TimberWest announces 2007 second quarter results



    Company generates distributable cash of $13.6 million, announces
    quarterly distribution of $0.269 per Stapled Unit payable on October 15.

    VANCOUVER, Aug. 2 /CNW/ - TimberWest generated distributable cash(1) of
$13.6 million or $0.17 per stapled unit for the second quarter of 2007. This
compares to $35.5 million or $0.46 per unit for the second quarter of 2006.

    Operational Results

    "Results from our three business units were weaker this quarter and on a
year-to-date basis compared to the same periods last year," said President and
CEO Paul McElligott. "Weak US log and lumber markets, oversupplied Japanese
log and lumber markets, the rapidly appreciating Canadian dollar against the
US dollar and the Yen, higher contractor costs in our core timberlands
business and significantly lower real estate sales due to timing were the key
factors in this quarter's weaker performance."
    Log sales realizations deteriorated more quickly than we had anticipated
and averaged $90 per m(3) for the quarter, $10 per m(3) lower than the same
quarter last year. While domestic realizations held up reasonably well, export
sales realizations were considerably lower. With US housing starts off over
20% from this time last year, US Pacific Northwest log and lumber producers
have diverted supply to Japan, contributing materially to the oversupply in
that market. On a year-to-date basis, log sales realizations are $92 per m(3)
compared to $98 per m(3) for the same period last year. Log sales to domestic
customers represented 58% of total sales volume year-to-date June 2007
compared to 49% in the equivalent prior year period. This also contributed to
lower year-over-year sales realizations for the company due to the lower
pricing in the domestic market compared to the export market.
    Log sales volumes for the quarter and on a year-to-date basis were
slightly behind last year at 892,300 m(3) and 1,715,400 m(3) respectively
reflecting the tougher market conditions, particularly the reduced demand for
second growth fir. Production volumes for the quarter were again strong as we
moved as much production ahead this year as possible to build up inventories
in anticipation of stronger markets in the first part of the year.
    Harvesting rates continue to be a challenge for TimberWest with respect
to some of our larger long term contractors and we experienced unforeseen cost
increases again this quarter. The key issue is the large size of these
operations. Our current collective agreement severely limits TimberWest's
ability to sub-divide these operations into smaller, more competitive work
units and, as a result we have been trying to bargain with the United
Steelworkers the right to sub-divide to smaller unionized contractors. Simply
stated, too much volume is in the hands of too few contractors today and the
work rules need to be simplified to allow for safer, less costly, and more
stable logging operations. This is a key requirement for TimberWest in the
renewal of its collective agreement with the United Steelworkers in 2007. The
Coast remains a fourth quartile producer of softwood lumber.
    The United Steelworkers rejected the company's proposals for a new
collective agreement and we reached the point of impasse. TimberWest tabled
its final offer after being served 72 hour strike notice on July 16, 2007. The
final offer is an effort to avert a strike, renew the collective agreement
with a simplified contractor model, and provide for a more viable future for
the Coastal forest industry. It has a five year term and allows for an 11%
increase in wages over that period. We have offered each of the 29 eligible
employees a $100,000 signing bonus if this agreement is accepted. Since the
union did not accept our final offer, TimberWest has asked the Labour
Relations Board to conduct a secret ballot vote of eligible employees and the
process is underway to have that vote take place.
    "Our Elk Falls sawmill was down almost half the quarter primarily as a
result of high costs and oversupplied Japanese lumber markets," said
McElligott. "We are at the bargaining table with the Communication, Energy and
Paperworkers ("CEP") union, which represents the hourly employees. Given that
we have had this mill for sale for two years without an offer, it is
abundantly clear that this mill is uncompetitive and must reduce its costs. We
will work to achieve this during this round of bargaining with the CEP."
    Real estate sales for the quarter were very modest with the proceeds from
other asset sales dominated by the sale of a trust subsidiary for gross
proceeds of $5 million. Our new Vice President, Real Estate, John Hendry,
joined the Company during the quarter and has begun work on the long term
strategic plan for real estate. We have hired EDAW, a large international real
estate consulting firm, to assist us with this and this progress is well under
way.
    "During the quarter, Gerry Young our Vice President, Timberland
Operations retired after almost 38 years of service with TimberWest and its
predecessor companies," said McElligott. "Gerry has done an outstanding job
for TimberWest and is a highly regarded leader in our industry. I would like
to thank him for his tremendous contribution to our success over the years and
wish him all the best in his retirement."
    "With Gerry's retirement, I am pleased to announce that Dave Whiteley has
been promoted to the position of Vice President, Timberland Operations," added
McElligott. "Dave joined the company in 1997 with the purchase of Pacific
Forest Products where he worked since 1984. Dave has extensive experience in
our industry in increasingly senior operating roles and has demonstrated
strong leadership in our organization."

    Outlook

    We expect the near term results from the timberlands and sawmill to be
weak but for real estate sales to pick up in the second half of the year.
    We anticipate log and lumber sales realizations to remain at low levels
in all of our markets with the strong Canadian dollar, weakness in the US
housing market, and oversupply in Japan expected to persist.
    Production costs are expected to remain at these higher levels for the
balance of the year and we expect to incur additional costs due to the labour
disruption.
    We are optimistic about the longer term outlook for log sales
realizations with demographics continuing to support strong levels of housing
demand in North America. A tighter supply side is also expected to accompany
these stronger demand levels. Supply reductions are expected to be caused by
the Mountain Pine Beetle infestation in the Interior of BC; reduced AAC's in
eastern Canada; and the Russian log export taxes. While the supply impact from
Russia is not yet fully understood, we note that they did implement the log
export tax increases as planned on July 1, 2007.
    In spite of our expectations for weaker operational results in the second
half of the year but stronger real estate results, TimberWest is in a very
strong financial position and is committed to paying its full distributions to
unitholders in 2007.

