TimberWest Releases 2008 Second Quarter Results and Announces a Review of Distribution Policy and Potential Capital Reorganization



    VANCOUVER, Aug. 14 /CNW/ - "Market conditions continue to be extremely
difficult and TimberWest is therefore staying the course with its harvest
deferral strategy," said Paul McElligott, President and CEO of TimberWest
Forest Corp. With log sales volumes down 24% in Q2, 2008 relative to the same
period in 2007 and sales realizations down 18%, the Company generated a
Distributable Cash loss of $3.2 million in the quarter, after taking a
restructuring charge in May of $7.7 million for the permanent closure of Elk
Falls, its last remaining sawmill. Non-core real estate sales were
$4.9 million during the quarter. Stronger real estate sales, lower harvesting
costs, and aggressive management of working capital resulted in the Company
ending the quarter with $211.9 million of debt, $6.9 million higher than at
the end of the first quarter. The Company remained in compliance with all of
its debt covenants for the quarter, however, it is possible that the Company
may not be able to remain in compliance with its covenants later in the year.
"We continue to work on resolving this issue and by the end of the third
quarter expect to either amend the existing facilities or put new ones in
place," said Mr. McElligott.

    Safety

    Safety continues to be a priority for the Company and its MIR results
continue to show improvement at 0.61 for the first half of 2008 compared to
1.19 for the same period last year. In addition, 82 of its 109 contractors are
now SAFE Certified by the BC Forest Safety Council and the Company expects the
remainder to achieve their SAFE company certifications by year end. Beginning
in 2009, only SAFE Certified contractors will be permitted to work on
TimberWest's land base. TimberWest successfully concluded its Safe Company
certification review audit during the quarter with a score of 97%.

    Real Estate Operational Results

    The Company is pleased with the momentum of the sales program so far this
year. Net proceeds from the sale of non-core real estate for the second
quarter of 2008 were $4.6 million, or $10,000 per acre compared with
$0.3 million or $6,800 per acre a year earlier. Net sales proceeds on a year
to date basis were $7.0 million, or $14,000 per acre compared with
$0.5 million or $7,800 per acre a year earlier.
    During the quarter, TimberWest hosted analysts for a presentation and
tour of its real estate assets. It was well received and a copy of the
presentation can be found on TimberWest's website. A few highlights from that
presentation include the fact that TimberWest owns approximately 40% of the
southeast quadrant of Vancouver Island; part or all of 82 lake bottoms and 75
kilometers of waterfront; that 94% of the population of Vancouver Island lives
within 20 minutes of its development nodes; and that over $6.3 billion in
major private and public construction projects are currently underway
throughout Vancouver Island.
    Many of TimberWest's development properties are in the process of being
rezoned. During the quarter, the Provincial Agricultural Land Commission
approved the exclusion from the Agricultural Land Reserve of 166 hectares
(410 acres) of TimberWest land in Campbell River in return for including
480 hectares (1,186 acres) of higher quality agricultural land in the Reserve.
The excluded land, between Campbell River Airport and the Island Highway, has
been serviced with water and sewer facilities and has been designated for
industrial use in the City's Official Community Plan. It will be marketed to
manufacturing, distribution, and service businesses best able to benefit from
its excellent location. Discussions also continued with potential joint
venture partners on different development nodes during the quarter.

    Logging and Lumber Manufacturing Operational Results

    Weak North American log markets, high shipping costs to Asia and the
strong Canadian dollar depressed sales realizations for all species. Fir and
hemlock values remained low and cedar prices have also begun to come off with
demand deteriorating in the US. The Company booked a value recovery of
$2.4 million for the quarter reflecting an improvement in the ending value of
the inventory compared to last quarter.
    As a result of the harvest deferral strategy, log sales volumes were
678,000 m(3) for the quarter, down 24% from Q2, 2007. For the first half of
2008, log sales volumes are approximately 1.0 million m(3), down 40% compared
to the first half of 2007. Exports to Japan remain TimberWest's highest value
sales, with volumes into that market at 192,000 m(3) for the quarter and
298,000 m(3) for the first half. The Company is making good progress on
increasing its fir volumes to the Japanese plywood sector and its prospects
for other Asian markets look promising.
    Despite lower harvesting volumes, production costs are approximately
$10 per m(3) lower than Q2 last year. About half of this cost reduction
represents a timing difference between quarters related to road construction,
and a higher proportion of more costly helicopter logging in the second
quarter of 2007. The rest of the cost savings is attributable to the fact that
the Company has used competitive bid contractors for much of its harvest this
year instead of higher cost long term contractors.
    In a decision dated July 14, 2008, Arbitrator McPhillips determined that,
even though the collective agreement between TimberWest and the United
Steelworkers of America ("USWA") had expired, upon the insolvency of a
Woodlands Contractor, the employees of the Woodlands Contractor automatically
revert to TimberWest as employees. TimberWest has initiated an appeal of the
McPhillips decision. Despite this ruling, the Company said it has no intention
of resuming logging operations and will seek alternate Woodlands Contractors
once market conditions improve. At the present time there are no immediate
plans to seek replacement Woodlands Contractors. TimberWest is committed to
harvesting its land through the contractor model, however it is presently
without a collective agreement with the USWA. It remains the intention of
TimberWest to negotiate amendments to the collective agreement to improve the
viability of the contractor model through sub-division of the current
operations. "We believe safety will be enhanced, logging costs will be
lowered, and former TimberWest employees will be provided with a more stable
employment base as they transfer to mid-sized logging contractors," said Mr.
McElligott.
    In May, an audit team from KPMG Performance Registrar Inc. carried out
its second five-year re-certification audit of TimberWest's public and private
timberland operations under the SFI and ISO certifications. The
re-certification audit involved 52 days of comprehensive audit work for the
SFI/ISO certification team. "The results were simply excellent," said Mr.
McElligott. "The audit did not raise even a single finding of minor
non-conformance. I am extremely proud of this result and of the commitment
everyone at TimberWest has shown for the stewardship of the asset base and the
sustainability of its excellent forest practices."
    The Elk Falls sawmill in Campbell River was permanently closed on May 9,
2008. At quarter end, mill management had sold all but 7.4 million board feet
of lumber. Site decommissioning is underway. The remaining lumber was sold by
the end of July and TimberWest expects the decommissioning and demolition to
be substantially complete by the end of November. Modest net proceeds from
machinery and equipment sales are anticipated. "All of the mill employees are
to be congratulated for winding down this operation in a safe and professional
manner," said Mr. McElligott.
    In addition to the $7.7 million Elk Falls restructuring costs, the
Company expects to incur an additional $8 million of restructuring charges in
2008 related to contractor issues, sub-division and chip commitments.

    Outlook

    TimberWest believes that weak conditions will persist for the balance of
2008 and 2009. Specifically the Company anticipates weak log markets and a
strong Canadian dollar. In order to maximize unitholder value in this climate
of weak prices, the Company expects to continue to defer harvests and log at a
rate that is about 60% of our normal levels. Based on TimberWest's view of the
markets in 2009, the Company expects to continue to defer the harvest next
year as well. As communicated in previous unitholder material, the Company
believes the harvest deferral strategy is the right response in today's market
conditions. With the combination of higher projected future log prices, the
incremental volume growth of the trees, and the expectation of lower projected
harvesting costs, we believe unitholder value is enhanced by leaving the trees
to grow. By reducing harvests when margins are low and increasing harvests
when margins are high, the net asset value of the Company will increase.
    "We also continue to believe that our real estate strategy is the right
long term approach for unitholders," added Mr. McElligott. "We will not sell
core development properties before their time. Planning and zoning will
enhance real estate values significantly on the development lands and over
time raise the value of the entire portfolio. TimberWest's efforts in this
area will help communities achieve sustainable development that brings with it
jobs, homes, new infrastructure and recreational opportunities for generations
to come."
    Looking beyond these near term market challenges, the Company expects to
see demand and pricing for log and lumber products in the region improve when
US housing activity returns to more normal levels and as Asian countries
continue to diversify their supply sources. This view is based, in part, upon
the Company's assessment of the positive demographics in the US, which should
result in the return to a strong housing market. In addition, the impact of
the inevitable future supply shortages caused by the mountain pine beetle
infestation in Western Canada, harvest reductions in Eastern Canada,
expectations regarding continuing growth in demand for wood products in Asia
and escalating Russian log export taxes will all positively affect demand and
pricing. When margins improve, the Company will go back and harvest the
undercut.
    As a result of weak business conditions, TimberWest has not been
generating sufficient distributable cash to meet distribution requirements and
expects this to be the case through 2009. While the Company is paying the
October 15, 2008 distribution, the Company is concerned about continuing to
borrow to fund distributions at the current level beyond October. The Company
will complete more detailed short and long term business planning by this fall
and will share with unitholders our views on the best course for managing this
business to maximize long-term value. This will include an outline of our
thinking regarding distribution policy in 2009 and beyond. During the business
planning review, the Company will consider a range of options from a deferral
of distributions to a reorganization of the capital structure. A
reorganization would be designed to better match the underlying cash flows of
the real estate and timberland businesses with the components of the capital
structure. "The Company is confident that the value of these businesses is in
excess of its current trading price and will remain focused on growing
long-term unitholder value, while preserving a strong balance sheet for the
future," said Mr. McElligott.

