##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE
REQUIRED) for the
transition period from ________ to _______
  o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF
1934 Date of event
requiring this shell company report
____________________ Commission File Number:
333-07346
 
 AINSWORTH LUMBER CO. LTD.
 (Exact name of Registrant as Specified in its Charter)
 British Columbia, Canada  (Jurisdiction of Incorporation or Organization)
 3194 Bentall IV, P.O. Box 49307, 1055 Dunsmuir Street
Vancouver, British Columbia, V7X 1L3
CANADA (604) 661-3200  (Address of Principal Executive Offices)
 
 None
 None
 6.75% Senior Notes Due 2014
6.75% Senior Notes Due 2014
7.25% Senior Notes Due 2012
Senior Floating Rate Notes Due 2010
   o þ
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TABLE OF CONTENTS
 ITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    1ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    1ITEM 3.
    
    KEY INFORMATION
    
    
    1ITEM 4.
    
    INFORMATION ON THE REGISTRANT
    
    
    14ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    33ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    43ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    50ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    51ITEM 9.
    
    THE OFFER AND LISTING
    
    
    51ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    52ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    57ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    58ITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    59ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
    
    
    59ITEM 15.
    
    CONTROLS AND PROCEDURES
    
    
    59ITEM 16.
    
    AUDIT COMMITTEE FINANCIAL EXPERT; CODE OF ETHICS; ACCOUNTANTS FEES AND SERVICES
    
    
    59ITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    61ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    61ITEM 19.
    
    EXHIBITS
    
    
    62




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##### 



PART I
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
 A.
    
    Directors and Senior Management.
  B.
    
    Advisers.
  C.
    
    Auditors.
  ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  ITEM 3. KEY INFORMATION
 Cautionary Statement with regard to Forward-Looking Statements
  Certain Information
  1




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##### 



A.
    
    Selected Financial Data.Selected Consolidated Financial Data and Other DataThe following table sets forth, for the historical periods and dates indicated, selected
consolidated financial data and should be read in conjunction with our audited consolidated
financial statements (the Consolidated Financial Statements) and Managements Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in this annual
report. The statement of operations data for the fiscal years ended December 31, 2005, 2004 and
2003 and the balance sheet data as at December 31, 2005 and 2004 have been derived from our
audited consolidated financial statements, which are included elsewhere in this annual report.
The statement of operations data for the fiscal years ended December 31, 2002 and 2001 and the
balance sheet data as at December 31, 2003, 2002 and 2001 have been derived from our audited
consolidated financial statements, which are not included in this annual report. We prepare our
financial statements in accordance with Canadian generally accepted accounting principles
(GAAP), which differs in certain respects from U.S. GAAP. For a discussion of the differences
between Canadian GAAP and U.S. GAAP as they pertain to us, see note 26 to our audited
consolidated financial statements included elsewhere in this annual report.
 Fiscal year ended December 31,2005(1)(2)
    
    

2004(1)(2)
    
    
    2003(1)
    
    
    2002(1)
    
    
    2001(1)(2)(in millions except ratios, per share data and production data)Statement of Operational DataCanadian GAAPSales
    
    $
    1,248.2
    
    
    $
    909.9
    
    
    $
    543.0
    
    
    $
    430.3
    
    
    $
    388.7Cost of products sold (exclusive of amortization)
    
    
    855.9
    
    
    
    498.2
    
    
    
    322.8
    
    
    
    338.2
    
    
    
    306.0Selling and administration
    
    
    30.8
    
    
    
    31.0
    
    
    
    18.2
    
    
    
    21.9
    
    
    
    22.7Amortization of capital assets
    
    
    103.9
    
    
    
    53.9
    
    
    
    33.0
    
    
    
    32.0
    
    
    
    30.4Write-down of capital assets
    
    
    
    
    
    
    0.8
    
    
    
    13.7
    (3)
    
    
    1.0
    
    
    
    3.3Operating Earnings
    
    
    257.6
    
    
    
    326.0
    
    
    
    155.3
    
    
    
    37.2
    
    
    
    26.3Interest(4)
    
    
    64.9
    
    
    
    40.7
    
    
    
    51.2
    
    
    
    57.2
    
    
    
    51.7Amortization of finance charges
    
    
    4.9
    
    
    
    3.2
    
    
    
    4.9
    
    
    
    5.3
    
    
    
    8.3Loss on repurchase of long-term debt
    
    
    1.5
    
    
    
    106.2
    
    
    
    0.1
    
    
    
    
    
    
    
    Other (income) expense
    
    
    (2.2
    )
    
    
    3.4
    
    
    
    0.5
    
    
    
    (2.9
    )
    
    
    (2.8
    )Foreign exchange (gain) loss on long-term debt
    
    
    (28.3
    )
    
    
    (73.8
    )
    
    
    (76.9
    )
    
    
    (4.3
    )
    
    
    17.4Income (loss) before income taxes
    
    
    216.8
    
    
    
    246.3
    
    
    
    175.5
    
    
    
    (18.1
    )
    
    
    (48.4
    )Income tax expense (recovery)
    
    
    63.7
    
    
    
    71.2
    
    
    
    52.0
    
    
    
    (0.3
    )
    
    
    (18.7
    )Income (loss) from continuing operations
    
    
    153.1
    
    
    
    175.1
    
    
    
    123.5
    
    
    
    (17.9
    )
    
    
    (29.7
    )Gain from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.2Net income (loss)
    
    $
    153.1
    
    
    $
    175.1
    
    
    $
    123.5
    
    
    $
    (17.9
    )
    
    $
    (25.4
    )Basic and Diluted earnings (loss) per share
    
    $
    10.45
    
    
    $
    11.98
    
    
    $
    8.49
    
    
    $
    (1.23
    )
    
    $
    (1.75
    )U.S. GAAPNet income (loss)
    
    $
    154.9
    
    
    $
    176.1
    
    
    $
    124.3
    
    
    $
    (17.0
    )
    
    $
    (25.8
    )Basic and Diluted earnings (loss) per share
    
    $
    10.57
    
    
    $
    12.17
    
    
    $
    8.54
    
    
    $
    (1.17
    )
    
    $
    (1.78
    )Other Financial DataAdjusted working capital (5)
    
    
    346.2
    
    
    
    220.7
    
    
    
    259.4
    
    
    
    104.7
    
    
    
    103.4Capital expenditures
    
    
    57.3
    
    
    
    18.0
    
    
    
    8.2
    
    
    
    14.1
    
    
    
    20.1Ratio of
earnings to fixed charges(6)(7)
    
    
    4.1
    x
    
    
    6.6
    x
    
    
    4.1
    x
    
    
    
    
    
    
    Other
Selected Operating Data (Unaudited)OSB production volume (mmsf)
    
    
    3,212
    
    
    
    2,031
    
    
    
    1,351
    
    
    
    1,284
    
    
    
    1,197Specialty plywood production volume (mmsf)
    
    
    143
    
    
    
    144
    
    
    
    119
    
    
    
    98
    
    
    
    86Average OSB price realized ($  per msf 3/8 basis)
    
    
    353
    
    
    
    393
    
    
    
    294
    
    
    
    202
    
    
    
    205Average specialty plywood price realized ($  per
msf 3/8 basis)
    
    
    655
    
    
    
    677
    
    
    
    601
    
    
    
    663
    
    
    
    683
 2




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##### 



As at December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in millions except number of shares)Balance Sheet DataCanadian GAAPCash and cash equivalents
    
    $
    209.2
    
    
    $
    206.1
    
    
    $
    194.1
    
    
    $
    80.2
    
    
    $
    87.0Total assets
    
    
    1,513.0
    
    
    
    1,432.7
    
    
    
    627.7
    
    
    
    555.1
    
    
    
    578.0Total debt,
including current maturities(8)
    
    
    859.5
    
    
    
    916.9
    
    
    
    352.5
    
    
    
    440.4
    
    
    
    443.7Capital stock
    
    
    55.8
    
    
    
    55.8
    
    
    
    53.1
    
    
    
    53.1
    
    
    
    53.1Shareholders equity
    
    
    415.2
    
    
    
    300.3
    
    
    
    171.8
    
    
    
    48.4
    
    
    
    66.2Number of
common shares outstanding
    
    
    14,649.1
    
    
    
    14,649.1
    
    
    
    14,672.4
    
    
    
    14,992.3
    
    
    
    14,992.3Dividends declared per share
    
    $
    1.0
    
    
    $
    1.0
    
    
    $
    
    
    
    $
    
    
    
    $
    U.S. GAAPTotal assets
    
    $
    1,521.1
    
    
    $
    1,434.9
    
    
    $
    619.3
    
    
    $
    544.7
    
    
    $
    566.2Total debt,
including current maturities(8)
    
    
    859.5
    
    
    
    916.9
    
    
    
    352.5
    
    
    
    440.4
    
    
    
    443.7Shareholders equity
    
    
    397.8
    
    
    
    286.3
    
    
    
    159.3
    
    
    
    35.2
    
    
    
    58.7
 
 (1)
    
    Sales and costs of products sold figures reported in this table have been presented to
include freight revenue and freight and other distribution costs. For the fiscal years ended
December 31, 2003, 2002 and 2001, these items were previously netted from sales, consistent
with industry practice at the time.The effect of the change in presentation is summarized below:
 Fiscal year ended December 31,2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(in millions)Net sales
    
    $
    1,122.1
    
    
    $
    827.4
    
    
    $
    481.1
    
    
    $
    356.1
    
    
    $
    326.7Freight and other distribution costs
    
    
    126.1
    
    
    
    82.5
    
    
    
    61.9
    
    
    
    74.2
    
    
    
    62.0Gross sales
    
    $
    1,248.2
    
    
    $
    909.9
    
    
    $
    543.0
    
    
    $
    430.3
    
    
    $
    388.7Costs of products sold, excluding
freight and other distribution
costs
    
    $
    729.8
    
    
    $
    415.7
    
    
    $
    260.9
    
    
    $
    264.0
    
    
    $
    244.0Freight and other distribution costs
    
    
    126.1
    
    
    
    82.5
    
    
    
    61.9
    
    
    
    74.2
    
    
    
    62.0Cost of products sold, including
freight and other distribution
costs
    
    $
    855.9
    
    
    $
    498.2
    
    
    $
    322.8
    
    
    $
    338.2
    
    
    $
    306.0
 (2)
    
    Operations at the High Level OSB facility commenced in October 2000 with income contributions
(losses) being realized commencing in April 2001.
Financial data for 2004 and 2005 fiscal years include the operations
of the Barwick and Minnesota facilities acquired in 2004.
 (3)
    
    Includes a $13.3 million write-down of capital assets related to the expansion of the Grande
Prairie OSB facility.
 (4)
    
    Interest includes interest expense for the period and excludes all of the following:
amortization of deferred financing costs, amortization of deferred debt discounts,
amortization of consent and commitment fees, foreign exchange gains (losses) on long-term debt
and realized foreign exchange losses upon repayment of principal.
 (5)
    
    Adjusted working capital is current assets (excluding restricted cash) less current
liabilities (excluding current portion of future income taxes). We
have presented adjusted working
capital as we believe that it provides investors with a basis to evaluate our ability to fund operations, and capital expenditures.
 As
at December 31,2005
    
    
    2004
    
    
    2003
    


2002



2001(in millions)Current assets
    
    $
    467.5
    
    
    $
    363.6
    
    
    $
    310.9
    


    159.1



    157.2Restricted cash
    
    
    (39.0
    )
    
    
    (6.6
    )
    
    
    
    


    



    Current liabilities
    
    
    (113.7
    )
    
    
    (136.3
    )
    
    
    (51.5
    )


    (54.4
    )


    (53.8
    )Current portion of future income taxes
    
    
    31.4
    
    
    
    
    
    
    
    
    


    
    
    
    
    Adjusted working capital
    
    $
    346.2
    
    
    $
    220.7
    
    
    $
    259.4
    

    
    104.7


    
    103.4
 (6)
    
    For purposes of calculating the ratio of earnings to fixed charges (i) earnings consist of
earnings (loss) from continuing operations before income taxes plus fixed charges during the
period and (ii) fixed charges consist of interest expense on all debt, plus the portion of
operating lease rental expense that is representative of the interest factor and amortization
of finance charges.
 (7)
    
    For the fiscal years ended December 31, 2002 and 2001, pre-tax earnings from continuing
operations before fixed charges were insufficient to cover fixed charges under Canadian GAAP
by $18.1 and $48.4 million respectively and under U.S. GAAP by $17.2 and $48.8 million
respectively.
 (8)
    
    Net of unamortized deferred discount.
 3




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Exchange Rate Information
   Annual Data
    
    Average2005
    
    
    0.82762004
    
    
    0.77022003
    
    
    0.71862002
    
    
    0.63692001
    
    
    0.6442
 Monthly Data
    
    High
    
    LowMarch, 2006
    
    
    0.8834
    
    
    
    0.8531February, 2006
    
    
    0.8788
    
    
    
    0.8638January, 2006
    
    
    0.8744
    
    
    
    0.8528December, 2005
    
    
    0.8690
    
    
    
    0.8521November, 2005
    
    
    0.8579
    
    
    
    0.8405October, 2005
    
    
    0.8579
    
    
    
    0.8413
  B.
    
    Capitalization and Indebtedness.Information not required for an annual report.
 C.
    
    Reasons for the Offer and Use of Proceeds.Information not required for an annual report.
 D.
    
    Risk Factors.
 We have significant indebtedness, which could adversely affect our financial condition and
limit our ability to fulfill our obligations related to our senior notes.
   
    
    make it more difficult for us to satisfy our obligations with respect to our senior
notes and other indebtedness;
 4




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
    
    increase our vulnerability to adverse economic and industry conditions;
    
    require us to dedicate a substantial portion of cash from operations to service our
indebtedness, thereby reducing the availability of cash to fund working capital, capital
expenditures and other general corporate purposes;
    
    limit our ability to obtain financing for working capital, capital expenditures,
general corporate purposes or acquisitions;
    
    place us at a disadvantage compared to our competitors that have a lower degree of
leverage; and
    
    limit our flexibility in planning for, or reacting to, changes in our business and in
the forest products industry.
 We may not generate cash flow sufficient to service all of our obligations, including our
obligations related to our senior notes.
  
    
    our financial condition at the time;
    
    restrictions in our indentures and the agreement governing our credit facility; and
    
    other factors, including the condition of the financial markets or the forest products
industry, particularly the OSB market.
  Our senior notes are structurally subordinated to the indebtedness of our subsidiaries that
are not guarantors of the notes.
  Our senior notes are unsecured and effectively subordinated to our future secured
indebtedness.
   5




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The instruments governing our indebtedness contain significant restrictions that limit our
operating and financial flexibility.
  
    
    incur additional indebtedness;
    
    pay dividends and make distributions;
    
    repurchase stock;
    
    make certain investments;
    
    transfer or sell assets;
    
    create liens;
    
    enter into transactions with affiliates;
    
    issue or sell stock of subsidiaries;
    
    create dividend or other payment restrictions affecting restricted subsidiaries; and
    
    merge, consolidate, amalgamate or sell all or substantially all of our assets to another person.
  We may be unable to purchase senior notes in the event of a change of control.
  Certain bankruptcy and insolvency laws may impair the trustees ability to enforce remedies
under our senior notes.
  6




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Your ability to enforce civil liabilities in Canada under U.S. securities laws may be limited.
  Federal and state statutes in the United States and federal and provincial statutes in Canada
allow courts, under specific circumstances, to void the guarantees and require the holders of the
notes to return payments received from the guarantors.
  
    
    such guarantor, at the time the debt evidenced by the guarantee was incurred, received
less than reasonably equivalent value or fair consideration for the incurrence of such
debt, or
    
    the guarantee (as the case may be) was incurred with the intent to hinder or delay any
of such guarantors present or future creditors, and such guarantor:
 
    
    intended to incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature;
    
    was insolvent or rendered insolvent by reason of such incurrence; or
    
    was engaged in a business or transaction for which such guarantors remaining assets
constituted unreasonably small capital.
 7




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##### 




    
    the guarantee was incurred at a time when the guarantor was in insolvent circumstances,
unable to pay its debts in full or knew itself to be on the eve of insolvency and with
intent to defeat, hinder, delay, defraud or prejudice one or more creditors, with intent to
prefer one creditor over other creditors or which has the effect of preferring one creditor
over other creditors;
    
    the guarantee has the effect of preferring one creditor over other creditors and a
proceeding is brought to set aside the guarantee, or the guarantor makes an assignment for
the benefit of its creditors, within 60 days of the issuance of the guarantee;
    
    the guarantee was incurred with intent to defeat, hinder, delay or defraud creditors or
others of their just and lawful actions, suits, debts, accounts, damages, penalties or
forfeitures; or
    
    the guarantee was incurred with intent to prefer one creditor over other creditors and
within three months of the happening of an initial bankruptcy event (the filing of an
assignment, a proposal or a notice of proposal by the guarantor, or the filing of a
petition for a receiving order against the guarantor).
   
    
    the sum of its debts, including contingent liabilities, were greater than the fair
saleable value of all of its assets;
    
    the present fair saleable value of its assets were less than the amount that would be
required to pay its probable liability on its existing debts, including contingent
liabilities, as they become absolute and mature; or
    
    it could not pay its debts as they become due.
 Risks Related to Our Business and the Forest Products Industry
 Our business is of a cyclical nature and prices of, and demand for, our products and our
results of operations may fluctuate significantly based on market factors.
  8




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##### 



Intense competition could reduce our market share and harm our financial performance.
  Increased OSB industry production capacity could harm our financial performance.
  Because of our product concentration, declines in demand or prices for OSB could have a
significant impact on our revenues and profitability.
  We
may incur unexpected costs or liabilities as a result of our
acquisition of the Barwick and Minnesota OSB facilities.
  We may incur unexpected delays, costs or liabilities surrounding the expansion of the Grande
Prairie OSB facility.
  9




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##### 



We are exposed to currency exchange risk which could have a material adverse effect on us.
    We depend on timber tenures for access to fiber for our Canadian OSB and plywood operations. A
reduction in our fiber supply or an increase in the related costs could have an adverse effect on
us.
     10




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Our ability to harvest timber is subject to natural events that are beyond our control.
  Government regulations relating to forest management practices may adversely affect us and
could increase our costs of doing business.
  Increased raw material costs may increase our cost of doing business and adversely affect our
results of operations.
  Our manufacturing facilities rely on complex machinery which may break down and require
periodic maintenance shut-downs, which may affect our sales and results of operations.
  11




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##### 



Environmental, health and safety laws and regulations could increase the cost of doing
business or restrict our ability to conduct our business.
  Work stoppages or other labor disruptions at our facilities could have an adverse effect on
our operations.
  Native land claims could have an adverse effect on our timber supply in the future.
    12




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##### 



We face risks related to our international sales.
  The co-ownership arrangement for High Level could force us to either sell our 50% ownership
interest or to buy-out the co-owners 50% interest.
  If the co-owner of the High Level OSB facility were to default on its obligations, we may be
forced to fund the entire High Level operation.
  Members of the Ainsworth family control our business and their interests may conflict with the
interests of our debtholders or shareholders.
  13




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##### 



The
costs and risks associated with Sarbanes-Oxley regulatory compliance may
have a material adverse effect on us.
  ITEM 4. INFORMATION ON THE REGISTRANT
 A.
    
    History and Development of the Registrant
       14




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15




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1 4 1 4
     Events Subsequent to our Fiscal 2005 Year-End
   16




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##### 



1 4
  B.
    