    
    Distributable Cash
    -------------------------------------------------------------------------
    (in millions of dollars)      Three months ended       Six months ended
                                        June 30                 June 30
                                   2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net earnings (loss)        $    (7.3)  $    12.2   $    (3.6)  $    15.1
    Interest on Series A
     Subordinate Notes owned
     by unitholders                 20.9        20.9        41.8        41.8
    -------------------------------------------------------------------------

    Earnings available for
     distribution                   13.6        33.1        38.2        56.9
    Future income tax expense
     (recovery)                     (2.3)      (21.6)       (2.6)      (24.2)
    -------------------------------------------------------------------------

    Earnings available for
     distribution before
     provision for future
     income taxes                   11.3        11.5        35.6        32.7
    Add (deduct):
      Depreciation, depletion
       and amortization              2.4         2.3         4.9         4.7
      Proceeds from sale of
       property, plant and
       equipment                     5.5        11.4         5.7        16.9
      Gain on sale of property,
       plant and equipment          (5.3)       (6.1)       (5.4)       (2.7)
      Additions to property,
       plant and equipment          (0.8)       (1.1)       (1.3)       (1.5)
      Other non-cash items           0.5        17.5         1.0        16.9
    -------------------------------------------------------------------------
                                     2.3        24.0         4.9        34.3
    -------------------------------------------------------------------------
    Distributable cash         $    13.6   $    35.5   $    40.5   $    67.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per Stapled Unit amounts:
     (in dollars)
    Basic and diluted earnings
     available for distribution
     before provision for
     future income taxes per
     weighted average Stapled
     Unit                      $    0.15   $    0.15   $    0.46   $    0.42

    Basic and diluted
     distributable cash per
     weighted average Stapled
     Unit                      $    0.17   $    0.46   $    0.52   $    0.86

    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:

    -------------------------------------------------------------------------
    (in millions of dollars)      Three months ended       Six months ended
                                        June 30                 June 30
    -------------------------------------------------------------------------
                                   2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash flow from operations
     before changes in working
     capital                   $   (12.7)  $     2.8   $    (6.3)  $     9.5
    Add (deduct):
      Interest on Series A
       Subordinate Notes owned
       by unitholders               20.9        20.9        41.8        41.8
      Proceeds from sale of
       property, plant and
       equipment                     5.5        11.4         5.7        16.9
      Additions to property,
       plant and equipment          (0.8)       (1.1)       (1.3)       (1.5)
      Other non-cash items           0.7         1.5         0.6         0.3
    -------------------------------------------------------------------------
                                    26.3        32.7        46.8        57.5
    -------------------------------------------------------------------------
    Distributable cash         $    13.6   $    35.5   $    40.5   $    67.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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

    
    -------------------------------------------------------------------------
                           2007     2006     2005     2004     2003     2002
    -------------------------------------------------------------------------
    Distributable Cash
     (in millions of
     dollars)
    First quarter       $  26.9  $  31.5  $  23.9  $  27.7  $  25.7  $  21.2
    Second quarter         13.6     35.5     15.4     43.5      4.7     10.6
    Third quarter                    9.3     (1.7)    35.9     12.0     34.1
    Fourth quarter                  27.5     29.7     18.1      9.0     24.2
    -------------------------------------------------------------------------
                        $  40.5  $ 103.8  $  67.3  $ 125.2  $  51.4  $  90.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Distributable Cash
     per Stapled Unit(2)
     (in dollars)
    First quarter       $  0.35  $  0.41  $  0.31  $  0.36  $  0.34  $  0.30
    Second quarter         0.17     0.46     0.20     0.57     0.06     0.14
    Third quarter                   0.12    (0.02)    0.47     0.15     0.45
    Fourth quarter                  0.35     0.38     0.24     0.12     0.32
    -------------------------------------------------------------------------
                        $  0.52  $  1.34  $  0.87  $  1.64  $  0.67  $  1.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Financial Highlights
    -------------------------------------------------------------------------
                                  Three months ended       Six months ended
    (in millions of dollars)            June 30                 June 30
    -------------------------------------------------------------------------
                                   2007        2006        2007        2006
    -------------------------------------------------------------------------

    Sales                      $   104.0   $   145.0   $   216.3   $   270.7
    Operating earnings               9.8        32.6        37.0        57.9
    Operating earnings - % of
     sales                            9%         22%         17%         21%
    EBITDA(3)                       17.5        17.5        47.8        45.0
    Income tax recovery              2.3        21.5         2.6        24.0
    Net earnings (loss)             (7.3)       12.2        (3.6)       15.1
    Distributable cash         $    13.6   $    35.5   $    40.5  $     67.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Overall sales revenues for the three months ended June 30, 2007, were
down compared to the second quarter of 2006 due to decreases in log and lumber
sales volumes and average sales realizations. In addition, there were no
significant real estate sales during the quarter and year to date compared to
the prior year periods. Operating earnings as a percentage of sales decreased
compared to the second quarter of 2006 as a result of lower sales volumes,
lower average sales realizations and higher operating costs for both logs and
lumber.
    The Canadian dollar has continued to strengthen this year, which has put
considerable pressure on sales realizations. During the quarter, the dollar
appreciated 9%.
    Earnings before interest, taxes, depreciation and amortization
(EBITDA)(3) for the three months ended June 30, 2007 were $17.5 million or
$0.23 per basic and diluted weighted average Stapled Unit, identical to the
same period in 2006. The Company generated a net loss for the three months
ended June 30, 2007 of $7.3 million, equating to basic and diluted net loss of
$0.09 per weighted average common share compared to net earnings of $12.2
million or basic and diluted net earnings of $0.16 per weighted average common
share for the second quarter of 2006.

