expect continued weakness in the US and Japanese log and lumber
markets and strength in the Canadian dollar for some time, the following work
in our favour:

    -   We ended the quarter with only $7.3 million more debt on the balance
        sheet than at the end of the second quarter. With $228.0 million of
        debt we are 20% levered and in strong financial condition,
    -   We are also expecting to close the Leech Creek watershed sale to the
        Capital Regional District on Vancouver Island during the fourth
        quarter for almost $65 million. At this point the electorate in
        Victoria have voted in favour of this acquisition and as such we are
        moving towards closing near the end of December, and
    -   We have considerable real estate being marketed through both
        conventional listings and an auction format. While we are uncertain
        whether these transactions will all close during the fourth quarter,
        these proceeds will strengthen our financial position.

    Our strong financial condition has allowed us to pay our required
distributions to unitholders in 2007 despite this year's labour disruption,
weak log and lumber markets, and strong Canadian dollar.
    Despite the short term challenges, we remain optimistic about the longer
term outlook for log sales realizations. Changing demographics are expected to
support strong future levels of housing demand in North America. Supply
contraction is also anticipated to accompany these stronger demand levels.
Finally, we are optimistic about the mid and long term real estate potential
of our higher and better use lands.

    Distributable Cash
    -------------------------------------------------------------------------
    (in millions of dollars)        Three months ended     Nine months ended
                                       September 30          September 30
                                      2007       2006       2007       2006
    -------------------------------------------------------------------------

    Net earnings (loss)            $  (28.1)  $  (12.8)  $  (31.7)  $    2.3
    Interest on Series A
     Subordinate Notes owned
     by unitholders                    20.9       20.9       62.7       62.7
    -------------------------------------------------------------------------

    Earnings (loss) available
     for distribution                  (7.2)       8.1       31.0       65.0
    Future income tax recovery         (0.8)      (0.8)      (3.4)     (25.0)
    -------------------------------------------------------------------------

    Earnings (loss) available for
     distribution before provision
     for future income taxes           (8.0)       7.3       27.6       40.0
    Add (deduct):
      Depreciation, depletion and
       amortization                     2.1        2.1        7.0        6.8
      Proceeds from sale of
       property, plant and equipment    1.1        2.2        6.8       19.1
      Gain on sale of property,
       plant and equipment             (0.8)      (1.3)      (6.2)      (4.0)
      Additions to property, plant
       and equipment                   (0.9)      (2.2)      (2.2)      (3.7)
      Other non-cash items              0.9        1.2        1.9       18.1
    -------------------------------------------------------------------------
                                        2.4        2.0        7.3       36.3
    -------------------------------------------------------------------------
    Distributable cash             $   (5.6)  $    9.3   $   34.9   $   76.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per Stapled Unit amounts:
     (in dollars)
    Basic earnings (loss) available
     for distribution before
     provision for future income
     taxes per weighted average
     Stapled Unit                  $  (0.10)  $   0.09   $   0.36   $   0.52

    Diluted earnings (loss)
     available for distribution
     before provision for future
     income taxes per weighted
     average Stapled Unit          $  (0.10)  $   0.09   $   0.35   $   0.52

    Basic and diluted distributable
     cash per weighted average
     Stapled Unit                  $  (0.07)  $   0.12   $   0.45   $   0.98

    Cash distributions paid
     per Stapled Unit              $   0.27   $   0.27   $   0.81   $   0.81
    -------------------------------------------------------------------------

    The following table provides a reconciliation of cash flow from
    operations before changes in working capital to distributable cash:

    -------------------------------------------------------------------------
    (in millions of dollars)        Three months ended     Nine months ended
                                       September 30          September 30
    -------------------------------------------------------------------------
                                      2007       2006       2007       2006
    -------------------------------------------------------------------------

    Cash flow from operations
     before changes in working
     capital                       $  (26.7)  $  (11.2)  $  (33.0)  $   (1.7)
    Add (deduct):
      Interest on Series A
       Subordinate Notes owned
       by unitholders                  20.9       20.9       62.7       62.7
      Proceeds from sale of
       property, plant and equipment    1.1        2.2        6.8       19.1
      Additions to property, plant
       and equipment                   (0.9)      (2.2)      (2.2)      (3.7)
      Other non-cash items                -       (0.4)       0.6       (0.1)
    -------------------------------------------------------------------------
                                       21.1       20.5       67.9       78.0
    -------------------------------------------------------------------------
    Distributable cash             $   (5.6)  $    9.3   $   34.9   $   76.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributable cash includes consolidated net earnings (loss), plus
interest expensed on Series A Subordinate Notes owned by unitholders, plus
non-cash income taxes, plus depreciation, depletion and amortization, plus
proceeds from the sale of property, plant and equipment net of their gain
(loss) on sale, less additions to property, plant and equipment and, from time
to time, adjustments for other items deemed appropriate by the Board of
Directors. Earnings available for distribution is comprised of consolidated
net earnings (loss) plus interest expensed on Series A Subordinate Notes. The
Series A Subordinate Notes are owned by the unitholders and interest thereon
is paid to the unitholders, therefore, earnings available for distribution to
unitholders reflects earnings before this interest charge.
    Earnings available for distribution and distributable cash are measures
that do not have a standardized meaning prescribed by GAAP and may not be
comparable to similar measures presented by other companies. Management
believes that the presentation of these measures will enhance an investor's
understanding of the Company's operating performance. Reconciliations of net
earnings (loss) and cash flow from operations before changes in working
capital, as determined in accordance with GAAP, and earnings available for
distribution and distributable cash are provided in the preceding tables.
    The following tables present a quarterly comparison of distributable cash
generated, in total and on a per Stapled Unit basis:

    -------------------------------------------------------------------------
                           2007     2006     2005     2004     2003     2002
    -------------------------------------------------------------------------

    Distributable Cash
     (in millions
      of dollars)
    First quarter        $ 26.9   $ 31.5   $ 23.9   $ 27.7   $ 25.7   $ 21.2
    Second quarter         13.6     35.5     15.4     43.5      4.7     10.6
    Third quarter          (5.6)     9.3     (1.7)    35.9     12.0     34.1
    Fourth quarter                  27.5     29.7     18.1      9.0     24.2
    -------------------------------------------------------------------------
                         $ 34.9   $103.8   $ 67.3   $125.2   $ 51.4   $ 90.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributable Cash
     per Stapled Unit(2)
     (in dollars)
    First quarter        $ 0.35   $ 0.41   $ 0.31   $ 0.36   $ 0.34   $ 0.30
    Second quarter         0.17     0.46     0.20     0.57     0.06     0.14
    Third quarter         (0.07)    0.12    (0.02)    0.47     0.15     0.45
    Fourth quarter                  0.35     0.38     0.24     0.12     0.32
    -------------------------------------------------------------------------
                         $ 0.45   $ 1.34   $ 0.87   $ 1.64   $ 0.67   $ 1.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ----------------------------
    (2) Per Stapled Unit amounts by quarter do not necessarily add to the
        total of the year and year-to-date due to changes in the weighted
        average number of Stapled Units outstanding during the year.



