Western Forest Products Reports 2007 Second Quarter Net Income of $17.6 million



    TSX: WEF

    DUNCAN, BC, Aug. 13 /CNW/ - Western Forest Products Inc. (TSX: WEF)
("Western") today announced its results for the second quarter of 2007. The
Company reported net income of $17.6 million ($0.09 per share) and EBITDA of
$21.1 million in the second quarter of 2007.

    
                                Q2 Highlights

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    -   Increased log and lumber production and sales.
    -   Reduced manufacturing costs through continued operational and capital
        improvements and higher production levels.
    -   Advanced the marketing and sale of non-core assets which have a value
        estimated at $150-$180 million realizing proceeds of $13.6 million
        and a gain of $9.4 million on those assets sold during the quarter.
    -   Reduced interest expense to $5.9 million from $9.9 million in the
        same period of 2006 following debt and interest rate reductions in
        2006 and the first quarter of 2007.

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

    Second Quarter Results

    The Company reported net income of $17.6 million ($0.09 per share) in the
second quarter of 2007 compared to $7.2 million ($0.04 per share) in the first
quarter of 2007 and a loss of $9.4 million ($0.06 per share) in the second
quarter of 2006. The results benefited from a foreign exchange gain on the
Company's U.S. dollar debt of $6.3 million and the gain on non-core asset
sales of $9.4 million. Excluding the impact of these items, EBITDA and net
income would have been $20.6 million and $1.9 million, respectively for the
second quarter of 2007.

    
                              FINANCIAL SUMMARY

                          Three      Three      Three       Six        Six
                          Months     Months     Months     Months     Months
    (millions of          Ended      Ended      Ended      Ended      Ended
     dollars except      June 30,   March 31,  June 30,   June 30,   June 30,
     per share amounts)    2007       2007       2006       2007       2006
    -------------------------------------------------------------------------
    EBITDA              $   21.1   $   23.3   $    7.7   $   44.4   $    7.6
    Net income (loss)
     from continuing
     operations         $   13.8   $    8.2   $   (7.5)  $   22.0   $  (54.0)
    Net income (loss)
     from discontinued
     operations         $    3.8   $   (1.0)  $   (1.9)  $    2.8   $   (9.0)
    Net income (loss)   $   17.6   $    7.2   $   (9.4)  $   24.8   $  (63.0)
    -------------------------------------------------------------------------
    Per share - basic
     and diluted:
    Net income (loss)
     from continuing
     operations         $   0.07   $   0.04   $  (0.05)  $   0.11   $  (0.63)
    Net income (loss)   $   0.09   $   0.04   $  (0.06)  $   0.12   $  (0.74)
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
        Reference is made above to EBITDA, a non-GAAP measure defined as
        operating income (loss) plus amortization of property, plant and
        equipment and the write-down of property, plant and equipment and
        operating restructuring costs. The Company uses EBITDA as a benchmark
        measurement of its own operating results and as a benchmark relative
        to competitors.
    

    EBITDA increased to $21.1 million in the second quarter and $44.4 million
in the first six months of 2007 compared to $7.7 million and $7.6 million,
respectively in the comparable periods of 2006. EBITDA decreased from
$23.3 million in the first quarter of 2007 primarily as a result of lower
realized lumber and log prices as a result of the stronger Canadian dollar and
product mix, an increase in lumber inventory period end
lower-of-cost-and-market write-downs, and higher pulp log write-downs as pulp
log production returned to more normalized levels. This was partially offset
by: higher lumber and log sales volumes; lower sawmill conversion costs; and
higher by-product revenues.
    Lumber sales in the quarter increased to 273 million board feet from
251 million board feet in the first quarter of 2007 as a result of more
product being available for sale. The average realized lumber price decreased
to $769 per thousand board feet in the second quarter of 2007, compared to
$818 per thousand board feet in the first quarter of 2007. Average realized
log price also decreased to $77 per cubic metre from $86 per cubic metre in
the first quarter of 2007 due to changes in product mix.
    Reynold Hert, President and CEO commenting on the Company's performance
noted, "The impact of the strengthening Canadian dollar on our realized lumber
prices masked the improvements during the quarter following a return to more
normalized log harvest levels and the resulting increase in lumber production
and sales. Our ongoing work to improve productivity and reduce costs and our
recent capital investments are also being reflected in our results."

    Operations

    Lumber production increased in the second quarter to 277 million board
feet from 251 million board feet in the first quarter of 2007 as a result of
the greater availability of logs as log harvesting returned to more normal
levels. The Company harvested 2,016,000 cubic metres of logs in the second
quarter, up from 1,601,000 cubic metres in the first quarter. Production of
some of the Company's more valuable products, including cedar were hampered in
the quarter by the lack of heavy lift helicopters to support the Company's
helicopter-logging program.

    Markets

    The cedar market continued to be well-supported during the quarter with
demand exceeding supply, resulting in higher average cedar lumber prices over
the first quarter. Markets for the Company's cedar products are expected to
remain strong over the balance of the year as a result of shortages in the
market due to lack of supply and the normal seasonal demand.
    Demand and pricing also remained firm in Japanese markets for most of the
second quarter, although this market has since weakened due to oversupply as
some U.S. Douglas fir production shifted to Japan, and an easing in housing
starts. Prior to the strike, the Company had taken action to reduce the
production of lumber products typically destined for the Japanese market in
response to the changing market conditions.
    The U.S. structural dimension market, which represents approximately 25%
of the Company's lumber sales volumes, continues to be under pressure. Prices
increased to some extent in the second quarter compared to the first quarter
as supply was reduced, however both demand and pricing have since fallen back.

    Outlook

    On July 21, 2007 the United Steelworkers Union that represents the
majority of the Company's hourly employees went on strike. The strike impacts
most of the Company's operations other than one sawmill, the remanufacturing,
value added and custom cut operations, and certain small contract logging
operations. The outlook for the second half of 2007 is dependent on the
duration of the strike action by the United Steelworkers Union. While the
Company will sell lumber from inventory on hand to the extent possible and
will continue operating at the locations not affected by the strike for as
long as logs are available, the majority of its operations will be inactive
and cash flow will be impacted accordingly.
    Beyond the effect of the strike, current expectations are that the
Company's results for the second half of the year will be influenced by a
number of factors compared to the first half of the year including: the weaker
Japanese markets noted above; the high value of the Canadian dollar relative
to the U.S. dollar and Japanese Yen; higher stumpage rates; and the impact of
normal down-time during the summer (forest fire hazard) and winter (snowfall
curtailments) periods. Offsetting these negative factors to some extent are
the Company's growing ability to quickly respond to market conditions as well
as the continuing improvement in productivity, cost reduction initiatives and
the positive effects of the recent investments in the Cowichan Bay and Saltair
sawmills.
    The Company is continuing to work on selling its non-core assets. With an
estimated value of between $150.0 million and $180.0 million including the
assets sold in the second quarter, these assets include approximately
4,000 hectares of the higher and better use component of the Company's private
lands on Vancouver Island, which are being actively marketed with a potential
sales horizon for a portion of the lands in late 2007 or early 2008. In
addition, the site of the former New Westminster sawmill is being cleared and
readied for sale.

