Financial Highlights

For the complete Annual Report for the year ended December 31, 2010 please visit Quarterly & Annual Reports.

Selected Annual Financial Information

(in millions of dollars except where otherwise noted)	2010		2009			2008
Sales	$	268.1		$	150.3		$	163.7
Operating earnings (loss) from continuing operations		16.7			(13.0)			(14.9)
EBITDA from continuing operations		21.2			(6.9)			(10.6)
EBITDA		21.2			(7.3)			(16.0)
Net earnings (loss) from continuing operations		(60.2)			(55.4)			240.7
Net loss from continuing operations excluding unusual items1		(23.2)			(0.8)			(101.3)
Net earnings (loss)		(60.2)			(55.8)			235.3
Net loss excluding unusual items1		(23.2)			(1.2)			(106.7)
Per common share – basic and diluted (in dollars)
Net earnings (loss) from continuing operations	$	(0.70)		$	(0.71)		$	3.10
Net loss from continuing operations excluding unusual items1		(0.27)			(0.01)			(1.30)
Net earnings (loss)		(0.70)			(0.72)			3.03
Net loss excluding unusual items1		(0.27)			(0.02)			(1.37)
Total assets	$	1,275.9		$	1,264.4		$	1,300.2
Total long-term financial liabilities, excluding Series A Subordinate Notes		354.6			360.4			189.8
Interest payments on Series A Subordinate Notes held by unitholders
Paid in cash	$	-		$	-		$	84.0
Paid in kind through the issuance of additional Stapled Units		3.5			-			-

1 Net loss from continuing operations excluding unusual items and net loss excluding unusual items are non-GAAP measures. Unusual items are defined as the following, net of their associated income tax impact: (i)gain on modification of Series A Subordinate Notes; (ii) accretion expense on the Series A Subordinate Notes; and (iii) change in fair value of financial instruments held for trading. These unusual items, net of their income tax impact, are quantified in the following table:

(in millions of dollars)	2010		2009			2008
Accretion expense on Series A Subordinate Notes	$	(7.4)		$	(6.6)		$	-
Change in fair value of financial instruments held for trading		(31.5)			(54.4)			-
Gain on modification of Series A Subordinate Notes		-			-			461.6
Total unusual items		(38.9)			(61.0)			461.6
Income tax recognized on unusual items		1.9			6.4			(119.6)
Total unusual items, net of income tax	$	(37.0)		$	(54.6)		$	342.0
Total unusual items per common share – basic and diluted (in dollars)	$	(0.43)		$	(0.70)		$	4.40

2010 vs. 2009

Log revenues in 2010 of $216.8 million were a $91.1 million increase over the prior year. The volume sold during the year was 3.0 million m3; a 67% increase over 2009’s volume of 1.8 million m3. Demand for fibre in the export markets lead the recovery. Export sales volumes ended the year at 1.6 million m3; up 106% over 2009 volumes. Domestic sales of 1.4 million m3 comprised 47% of the total volume sold. Despite increases in US dollar pricing, a $0.10 increase in the Canadian dollar held Canadian realizations in check. Sales realizations ended the year at $73 per m3, a $3 per m3 increase over 2009. Production for the year totaled 2.5 million m3 versus 1.5 million m3 harvested in 2009.

Real estate sales fell slightly from the prior year with sales of $14.2 million in 2010 versus $15.1 million in 2009.

Other sales in 2010 include $31.0 million of revenue associated with TimberWest chartering its own vessels to ship to Asian markets. This revenue is a cost recovery of the amount incurred by TimberWest to charter these vessels.

Improved pricing combined with lower costs helped generate operating income of $16.7 million in 2010. This was a $29.7 million improvement over 2009’s operating loss of $13.0 million.

Interest expense in 2010 was $47.6 million, a $4.7 million increase over 2009. The increase was a result of the convertible debentures being outstanding for a full year in 2010 versus 10.5 months in 2009, plus the additional 12,000,000 Series A Subordinated Notes that were issued as part of the May 12, 2010 Stapled Unit issuance. In 2010, no cash interest payments were made on the Series A Subordinate Notes. However, the Company did pay the April 15, 2009 deferred distribution on October 15, 2010 by the issuance of 885,447 Stapled Units. In 2009 no interest was paid by cash or in kind on the Series A Subordinate Notes. During 2010, the Company recognized interest expense, before accretion expense, on the Series A Subordinate notes of $16.6 million and deferred payment of these distributions.