    Financial Highlights
    -------------------------------------------------------------------------
    (in millions of dollars)        Three months ended     Nine months ended
                                       September 30          September 30
    -------------------------------------------------------------------------
                                      2007       2006       2007       2006
    -------------------------------------------------------------------------

    Sales                          $   73.1   $   96.8   $  289.4   $  367.5
    Operating earnings (loss)          (3.7)      11.3       33.3       69.2
    Operating earnings (loss)
     - % of sales                       (5%)       12%        12%        19%
    Earnings (loss) before interest,
     taxes, depreciation and
     amortization(3)                   (1.9)      13.0       45.9       58.0
    Earnings (loss) before interest,
     taxes, depreciation and
     amortization per basic
     and diluted weighted
     average Stapled Unit             (0.02)      0.17       0.59       0.75
    Income tax recovery                 0.9        0.8        3.5       24.8
    Net earnings (loss)               (28.1)     (12.8)     (31.7)       2.3
    Earnings (loss) per common share:
      Basic                           (0.36)     (0.17)     (0.41)      0.03
      Diluted                         (0.36)     (0.16)     (0.41)      0.03
    Distributable cash             $   (5.6)  $    9.3   $   34.9   $   76.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Overall sales revenues for the three months ended September 30, 2007 and
on a year-to-date basis, were down compared to the third quarter of 2006 due
to decreases in log and lumber sales volumes and average sales realizations.
In addition, there were no significant real estate sales during the quarter
and year-to-date compared to the prior year periods. Operating earnings as a
percentage of sales decreased compared to the third quarter of 2006 as a
result of lower sales volumes, lower average sales realizations and higher
operating costs for both logs and lumber.
    The Canadian dollar has continued to strengthen this year, which has
negatively affected sales realizations. During the quarter, the dollar
appreciated 7%, and appreciated 15% against the US dollar since the beginning
of the year.

    
    ----------------------------
    (3) Earnings (loss) before interest, taxes, depreciation and amortization
        is a measure that does not have a standardized meaning prescribed by
        GAAP and may not be comparable to similar measures presented by other
        companies. Management believes that the presentation of this measure
        will enhance an investor's understanding of the Company's operating
        performance. A reconciliation of net earnings (loss) as determined in
        accordance with GAAP and Earnings (loss) before interest, taxes,
        depreciation and amortization is provided in the supplemental
        information appended to this interim report.
    

    Highlights and Significant Transactions

    Adoption of New Accounting Policies - Financial Instruments

    During the first quarter, the Company adopted new accounting policies
issued by the Canadian Institute of Chartered Accountants ("CICA") and changed
its policy of accounting for financial instruments. Prior to January 1, 2007,
TimberWest recognized financial liabilities at carrying value. Effective
January 1, 2007, the Company measures its debentures and Series A Subordinate
Notes owned by unitholders at amortized cost using the effective interest
method. The effective interest method establishes the rate which equates the
estimated future cash flows with the net carrying amount of the financial
liability. The embedded derivative arising from the option to extend the
Series A Subordinate Notes for a further 10 year period is measured at fair
value. TimberWest adopted the new accounting policies on a retroactive basis
but prior years have not been restated.
    The adoption of new accounting policies for financial instruments has not
resulted in any significant changes to TimberWest's financial statements.

    Refinancing of Credit Facilities

    During the third quarter, the Company finalized arrangements for new
credit facilities. On September 25, 2007, the Company completed and received
two credit facilities pursuant to unsecured revolving facilities underwritten
by a syndicate of Canadian chartered banks. The first facility, Tranche A, is
long-term financing in the amount of $200.0 million, due on September 24,
2012. The second facility, Tranche B, is short term financing in the amount of
$100.0 million, due on September 24, 2008. Under both facilities funds are
available to the Company in both Canadian and US dollars by way of adjusted
prime rate-based loans, bankers' acceptances, LIBOR loans and letters of
credit or guarantee. At any time prior to maturity of the facilities and
provided no event of default has occurred, the Company may request an increase
to the credit facility apportioned proportionally between Tranche A and
Tranche B up to the aggregate amount of $350.0 million.
    On completion of this financing, the Company's long-term financing in the
amount of $65.0 million pursuant to an unsecured revolving facility
underwritten by a Canadian chartered bank, due on July 7, 2010 and the
Company's long-term financing in the amount of $100.0 million pursuant to an
unsecured revolving facility underwritten by a syndicate of Canadian chartered
banks, due on July 28, 2010, were cancelled.

    Cash Distribution

    On October 30, 2007, TimberWest announced a distribution of $0.269 per
Stapled Unit, payable January 15, 2008, to unitholders of record on January 1,
2008. From inception to September 30, 2007, the Company has generated
distributable cash of $802.8 million while, including the October 15, 2007
distribution of $20.9 million, the Company has paid out $796.4 million to
unitholders.
    Due to the seasonal and cyclical nature of TimberWest's business, cash
flows may fluctuate from quarter to quarter and from year to year. One of the
objectives of TimberWest's cash distribution policy is to make even
distributions to unitholders, which may differ from actual cash generated
during the period.

    Subsequent Events

    Redemption of Debentures

    Subsequent to September 30, 2007, the Company used the Tranche A credit
facility to pay out the maturity of the $195.0 million of 7.0% debentures on
October 1, 2007.

    Additional Financing

    On October 19, 2007, the Company requested and received additional
financing in the amount of $25.0 million to the credit facility, apportioned
proportionally between Tranche A and Tranche B, pursuant to the unsecured
revolving facility underwritten by a syndicate of Canadian chartered banks.

    Quarterly Conference Call

    TimberWest will hold a conference call at 8:00am PDT (11:00am EDT) on
Wednesday, October 31, 2007, to discuss results of the third quarter. To
access the conference call, listeners should dial 1-800-718-4679. For those
unable to participate in the live call, a recording of the call will be
available until November 14, 2007, and can be accessed at 1-800-558-5253 using
code 21350739. The conference call will also be broadcast live over the
internet via TimberWest's website home page at http://www.timberwest.com. The
webcast will be archived and available for an additional 90 days.

    Operating Highlights

    
                                    Three months ended     Nine months ended
                                       September 30          September 30
    Timberland Operations:            2007       2006       2007       2006
    -------------------------------------------------------------------------

    Log Sales Revenue
     (in millions of dollars)
      Domestic                     $   22.1   $   26.4   $  104.9   $   96.2
      Export - Asia                    24.4       23.0       70.6      102.1
      Export - US                      10.9       12.2       40.5       43.0
    -------------------------------------------------------------------------
      Total log sales              $   57.4   $   61.6   $  216.0   $  241.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Realizations ($/m(3))
      Domestic                           91         80         85         78
      Export - Asia                     106        129        116        132
      Export - US                        83        113         85         98
    -------------------------------------------------------------------------
                                         95        100         93         99
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Volume (thousand m(3))
      Domestic                        242.7      330.9    1,230.4    1,228.2
      Export - Asia                   229.5      177.9      611.4      775.3
      Export - US                     130.7      107.4      476.4      439.5
    -------------------------------------------------------------------------
                                      602.9      616.2    2,318.2    2,443.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Mix (thousand m(3))
      Fir                             347.5      320.5    1,545.9    1,585.0
      Hembal                          160.3      186.9      474.1      441.4
      Cedar                            47.9       61.2      160.0      221.8
      Other                            47.2       47.6      138.2      194.8
    -------------------------------------------------------------------------
                                      602.9      616.2    2,318.2    2,443.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Production Volume
     (thousand m(3))
      Public tenures                   89.4      214.1      376.5      634.9
      Private timberlands             119.1      378.5    2,014.1    1,981.6
    -------------------------------------------------------------------------
                                      208.5      592.6    2,390.6    2,616.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Production Costs ($/m(3))     123.0       81.1       70.4       65.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log sales revenues for the three months ended September 30, 2007, were
down compared to log sales revenues for the third quarter of 2006 due to lower
log sales volumes and average log realizations as a result of weak log markets
in the US and Japan.
    Average domestic realizations for the third quarter of 2007 were higher
than the third quarter of 2006 as domestic prices were firm for some species
in the third quarter due to tighter supply as a result of the strike. Average
export realizations were lower in the third quarter of 2007 compared to the
third quarter of 2006 due to further weakening in log and lumber markets in
North America, and oversupply of logs in Japan and the impact of the rapidly
appreciating Canadian dollar.
    On a year-to-date basis, sales revenue was down with sales realizations
weaker with lower export realizations, weaker sales mix, stronger Canadian
dollar, and lower sales volumes. Logging costs on a year-to-date basis were
higher primarily because of an increase in contractor costs earlier in the
year.
    Unit production costs for the third quarter of 2007 increased over the
third quarter of 2006 due to lower production volumes as a result of the
United Steelworkers labour disruption that commenced on July 21, 2007. Unit
production costs on a year-to-date basis were higher as a result of strike and
higher contractor rates. We were able to produce higher volumes early in the
year when markets were better, and our contractor rates were lower.


