##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Form 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF
1934
 -OR-
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 -OR-
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 for the transition period from  to
 -OR-
 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
Senior Floating Rate Notes Due 2013
   o þ
 o þ
  þ o
  o o þ
 o þ
 o þ
  o o




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TABLE OF CONTENTS
 PART IITEM 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, ADVISORS AND AUDITORS
    
    
    3ITEM 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3.
    
    KEY INFORMATION
    
    
    3ITEM 4.
    
    INFORMATION ON THE REGISTRANT
    
    
    17ITEM 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    34ITEM 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    50ITEM 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    56ITEM 8.
    
    FINANCIAL INFORMATION
    
    
    57ITEM 9.
    
    THE OFFER AND LISTING
    
    
    57ITEM 10.
    
    ADDITIONAL INFORMATION
    
    
    58ITEM 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    62ITEM 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    63PART IIITEM 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    63ITEM 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
    
    
    63ITEM 15T.
    
    CONTROLS AND PROCEDURES
    
    
    63ITEM 16.
    
    AUDIT COMMITTEE FINANCIAL EXPERT; CODE OF ETHICS; PRINCIPAL
ACCOUNTANT FEES AND SERVICES
    
    
    64PART IIIITEM 17.
    
    FINANCIAL STATEMENTS
    
    
    65ITEM 18.
    
    FINANCIAL STATEMENTS
    
    
    66ITEM 19.
    
    EXHIBITS
    
    
    67
  2




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##### 



PART I
  
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT, ADVISERS AND AUDITORS
 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
  
    
    our ability to continue as a going concern;
    
    our history of losses;
    
    the cyclical nature of our business and our vulnerability to market factors;
    
    the effects of intense competition;
    
    increased OSB industry production capacity;
    
    declines in demand for or pricing of OSB, our most significant product;
    
    unexpected costs or liabilities incurred by us as a result of our acquisition of
the Barwick and the Minnesota OSB facilities;
 3




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##### 




    
    further delays, costs or liabilities surrounding the expansion of the Grande
Prairie OSB facility;
    
    our exposure to currency exchange risk;
    
    the availability of adequate fiber supply or an increase in related costs;
    
    increases in the open market price for wood fiber;
    
    the effects of natural events that are beyond our control;
    
    the impact of regulations relating to forest management practices;
    
    the impact of increases in raw material costs;
    
    the impact of mechanical breakdowns and maintenance shut-downs;
    
    the impact of environmental, health, safety and other regulations;
    
    the effect of work stoppages or other labor disruptions at our operations;
    
    the impact of native land claims on our ability to ensure availability of adequate
fiber supply;
    
    the risks associated with international sales;
    
    the risks related to our co-ownership arrangement for High Level;
    
    the interests of our controlling shareholders;
    
    the risk that tax authorities will disagree with our tax positions; and
    
    the costs and difficulties of complying with the requirements of the Sarbanes-Oxley
Act.
  Market and Industry Data and Forecasts
   4




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##### 



Presentation of Financial Information
   5




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##### 



A. Selected Financial Data.
 Selected Consolidated Financial Data and Other Data
  Fiscal Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004(1)
    
    
    2003(in millions except share and per share data, ratios and production data)Statement of Operations DataCanadian GAAPSales
    
    $
    544.2
    
    
    $
    827.1
    
    
    $
    1,248.2
    
    
    $
    909.9
    
    
    $
    543.0Cost of products sold
    
    
    577.3
    
    
    
    750.0
    
    
    
    855.9
    
    
    
    498.2
    
    
    
    322.8Selling and administration
    
    
    30.8
    
    
    
    36.0
    
    
    
    30.8
    
    
    
    31.0
    
    
    
    18.2Amortization of capital assets
    
    
    65.9
    
    
    
    88.0
    
    
    
    103.9
    
    
    
    53.9
    
    
    
    33.0Loss on disposal of capital assets
    
    
    0.2
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    Cost of class action lawsuit
    
    
    15.1
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    Impairment of intangible assets(4)
    
    
    12.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of goodwill(3)
    
    
    51.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write-down of capital assets(2)
    
    
    80.8
    
    
    
    55.3
    
    
    
    
    
    
    
    0.8
    
    
    
    13.7Production line closure
    
    
    
    
    
    
    5.9
    
    
    
    
    
    
    
    
    
    
    
    Write-down of timber deposits
    
    
    
    
    
    
    4.5
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss) earnings
    
    
    (289.1
    )
    
    
    (120.2
    )
    
    
    257.6
    
    
    
    326.0
    
    
    
    155.3Interest
    
    
    74.1
    
    
    
    68.9
    
    
    
    64.9
    
    
    
    40.7
    
    
    
    51.2Amortization of finance charges
    
    
    
    
    
    
    5.4
    
    
    
    4.9
    
    
    
    3.2
    
    
    
    4.9Financing transaction costs
    
    
    2.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss on repurchase of debt
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    106.2
    
    
    
    0.1Other (income) expense
    
    
    (6.0
    )
    
    
    (13.1
    )
    
    
    (10.0
    )
    
    
    3.4
    
    
    
    0.5Foreign exchange (gain) loss on long-term debt
    
    
    (161.3
    )
    
    
    7.9
    
    
    
    (28.3
    )
    
    
    (73.8
    )
    
    
    (76.9
    )Other foreign exchange loss (gain)
    
    
    16.2
    
    
    
    (0.2
    )
    
    
    7.8
    
    
    
    
    
    
    
    Realized currency translation loss
    
    
    11.2
    
    
    
    4.4
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income before income taxes
    
    
    (226.2
    )
    
    
    (193.6
    )
    
    
    216.8
    
    
    
    246.3
    
    
    
    175.6Income tax (recovery) expense
    
    
    (9.7
    )
    
    
    (85.6
    )
    
    
    63.6
    
    
    
    71.2
    
    
    
    51.9Net (loss) income
    
    $
    (216.5
    )
    
    $
    (108.0
    )
    
    $
    153.2
    
    
    $
    175.1
    
    
    $
    123.7Basic and diluted (loss) earnings per share
    
    $
    (14.78
    )
    
    $
    (7.37
    )
    
    $
    10.45
    
    
    $
    11.98
    
    
    $
    8.49Cash dividends per share
    
    
    
    
    
    $
    1.00
    
    
    $
    1.00
    
    
    $
    1.00
    
    
    
    Weighted average common shares outstanding
    
    
    14,649,140
    
    
    
    14,649,140
    
    
    
    14,649,140
    
    
    
    14,612,506
    
    
    
    14,558,707U.S. GAAPNet (loss) income
    
    $
    (205.5
    )
    
    $
    (103.2
    )
    
    $
    154.9
    
    
    $
    176.1
    
    
    $
    124.3Basic and diluted (loss) earnings per share
    
    $
    (14.03
    )
    
    $
    (7.05
    )
    
    $
    10.58
    
    
    $
    12.05
    
    
    $
    8.54Other Financial DataAdditions to capital assets
    
    $
    70.1
    
    
    $
    228.3
    
    
    $
    57.3
    
    
    $
    18.0
    
    
    $
    8.2Ratio of earnings to fixed charges(5)
    
    
    
    
    
    
    
    
    
    
    4.1x
    
    
    
    6.6x
    
    
    
    4.1x
 6




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##### 



Fiscal Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Other Selected Operating DataOSB production volume (mmsf)
    
    
    2,335
    
    
    
    2,778
    
    
    
    3,214
    
    
    
    2,039
    
    
    
    1,351Specialty plywood production volume (mmsf)
    
    
    146
    
    
    
    137
    
    
    
    143
    
    
    
    144
    
    
    
    119Average OSB price realized ($  per msf (3/8))
    
    $
    191
    
    
    $
    263
    
    
    $
    353
    
    
    $
    393
    
    
    $
    335Average specialty plywood price realized
($  per msf (3/8))
    
    $
    582
    
    
    $
    664
    
    
    $
    655
    
    
    $
    677
    
    
    $
    601
 As at December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(in millions)Balance Sheet DataCanadian GAAPCash and cash equivalents
    
    $
    69.6
    
    
    $
    74.3
    
    
    $
    209.2
    
    
    $
    206.1
    
    
    $
    194.1Total assets
    
    
    1,100.6
    
    
    
    1,504.2
    
    
    
    1,516.0
    
    
    
    1,432.7
    
    
    
    627.7Total long-term debt, including current maturities(6)
    
    
    977.4
    
    
    
    1,038.1
    
    
    
    859.5
    
    
    
    916.9
    
    
    
    352.5Capital stock
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    53.1Shareholders equity
    
    $
    12.7
    
    
    $
    294.1
    
    
    $
    415.2
    
    
    $
    300.3
    
    
    $
    171.8U.S. GAAPTotal assets (7)
    
    $
    1,108.5
    
    
    $
    1,486.9
    
    
    $
    1,524.1
    
    
    $
    1,434.9
    
    
    $
    619.3Total long-term debt, including current maturities(6)
    
    
    977.4
    
    
    
    1,038.1
    
    
    
    859.5
    
    
    
    916.9
    
    
    
    352.5Capital stock
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    53.1Shareholders equity (7)
    
    $
    8.1
    
    
    $
    272.9
    
    
    $
    397.8
    
    
    $
    286.3
    
    
    $
    159.3
 
 (1)
    
    Includes the results of operations of Ainsworth Engineered Corp., the successor of
Voyageur Panel Limited, from May 19, 2004 to December 31, 2004, and the results of operations of
Ainsworth Engineered (USA), LLC, the entity holding our Minnesota OSB facilities, from September
22, 2004.(2)
    
    In 2007, as a result of revised market forecasts reflecting the substantial declines in
U.S. housing starts and prolonged reductions in customer demand, we undertook a review of the
carrying value of our OSB facilities. As a result, we recorded an $80.8 million write-down of the
carrying value of the production assets relating to the Grand Rapids facility. In 2006, we
permanently closed one of the production lines at the Bemidji, Minnesota OSB facility. A write-down
of $55.3 million was recorded, representing the net book value of the capital assets attributable
to the closed production line net of estimated salvage value. In 2003, we recorded a $13.3 million
write-down of capital assets related to the previously planned expansion of the Grande Prairie OSB
facility.(3)
    
    Goodwill is the excess of the purchase price over the fair value of the net identifiable
assets acquired when we completed the acquisition of 100% of the voting shares of Voyageur Panel
Limited in 2004. At December 31, 2007, due to revised market forecasts reflecting the substantial
declines in U.S. housing starts and prolonged reductions in customer demand, we performed a review
of the carrying value of the reporting unit (our Barwick OSB facility), which includes goodwill,
and, as a result, recorded an impairment charge to goodwill of $51.0 million.(4)
    
    Intangible assets consist of an air emissions permit, an option to acquire property,
access to tax incentives and use rights. In 2007, we determined that the fair value of intangible
assets may not be fully recoverable in the future, resulting in an impairment charge of $12.2
million, representing the net book value of the assets.(5)
    
    For purposes of calculating the ratio of earnings to fixed charges (i) earnings consist of
income (loss) 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. On January 1, 2007, as
permitted under Canadian GAAP, we adopted a policy of expensing transaction costs. The below noted
table does not include transaction costs in the determination of fixed charges. The following table
sets forth the calculation of the ratio of earnings to fixed charges under Canadian GAAP: Year Ended December 31,2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in millions, except ratio of earnings to fixed charges)(Loss) income before income taxes
    
    $
    (226.2
    )
    
    $
    (193.6
    )
    
    $
    216.8
    
    
    $
    246.3
    
    
    $
    175.6Fixed ChargesInterest
    
    
    74.1
    
    
    
    68.9
    
    
    
    64.9
    
    
    
    40.7
    
    
    
    51.2Amortization of finance charges
    
    
    
    
    
    
    5.4
    
    
    
    4.9
    
    
    
    3.2
    
    
    
    4.9Interest capitalized
    
    
    5.1
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    Interest factor associated with operating leases
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.379.6
    
    
    
    76.2
    
    
    
    70.2
    
    
    
    44.3
    
    
    
    56.4(Loss) income before income taxes and fixed charges
    
    $
    (146.6
    )
    
    $
    (117.4
    )
    
    $
    287.0
    
    
    $
    290.6
    
    
    $
    232.0Ratio of earnings to fixed charges
    
    
    
    
    
    
    
    
    
    
    4.1
    x
    
    
    6.6
    x
    
    
    4.1
    xAdditional earnings required to cover fixed charges
    
    $
    (226.2
    )
    
    $
    (193.6
    )
    
    
    
    
    
    
    
    
    
    
    
 7




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##### 



(6)
    
    Net of unamortized deferred discount and consent fees for 2007.(7)
    
    Total assets and shareholders equity in accordance with U.S. GAAP for the year 2006 have been
adjusted by $24.0 million and $7.1 million respectively to reflect the funded status of the defined
benefit pension plans as at December 31, 2006. For more information, see note 27(h) of the
consolidated financial statements. Exchange Rate Information
  Annual Data
    
    Average2007
    
    
    0.93092006
    
    
    0.88182005
    
    
    0.82762004
    
    
    0.77022003
    
    
    0.7186
 Monthly Data
    
    High
    
    LowMarch, 2008
    
    
    1.0162
    
    
    
    0.9742February, 2008
    
    
    1.0291
    
    
    
    0.9815January, 2008
    
    
    1.0096
    
    
    
    0.9714December, 2007
    
    
    1.0221
    
    
    
    0.9789November, 2007
    
    
    1.0908
    
    
    
    0.9993October, 2007
    
    
    1.0531
    
    
    
    0.9998
  B. Capitalization and Indebtedness.
  C. Reasons for the Offer and Use of Proceeds.
  8




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##### 



D. Risk Factors.
 Risks Related to Our Senior Notes
 We have significant indebtedness, which could adversely affect our financial condition and
limit our ability to fulfill our obligations.
  
    
    make it more difficult for us to satisfy our obligations with respect to our debt
securities and other indebtedness;
    
    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.
  
    
    our financial condition at the time;
    
    restrictions in our indentures and our credit agreement; and
    
    other factors, including the condition of the financial markets or the forest
products industry, particularly the OSB market.
  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;
 9




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##### 




    
    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.
  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.
   We may be unable to purchase our 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.
  Bankruptcy and Insolvency Act Companies Creditors Arrangement
Act
 10




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##### 



Bankruptcy and Insolvency Act Companies Creditors Arrangement Act
 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 our
senior notes to return payments received from the guarantors.
  
    
    the guarantee was incurred with the intent to hinder or delay any of such
guarantors present or future creditors; or
    
    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, 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.
   
    
    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;
 11




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##### 




    
    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.
 Your ability to enforce civil liabilities in Canada under U.S. securities laws may be limited.
  Risks Related to Our Business and the Forest Products Industry
 We may be unable to continue as a going concern.
   We are not currently profitable and may not become profitable again.
  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.
  12




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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 further unexpected delays, costs or liabilities surrounding the expansion of the
Grande Prairie OSB facility.
  We are exposed to currency exchange risk which could have a material adverse effect on us.
 13




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##### 



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.
      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.
  14




---



##### 



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.
  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.
  15




---



##### 



Native land claims could have an adverse effect on our timber supply in the future.
      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.
  16




---



##### 



Members of the Ainsworth family control our business and their interests may conflict with the
interests of our debtholders or shareholders.
  There is a risk that tax authorities will disagree with our tax positions. Additionally,
continued losses from operations in future reporting periods may require us to adjust the valuation
allowance against our future tax assets.
  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
    17




---



##### 



18




---



##### 



19




---



##### 



B.
Business Overview
 Markets in Which We Operate
 Oriented Strand Board Market
  Plywood and OSB Production Cost Comparison
 Plywood
    
    
    OSBWood
    
    $
    131
    
    
    $
    49Labor
    
    
    64
    
    
    
    29Energy
    
    
    21
    
    
    
    10Glue & Wax
    
    
    22
    
    
    
    44Supplies
    
    
    22
    
    
    
    16Gross Variable Costs
    
    
    260
    
    
    
    148Residuals
    
    
    (28
    )
    
    
    Total Variable Costs
    
    $
    232
    
    
    $
    148
 20




---



##### 



Export-Standard OSB Market
  Value-Added Industrial OSB Market
  21




---



##### 



Specialty Overlaid Plywood Market
   Our Business
 Overview
   AinsworthEngineered(R)
  22




---



##### 



Competitive Strengths and Opportunities
  Established Modern OSB Facilities.
  Proven OSB Operators.
  Leading Market Positions.
  Growing Value-Added Product Mix.
 23




---



##### 



AinsworthEngineered(R)
 Strategically Located OSB Facilities.
  24




---



##### 



Timber Tenure Agreements
  Estimated Annual
    
    Long-term Supply
    
    Percent ofRequirement (m3)(1)
    
    Agreements (m3)
    
    Requirement100 Mile House
    
    
    650,000
    
    
    
    645,000
    
    
    
    99
    %Grande Prairie(2)
    
    
    944,000
    
    
    
    791,000
    
    
    
    84Barwick
    
    
    737,000
    
    
    
    551,000
    
    
    
    75High Level(3)
    
    
    1,323,000
    
    
    
    1,261,000
    
    
    
    95Total
    
    
    3,654,000
    
    
    
    3,248,000
    
    
    
    89
    %
 
 (1)
    
    At the greater of design capacity or operating capacity.(2)
    
    Does not take into account the new second production line at Grande Prairie. Construction on
the second line has been halted until financial and business conditions improve.(3)
    
    Assumes the High Level OSB facility is operated at or near its designed annual production
capacity of 860 mmsf. British Columbia
 Forest License
  Pulpwood Agreement
  Forestry Revitalization Act
 Alberta
 Grande Prairie Deciduous Timber Allocation
  25




---



##### 



High Level Deciduous Timber Allocation and Forest Management Agreement
   Ontario
  Timber Supply Agreement
  26




---



##### 



Private Wood
  Minnesota
  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
 27




---



##### 




    
    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.
   Forest Management
   Ontario
  Environmental Regulation
   28




---



##### 



Transportation and Distribution
    Marketing and Sales
   Year ended December 31,2007
    
    
    2006
    
    
    2005(in millions)Geographic sales information(1)United States
    
    $
    420.6
    
    
    $
    723.1
    
    
    $
    1,135.3Canada
    
    
    62.7
    
    
    
    59.0
    
    
    
    81.6Overseas
    
    
    60.9
    
    
    
    45.0
    
    
    
    31.3Total
    
    $
    544.2
    
    
    $
    827.1
    
    
    $
    1,248.2
 
 (1)
    
    Sales figures reported in this table include freight revenue.  Competition
  29




---



##### 



AinsworthEngineered(R)
   Research and Development; Intellectual Property
 AinsworthEngineered(R)
 Legal Proceedings
   30




---



##### 



C. Organizational Structure
  31




---



##### 



D. Property, plant and equipment
 Overview
 Facilities
  EstimatedAnnualProductionCapacity(1)Oriented Strand Board (mmsf)Grande Prairie, Alberta(2)
    
    
    665100 Mile House, British Columbia
    
    
    425Barwick, Ontario
    
    
    480High Level, Alberta (50%-owned by us)(3)(4)
    
    
    430Bemidji
    
    
    315Cook (4)
    
    
    440Grand Rapids (4)
    
    
    380Total OSB annual production capacity
    
    
    3,135Specialty Overlaid Plywood (mmsf)
Savona, British Columbia (Plywood)
    
    
    156
 
 (1)
    
    As of December 31, 2007.(2)
    
    The construction of a second line at the Grande Prairie facility was halted indefinitely
during 2007. This new production line, when completed, has a designed annual production
capacity of 600 mmsf of OSB, OSL or LSL.(3)
    
    The designed annual production capacity is 860 mmsf and 50% of the production is ours.(4)
    
    Production at these facilities is currently indefinitely curtailed. Oriented Strand Board
 Grande Prairie.
  32




---



##### 



100 Mile House.
   Barwick.
  High Level.
    The Minnesota OSB Facilities.
   33




---



##### 



Specialty Overlaid Plywood
 Pourform(R) Pourform(R) AinsworthEngineered(R) Pourform-107(R), Pourform-107(R)
  
 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 A. Operating Results
  Overview
  34




---



##### 



Review of Operating Results
  th th
   35




---



##### 



Year endedDecember 31 ,2007
    
    
    2006
    
    
    2005(in millions)Sales:OSB
    
    $
    448.3
    
    
    $
    729.9
    
    
    $
    1,138.3Specialty plywood, and other products
    
    
    95.9
    
    
    
    97.2
    
    
    
    109.9Total
    
    
    544.2
    
    
    
    827.1
    
    
    
    1,248.2Cost of products sold (excluding amortization):OSB
    
    
    486.6
    
    
    
    661.8
    
    
    
    755.0Specialty plywood, and other products
    
    
    90.7
    
    
    
    88.2
    
    
    
    100.9Total
    
    
    577.3
    
    
    
    750.0
    
    
    
    855.9Selling and administration
    
    
    30.8
    
    
    
    36.0
    
    
    
    30.8Amortization of capital assets
    
    
    65.9
    
    
    
    88.0
    
    
    
    103.9Loss on disposal of capital assets
    
    
    0.2
    
    
    
    2.5
    
    
    
    Write-down of capital assets
    
    
    80.8
    
    
    
    55.3
    
    
    
    Impairment of intangible assets
    
    
    12.2
    
    
    
    
    
    
    
    Impairment of goodwill
    
    
    51.0
    
    
    
    
    
    
    
    Cost of class action lawsuit
    
    
    15.1
    
    
    
    5.1
    
    
    
    Production line closure
    
    
    
    
    
    
    5.9
    
    
    
    Write-down of timber deposits
    
    
    
    
    
    
    4.5
    
    
    
    Operating (loss) earnings
    
    
    (289.1
    )
    
    
    (120.2
    )
    
    
    257.6Finance expense
    
    
    77.0
    
    
    
    74.3
    
    
    
    71.3Interest and other (income) expense
    
    
    (6.0
    )
    
    
    (13.1
    )
    
    
    (10.0
    )Unrealized foreign exchange loss (gain) on long-term debt
    
    
    (161.3
    )
    
    
    7.9
    
    
    
    (28.3
    )Other foreign exchange loss (gain)
    
    
    16.2
    
    
    
    (0.2
    )
    
    
    7.8Realized currency translation loss
    
    
    11.2
    
    
    
    4.4
    
    
    
    (Loss) income before income tax
    
    
    (226.2
    )
    
    
    (193.6
    )
    
    
    216.8Income tax (recovery) expense
    
    
    (9.7
    )
    