    Highlights and Significant Transactions

    Adoption of New Accounting Policies - Financial Instruments

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

    Cash Distribution

    On August 2, 2007, TimberWest announced a distribution of $0.269 per
Stapled Unit, payable October 15, 2007, to unitholders of record on October 1,
2007. From inception to June 30, 2007, the Company has generated distributable
cash of $808.4 million while, including the October 15, 2007 distribution of
$20.9 million, the Company has paid out $775.5 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.

    Quarterly Conference Call

    TimberWest will hold a conference call at 8:00am PDT (11:00am EDT) on
Friday, August 3, 2007, to discuss results of the second quarter. To access
the conference call, listeners should dial 1-800-298-3006. For those unable to
participate in the live call, a recording of the call will be available until
August 17, 2007, and can be accessed at 1-800-558-5253 using code 21343093.
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:         2007        2006        2007        2006
    -------------------------------------------------------------------------

    Log Sales Revenue
     (in millions of dollars)
      Domestic                  $   44.8    $   34.4    $   82.8    $   69.8
      Export - Asia                 19.1        43.5        46.2        79.1
      Export - US                   16.4        16.2        29.6        30.8
    -------------------------------------------------------------------------
      Total log sales           $   80.3    $   94.1    $  158.6    $  179.7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Realizations ($/m(3))
      Domestic                        84          80          84          78
      Export - Asia                  117         131         121         132
      Export - US                     83          92          86          93
    -------------------------------------------------------------------------
                                      90         100          92          98
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Volume
     (thousand m(3))
      Domestic                     530.7       430.2       987.6       897.3
      Export - Asia                163.2       331.1       382.0       597.4
      Export - US                  198.4       176.3       345.8       332.1
    -------------------------------------------------------------------------
                                   892.3       937.6     1,715.4     1,826.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Sales Mix
     (thousand m(3))
      Fir                          590.9       665.9     1,198.4     1,264.4
      Hembal                       187.0       127.6       313.9       254.5
      Cedar                         69.3        83.5       112.1       160.7
      Other                         45.1        60.6        91.0       147.2
    -------------------------------------------------------------------------
                                   892.3       937.6     1,715.4     1,826.8
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Production Volume
     (thousand m(3))
      Public tenures               170.7       209.4       287.1       420.8
      Private timberlands          931.6       721.5     1,895.0     1,603.1
    -------------------------------------------------------------------------
                                 1,102.3       930.9     2,182.1     2,023.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Log Production Costs ($/m(3))   69.9        66.4        65.3        61.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Log sales revenues for the three months ended June 30, 2007, were down
compared to log sales revenues for the second quarter of 2006 due to a
decrease in log sales volume and average log realizations.
    Average domestic realizations for the second quarter of 2007 were higher
than the second quarter of 2006 as domestic prices remained firm through the
second quarter due to regional weather-related supply shortages and increased
demand for fibre from the pulp sector. Average export realizations were lower
in the second quarter of 2007 compared to the second quarter of 2006 due to
further weakening in lumber markets in North America and signs of oversupply
of logs in Japan and the impact of the appreciating Canadian dollar.
    Log production costs for the second quarter of 2007 increased over the
second quarter of 2006 due to a higher proportion of helicopter volume and
higher contractor rates.

    
                                  Three months ended       Six months ended
                                        June 30                 June 30
    Elk Falls Sawmill:             2007        2006        2007        2006
    -------------------------------------------------------------------------

    Sales Revenue by Product
     (in millions of dollars)
      Lumber                    $   19.0    $   33.3    $   46.3    $   60.7
      Wood chips and residuals       4.4         5.5        10.8        11.6
    -------------------------------------------------------------------------

    Sales Realizations
      Lumber ($/mfbm)                605         653         641         616
      Wood chips ($/m(3))             48          31          46          33
    -------------------------------------------------------------------------

    Sales Volume
      Lumber (million fbm)          31.4        51.0        72.2        98.5
      Wood chips and residuals
       (thousand m(3))              49.1        93.5       140.0       189.5
    -------------------------------------------------------------------------

    Lumber Production Volume
     (million fbm)                  23.2        47.3        69.8        96.1
    -------------------------------------------------------------------------
    

    Sales realizations were lower in Q2 2007 relative to Q2 2006 due to
weaker markets generally and a higher proportion of hemlock shipments in the
second quarter of 2007. During the quarter, lumber markets experienced
oversupply in all areas with Douglas fir under the greatest pressure. The
sawmill took six weeks of market related downtime during the second quarter of
2007, compared to none during the same period in 2006.
    Wood chips and residuals sales for the three month period ended June 30,
2007, of $4.4 million were down from $5.5 million for the comparative period
in 2006, reflecting the reduction in chips produced due to downtime during the
second quarter of 2007.