    TELECONFERENCE CALL NOTIFICATION: Tuesday, August 14, 2007 at
    -------------------------------------------------------------
    10:00 a.m. PST/1:00 p.m. EST
    ----------------------------

    On Tuesday, August 14, 2007, Western Forest Products Inc. will host a
teleconference call at 10:00 a.m. PST (1:00 p.m. EST). To participate in the
teleconference please dial 1-866-250-4877 in Canada and the U.S. (toll free)
and in Toronto or Internationally, 416-644-3432 before 10:00 a.m. PST
(1:00 p.m. EST). This call will be taped, available one hour after the
teleconference, and on replay until August 28, 2007. To hear a complete
replay, please call 1-877-289-8525 in Canada and the U.S. (toll free),
Passcode 21243001 followed by the number sign or in Toronto and
Internationally, 416-640-1917, Passcode 21243001 followed by the number sign.
This call will also be webcast from Western's website at
www.westernforest.com.

    Western Forest Products

    Western is an integrated Canadian forest products company and the largest
coastal British Columbia woodland operator and lumber producer with an annual
available harvest of approximately 7.5 million cubic metres of timber of which
7.3 million cubic metres is from Crown lands and 0.2 million cubic metres from
private timberlands and lumber capacity in excess of 1.5 billion board feet
from eight sawmills and four remanufacturing plants. Principal activities
conducted by the Company and its subsidiaries include timber harvesting,
reforestation, sawmilling logs into lumber and wood chips, and value-added
remanufacturing. Substantially all of Western's operations, employees and
corporate facilities are located in the coastal region of British Columbia
while its products are sold in over 20 countries worldwide.

    Forward Looking Statements and Information

    This press release contains forward-looking statements and
forward-looking information within the meaning of applicable securities law.
Those statements and information include statements or information regarding
the intent, belief or current expectations of Western. Such statements or
information may be indicated by words such as "approximately", "achieving",
"estimated", "expect", "anticipate", "plan", "intend", "believe", "will",
"should", "may" and similar words and phrases. Readers are cautioned that any
such forward-looking statements or information are not guarantees and may
involve known and unknown risks and uncertainties, and that the actual results
may differ from those expressed or implied in the forward-looking statements
or information as a result of various factors including, changes in government
regulation, and misjudgments in the course of preparing forward-looking
statements or information. The information contained under the "Risk Factors"
section of Western's Annual Information Form and under the "Risks and
Uncertainties" section of Western's Management's Discussion and Analysis
identifies important factors that could cause such differences. All written
and oral forward-looking statements or information attributable to Western or
persons acting on behalf of Western are expressly qualified in their entirety
by the foregoing cautionary statements. Western does not expect to update
forward-looking statements or information as conditions change.


    Western Forest Products Inc.
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    2007 Second Quarter Report


    Management's Discussion & Analysis

    The following discussion and analysis reports and comments on the
financial condition and results of operations of Western Forest Products Inc.
(the "Company", "Western", "us", "we", or "our"), on a consolidated basis, for
our second quarter ended June 30, 2007 to help security holders and other
readers understand our Company and the key factors underlying our financial
results. You should read this discussion and analysis in conjunction with our
unaudited interim consolidated financial statements and related notes thereto
for the quarter ended June 30, 2007, and our audited annual consolidated
financial statements and management's discussion and analysis ("MD&A") for the
year ended December 31, 2006 (the "2006 Annual Report"), all of which can be
found on the System for Electronic Document Analysis and Retrieval (SEDAR), at
http://www.sedar.com.
    We have prepared the financial information contained in this discussion
and analysis in accordance with Canadian generally accepted accounting
principles ("GAAP"). Reference is also made to EBITDA. EBITDA is defined as
operating income (loss) plus amortization of property, plant and equipment and
the write-down of property, plant and equipment and operating restructuring
costs. We use EBITDA as a benchmark measurement of our own operating results,
and as a benchmark relative to our competitors. We consider EBITDA to be a
meaningful supplement to operating income as a performance measure primarily
because amortization expense and property write-downs are not actual cash
costs, and vary widely from company to company in a manner that we consider
largely independent of the underlying cost efficiency of their operating
facilities. Further, operating restructuring costs are not expected to occur
on a regular basis and may make comparisons of our operating results between
periods more difficult. We also believe EBITDA is commonly used by securities
analysts, investors and other interested parties to evaluate our financial
performance.
    EBITDA does not represent cash generated from operations as defined by
Canadian GAAP and it is not necessarily indicative of cash available to fund
cash needs. Furthermore, EBITDA does not reflect the impact of a number of
items that affect our net income (loss). EBITDA is not a measure of financial
performance under GAAP, and should not be considered as an alternative to
measures of performance under GAAP. Moreover, because all companies do not
calculate EBITDA in the same manner, EBITDA as calculated by us may differ
from EBITDA as calculated by other companies.
    This management's discussion and analysis contains statements which
constitute forward-looking statements and forward-looking information within
the meaning of applicable securities laws. Those statements and information
appear in a number of places in this document and include statements and
information regarding our intent, belief or current expectations primarily
with respect to market and general economic conditions, future costs,
expenditures, available harvest levels and our future operating performance.
Such statements and information may be indicated by words such as "estimate",
"expect", "anticipates", "plan", "intend", "believe", "will", "should", "may"
and similar words and phrases. Readers are cautioned that any such
forward-looking statements and information are not guarantees and may involve
known and unknown risks and uncertainties, and that actual results may differ
from those expressed or implied in the forward-looking statements or
information as a result of various factors, including general economic and
business conditions, product selling prices, raw material and operating costs,
changes in foreign currency exchange rates, changes in government regulation,
fluctuations in demand and supply for our products, industry production
levels, our ability to execute our business plan and misjudgments in the
course of preparing forward-looking statements or information. The information
contained under the "Risk Factors" section in our Annual Information Form and
under the "Risks and Uncertainties" section of our Management's Discussion and
Analysis identifies important factors that could cause such differences. All
written and oral forward-looking statements or information attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
the foregoing cautionary statements.
    Unless otherwise noted, the information in this discussion and analysis
is updated to August 13, 2007. All financial references are in millions of
Canadian dollars unless otherwise noted.

    
    Summary of Selected Quarterly Results

                          Three      Three      Three       Six        Six
                          Months     Months     Months     Months     Months
    (millions of          Ended      Ended      Ended      Ended      Ended
     dollars except      June 30,   March 31,  June 30,   June 30,   June 30,
     per share amounts)    2007       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Sales               $  301.1   $  276.3   $  220.0   $  577.4   $  338.2
    Export tax and
     lumber duties
     expensed           $   (5.0)  $   (4.4)  $   (5.6)  $   (9.4)  $   (9.6)
    EBITDA              $   21.1   $   23.3   $    7.7   $   44.4   $    7.6
    EBITDA margin            7.0%       8.4%       3.5%       7.7%       2.2%
    Operating income
     (loss)             $   12.9   $   13.4   $   (8.0)  $   26.3   $  (14.0)
    Interest expense    $   (5.9)  $   (6.8)  $   (9.9)  $  (12.7)  $  (21.0)
    Foreign exchange
     gain on long-term
     debt               $    6.3   $    0.7   $    9.7   $    7.0   $    8.8
    Premium and
     unamortized
     discount on bond
     redemption         $      -   $      -   $      -   $      -   $  (27.9)
    Net income (loss)
     from continuing
     operations         $   13.8   $    8.2   $   (7.5)  $   22.0   $  (54.0)
    Net income (loss)
     from discontinued
     operations         $    3.8   $   (1.0)  $   (1.9)  $    2.8   $   (9.0)
    Net income (loss)   $   17.6   $    7.2   $   (9.4)  $   24.8   $  (63.0)
    -------------------------------------------------------------------------
    Per share - basic
     and diluted:
    Net income (loss)
     from continuing
     operations         $   0.07   $   0.04   $  (0.05)  $   0.11   $  (0.63)
    Net income (loss)   $   0.09   $   0.04   $  (0.06)  $   0.12   $  (0.74)
    -------------------------------------------------------------------------
    Cash flow from
     continuing
     operations         $  (11.1)  $   28.8   $  (30.9)  $   17.7   $  (41.4)
    -------------------------------------------------------------------------
    