    Business overview
 Markets in Which We Operate
 Oriented Strand Board Market
  Plywood and OSB Production Cost Comparison
 Plywood
    
    
    OSBWood
    
    $
    157
    
    
    $
    56Labor
    
    
    64
    
    
    
    29Energy
    
    
    18
    
    
    
    8Glue & Wax
    
    
    21
    
    
    
    39Supplies
    
    
    21
    
    
    
    22Gross Variable
    
    
    281
    
    
    
    154Residuals
    
    
    (30
    )
    
    
    Total Variable
    
    $
    251
    
    
    $
    154
 
 Source:
    
    RISI, North American Wood Panels 5-Year Forecast, March 6, 2006: 2005 Average Variable
Costs for Western Canadian OSB and Southern Yellow Pine Plywood ($  per msf 3/8 basis) 17




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.
  18




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##### 



Export-Standard OSB Market
  Value-Added Industrial OSB Market
  Specialty Overlaid Plywood Market
   Our Business
 Overview
  19




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AinsworthEngineered(R)
      20




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##### 



Competitive Strengths and Opportunities
  Established Modern OSB Facilities.
  21




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##### 



Proven OSB Operators.
  Leading Market Positions.
  Growing Value-Added Product Mix.
 AinsworthEngineered(R)
 Strategically Located OSB Facilities.
  22




---



##### 



Timber Tenure Agreements
  Estimated Annual
    
    Long-term Supply
    
    Percent ofRequirement (m3)
    
    Agreements (m3)
    
    Requirement100 Mile House
    
    
    650,000
    
    
    
    605,000
    
    
    
    93
    %(1)Grande Prairie(2)
    
    
    979,000
    
    
    
    791,000
    (3)
    
    
    81
    (4)Barwick
    
    
    737,000
    
    
    
    551,000
    
    
    
    75High Level(5)
    
    
    1,323,000
    
    
    
    1,261,000
    
    
    
    95Total
    
    
    3,689,000
    
    
    
    3,208,000
    
    
    
    87
    %
 
 (1)
    
    100% beginning in 2007 due to increased supply of timber.(2)
    
    Does not take into account the new second production line at Grande Prairie.(3)
    
    984,000 m3 until 2007.(4)
    
    101% until 2007.(5)
    
    Assumes the High Level OSB facility is operated at or near its designed annual production
capacity of 860 mmsf. At the current rate of production, the facilitys available fiber
supply is well over 100% of requirements. British Columbia
 Forest License
   23




---



##### 



Pulpwood Agreement
   Alberta
 Grande Prairie Deciduous Timber Allocation
    High Level Deciduous Timber Allocation and Forest Management Agreement
  24




---



##### 



Ontario
  Timber Supply Agreement
  Private Wood
  Minnesota
  25




---



##### 



Timber Harvesting and Forest Management
  British Columbia
 Timber Harvesting
  Forest Management
  Alberta
 Timber Harvesting
   
    
    timber licenses, which create a five-year program of operations under the DTA; and
    
    annual operating plans, which authorize the harvesting of specific blocks of timber and
impose operational requirements regarding such matters as riparian set-backs and cut-block
boundaries.
   26




---



##### 



Forest Management
   Ontario
  Environmental Regulation
    27




---



##### 



Transportation and Distribution
    Marketing and Sales
   Year ended December 31,2005
    
    
    2004
    
    
    2003(in thousands)Geographic sales information(1)Canada
    
    $
    81,602
    
    
    $
    106,837
    
    
    $
    94,277United States
    
    
    1,135,313
    
    
    
    763,952
    
    
    
    410,212Asia
    
    
    20,943
    
    
    
    29,492
    
    
    
    30,431Europe
    
    
    10,373
    
    
    
    9,641
    
    
    
    8,067Total
    
    $
    1,248,231
    
    
    $
    909,922
    
    
    $
    542,987
 
 (1)
    
    Sales figures reported in this table include freight revenue.  28




---



##### 



Competition
   AinsworthEngineered(R)
   Research and Development; Intellectual Property
 AinsworthEngineered(R)
 29




---



##### 



Legal Proceedings
   C.
    
    Organizational Structure
  D.
    
    Property, plant and equipment
 Overview
 Facilities
  EstimatedAnnualProductionCapacity(1)Oriented Strand Board (mmsf)Grande Prairie, Alberta(2)
    
    
    665100 Mile House, British Columbia
    
    
    425Barwick, Ontario
    
    
    470High Level, Alberta (50%-owned by us)(3)
    
    
    430Bemidji
    
    
    565Cook
    
    
    430Grand Rapids
    
    
    390Total OSB annual production capacity
    
    
    3,375Specialty Overlaid Plywood (mmsf)Savona, British Columbia (Plywood)
    
    
    155
 
 (1)
    
    As of December 31, 2005(2)
    
    We are currently expanding the capacity at our Grande Prairie facility through the
construction of a second production line. This new production line is expected to be in operation
by March 2007 with a designed annual production capacity of 600 mmsf of OSB, thereby increasing our
estimated total annual OSB capacity by 18%.(3)
    
    This facility is in its ramp-up phase. Its designed annual production capacity is 860 mmsf
and 50% of the production is ours. The mill is currently running at approximately 77% of designed annual
production capacity. 30




---



##### 



Oriented Strand Board
 Grande Prairie.
    100 Mile House.
   Barwick.
  31




---



##### 



High Level.
    The Minnesota OSB Facilities.
     32




---



##### 



Specialty Overlaid Plywood
 Pourform(R) Pourform(R) AinsworthEngineered(R) Pourform-107(R),
  ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 A. Operating results
  Overview
  33




---



##### 



Review of Operating Results
     34




---



##### 



Year endedDecember 31 ,2005
    
    
    2004
    
    
    2003(in millions)Sales:OSB
    
    $
    1,138.3
    
    
    $
    799.4
    
    
    $
    449.0Specialty plywood, and
other products
    
    
    109.9
    
    
    
    110.5
    
    
    
    94.0Total
    
    
    1,248.2
    
    
    
    909.9
    
    
    
    543.0Cost of products sold (excluding
amortization):OSB
    
    
    755.0
    
    
    
    399.6
    
    
    
    241.6Specialty plywood, and
other products
    
    
    100.9
    
    
    
    98.6
    
    
    
    81.3Total
    
    
    855.9
    
    
    
    498.2
    
    
    
    322.9Selling and administration
    
    
    30.8
    
    
    
    31.0
    
    
    
    18.2Amortization of capital assets
    
    
    103.9
    
    
    
    53.9
    
    
    
    33.0Write-down of capital assets
    
    
    
    
    
    
    0.7
    
    
    
    13.7Operating earnings
    
    
    257.6
    
    
    
    326.1
    
    
    
    155.2Finance expense
    
    
    71.3
    
    
    
    150.2
    
    
    
    56.1Interest and other (income) expense
    
    
    (2.2
    )
    
    
    3.4
    
    
    
    0.5Unrealized foreign exchange (gain)
loss on long-term debt
    
    
    (28.3
    )
    
    
    (73.8
    )
    
    
    (76.9
    )Income (loss) before income tax
    
    
    216.8
    
    
    
    246.3
    
    
    
    175.6Income tax (recovery) expense
    
    
    63.7
    
    
    
    71.2
    
    
    
    52.0Net income (loss)
    
    $
    153.1
    
    
    $
    175.1
    
    
    $
    123.6
  Year endedDecember 312005
    
    
    2004
    
    
    2003All ProductsUnited States
    
    
    91.0
    %
    
    
    84.0
    %
    
    
    75.5
    %Canada
    
    
    6.5
    
    
    
    11.7
    
    
    
    17.4Asia
    
    
    1.7
    
    
    
    3.2
    
    
    
    5.6Europe
    
    
    0.8
    
    
    
    1.1
    
    
    
    1.5100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Our Results of Operations
 Fiscal Year ended December 31, 2005 Compared to Fiscal Year ended December 31, 2004
 Net Income
  Sales
   35




---



##### 



OSB Sales
  Specialty Overlaid Plywood and Other Products
   Costs of Products Sold (Exclusive of Amortization)
 OSB.
 Specialty Overlaid Plywood and Other Products.
    Selling and Administration
  Amortization of Capital Assets
  36




---



##### 



Finance Expense
   Other Income (Expense)
  Income Taxes
  Fiscal Year ended December 31, 2004 Compared to Fiscal Year ended December 31, 2003
 Net Income
  Sales
  OSB.
 Specialty Overlaid Plywood and Other Products.
 Cost
of Products Sold (Exclusive of Amortization)
  37




---



##### 



OSB.
 Specialty Overlaid Plywood and Other Products.
 Selling and Administration
  Amortization of Capital Assets
  Finance Expense
    Income Taxes
  Outlook
   38




---



##### 



Market Risk
    Significant Accounting Estimates and Judgments
  Valuation of Inventory.
 Loss contingencies.
 Valuation of Long-Lived Assets.
 Amortization.
 Future Income Tax Assets.
 39




---



##### 



Goodwill.
 Pension Plans.
 U.S. GAAP Reconciliation
  B. Liquidity and Capital Resources
  40




---



##### 



As at December 31,2005
    
    2004
    
    2003(in millions)Cash provided by operating activities
    
    
    161.8
    
    
    
    364.4
    
    
    
    133.6Adjusted working capital (1)
    
    
    346.2
    
    
    
    220.7
    
    
    
    259.4Additions to capital assets
    
    
    57.3
    
    
    
    18.0
    
    
    
    8.2
 
 (1)
    
    Adjusted working capital is current assets (excluding restricted cash) less current
liabilities (excluding current portion of future income taxes).
       C. Research and Development, Patents and Licenses
 AinsworthEngineered ® Pourform ®
 41




---



##### 



D. Trend Information
  E. Off-Balance Sheet Arrangements
  F. Contractual Obligations
  Payment due by PeriodContractual
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    AfterObligation(5)(6)(7)
    
    Total
    
    1 year
    
    2-3 years
    
    4-5 years
    
    5 years(in thousands)6.750% Senior Notes(1)
    
    
    503,291
    
    
    
    25,121
    
    
    
    50,242
    
    
    
    50,242
    
    
    
    377,68771/4% Senior Notes(2)
    
    
    476,355
    
    
    
    23,187
    
    
    
    46,375
    
    
    
    46,375
    
    
    
    360,419Floating Rate Senior Notes(3)
    
    
    244,823
    
    
    
    13,875
    
    
    
    27,749
    
    
    
    203,199
    
    
    
    121/2% Senior Notes(4)
    
    
    1,873
    
    
    
    196
    
    
    
    1,677
    
    
    
    
    
    
    
    Operating Lease Obligations(5)
    
    
    11,316
    
    
    
    3,793
    
    
    
    4,748
    
    
    
    2,775
    
    
    
    Purchase Commitments(6)
    
    
    158,374
    
    
    
    158,374
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Under the indentures governing our outstanding 6.750% senior notes, we are required to make
interest payments in the amount of US$10.8 million each June 30 and December 30. Our 6.750%
senior notes mature on March 15, 2014. 42




---



##### 



(2)
    
    Under the indenture governing our outstanding 71/4% senior notes, we are required to make
interest payments in the amount of US$10.0 million each June 30 and December 30. Our 71/4%
senior notes mature on October 1, 2012.(3)
    
    Under the indenture governing our outstanding floating rate senior notes, we are required to
pay interest at a rate per annum, reset quarterly, equal to LIBOR plus 3.75%. Interest on our
floating rate senior notes is payable each March 30, June 30, September 30 and December 30.
For the purpose of the above table we have calculated the interest rate at the December 31,
2005 year-end rate of 7.77%. Our floating rate senior notes mature on October 1, 2010.(4)
    
    Our 121/2% senior notes mature on July 15, 2007.(5)
    
    We do not include operating lease obligations beyond five years.(6)
    
    Purchase commitments include agreements to purchase machinery, equipment, engineering and
management support services in relation to the Grande Prairie
expansion project totaling approximately $150.0 million, and U.S. $7.2
million related to the purchase of an aircraft.(7)
    
    Contractual obligations denominated in $US are converted to Canadian dollars at the December
31, 2005 exchange rate posted by the Bank of Canada of US$0.8598 = $1.00. ITEM 6. Directors, Senior Management and Employees
 A. Directors and Senior Management
  Name
    
    Age
    
    TitleBrian E. Ainsworth
    
    
    63
    
    
    Chairman, Chief Executive Officer and
Director since May 1993.D. Allen Ainsworth
    
    
    64
    
    
    President and Director since May 1993.Catherine E. Ainsworth
    
    
    47
    
    
    Chief Operating Officer, Secretary since
November 2001 and Director since May 1993.Robert Allen
    
    
    48
    
    
    Chief Financial Officer since November 2003.David Ainsworth
    
    
    85
    
    
    Director since May 1993 and co-founder of
Ainsworth.Susan Ainsworth
    
    
    84
    
    
    Director since May 1993 and co-founder of
Ainsworth.D. Michael Ainsworth
    
    
    43
    
    
    Executive Vice-President, since May 2002.Kevin Ainsworth
    
    
    40
    
    
    Senior Vice-President, B. C. Timberlands
and Solid Wood Group.Douglas I. Ainsworth
    
    
    41
    
    
    Senior Vice-President, Marketing, Sales and
Transportation.Ron B. Anderson(1)(2)(3)(4)
    
    
    53
    
    
    Director since May 12, 2003. He is President
of North Point Capital Corp.Doug B. Buchanan(1)(3)(4)
    
    
    53
    
    
    Director since May 26, 2005. He is Managing
Director and CEO of BC Biomedical
Laboratories Ltd.K. Gordon Green(1)(2)(3)(4)
    
    
    71
    
    
    Director since May 1993. Until October 1993
he was a Vice President and Director, RBC
Dominion Securities Inc.Morley Koffman(3)
    
    
    76
    
    
    Director since May 1993. He is a lawyer with
the law firm Koffman Kalef.W. Gordon Lancaster(1)(2)(3)(4)
    
    
    62
    
    
    Director since May 1993. He is Chief
Financial Officer of Ivanhoe Energy Inc.
 43




---



##### 



(1)
    
    Member of the audit committee.(2)
    
    Member of the compensation committee.(3)
    
    Member of the corporate governance committee(4)
    
    Member of the nominating committee Brian E. Ainsworth
 D. Allen Ainsworth
 Catherine E. Ainsworth
 Robert Allen
 David Ainsworth
 Susan Ainsworth
 D. Michael Ainsworth
 Kevin Ainsworth
 Douglas I. Ainsworth
 Ron B. Anderson
 Doug B. Buchanan
 44




---



##### 



K. Gordon Green
 Morley Koffman
 W. Gordon Lancaster
  B. Compensation
  Summary Compensation Table
 Long-term CompensationAwardsAnnual Compensation
    
    
    Securities
    
    
    Restricted
    
    
    PayoutsUnder
    
    
    Shares or
    
    
    Long-termOther Annual
    
    
    Options/SARs
    
    
    Restricted
    
    
    IncentiveName and Principal
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Compensation
    
    
    Granted
    
    
    Share Units
    
    
    Plan Payouts
    
    
    All OtherPosition
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    ($)
    
    
    CompensationBrian E. Ainsworth
    
    
    2005
    
    
    
    
    
    
    
    
    
    
    $
    1,781,405
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chairman and
Chief Executive OfficerD. Allen Ainsworth
    
    
    2005
    
    
    $
    452,596
    
    
    $
    1,254,375
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    PresidentCatherine E. Ainsworth
    
    
    2005
    
    
    $
    427,452
    
    
    $
    1,030,000
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Operating Officer
and SecretaryD. Michael Ainsworth
    
    
    2005
    
    
    $
    276,586
    
    
    $
    1,150,000
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Executive Vice-PresidentDouglas I. Ainsworth
    
    
    2005
    
    
    $
    276,586
    
    
    $
    1,150,000
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Senior Vice-President,
Marketing
 
 (1)
    
    The aggregate amount of all perquisites or other personal benefits paid to each of the
executive officers named in the table in 2005 did not 45




---



##### 



exceed 10% of his or her total base salary or compensation and bonus for the year.(2)
    
    Represents management fees in the amount of $500,000 plus a bonus of $1,215,625, and an
automobile allowance of $65,780. See Employment Agreements. Compensation of Directors
  Pension Benefits
   Credited Years of
    
    
    Estimated AnnualService to
    
    
    Benefit at
    
    
    Years of Credited
    
    
    Estimated AnnualName
    
    12/31/2005
    
    
    12/31/2005
    
    
    Service to age 65
    
    
    Benefit at age 65Brian E. Ainsworth
    
    
    46
    
    
    $
    92,000
    
    
    
    48
    
    
    $
    101,504D. Allen Ainsworth
    
    
    46
    
    
    $
    92,000
    
    
    
    47
    
    
    $
    98,161Catherine E. Ainsworth
    
    
    26
    
    
    $
    51,167
    
    
    
    43
    
    
    $
    91,301D. Michael Ainsworth
    
    
    17
    
    
    $
    34,000
    
    
    
    39
    
    
    $
    83,033Douglas I. Ainsworth
    
    
    17
    
    
    $
    34,000
    
    
    
    41
    
    
    $
    86,199
 C. Board Practices
  Employment Agreements
   46




---



##### 



Committees of the Board Of Directors
  Audit Committee
  Compensation Committee
  Corporate Governance Committee
  Nominating Committee
  D. Employees
  47




---



##### 



E. Share Ownership
 Share Capital Structure
  
    
    100,000,000 common shares without par value;
    
    1,500,000 Class B Common Shares without par value, of which 350,000 are designated as
Series 1 Class B Common Shares, 180,000 are designated Series 2 Class B Common Shares and
187,500 are designated Series 3 Class B Common Shares; and
    
    100,000,000 preferred shares without par value, of which 300,000 are designated as Series 1
Preferred Shares and 4,000,000 are designated as Series 2 Preferred Shares.
    
    5,000,000 preferred shares without par value, designated as Series 3 Preferred Shares.
 ,
  Common Sharesbeneficially ownedName and positions
    
    or controlled
    
    % of Class (1)BRIAN E. AINSWORTH
    
    
    2,507,186
    (2)
    
    
    17.11
    %Chairman, Chief Executive Officer and DirectorKEVIN AINSWORTH
    
    
    1,877
    
    
    
    .01
    %Senior Vice-President, B. C. Timberlands andSolid Wood GroupD. ALLEN AINSWORTH
    
    
    2,757,186
    (3)
    
    
    18.82
    %President and DirectorCATHERINE E. AINSWORTH
    
    
    61,013
    (4)
    
    
    0.42
    %Chief Operating Officer, Secretary and DirectorD. MICHAEL AINSWORTH
    
    
    
    
    
    
    Executive Vice PresidentDOUGLAS I. AINSWORTH
    
    
    150
    
    
    
    0.00
    %(5)Senior Vice President, MarketingDAVID AINSWORTH
    
    
    3,129,188
    (6)
    
    
    21.36
    %DirectorSUSAN AINSWORTH
    
    
    13,636
    
    
    
    0.09
    %DirectorRON B. ANDERSON
    
    
    
    
    
    
    Director
 48




---



##### 



Common Sharesbeneficially ownedName and positions
    
    or controlled
    
    % of Class (1)DOUG B. BUCHANAN
    
    
    
    
    
    
    DirectorK. GORDON GREEN
    
    
    8,888
    
    
    
    0.06
    %DirectorMORLEY KOFFMAN
    
    
    7,888
    
    
    
    0.05
    %DirectorW. GORDON LANCASTER
    
    
    2,000
    
    
    
    0.01
    %DirectorGRANT FOREST PRODUCTS CORP.(7)
    
    
    4,921,160
    
    
    
    33.59
    %
 
 (1)
    
    Based on a total of 14,649,140 currently issued and outstanding common shares as of
December 31, 2005.(2)
    
    These shares are controlled through 2468 Holdings Ltd.(3)
    
    These shares are controlled through 5678 Enterprises Ltd.(4)
    
    Catherine E. Ainsworth also owns 4% of the outstanding voting shares of 1234 Holdings
Ltd., which owns 3,108,188 common shares. The common shares owned by 1234 Holdings Ltd. are
to be voted by Catherine E. Ainsworth as that companys representative.(5)
    
    The actual percentage is 0.001%.(6)
    
    3,108,188 of these shares are beneficially owned through 1234 Holdings Ltd. and are to be
voted by Catherine E. Ainsworth as that companys representative.(7)
    
    Based on a report dated March 3, 2006 generated using the Canadian Depository for
Securities Ltd.s System for Electronic Disclosure by Insiders (SEDI). Stock Options
  Employee Participation Share Plan
   49




---



##### 



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
  
    
    100,000,000 common shares without par value;
    
    1,500,000 Class B Common Shares without par value, of which 350,000 are designated as
Series 1 Class B Common Shares, 180,000 are designated Series 2 Class B Common Shares and
187,500 are designated Series 3 Class B Common Shares; and
    
    100,000,000 preferred shares without par value, of which 300,000 are designated as
Series 1 Preferred Shares (all issued but subsequently redeemed), 4,000,000 are
designated as Series 2 Preferred Shares, and 5,000,000 are
designated as Series 3 Preferred Shares (100,000 issued and
outstanding).
 .
  Percentage ofName
    
    Number of Shares
    
    Outstanding SharesGrant Forest Products Corp.
    