    
    (85.6
    )
    
    
    63.6Net (loss) income
    
    $
    (216.5
    )
    
    $
    (108.0
    )
    
    $
    153.2
  Year endedDecember 312007
    
    2006
    
    2005All ProductsUnited States
    
    
    77.3
    %
    
    
    87.4
    %
    
    
    91.0
    %Canada
    
    
    11.5
    
    
    
    7.1
    
    
    
    6.5Overseas
    
    
    11.2
    
    
    
    5.4
    
    
    
    2.5100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Our Results of Operations
 Fiscal Year ended December 31, 2007 Compared to Fiscal Year ended December 31, 2006
 Net Loss
    36




---



##### 



Sales
  OSB.
  Specialty Overlaid Plywood and Other Products.
  Costs of Products Sold (Exclusive of Amortization)
  OSB.
    Specialty Overlaid Plywood and Other Products.
  Selling and Administration
   37




---



##### 



Amortization of Capital Assets
  Cost of Class Action Lawsuit
  Impairment of Intangible Assets
  Write-down of Capital Assets
   Impairment of Goodwill
  Finance Expense
   38




---



##### 



Other Income
   Foreign Exchange Gain on Long-Term Debt
  Income Taxes
  Fiscal Year ended December 31, 2006 Compared to Fiscal Year ended December 31, 2005
  Net Loss
    Sales
  OSB.
   Specialty Overlaid Plywood and Other Products.
 39




---



##### 



Costs of Products Sold (Exclusive of Amortization)
  OSB.
   Specialty Overlaid Plywood and Other Products.
  Selling and Administration
  Amortization of Capital Assets
  Cost of Class Action Lawsuit
  Write-Down of Capital Assets and Production Line Closure
   Write-Down of Timber Deposits
  40




---



##### 



Finance Expense
   Other Income (Expense)
  Foreign Exchange (Loss) Gain on Long-term Debt
   Income Taxes
   Market Risk
 Interest rate risk
 Currency risk
 Credit risk
 Significant Accounting Estimates and Judgments
  41




---



##### 



Change in Accounting Policies
 Comprehensive Income Financial Instruments  Recognition and
Measurement Financial Instruments  Disclosure and Presentation Equity Hedges
     Classification of Financial Instruments.
      42




---



##### 



Equity.
 Transitional adjustment.
  Significant Accounting Estimates and Judgments
 Valuation of Inventory.
 Loss Contingencies.
 Valuation of Long-Lived Assets.
  Amortization.
 Goodwill.
 43




---



##### 



Employee Benefit Plans.
 Reforestation Obligation
 Future Income Tax Assets and Liabilities.
 U.S. GAAP Reconciliation
  (1)
    
    Start-up costs.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 operations as incurred.
 (2)
    
    Employee benefit plans.Under U.S. GAAP, the Company would recognize the funded status of
its defined benefit pension plans on the balance sheet. Unamortized actuarial gains and
losses, prior service costs or credits and transitional obligations that arise during the
period but are not recognized components of net periodic benefit costs are recognized as a
component of other comprehensive income. Prior to the adoption of FAS 158 as of December 31,
2006, the Company recognized the difference between the accumulated pension benefit obligation
and the fair value of plan assets as an additional pension liability, and an equal amount as
an intangible asset to the extent that it related to unrecognized prior service costs while
the remainder was charged to contributed surplus.
 (3)
    
    Transaction costs related to long-term debt.Under U.S. GAAP, transaction costs related to
long-term debt would be capitalized and amortized over the expected life of the debt. Under
Canadian GAAP, the Companys accounting policy is to expense transaction costs on long-term
debt.
 (4)
    
    Realized foreign currency gains or losses.Under Canadian GAAP, a gain or loss equivalent to
a pro rata portion of the exchange gains and losses in accumulated
other comprehensive loss would be recognized in operations when there has been a reduction in the net
investment in a self-sustaining foreign subsidiary. Under U.S. GAAP, this would only be done
when there is a substantial reduction in the net investment.
 44




---



##### 



B. Liquidity and Capital Resources
  As at December 31,2007
    
    
    2006
    
    
    2005(in millions)Current assets
    
    $
    183.9
    
    
    $
    322.3
    
    
    $
    467.5Current portion of future income tax assets
    
    
    (0.6
    )
    
    
    (1.7
    )
    
    
    Restricted cash
    
    
    (7.1
    )
    
    
    (62.2
    )
    
    
    (39.0
    )Timber licence deposits
    
    
    
    
    
    
    
    
    
    
    (6.0
    )Current liabilities
    
    
    (75.2
    )
    
    
    (82.5
    )
    
    
    (113.7
    )Current portion of future income tax liabilities
    
    
    23.7
    
    
    
    10.7
    
    
    
    31.4Adjusted working capital
    
    $
    124.7
    
    
    $
    186.6
    
    
    $
    340.2
   As at December 31,2007
    
    2006
    
    2005(in millions)Cash (used in) provided by operating activities
    
    $
    (127.3
    )
    
    $
    8.0
    
    
    $
    161.8Cash provided by (used in) financing activities
    
    
    100.9
    
    
    
    148.4
    
    
    
    (45.6
    )Cash provided by (used in) investing activities
    
    
    22.6
    
    
    
    (291.4
    )
    
    
    (113.1
    )Additions to capital assets
    
    
    70.1
    
    
    
    228.3
    
    
    
    57.3
      45




---



##### 



C. Research and Development, Patents and Licenses
   
    
    An evaluation report from the International Code Council  Evaluation Service, Inc.
(ICC-ES) was issued, stating that our Structural Composite Lumber (SCL) products
(including 1.7E LSL, 1.5E OSL and 1.3E OSL) are in compliance with code requirements.
These new strand lumber products will be produced by the second production line at the
Grande Prairie OSB facility when completed.
    
    We completed the development of several additives which could provide attractive
attributes to our OSB products.
    
    Overlaid OSB concrete form panels were successfully qualified and rolled out to the
U.S. market. We continue to extend the thickness offering of this product line and
explore additional opportunities.
    
    We have initiated product development efforts at both the Barwick and Grande Prairie
mills to manufacture products for use in high humidity conditions. These efforts will
continue into 2008.
 D. Trend Information
  E. Off-Balance Sheet Arrangements
  46




---



##### 



F. Contractual Obligations
  Payment due by PeriodContractual
    
    
    
    
    
    2009 to
    
    
    2011 toObligation (10)(11)
    
    2008
    
    
    2010
    
    
    2012
    
    
    Thereafter
    
    
    Total(in millions)6.75% Senior Unsecured Notes(1)
    
    $
    21.4
    
    
    $
    42.8
    
    
    $
    42.8
    
    
    $
    319.0
    
    
    $
    426.07.25% Senior Unsecured Notes(2)
    
    
    19.8
    
    
    
    39.5
    
    
    
    307.2
    
    
    
    
    
    
    
    366.5LIBOR + 3.75% Floating Rate Senior Unsecured Notes(3)
    
    
    12.9
    
    
    
    175.0
    
    
    
    
    
    
    
    
    
    
    
    187.9LIBOR + 4.00% Floating Rate Senior Unsecured Notes(4)
    
    
    6.5
    
    
    
    12.9
    
    
    
    12.9
    
    
    
    75.9
    
    
    
    108.2Senior Secured Term Loan(5)
    
    
    7.8
    
    
    
    15.7
    
    
    
    15.7
    
    
    
    113.4
    
    
    
    152.6Merrill Lynch Equipment Loan(6)
    
    
    11.1
    
    
    
    20.3
    
    
    
    21.1
    
    
    
    
    
    
    
    52.5Deutsche Bank Equipment Loan(7)
    
    
    2.6
    
    
    
    5.0
    
    
    
    4.6
    
    
    
    7.1
    
    
    
    19.3Capital Lease Obligations(8)
    
    
    1.0
    
    
    
    1.9
    
    
    
    1.9
    
    
    
    11.9
    
    
    
    16.7Operating Lease Obligations
    
    
    3.4
    
    
    
    3.3
    
    
    
    0.1
    
    
    
    
    
    
    
    6.8Purchase Commitments(9)
    
    
    9.4
    
    
    
    4.4
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    15.1Total
    
    $
    95.9
    
    
    $
    320.8
    
    
    $
    406.6
    
    
    $
    528.3
    
    
    $
    1,351.6
 
 (1)
    
    Under the indentures governing our outstanding 6.75% Senior Notes, we are required to make
interest payments in the amount of U.S.$10.8 million each June 30 and December 30. Our 6.75%
Senior Notes mature on March 15, 2014.(2)
    
    Under the indenture governing our outstanding 7.25% Senior Notes, we are required to make
interest payments in the amount of U.S.$10.0 million each June 30 and December 30. Our 7.25%
Senior Notes mature on October 1, 2012.(3)
    
    Under the indenture governing our outstanding LIBOR + 3.75% 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 LIBOR + 3.75% 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, 2007 year-end rate of 8.45%. Our LIBOR + 3.75% Floating Rate
Senior Notes mature on October 1, 2010.(4)
    
    Under the indenture governing our outstanding LIBOR + 4.00% Floating Rate Senior Notes, we
are required to pay interest at a rate per annum, reset quarterly, equal to LIBOR plus 4.00%.
Interest on our LIBOR + 4.00% 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, 2007 year-end rate of 8.70%. Our LIBOR + 4.00% Floating Rate
Senior Notes mature on April 1, 2013.(5)
    
    Under the Senior Secured term loan agreement, we can elect to pay interest quarterly at a
base rate or over an interest period of one to three months at LIBOR plus 3.0% per annum. For
the purpose of the above table, we have calculated the interest rate at the December 31, 2007
month-end LIBOR rate of 4.70%. The Senior Secured term loan matures on June 26, 2014.(6)
    
    Under the Merrill Lynch equipment loan agreement, we are required to pay interest at a rate
per
annum, reset monthly, equal to LIBOR plus 2.90%, payable monthly. For the purpose of the
above table we have calculated the interest rate at the December 31, 2007 year-end rate of
7.60%. Principal payments are made monthly with the final monthly payment and a balloon
payment due October 1, 2011.(7)
    
    Under the Deutsche Bank equipment loan agreement, we are required to pay interest at a rate
per annum, reset semi-annually, equal to EURIBOR plus 0.65%, payable semi-annually in March
and September. For the purpose of the above table we have calculated the interest rate at the
December 31, 2007 year-end rate of 5.33%. The loan is repayable in 17 equal semi-annual
installments starting at the earlier of six months after the pressing and forming equipment is
ready for operation and June 20, 2008.(8)
    
    Capital lease obligations are payable monthly. 47




---



##### 



(9)
    
    Purchase commitments include agreements to purchase machinery, equipment and electrical
engineering services in relation to the Grande Prairie expansion project and corporate
insurance payments.(10)
    
    Contractual obligations denominated in U.S.$ are converted to Canadian dollars at the
December 31, 2007 exchange rate posted by the Bank of Canada of U.S.$1.0088 = $1.00.(11)
    
    Contractual obligations denominated in  are converted to Canadian dollars at the December
31, 2007 exchange rate posted by the Bank of Canada of 0.6917 = $1.00.
 G. Contingencies
   48




---



##### 



H. Quarterly Comparative Financial Information
 Q2-06
    
    Q1-062007
    
    Q4-07
    
    Q3-07
    
    Q2-07
    
    Q1-07
    
    2006
    
    Q4-06
    
    Q3-06
    
    (3),(4)
    
    (3)
    
    2005(in millions, except per share data, unless otherwise noted)Sales and earningsSales
    
    $
    544.2
    
    
    $
    100.8
    
    
    $
    150.8
    
    
    $
    157.5
    
    
    $
    135.0
    
    
    $
    827.1
    
    
    $
    119.2
    
    
    $
    181.1
    
    
    $
    234.3
    
    
    $
    292.6
    
    
    $
    1,248.2Operating (loss)
earnings
    
    
    (289.1
    )
    
    
    (175.6
    )
    
    
    (45.0
    )
    
    
    (37.8
    )
    
    
    (30.8
    )
    
    
    (120.2
    )
    
    
    (53.8
    )
    
    
    (106.7
    )
    
    
    (6.0
    )
    
    
    46.3
    
    
    
    257.6Foreign exchange
gain (loss) on
long-term debt
    
    
    161.3
    
    
    
    3.1
    
    
    
    69.1
    
    
    
    79.6
    
    
    
    9.4
    
    
    
    (7.9
    )
    
    
    (43.5
    )
    
    
    (1.2
    )
    
    
    40.6
    
    
    
    (3.8
    )
    
    
    28.3Net (loss) income
    
    
    (216.5
    )
    
    
    (184.5
    )
    
    
    (37.2
    )
    
    
    27.9
    
    
    
    (22.8
    )
    
    
    (108.0
    )
    
    
    (78.1
    )
    
    
    (77.5
    )
    
    
    24.9
    
    
    
    22.7
    
    
    
    153.1(Loss) earnings per
share
    
    
    (14.78
    )
    
    
    (12.59
    )
    
    
    (2.54
    )
    
    
    1.91
    
    
    
    (1.55
    )
    
    
    (7.37
    )
    
    
    (5.33
    )
    
    
    (5.29
    )
    
    
    1.71
    
    
    
    1.54
    
    
    
    10.45Balance sheetTotal assets
    
    
    1,100.6
    
    
    
    1,100.6
    
    
    
    1,331.2
    
    
    
    1,459.0
    
    
    
    1,435.9
    
    
    
    1,504.2
    
    
    
    1,504.2
    
    
    
    1,532.0
    
    
    
    1,561.8
    
    
    
    1,558.5
    
    
    
    1,516.0Total long-term
debt (1)
    
    
    977.4
    
    
    
    977.4
    
    
    
    982.3
    
    
    
    1,053.9
    
    
    
    1,025.7
    
    
    
    1,038.1
    
    
    
    1,038.1
    
    
    
    984.4
    
    
    
    908.9
    
    
    
    863.7
    
    
    
    859.5Common shares (2)
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8
    
    
    
    55.8Retained earnings
    
    
    62.7
    
    
    
    62.7
    
    
    
    247.2
    
    
    
    284.3
    
    
    
    256.4
    
    
    
    295.0
    
    
    
    295.0
    
    
    
    373.1
    
    
    
    450.6
    
    
    
    440.4
    
    
    
    417.7Cash dividends
declared: $  per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.00
    
    
    
    
    
    
    
    
    
    
    
    1.00
    
    
    
    
    
    
    
    1.00Cash (used in)
provided by
operating activities
    
    
    (127.3
    )
    
    
    (64.2
    )
    
    
    (18.6
    )
    
    
    4.5
    
    
    
    (49.1
    )
    
    
    8.0
    
    
    
    (63.9
    )
    
    
    16.6
    
    
    
    25.1
    
    
    
    30.2
    
    
    
    161.8Key statisticsOSB shipments
(mmsf 3/8)
    
    
    2,343.1
    
    
    
    459.5
    
    
    
    642.2
    
    
    
    699.6
    
    
    
    541.7
    
    
    
    2,774.9
    
    
    
    480.1
    
    
    
    732.8
    
    
    
    754.7
    
    
    
    807.4
    
    
    
    3,229.3Average OSB
price ($/msf)
    
    
    191.3
    
    
    
    172.4
    
    
    
    198.7
    
    
    
    188.7
    
    
    
    202.2
    
    
    
    263.1
    
    
    
    205.1
    
    
    
    211.5
    
    
    
    277.9
    
    
    
    330.4
    
    
    
    352.5
 
 (1)
    
    Total long-term debt includes the current portion of long-term debt.(2)
    
    At March 31, 2008, the Company had 14,649,140 issued common shares.(3)
    
    Cash provided by operating activities in Q1-06 and Q2-06 has been restated by $10.6 million
and $4.7 million respectively to reflect the reclassification of non-cash capital asset
additions.(4)
    
    Net income, earnings per share and retained earnings in Q2-06 have been restated to reflect
the reclassification of $2.4 million foreign exchange loss on long-term items from the
cumulative translation adjustment account to other income.  49




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##### 



ITEM 6. Directors, Senior Management and Employees
 A. Directors and Senior Management
 Company Act
 Name
    
    Age
    
    TitleBrian E. Ainsworth
    
    
    65
    
    
    Chairman, Chief Executive Officer and
Director since May 1993.D. Allen Ainsworth
    
    
    66
    
    
    President and Director since May 1993.Catherine E. Ainsworth
    
    
    49
    
    
    Chief Operating Officer, Secretary since
November 2001 and Director since May 1993.Robert Allen
    
    
    50
    
    
    Chief Financial Officer since November 2003.David Ainsworth
    
    
    86
    
    
    Director since May 1993 and co-founder of
Ainsworth.Susan Ainsworth
    
    
    86
    
    
    Director since May 1993 and co-founder of
Ainsworth.D. Michael Ainsworth
    
    
    44
    
    
    Executive Vice-President, since May 2002.Kevin J. Ainsworth
    
    
    42
    
    
    Senior Vice-President, Western Panel
Operations.Douglas I. Ainsworth
    
    
    43
    
    
    Senior Vice-President, Marketing.Douglas B. Buchanan(1)(2)(3)(4)
    
    
    55
    
    
    Director since May 26, 2005. He is Managing
Director and CEO of BC Biomedical
Laboratories Ltd.Robert A. Fairweather(1)(2)(3)(4)
    
    
    64
    
    
    Director since May 25, 2006. He is
President of the International Financial
Centre BC.K. Gordon Green(1)(2)(3)(4)
    
    
    73
    
    
    Director since May 1993. Until October 1993
he was a Vice President and Director, RBC
Dominion Securities Inc.Morley Koffman(3)
    
    
    78
    
    
    Director since May 1993. He is a lawyer
with the law firm Koffman Kalef.W. Gordon Lancaster(1)(2)(3)(4)
    
    
    64
    
    
    Director since May 1993. He is Chief
Financial Officer of Ivanhoe Energy Inc.
 
 (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
 50




---



##### 



David Ainsworth
 Susan Ainsworth
 D. Michael Ainsworth
 Kevin J. Ainsworth
 Douglas I. Ainsworth
 Douglas B. Buchanan
 Robert A. Fairweather
 K. Gordon Green
 Morley Koffman
 W. Gordon Lancaster
  B. Compensation
  51




---



##### 



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
Chairman and Chief
Executive Officer
    
    
    2007
    
    
    $
    480,769
    
    
    
    
    
    
    $
    29,171
    (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    D. Allen Ainsworth
President
    
    
    2007
    
    
    $
    488,925
    
    
    
    
    
    
    $
    49,654
    (3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Catherine E. Ainsworth
Chief Operating Officer
and Secretary
    
    
    2007
    
    
    $
    461,763
    
    
    
    
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    D. Michael Ainsworth
Executive Vice-President
    
    
    2007
    
    
    $
    281,875
    
    
    
    
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Douglas I Ainsworth
Senior Vice-President,
Marketing
    
    
    2007
    
    
    $
    281,875
    
    
    
    
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Kevin J.
Ainsworth 
Senior Vice-President,
Western Panel
Operations
    
    
    2007
    
    
    $
    281,875
    
    
    
    
    
    
    
    
    (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Robert
Allen
Chief Financial Officer
    
    
    2007
    
    
    $
    231,796
    
    
    
    
    
    
    $
    35,498
    (4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The aggregate amount of all perquisites or other personal benefits paid to each of the
executive officers named in the table in 2007 did not exceed 10% of his or her total base
salary or compensation and bonus for the year.(2)
    
    Represents management fees in the amount of $19,231 and an
automobile allowance of $10,120. See  Employment Agreements.(3)
    
    Represents personal use of corporate vehicles, life insurance premiums and other.(4)
    
    Represents an automobile allowance and related expenses, a club membership and a golf course
membership. Compensation of Directors
  Pension Benefits
  52




---



##### 



Credited Years of
    
    Estimated Annual
    
    Years of Credited
    
    Estimated AnnualService to
    
    Benefit at
    
    Service to
    
    Benefit atName
    
    12/31/2007
    
    12/31/2007
    
    Retirement
    
    RetirementBrian E. Ainsworth
    
    
    48
    
    
    $
    106,666
    
    
    
    48
    
    
    $
    112,194Catherine E. Ainsworth
    
    
    28
    
    
    $
    61,296
    
    
    
    43
    
    
    $
    100,916D. Michael Ainsworth
    
    
    19
    
    
    $
    42,222
    
    
    
    39
    
    
    $
    91,777Douglas I. Ainsworth
    
    
    19
    
    
    $
    42,222
    
    
    
    41
    
    
    $
    95,277D. Allen Ainsworth
    
    
    48
    
    
    $
    122,922
    
    
    
    53
    
    
    $
    285,675Kevin J. Ainsworth
    
    
    19
    
    
    $
    42,222
    
    
    
    42
    
    
    $
    96,833Robert Allen
    
    
    4
    
    
    $
    9,259
    
    
    
    19
    
    
    $
    43,555
 C. Board Practices
  Employment Agreements
   Committees of the Board Of Directors
  Audit Committee
  Compensation Committee
  53




---



##### 



Corporate Governance Committee
  Nominating Committee
  D. Employees
    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, 4,000,000 are designated as Series 2 Preferred Shares, and
5,000,000 are designated as Series 3 Preferred Shares.
 ,
 54




---



##### 



Common Sharesbeneficially ownedName and positions
    
    or controlled
    
    % of Class (1)BRIAN E. AINSWORTH
    
    
    2,507,186
    (2)
    
    
    17.11
    %Chairman, Chief Executive Officer and DirectorD. 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
    
    
    
    
    
    
    Senior Vice President, MarketingKEVIN J. AINSWORTH
    
    
    
    
    
    
    Senior Vice President, Western Panel OperationsDAVID AINSWORTH
    
    
    3,129,188
    (5)
    
    
    21.36
    %DirectorSUSAN AINSWORTH
    
    
    13,636
    
    
    
    0.09
    %DirectorDOUGLAS B. BUCHANAN
    
    
    2,000
    
    
    
    0.01
    %DirectorROBERT A. FAIRWEATHER
    
    
    4,000
    
    
    
    0.03
    %DirectorK. GORDON GREEN
    
    
    8,888
    
    
    
    0.06
    %DirectorMORLEY KOFFMAN
    
    
    7,888
    
    
    
    0.05
    %DirectorW. GORDON LANCASTER
    
    
    2,000
    
    
    
    0.01
    %DirectorGRANT FOREST
PRODUCTS CORP.(6)
    
    
    5,001,160
    
    
    
    34.14
    %
 
 (1)
    
    Based on a total of 14,649,140 issued and outstanding common
shares as of March 31, 2007.(2)
    
    These shares are controlled through 2468 Holdings Ltd.(3)
    
    These shares are controlled through 5678 Enterprises Ltd. 98% of the outstanding voting
shares of 5678 Enterprises Ltd. are owned by D. Allen Ainsworth and the remainder are owned by
D. Michael Ainsworth and Douglas I. Ainsworth.(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)
    
    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.(6)
    
    Based on a report dated March 31, 2007 generated using the Canadian Depository for Securities
Ltd.s System for Electronic Disclosure by Insiders (SEDI). Stock Options
  55




---



##### 



Employee Participation Share Plan
    
 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 A. Major Shareholders
   Percentage ofName
    
    Number of Shares
    
    Outstanding SharesGrant Forest Products Corp.
    