    
                                  Three months ended       Six months ended
                                        June 30                 June 30
    Real Estate Business Unit:     2007        2006        2007        2006
    -------------------------------------------------------------------------

    Real Estate Sales
     (in millions of dollars)  $     0.3   $    12.1   $     0.6   $    18.7
    Real Estate Net Proceeds
     (in millions of dollars)        0.3        11.4         0.5        16.9
    Real Estate Net Proceeds
     ($/acre)                      6,792       9,788       7,808       9,607
    -------------------------------------------------------------------------
    

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

    
                                  Three months ended       Six months ended
                                        June 30                 June 30
                                   2007        2006        2007        2006
    -------------------------------------------------------------------------

    Earnings Before Interest,
     Taxes, Depreciation and
     Amortization (EBITDA)(3)
     (in millions of dollars)
      Net earnings (loss)       $   (7.3)  $    12.2   $    (3.6)  $    15.1
      Add (deduct):
        Interest on Series A
         Subordinate Notes paid
         to unitholders             20.9        20.9        41.8        41.8
        Interest on long-term
         debt                        0.4         3.6         0.5         7.4
        Interest on short-term
         debt                        3.4           -         6.8           -
        Income tax recovery         (2.3)      (21.5)       (2.6)      (24.0)
        Depreciation, depletion
         and amortization            2.3         2.2         4.6         4.4
        Amortization of deferred
         financing costs (note 2)    0.1         0.1         0.3         0.3
    -------------------------------------------------------------------------
      EBITDA                        17.5        17.5        47.8        45.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    Cash and cash equivalents                          $       -   $     9.3
    Current assets                                         115.1        83.1
    Current liabilities                                    261.7       253.8
    Current liabilities (excluding debentures)              66.9        58.8
    Long-term liabilities                                  211.0       189.2
    Series A Subordinate notes owned by unitholders        697.9       697.0
    Unitholder's equity                                    238.7       241.6
    -------------------------------------------------------------------------
    

    Cash and cash equivalents decreased to nil as at June 30, 2007,
reflecting an increase in non-cash working capital. Trade accounts receivable
increased to $21.6 million at June 30, 2007, compared to $16.9 million at the
end of 2006, reflecting the effect of increased log sales revenue during the
second quarter of 2007, compared to the fourth quarter of 2006. Inventories
have increased to $79.2 million at June 30, 2007, up from $49.0 million at the
end of 2006. Log inventory was $71.8 million at June 30, 2007, compared to
$40.5 million at the end of 2006 and lumber inventory was $6.1 million at June
30, 2007 compared to $7.3 million at the end of 2006. The increase reflects a
35% increase in log harvest volumes. Lumber inventories were lower due to
lumber production curtailments during the quarter relative to the fourth
quarter of 2006. Prepaid expenses and other current assets were $12.4 million
at June 30, 2007, compared to $5.6 million at the end of 2006, reflecting
increased balances in non-trade receivables and property tax prepaid expenses.
    Property, plant and equipment were $1,292.8 million as at June 30, 2007,
$3.5 million less than as at December 31, 2006. This decrease primarily
reflects the sale of higher and better use properties, with a net book value
of $0.1 million during six months ended June 30, 2007, as well as a provision
for depreciation of capital assets of $4.6 million recorded during this
period. These items were offset in part by capital additions of $1.3 million,
comprised primarily of logging roads.
    Current liabilities as at June 30, 2007, include the $194.8 million
aggregate net carrying value ($195.0 million principal amount) of 7.0%
unsecured senior debentures, which were reclassified from long-term to current
liabilities in the fourth quarter of 2006. Of note is that effective January
1, 2007, the debentures are recorded at amortized cost using the effective
interest method from adoption of new accounting policies. (See Highlights and
Significant Transactions - Adoption of New Accounting Policies - Financial
Instruments) Excluding the debentures, current liabilities at June 30, 2007
were $66.9 million. This quarterly variance in current liabilities (excluding
debentures) can be attributed to both a $6.9 million increase in accounts
payable and accrued liabilities primarily attributed to higher harvest levels
in June 2007 compared to December 2006, and a $1.2 million increase in
borrowings on the demand operating credit facility.
    As at June 30, 2007, the Company had combined borrowings of $25.7 million
on its available credit facilities, including borrowings of $1.2 million on
its demand operating facility, $4.5 million on its $65.0 million long-term
unsecured revolving facility, and $20.0 million on its $100.0 million
long-term unsecured revolving facility. In addition, the Company had
commitments of $17.1 million relating to outstanding letters of credit,
including $16.1 million issued under its demand bank guarantee facility and
$1.0 million issued under its $100.0 million long-term unsecured revolving
facility.
    The $194.8 million aggregate net carrying value ($195.0 million principal
amount) of the 7.0% unsecured senior debentures mature on October 1, 2007. The
Company intends to refinance these in the bank market effective October 1,
2007.
    Other long-term liabilities as at June 30, 2007, included a silviculture
liability of $3.1 million, a $40.0 million liability relating to employee
future benefits and a future income tax liability of $143.4 million. These
balances are comparable to balances as at December 31, 2006.
    The Series A Subordinate Note component of the Company's Stapled Unit is
presented as a liability on the Company's consolidated balance sheets.
Effective January 1, 2007, the Series A Subordinate Note liability is recorded
at amortized cost using the effective interest method from adoption of new
accounting policies. (See Highlights and Significant Transactions - Adoption
of New Accounting Policies - Financial Instruments) As at June 30, 2007, the
carrying value of the Series A Subordinate Note liability was $697.9 million.
    During the quarter ended June 30, 2007, 50,000 Stapled Unit options were
granted and options to purchase 8,084 Stapled Units were exercised for
proceeds of $0.1 million. During the six months ended June 30, 2007, 339,370
Stapled Unit options were granted and options to purchase 94,546 Stapled Units
were exercised for proceeds of $1.4 million. As at August 2, 2007, the Company
had 1,180,358 granted and outstanding Stapled Unit option awards and
77,729,800 issued and outstanding Stapled Units.