                                     Three months ended    Nine months ended
                                       September 30          September 30
    Elk Falls Sawmill:                2007       2006       2007       2006
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Sales Revenue by Product
    (in millions of dollars)
      Lumber                       $    9.6   $   27.1   $   55.9   $   87.8
      Wood chips and residuals          4.9        5.8       15.7       17.4
    -------------------------------------------------------------------------

    Sales Realizations
      Lumber ($/mfbm)                   513        648        615        626
      Wood chips ($/m(3))                50         36         49         35
    -------------------------------------------------------------------------

    Sales Volume
      Lumber (million fbm)             18.7       41.8       90.9      140.3
      Wood chips and residuals
      (thousand m(3))                  62.6       89.4      202.6      278.9
    -------------------------------------------------------------------------
    Lumber Production Volume
     (million fbm)                     29.5       45.8       99.3      141.9
    -------------------------------------------------------------------------

    Sales realizations for the three months ended September 30, 2007, were
lower relative to sales realizations for the third quarter of 2006 due to
weaker markets generally. During the quarter, lumber markets experienced
oversupply in all areas. The sawmill took four weeks of market related
downtime during the third quarter of 2007, compared to no downtime during the
same period in 2006. Year-to-date, the mill has taken ten weeks of
market-related downtime resulting in a sharp decline in revenues. In addition,
transportation delays have been a problem all year for the mill and at the end
of the quarter shipments were delayed which further reduced revenues.
    Wood chips and residuals sales for the three month period ended September
30, 2007, of $4.9 million were down from $5.8 million for the comparative
period in 2006, reflecting the reduction in chips produced due to downtime
during the third quarter of 2007.

                                     Three months ended    Nine months ended
                                       September 30          September 30
    Real Estate Business Unit:        2007       2006       2007       2006
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Real Estate Sales
     (in millions of dollars)      $    1.2   $    2.3   $    1.8   $   21.0
    Real Estate Net Proceeds
     (in millions of dollars)           1.0        2.1        1.5       19.0
    Real Estate Net Proceeds
     ($/acre)                         2,820      7,908      3,509      9,383
    -------------------------------------------------------------------------

    Real estate sales for the third quarter of 2007 and the nine months ending
September 30, 2007 were lower than the comparative periods in 2006, reflecting
timing differences in sales transactions. Proceeds from the sale of real
estate for the nine months ended September 30, 2006 included the sale of the
former Youbou sawmill site for $9.5 million.

                                     Three months ended    Nine months ended
                                       September 30          September 30
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Earnings (loss) Before Interest,
     Taxes, Depreciation and Amortization
     (EBITDA)(2)
    (in millions of dollars)
      Net earnings (loss)           $ (28.1)   $ (12.8)   $ (31.7)   $   2.3
      Add (deduct):
        Interest on Series A
        Subordinate Notes paid
         to unitholders                20.9       20.9       62.7       62.7
        Interest on long-term debt      0.7        3.6        1.2       11.0
        Interest on short-term debt     3.4          -       10.2          -
        Income tax recovery            (0.9)      (0.8)      (3.5)     (24.8)
        Depreciation, depletion and
         amortization                   1.6        2.0        6.2        6.4
        Amortization of deferred
         financing costs (note 2)       0.5        0.1        0.8        0.4
    -------------------------------------------------------------------------

    EBITDA                             (1.9)      13.0       45.9       58.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Financial Position
    -------------------------------------------------------------------------
    Summary of Financial Position            As at             As at
    (in millions of dollars)           September 30, 2007  December 31, 2006
    -------------------------------------------------------------------------

    Cash and cash equivalents                     $   1.0            $   9.3
    Current assets                                   76.2               83.1
    Current liabilities                             254.7              253.8
    Current liabilities
     (excluding credit facility
     and debentures)                                 46.7               58.8
    Long-term liabilities                           206.4              189.2
    Series A Subordinate notes
     owned by unitholders                           698.0              697.0
    Unitholder's equity                             210.7              241.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Cash and cash equivalents decreased to $1.0 million as at September 30,
2007, reflecting an increase in non-cash working capital. Trade accounts
receivable decreased to $12.1 million at September 30, 2007, compared to
$16.9 million at the end of 2006, reflecting the effect of decreased log and
lumber sales revenue due to the weaker market conditions, the USW labour
disruption, and lumber production curtailments during the third quarter of
2007, compared to the fourth quarter of 2006. Inventories were $50.0 million
at September 30, 2007, compared to $49.0 million at the end of 2006. Prepaid
expenses and other current assets were $11.2 million at September 30, 2007,
compared to $5.6 million at the end of 2006, reflecting increased balances in
non-trade receivables and property tax prepaid expenses.
    Property, plant and equipment were $1,291.7 million as at September 30,
2007, $4.6 million less than as at December 31, 2006. This decrease primarily
reflects the provision for depreciation of capital assets of $6.2 million
recorded during this period, offset in part by capital additions of
$2.2 million, comprised primarily of logging roads.
    Current liabilities as at September 30, 2007, include borrowings of
$13.0 million on the Tranche B short-term unsecured revolving credit facility
and the $195.0 million aggregate net carrying value ($195.0 million principal
amount) of 7.0% unsecured senior debentures. The debentures were reclassified
from long-term to current liabilities in the fourth quarter of 2006. Of note
is that effective January 1, 2007, the debentures are recorded at amortized
cost using the effective interest method from adoption of new accounting
policies (See Highlights and Significant Transactions - Adoption of New
Accounting Policies - Financial Instruments). Subsequent to September 30,
2007, the company used the Tranche A long-term unsecured revolving credit
facility to pay out the maturity of the $195.0 million principle amount of
7.0% unsecured senior debentures (See Subsequent Event - Redemption of
Debentures). Excluding the short-term credit facility and the debentures,
current liabilities at September 30, 2007 were $46.7 million. This quarterly
variance in current liabilities (excluding credit facility and debentures) can
be attributed to a $12.1 million decrease in accounts payable and accrued
liabilities which is primarily attributed to lower harvest levels in September
2007 as a result of the USW labour disruption compared to December 2006.
    As at September 30, 2007, the Company had combined borrowings of
$33.0 million on its available credit facilities, including borrowings of
$20.0 million on its Tranche A $200.0 million long-term unsecured revolving
facility, and $13.0 million on its Tranche B $100.0 million short-term
unsecured revolving facility. In addition, the Company had commitments of
$17.1 million relating to outstanding letters of credit, including
$16.1 million issued under its demand bank guarantee facility and $1.0 million
issued under its Tranche A $200.0 million long-term unsecured revolving
facility.
    The $195.0 million aggregate net carrying value ($195.0 million principal
amount) of the 7.0% unsecured senior debentures matured on October 1, 2007,
and the Company used the Tranche A $200.0 million long-term unsecured
revolving credit facility to pay out the maturity.
    Other long-term liabilities as at September 30, 2007, included a
silviculture liability of $3.1 million, a $40.7 million liability relating to
employee future benefits and a future income tax liability of $142.6 million.
These balances are comparable to balances as at December 31, 2006.
    The Series A Subordinate Note component of the Company's Stapled Unit is
presented as a liability on the Company's consolidated balance sheets.
Effective January 1, 2007, the Series A Subordinate Note liability is recorded
at amortized cost using the effective interest method from adoption of new
accounting policies. (See Highlights and Significant Transactions - Adoption
of New Accounting Policies - Financial Instruments) As at September 30, 2007,
the carrying value of the Series A Subordinate Note liability was
$698.0 million.
    During the quarter ended September 30, 2007, options to purchase 8,433
Stapled Units were exercised for proceeds of $0.1 million and 8,160 options
were cancelled. During the nine months ended September 30, 2007, 339,370
Stapled Unit options were granted, options to purchase 102,979 Stapled Units
were exercised for proceeds of $1.5 million and 8,160 options were cancelled.
As at October 30, 2007, the Company had 1,164,065 granted and outstanding
Stapled Unit option awards and 77,738,233 issued and outstanding Stapled
Units.
    As of the end of the third quarter, TimberWest had $300.0 million of
borrowing capacity with $228.0 million drawn.