    
    5,001,160
    
    
    
    34.14
    %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
    %
 
 (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. 56




---



##### 



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
  Annual Share Price Information
 For the year ended
    
    High
    
    LowDecember 31, 2007
    
    $
    10.70
    
    
    $
    4.06December 31, 2006
    
    $
    27.25
    
    
    $
    7.75December 31, 2005
    
    $
    36.49
    
    
    $
    22.50December 31, 2004
    
    $
    36.00
    
    
    $
    11.88December 31, 2003
    
    $
    12.66
    
    
    $
    3.00
 57




---



##### 



Quarterly Share Price Information
 For the quarter ended
    
    High
    
    LowMarch 31, 2008
    
    $
    4.88
    
    
    $
    2.75December 31, 2007
    
    $
    6.95
    
    
    $
    4.06September 30, 2007
    
    $
    8.50
    
    
    $
    6.00June 30, 2007
    
    $
    8.50
    
    
    $
    5.05March 31, 2007
    
    $
    10.60
    
    
    $
    7.15December 31, 2006
    
    $
    13.71
    
    
    $
    7.75September 30, 2006
    
    $
    22.74
    
    
    $
    11.50June 30, 2006
    
    $
    26.95
    
    
    $
    22.55March 31, 2006
    
    $
    27.25
    
    
    $
    22.25
 Monthly Share Price Information
 For the month ended
    
    High
    
    LowMarch 31, 2008
    
    $
    4.00
    
    
    $
    2.75February 28, 2008
    
    $
    4.38
    
    
    $
    3.30January 31, 2008
    
    $
    4.88
    
    
    $
    3.11December 31, 2007
    
    $
    4.74
    
    
    $
    4.06November 30, 2007
    
    $
    6.60
    
    
    $
    4.75October 31, 2007
    
    $
    6.95
    
    
    $
    6.25
 B. Plan of Distribution
  C. Markets
  D. Selling Shareholders
  E. Dilution
  F. Expenses of the issue
  
 ITEM 10. ADDITIONAL INFORMATION
 A. Share Capital
  B. Memorandum and Articles of Association
  58




---



##### 



C. Material contracts
 Contract No.
    
    Description1.
    
    Indenture dated as of April 18, 2006, among the Company, as issuer, the guarantors named
therein, as guarantors, and The Bank of New York, as trustee.On April 18, 2006 we issued in a private placement U.S.$75,000,000 aggregate
principal amount of Senior Floating Rate Notes due 2013 under an Indenture, dated as of
April 18, 2006, among the Company, as issuer, the guarantors named therein, as
guarantors, 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;b) pay dividends or make other distributions;c) repurchase stock;d) enter into transactions with affiliates;e) transfer or sell assets;f) make certain investments;g) create liens;h) issue or sell stock of subsidiaries;i) create dividend or other payment restrictions affecting Restricted Subsidiaries (as
defined in the Indenture); andj) merge, consolidate, amalgamate or sell all or substantially all of our assets to
another person.2.
    
    Exchange and Registration Rights Agreement dated as of April 18, 2006 among the Company and
Deutsche Bank Securities Inc.Pursuant to an Exchange and Registration Rights Agreement dated April 18, 2006,
among the Company and Deutsche Bank Securities Inc. (the Registration Rights
Agreement), the Company agreed that holders of the original notes would be entitled to
exchange the original notes for registered 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 July 3, 2006 regarding the
exchange of the Original Notes for Exchange Notes; (ii) use its reasonable best efforts
to have the registration statement declared effective by October 5, 2006; and (iii)
complete the exchange offer within 45 days after the registration statement was declared
effective.3.
    
    Merrill Lynch FacilityOn September 29, 2006, we entered into a U.S.$53.7 million credit agreement with
Merrill Lynch Capital Canada Inc. to finance equipment purchases for the Grande Prairie
expansion. The loan bears interest at LIBOR plus 2.90%, payable monthly. Monthly
principal repayments of U.S.$0.7 million began on November 1, 2006, with the final
monthly payment and a balloon payment due October 1, 2011. The loan is secured by capital
assets with a carrying value at December 31, 2007 of U.S.$100.2 million purchased with
the proceeds of the borrowings under the loan.4.
    
    Deutsche Bank FacilityOn September 7, 2006, we entered into a loan agreement with Deutsche Bank Luxembourg
S.A. to finance pressing and forming equipment purchased as part of the Grande Prairie
expansion. As at December 31, 2007, the total unsecured loan was $15.5 million (10.7
million). Interest is payable semi-annually at a rate of EURIBOR plus 0.65%. The loan is
repayable in 17 equal instalments commencing at the earlier of (i) June 20, 2008 and (ii)
six months after the pressing and forming equipment is deemed operational. Under the
terms of the loan agreement, once the pressing
 59




---



##### 



Contract No.
    
    Descriptionand forming equipment is deemed operational, we have the option to convert the loan
to Canadian dollars. We may also request a fixed rate of interest once principal
repayment begins.5.
    
    Credit FacilityOn June 26, 2007, we entered into a term credit facility of U.S.$102.6 million which
is secured by inventory and accounts receivable. We can elect to pay interest at a base
rate plus 2.0% or at LIBOR plus 3.0%. Interest at the base rate plus 2.0%, which is
derived from the prime rate and the federal funds effective rate, is payable quarterly.
Interest at LIBOR plus 3.0% is payable on a monthly, bi-monthly, quarterly or semi-annual
basis, depending on the interest period election made by us. The interest rate and
interest period are elected by us at the end of the previous interest period. As at
December 31, 2007, we elected to pay monthly interest at LIBOR plus 3.0%. There are no
scheduled principal payments on the credit facility until maturity on June 26, 2014.
 D. Exchange Controls
 Investment Canada Act Investment Canada Act Investment Canada Act Investment Canada Act Investment Canada Act
 Investment Canada Act
 Investment Canada Act
 Investment Canada Act
 
    
    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
 60




---



##### 



This discussion is of a general nature only, and is not intended to be, nor should it be
interpreted as, legal or tax advice to any particular Holder and no representation is made with
respect to the Canadian federal income tax consequences to any particular person acquiring, holding
or disposing of Senior Notes. Holders should therefore consult their own tax advisors with respect
to their particular circumstances.
   F. Dividends and Paying Agents
  G. Statements by Experts
  H. Documents on Display
  I. Subsidiary Information
  61




---



##### 



ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 A. Quantitative Information About Market Risk
  B. Qualitative Information About Market Risk
  Foreign Currency Rate Sensitivity
    Interest Rate Sensitivity
 .
  Commodity Price Sensitivity
  62




---



##### 



ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART II
 
 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
 A. Indebtedness
  B. Dividends
  
 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
 A.
    
    There have been no material modifications to the instruments defining the rights of holders
of any class of registered securities since the date of filing of our last annual report on
Form 20-F.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 15T. CONTROLS AND PROCEDURES
 A. Disclosure Controls and Procedures
   B. Internal Control over Financial Reporting
   63




---



##### 



C. Changes in Internal Control over Financial Reporting
   
 ITEM
16. AUDIT COMMITTEE FINANCIAL EXPERT; CODE OF ETHICS; PRINCIPAL ACCOUNTANT FEES AND SERVICES
 A. Audit Committee Financial Expert
  B. Code of Ethics
  64




---



##### 



C. Principal Accountant Fees and Services
 Fees relating to the fiscal year ended December 31
    
    2007
    
    
    2006Audit Fees
    
    $
    1,062,000
    
    
    
    91
    %
    
    $
    1,090,000
    
    
    
    90
    %Audit-Related Fees (1)
    
    
    10,000
    
    
    
    1
    
    
    
    33,920
    
    
    
    3Tax Fees (2)
    
    
    100,000
    
    
    
    8
    
    
    
    82,000
    
    
    
    7Other Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    1,172,000
    
    
    
    100
    %
    
    $
    1,205,920
    
    
    
    100
    %
 
 (1)
    
    Audit-related fees relate to audit services with respect to the audit of the Companys
Canadian defined benefit pension plan.(2)
    
    Tax fees relate to compliance services with respect to transfer pricing and tax assistance
with respect to filing positions.     D. Exemptions From Listing Standards for Audit Committees
  E. Purchases of Equity Securities by the Issuer and its Affiliates
  
 PART III
 
 ITEM 17. FINANCIAL STATEMENTS
  65




---



##### 



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, 2007 and 2006
    
    F-3Consolidated Statements of Operations for the years ended
December 31, 2007, 2006 and 2005
    
    F-4Consolidated Statements of Other Comprehensive (Loss) Income
for the years ended December 31, 2007, 2006 and 2005
    
    F-5Consolidated Statements of Changes in Shareholders Equity for
the years ended December 31, 2007, 2006 and 2005
    
    F-5Consolidated Statements of Cash Flows for the years ended
December 31, 2007, 2006 and 2005
    
    F-6Notes to the Consolidated Financial Statements
    
    F-7
 66




---



##### 



Report of Independent Registered Chartered Accountants and Consolidated Financial Statements of
 AINSWORTH LUMBER CO. LTD.
 December 31, 2007 and 2006




---



##### 



Report of Independent Registered Chartered Accountants
 
     
 Comments by Independent Registered Chartered Accountants on Canada-United States of America
Reporting Difference
  
 F-2




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##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Balance Sheets
 December 31
    
    
    December 312007
    
    
    2006ASSETSCurrent AssetsCash and cash equivalents (Note 4)
    
    $
    69,627
    
    
    $
    74,312Short-term investments
    
    
    835
    
    
    
    35,864Accounts receivable, net of allowance for doubtful accounts of $40 (2006:$Nil)
    
    
    21,537
    
    
    
    36,186Inventories (Note 5)
    
    
    73,050
    
    
    
    95,515Prepaid expenses
    
    
    11,113
    
    
    
    16,531Restricted cash (Note 11)
    
    
    7,104
    
    
    
    62,184Current portion of future income tax assets (Note 21)
    
    
    635
    
    
    
    1,697183,901
    
    
    
    322,289Capital Assets, Net (Note 6)
    
    
    830,102
    
    
    
    968,539Intangible Assets (Note 8)
    
    
    
    
    
    
    14,243Other Assets (Note 9)
    
    
    22,887
    
    
    
    53,810Future Income Tax Assets (Note 21)
    
    
    11,759
    
    
    
    42,348Goodwill (Note 10)
    
    
    51,970
    
    
    
    102,970$
    1,100,619
    
    
    $
    1,504,199LIABILITIES AND SHAREHOLDERS EQUITYCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    38,790
    
    
    $
    58,763Income taxes payable
    
    
    2,607
    
    
    
    2,552Current portion of future income tax liabilities (Note 21)
    
    
    23,682
    
    
    
    10,708Current portion of long-term debt (Note 13)
    
    
    10,122
    
    
    
    10,52375,201
    
    
    
    82,546Accrued Pension Benefit Liability (Note 22)
    
    
    6,651
    
    
    
    6,034Reforestation Obligation (Note 12)
    
    
    4,451
    
    
    
    4,621Long-term Debt (Note 13)
    
    
    967,250
    
    
    
    1,027,595Future Income Tax Liabilities (Note 21)
    
    
    34,327
    
    
    
    89,2931,087,880
    
    
    
    1,210,089Going Concern (Note 1)Commitments and Guarantees (Note 14)Contingencies (Note 15)SHAREHOLDERS EQUITYCapital Stock (Note 16)
    
    
    55,827
    
    
    
    55,827Retained Earnings
    
    
    62,698
    
    
    
    295,005Accumulated Other Comprehensive Loss
    
    
    (105,786
    )
    
    
    (56,722
    )12,739
    
    
    
    294,110$
    1,100,619
    
    
    $
    1,504,199
   /s/ Catherine Ainsworth
    
    
    
    /s/ Allen AinsworthCatherine AinsworthDIRECTOR
    
    
    
    Allen AinsworthDIRECTOR
 F-3




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##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Operations and Retained Earnings
 2007
    
    
    2006
    
    
    2005Sales
    
    $
    544,231
    
    
    $
    827,118
    
    
    $
    1,248,231Costs and ExpensesCosts of products sold (exclusive of amortization)
    
    
    577,302
    
    
    
    749,980
    
    
    
    855,949Selling and administration
    
    
    30,798
    
    
    
    36,039
    
    
    
    30,777Amortization of capital assets (Note 6)
    
    
    65,859
    
    
    
    88,004
    
    
    
    103,907Loss on disposal of capital assets
    
    
    259
    
    
    
    2,549
    
    
    
    Cost of class action lawsuit (Note 15)
    
    
    15,114
    
    
    
    5,085
    
    
    
    Impairment of intangible assets (Note 8)
    
    
    12,226
    
    
    
    
    
    
    
    Impairment of goodwill (Note 10)
    
    
    51,000
    
    
    
    
    
    
    
    Write-down of capital assets (Note 6)
    
    
    80,780
    
    
    
    55,290
    
    
    
    Production line closure (Note 18)
    
    
    
    
    
    
    5,915
    
    
    
    Write-down of timber deposits (Note 19)
    
    
    
    
    
    
    4,502
    
    
    
    833,338
    
    
    
    947,364
    
    
    
    990,633Operating (Loss) Earnings
    
    
    (289,107
    )
    
    
    (120,246
    )
    
    
    257,598Finance ExpenseInterest
    
    
    74,154
    
    
    
    68,913
    
    
    
    64,914Transaction costs (Note 20)
    
    
    2,897
    
    
    
    
    
    
    
    Amortization of financing costs and fees (Note 20)
    
    
    
    
    
    
    5,399
    
    
    
    4,888Loss on repurchase of long-term debt
    
    
    
    
    
    
    
    
    
    
    1,48577,051
    
    
    
    74,312
    
    
    
    71,287Other Income
    
    
    6,044
    
    
    
    13,119
    
    
    
    9,978Foreign Exchange Gain (Loss) on Long-term Debt
    
    
    161,315
    
    
    
    (7,936
    )
    
    
    28,313Other Foreign Exchange (Loss) Gain
    
    
    (16,171
    )
    
    
    167
    
    
    
    (7,781
    )Realized Currency Translation Loss
    
    
    (11,180
    )
    
    
    (4,400
    )
    
    
    (Loss) Income Before Income Taxes
    
    
    (226,150
    )
    
    
    (193,608
    )
    
    
    216,821Income Tax (Recovery) Expense (Note 21)
    
    
    (9,695
    )
    
    
    (85,577
    )
    
    
    63,667Net (Loss) Income
    
    $
    (216,455
    )
    
    $
    (108,031
    )
    
    $
    153,154Basic and diluted (loss) earnings per common share
    
    $
    (14.78
    )
    
    $
    (7.37
    )
    
    $
    10.45Weighted average number of common shares outstanding
    
    
    14,649,140
    
    
    
    14,649,140
    
    
    
    14,649,140
 F-4




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AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Comprehensive (Loss) Income
 2007
    
    
    2006
    
    
    2005Net (Loss) Income
    
    $
    (216,455
    )
    
    $
    (108,031
    )
    
    $
    153,154Other Comprehensive (Loss) IncomeUnrealized loss on translation of self-sustaining foreign operations
    
    
    (60,244
    )
    
    
    (2,779
    )
    
    
    (24,106
    )Realized currency translation loss (reclassified to net (loss) income)
    
    
    11,180
    
    
    
    4,400
    
    
    
    (49,064
    )
    
    
    1,621
    
    
    
    (24,106
    )Comprehensive (Loss) Income
    
    $
    (265,519
    )
    
    $
    (106,410
    )
    
    $
    129,048
 
 Consolidated Statements of Changes in Shareholders Equity
 2007
    
    
    2006
    
    
    2005Capital Stock
    
    $
    55,827
    
    
    $
    55,827
    
    
    $
    55,827Retained EarningsBeginning of period
    
    
    295,005
    
    
    
    417,685
    
    
    
    278,742Transitional adjustment on adoption of new accounting policies (Note 3)
    
    
    (15,852
    )
    
    
    
    
    
    
    Dividends paid (Note 17)
    
    
    
    
    
    
    (14,649
    )
    
    
    (14,649
    )Refundable dividend tax recovery
    
    
    
    
    
    
    
    
    
    
    438Net (loss) income
    
    
    (216,455
    )
    
    
    (108,031
    )
    
    
    153,15462,698
    
    
    
    295,005
    
    
    
    417,685Accumulated Other Comprehensive Loss on Translation of
Self-Sustaining Foreign OperationsBeginning of period (Note 3)
    
    
    (56,722
    )
    
    
    (58,343
    )
    
    
    (34,237
    )Net unrealized (loss) gain on translation of self-sustaining foreign operations
in the period
    
    
    (49,064
    )
    
    
    1,621
    
    
    
    (24,106
    )(105,786
    )
    
    
    (56,722
    )
    
    
    (58,343
    )Total Retained Earnings and Accumulated Other Comprehensive Loss
    
    
    (43,088
    )
    
    
    238,283
    
    
    
    359,342Total Shareholders Equity
    
    $
    12,739
    
    
    $
    294,110
    
    
    $
    415,169
  F-5




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##### 



AINSWORTH LUMBER CO. LTD.
Consolidated Statements of Cash Flows
 2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet (loss) income
    
    $
    (216,455
    )
    
    $
    (108,031
    )
    
    $
    153,154Items not affecting cashAmortization of capital assets (Note 6)
    
    
    65,659
    
    
    
    88,004
    
    
    
    103,907Non-cash portion of interest expense
    
    
    1,457
    
    
    
    
    
    
    
    Amortization of financing costs and fees (Note 20)
    
    
    
    
    
    
    5,399
    
    
    
    4,888Foreign exchange (gain) loss on long-term debt
    
    
    (161,315
    )
    
    
    7,936
    
    
    
    (28,313
    )Loss on repurchase of long-term debt
    
    
    
    
    
    
    
    
    
    
    1,485Impairment of intangible assets (Note 8)
    
    
    12,226
    
    
    
    
    
    
    
    Impairment of goodwill (Note 10)
    
    
    51,000
    
    
    
    
    
    
    
    Write-down of capital assets (Note 6)
    
    
    80,780
    
    
    
    55,290
    
    
    
    Loss on disposal of capital assets
    
    
    259
    
    
    
    2,549
    
    
    
    245Write-down of timber deposits (Note 19)
    
    
    
    
    
    
    4,502
    
    
    
    Change in non-current reforestation obligation
    
    
    (170
    )
    
    
    273
    
    
    
    (122
    )Future income taxes
    
    
    (9,577
    )
    
    
    (93,512
    )
    
    
    71,600Adjustment to net accrued pension benefit asset
    
    
    4,433
    
    
    
    3,734
    
    
    
    (7,278
    )Realized currency translation loss
    
    
    11,180
    
    
    
    4,400
    
    
    
    Change in non-cash operating working capital (Note 25)
    
    
    32,980
    
    
    
    37,420
    
    
    
    (137,718
    )Cash (used in) provided by operating activities
    
    
    (127,343
    )
    
    
    7,964
    
    
    
    161,848CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of long-term debt (Note 13)
    
    
    109,825
    
    
    
    171,588
    
    
    
    Repayment of long-term debt
    
    
    (8,622
    )
    
    
    (2,321
    )
    
    
    Repayment of capital lease obligations
    
    
    (283
    )
    
    
    (174
    )
    
    
    (274
    )Repurchase of long-term debt
    
    
    
    
    
    
    
    
    
    
    (31,067
    )Dividends paid (Note 17)
    
    
    
    
    
    
    (14,649
    )
    
    
    (14,649
    )Refundable dividend tax recovery
    
    
    
    
    
    
    
    
    
    
    438Financing costs and fees
    
    
    
    
    
    
    (6,011
    )
    
    
    Cash provided by (used in) financing activities
    
    
    100,920
    
    
    
    148,433
    
    
    
    (45,552
    )CASH FLOWS FROM INVESTING ACTIVITIESShort-term investments
    
    
    35,029
    
    
    
    (35,864
    )
    
    
    Restricted cash
    
    
    55,080
    
    
    
    (23,168
    )
    
    
    (32,455
    )Additions to capital assets
    
    
    (70,077
    )
    
    
    (228,255
    )
    
    
    (57,275
    )Decrease (increase) in other assets
    
    
    1,332
    
    
    
    (4,255
    )
    
    
    (9,883
    )Proceeds on disposal of capital assets
    
    
    1,226
    
    
    
    154
    
    
    
    27Acquisition of intangible assets (Note 8)
    
    
    
    
    
    
    
    
    
    
    (7,546
    )Timber licence deposits
    
    
    
    
    
    
    
    
    
    
    (5,998
    )Cash provided by (used in) investing activities
    
    
    22,590
    
    
    
    (291,388
    )
    
    
    (113,130
    )Effect of foreign exchange rate changes on cash and cash equivalents
    
    
    (852
    )
    
    
    102
    
    
    
    (28
    )NET CASH (OUTFLOW) INFLOW
    
    
    (4,685
    )
    
    
    (134,889
    )
    
    
    3,138CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    74,312
    
    
    
    209,201
    
    
    
    206,063CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    69,627
    
    
    $
    74,312
    
    
    $
    209,201SUPPLEMENTAL INFORMATIONTaxes paid
    
    $
    6,702
    
    
    $
    4,142
    
    
    $
    61,484Interest paid
    
    $
    73,988
    
    
    $
    70,482
    
    
    $
    64,986
  F-6




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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.
    