    
    Cash Flow and Liquidity

    Selected Cash Flow Items      Three months ended       Six months ended
                                        June 30                 June 30
    (in millions of dollars)       2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Cash provided by (used
       in) operations before
       changes in non-cash
       working capital         $   (12.7)  $     2.8   $    (6.3)  $     9.5
      Changes in non-cash
       working capital             (21.8)        5.4       (34.8)       17.9
    -------------------------------------------------------------------------
                                   (34.5)        8.2       (41.1)       27.4
    -------------------------------------------------------------------------

    Financing activities:

      Issuance of Stapled Units
       on exercise of options        0.1         0.3         1.4         0.5
      Credit facilities             24.5       (11.0)       24.5       (37.0)
      Demand credit facility         1.2           -         1.2           -
    -------------------------------------------------------------------------
                                    25.8       (10.7)       27.1       (36.5)
    -------------------------------------------------------------------------

    Investing activities:
      Proceeds from sale of
       other assets                  5.5        11.4         5.7        16.9
      Additions to property,
       plant and equipment          (0.8)       (1.1)       (1.3)       (1.5)
      Other assets                   0.1         1.4         0.3         0.9
    -------------------------------------------------------------------------
                                     4.8        11.7         4.7        16.3
    -------------------------------------------------------------------------

    (Decrease) Increase in
     cash and cash equivalents $    (3.9)  $     9.2   $    (9.3)  $     7.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the three months ended June 30, 2007, the Company issued 8,084
Stapled Units on the exercise of Stapled Unit options for net proceeds of
$0.1 million, compared to the issuance of 23,901 Stapled Units on the exercise
of Stapled Unit options for net proceeds of $0.3 million in the comparative
quarter in 2006. During the second quarter of 2007, $25.7 million was borrowed
on available credit facilities, whereas $11.0 million was applied to reduce
amounts borrowed on available credit facilities in the comparative period in
2006.
    For the six months ended June 30, 2007, the Company issued 94,546 Stapled
Units for net proceeds of $1.4 million on the exercise of Stapled Unit
options, compared to the issuance of 42,092 Stapled Units for net proceeds of
$0.5 million on the exercise of Stapled Unit options in comparative period in
2006. During the first half of 2007, $25.7 million was borrowed on available
credit facilities as compared to $37.0 million that was applied to reduce
amounts borrowed on available credit facilities during the same period in
2006.
    In the second quarter of 2007, the Company received net proceeds of $5.5
million from the sale of other assets. Gross proceeds of $5.0 million from the
disposition of a subsidiary trust represents the majority of the dispositions.
In addition, the Company incurred $0.8 million for capital expenditures,
primarily for the construction of logging roads. For the six months ended June
30, 2007, the Company incurred $1.3 million for capital expenditures,
primarily for the construction of logging roads.
    As at June 30, 2007, the principal amount of TimberWest's total debt(4)
outstanding was $220.5 million compared to total principal amount of debt
outstanding of $195.0 million as at December 31, 2006. The Company's
consolidated debt-to-total capitalization ratio(4) as at June 30, 2007 was
19:81, compared to 17:83 as at December 31, 2006.
    Total debt facilities available to the Company as at June 30, 2007, were
$386.3 million, comprised of $10.0 million available under a demand operating
credit facility, $16.3 million available under a demand bank guarantee
facility, $65.0 million available under a revolving facility due July 7, 2010,
$100.0 million available under a revolving facility due July 27, 2010 and
$195.0 million aggregate principal amount of 7.0% debentures maturing on
October 1, 2007. As at June 30, 2007 the Company had commitments of $17.1
million relating to outstanding letters of credit issued to secure various
obligations of the Company, including $16.1 million issued under its demand
bank guarantee facility and $1.0 million issued under its $100.0 million
long-term unsecured revolving facility.

    Internal Controls over Financial Reporting

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

    Forward Looking Statements

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

    
                                   Notice
    

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



    
    Consolidated Statements of Operations and Comprehensive Income

    (in millions of dollars)       Three months ended       Six months ended
    Unaudited                            June 30                 June 30
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------
    Sales                      $   104.0   $   145.0   $   216.3   $   270.7

    Operating costs and
     expenses:
      Cost of sales                 87.0       106.3       165.2       200.9
      Selling, administrative
       and other                     4.9         3.9         9.5         7.5
      Depreciation, depletion
       and amortization              2.3         2.2         4.6         4.4
    -------------------------------------------------------------------------
                                    94.2       112.4       179.3       212.8
    -------------------------------------------------------------------------

    Operating earnings               9.8        32.6        37.0        57.9

    Interest expense:
      Series A Subordinate Notes
       owned by unitholders         20.9        20.9        41.8        41.8
      Long-term debt                 0.4         3.6         0.5         7.4
      Short-term debt                3.4           -         6.8           -
    -------------------------------------------------------------------------
                                    24.7        24.5        49.1        49.2

    Amortization of deferred
     financing costs (note 2)        0.1         0.1         0.3         0.3
    Other (income) expense          (5.4)        0.1        (6.2)        0.1
    Pension plan annuitization
     (note 3)                          -        17.2           -        17.2
    -------------------------------------------------------------------------
                                    19.4        41.9        43.2        66.8
    -------------------------------------------------------------------------

    Loss before income taxes        (9.6)       (9.3)       (6.2)       (8.9)

    Income tax recovery
     (note 4)                       (2.3)      (21.5)       (2.6)      (24.0)
    -------------------------------------------------------------------------
    Net earnings (loss) and
     comprehensive income
     (loss)                    $    (7.3)  $    12.2   $    (3.6)  $    15.1
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted earnings
     (loss) per common share
     (note 5)                  $   (0.09)  $    0.16   $   (0.05)  $    0.19



    Consolidated Statements of Retained Earnings

    (in millions of dollars)       Three months ended       Six months ended
    Unaudited                            June 30                 June 30
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Retained earnings,
     beginning of period       $    53.8   $    36.1   $    50.1   $    33.2

    Net earnings (loss) and
     comprehensive income
     (loss) for the period          (7.3)       12.2        (3.6)       15.1
    -------------------------------------------------------------------------
    Retained earnings,
     end of period             $    46.5   $    48.3   $    46.5   $    48.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to unaudited interim consolidated financial
    statements.



