Canfor Reports Results for Fourth Quarter of 2012

Canfor Reports Results for Fourth Quarter of 2012 
VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 02/14/13 -- Canfor
Corporation (TSX:CFP) today reported net income attributable to
shareholders ("shareholder net income") of $21.6 million, or $0.15
per share, for the fourth quarter of 2012, compared to $22.2 million,
or $0.16 per share, for the third quarter of 2012 and a shareholder
net loss of $44.1 million, or $0.31 per share, for the fourth quarter
of 2011. For the year ended December 31, 2012, the shareholder net
income was $32.1 million, or $0.22 per share, compared to a net loss
of $56.6 million, or $0.40 per share, for 2011.  
The shareholder net income for the fourth quarter of 2012 included
various items affecting comparability with prior periods, which had
an overall positive impact on the Company's results of $1.2 million,
or $0.01 per share. After adjusting for such items, the Company's
adjusted shareholder net income for the fourth quarter of 2012 was
$22.8 million, or $0.16 per share, up $7.5 million, or $0.05 per
share, from an adjusted shareholder net income of $15.3 million, or
$0.11 per share, for the third quarter of 2012, and an adjusted
shareholder net loss of $32.1 million, or $0.22 per share, for the
fourth quarter of 2011. For the year ended December 31, 2012, the
Company's adjusted shareholder net income was $26.9 million, or $0.18
per share, in contrast to an adjusted shareholder net loss of $31.7
million, or $0.22 per share, for 2011.  
The Company reported operating income of $50.1 million for the fourth
quarter of 2012, an improvement of $27.8 million from $22.3 million
reported for the third quarter of 2012. The increase was mostly
attributable to the continuing recovery in the U.S. housing market
and improved operational performance at Canfor Pulp's Northern
Bleached Softwood Kraft ("NBSK") pulp mills. North American #2&Btr
dimension lumber prices showed strong gains, particularly in
December. Pricing to offshore markets, much of which is negotiated
monthly or quarterly in advance, showed solid gains but lagged those
in North America. Results also reflected higher market stumpage and
seasonally higher manufacturing costs, as well as an accounting gain
related to the Company's salaried post retirement benefit plans.  
The following table summarizes
 selected financial information for the
Company for the comparative periods: 


 
                                                                           
(millions of dollars,                                                      
except for per share            Q4       Q3        YTD        Q4        YTD
amounts)                      2012     2012       2012      2011       2011
---------------------------------------------------------------------------
Sales                      $ 721.8  $ 683.8  $ 2,714.1  $  576.2  $ 2,421.4
Operating income (loss)    $  50.1  $  22.3  $    76.9  $ (63.2)  $    11.9
Net income (loss)                                                          
 attributable to equity                                                    
 shareholders of the                                                       
 Company                   $  21.6  $  22.2  $    32.1  $ (44.1)  $  (56.6)
Net income (loss) per                                                      
 share attributable to                                                     
 equity shareholders of                                                    
 the Company, basic and                                                    
 diluted                   $  0.15  $  0.16  $    0.22  $ (0.31)  $  (0.40)
Adjusted shareholder net                                                   
 income (loss)             $  22.8  $  15.3  $    26.9  $ (32.1)  $  (31.7)
Adjusted shareholder net                                                   
 income (loss) per share   $  0.16  $  0.11  $    0.18  $ (0.22)  $  (0.22)
---------------------------------------------------------------------------
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Lumber markets ended the year with one of the strongest price rallies
in recent years supported by an improved U.S. housing market combined
with strong demand from offshore markets. Building off the positive
trend experienced earlier in the year, the U.S. housing market
continued to strengthen through the fourth quarter. Total U.S.
housing starts averaged 898,000 units SAAR (seasonally adjusted
annual rate), up 16% from the previous quarter, ending the year at
954,000 units SAAR in December, the highest monthly starts since
mid-2008. Canadian housing starts decreased 8% from the third quarter
of 2012 to 204,000 units SAAR reflecting seasonally slower activity
and recent tightening of Canadian mortgage lending rules. Solid
demand in China and Japan supported increases in offshore shipments
in the final quarter of 2012, particularly China, where the Company's
shipments for 2012 reached a new record-high. Global softwood pulp
markets improved slightly through the fourth quarter of 2012, with
increased softwood pulp purchases from China helping to offset weaker
shipments to North America and Europe.  
The average North American benchmark Western Spruce/Pine/Fir ("SPF")
2x4 #2&Btr price rose sharply in the latter part of the quarter. On
average, Western SPF 2X4 #2&Btr prices moved up 12% to US$335 per
Mfbm, with strong increases seen in other dimensions during the
quarter, while lower grades saw more modest price increases and in
the case of machine stress rated ("MSR") and stud grades, prices
weakened slightly quarter-over-quarter. Prices for Southern Yellow
Pine ("SYP") products also showed strong gains, with the benchmark
SYP 2x4 price averaging US$386 per Mfbm, up 20% from the previous
quarter of 2012. North American sales realizations in the quarter
lagged benchmark levels due largely to a steep increase in prices
close to year end. Sales realizations for offshore Western SPF lumber
products saw solid gains in the current quarter, but lagged North
American pricing gains, reflecting the nature of pricing, much of
which is negotiated monthly or quarterly in advance. 
Lumber production, at just over 1.1 billion board feet, was broadly
in line with the previous quarter. Lumber unit manufacturing costs
were up compared to the previous quarter reflecting both unit log and
production cost increases. Increased log costs primarily reflected
increased market stumpage and hauling costs while increased unit
production costs resulted primarily from seasonal cost increases and
the restart of the Company's Radium sawmill.  
NBSK pulp list prices showed a modest improvement in the fourth
quarter. The average list price for North America was up US$10 to
US$863 per tonne, with slightly higher prices seen in other regions.
Overall, however, pulp sales realizations moved up only marginally in
the fourth quarter of 2012 as a result of increased volumes to
lower-margin regions, principally China.  
Increased pulp shipments and production for the fourth quarter of
2012 reflected improved operating rates after the operational
challenges faced in the previous quarter. Pulp unit manufacturing
costs were down from the previous quarter in part reflecting the
higher production volumes and lower fibre costs, partially offset by
the impact of one-time costs associated with new collective labour
agreements in the third quarter of 2012. 
The Company continued to preserve its strong financial position,
ending the year with net debt to capitalization of 19.9% and $413
million available under its operating loans. During the fourth
quarter of 2012, Canfor Pulp obtained a new $110 million operating
loan facility replacing its previous $40 million operating loan
facility.  
Commenting on the fourth quarter performance, Canfor's President and
CEO, Don Kayne, said, "The improvement in lumber sales realizations
reflected the encouraging continued growth in global demand for
softwood lumber products." Kayne added that the Company was
continuing its focus on making high-return strategic capital
investments as highlighted by the recently announced capital upgrades
at its Elko and Mackenzie operations. "These two projects along with
the start-up of our upgraded Radium mill early in the fourth quarter
demonstrate our ongoing commitment to expand our capacity to provide
high quality products to our customers," said Kayne. Regarding the
pulp and paper segment's fourth quarter results, Kayne said, "After
last quarter's challenges at the Canfor Pulp facilities, it was
encouraging to see solid improvements in productivity, as well as
some improvement in market conditions this quarter."  
Looking ahead, the U.S. market is projected to continue its gradual
recovery. Rising housing prices, an improved job market, and an
increase in household formations will support an improved housing
market. Repair and remodel markets will also be significantly
impacted by the same fundamentals. Canadian markets are anticipated
to be flat through 2013, with softness projected in multi-family
urban markets, but stable demand from other sectors. Offshore markets
are forecast to also improve in 2013. NBSK pulp prices are projected
to show a modest improvement through the first half of 2013, but the
outlook for the balance of the year is more uncertain given the
economic challenges in Europe and new hardwood and softwood pulp
capacity currently projected to come online the second half of 2013.
Canfor Pulp announced an increase in the North American NBSK pulp
list price of US$30 per tonne in January 2013.  
Additional Information and Conference Call  
A conference call to discuss the fourth quarter's financial and
operating results will be held on Friday, February 15, 2013 at 7:30
AM Pacific time. To participate in the call, please dial 416-340-2216
or Toll-Free 866-226-1792. For instant replay access until March 1,
2013, please dial 800-408-3053 and enter participant pass code
7426712#. The conference call will be webcast live and will be
available at www.canfor.com. This news release, the attached
financial statements and a presentation used during the conference
call can be accessed via the Company's website at
http://www.canfor.com/investor-relations/webcasts.  
Forward Looking Statements 
Certain statements in this press release constitute "forward-looking
statements" which involve known and unknown risks, uncertainties and
other factors that may cause actual results to be materially
different from any future results, performance or achievements
expressed or implied by such statements. Words such as "expects",
"anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of
such words and similar expressions are intended to identify such
forward-looking statements. These statements are based on
management's current expectations and beliefs and actual events or
results may differ materially. There are many factors that could
cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future
results expressed or implied by such statements. Forward-looking
statements are based on current expectations and the Company assumes
no obligation to update such information to reflect later events or
developments, except as required by law.  
Canfor is a leading integrated forest products company based in
Vancouver, British Columbia (BC) with interests in BC, Alberta,
Quebec, and North and South Carolina. The Company produces primarily
softwood lumber and also produces oriented strand board (OSB),
remanufactured lumber products, specialized wood products and
bleached chemi-thermo mechanical pulp (BCTMP). Canfor also owns a
50.2% interest in Canfor Pulp Products Inc., which is one of the
largest producers of northern softwood kraft pulp in Canada and a
leading producer of high performance kraft paper. Canfor shares are
traded on the Toronto Stock Exchange under the symbol CFP. 
Canfor Corporation 
Fourth Quarter 2012  
Management's Discussion and Analysis 
This interim Management's Discussion and Analysis ("MD&A") provides a
review of Canfor Corporation's ("Canfor" or "the Company") financial
performance for the quarter ended December 31, 2012 relative to the
quarters ended September 30, 2012 and December 31, 2011, and the
financial position of the Company at December 31, 2012. It should be
read in conjunction with Canfor's unaudited interim consolidated
financial statements and accompanying notes for the quarters ended
December 31, 2012 and 2011, as well as the 2011 annual MD&A and the
2011 audited consolidated financial statements and notes thereto,
which are included in Canfor's Annual Report for the year ended
December 31, 2011 (available at www.canfor.com). The financial
information in this interim MD&A has been prepared in accordance with
International Financial Reporting Standards ("IFRS"), which is the
required reporting framework for Canadian publicly accountable
enterprises. 
Throughout this discussion, reference is made to Operating Income
before Amortization which Canfor considers to be a relevant indicator
for measuring trends in the performance of each of its operating
segments and the Company's ability to generate funds to meet its debt
repayment and capital expenditure requirements. Reference is also
made to Adjusted Shareholder Net Income (Loss) (calculated as
Shareholder Net income (loss) less specific items affecting
comparability with prior periods - for the full calculation, see
reconciliation included in the section "Analysis of Specific Material
Items Affecting Comparability of Shareholder Net Income (Loss)") and
Adjusted Shareholder Net Income (Loss) per Share (calculated as
Adjusted Shareholder Net Income (Loss) divided by the weighted
average number of shares outstanding during the period). Operating
Income before Amortization and Adjusted Sha
reholder Net Income (Loss)
and Adjusted Shareholder Net Income (Loss) per Share are not
generally accepted earnings measures and should not be considered as
an alternative to net income or cash flows as determined in
accordance with IFRS. As there is no standardized method of
calculating these measures, Canfor's Operating Income before
Amortization, Adjusted Shareholder Net Income (Loss) and Adjusted
Shareholder Net Income (Loss) per Share may not be directly
comparable with similarly titled measures used by other companies.
Reconciliations of Operating Income before Amortization to operating
income (loss) and Adjusted Shareholder Net Income (Loss) to net
income (loss) reported in accordance with IFRS are included in this
MD&A.  
Factors that could impact future operations are also discussed. These
factors may be influenced by both known and unknown risks and
uncertainties that could cause the actual results to be materially
different from those stated in this discussion. Factors that could
have a material impact on any future oriented statements made herein
include, but are not limited to: general economic, market and
business conditions; product selling prices; raw material and
operating costs; currency exchange rates; interest rates; changes in
law and public policy; the outcome of labour and trade disputes; and
opportunities available to or pursued by Canfor. 
All financial references are in millions of Canadian dollars unless
otherwise noted. The information in this report is as at February 14,
2013.  
Forward Looking Statements 
Certain statements in this MD&A constitute "forward-looking
statements" which involve known and unknown risks, uncertainties and
other factors that may cause actual results to be materially
different from any future results, performance or achievements
expressed or implied by such statements. Words such as "expects",
"anticipates", "projects", "intends", "plans", "will", "believes",
"seeks", "estimates", "should", "may", "could", and variations of
such words and similar expressions are intended to identify such
forward-looking statements. These statements are based on
management's current expectations and beliefs and actual events or
results may differ materially. There are many factors that could
cause such actual events or results expressed or implied by such
forward-looking statements to differ materially from any future
results expressed or implied by such statements. Forward-looking
statements are based on current expectations and the Company assumes
no obligation to update such information to reflect later events or
developments, except as required by law. 
FOURTH QUARTER 2012 OVERVIEW  
Selected Financial Information and Statistics(1) 