    GOING CONCERNThese audited consolidated financial statements are presented in accordance with Canadian
generally accepted accounting principles (Canadian GAAP) on the assumption that the Company
continues as a going concern. The going concern basis of presentation assumes that the Company
will continue operations for the foreseeable future and will be able to realize assets and
discharge liabilities and commitments in the normal course of business. If the going concern
assumption was not appropriate for these financial statements, adjustments would have to be made
to the carrying value of assets and liabilities, reported revenues and expenses and balance
sheet classifications.There is reasonable doubt about the appropriateness of using the going concern assumption
because of the Companys current liquidity position and forecasted operating cash flows and
capital requirements for the next twelve months. The significant appreciation of the Canadian
dollar against the U.S. dollar over the past year and the decline in demand for oriented strand
board (OSB) in the U.S. residential housing market has led to reduced operating margins.
Under the Companys existing long-term and current indebtedness, in 2008 the Company must
provide for annual interest payments of $70 to $75 million and principal payments of $10.1
million, and may be required to prepay interest of approximately $3.1 million.The Company is exploring strategic alternatives to improve capital structure and enhance
liquidity, including debt refinancing, non-core asset sales and cost reduction initiatives. In
the event that a refinancing is not successful, the existing indenture agreement allows for
additional borrowing of up to $50 million, subject to certain conditions.
 2.
    
    SIGNIFICANT ACCOUNTING POLICIESThese consolidated financial statements have been reported in Canadian dollars in accordance
with Canadian generally accepted accounting principles (''Canadian GAAP). Canadian GAAP
differs in certain respects from accounting principles generally accepted in the United States
(''U.S. GAAP) as explained in Note 27.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., Ainsworth
Engineered New York, Inc. (formerly Chatham Forest Products, Inc.), and Ainsworth Engineered
Canada Limited Partnership. The Company follows the recommendations in Accounting Guideline
15, Consolidation of Variable Interest Entities,which establishes the application of
consolidation principles to entities that are subject to control on a basis other than
ownership of voting interests. The Company has determined that it
does not have any variable
interest entities.The Company accounts for its 50% interest in the High Level Project (Note 7) 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 operation of Ainsworth Engineered (USA), LLC is 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
accumulated other comprehensive income as a
 F-7




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##### 



separate component of shareholders equity. A gain or loss equivalent to a pro rata portion
of the exchange gains and losses in accumulated other comprehensive loss would be recognized
in operations when there has been a reduction in the net investment in a self-sustaining
foreign subsidiary.(c)
    
    Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and other disclosures in these consolidated financial
statements. Actual results may differ from these estimates.The significant areas requiring management estimates include valuation of inventory, loss
contingencies, valuation of long-lived assets, amortization, goodwill and other intangible
assets, reforestation obligations, employee benefit plans and future income tax assets and
liabilities.(d)
    
    Cash and cash equivalentsCash and cash equivalents generally consist of cash balances with banks and investments with
original maturities of less than three months at the time of purchase.(e)
    
    Short-term investmentsShort-term investments consist of investments with market values closely approximating book
values and original maturities between three and twelve months at the time of purchase.(f)
    
    InventoriesLogs and panel products are valued at the lower of average cost and net realizable value.
Cost is defined as all costs that relate to bringing the inventory to its present condition
under normal operating conditions and includes manufacturing costs, such as raw materials,
labour and production overhead, and amortization costs. The inventory value is determined
using the three month average moving cost. Materials, supplies and spares are valued at the
lower of average cost and replacement cost.(g)
    
    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. OSB
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
    %
 Assets under capital leases are amortized on a straight line basis over the term of the
lease. 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.(h)
    
    Intangible assets
 F-8




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##### 



Intangible assets 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 is recognized in an
amount equal to the excess.(i)
    
    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.(j)
    
    Transaction and debt discount costsConsent fees and debt discount costs relating to long-term debt are deferred and amortized
using the effective interest rate method. The Companys long-term debt is recorded net of
discounts and consent fees. Effective January 1, 2007, transaction costs on long-term debt
are expensed as incurred (Note 3).(k)
    
    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 operations in cost of products sold on the
basis of the volume of timber cut.(l)
    
    Revenue recognitionRevenue is recognized when the risks and rewards of ownership pass to the purchaser. The
following criteria are used to determine that title has passed: (1) the goods are shipped;
(2) the price to the buyer is fixed or determinable; and (3) collectibility is reasonably
assured. Freight costs are included in revenue and cost of products sold.(m)
    
    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.(n)
    
    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.(o)
    
    Employee Benefit PlansThe Company has two defined benefit plans providing pension benefits to its British Columbia
salaried employees and employees of the Minnesota OSB facilities. The Company also
administers and sponsors an individual pension plan established for a director of the
Company. 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
 F-9




---



##### 



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.(p)
    
    Canadian GAAP developments
 (i)
    
    Inventories.Commencing with the Companys 2008 fiscal year, the new
recommendations of the Canadian Institute of Chartered Accountants (CICA) for
accounting for inventories (CICA Handbook Section 3031) will apply to the Company.
Under the new requirements, inventory must be valued at the lower of cost and net
realizable value with any write-down reversed (to the extent of the original write-down)
if circumstances change in subsequent periods. The new section also enhances guidance
regarding the definition of cost and disclosure costs. The Company will apply this
section as of January 1, 2008. The impact on the Company is not expected to be material
as log and panel products are valued at the lower of cost and net realizable value.
Materials and supplies are valued at the lower of cost and replacement cost, which
approximates net realizable value. No changes to the Companys inventory costing
methods will be required. The Company will apply the enhanced disclosure standards and
the reversal of write-downs, where applicable, as of January 1, 2008.(ii)
    
    Capital Disclosures.Commencing with the Companys 2008 fiscal year, the new
recommendations of the CICA for capital disclosures (CICA Handbook Section 1535) will
apply to the Company. This section will require quantitative and qualitative
disclosures in the footnotes to the financial statements about the Companys capital
requirements and objectives. The Company will apply this section as of January 1, 2008.(iii)
    
    Presentation and Disclosure of Financial Instruments.Commencing with the
Companys 2008 fiscal year, the new presentation and disclosure recommendations of the
CICA for financial instruments (CICA Handbook Section 3862 and 3863) will apply to the
Company. These new recommendations increase the disclosure of the nature and extent of
risks arising from financial instruments and how the Company manages those risks. The
Company will apply these sections as of January 1, 2008.
 3.
    
    CHANGE IN ACCOUNTING POLICIESOn January 1, 2007 the Company adopted the CICA accounting requirements for the recognition,
presentation and disclosure of financial instruments and comprehensive income. The Company
adopted these standards on a prospective basis, with adjustments made to opening retained
earnings as at January 1, 2007, with the exception of the cumulative translation adjustment,
which has been adjusted retroactively. These standards include CICA Handbook Section 1530,
Comprehensive Income; Section 3855, Financial Instruments  Recognition and Measurement;
Section 3861, Financial Instruments  Disclosure and Presentation; Section 3251, Equity; and
Section 3865, Hedges.The new recommendations require the Company to present, among other things, certain unrealized
gains and losses outside of net income or loss. Section 1530 defines comprehensive income as
the change in equity (net assets) arising from transactions and other events and circumstances
from non-owner sources. The new standard requires presentation of a statement of comprehensive
income. In accordance with the provisions of this new standard, foreign exchange gains and
losses on the translation of the financial statements of the Companys self-sustaining foreign
operations, previously recorded in a separate section of shareholders equity, are now presented
as accumulated other comprehensive income (loss). The Companys earnings (loss) per share
presented on the consolidated statements of operations is based upon its net income (loss) and
not comprehensive income (loss).Section 3855 prescribes when a financial instrument is to be recognized on the balance sheet and
at what amount. Section 3861 specifies how gains and losses on financial instruments are to be
presented. The standards require that all financial assets be classified as trading, available
for sale, held to maturity, or loans and receivables. In addition, the standards require that
all financial assets, including all derivatives, be measured at fair value with the exception of
loans and receivables, debt securities classified as held to maturity, and available for sale
equities that do not have quoted market values in an active market.
 F-10




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##### 



Fair values are based on quoted market prices where available from active markets, otherwise
fair values are estimated using a variety of valuation techniques and models.Transaction costs related to trading securities are expensed as incurred. Transaction costs
related to available for sale and held to maturity financial assets and loans and receivables
are generally capitalized and are then amortized over the expected life of the instrument using
the effective yield method. Transaction costs on long-term debt can either be expensed as
incurred or capitalized and amortized over the expected life of the debt using the effective
yield method. The Company has chosen to expense transaction costs.Classification of Financial Instruments
Financial instruments are classified into various categories. Held to maturity financial assets
are non-derivative financial assets with fixed or determinable payments and a fixed maturity,
other than loans and receivables, that an entity has the positive intention and ability to hold
to maturity. Held to maturity investments are measured at amortized cost, with the amortization
of premiums or discounts, losses and impairments being included in current period interest
income or expense. The Company has not designated any financial assets as held to maturity.Trading financial assets and liabilities are measured at fair market value with all gains and
losses included in net income in the period in which they arise. Dividends and interest earned
and interest incurred are included in interest income and expense, respectively. Trading
financial assets are cash and cash equivalents and short-term investments in commercial paper.
The Company has not designated any financial liabilities as trading liabilities.Available for sale financial assets are measured at fair market value, except where the
instrument does not have a quoted market price in an active market, with revaluation gains and
losses included in other comprehensive income until the asset is removed from the balance sheet.
Losses due to impairment are included in net income. The Company has not designated any
financial assets as available for sale.Loans and receivables are accounted for at amortized cost, with the amortization of premiums or
discounts, losses and impairments being included in current period interest income or expense.Financial liabilities are recorded at amortized cost and include all liabilities, other than
derivatives. Under the new standard, the Companys long-term debt is recorded net of discounts
and consent fees.Derivatives are carried at fair value and are reported as assets where they have a positive fair
value and as liabilities where they have a negative fair value. Derivatives may be embedded in
other financial instruments. Under the new standards, derivatives embedded in other financial
instruments are valued as separate derivatives when their economic characteristics and risks are
not clearly and closely related to those of the host contract; the terms of the embedded
derivative are the same as those of a free standing derivative; and the combined contract is not
held for trading. The Company has selected January 1, 2003 as the transition date for embedded
derivatives.Categories of regular-way purchases and sales of financial assets are accounted for at the trade
date.Equity
Accumulated other comprehensive income (loss) is included on the consolidated balance sheet as a
separate component of shareholders equity (net of tax) and includes net unrealized gains and
losses on available for sale securities and unrealized foreign currency translation gains and
losses on self-sustaining foreign operations.Transitional adjustment
Foreign exchange gains and losses on the translation of the financial statements of
self-sustaining foreign subsidiaries, which were previously presented in the cumulative
translation adjustment account, are now presented in accumulated other comprehensive income
(loss). In accordance with the new requirements, this change was made retroactively. The
retroactive change as at December 31, 2006 was to reclassify $56,722.All other new policies were adopted prospectively with adjustments of opening balances applied
to opening retained earnings. Prior period balances have not been restated. The opening
balance of transaction costs ($22,663), previously presented in other assets, was adjusted
against opening retained earnings, net of the future income tax effect ($6,811). Consent fees
associated with long-term debt were reclassified from other assets to long-term debt ($2,523).
The impact of adopting these standards as at
 F-11




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##### 



AdjustmentDecember 31, 2006
    
    
    on adoption
    
    
    January 1, 2007ASSETSOther assets
    
    $
    53,810
    
    
    $
    (25,186
    )
    
    $
    28,624Total assets
    
    $
    1,504,199
    
    
    $
    (25,186
    )
    
    $
    1,479,013LIABILITIES AND SHAREHOLDERS EQUITYLong-term debt (including current portion)
    
    $
    1,038,118
    
    
    $
    (2,523
    )
    
    $
    1,035,595Future income tax liabilities (non-current)
    
    
    89,293
    
    
    
    (6,811
    )
    
    
    82,482Total liabilities
    
    
    1,210,089
    
    
    
    (9,334
    )
    
    
    1,200,755SHAREHOLDERS EQUITYRetained earnings
    
    
    295,005
    
    
    
    (15,852
    )
    
    
    279,153Total shareholders equity
    
    
    294,110
    
    
    
    (15,852
    )
    
    
    278,258Total liabilities and shareholders equity
    
    $
    1,504,199
    
    
    $
    (25,186
    )
    
    $
    1,479,013
 4.
    
    CASH AND CASH EQUIVALENTS
 2007
    
    
    2006Cash
    
    $
    69,627
    
    
    $
    64,226Commercial paper
    
    
    
    
    
    
    10,086$
    69,627
    
    
    $
    74,312
 5.
    
    INVENTORIES
 2007
    
    
    2006Logs
    
    $
    21,124
    
    
    $
    36,120Panel products
    
    
    17,990
    
    
    
    23,493Materials, supplies and spares
    
    
    33,936
    
    
    
    35,902$
    73,050
    
    
    $
    95,515
 6.
    
    CAPITAL ASSETS
 2007Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueProperty, plant and equipmentPanel product mills
    
    $
    1,000,427
    
    
    $
    492,755
    
    
    $
    507,672Land
    
    
    9,089
    
    
    
    
    
    
    
    9,089Asset under capital lease
    
    
    11,499
    
    
    
    758
    
    
    
    10,741Other
    
    
    26,670
    
    
    
    21,920
    
    
    
    4,750Construction in progress
    
    
    278,759
    
    
    
    
    
    
    
    278,7591,326,444
    
    
    
    515,433
    
    
    
    811,011Timber and logging roadsTimber rights and development costs
    
    
    26,380
    
    
    
    11,554
    
    
    
    14,826Logging roads
    
    
    9,616
    
    
    
    5,351
    
    
    
    4,26535,996
    
    
    
    16,905
    
    
    
    19,091$
    1,362,440
    
    
    $
    532,338
    
    
    $
    830,102
 2006Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueProperty, plant and equipmentPanel product mills
    
    $
    1,163,165
    
    
    $
    476,092
    
    
    $
    687,073Land
    
    
    10,146
    
    
    
    
    
    
    
    10,146Asset under capital lease
    
    
    11,499
    
    
    
    153
    
    
    
    11,346Other
    
    
    26,652
    
    
    
    20,490
    
    
    
    6,162Construction in progress
    
    
    232,926
    
    
    
    
    
    
    
    232,9261,444,388
    
    
    
    496,735
    
    
    
    947,653Timber and logging roadsTimber rights and development costs
    
    
    27,155
    
    
    
    10,671
    
    
    
    16,484
 F-12




---



##### 



2006Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueLogging roads
    
    
    15,623
    
    
    
    11,221
    
    
    
    4,40242,778
    
    
    
    21,892
    
    
    
    20,886$
    1,487,166
    
    
    $
    518,627
    
    
    $
    968,539
 2007
    
    
    2006
    
    
    2005Amortization expense for the yearProperty, plant and equipment
    
    $
    62,602
    
    
    $
    85,554
    
    
    $
    100,364Timber and logging roads
    
    
    2,652
    
    
    
    2,297
    
    
    
    3,534Asset under capital lease
    
    
    605
    
    
    
    153
    
    
    
    $
    65,859
    
    
    $
    88,004
    
    
    $
    103,907
    7.
    
    THE HIGH LEVEL PROJECT
    2007
    
    2006AssetsAccounts receivable
    
    $
    283
    
    
    $
    3,766Inventories
    
    
    6,825
    
    
    
    10,062Prepaid expenses
    
    
    3,786
    
    
    
    605Capital assets
    
    
    102,495
    
    
    
    110,795LiabilitiesExcess of cheques issued over cash in bank
    
    
    276
    
    
    
    1,657Accounts payable and accrued liabilities
    
    
    1,771
    
    
    
    3,956
  F-13




---



##### 



8.
    
    INTANGIBLE ASSETS
 On 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 $9,059 (U.S.$7,792). Of the
total amount U.S.$6,142 was paid in cash at closing. A payment of U.S.$825 was made on March 2,
2007 and the remainder of U.S.$825 will be paid 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, access
to tax incentives, and future income tax liabilities. These intangible assets have an
indefinite life.Through the Companys annual impairment testing of intangible assets as at September 30, 2007,
the value of these assets was determined to be impaired, and an impairment charge of $8,602 was
recorded. As at December 31, 2007 as a result of weakening market forecasts and changes in the
Companys flexibility to commit to capital expenditure plans, the Company again reviewed the
carrying value of these assets and determined that the carrying value was not likely to be
recoverable in the future. The Company has recorded an additional impairment charge of $3,624
related to these identifiable intangible assets as at December 31, 2007.
 9.
    
    OTHER ASSETS
 2007
    
    
    2006Advances and deposits
    
    $
    12,377
    
    
    $
    16,661Accrued pension benefit asset (Note 22)
    
    
    10,510
    
    
    
    13,398Financing costs (Note 3)
    
    
    
    
    
    
    23,751$
    22,887
    
    
    $
    53,810
 10.

    GOODWILL
 Goodwill is the excess of the purchase price over the fair value of the net identifiable assets
acquired when the Company completed the acquisition of the 100% of the voting shares of
Voyageur Panel Limited in 2004. At September 30, 2007, the Company performed its normal course
annual impairment test of goodwill, by estimating the expected future discounted cash flows of
the reporting unit, and determined that the asset was not impaired. At December 31, 2007, due
to weakening business conditions in the fourth quarter of 2007 and managements consideration
of revised market forecasts reflecting the substantial declines in U.S. housing starts and the
prospect of prolonged reductions in customer demand, the impairment test was re-performed, and
an impairment charge of $51,000 was recorded.
 11.

    CREDIT FACILITIES AND RESTRICTED CASH
 As at December 31, 2007, the Company had outstanding letters of credit of $7.1 million (2006:
$29.7 million) to support the Companys ongoing business operations. Under the terms of the
commercial letters of credit facility, $7.1 million (2006: $29.7 million) in cash is held in a
separate account as collateral for the letters of credit outstanding, which has been classified
as restricted cash. The total credit available to the Company under this agreement is $50.0
million.At December 31, 2006 an additional $32.5 million in restricted cash relates to unutilized loan
proceeds from a loan with Merrill Lynch Capital Canada Inc.The Company had an unutilized U.S.$2.5 million foreign exchange and future contract credit
facility at December 31, 2007 which, if utilized, would be secured by cash collateral.12.
    
    REFORESTATION OBLIGATION
 2007
    
    
    2006Balance, beginning of year
    
    $
    6,026
    
    
    $
    5,506Expense
    
    
    712
    
    
    
    1,9936,738
    
    
    
    7,499Paid during the year
    
    
    (1,260
    )
    
    
    (1,473
    )Balance, end of year
    
    $
    5,478
    
    
    $
    6,026Current portion, included in accounts payable and accrued liabilities
    
    $
    1,027
    
    
    $
    1,405Long-term
    
    $
    4,451
    
    
    $
    4,621
 F-14




---



##### 



13.
    
    LONG-TERM DEBT
 The 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 29). The details of the outstanding long-term debt at December 31, 2007 and
2006 are as follows:
 2007
    
    
    2006U.S.$275,000 (2006: U.S.$275,000)
Senior Unsecured Notes due October 1,
2012 with interest payable
semi-annually at 7.25% per annum
    
    $
    272,608
    
    
    $
    320,485U.S.$210,000 (2006: U.S.$210,000)
Senior Unsecured Notes due March 15,
2014 with interest payable
semi-annually at 6.75% per annum
    
    
    208,173
    
    
    
    244,734U.S.$153,540 (2006: U.S.$153,540)
Senior Unsecured Notes due October 1,
2010 with interest payable quarterly
at LIBOR plus 3.75% per annum
    
    
    152,204
    
    
    
    178,936U.S.$110,000 (2006: U.S.$110,000)
Senior Unsecured Notes due March 15,
2014 with interest payable
semi-annually at 6.75% per annum
    
    
    109,043
    
    
    
    128,194U.S.$102,637 (2006: U.S.$Nil) Senior
Secured Term Loan due June 26, 2014
with interest payable monthly,
bi-monthly, quarterly or
semi-annually at LIBOR plus 3.0% per
annum or quarterly at base rate plus
2.0%
    
    
    101,744
    
    
    
    U.S.$75,000 (2006: U.S.$75,000)
Senior Unsecured Notes due April 1,
2013 with interest payable quarterly
at LIBOR plus 4.00% per annum
    
    
    74,348
    
    
    
    87,405U.S.$44,392 (2006: U.S.$51,750)
equipment financing loan due October
1, 2011 with principal and interest
payable monthly at LIBOR plus 2.90%
per annum
    
    
    44,006
    
    
    
    60,30910,725 (2006: 10,215) equipment
financing loan due December 20, 2016
with interest payable semi-annually
at EURIBOR plus 0.65% per annum
    
    
    15,504
    
    
    
    15,700U.S.$9,853 (2006: U.S.$10,139)
capital lease obligation maturing May
29, 2025 with interest at 6.81% per
annum
    
    
    9,768
    
    
    
    11,816U.S.$Nil (2006: U.S.$1,351) Senior
Unsecured Notes due July 15, 2007
with interest payable semi-annually
at 12.5% per annum
    
    
    
    
    
    
    1,574987,398
    
    
    
    1,049,153Unamortized deferred debt discount
    
    
    (7,861
    )
    
    
    (11,035
    )Consent fees
    
    
    (2,165
    )
    
    
    977,372
    
    
    
    1,038,118Current portion
    
    
    (10,122
    )
    
    
    (10,523
    )$
    967,250
    
    
    $
    1,027,595
 On June 26, 2007 the Company entered into a term loan of $109.8 million (U.S.$102.6 million)
which is secured by inventory and accounts receivable. The Company can elect to pay interest
at a base rate plus 2.0% or at LIBOR plus 3.0%. Interest at the base rate plus 2.0%, which is
derived from the prime rate and the federal funds effective rate, is payable quarterly.
Interest at LIBOR plus 3.0% is payable on a monthly, bi-monthly, quarterly or semi-annual
basis, depending on the interest period election made by the Company. The interest rate and
interest period are elected by the Company at the end of the previous interest period. As at
December 31, 2007 the Company elected to pay monthly interest at LIBOR plus 3.0%. There are no
scheduled principal payments until maturity on June 26, 2014.The U.S.$1.4 million Senior Unsecured Notes due July 15, 2007 were repaid during the third
quarter of 2007.Under the terms of the U.S.$44.4 million equipment financing facility, if the Companys
liquidity falls below U.S.$75.0 million, the lender may require the borrower to prepay interest
for a period of twelve months. At December 31, 2007 liquidity for the purpose of this
financing facility was $73.1 million (U.S.$73.8 million).
 F-15




---



##### 



Anticipated requirements to meet long-term debt repayments, including capital lease
obligations, during each of the five years ending December 31 are as follows:
 2008
    
    $
    10,1222009
    
    
    10,1432010
    
    
    162,3702011
    
    
    22,1832012
    
    
    274,829
 14.
    