    Consolidated Balance Sheets
    (in millions of dollars)
                                                          As at        As at
                                                        June 30, December 31,
                                                           2007         2006
                                                      Unaudited
    -------------------------------------------------------------------------
    Assets
      Current assets:
        Cash                                          $       -    $     9.3
        Accounts receivable                                21.6         16.9
        Inventories                                        79.2         49.0
        Prepaid expenses and other current assets          12.4          5.6
        Future income taxes                                 1.9          2.3
    -------------------------------------------------------------------------
                                                          115.1         83.1
      Property, plant and equipment, net (note 6)       1,292.8      1,296.3
      Other assets (note 7)                                 1.4          2.2
    -------------------------------------------------------------------------
                                                      $ 1,409.3    $ 1,381.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Unitholders' Equity
      Current liabilities:
        Demand credit facility                        $     1.2    $       -
        Debentures (note 2)                               194.8        195.0
        Accounts payable and accrued liabilities           44.8         37.9
        Distribution payable                               20.9         20.9
    -------------------------------------------------------------------------
                                                          261.7        253.8
      Revolving credit facilities (note 8)                 24.5            -
      Long-term silviculture liability                      3.1          3.6
      Employee future benefits (note 10)                   40.0         39.2
      Future income taxes                                 143.4        146.4
    -------------------------------------------------------------------------
                                                          472.7        443.0
      Series A Subordinate Notes owned by
       unitholders (note 2 and 9)                         697.9        697.0
    -------------------------------------------------------------------------
                                                        1,170.6      1,140.0
    -------------------------------------------------------------------------

      Unitholders' equity:
        Share capital, consisting of common and
         preferred shares (note 9)                        190.9        190.4
        Contributed surplus                                 1.3          1.1
        Retained earnings                                  46.5         50.1
    -------------------------------------------------------------------------
                                                          238.7        241.6
    -------------------------------------------------------------------------
                                                      $ 1,409.3    $ 1,381.6
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    See accompanying notes to unaudited interim consolidated financial
    statements.


    On behalf of the Board of Directors:

    Paul J. McElligott    V. Edward Daughney
    Director              Director



    Consolidated Statements of Cash Flows
    (in millions of dollars)
    Unaudited                     Three months ended        Six months ended
                                         June 30                 June 30
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by
     (used in):

    Operating activities:
      Net earnings (loss)      $    (7.3)  $    12.2   $    (3.6)  $    15.1
      Items not involving
       cash:
        Depreciation,
         depletion and
         amortization                2.4         2.3         4.9         4.7
        Gain on sale of
         property, plant
         and equipment              (5.3)       (6.1)       (5.4)       (2.7)
        Future income
         tax recovery               (2.3)      (21.6)       (2.6)      (24.2)
        Other non-cash items        (0.2)       16.0         0.4        16.6
    -------------------------------------------------------------------------
                                   (12.7)        2.8        (6.3)        9.5
      Changes in non-cash
       working capital:
        Accounts receivable         (4.3)        1.5        (4.7)        2.3
        Inventories                (15.1)        6.2       (30.2)       (0.3)
        Prepaid expenses and
         other working capital      (5.8)       (3.1)       (6.8)        1.6
        Accounts payable and
         accrued liabilities         3.4         0.8         6.9        14.3
    -------------------------------------------------------------------------
                                   (34.5)        8.2       (41.1)       27.4
    -------------------------------------------------------------------------

    Financing activities:
      Issuance of Stapled Units
       on exercise of options:
        Series A Subordinate
         Notes                       0.1         0.2         0.9         0.4
        Share capital                  -         0.1         0.5         0.1
    -------------------------------------------------------------------------
                                     0.1         0.3         1.4         0.5
        Demand credit
         facility                    1.2           -         1.2           -
        Revolving credit
         facilities                 24.5       (11.0)       24.5       (37.0)
    -------------------------------------------------------------------------
                                    25.8       (10.7)       27.1       (36.5)
    -------------------------------------------------------------------------

    Investing activities:
      Proceeds from sale of
       property, plant and
       equipment                     5.5        11.4         5.7        16.9
      Additions to property,
       plant and equipment          (0.8)       (1.1)       (1.3)       (1.5)
      Other assets                   0.1         1.4         0.3         0.9
    -------------------------------------------------------------------------
                                     4.8        11.7         4.7        16.3
    -------------------------------------------------------------------------
    Increase (decrease) in
     cash and cash equivalents      (3.9)        9.2        (9.3)        7.2
    Cash and cash equivalents,
     beginning of period             3.9         1.0         9.3         3.0
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $       -   $    10.2   $       -   $    10.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental information:
      Interest on Series A
       Subordinate Notes
       paid to unitholders     $    20.9   $    20.9   $    41.8   $    41.8
      Other interest paid      $     7.3   $     7.0   $     7.4   $     7.4
      Income taxes paid        $       -   $     0.2   $       -   $     0.3

    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, 2007 and 2006

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

    1.  Significant Accounting Policies

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


    2.  Adoption of New Accounting Policies

        Financial instruments:

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

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

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

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

    3.  Pension Plan Annuitization

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

    4.  Income Taxes

         ---------------------------------------------------------------------
                                  Three months ended        Six months ended
                                         June 30                 June 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Current income tax
         expense - large
         corporation tax       $       -   $     0.1   $       -   $     0.2
        Future income tax
         recovery                   (2.3)      (21.6)       (2.6)      (24.2)
         ---------------------------------------------------------------------
                               $    (2.3)  $   (21.5)  $    (2.6)  $   (24.0)
         ---------------------------------------------------------------------
         ---------------------------------------------------------------------

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

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

        In the second quarter of 2006, the Company entered into an agreement
        with a financial institution to purchase annuities for all retirees
        in the Company's salaried employee defined benefit pension plans. As
        a result of this transaction, the Company's future income tax
        liability was reduced by $5.8 million.

    5.  Earnings per Share

        ---------------------------------------------------------------------
                                  Three months ended        Six months ended
                                         June 30                 June 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Net earnings (loss)    $    (7.3)  $    12.2   $    (3.6)  $    15.1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Basic weighted
         average number of
         common shares        77,726,775  77,516,784  77,700,868  77,506,046
        Incremental common
         shares from
         potential exercise
         of options              206,455      75,545     178,116      75,852
        ---------------------------------------------------------------------
        Diluted weighted
         average number of
         common shares        77,933,230  77,592,329  77,878,984  77,581,898
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Basic and diluted
         net earnings (loss)
         per common share      $   (0.09)  $    0.16    $  (0.05)  $    0.19
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------


    6.  Property, Plant and Equipment

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

    7.  Other Assets

        ---------------------------------------------------------------------
                                                           As at       As at
                                                            June    December
                                                        30, 2007    31, 2006
        ---------------------------------------------------------------------

        Deferred debt issue costs (note 2)             $     0.3   $     0.8
        Receivable on sale of property, plant and
         equipment                                           0.5         0.5
        Other                                                0.6         0.9
        ---------------------------------------------------------------------
                                                       $     1.4   $     2.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

    8.  Revolving credit facilities

        As at June 30, 2007, the Company had combined borrowings of
        $24.5 million on available credit facilities, including borrowing of
        $4.5 million on its $65.0 million long-term unsecured revolving
        facility and borrowing of $20.0 million on its $100.0 million long-
        term unsecured revolving facility. In addition, the Company had
        commitments of $16.1 million relating to outstanding letters of
        credit issued under its $16.3 million demand bank guarantee facility.

    9.  Stapled Units

        ---------------------------------------------------------------------

                                             Stapled Unit Components
                                             -----------------------

                                                   Share Capital
                                                        (consist-
                                                          ing of
                                            Series A  common and
                                         Subordinate   preferred
                                 Number        Notes      shares)      Total
        ---------------------------------------------------------------------
        Six months ended
         June 30, 2006:
        Balance,
         December 31, 2005    77,487,571   $   695.7   $   189.8   $   885.5
        Issuance of Stapled
         Units on exercise
         of options               42,092         0.4         0.1         0.5
        ---------------------------------------------------------------------
        Balance, June 30,
         2006                 77,529,663    $  696.1   $   189.9   $   886.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        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
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

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

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

    10. Employee Benefits

        ---------------------------------------------------------------------
                                                           As at       As at
                                                            June    December
                                                        30, 2007    31, 2006
        ---------------------------------------------------------------------
        Pension benefits                               $     8.4   $     8.4
        Non-pension post-retirement benefits                31.6        30.8
        ---------------------------------------------------------------------
                                                       $    40.0   $    39.2
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        The Company, through its subsidiaries, maintains pension plans that
        include defined benefit and defined contribution segments available
        to all salaried employees and a small number of hourly retirees not
        covered by union pension plans. For the three months ended June 30,
        2007, the Company recorded an expense of $0.5 million for pension
        benefit costs (2006 - $17.9 million) and made cash payments of
        $0.4 million to fund current service costs (2006 - $1.7 million). For
        the six months ended June 30, 2007, the Company recorded an expense
        of $1.1 million for pension benefit costs (2006 - $18.2 million
        including $17.2 million representing the unamortized net actuarial
        loss associated with retiree pension obligations that would have been
        amortized over the expected life of the defined benefit pension
        plan.) and made cash payments of $1.1 million to fund current service
        costs (2006 - $2.7 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, 2007, the Company recorded an expense of $1.0 million
        for non-pension benefit costs (2006 - $1.0 million) and made cash
        payments of $0.6 million to fund current benefit costs (2006 -
        $0.4 million). For the six months ended June 30, 2007, the Company
        recorded an expense of $2.0 million for non- pension benefit costs
        (2006 - $2.0 million) and made cash payments of $1.1 million to fund
        current benefit costs (2006 - $1.0 million).

    11. Stock-based Compensation Plans

        Under the Company's Stapled Unit Option Plan, the Company may grant
        options for the purchase of Stapled Units to directors, officers or
        employees who are in active service or employment of the Company or
        of any of its subsidiaries. During the quarter ended June 30, 2007,
        50,000 Stapled Unit options were granted at an average exercise price
        of $17.64 with an expected life of 5 years (2006 - no Stapled Unit
        options were granted). For the six months ended June 30, 2007,
        339,370 Stapled Unit options were granted at an average price of
        $16.46 (2006 - 245,238 Stapled Unit options were granted at an
        average exercise price of $13.94).

