Canfor Corporation: Global Economic Climate Significantly Impacts Fourth Quarter Results

Canfor Corporation (TSX: CFP) today reported a net loss of $229.8 million ($1.61 per share) for the fourth quarter of 2008, compared to a net loss of $94.2 million ($0.66 per share) for the third quarter of 2008 and a net loss of $237.0 million ($1.66 per share) for the fourth quarter of 2007. For the year ended December 31, 2008, the Company's net loss was $345.2 million ($2.42 per share), compared to a net loss of $360.6 million ($2.53 per share) reported for 2007.

The net loss for the fourth quarter of 2008 included one-time items affecting comparability with prior periods, which had a negative impact on net income of $186.3 million ($1.31 per share). The more significant one-time items related to non-cash charges totaling $176.6 million ($1.24 per share), and were comprised of the following:

- Asset impairment charges totaling $74.1 million ($0.52 per share), of which the significant majority relates to the Company's indefinitely idled Tackama plywood and PolarBoard oriented strand board plants. The balance relates to the Company's non-bank asset-backed commercial paper ("ABCP") and other long-term investments. Asset impairments of $189.1 million ($1.32 per share) were recorded in the last quarter of 2007.

- Losses recorded on derivative financial instruments totaling $50.3 million ($0.35 per share), reflecting a rapid decline in the value of the Canadian dollar versus the US dollar and falling energy prices during the fourth quarter.

- A foreign exchange loss of $52.2 million ($0.37 per share) relating to the Company's US dollar denominated long-term debt, net of investments, as a result of the significantly weaker Canadian dollar.

After taking account of all one-time items affecting comparability, the Company reported an adjusted net loss for the fourth quarter of 2008 of $43.5 million ($0.30 per share), compared to similarly adjusted net losses of $3.5 million ($0.02 per share) for the third quarter of 2008 and $69.6 million ($0.49 per share) for the fourth quarter of 2007. For the year ended December 31, 2008, the Company's adjusted net loss was $128.3 million ($0.90 per share), compared to an adjusted net loss of $199.0 million ($1.40 per share) reported for 2007.

The last quarter of 2008 saw a significant deterioration in market conditions for the Company's solid wood and pulp products, as a result of the global economic slowdown and further weakness in the U.S. economy. U.S. housing starts, which were already at historically low levels, dropped a further 25% in the fourth quarter to the lowest level since records began in 1959, and lumber and panel prices fell sharply in response. Pulp prices also fell in the quarter as demand waned and global inventory levels mounted.

In response to the slowing demand, Canfor took extended curtailments at all of its lumber operations over the Christmas period, and indefinitely closed its Tackama plywood plant in October. Market-related downtime was also taken at the Company's Taylor Pulp mill and at Canfor Pulp Limited Partnership ("CPLP"), in which Canfor holds a 50.2% interest.

Operating earnings were down $87.0 million from the previous quarter, which for the most part reflected the impact of lower commodity prices both on sales realizations and inventories, weaker pulp shipments as well as scheduled maintenance outages at CPLP. These were partially offset by a sharp decline in the Canadian dollar in the quarter. Canfor continued to benefit from its cost reduction initiatives and cash conservation efforts in the quarter, delivering another solid operational performance despite the challenges, and ended the year with a cash balance of $362.4 million.

Commenting on the fourth quarter's results, Jim Shepard, Canfor's President and CEO, said: "Despite the deepening of the global economic downturn and its impact on our bottom line, we've taken significant actions to reduce operating costs and maintain the strength of our balance sheet. Over the last 18 months, we've reduced our logging and hauling costs, increased productivity despite curtailments, disposed of non-core assets and enacted salary rollbacks and staff reductions." He added that the Company remains focused on realizing further cost reductions and productivity improvements, and lowering working capital. "Clearly, our industry is facing unprecedented challenges at this time, and responsiveness is key. We will continue to ensure that our production matches the demand in the marketplace," said Shepard.

Shepard said that he fully expected conditions to be even more challenging through 2009 for all of the Company's products, adding that management will remain focused on costs, inventory and cash conservation. In January, the Company took a further 29 million board feet of market curtailments and subsequently announced a further curtailment of 83 million board feet to occur in February, in addition to elimination of shifts at two of its sawmills for an indefinite period. Curtailment was also announced in February at the joint venture Peace Valley OSB mill.