    COMMITMENTS AND GUARANTEESThe Company is committed to operating lease payments in respect of premises and equipment and
capital lease payments in respect of an aircraft as follows:
 Operating
    
    
    CapitalLeases
    
    
    Lease2008
    
    $
    3,441
    
    
    $
    9592009
    
    
    2,326
    
    
    
    9592010
    
    
    962
    
    
    
    9592011
    
    
    53
    
    
    
    9582012
    
    
    7
    
    
    
    958Total minimum lease payments
    
    $
    6,789
    
    
    $
    4,793Imputed interest (6.81%)
    
    
    
    
    
    
    (3,051
    )Capital lease obligation
    
    
    
    
    
    $
    1,742
 Rent expense was $4,674 in 2007 (2006: $5,271; 2005: $4,889).As part of the Grande Prairie expansion project, the Company has entered into agreements to
purchase machinery, equipment, engineering and management support services totaling
approximately $5,280 (2006: $27,856). The terms of the contracts are varied and extend to 2009.The Company has long-term purchase contracts with annual minimum volume commitments. All
contracts are at market prices and on normal business terms.The Company is a party to contracts in which it agrees to indemnify third parties for product
liabilities that arise out of or relate to sales contracts. The Company cannot estimate the
potential amount of future payments under these agreements until events arise that would
trigger the liability.15.
    
    CONTINGENCIESIn 2006, the Company, along with other North American OSB producers, was named as a defendant
in several lawsuits which allege violations of United States anti-trust laws in relation to the
pricing and supply of OSB from mid-2002 to the present. On August 3, 2007, the court granted
the direct purchaser plaintiffs class certification motion and granted in part and denied in
part the indirect purchaser plaintiffs class certification motion. In October 2007, the
Company finalized a settlement agreement with the direct purchaser plaintiffs. Under the terms
of the agreement, the Company paid $8.6 million (U.S.$8.6 million) into escrow to be
distributed across the settlement class. In January 2008, the Company finalized a settlement
agreement with the indirect purchaser plaintiffs. Under the terms of the agreement, the
Company paid $1.3 million (U.S.$1.3 million) into escrow to be distributed across the
settlement class. These settlement amounts, along with associated legal costs of $5.2 million
(2006: $5.1 million), were reflected in the Companys results as at December 31, 2007. The
Company received preliminary court approval of these settlements in March 2008. The Company
continues to believe the allegations against it in these claims are entirely without merit.
The decision to enter into the settlement agreements was solely an attempt to avoid prolonged
litigation.In the normal course of its business activities, the Company is subject to a number of claims
and legal actions that may be made by customers, suppliers and others. While the final outcome
with respect to actions outstanding or pending as at December 31, 2007 cannot be predicted with
certainty, the Company believes the resolution will not have a material effect on the Companys
financial position, earnings or cash flows.
 F-16




---



##### 



16.
    
    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
350,000 shares are designated Series 1, 180,000 are designated Series 2 and 187,500
are designated Series 3. 717,500 Class B common shares 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. As at December 31, 2007 and 2006, the Company had
100,000 Series 3 preferred shares outstanding which were held by a subsidiary and are
eliminated on consolidation in these consolidated financial statements.
 (b)
    
    The Companys issued share capital is as follows:
 Common SharesShares
    
    AmountBalance at December 31, 2006
    
    
    14,649,140
    
    
    $
    55,827Balance at December 31, 2007
    
    
    14,649,140
    
    
    $
    55,827
 On October 24, 2005, the Company commenced a normal course issuer bid to purchase up to
732,457 common shares, representing 5% of the Companys 14,649,140 currently issued and
outstanding common shares. The issuer bid expired on October 23, 2006 with no shares
repurchased under this bid.
 17.
    
    DIVIDENDS PAIDDuring 2007, the Company declared and paid a cash dividend of $Nil (2006: $1.00; 2005: $1.00)
per common share to holders of record of common shares.18.
    
    PRODUCTION LINE CLOSUREOn August 30, 2006, the Company permanently closed one of the production lines at its Bemidji,
Minnesota OSB facility. The capital assets associated with this production line, including
panelproduct equipment and construction in progress, were decommissioned as of the time of the
closure announcement. A write-down of $55.3 million was recorded, representing the net book
value of the capital assets attributable to the closed production line net of estimated salvage
value.The closure resulted in the elimination of approximately 110 positions. The Company provided
the affected employees with 60-days pay in lieu of notice, severance pay, employment transition
counseling and associated benefits. The total estimated expenses, all of which were recorded
in the year ended December 31, 2006, associated with the production line closure are as
follows:
 Severance pay
    
    $
    2,530Pension
    
    
    1,469Pay in lieu of notice
    
    
    1,203Write off of capital spare parts
    
    
    698Other
    
    
    15$
    5,915
 F-17




---



##### 



Liabilities associated with the production line closure in 2006 are as follows:
 Amount
    
    
    Cash
    
    
    DecemberExpensed
    
    
    Paid
    
    
    31, 2006Severance
    
    $
    2,530
    
    
    $
    (2,100
    )
    
    $
    430Pension
    
    
    1,469
    
    
    
    
    
    
    
    1,469Pay in lieu
    
    
    1,203
    
    
    
    (1,203
    )
    
    
    Other
    
    
    15
    
    
    
    (15
    )
    
    
    $
    5,217
    
    
    $
    (3,318
    )
    
    $
    1,899
 Severance was paid in the first quarter of 2007 while the pension accrual will be paid pursuant
to the terms of the Minnesota defined benefit pension plan.19.
    
    TIMBER DEPOSITSThe Company declined a timber licence offered by the Government of British Columbia to harvest
timber damaged by pine beetles in the Prince George, British Columbia region. In doing so, the
Company forfeited $2,364 in deposits made as part of the timber licence bid process which was
expensed in operations in 2006.The Company also canceled a timber harvest agreement in northern Alberta, forfeiting $2,138 in
contract deposits which was expensed to operations in 2006.20.
    
    FINANCING COSTS AND FEESEffective January 1, 2007 the Company changed its accounting policies for transaction costs and
financing fees (Note 3). In accordance with these accounting policies, the Company expensed
transaction costs of $2,897 related to the term loan financing secured in 2007.In 2006 and 2005, finance expense and fees on long-term debt include the amortization of
prepaid financing costs, amortization of debt discounts, and amortization of consent and
commitment fees as follows:
 2007
    
    
    2006
    
    
    2005Amortization of financing costs
    
    $
    
    
    
    $
    3,531
    
    
    $
    3,329Amortization of debt discounts
    
    
    
    
    
    
    1,549
    
    
    
    1,549Amortization of consent and commitment fees
    
    
    
    
    
    
    319
    
    
    
    10$
    
    
    
    $
    5,399
    
    
    $
    4,888
 21.
    
    INCOME TAXESReconciliation of the Companys effective income tax rate to the Canadian statutory tax rate is
as follows:
 2007
    
    
    %
    
    
    2006
    
    
    %
    
    
    2005
    
    
    %Income tax (recovery) expense at statutory rate
    
    $
    (75,534
    )
    
    
    33.4
    
    
    $
    (65,053
    )
    
    
    33.6
    
    
    $
    75,605
    
    
    
    34.9Large corporation tax
    
    
    280
    
    
    
    (0.1
    )
    
    
    722
    
    
    
    (0.4
    )
    
    
    1,572
    
    
    
    0.7Non-taxable foreign exchange loss (gain) on long-term debt
    
    
    (26,940
    )
    
    
    11.9
    
    
    
    1,730
    
    
    
    (0.9
    )
    
    
    (4,936
    )
    
    
    (2.3
    )Reduction in statutory income tax rates
    
    
    (3,975
    )
    
    
    1.8
    
    
    
    (9,615
    )
    
    
    5.0
    
    
    
    (2,652
    )
    
    
    (1.2
    )Rate differentials between jurisdictions
    
    
    (4,760
    )
    
    
    2.1
    
    
    
    (3,130
    )
    
    
    1.6
    
    
    
    1,361
    
    
    
    0.6Subsidiary income not taxable
    
    
    (12,769
    )
    
    
    5.6
    
    
    
    (10,394
    )
    
    
    5.4
    
    
    
    (13,213
    )
    
    
    (6.1
    )Non-taxable write-down of goodwill
    
    
    17,029
    
    
    
    (7.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Valuation allowance
    
    
    96,494
    
    
    
    (42.7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other non-deductible items
    
    
    480
    
    
    
    (0.2
    )
    
    
    163
    
    
    
    (0.1
    )
    
    
    5,930
    
    
    
    2.7Tax (recovery) expense
    
    $
    (9,695
    )
    
    
    4.3
    
    
    $
    (85,577
    )
    
    
    44.2
    
    
    $
    63,667
    
    
    
    29.3Comprised of:Current taxes
    
    $
    46
    
    
    
    
    
    
    $
    6,394
    
    
    
    
    
    
    $
    (10,788
    )Future income taxes
    
    
    (9,741
    )
    
    
    
    
    
    
    (91,971
    )
    
    
    
    
    
    
    74,455$
    (9,695
    )
    
    
    
    
    
    $
    (85,577
    )
    
    
    
    
    
    $
    63,667
 Temporary timing differences and tax loss carryforwards which give rise to the net future
income tax liability are as follows:
 2007
    
    
    2006Future income tax assets (liabilities)Eligible capital expenditures
    
    $
    2,081
    
    
    $
    2,603
 F-18




---



##### 



2007
    
    
    2006Accruals not currently deductible
    
    
    2,096
    
    
    
    3,430Loss on repurchase of long-term debt
    
    
    47
    
    
    
    4,540Investment tax credits
    
    
    4,658
    
    
    
    2,879Tax loss carryforwards
    
    
    120,378
    
    
    
    55,816Income currently not subject to tax
    
    
    13,385
    
    
    
    (16,275
    )Financing costs
    
    
    3,330
    
    
    
    (1,924
    )Depreciable capital assets
    
    
    (53,417
    )
    
    
    (83,529
    )Deferred pension costs
    
    
    (2,732
    )
    
    
    (3,663
    )Foreign exchange gain on long-term debt
    
    
    (39,130
    )
    
    
    (14,665
    )Valuation allowance
    
    
    (96,311
    )
    
    
    Research and development costs
    
    
    
    
    
    
    (5,168
    )Future income tax liability, net
    
    $
    (45,615
    )
    
    $
    (55,956
    )Distributed as follows::Current portion of future income tax assets
    
    $
    635
    
    
    $
    1,697Current portion of future income tax liabilities
    
    
    (23,682
    )
    
    
    (10,708
    )Long-term portion of future income tax assets
    
    
    11,759
    
    
    
    42,348Long-term portion of future income tax liabilities
    
    
    (34,327
    )
    
    
    (89,293
    )$
    (45,615
    )
    
    $
    (55,956
    )
 The Company has recognized capital tax loss carryforwards of $Nil (2006: $2.4 million), and
non-capital tax loss carryforwards of approximately $342.8 million (2006: $150.6 million),
which expire as follows:
 Canada
    
    
    United States2015
    
    $
    17,351
    
    
    
    2025
    
    
    
    
    
    
    26,8032026
    
    
    
    
    
    
    116,1362027
    
    
    60,539
    
    
    
    121,958$
    77,890
    
    
    $
    264,897
 22.
    
    PENSION PLANSThe Company maintains two defined benefit pension plans for certain salaried and certain hourly
employees in British Columbia and Minnesota. In addition, during 2007 the Company transferred
existing pension benefit entitlements totaling $1.1 million to an individual pension plan
established for a director of the Company. The plan is sponsored and administered by the
Company.The Company measures its accrued benefit obligations and the fair value of plan assets of its
defined benefit pension plans for accounting purposes as at December 31 of each year. The most
recent actuarial valuation of the British Columbia pension plan for funding purposes was as of
December 31, 2006, and the next required valuation will be as of December 31, 2009. The most
recent actuarial valuation of the Minnesota pension plan was as of January 1, 2007.The Company also participates in a multi-employer defined contribution pension plan for hourly
employees who are subject to a collective bargaining agreement and sponsors a Group Registered
Retirement Savings Plan (RRSP) at three of its Canadian operations, including the jointly-owned
High Level operation. The Company contributed $1,512 to the multi-employer pension plan (2006:
$1,474; 2005: $2,560) and made Group RRSP contributions of $1,648 for 2007 (2006: $1,476; 2005:
$1,374). The Company also contributed $717 to two 401(k) plans the Company sponsors at its
Minnesota operations (2006: $897; 2005: $1,357).Information about the Companys defined benefit pension plans is as follows:
 2007
    
    
    2006
    
    
    2005PLAN ASSETSFair value at beginning of year
    
    $
    50,184
    
    
    $
    42,587
    
    
    $
    30,175Expected return on plan assets
    
    
    3,338
    
    
    
    3,037
    
    
    
    2,353Employer contributions
    
    
    2,148
    
    
    
    5,006
    
    
    
    12,987Benefits paid
    
    
    (5,190
    )
    
    
    (2,358
    )
    
    
    (4,330
    )Adjustment due to change in exchange rate
    
    
    (551
    )
    
    
    
    
    
    
    Experience (loss) gain
    
    
    (3,267
    )
    
    
    1,912
    
    
    
    1,402Fair value at end of year
    
    
    46,662
    
    
    
    50,184
    
    
    
    42,587
 F-19




---



##### 



2007
    
    
    2006
    
    
    2005ACCRUED BENEFIT OBLIGATIONBalance at beginning of year
    
    
    70,815
    
    
    
    66,173
    
    
    
    50,102Current service cost
    
    
    4,713
    
    
    
    5,315
    
    
    
    4,015Interest cost
    
    
    3,601
    
    
    
    3,379
    
    
    
    2,948Benefits paid
    
    
    (5,190
    )
    
    
    (2,358
    )
    
    
    (4,330
    )Plan improvement cost
    
    
    1,836
    
    
    
    
    
    
    
    Minnesota OSB facilities plan acquisition
    
    
    
    
    
    
    353
    
    
    
    3,861Plan curtailment
    
    
    
    
    
    
    (1,747
    )
    
    
    Adjustment to discount rate
    
    
    
    
    
    
    
    
    
    
    7,261Adjustment to foreign exchange
    
    
    (2,910
    )
    
    
    36
    
    
    
    Actuarial (gain) loss
    
    
    (3,804
    )
    
    
    (336
    )
    
    
    2,316Balance at end of year
    
    
    69,061
    
    
    
    70,815
    
    
    
    66,173NET DEFICIT, END OF YEAR
    
    $
    (22,399
    )
    
    $
    (20,631
    )
    
    $
    (23,586
    )NET ACCRUED PENSION BENEFIT ASSETFunded status  plan deficit
    
    $
    (22,399
    )
    
    $
    (20,631
    )
    
    $
    (23,586
    )Unamortized net actuarial loss
    
    
    17,260
    
    
    
    18,907
    
    
    
    23,939Unamortized net transition obligation
    
    
    (1,380
    )
    
    
    (1,552
    )
    
    
    (1,725
    )Unamortized past service cost
    
    
    10,378
    
    
    
    10,640
    
    
    
    12,591Net accrued pension benefit asset
    
    $
    3,859
    
    
    $
    7,364
    
    
    $
    11,219Comprised of:Accrued pension benefit asset (Note 9)
    
    $
    10,510
    
    
    $
    13,398
    
    
    $
    14,250Accrued pension benefit liability
    
    
    (6,651
    )
    
    
    (6,034
    )
    
    
    (3,031
    )$
    3,859
    
    
    $
    7,364
    
    
    $
    11,219PENSION EXPENSEAccrual for current services
    
    $
    4,713
    
    
    $
    5,315
    
    
    $
    4,015Interest on accrued benefits
    
    
    3,601
    
    
    
    3,379
    
    
    
    2,948Interest on pension fund assets
    
    
    (3,338
    )
    
    
    (3,038
    )
    
    
    (2,362
    )Amortization of unrecognized:Net transition obligation
    
    
    (173
    )
    
    
    (173
    )
    
    
    (173
    )Past service costs
    
    
    819
    
    
    
    856
    
    
    
    617Net actuarial loss
    
    
    931
    
    
    
    1,044
    
    
    
    695$
    6,553
    
    
    $
    7,383
    
    
    $
    5,740PLAN ASSETSCash
    
    $
    72
    
    
    $
    59
    
    
    $
    1,177Canadian short term investments
    
    
    436
    
    
    
    1,519
    
    
    
    2,015Canadian bonds and debentures
    
    
    13,490
    
    
    
    15,338
    
    
    
    14,712Canadian common shares
    
    
    13,495
    
    
    
    15,032
    
    
    
    13,080Canadian pooled equity funds
    
    
    982
    
    
    
    911
    
    
    
    827Global bonds and debentures
    
    
    221
    
    
    
    224
    
    
    
    224Global pooled equity funds
    
    
    7,033
    
    
    
    7,259
    
    
    
    4,680U.S. common shares
    
    
    5,938
    
    
    
    6,139
    
    
    
    4,964U.S. pooled equity funds
    
    
    4,995
    
    
    
    3,703
    
    
    
    908$
    46,662
    
    
    $
    50,184
    
    
    $
    42,587Funded status  plan deficit
    
    $
    (22,399
    )
    
    $
    (20,631
    )
    
    $
    (23,586
    )Unamortized net actuarial loss
    
    
    17,260
    
    
    
    18,907
    
    
    
    23,939Unamortized net transition obligation
    
    
    (1,380
    )
    
    
    (1,552
    )
    
    
    (1,725
    )Unamortized past service cost
    
    
    10,378
    
    
    
    10,640
    
    
    
    12,591Net accrued pension benefit asset
    
    $
    3,859
    
    
    $
    7,364
    
    
    $
    11,219Comprised of:Accrued pension benefit asset (Note 9)
    
    $
    10,510
    
    
    $
    13,398
    
    
    $
    14,250Accrued pension benefit liability
    
    
    (6,651
    )
    
    
    (6,034
    )
    
    
    (3,031
    )$
    3,859
    
    
    $
    7,364
    
    
    $
    11,219PENSION EXPENSEAccrual for current services
    
    $
    4,713
    
    
    $
    5,315
    
    
    $
    4,015Interest on accrued benefits
    
    
    3,601
    
    
    
    3,379
    
    
    
    2,948Interest on pension fund assets
    
    
    (3,338
    )
    
    
    (3,038
    )
    
    
    (2,362
    )Amortization of unrecognized:Net transition obligation
    
    
    (173
    )
    
    
    (173
    )
    
    
    (173
    )Past service costs
    
    
    819
    
    
    
    856
    
    
    
    617
 F-20




---



##### 



2007
    
    
    2006
    
    
    2005Net actuarial loss
    
    
    931
    
    
    
    1,044
    
    
    
    695$
    6,553
    
    
    $
    7,383
    
    
    $
    5,740PLAN ASSETSCash
    
    $
    72
    
    
    $
    59
    
    
    $
    1,177Canadian short-term investments
    
    
    436
    
    
    
    1,519
    
    
    
    2,015Canadian bonds and debentures
    
    
    13,490
    
    
    
    15,338
    
    
    
    14,712Canadian common shares
    
    
    13,495
    
    
    
    15,032
    
    
    
    13,080Canadian pooled equity funds
    
    
    982
    
    
    
    911
    
    
    
    827Global bonds and debentures
    
    
    221
    
    
    
    224
    
    
    
    224Global pooled equity funds
    
    
    7,033
    
    
    
    7,259
    
    
    
    4,680U.S. common shares
    
    
    5,938
    
    
    
    6,139
    
    
    
    4,964U.S. pooled equity funds
    
    
    4,995
    
    
    
    3,703
    
    
    
    908$
    46,662
    
    
    $
    50,184
    
    
    $
    42,587The significant weighted-average actuarial assumptions adopted in measuring the Companys
accrued benefit obligations and benefit costs as at December 31 included the following:2007
    
    2006
    
    2005Discount rate on accrued benefit obligation
    
    
    5.5
    %
    
    
    5.0
    %
    
    
    5.0
    %Discount rate on benefit costs
    
    
    5.0
    %
    
    
    5.0
    %
    
    
    6.0
    %Expected long-term rate of return on plan assets
    
    
    7.0
    %
    
    
    7.0
    %
    
    
    7.0
    %Rate of compensation increase
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    4.0
    %
 Total cash payments for employee future benefits for 2007, consisting of cash contributed by
the Company to its defined benefit pension plans and cash payments directly to beneficiaries,
was $2,220 (2006: $6,138; 2005: $16,186).Plan Investment Strategies and PoliciesThe Companys primary goal for the defined benefit plans is the preservation and enhancement of
the value of the assets through the prudent diversification of high quality investments and asset
classes. A secondary goal of the Company is to maximize the long-term rate of return of the
defined benefit plans assets within a level of risk acceptable to the Company.Risk management: The Company considers absolute risk (the risk of contribution increases,
inadequate plan surplus and unfunded obligations) to be more important than relative return
risk. Accordingly, the defined benefit plans designs, the nature and maturity of defined
benefit obligations and characteristics of the plans memberships significantly influence
investment strategies and policies. The Company manages risk through specifying allowable and
prohibited investment types, setting diversification strategies and determining target asset
allocations. For example, the minimum quality rating of any holding in the bond section shall
be BBB and the aggregate holding of BBB grade bonds shall never exceed 10% of the total bond
section. In addition, no equity holding shall exceed 5% of that companys total outstanding
voting shares. Investment of cash reserves in short term paper shall be confined to
Governments, chartered banks, major trust companies, or top quality corporate credits with a
rating of R1-low or better.Allowable and prohibited investment types: Allowable and prohibited investments types, along
with associated guidelines and limits, are set out in each funds Statement of Investment
Policies which is reviewed and approved annually by the designated governing fiduciary.Diversification: The Companys strategy for equity security investments is to be broadly
diversified across individual securities, industry sectors and geographical regions. A
meaningful portion (no more than 65% of the total plans assets) of the investment in equity
securities is allocated to foreign equity securities with the intent of further increasing the
diversification of the plans assets. The remaining Canadian equities may be as high as 50% of
the total portfolio but can never fall below 15%. No more than 10% of Canadian or U.S. equities
shall be invested in any one company. Fixed income can comprise up to 50% of the portfolio but
never less than 30% at one time. All fixed incomes are invested in corporate issues and no more
than 20% of the total market value of the bond section shall be invested in any one generally
recognized industry group, except utilities (40%) and finance (40%). The portfolio may contain
from 0%  20% of cash and cash equivalents.Asset allocations: Information concerning the Companys defined benefit plans target asset
allocation and actual asset allocation is as follows:
 F-21




---



##### 



AllowableRange
    
    ActualCanadian equities
    
    15  50%
    
    
    31
    %U.S. equities.
    