    
    4,998,960
    
    
    
    34.12
    %1234 Holdings Ltd.(1)
    
    
    3,108,188
    
    
    
    21.22
    %5678 Enterprises Ltd.(2)
    
    
    2,757,186
    
    
    
    18.82
    %2468 Holdings Ltd.(3)
    
    
    2,507,186
    
    
    
    17.11
    %
 50




---



##### 



(1)
    
    96% of the outstanding voting shares of 1234 Holdings Ltd. are owned by David Ainsworth and
the remainder are owned by Catherine Ainsworth. The Common Shares owned by 1234 Holdings Ltd.
are voted by Catherine Ainsworth as that companys representative in relation to proceedings
of the companys shareholders.(2)
    
    98% of the outstanding voting shares of 5678 Enterprises Ltd. are owned by D. Allen Ainsworth
and the remainder are owned by his two sons.(3)
    
    95% of the outstanding voting shares of 2468 Holdings Ltd. are owned by Brian E. Ainsworth
and the remainder are owned by his son and a family trust. B. Related Party Transactions
   C. Interests of experts and counsel
  ITEM 8. FINANCIAL INFORMATION
 A. Consolidated Financial Statements and Other Financial Information
  B. Significant Changes
  ITEM 9. THE OFFER AND LISTING
 A. Offer and Listing Details
 Senior Notes
   Common Shares
  51




---



##### 



Annual Share Price Information
 For the year ended
    
    High
    
    LowDecember 31, 2005
    
    $
    36.49
    
    
    $
    22.50December 31, 2004
    
    $
    36.00
    
    
    $
    11.88December 31, 2003
    
    $
    12.66
    
    
    $
    3.00December 31, 2002
    
    $
    6.00
    
    
    $
    3.00December 31, 2001
    
    $
    6.25
    
    
    $
    3.10
 Quarterly Share Price Information
 For the quarter ended
    
    High
    
    LowMarch 31, 2006
    
    $
    28.50
    
    
    $
    22.06December 31, 2005
    
    $
    30.25
    
    
    $
    22.50September 30, 2005
    
    $
    31.00
    
    
    $
    22.75June 30, 2005
    
    $
    33.45
    
    
    $
    32.40March 31, 2005
    
    $
    36.49
    
    
    $
    24.10December 31, 2004
    
    $
    34.00
    
    
    $
    21.98September 30, 2004
    
    $
    36.00
    
    
    $
    24.25June 30, 2004
    
    $
    27.51
    
    
    $
    27.50
 Monthly Share Price Information
 For the month ended
    
    High
    
    LowMarch 31, 2006
    
    $
    28.50
    
    
    $
    22.76February 28, 2006
    
    $
    24.86
    
    
    $
    22.80January 31, 2006
    
    $
    24.48
    
    
    $
    22.06December 31, 2005
    
    $
    25.65
    
    
    $
    22.50November 30, 2005
    
    $
    26.50
    
    
    $
    23.50October 31, 2005
    
    $
    30.25
    
    
    $
    25.25
 B. Plan of Distribution
  C. Markets
  D. Selling Shareholders
  E. Dilution
  F. Expenses of the issue
  ITEM 10. ADDITIONAL INFORMATION
 52




---



##### 



A. Share Capital
  B. Memorandum and Articles of Association
  C. Material contracts
 Contract No.
    
    Description1.
    
    Indenture made as of the 3rd day of March 2004, among the company
and The Bank of New York, as trustee.On March 3, 2004, we issued US$210,000,000 aggregate principal
amount of 6.750% Senior Notes due March 15, 2014 in a private
placement in the United States and outside the United States (the
Original Notes), under an indenture dated as of March 3, 2004,
among the company and The Bank of New York, as trustee (the
Indenture). The Indenture restricts our ability and the ability
of certain of our subsidiaries to:a) incur additional indebtedness and issue equity; make
investments;b)   declare or pay dividends or make other distributions;c)   incur payment restrictions that other parties impose;d)   conduct transactions with affiliates;e)   make asset sales and use proceeds from permitted asset sales;f)   make capital expenditures;g)   incur liens;h)   consolidate or merge with or into, or transfer all or
substantially all of the companys assets to another person;2.
    
    Exchange and Registration Rights Agreement made as of the 3rd day
of March 2004, among the company and Goldman, Sachs &
Co.Pursuant to an Exchange and Registration Rights Agreement dated
March 3, 2004, among the company and Goldman, Sachs & Co., (the
Registration Rights Agreement), the company agreed that holders
of the Original Notes would be entitled to exchange the Original
Notes for registered notes (the Exchange Notes) with
substantially identical terms. The Exchange Notes are governed by
the Indenture. The Registration Rights Agreement provided that the
company would: (i) file a registration statement by June 1, 2004
regarding the exchange of the Original Notes for Exchange Notes;
(ii) use its reasonable best efforts to have the registration
statement declared effective by August 30, 2004; and (iii)
complete the exchange offer within 45 days after the registration
statement is declared effective.3.
    
    Share Purchase Agreement made as of the 14th day of April 2004,
among Boise Cascade Corporation, Abitibi Consolidated company of
Canada, the Northwestern Mutual Life Insurance Company, Allstate
Insurance Company, and Voyageur Panel Limited and Ainsworth Lumber
Co. Ltd.On April 14, 2004, we entered into a definitive agreement to
acquire all of the outstanding shares of Voyageur Panel Limited, a
private Canadian company owned by Boise Cascade Corporation (47%
owner), Abitibi Consolidated Company of Canada (21% owner), the
Northwestern Mutual Life Insurance Company (17% owner) and
Allstate Insurance Company (15% owner). Our acquisition of
Voyageur, which is expected to close on May 19, 2004. In
connection with the acquisition, we will be required to pay the
sellers a purchase price of approximately US$159 million, and an
additional amount of US$34 million for net working capital
(subject to adjustment upon closing). In addition, we may be
required to pay up to US$10 million in additional consideration on
March 31, 2005 in the event that OSB produced
 53




---



##### 



Contract No.
    
    Descriptionby the Voyageur
facility is sold at an average price that exceeds Cdn$275 per msf( 3/8 basis) between the closing of the acquisition and December
31, 2004.4.
    
    Indenture made as of the 19th day of May 2004, among the company
and The Bank of New York, as trustee.On May 19, 2004, we issued US$110,000,000 aggregate principal
amount of 6.750% Senior Notes due March 15, 2014 in a private
placement in the United States and outside the United States under
an indenture dated as of May 19, 2004, among the company and the
Bank of New York, as trustee (the Indenture). The Indenture
restricts our ability and the ability of certain of our
subsidiaries to:a)   incur additional indebtedness and issue equity; make
investments;b)   declare or pay restrictions or make other distributions;c)   incur payment restrictions that other parties impose;d)   conduct transactions with affiliates;e)   make asset sales and use proceeds from permitted asset sales;f)   make capital expenditures;g)   incur liens;h)   consolidate or merge with or into, or transfer all or
substantially all of the companys assets to another person;5.
    
    Exchange and Registration Rights Agreement made as of the 19th day
of May 2004, among the company and Goldman, Sachs & Co.Pursuant to an Exchange and Registration Rights Agreement dated
May 19, 2004, among the company and Goldman, Sachs & Co., (the
Registration Rights Agreement), the company agreed that holders
of the Original Notes would be entitled to exchange the Original
Notes for registered notes (the Exchange Notes) with
substantially identical terms. The Exchange Notes are governed by
the Indenture. The Registration Rights Agreement provided that the
company would: (i) file a registration statement by June 1, 2004
regarding the exchange of the Original Notes for Exchange Notes;
(ii) use its reasonable best efforts to have the registration
statement declared effective by August 30, 2004; and (iii)
complete the exchange offer within 45 days after the registration
statement is declared effective.6.
    
    Asset Purchase Agreement, dated as of the 25th day of August, 2004
between the company and Potlatch CorporationOn August 25th 2004, we entered into a definitive agreement to
acquire all of the assets and certain related net working capital
used by Potlatch Corporation (Potlatch) in the operation of
three OSB facilities that are located in the northern Minnesota
towns of Bemidji, Cook and Grand Rapids. The assets were acquired
by Ainsworth Engineered (USA), LLC, our wholly owned subsidiary on
September 22, 2004. In connection with the acquisition, we paid
Potlatch a purchase price of approximately US$455.5 million
(including certain adjustments upon closing). In connection with
the terms of our asset purchase agreement with Potlatch, Potlatch
has agreed to provide us with certain transitional services for a
limited period of time.7.
    
    Indenture made as of the 22nd day of September, 2004, among the
company and The Bank of New York, as trustee.On September 22, 2004, we issued US$275,000,000 aggregate
principal amount of 7.25% Senior Notes due 2012, and
US$175,000,000 aggregate principal amount of Senior Floating Rate
Notes due 2010 in a private placement in the United States and
outside the United States (together, the Original Notes) under
an Indenture dated as of September 22, 2004, among the company and
the Bank of New York, as trustee (the Indenture). The Indenture
restricts our ability and the ability of certain of our
subsidiaries to:i)   incur additional indebtedness and issue equity; make
investments;j)   declare or pay restrictions or make other distributions;k)   incur payment restrictions that other parties impose;l)   conduct transactions with affiliates;
 54




---



##### 



Contract No.
    
    Descriptionm)   make asset sales and use proceeds from permitted asset sales;n)   make capital expenditures;o)   incur liens;p)   consolidate or merge with or into, or transfer all or
substantially all of the companys assets to another person;8.
    
    Exchange and Registration Rights Agreement made as of the 22nd day
of September 2004, among the company, Deutsche Bank Securities
Inc., and Goldman, Sachs & Co.Pursuant to an Exchange and Registration Rights Agreement dated
September 22, 2004, among the company, Deutsche Bank Securities
Inc., and Goldman, Sachs & Co., (the Registration Rights
Agreement), the company agreed that holders of the Original Notes
would be entitled to exchange the Original Notes for registered
notes (the Exchange Notes) with substantially identical terms.
The Exchange Notes, when issued will be governed by the Indenture.
The Registration Rights Agreement provided that the company would: (i) file a registration statement by November 22, 2004 regarding
the exchange of the Original Notes for Exchange Notes; (ii) use
its reasonable best efforts to have the registration statement
declared effective by February 21, 2005; and (iii) complete the
exchange offer within 45 days after the registration statement is
declared effective.9.
    
    Credit Agreement, dated as of December 14, 2005, among Ainsworth
Engineered Canada Limited Partnership, Ainsworth Corp. and
Ainsworth Engineered (USA), LLC, as borrowers and
cross-guarantors, these companies and Ainsworth Engineered Corp.,
as guarantors, the lenders party thereto, JPMorgan Chase Bank,
N.A., as administrative agent, and GE Canada Finance Holding
Company, as syndication agent.On December 14, 2005 we entered a credit agreement for a senior
secured revolving credit facility. The credit facility is a
five-year revolving credit facility permitting maximum aggregate
borrowings of $100.0 million. The credit facility is subject to a
borrowing base consisting of up to 85% of eligible accounts
receivable plus the lesser of 65% of the average cost or market
value of eligible inventory and 85% of the net orderly liquidation
value of eligible inventory plus the lesser of 20% of the average
cost or market value of eligible stores inventory and 85% of the
net orderly liquidation value of eligible stores inventory minus
reserves.This credit facility is guaranteed by us and all of our
wholly-owned subsidiaries (other than excluded subsidiaries). This
credit facility is secured by all of our and any guarantors
presently owned and hereafter acquired accounts receivable and
inventory. Liens and/or security interests on our and any
guarantors accounts receivable and inventory are prohibited.10.
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to
the Indenture dated March 3, 2004, among the company and The Bank
of New York, as trustee.On February 27, 2006, we amended the Indenture, dated March 3,
2004, related to our US$210,000,000 aggregate principal amount of
6.750% Senior Notes due March 15, 2014, among the company and The
Bank of New York, as trustee to conform the limitation on liens
covenant in the Indenture with the covenant in the indenture
relating to our 71/4% Senior Notes due October 1, 2012 and Senior
Floating Rate Notes due October 1, 2010.11.
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to
the Indenture dated May 19, 2004, among the company and The Bank
of New York, as trustee.On February 27, 2006, we amended the Indenture, dated March 3,
2004, related to our US$110,000,000 aggregate principal amount of
6.750% Senior Notes due March 15, 2014, among the company and The
Bank of New York, as trustee to conform the limitation on liens
covenant in the Indenture with the covenant in the indenture
relating to our 71/4% Senior Notes due October 1, 2012 and Senior
Floating Rate Notes due October 1, 2010.12.
    
    Contract for General Contracting Services related to the Grande
Prairie expansion,
 55




---



##### 



Contract No.
    
    Descriptiondated July 6, 2005, between the Company and
DEMAC Management Ltd.On July 6, 2005, we entered into a contract with DEMAC Management
Ltd. for general contracting services related to the creation of a
second production line at our Grande Prairie facility. Pursuant
to the agreement, DEMAC is to fulfill certain work requirements
commencing on or before August 2, 2005, and terminating on or
about February 27, 2007. The estimated contract sum is $90
million.
 D. Exchange Controls
     
    
    an acquisition of common shares of the company by a person in the ordinary course of
that persons business as a trader or dealer in securities;
    
    an acquisition of control of the company in connection with the realization of a
security interest granted for a loan or other financial assistance and not for any purpose
related to the provision of the Investment Canada Act; and
    
    an acquisition of control of the company by reason of an amalgamation, merger,
consolidation or corporate reorganization following which the ultimate direct or indirect
control in fact of the company, though the ownership of voting interests, remains
unchanged.
  E. Taxation
 Income Tax Act
 56




---



##### 



Income Tax
Act
  F. Dividends and Paying Agents
  G. Statements by Experts
  H. Documents on Display
  I. Subsidiary Information
  ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 A. Quantitative Information About Market Risk
  B. Qualitative Information About Market Risk
 57




---



##### 



Foreign Currency Rate Sensitivity
    Interest Rate Sensitivity
 $ .
  Commodity Price Sensitivity
  ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  58




---



##### 



PART II
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 A.
    
    Indebtedness
  B.
    
    Preferred Shares
  ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 A.
    
    On February 27, 2006, we amended the indentures, dated March 3, 2004 and May 19, 2004,
respectively, related to our 6.750% Senior Notes due March 15, 2014, among the company and The
Bank of New York, as trustee to conform the limitation on liens covenant in the indentures
with the covenant in the indenture relating to our 71/4% Senior Notes due October 1, 2012 and
Senior Floating Rate Notes due October 1, 2010.B.
    
    This disclosure item is not applicable.C.
    
    This disclosure item is not applicable.D.
    
    This disclosure item is not applicable.E.
    
    This disclosure item is not applicable.
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   ITEM 16. AUDIT COMMITTEE FINANCIAL EXPERT; CODE OF ETHICS; ACCOUNTANT FEES AND SERVICES
 A. Audit Committee Financial Expert
  59




---



##### 



B. Code of Ethics
  C. Principal Accountant Fees and Services
 Fees relating to the fiscal year ended December 31
    
    2004
    
    
    2005Audit Fees
    
    $
    487,500
    
    
    $
    606,000Audit-Related Fees
    
    
    442,855
    
    
    
    94,000Tax Fees
    
    
    480,010
    
    
    
    206,505Other Fees
    
    
    2,000
    
    
    
    Total
    
    $
    1,412,365
    
    
    $
    906,505
     D. Exemptions From Listing Standards for Audit Committees
  E. Purchases of Equity Securities by the Issuer and its Affiliates
  60




---



##### 



PART III
 ITEM 17. FINANCIAL STATEMENTS
  ITEM 18. FINANCIAL STATEMENTS
  Page No.Report of Independent Registered Chartered Accountants and Consolidated Financial
Statements of Ainsworth Lumber Co. Ltd.Audited Consolidated Financial StatementsReport of Independent Registered Chartered Accountants
    
    F-2Consolidated Balance Sheets as at December 31, 2005 and 2004
    
    F-3Consolidated Statements of Operations and Retained Earnings for the years ended December
31, 2005, 2004 and 2003
    
    F-4Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003
    
    F-5Notes to the Consolidated Financial Statements
    
    F-6
 61




---



##### 



Report of Independent Registered Chartered Accountants and Consolidated Financial Statements of
 AINSWORTH LUMBER CO. LTD.
 December 31, 2005 and 2004




---



##### 



Report of Independent Registered Chartered Accountants
 
     
 
 F-2




---



##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Balance Sheets
 December 31
    
    
    December 312005
    
    
    2004ASSETSCurrent AssetsCash and cash equivalents (Note 6)
    
    $
    209,201
    
    
    $
    206,063Accounts receivable, net of allowance for doubtful
accounts of $Nil (2004:$313)
    
    
    61,579
    
    
    
    55,034Inventories (Note 7)
    
    
    108,530
    
    
    
    87,582Income taxes receivable
    
    
    28,409
    
    
    
    Prepaid expenses
    
    
    14,762
    
    
    
    8,349Restricted cash (Note 12)
    
    
    39,016
    
    
    
    6,561Timber licence deposits (Note 8)
    
    
    5,998
    
    
    
    467,495
    
    
    
    363,589Capital Assets (Note 9)
    
    
    875,896
    
    
    
    926,204Intangible Assets (Note 3)
    
    
    14,209
    
    
    
    Other Assets (Note 11)
    
    
    52,432
    
    
    
    39,346Goodwill (Note 4)
    
    
    102,970
    
    
    
    103,516$
    1,513,002
    
    
    $
    1,432,655LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable
    
    $
    30,348
    
    
    $
    42,973Accrued liabilities
    
    
    51,979
    
    
    
    51,851Income taxes payable
    
    
    
    
    
    
    41,181Current portion of future income taxes (Note 17)
    
    
    31,362
    
    
    
    Current portion of long-term debt (Note 14)
    
    
    
    
    
    
    274113,689
    
    
    
    136,279Reforestation Obligation (Note 13)
    
    
    4,348
    
    
    
    4,470Long-term Debt (Note 14)
    
    
    859,540
    
    
    
    916,625Future Income Taxes (Note 17)
    
    
    120,256
    
    
    
    74,9491,097,833
    
    
    
    1,132,323Commitments (Note 19)Contingencies (Note 21)SHAREHOLDERS EQUITYCapital stock (Note 15)
    
    
    55,827
    
    
    