        The Company has applied the fair value method of accounting for
        Stapled Unit option grants awarded on or after January 1, 2003. The
        fair value of each option granted was estimated on the date of grant
        using the Black-Scholes option pricing model using the following
        weighted average assumptions:

        ---------------------------------------------------------------------
                                                            2007        2006
        ---------------------------------------------------------------------
        Risk-free interest rate                              4.1%        4.1%
        Expected life (years)                                5.0         5.0
        Expected volatility                                 21.6%       20.3%
        Dividend yield                                       6.5%        8.0%
        Number of options granted                        339,370     245,238
        Fair value of each option granted                  $1.84       $0.92
        ---------------------------------------------------------------------

        The compensation cost for the 339,370 Stapled Unit options granted
        between January 1, 2007 and June 30, 2007 is $628,000 (2006 - 245,238
        Stapled Unit options were granted with a compensation cost of
        $226,000). The compensation cost of Stapled Unit option awards is
        amortized against earnings over the three-year vesting period of the
        underlying options and an expense of $127,000 and $361,000 has been
        recognized in net earnings for the three and six months ended
        June 30, 2007 (2006 - $54,000 and $168,000, 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, 2007, $0.3 million has been accrued for awards
        granted under this plan (2006 - $0.3 million) and $0.3 million has
        been amortized against earnings for the quarter (2006 -
        $0.3 million). For the six months ended June 30, 2007, $0.5 million
        has been accrued for awards granted under the plan (2006 -
        $0.5 million) and $0.6 million has been amortized against earnings
        for this period (2006 - $0.5 million).

        During the three months ended June 30, 2007, a total of 8,084 Stapled
        Unit options with an average exercise price of $12.70 were exercised
        (2006 - 23,901 Stapled Unit options with an average exercise price of
        $12.58 were exercised). For the six months ended June 30, 2007, a
        total of 94,546 Stapled Unit options with an average exercise price
        of $13.75 were exercised (2006 - 42,092 Stapled Unit options with an
        average exercise price of $12.39 were exercised).

    12. Comparative figures

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


        Supplemental Information
        Unaudited                 Three months ended        Six months ended
                                         June 30                 June 30
                                    2007        2006        2007        2006
        ---------------------------------------------------------------------
        Sales Revenue by
         Product
        (in millions of dollars)

          Log sales
            Domestic            $   44.8   $    34.4   $    82.8   $    69.8
            Export - Asia           19.1        43.5        46.2        79.1
            Export - US             16.4        16.2        29.6        30.8
        ---------------------------------------------------------------------
            Total log sales         80.3        94.1       158.6       179.7
          Lumber                    19.0        33.3        46.3        60.7
          Wood chips and other       4.4         5.5        10.8        11.6
          Real estate                0.3        12.1         0.6        18.7
        ---------------------------------------------------------------------
                                $  104.0   $   145.0   $   216.3   $   270.7
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Sales Volume
          Logs (thousand m(3))
            Domestic               530.7       430.2       987.6       897.3
            Export - Asia          163.2       331.1       382.0       597.4
            Export - US            198.4       176.3       345.8       332.1
        ---------------------------------------------------------------------
                                   892.3       937.6     1,715.4     1,826.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

            Lumber
             (million fbm)          31.4        51.0        72.2        98.5
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Log Sales Mix
         (thousand m(3))
          Fir                      590.9        665.9    1,198.4     1,264.4
          Hembal                   187.0        127.6      313.9       254.5
          Cedar                     69.3         83.5      112.1       160.7
          Other                     45.1         60.6       91.0       147.2
        ---------------------------------------------------------------------
                                   892.3        937.6    1,715.4     1,826.8
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Production Volume
          Logs (thousand m(3))
            Public tenures         170.7        209.4      287.1       420.8
            Private
             timberlands           931.6        721.5    1,895.0     1,603.1
        ---------------------------------------------------------------------
                                 1,102.3        930.9    2,182.1     2,023.9
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------
          Lumber
           (million fbm)            23.2         47.3       69.8        96.1
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Earnings Before
         Interest, Taxes,
         Depreciation and
         Amortization
         (EBITDA)(*)
        (in millions of
         dollars)

          Net earnings (loss)  $   (7.3)   $    12.2   $    (3.6)  $    15.1
          Add (deduct):
            Interest on
             Series A
             Subordinate
             Notes paid to
             unitholders           20.9         20.9        41.8        41.8
            Interest on
             long-term debt         0.4          3.6         0.5         7.4
            Interest on
             short-term debt        3.4            -         6.8           -
            Income tax
             recovery              (2.3)       (21.5)       (2.6)      (24.0)
            Depreciation,
             depletion and
             amortization           2.3          2.2         4.6         4.4
            Amortization of
             deferred financing
             costs                  0.1          0.1         0.3         0.3
        ---------------------------------------------------------------------
        EBITDA                 $   17.5    $    17.5   $    47.8   $    45.0
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

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

    Stapled Units of TimberWest Forest Corp. are traded on the Toronto Stock
Exchange under the symbol: TWF.UN
    Visit us at our web site: www.timberwest

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

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

    (3) EBITDA 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 EBITDA is
        provided in the supplemental information appended to this interim
        report.

    (4) Total debt and the debt-to-total capitalization ratio are measures
        that do not have a standardized meaning prescribed by GAAP and may
        not be comparable to similar measures presented by other companies.
        As the Company's Series A Subordinate Notes trade only as part of the
        Company's equity instrument, the Stapled Unit, they are not included
        in the Company's definition of debt. Management believes that the
        presentation of these measures will enhance an investor's
        understanding of the Company's financial resources and capital
        structure.
    
    %SEDAR: 00009326E




For further information:

For further information: 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.

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