    
    Distributable Cash
    -------------------------------------------------------------------------
    (in millions of dollars)      Three months ended       Six months ended
                                        June 30                 June 30
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net loss from continuing
     operations                $   (18.9)  $    (4.7)  $   (41.8)  $    (2.0)
    Interest on Series A
     Subordinate Notes owned
     by unitholders                 21.0        20.9        42.0        41.8
    -------------------------------------------------------------------------

    Earnings from continuing
     operations available for
     distribution                    2.1        16.2         0.2        39.8
    Future income tax recovery      (0.5)       (2.3)       (5.2)       (2.6)
    -------------------------------------------------------------------------

    Earnings (loss) from
     continuing operations
     available for distribution
     before provision for
     future income taxes             1.6        13.9        (5.0)       37.2
    Add (deduct):
      Depreciation, depletion
       and amortization              1.4         1.8         2.7         3.7
      Proceeds from sale of
       property, plant and
       equipment                     4.6         5.5         7.0         5.7
      Gain on sale of property,
       plant and equipment          (3.3)       (5.3)       (3.8)       (5.4)
      Additions to property,
       plant and equipment          (0.3)       (0.8)       (0.8)       (1.3)
      Other non-cash items           0.3         0.5         0.7         1.0
    -------------------------------------------------------------------------
                                     2.7         1.7         5.8         3.7
    -------------------------------------------------------------------------

    Distributable cash from
     continuing operations(*)        4.3        15.6         0.8        40.9
    -------------------------------------------------------------------------

    Distributable cash from
     discontinued operations        (7.5)       (2.0)       (7.9)       (0.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributable cash         $    (3.2)  $    13.6   $    (7.1)  $    40.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    (*) The Company permanently closed its Elk Falls sawmill operations on
        May 9, 2008. These operations have been classified as discontinued
        operations and prior period financial statements have been restated


    Per Stapled Unit amounts:
    (in dollars)
    ------------------------------------------------------------------------
    Basic and diluted earnings
     (loss) from continuing
     operations available for
     distribution before
     provision for future
     income taxes per weighted
     average Stapled Unit      $    0.02   $    0.18   $   (0.06)  $    0.48

    Basic and diluted
     distributable cash from
     continuing operations per
     weighted average Stapled
     Unit                      $    0.06   $    0.20   $    0.01   $    0.53

    Basic and diluted
     distributable cash from
     discontinued operations
     per weighted average
     Stapled Unit              $   (0.10)  $   (0.03)  $   (0.10)  $   (0.01)

    Basic and diluted
     distributable cash per
     weighted average Stapled
     Unit                      $   (0.04)  $    0.17   $   (0.09)  $    0.52

    Cash distributions paid
     per Stapled Unit          $    0.27   $    0.27   $    0.54   $    0.54
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    (in millions of dollars)      Three months ended       Six months ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash used in continuing
     operations                $   (13.7)  $   (38.9)  $   (35.4)  $   (44.1)
    Add (deduct):
      Change in non-cash
       working capital              (7.3)       28.2       (11.8)       38.2
      Interest on Series A
       Subordinate Notes owned
        by unitholders              21.0        20.9        42.0        41.8
      Proceeds from sale of
       property, plant and
       equipment                     4.6         5.5         7.0         5.7
      Additions to property,
       plant and equipment          (0.3)       (0.8)       (0.8)       (1.3)
      Other non-cash items             -         0.7        (0.2)        0.6
    -------------------------------------------------------------------------
                                    18.0        54.5        36.2        85.0
    -------------------------------------------------------------------------

    Distributable cash from
     continuing operations           4.3        15.6         0.8        40.9
    -------------------------------------------------------------------------

    Distributable cash from
     discontinued operations        (7.5)       (2.0)       (7.9)       (0.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributable cash         $    (3.2)  $    13.6   $    (7.1)  $    40.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Distributable cash from continuing operations includes consolidated net
earnings (loss) from continuing operations, 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 from continuing
operations available for distribution is comprised of consolidated net
earnings (loss) from continuing operations 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 from
continuing operations available for distribution to unitholders reflects
earnings before this interest charge.
    Earnings from continuing operations available for distribution and
distributable cash from continuing operations 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 continuing operations before changes in working capital, as
determined in accordance with GAAP, and earnings from continuing operations
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:

    
    -------------------------------------------------------------------------
                           2008     2007     2006     2005     2004     2003
    -------------------------------------------------------------------------
    Distributable Cash
     (in millions of
     dollars)
    First quarter       $  (3.9) $  26.9  $  31.5  $  23.9  $  27.7  $  25.7
    Second quarter         (3.2)    13.6     35.5     15.4     43.5      4.7
    Third quarter                   (5.6)     9.3     (1.7)    35.9     12.0
    Fourth quarter                  55.4     27.5     29.7     18.1      9.0
    -------------------------------------------------------------------------
                        $  (7.1) $  90.3  $ 103.8  $  67.3  $ 125.2  $  51.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Distributable Cash
     per Stapled Unit(1)
     (in dollars)
    First quarter       $ (0.05) $  0.35  $  0.41  $  0.31  $  0.36  $  0.34
    Second quarter        (0.04)    0.17     0.46     0.20     0.57     0.06
    Third quarter                  (0.07)    0.12    (0.02)    0.47     0.15
    Fourth quarter                  0.71     0.35     0.38     0.24     0.12
    -------------------------------------------------------------------------
                        $ (0.09) $  1.16  $  1.34  $  0.87  $  1.64  $  0.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) 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       Six months ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------

    Sales                      $    57.0   $    82.0   $    89.0   $   161.8
    Operating earnings from
     continuing operations           4.1        12.4         0.1        38.6
    Operating earnings - % of
     sales                            7%         15%         0.1%        24%
    Earnings before interest,
     taxes, depreciation and
     amortization(2) from
     continuing operations           5.5        19.5         2.8        48.2
    Earnings before interest,
     taxes, depreciation and
     amortization from
     continuing operations per
     basic and diluted weighted
      average Stapled Unit(2)       0.07        0.25        0.04        0.62
    Loss before interest,
     taxes, depreciation and
     amortization from
     discontinued operations        (7.5)       (2.0)       (7.9)       (0.4)
    Loss before interest,
     taxes, depreciation and
     amortization from
     discontinued operations
     per basic and diluted
     weighted average Stapled
     Unit(2)                       (0.10)      (0.02)      (0.11)      (0.01)
    Earnings (loss) before
     interest, taxes,
     depreciation and
     amortization                   (2.0)       17.5        (5.1)       47.8
    Earnings (loss) before
     interest, taxes,
     depreciation and
     amortization per basic and
     diluted weighted average
     Stapled Unit(2)               (0.03)       0.23       (0.07)       0.61
    Distributable cash         $    (3.2)  $    13.6   $    (7.1)  $    40.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (2) 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.
    

    Sales revenues from continuing operations for the three months ended
June 30, 2008 were lower compared to the second quarter of 2007 due to
significant decreases in log sales volumes and sales realizations. Real estate
sales were ahead of the same quarter last year. Similarly, year to date sales
volumes and realizations for logs were well below the same period last year,
with real estate sales ahead of year to date June 2007.
    Weakness in the US housing market and a continuing strong Canadian dollar
have continued to negatively affect log sales in 2008.
    Operating earnings from continuing operations as a percentage of sales
were lower for the quarter and year to date compared to the prior periods and
is due to the sharp decline in revenues.