    55,827Cumulative translation adjustment (Note 1(b))
    
    
    (58,343
    )
    
    
    (34,237
    )Retained earnings
    
    
    417,685
    
    
    
    278,742415,169
    
    
    
    300,332$
    1,513,002
    
    
    $
    1,432,655
   /s/ Catherine Ainsworth
    
    /s/ Allen AinsworthCatherine Ainsworth
    
    Allen AinsworthDIRECTOR
    
    DIRECTOR
 F-3




---



##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Operations and Retained Earnings
 2005
    
    
    2004
    
    
    2003Sales
    
    $
    1,248,231
    
    
    $
    909,922
    
    
    $
    542,987Costs and ExpensesCosts of products sold (exclusive of
amortization)
    
    
    855,949
    
    
    
    498,246
    
    
    
    322,829Selling and administration
    
    
    30,777
    
    
    
    31,014
    
    
    
    18,167Amortization of capital assets (Note 9)
    
    
    103,907
    
    
    
    53,852
    
    
    
    32,972Write-down of capital assets (Note 9)
    
    
    
    
    
    
    793
    
    
    
    13,696990,633
    
    
    
    583,905
    
    
    
    387,664Operating Earnings
    
    
    257,598
    
    
    
    326,017
    
    
    
    155,323Finance Expense (Note 16)Interest
    
    
    64,914
    
    
    
    40,723
    
    
    
    51,177Amortization of financing costs and fees
    
    
    4,888
    
    
    
    3,234
    
    
    
    4,867Loss on repurchase of long-term debt
    
    
    1,485
    
    
    
    106,198
    
    
    
    8171,287
    
    
    
    150,155
    
    
    
    56,125Other Income (Expense)
    
    
    2,197
    
    
    
    (3,351
    )
    
    
    (508
    )Foreign Exchange Gain on Long-term Debt
    
    
    28,313
    
    
    
    73,815
    
    
    
    76,932Income Before Income Taxes
    
    
    216,821
    
    
    
    246,326
    
    
    
    175,622Income Tax Expense (Note 17)
    
    
    63,667
    
    
    
    71,244
    
    
    
    51,972Net Income
    
    
    153,154
    
    
    
    175,082
    
    
    
    123,650Retained Earnings (Deficit), Beginning of Year
    
    
    278,742
    
    
    
    118,563
    
    
    
    (5,087
    )Refundable Dividend Tax Recovery
    
    
    438
    
    
    
    
    
    
    
    Dividends Paid (Note 18)
    
    
    (14,649
    )
    
    
    (14,660
    )
    
    
    Excess of Amount Paid on Purchase of
Capital Stock over Stated Capital
    
    
    
    
    
    
    (243
    )
    
    
    Retained Earnings, End of Year
    
    $
    417,685
    
    
    $
    278,742
    
    
    $
    118,563Basic and diluted earnings per common share
    
    $
    10.45
    
    
    $
    11.98
    
    
    $
    8.49Weighted average number of common
shares outstanding
    
    
    14,649,140
    
    
    
    14,612,506
    
    
    
    14,558,707
  F-4




---



##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Cash Flows
 2005
    
    
    2004
    
    
    2003CASH FLOWS FROM OPERATING ACTIVITIESNet Income
    
    $
    153,154
    
    
    $
    175,082
    
    
    $
    123,650Items not affecting cashAmortization of capital assets
    
    
    103,907
    
    
    
    53,852
    
    
    
    32,972Amortization of deferred financing costs (Note 16)
    
    
    3,329
    
    
    
    1,869
    
    
    
    2,568Amortization of debt discount (Note 16)
    
    
    1,549
    
    
    
    1,108
    
    
    
    852Amortization of consent and commitment fees (Note 16)
    
    
    10
    
    
    
    257
    
    
    
    1,447Foreign exchange gain on long-term debt
    
    
    (28,313
    )
    
    
    (73,815
    )
    
    
    (76,932
    )Loss on repurchase of long-term debt
    
    
    1,485
    
    
    
    106,198
    
    
    
    81Loss on disposal of capital assets
    
    
    245
    
    
    
    25
    
    
    
    400Change in non-current reforestation obligation
    
    
    (122
    )
    
    
    (332
    )
    
    
    168Future income taxes
    
    
    71,600
    
    
    
    (14,353
    )
    
    
    40,096Non-cash stock-based compensation
    
    
    
    
    
    
    2,640
    
    
    
    (230
    )Write-down of capital assets (Note 9)
    
    
    
    
    
    
    793
    
    
    
    13,296Adjustment to accrued pension benefit asset
    
    
    (7,278
    )
    
    
    215
    
    
    
    803Utilization of investment tax credits
    
    
    
    
    
    
    30,060
    
    
    
    7,120Change in non-cash operating working capital (Note 24)
    
    
    (137,718
    )
    
    
    80,829
    
    
    
    (12,669
    )Cash provided by operating activities
    
    
    161,848
    
    
    
    364,428
    
    
    
    133,622CASH FLOWS FROM FINANCING ACTIVITIESIncrease in capital lease obligations
    
    
    (274
    )
    
    
    (275
    )
    
    
    451Repurchase of long-term debt
    
    
    (31,067
    )
    
    
    (451,305
    )
    
    
    (11,985
    )Dividends paid (Note 18)
    
    
    (14,649
    )
    
    
    (14,660
    )
    
    
    Refundable dividend tax recovery
    
    
    438
    
    
    
    
    
    
    
    Proceeds from issue of long-term debt
    
    
    
    
    
    
    996,387
    
    
    
    Financing costs
    
    
    
    
    
    
    (26,214
    )
    
    
    Repurchase of capital stock
    
    
    
    
    
    
    (284
    )
    
    
    Cash (used in) provided by financing activities
    
    
    (45,552
    )
    
    
    503,649
    
    
    
    (11,534
    )CASH FLOWS FROM INVESTING ACTIVITIESIncrease in restricted cash
    
    
    (32,455
    )
    
    
    (6,561
    )
    
    
    Additions to capital assets
    
    
    (57,275
    )
    
    
    (17,987
    )
    
    
    (8,236
    )Increase in other assets
    
    
    (9,883
    )
    
    
    (1,555
    )
    
    
    (144
    )Proceeds on disposal of capital assets
    
    
    27
    
    
    
    40
    
    
    
    151Acquisition of intangible assets (Note 3)
    
    
    (7,546
    )
    
    
    
    
    
    
    Timber licence deposits (Note 8)
    
    
    (5,998
    )
    
    
    
    
    
    
    Investment in Minnesota OSB Facilities (Note 5)
    
    
    
    
    
    
    (584,847
    )
    
    
    Investment in Voyageur Panel Limited, net of cash
acquired (Note 4)
    
    
    
    
    
    
    (245,158
    )
    
    
    Cash used in investing activities
    
    
    (113,130
    )
    
    
    (856,068
    )
    
    
    (8,229
    )Effect of foreign exchange rate changes on cash
and cash equivalents
    
    
    (28
    )
    
    
    
    
    
    
    NET CASH INFLOW
    
    
    3,138
    
    
    
    12,009
    
    
    
    113,859CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    206,063
    
    
    
    194,054
    
    
    
    80,195CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    209,201
    
    
    $
    206,063
    
    
    $
    194,054SUPPLEMENTAL INFORMATIONTaxes paid
    
    $
    61,484
    
    
    $
    16,443
    
    
    $
    1,567Interest paid
    
    $
    64,986
    
    
    $
    138,351
    
    
    $
    52,974
  F-5




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 1.
    
    SIGNIFICANT ACCOUNTING POLICIESThese consolidated financial statements have been reported in Canadian dollars in accordance
with Canadian generally accepted accounting principles (Canadian GAAP) and include
estimates and assumptions made by management. These estimates and assumptions affect the
reported amounts of assets and liabilities and other disclosures in these consolidated
financial statements. Actual results may differ from these estimates.Canadian GAAP differs in certain respects from accounting principles generally accepted in
the United States (U.S. GAAP) as explained in Note 26.The significant accounting policies are:
 (a)
    
    Basis of consolidationThese consolidated financial statements include the accounts of Ainsworth Lumber Co.
Ltd. (the Company) and all of its wholly-owned subsidiaries and partnerships which
include Ainsworth Engineered Corp., Ainsworth Engineered (USA), LLC, Ainsworth
Corp., Chatham Forest Products, Inc., and Ainsworth Engineered Canada Limited
Partnership.The Company accounts for its 50% interest in the High Level Project (Note 10) on a
proportionate consolidation basis.(b)
    
    Foreign Currency TranslationThe monetary assets and liabilities of the Company which are denominated in foreign
currencies are translated at the year end exchange rates. Revenues and expenses are
translated at rates of exchange prevailing on the transaction dates. All exchange
gains or losses are recognized currently in earnings except those relating to the
translation of self-sustaining foreign operations.The operations of Ainsworth Engineered (USA), LLC are considered to be a
self-sustaining foreign operation and the financial statements are translated using
the current rate method. Assets and liabilities are translated at the rate of
exchange in effect at the balance sheet date and revenue and expense items are
translated at average exchange rates prevailing during the year. Unrealized
translation gains and losses are deferred and included within the cumulative
translation adjustment as a separate component of shareholders equity. For the
year ended December 31, 2005, the Company recorded an unrealized translation loss of
$24.1 million (2004: $34.2 million) resulting from the weakening of the U.S. dollar
relative to the Canadian dollar during the year.(c)
    
    Cash and cash equivalentsCash and cash equivalents generally consist of cash balances with banks and
investments in high grade commercial paper and bank notes with original maturities
of less than three months at the time of purchase.(d)
    
    InventoriesLogs and panel products are valued at the lower of average cost and net realizable
value. Materials and supplies are valued at the lower of cost and replacement cost.
 F-6




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 1.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (e)
    
    Capital AssetsProperty, plant and equipment are stated at cost, including interest incurred for
major projects during the period of construction, and start-up costs. The cost of
renewals and betterments that extend the useful life of the property, plant and
equipment are also capitalized. The costs of repairs and replacements are charged
to expense as incurred. Oriented strand board facilities are amortized on the
units-of-production method based on the estimated useful life of the assets at
normal production levels over 15 years. Other panel product mills and other assets
are amortized on the declining balance basis at annual rates based on the estimated
useful lives of the assets as follows:
 Asset
    
    RateBuildings
    
    
    5
    %Machinery and equipment
    
    
    12%-20
    %Office equipment
    
    
    15
    %
 Timber rights and logging roads are stated at cost and are amortized on the basis of
the volume of timber cut. The Company reviews the useful lives and the carrying
values of its capital assets at least annually or more frequently if events or
changes in circumstances indicate that the assets might be impaired, by reference to
estimated future operating results and undiscounted net cash flows. If the
undiscounted future cash flows expected to result from the use and eventual
disposition of an asset are less than their carrying amount, the assets are
considered to be impaired. An impairment loss is measured at the amount by which
the carrying amount of the assets exceeds their fair value, which is estimated as
the expected future cash flows discounted at a rate commensurate with the risks
associated with the recovery of the asset.(f)
    
    Financing and debt discount costsCosts relating to long-term debt are deferred and amortized on the straight-line
basis over the term of the related debt. This approximates the effective interest
rate method.(g)
    
    Reforestation obligationTimber is harvested under various licenses issued by the Provinces of British
Columbia and Alberta, which include future requirements for reforestation. The
future estimated reforestation obligation is accrued and charged to earnings on the
basis of the volume of timber cut.(h)
    
    Earnings per shareBasic earnings per share is calculated by dividing net income by the weighted
average number of voting common shares outstanding during the year. Diluted
earnings per share is based on the weighted average number of voting common shares
and exchangeable shares and stock options outstanding at the beginning of or granted
during the year, calculated using the treasury stock method.
 F-7




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 1.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (i)
    
    Income taxesIncome taxes are accounted for using the asset and liability method. Future income
taxes reflect the tax effect, using substantively enacted tax rates, of differences
between the financial statement carrying amount and their respective tax bases of
assets and liabilities and the anticipated benefit of losses carried forward for
income tax purposes.The Companys research and development activities may be eligible to earn Investment
Tax Credits. When there is reasonable assurance that the Investment Tax Credits will
be received, they are accounted for using the cost reduction method whereby such
credits are deducted from the expenditures or assets to which they relate.(j)
    
    Revenue recognitionRevenue is recognized when the significant risks and rewards of ownership are
transferred, which is generally at the time of shipment at agreed prices to
credit-approved customers.(k)
    
    Employee Benefit PlansThe Company has two defined benefit plans providing pension benefits to its British
Columbia salaried employees and employees of the Minnesota Oriented Strand Board
(OSB) facilities. The Company accrues the costs and related obligations for the
defined benefit plans using the projected benefit actuarial method prorated based on
service and managements best estimates of expected plan investment performance,
salary escalation, and other relevant factors. The difference between costs of
employee benefits charged against earnings and the Companys contributions to the
plans, which are made in accordance with actuarial recommendations and pension
commission regulations, is included in accrued pension benefit asset on the balance
sheet. In determining pension expense, the unrecognized pension surplus or
liability, adjustments arising from changes in actuarial assumptions, and the excess
of net actuarial gains or losses over 10% of the greater of the benefit obligation
and the market value of the plan assets is amortized on a straight-line basis over
the expected average remaining service life of the employee group. The plan assets
are valued at market values.(l)
    
    GoodwillGoodwill represents the excess cost of an investment over the fair value of the net
identifiable assets acquired. Goodwill is not amortized and is subject to an annual
assessment for impairment primarily by applying a fair value based test at the
reporting unit level. The fair value of the reporting unit is estimated using the
expected present value of future discounted cash flows. The Company also considers
projected future operating results, trends and other circumstances in making such
evaluations. An impairment loss would be recognized to the extent the carrying
amount of goodwill exceeds the fair value of goodwill. The Company did not recognize
any impairment to goodwill in 2005 and 2004.
 F-8




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 1.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (m)
    
    Intangible assetsIntangible assets, as described in Note 3, are recorded at cost. The assets have an
indefinite life and are not subject to amortization. The assets are tested for
impairment annually, or more frequently if events or changes in circumstances
indicate that the assets might be impaired, by comparing the fair value of the
intangible assets with their carrying amount. When the carrying amount of the
intangible assets exceeds their fair value, an impairment loss will be recognized in
an amount equal to the excess.
 (n)
    
    Canadian GAAP developments
 (i)
    
    Non-Monetary Transactions. Commencing with the Companys 2006 fiscal
year, the amended recommendations of the CICA for measurement of non-monetary
transactions (CICA Handbook Section 3830) will apply to the Company. The
amended recommendations will result in non-monetary transactions normally being
measured at their fair values, unless certain criteria are met. The Companys
current operations are not affected by the amended recommendations.(ii)
    
    Comprehensive Income.Commencing with the Companys 2007 fiscal
year, the new recommendations of the CICA for accounting for comprehensive
income (CICA Handbook Section 1530), for the recognition and measurement of
financial instruments (CICA Handbook Section 3855) and for hedges (CICA
Handbook Section 3865) will apply to the Company. The concept of comprehensive
income for purposes of Canadian GAAP will be to include changes in
shareholders equity arising from unrealized changes in the values of financial
instruments. Comprehensive income as prescribed by U.S. GAAP is largely
aligned with comprehensive income as prescribed by Canadian GAAP. In the
Companys instance, however, there is a difference in other comprehensive
income in that U.S. GAAP includes the concept of minimum pension liabilities
and the cumulative translation adjustment and Canadian GAAP does not.(iii)
    
    Business Combinations.Commencing with the Companys 2007 fiscal
year, the proposed amended recommendations of the CICA for accounting for
business combinations will apply to the Companys business combinations, if
any, with an acquisition date of January 1, 2007, or later. Whether the Company
would be materially affected by the proposed amended recommendations would
depend upon the specific facts of the business combinations, if any, occurring
on or after January 1, 2007. Generally, the proposed recommendations will
result in measuring business acquisitions at the fair value of the acquired
entities and a prospectively applied shift from a parent company conceptual
view of consolidation theory (which results in the parent company recording the
book values attributable to non-controlling interests) to an entity conceptual
view (which results in the parent company recording the fair values
attributable to non-controlling interests).
 F-9




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 1.
    
    SIGNIFICANT ACCOUNTING POLICIES (Continued)
 (o)
    
    Comparative figuresCertain comparative figures have been reclassified to conform to the current year
presentation.
 2.
    
    AINSWORTH ENGINEERED CANADA LIMITED PARTNERSHIPOn December 24, 2004 Ainsworth Engineered Canada Limited Partnership was created under a
partnership agreement between Ainsworth Engineered Corp. and Ainsworth Lumber Co. Ltd., to
continue the combined Canadian business activities of these companies.
 3.
    
    ACQUISITION OF INTANGIBLE ASSETSOn September 2, 2005, the Company completed the acquisition of 100% of the voting shares of
Chatham Forest Products, Inc. (Chatham) for a purchase price of $9.1 million (U.S.$7.8
million). Of the total amount U.S.$6.1 million was paid in cash at closing. The remainder of
U.S.$1.7 million will be paid in equal installments on March 2, 2007 and at the earliest of
first board commercial production and September 2, 2008.The acquisition of Chatham, which has had no operations, has been accounted for using the
purchase method. The total acquisition costs have been allocated to specific identifiable
intangible assets, consisting of an air emissions permit, an option to acquire property and
access to tax incentives. These intangible assets have an indefinite life.
 Intangible assets
    
    $
    14,209Total identifiable assets acquired
    
    
    14,209Future income taxes
    
    $
    5,150Total liabilities acquired
    
    
    5,150Purchase price
    
    $
    9,059
 F-10




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 4.
    
    ACQUISITION OF VOYAGEUR PANEL LIMITEDOn May 19, 2004, the Company completed the acquisition of 100% of the voting shares of
Voyageur Panel Limited (Voyageur) for a purchase price of $284.5 million (U.S.$206.7
million) paid in cash plus additional consideration, based on realization of oriented strand
board sales prices and volumes at Voyageur between closing the transaction and December 31,
2004. As at December 31, 2004, this amount was estimated at $11.8 million (for a total
purchase price of $296.3 million). The actual consideration paid on the final settlement in
2005 was $11.3 million, with the difference reflected as an adjustment to goodwill in 2005.The acquisition of Voyageur has been accounted for using the purchase method, and the
operating results are included in the consolidated statement of operations from the date of
the acquisition. The amounts allocated to specific identifiable tangible and intangible
assets and liabilities at May 19, 2004 are as follows:
 Current assets (including cash of $51,142)
    
    $
    76,937Other assets
    
    
    1,170Capital assets
    
    
    166,084Total identifiable assets acquired
    
    
    244,191Current liabilities
    
    
    9,470Future income taxes
    
    
    41,905Other long-term liabilities
    
    
    32Total liabilities acquired
    
    
    51,407Net identifiable assets acquired
    
    
    192,784Goodwill
    
    
    103,516Total purchase price
    
    $
    296,300
 Pro forma financial summary (unaudited)The following pro forma financial summary is presented as if the acquisition of Voyageur and
the Minnesota OSB facilities (Note 5) was completed as of January 1, 2004. The pro forma
combined results are not necessarily indicative of the actual results that would have
occurred had the acquisition been consummated on those dates, or of the future operations of
the combined entities.
 Twelve Months EndedDecember 312005
    
    2004Total revenues
    
    $
    1,248,231
    
    
    $
    1,416,153Net income
    
    
    153,154
    
    
    
    297,321Basic and diluted earnings per common share
    
    
    10.45
    
    
    
    20.35
 F-11




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 5.
    