    5  35%
    
    
    13
    %International equities
    
    0  30%
    
    
    15
    %Bonds.
    
    30  50%
    
    
    29
    %Short-term and cash
    
    0  20%
    
    
    12
    %
 At December 31, 2007, there were no shares of the Company held in the pension and other benefit
trusts administered by the Company.23.
    
    RELATED PARTY TRANSACTIONSDuring the year, the Company paid $136 (2006: $120; 2005: $120) to a company owned by officers
of the Company for rental charges relating to mobile forestry and transportation equipment.24.
    
    SEGMENTED INFORMATIONDuring the fourth quarter of 2007, due to declines in OSB sales, the Companys plywood
operations exceeded 10% of total sales and became a reportable segment. The Company manages
its operations, and accordingly determines operating segments, on a product basis. Operating
segments are defined as components of an enterprise for which separate financial information is
available that is regularly evaluated by the chief operating decision maker or decision making
group in deciding how to allocate resources and in assessing performance. The performance of
the Companys product-based operating segments is monitored based on operating earnings.
Working capital, liabilities, administration costs, interest revenue, interest expense, and
income taxes are not allocated to the reportable segments for the purpose of providing information to the chief operating decision maker. The following is a
breakdown by reporting segment:
 OSB
    
    
    Plywood
    
    
    Corporate
    
    
    ConsolidatedYear ended December 31, 2007Sales to external customers
    
    $
    448,531
    
    
    $
    95,880
    
    
    $
    
    
    
    $
    544,231Operating loss
    
    
    (221,228
    )
    
    
    (2,638
    )
    
    
    (65,241
    )
    
    
    (289,107
    )Amortization of capital assets
    
    
    55,501
    
    
    
    3,715
    
    
    
    6,643
    
    
    
    65,859Impairment of intangible assets
    
    
    
    
    
    
    
    
    
    
    12,226
    
    
    
    12,226Impairment of goodwill
    
    
    51,000
    
    
    
    
    
    
    
    
    
    
    
    51,000Write-down of capital assets
    
    
    80,780
    
    
    
    
    
    
    
    
    
    
    
    80,780Capital expenditures
    
    
    68,762
    
    
    
    438
    
    
    
    877
    
    
    
    70,077Identifiable assets (a)
    
    
    835,101
    
    
    
    24,386
    
    
    
    22,585
    
    
    
    882,072Year ended December 31, 2006Sales to external customers
    
    $
    729,827
    
    
    $
    97,291
    
    
    $
    
    
    
    $
    827,188Operating (loss) earnings
    
    
    (68,977
    )
    
    
    175
    
    
    
    (51,444
    )
    
    
    (120,246
    )Amortization of capital assets
    
    
    78,281
    
    
    
    3,423
    
    
    
    6,300
    
    
    
    88,004Write-down of capital assets
    
    
    55,290
    
    
    
    
    
    
    
    
    
    
    
    55,290Capital expenditures
    
    
    214,083
    
    
    
    2,942
    
    
    
    11,230
    
    
    
    228,255Identifiable assets (a)
    
    
    1,020,220
    
    
    
    26,573
    
    
    
    38,959
    
    
    
    1,085,752Year ended December 31, 2005Sales to external customers
    
    $
    1,138,304
    
    
    $
    109,927
    
    
    $
    
    
    
    $
    1,248,231Operating (loss) earnings
    
    
    294,759
    
    
    
    3,713
    
    
    
    (40,874
    )
    
    
    257,598Amortization of capital assets
    
    
    97,171
    
    
    
    4,133
    
    
    
    2,603
    
    
    
    103,907Capital expenditures
    
    
    44,273
    
    
    
    4,697
    
    
    
    8,305
    
    
    
    57,275Identifiable assets (a)
    
    
    938,704
    
    
    
    27,617
    
    
    
    26,754
    
    
    
    993,075
 
 (a)
    
    Identifiable assets include capital assets, intangible assets and goodwill. Identifiable
assets of the OSB segment include goodwill of $51,970 (2006: $102,970; 2005: $102,970)
resulting from the acquisition of Voyageur Panel Canada Limited, which is located in Canada.
 Geographic InformationSales attributed to countries based on location of customer are as follows:
 F-22




---



##### 



2007
    
    
    2006
    
    
    2005United States
    
    $
    460,602
    
    
    $
    723,111
    
    
    $
    1,135,373Canada
    
    
    62,702
    
    
    
    59,023
    
    
    
    81,602Overseas
    
    
    60,927
    
    
    
    44,984
    
    
    
    31,316Total
    
    $
    544,231
    
    
    $
    827,118
    
    
    $
    1,248,231
 Capital assets attributed to the countries based on location are as follows:
 2007
    
    
    2006Canada
    
    $
    620,412
    
    
    $
    612,324United States
    
    
    209,690
    
    
    
    356,215Total
    
    $
    830,102
    
    
    $
    968,539
 25.
    
    CHANGE IN NON-CASH OPERATING WORKING CAPITAL
 2007
    
    
    2006
    
    
    2005Accounts receivable
    
    $
    16,371
    
    
    $
    20,449
    
    
    $
    (10,204
    )Inventories
    
    
    19,614
    
    
    
    12,673
    
    
    
    (22,137
    )Income taxes receivable/payable
    
    
    (61
    )
    
    
    30,748
    
    
    
    (69,140
    )Prepaid expenses
    
    
    5,157
    
    
    
    348
    
    
    
    (7,165
    )Accounts payable and accrued liabilities
    
    
    (8,101
    )
    
    
    (26,798
    )
    
    
    (29,072
    )$
    32,980
    
    
    $
    37,420
    
    
    $
    (137,718
    )
 26.
    
    FINANCIAL INSTRUMENTS
 (a)
    
    Market riskInterest rate riskThe Company is exposed to interest rate risk on its floating rate debt. Unfavourable
changes in the applicable interest rates may result in an increase in interest expense.
The Company manages its exposure to interest rate risk by maintaining a combination of
floating rate debt and fixed rate debt. The Company does not use derivative instruments to
reduce its exposure to interest rate risk.Currency riskThe Company is exposed to currency risks arising from fluctuations in foreign exchange
rates on its U.S. dollar denominated long-term debt. In addition, the majority of the
Companys sales are transacted in U.S. dollars. The Company does not use derivative
instruments to reduce its exposure to currency risk.Credit riskCredit risk associated with short-term investments is minimized by ensuring that commercial
paper investments have the highest rating obtainable and that certificates of deposit are
placed with well-capitalized financial institutions and other creditworthy counterparties.
Concentration of credit risk with respect to trade receivables is limited due to the
Companys credit evaluation process and the dispersion of a large number of customers
across many geographic areas.(b)
    
    Fair valuesThe fair value of financial instruments, with the exception of long-term debt, is estimated
to approximate their carrying value at December 31, 2007 due to the immediate or short-term
maturity of these financial instruments.The fair value of long-term debt is determined using quoted ask prices for the Companys
Senior Unsecured Notes. The estimated fair value may differ from the amount which could be
realized in an immediate settlement. The carrying values and fair values of the long-term
debt are as follows:
 2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueSenior notes
    
    $
    806,350
    
    
    $
    534,164
    
    
    $
    947,770
    
    
    $
    760,207Term loan
    
    
    101,744
    
    
    
    101,744
    
    
    
    
    
    
    
    Equipment financing
    
    
    59,510
    
    
    
    59,510
    
    
    
    76,009
    
    
    
    76,009Capital leases
    
    
    9,768
    
    
    
    9,768
    
    
    
    11,816
    
    
    
    11,816$
    977,372
    
    
    $
    705,186
    
    
    $
    1,035,595
    
    
    $
    848,032
 F-23




---



##### 



27.
    
    U.S. GAAP RECONCILIATION
  Balance sheet adjustments
  2007
    
    
    2006 (h)Total assets in accordance with Canadian GAAP
    
    $
    1,100,619
    
    
    $
    1,504,199Write-off of capitalized start-up costs (b)
    
    
    (2,445
    )
    
    
    (3,895
    )Transaction costs related to long-term debt (d)
    
    
    20,827
    
    
    
    Accrued pension benefit asset (c)
    
    
    (10,510
    )
    
    
    (13,398
    )Total assets in accordance with U.S. GAAP
    
    $
    1,108,491
    
    
    $
    1,486,906Total liabilities in accordance with Canadian GAAP
    
    $
    1,087,880
    
    
    $
    1,210,089Tax effect of write-off of capitalized start-up costs (b)
    
    
    (819
    )
    
    
    (1,305
    )Tax effect of transaction costs related to long-term debt (d)
    
    
    6,343
    
    
    
    Employee future benefits (c)
    
    
    15,748
    
    
    
    14,599Tax effect of employee future benefits (c)
    
    
    (8,770
    )
    
    
    (9,376
    )Total liabilities in accordance with U.S. GAAP
    
    $
    1,100,382
    
    
    $
    1,214,007Total shareholders equity in accordance with Canadian GAAP
    
    $
    12,739
    
    
    $
    294,110Write-off of capitalized start-up costs (b)
    
    
    (2,445
    )
    
    
    (3,895
    )Transaction costs related to long-term debt (d)
    
    
    20,827
    
    
    
    Employee future benefits (c)
    
    
    (26,258
    )
    
    
    (27,997
    )Tax effect of write-off of capitalized start-up costs (b)
    
    
    819
    
    
    
    1,305Tax effect of transaction costs related to long-term debt (d)
    
    
    6,343
    
    
    
    Tax effect of employee future benefits (c)
    
    
    8,770
    
    
    
    9,376Total shareholders equity in accordance with U.S. GAAP
    
    $
    8,109
    
    
    $
    272,899
  2007
    
    
    2006 (h)Accumulated other comprehensive loss in accordance with Canadian GAAP
    
    $
    (105,786
    )
    
    $
    (56,722
    )Realized currency translation loss (e)
    
    
    (15,580
    )
    
    
    (4,400
    )Employee future benefits (c)FAS 158 adjustment
    
    
    (17,489
    )
    
    
    (18,287
    )Minimum pension liability Accrued pension benefit asset (c)
    
    
    
    
    
    
    (333
    )Accumulated other comprehensive loss in accordance with U.S. GAAP
    
    $
    (138,855
    )
    
    $
    (79,742
    )
 Net (loss) income adjustments
  2007
    
    
    2006 (h)
    
    
    2005Net (loss) income in accordance with Canadian GAAP
    
    $
    (216,455
    )
    
    $
    (108,031
    )
    
    $
    153,154Reversal of amortization of capitalized start-up costs (b)
    
    
    1,450
    
    
    
    1,598
    
    
    
    2,854Write-off of capitalized start-up costs (b)
    
    
    
    
    
    
    (986
    )
    
    
    Capitalization of transaction costs related to long-term debt (d)
    
    
    2,897
    
    
    
    
    
    
    
    
 F-24




---



##### 



2007
    
    
    2006 (h)
    
    
    2005Amortization of transaction costs related to long-term debt (d)
    
    
    (4,733
    )
    
    
    
    
    
    
    Realized currency translation loss (e)
    
    
    11,180
    
    
    
    4,400
    
    
    
    Income tax impact of above items and effect of rate change
    
    
    129
    
    
    
    (225
    )
    
    
    (1,092
    )Net (loss) income in accordance with U.S. GAAP
    
    $
    (205,532
    )
    
    $
    (103,244
    )
    
    $
    154,916Basic and diluted net (loss) income per share in accordance with U.S. GAAP
    
    $
    (14.03
    )
    
    $
    (7.05
    )
    
    $
    10.58Weighted average number of common shares outstanding
    
    
    14,649,140
    
    
    
    14,649,140
    
    
    
    14,649,140Other comprehensive (loss) income:Other comprehensive (loss) income in accordance with Canadian GAAP
    
    $
    (49,064
    )
    
    $
    1,621
    
    
    $
    (24,106
    )Realized currency translation loss (e)
    
    
    (11,180
    )
    
    
    (4,400
    )
    
    
    Reclass of amortization of employee future benefits included in pension cost
(c)
    
    
    1,736
    
    
    
    
    
    
    
    Tax effect of amortization of employee future benefits included in pension cost
    
    
    (605
    )
    
    
    
    
    
    
    Minimum pension liability adjustment (c)
    
    
    
    
    
    
    21,714
    
    
    
    (7,926
    )Tax effect of minimum pension liability adjustment
    
    
    
    
    
    
    (7,607
    )
    
    
    2,774Other comprehensive (loss) income in accordance with U.S. GAAP
    
    $
    (59,113
    )
    
    $
    11,328
    
    
    $
    (29,258
    )
 
 (a)
    
    Adjustments to statement of cash flows.A statement of cash flow reconciled under
U.S. GAAP has not been provided as there are few significant differences identified.
Differences related to the write-off of capitalized start-up costs and related
amortization impact investing activities and operating cash flows, respectively.
Transaction costs related to long-term debt that were incurred during the year, which are
classified in operating activities for Canadian GAAP, would be included in financing
activities for U.S. GAAP. The Company believes that a reconciled statement of cash flows
would not provide more meaningful information.(b)
    
    Start-up costs.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 operations as incurred.(c)
    
    Employee benefit plans.Under U.S. GAAP, the Company would recognize the funded
status of its defined benefit pension plans on the balance sheet. Unamortized actuarial
gains and losses, prior service costs or credits and transitional obligations that arise
during the period but are not recognized components of net periodic benefit costs are
recognized as a component of other comprehensive income. Prior to the adoption of FAS 158
as of December 31, 2006, the Company recognized the difference between the accumulated
pension benefit obligation and the fair value of plan assets as an additional pension
liability, and an equal amount as an intangible asset to the extent that it related to
unrecognized prior service costs while the remainder was charged to contributed surplus.(d)
    
    Transaction costs related to long-term debt.Under U.S. GAAP, transaction costs
related to long-term debt would be capitalized and amortized over the expected life of the
debt. Under Canadian GAAP commencing January 1, 2007, the Companys accounting policy is
to expense transaction costs on long-term debt (Note 2).(e)
    
    Realized foreign currency gains or losses.Under Canadian GAAP, a gain or loss
equivalent to a pro rata portion of the exchange gains and losses in accumulated other
comprehensive loss would be recognized in operations when there has been a reduction in
the net investment in a self-sustaining foreign subsidiary. Under U.S. GAAP, this would
only be done when there is a substantial reduction in the net investment.(f)
    
    Joint ventures.Canadian GAAP provides for investments in jointly controlled
entities to be accounted for using proportionate consolidation. Under U.S. GAAP,
investments in incorporated joint ventures are to be accounted for using the equity
method. Under an accommodation of the Securities and Exchange Commission, the accounting
for joint ventures need not be reconciled from Canadian to U.S. GAAP. The different
accounting treatment affects only the display and classification of financial statement
items and not net income or shareholders equity.(g)
    
    Other disclosures under U.S. GAAP (i)
    
    Accounts payable and accrued liabilities.The following table presents
significant balances included in accounts payable and accrued liabilities:
 2007
    
    
    2006Trade payables and accrued liabilities
    
    $
    22,215
    
    
    $
    26,314Wages and benefits payable
    
    
    6,337
    
    
    
    10,928
 F-25




---



##### 



2007
    
    
    2006Capital asset accruals
    
    
    3,855
    
    
    
    14,947Other Accrued pension benefit asset
(c)
    
    
    6,383
    
    
    
    6,574$
    38,790
    
    
    $
    58,763
 (ii)
    
    Employee benefit plans.The discount rate for the Companys defined benefit
pension plans was based on the market interest rate on high-quality debt instruments
and the maturity of the
plans. For December 31, 2007 and December 31, 2006, the discount rates were based on
AA corporate bond yields as of December 31, 2007 and December 31, 2006, respectively.
In determining the rate of compensation increases, management considered the general
inflation rate, productivity and promotions. The expected rate of return on plan
assets reflects managements best estimate regarding the long-term expected return from
all sources of investment return based on the Companys target asset allocation.During 2008, the Company expects to contribute approximately $5.6 million to its
defined benefit pension plans.The following table presents estimated future benefit payments from the defined benefit
pension plans as of December 31, 2007:
 2008
    
    $
    2,4532009
    
    
    2,5772010
    
    
    2,7692011
    
    
    2,9112012
    
    
    3,1922013-2017
    
    
    20,882
 (iii)
    
    Income taxes.On January 1, 2007, the company adopted Financial Accounting
Standars Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in
Income Taxes  an interpretation of FASB statement No. 108. FIN 48 clarifies the
accounting for uncertainty in income taxes and uses a more-likely-than-not threshold
to determine recognition in the financial statements of an uncertain tax position. The
more-likely-than-not threshold means that a benefit related to an uncertain tax
position is recognized only when it is more-likely-than not that the position will be
sustained based on its technical merits and where there is a greater than 50 percent
likelihood that the position would be sustained if challenged by a tax authority. The
tax position is measured as the largest amount of benefit that is greater than 50
percent likely of being realized upon settlement. The unresolved uncertain tax
positions must be reassessed at each balance sheet date based on these thresholds.
FIN 48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods and disclosure. FIN 48 is effective for
fiscal years beginning after December 31, 2006.The total amount of unrecognized tax benefits that, if recognized, would affect the
effective tax rate is $5,692.No adjustments were required in the Company financial statements as a result of this
adoption. A tabular reconciliation of the total amounts of unrecognized tax benefits
at the beginning and end of 2007 is as follows:
 Unrecognized tax benefits, beginning of year
    
    $
    5,207Increases  tax positions taken in prior periods
    
    
    Decreases  tax positions taken in prior periods
    
    
    Current period tax positions
    
    
    485Settlements
    
    
    Lapse of statute limitations
    
    
    Unrecognized tax benefits, end of year
    
    $
    5,692
   F-26




---



##### 



(iii)
    
    Accounting for planned major maintenance activities.In September 2006, the
FASB issued FSP AUG AIR-1, Accounting for Planned Major Maintenance Activities,
which prohibits the use of the accrue-in-advance method of accounting for planned
major maintenance activities in annual and interim financial statements, for fiscal
years beginning after December 15, 2006. The implementation of FSP AUG AIR-1 did not
have a material impact on the Companys consolidated financial statements.
 (h)
    
    Employee future benefits transitional pension asset accountingThe Company adopted new accounting standards for employee future benefits (FAS 158,
Employers Accounting for Defined Benefit Pension and Other Postretirement Plans) in its
2006 fiscal year. During the year, the Company revisited the adjustments made on adoption
of FAS 158 and determined that the funded status of the Companys defined benefit plans was
not fully recognized on the balance sheet. The following schedules reflect the impact of
this correction, which the Company has concluded is not material to its previously filed
consolidated financial statements. There was no impact on net income, comprehensive income
or cash flows for U.S. GAAP purposes.The effects of the adjustments to fully reflect the funded status of the defined benefit
pension plans on the Companys financial position according to U.S. GAAP, as at December
31, 2006, are as set out in the following table:
 Adjustment toAs previously
    
    
    reflect funded
    
    
    As currentlyreported
    
    
    status
    
    
    reportedTotal assets in accordance with U.S. GAAP
    
    $
    1,510,944
    
    
    $
    (24,038
    )
    
    $
    1,486,906Total liabilities in accordance with U.S. GAAP
    
    
    1,230,968
    
    
    
    (16,961
    )
    
    
    1,214,007Total shareholders equity in accordance with U.S. GAAP
    
    
    279,977
    
    
    
    (7,078
    )
    
    
    272,899Accumulated other comprehensive loss in accordance with U.S. GAAPMinimum pension liability
    
    $
    (21,714
    )
    
    $
    
    
    
    $
    (21,714
    )Deferred income tax
    
    
    7,607
    
    
    
    
    
    
    
    7,607Unrealized loss on translation of self-sustaining foreign operations
    
    
    (1,621
    )
    
    
    
    
    
    
    (1,621
    )Realized currency translation loss
    
    
    4,400
    
    
    
    
    
    
    
    4,400Comprehensive income
    
    
    (11,328
    )
    
    
    
    
    
    
    (11,328
    )Cumulative effect of adjustment on adoption of FAS 158, net of tax
    
    
    11,209
    
    
    
    7,078
    
    
    
    18,287(119
    )
    
    
    7,078
    
    
    
    6,959Accumulated other comprehensive loss, beginning of year
    
    
    72,783
    
    
    
    
    
    
    
    72,783Accumulated other comprehensive loss, end of year
    
    $
    72,664
    
    
    $
    7,078
    
    
    $
    79,742
 (i)
    
    U.S. GAAP developmentsThe following standards will be effective for the Company on the dates indicated below.
 (i)
    
    Fair Value Measurements. In September 2006, FASB published FAS 157, Fair
Value Measurements. This standard defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements. This new
standard is effective for the 2008 fiscal year and is not expected to have a material
impact on the Companys consolidated financial position.
 F-27




---



##### 



(ii)
    
    Fair Value Option for Financial Assets and Liabilities.In February 2007, FASB
issued Statement No. 159, The Fair Value Option for Financial Assets and Liabilities
(FAS 159). FAS 159 permits an entity to measure certain financial assets and financial
liabilities at fair value. Under FAS 159, entities that elect the fair value option
will report unrealized gains and losses in earnings at each subsequent reporting date.
The fair value options may be elected on an instrument-by-instrument basis, with few
exceptions, as long as it is applied to the instrument in its entirety. This new
standard is effective as of January 1, 2008. The Company does not intend to elect to
use the fair value option for its financial assets and financial liabilities.(iii)
    
    Non-controlling Interests.In December 2007, FASB issued a revised standard on
accounting for non-controlling interests and transactions with non-controlling interest
holders in consolidated financial statements (FAS 160). FAS 160 specifies that
non-controlling interests are to be treated as a separate component of equity. As such,
increases and decreases in the parents ownership interest that leave control intact are
accounted for as capital transactions. The carrying amount of the non-controlling
interests is adjusted to reflect the change in ownership interests, and any difference
between the amount by which the non-controlling interest are adjusted and the fair value
of the consideration paid or received is recognized directly in equity attributable to
the non-controlling interest. This standard requires net income and comprehensive
income to be displayed for both the controlling interest and the non-controlling
interests. Additional required disclosures and reconciliations include a separate
schedule showing the effects of any transactions with the non-controlling interest on
the equity attributable to the controlling interest. FAS 160 will be effective for the
2009 fiscal year. The Company does not expect that the adoption of this standard will
have a material impact on the consolidated financial position.(iv)
    