    Highlights and Significant Transactions

    Adoption of New Accounting Policies

    During the first quarter, the Company adopted new accounting policies and
disclosure requirements issued by the Canadian Institute of Chartered
Accountants ("CICA"). TimberWest changed its policy of accounting for
inventories and adopted enhanced disclosure requirements for inventories,
financial instruments, capital management, and going concern assessment.
    Prior to January 1, 2008, TimberWest accounted for inventories other than
supplies at the lower of average cost and net realizable value on an aggregate
basis for each of logs and for lumber. Effective January 1, 2008, inventories
other than supplies are recorded at the lower of average cost and net
realizable value on an item-by-item basis defined as end-use-sorts for logs
and grade levels for lumber. TimberWest adopted the new accounting policy on a
prospective basis and prior years have not been restated. Accordingly, the
opening log inventory and opening retained earnings as at January 1, 2008 have
been written down by $2.0 million.
    The opening lumber inventory and opening retained earnings as at
January 1, 2008 have been written down by $0.8 million as a result of the new
accounting policy to measure inventories at the lower of average cost and net
realizable value on an item-by-item basis.

    Cash Distribution

    On August 14, 2008, TimberWest announced a distribution of $0.269 per
Stapled Unit, payable October 15, 2008 to unitholders of record on October 1,
2008. From inception to June 30, 2008, the Company has generated distributable
cash of $851.1 million while, including the July 15, 2008 distribution of
$21.0 million, the Company has paid out $859.4 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. Any difference will be added to or subtracted from either
cash reserves or available credit facilities.

    Quarterly Conference Call

    TimberWest will hold a conference call at 7:30am PDT (10:30am EDT) on
Friday, August 15, 2008, to discuss results of the second quarter. To access
the conference call, listeners should dial 1-800-920-4317. For those unable to
participate in the live call, a recording of the call will be available until
August 29, 2008, and can be accessed at 1-800-558-5253 using code 21387315.
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       Six months ended
                                        June 30                 June 30
    Timberland Operations:         2008        2007        2008        2007
    -------------------------------------------------------------------------

    Log Sales Revenue
     (in millions of dollars)
      Domestic                 $    26.4   $    44.8   $    39.4   $    82.8
      Export - Asia                 20.6        19.1        34.1        46.2
      Export - US                    3.5        16.4         5.2        29.6
    -------------------------------------------------------------------------
      Total log sales          $    50.5   $    80.3   $    78.7   $   158.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Realizations
     ($/m(3))
      Domestic                        68          84          68          84
      Export - Asia                   90         117          94         121
      Export - US                     56          83          62          86
    -------------------------------------------------------------------------
                                      74          90          77          92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Volume
     (thousand m(3))
      Domestic                     387.4       530.7       581.2       987.6
      Export - Asia                227.8       163.2       362.3       382.0
      Export - US                   63.0       198.4        84.4       345.8
    -------------------------------------------------------------------------
                                   678.2       892.3     1,027.9     1,715.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Mix
     (thousand m(3))
      Fir                          476.8       590.9       705.8     1,198.4
      Hembal                       131.7       187.0       210.7       313.9
      Cedar                         39.3        69.3        55.0       112.1
      Other                         30.4        45.1        56.4        91.0
    -------------------------------------------------------------------------
                                   678.2       892.3     1,027.9     1,715.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Log Production Volume
     (thousand m(3))
      Public tenures                87.4       170.7       194.8       287.1
      Private timberlands          514.5       931.6       791.4     1,895.0
    -------------------------------------------------------------------------
                                   601.9     1,102.3       986.2     2,182.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Log Production Costs
     ($/m(3))                         60          70          65          65

    Timberland operating margin
     (% of log sales)                11%         22%          7%         31%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Log sales revenues for the three and six months ended June 30, 2008, were
down compared to sales revenues for the same periods of 2007 due to overall
poor log markets and depressed prices, affirming the Company's decision to
lower harvest levels in 2008.
    Logging production costs were $10 per m(3) lower than the same quarter in
2007 primarily due to location and timing of harvest contributing to lower
road building costs and lower cost competitive bid contractors performing the
work. On a year-to-date basis, production costs are comparable on a per m(3)
basis to 2007. Lower contractor costs have been offset by higher indirect and
regional costs which are negatively impacted by lower volumes.

    
                                  Three months ended       Six months ended
                                        June 30                 June 30
    Real Estate Business Unit:     2008        2007        2008        2007
    -------------------------------------------------------------------------

    Real Estate Sales
     (in millions of dollars)  $     4.9   $     0.3   $     7.7   $     0.6
    Real Estate Net Proceeds
     (in millions of dollars)        4.6         0.3         7.0         0.5
    Real Estate Net Proceeds
     ($/acre)                     10,081       6,792      14,339       7,808
    -------------------------------------------------------------------------

    Real estate sales in the second quarter of 2008 comprised four property
sales from non-core real estate assets.


                                  Three months ended       Six months ended
                                        June 30                 June 30
                                   2008        2007        2008        2007
    -------------------------------------------------------------------------
    Earnings (Loss) Before
     Interest, Taxes,
     Depreciation and
     Amortization (EBITDA)(*)
     (in millions of dollars)
      Net loss from continuing
       operations              $   (18.9)  $    (4.7)  $   (41.8)  $    (2.0)
      Add (deduct):
        Interest on Series A
         Subordinate Notes paid
         to unitholders             21.0        20.9        42.0        41.8
        Interest on long-term
         debt                        1.9         0.4         4.4         0.5
        Interest on short-term
         debt                        0.6         3.4         0.7         6.8
        Income tax recovery         (0.5)       (2.3)       (5.2)       (2.6)
        Depreciation, depletion
         and amortization            1.3         1.7         2.5         3.4
        Amortization of
         deferred financing
         costs                       0.1         0.1         0.2         0.3
    -------------------------------------------------------------------------

      Earnings from continuing
       operations before
       Interest, Taxes,
       Depreciation and
       Amortization                  5.5        19.5         2.8        48.2
    -------------------------------------------------------------------------

      Loss from discontinued
       operations before
       Interest, Taxes,
       Depreciation and
       Amortization                 (7.5)       (2.0)       (7.9)       (0.4)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

      Earnings (Loss) before
       Interest, Taxes,
       Depreciation and
       Amortization                 (2.0)       17.5        (5.1)       47.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (*) EBITDA 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.



    Discontinued Operations

                                  Three months ended       Six months ended
                                        June 30                 June 30
    Elk Falls Sawmill:             2008        2007        2008        2007
    -------------------------------------------------------------------------

    Sales Revenue by Product
     (in millions of dollars)
      Lumber                   $    20.0   $    19.0   $    29.8   $    46.3
      Wood chips and residuals       1.7         2.5         4.6         6.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sales Realizations
      Lumber ($/mfbm)                641         605         618         641
      Wood chips ($/m(3))             45          48          43          46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Sales Volume
      Lumber (million fbm)          31.2        31.4        48.2        72.2
      Wood chips and residuals
       (thousand m(3))              35.9        49.1       101.9       140.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Lumber Production Volume
     (million fbm)                  14.9        23.2        43.3        69.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Sales realizations and volumes for the three months ended June 30, 2008,
were comparable to the second quarter of 2007. The sawmill shutdown on May 9,
2008 with lumber production ceasing and the planermill finishing and packaging
lumber until mid June. All lumber had been shipped from the sawmill site by
the end of the second quarter, with final sales of lumber inventory scheduled
for July/August 2008.