    Overview

    The results of operations for the quarter ended June 30, 2007 include the
legacy Cascadia operations which were acquired on May 1, 2006 and accordingly,
are not directly comparable to the comparative quarter ended June 30, 2006. In
addition, the results are also not directly comparable as the Company changed
its accounting policy for the costing of log and lumber inventories effective
January 1, 2007 on a retroactive basis without restatement of prior periods as
the detailed information required to restate is not available.
    The Company recorded net income from continuing operations of
$13.8 million ($0.07 per share) in the second quarter of 2007 compared to
$8.2 million ($0.04 per share) in the first quarter of 2007, and a loss of 
$7.5 million ($0.05 per share) in the second quarter of 2006. Net income from
continuing operations in the second quarter of 2007 benefited from gains from
the sale of several non-core assets totaling $4.2 million and a foreign
exchange gain of $6.3 million on the translation of the Company's long-term
U.S. dollar denominated debt. EBITDA of $21.1 million in the second quarter of
2007 compared to $23.3 million in the first quarter of 2007 and $7.7 million
in the second quarter of 2006.
    The following key factors impacted the Company's EBITDA compared to the
first quarter of 2007:

    
    Negative impact:

    -   Lower realized lumber prices - the strengthening of the Canadian
        dollar against both the U.S. dollar and Japanese Yen during the
        quarter and changes in product mix resulted in lower realized prices
        and an increase in period end lumber lower-of-cost-and-market
        inventory write-downs.

    -   Lower realized log prices - changes in product mix during the quarter
        to lower value logs as the proportion of pulp log sales increased and
        cedar shingle log sales decreased.

    -   Increased pulp log production - pulp log production increased to more
        normal levels compared to the first quarter as logging resumed at
        higher elevations. Pulp logs are written down to market value as they
        are produced.

    Positive impact:

    -   Increased lumber sales volume - lumber sold increased to 273 million
        board feet in the second quarter of 2007, compared to 251 million
        board feet in the first quarter of the year. The increase is mainly
        due to increased product available for sale, as operations recovered
        from log supply issues that affected total lumber production in the
        first quarter.

    -   Reduced mill conversion costs - conversion costs decreased from the
        first quarter of 2007 primarily as a result of the impact of the 10%
        increase in lumber production as well as the effect of ongoing cost
        reduction efforts.

    -   Higher by-product revenues - increased lumber production during the
        quarter resulted in higher by-product volumes and revenues. By-
        product pricing was marginally lower in the quarter as a result of
        lower Canadian dollar NBSK pulp prices.
    

    The primary reasons for the increase in EBITDA from the second quarter of
2006 are the increased margins achieved on the Company's lumber sales due to a
change in mix to higher value products and stronger cedar prices, higher
by-product and certain log sort prices, higher volumes sold and the
realization of operating efficiencies from the combined operations.
    The contract with the United Steelworkers Union, which represents the
majority of the Company's hourly work-force, expired on June 15, 2007.
Negotiations between the Union and Forest Industrial Relations Ltd., an
industry association which represents the Company and 30 other coastal
forestry companies, ended after several months of talks and the Union
commenced strike action on July 21, 2007. The majority of the Company's
operations are impacted by the strike. A number of small contracted
timberlands operations remain operational, and depending on fibre
availability, one sawmill, the Company's remanufacturing, value-added, and
custom cut operations will continue producing lumber.

    
    Continuing Operations

                          Three      Three      Three       Six        Six
                          Months     Months     Months     Months     Months
    (millions of          Ended      Ended      Ended      Ended      Ended
     dollars except      June 30,   March 31,  June 30,   June 30,   June 30,
     where noted)          2007       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Lumber sales        $  210.0   $  205.2   $  158.1   $  415.2   $  245.3
    Log sales               72.9       55.6       49.0      128.5       72.7
    By-product sales        18.2       15.5       12.9       33.7       20.2
                       ------------------------------------------------------
                        $  301.1   $  276.3   $  220.0   $  577.4   $  338.2
                       ------------------------------------------------------

    Lumber production
     - millions of
      board feet             277        251        250        528        403
    Lumber sales -
     millions of board
     feet                    273        251        243        524        407

    Log production -
     thousands of cubic
     metres                2,016      1,601      1,898      3,617      2,560
    Log purchases -
     thousands of cubic
     metres                  359        194        143        554        243
    Log sales -
     thousands of cubic
     metres                  943        650        605      1,593        867
    Internal log
     consumption -
     thousands of cubic
     metres                1,176      1,081      1,031      2,257      1,681

    Average lumber
     sales revenue per
     thousand board
     feet               $    769   $    818   $    648   $    792   $    602

    Average log sales
     revenue per cubic
     metre              $     77   $     86   $     81   $     83   $     83
    


    Lumber production and sales volumes both increased by approximately 10%
in the second quarter of 2007 compared to the first quarter as a result of
increased fibre availability as log harvesting returned to more normal
seasonal levels.
    The average net lumber price realized in the second quarter decreased to
$769 per thousand board feet compared to $818 per thousand board feet in the
first quarter. The impact of the increase in the value of the Canadian dollar
compared to the U.S. dollar and Japanese Yen more than offset pricing gains
for cedar and cypress lumber products. The average U.S. dollar exchange rate
in the second quarter of 2007 was $1.0983 compared to $1.1725 in the first
quarter. In addition, changes in the mix of lumber sold to lower value
products impacted the overall price realized. Sales volumes of higher-value
cedar and hemlock lumber products were both negatively impacted by a shortage
of the required log types. The Company's helicopter logging production
program, which is required to reach some of the higher elevation timber stands
where these logs are typically harvested, was less than planned due to the
lack of availability of heavy-lift helicopters. There is currently a
world-wide shortage of this type of helicopter and although our helicopter
logging had increased subsequent to the second quarter and prior to the strike
we may be vulnerable to future availability issues.
    The cedar market continued to be well-supported during the quarter with
demand exceeding supply, resulting in average cedar lumber prices increasing
from the first quarter. Demand and pricing also continued to be firm in
Japanese markets for most of the second quarter, although this market has
since weakened due to oversupply as some U.S. Douglas fir production shifted
to Japan, and an easing in housing starts. The U.S. structural dimension
market, which represents approximately 25% of the Company's lumber sales
volumes, continues to be under pressure. Prices increased to some extent in
the second quarter compared to the first quarter as supply was reduced,
however both demand and pricing have since fallen back.
    The Company continued to pay Export tax at the 15% rate on its lumber
shipments into the U.S. as a result of the weak prices. The export tax rate
varies according to the price of lumber based on the "Random Lengths Framing
Lumber Composite Index" (Index) and ranges from zero percent when the Index is
above U.S.$355 per thousand board feet to 15% when the Index is under
U.S.$315 per thousand board feet. The U.S. government has referred a number of
disputes with the Canadian government relating to the interpretation of the
Softwood Lumber Agreement to binding arbitration as provided for by the
agreement. Included in the disputes referred to arbitration is a U.S.
interpretation that the agreement provides for the application of the "surge
look-back mechanism" to the B.C. interior and coastal regions based on
comparing the actual U.S. consumption for the period to the expected U.S.
consumption used to forecast the surge limits. If the arbitrator finds in
favour of the U.S. position, while there would be no retroactive effect on the
coastal region to date as the coast has not shipped in excess of the limits,
it could result in changes to the volume of lumber the Company is able to ship
in the future and increased exposure to the possibility of higher export taxes
through the surge mechanism.
    Log production increased to 2,016,000 cubic metres in the second quarter
of 2007, a 26% increase over first quarter production of 1,601,000 cubic
metres as log harvesting moved into the higher elevations that were largely
inaccessible due to winter conditions during the first quarter.
    Log sales volumes increased to 943,000 cubic metres at an average selling
price of $77 per cubic metre in the second quarter compared to 650,000 cubic
metres at $86 per cubic metre in the first quarter of 2007. The increase in
volume is primarily due to higher purchases and subsequent re-sale of small
saw logs and pulp logs to various pulp and paper companies under long-term
fibre commitments. In addition, the percentage of small saw logs and pulp logs
being produced by our timberlands operations increased as a result of
harvesting more mature growth stands. The decrease in the average sales price
of logs reflects the change in the mix of logs sold, with a lower percentage
of higher-value cedar shingle logs and a higher percentage of pulp logs, and
the impact of the increased re-sale of small saw and pulp logs.