On the convertible debentures, the Company recorded interest expense of $14.5 million in 2010. The Company paid $7.2 million in cash and $3.5 million was paid in kind by issuing additional convertible debentures with the balance accrued for at year end. For the year ended December 31, 2009 the Company recorded interest expense of $11.9 million of which $5.2 million was paid in cash, $3.4 million was paid in kind by issuing convertible debentures, with the balance accrued for payment in kind on January 15, 2010 by issuing additional convertible debentures.

The Company generated a net loss before income taxes of $65.2 million in 2010 compared to a $117.5 million loss in 2009. Included in this loss were non cash changes to the fair value of financial instruments of $31.5 million in 2010 versus non cash changes in fair value of $54.4 million in 2009. The income tax recovery for 2010 was $5.0 million versus a recovery of $62.1 million in 2009. When the income tax recoveries are factored in, the net loss in 2010 was $60.2 million versus $55.8 million in 2009.

The Distributable cash loss in 2010 was $6.8 million versus a loss of $34.7 million in 2009.

The Company ended the year with improved liquidity and a stronger balance sheet, with net operating debt at $103.0 million, an improvement of $47.8 million from 2009.

The 2010 long-term debt, excluding the Series A Subordinate Notes, was $354.6 million, which was comprised of $106.5 million drawn on the revolving credit facility and convertible debentures with a fair market value of $248.1 million. Comparatively, the 2009 revolving credit facility was $152.6 million and convertible debentures had a fair value of $207.8 million.

Q4 2010 vs. Q4 2009

Total sales increased by $18.2 million to $62.6 million in Q4 2010 over Q4 2009 due to an increase in log sales volumes and real estate sales. Operating earnings in Q4, 2010 were $4.3 million compared to an operating loss of $3.1 million for the fourth quarter of 2009.

Continuing operations generated a net loss of $5.3 million before accretion and fair value adjustments of financial instruments net of income tax in Q4 2010 compared to Q4 2009 net earnings of $39.2 million before fair value adjustments net of tax. This variance is primarily the result of a non-cash future income tax recovery of $53.0 million recognized in Q4 2009.

Timberlands

(in millions of dollars except where otherwise noted)	Q4 2010			Q4 2009
Log sales
Domestic		$	19.1		$	22.2
Export – Asia			30.5			17.5
Export - USA			2.2			0.4
Total log sales			51.8			40.1
Freight and other sales			8.1			4.0
Total timberland sales			59.9			44.1
Log sales realizations ($/m3) - CAD
Domestic			55			59
Export – Asia			92			86
Export - USA			54			63
Total log sales realizations - CAD			72			69
Log sales realizations ($/m3) – USD
Domestic			53			54
Export – Asia			90			80
Export - USA			54			60
Total log sales realizations - USD			70			63
Log sales volume (thousand m3)
Domestic			347.5			374.5
Export – Asia			335.4			203.9
Export – USA			39.4			5.4
Total log sales volume			722.3			583.8
Log sales mix (thousand m3)
Fir			323.2			277.0
Hembal			336.4			225.9
Cedar			29.1			30.2
Other			33.6			50.7
Total log sales mix			722.3			583.8
Log production volume (thousand m3)
Public tenures			199.4			153.6
Private timberlands			486.6			456.0
Total production volume			686.0			609.6
Log production costs ($/m3)			64			62
Timberland cost of sales ($/m3)			63			64
Timberland operating margin (% of log sales)			11%			6%

Timberland log sales were $51.8 million in the fourth quarter of 2010, compared to $40.1 million in Q4 2009. The increase was a result of improvements in both prices and volumes. Based on high demand in the export markets sales volumes in Q4 2010 were 722,312 m³ versus 583,834 m³ in Q4 2009. Sales realizations of $72 per m³ in Q4 2010 was a $3 per m³ improvement over Q4 2009. The realization improvement came despite a 5% strengthening of the Canadian dollar against its American counterpart.

Other sales in Q4 2010 include $6.9 million (Q4 2009 - $1.4 million) of revenue associated with TimberWest chartering its own vessels to ship to Asian markets. This revenue is a cost recovery of the amount incurred by TimberWest to charter these vessels.

Real Estate

(in millions of dollars except where otherwise noted)	2010			2009
Sales		$	2.7		$	0.3
Price per acre ($/acre)			10,344			8,824

Real estate sales improved from the prior year with sales of $2.7 million in 2010 versus $0.3 million in 2009.