    
    Financial Position

    -------------------------------------------------------------------------
    Summary of Financial Position from                     As at       As at
     Continuing Operations                                  June    December
    (in millions of dollars)                            30, 2008    31, 2007
    -------------------------------------------------------------------------

    Cash and cash equivalents                          $       -   $     1.2
    Current assets                                          41.4        47.2
    Current liabilities                                     96.1        36.2
    Current liabilities (excluding short-term debt)         46.1        36.2
    Long-term debt                                         161.9       187.5
    Long-term liabilities                                  155.4       159.6
    Series A Subordinate notes owned by unitholders        698.2       698.1
    Unitholder's equity                                    158.4       210.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Trade accounts receivable increased to $9.7 million at June 30, 2008,
compared to $4.9 million at the end of 2007, due to increased log shipments in
the second quarter of 2008 compared to the fourth quarter of 2007. Log
inventory was $23.8 million at June 30, 2008, compared to $32.9 million at the
end of 2007, This reduction is primarily due to reduced log harvest levels
during this period. Prior to January 1, 2008, TimberWest recorded inventories
at a lower of average cost and net realizable value on an aggregate basis for
each of logs and for lumber. On January 1, 2008 TimberWest changed its policy
of accounting for inventories to record inventories at the lower of average
cost and net realizable value on an item-by-item basis defined as
end-use-sorts for logs. (See Highlights and Significant Transactions -
Adoption of New Accounting Policies) This change in accounting policy for
inventories resulted in an additional $2.3 million decrease of log inventory
values as at June 30, 2008 compared to the end of 2007. Prepaid expenses and
other current assets were $5.7 million at June 30, 2008, compared to $6.1
million at the end of 2007, reflecting a decrease in non-trade receivables.
    Property, plant and equipment were $1,225.0 million as at June 30, 2008,
$5.0 million less than as at December 31, 2007. This decrease primarily
reflects the sale of higher and better use properties and other capital
assets, with a net book value of $3.3 million, as well as a provision for
depreciation of capital assets of $2.5 million recorded during this period.
These items were offset in part by capital additions of $0.8 million,
comprised primarily of logging roads.
    Other assets were $1.8 million at June 30, 2008, comparable to the
balance of $2.0 million at December 31, 2007.
    Current liabilities as at June 30, 2008, include borrowings of
$50.0 million on the Tranche B short-term unsecured revolving credit facility.
Excluding the short-term credit facility, current liabilities at June 30, 2008
were $46.1 million. This variance in current liabilities (excluding short-term
debt) can be attributed to a $9.9 million increase in accounts payable and
accrued liabilities primarily attributed to increased trade payables and
accruals for property taxes.
    As at June 30, 2008, the Company had combined borrowings of
$211.9 million on its available credit facilities, including borrowings of
$161.9 million on its Tranche A $216.7 million long-term unsecured revolving
facility, and $50.0 million on its Tranche B $108.3 million short-term
unsecured revolving facility. In addition, the Company had commitments of
$17.3 million relating to outstanding letters of credit issued under its
Tranche A $216.7 million long-term unsecured revolving facility. The Company's
$16.3 million demand credit facility expired on June 30, 2008 and was not
renewed. TimberWest is currently in compliance with all of its debt covenants,
however, it is possible that TimberWest may not be able to remain in
compliance with its debt to EBITDA covenant later in 2008.
    Other long-term liabilities as at June 30, 2008, included a silviculture
liability of $3.4 million, a $37.8 million liability relating to employee
future benefits and a future income tax liability of $114.2 million. The
silviculture liability and the liability relating to employee future benefits
are comparable to balances as at December 31, 2007. The decrease in the
liability for future income taxes from the balance of $119.2 million at
December 31, 2007, is primarily attributable to a $4.3 million future income
tax recovery to reflect the effects of changes in the provincial income tax
rates that were substantively enacted during the first quarter of 2008.
    The Series A Subordinate Note component of the Company's Stapled Unit is
presented as a liability on the Company's consolidated balance sheets. As at
June 30, 2008, the carrying value of the Series A Subordinate Note liability
was $698.2 million.
    During the quarter ended June 30, 2008, no Stapled Unit options were
granted and options to purchase 12,577 Stapled Units were exercised for
proceeds of $0.1 million and 8,178 options were cancelled. During the six
months ended June 30, 2008, no Stapled Units options were granted, options to
purchase 15,297 Stapled Units were exercised for proceeds of $0.1 million and
9,678 options were cancelled. As at August 14, 2008, the Company had 1,127,180
granted and outstanding Stapled Unit option awards and 77,765,440 issued and
outstanding Stapled Units.
    Current assets from discontinued operations as at June 30, 2008, included
accounts receivables of $1.3 million, lumber inventories of $3.9 million and
prepaid expenses and other current assets of $0.2 million. Comparatively,
current assets from discontinued operations as at December 31, 2007, included
accounts receivables of $8.5 million, lumber inventories of $8.2 million and
prepaid expenses and other current assets of $0.5 million. Current liabilities
from discontinued operations are comprised of accounts payable and accrued
liabilities and were $3.6 million as at June 30, 2008 compared to $4.3 million
at December 31, 2007. Current assets and liabilities from discontinued
operations have decreased due to the permanent closure of the Elk Falls
sawmill on May 9, 2008.

    
    Cash Flow and Liquidity       Three months ended       Six months ended
    Selected Cash Flow Items            June 30                 June 30
    (in millions of dollars)       2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities from
     continuing operations:
      Cash used in operations
       before changes in
       non-cash working
       capital                 $   (21.0)  $   (10.7)  $   (47.2)  $    (5.9)
      Changes in non-cash
       working capital               7.3       (28.2)       11.8       (38.2)
    -------------------------------------------------------------------------
                                   (13.7)      (38.9)      (35.4)      (44.1)
    -------------------------------------------------------------------------

    Financing activities from
     continuing operations:
      Issuance of Stapled Units
       on exercise of options        0.1         0.1         0.1         1.4
      Revolving credit facilities    6.9        24.5        24.4        24.5
      Demand credit facility           -         1.2           -         1.2
    -------------------------------------------------------------------------
                                     7.0        25.8        24.5        27.1
    -------------------------------------------------------------------------

    Investing activities from
     continuing operations:
      Proceeds from sale of
       other assets                  4.6         5.5         7.0         5.7
      Additions to property,
       plant and equipment          (0.3)       (0.8)       (0.8)       (1.3)
      Other assets                   0.1         0.1         0.2         0.3
    -------------------------------------------------------------------------
                                     4.4         4.8         6.4         4.7
    -------------------------------------------------------------------------

    Cash provided by
     discontinued operations:        2.2         4.4         3.3         3.0

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Decrease in cash and cash
     equivalents               $    (0.1)  $    (3.9)  $    (1.2)  $    (9.3)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the three months ended June 30, 2008, the Company issued 12,577
Stapled Units on the exercise of Stapled Unit options for net proceeds of
$0.1 million, compared to the issuance of 8,084 Stapled Units on the exercise
of Stapled Unit options for net proceeds of $0.1 million in the comparative
quarter in 2007. During the second quarter of 2008, $6.9 million was borrowed
on available credit facilities, compared to $25.7 million that was borrowed on
available credit facilities during the same period in 2007.
    For the six months ended June 30, 2008, the Company issued 15,297 Stapled
Units on the exercise of Stapled Unit options for net proceeds of
$0.1 million, compared to the issuance of 95,546 Stapled Units on the exercise
of Stapled Unit options for net proceeds of $1.4 million in the comparative
period in 2007. During the first six months of 2008, $24.4 million was
borrowed on available credit facilities, compared to $25.7 million that was
borrowed on available credit facilities during the same period in 2007.
    In the second quarter of 2008, the Company received net proceeds of
$4.6 million from the sale of other assets, primarily from the sale of higher
use properties, and incurred $0.3 million for capital expenditures, primarily
for the construction of logging roads. For the six months ended June 30, 2008,
the Company received net proceeds of $7.0 million from the sale of other
assets, primarily from the sale of higher use properties, and incurred
$0.8 million for capital expenditures, primarily for the construction of
logging roads.
    As at June 30, 2008, the principal amount of TimberWest's total debt(3)
outstanding was $211.9 million compared to total principal amount of debt
outstanding of $187.5 million as at December 31, 2007. The Company's
consolidated debt-to-total capitalization ratio(3) as at June 30, 2008 was
20:80, compared to 17:83 as at December 31, 2007.
    Cash provided by discontinued operations was the result of changes in
non-cash working capital from operating activities.
    Total debt facilities available to the Company as at June 30, 2008, were
$325.0 million, comprised of $108.3 million available under Tranche B, a
short-term revolving facility due September 24, 2008 and $216.7 million
available under Tranche A, a long-term revolving facility due September 24,
2012. As at June 30, 2008 the Company had commitments of $17.3 million
relating to outstanding letters of credit issued to secure various obligations
of the Company issued under Tranche A, the $216.7 million long-term unsecured
revolving facility.

    
    -------------------
    (3) 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.
    

    Internal Controls over Financial Reporting

    During the quarter ended June 30, 2008, the Company did not make any
changes to its internal controls over financial reporting that would have
materially affected, or would reasonably likely materially affect, such
controls.