 
                                                                           
(millions of dollars,                                                      
except for per share            Q4        Q3        YTD        Q4       YTD
amounts)                      2012      2012       2012      2011      2011
---------------------------------------------------------------------------
Operating income (loss)                                                    
 by segment:                                                               
  Lumber                  $   41.7  $   34.9  $    75.4  $ (55.8)  $ (81.5)
  Pulp and Paper          $   10.8  $  (7.2)  $    26.6  $   18.2  $  152.9
  Unallocated and Other   $  (2.4)  $  (5.4)  $  (25.1)  $ (25.6)  $ (59.5)
---------------------------------------------------------------------------
Total operating income                                                     
 (loss)                   $   50.1  $   22.3  $    76.9  $ (63.2)  $   11.9
Add: Amortization         $   50.4  $   45.7  $   187.2  $   47.6  $  169.3
---------------------------------------------------------------------------
Total operating income                                                     
 (loss) before                                                             
amortization              $  100.5  $   68.0  $   264.1  $ (15.6)  $  181.2
Add (deduct):                                                              
  Working capital                                                          
   movements              $ (50.5)  $ (14.0)  $  (75.3)  $   30.4  $  (5.6)
  Salary pension plan                                                      
   contributions          $  (8.7)  $  (9.0)  $  (35.7)  $  (8.1)  $ (37.3)
  Other operating cash                                                     
   flows, net(2)          $  (7.9)  $ (11.1)  $  (21.9)  $   31.6  $   24.7
---------------------------------------------------------------------------
Cash from operating                                                        
 activities               $   33.4  $   33.9  $   131.2  $   38.3  $  163.0
Add (deduct):                                                              
  Finance expenses paid   $  (7.6)  $  (1.4)  $  (19.5)  $  (6.2)  $ (18.9)
  Distributions paid to                                                    
   non-controlling                                                         
   interests              $  (0.4)  $  (3.0)  $  (15.9)  $ (11.4)  $ (91.0)
  Capital additions,                                                       
   net(3)                 $ (47.0)  $ (44.1)  $ (245.7)  $ (91.0)  $(236.7)
  Proceeds from sale of                                                    
   asset-backed                                                            
   commercial paper                                                        
   ("ABCP")               $      -  $      -  $    12.9  $      -  $   29.8
  Drawdown (repayment)                                                     
   of long-term debt      $      -  $      -  $    50.1  $      -  $ (81.9)
  Other, net              $    4.0  $    1.5  $    16.3  $  (2.1)  $    4.3
---------------------------------------------------------------------------
Change in cash /                                                           
 operating loans          $ (17.6)  $ (13.1)  $  (70.6)  $ (72.4)  $(231.4)
---------------------------------------------------------------------------
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ROIC - Consolidated(4)        2.4%      1.6%       3.7%    (4.1)%    (3.4)%
---------------------------------------------------------------------------
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Average exchange rate                                                      
 (US$ per C$1.00)(5)      $  1.009  $  1.005  $   1.001  $  0.977  $  1.011
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(1) Certain prior period amounts have been restated due to a change in     
accounting policy for treatment of net interest expense for defined benefit
post-retirement plans. Further details can be found in the Company's       
unaudited interim consolidated financial statements.                       
(2) Further information on operating cash flows can be found in the        
Company's unaudited interim consolidated financial statements.             
(3) Additions to property, plant and equipment include the acquisition of  
assets from Tembec Industries Ltd. ("Tembec") in the first quarter of 2012,
and are shown net of amount received under Government funding initiatives  
in the pulp and paper segment.                                             
(4) Consolidated Return on Invested Capital ("ROIC") is equal to operating 
income/loss, plus realized gains/losses on derivatives and other           
income/expense, all net of minority interest, divided by the average       
invested capital during the year. Invested capital is equal to capital     
assets, plus long-term investments and net non-cash working capital, all   
excluding minority interest components.                                    
(5) Source - Bank of Canada (average noon rate for the period).            

 
Analysis of Specific Material Items Affecting Comparability of
Shareholder Net Income (Loss) 


 
After-tax impact, net of                                                   
non-controlling interests                                                  
(millions of dollars,                                                      
except for per share            Q4         Q3       YTD        Q4       YTD
amounts)                       2012      2012      2012      2011      2011
---------------------------------------------------------------------------
Shareholder Net Income                                                     
 (Loss)                    $   21.6  $   22.2  $   32.1  $ (44.1)  $ (56.6)
Foreign exchange (gain)                                                    
 loss on long-term debt                                                    
 and investments, net      $    1.2  $  (4.0)  $  (3.1)  $  (3.3)  $    3.3
(Gain) loss on derivative                                                  
 financial instruments     $    6.5  $  (4.4)  $    1.2  $  (6.7)  $  (3.3)
Asset impairment charges   $    0.6  $      -  $    0.6  $    5.5  $    5.5
Net gain on post                                                           
 retirement and pension                                                    
 plan amendments           $  (7.1)  $      -  $  (7.1)  $      -  $      -
Restructuring charges for                                                  
 management changes        $      -  $    1.5  $    1.5  $      -  $    2.6
Increase in fair value of                                                  
 ABCP                      $      -  $      -  $  (1.1)  $  (0.5)  $  (0.2)
Costs related to Tembec                                                    
 acquisition               $      -  $      -  $    2.8  $      -  $      -
Mill closure provisions    $      -  $      -  $      -  $   17.0  $   17.0
---------------------------------------------------------------------------
Net impact of above items  $    1.2  $  (6.9)  $  (5.2)  $   12.0  $   24.9
---------------------------------------------------------------------------
Adjusted Shareholder Net                                                   
 Income (Loss)             $   22.8  $   15.3  $   26.9  $ (32.1)  $ (31.7)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Shareholder Net Income                                                     
 (Loss) per share (EPS),                                                   
 as reported               $   0.15  $   0.16  $   0.22  $ (0.31)  $ (0.40)
Net impact of above items                                                  
 per share                 $   0.01  $ (0.05)  $ (0.04)  $   0.09  $   0.18
---------------------------------------------------------------------------
Adjusted Shareholder Net                                                   
 Income (Loss) per share   $   0.16  $   0.11  $   0.18  $ (0.22)  $ (0.22)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
The Company reported operating income of $50.1 million for the fourth
quarter of 2012, an improvement of $27.8 million from $22.3 million
reported for the third quarter of 2012. The increase was mostly
attributable to the continuing recovery in the U.S. housing market
and improved operational performance at Canfor Pulp's Northern
Bleached Softwood Kraft ("NBSK") pulp mills. North American #2&Btr
dimension lumber prices showed strong gains, particularly in
December. Pricing to offshore markets, much of which is negotiated
monthly or quarterly in advance, showed solid gains but lagged those
in North America. Results also reflected higher market stumpage and
seasonally higher manufacturing costs, as well as an accounting gain
related to the Company's salaried post retirement benefit plans.  
Lumber markets ended the year with one of the strongest price rallies
in recent years supported by an improved U.S. housing market combined
with strong demand from offshore markets. Building off the positive
trend experienced earlier in the year, the U.S. housing market
continued to strengthen through the fourth quarter. Total U.S.
housing starts averaged 898,000 units SAAR (seasonally adjusted
annual rate), up 16% from the previous quarter, ending the year at
954,000 units SAAR in December, the highest monthly starts since
mid-2008. Canadian housing starts decreased 8% from the third quarter
of 2012 to 204,000 units SAAR reflecting seasonally slower activity
and recent tightening of Canadian mortgage lending rules. Solid
demand in China and Japan supported increases in offshore shipments
in the final quarter of 2012, particularly China, where the Company's
shipments for 2012 reached a new record-high. Global softwood pulp
markets improved slightly through the fourth quarter of 2012, with
increased softwood pulp purchases from China helping to offset weaker
shipments to North America and Europe.  
The average North American benchmark Western Spruce/Pine/Fir ("SPF")
2x4 #2&Btr price rose sharply in the latter part of the quarter. On
average, Western SPF 2X4 #2&Btr prices moved up 12% to US$335 per
Mfbm, with strong increases seen in other dimensions during the
quarter, while lower grades saw more modest price increases and in
the case of machine stress rated ("MSR") and stud grades, prices
weakened slightly quarter-over-quarter. Prices for Southern Yellow
Pine ("SYP") products also showed strong gains, with the benchmark
SYP 2x4 price averaging US$386 per Mfbm, up 20% from the previous
quarter of 2012. North American sales realizations in the quarter
lagged benchmark levels due largely to a steep increase in prices
close to year end. Sales realizations for offshore Western SPF lumber
products saw solid gains in the current quarter, but lagged North
American pricing gains, reflecting the nature of pricing, much of
which is negotiated monthly or quarterly in advance. 
Lumber production, at just over 1.1 billion board feet, was broadly
in line with the previous quarter. Lumber unit manufacturing costs
were up compared to the previous quarter reflecting both unit log and
production cost increases. Increased log costs primarily reflected
increased market stumpage and hauling costs while increased unit
production costs resulted primarily from seasonal cost increases and
the restart of the Company's Radium sawmill.  
NBSK pulp list prices showed a modest improvement in the fourth
quarter. The average list price for North America was up US$10 to
US$863 per tonne, with slightly higher prices seen in other regions.
Overall, however, pulp sales realizations moved up only marginally in
the fourth quarter of 2012 as a result of increased volumes to
lower-margin regions, principally China.  
Increased pulp shipments and production for the fourth quarter of
2012 reflected improved operating rates after the operational
challenges faced in the previous quarter. Pulp unit manufacturing
costs were down from the previous quarter in part reflecting the
higher production volumes and lower fibre costs, partially offset by
the impact of one-time costs associated with new collective labour
agreements in the third quarter of 2012. 
Compared to the fourth quarter of 2011, operating income was up
$113.3 million, driven by increases of $97.5 million in the lumber
segment and $21.7 million in the Company's panel operations,
reflecting improved markets, partially offset by a decrease in the
pulp and paper segment results of $7.4 million, principally
reflecting significantly lower prices for NBSK pulp products.  
OPERATING RESULTS BY BUSINESS SEGMENT  
Lumber  
Selected Financial Information and Statistics - Lumber  


 
                                                                           
(millions of dollars            Q4       Q3        YTD        Q4        YTD
unless otherwise noted)       2012     2012       2012      2011       2011
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales                    $   469.9  $ 454.7  $ 1,711.8  $  325.9  $ 1,317.1
Operating income (loss)                                                    
 before amortization     $    68.3  $  60.4  $   177.2  $ (34.3)  $     2.4
Operating income (loss)  $    41.7  $  34.9  $    75.4  $ (55.8)  $  (81.5)
---------------------------------------------------------------------------
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Negative (positive)                                                        
 impact of inventory                                                       
 valuation                                                                 
 adjustments(6)          $   (0.4)  $     -  $  (13.5)  $    9.7  $    12.4
Costs related to Tembec                                                    
 acquisition             $       -  $     -  $     2.5  $      -  $       -
Mill Closure provisions  $       -  $     -  $       -  $   11.9  $    11.9
Asset impairment                                                           
 charges                 $       -  $     -  $       -  $    7.2  $     7.2
---------------------------------------------------------------------------
Operating income (loss)                                                    
 excluding impact of                                                       
 inventory valuation                                                       
 adjustments and                                                           
 unusual items           $    41.3  $  34.9  $    64.4  $ (27.0)  $  (50.0)
---------------------------------------------------------------------------
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Average SPF 2x4 #2&Btr                                                     
 lumber price in US$(7)  $     335  $   300  $     299  $    238  $     255
Average SPF price in                                                       
 Cdn$                    $     332  $   299  $     299  $    244  $     252
Average SYP 2x4 #2                                                         
 lumber price in US$(8)  $     386  $   322  $     333  $    260  $     268
Average SYP price in                                                       
 Cdn$                    $     383  $   320  $     333  $    266  $     265
---------------------------------------------------------------------------
U.S. housing starts                                                        
 (thousand units SAAR)                                                     
 (9)                           898      774        780       678        609
---------------------------------------------------------------------------
Production - SPF lumber       
                                             
 (MMfbm)                     985.5    973.9    3,857.5     760.8    3,134.3
Production - SYP lumber                                                    
 (MMfbm)                     121.8    118.6      479.1     106.4      431.3
Shipments - SPF lumber                                                     
 (MMfbm)(10)               1,007.9    996.8    3,867.5     833.9    3,182.8
Shipments - SYP lumber                                                     
 (MMfbm)(10)                 133.5    127.9      511.8     112.7      449.9
Shipments - wholesale                                                      
 lumber (MMfbm)                8.0      7.9       54.7      27.4      140.5
---------------------------------------------------------------------------
(6) In accordance with IFRS, Canfor records its log and finished product   
inventories at the lower of cost and net realizable value ("NRV"). Changes 
in inventory volumes, market prices, foreign exchange rates and costs over 
the respective reporting periods can all affect inventory valuation        
adjustments, if any, required at each period end.                          
(7) Western Spruce/Pine/Fir, per thousand board feet (Source - Random      
Lengths Publications, Inc.)                                                
(8) Southern Yellow Pine, Eastside, per thousand board feet (Source -      
Random Lengths Publications, Inc.)                                         
(9) Source - U.S. Census Bureau, seasonally adjusted annual rate ("SAAR")  
(10) Canfor-produced lumber, including lumber purchased for remanufacture. 