Net earnings (loss)

Operating earnings in Q4 2010 was $4.3 million. This was a $7.4 million improvement over 2009’s operating loss of $3.1 million. Q4 net earnings from continuing operations include a change in fair value of financial instruments of $46.4 million (2009 - $29.7 million), and a non-cash future income tax recovery of $1.9 million (2009 - $53.0 million).

EBITDA

EBITDA from continuing operations for the quarter ended December 31, 2010, increased to $5.7 million, compared to $(1.0) million for Q4 2009. On a per weighted average Stapled Unit basis, EBITDA from continuing operations increased to $0.06 for Q4 2010, from $(0.01) in Q4 2009.

Distributable cash

Distributable cash from continuing operations for Q4 2010 was $(3.2) million, an improvement of $6.9 million from $(10.1) million in Q4 2009.

Highlights & Significant Transactions

Financing and liquidity

On May 18, 2010 the Company successfully raised $60.0 million through a public Stapled Unit offering consisting of 12,000,000 Stapled Units at a price of $5.00 per Stapled Unit for total net proceeds of $56.8 million. Proceeds from the offering were applied to the Company’s operating credit facility.

In conjunction with this offering, the Company amended its credit agreement to allow for the payment of interest on the convertible debentures to be made in cash. The Company recommenced paying its convertible debenture interest in cash starting with the July 15, 2010 payment.

The complete terms of the revolving credit agreement, including subsequent amendments, are filed on SEDAR.

Distributions on the Stapled Units

As announced in November, 2008, the January 15, 2009 distribution payment was deferred for 27 months pursuant to the terms of the Note Indenture and all 2010 and 2009 distribution payments, payable at 2%, were deferred for 18 months. The Company has set the variable interest rate at 2% for 2011 and intends to defer distribution payments for the foreseeable future.

The deferred distribution originally payable on April 15, 2009 but deferred for 18 months became payable on October 15, 2010 and was paid in kind by issuance of 885,447 Stapled Units. Subsequent to year end, the deferred distribution originally payable on July 15, 2009 but deferred for 18 months was paid in kind on January 17, 2011 by issuance of 785,854 Stapled Units. Concurrent with the January 17, 2011 payment, the cumulative effect of the April 15, 2009 and the July 15, 2009 deferred interest payments paid by issuance of Stapled Units on October 15, 2010 and January 17, 2011, respectively, was 1.8% and resulted in a conversion price adjustment from $3.50 to approximately $3.44 on the convertible debentures under the conversion price privilege. In April, 2011, the Company will pay deferred distributions in the amount of $24.5 million by issuing additional Stapled Units. The issuance of these additional Stapled Units will result in a further reduction to the conversion price of the convertible debentures. The Company will determine on a quarterly basis as to whether deferred distributions will be paid in cash or by the issuance of additional Stapled Units.

Strategic Land Acquisition

Subsequent to year end, on February 9, 2011, the Company has agreed to acquire 7,678 hectares of private timberland located adjacent to the Company’s existing private timberlands on southern Vancouver Island from Western Forest Products Inc. The purchase price is $21.9 million and will be funded through the Company’s existing credit facility. Closing is subject to customary conditions.

Unit Distribution History

Since inception through 2010, TimberWest has distributed approximately $883.9 million to unitholders.

2010:	$3.5 million distributed paid in kind (payment of April 15, 2009 deferred distribution, paid by the issuance of additional Stapled Units); $15.0 million deferred, or $0.18 per unit
2009:	$31.5 million deferred, or $0.40 per unit
2008:	$84.0 million distributed, or $1.08 per unit
2007:	$83.6 million distributed, or $1.08 per unit
2006:	$83.6 million distributed, or $1.08 per unit
2005:	$83.1 million distributed, or $1.08 per unit
2004:	$82.3 million distributed, or $1.08 per unit
2003:	$82.1 million distributed, or $1.08 per unit
2002:	$78.9 million distributed, or $1.08 per unit
2001:	$69.9 million distributed, or $1.08 per unit
2000:	$73.2 million distributed, or $1.08 per unit
1999:	$75.0 million distributed, or $1.08 per unit
1998:	$73.6 million distributed, or $1.06 per unit
1997:	$11.1 million distributed, or $0.325 per unit

*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 this measure will enhance an investor's understanding of the Company's operating performance. A reconciliation of net earnings as determined in accordance with GAAP and these measures is provided in the Company's 2009 Annual Report.