    International Financial Reporting Standards ("IFRS")

    On February 13, 2008, the Canadian Accounting Standards Board ("AcSB")
confirmed the use of International Financial Reporting Standards ("IFRS") to
commence in 2011 for publicly accountable profit-oriented enterprises. IFRS
will replace Canada's Generally Accepted Accounting Principles ("GAAP") and
the official changeover date is for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011.
    TimberWest will adopt IFRS according to requirements outlined by the
AcSB, and is in the process of preparing for the adoption of IFRS, including
qualitative disclosure at the end of 2008, and throughout 2009 and 2010, and
with adoption of IFRS on January 1, 2011.

    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 (Loss)

    (in millions of dollars)       Three months ended       Six months ended
    Unaudited                            June 30                 June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Sales                      $    57.0   $    82.0   $    89.0   $   161.8

    Operating costs and
     expenses:
      Cost of sales                 48.3        63.2        80.1       110.8
      Selling, administrative
       and other                     3.3         4.7         6.3         9.0
      Depreciation, depletion
       and amortization              1.3         1.7         2.5         3.4
    -------------------------------------------------------------------------
                                    52.9        69.6        88.9       123.2
    -------------------------------------------------------------------------

    Operating earnings from
     continuing operations           4.1        12.4         0.1        38.6

    Interest expense:
      Series A Subordinate Notes
       owned by unitholders         21.0        20.9        42.0        41.8
      Long-term debt                 1.9         0.4         4.4         0.5
      Short-term debt                0.6         3.4         0.7         6.8
    -------------------------------------------------------------------------
                                    23.5        24.7        47.1        49.1
    Amortization of deferred
     financing costs                 0.1         0.1         0.2         0.3
    Other income                    (0.1)       (5.4)       (0.2)       (6.2)
    -------------------------------------------------------------------------
                                    23.5        19.4        47.1        43.2
    -------------------------------------------------------------------------

    Loss before income taxes
     from continuing operations    (19.4)       (7.0)      (47.0)       (4.6)

    Income tax recovery
     (note 4)                       (0.5)       (2.3)       (5.2)       (2.6)
    -------------------------------------------------------------------------
    Net loss and
     comprehensive loss from
     continuing operations         (18.9)       (4.7)      (41.8)       (2.0)
    Net loss and
     comprehensive loss from
     discontinued operations        (7.5)       (2.6)       (7.9)       (1.6)
    -------------------------------------------------------------------------
    Net loss and
     comprehensive loss        $   (26.4)  $    (7.3)  $   (49.7)  $    (3.6)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted loss
     from continuing
     operations per common
     share (note 5)            $   (0.24)  $   (0.06)  $   (0.54)  $   (0.03)
    Basic and diluted loss
     from discontinued
     operations per
     common share              $   (0.10)  $   (0.03)  $   (0.10)  $   (0.02)
    Basic and diluted
     loss per common share
     (note 5)                  $   (0.34)  $   (0.09)  $   (0.64)  $   (0.05)



    Consolidated Statements of Retained Earnings (Deficit)

    (in millions of dollars)       Three months ended       Six months ended
    Unaudited                            June 30                 June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Retained earnings
     (deficit), beginning of
     period, as previously
     reported                  $    (7.8)  $    53.8   $    18.3   $    50.1

    Adoption of new accounting
     policy for inventories
     (note 2(a))                       -           -        (2.8)          -
    -------------------------------------------------------------------------
    Retained earnings,
     beginning of period,
     as adjusted                    (7.8)       53.8        15.5        50.1
    -------------------------------------------------------------------------
    Net loss and comprehensive
     loss for the period           (26.4)       (7.3)      (49.7)       (3.6)
    -------------------------------------------------------------------------
    Retained earnings
     (deficit), end of period  $   (34.2)  $    46.5   $   (34.2)  $    46.5
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to unaudited interim consolidated financial
    statements.



    Consolidated Balance Sheets
    (in millions of dollars)
                                                        As at       As at
                                                       June 30,  December 31,
                                                         2008        2007
                                                      Unaudited
    -------------------------------------------------------------------------
    Assets
      Current assets:
        Cash                                         $        -   $      1.2
        Accounts receivable                                 9.7          4.9
        Inventories (note 2(a) and 6)                      23.8         32.9
        Prepaid expenses and other current assets           5.7          6.1
        Future income taxes                                 2.2          2.1
        Discontinued operations                             5.4         17.2
    -------------------------------------------------------------------------
                                                           46.8         64.4
      Property, plant and equipment, net (note 7)       1,225.0      1,230.0
      Other assets (note 8)                                 1.8          2.0
    -------------------------------------------------------------------------
                                                     $  1,273.6   $  1,296.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
      Current liabilities:
        Revolving credit facilities                  $     50.0   $        -
        Accounts payable and accrued liabilities           25.1         15.2
        Distribution payable                               21.0         21.0
        Discontinued operations                             3.6          4.2
    -------------------------------------------------------------------------
                                                           99.7         40.4
      Revolving credit facilities                         161.9        187.5
      Long-term silviculture liability                      3.4          3.2
      Employee future benefits (note 9)                    37.8         37.2
      Future income taxes                                 114.2        119.2
    -------------------------------------------------------------------------
                                                          417.0        387.5
      Series A Subordinate Notes owned by
       unitholders (note 10)                              698.2        698.1
    -------------------------------------------------------------------------
                                                        1,115.2      1,085.6
    -------------------------------------------------------------------------

      Unitholders' equity:
        Share capital, consisting of common and
         preferred shares (note 10)                       191.0        191.0
        Contributed surplus                                 1.6          1.5
        Retained earnings (deficit)                       (34.2)        18.3
    -------------------------------------------------------------------------
                                                          158.4        210.8
    -------------------------------------------------------------------------
                                                     $  1,273.6   $  1,296.4
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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       Six months ended
    Unaudited                            June 30                 June 30
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
    Cash provided by (used in):

    Operating activities:
      Net loss from
       continuing operations   $   (18.9)  $    (4.7)  $   (41.8)  $    (2.0)
      Items not involving
       cash:
        Depreciation,
         depletion and
         amortization                1.4         1.8         2.7         3.7
        Gain on sale of
         property, plant
         and equipment              (3.3)       (5.3)       (3.8)       (5.4)
        Future income tax
         recovery                   (0.5)       (2.3)       (5.2)       (2.6)
        Other non-cash items         0.3        (0.2)        0.9         0.4
    -------------------------------------------------------------------------
                                   (21.0)      (10.7)      (47.2)       (5.9)
      Changes in non-cash
       working capital:
        Accounts receivable         (2.1)       (8.7)       (4.8)       (8.6)
        Inventories                  3.9       (19.2)        6.3       (31.3)
        Prepaid expenses and
         other working capital      (0.2)       (5.6)        0.4        (6.5)
        Accounts payable and
         accrued liabilities         5.7         5.3         9.9         8.2
    -------------------------------------------------------------------------
                                     7.3       (28.2)       11.8       (38.2)
    -------------------------------------------------------------------------
                                   (13.7)      (38.9)      (35.4)      (44.1)
    -------------------------------------------------------------------------

    Financing activities:
      Issuance of Stapled Units
       on exercise of options:
        Series A Subordinate
         Notes                       0.1         0.1         0.1         0.9
        Share capital                  -           -           -         0.5
    -------------------------------------------------------------------------
                                     0.1         0.1         0.1         1.4
      Demand credit facility           -         1.2           -         1.2
      Revolving credit
       facilities                    6.9        24.5        24.4        24.5
    -------------------------------------------------------------------------
                                     7.0        25.8        24.5        27.1
    -------------------------------------------------------------------------

    Investing activities:
      Proceeds from sale of
       property, plant and
       equipment                     4.6         5.5         7.0         5.7
      Additions to property,
       plant and equipment          (0.3)       (0.8)       (0.8)       (1.3)
      Other assets                   0.1         0.1         0.2         0.3
    -------------------------------------------------------------------------
                                     4.4         4.8         6.4         4.7
    -------------------------------------------------------------------------

    Cash provided by
     discontinued operations         2.2         4.4         3.3         3.0
    Decrease in cash and cash
     equivalents                    (0.1)       (3.9)       (1.2)       (9.3)
    Cash and cash equivalents,
     beginning of period             0.1         3.9         1.2         9.3
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $       -   $       -   $       -   $       -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Interest on Series A
       Subordinate Notes
       paid to unitholders     $    21.0   $    20.9   $    42.0   $    41.8
      Other interest paid      $     2.5   $     7.3   $     5.1   $     7.4
      Income taxes paid        $       -   $       -   $       -   $       -
    -------------------------------------------------------------------------

    See accompanying notes to unaudited interim consolidated financial
    statements.