    ACQUISITION OF THE MINNESOTA OSB FACILITIESOn September 22, 2004, the Company acquired from Potlatch Corporation the assets and certain
related working capital associated with three OSB manufacturing facilities (the Minnesota
OSB facilities) located in the northern Minnesota towns of Bemidji, Cook and Grand Rapids
at a purchase price of approximately $584.8 million (U.S.$455.5 million).The acquisition of the Minnesota OSB facilities has been accounted for using the purchase
method, and the operating results are included in the consolidated statement of operations
from the date of the acquisition. The amounts allocated to specific identifiable assets and
liabilities at September 22, 2004 are as follows.
 Current assets
    
    $
    48,127Capital assets
    
    
    536,720Total identifiable assets acquired
    
    
    584,847Total liabilities acquired
    
    
    Total purchase price
    
    $
    584,847
 6.
    
    CASH AND CASH EQUIVALENTS
 2005
    
    2004Cash
    
    $
    130,209
    
    
    $
    69,479Cash equivalents
    
    
    78,992
    
    
    
    136,584$
    209,201
    
    
    $
    206,0637. INVENTORIES2005
    
    2004Logs
    
    $
    52,001
    
    
    $
    23,339Panel products
    
    
    20,652
    
    
    
    23,152Materials and supplies
    
    
    35,877
    
    
    
    41,091$
    108,530
    
    
    $
    87,582
 8.
    
    TIMBER LICENCE DEPOSITSThe Company was awarded timber licences in the Prince George Timber Supply Area and the
Quesnel Timber Supply Area, covering in aggregate approximately 1.4 million cubic metres of
timber per year. Both licences are for a term of 15 years.The Ministry of Forests recently approved and submitted both licences to the Company for
acceptance of their terms. Until agreement is reached on the final terms of the licences, a
$6.0 million non-interest bearing deposit will be held in trust by the Ministry, of which
$4.7 million is non-refundable. If an agreement is reached with the Ministry, further
amounts may be payable by the Company.
 F-12




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 8.
    
    TIMBER LICENCE DEPOSITS (Continued)As part of the applications for the timber licences, the Company is considering an
opportunity to construct two timber processing facilities in these timber supply areas. No
commitments to proceed with the construction of these facilities have been made.
 9.
    
    CAPITAL ASSETS
 2005Accumulated
    
    Net BookCost
    
    Amortization
    
    ValueProperty, plant and equipmentPanel product mills
    
    $
    1,209,193
    
    
    $
    414,059
    
    
    $
    795,134Land
    
    
    10,130
    
    
    
    
    
    
    
    10,130Other
    
    
    23,336
    
    
    
    18,751
    
    
    
    4,585Construction in progress
    
    
    44,285
    
    
    
    
    
    
    
    44,2851,286,944
    
    
    
    432,810
    
    
    
    854,134Timber and logging roadsTimber
rights and development costs
    
    
    27,643
    
    
    
    9,626
    
    
    
    18,017Logging roads
    
    
    14,090
    
    
    
    10,345
    
    
    
    3,74541,733
    
    
    
    19,971
    
    
    
    21,762$
    1,328,677
    
    
    $
    452,781
    
    
    $
    875,8962004Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueProperty, plant and equipmentPanel product mills
    
    $
    1,199,178
    
    
    $
    320,772
    
    
    $
    878,406Land
    
    
    10,384
    
    
    
    
    
    
    
    10,384Other
    
    
    21,748
    
    
    
    14,218
    
    
    
    7,530Construction in progress
    
    
    10,338
    
    
    
    
    
    
    
    10,3381,241,648
    
    
    
    334,990
    
    
    
    906,658Timber and logging roadsTimber rights and
development costs
    
    
    24,229
    
    
    
    8,110
    
    
    
    16,119Logging roads
    
    
    12,029
    
    
    
    8,602
    
    
    
    3,42736,258
    
    
    
    16,712
    
    
    
    19,546$
    1,277,906
    
    
    $
    351,702
    
    
    $
    926,204
 F-13




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 9.
    
    CAPITAL ASSETS (Continued)
 2005
    
    
    2004
    
    
    2003Amortization expense for the yearProperty, plant and equipment
    
    $
    100,364
    
    
    $
    51,853
    
    
    $
    31,128Timber and logging roads
    
    
    3,543
    
    
    
    1,729
    
    
    
    1,844$
    103,907
    
    
    $
    53,582
    
    
    $
    32,972
 In December 2003, the Company recorded a write-down of capital assets of $13.7 million in
costs relating to the construction and design for a proposed expansion of the Grande Prairie
OSB operations. The Company had been unsuccessful in its attempt to secure additional
long-term timber tenure. Without confirmation of a secure timber supply at December 31,
2003, the Company decided not to pursue the expansion of the Grande Prairie facility at that
time.In 2005, the Company was successful in securing sufficient additional long-term timber
tenure and began the expansion of the Grande Prairie facility (Note 19).In 2004 the write-down of capital assets was $0.8 million.10.
    
    THE HIGH LEVEL PROJECTThe Company jointly operates an oriented strand board (OSB) facility in High Level,
Alberta. The Companys proportionate (50%) share of major assets, including plant and
equipment, is held by a bare trustee corporation, on behalf of the Company, together with
the 50% interest of a co-venturer in such assets.Once the OSB production process at the High Level facility is complete, the production is
allocated to the respective venturers at cost. Each respective venturer then sells its
respective production to third parties. The venture does not generate revenue or net income
and as a result the Companys proportionate share of operating, financing, and investing
cash flows are not discussed.The following is a summary of the Companys proportionate interest in the financial position
of the High Level Project, which is included in these consolidated financial statements:
 2005
    
    
    2004AssetsAccounts receivable
    
    $
    3,600
    
    
    $
    1,294Inventories
    
    
    11,117
    
    
    
    8,923Prepaid expenses
    
    
    341
    
    
    
    393Capital assets
    
    
    118,529
    
    
    
    125,171LiabilitiesExcess of cheques issued over cash in bank
    
    
    3,655
    
    
    
    1,558Accounts payable and accrued liabilities
    
    
    1,228
    
    
    
    2,906
 By agreement between the Company and its co-venturer, if the co-venturer does not pay its
share of accounts payable and accrued liabilities, the Company may pay such amounts and
recover them from the co-venturers share of production. The co-venturers share of
accounts payable and accrued liabilities amounted to
$1.2 million as at December 31, 2005
(2004: $2.9 million).
 F-14




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 11.
    
    OTHER ASSETS
 2005
    
    
    2004Advances and deposits
    
    $
    19,572
    
    
    $
    7,092Accrued pension benefit asset (Note 20)
    
    
    11,219
    
    
    
    3,941Unamortized financing costs
    
    
    21,641
    
    
    
    28,313$
    52,432
    
    
    $
    39,346
 12.
    
    CREDIT FACILITIES AND RESTRICTED CASHOn December 14, 2005, the Company established a five-year $100.0 million revolving credit
facility, bearing interest at the banks prime rate, subject to availability under the terms
of the facility. Security is provided by interest in the Companys accounts receivable and
inventory. At December 31, 2005, the prime rate was 5.0% and this facility was unutilized.As at December 31, 2005, the Company had outstanding letters of credit of $39.0 million
(2004: $6.6 million) to support the Companys ongoing business operations. Under the terms
of the commercial letters of credit facility, $39.0 million (2004: $6.6 million) in cash is
held in a separate account as collateral for the letters of credit outstanding. The total
credit available to the Company under this agreement is $50.0 million.The Company had an unutilized U.S.$2.5 million foreign exchange and future contract credit
facility at December 31, 2005, secured by cash collateral.
 13.
    
    REFORESTATION OBLIGATION
 2005
    
    
    2004Balance, beginning of year
    
    $
    5,628
    
    
    $
    6,064Expense
    
    
    1,639
    
    
    
    1,1577,267
    
    
    
    7,221Paid during the year
    
    
    (1,761
    )
    
    
    (1,593
    )Balance, end of year
    
    $
    5,506
    
    
    $
    5,628Current portion, included in accrued liabilities
    
    $
    1,158
    
    
    $
    1,158Long-term
    
    $
    4,348
    
    
    $
    4,470
 F-15




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 14.
    
    LONG-TERM DEBTThe Companys long-term debt is guaranteed by its 100% owned subsidiaries, Ainsworth
Engineered (USA), LLC, Ainsworth Engineered Corp., Ainsworth Corp. and Ainsworth Engineered
Canada Limited Partnership (Note 27). The details of the outstanding long-term debt at
December 31, 2005 and 2004 are as follows:
 2005
    
    
    2004



U.S.$275,000,000 (2004: U.S.$275,000,000) Senior Unsecured
Notes due October 1, 2012 with interest payable semi-annually
at 7.25% per annum
    
    $
    319,825
    
    
    $
    330,550U.S.$153,540,000 (2004: U.S.$175,000,000) Senior Unsecured
Notes due October 1, 2010 with interest payable quarterly at
LIBOR plus 3.75% per annum
    
    
    178,567
    
    
    
    210,350U.S.$210,000,000 (2004: U.S.$210,000,000) Senior Unsecured
Notes due March 15, 2014 with interest payable semi-annually
at 6.75% per annum
    
    
    244,230
    
    
    
    252,420U.S.$110,000,000 (2004: U.S.$110,000,000) Senior Unsecured
Notes due March 15, 2014 with interest payable semi-annually
at 6.75% per annum
    
    
    127,930
    
    
    
    132,220U.S.$1,351,000 (2004: U.S.$2,351,000) Senior Unsecured Notes
due July 15, 2007 with interest payable semi-annually at 12.5%
per annum
    
    
    1,571
    
    
    
    2,826U.S.$Nil (2004: U.S.$2,000,000) Senior Unsecured Notes due
July 15, 2007 with interest payable quarterly at 13.875% per
annum
    
    
    
    
    
    
    2,404Capital lease obligations
    
    
    
    
    
    
    274872,123
    
    
    
    931,044Unamortized deferred debt discount
    
    
    (12,583
    )
    
    
    (14,145
    )859,540
    
    
    
    916,899Current portion
    
    
    
    
    
    
    (274
    )$
    859,540
    
    
    $
    916,625
 In May and June 2005, the Company repurchased U.S.$1.0 million of its 12.5% Senior Unsecured
Notes, the remaining U.S.$2.0 million of its 13.875% Senior Unsecured Notes, and U.S.$21.5
million of its Senior Unsecured Floating Rate Notes, realizing a total loss on repurchase of
$1.5 million (Note 16).Subsequent to December 31, 2005, the Company received the required consents from the holders
of its U.S.$210,000,000 aggregate principal amount of 6.750% Senior Notes due March 15,
2014, and of its U.S.$110,000,000 aggregate principal amount of 6.750% Senior Notes due
March 15, 2014 to amend the indentures governing the Notes.
 F-16




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##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 14.
    
    LONG-TERM DEBT (Continued)The amendments conform the limitation on liens covenant in the Indentures relating to the
Notes with the limitation in the indenture relating to the Companys 71/4% Senior Notes due
October 1, 2012 and Senior Floating Rate Notes due October 1, 2010.15.
    
    CAPITAL STOCK
 (a)
    
    The Companys authorized share capital is as follows:
 (i)
    
    100,000,000 common shares without par value;(ii)
    
    1,500,000 Class B non-voting common shares without par value,
of which 717,500 have been designated for an employee participation share plan.
The designated Class B common shares are convertible into the
number of common shares equivalent to the ratio of a) the greater of future appreciation in
market value of the common shares from the date the Board of Directors of the
Company resolve to issue the Class B common shares and the issue price of the
Class B common shares, divided by b) the market value of the common shares when
the conversion and completion of vesting occurs on the fifth anniversary of
issuance of the Class B common shares. Vesting occurs equally upon the third,
fourth and fifth anniversaries; and(iii)
    
    100,000,000 preferred shares without par value, of which
300,000 have been designated Series 1, 4,000,000 have been
designated Series 2 and 5,000,000 have been designated
Series 3. The Series 1 preferred shares are non-voting, redeemable at the issue price
of $10 and are entitled to a 6% non-cumulative dividend. The Series 2
preferred shares are non-voting with a cumulative dividend rate equal to 72% of
bank prime rate and are redeemable by the Company at any time or retractable by
the holder any time after five years from the date of issue. The Series 3 preferred shares are non-voting, redeemable,
retractable, and are entitled to a non-cumulative dividend as may be declared
from time to time.
 (b)
    
    The Companys issued share capital is as follows:
 Common SharesShares
    
    AmountBalance at December 31, 2004
    
    
    14,649,140
    
    
    $
    55,827Balance at December 31, 2005
    
    
    14,649,140
    
    
    $
    55,827
 In 2003, the Company exchanged all outstanding Class B non-voting common shares for
common shares. No Class B non-voting common shares or preferred shares were issued
and outstanding at December 31, 2005 and 2004.On October 24, 2005, the Company commenced a normal course issuer bid, whereby it
may purchase up to 732,457 common shares, representing 5% of the Companys
14,649,140 currently issued and outstanding common shares.
 F-17




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
Years ended December 31
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 15.
    
    CAPITAL STOCK (Continued)
 The issuer bid will expire on October 23, 2006 or on such earlier date that the
Company completes its purchases. No shares have been repurchased under this bid in
the period ended December 31, 2005.
 16.
    
    FINANCE EXPENSE
 2005
    
    
    2004
    
    
    2003Current debt
    
    $
    
    
    
    $
    746
    
    
    $
    35Loss on repurchase of long-term debt (Note 14)
    
    
    1,485
    
    
    
    106,198
    
    
    
    81Long-term debt
    
    
    69,802
    
    
    
    43,211
    
    
    
    56,009$
    71,287
    
    
    $
    150,155
    
    
    $
    56,125
  2005
    
    
    2004
    
    
    2003Amortization of deferred financing costs
    
    $
    3,329
    
    
    $
    1,869
    
    
    $
    2,568Amortization of debt discounts
    
    
    1,549
    
    
    
    1,108
    
    
    
    852Amortization of consent and commitment fees
    
    
    10
    
    
    
    257
    
    
    
    1,447$
    4,888
    
    
    $
    3,234
    
    
    $
    4,867
 17.
    
    INCOME TAXESReconciliation of the Companys effective income tax rate to the Canadian statutory tax rate
is as follows:
 2005
    
    
    %
    
    2004
    
    
    %
    
    2003
    
    
    %Income tax expense
at statutory rate
    
    $
    75,605
    
    
    
    34.9
    
    
    $
    86,953
    
    
    
    35.3
    
    
    $
    61,995
    
    
    
    35.3Large corporation tax
    
    
    1,572
    
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    1,123
    
    
    
    0.6Non-taxable foreign exchange
gain on long-term debt
    
    
    (4,936
    )
    
    
    (2.3
    )
    
    
    (12,996
    )
    
    
    (5.3
    )
    
    
    (13,578
    )
    
    
    (7.7
    )Reduction in statutory
income tax rates
    
    
    (2,652
    )
    
    
    (1.2
    )
    
    
    (700
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    Rate differentials between
jurisdictions
    
    
    1,361
    
    
    
    0.6
    
    
    
    (3,033
    )
    
    
    (1.3
    )
    
    
    
    
    
    
    Subsidiary income not taxable
    
    
    (13,213
    )
    
    
    (6.1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other non deductible items
    
    
    5,930
    
    
    
    2.7
    
    
    
    1,020
    
    
    
    0.4
    
    
    
    2,432
    
    
    
    1.4Tax expense
    
    $
    63,667
    
    
    
    29.4
    
    
    $
    71,244
    
    
    
    28.8
    
    
    $
    51,972
    
    
    
    29.6Comprised of:Current taxes
    
    $
    (10,788
    )
    
    
    
    
    
    $
    85,597
    
    
    
    
    
    
    $
    11,876Future income taxes
    
    
    74,455
    
    
    
    
    
    
    
    (14,353
    )
    
    
    
    
    
    
    40,096$
    63,667
    
    
    
    
    
    
    $
    71,244
    
    
    
    
    
    
    $
    51,972
 F-18




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 17.
    
    INCOME TAXES (Continued)
  2005
    
    
    2004Future income tax assetsEligible capital expenditures
    
    $
    2,995
    
    
    $
    3,305Accruals not currently deductible
    
    
    2,060
    
    
    
    3,231Loss on repurchase of long-term debt
    
    
    13,193
    
    
    
    22,963Investment tax credits
    
    
    1,671
    
    
    
    Tax loss carryforwards
    
    
    56,938
    
    
    
    18,753Future income tax assets
    
    
    76,857
    
    
    
    48,252Future income tax liabilitiesDepreciable capital assets
    
    
    110,051
    
    
    
    103,907Deferred pension costs
    
    
    4,837
    
    
    
    4,270Foreign exchange gain on long-term debt
    
    
    18,237
    
    
    
    14,577Financing costs
    
    
    1,706
    
    
    
    447Research and development costs
    
    
    5,171
    
    
    
    Income currently not subject to tax
    
    
    88,473
    
    
    
    Future income tax liabilities
    
    
    228,475
    
    
    
    123,201Future income tax liability, net
    
    $
    151,618
    
    
    $
    74,949Comprised of:Current
    
    $
    31,362
    
    
    $
    Long-term
    
    
    120,256
    
    
    
    74,949$
    151,618
    
    
    $
    74,949
  Canada
    
    
    United States2008
    
    $
    24,774
    
    
    
    2009
    
    
    20,871
    
    
    
    2010
    
    
    11,950
    
    
    
    2015
    
    
    82,889
    
    
    
    2025
    
    
    
    
    
    
    24,790$
    140,484
    
    
    $
    24,790
 18.
    
    DIVIDENDS PAIDDuring 2005, the Company declared and paid a cash dividend of $1.00 (2004: $1.00; 2003:
$Nil) per common share to holders of record of common shares.
 F-19




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 19.
    
    COMMITMENTS
  2006
    
    $
    3,7932007
    
    
    2,8582008
    
    
    1,8902009
    
    
    1,5432010
    
    
    1,232Total minimum lease payments
    
    $
    11,316
     20.
    
    PENSION PLANS
    F-20




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 20. PENSION PLANS (Continued)
  2005
    
    
    2004
    
    
    2003PLAN ASSETSFair value at beginning of year
    
    $
    30,175
    
    
    $
    26,900
    
    
    $
    25,801Return on plan assets
    
    
    2,353
    
    
    
    1,926
    
    
    
    1,757Employer contributions
    
    
    12,987
    
    
    
    3,357
    
    
    
    1,466Benefits paid
    
    
    (4,330
    )
    
    
    (2,130
    )
    
    
    (2,865
    )Experience (loss) gain
    
    
    1,402
    
    
    
    122
    
    
    
    741Fair value at end of year
    
    
    42,587
    
    
    
    30,175
    
    
    
    26,900ACCRUED BENEFIT OBLIGATIONBalance at beginning of year
    
    
    50,102
    
    
    
    33,659
    
    
    
    30,760Current service cost
    
    
    4,015
    
    
    
    2,221
    
    
    
    1,506Interest cost
    
    
    2,948
    
    
    
    2,549
    
    
    
    2,158Benefits paid
    
    
    (4,330
    )
    
    
    (2,130
    )
    
    
    (2,865
    )Plan improvement cost
    
    
    
    
    
    
    2,057
    
    
    
    Minnesota OSB facilities plan acquisition
    
    
    3,861
    
    
    
    7,329
    
    
    
    Adjustment to discount rate and foreign
exchange
    
    
    7,261
    
    
    
    2,968
    
    
    
    2,100Actuarial gain
    
    
    2,316
    
    
    
    1,450
    
    
    
    Balance at end of year
    
    
    66,173
    
    
    
    50,102
    
    
    
    33,659NET DEFICIT, END OF YEAR
    
    $
    (23,586
    )
    
    $
    (19,927
    )
    
    $
    (6,759
    )ACCRUED PENSION BENEFIT ASSET IS COMPRISED OF:Funded status  plan deficit
    
    $
    (23,586
    )
    
    $
    (19,927
    )
    
    $
    (6,759
    )Unamortized net actuarial loss
    
    
    23,939
    
    
    
    16,186
    
    
    
    12,476Unamortized transitional obligation
    
    
    (1,725
    )
    
    
    (1,897
    )
    
    
    (2,070
    )Unamortized past service cost
    
    
    12,591
    
    
    
    9,579
    
    
    
    509Accrued pension benefit asset (Note 11)
    
    $
    11,219
    
    
    $
    3,941
    
    
    $
    4,156PENSION EXPENSE IS COMPRISED OF:Accrual for current services
    
    $
    4,015
    
    
    $
    2,221
    
    
    $
    1,506Interest on accrued benefits
    
    
    2,948
    
    
    
    2,549
    
    
    
    2,158Interest on pension fund assets
    
    
    (2,362
    )
    
    
    (1,926
    )
    
    
    (1,757
    )Amortization amountsUnfunded liability (surplus)
    
    
    (173
    )
    
    
    (173
    )
    
    
    (173
    )Experience gains and losses
    
    
    
    
    
    
    
    
    
    
    503Past service costs
    
    
    617
    
    
    
    318
    
    
    
    32Gain (Loss) on settlement
    
    
    695
    
    
    
    584
    
    
    
    $
    5,740
    
    
    $
    3,573
    
    
    $
    2,269
 F-21




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 20.
    