    
    Cash Flow and Liquidity

    Selected Cash Flow Items         Three months ended     Nine months ended
    (in millions of dollars)            September 30          September 30
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Cash provided by (used in)
       operations before changes
       in non-cash working capital  $ (26.7)   $ (11.2)   $ (33.0)   $  (1.7)
      Changes in non-cash working
       capital                         20.9       10.4      (13.9)      28.3
    -------------------------------------------------------------------------
                                       (5.8)      (0.8)     (46.9)      26.6
    -------------------------------------------------------------------------
    Financing activities:
      Issuance of Stapled Units
       on exercise of options           0.1        0.7        1.5        1.2
      Credit facilities                 8.5          -       33.0      (37.0)
      Demand credit facility           (1.2)         -          -          -
    -------------------------------------------------------------------------
                                        7.4        0.7       34.5      (35.8)
    -------------------------------------------------------------------------

    Investing activities:
      Proceeds from sale of
       other assets                     1.1        2.2        6.8       19.1
      Additions to property,
       plant and equipment             (0.9)      (2.2)      (2.2)      (3.7)
      Other assets                     (0.8)       0.2       (0.5)       1.1
    -------------------------------------------------------------------------
                                       (0.6)       0.2        4.1       16.5
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash equivalents      $   1.0    $   0.1    $  (8.3)   $   7.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the three months ended September 30, 2007, the Company issued
8,433 Stapled Units on the exercise of Stapled Unit options for net proceeds
of $0.1 million, compared to the issuance of 53,425 Stapled Units on the
exercise of Stapled Unit options for net proceeds of $0.7 million in the
comparative quarter in 2006. During the third quarter of 2007, $7.3 million
was borrowed on available credit facilities, as compared to no borrowings on
available credit facilities during the same period in 2006.
    For the nine months ended September 30, 2007, the Company issued 102,979
Stapled Units for net proceeds of $1.5 million on the exercise of Stapled Unit
options, compared to the issuance of 95,517 Stapled Units for net proceeds of
$1.2 million on the exercise of Stapled Unit options in comparative period in
2006. During the first nine months of 2007, $33.0 million was borrowed on
available credit facilities as compared to $37.0 million that was applied to
reduce amounts borrowed on available credit facilities during the same period
in 2006.
    In the third quarter of 2007, the Company received net proceeds of
$1.1 million from the sale of other assets, primarily from the sale of higher
and better use properties, and incurred $0.9 million for capital expenditures
primarily for the construction of logging roads. For the nine months ended
September 30, 2007, the Company received net proceeds of $6.8 million from the
sale of other assets, which includes gross proceeds of $5.0 million from the
disposition of a subsidiary trust and $1.5 million from the sale of higher and
better use properties. The Company incurred $2.2 million for capital
expenditures primarily for the construction of logging roads.
    As at September 30, 2007, the principal amount of TimberWest's total
debt(4) outstanding was $228.0 million compared to total principal amount of
debt outstanding of $195.0 million as at December 31, 2006. The Company's
consolidated debt-to-total capitalization ratio(4) as at September 30, 2007
was 20:80, compared to 17:83 as at December 31, 2006.

    
    ----------------------------
    (4) Total debt and the debt-to-total capitalization ratio are measures
        that do not have a standardized meaning prescribed by GAAP and may
        not be comparable to similar measures presented by other companies.
        As the Company's Series A Subordinate Notes trade only as part of the
        Company's equity instrument, the Stapled Unit, they are not included
        in the Company's definition of debt. Management believes that the
        presentation of these measures will enhance an investor's
        understanding of the Company's financial resources and capital
        structure.
    

    Total debt facilities available to the Company as at September 30, 2007,
were $511.3 million, comprised of $16.3 million available under a demand bank
guarantee facility, $100.0 million available under Tranche B, a short-term
revolving facility due September 24, 2008, $200.0 million available under
Tranche A, a long-term revolving facility due September 24, 2012 and
$195.0 million aggregate principal amount of 7.0% debentures maturing on
October 1, 2007. As at September 30, 2007 the Company had commitments of $17.1
million relating to outstanding letters of credit issued to secure various
obligations of the Company, including $16.1 million issued under its demand
bank guarantee facility and $1.0 million issued under Tranche A, the $200.0
million long-term unsecured revolving facility.
    The Company used the Tranche A facility to pay out the maturity of the
$195.0 million aggregate principle amount of 7.0% debentures on October 1,
2007. The total debt facilities available to the Company as at October 1,
2007, were $316.3 million, comprised of $16.3 million available under a demand
bank guarantee facility, $100.0 million available under Tranche B, a
short-term revolving facility due September 24, 2008 and $200.0 million
available under Tranche A, a long-term revolving facility due September 24,
2012.

    Internal Controls over Financial Reporting

    During the quarter ended September 30, 2007, the Company did not make any
changes to its internal controls over financial reporting that would have
materially affected, or would likely materially affect, such controls.

    Forward Looking Statements

    The statements which are not historical facts contained in this release
are forward-looking statements that involve risks and uncertainties.
TimberWest's actual results could differ materially from those expressed or
implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, general
economic conditions, variations in TimberWest's product prices and changes in
commodity prices generally, changes in market conditions, actions of
competitors, interest rate and foreign currency fluctuations, regulatory,
harvesting fee and trade policy changes and other actions by governmental
authorities, the ability to implement business strategies and pursue business
opportunities, labour relations, weather conditions, forest fires, insect
infestation, disease and other natural phenomena and other risks and
uncertainties described in TimberWest's public filings with securities
regulatory authorities.