    Discontinued Operations

    There was income from discontinued operations during the second quarter
of 2007 of $3.8 million compared to a loss of $1.0 million in the first
quarter of 2007 and a loss of $1.9 million in the second quarter of 2006. The
income results from the sale of the majority of the former Squamish pulp mill
equipment and spare parts for $5.5 million resulting in a gain of
$5.2 million. Partly offsetting the gain is an additional provision for site
clean-up costs and the continuing cost of maintaining the site. The Company is
developing plans to remove the pulp mill and associated infrastructure and
remediate the site while continuing to work with parties interested in
acquiring the property.

    Other Corporate Items

    Selling and administration expense decreased to $10.5 million in the
second quarter compared to $10.8 million in the first quarter of 2007, and
$10.3 million in the second quarter of 2006. The decrease from the first
quarter is primarily due to reduced corporate spending as integration
activities near completion.
    Interest expense decreased to $5.9 million in the second quarter of 2007
compared to $6.8 million in the first quarter of 2007 and $9.9 million in the
second quarter of 2006. The decrease is attributable to the reduction in the
Company's long-term debt outstanding as it paid down U.S.$88.0 million of the
U.S. dollar-denominated debt in November 2006 and a further U.S.$21.8 million
in March of 2007. In addition, the interest rate on the same debt was reduced
in March 2007 to LIBOR plus 3% from LIBOR plus 8.15%.
    The $6.3 million gain in the quarter on translation of the United States
dollar-denominated portion of the Company's long-term debt compared to a gain
of $0.7 million in the first quarter of 2007 and is the result of the
strengthening of the Canadian dollar at the quarter-end. This compares to a
gain of $9.7 million in the second quarter of 2006, when the U.S. denominated
debt outstanding was U.S.$109.8 million higher.

    
    Changes in Financial Position and Liquidity

                          Three      Three      Three       Six        Six
                          Months     Months     Months     Months     Months
    (millions of          Ended      Ended      Ended      Ended      Ended
     dollars except      June 30,   March 31,  June 30,   June 30,   June 30,
     where noted)          2007       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash flow from
     continuing
     operations         $  (11.1)  $   28.8   $  (30.9)  $   17.7   $  (41.4)
    Cash provided (used)
     by investing
     activities         $   (1.0)  $    8.7   $ (227.4)  $    7.7   $ (194.3)
    Cash provided (used)
     by financing
     activities         $   (1.0)  $  (31.5)  $  281.6   $  (32.5)  $  242.1
    Additions to
     property, plant
     and equipment      $   (3.9)  $   (4.1)  $   (6.3)  $   (8.0)  $   (7.7)
    Additions to
     capitalized roads  $   (4.3)  $   (3.1)  $   (4.8)  $   (7.4)  $   (7.0)
    Change in revolving
     credit facility    $      -   $   (3.6)  $   (8.6)  $   (3.6)  $  (80.0)
    Total liquidity(1)  $  175.0   $  158.5   $  116.6   $  175.0   $  116.6
    Financial ratios:
    Current assets to
     current liabilities    1.74       1.67       2.90       1.74       2.90
    Net debt to
     shareholders
     equity                 0.30       0.29       1.58       0.30       1.58
    Net debt to market
     capitalization         0.32       0.32       1.35       0.32       1.35

    (1) Total liquidity comprises cash and cash equivalents and available
        credit under the Company's revolving credit facility.
    

    Cash flow from continuing operations in the second quarter of 2007 was
negative $11.1 million compared to positive $28.8 million in the first quarter
of 2007 and negative $30.9 million in the second quarter of 2006. Cash flow
from continuing operations before the change in non-cash working capital items
was $16.3 million in the second quarter of 2007 compared to $18.5 million in
the first quarter of 2007, and negative $5.2 million in the second quarter of
2006, the decrease being attributable to the decreased EBITDA. Cash flow from
continuing operations has been impacted by the increase in inventory during
the quarter and first six months of 2007 which has consumed cash of
$27.5 million and $25.2 million, respectively, as logging and log inventories
have returned to more normal levels.
    Additions to property, plant and equipment of $3.9 million in the second
quarter of 2007 primarily relate to upgrades at the Company's Cowichan Bay,
Duke Point, Nanaimo and Saltair sawmills. Spending on capitalized logging
roads in the first six months of 2007 has been lower than planned primarily as
a result of the slow start to full logging operations caused by the snow pack.
Depending on the length of the labour disruption, some of the under-spending
in the first six months may be made up in the balance of the year.
    During the quarter, the Company sold a number of its non-core assets,
including its former log merchandiser, for cash proceeds of $8.2 million. It
also received a $1.2 million advance payment for sale of pulp mill equipment
and spare parts, which amount is included in discontinued operations. A
further $4.3 million will be received from the sale of the pulp mill equipment
as it is removed from the site.
    Financing activities in the second quarter of 2006 include the receipt of
the proceeds of the Company's rights offering through the issuance of
178.8 million subscription receipts plus interest for a total of
$294.9 million. The subscription receipts were converted into 94.2 million
Common Shares and 84.6 million Non-Voting Shares of the Company. Investing
activities for the same period includes $216.3 million that was paid, net of
the $3.8 million cash acquired, for the acquisition of Cascadia Forest
Products Ltd.
    At June 30, 2007 the Company had cash of $32.6 million and availability
under its secured revolving credit facility of $142.4 million.

    Selected Quarterly Information

    To assist shareholders and other readers in understanding our business,
we have included as Appendix A to the MD&A a table of the financial results
and operating data for the Company for the last eight quarters.
    In a normal operating year, there is some seasonality to the Company's
operations with higher lumber sales in the second and third quarters as
construction activity, particularly in the U.S., has historically tended to be
higher. Logging activity may also vary depending on weather conditions due to
rain, snow and ice in the winter and the threat of forest fires in the summer.