    Notes to Unaudited Interim Consolidated Financial Statements
    For the three and six months ended June 30, 2008 and 2007

    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 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, 2007, except for
        the adoption of new accounting policies as described in note 2.

        As described in note 3, the Company permanently closed its Elk Falls
        sawmill operations on May 9, 2008. These operations have been
        classified as discontinued operations and prior period financial
        statements have been restated as required by CICA Section 3475,
        Disposal of Long-lived Assets and Discontinued Operations.

    2.  Adoption of New Accounting Policies

        (a) Inventories, Section 3031

        In June 2007, the CICA issued Section 3031, Inventories, that
        supersedes Section 3030 and applies to interim and annual periods
        beginning on or after January 1, 2008. This section establishes
        increased guidance on the measurement of inventory and enhances
        disclosure requirements. The changes in measurement requirements
        include measuring inventories at the lower of cost and net realizable
        value, increased guidelines on the grouping of inventories including
        requirement for the Company to use a consistent cost formula for
        inventory of a similar nature and use, the allocation of overhead
        based on normal capacity, the use of specific cost method for
        inventories that are not ordinarily interchangeable or goods and
        services produced for specific purposes, and the reversal of previous
        write-downs to net realizable value when the value of inventories
        increase subsequent to the write-downs.

        Prior to January 1, 2008, TimberWest accounted for log and lumber
        inventories other than supplies at the lower of average cost and net
        realizable value on an aggregate basis for each of logs and for
        lumber. Supplies were recorded at the lower of cost and replacement
        value.

        TimberWest adopted Section 3031 on January 1, 2008 on a prospective
        basis and prior periods are not restated. Accordingly, inventories
        other than supplies are recorded at the lower of average cost and net
        realizable value on an item-by-item basis defined as end-use-sorts
        for logs and grade levels for lumber. The opening log inventory and
        opening retained earnings as at January 1, 2008 have been written
        down by $2.0 million.

        The opening lumber inventory and opening retained earnings as at
        January 1, 2008 have been written down by $0.8 million.

        Supplies continue to be recorded at the lower of cost and replacement
        value according to the new accounting policy.

        (b) Financial Instruments - Disclosures and Presentation, Sections
            3862 and 3863

        The CICA issued Section 3862 on disclosures, and Section 3863 on
        presentation. The two new Sections replace Section 3861, and set out
        additional financial instruments disclosure requirements while
        carrying forward unchanged its presentation requirements. These
        sections are applicable to interim and annual financial statements
        relating to fiscal years beginning on or after October 1, 2007.

        TimberWest adopted Section 3862 and 3863 effective January 1, 2008
        and provides qualitative and quantitative disclosures related to the
        nature and extent of risks arising from financial instruments (see
        note 11).

        (c) Capital Disclosures, Section 1535

        The Company adopted Section 1535, Capital Disclosures, effective
        January 1, 2008. This section requires additional disclosures
        relating to capital management strategies to enable users of its
        financial statements to evaluate the Company's objectives, policies
        and processes for managing capital.

        (d) Assessing Going Concern, Section 1400

        In June 2007, Section 1400 was amended to include requirements for
        management to assess and disclose an entity's ability to continue as
        a going concern. This section applies to interim and annual periods
        beginning on or after January 1, 2008.

        TimberWest adopted this amendment on January 1, 2008. The current
        economic environment for the North American forest products industry
        is challenging with substantially lower than average prices, a strong
        Canadian dollar compared to the US dollar and high input costs due to
        low production and rising fuel prices. TimberWest has responded to
        these conditions by reducing logging production and permanently
        closing its last sawmill operation. The Company has a working capital
        deficit of $52.9 million primarily due to the current portion of
        revolving credit facilities of $50.0 million. Despite these
        challenges, management forecasts that the Company will remain a going
        concern in the foreseeable future given its abilities to adjust
        distributions and obtain additional financing if required.

    3.  Discontinued Operations

        TimberWest has been engaged in a process to sell the Elk Falls
        sawmill since October 2005. Despite widespread exposure across Canada
        and elsewhere, no purchasers came forward with a bid proposal to
        acquire the sawmill. The sawmill had high operating costs, a history
        of losses, and required significant capital investment even before
        the most recent decline in lumber markets and the strengthening of
        the Canadian dollar.

        On May 9, 2008, the Elk Falls sawmill in Campbell River, B.C. was
        permanently closed. This sawmill closure included the associated
        shipping operations at Stuart Channel Wharves located in Crofton,
        B.C. Subsequent to the closure, TimberWest will dispose of
        substantially all of the assets of the sawmill. Ongoing costs such as
        property taxes continue to be expensed as incurred. The Company is
        assessing alternatives for the former sawmill site.

        ---------------------------------------------------------------------
                                   Three months ended       Six months ended
                                         June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Sales                  $    22.4   $    22.0   $    35.4   $    54.5
        Loss before
         income taxes          $    (7.5)  $    (2.6)  $    (7.9)  $    (1.6)
        Net loss               $    (7.5)  $    (2.6)  $    (7.9)  $    (1.6)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Sales from the logging operations to the sawmill operations have been
        recorded at fair value in accordance with the Company's internal
        policies. Inter-divisional sales for the three and six months ended
        June 30, 2008 were $4.4 million and $13.0 million (2007 -
        $8.1 million and $26.2 million).

        ---------------------------------------------------------------------
                                   Three months ended       Six months ended
                                         June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Cash flow from
         operating activities  $     2.1   $     4.4   $     3.2   $     3.0
        Cash flow from
         financing activities          -           -           -           -
        Cash flow from
         investing activities        0.1           -         0.1           -
        ---------------------------------------------------------------------
        Cash provided by
         operations            $     2.2   $     4.4   $     3.3   $     3.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    4.  Income Taxes

        ---------------------------------------------------------------------
                                   Three months ended       Six months ended
                                         June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Current income tax
         expense               $       -   $       -   $       -   $       -
        Future income tax
         recovery                   (0.5)       (2.3)       (5.2)       (2.6)
        ---------------------------------------------------------------------
                               $    (0.5)  $    (2.3)  $    (5.2)  $    (2.6)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        In the first quarter of 2008, British Columbia provincial tax
        legislation was substantively enacted, resulting in the reduction of
        the provincial corporate tax rate to 11% as of July 1, 2008. This
        rate change resulted in a future income tax recovery of $4.3 million
        for the six months ended June 30, 2008.

    5.  Earnings (loss) per Share

        ---------------------------------------------------------------------
                                   Three months ended       Six months ended
                                         June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Net loss from
         continuing operations $   (18.9)  $    (4.7)  $   (41.8)  $    (2.0)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Net loss               $   (26.4)  $    (7.3)  $   (49.7)  $    (3.6)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Basic weighted
         average number of
         common shares        77,754,160  77,726,775  77,752,764  77,700,868
        Incremental common
         shares from
         potential exercise
         of options               31,421     206,455      34,027     178,116
        ---------------------------------------------------------------------
        Diluted weighted
         average number of
         common shares        77,785,581  77,933,230  77,786,791  77,878,984
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Basic and diluted
         net loss from
         continuing operations
         per common share      $   (0.24)  $   (0.06)  $   (0.54)  $   (0.03)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        Basic and diluted
         net loss per common
         share                 $   (0.34)  $   (0.09)  $   (0.64)  $   (0.05)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    6.  Inventories

        ---------------------------------------------------------------------
                                                        As at       As at
                                                       June 30,  December 31,
                                                         2008        2007
        ---------------------------------------------------------------------

        Logs                                         $     23.8   $     32.9
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the three months ended June 30, 2008, log inventory has been
        written up by $1.5 million. For the six months ended June 30, 2008,
        log inventories have been written down by $0.3 million, which has
        been expensed to cost of sales for the period.

    7.  Property, Plant and Equipment

        Property, plant and equipment at June 30, 2008, includes private
        timberlands with a carrying value of $1,172.3 million. This amount
        includes a valuation increase adjustment of $376.4 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.

        During the second quarter of 2008, the Company sold 456 acres (2007 -
        40 acres) of land with a net book value of $1.3 million (2007 -
        $0.1 million) for a gain of $3.3 million (2007 - $0.1 million). For
        the six months ended June 30, 2008, the Company sold 490 acres
        (2007 - 58 acres) of land with a net book value of $2.8 million (2007
        - $0.3 million) for a gain of $3.7 million (2007 - $0.2 million).