    PENSION PLANS (Continued)
 2005
    
    
    2004
    
    
    2003PLAN ASSETSCash
    
    $
    1,177
    
    
    $
    64
    
    
    $
    Canadian short term investments
    
    
    2,015
    
    
    
    
    
    
    
    Canadian bonds and debentures
    
    
    14,712
    
    
    
    15,352
    
    
    
    14,203Canadian common shares
    
    
    13,080
    
    
    
    8,728
    
    
    
    6,932Canadian pooled equity funds
    
    
    827
    
    
    
    
    
    
    
    523Global bonds and debentures
    
    
    224
    
    
    
    
    
    
    
    Global pooled equity funds
    
    
    4,680
    
    
    
    3,349
    
    
    
    2,254US common shares
    
    
    4,964
    
    
    
    2,682
    
    
    
    US pooled equity funds
    
    
    908
    
    
    
    
    
    
    
    2,988$
    42,587
    
    
    $
    30,175
    
    
    $
    26,900
  2005
    
    
    2004
    
    
    2003Discount rate on accrued benefit obligation
    
    
    5.0
    %
    
    
    6.0
    %
    
    
    7.0
    %Discount rate on benefit costs
    
    
    6.0
    %
    
    
    6.5
    %
    
    
    7.0
    %Expected
long-term rate of return on plan assets
    
    
    7.0
    %
    
    
    7.0
    %
    
    
    7.0
    %Rate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.5
    %
  Plan Investment Strategies and Policies
  Risk management
 F-22




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 20.
    
    PENSION PLANS (Continued)
 Allowable and prohibited investment types
 Diversification
 Asset allocations
 AllowableRange
    
    
    ActualCanadian equities
    
    
    25.0 - 55.0
    %
    
    
    34.3
    %U.S. equities
    
    5.0% - Legal limit

    
    
    12.6
    %International equities
    
    0.0% - Legal limit

    
    
    11.2
    %Bonds
    
    
    30.0 - 50.0
    %
    
    
    36.8
    %Short-term and cash
    
    
    0.0 - 20.0
    %
    
    
    5.1
    %
  21.
    
    CONTINGENCIES
   F-23




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 22.
    
    RELATED PARTY TRANSACTIONS
  2005
    
    
    2004
    
    
    2003Rental charges for mobile forestry and
transportation equipment at normal commercial
terms and prices
    
    

$ 120
    
    
    

$ 120
    
    
    

$ 120Amounts due from officers and companies with
directors in common included in other assets
    
    
    
    
    
    
    490
    
    
    
    479
 23.
    
    SEGMENTED INFORMATION
   2005
    
    
    2004
    
    
    2003Canada
    
    $
    81,602
    
    
    $
    106,837
    
    
    $
    94,277United States
    
    
    1,135,313
    
    
    
    763,952
    
    
    
    410,212Europe
    
    
    10,373
    
    
    
    9,641
    
    
    
    8,067Asia
    
    
    20,943
    
    
    
    29,492
    
    
    
    30,431Total
    
    $
    1,248,231
    
    
    $
    909,922
    
    
    $
    542,987
  2005
    
    
    2004Canada
    
    $
    437,768
    
    
    $
    433,424United States
    
    
    438,128
    
    
    
    492,780Total
    
    $
    875,896
    
    
    $
    926,204
  F-24




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 24.
    
    CHANGE IN NON-CASH OPERATING WORKING CAPITAL
 2005
    
    
    2004
    
    
    2003Accounts receivable
    
    
    (10,204
    )
    
    
    14,236
    
    
    
    (6,650
    )Inventories
    
    
    (22,137
    )
    
    
    (4,358
    )
    
    
    (2,247
    )Income taxes receivable
    
    
    (69,140
    )
    
    
    37,687
    
    
    
    3,614Prepaid expenses
    
    
    (7,165
    )
    
    
    (4,168
    )
    
    
    (778
    )Accounts payable and accrued liabilities
    
    
    (29,072
    )
    
    
    37,432
    
    
    
    (6,608
    )(137,718
    )
    
    
    80,829
    
    
    
    (12,669
    )
 25.
    
    FINANCIAL INSTRUMENTS
 (a)
    
    Financial and credit riskThe financial risk is the risk that the value of the Companys financial instruments
will vary due to fluctuations in interest rates and foreign exchange rates, and the
degree of volatility of these rates.The Company does not have significant exposure to any individual customer or
counterparty. Concentrations of credit risk on trade accounts receivable are with
customers in the forest products industry which are located in Canada and the United
States.(b)
    
    Fair valuesThe fair value of the Companys accounts receivable, accounts payable and accrued
liabilities is estimated to approximate their carrying value due to the immediate or
short term maturity of these financial instruments.The fair value of the long-term debt is determined using quoted market values for
the Companys Senior Unsecured Notes. The estimated fair value may differ from the
amount which could be realized in an immediate settlement of the instruments.The carrying values and fair values of the long-term debt are as follows:
 2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueSenior notes
    
    $
    859,540
    
    
    $
    899,881
    
    
    $
    916,625
    
    
    $
    961,697Capital leases
    
    
    
    
    
    
    
    
    
    
    274
    
    
    
    274$
    859,540
    
    
    $
    899,881
    
    
    $
    916,899
    
    
    $
    961,971
 F-25




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 26.
    
    U.S. GAAP RECONCILIATION
  (a)
    
    Adjustments to assets, liabilities and shareholders equity
 2005
    
    
    2004
    
    
    2003Total assets in accordance with Canadian GAAP
    
    $
    1,513,002
    
    
    $
    1,432,655
    
    
    $
    627,721Write-off of capitalized start-up costs(1)
    
    
    (4,507
    )
    
    
    (7,361
    )
    
    
    (8,966
    )Intangible asset, arising from minimum pension
liability calculation(2)
    
    
    12,590
    
    
    
    9,579
    
    
    
    509Total assets in accordance with U.S. GAAP
    
    $
    1,521,085
    
    
    $
    1,434,873
    
    
    $
    619,264Total liabilities in accordance with Canadian GAAP
    
    $
    1,097,833
    
    
    $
    1,132,323
    
    
    $
    455,930Deferred income taxes relating to write-off
of capitalized start-up costs(1)
    
    
    (1,530
    )
    
    
    (2,622
    )
    
    
    (3,194
    )Minimum pension liability (2)
    
    
    34,805
    
    
    
    23,868
    
    
    
    10,915Deferred income taxes relating to minimum
pension liability (2)
    
    
    (7,775
    )
    
    
    (5,001
    )
    
    
    (3,642
    )Total liabilities in accordance with U.S. GAAP
    
    $
    1,123,333
    
    
    $
    1,148,568
    
    
    $
    460,009Total shareholders equity in accordance with
Canadian GAAP
    
    $
    415,169
    
    
    $
    300,332
    
    
    $
    171,791Cumulative translation adjustment (3)
    
    
    58,343
    
    
    
    34,237
    
    
    
    Change in retained earnings relating to:Write-off of capitalized start-up costs(1)
    
    
    (2,977
    )
    
    
    (4,739
    )
    
    
    (5,772
    )Accumulated other comprehensive
loss (Note 26(c)(i))
    
    
    (72,783
    )
    
    
    (43,525
    )
    
    
    (6,764
    )Total shareholders equity in accordance with
U.S. GAAP
    
    $
    397,752
    
    
    $
    286,305
    
    
    $
    159,255
 1.
    
    Under U.S. GAAP, the direct operating losses arising during the start-up
phase of the oriented strand board facilities, which were capitalized under
Canadian GAAP, are charged against earnings as incurred.2.
    
    Under U.S. GAAP, the Company would recognize the difference
between the unfunded accumulated pension benefit obligation and the accrued
benefit asset (Note 20) as an additional minimum pension liability, and an
equal amount as an intangible asset, subject to the following. If the
additional liability exceeded unrecognized past service cost, the excess would
be recognized as other comprehensive loss, net of any resulting tax benefits.3.
    
    Under U.S. GAAP, foreign currency translation losses are
recorded as comprehensive income whereas under Canadian GAAP these amounts are
presented as a separate component of shareholders equity.
 F-26




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 26.
    
    U.S. GAAP RECONCILIATION (Continued)
 (b)
    
    Adjustments to earnings
 2005
    
    
    2004
    
    
    2003Net income in accordance with
Canadian GAAP
    
    $
    153,154
    
    
    $
    175,082
    
    
    $
    123,650Reversal of amortization of capitalized
start-up costs (1)
    
    
    2,854
    
    
    
    1,605
    
    
    
    1,183Deferred income taxes relating to capitalized
start-up costs(1)
    
    
    (1,092
    )
    
    
    (572
    )
    
    
    (506
    )Net income in accordance with U.S. GAAP
    
    
    154,916
    
    
    
    176,115
    
    
    
    124,327Minimum pension liability (2)
    
    
    (7,926
    )
    
    
    (3,883
    )
    
    
    (488
    )Recovery of deferred income tax relating to
minimum pension liability (2)
    
    
    2,774
    
    
    
    1,359
    
    
    
    171Cumulative translation adjustment (3)
    
    
    (24,106
    )
    
    
    (34,237
    )
    
    
    Comprehensive income in accordance
with U.S. GAAP
    
    $
    125,658
    
    
    $
    139,354
    
    
    $
    124,010Basic and diluted per share in accordance
with U.S. GAAP
    
    $
    8.58
    
    
    $
    9.54
    
    
    $
    8.52Weighted average number of common
shares outstanding
    
    
    14,649,140
    
    
    
    14,612,506
    
    
    
    14,558,707
 1.
    
    Under U.S. GAAP, the direct operating losses arising during the start-up
phase of the oriented strand board facilities, which were capitalized under
Canadian GAAP, are charged against earnings as incurred.2.
    
    Under U.S. GAAP, the Company would recognize the difference
between the unfunded accumulated pension benefit obligation and the accrued
benefit asset (Note 20) as an additional minimum pension liability, and an
equal amount as an intangible asset, subject to the following. If the
additional liability exceeded unrecognized past service cost, the excess would
be recognized as other comprehensive loss, net of any resulting tax benefits.3.
    
    Under U.S. GAAP, foreign currency translation losses are
recorded as comprehensive income whereas under Canadian GAAP these amounts are
presented as a separate component of shareholders equity.4.
    
    The presentation of investment tax credits is different under
Canadian GAAP and under U.S. GAAP. In Canadian GAAP such amounts are deducted
from the related expense and under U.S. GAAP they are deducted from the income
tax provision.
 F-27




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 26.
    
    U.S. GAAP RECONCILIATION (Continued)
 (c)
    
    Other Information Regarding U.S. GAAP(i)
    
    Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, issued under U.S. GAAP, requires the reporting and display of
comprehensive income and its components in a full set of general purpose financial
statements. Comprehensive income, which incorporates net income, includes all changes
in equity during a period except those resulting from investments by and distributions
to owners. There is currently no requirement to disclose comprehensive income under
Canadian GAAP.Comprehensive loss arising from minimum pension liability and cumulative
translation adjustment:
 2005
    
    
    2004
    
    
    2003Minimum pension liability
    
    $
    7,926
    
    
    $
    3,883
    
    
    $
    488Deferred income tax (recovery)
    
    
    (2,774
    )
    
    
    (1,359
    )
    
    
    (171
    )Cumulative translation adjustment
    
    
    24,106
    
    
    
    34,237
    
    
    
    29,258
    
    
    
    36,761
    
    
    
    317Accumulated other comprehensive loss,
beginning of year
    
    
    43,525
    
    
    
    6,764
    
    
    
    6,447Accumulated other comprehensive loss,
end of year
    
    $
    72,783
    
    
    $
    43,525
    
    
    $
    6,764
 (ii)
    
    In November 2004, the FASB issued SFAS No. 151, Inventory Costs-an amendment
of ARB No. 43. The Statement requires abnormal amounts of idle facility expenses,
freight, handling costs, and spoilage to be recognized as current period charges. This
Statement eliminates the criterion of so abnormal and requires that the costs of
conversion be based on the normal capacity of the production facilities. The
provisions of this Statement shall apply prospectively and are effective for inventory
costs incurred by the Company after December 31, 2005. The Company will reflect this
Statement in its reconciliation of U.S. GAAP as of January 1, 2006. The impact of
adopting these new rules is dependent on events that could occur in future periods, and
as such, an estimate of the impact cannot be determined until the event occurs in
future periods.
 F-28




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 26.
    
    U.S. GAAP RECONCILIATION (Continued)
 (iii)
    
    In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-Monetary
Assets, an amendment of APB No. 29. This Statement amends Opinion 29 to eliminate
the exception for non-monetary exchanges of similar productive assets and replaces it
with a general exception for exchanges of non-monetary assets that do not have
commercial substance. The Statement specifies that a non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. This Statement is effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Earlier application is permitted for non-monetary asset exchanges occurring in
fiscal periods beginning after the date this Statement is issued. Retroactive
application is not permitted. Management will adopt this Statement as of January 1,
2006 for the purposes of the U.S. GAAP reconciliation and will apply its standards in
the event exchanges of non-monetary assets occur after such date.(iv)
    
    In March 2005, the FASB issued FASB Interpretation No. 47, Accounting for
Conditional Asset Retirement Obligations. This statement requires companies to
recognize a liability for the fair value of a legal obligation to perform asset
retirement obligations that are conditional on a future event if the amount can be
reasonably estimated. This statement becomes effective on December 31, 2005.
Management has evaluated the application of FASB Statement No. 143 to its operations
and concluded that no material effects would be expected. Management will consider
this Interpretation in 2006 in the event a conditional asset retirement obligation
arises.(v)
    
    In June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS 154
requires retrospective application to financial statements of prior periods for
changes in accounting principles as if such principles had always been used. The
cumulative effect of the change is reflected in the carrying value of assets and
liabilities as of the first period presented and the offsetting adjustments are
recorded to opening retained earnings. This statement is effective January 1, 2006.
The Company will apply this statement in the U.S. GAAP reconciliation as of January 1,
2006 as such changes in accounting principles occur.
 F-29




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 26
    
    U.S. GAAP RECONCILIATION (Continued)
 (vi)
    
    In November 2005, the FASB issued FSP FAS 115-1, The Meaning of
OtherThan-Temporary Impairment and Its Application to Certain Investments, which
outlines a three-step model for identifying investment impairments in debt and equity
securities within the scope of Statement 115 and cost-method investments. The three
steps involve (1) determining whether the investment is impaired, (2) evaluating
whether the impairment is other-than- temporary, and (3) if the impairment is
other-than-temporary, recognizing an impairment loss. The FSP carries forward the
disclosure requirements of issue 03-1, The Meaning of Other-Than-Temporary Impairment
and Its Application to Certain Investments. The Company will begin applying this
guidance within the U.S. GAAP reconciliation as of January 1, 2006 as circumstances
arise.
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESSOn March 3, 2004, the Company issued U.S.$210 million of 6.75% Senior Unsecured Notes to
refinance its outstanding indebtedness at the time. On May 19, 2004, the Company issued
U.S.$110 million of 6.75% Senior Unsecured Notes to finance the acquisition of Voyageur. On
September 22, 2004 the Company issued U.S.$275 million in aggregate principal amount of
7.25% Senior Unsecured Notes and U.S.$175 million in aggregate principal amount of Senior
Unsecured Floating Rate Notes to finance the acquisition of the Minnesota OSB facilities.
Under the terms of the Senior Notes referred to above, the Companys 100% owned
subsidiaries, Ainsworth Engineered (USA), LLC, Ainsworth Engineered Corp. (formerly
Voyageur), Ainsworth Corp. and Ainsworth Engineered Canada Limited Partnership, became
joint and several guarantors of the indebtedness (the Guarantors). The guarantee is a
full and unconditional guarantee.
 F-30




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)Additionally, if at any time a subsidiary of the Company constitutes a significant
subsidiary, then such subsidiary will also become a guarantor of the indebtedness. If the
Company were to fail to make a payment of interest or principal on its due date, the
Guarantors are obligated to pay the outstanding indebtedness. At December 31, 2005, the
Company had the following outstanding amounts related to the guaranteed indebtedness:
 2005
    
    2004U.S.$275,000,000 (2004: U.S.$275,000,000) Senior Unsecured
Notes due October 1, 2012 with interest payable semi-annually
at 7.25% per annum
    
    $
    319,825
    
    
    $
    330,550U.S.$153,540,000 (2004: U.S.$175,000,000) Senior Unsecured
Notes due October 1, 2010 with interest payable quarterly at
LIBOR plus 3.75% per annum
    
    
    178,567
    
    
    
    210,350U.S.$210,000,000 (2004: U.S.$210,000,000) Senior Unsecured
Notes due March 15, 2014 with interest payable semi-annually
at 6.75% per annum
    
    
    244,230
    
    
    
    252,420U.S.$110,000,000 (2004: U.S.$110,000,000) Senior Unsecured
Notes due March 15, 2014 with interest payable semi-annually
at 6.75% per annum
    
    
    127,930
    
    
    
    132,220$
    870,552
    
    
    $
    925,540
 The following condensed consolidating financial information reflects the summarized
financial information of the Company and its Guarantors:
 F-31




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)
 Condensed Consolidated Balance Sheet
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Ainsworthas at December 31, 2005
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Corp.
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.Non-Consolidated
    
    
    (USA) LLC
    
    
    Corp.
    