    
                                   Notice

    The accompanying unaudited interim consolidated financial statements of
TimberWest Forest Corp. (the "Company") have not been reviewed by the
Company's auditors.

    Consolidated Statements of Operations and Comprehensive Income

    (in millions of dollars)        Three months ended     Nine months ended
    Unaudited                          September 30          September 30
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Sales                           $  73.1    $  96.8    $ 289.4    $ 367.5

    Operating costs and expenses:
      Cost of sales                    71.5       80.4      236.7      281.3
      Selling, administrative
       and other                        3.7        3.1       13.2       10.6
      Depreciation, depletion
       and amortization                 1.6        2.0        6.2        6.4
    -------------------------------------------------------------------------
                                       76.8       85.5      256.1      298.3
    -------------------------------------------------------------------------

    Operating earnings (loss)          (3.7)      11.3       33.3       69.2

    Interest expense:
      Series A Subordinate Notes
       owned by unitholders            20.9       20.9       62.7       62.7
      Long-term debt                    0.7        3.6        1.2       11.0
      Short-term debt                   3.4          -       10.2          -
    -------------------------------------------------------------------------
                                       25.0       24.5       74.1       73.7
    Amortization of deferred
     financing costs (note 2)           0.5        0.1        0.8        0.4
    Other income                       (0.2)      (0.2)      (6.4)      (0.1)
    Pension plan
     annuitization (note 3)               -        0.5          -       17.7
    -------------------------------------------------------------------------
                                       25.3       24.9       68.5       91.7
    -------------------------------------------------------------------------

    Loss before income taxes          (29.0)     (13.6)     (35.2)     (22.5)

    Income tax recovery (note 4)       (0.9)      (0.8)      (3.5)     (24.8)
    -------------------------------------------------------------------------
    Net earnings (loss) and
     comprehensive income (loss)    $ (28.1)   $ (12.8)   $ (31.7)   $   2.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per common
     share (note 5)

      Basic                         $ (0.36)   $ (0.17)   $ (0.41)   $  0.03

      Diluted                       $ (0.36)   $ (0.16)   $ (0.41)   $  0.03


    Consolidated Statements of Retained Earnings

    (in millions of dollars)        Three months ended     Nine months ended
    Unaudited                          September 30          September 30
                                      2007       2006       2007       2006
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of period            $  46.5    $  48.3    $  50.1    $  33.2

    Net earnings (loss) and
     comprehensive income (loss)
     for the period                   (28.1)     (12.8)     (31.7)       2.3
    -------------------------------------------------------------------------
    Retained earnings,
     end of period                  $  18.4    $  35.5    $  18.4    $  35.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to unaudited interim consolidated financial
    statements.

    Consolidated Balance Sheets
    (in millions of dollars)                 As at               As at
                                      September 30, 2007   December 31, 2006
                                           Unaudited
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash                                     $     1.0           $     9.3
      Accounts receivable                           12.1                16.9
      Inventories                                   50.0                49.0
      Prepaid expenses and other
       current assets                               11.2                 5.6
      Future income taxes                            1.9                 2.3
    -------------------------------------------------------------------------
                                                    76.2                83.1
      Property, plant and equipment,
       net (note 6)                              1,291.7             1,296.3
      Other assets (note 7)                          1.9                 2.2
    -------------------------------------------------------------------------
                                               $ 1,369.8           $ 1,381.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
      Current liabilities:
        Revolving credit facilities (note 8)   $    13.0           $       -
        Debentures (note 2)                        195.0               195.0
        Accounts payable and accrued
         liabilities                                25.8                37.9
        Distribution payable                        20.9                20.9
    -------------------------------------------------------------------------
                                                   254.7               253.8
      Revolving credit facilities (note 8)          20.0                   -
      Long-term silviculture liability               3.1                 3.6
      Employee future benefits (note 10)            40.7                39.2
      Future income taxes                          142.6               146.4
    -------------------------------------------------------------------------
                                                   461.1               443.0
      Series A Subordinate Notes
       owned by unitholders (note 2 and 9)         698.0               697.0
    -------------------------------------------------------------------------
                                                 1,159.1             1,140.0
    -------------------------------------------------------------------------

      Unitholders' equity:
        Share capital, consisting of
         common and  preferred shares (note 9)     190.9               190.4
        Contributed surplus                          1.4                 1.1
        Retained earnings                           18.4                50.1
    -------------------------------------------------------------------------
                                                   210.7               241.6
    -------------------------------------------------------------------------

                                               $ 1,369.8           $ 1,381.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to unaudited interim consolidated financial
    statements.

    On behalf of the Board of Directors:

    Paul J. McElligott           V. Edward Daughney
    Director                     Director


    Consolidated Statements of Cash Flows

    (in millions of dollars)          Three months ended    Nine months ended
    Unaudited                            September 30          September 30
                                        2007      2006        2007      2006
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net earnings (loss)          $  (28.1)   $ (12.8)   $ (31.7)    $  2.3
      Items not involving cash:
        Depreciation, depletion
         and amortization               2.1        2.1        7.0        6.8
        Gain on sale of property,
         plant and equipment           (0.8)      (1.3)      (6.2)      (4.0)
        Future income tax recovery     (0.8)      (0.8)      (3.4)     (25.0)
        Other non-cash items            0.9        1.6        1.3       18.2
    -------------------------------------------------------------------------
                                      (26.7)     (11.2)     (33.0)      (1.7)
      Changes in non-cash working
       capital:
        Accounts receivable             9.5        8.5        4.8       10.8
        Inventories                    29.2        6.1       (1.0)       5.8
        Prepaid expenses and other
         working capital                1.2        0.9       (5.6)       2.5
        Accounts payable and accrued
         liabilities                  (19.0)      (5.1)     (12.1)       9.2
    -------------------------------------------------------------------------
                                       (5.8)      (0.8)     (46.9)      26.6
    -------------------------------------------------------------------------
    Financing activities:
      Issuance of Stapled Units on
       exercise of options:
      Series A Subordinate Notes        0.1        0.5        1.0        0.9
      Share capital                       -        0.2        0.5        0.3
    -------------------------------------------------------------------------
                                        0.1        0.7        1.5        1.2
      Demand credit facility           (1.2)         -          -          -
      Revolving credit facilities       8.5          -       33.0      (37.0)
    -------------------------------------------------------------------------
                                        7.4        0.7       34.5      (35.8)
    -------------------------------------------------------------------------
    Investing activities:
      Proceeds from sale of
       property, plant and equipment    1.1        2.2        6.8       19.1
      Additions to property, plant
       and equipment                   (0.9)      (2.2)      (2.2)      (3.7)
      Other assets                     (0.8)       0.2       (0.5)       1.1
    -------------------------------------------------------------------------
                                       (0.6)       0.2        4.1       16.5
    -------------------------------------------------------------------------
    Increase (decrease) in cash
     and cash equivalents               1.0        0.1       (8.3)       7.3
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     beginning of period                  -       10.2        9.3        3.0
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                  $   1.0    $  10.3    $   1.0    $  10.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Interest on Series A
       Subordinate Notes paid
       to unitholders               $  20.9    $  20.9    $  62.7    $  62.7
      Other interest paid           $   0.7    $   0.1    $   8.1    $   7.5
      Income taxes paid             $     -    $  (0.1)   $     -    $   0.2

    See accompanying notes to unaudited interim consolidated financial
    statements.