    8.  Other Assets

        ---------------------------------------------------------------------
                                                        As at       As at
                                                       June 30,  December 31,
                                                         2008        2007
        ---------------------------------------------------------------------

        Deferred debt issue costs                    $      0.4   $      0.5
        Receivable on sale of property, plant
         and equipment                                      0.5          0.5
        Other                                               0.9          1.0
        ---------------------------------------------------------------------
                                                     $      1.8   $      2.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    9.  Employee Benefits

        ---------------------------------------------------------------------
                                                        As at       As at
                                                       June 30,  December 31,
                                                         2008        2007
        ---------------------------------------------------------------------

        Pension benefits                             $      8.9   $      8.8
        Non-pension post-retirement benefits               28.9         28.4
        ---------------------------------------------------------------------
                                                     $     37.8   $     37.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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 retired hourly
        employees not covered by union pension plans. For the three months
        ended June 30, 2008, the Company recorded an expense of $0.5 million
        for pension benefit costs (2007 - $0.5 million) and made cash
        payments of $0.5 million to fund current service costs (2007 -
        $0.4 million). For the six months ended June 30, 2007, the Company
        recorded an expense of $1.0 million for pension benefit costs (2007 -
        $1.1 million) and made cash payments of $1.0 million (2007 -
        $1.1 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 June 30, 2008, the Company recorded an expense of $0.9 million
        for non-pension benefit costs (2007 - $1.0 million) and made cash
        payments of $0.6 million to fund current benefit costs (2007 -
        $0.6 million). For the six months ended June 30, 2008, the Company
        recorded an expense of $1.7 million for non-pension benefit costs
        (2007 - $2.0 million) and made cash payments of $1.1 million to fund
        current benefit costs (2007 - $1.1 million).

    10. Stapled Units

        ---------------------------------------------------------------------
                                                Stapled Unit Components
                                         ------------------------------------
                                                     Share Capital
                                                    (consisting of
                                           Series A   common and
                                         Subordinate   preferred
                                Number       Notes      shares)      Total
        ---------------------------------------------------------------------
        Six months ended
         June 30, 2007:
        Balance,
         December 31, 2006    77,635,254   $   697.0   $   190.4   $   887.4
        Issuance of Stapled
         Units on exercise
         of options               94,546         0.9         0.5         1.4
        ---------------------------------------------------------------------
        Balance,
         June 30, 2007        77,729,800   $   697.9   $   190.9   $   888.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Six months ended
         June 30, 2008:
        Balance,
         December 31, 2007    77,750,143       698.1       191.0       889.1
        Issuance of Stapled
         Units on exercise
         of options               15,297         0.1           -         0.1
        ---------------------------------------------------------------------
        Balance,
         June 30, 2008        77,765,440       698.2       191.0       889.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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.

    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 June 30, 2008,
        no Stapled Unit options were granted. (2007 - 50,000 Stapled Unit
        options were granted at an average exercise price of $17.64). For the
        six months ended June 30, 2008, no Stapled Unit options were granted.
        (2007 - 339,370 Stapled Unit options were granted at an average
        exercise price of $16.46).

        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 with the weighted
        average assumptions below. As no Stapled Unit options were granted
        for the six months ended June 30, 2008, no weighted average
        assumptions are shown for 2008.

        ---------------------------------------------------------------------
                                                           2008         2007
        ---------------------------------------------------------------------
        Risk-free interest rate                               -          4.1%
        Expected life (years)                                 -          5.0
        Expected volatility                                   -         21.6%
        Dividend yield                                        -          6.5%
        Number of options granted                             -      339,370
        Fair value of each option granted                     -        $1.84
        ---------------------------------------------------------------------

        No Stapled Unit options were granted between January 1, 2008 and
        June 30, 2008. The compensation cost for the 339,370 Stapled Unit
        options that were granted in the same period in 2007 was $628,000.
        The compensation cost of Stapled Unit option awards is amortized
        against earnings over the three-year vesting period of the underlying
        options, or for employees eligible to retire, at the grant date
        rather than over the vesting period. An expense of $63,000 and
        $127,000 has been recognized in net earnings for the three and six
        months ended June 30, 2008 (2007 - $127,000 and $361,000,
        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 June 30, 2008, $0.3 million has been accrued for awards
        granted under this plan (2007 - $0.3 million) and $0.3 million has
        been amortized against earnings for the quarter (2007 -
        $0.3 million). For the six months ended June 30, 2008, $0.6 million
        has been accrued for awards granted under the plan (2007 -
        $0.5 million) and $0.6 million has been amortized against earnings
        for this period (2007 - $0.6 million).

        During the three months ended June 30, 2008, a total of 12,577
        Stapled Unit options with an average exercise price of $12.21 were
        exercised and 8,178 Stapled Unit options with an average exercise
        price of $15.88 were cancelled (2007 - 8,084 Stapled Unit options
        with an average exercise price of $12.70 were exercised). For the six
        months ended June 30, 2008, a total of 15,297 Stapled Unit options
        with an average exercise price of $12.15 were exercised and 9,678
        Stapled Unit options with an average exercise price of $15.94 were
        cancelled (2007 - 94,546 Stapled Unit options with an average
        exercise price of $13.75 were exercised).

    12. Financial Instruments

        (a) Accounting for financial instruments

        TimberWest has classified its cash and cash equivalents as held-for-
        trading and recorded them at fair value. Accounts receivable, and
        receivables on the sale of property, plant and equipment, are
        classified as loans and receivables and measured at amortized cost.
        The Company's drawings on available credit facilities, accounts
        payable and accrued liabilities, distribution payable, including
        interest payable, are classified as other liabilities, all of which
        are measured at amortized cost.

        The Company measures its 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 carrying values of accounts receivable, accounts payable and
        accrued liabilities and distribution payable approximate their fair
        values due to the short term to maturity of these instruments.

        The carrying values of receivables on the sale of property, plant and
        equipment are estimated to approximate their fair values due to their
        short term to maturity.

        The carrying values of drawings on available credit facilities
        approximate their fair values, as they bear floating interest rates
        that approximate market rates and have a short term to maturity.

        The carrying value of accrued liabilities for future silviculture
        costs approximate their fair value as determined based on the present
        value of future cash flows associated with these liabilities.

        At June 30, 2008, the Company's Series A Subordinate Notes owned by
        unitholders had a carrying value of $698.2 million measured at the
        amortized cost using the effective interest method. The Series A
        Subordinate Notes are a component of the Company's Stapled Units,
        which include one common share, 100 preferred shares and
        approximately $8.98 face amount of the 12% Series A Subordinate
        Notes. The Stapled Units are listed on the Toronto Stock Exchange.
        The embedded derivative arising from the option to extend the Series
        A Subordinate notes for a further 10 year period from 2038 to 2048 is
        measured at fair value. The fair value of this option is determined
        by an independent financial institution and it is insignificant to
        TimberWest's consolidated financial statements.

        (b) Nature and extent of risks arising from financial instruments

        TimberWest is exposed to the following risks as a result of holding
        financial instruments: credit risk, market risk, and liquidity risk.
        The following is a description of the risks and how the Company
        manages its exposure to them.

        (i)   Credit risk:

              Credit risk refers to the risk that a counterparty will default
              on its contractual obligations resulting in financial loss to
              the Company. The Company is exposed to credit risk on accounts
              receivable from customers. To mitigate and manage its credit
              risk, the Company regularly reviews customer credit limits,
              monitors the financial status of customers, and assesses the
              collectibility of accounts receivable. In certain offshore
              markets, the Company requires bank letters of credit. The
              maximum exposure to credit risk as at June 30, 2008 is the
              carrying value of the Company's accounts receivable. As at
              June 30, 2008, approximately 93% of accounts receivable are
              current or outstanding for less than 30 days.

        (ii)  Market risk:

              Market risk refers to the risk of loss that may arise from
              changes in market factors such as interest rates, and foreign
              exchange rates.

              Interest rate risk refers to the risk that the fair value or
              future cash flows of a financial instrument will fluctuate due
              to changes in market interest rates.

              TimberWest has two credit facilities as at June 30, 2008: the
              first facility, Tranche A, is long-term financing in the amount
              of $216.7 million, due on September 24, 2012; the second
              facility, Tranche B, is short-term financing in the amount of
              $108.3 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 plus 0.9% loans and letters of
              credit or guarantee.