    
    
    
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorASSETSCash
    
    $
    15,566
    
    
    $
    3,921
    
    
    $
    4,450
    
    
    $
    3,453
    
    
    $
    181,811
    
    
    $
    
    
    
    $
    209,201Other Current Assets
    
    
    72,436
    
    
    
    281,486
    
    
    
    (67
    )
    
    
    (166,022
    )
    
    
    108,861
    
    
    
    (38,400
    )
    
    
    258,294Capital Assets
    
    
    437,768
    
    
    
    438,128
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    875,896Other Assets
    
    
    49,518
    
    
    
    5,841
    
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    11,182
    
    
    
    66,641Goodwill
    
    
    
    
    
    
    
    
    
    
    102,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,970Due from Parent Company
    
    
    
    
    
    
    
    
    
    
    75,132
    
    
    
    204,378
    
    
    
    84,581
    
    
    
    (364,091
    )
    
    
    Investment in Subsidiary
    
    
    1,212,147
    
    
    
    14,213
    
    
    
    138,186
    
    
    
    
    
    
    
    
    
    
    
    (1,364,546
    )
    
    
    $
    1,787,435
    
    
    $
    743,589
    
    
    $
    320,771
    
    
    $
    41,809
    
    
    $
    375,253
    
    
    $
    (1,755,855
    )
    
    $
    1,513,002LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities
    
    $
    38,972
    
    
    $
    20,893
    
    
    $
    4,422
    
    
    $
    43,291
    
    
    $
    47,542
    
    
    $
    (41,431
    )
    
    $
    113,689Reforestation Obligation
    
    
    4,348
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,348Due to Related Company
    
    
    245,932
    
    
    
    118,158
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (364,090
    )
    
    
    Long-Term Debt
    
    
    859,540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    859,540Future Income Taxes
    
    
    105,688
    
    
    
    15,231
    
    
    
    
    
    
    
    (663
    )
    
    
    
    
    
    
    
    
    
    
    120,2561,254,480
    
    
    
    154,282
    
    
    
    4,422
    
    
    
    42,628
    
    
    
    47,542
    
    
    
    (405,521
    )
    
    
    1,097,833Preferred Shares
    
    
    
    
    
    
    
    
    
    
    25,999
    
    
    
    
    
    
    
    
    
    
    
    (25,999
    )
    
    
    SHAREHOLDERS EQUITYCapital Stock
    
    
    173,613
    
    
    
    
    
    
    
    55,419
    
    
    
    
    
    
    
    
    
    
    
    (173,205
    )
    
    
    55,827Cumulative Translation Adjustment
    
    
    (58,343
    )
    
    
    (58,427
    )
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    58,343
    
    
    
    (58,343
    )Contributed Surplus
    
    
    
    
    
    
    585,294
    
    
    
    148,495
    
    
    
    
    
    
    
    
    
    
    
    (733,789
    )
    
    
    Partners Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,029
    
    
    
    (67,029
    )
    
    
    Retained earnings
    
    
    417,685
    
    
    
    62,440
    
    
    
    86,436
    
    
    
    (903
    )
    
    
    260,682
    
    
    
    (408,655
    )
    
    
    417,685532,955
    
    
    
    589,307
    
    
    
    290,350
    
    
    
    (819
    )
    
    
    327,711
    
    
    
    (1,324,335
    )
    
    
    415,169$
    1,787,435
    
    
    $
    743,589
    
    
    $
    320,771
    
    
    $
    41,809
    
    
    $
    375,253
    
    
    $
    (1,755,855
    )
    
    $
    1,513,002Total assets in accordance with Canadian GAAP
    
    $
    1,787,435
    
    
    $
    743,589
    
    
    $
    320,771
    
    
    $
    41,809
    
    
    $
    375,253
    
    
    $
    (1,755,855
    )
    
    $
    1,513,002Write-off of capitalized start-up costs (1)
    
    
    (4,507
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,507
    )Intangible asset, arising from minimum pension
liability calculation (2)
    
    
    12,590
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,590Total assets in accordance with U.S. GAAP
    
    $
    1,795,518
    
    
    $
    743,589
    
    
    $
    320,771
    
    
    $
    41,809
    
    
    $
    375,253
    
    
    $
    (1,755,855
    )
    
    $
    1,521,085Total liabilities in accordance with Canadian GAAP
    
    
    1,254,480
    
    
    
    154,282
    
    
    
    4,422
    
    
    
    42,628
    
    
    
    47,542
    
    
    
    (405,521
    )
    
    
    1,097,833Deferred income taxes relating to write-off of
capitalized start-up costs (1)
    
    
    (1,530
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,530
    )Minimum pension liability, net of tax effect (2)
    
    
    27,030
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,030Total liabilities in accordance with U.S. GAAP
    
    $
    1,279,980
    
    
    
    154,282
    
    
    
    4,422
    
    
    
    42,628
    
    
    
    47,542
    
    
    
    (405,521
    )
    
    $
    1,123,333Total shareholders equity in accordance with
Canadian GAAP
    
    $
    532,955
    
    
    $
    589,307
    
    
    $
    290,350
    
    
    $
    (819
    )
    
    $
    327,711
    
    
    $
    (1,324,335
    )
    
    $
    415,169Cumulative translation adjustment
    
    
    58,343
    
    
    
    58,427
    
    
    
    
    
    
    
    (84
    )
    
    
    
    
    
    
    (58,343
    )
    
    
    58,343Change in retained earnings relating to:Write-off of capitalized start-up costs (1)
    
    
    (2,977
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,977
    )Accumulated other comprehensive gain (loss)
(Note 26(c)(i))
    
    
    (14,440
    )
    
    
    (58,427
    )
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    
    
    
    
    (72,783
    )Total shareholders equity in accordance with U.S. GAAP
    
    $
    573,881
    
    
    $
    589,307
    
    
    $
    290,350
    
    
    $
    (819
    )
    
    $
    327,711
    
    
    $
    (1,382,678
    )
    
    $
    397,752
 
 (1)
    
    Under U.S. GAAP, the direct operating losses arising during the start-up phase of the oriented
strand board facilities, which were capitalized under Canadian GAAP, are charged against earnings.(2)
    
    Under U.S. GAAP the Company would recognize the difference between the unfunded accumulated
pension benefit obligation and the accrued benefit obligation as an additional minimum pension
liability, and an equal amount as an intangible asset, subject to the following. If the additional liability exceeded
unrecognized past service cost th e excess would be recognized as other comprehensive loss, net of
any resulting tax benefits.(3)
    
    Under U.S. GAAP, foreign currency translation losses are recorded as comprehensive income
whereas under Canadian GAAP such amounts are presented as a separate component of shareholders
equity.
 F-32




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)
 Condensed Consolidated Statement of OperationsFor the year ended December 31, 2005
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthLumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Corp.
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    
    
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorSALES
    
    $
    
    
    
    $
    452,054
    
    
    $
    
    
    
    $
    454,822
    
    
    $
    797,087
    
    
    $
    (455,732
    )
    
    $
    1,248,231COSTS AND EXPENSESCosts of products sold
    
    
    
    
    
    
    331,064
    
    
    
    
    
    
    
    455,732
    
    
    
    524,885
    
    
    
    (455,732
    )
    
    
    855,949Selling and administration
    
    
    12,436
    
    
    
    6,928
    
    
    
    
    
    
    
    55
    
    
    
    11,358
    
    
    
    
    
    
    
    30,777Amortization of capital assets
    
    
    51,534
    
    
    
    52,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,90763,970
    
    
    
    390,365
    
    
    
    
    
    
    
    455,787
    
    
    
    536,243
    
    
    
    (455,732
    )
    
    
    990,633OPERATING EARNINGS
    
    
    (63,970
    )
    
    
    61,689
    
    
    
    
    
    
    
    (965
    )
    
    
    260,844
    
    
    
    
    
    
    
    257,598FINANCE EXPENSEInterest
    
    
    64,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,914Amortization of finance costs
    
    
    4,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,888Loss on repurchase of long term debt
    
    
    1,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,48571,287
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71,287EQUITY IN EARNINGS OF SUBSIDIARY
    
    
    310,947
    
    
    
    
    
    
    
    13,034
    
    
    
    
    
    
    
    
    
    
    
    (323,981
    )
    
    
    OTHER INCOME (EXPENSE)
    
    
    7,024
    
    
    
    (3,936
    )
    
    
    (91
    )
    
    
    (638
    )
    
    
    (162
    )
    
    
    
    
    
    
    2,197FOREIGN EXCHANGE GAIN ON LONG TERM DEBT
    
    
    28,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,313INCOME BEFORE INCOME TAXES
    
    
    211,027
    
    
    
    57,753
    
    
    
    12,943
    
    
    
    (1,603
    )
    
    
    260,682
    
    
    
    (323,981
    )
    
    
    216,821INCOME TAX EXPENSE (RECOVERY)
    
    
    57,873
    
    
    
    7,011
    
    
    
    (517
    )
    
    
    (700
    )
    
    
    
    
    
    
    
    
    
    
    63,667NET INCOME
    
    $
    153,154
    
    
    $
    50,742
    
    
    $
    13,460
    
    
    $
    (903
    )
    
    $
    260,682
    
    
    $
    (323,981
    )
    
    $
    153,154Net income in accordance with Canadian GAAP
    
    $
    153,154
    
    
    $
    50,742
    
    
    $
    13,460
    
    
    $
    (903
    )
    
    $
    260,682
    
    
    $
    (323,981
    )
    
    $
    153,154Reversal of amortization of capitalized start-up costs,
net of deferred income taxes (1)
    
    
    1,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,762Net income in accordance with U.S. GAAP
    
    
    154,916
    
    
    
    50,742
    
    
    
    13,460
    
    
    
    (903
    )
    
    
    260,682
    
    
    
    (323,981
    )
    
    
    154,916Minimum
pension liability, net of tax (2)
    
    
    (5,152
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,152
    )Cumulative
translation adjustment (3)
    
    
    (24,106
    )
    
    
    (24,190
    )
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    24,106
    
    
    
    (24,106
    )Comprehensive income
    
    $
    125,658
    
    
    $
    26,552
    
    
    $
    13,460
    
    
    $
    (819
    )
    
    $
    260,682
    
    
    $
    (299,875
    )
    
    $
    125,658
 
 (1)
    
    Under U.S. GAAP, the direct operating losses arising during the start-up phase of the oriented
strand board facilities, which were capitalized under Canadian GAAP, are charged against earnings.(2)
    
    Under U.S. GAAP the Company would recognize the difference between the unfunded accumulated
pension benefit obligation and the accrued benefit obligation as an additional minimum pension
liability, and an equal amount as an intangible asset, subject to the following. If the additional liability exceeded
unrecognized past service cost the excess would be recognized as other comprehensive loss, net of
any resulting tax benefits.(3)
    
    Under U.S. GAAP, foreign currency translation losses are recorded as comprehensive income
whereas under Canadian GAAP such amounts are presented as a separate component of shareholders
equity.
 F-33




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)
 Condensed Consolidated Statement of Cash Flows
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthFor the year ended December 31, 2005
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Corp.
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    
    
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorCASH FLOWS FROM OPERATING ACTIVITIESIncome (Loss) from continuing operations
    
    $
    153,154
    
    
    $
    50,742
    
    
    $
    13,460
    
    
    $
    (903
    )
    
    $
    260,682
    
    
    $
    (323,981
    )
    
    $
    153,154Amounts not requiring an outlay of cashAmortization of capital assets
    
    
    51,534
    
    
    
    52,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,907Amortization of financing costs
    
    
    3,329
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,329Amortization of debt discount
    
    
    1,549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,549Amortization of consent and commitment fees
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Foreign exchange gain on long-term debt
    
    
    (28,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,313
    )Loss on repurchase of long-term debt
    
    
    1,485
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,485Loss on disposal of capital assets
    
    
    245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    245Change in non-current reforestation obligation
    
    
    (122
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (122
    )Equity in earnings of subsidiary
    
    
    (310,947
    )
    
    
    
    
    
    
    (13,034
    )
    
    
    
    
    
    
    
    
    
    
    323,981
    
    
    
    Future income taxes
    
    
    97,299
    
    
    
    10,761
    
    
    
    (35,797
    )
    
    
    (663
    )
    
    
    
    
    
    
    
    
    
    
    71,600Adjustment to accrued pension benefit asset
    
    
    (7,278
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,278
    )Change in non-cash operating working capital
    
    
    (113,574
    )
    
    
    (270,116
    )
    
    
    30,865
    
    
    
    209,397
    
    
    
    5,710
    
    
    
    
    
    
    
    (137,718
    )Cash provided by (used in) operating activities
    
    
    (151,629
    )
    
    
    (156,240
    )
    
    
    (4,506
    )
    
    
    207,831
    
    
    
    266,392
    
    
    
    
    
    
    
    161,848CASH FLOWS FROM FINANCING ACTIVITIESDecrease in capital lease obligations
    
    
    (274
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (274
    )Repurchase of long-term debt
    
    
    (31,067
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,067
    )Dividends paid
    
    
    (14,649
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,649
    )Refundable tax recovery
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    438Advances to related company
    
    
    
    
    
    
    166,521
    
    
    
    5,595
    
    
    
    (204,378
    )
    
    
    (84,581
    )
    
    
    116,843
    
    
    
    Advances from related company
    
    
    116,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,843
    )
    
    
    71,291
    
    
    
    166,521
    
    
    
    5,595
    
    
    
    (204,378
    )
    
    
    (84,581
    )
    
    
    
    
    
    
    (45,552
    )CASH FLOWS FROM INVESTING ACTIVITIESRestricted cash
    
    
    (32,455
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (32,455
    )Additions to capital assets
    
    
    (45,499
    )
    
    
    (11,776
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (57,275
    )Decrease (increase) in other assets
    
    
    (7,499
    )
    
    
    (3,184
    )
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,883
    )Proceeds on disposal of capital assets
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27Investment in Chatham Forest Products, Inc.
    
    
    
    
    
    
    (7,546
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,546
    )Timber licence deposits
    
    
    (5,998
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,998
    )(91,424
    )
    
    
    (22,506
    )
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,130
    )Effect of foreign exchange rage changes on cash and
cash equivalents
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )NET CASH INFLOW (OUTFLOW)
    
    
    (171,790
    )
    
    
    (12,225
    )
    
    
    1,889
    
    
    
    3,453
    
    
    
    181,811
    
    
    
    
    
    
    
    3,138CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR
    
    
    186,959
    
    
    
    16,543
    
    
    
    2,561
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,063CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    15,169
    
    
    $
    4,318
    
    
    $
    4,450
    
    
    $
    3,453
    
    
    $
    181,811
    
    
    $
    
    
    
    $
    209,201
 F-34




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)
 Condensed Consolidated Balance Sheet
    
    Ains worth
    
    
    Ains worth
    
    
    Ains worth
    
    
    
    
    
    
    Ains worthas at December 31, 2004
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    
    
    
    
    Lumber Co. Ltd.Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    GuarantorASSETSCash
    
    $
    186,959
    
    
    $
    16,543
    
    
    $
    2,561
    
    
    $
    
    
    
    $
    206,063Other Current Assets
    
    
    122,163
    
    
    
    25,397
    
    
    
    9,966
    
    
    
    
    
    
    
    157,526Capital Assets
    
    
    274,950
    
    
    
    493,184
    
    
    
    158,070
    
    
    
    
    
    
    
    926,204Other Assets
    
    
    35,785
    
    
    
    2,660
    
    
    
    900
    
    
    
    
    
    
    
    39,345Good will
    
    
    
    
    
    
    
    
    
    
    103,516
    
    
    
    
    
    
    
    103,516Due from Parent Company
    
    
    
    
    
    
    48,357
    
    
    
    36,025
    
    
    
    (84,382
    )
    
    
    Investment in Subsidiary
    
    
    820,664
    
    
    
    
    
    
    
    
    
    
    
    (820,664
    )
    
    
    $
    1,440,522
    
    
    $
    586,140
    
    
    $
    311,038
    
    
    $
    (905,046
    )
    
    $
    1,432,653LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities
    
    $
    99,404
    
    
    $
    23,966
    
    
    $
    12,909
    
    
    $
    
    
    
    $
    136,279Reforestation Obligation
    
    
    4,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,470Due to Related Company
    
    
    84,382
    
    
    
    
    
    
    
    
    
    
    
    (84,382
    )
    
    
    Long-Term Debt
    
    
    916,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    916,625Future Income Taxes
    
    
    35,311
    
    
    
    (580
    )
    
    
    40,219
    
    
    
    
    
    
    
    74,9491,140,192
    
    
    
    23,386
    
    
    
    53,127
    
    
    
    (84,382
    )
    
    
    1,132,323Preferred Shares
    
    
    
    
    
    
    
    
    
    
    25,999
    
    
    
    (25,999
    )
    
    
    SHAREHOLDERS EQUITYCapital Stock
    
    
    55,827
    
    
    
    
    
    
    
    55,419
    
    
    
    (55,419
    )
    
    
    55,827Cumulative Translation Adjustments
    
    
    (34,237
    )
    
    
    (34,237
    )
    
    
    
    
    
    
    34,237
    
    
    
    (34,237
    )Contributed Surplus
    
    
    
    
    
    
    585,294
    
    
    
    103,516
    
    
    
    (688,810
    )
    
    
    Retained earnings
    
    
    278,741
    
    
    
    11,698
    
    
    
    72,976
    
    
    
    (84,673
    )
    
    
    278,741300,330
    
    
    
    562,754
    
    
    
    231,911
    
    
    
    (794,665
    )
    
    
    300,330$
    1,440,522
    
    
    $
    586,140
    
    
    $
    311,038
    
    
    $
    (905,046
    )
    
    $
    1,432,653Total assets in accordance with Canadian GAAP
    
    $
    1,440,522
    
    
    $
    586,140
    
    
    $
    311,038
    
    
    $
    (905,046
    )
    
    $
    1,432,653Write-off of capitalized start-up costs (1)
    
    
    (7,361
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,361
    )Intangible asset, arising from minimum pension
liability calculation (2)
    
    
    9,579
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,579Total assets
in accordance with U.S. GAAP
    
    $
    1,442,740
    
    
    $
    586,140
    
    
    $
    311,038
    
    
    $
    (905,046
    )
    
    $
    1,434,871Total liabilities in accordance with Canadian GAAP
    
    
    1,140,192
    
    
    
    23,386
    
    
    
    53,127
    
    
    
    (84,382
    )
    
    
    1,132,323Deferred income taxes relating to write-off of
capitalized start-up costs (1)
    
    
    (2,622
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,622
    )Minimum pension liability, net of tax effect (2)
    
    
    18,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,867Total liabilities in accordance with U.S. GAAP
    
    $
    1,156,437
    
    
    
    23,386
    
    
    
    53,127
    
    
    
    (84,382
    )
    
    $
    1,148,568Total shareholders equity in accordance with
Canadian GAAP
    
    $
    300,330
    
    
    $
    562,754
    
    
    $
    231,911
    
    
    $
    (794,665
    )
    
    $
    300,330Cumulative translation adjustment (3)
    
    
    34,237
    
    
    
    34,237
    
    
    
    
    
    
    
    (34,237
    )
    
    
    34,237Change in retained earnings relating to:Write-off of capitalized start-up costs (1)
    
    
    (4,739
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,739
    )Accumulated other comprehensive loss (Note 26 (c)(i))
    
    
    (9,288
    )
    
    
    (34,237
    )
    
    
    
    
    
    
    
    
    
    
    (43,525
    )Total share holders equity in accordance with U.S. GAAP
    
    $
    320,540
    
    
    $
    562,754
    
    
    $
    231,911
    
    
    $
    (828,902
    )
    
    $
    286,303
 
 (1)
    
    Under U.S. GAAP, the direct operating losses arising during the start-up phase of the oriented strand board facilities, which
were capitalized under Canadian GAAP, are charged against earnings.(2)
    
    Under U.S. GAAP the Company would recognize the difference between the unfunded accumulated pension benefit obligation and the accrued benefit
obligation as an additional minimum pension liability, and an equal
amount as an in tangible asset, subject to the following. If the additional
liability exceeded unrecognized past service cost the excess would be recognized as other comprehensive loss, net of any resulting tax benefits.(3)
    
    Under U.S. GAAP, foreign currency translation losses are recorded as comprehensive income where as under Canadian GAAP such amounts
are presented as a separate component of share holders equity.
 F-35




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)
 Condensed Consolidated Statement of OperationsFor the year ended December 31, 2004
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthLumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    
    
    
    
    Lumber Co. Ltd.Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    GuarantorSALES
    
    $
    698,762
    
    
    $
    109,096
    
    
    $
    102,065
    
    
    $
    
    
    