 
Overview  
Operating income for the lumber segment was $41.7 million for the
fourth quarter of 2012, an increase of $6.8 million compared to
operating income of $34.9 million in the immediately preceding
quarter, and a $97.5 million improvement from the operating loss of
$55.8 million reported for the fourth quarter of 2011. Results for
the fourth quarter of 2011 were adversely impacted by inventory
valuation adjustments of $9.7 million and certain mill closure
provisions and asset impairment charges which totaled $19.1 million.
For the 2012 year, operating income was $75.4 million compared to an
operating loss of $81.5 million for the previous year.  
The stronger results compared to the third quarter of 2012 reflected
improved sales realizations, with higher prices received for most
products in both North American and offshore markets. Sales
realizations lagged benchmark levels due largely to the sharp
increase in prices close to year end as well as the nature of
offshore pricing, much of which is negotiated monthly or quarterly in
advance. Unit manufacturing costs were up over the prior quarter
reflecting increases in log and production costs. Log cost increases
were predominantly related to market-price stumpage and increased
hauling costs, while higher production costs reflected the re-start
of the Company's Radium sawmill operation, as well as seasonally
higher costs. Other contributing factors were lower sawmill residual
chip realizations and an accounting gain of $5.6 million related to
certain amendments to the Company's salaried post retirement plans.  
The improvement in operating income compared to the fourth quarter of
2011 reflected significantly improved market prices and sales
realizations, and increased lumber shipments as a result of increased
production at the two south-east Kootenay region operations acquired
at the end of the first quarter of 2012. Partially offsetting these
gains was a 3% stronger Canadian dollar, an increase in unit log
costs, largely attributable to market-price related stumpage
increases and a small increase in average unit production costs
related to the restart of the Radium sawmill and the acquired
Kootenay mills. Other contributing factors included sawmill residual
chip prices which were well down compared to the same quarter of
2011, consistent with the decline in NBSK pulp sales realizations
over the period, as well as the aforementioned amendments to the
Company's salaried post retirement plans.  
Markets  
During the fourth quarter of 2012, the lumber market experienced one
of its strongest price rallies in recent years, primarily due to
improving fundamentals in the U.S. housing market and continued
robust offshore demand. Total U.S. housing starts averaged 898,000
units(11) SAAR, an increase of 16% from the previous quarter and up
32% from the fourth quarter of 2011, with starts averaging 954,000
units SAAR in December providing further evidence that a housing
recovery is now underway. For the full year of 2012, total U.S.
housing starts were 780,000 units, up 28% from 2011. Single-family
starts, which consume a larger proportion of lumber, were 592,000
units SAAR in the fourth quarter of 2012, the highest level since
late 2008. Repair and remodeling activity was steady and also trended
higher than a year ago. 
Canadian housing starts were at 204,000 units(12) SAAR for the
current quarter, down 18,000 units, or 8%, compared to the third
quarter of 2012. The decrease reflected seasonal factors as well as a
recent tightening of Canadian residential mortgage lending rules.
Compared to the fourth quarter of 2011, housing starts were up 1%. 
Canfor's offshore lumber shipments continued an overall growth trend
and were up 15% compared to the previous quarter and 11% higher than
the fourth quarter of 2011. The rise in shipments was due to solid
demand in key markets, including China and Japan. Shipments to China,
in particular, were well up compared to the previous quarter.  
Sales 
Lumber sales revenue for the fourth quarter of 2012 was $469.9
million, compared to $454.7 million for the previous quarter and
$325.9 million in the fourth quarter of 2011. Increases from both
comparative periods reflected the impact of improved pricing, with
the improvement from the fourth quarter of 2011 also reflecting
increased shipments. Total shipments in the fourth quarter of 2012,
at just over 1.1 billion board feet, were consistent with the
previous quarter, and were up 18% from the fourth quarter of 2011,
reflecting higher production following various capital upgrades and
other efficiency improvements, as well as additional production from
the Kootenay mill operations.  
Overall sales realizations saw positive gains in all markets in the
current quarter, with North American sales realizations benefiting
from the continued upward trend in pricing and lower export taxes.
For sales to North America, the Random Lengths Western SPF 2x4 #2&Btr
price was up 12% to US$335 per Mfbm, with strong increases seen in
other dimensions during the quarter. More modest increases were seen
in lower grade products, and in the case of machine stress rate
("MSR") and stud grades, prices weakened slightly
quarter-over-quarter. Sales realizations for SYP products showed
solid gains, with the benchmark SYP 2x4 #2 price averaging US$386 per
Mfbm, up 20% from the previous quarter. North American sales
realizations in the current quarter lagged benchmark levels primarily
as a result of the sharp price increase in December. Sales
realizations for offshore Western SPF lumber products also saw solid
gains in the current quarter but lagged North American pricing gains
largely due to the nature of pricing, much of which is negotiated
monthly or quarterly in advance.  The average value of the Canadian
dollar was in line with the previous quarter. 
Compared to the fourth quarter of 2011, the benchmark North American
Random Lengths Western SPF 2x4 #2&Btr price was up US$97 per Mfbm, or
41%, with strong gains seen in other widths and dimensions. SYP
products followed a similar trend, with the benchmark SYP 2x4 #2
price up 48%. Solid increases were also seen for offshore sales
realizations. Sales realizations also reflected the positive impact
of the higher proportion of high-value prime product produced at the
Kootenay operations and lower export taxes, partly offset by the 3%
stronger Canadian dollar. 
The Random Lengths Framing Lumber Composite price averaged US$347 per
Mfbm for the fourth quarter of 2012, resulting in an average 8%
export tax rate on all U.S. bound shipments. This compared to a
similar rate in the third quarter of 2012 and 15% for the fourth
quarter of 2011. 
Total residual fibre revenue was down from the third quarter of 2012,
primarily reflecting lower sawmill residual chip prices, partly due
to the effect of lagging price formulas for residual chips as well as
seasonal factors. Compared to the fourth quarter of 2011, total
residual fibre revenue was well up, with higher shipments of sawmill
residual chips offsetting lower residual prices resulting from weaker
NBSK market pulp prices. 


 
(11) U.S. Census Bureau                                                     
(12) CMHC - Canada Mortgage and Housing Corporation                         

 
Operations  
Lumber production, at just over 1.1 billion board feet, was in line
with the previous quarter and up 28% from the fourth quarter of 2011.
The increase compared to the comparable period in 2011 largely
reflected the recent Kootenay mills acquisition, the Radium start-up
and increased productivity following various capital improvement
projects in 2011 and early 2012.  
Overall lumber unit manufacturing costs were up compared to the
previous quarter reflecting both unit log and production cost
increases. Increased log costs primarily reflected increased stumpage
and hauling costs, while increased unit production costs resulted
primarily from the restart of the Radium sawmill operation and
seasonal cost increases normally experienced in the fourth quarter.  
Compared to the fourth quarter of 2011, unit manufacturing costs
showed a slight increase, reflecting higher unit log costs impacted
by market-price related stumpage increases and higher hauling costs
coupled with slightly higher unit cash conversion costs attributable
largely to the Radium start-up and the acquired Kootenay sawmills.  
Pulp and Paper 
Selected Financial Information and Statistics - Pulp and Paper(13) 


 
                                                                           
(millions of dollars             Q4       Q3        YTD       Q4        YTD
unless otherwise noted)        2012     2012       2012     2011       2011
---------------------------------------------------------------------------
Sales                       $ 228.4  $ 206.3  $   923.5  $ 237.0  $ 1,057.5
Operating income before                                                    
 amortization               $  31.3  $   8.5  $    95.6  $  39.9  $   220.9
Operating income (loss)     $  10.8  $ (7.2)  $    26.6  $  18.2  $   152.9
---------------------------------------------------------------------------
Average pulp price                                                         
 delivered to U.S. -                                                       
 US$(14)                    $   863  $   853  $     872  $   920  $     977
Average price in Cdn$       $   855  $   849  $     871  $   942  $     966
---------------------------------------------------------------------------
Production - pulp (000 mt)    314.1    276.8    1,169.9    294.5    1,200.0
Production - paper (000                                                    
 mt)                           35.4     31.9      130.2     33.5      136.5
Shipments -pulp (000 mt)      297.8    268.9    1,176.6    275.4    1,188.7
Shipments - paper (000 mt)     32.1     30.6      129.1     30.2      127.6
---------------------------------------------------------------------------
(13) Includes the Taylor pulp mill and 100% of Canfor Pulp Products Inc.,  
which is consolidated in Canfor's results. Pulp production and shipment    
volumes presented are for both northern bleached softwood kraft ("NBSK")   
and bleached chemi-thermo mechanical pulp ("BCTMP").                       
(14) Per tonne, NBSK pulp list price delivered to U.S. (Resource           
Information Systems, Inc.).                                                

 
Overview  
Operating income for the pulp and paper segment was $10.8 million for
the fourth quarter of 2012, an improvement of $18.0 million from an
operating loss of $7.2 million for the previous quarter, but down
$7.4 million from the fourth quarter of 2011. For the 2012 year,
operating income was $26.6 million, down $126.3 million from $152.9
million in 2011.  
Results in the current quarter were impacted by lower unit
manufacturing costs and higher shipment volumes, both reflecting
improved operations in the quarter. Market pulp production increased
approximately 37,000 tonnes compared to the previous quarter due to
increased operating days and higher overall operating rates following
the extended scheduled outage and subsequent ramp ups experienced at
the Prince George Pulp Mill in the previous quarter. Both quarters'
results were impacted by certain one-time costs, including an
accounting gain of $4.0 million related to post retirement plan
adjustments in the current quarter and costs of $3.2 million
associated with new five year collective labour agreements in the
third quarter of 2012.  
NBSK pulp list prices showed a small improvement in all regions in
the fourth quarter of 2012, with prices to North America up US$10 to
US$863 per tonne, but this was largely offset by a lower-value
regional sales mix. 
Lower operating earnings compared to the fourth quarter of 2011
reflected lower global market pulp prices, as NBSK pulp list prices
were down in all regions, with prices to North America declining
US$57, or 6%, per tonne and similar decreases were seen for Europe
and China. Sales realizations were also negatively impacted by a 3%
stronger Canadian dollar compared to the fourth quarter of 2011.
Higher shipment volumes and a 5% reduction in unit manufacturing
costs, reflecting lower fibre costs and the impact of higher
production volumes, helped to mitigate the impact of reduced sales
realizations. Other contributing factors included the aforementioned
post retirement benefit accounting gain in the current quarter. 
Markets  
Global softwood pulp demand increased 7% compared to the third
quarter of 2012 and was up 3% for the full year 2012 compared to
2011(15). The increase in softwood shipments was primarily due to
increased purchasing from China, partially offset by reductions in
shipments to North America and Europe, particularly the latter
region. At the end of December 2012, World 20(16) softwood pulp
producer inventories increased 2 days from the end of the third
quarter, to 29 days of supply, but were down 7 days compared to
December 2011 inventories. Global demand for printing and writing
papers decreased 2% in 2012 as compared to 2011(15).  
Sales  
The Company's pulp shipments in the fourth quarter of 2012 were
298,000 tonnes, an increase of approximately 29,000 tonnes, or 11%,
from the previous quarter. Compared to the fourth quarter of 2011,
shipments were up 23,000 tonnes, or 8%. For the most part, the
increased shipments relative to both comparative periods reflected
higher production volumes coupled with higher levels of purchases by
Chinese consumers.  
Global softwood pulp pricing saw a small increase through the current
quarter. The North America NBSK pulp list price averaged US$863 per
tonne for the quarter, up US$10, or 1%, from the third quarter of
2012, while CPPI's average list price to China and price to Europe
were up US$30 and US$23, respectively, over the same period. Overall,
however, pulp sales realizations moved up only marginally in the
fourth quarter mostly as a result of increased volumes to
lower-margin regions, principally China. The BCTMP market weakened
slightly through the fourth quarter of 2012, with the average sales
realization down compared to the previous quarter, reflecting a
slight decrease in prices in the last month of 2012.  
Compared to the fourth quarter of 2011, NBSK pulp sales realizations
decreased 12% reflecting lower NBSK pulp list pricing in all regions
and a 3% stronger Canadian dollar. The North America NBSK pulp list
price decreased US$57 per tonne, or 6%. NBSK pulp list prices to
China and Europe also decreased compared to the same period in 2011,
with the average price down US$51 and US$65, respectively. Also
contributing to the lower sales realizations in the current quarter
were a higher proportion of shipments to China. Compared to the
fourth quarter of 2011, BCTMP sales realizations were down in the
current quarter, reflecting the declining prices in the latter half
of 2012 and the strengthening Canadian dollar. 