    Changes in Accounting Policies

    Inventories

    On January 1, 2007 the Company changed its accounting policy for the
costing of log and lumber inventories to better reflect its new management
operating philosophy. Under the new policy, costs of production for products
produced jointly as a result of the same production process are allocated
according to the value of those products. This compares to the former policy
which allocated costs based on volumes produced. Given the variety of products
produced by the Company from similar raw materials and processes, the new
approach better recognizes the contribution to the Company's earnings of the
underlying products produced.
    Under the new policy, log production costs are allocated to logs produced
based on their relative market values, except for pulp logs that will continue
to be carried at market due to the significant difference between the market
value of pulp logs compared to production costs. Previously, the Company
carried all saw logs at the same actual unit production cost which was based
on the total costs of production divided by the total volume of production.
Under the new policy, lumber production costs will now also be allocated to
production units based on their relative market values. Lumber was previously
carried at an average cost of production which was determined by actual
production costs divided by production volumes. For both logs and lumber,
inventories are valued at the lower of cost determined under the new policy
and net realizable value, which is consistent with the previous policy.
    This new accounting policy was implemented effective January 1, 2007 on a
retrospective basis without restatement of prior periods and results in
inventory increasing by $11.9 million to $227.6 million from $215.7 million
and the deficit decreasing to $100.1 million from $112.0 million as at
December 31, 2006. Prior periods have not been restated as the detailed
information required to implement the new policy on a retrospective basis is
not available. The change in policy has increased inventory carrying amounts
as higher value cedar and to a lesser extent cypress lumber and log
inventories are now carried at higher amounts than they would have been under
the previous policy. Conversely, hemlock lumber and log inventories are
carried at relatively similar amounts compared to what they were carried at
under the previous policy as they were generally already written down to
market values.

    Financial instruments

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

    
    -   Section 1530 - Comprehensive Income

    -   Section 3251 - Equity

    -   Section 3855 - Financial instruments - Recognition and Measurement

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

    -   Section 3865 - Hedges
    

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

    Internal Control over Financial Reporting

    In 2006, following the acquisitions of Cascadia and Englewood, the
Company initiated projects to consolidate and standardize its business systems
and processes including its log, lumber, payroll and general ledger accounting
systems. This process was largely completed with respect to the log and
payroll systems during 2006. The new general ledger accounting system was
implemented on January 1, 2007 and replaces three general ledger systems
previously used by the Company. In addition to the new general ledger system
the Company implemented a new accounting policy with respect to the costing of
its inventories and a new chart of accounts covering all of its operations.
These system implementations have been accompanied by new processes and
procedures. The process is ongoing with respect to the new lumber systems. The
Company identified weaknesses in internal controls during the first quarter
relating to the implementation of the new systems and related accounting
processes and procedures. Management has implemented additional manual
procedures to compensate for the weaknesses and corrective actions are now
being implemented to provide reasonable assurance that the controls operate
effectively in future periods. Other than these system and process changes,
the CEO and CFO confirm that there were no changes in the controls which
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

    Risks and Uncertainties

    Our business is subject to a number of risks and uncertainties, including
those described in our 2006 Annual Report and Annual Information Form, all of
which can be found on the System for Electronic Document Analysis and
Retrieval (SEDAR), at http://www.sedar.com. Any of the risks and uncertainties
described in the above-noted documents could have a material adverse affect on
our operations and financial condition and cash flow and, accordingly, should
be carefully considered in evaluating our business.

    Proposed Regulatory and First Nations Land Claims Developments

    On May 24, 2007 the Forest Minister for British Columbia stated in a
press interview that policy changes to improve the competitiveness of the
Coastal British Columbia forest industry would be announced. Amongst the
potential policies stated were a faster shift to second growth logging from
old growth logging including more intensive management of second growth
stands, additional restrictions on exporting old growth logs from public
lands, and possible changes to export policies affecting private land logs.
The Company is not in a position to analyze the impact of the proposed policy
changes on its operations until they are announced.
    On May 31, 2007 the government of British Columbia announced that it had
initialed a draft Strategic Land Use Agreement ("SLUA") with the Council of
the Haida Nation dealing with land use and resource management issues in the
Haida Gwaii or Queen Charlotte Islands. Amongst other things, the draft
agreement recommends permanent protection for approximately 225,000 hectares
of land on the Islands for natural, cultural, spiritual and recreational
values and a timber harvest of at least 800,000 cubic metres annually. The
SLUA is the result of ongoing negotiations between the Province and the Haida
Nation. The provincial government and the Haida intend to hold public meetings
and consultations before assembling final recommendations for ratification. As
previously disclosed, the Company currently has an Allowable Annual Cut in the
Queen Charlotte Islands of 510,000 cubic metres, having been temporarily
reduced from 803,000 cubic metres by the provincial Chief Forester. The
Company is not able to determine the nature or extent of the final
recommendations, whether they will be ratified and the impact on the Company.
(See - Risk Factors - First Nations Land Claims in Western's 2006 Annual
Information Form for further information on the risk of First Nations Land
Claims).

    Outlook and Strategy

    The outlook for the second half of 2007 is dependent on the duration of
the strike action by the United Steelworkers Union. While the Company will
sell lumber from inventory on hand to the extent possible and will continue
operating at locations not affected by the strike for as long as logs are
available, the majority of its operations will be inactive and cash flow will
be impacted accordingly.
    Markets for the Company's cedar products are expected to remain strong
over the balance of the year. Shortages in the market due to lack of supply
and the normal seasonal demand are the primary factors. The Company has seen a
weakening in the Japanese market over the last two months due to an easing in
housing starts and continuing high lumber inventory levels. Prior to the
strike, the Company had taken action to reduce the production of lumber
products typically destined for the Japanese market. The U.S. dimension lumber
market is not expected to show any improvement over the rest of the year. The
decision by the U.S. government to send the dispute over the interpretation of
the Softwood Lumber Agreement relating to the retroactive application of the
surge mechanism to arbitration would, if ruled in the U.S.'s favour, could
result in changes to the volume of lumber the Company is able to ship in the
future and increased exposure to the possibility of higher export taxes
through the surge mechanism.
    The rate of stumpage paid to the British Columbia government as
compensation for harvesting on Crown land, which is adjusted quarterly,
increased on July 1, 2007 in response to higher log prices during the second
quarter. A revised Coast market-based pricing system was introduced on June 1,
2007 and will be effective for all new cutting permits. The new system is
considered to be more statistically accurate, better reflecting market
reaction and bidding behaviour for logs, and should provide a more accurate
stumpage charge in times of changing market conditions.
    Beyond the effect of the strike, current expectations are that the
Company's results for the second half of the year will be influenced by a
number of factors compared to the first half of the year including: the weaker
Japanese markets noted above; the high value of the Canadian dollar relative
to the U.S. dollar and Japanese Yen; the higher stumpage rates; and the impact
of normal down-time during the summer (forest fire hazard) and winter
(snowfall curtailments) periods. Offsetting these negative factors to some
extent is the Company's growing ability to quickly respond to market
conditions as well as the continuing improvements in productivity, cost
reduction initiatives and the positive effects of the recent investments in
the Cowichan Bay and Saltair sawmills.
    The Company is continuing to work on selling its non-core assets. With an
estimated value of between $150.0 million and $180.0 million including the
assets sold in the second quarter, these assets include approximately
4,000 hectares of the higher and better use component of the Company's private
lands on Vancouver Island, which are being actively marketed with a potential
sales horizon for a portion of the lands in late 2007 or early 2008. In
addition, the site of the former New Westminster sawmill is being cleared and
readied for sale.