    $
    909,922COSTS AND EXPENSESCosts of products sold
    
    
    361,425
    
    
    
    79,545
    
    
    
    58,854
    
    
    
    (1,579
    )
    
    
    498,245Selling and administration
    
    
    28,550
    
    
    
    1,613
    
    
    
    15,351
    
    
    
    (14,500
    )
    
    
    31,014Amortization of capital assets
    
    
    32,269
    
    
    
    12,560
    
    
    
    9,023
    
    
    
    
    
    
    
    53,852Write-down of capital assets
    
    
    793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    793423,037
    
    
    
    93,718
    
    
    
    83,228
    
    
    
    (16,079
    )
    
    
    583,905OPERATING EARNINGS
    
    
    275,725
    
    
    
    15,378
    
    
    
    18,836
    
    
    
    16,079
    
    
    
    326,017FINANCE EXPENSEInterest
    
    
    40,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,723Amortization of finance costs
    
    
    3,234
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,234Loss on repurchase of long term debt
    
    
    106,198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,198150,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,155EQUITY IN EARNINGS OF SUBSIDIARY
    
    
    18,287
    
    
    
    
    
    
    
    
    
    
    
    (18,287
    )
    
    
    OTHER INCOME (EXPENSE)
    
    
    11,878
    
    
    
    709
    
    
    
    141
    
    
    
    (16,079
    )
    
    
    (3,351
    )FOREIGN EXCHANGE GAIN ON LONG TERM DEBT
    
    
    73,815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,815INCOME BEFORE INCOME TAXES
    
    
    229,549
    
    
    
    16,087
    
    
    
    18,977
    
    
    
    (18,287
    )
    
    
    246,326INCOME TAX EXPENSE (RECOVERY)
    
    
    54,467
    
    
    
    4,389
    
    
    
    12,388
    
    
    
    
    
    
    
    71,244NET INCOME
    
    $
    175,082
    
    
    $
    11,698
    
    
    $
    6,589
    
    
    $
    (18,287
    )
    
    $
    175,082Net income in accordance with Canadian GAAP
    
    $
    175,082
    
    
    $
    11,698
    
    
    $
    6,589
    
    
    $
    (18,287
    )
    
    $
    175,082Reversal of amortization of capitalized start-up costs,
net of deferred income taxes (1)
    
    
    1,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,033Net income in accordance with U.S. GAAP
    
    
    176,115
    
    
    
    11,698
    
    
    
    6,589
    
    
    
    (18,287
    )
    
    
    176,115Minimum pension liability, net of tax (2)
    
    
    (2,524
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,524
    )Cumulative translation adjustment (3)
    
    
    (34,237
    )
    
    
    (34,237
    )
    
    
    
    
    
    
    34,237
    
    
    
    (34,237
    )Comprehensive income
    
    $
    139,354
    
    
    $
    (22,540
    )
    
    $
    6,589
    
    
    $
    15,951
    
    
    $
    139,354
 
 (1)
    
    Under U.S. GAAP, the direct operating losses arising during the start-up phase of the
oriented strand board facilities, which were capitalized under Canadian GAAP, are charged against
earnings.(2)
    
    Under U.S. GAAP the Company would recognize the difference between the unfunded accumulated
pension benefit obligation and the accrued benefit obligation as an additional minimum pension
liability, and an equal amount as an intangible asset, subject to the following. If the additional liability exceeded
unrecognized past service cost the excess would be recognized as other comprehensive loss, net of
any resulting tax benefits.(3)
    
    Under U.S. GAAP, foreign currency translation losses are recorded as comprehensive income
whereas under Canadian GAAP such amounts are presented as a separate component of shareholders
equity.
 F-36




---



##### 



AINSWORTH LUMBER CO. LTD.
Notes to the Consolidated Financial Statements
(Figures in tables are in thousands of Canadian dollars unless indicated otherwise)
 27.
    
    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS (Continued)
 Condensed Consolidated Statement of Cash Flows
    
    Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthFor the year ended December 31, 2004
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    
    
    
    
    Lumber Co. Ltd.Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    GuarantorCASH FLOWS FROM OPERATING ACTIVITIESIncome (Loss) from continuing operations
    
    $
    175,082
    
    
    $
    11,698
    
    
    $
    6,589
    
    
    $
    (18,287
    )
    
    $
    175,082Amounts not requiring an outlay of cashAmortization of capital assets
    
    
    32,269
    
    
    
    12,560
    
    
    
    9,023
    
    
    
    
    
    
    
    53,852Amortization of financing costs
    
    
    1,869
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,869Amortization of debt discount
    
    
    1,108
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,108Amortization of consent and commitment fees
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    257Foreign
exchange gain on long-term debt
    
    
    (73,815
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (73,815
    )Loss on repurchase of long-term debt
    
    
    106,198
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    106,198Loss on disposal of capital assets
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    25Change in non-current reforestation obligation
    
    
    (332
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (332
    )Equity in earnings of subsidiary
    
    
    (18,287
    )
    
    
    
    
    
    
    
    
    
    
    18,287
    
    
    
    Future income taxes
    
    
    (14,353
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,353
    )Non-cash stock-based compensation
    
    
    2,640
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,640Write-down of capital assets
    
    
    793
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    793Adjustment to accrued pension benefit asset
    
    
    215
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    215Utilization of investment tax credit
    
    
    30,060
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,060Change in non-cash operating working capital
    
    
    68,355
    
    
    
    40,642
    
    
    
    (28,168
    )
    
    
    
    
    
    
    80,829Cash provided by (used in) operating activities
    
    
    312,085
    
    
    
    64,900
    
    
    
    (12,556
    )
    
    
    
    
    
    
    364,428CASH FLOWS FROM FINANCING ACTIVITIESDecrease in capital lease obligations
    
    
    (275
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (275
    )Repurchase of long-term debt
    
    
    (451,305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (451,305
    )Dividends paid
    
    
    (14,660
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,660
    )Proceeds from issue of long-term debt
    
    
    996,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    996,387Financing costs
    
    
    (26,214
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,214
    )Repurchase of capital stock
    
    
    (284
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (284
    )Advances to related company
    
    
    
    
    
    
    (48,357
    )
    
    
    (36,025
    )
    
    
    84,382
    
    
    
    Advances from related company
    
    
    84,382
    
    
    
    
    
    
    
    
    
    
    
    (84,382
    )
    
    
    588,031
    
    
    
    (48,357
    )
    
    
    (36,025
    )
    
    
    
    
    
    
    503,649CASH FLOWS FROM INVESTING ACTIVITIESRestricted cash
    
    
    (6,561
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,561
    )Additions to capital assets
    
    
    (17,987
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,987
    )Decrease (increase) in other assets
    
    
    (1,555
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,555
    )Proceeds on disposal of capital assets
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Investment in Minnesota OSB Facilities
    
    
    (584,847
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (584,847
    )Investment in Voyageur Panel Limited
    
    
    (296,300
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (296,300
    )Acquisition of cash of Voyageur Panel Limited
    
    
    51,142
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,142(856,068
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (856,068
    )NET CASH INFLOW (OUTFLOW )
    
    
    44,048
    
    
    
    16,543
    
    
    
    (48,581
    )
    
    
    
    
    
    
    12,009CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR
    
    
    142,912
    
    
    
    
    
    
    
    51,142
    
    
    
    
    
    
    
    194,054CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    186,960
    
    
    $
    16,543
    
    
    $
    2,561
    
    
    $
    
    
    
    $
    206,063
 F-37




---



##### 



ITEM 19. EXHIBITS
 ExhibitNumber
    
    Title1.1
    
    Notice of Articles of Ainsworth Lumber Co. Ltd.1.2
    
    Articles of Ainsworth Lumber Co. Ltd.1.3
    
    Certificate of Amalgamation of Ainsworth Engineered Corp.1.4
    
    Articles of Association of Ainsworth Engineered Corp.1.5
    
    Certificate of Formation of Ainsworth Engineered (USA), LLC1.6
    
    Limited Liability Company Agreement of Ainsworth Engineered (USA), LLC2.1
    
    Indenture dated as of March 3, 2004 between Ainsworth Lumber Co. Ltd
and The Bank of New York2.2
    
    Exchange and Registration Rights Agreement, dated as of March 3, 2004,
among Ainsworth Lumber Co. Ltd. and Goldman, Sachs & Co.2.3
    
    First Supplemental Indenture, dated as of May 19, 2004 to the Indenture
dated as of March 3, 20042.4
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the
Indenture dated as of March 3, 20042.5
    
    Indenture, dated as of May 19, 2014, between Ainsworth Lumber Co. Ltd.
and The Bank of New York2.6
    
    Exchange and Registration Rights Agreement, dates as of May 19, 2004,
among Ainsworth Lumber Co. Ltd. and Goldman, Sachs & Co.2.7
    
    First Supplemental Indenture, dated as of May 19, 2004, to the
Indenture dated as of May 19, 20042.8
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the
Indenture dated as of May 19, 20042.9
    
    Indenture dated as of September 22, 2004 among Ainsworth Lumber Co.
Ltd., Ainsworth Engineered Corp. and the Bank of New York2.10
    
    First Supplemental Indenture dated as of September 22, 2004 to the
Indenture dated as of September 22, 20042.11
    
    Exchange and Registration Rights Agreement, dated as of September 22,
2004, among Ainsworth Lumber Co. Ltd., Deutsche Bank Securities Inc.
and Goldman, Sachs & Co.2.12
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the
Indenture dated March 3, 2004, among the company and The Bank of New
York, as trustee.2.13
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the
Indenture dated May 19, 2004, among the company and The Bank of New
York, as trustee.**4.1
    
    Memorandum of Agreement dated December 9, 1999, between Ainsworth
Lumber Co. Ltd. and Grant Forest Products Corp.*4.2
    
    Management and Consulting Agreement between Ainsworth Lumber Co. Ltd.
and 2468 Holding Ltd. dated April 25, 19994.3
    
    Pulpwood Agreement No. 16, dated April 26, 1990 and made between the
Minister of Forests of British Columbia, on behalf of Her Majesty the
Queen in Right of the Province of British Columbia and Ainsworth Lumber
Co. Ltd., as amended.**4.4
    
    Forest Licence A18700 dated March 24, 1998 and made between The
Regional Manager, on behalf of Her Majesty the Queen in Right of the
Province of British Columbia and Ainsworth Lumber Co. Ltd.*4.5
    
    Letter Agreement with the Province of Alberta, dated July 16, 1999,
with respect to High Level Timber Allocation*4.6
    
    Deciduous Timber Allocation No. DTAF 510001 with respect to High Level***4.7
    
    Amended Deciduous Timber Allocation No. DTAC 910001 with respect to
Grande Prairie*4.8
    
    Deciduous Timber Permit DTPG 910001 with respect to Grande Prairie4.9
    
    Deciduous Timber Allocation No. DTAF 110001 with respect to High Level4.10
    
    Deciduous Timber Allocation No. DTAF 110002 with respect to High Level4.11
    
    Forest Management Agreement, dated June 25, 2002, and made between Her
Majesty the Queen in the Right of the Province of Alberta, Tolko
Industries Ltd. and Footner Forest Products Ltd.4.12
    
    Share Purchase Agreement dated April 14, 2004, among Boise Cascade
Corporation
 62




---



##### 



ExhibitNumber
    
    TitleAbitibi Consolidated Company of Canada, the Northwestern
Mutual Life Insurance Company, Allstate Insurance Company, and Voyageur
Panel Limited and Ainsworth Lumber Co. Ltd.4.13
    
    Asset Purchase Agreement dated August 25, 2004 among Potlatch
Corporation and Ainsworth Lumber Co. Ltd.4.14
    
    Credit Agreement, dated as of December 14, 2005, among Ainsworth
Engineered Canada Limited Partnership, Ainsworth Corp. and Ainsworth
Engineered (USA), LLC, as borrowers and cross-guarantors, these
companies and Ainsworth Engineered Corp., as guarantors, the lenders
party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and
GE Canada Finance Holding Company, as syndication agent4.15
    
    Contract for General Contracting Services related to the Grande Prairie
expansion, dated July 6, 2005, between the Company and DEMAC Management
Ltd.8.1
    
    List of Significant Subsidiaries11.1
    
    Ainsworth Code of Ethics15.1
    
    Audit Committee Charter31.1
    
    Certification of CEO and CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
    
    Incorporated by reference to Amendment No. 2 to the Registration Statement on Form F-4
filed by the Registrant and Ainsworth Lumber Inc. on October 29, 1997 (No. 333-7346).
    
    Incorporated by reference to Amendment No. 1 to the Registration Statement on Form F-4
filed by the Registrant and Ainsworth Engineered Corp. on July 15, 2004 (No. 333-116068).
    
    Incorporated by reference to the Registration Statement on Form F-4 filed by the
Registrant, Ainsworth Engineered Corp. and Ainsworth Engineered (USA), LLC on October 18,
2004 (No. 333-119812).*
    
    Incorporated by reference to the Registration Statement on Form F-4 filed by the
Registrant and Steen River Forest Products Ltd. on February 19, 2002 (No. 333-83230).**
    
    Incorporated by reference to the Registrants Annual Report on Form 20-F for the fiscal
year ended December 31, 1999, filed with the Commission on May 19, 2000.
    
    Incorporated by reference to the Registration Statement on Form F-4, filed by the
Registrant on June 2, 2004 (No. 333-116068).
    
    Incorporated by reference to the Registrants Annual Report on Form 20-F for the fiscal
year ended December 31, 2003, filed with the Commission on May 26, 2004.
 
 63




---



##### 



SIGNATURES
  March 31, 2006
    AINSWORTH LUMBER CO. LTD.By:
    /s/ Robert AllenRobert AllenChief Financial Officer 64




---



##### 



INDEX
TO EXHIBITS
  ExhibitNumber
    
    Title1.1
    
    Notice of Articles of Ainsworth Lumber Co. Ltd.1.2
    
    Articles of Ainsworth Lumber Co. Ltd.1.3
    
    Certificate of Amalgamation of Ainsworth Engineered Corp.1.4
    
    Articles of Association of Ainsworth Engineered Corp.1.5
    
    Certificate of Formation of Ainsworth Engineered (USA), LLC1.6
    
    Limited Liability Company Agreement of Ainsworth Engineered (USA), LLC2.1
    
    Indenture dated as of March 3, 2004 between Ainsworth Lumber Co. Ltd
and The Bank of New York2.2
    
    Exchange and Registration Rights Agreement, dated as of March 3, 2004,
among Ainsworth Lumber Co. Ltd. and Goldman, Sachs & Co.2.3
    
    First Supplemental Indenture, dated as of May 19, 2004 to the Indenture
dated as of March 3, 20042.4
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the
Indenture dated as of March 3, 20042.5
    
    Indenture, dated as of May 19, 2014, between Ainsworth Lumber Co. Ltd.
and The Bank of New York2.6
    
    Exchange and Registration Rights Agreement, dates as of May 19, 2004,
among Ainsworth Lumber Co. Ltd. and Goldman, Sachs & Co.2.7
    
    First Supplemental Indenture, dated as of May 19, 2004, to the
Indenture dated as of May 19, 20042.8
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the
Indenture dated as of May 19, 20042.9
    
    Indenture dated as of September 22, 2004 among Ainsworth Lumber Co.
Ltd., Ainsworth Engineered Corp. and the Bank of New York2.10
    
    First Supplemental Indenture dated as of September 22, 2004 to the
Indenture dated as of September 22, 20042.11
    
    Exchange and Registration Rights Agreement, dated as of September 22,
2004, among Ainsworth Lumber Co. Ltd., Deutsche Bank Securities Inc.
and Goldman, Sachs & Co.2.12
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the
Indenture dated March 3, 2004, among the company and The Bank of New
York, as trustee.2.13
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the
Indenture dated May 19, 2004, among the company and The Bank of New
York, as trustee.**4.1
    
    Memorandum of Agreement dated December 9, 1999, between Ainsworth
Lumber Co. Ltd. and Grant Forest Products Corp.*4.2
    
    Management and Consulting Agreement between Ainsworth Lumber Co. Ltd.
and 2468 Holding Ltd. dated April 25, 19994.3
    
    Pulpwood Agreement No. 16, dated April 26, 1990 and made between the
Minister of Forests of British Columbia, on behalf of Her Majesty the
Queen in Right of the Province of British Columbia and Ainsworth Lumber
Co. Ltd., as amended.**4.4
    
    Forest Licence A18700 dated March 24, 1998 and made between The
Regional Manager, on behalf of Her Majesty the Queen in Right of the
Province of British Columbia and Ainsworth Lumber Co. Ltd.*4.5
    
    Letter Agreement with the Province of Alberta, dated July 16, 1999,
with respect to High Level Timber Allocation*4.6
    
    Deciduous Timber Allocation No. DTAF 510001 with respect to High Level***4.7
    
    Amended Deciduous Timber Allocation No. DTAC 910001 with respect to
Grande Prairie*4.8
    
    Deciduous Timber Permit DTPG 910001 with respect to Grande Prairie4.9
    
    Deciduous Timber Allocation No. DTAF 110001 with respect to High Level4.10
    
    Deciduous Timber Allocation No. DTAF 110002 with respect to High Level4.11
    
    Forest Management Agreement, dated June 25, 2002, and made between Her
Majesty the Queen in the Right of the Province of Alberta, Tolko
Industries Ltd. and Footner Forest Products Ltd.4.12
    
    Share Purchase Agreement dated April 14, 2004, among Boise Cascade
Corporation Abitibi Consolidated Company of Canada, the Northwestern
Mutual Life Insurance Company, Allstate Insurance Company, and Voyageur
Panel Limited and Ainsworth
 65




---



##### 



ExhibitNumber
    
    TitleLumber Co. Ltd.4.13
    
    Asset Purchase Agreement dated August 25, 2004 among Potlatch
Corporation and Ainsworth4.14
    
    Credit Agreement, dated as of December 14, 2005, among Ainsworth
Engineered Canada Limited Partnership, Ainsworth Corp. and Ainsworth
Engineered (USA), LLC, as borrowers and cross-guarantors, these
companies and Ainsworth Engineered Corp., as guarantors, the lenders
party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and
GE Canada Finance Holding Company, as syndication agent4.15
    
    Contract for General Contracting Services related to the Grande Prairie
expansion, dated July 6, 2005, between the Company and DEMAC Management
Ltd.8.1
    
    List of Significant Subsidiaries11.1
    
    Ainsworth Code of Ethics15.1
    
    Audit Committee Charter31.1
    
    Certification of CEO and CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
    
    Incorporated by reference to Amendment No. 2 to the Registration Statement on Form F-4
filed by the Registrant and Ainsworth Lumber Inc. on October 29, 1997 (No. 333-7346).
    
    Incorporated by reference to Amendment No. 1 to the Registration Statement on Form F-4
filed by the Registrant and Ainsworth Engineered Corp. on July 15, 2004 (No. 333-116068).
    
    Incorporated by reference to the Registration Statement on Form F-4 filed by the
Registrant, Ainsworth Engineered Corp. and Ainsworth Engineered (USA), LLC on October 18,
2004 (No. 333-119812).*
    
    Incorporated by reference to the Registration Statement on Form F-4 filed by the
Registrant and Steen River Forest Products Ltd. on February 19, 2002 (No. 333-83230).**
    
    Incorporated by reference to the Registrants Annual Report on Form 20-F for the fiscal
year ended December 31, 1999, filed with the Commission on May 19, 2000.
    
    Incorporated by reference to the Registration Statement on Form F-4, filed by the
Registrant on June 2, 2004 (No. 333-116068).
    
    Incorporated by reference to the Registrants Annual Report on Form 20-F for the fiscal
year ended December 31, 2003, filed with the Commission on May 26, 2004.
 66