 
(15) As reported by Pulp and Paper Products Council ("PPPC") statistics.    
(16) World 20 data is based on twenty producing countries representing 80%  
of world chemical market pulp capacity and is based on information compiled 
and prepared by the PPPC.                                                   

 
Operations  
Pulp production in the fourth quarter of 2012 was 314,000 tonnes, up
approximately 37,000 tonnes, or 13%, from the previous quarter and up
20,000 tonnes, or 7%, compared to the fourth quarter of 2011. The
increase in production compared to the third quarter of 2012
reflected a reduction in scheduled outages and improved operating
rates following the aforementioned outage at the Prince George Pulp
Mill in the previous quarter along with improved operating rates at
other facilities.  
Pulp unit manufacturing costs decreased 7% from the previous quarter
of 2012, with higher production volumes coupled with lower fibre and
chemical costs, partially offset by higher maintenance expense and a
seasonal increase in energy costs. Lower fibre costs were in part due
to lower-cost sawmill residual chips reflecting the effects of
lagging price formulas for residual chips as well as seasonal
factors. The previous quarter's costs also included one-time costs
associated with the new five year collective labour agreements.  
Compared to the fourth quarter of 2011, unit manufacturing costs
decreased 5%, principally reflecting the favourable impact of higher
production volumes, reduced chemical usage and lower fibre costs,
partially offset by timing of maintenance spending. Lower fibre costs
in the current quarter reflected lower-cost sawmill residual chips,
where prices are linked to NBSK pulp sales realizations, as well as a
reduction in higher-cost whole log chips. 
Unallocated and Other Items  


 
                                  Q4       Q3       YTD        Q4       YTD
(millions of dollars)           2012     2012      2012      2011      2011
---------------------------------------------------------------------------
Operating income (loss) of                                                 
 Panels operations(17)       $   2.7  $   2.1  $    2.0  $ (19.0)  $ (33.8)
Corporate costs              $ (5.1)  $ (7.5)  $ (27.1)  $  (6.6)  $ (25.7)
Finance expense, net         $ (6.5)  $ (5.8)  $ (24.7)  $  (5.1)  $ (26.0)
Foreign exchange gain                                                      
 (loss) on long-term debt                                                  
 and investments, net        $ (2.0)  $   6.5  $    4.7  $    4.9  $  (5.0)
Gain (loss) on derivative                                                  
 financial instruments       $ (8.7)  $   6.8  $  (0.8)  $    9.6  $    3.5
Other income (expense), net  $ (0.2)  $ (2.6)  $  (0.4)  $    1.3  $    5.9
---------------------------------------------------------------------------
(17) The Panels operations include the Peace Valley OSB (Oriented Strand   
Board) joint venture, the only facility currently operating, and the       
Company's Tackama plywood plant, which was closed in January 2012, and its 
PolarBoard OSB plant, which is currently indefinitely idled.               

 
The panels operations reported operating income of $2.7 million for
the fourth quarter of 2012, compared to $2.1 million for the previous
quarter. Operating results for the fourth quarter of 2012 included
$0.8 million in impairment charges related to a damaged asset held by
the operation. Excluding the impact of this impairment charge, the
operating income of panels operations increased $1.6 million, with
the improvement in operating income in the current period reflecting
continued improvement in OSB markets, driven primarily by increased
housing activity and damage caused by Hurricane Sandy, as evidenced
by a US$20 per thousand square feet ("msf") increase in the benchmark
OSB price to US$332 per msf(18). Results for the fourth quarter of
2011 included an expense of $10.6 million relating to the announced
closure of the Tackama plywood plant, as well as an asset impairment
charge of $2.0 million relating to other idled panels assets.
Compared to the fourth quarter of 2011, excluding the impact of these
items and inventory valuation adjustments, results for the panel
operations improved by $8.7 million, largely reflecting considerably
stronger market prices, with the benchmark OSB price up by US$142 per
msf, or 75%, partially offset by an increase in costs due in part to
higher log costs. 
Corporate costs were $5.1 million for the fourth quarter of 2012,
down $2.4 million from the previous quarter, in part reflecting
restructuring costs associated with the integration of Canfor Pulp
recorded in the previous quarter. Corporate costs were lower by $1.5
million compared to the fourth quarter of 2011. Corporate costs in
the fourth quarter of 2011 reflected restructuring costs and costs
related to the announced acquisition of the Kootenay sawmills and
tenure. The decrease from both comparative periods also reflected a
portion of the aforementioned gain due to amendments to the Company's
salaried post retirement benefit plans offset in part by higher
share-based compensation expense. 


 
(18) Oriented Strand Board, North Central price, 7/16" (Source - Random     
Lengths Publications, Inc.)                                                 

 
Net finance expense for the fourth quarter of 2012 was $6.5 million,
up $0.7 million from the previous quarter, primarily reflecting costs
associated with a new operating loan facility entered into by Canfor
Pulp in the fourth quarter of 2012. Compared to the fourth quarter of
2011, finance expense was up $1.4 million, again reflecting the costs
associated with the new Canfor Pulp operating loan facility coupled
with the effect of a positive accretion adjustment related to the
Company's reforestation obligation recorded in the fourth quarter of
2011.  
The Company recorded a foreign exchange translation loss on its US
dollar denominated debt of $2.0 million for the fourth quarter of
2012, as a result of the weakening of the Canadian dollar against the
US dollar, which fell by just over 1% between the respective quarter
ends. The $6.5 million gain in the third quarter of 2012 and $4.9
million gain in the fourth quarter of 2011, resulted from a
strengthening of the Canadian dollar in the previous periods. 
The Company uses a variety of derivative financial instruments as
partial economic hedges against unfavourable changes in foreign
exchange rates, energy costs, lumber prices and interest rates. For
the fourth quarter of 2012, the Company recorded a net loss of $8.7
million related to its derivative financial instruments, largely
reflecting realized and unrealized losses on lumber futures as a
result of rising lumber prices, as well as realized and unrealized
losses on the US dollar forward contracts and collars, related to the
weakening of the Canadian dollar.  
The following table summarizes the gains (losses) on derivative
financial instruments for the comparable periods:  


 
                                     Q4       Q3      YTD       Q4      YTD
(millions of dollars)              2012     2012     2012     2011     2011
---------------------------------------------------------------------------
Foreign exchange collars and                                               
 forward contracts              $ (1.0)  $   3.8  $   3.2  $   9.3  $ (2.7)
Energy derivatives              $ (0.3)  $   1.5  $   0.6  $   0.9  $   0.6
Lumber futures                  $ (7.5)  $   1.3  $ (3.6)  $ (0.6)  $   5.6
Interest rate swaps             $   0.1  $   0.2  $ (1.0)  $     -  $     -
---------------------------------------------------------------------------
                                $ (8.7)  $   6.8  $ (0.8)  $   9.6  $   3.5
---------------------------------------------------------------------------

 
Other expense, net of $0.2 million reflected a small adverse fair
value adjustment related to a royalty agreement associated with the
sale in late 2010 of the operating assets of Howe Sound Pulp and
Paper Limited Partnership compared to a positive fair value
adjustment of $2.2 million in the fourth quarter of 2011. Further
contributing to the other expense was a $0.6 million loss recorded on
the sale of land and timber in the fourth quarter of 2012. Partially
offsetting these charges in the fourth quarter of 2012 were
favourable exchange movements on US dollar denominated cash,
receivables and payables of Canadian operations of $0.7 million,
compared to a loss in the previous quarter of $2.6 million and a loss
of $2.1 million in the fourth quarter of 2011 resulting from the
effect of the strengthening of the Canadian dollar during those
periods.  
Other Comprehensive Income (Loss)  
The following table summarizes Canfor's Other Comprehensive Income
(Loss) for the comparable periods: 


 
                                  Q4        Q3       YTD       Q4       YTD
(millions of dollars)           2012      2012      2012     2011      2011
---------------------------------------------------------------------------
Foreign exchange                                                           
 translation differences                                                   
 for foreign operations      $   1.9  $  (7.0)  $  (4.6)  $ (4.3)  $    4.4
Defined benefit actuarial                                                  
 loss, net of tax            $ (5.7)  $ (16.7)  $ (50.4)  $  10.7  $ (50.3)
---------------------------------------------------------------------------
Other comprehensive income                                                 
 (loss), net of tax          $ (3.8)  $ (23.7)  $ (55.0)  $   6.4  $ (45.9)
---------------------------------------------------------------------------

 
In the fourth quarter of 2012, the Company recorded an after-tax
charge to the statements of other comprehensive income (loss) of $5.7
million in relation to changes in the valuation of its defined
benefit post-employment compensation plans. The charge reflects a
reduction in the discount rate used to value the plans offset in part
by a slightly higher than expected rate of return on plan assets for
the period. In the previous quarter a charge of $16.7 million was
recorded, reflecting a reduction in discount rates offset slightly by
a higher than expected rate of return on plan assets for the period.
An after-tax credit of $10.7 million was recorded in the fourth
quarter of 2011. 
In addition, the Company recorded $1.9 million of other comprehensive
income in the quarter for foreign exchange differences for foreign
operations, reflecting the weakening of the Canadian dollar by over
1% over the quarter. This compared to other comprehensive loss of
$7.0 million in the previous quarter and $4.3 million in the fourth
quarter of 2011, when the Canadian dollar strengthened over both
comparative periods. 
SUMMARY OF FINANCIAL POSITION  
The following table summarizes Canfor's cash flow and selected ratios
for and as at the end of the following periods: 


 
                                                                           
(millions of dollars,          Q4        Q3        YTD        Q4        YTD
except for ratios)           2012      2012       2012      2011       2011
---------------------------------------------------------------------------
Increase (decrease) in                                                     
 cash and cash                                                             
 equivalents             $  (7.6)  $ (13.1)  $  (43.6)  $ (72.4)  $ (231.4)
  Operating activities   $   33.4  $   33.9  $   131.2  $   38.3  $   163.0
  Financing activities   $    2.0  $  (4.4)  $    42.0  $ (17.6)  $ (191.4)
  Investing activities   $ (43.0)  $ (42.6)  $ (216.8)  $ (93.1)  $ (203.0)
Ratio of current assets                                                    
 to current liabilities                        1.3 : 1              1.5 : 1
Net debt to                                                                
 capitalization                                  19.9%                13.4%
ROIC - Consolidated          2.4%      1.6%       3.7%    (4.1)%     (3.4)%
ROCE - Canfor solid                                                        
 wood business(19)           1.8%      2.5%       2.9%    (5.5)%    (10.1)%
---------------------------------------------------------------------------
(19)Return on Capital Employed ("ROCE") for the Canfor solid wood business 
represents consolidated ROCE adjusted to remove the Company's interest in  
the Peace Valley OSB Joint Venture and pulp and paper operations, including
Canfor Pulp and the Taylor pulp mill. Consolidated ROCE is equal to        
shareholder net income for the period plus finance expense, after tax,     
divided by the average capital employed during the period (which consists  
of current and long-term debt and operating loans, and shareholders'       
equity, less cash and temporary investments).                              