    Notes to Unaudited Interim Consolidated Financial Statements

    For the three and nine months ended September 30, 2007 and 2006

    Financial figures presented in the tables that follow are in millions of
    dollars, except per common share amounts.

    1. Significant Accounting Policies

       The accompanying unaudited interim consolidated financial statements
       include the accounts of TimberWest Forest Corp. and its subsidiaries
       ("the Company"), have been prepared in accordance with Canadian
       generally accepted accounting principles and are expressed in Canadian
       dollars. Not all disclosures required by Canadian generally accepted
       accounting principles ("GAAP") for annual financial statements are
       presented and, accordingly, these interim consolidated financial
       statements should be read in conjunction with the Company's most
       recent annual consolidated financial statements. These interim
       consolidated financial statements follow the same accounting policies
       and methods of application used in the Company's audited annual
       consolidated financial statements of December 31, 2006, except for the
       adoption of new accounting policies as described in note 2.

    2. Adoption of New Accounting Policies

       Financial instruments:

       The Canadian Institute of Chartered Accountants ("CICA") issued
       Section 3855, Financial Instruments - Recognition and Measurement,
       Section 3861, Financial Instruments: Disclosure and Presentation,
       Section 3865, Hedges and Section 1530, Comprehensive Income, all
       applicable for annual or interim periods beginning on or after
       October 1, 2006. Sections 3855 and 3861 require all financial assets,
       financial liabilities and non-financial derivatives to be recognized
       on the balance sheet at the appropriate measurement and properly
       disclosed in the notes to the consolidated financial statements.
       Section 3865 sets out hedge accounting prerequisites and rules and
       builds on existing Canadian GAAP guidance by specifying how hedge
       accounting is applied and disclosed. Section 1530 introduces new
       standards for the presentation and disclosure of components of
       comprehensive income. Comprehensive income is defined as the change in
       net assets of an enterprise during a reporting period from
       transactions and other events and circumstances from non-owner
       sources. The Company has adopted the standards on January 1, 2007.

       Prior to January 1, 2007, the Company recognized financial liabilities
       at carrying value. Effective January 1, 2007, the Company adopted
       Handbook Section 3855 and now measures its debentures and Series A
       Subordinate Notes owned by unitholders at amortized cost using the
       effective interest method. The effective interest method establishes
       the rate which equates the estimated future cash flows with the net
       carrying amount of the financial liability. The embedded derivative
       arising from the option to extend the Series A Subordinate Notes for a
       further 10 year period is measured at fair value.

       The Company adopted the new accounting policies on a retroactive basis
       but prior years have not been restated.

       The adoption of new accounting policies for financial instruments has
       not resulted in any significant changes to TimberWest's financial
       statements.

    3. Pension Plan Annuitization

       In the second quarter of 2006, the Company entered into an agreement
       with a financial institution to purchase annuities for all retirees in
       the Company's salaried employee defined benefit pension plans. As a
       result of this transaction, the Company recorded a $17.2 million non-
       cash pension expense in the second quarter of 2006, representing the
       unamortized net actuarial loss associated with retiree pension
       obligations at the transaction date that would have otherwise been
       amortized over the expected life of the pension plan.

       In the third quarter of 2006, the Company entered into an agreement
       with a financial institution to purchase annuities for members of one
       of the Company's remaining small defined benefit pension plans. As a
       result of this transaction, approximately $1.0 million of pension
       obligations and $1.4 million of pension assets were transferred to the
       financial institution. As this pension plan was in a surplus position
       at the time of this transaction there was no cash cost to the Company,
       however, the Company recorded a $0.5 million non-cash pension expense
       in the third quarter of 2006, representing the settlement loss on
       finalization of this transaction.

    4. Income Taxes

       ----------------------------------------------------------------------
                                     Three months ended     Nine months ended
                                         September 30          September 30
                                       2007       2006       2007       2006
       ----------------------------------------------------------------------
       Current income tax
        expense - large
        corporation tax             $  (0.1)   $     -    $  (0.1)   $   0.2
       Future income tax recovery      (0.8)      (0.8)      (3.4)     (25.0)
       ----------------------------------------------------------------------
                                    $  (0.9)   $  (0.8)   $  (3.5)   $ (24.8)
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------

       In the second quarter of 2007, federal tax bills were substantively
       enacted, resulting in the reduction of the federal general corporate
       income tax rate to 18.5% starting in 2011. This change will result in
       a reduction in the combined federal and provincial statutory corporate
       income tax rate from 31.0% to 30.5% for 2011 and subsequent years. As
       a result of this future income tax rate reduction, the Company's
       future income tax liability was reduced by $2.6 million and the
       Company's income tax provision for the nine months ended September 30,
       2007 includes a $2.6 million recovery.

       In the second quarter of 2006, a number of changes to Canadian federal
       income tax rates were substantively enacted, including: elimination of
       the Large Corporations Tax (LCT) effective January 1, 2006;
       elimination of the 4% surtax effective January 1, 2008; and the
       reduction of the federal general corporate income tax rate to 20.5%
       for 2008, 20% for 2009, and 19% for 2010 and subsequent years. These
       rate changes resulted in a future income tax recovery of $14.8 million
       and the Company's income tax provision for the nine months ended
       September 30, 2006 includes a future income tax recovery of
       $14.8 million.

       The Company's future income tax liability was reduced by $5.8 million
       for the nine months ended September 30, 2006 as a result of the
       Company entering into an agreement with a financial institution to
       purchase annuities for all retirees in the Company's salaried employee
       defined benefit pension plans in the second quarter of 2006.

    5. Earnings per Share
       ----------------------------------------------------------------------
                           Three months ended          Nine months ended
                               September 30               September 30
                           2007          2006          2007          2006
       ----------------------------------------------------------------------
       Net earnings
       (loss)         $      (28.1) $      (12.8) $      (31.7) $        2.3
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------
       Basic weighted
        average
        number of
        common shares   77,734,269    77,561,016    77,712,124    77,524,571
       Incremental
        common shares
        from potential
        exercise
        of options         116,487        82,386       155,504        74,828
       ----------------------------------------------------------------------
       Diluted weighted
        average number
        of common
        shares          77,850,756    77,643,402    77,867,628    77,599,399
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------
       Basic net earnings
        (loss) per
        common share
                       $     (0.36) $      (0.17) $      (0.41) $       0.03
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------
       Diluted net
        earnings (loss)
        per common
        share          $     (0.36) $      (0.16) $      (0.41) $       0.03
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------

    6. Property, Plant and Equipment

       Property, plant and equipment at September 30, 2007, includes private
       timberlands with a carrying value of $1,214.9 million. This amount
       includes a valuation increase adjustment of $389.8 million recorded in
       the year ended December 31, 2000, resulting from the adoption of
       Section 3465 - Income Taxes of the CICA Handbook, which was mandatory
       for fiscal years ending on or after January 1, 2000.