              The Company normally enters into Bankers' Acceptance for less
              than 30-day periods for both credit facilities and could
              therefore be exposed to fluctuations in interest rates at the
              Bankers' Acceptance expiration.

              For the three months ended June 30, 2008, with other variables
              unchanged, an interest rate change of 1% per annum related to
              both of the credit facilities would affect net earnings by
              approximately $0.6 million.

              Foreign exchange risk refers to the risk that the fair value or
              future cash flow of a financial instrument will fluctuate
              because of changes in foreign exchange rate.

              TimberWest sells a substantial volume of product outside of
              Canada (55% of sales for the six months ended 2008), all in US
              dollars. As such, the relative strength of the Canadian dollar
              versus its US counterpart has an effect on sales and earnings.
              Results can be adversely affected by a strengthening Canadian
              dollar. The relative strength of the Japanese yen, European
              euro, and the Russian ruble also affect the Company's
              competitiveness in the markets where it sells its products.
              TimberWest does not hedge its foreign exchange risk.

              Cash, accounts receivable, and accounts payable are denominated
              in US and Canadian dollars. As at June 30, 2008, with other
              variables unchanged, the effect of a $0.01 US change per
              Canadian dollar on cash, accounts receivable, and accounts
              payable would be less than $0.1 million.

        (iii) Liquidity risk:

              Liquidity risk refers to the risk that TimberWest may be unable
              to generate or obtain sufficient cash or cash equivalents in a
              timely and cost-effective manner to meet its commitments as
              they come due.

              The Company manages liquidity risk by continuously monitoring
              and reviewing both actual and forecasted cash flows to maintain
              adequate cash and cash equivalent balances.

              The following table provides a summary of the contractual
              undiscounted cash flow requirements for financial liabilities
              as at June 30, 2008. This table details payments due in each of
              the next five years and thereafter for the Company's revolving
              credit facilities and outstanding letters of credit:

        (in millions
         of dollars)    2008    2009    2010    2011    2012   2013+   Total

        Reflected on
         the consoli-
         dated balance
         sheets:
          Revolving
           credit
           facilities $ 50.0  $    -  $    -  $    -  $161.9  $    -  $211.9
        ---------------------------------------------------------------------
        Not reflected
         on the
         consolidated
         balance
         sheets:
          Outstanding
           letters of
           credit        6.3    11.0       -       -       -       -    17.3
        ---------------------------------------------------------------------
                      $ 56.3  $ 11.0  $    -  $    -  $161.9  $    -  $229.2
        ---------------------------------------------------------------------

        Letters of credit are committed in perpetuity, renew annually and the
        liability will diminish over time.

        The Company has a working capital deficit of $52.9 million due to the
        current portion of the revolving credit facilities of $50.0 million
        included in the table above. Management is closely monitoring its
        cash flows to manage liquidity. In addition, management is in
        discussions with lenders for additional liquidity if required and
        monitoring its distribution levels.

    13. Capital Management

        TimberWest's objectives for managing capital are to safeguard its
        ability to continue as a going concern, to provide a sufficient
        return to its unitholders, and to meet external capital requirements
        on its debt and credit facilities.

        The Company manages its capital by monitoring its consolidated debt-
        to-total capitalization ratio. Debt is the total amount of borrowings
        on its revolving credit facilities on the balance sheet. Total
        capitalization is calculated as sum of Series A Subordinate Notes,
        plus unitholders' equity which includes share capital, contributed
        surplus, and retained earnings. 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.

        TimberWest's consolidated debt-to-total capitalization ratio as at
        June 30, 2008 was 20:80, compared to 17:83 as at December 31, 2007.

    14. Comparative figures

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


        Supplemental Information   Three months ended       Six months ended
        Unaudited                        June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Sales Revenue by
         Product
        (in millions of
         dollars)

          Log sales
            Domestic           $    26.4   $    44.8   $    39.4   $    82.8
            Export - Asia           20.6        19.1        34.1        46.2
            Export - US              3.5        16.4         5.2        29.6
        ---------------------------------------------------------------------
            Total log sales         50.5        80.3        78.7       158.6
          Real estate                4.9         0.3         7.7         0.6
          Other                      1.6         1.4         2.6         2.6
        ---------------------------------------------------------------------
                               $    57.0   $    82.0   $    89.0   $   161.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Sales Volume
          Logs (thousand m(3))
            Domestic               387.4       530.7       581.2       987.6
            Export - Asia          227.8       163.2       362.3       382.0
            Export - US             63.0       198.4        84.4       345.8
        ---------------------------------------------------------------------
                                   678.2       892.3     1,027.9     1,715.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Log Sales Mix
         (thousand m(3))
          Fir                      476.8       590.9       705.8     1,198.4
          Hembal                   131.7       187.0       210.7       313.9
          Cedar                     39.3        69.3        55.0       112.1
          Other                     30.4        45.1        56.4        91.0
        ---------------------------------------------------------------------
                                   678.2       892.3     1,027.9     1,715.4
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Production Volume
          Logs (thousand m(3))
            Public tenures          87.4       170.7       194.8       287.1
            Private timberlands    514.5       931.6       791.4     1,895.0
        ---------------------------------------------------------------------
                                   601.9     1,102.3       986.2     2,182.1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------



        Discontinued Operations    Three months ended       Six months ended
        Unaudited                        June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Sales Revenue by
         Product
        (in millions of
         dollars)

          Lumber, wood chips
           and other           $    22.4   $    22.0   $    35.4   $    54.5

        Sales Volume
          Lumber (million fbm)      31.2        31.4        48.2        72.2

        Production Volume
          Lumber (million fbm)      14.9        23.2        43.3        69.8
        ---------------------------------------------------------------------



                                   Three months ended       Six months ended
                                         June 30                 June 30
                                    2008        2007        2008        2007
        ---------------------------------------------------------------------
        Earnings (Loss) Before
         Interest, Taxes,
         Depreciation and
         Amortization
         (EBITDA)(*)
        (in millions of
         dollars)

          Net loss from
           continuing
           operations          $   (18.9)  $    (4.7)  $   (41.8)  $    (2.0)
          Add (deduct):
            Interest on
             Series A
             Subordinate
             Notes paid to
             unitholders            21.0        20.9        42.0        41.8
            Interest on
             long-term debt          1.9         0.4         4.4         0.5
            Interest on
             short-term debt         0.6         3.4         0.7         6.8
            Income tax
             recovery               (0.5)       (2.3)       (5.2)       (2.6)
            Depreciation,
             depletion and
             amortization            1.3         1.7         2.5         3.4
            Amortization of
             deferred
             financing costs         0.1         0.1         0.2         0.3
        ---------------------------------------------------------------------
          Earnings from
           continuing operations
            before Interest,
            Taxes, Depreciation
            and Amortization         5.5        19.5         2.8        48.2
        ---------------------------------------------------------------------
          Loss from discontinued
           operations before
           Interest, Taxes,
           Depreciation and
           Amortization             (7.5)       (2.0)       (7.9)       (0.4)
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
          Earnings (Loss) before
           Interest, Taxes,
           Depreciation and
           Amortization             (2.0)       17.5        (5.1)       47.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
        (*) EBITDA 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 Western Canada's
largest private land management company. The Company owns in fee simple
approximately 322,000 hectares or 796,000 acres of private land, including
75 kilometres of waterfront that over the previous five calendar years, have
provided an annual average timber harvest of 2.565 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 lands 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. TimberWest
also owns renewable Crown harvest rights to 0.7 million m(3) of logs per year.
    The Company operated a sawmill located near Campbell River, BC until
May 9, 2008.
    In addition, approximately 54,000 hectares, or 134,000 acres
(approximately 17% of the Company's landholdings) of the Company's 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. Five land classifications have been developed for the Company's
39,000 acres of core development lands. An additional 41,000 acres adjacent to
our core development lands have yet to be classified for specific development
opportunities, and some 54,000 acres of non-core higher and better use lands
will be sold "as is" over time with little additional planning or zoning work
undertaken. The Company reviews its land base on a periodic basis to update
the size of its portfolio of higher use properties.
    The Company's independent auditor, KPMG Performance Registrar Inc.,
periodically certifies that the forest management practices on both the
Company's private and public timberlands 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.

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

    Visit us at our web site: www.timberwest.com
    

    %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

Organization Profile

TIMBERWEST FOREST CORP.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890