 
Changes in Financial Position  
Cash generated from operating activities was $33.4 million in the
fourth quarter of 2012 in line with the previous quarter and down
slightly compared to the fourth quarter of 2011. Higher cash
operating earnings in the current quarter were offset by an increase
in working capital which in part reflected higher log invento
ries at
the end of 2012. The increase in working capital compared to the same
quarter of 2011 reflected higher production and shipments,
unseasonably wet weather in late 2011 which hampered log harvesting
activity, as well as restructuring provisions at the end of 2011. 
Financing activities generated cash of $2.0 million in the current
quarter, compared to cash used of $4.4 million in the previous
quarter and $17.6 million in the fourth quarter of 2011. The current
quarter's cash flows included an additional draw of $10.0 million on
the Company's operating loans and reduced cash distributions to
non-controlling interests of $0.4 million (Q3 2012: $3.0 million; Q4
2011: $11.4 million). Finance expenses paid in the current quarter
were $7.6 million, up $6.2 million from the previous quarter and up
$1.4 million from the fourth quarter of 2011, principally reflecting
timing of scheduled interest payments.  
Investing activities used cash of $43.0 million in the fourth quarter
of 2012, in line with the third quarter of 2012 and down $50.1
million compared to the fourth quarter of 2011. Cash used for capital
additions was $47.7 million, down $6.4 million from the third quarter
of 2012, and down $68.5 million from the fourth quarter of 2011.
Capital additions for lumber operations in the current quarter
included the upgrade at the Company's Radium sawmill which restarted
in the fourth quarter. In the pulp segment, current quarter capital
expenditures were $12.8 million, principally related to equipment
received related to the scheduled 2013 turbine upgrade at the
Company's Northwood Pulp Mill as well as major maintenance
expenditures related to outages and payments related to previous
period projects. Investing cash flows in the current quarter also
included $5.5 million in net proceeds realized on the sale of certain
non-core assets, including the Company's remanufacturing facility in
Washington, U.S.  
Liquidity and Financial Requirements  
At December 31, 2012, the Company on a consolidated basis had cheques
issued in excess of cash on hand of $14.7 million, $27.0 million
drawn on its operating loans, and an additional $27.2 million
reserved for several standby letters of credit. Total remaining
available operating loans were $413.3 million. The Company and Canfor
Pulp remained in compliance with the covenants relating to their
operating loans and long-term debt during the quarter, and expect to
remain so for the foreseeable future. 
During the third quarter of 2012, Canfor Pulp obtained a new $110.0
million operating loan facility replacing its previous $40.0 million
operating loan facility. No amounts were drawn on the new bank
facility, except for amounts reserved for several standby letters of
credit.  
During the first quarter of 2012, the Company issued new term debt of
$100.0 million to fund a US$50.0 million term debt repayment on
February 1, 2012 and the acquisition of assets from Tembec. The new
debt is in the form of an unsecured non-revolving term loan, with a
maturity date of February 13, 2017. Interest rates are floating based
on the lenders' Canadian prime rate or bankers acceptances.  
Canfor has US$75.0 million of term debt that is scheduled for
repayment on April 1, 2013, and Canfor Pulp has US$110.0 million of
term debt that is scheduled for repayment on November 30, 2013.  
The Company's consolidated net debt to total capitalization at the
end of the fourth quarter of 2012 was 19.9%. For Canfor, excluding
Canfor Pulp, net debt to capitalization at the end of the fourth
quarter was 18.9%. 
Softwood Lumber Agreement ("SLA") Update  
On January 18, 2011, the U.S. triggered the arbitration provision of
the 2006 Softwood Lumber Agreement ("SLA") by delivering a Request
for Arbitration. The U.S. claimed that the province of British
Columbia ("BC") had not properly applied the timber pricing system
grandparented in the SLA. The U.S. also claimed that subsequent to
2006, BC made additional changes to the timber pricing system which
had the effect of reducing timber prices. The claim focused on
substantial increases in Grade 4 (non sawlog or low grade) volumes
commencing in 2007. It was alleged that timber was scaled and graded
as Grade 4 that did not meet the criteria for that grade, and was
accordingly priced too low.  
As the arbitration is a state-to-state international dispute under
the SLA, Canada prepared a defence to the claim with the assistance
of the BC provincial government and the BC lumber industry. After
numerous representations from both sides, a hearing was held before
the arbitration panel in the first quarter of 2012.  
On July 18, 2012 the arbitration panel ruled in favour of Canada and
dismissed the claims of the U.S. in their entirety.  
CPPI Share Exchange 
On March 2, 2012, Canadian Forest Products Ltd. ("CFP"), a wholly
owned subsidiary of Canfor, acquired 35,776,483 common shares of
Canfor Pulp Products, Inc. ("CPPI") in exchange for its 35,776,483
Class B Exchangeable LP Units of Canfor Pulp Limited Partnership
("CPLP") and 35,776,483 common shares of Canfor Pulp Holding Inc.
("Canfor Holding"), pursuant to the terms of an Exchange Agreement
made as of January 1, 2011 among CFP, CPPI, Canfor Holding and CPLP.  
Prior to the share exchange, CFP and CPPI entered into a one-time
dividend waiver agreement, waiving CFP's right to the first $7.8
million of future dividends declared by CPPI. The full $7.8 million
dividend was paid by CPPI during the second quarter of 2012.  
Sale of interest in Peace Valley OSB Joint Venture  
In November 2012, the Company entered into a Letter of Intent with
Louisiana-Pacific Corporation to sell Canfor's 50% share in Peace
Valley Orientated OSB joint venture in Fort St. John, B.C. By
completing this sale, Louisiana-Pacific Corporation will become the
sole owner of the Peace Valley OSB mill. As at December 31, 2012, the
assets and liabilities related to the sale are classified as held for
sale in the Company's consolidated balance sheet. As part of the
sale, Canfor may receive additional annual consideration over a 3
year period based on Peace Valley OSB's annual adjusted earnings
before interest, tax, depreciation and amortization. The transaction
is subject to various customary closing conditions and is currently
scheduled to close in the first half of 2013. 
OUTLOOK  
Lumber  
For 2013, the U.S. market is projected to continue its gradual
recovery. Rising housing prices, an improved job market, and an
increase in household formations will support an improved housing
market. Repair and remodel markets will also be significantly
impacted by the same fundamentals. Canadian markets are anticipated
to be flat through 2013, with softness projected in multi-family
urban markets, but stable demand from other sectors. Offshore markets
are forecast to also improve in 2013. After a slight slowdown in
2013, exports to China are anticipated to rise. Demand in Japan will
be buoyant for 2013, in advance of an increase in the value-added tax
in 2014.  
Pulp and Paper  
NBSK pulp prices are projected to show a modest improvement through
the first half of 2013, but the outlook for the balance of the year
is more uncertain given the economic challenges in Europe and new
hardwood and softwood pulp capacity currently projected to come
online the second half of 2013. For the month of January, CPPI
announced an increase in the North American NBSK pulp list price of
US$30 per tonne to US$900 per tonne.  
Canfor Corporation 
Condensed Consolidated Balance Sheets 


 
                                                         As at        As at
                                                      December     December
(millions of Canadian dollars, unaudited)             31, 2012     31, 2011
---------------------------------------------------------------------------
ASSETS                                                                     
Current assets                                                             
Cash and cash equivalents                            $       -    $    28.9
Accounts receivable - Trade                              102.7        105.1
- Other                                                   52.2         65.7
Inventories (Note 2)                                     431.3        348.3
Prepaid expenses                                          23.4         20.4
Assets held for sale (Note 3)                             77.3            -
---------------------------------------------------------------------------
Total current assets                                     686.9        568.4
---------------------------------------------------------------------------
Property, plant and equipment                          1,081.7      1,139.2
Timber licenses                                          554.6        530.1
Goodwill and other intangible assets                      80.4         83.0
Long-term investments and other (Note 4)                  44.6         62.8
Deferred income taxes, net                                39.7         18.1
---------------------------------------------------------------------------
Total assets                                         $ 2,487.9    $ 2,401.6
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
LIABILITIES                                                                
Current liabilities                                                        
Cheques issued in excess of cash on hand             $    14.7    $       -
Operating loans (Note 5(a))                               27.0            -
Accounts payable and accrued liabilities                 255.7        290.5
Current portion of long-term debt (Note 5(b))            184.1         50.9
Current portion of deferred reforestation                                  
 obligations                                              37.3         31.6
Liabilities held for sale (Note 3)                         2.0            -
---------------------------------------------------------------------------
Total current liabilities                                520.8        373.0
---------------------------------------------------------------------------
Long-term debt (Note 5(b))                               100.0        188.1
Retirement benefit obligations                           314.5        298.3
Deferred reforestation obligations                        78.4         65.0
Other long-term liabilities                               13.6         13.8
Deferred income taxes, net                               150.8        103.3
---------------------------------------------------------------------------
Total liabilities                                    $ 1,178.1    $ 1,041.5
---------------------------------------------------------------------------
                                                                           
EQUITY                                                                     
Share capital                                        $ 1,126.2    $ 1,125.9
Contributed surplus                                       31.9         31.9
Retained earnings (deficit)                             (36.7)       (24.6)
Accumulated foreign exchange translation                                   
 differences                                            (10.5)        (5.9)
---------------------------------------------------------------------------
Total equity attributable to equity holders of                             
 the Company                                           1,110.9      1,127.3
Non-controlling interests                                198.9        232.8
---------------------------------------------------------------------------
Total equity                                         $ 1,309.8    $ 1,360.1
---------------------------------------------------------------------------
Total liabilities and equity                         $ 2,487.9    $ 2,401.6
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
The accompanying notes are an integral part of these condensed consolidated
financial statements.                                                      
APPROVED BY THE BOARD                                                       
                                                                            
"R.S. Smith"                                                                
Director, R.S. Smith                                                        
                                                                            
"R.L. Cliff"                                                                
Director, R.L. Cliff                                                        

 
Canfor Corporation 
Condensed Consolidated Statements of Income (Loss)  


 
                                       3 months ended       12 months ended
                                         December 31,          December 31,
(millions of Canadian dollars,                                             
unaudited)                            2012       2011       2012       2011
---------------------------------------------------------------------------
                                                                           
Sales                            $   721.8  $   576.2  $ 2,714.1  $ 2,421.4
                                                                           
Costs and expenses                                                         
  Manufacturing and product                                                
   costs                             465.7      421.0    1,820.2    1,627.5
  Freight and other                                                        
   distribution costs                125.0      113.6      503.7      467.9
  Export taxes                         9.8        9.6       45.5       39.9
  Amortization                        50.4       47.6      187.2      169.3
  Selling and administration                                               
   costs                              15.2       15.6       61.3       57.4
  Asset impairments                    0.8        9.2        0.8        9.2
  Restructuring, mill closure                                              
   and severance costs                 4.8       22.8       18.5       38.3
---------------------------------------------------------------------------
                                     671.7      639.4    2,637.2    2,409.5
---------------------------------------------------------------------------
                                                                           
Operating income (loss)               50.1     (63.2)       76.9       11.9
                                                                           
Finance expense, net                 (6.5)      (5.1)     (24.7)     (26.0)
Foreign exchange gain (loss) on                                            
 long-term debt and                                                        
 investments, net                    (2.0)        4.9        4.7      (5.0)
Gain (loss) on derivative                                                  
 financial instruments (Note 7)      (8.7)        9.6      (0.8)        3.5
Other income (expense), net          (0.2)        1.3      (0.4)        5.9
---------------------------------------------------------------------------
Net income (loss) before income                                            
 taxes                                32.7     (52.5)       55.7      (9.7)
Income tax recovery (expense)                                              
 (Note 8)                            (8.1)       14.4     (14.3)       20.5
---------------------------------------------------------------------------
Net income (loss)                $    24.6  $  (38.1)  $    41.4  $    10.8
---------------------------------------------------------------------------
                                                                           
Net income (loss) attributable                                             
 to:                                                                       
Equity shareholders of the                                                 
 Company                         $    21.6  $  (44.1)  $    32.1  $  (56.6)
Non-controlling interests              3.0        6.0        9.3       67.4
---------------------------------------------------------------------------
Net income (loss)                $    24.6  $  (38.1)  $    41.4  $    10.8
---------------------------------------------------------------------------
                                                                           
Net income (loss) per common                                               
 share: (in dollars)                                                       
Attributable to equity                                                     
 shareholders of the Company                                               
Basic and diluted (Note 9)       $    0.15  $  (0.31)  $    0.22  $  (0.40)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
The accompanying notes are an integral part of these condensed consolidated
financial statements.                                                      

 
Canfor Corporation 
Condensed Consolidated Statements of Other Comprehensive Income
(Loss) 