    Business Combinations.In December 2007, the FASB issued a revised standard on
accounting for business combinations (FAS 141R). Under the new standard, all business
acquisitions, non-controlling interests, contingent consideration and pre-acquisition
contingencies will be measured at fair value. In addition, most acquisition-related
costs will be expensed as incurred. Goodwill, if any, arising on a business acquisition
reflects the excess of the fair value of the acquiree over the net amount of recognized
identifiable assets and liabilities assumed, which is then allocated to the acquirer and
the non-controlling interest. This statement will be effective in the Companys 2009
fiscal year and will be applied as circumstances arise.
 28.    SUBSEQUENT EVENTS
    29.    SEPARATE FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS OF INDEBTEDNESS
  F-28




---



##### 



2007
    
    
    2006U.S.$275,000 (2006: U.S.$275,000) Senior
Unsecured Notes due October 1, 2012 with
interest payable semi-annually at 7.25% per
annum
    
    $
    272,608
    
    
    $
    320,485U.S.$210,000 (2006: U.S.$210,000) Senior
Unsecured Notes due March 15, 2014 with
interest payable semi-annually at 6.75% per
annum
    
    
    208,173
    
    
    
    244,734U.S.$153,540 (2006: U.S.$153,540) Senior
Unsecured Notes due October 1, 2010 with
interest payable quarterly at LIBOR plus
3.75% per annum
    
    
    152,204
    
    
    
    178,936U.S.$110,000 (2006: U.S.$110,000) Senior
Unsecured Notes due March 15, 2014 with
interest payable semi-annually at 6.75% per
annum
    
    
    109,043
    
    
    
    128,194U.S.$102,637 (2006: U.S.$Nil) Senior
Secured Term Loan due June 26, 2014 with
interest payable monthly, bi-monthly,
quarterly or semi-annually at LIBOR plus
3.0% per annum or quarterly at base rate
plus 2.0%
    
    
    101,744
    
    
    
    U.S.$75,000 (2006: U.S.$75,000) Senior
Unsecured Notes due April 1, 2013 with
interest payable quarterly at LIBOR plus
4.00% per annum
    
    
    74,348
    
    
    
    87,405$
    816,376
    
    
    $
    959,754
 F-29




---



##### 



Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthCondensed Consolidated Balance Sheet
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.as at December 31, 2007
    
    Non-Consolidated
    
    
    (USA) LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorASSETSCash
    
    $
    40,246
    
    
    $
    (813
    )
    
    $
    
    
    
    $
    23,382
    
    
    $
    6,812
    
    
    $
    
    
    
    $
    69,627Other Current Assets
    
    
    4,326
    
    
    
    13,992
    
    
    
    
    
    
    
    10,034
    
    
    
    86,014
    
    
    
    (92
    )
    
    
    114,274Capital Assets
    
    
    620,412
    
    
    
    209,690
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    830,102Other Assets
    
    
    22,272
    
    
    
    615
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,887Future Income Tax Assets
    
    
    
    
    
    
    11,759
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,759Goodwill
    
    
    
    
    
    
    
    
    
    
    51,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,970Due from Parent Company
    
    
    
    
    
    
    
    
    
    
    71,149
    
    
    
    
    
    
    
    290,189
    
    
    
    (361,338
    )
    
    
    Investment in Subsidiary
    
    
    746,984
    
    
    
    
    
    
    
    139,292
    
    
    
    
    
    
    
    
    
    
    
    (886,276
    )
    
    
    $
    1,434,240
    
    
    $
    235,243
    
    
    $
    262,411
    
    
    $
    33,416
    
    
    $
    383,015
    
    
    $
    (1,247,706
    )
    
    $
    1,100,619LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities
    
    $
    39,597
    
    
    $
    5,532
    
    
    $
    (3,102
    )
    
    $
    
    
    
    $
    33,174
    
    
    $
    
    
    
    $
    75,201Accrued Pension Benefit Liability
    
    
    
    
    
    
    6,651
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,651Reforestation Obligation
    
    
    4,451
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,451Due to Related Company
    
    
    257,902
    
    
    
    73,699
    
    
    
    
    
    
    
    29,638
    
    
    
    
    
    
    
    (361,239
    )
    
    
    Long-Term Debt
    
    
    967,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    967,250Future Income Taxes
    
    
    34,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34,3271,303,527
    
    
    
    85,882
    
    
    
    (3,102
    )
    
    
    29,638
    
    
    
    33,174
    
    
    
    (361,239
    )
    
    
    1,087,880Preferred Shares
    
    
    
    
    
    
    
    
    
    
    25,999
    
    
    
    
    
    
    
    
    
    
    
    (25,999
    )
    
    
    SHAREHOLDERS EQUITYCapital Stock
    
    
    173,613
    
    
    
    
    
    
    
    55,419
    
    
    
    
    
    
    
    
    
    
    
    (173,205
    )
    
    
    55,827Accumulated Other Comprehensive Loss
    
    
    (105,786
    )
    
    
    (105,786
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,786
    
    
    
    (105,786
    )Contributed Surplus
    
    
    
    
    
    
    585,294
    
    
    
    148,495
    
    
    
    
    
    
    
    
    
    
    
    (733,789
    )
    
    
    Partners Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,030
    
    
    
    (67,030
    )
    
    
    Retained earnings
    
    
    62,886
    
    
    
    (330,147
    )
    
    
    35,600
    
    
    
    3,778
    
    
    
    282,811
    
    
    
    7,770
    
    
    
    62,698130,713
    
    
    
    149,361
    
    
    
    239,514
    
    
    
    3,778
    
    
    
    349,841
    
    
    
    (860,468
    )
    
    
    12,739$
    1,434,240
    
    
    $
    235,243
    
    
    $
    262,411
    
    
    $
    33,416
    
    
    $
    383,015
    
    
    $
    (1,247,706
    )
    
    $
    1,100,619Total assets in accordance with Canadian GAAP
    
    $
    1,434,240
    
    
    $
    235,243
    
    
    $
    262,411
    
    
    $
    33,416
    
    
    $
    383,015
    
    
    $
    (1,247,706
    )
    
    $
    1,100,619Write-off of capitalized start-up costs (1)
    
    
    (2,445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,445
    )Transaction costs relating to long-term debt (2)
    
    
    20,827
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,827Accrued pension benefit asset (3)
    
    
    (10,510
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,510
    )Total assets in accordance with U.S. GAAP
    
    $
    1,442,112
    
    
    $
    235,243
    
    
    $
    262,411
    
    
    $
    33,416
    
    
    $
    383,015
    
    
    $
    (1,247,706
    )
    
    $
    1,108,491Total liabilities in accordance with Canadian GAAP
    
    
    1,303,527
    
    
    
    85,882
    
    
    
    22,897
    
    
    
    29,638
    
    
    
    33,174
    
    
    
    (387,238
    )
    
    
    1,087,880Tax effect of write-off of capitalized start-up costs (1)
    
    
    (819
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (819
    )Tax effect of transaction costs related to long-term debt (2)
    
    
    6,343
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,343Employee future benefits (3)
    
    
    10,106
    
    
    
    5,642
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,748Tax effect of employee future benefits (3)
    
    
    (6,885
    )
    
    
    (1,885
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,770
    )Total liabilities in accordance with U.S. GAAP
    
    $
    1,312,272
    
    
    
    89,639
    
    
    
    22,897
    
    
    
    29,638
    
    
    
    33,174
    
    
    
    (387,238
    )
    
    $
    1,100,382Total shareholders equity in accordance with Canadian GAAP
    
    $
    130,713
    
    
    $
    149,361
    
    
    $
    239,514
    
    
    $
    3,778
    
    
    $
    349,841
    
    
    $
    (860,468
    )
    
    $
    12,739Write-off of capitalized start-up costs (1)
    
    
    (2,445
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,445
    )Transaction costs relating to long-term debt (2)
    
    
    20,827
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,827Employee future benefits (3)
    
    
    (20,616
    )
    
    
    (5,642
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,258
    )Tax effect of write-off of capitalized start-up costs (1)
    
    
    819
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    819Tax effect of transaction costs related to long-term debt (2)
    
    
    (6,343
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,343
    )Tax effect of employee future benefits (3)
    
    
    6,885
    
    
    
    1,885
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,770Total shareholders equity in accordance with U.S. GAAP
    
    $
    129,840
    
    
    $
    145,604
    
    
    $
    239,514
    
    
    $
    3,778
    
    
    $
    349,841
    
    
    $
    (860,468
    )
    
    $
    8,109
 
 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 operations as incurred.2.
    
    Under U.S. GAAP, transaction costs related to long-term debt would be capitalized and
amortized over the expected life of the debt. Under Canadian GAAP, the Companys accounting
policy is to expense these costs.3.
    
    Under U.S. GAAP, the Company would recognize the funded status of its defined benefit pension
plans on the balance sheet. Unamortized actuarial gains and losses, prior service costs or
credits and transitional obligations that arise during the period but are not recognized
components of net periodic pension benefit costs are recognized as a component of other
comprehensive income. F-30




---



##### 



Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthCondensed Consolidated Statement of Operations
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.For the year ended December 31, 2007
    
    Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorSALES
    
    $
    
    
    
    $
    83,343
    
    
    $
    
    
    
    $
    420,488
    
    
    $
    394,852
    
    
    $
    (354,452
    )
    
    $
    544,231COSTS AND EXPENSESCosts of products sold
    
    
    
    
    
    
    116,778
    
    
    
    
    
    
    
    420,876
    
    
    
    393,912
    
    
    
    (354,264
    )
    
    
    577,302Selling and administration
    
    
    3,584
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,214
    
    
    
    
    
    
    
    30,798Amortization of capital assets
    
    
    46,988
    
    
    
    18,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,859(Gain) loss on disposal of capital assets
    
    
    (39
    )
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259Write-down of capital assets
    
    
    
    
    
    
    80,780
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,780Impairment of intangible assets
    
    
    
    
    
    
    12,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,226Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    51,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,000Cost of class action lawsuit
    
    
    15,114
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,11465,647
    
    
    
    228,953
    
    
    
    51,000
    
    
    
    420,876
    
    
    
    421,126
    
    
    
    (354,264
    )
    
    
    833,338OPERATING LOSS
    
    
    (65,647
    )
    
    
    (145,610
    )
    
    
    (51,000
    )
    
    
    (388
    )
    
    
    (26,274
    )
    
    
    (188
    )
    
    
    (289,107
    )FINANCE EXPENSEInterest
    
    
    74,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,154Transaction costs
    
    
    2,897
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,89777,051
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,051EQUITY IN LOSS OF SUBSIDIARY
    
    
    (282,515
    )
    
    
    
    
    
    
    (2,158
    )
    
    
    
    
    
    
    
    
    
    
    284,673
    
    
    
    OTHER INCOME (EXPENSE)
    
    
    14,469
    
    
    
    (11,403
    )
    
    
    
    
    
    
    705
    
    
    
    2,273
    
    
    
    
    
    
    
    6,044FOREIGN EXCHANGE GAIN ON LONG-TERM DEBT
    
    
    161,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    161,315OTHER FOREIGN EXCHANGE (LOSS) GAIN
    
    
    
    
    
    
    (536
    )
    
    
    
    
    
    
    3,532
    
    
    
    (19,167
    )
    
    
    
    
    
    
    (16,171
    )REALIZED CURRENCY TRANSLATION LOSS
    
    
    
    
    
    
    (11,180
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,180
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (249,429
    )
    
    
    (168,729
    )
    
    
    (53,158
    )
    
    
    3,849
    
    
    
    (43,168
    )
    
    
    284,485
    
    
    
    (226,150
    )INCOME TAX (RECOVERY) EXPENSE
    
    
    (33,162
    )
    
    
    22,861
    
    
    
    (33
    )
    
    
    639
    
    
    
    
    
    
    
    
    
    
    
    (9,695
    )NET (LOSS) INCOME
    
    $
    (216,267
    )
    
    $
    (191,590
    )
    
    $
    (53,125
    )
    
    $
    3,210
    
    
    $
    (43,168
    )
    
    $
    284,485
    
    
    $
    (216,455
    )Net (loss) income in accordance with Canadian
GAAP
    
    $
    (216,267
    )
    
    $
    (191,590
    )
    
    $
    (53,125
    )
    
    $
    3,210
    
    
    $
    (43,168
    )
    
    $
    284,485
    
    
    $
    (216,455
    )Reversal of amortization of capitalized
start-up costs (1)
    
    
    1,450
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,450Transaction costs relating to long-term debt (2)
    
    
    (1,836
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,836
    )Realized currency translation loss (3)
    
    
    
    
    
    
    11,180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,180Income tax impact of above items and effect of
rate change
    
    
    129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    129Net (loss) income in accordance with U.S. GAAP
    
    
    (216,524
    )
    
    
    (180,410
    )
    
    
    (53,125
    )
    
    
    3,210
    
    
    
    (43,168
    )
    
    
    284,485
    
    
    
    (205,532
    )Employee benefit plans, net of tax impact (4)
    
    
    (1,581
    )
    
    
    2,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,131Unrealized loss on translation of
self-sustaining foreign subsidiary
    
    
    (60,244
    )
    
    
    (60,244
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,244
    
    
    
    (60,244
    )Comprehensive (loss) income in accordance with
U.S. GAAP
    
    $
    (278,349
    )
    
    $
    (237,942
    )
    
    $
    (53,125
    )
    
    $
    3,210
    
    
    $
    (43,168
    )
    
    $
    344,729
    
    
    $
    (264,645
    )
 
 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 operations as incurred.2.
    
    Under U.S. GAAP, transaction costs related to long-term debt would be capitalized and
amortized over the expected life of the debt. Under Canadian GAAP, the Companys accounting
policy is to expense these costs.3.
    
    Under Canadian GAAP, a gain or loss equivalent to a pro rata portion of the translation
exchange gains and losses in accumulated other comprehensive income
would be recognized in operations when there has been a reduction in the net investment in a self-sustaining foreign
subsidiary. Under U.S. GAAP, this would only be done when there is a substantial reduction in
the net investment.4.
    
    Under U.S. GAAP, the Company would recognize the funded status of its defined benefit pension
plans on the balance sheet. Unamortized actuarial gains and losses, prior service costs or
credits and transitional obligations that arise during the period but are not recognized
components of net periodic benefit costs are recognized as a component of other comprehensive
income. F-31




---



##### 



Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthCondensed Consolidated Statement of Cash Flows
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.For the year ended December 31, 2007
    
    Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryIssuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorCASH FLOWS FROM OPERATING ACTIVITIESNet (loss) income
    
    $
    (216,267
    )
    
    $
    (191,590
    )
    
    $
    (53,125
    )
    
    $
    3,210
    
    
    $
    (43,168
    )
    
    $
    284,485
    
    
    $
    (216,455
    )Items not affecting cashAmortization of capital assets
    
    
    46,988
    
    
    
    18,871
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65,859Non-cash portion of interest expense
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,457Foreign exchange gain on long-term debt
    
    
    (161,315
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (161,315
    )Write-down of capital assets
    
    
    
    
    
    
    80,780
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,780(Gain) loss on disposal of capital assets
    
    
    (39
    )
    
    
    298
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259Impairment of intangible assets
    
    
    
    
    
    
    12,226
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,226Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    51,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,000Change in non-current reforestation obligation
    
    
    (170
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (170
    )Equity in loss of subsidiary
    
    
    282,515
    
    
    
    
    
    
    
    2,158
    
    
    
    
    
    
    
    
    
    
    
    (284,673
    )
    
    
    Future income taxes
    
    
    (33,686
    )
    
    
    24,904
    
    
    
    (1,496
    )
    
    
    701
    
    
    
    
    
    
    
    
    
    
    
    (9,577
    )Adjustment to net accrued pension benefit asset
    
    
    2,888
    
    
    
    1,545
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,433Realized currency translation loss
    
    
    
    
    
    
    11,180
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,180Change in non-cash operating working capital
    
    
    59,584
    
    
    
    (31,784
    )
    
    
    (5,727
    )
    
    
    (28,965
    )
    
    
    39,799
    
    
    
    73
    
    
    
    32,980Cash used in operating activities
    
    
    (18,045
    )
    
    
    (73,570
    )
    
    
    (7,190
    )
    
    
    (25,054
    )
    
    
    (3,369
    )
    
    
    (115
    )
    
    
    (127,343
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of long-term debt
    
    
    109,825
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    109,825Repayment of long-term debt
    
    
    (8,622
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,622
    )Repayment of capital lease obligations
    
    
    (283
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (283
    )Advances (to) from related company
    
    
    (123,396
    )
    
    
    73,701
    
    
    
    7,190
    
    
    
    32,209
    
    
    
    10,181
    
    
    
    115
    
    
    
    Cash provided by (used in) financing activities
    
    
    (22,476
    )
    
    
    73,701
    
    
    
    7,190
    
    
    
    32,209
    
    
    
    10,181
    
    
    
    115
    
    
    
    100,920CASH FLOWS FROM INVESTING ACTIVITIESShort-term investments
    
    
    35,029
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    35,029Restricted cash
    
    
    55,080
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,080Additions to capital assets
    
    
    (66,323
    )
    
    
    (3,754
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (70,077
    )Decrease (increase) in other assets
    
    
    4,407
    
    
    
    (3,075
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,332Proceeds on disposal of capital assets
    
    
    934
    
    
    
    292
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,226Cash provided by (used in) investing activities
    
    
    29,127
    
    
    
    (6,537
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,590Effect of foreign exchange rage changes on cash and cash equivalents
    
    
    
    
    
    
    (852
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (852
    )NET CASH INFLOW (OUTFLOW)
    
    
    (11,394
    )
    
    
    (7,258
    )
    
    
    
    
    
    
    7,155
    
    
    
    6,812
    
    
    
    
    
    
    
    (4,685
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    51,640
    
    
    
    6,445
    
    
    
    
    
    
    
    16,227
    
    
    
    
    
    
    
    
    
    
    
    74,312CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    40,246
    
    
    $
    (813
    )
    
    $
    
    
    
    $
    23,382
    
    
    $
    6,812
    
    
    $
    
    
    
    $
    69,627
 F-32




---



##### 



Ainsworth
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AinsworthLumber
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Engineered
    
    
    
    
    
    
    AinsworthCo Ltd.
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    LumberCondensed Consolidated Balance Sheet
    
    Non-
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Limited
    
    
    
    
    
    
    Co. Ltd.as at December 31, 2006
    
    Consolidated
    
    
    (USA) LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorASSETSCash
    
    $
    51,640
    
    
    $
    6,445
    
    
    $
    
    
    
    $
    16,227
    
    
    $
    
    
    
    $
    
    
    
    $
    74,312Other Current Assets
    
    
    109,961
    
    
    
    25,157
    
    
    
    
    
    
    
    (21,056
    )
    
    
    133,933
    
    
    
    (18
    )
    
    
    247,977Capital Assets
    
    
    612,332
    
    
    
    356,207
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    968,539Other Assets
    
    
    47,479
    
    
    
    6,331
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,243
    
    
    
    68,053Future Income Tax Assets
    
    
    
    
    
    
    41,648
    
    
    
    
    
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    42,348Goodwill
    
    
    
    
    
    
    
    
    
    
    102,970
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,970Due from Parent Company
    
    
    
    
    
    
    2
    
    
    
    78,339
    
    
    
    2,571
    
    
    
    305,455
    
    
    
    (386,367
    )
    
    
    Investment in Subsidiary
    
    
    1,166,035
    
    
    
    14,242
    
    
    
    141,360
    
    
    
    
    
    
    
    
    
    
    
    (1,321,637
    )
    
    
    $
    1,987,447
    
    
    $
    450,032
    
    
    $
    322,669
    
    
    $
    (1,558
    )
    
    $
    439,388
    
    
    $
    (1,693,779
    )
    
    $
    1,504,199LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities
    
    $
    20,538
    
    
    $
    9,735
    
    
    $
    4,121
    
    
    $
    (17
    )
    
    $
    48,172
    
    
    $
    (3
    )
    
    $
    82,546Accrued Pension Benefit Liability
    
    
    
    
    
    
    6,034
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,034Reforestation Obligation
    
    
    4,621
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,621Due to Related Company
    
    
    386,383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (386,383
    )
    
    
    Long-Term Debt
    
    
    1,027,595
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,027,595Future Income Taxes
    
    
    89,293
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,2931,528,430
    
    
    
    15,769
    
    
    
    4,121
    
    
    
    (17
    )
    
    
    48,172
    
    
    
    (386,386
    )
    
    
    1,210,089Preferred Shares
    
    
    
    
    
    
    
    
    
    
    25,999
    
    
    
    
    
    
    
    
    
    
    
    (25,999
    )
    
    
    SHAREHOLDERS EQUITYCapital Stock
    
    
    173,613
    
    
    
    
    
    
    
    55,419
    
    
    
    
    
    
    
    
    
    
    
    (173,205
    )
    
    
    55,827Accumulated Other Comprehensive Loss
    
    
    (56,722
    )
    
    
    (56,722
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,722
    
    
    
    (56,722
    )Contributed Surplus
    
    
    
    
    
    
    585,294
    
    
    
    148,495
    
    
    
    
    
    
    
    
    
    
    
    (733,789
    )
    
    
    Partners Capital
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,029
    
    
    
    (67,029
    )
    
    
    Retained earnings
    
    
    342,126
    
    
    
    (94,309
    )
    
    
    88,635
    
    
    
    (1,541
    )
    
    
    324,187
    
    
    
    (364,093
    )
    
    
    295,005459,017
    
    
    
    434,263
    
    
    
    292,549
    
    
    
    (1,541
    )
    
    
    391,216
    
    
    
    (1,281,394
    )
    
    
    294,110$
    1,987,447
    
    
    $
    450,032
    
    
    $
    322,669
    
    
    $
    (1,558
    )
    
    $
    439,388
    
    
    $
    (1,693,779
    )
    
    $
    1,504,199Total assets in accordance with Canadian GAAP
    
    $
    1,987,447
    
    
    $
    450,032
    
    
    $
    322,669
    
    
    $
    (1,558
    )
    
    $
    439,388
    
    
    $
    (1,693,779
    )
    
    $
    1,504,199Write-off of capitalized start-up costs (1)
    
    
    (3,895
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,895
    )Accrued pension benefit asset (2)
    
    
    (13,398
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,398
    )Total assets in accordance with U.S. GAAP
    
    $
    1,970,154
    
    
    $
    450,032
    
    
    $
    322,669
    
    
    $
    (1,558
    )
    
    $
    439,388
    
    
    $
    (1,693,779
    )
    
    $
    1,486,906Total liabilities in accordance with Canadian GAAP
    
    
    1,528,430
    
    
    
    15,769
    
    
    
    30,120
    
    
    
    (17
    )
    
    
    48,172
    
    
    
    (412,385
    )
    
    
    1,210,089Tax effect of write-off of capitalized start-up costs (1)
    
    
    (1,305
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,305
    )Employee future benefits (2)
    
    
    4,845
    
    
    
    9,754
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,599Tax effect of employee future benefits (2)
    
    
    (6,110
    )
    
    
    (3,266
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,376
    )Total liabilities in accordance with U.S. GAAP
    
    $
    1,525,860
    
    
    
    22,257
    
    
    
    30,120
    
    
    
    (17
    )
    
    
    48,172
    
    
    
    (412,385
    )
    
    $
    1,214,007Total shareholders equity in accordance with Canadian GAAP
    
    $
    459,017
    
    
    $
    434,263
    
    
    $
    292,549
    
    
    $
    (1,541
    )
    
    $
    391,216
    
    
    $
    (1,281,394
    )
    
    $
    294,110Write-off of capitalized start-up costs (1)
    
    
    (3,895
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,895
    )Employee future benefits (2)
    
    
    (18,243
    )
    
    
    (9,754
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (27,997
    )Tax effect of write-off of capitalized start-up costs (1)
    
    
    1,305
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,305Tax effect of employee future benefits (2)
    
    
    6,110
    
    
    
    3,266
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,376Total shareholders equity in accordance with U.S. GAAP
    
    $
    444,294
    
    
    $
    427,775
    
    
    $
    292,549
    
    
    $
    (1,541
    )
    
    $
    391,216
    
    
    $
    (1,281,394
    )
    
    $
    272,899
 
 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 operations as incurred.2.
    