    7. Other Assets
                                             As at               As at
                                      September 30, 2007   December 31, 2006
       ----------------------------------------------------------------------

       Deferred debt issue
        costs (note 2)                         $     0.4           $     0.8
       Receivable on sale of property,
        plant and equipment                          0.5                 0.5
       Other                                         1.0                 0.9
       ----------------------------------------------------------------------

                                               $     1.9           $     2.2
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------

    8. Revolving credit facilities

       On September 25, 2007, the Company completed and received two credit
       facilities pursuant to unsecured revolving facilities underwritten by
       a syndicate of Canadian chartered banks. The first facility, Tranche
       A, is long-term financing in the amount of $200.0 million, due on
       September 24, 2012. The second facility, Tranche B, is short term
       financing in the amount of $100.0 million, due on September 24, 2008.
       Under both facilities, funds are available to the Company in both
       Canadian and US dollars by way of adjusted prime rate-based loans,
       bankers' acceptances, LIBOR loans and letters of credit or guarantee.
       At any time prior to maturity of the facilities and provided no event
       of default has occurred, the Company may request an increase to the
       credit facility apportioned proportionally between Tranche A and
       Tranche B up to the aggregate amount of $350 million.

       On completion of this financing, the Company's long-term financing in
       the amount of $65.0 million pursuant to an unsecured revolving
       facility underwritten by a Canadian chartered bank, due on July 7,
       2010 and the Company's long-term financing in the amount of
       $100.0 million pursuant to an unsecured revolving facility
       underwritten by a syndicate of Canadian chartered banks, due on July
       27, 2010, were cancelled.

       As at September 30, 2007, the Company had combined borrowings of
       $33.0 million on its two available unsecured revolving facilities,
       including borrowing of $20.0 million on its $200.0 Tranche A and
       borrowing of $13.0 million on its $100.0 million Tranche B facility.
       In addition, the Company had commitments of $1.0 million relating to
       outstanding letters of credit issued under its Tranche A credit
       facility, and $16.1 million relating to outstanding letters of credit
       issued under its $16.3 million demand bank guarantee facility.

    9. Stapled Units
       ----------------------------------------------------------------------
                                               Stapled Unit Components
       ----------------------------------------------------------------------
                                                         Share
                                                        Capital
                                Number     Series A   (consisting    Total
                                          Subordinate  of common
                                            Notes    and preferred
                                                        shares)
       ----------------------------------------------------------------------
        Nine months ended September 30, 2006:

        Balance, December 31,
         2005                 77,487,571     $ 695.7     $ 189.8     $ 885.5

        Issuance of Stapled
         Units on exercise
         of options               95,517         0.9         0.3         1.2
       ----------------------------------------------------------------------
        Balance, September 30,
         2006                 77,583,088     $ 696.6     $ 190.1     $ 886.7
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------

        Nine months ended September 30, 2007:

        Balance, December 31,
         2006                  77,635,254    $ 697.0     $ 190.4     $ 887.4

        Issuance of Stapled
         Units on exercise
         of options               102,979        1.0         0.5         1.5
       ----------------------------------------------------------------------
        Balance, September 30,
         2007                  77,738,233    $ 698.0     $ 190.9     $ 888.9
       ----------------------------------------------------------------------
       ----------------------------------------------------------------------

       The Company issues equity by way of Stapled Units, each Stapled Unit
       consisting of approximately $8.98 face amount of Series A Subordinate
       Notes, 100 preferred shares and one common share. The securities
       comprising a Stapled Unit trade together as Stapled Units and cannot
       be transferred except with each other as part of a Stapled Unit until
       the date of maturity of the Series A Subordinate Notes or the payment
       of the principal amount of the Series A Subordinate Notes following an
       event of default and expiration of a remedies blockage period.

       Each Series A Subordinate Note has been issued with a face amount of
       $8.978806569, entitling the holder to an interest payment per unit of
       $1.077456788 per annum (12%). The Series A Subordinate Notes are
       unsecured and subordinate to all credit facilities and debentures. The
       principal amount of the Series A Subordinate Notes plus accrued and
       unpaid interest thereon are due on August 31, 2038, unless such date
       is extended by the Company at the time of the issuance of additional
       Subordinate Notes to a date not later than the earlier of: (i) the
       date of maturity of such additional Subordinate Notes; and
       (ii) August 31, 2048, and will be payable by cash or, at the option of
       the Company, by delivery of common shares to the Subordinate Note
       Trustee for the benefit of the holders of the Subordinate Notes.

       The Company may elect to pay the interest on the Series A Subordinate
       Notes held by unitholders in common or preferred shares of the
       Company, and may elect to pay the principal amount of the Series A
       Subordinate Notes held by unitholders in common shares of the Company.

    10. Employee Benefits
        ---------------------------------------------------------------------
                                            As at               As at
                                      September 30, 2007   December 31, 2006
        ---------------------------------------------------------------------
        Pension benefits                       $     8.5           $     8.4
        Non-pension post-retirement
         benefits                                   32.2                30.8
        ---------------------------------------------------------------------
                                               $    40.7           $    39.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company, through its subsidiaries, maintains pension plans that
        include defined benefit and defined contribution segments available
        to all salaried employees and a small number of hourly retirees not
        covered by union pension plans. For the three months ended September
        30, 2007, the Company recorded an expense of $0.4 million for pension
        benefit costs (2006 - $1.1 million) and made cash payments of
        $0.4 million to fund current service costs (2006 - $0.4 million). For
        the nine months ended September 30, 2007, the Company recorded an
        expense of $1.5 million for pension benefit costs (2006 -
        $19.3 million including $17.7 million representing the non-cash cost
        related to the annuitization transactions completed in the second and
        third quarters of 2006 (see note 3)) and made cash payments of
        $1.5 million to fund current service costs (2006 - $3.1 million).

        The Company also provides non-pension benefits consisting of group
        life insurance and medical benefits to eligible retired employees,
        which the Company funds on an as-incurred basis. For the three months
        ended September 30, 2007, the Company recorded an expense of
        $1.0 million for non-pension benefit costs (2006 - $1.0 million) and
        made cash payments of $0.5 million to fund current benefit costs
        (2006 - $0.4 million). For the nine months ended September 30, 2007,
        the Company recorded an expense of $3.0 million for non-pension
        benefit costs (2006 - $3.0 million) and made cash payments of
        $1.6 million to fund current benefit costs (2006 - $1.4 million).

    11. Stock-based Compensation Plans

        Under the Company's Stapled Unit Option Plan, the Company may grant
        options for the purchase of Stapled Units to directors, officers or
        employees who are in active service or employment of the Company or
        of any of its subsidiaries. During the quarter ended September 30,
        2007 and September 30, 2006, no Stapled Unit options were granted.
        For the nine months ended September 30, 2007, 339,370 Stapled Unit
        options were granted at an average price of $16.46 (2006 - 245,238
        Stapled Unit options were granted at an average exercise price of
        $13.94).

        The Company has applied the fair value method of accounting for
        Stapled Unit option grants awarded on or after January 1, 2003. The
        fair value of each option granted was estimated on the date of grant
        using the Black-Scholes option pricing model using the following
        weighted average assumptions:
        ---------------------------------------------------------------------
                                                             2007       2006
        ---------------------------------------------------------------------
        Risk-free interest rate                               4.1%       4.1%
        Expected life (years)                                 5.0        5.0
        Expected volatility                                  21.6%      20.3%
        Dividend yield                                        6.5%       8.0%
        Number of options granted                         339,370    245,238
        Fair value of each option granted               $    1.84  $    0.92
        ---------------------------------------------------------------------

        The compensation cost for the 339,370 Stapled Unit options granted
        between January 1, 2007 and September 30, 2007 is $628,000 (2006 -
        245,238 Stapled Unit options were granted with a compensation cost of
        $226,000). The compensation cost of Stapled Unit option awards is
        amortized against earnings over the three-year vesting period of the
        underlying options and an expense of $98,000 and $459,000 has been
        recognized in net earnings for the three and nine months ended
        September 30, 2007 (2006 - $55,000 and $224,000, respectively) with a
        corresponding credit to contributed surplus.