 
                                         3 months ended     12 months ended
                                           December 31,        December 31,
(millions of Canadian dollars,                                             
unaudited)                               2012      2011      2012      2011
---------------------------------------------------------------------------
Net income (loss)                    $   24.6  $ (38.1)  $   41.4  $   10.8
Other comprehensive income (loss)                                          
  Foreign exchange translation                                             
   differences for foreign                                                 
   operations                             1.9     (4.3)     (4.6)       4.4
  Defined benefit plan actuarial                                           
   gains (losses) (Note 6)              (7.6)      14.9    (67.4)    (64.5)
  Income tax recovery (expense) on                                         
   defined benefit plan actuarial                                          
   gains (losses) (Note 8)                1.9     (4.2)      17.0      14.2
---------------------------------------------------------------------------
Other comprehensive income (loss),                                         
 net of tax                             (3.8)       6.4    (55.0)    (45.9)
---------------------------------------------------------------------------
Total comprehensive income (loss)    $   20.8  $ (31.7)  $ (13.6)  $ (35.1)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
Total comprehensive income (loss)                                          
 attributable to:                                                          
Equity shareholders of the Company   $   18.7  $ (35.2)  $ (16.7)  $ (93.7)
Non-controlling interests                 2.1       3.5       3.1      58.6
---------------------------------------------------------------------------
Total comprehensive income (loss)    $   20.8  $ (31.7)  $ (13.6)  $ (35.1)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
Condensed Consolidated Statements of Changes in Equity  


 
                                       3 months ended       12 months ended
                                         December 31,          December 31,
(millions of Canadian dollars,                                             
unaudited)                            2012       2011       2012       2011
---------------------------------------------------------------------------
                                                                           
Share capital                                                              
Balance at beginning of period   $ 1,126.2  $ 1,125.7  $ 1,125.9  $ 1,125.4
Common shares issued on                                                    
 exercise of stock options               -        0.2        0.3        0.5
---------------------------------------------------------------------------
Balance at end of period         $ 1,126.2  $ 1,125.9  $ 1,126.2  $ 1,125.9
---------------------------------------------------------------------------
                                                                           
Contributed surplus                                                        
---------------------------------------------------------------------------
Balance at beginning and end of                                            
 period                          $    31.9  $    31.9  $    31.9  $    31.9
---------------------------------------------------------------------------
                                                                           
Retained earnings (deficit)                                                
Balance at beginning of period   $  (53.5)  $     6.3  $  (24.6)  $    73.5
Net income (loss) attributable                                             
 to equity shareholders of the                                             
 Company                              21.6     (44.1)       32.1     (56.6)
Defined benefit plan actuarial                                             
 gains (losses), net of tax          (4.8)       13.2     (44.2)     (41.5)
---------------------------------------------------------------------------
Balance at end of period         $  (36.7)  $  (24.6)  $  (36.7)  $  (24.6)
---------------------------------------------------------------------------
                                                                           
Accumulated foreign exchange                                               
 translation differences                                                   
Balance at beginning of period   $  (12.4)  $   (1.6)  $   (5.9)  $  (10.3)
Foreign exchange translation                                               
 differences for foreign                                                   
 operations                            1.9      (4.3)      (4.6)        4.4
---------------------------------------------------------------------------
Balance at end of period         $  (10.5)  $   (5.9)  $  (10.5)  $   (5.9)
---------------------------------------------------------------------------
                                                                           
Total equity attributable to                                               
 equity holders of the Company   $ 1,110.9  $ 1,127.3  $ 1,110.9  $ 1,127.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
Non-controlling interests                                                  
Balance at beginning of period   $   197.2  $   241.0  $   232.8  $   249.5
Net income attributable to non-                                            
 controlling interests                 3.0        6.0        9.3       67.4
Defined benefit plan actuarial                                             
 losses attributable to non-                                               
 controlling interests               (0.9)      (2.5)      (6.2)      (8.8)
Distributions to non-                                                      
 controlling interests               (0.4)     (11.7)     (12.0)     (75.3)
Share exchange (Note 14)                 -          -     (25.0)          -
---------------------------------------------------------------------------
Balance at end of period         $   198.9  $   232.8  $   198.9  $   232.8
---------------------------------------------------------------------------
                                                                           
Total equity                     $ 1,309.8  $ 1,360.1  $ 1,309.8  $ 1,360.1
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
The accompanying notes are an integral part of these condensed consolidated
financial statements.                                                      

 
Canfor Corporation 
Condensed Consolidated Statements of Cash Flows 


 
                                       3 months ended       12 months ended
                                         December 31,          December 31,
(millions of Canadian dollars,                                             
unaudited)                             2012      2011       2012       2011
---------------------------------------------------------------------------
Cash generated from (used in):                                             
Operating activities                                                       
  Net income (loss)                $   24.6  $ (38.1)  $    41.4  $    10.8
  Items not affecting cash:                                                
    Amortization                       50.4      47.6      187.2      169.3
    Income tax (recovery) expense       8.1    (14.4)       14.3     (20.5)
    Long-term portion of deferred                                          
     reforestation obligations          8.9       6.3        2.5        3.1
    Change in fair value of long-                                          
     term investment                      -     (0.4)      (1.3)      (0.2)
    Foreign exchange (gain) loss                                           
     on long-term debt and                                                 
     investments, net                   2.0     (4.9)      (4.7)        5.0
    Changes in mark-to-market                                              
     value of derivative                                                   
     financial instruments              5.8    (11.1)        3.9      (3.9)
    Employee future benefits                                               
     (Note 6)                        (13.6)     (4.7)     (18.5)      (5.4)
    Net finance expense                 6.5       5.1       24.7       26.0
    Asset impairments                   0.8       9.2        0.8        9.2
    Mill closure provisions               -      22.5          -       22.5
    Other, net                          1.8     (1.1)          -      (9.7)
  Salary pension plan                                                      
   contributions                      (8.7)     (8.1)     (35.7)     (37.3)
  Income taxes recovered (paid),                                           
   net                                (2.7)         -      (8.1)      (0.3)
  Net change in non-cash working                                           
   capital (Note 10)                 (50.5)      30.4     (75.3)      (5.6)
---------------------------------------------------------------------------
                                       33.4      38.3      131.2      163.0
---------------------------------------------------------------------------
Financing activities                                                       
  Change in operating bank loans                                           
   (Note 5(a))                         10.0         -       27.0          -
  Proceeds from long-term debt                                             
   (Note 5(b))                            -         -      100.0          -
  Repayment of long-term debt                                              
   (Note 5(b))                            -         -     (49.9)     (81.9)
  Finance expenses paid               (7.6)     (6.2)     (19.5)     (18.9)
  Cash distributions paid to non-                                          
   controlling interests              (0.4)    (11.4)     (15.9)     (91.0)
  Other, net                              -         -        0.3        0.4
---------------------------------------------------------------------------
                                        2.0    (17.6)       42.0    (191.4)
---------------------------------------------------------------------------
Investing activities                                                       
  Additions to property, plant                                             
   and equipment                     (47.7)   (116.2)    (199.8)    (312.3)
  Reimbursements from Federal                                              
   Government under Green                                                  
   Transformation Program               0.7      25.2       19.7       75.6
  Proceeds from disposal of                                                
   property, plant and equipment        5.5       0.7        6.1        1.4
  Acquisition of Tembec assets                                             
   (Note 13)                              -         -     (65.6)          -
  Share exchange (Note 14)                -         -        6.8          -
  Proceeds from redemption of                                              
   asset-backed commercial paper                                           
   (Note 4)                               -         -       12.9       29.8
  Other, net                          (1.5)     (2.8)        3.1        2.5
---------------------------------------------------------------------------
                                     (43.0)    (93.1)    (216.8)    (203.0)
---------------------------------------------------------------------------
Increase (decrease) in cash and                                            
 cash equivalents(i)                  (7.6)    (72.4)     (43.6)    (231.4)
Cash and cash equivalents at                                               
 beginning of period(i)               (7.1)     101.3       28.9      260.3
---------------------------------------------------------------------------
Cash and cash equivalents at end                                           
 of period(i)                      $ (14.7)  $   28.9  $  (14.7)  $    28.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
(i)Cash and cash equivalents include cash on hand less unpresented cheques.
                                                                           
The accompanying notes are an integral part of these condensed consolidated
financial statements.                                                      

 
Canfor Corporation 
Notes to the Condensed Consolidated Financial Statements 
(unaudited, millions of Canadian dollars unless otherwise noted) 
1. Basis of Preparation  
These condensed consolidated interim financial statements have been
prepared in accordance with International Accounting Standard ("IAS")
34 Interim Financial Reporting, and include the accounts of Canfor
Corporation and its subsidiary entities, hereinafter referred to as
"Canfor" or "the Company".  
These interim financial statements do not include all of the
disclosures required by International Financial Reporting Standards
("IFRS") for annual financial statements. Additional disclosures
relevant to the understanding of these interim financial statements,
including the accounting policies applied, can be found in Canfor's
Annual Report for the year ended December 31, 2011, available at
www.canfor.com or www.sedar.com.  
Canfor's financial results are impacted by seasonal factors such as
weather and building activity. Adverse weather conditions can cause
logging curtailments, which can affect the supply of raw materials to
sawmills and pulp mills. Market demand also varies seasonally to some
degree. For example, building activity and repair and renovation
work, which affects demand for solid wood products, are generally
stronger in the spring and summer months. Shipment volumes are
affected by these factors as well as by global supply and demand
conditions.  
The currency of presentation for these financial statements is the
Canadian dollar.  
Change in Accounting Policy  
Effective January 1, 2012, the Company retroactively changed its
accounting policy for the presentation of interest expense and
expected rate of return on assets of defined benefit post-retirement
plans. The net expense has been reclassified from operating income,
where it was included in manufacturing and product costs and in
selling and administration costs, to net finance expense. Management
considers the classification of net pension interest expense as a
finance expense more accurately reflects the nature of this cost. The
effect on the three months ended December 31, 2011 and twelve months
ended December 31, 2011 is an increase in operating income, and net
finance expense, of $0.8 million and $3.5 million, respectively.
There is no impact on amounts recorded in the consolidated balance
sheet or opening equity as at January 1, 2012. 
Accounting standards issued and not applied  
Unless otherwise noted, the following new or revised standards and
amendments as adopted by the IASB are effective for annual periods
beginning on or after January 1, 2013, with earlier application
permitted. These new and revised accounting standards have not yet
been adopted by Canfor and the Company does not plan to early adopt
any of the standards. 
Consolidation and interests in other entities 
In May 2011, as part of its consolidation project, the IASB issued
the following new suite of consolidation and related standards. The
suite is intended to cover all aspects of interests in other entities
from determination of how to account for interests in other entities
to required disclosure of the interest in those entities. Early
adoption is permitted provided that the entire suite of consolidation
standards is adopted at the same time.  


 
--  IFRS 10, Consolidated Financial Statements, requires an entity to
    consolidate an investee when it has power over the investee, is exposed,
    or has rights, to variable returns from its involvements with the
    investee and has the ability to affect those returns through its power
    over the investee. IFRS 10 replaces SIC-12, Consolidation - Special
    Purpose Entities, and parts of IAS 27, Consolidated and Separate
    Financial Statements. IFRS 10 is not expected to have a material impact
    on amounts recorded in the financial statements of Canfor. 
 
--  IFRS 11, Joint Arrangements, redefines joint operations and joint
    ventures with a focus on the rights and obligations of an arrangement,
    rather than its legal form. The new Standard requires a venturer to
    classify its interest in a joint arrangement as a joint venture or joint
    operation. Joint ventures will be accounted for using the equity method
    of accounting, whereas for a joint operation the venturer will recognize
    its share of the assets, liabilities, revenue and expenses of the joint
    operation. IFRS 11 supersedes IAS 31, Interests in Joint Ventures, and
    SIC-13, Jointly Controlled Entities - Non-monetary Contributions by
    Venturers. 
    
    Under IFRS 11, Canfor's 50% interest in Canfor-LP OSB Limited
    Partnership is classified as a joint venture and will be accounted for
    using the equity method of accounting until completion of the sale (note
    3). The Company currently proportionately consolidates Canfor-LP OSB
    Limited Partnership in accordance with IAS 31. 
 
--  IFRS 12, Disclosure of Interests in Other Entities, carries forward
    existing disclosure requirements and introduces additional disclosures
    that address the nature of, and risks associated with, an entity's
    interests in other entities. IFRS 12 is not expected to have a material
    impact on amounts recorded in the financial statements of Canfor.
      
--  There have been amendments to existing standards, including IAS 27
    (2011), Separate Financial Statements, and IAS 28 (2011), Investments in
    Associates and Joint Ventures. IAS 27 (2011) addresses accounting for
    subsidiaries, jointly controlled entities and associates in non-
    consolidated financial statements. IAS 28 (2011) sets out the equity
    accounting for joint ventures and associates, once the assessment of the
    arrangement has been made under IFRS 11. Canfor's interest in Canfor-LP
    OSB Limited Partnership will be accounted for in accordance with IAS 28
    (2011). The amendments to IAS 27 are not expected to have a material
    impact on amounts recorded in the financial statements of the Company. 