    Outstanding Share Data

    As of August 13, 2007, there are 119,842,359 Common Shares and 84,571,206
Non-Voting Shares issued and outstanding.
    In addition, the Company has 569,373 Tranche 1 Class C Warrants, 854,146
Tranche 2 Class C Warrants, and 1,423,743 Tranche 3 Class C Warrants
(collectively, the "Class C Warrants") outstanding. The Company has reserved
up to 2,847,262 Common Shares for issuance upon the exercise of the Class C
Warrants. It has also reserved 10,000,000 Common Shares for issuance upon the
exercise of options granted under the Company's incentive stock option plan.
As of August 13, 2007, 2,288,060 options have been granted under the Company's
incentive stock option plan.

    Other Matters

    As a result of the rights offering of subscription receipts to all
shareholders and their subsequent conversion to Common Shares and Non-Voting
Shares, Tricap Management Limited ("Tricap") owns 49% of the Company's Common
Shares and 100% of the Non-Voting Shares. By virtue of the Brookfield Asset
Management Inc. ("BAM") voting arrangements with Tricap, BAM is related to the
Company. In addition to the transactions identified elsewhere in this report,
the Company has certain arrangements with entities related to BAM to acquire
and sell logs, lease certain facilities, provide access to roads and other
areas, and acquire other services including insurance, all in the normal
course and at market rates or at cost. During the period from March 31, 2007
to June 30, 2007, the Company paid and charged entities related to BAM
$8.5 million and received $3.7 million in connection with these arrangements.

    
                     On behalf of the Board of Directors

    John MacIntyre                    Reynold Hert
    Chairman                          President and Chief Executive Officer

    Duncan, BC
    August 13, 2007



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


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

                       ------------------------------------------------------
    Average Exchange
     Rate - Cdn $
     to purchase one
     U.S. $             $1.0983   1.1725   1.1277   1.1178   1.1292   1.1462
    Sales
      Lumber            $ 210.0    205.2    217.8    214.0    158.1     87.2
      Logs                 72.9     55.6     44.6     44.8     49.0     23.7
      By-Products          18.2     15.5     16.7     20.7     12.9      7.3
                       ------------------------------------------------------
                        $ 301.1    276.3    279.1    279.5    220.0    118.2
                       ------------------------------------------------------
                       ------------------------------------------------------

    Lumber
      Production -
       millions of
       board feet           277      251      271      326      250      153
      Sales - millions
       of board feet        273      251      278      291      243      164
    Logging
      Production -
       m3 (000's)         2,016    1,601    1,585    1,617    1,898      662
      Purchases -
       m3 (000's)           359      194      242      169      143      100
      Sales -
       m3 (000's)           943      650      625      592      605      262
      Internal
       consumption -
       m3 (000's)         1,176    1,081    1,138    1,350    1,031      650
    Sales prices
      Lumber - per
       thousand
       board feet       $   769      818      782      739      648      533
      Logs - per
       cubic metre      $    77       86       71       76       81       90

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

    Discontinued pulp
     operations
      Sales             $     -        -        -        -     (0.1)      20
      Income (loss)     $   3.8     (1.0)    (1.0)    (0.8)    (1.9)    (7.1)
      Pulp production -
       tonnes (000's)         -        -        -        -        -       18
      Pulp sales -
       tonnes (000's)         -        -        -        -        -       34
      Pulp sales price
       per tonne        $     -        -        -        -        -      586

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

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

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

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


                              2005
                       ------------------
    (millions of
     dollars except
     per share amounts
     and where noted)     4th      3rd
                       ------------------

                       ------------------
    Average Exchange
     Rate - Cdn $
     to purchase one
     U.S. $              1.1703   1.2122
    Sales
      Lumber               91.3     88.2
      Logs                 25.5     22.2
      By-Products           3.6      5.9
                       ------------------
                          120.4    116.3
                       ------------------
                       ------------------

    Lumber
      Production -
       millions of
       board feet           127      150
      Sales - millions
       of board feet        166      165
    Logging
      Production -
       m3 (000's)           822      465
      Purchases -
       m3 (000's)            87      147
      Sales -
       m3 (000's)           212      172
      Internal
       consumption -
       m3 (000's)           590      719
    Sales prices
      Lumber - per
       thousand
       board feet           549      535
      Logs - per
       cubic metre          120      129

    Net income (loss)
     from continuing
     operations           (10.5)    (8.2)

    Discontinued pulp
     operations
      Sales                40.6     40.4
      Income (loss)       (74.1)    (4.3)
      Pulp production -
       tonnes (000's)        71       69
      Pulp sales -
       tonnes (000's)        69       71
      Pulp sales price
       per tonne            582      573

    Net income (loss)     (84.6)   (12.5)

    Net income (loss)
     per share from
     continuing
     operations           (0.41)   (0.32)
    Net income (loss)
     per share - basic
     and diluted          (3.30)   (0.49)

    Reconciliation of
     EBITDA to net
     income (loss)
     from continuing
     operations:
    EBITDA before
     lumber duty refund    (5.3)   (11.5)
    Lumber duty refund        -        -
                       ------------------
    EBITDA                 (5.3)   (11.5)
    Amortization of
     property, plant
     & equipment           (5.9)    (4.5)
    Restructuring &
     other items            0.6      5.9
    Interest expense      (11.5)   (11.2)
    F/X on long-term
     debt                  (0.1)    13.3
    Premium &
     unamortized
     discount                 -        -
    Interest and other
     income (expense)       1.1        -
    Income taxes           10.6     (0.2)
                       ------------------

    Net income (loss)
     from continuing
     operations           (10.5)    (8.2)
                       ------------------
                       ------------------



    Consolidated Balance Sheets (Unaudited)
    (Expressed in millions of Canadian dollars)
    -------------------------------------------------------------------------
                                                       June 30,  December 31,
                                                          2007          2006
                                                   --------------------------
                                                                   (Restated-
                                                                      note 2)
    Assets
    Current assets:
    Cash and cash equivalents                       $     32.6    $     41.6
    Accounts receivable                                   98.9         102.4
    Inventory                                            252.8         227.6
    Prepaid expenses and other assets                     10.7          12.4
                                                   --------------------------
                                                         395.0         384.0

    Property, plant and equipment                        489.0         505.4
    Other assets                                           8.4           9.0
                                                   --------------------------

                                                    $    892.4    $    898.4
                                                   --------------------------
                                                   --------------------------
    Liabilities and Shareholders' Equity
    Current liabilities:
    Revolving credit facility (note 3)              $        -    $      3.6
    Accounts payable and accrued liabilities             122.1         110.8
    Current portion of long-term debt (note 4)            99.9             -
    Discontinued operations (note 9)                       5.3           6.4
                                                   --------------------------
                                                         227.3         120.8
    Long-term debt (note 4)                               74.3         205.7
    Other liabilities                                     37.5          42.6
    Deferred revenue                                      77.4          78.4
                                                   --------------------------
                                                         416.5         447.5
    Shareholders' equity
    Common shares                                        410.6         410.6
    Non-voting shares                                    139.6         139.6
    Contributed surplus                                    1.0           0.8
    Deficit                                              (75.3)       (100.1)
                                                   --------------------------
                                                         475.9         450.9
                                                   --------------------------

                                                    $    892.4    $    898.4
                                                   --------------------------
                                                   --------------------------
    Commitments and contingencies (note 5)
    Subsequent events (notes 5 (c))

    See accompanying notes to consolidated financial statements

    Approved on behalf of the Board:

    "Reynold Hert" Director

    "John MacIntyre" Director



    Consolidated Statements of Operations, Deficit and Comprehensive
     Income (Unaudited)
    (Expressed in millions of Canadian dollars except for share and
     per share amounts)
    -------------------------------------------------------------------------
                                  Three months ended       Six months ended
                                        June 30                 June 30
                                   2007        2006        2007        2006
                              -----------------------------------------------

    Sales                      $   301.1   $   220.0   $   577.4   $   338.2

    Cost and expenses
    Cost of goods sold             245.4       179.5       465.3       274.8
    Export tax                       5.0           -         9.4           -
    Anti-dumping and
     countervailing duties             -         5.6           -         9.6
    Freight expenses                19.1        16.9        37.0        29.6
    Selling and administration      10.5        10.3        21.3        16.6
    Amortization of property,
     plant and equipment            10.8        10.8        20.7        16.7
                              -----------------------------------------------
                                   290.8       223.1       553.7       347.3
                              -----------------------------------------------

    Operating income (loss)
     before operating
     restructuring income
     (costs)                        10.3        (3.1)       23.7        (9.1)

    Operating restructuring
     income (costs) (note 8)         2.6        (4.9)        2.6        (4.9)
                              -----------------------------------------------

    Operating income (loss)         12.9        (8.0)       26.3       (14.0)

    Interest expense                (5.9)       (9.9)      (12.7)      (21.0)
    Foreign exchange gain
     on long-term debt               6.3         9.7         7.0         8.8
    Premium and unamortized
     discount on bond
     redemption                        -           -           -       (27.9)
    Interest and other income        0.5         0.5         1.7         0.1
                              -----------------------------------------------

    Income (loss) before
     income taxes                   13.8        (7.7)       22.3       (54.0)
    Income tax recovery
     (expense)                         -         0.2        (0.3)          -
                              -----------------------------------------------

    Net income (loss) from
     continuing operations          13.8        (7.5)       22.0       (54.0)
    Net income (loss) from
     discontinued operations
     (note 9)                        3.8        (1.9)        2.8        (9.0)
                              -----------------------------------------------

    Net income (loss) and
     comprehensive income
     (loss)                         17.6        (9.4)       24.8       (63.0)

    Deficit, beginning
     of period                     (92.9)     (198.7)     (112.0)     (145.1)
    Change in accounting
     policy for costing of
     inventories (note 2)              -           -        11.9           -
                              -----------------------------------------------

    Deficit, beginning of
     period as restated            (92.9)     (198.7)     (100.1)     (145.1)
                              -----------------------------------------------

    Deficit, end of period     $   (75.3)  $  (208.1)  $   (75.3)  $  (208.1)
                              -----------------------------------------------
                              -----------------------------------------------

    Net income (loss) per
     share - basic and
     diluted:
    From continuing
     operations                $    0.07   $   (0.05)  $    0.11   $   (0.63)
    From discontinued
     operations                     0.02       (0.01)       0.01       (0.11)
                              -----------------------------------------------

    Net income (loss)          $    0.09   $   (0.06)  $    0.12   $   (0.74)
                              -----------------------------------------------
                              -----------------------------------------------

    Weighted average number
     of shares outstanding
     (thousands of shares)       204,414     144,821     204,414      85,229


    See accompanying notes to the consolidated financial statements



    Consolidated Statements of Cash Flows (Unaudited)
    (Expressed in millions of Canadian dollars)
    -------------------------------------------------------------------------
                                  Three months ended       Six months ended
                                        June 30                 June 30
                                   2007        2006        2007        2006
                              -----------------------------------------------
    Cash provided by
     (used in):
    Operating activities:
    Net income (loss) from
     continuing operations     $    13.8   $    (7.5)  $    22.0   $   (54.0)
    Items not involving cash:
    Amortization of property,
     plant and equipment            10.8        10.8        20.7        16.7
    Foreign exchange (gain)
     loss on long-term debt         (6.3)       (9.7)       (7.0)       (8.8)
    Premium and unamortized
     discount on bond
     redemption                        -           -           -        27.9
    Other                           (2.0)        1.2        (0.9)        0.8
                              -----------------------------------------------
                                    16.3        (5.2)       34.8       (17.4)
                              -----------------------------------------------
    Changes in non-cash
     working capital items:
    Accounts receivable             (4.4)       20.8        (5.0)       26.0
    Inventory                      (27.5)      (32.8)      (25.2)      (13.5)
    Prepaid expenses                (0.5)       (1.2)        1.0        (1.5)
    Accounts payable and
     accrued liabilities             5.0       (12.5)       12.1       (35.0)
                              -----------------------------------------------
                                   (27.4)      (25.7)      (17.1)      (24.0)
                              -----------------------------------------------
    Cash provided (used) by
     continuing operations         (11.1)      (30.9)       17.7       (41.4)
                              -----------------------------------------------

    Investing activities:
    Additions to property,
     plant and equipment            (3.9)       (6.3)       (8.0)       (7.7)
    Additions to capitalized
     roads                          (4.3)       (4.8)       (7.4)       (7.0)
    Proceeds on disposals
     of property, plant and
     equipment                       8.2         0.2        10.0         0.2
    Restricted cash                    -           -         0.6         8.9
    Acquisition of Cascadia
     Forest Products Ltd.,
     net of cash acquired              -      (216.3)       12.5      (216.3)
    Acquisition of Englewood
     Logging Division                  -        (0.4)          -        (3.4)
    Price premium prepayment
     on long-term fibre
     agreement                         -           -           -        35.0
    Other                           (1.0)        0.2           -        (4.0)
                              -----------------------------------------------
                                    (1.0)     (227.4)        7.7      (194.3)
                              -----------------------------------------------

    Financing activities:
    Proceeds from (repayment
     of) revolving credit
     facility                          -        (8.6)       (3.6)      (80.0)
    Redemption of 15%
     Secured Bonds                     -           -           -      (275.9)
    Proceeds from term loans           -           -           -       307.8
    Repayment of term loans            -        (4.7)      (25.5)       (4.7)
    Proceeds from share
     issuance                          -       294.9           -       294.9
    Other                           (1.0)          -        (3.4)          -
                              -----------------------------------------------
                                    (1.0)      281.6       (32.5)      242.1
                              -----------------------------------------------

    Cash provided by (used in)
     discontinued operations
     (note 9)                        0.6        (2.8)       (1.9)       (3.7)
                              -----------------------------------------------
    Increase (decrease) in
     cash and cash equivalents     (12.5)       20.5        (9.0)        2.7
    Cash and cash equivalents,
     beginning of period            45.1        11.8        41.6        29.6
                              -----------------------------------------------
    Cash and cash equivalents,
     end of period             $    32.6   $    32.3   $    32.6   $    32.3
                              -----------------------------------------------
                              -----------------------------------------------

    Supplementary information:
    Non-cash item -
     Acquisition of Englewood
     Logging Division          $       -   $       -   $       -   $    45.0


    See accompanying notes to the consolidated financial statements



    Notes to Unaudited Interim Consolidated Financial Statements
    (Tabular amounts expressed in millions of Canadian dollars)

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

    1.  Significant Accounting Policies

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

    2.  Adoption of New Accounting Policies

        (a)  Financial Instruments

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

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

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

        (b)  Inventory Costing

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

        Under the new policy, log production costs are allocated to logs
        produced based on their relative market values, except for pulp logs
        that will continue to be carried at market due to the significant
        difference between the market value of pulp logs compared to
        production costs. Previously, the Company carried all saw logs at the
        same actual unit production cost which was based on the total costs
        of production divided by the total volume of production. Under the
        new policy, lumber production costs will now also be allocated to
        production units based on their relative market values. Lumber was
        previously carried at an average cost of production, which was
        determined by actual production costs divided by production volumes.
        For both logs and lumber, inventories are valued at the lower of cost
        determined under the new policy and net realizable value, which is
        consistent with the previous policy.