        Under the Company's Distribution Equivalent Plan, the Company awards
        Stapled Unit option holders an amount equal to actual distributions
        paid on the Company's Stapled Units. Awards granted under the
        Distribution Equivalent Plan vest under the same terms that apply to
        the corresponding options and can only be exercised at the time of
        exercise of the corresponding options. The Company applies the
        principles of the fair value-based method of accounting for
        stock-based compensation to awards granted under this plan.

        Awards are accrued on a basis equal to actual distributions paid on
        the Company's issued and outstanding Stapled Units and are charged to
        earnings as the underlying Stapled Unit options vest. For the three
        months ended September 30, 2007, $0.3 million has been accrued for
        awards granted under this plan (2006 - $0.3 million) and $0.3 million
        has been amortized against earnings for the quarter (2006 -
        $0.2 million). For the nine months ended September 30, 2007,
        $0.8 million has been accrued for awards granted under the plan (2006
        - $0.8 million) and $0.9 million has been amortized against earnings
        for this period (2006 - $0.7 million).

        During the three months ended September 30, 2007, a total of 8,433
        Stapled Unit options with an average exercise price of $13.50 were
        exercised (2006 - 53,425 Stapled Unit options with an average
        exercise price of $12.75 were exercised). For the nine months ended
        September 30, 2007, a total of 102,979 Stapled Unit options with an
        average exercise price of $13.73 were exercised (2006 - 95,517
        Stapled Unit options with an average exercise price of $12.59 were
        exercised).

        For the three and nine months ended September 30, 2007, a total of
        8,160 Stapled Unit options with an average exercise price of $15.41
        were cancelled (2006 - 5,637 Stapled Unit options with an average
        exercise price of $15.80 were cancelled).

    12. Comparative figures

        Certain comparative figures have been reclassified to conform to the
        current year presentation.



    Supplemental Information        Three months ended     Nine months ended
    Unaudited                          September 30          September 30
                                      2007       2006       2007       2006
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sales Revenue by Product
    (in millions of dollars)
      Log sales
        Domestic                  $    22.1  $    26.4  $   104.9  $    96.2
        Export - Asia                  24.4       23.0       70.6      102.1
        Export - US                    10.9       12.2       40.5       43.0
    -------------------------------------------------------------------------
        Total log sales                57.4       61.6      216.0      241.3
      Lumber                            9.6       27.1       55.9       87.8
      Wood chips and other              4.9        5.8       15.7       17.4
      Real estate                       1.2        2.3        1.8       21.0
    -------------------------------------------------------------------------
                                  $    73.1  $    96.8  $   289.4  $   367.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sales Volume
      Logs (thousand m(3))
        Domestic                      242.7      330.9    1,230.4    1,228.2
        Export - Asia                 229.5      177.9      611.4      775.3
        Export - US                   130.7      107.4      476.4      439.5
    -------------------------------------------------------------------------
                                      602.9      616.2    2,318.2    2,443.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Lumber (million fbm)             18.7       41.8       90.9      140.3
    -------------------------------------------------------------------------

    Log Sales Mix (thousand m(3))
      Fir                             347.5      320.5    1,545.9    1,585.0
      Hembal                          160.3      186.9      474.1      441.4
      Cedar                            47.9       61.2      160.0      221.8
      Other                            47.2       47.6      138.2      194.8
    -------------------------------------------------------------------------
                                      602.9      616.2    2,318.2    2,443.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Production Volume
      Logs (thousand m(3))
        Public tenures                 89.4      214.1      376.5      634.9
        Private timberlands           119.1      378.5    2,014.1    1,981.6
    -------------------------------------------------------------------------
                                      208.5      592.6    2,390.6    2,616.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

        Lumber (million fbm)           29.5       45.8       99.3      141.9
    -------------------------------------------------------------------------

    Earnings (loss) Before Interest,
     Taxes, Depreciation and
     Amortization(*)
    (in millions of dollars)
      Net earnings (loss)         $   (28.1) $   (12.8) $   (31.7) $     2.3
      Add (deduct):
        Interest on Series A
         Subordinate Notes paid
         to unitholders                20.9       20.9       62.7       62.7
        Interest on long-term debt      0.7        3.6        1.2       11.0
        Interest on short-term debt     3.4          -       10.2          -
        Income tax recovery            (0.9)      (0.8)      (3.5)     (24.8)
        Depreciation, depletion
         and amortization               1.6        2.0        6.2        6.4
        Amortization of deferred
         financing costs                0.5        0.1        0.8        0.4
    -------------------------------------------------------------------------
      Earnings (loss) before
       interest, taxes,
       depreciation
       and amortization           $    (1.9) $    13.0  $    45.9  $    58.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (*)Earnings (loss) before interest, taxes, depreciation and amortization
       is a measure that does not have a standardized meaning prescribed by
       Canadian generally accepted accounting principles and may not be
       comparable to similar measures presented by other companies.
       Management believes that the presentation of this measure will enhance
       an investor's understanding of the Company's operating performance.
    

    About TimberWest

    TimberWest Forest Corp. is uniquely positioned as the largest owner of
private forest lands in western Canada. The Company owns in fee simple
approximately 334,000 hectares or 825,000 acres of private timberland that,
over the previous five years, have provided an annual average harvest of
2.594 million m(3) of logs and have an approximate annual growth rate of 8.0
m(3) per hectare per year on the productive land base. These timberlands are
located on Vancouver Island and the majority of the land base supports the
growth of Douglas fir, a premium tree species sought after for structural
purposes. TimberWest runs fully-contracted harvesting operations. With almost
80% of the Company's annual private land logging now being done in
second-growth stands, TimberWest leads the Coastal industry in the growing and
harvesting of second-growth timber.
    The Company's independent auditor, KPMG Performance Registrar Inc.,
periodically certifies that the forest management practices on the Company's
private timberland continue to meet all Sustainable Forestry Initiative
(SFI(R)) requirements. SFI requirements specify that forest harvesting is
integrated with environmental and conservation goals for soil, wildlife, water
quality protection, conservation of biodiversity, protection of special sites
and aesthetics in a manner that ensures a sustainable harvest over the
long-term.
    TimberWest also owns renewable Crown harvest rights to 0.7 million m(3)
of logs per year and operates a sawmill located near Campbell River, BC.
    In addition, approximately 38,000 hectares or 94,000 acres of the
Company's private forest lands have been identified as having greater value as
real estate properties and will progressively be made available for higher
uses over the next ten to fifteen years. The Company reviews its land base on
a periodic basis to update the size of its portfolio of higher use properties.

    Stapled Units of TimberWest Forest Corp. are traded on the Toronto Stock
    Exchange under the symbol: TWF.UN

    %SEDAR: 00009326E




For further information:

For further information: TimberWest Forest Corp., Suite 2300, 1055 West
Georgia Street, PO Box 11101, Vancouver, BC, V6E 3P3, Telephone: (604)
654-4600, Facsimile: (604) 654-4571; Investor Relations Contact: Bev Park,
Executive Vice President and Chief Financial Officer, Telephone: (604)
654-4600, Facsimile: (604) 654-4662, Email: invest@timberwest.com; Visit us at
our web site: www.timberwest.com

Organization Profile

TIMBERWEST FOREST CORP.

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