 
Employee benefits 


 
--  IAS 19, Employee Benefits, has been amended to make changes to the
    recognition and measurement of defined benefit pension expense and
    termination benefits and to enhance the disclosure of all employee
    benefits. Pension benefit cost will be split between (i) the cost of
    benefits accrued in the current period (service cost) and benefit
    changes (past-service costs (including plan amendments, settlements and
    curtailments)); and (ii) finance expense or income. Interest cost and
    expected return on plan assets, which currently reflect different rates,
    will be replaced with a net interest amount that is calculated by
    applying one discount rate to the net defined benefit liability (asset).
    The principal impact on the Company of this portion of the amended
    Standard is expected to be an increase in net finance cost as the
    Company's return on plan assets will effectively be estimated at a lower
    rate. 
    
    The amended Standard also requires immediate recognition of actuarial
    gains and losses in other comprehensive income as they arise, without
    subsequent recycling to net income. This is consistent with the
    Company's current accounting policy. 
    
    In addition, under the amended Standard, the impact of plan amendments
    related to past service will no longer be recognized over a vesting
    period but instead will be recognized immediately in the period of a
    plan amendment. 
    
    The amended Standard will result in an increase in operating income of
    approximately $1.5 million offset by an increase in finance expense of
    approximately $9.2 million in the 2012 comparative financial statements.

 
Other standards and amendments 


 
--  IFRS 9, Financial Instruments, addresses classification and measurement
    of financial assets and financial liabilities, and is effective January
    1, 2015, with earlier adoption permitted. The new Standard limits the
    number of categories for classification of financial assets to two:
    amortized cost and fair value through profit or loss. IFRS 9 also
    replaces the models for measuring equity instruments. Equity instruments
    are either recognized at fair value through profit or loss or at fair
    value through other comprehensive income. IFRS 9 is not expected to have
    a material impact on amounts recorded in the financial statements of
    Canfor. 
    
    
--  IFRS 13, Fair Value Measurement, clarifies that fair value is the price
    that would be received on sale of an asset, or paid to transfer a
    liability in an orderly transaction between market participants, at the
    measurement date. IFRS 13 is not expected to have a material impact on
    amounts recorded in the financial statements of Canfor.
    
    
--  IAS 1, Presentation of Financial Statements, has been amended to require
    entities to separate items presented in other comprehensive income
    ("OCI") into two groups, based on whether or not items may be recycled
    to net income in the future. The amendment is effective for annual
    periods beginning on or after July 1, 2012, with earlier application
    permitted. IAS 1 is not expected to have a material impact on amounts
    recorded in the financial statements of Canfor. 

 
2. Inventories 


 
                                                        As at        As at 
                                                  December 31, December 31,
(millions of Canadian dollars)                            2012         2011
---------------------------------------------------------------------------
Logs                                                 $   119.4    $    55.9
Finished products                                        205.8        186.3
Residual fibre                                            11.5         17.3
Processing materials and supplies                         94.6         88.8
---------------------------------------------------------------------------
                                                     $   431.3    $   348.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
The above inventory balances are stated after inventory write-downs
from cost to net realizable value. No write-downs were included in
inventory at December 31, 2012 (December 31, 2011 - $15.5 million).
At December 31, 2012, an amount of $4.3 million was reclassified from
inventories to assets held for sale. 
3. Assets and Liabilities Held for Sale 
On November 28, 2012, the Company entered into a Letter of Intent
with Louisiana-Pacific to sell its 50% share in Canfor-LP OSB Limited
Partnership ("Canfor-LP OSB") for a price of $70.0 million plus
working capital. As part of the sale, Canfor may receive additional
annual consideration over a 3 year period based on Peace Valley OSB's
annual adjusted earnings before interest, tax, depreciation and
amortization. On completion of the sale, Louisiana-Pacific will
become the sole owner of the Peace Valley OSB mill. At December 31,
2012, the assets and liabilities to be sold have been reclassified as
held for sale and the non-current assets have been measured at the
lower of the carrying amount and the fair value less cost to sell. No
impairment was recorded on reclassification as the fair value less
cost to sell exceeded the carrying amount. The transaction is
currently scheduled to close in the first half of 2013. 
At December 31, 2012, the following assets and liabilities are
classified as held for sale: 


 
                                                                     As at 
                                                               December 31,
(millions of Canadian dollars)                                         2012
---------------------------------------------------------------------------
Accounts receivable                                         $           3.9
Inventories                                                             4.3
Prepaid expenses                                                        0.3
Property, plant and equipment                                          68.8
---------------------------------------------------------------------------
Assets held for sale                                        $          77.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Accounts payable and accrued liabilities                    $           2.0
---------------------------------------------------------------------------
Liabilities held for sale                                   $           2.0
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
There are no cumulative income or expenses included in other
comprehensive income (loss) relating to the assets and liabilities
held for sale. 
4. Long-term Investments and Other  


 
                                                        As at        As at 
                                                  December 31, December 31,
(millions of Canadian dollars)                            2012         2011
---------------------------------------------------------------------------
Asset-backed commercial paper ("ABCP")               $       -    $    11.8
Other investments                                         23.7         24.3
Investment tax credits                                     8.6          8.6
Defined benefit plan assets                                1.4          3.0
Other deposits, loans and advances                        10.9         15.1
---------------------------------------------------------------------------
                                                     $    44.6    $    62.8
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
During the second quarter of 2012, the Company sold all remaining
ABCP assets for net proceeds of $12.9 million. 
5. Operating Loans and Long-Term Debt 
(a) Available Operating Loans 


 
                                                        As at        As at 
                                                  December 31, December 31,
(millions of Canadian dollars)                            2012         2011
---------------------------------------------------------------------------
Canfor (excluding CPLP)                                                    
Principal operating loans                            $   350.0    $   350.0
Facility A                                                   -         12.9
---------------------------------------------------------------------------
Total operating loans - Canfor (excluding CPLP)          350.0        362.9
Drawn                                                   (27.0)            -
Letters of credit (principally unregistered                                
 pension plans)                                         (18.0)       (17.2)
---------------------------------------------------------------------------
Total available operating loans - Canfor                                   
 (excluding CPLP)                                    $   305.0    $   345.7
---------------------------------------------------------------------------
CPLP                                                                       
Operating loan facility                              $   110.0    $    40.0
Bridge loan credit facility (maximum $30.0                                 
 million)                                                    -         19.7
Facility for BC Hydro letter of credit                     7.5         10.4
---------------------------------------------------------------------------
Total operating loans - CPLP                             117.5         70.1
Drawn                                                        -            -
Letters of credit (for general business purposes)        (1.7)        (0.5)
BC Hydro letter of credit                                (7.5)       (10.4)
---------------------------------------------------------------------------
Total available operating loans - CPLP               $   108.3    $    59.2
---------------------------------------------------------------------------
Consolidated:                                                              
Total operating loans                                $   467.5    $   433.0
Total available operating loans                      $   413.3    $   404.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
For Canfor, excluding Canfor Pulp Limited Partnership ("CPLP"), the
principal operating loans mature on October 31, 2015. Interest is
payable at floating rates based on lenders' Canadian prime rate,
bankers acceptances, US dollar base rate or US dollar LIBOR rate,
plus a margin that varies with the Company's net debt to total
capitalization ratio. Facility A, which was for US$12.7 million at
December 31, 2011, expired in January 2012. 
The terms of CPLP's operating loan facility include interest payable
at floating rates that vary depending on the ratio of net debt to
operating earnings before interest, taxes, depreciation, amortization
and certain other non-cash items, and is based on lenders' Canadian
prime rate, bankers acceptances, US dollar base rate or US dollar
LIBOR rate, plus a margin. In the fourth quarter of 2012, CPLP
entered into a new $110.0 million operating loan facility replacing
its previous $40.0 million operating loan facility. The new facility
has certain financial covenants that stipulate maximum net debt to
total capitalization ratios and minimum net worth amounts based on
shareholders' equity. The maturity date of the new facility is
November 13, 2016. 
During the third quarter of 2012, CPLP terminated its $30.0 million
bridge loan credit facility in conjunction with the completion of the
Canadian Federal Government Green Transformation Program ("Program").
The facility was used to fund timing differences between expenditures
and reimbursements for projects funded by the Program. The Company
has a separate facility with a maturity date of November 30, 2013 to
cover a $7.5 million standby letter of credit issued to BC Hydro. 
As at December 31, 2012, the Company and CPLP were in compliance with
all covenants relating to their operating loans. Substantially all
borrowings of CPLP (operating loans and long-term debt) are
non-recourse to other entities within the Company.  
(b) Long-Term Debt 
During the first quarter of 2012, the Company repaid $49.9 million
(US$50.0 million) of 6.33% interest rate privately placed senior
notes. The Company also issued new term debt totaling $100.0 million
which was used to fund the above debt repayment and the acquisition
of assets from Tembec Industries Ltd. ("Tembec") (Note 13). The new
debt is in the form of an unsecured non-revolving term loan, with a
maturity date of February 13, 2017. Interest rates are floating based
on the lenders' Canadian prime rate or bankers acceptances. In
addition, during the first half of 2012 the Company put in place
$100.0 million of floating to fixed interest rate swaps. 
At December 31, 2012, the fair value of the long-term debt, measured
at its amortized cost of $284.1 million, was $288.8 million. The fair
value was determined based on prevailing market rates for long-term
debt with similar characteristics and risk profile. 
6. Employee Future Benefits 
Canfor measures its accrued benefit obligations and the fair value of
plan assets for accounting purposes as at December 31 of each year.
At the end of each interim reporting period, the Company estimates
movements in its accrued benefit liabilities based upon movements in
discount rates and the rates of return on plan assets, as well as any
significant changes to the plans. Adjustments are also made for
payments made and current service and interest costs. 
For the twelve months ended December 31, 2012, $67.4 million (before
tax) was charged to other comprehensive income. The charge reflects a
reduction in the discount rate used to value the plans offset
slightly by a higher than expected rate of return for the period. For
the three months ended December 31, 2012, the charge was $7.6 million
(before tax). For the twelve months ended December 31, 2011, a
pre-tax amount of $64.5 million was charged to other comprehensive
income principally reflecting a decrease in the discount rate over
the period. For the three months ended December 31, 2011 the pre-tax
credit was $14.9 million. 
During the fourth quarter of 2012, the Company amended the salaried
post retirement benefit plans for certain employees and retirees. The
amendments reduced the Company's retirement benefit obligation by
$15.7 million (before tax). As a result of the plan amendments,
Canfor recognized an accounting gain of $12.9 million (before tax)
for vested past-service costs and deferred a gain of $2.8 million
(before tax) for unvested past-service costs. 
For the Company's single largest pension plan, a one percentage point
increase in the rate of return on plan assets over the year would
reduce the funded deficit by an estimated $4.1 million. A one
percentage point increase in the discount rate used in calculating
the actuarial estimate of future liabilities would reduce the funded
deficit by an estimated $58.3 million. 
The assumptions used to estimate the changes in net accrued benefit
liabilities were as follows: 


 
---------------------------------------------------------------------------
Pension Benefit Plans                                                      
Discount rate                                                              
  December 31, 2012                                                   4.20%
  September 30, 2012                                                  4.30%
  December 31, 2011                                                   5.00%
  September 30, 2011                                                  5.00%
  December 31, 2010                                                   5.50%
Rate of return on plan assets                                              
  12 months ended December 31, 2012                                   9.40%
  9 months ended September 30, 2012                                   6.60%
  12 months ended December 31, 2011                                   2.50%
  9 months ended September 30, 2011                                 (2.50)%
---------------------------------------------------------------------------
Other Benefit Plans                                                        
Discount rate                                                              
  December 31, 2012                                                   4.40%
  September 30, 2012                                                  4.50%
  December 31, 2011                                                   5.30%
  September 30, 2011                                                  5.40%
  December 31, 2010                                                   5.75%
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
7. Derivative Financial Instruments 
The Company uses a variety of derivative financial instruments to
reduce its exposure to risks associated with fluctuations in foreign
exchange rates, interest rates, lumber prices, energy costs,
electricity sales and floating interest rates on certain long-term
debt. At December 31, 2012, the fair value of derivative financial
instruments was a net liability of $4.1 million (December 31, 2011 -
net liability of $0.2 million). The fair value of these financial
instruments was determined based on prevailing market rates for
instruments with similar characteristics. 
The following table summarizes the gain (loss) on derivative
financial instruments for the three and twelve month periods ended
December 31, 2012 and 2011: 