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

    3.  Revolving Credit Facility

        The Company has a three-year revolving credit facility, secured by
        receivables and inventory and bearing interest at prime plus 0.5%
        that expires on July 12, 2009. The size of this asset-backed facility
        is determined by the level of outstanding receivables and inventory,
        but cannot exceed $150.0 million with provision for further
        extensions up to $200.0 million, subject to lender approval. At June
        30, 2007 of the $144.5 million of the credit facility available to
        the Company, $2.1 million was used to support standby letters of
        credit, leaving a balance of $142.4 million available for future use.

    4.  Long-Term Debt


        ---------------------------------------------------------------------
                                                          As at        As at
                                                        June 30, December 31,
        (millions of dollars)                              2007         2006
        ---------------------------------------------------------------------
        Current portion of long-term debt:
        Canadian facility                             $   101.8    $       -
        Associated transaction costs                       (1.9)           -
                                                      -----------------------

                                                      $    99.9    $       -
                                                      -----------------------
                                                      -----------------------
        Long-term portion of long-term debt:
        U.S. facility (U.S. $73.5 million; 2006
         U.S. $95.3 million)                          $    78.5    $   111.0
        Canadian facility                                     -         99.5
                                                      -----------------------

                                                           78.5        210.5
        Associated transaction costs                       (4.2)        (4.8)
                                                      -----------------------
                                                      $    74.3    $   205.7
                                                      -----------------------
                                                      -----------------------

        On March 7, 2007, the Company renegotiated its U.S. dollar
        denominated term-debt with the Brookfield Bridge Lending Fund
        ("BBLF"), paying down U.S. $21.6 million to reduce the principal
        outstanding from U.S. $95.3 million to U.S. $73.7 million and
        reducing the interest rate from floating one-month LIBOR plus 8.15%
        to floating one-month LIBOR plus 3%. On March 29, 2007 a further U.S.
        $0.2 million was paid against the outstanding principal.

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

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

    5.  Commitments and Contingencies

        (a)  Litigation and Claims

        In the normal course of its business activities, the Company may be
        subject to a number of claims and legal actions that may be made by
        customers, suppliers and others in respect of which either provision
        has been made or for which no material liability is expected.

        The Company has a number of claims filed against it from logging
        contractors with respect to various operating issues. Certain of the
        claims are pending arbitration, mediation or appeal, while others
        have not yet reached this formal stage. Where the Company is not able
        to determine the outcome of these disputes no amounts have been
        accrued in these financial statements.

        (b)  Indemnity Agreement

        The Company has an obligation to indemnify an entity related to BAM
        if that entity incurs liability under a guarantee (the Guarantee)
        provided by it to a third party relating to the purchase by the
        Company of certain assets from that third party. The Guarantee is
        limited to $100 million. As security for its performance under this
        indemnity the Company has issued a debenture in favour of the related
        entity in the amount of $100 million which results in a charge over
        all of the Company's real property and all of the Company's present
        and after-acquired personal property. In the absence of any claims,
        the Guarantee terminates on May 30, 2011 and if there is no liability
        accruing to the guarantor there under at that time, the Company may
        require that the debenture be discharged.

        (c)  Long-Term Fibre Supply Agreements

        The Company has a number of long-term commitments to supply fibre to
        third parties. Certain of these agreements have minimum periodic
        volume requirements and may, in the case of a failure to supply the
        minimum volume, require the Company to source the deficiency from
        third parties at additional cost to the Company or pay the party to
        the fibre supply agreement a penalty calculated based on the
        provisions contained in the agreements.

        (d)  Allowable Annual Cut Reductions

        Allowable annual cuts continue to be revised pursuant to earlier
        announced provincial orders-in-council that temporarily put various
        coastal areas off-limits to forest development through Part 13 of the
        Forest Act. The AAC reductions were made to ensure that harvest rates
        remain at a sustainable level until land use planning is completed in
        the areas affected by the Part 13 orders.

        The Company has considered the Part 13 orders and the temporary AAC
        reductions and has factored them into the Company's short-term
        harvesting and mill production plans. If the Part 13 orders extend
        for more than four years from the date of issue or the Province's
        land use planning process results in these reductions becoming
        permanent, then the Company will have the ability to seek
        compensation from the Province for the reduced cutting rights
        thereafter.

        (e)  The Forest Revitalization Plan

        In January 2005, pursuant to terms of a settlement framework
        agreement negotiated in late 2004, the Company received $16.5 million
        in compensation for the loss of 685,216 cubic meters of AAC and 827
        hectares of timber licenses. Under this agreement, the Company also
        received an advance payment of $5.0 million towards compensation for
        improvements the Company and its predecessor made to Crown land in
        the take-back areas. Negotiations are continuing to finalize
        compensation payments for improvements.

    6.  Pension Expense

        The Company has defined benefit and defined contribution pension
        plans that cover substantially all salaried and certain hourly
        employees. The Company also contributes to hourly paid employee union
        pension plans and has health care plans covering certain hourly and
        retired salaried employees. In the three months ended June 30, 2007
        the Company recorded pension expense with respect to continuing
        operations of $6.2 million (2006 - $ 3.8 million).

    7.  Segmented Information

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

    8.  Operating Restructuring Income (Costs)

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

    9.  Discontinued Operations

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

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


                                 Three months ended         Six months ended
                                      June 30                   June 30
        ---------------------------------------------------------------------
        (millions of dollars)    2007         2006         2007         2006
        ---------------------------------------------------------------------
        Sales               $       -    $       -    $       -    $    19.9
                            -------------------------------------------------
                            -------------------------------------------------
        Net income (loss)
         from discontinued
         operations before
         income taxes             3.8         (1.9)         2.8         (9.0)

                            -------------------------------------------------
                            -------------------------------------------------
        Net income (loss)
         from discontinued
         operations         $     3.8    $    (1.9)   $     2.8    $    (9.0)

                            -------------------------------------------------
                            -------------------------------------------------
        Cash provided (used)
         by:
        Operating
         activities         $    (0.6)   $    (2.8)   $    (3.1)   $    (3.7)
        Investing
         activities               1.2            -          1.2            -
                            -------------------------------------------------
                            -------------------------------------------------
        Cash provided (used)
         by discontinued
         operations         $     0.6    $    (2.8)   $    (1.9)   $    (3.7)
                            -------------------------------------------------
                            -------------------------------------------------

        During the quarter, the Company negotiated the sale of the majority
        of the pulp mill equipment and certain spare parts for proceeds of
        $5.5 million resulting in a gain of $5.2 million. Included in the net
        loss from discontinued operations for the six months ended June 30,
        2006 is $4.5 million with respect to the cost to terminate certain
        long-term contracts.



                Head Office
              435 Trunk Road            Financial Statements on the Internet
         Duncan, British Columbia             www.westernforest.com
              Canada V9L 2P9                      www.sedar.com
            Tel: (250) 748-3711
            Fax: (250) 748-6045
     E-mail: info@westernforest.com
    





For further information:

For further information: Reynold Hert, (250) 715-2207, President & CEO;
Paul Ireland, (250) 715-2209, CFO

Organization Profile

WESTERN FOREST PRODUCTS INC.

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