 
                                           3 months ended   12 months ended
                                             December 31,      December 30,
(millions of Canadian dollars)              2012     2011     2012     2011
---------------------------------------------------------------------------
Foreign exchange collars and forward                                       
 contracts                               $ (1.0)  $   9.3  $   3.2  $ (2.7)
Energy derivatives                         (0.3)      0.9      0.6      0.6
Lumber futures                             (7.5)    (0.6)    (3.6)      5.6
Interest rate swaps                          0.1        -    (1.0)        -
---------------------------------------------------------------------------
                                         $ (8.7)  $   9.6  $ (0.8)  $   3.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
The following table summarizes the fair value of the derivative
financial instruments included in the balance sheet at December 31,
2012 and December 31, 2011: 


 
                                                        As at        As at 
                                                  December 31, December 31,
(millions of Canadian dollars)                            2012         2011
---------------------------------------------------------------------------
Foreign exchange collars and forward contracts       $     0.3    $   (0.4)
Energy derivatives                                         0.3        (0.2)
Lumber futures                                           (4.1)          0.4
Interest rate swaps                                      (0.6)            -
---------------------------------------------------------------------------
Total asset (liability), net                             (4.1)        (0.2)
Less: current portion asset (liability), net             (3.5)        (0.2)
---------------------------------------------------------------------------
Long-term portion asset (liability), net             $   (0.6)    $       -
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
8. Income Taxes 


 
                                          3 months ended    12 months ended
                                            December 31,       December 31,
(millions of Canadian dollars)             2012     2011      2012     2011
---------------------------------------------------------------------------
Current                                 $ (2.2)  $ (1.4)  $  (2.9)  $ (1.7)
Deferred                                  (5.9)     15.8    (11.4)     22.2
---------------------------------------------------------------------------
Income tax recovery (expense)           $ (8.1)  $  14.4  $ (14.3)  $  20.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
The reconciliation of income taxes calculated at the statutory rate
to the actual income tax provision is as follows: 


 
                                           3 months ended   12 months ended
                                             December 31,      December 31,
(millions of Canadian dollars)              2012     2011     2012     2011
---------------------------------------------------------------------------
Income tax recovery (expense) at                                           
 statutory rate                                                            
2012 - 25.0% (2011 - 26.5%)              $ (8.2)  $  13.9  $(13.9)  $   2.6
Add (deduct):                                                              
  Non-taxable income related to non-                                       
   controlling interests in limited                                        
   partnerships                              0.2      1.6      1.7     17.9
  Entities with different income tax                                       
   rates and other tax adjustments           0.3    (0.1)    (2.4)      1.0
  Tax recovery (expense) at rates other                                    
   than statutory rate                         -    (0.8)      0.1    (0.9)
  Permanent difference from capital                                        
   gains and losses and other non-                                         
   deductible items                        (0.4)    (0.2)      0.2    (0.1)
---------------------------------------------------------------------------
Income tax recovery (expense)            $ (8.1)  $  14.4  $(14.3)  $  20.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
In addition to the amounts recorded to net income, a tax recovery of
$1.9 million was recorded to other comprehensive income for the three
month period ended December 31, 2012 (three months ended December 31,
2011 - tax expense of $4.2 million) in relation to the actuarial
losses on defined benefit employee compensation plans. For the twelve
months ended December 31, 2012, the tax recovery was $17.0 million
(twelve months ended December 31, 2011 - $14.2 million). 
9. Earnings Per Share 
Basic net income (loss) per share is calculated by dividing the net
income (loss) available to common shareholders by the weighted
average number of common shares outstanding during the period.
Diluted net income (loss) per share is calculated by dividing the net
income (loss) available to common shareholders by the weighted
average number of common shares during the period using the treasury
stock method. Under this method, proceeds from the potential exercise
of stock options are assumed to be used to purchase the Company's
common shares. When there is a net loss, the exercise of stock
options would result in a calculated diluted net loss per share that
is anti-dilutive. As at December 31, 2012, there were no outstanding
stock options. 


 
                          3 months ended December  12 months ended December
                                              31,                       31,
                                2012         2011         2012         2011
---------------------------------------------------------------------------
Weighted average number                                                    
 of common shares        142,752,431  142,705,764  142,749,096  142,698,624
Incremental shares from                                                    
 potential exercise of                                                     
 options(1)                        -          653            -        4,023
Diluted number of                                                          
 common shares(1)        142,752,431  142,705,764  142,749,096  142,698,624
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
(1)Where the addition of share options to the total shares
outstanding has an anti-dilutive impact on the diluted net income
(loss) per share calculation, those share options have not been
included in the total common shares outstanding for purposes of the
calculation of diluted net income (loss) per share. 
10. Net Change in Non-Cash Working Capital 


 
                                         3 months ended     12 months ended
                                           December 31,        December 31,
(millions of Canadian dollars)           2012      2011      2012      2011
---------------------------------------------------------------------------
Accounts receivable                  $   12.2  $   71.1  $    0.4  $   36.6
Inventories                            (41.3)    (21.8)    (60.8)    (22.6)
Prepaid expenses                          9.9      18.4     (1.4)       6.1
Accounts payable, accrued                                                  
 liabilities and current portion of                                        
 deferred reforestation obligations    (31.3)    (37.3)    (13.5)    (25.7)
---------------------------------------------------------------------------
Net decrease (increase) in non-cash                                        
 working capital                     $ (50.5)  $   30.4  $ (75.3)  $  (5.6)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
11. Segment Information 
Canfor has two reportable segments which offer different products and
are managed separately because they require different production
processes and marketing strategies. 
Sales between segments are accounted for at prices that approximate
fair value. These include sales of residual fibre from the lumber
segment to the pulp and paper segment for use in the pulp production
process. 
The Company's panels business does not meet the criteria to be
reported fully as a separate segment and is included in Unallocated &
Other below. Sales for panels operations for the three months ended
December 31, 2012 were $23.5 million (three months ended December 31,
2011 - $13.3 million) and $78.8 million for the twelve months ended
December 31, 2012 (twelve months ended December 31, 2011 - $46.8
million). 


 
(millions of                   Pulp & Unallocated Elimination              
Canadian dollars)      Lumber   Paper     & Other  Adjustment  Consolidated
---------------------------------------------------------------------------
3 months ended                                                             
 December 31, 2012                                                         
Sales to external                                                          
 customers          $   469.9   228.4        23.5           - $       721.8
Sales to other                                                             
 segments           $    26.1       -           -      (26.1) $           -
Operating income                                                           
 (loss)             $    41.7    10.8       (2.4)           - $        50.1
Amortization        $    26.6    20.5         3.3           - $        50.4
Capital                                                                    
 expenditures(1)    $    34.7    12.8         0.2           - $        47.7
---------------------------------------------------------------------------
3 months ended                                                             
 December 31, 2011                                                         
Sales to external                                                          
 customers          $   325.9   237.0        13.3           - $       576.2
Sales to other                                                             
 segments           $    30.8       -           -      (30.8) $           -
Operating income                                                           
 (loss)             $  (55.8)    18.2      (25.6)           - $      (63.2)
Amortization        $    21.5    21.7         4.4           - $        47.6
Capital                                                                    
 expenditures(1)    $    49.3    66.9           -           - $       116.2
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
12 months ended                                                            
 December 31, 2012                                                         
Sales to external                                                          
 customers          $ 1,711.8   923.5        78.8           - $     2,714.1
Sales to other                                                             
 segments           $   111.9       -           -     (111.9) $           -
Operating income                                                           
 (loss)             $    75.4    26.6      (25.1)           - $        76.9
Amortization        $   101.8    69.0        16.4           - $       187.2
Capital                                                                    
 expenditures(1)    $   110.9    88.7         0.2           - $       199.8
Identifiable assets                                                        
                    $ 1,553.7   774.6       159.6           - $     2,487.9
---------------------------------------------------------------------------
12 months ended                                                            
 December 31, 2011                                                         
Sales to external                                                          
 customers          $ 1,317.1 1,057.5        46.8           - $     2,421.4
Sales to other                                                             
 segments           $   127.1       -           -     (127.1) $           -
Operating income                                                           
 (loss)             $  (81.5)   152.9      (59.5)           - $        11.9
Amortization        $    83.9    68.0        17.4           - $       169.3
Capital                                                                    
 expenditures(1)    $   155.3   156.2         0.8           - $       312.3
Identifiable assets                                                        
                    $ 1,413.8   812.3       175.5           - $     2,401.6
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1)Capital expenditures represent cash paid for capital assets, excluding  
acquisition of Tembec assets, during the period. Pulp & Paper includes     
capital expenditures by CPPI that are financed by the federal government-  
funded Green Transformation Program.                                       

 
12. Softwood Lumber Agreement 
On January 18, 2011, the U.S. triggered the arbitration provision of
the 2006 Softwood Lumber Agreement ("SLA") by delivering a Request
for Arbitration. The U.S. claimed that the province of British
Columbia ("BC") had not properly applied the timber pricing system
grandparented in the SLA. The U.S. also claimed that subsequent to
2006, BC made additional changes to the timber pricing system which
had the effect of reducing timber prices. The claim focused on
substantial increases in Grade 4 (non sawlog or low grade) volumes
commencing in 2007. It was alleged that timber was scaled and graded
as Grade 4 that did not meet the criteria for that grade, and was
accordingly priced too low. 
As the arbitration was a state-to-state international dispute under
the SLA, Canada prepared a defense to the claim with the assistance
of the BC provincial government and the BC lumber industry. After
numerous representations from both sides, a hearing was held before
the arbitration panel in the first quarter of 2012. 
On July 18, 2012 the arbitration panel ruled in favour of Canada and
dismissed the claims of the U.S. in their entirety. 
13. Acquisition of Tembec Assets  
On March 23, 2012, the Company completed the acquisition of Tembec's
southern British Columbia Interior wood products assets for cash
consideration of $65.6 million, including a payment on account of net
working capital, excluding certain liabilities retained by Tembec.
The acquisition has been accounted for in accordance with IFRS 3
Business Combinations. 
The acquisition included Tembec's Elko and Canal Flats sawmills and
approximately 1.1 million cubic metres of combined Crown, private
land and contract annual allowable cut. The transaction also included
a long-term agreement to provide residual fibre supply for Tembec's
Skookumchuck pulp mill. The assets acquired increase the Company's
fibre availability and production capacity. 
The following summarizes the recognized amounts of assets acquired
and liabilities assumed at the acquisition date: 


 
(millions of Canadian dollars)                                             
---------------------------------------------------------------------------
Land                                                               $    3.0
Buildings, equipment and mobile                                         6.5
Timber licenses                                                        43.5
Deferred reforestation obligations                                         
                                                                     (16.5)
Non-cash working capital, net                                          29.1
---------------------------------------------------------------------------
Total net identifiable assets                                      $   65.6
---------------------------------------------------------------------------
---------------------------------------------------------------------------

 
If the acquisition had occurred on January 1, 2012, consolidated
sales would have increased by approximately $37.0 million, with no
material change to consolidated income. In determining these amounts,
the fair value adjustments that arose on the acquisition date have
been assumed to be the same as if the acquisition had occurred on
January 1, 2012. 
The Company incurred acquisition-related costs of $1.3 million,
principally relating to external legal fees and due diligence costs,
which have been included in selling and administration costs, and
severance costs of $2.5 million related to restructuring of the
acquired assets. These amounts are recorded in the Company's
consolidated statement of income (loss) for the year ended December
31, 2012. 
14. Share Exchange  
On March 2, 2012, Canadian Forest Products Ltd. ("CFP"), a wholly
owned subsidiary of Canfor, acquired 35,776,483 common shares of
Canfor Pulp Products Inc. ("CPPI") in exchange for its 35,776,483
Class B Exchangeable LP Units of CPLP and 35,776,483 common shares of
Canfor Pulp Holding Inc. ("Canfor Holding"), pursuant to the terms of
an Exchange Agreement made as of January 1, 2011 among CFP, CPPI,
Canfor Holding and CPLP. 
As of the date of exchange, the Company consolidated the balances of
CPPI and Canfor Holding, including an additional deferred income tax
liability of $31.4 million and cash of $6.8 million. The
non-controlling interest in consolidated equity increased by $25.0
million on the date of exchange, representing the additional
non-controlling interest balances in CPPI and Canfor Holding. 
Prior to the share exchange, CFP and CPPI entered into a one-time
dividend waiver agreement, waiving CFP's right to the first $7.8
million of future dividends declared by CPPI. As such, $7.8 million
was included in non-controlling interests to account for future
distributions which the Company had waived its entitlement to. The
full $7.8 million dividend was paid by CPPI during the second quarter
of 2012.
Contacts:
Canfor Corporation - Media Contact
Christine Kennedy
Vice President, Public Affairs & Corporate Communications
(604) 661-5225
Christine.Kennedy@canfor.com 
Canfor Corporation - Investor Contact
Pat Elliott
Vice President & Treasurer
(604) 661-5441
Patrick.Elliott@canfor.com
www.canfor.com