    Under U.S. GAAP, the Company would recognize the funded status of its defined benefit pension
plans on the balance sheet. Unamortized actuarial gains and losses, prior service costs or
credits and transitional obligations are recognized as a component of accumulated other
comprehensive income. F-33




---



##### 



Ainsworth
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AinsworthLumber
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Engineered
    
    
    
    
    
    
    AinsworthCo Ltd.
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    LumberCondensed Consolidated Statement of Operations
    
    Non-
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Limited
    
    
    
    
    
    
    Co. Ltd.For the year ended December 31, 2006
    
    Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorSALES
    
    $
    
    
    
    $
    226,107
    
    
    $
    
    
    
    $
    712,894
    
    
    $
    503,424
    
    
    $
    (615,307
    )
    
    $
    827,118COSTS AND EXPENSESCosts of products sold
    
    
    
    
    
    
    232,480
    
    
    
    
    
    
    
    715,724
    
    
    
    417,083
    
    
    
    (615,307
    )
    
    
    749,980Selling and administration
    
    
    3,453
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,586
    
    
    
    
    
    
    
    36,039Amortization of capital assets
    
    
    46,050
    
    
    
    41,954
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,004Loss on disposal of capital assets
    
    
    1,032
    
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,549Write-down of capital assets
    
    
    
    
    
    
    55,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,290Closure of production line
    
    
    
    
    
    
    5,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,915Write-down of timber deposits
    
    
    4,502
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,502Cost of class action lawsuit
    
    
    5,085
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,08560,122
    
    
    
    337,156
    
    
    
    
    
    
    
    715,724
    
    
    
    449,669
    
    
    
    (615,307
    )
    
    
    947,364OPERATING (LOSS) EARNINGS
    
    
    (60,122
    )
    
    
    (111,049
    )
    
    
    
    
    
    
    (2,830
    )
    
    
    53,755
    
    
    
    
    
    
    
    (120,246
    )FINANCE EXPENSEInterest
    
    
    68,913
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,913Amortization of finance costs
    
    
    5,399
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,39974,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,312EQUITY IN EARNINGS OF SUBSIDIARY
    
    
    (8,016
    )
    
    
    
    
    
    
    2,685
    
    
    
    
    
    
    
    
    
    
    
    5,331
    
    
    
    OTHER INCOME
    
    
    12,721
    
    
    
    35
    
    
    
    
    
    
    
    99
    
    
    
    264
    
    
    
    
    
    
    
    13,119FOREIGN EXCHANGE LOSS ON LONG TERM DEBT
    
    
    (7,936
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,936
    )OTHER FOREIGN EXCHANGE (LOSS) GAIN
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    479
    
    
    
    (312
    )
    
    
    
    
    
    
    167REALIZED CURRENCY TRANSLATION LOSS
    
    
    
    
    
    
    (4,400
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,400
    )(LOSS) INCOME BEFORE INCOME TAXES
    
    
    (137,665
    )
    
    
    (115,414
    )
    
    
    2,685
    
    
    
    (2,252
    )
    
    
    53,707
    
    
    
    5,331
    
    
    
    (193,608
    )INCOME TAX EXPENSE (RECOVERY)
    
    
    (29,634
    )
    
    
    (56,878
    )
    
    
    976
    
    
    
    (41
    )
    
    
    
    
    
    
    
    
    
    
    (85,577
    )NET (LOSS) INCOME
    
    $
    (108,031
    )
    
    $
    (58,536
    )
    
    $
    1,709
    
    
    $
    (2,211
    )
    
    $
    53,707
    
    
    $
    5,331
    
    
    $
    (108,031
    )Net (loss) income in accordance with Canadian GAAP
    
    $
    (108,031
    )
    
    $
    (58,536
    )
    
    $
    1,709
    
    
    $
    (2,211
    )
    
    $
    53,707
    
    
    $
    5,331
    
    
    $
    (108,031
    )Reversal of amortization of capitalized start-up
costs (1)
    
    
    1,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,598Write-off of capitalized start-up costs (1)
    
    
    (986
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (986
    )Realized currency translation loss (2)
    
    
    
    
    
    
    4,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,400Income tax impact of above items
    
    
    (225
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (225
    )Net (loss) income in accordance with U.S. GAAP
    
    
    (107,644
    )
    
    
    (54,136
    )
    
    
    1,709
    
    
    
    (2,211
    )
    
    
    53,707
    
    
    
    5,331
    
    
    
    (103,244
    )Minimum pension liability, net of tax (3)
    
    
    6,231
    
    
    
    7,876
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,107Unrealized loss on translation of self-sustaining
foreign subsidiary
    
    
    (2,779
    )
    
    
    (2,779
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,779
    
    
    
    (2,779
    )Comprehensive (loss) income
    
    $
    (104,192
    )
    
    $
    (49,039
    )
    
    $
    1,709
    
    
    $
    (2,211
    )
    
    $
    53,707
    
    
    $
    8,110
    
    
    $
    (91,916
    )
 
 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 operations as incurred.2.
    
    Under Canadian GAAP, a gain or loss equivalent to a pro rata portion of the translation
exchange gains and losses in accumulated other comprehensive income
would be recognized in operations when there has been a reduction in the net investment in a self-sustaining foreign
subsidiary. Under U.S. GAAP, this would only be done when there is a substantial reduction in
the net investment.3.
    
    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. F-34




---



##### 



Ainsworth
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AinsworthLumber
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Engineered
    
    
    
    
    
    
    AinsworthCo Ltd.
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Canada
    
    
    
    
    
    
    LumberCondensed Consolidated Statement of Cash Flows
    
    Non-
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Limited
    
    
    
    
    
    
    Co. Ltd.For the year ended December 31, 2006
    
    Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Partnership
    
    
    Eliminations
    
    
    ConsolidatedParent Issuer
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryGuarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorCASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (108,031
    )
    
    $
    (58,536
    )
    
    $
    1,709
    
    
    $
    (2,211
    )
    
    $
    53,707
    
    
    $
    5,331
    
    
    $
    (108,031
    )Items not affecting cashAmortization of capital assets
    
    
    46,050
    
    
    
    41,954
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    88,004Amortization of financing costs and fees
    
    
    5,399
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,399Foreign exchange loss on long-term debt
    
    
    7,936
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,936Write-down of capital assets
    
    
    
    
    
    
    55,290
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,290Loss on disposal of capital assets
    
    
    1,032
    
    
    
    1,517
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,549Write-down of timber deposits
    
    
    4,502
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,502Change in non-current reforestation obligation
    
    
    273
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    273Equity in earnings of subsidiary
    
    
    8,016
    
    
    
    
    
    
    
    (2,685
    )
    
    
    
    
    
    
    
    
    
    
    (5,331
    )
    
    
    Future income taxes
    
    
    (33,813
    )
    
    
    (56,050
    )
    
    
    (3,612
    )
    
    
    (37
    )
    
    
    
    
    
    
    
    
    
    
    (93,512
    )Adjustment to net accrued pension benefit asset
    
    
    852
    
    
    
    2,882
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,734Realized currency translation loss
    
    
    
    
    
    
    4,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,400Change in non-cash operating working capital
    
    
    90,427
    
    
    
    145,160
    
    
    
    3,245
    
    
    
    (186,785
    )
    
    
    (14,644
    )
    
    
    17
    
    
    
    37,420Cash provided by (used in) operating activities
    
    
    22,643
    
    
    
    136,617
    
    
    
    (1,343
    )
    
    
    (189,033
    )
    
    
    33,978
    
    
    
    17
    
    
    
    7,694CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of long-term debt
    
    
    171,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    171,588Repayment of long-term debt
    
    
    (2,321
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,321
    )Repayment of capital lease obligations
    
    
    (174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (174
    )Dividends paid
    
    
    (14,649
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,649
    )Financing costs and fees
    
    
    (6,011
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,011
    )Advances (to) from related company
    
    
    140,451
    
    
    
    (118,160
    )
    
    
    (3,207
    )
    
    
    201,807
    
    
    
    (220,874
    )
    
    
    (17
    )
    
    
    Cash provided by (used in) financing activities
    
    
    288,884
    
    
    
    (118,160
    )
    
    
    (3,207
    )
    
    
    201,807
    
    
    
    (220,874
    )
    
    
    (17
    )
    
    
    148,433CASH FLOWS FROM INVESTING ACTIVITIESShort-term investments
    
    
    (35,864
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,864
    )Restricted cash
    
    
    (23,168
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,168
    )Additions to capital assets
    
    
    (214,488
    )
    
    
    (13,767
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (228,255
    )Decrease (increase) in other assets
    
    
    (2,069
    )
    
    
    (2,286
    )
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,255
    )Proceeds on disposal of capital assets
    
    
    136
    
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154Cash provided by (used in) investing activities
    
    
    (275,453
    )
    
    
    (16,035
    )
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (291,388
    )Effect of foreign exchange rage changes on cash and cash equivalents
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102NET CASH INFLOW (OUTFLOW)
    
    
    36,074
    
    
    
    2,524
    
    
    
    (4,450
    )
    
    
    12,774
    
    
    
    (181,811
    )
    
    
    
    
    
    
    (134,889
    )CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
    
    
    15,566
    
    
    
    3,921
    
    
    
    4,450
    
    
    
    3,453
    
    
    
    181,811
    
    
    
    
    
    
    
    209,201CASH AND CASH EQUIVALENTS, END OF YEAR
    
    $
    51,640
    
    
    $
    6,445
    
    
    $
    
    
    
    $
    16,227
    
    
    $
    
    
    
    $
    
    
    
    $
    74,312
 F-35




---



##### 



Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthCondensed Consolidated Statement of Operations
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.For the year ended December 31, 2005
    
    Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedSubsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryParent Issuer
    
    
    Guarantor
    
    
    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)
    
    
    7,073
    
    
    
    (383
    )
    
    
    (91
    )
    
    
    (21
    )
    
    
    3,400
    
    
    
    
    
    
    
    9,978FOREIGN EXCHANGE GAIN ON LONG TERM DEBT
    
    
    28,313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,313OTHER FOREIGN EXCHANGE LOSS
    
    
    (49
    )
    
    
    (3,553
    )
    
    
    
    
    
    
    (617
    )
    
    
    (3,562
    )
    
    
    
    
    
    
    (7,781
    )INCOME 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)
    
    
    (3,661
    )
    
    
    (1,491
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,152
    )Unrealized loss on translation of
self-sustaining foreign subsidiary
    
    
    (24,106
    )
    
    
    (24,190
    )
    
    
    
    
    
    
    84
    
    
    
    
    
    
    
    24,106
    
    
    
    (24,106
    )Comprehensive income
    
    $
    127,149
    
    
    $
    25,061
    
    
    $
    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 operations as incurred.(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. F-36




---



##### 



Ainsworth
    
    
    Ainsworth
    
    
    Ainsworth
    
    
    
    
    
    
    Ainsworth
    
    
    
    
    
    
    AinsworthCondensed Consolidated Statement of Cash Flows
    
    Lumber Co Ltd.
    
    
    Engineered
    
    
    Engineered
    
    
    Ainsworth
    
    
    Engineered Canada
    
    
    
    
    
    
    Lumber Co. Ltd.For the year ended December 31, 2005
    
    Non-Consolidated
    
    
    (USA), LLC
    
    
    Corp.
    
    
    Corp.
    
    
    Limited Partnership
    
    
    Eliminations
    
    
    ConsolidatedSubsidiary
    
    
    Subsidiary
    
    
    Subsidiary
    
    
    SubsidiaryParent Issuer
    
    
    Guarantor
    
    
    Guarantor
    
    
    Guarantor
    
    
    GuarantorCASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    153,154
    
    
    $
    50,742
    
    
    $
    13,460
    
    
    $
    (903
    )
    
    $
    260,682
    
    
    $
    (323,981
    )
    
    $
    153,154Items not affecting cashAmortization of capital assets
    
    
    51,534
    
    
    
    52,373
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    103,907Amortization of financing costs and fees
    
    
    4,888
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,888Foreign 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
    
    
    (113,602
    )
    
    
    (270,088
    )
    
    
    30,865
    
    
    
    209,397
    
    
    
    5,710
    
    
    
    
    
    
    
    (137,718
    )Cash provided by (used in) operating activities
    
    
    (151,657
    )
    
    
    (156,212
    )
    
    
    (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) from related company
    
    
    117,240
    
    
    
    166,124
    
    
    
    5,595
    
    
    
    (204,378
    )
    
    
    (84,581
    )
    
    
    
    
    
    
    Cash provided by (used in) financing activities
    
    
    71,688
    
    
    
    166,124
    
    
    
    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
    )Cash provided by (used in) investing activities
    
    
    (91,424
    )
    
    
    (22,506
    )
    
    
    800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (113,130
    )Effect of foreign exchange rage changes on cash and cash equivalents
    
    
    
    
    
    
    (28
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )NET CASH INFLOW (OUTFLOW)
    
    
    (171,393
    )
    
    
    (12,622
    )
    
    
    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
    
    $
    15,566
    
    
    $
    3,921
    
    
    $
    4,450
    
    
    $
    3,453
    
    
    $
    181,811
    
    
    $
    
    
    
    $
    209,201
 F-37




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##### 



ITEM 19. EXHIBITS
 1.1
    
    Notice of Articles of Ainsworth Lumber Co. Ltd.(8)1.2
    
    Articles of Ainsworth Lumber Co. Ltd.(8)1.3
    
    Certificate of Amalgamation of Ainsworth Engineered Corp.(6)1.4
    
    Articles of Association of Ainsworth Engineered Corp.(6)1.5
    
    Certificate of Formation of Ainsworth Engineered (USA), LLC(7)1.6
    
    Limited Liability Company Agreement of Ainsworth Engineered (USA), LLC(7)1.7
    
    Articles of Incorporation of Ainsworth Corp.(10)1.8
    
    Bylaws of Ainsworth Corp.(10)1.9
    
    Certificate of Limited Partnership of Ainsworth Engineered Canada Limited Partnership(10)1.10
    
    Limited Partnership Agreement of Ainsworth Engineered Canada Limited Partnership(10)2.1
    
    Indenture, dated as of March 3, 2004, between Ainsworth Lumber Co. Ltd. and The Bank of
New York (the March Indenture)(5)2.2
    
    First Supplemental Indenture, dated as of May 19, 2004, to the March Indenture(5)2.3
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the March Indenture(7)2.4
    
    Third Supplemental Indenture, dated as of January 10, 2005, to the March Indenture(10)2.5
    
    Fourth Supplemental Indenture, dated as of January 31, 2006, to the March Indenture(10)2.6
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the March Indenture(8)2.7
    
    Indenture, dated as of May 19, 2004, between Ainsworth Lumber Co. Ltd. and The Bank of
New York (the May Indenture)(5)2.8
    
    First Supplemental Indenture, dated as of May 19, 2004, to the May Indenture(5)2.9
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the May Indenture(7)2.10
    
    Third Supplemental Indenture, dated as of January 10, 2005, to the May Indenture(10)2.11
    
    Fourth Supplemental Indenture, dated as of January 31, 2006, to the May Indenture(10)2.12
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the May Indenture(8)2.13
    
    Indenture, dated as of September 22, 2004, between Ainsworth Lumber Co. Ltd. and The Bank
of New York (the September Indenture)(7)2.14
    
    First Supplemental Indenture, dated as of September 22, 2004, to the September
Indenture(7)2.15
    
    Second Supplemental Indenture, dated as of January 10, 2005, to the September
Indenture(10)2.16
    
    Third Supplemental Indenture, dated as of January 31, 2006, to the September Indenture(10)2.17
    
    Indenture, dated as of April 18, 2006, among Ainsworth Lumber Co. Ltd., Ainsworth
Engineered Corp., Ainsworth Engineered Canada Limited Partnership, Ainsworth (USA), LLC,
Ainsworth Corp. and The Bank of New York(9)2.18
    
    Exchange and Registration Rights Agreement, dated as of April 18, 2006, among Ainsworth
Lumber Co. Ltd., Ainsworth Engineered Corp., Ainsworth Engineered Canada Limited
Partnership, Ainsworth (USA), LLC, Ainsworth Corp. and Deutsche Bank Securities Inc.(9)4.1
    
    Memorandum of Agreement, dated December 9, 1999, between Ainsworth Lumber Co. Ltd. and
Grant Forest Products Corp.(2)4.2
    
    Management and Consulting Agreement, dated April 25, 1999, between Ainsworth Lumber Co.
Ltd. and 2468 Holdings Ltd.(3)4.3
    
    Pulpwood Agreement No. 16, dated April 26, 1990, 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(1)4.4
    
    Forest License A18700, dated March 24, 1998, between The Regional Manager, on behalf of
Her Majesty the Queen in the Right of the Province of British Columbia, and Ainsworth
Lumber Co. Ltd.(2)4.5
    
    Letter Agreement with the Province of Alberta, dated July 16, 1999, with respect to High
Level Timber Allocation(3)4.6
    
    Deciduous Timber Allocation No. DTAF 510001 with respect to High Level(3)4.7
    
    Deciduous Timber Allocation No. DTAF 110001 with respect to High Level(5)4.8
    
    Deciduous Timber Allocation No. DTAF 110002 with respect to High Level(5)4.9
    
    Forest Management Agreement, dated June 25, 2002, among Her Majesty the Queen in the
Right of the Province of Alberta, Tolko Industries Ltd. and Footner Forest Products
Ltd.(5)4.10
    
    Amended Deciduous Timber Allocation No. DTAC 910001 with respect to Grande Prairie(2)4.11
    
    Deciduous Timber Permit DTPG 910001 with respect to Grande Prairie(3)4.12
    
    Contract for General Contracting Services related to the Grande Prairie expansion, dated
July 6, 2005, between Ainsworth Lumber Co. Ltd. and DEMAC Management Ltd.(8)
 68




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##### 



4.13
    
    Credit and Guaranty Agreement, dated as of June 26, 2007(11)4.14
    
    Deutsche Bank Loan Agreement(12)4.15
    
    Deutsche Bank Loan Agreement Amendment No. 1(12)4.16
    
    Merrill Lynch Loan Agreement(12)8.1
    
    List of Significant Subsidiaries(10)11.1
    
    Code of Ethics(4)15.1
    
    Audit Committee Charter(8)31.1
    
    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
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd. (No. 333-07346), filed with the Commission on July 30, 1997.(2)
    
    Incorporated by reference to the Annual Report on Form 20-F of Ainsworth Lumber Co. Ltd.
for the fiscal year ended December 31, 1999, filed with the Commission on May 19, 2000.(3)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd. and Steen River Forest Products Ltd. (No. 333-83230), filed with the Commission on
February 19, 2002.(4)
    
    Incorporated by reference to the Annual Report on Form 20-F of Ainsworth Lumber Co. Ltd.
for the fiscal year ended December 31, 2003, filed with the Commission on May 26, 2004.(5)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd. (No. 333-116068), filed with the Commission on June 2, 2004.(6)
    
    Incorporated by reference to Amendment No. 1 to the Registration Statement on Form F-4 of
Ainsworth Lumber Co. Ltd. and Ainsworth Engineered Corp. (No. 333-116068), filed with the
Commission on July 15, 2004.(7)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd., Ainsworth Engineered Corp. and Ainsworth Engineered (USA), LLC (No. 333-119812), filed
with the Commission on October 18, 2004.(8)
    
    Incorporated by reference to the Annual Report on Form 20-F of Ainsworth Lumber Co. Ltd.
for the fiscal year ended December 31, 2005, filed with the Commission on March 31, 2006.(9)
    
    Incorporated by reference to the Form 6-K of Ainsworth Lumber Co. Ltd., furnished to the
Commission on April 21, 2006.(10)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd., Ainsworth Engineered Corp., Ainsworth Engineered Limited Partnership, Ainsworth Engineered
(USA), LLC and Ainsworth Corp. (No. 333- 134708), filed with the Commission on June 2, 2006.(11)
    
    Incorporated by reference to the Form 6-K of Ainsworth Lumber Co. Ltd., furnished to the
Commission on February 24, 2008.(12)
    
    Incorporated by reference to the Form 6-K of Ainsworth Lumber Co. Ltd., furnished to the
Commission on February 29, 2008. 69




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##### 



SIGNATURES
  March 31, 2008
    AINSWORTH LUMBER CO. LTD.By:
    /s/ Robert AllenRobert AllenChief Financial Officer 70




---



##### 



INDEX TO EXHIBITS
 1.1
    
    Notice of Articles of Ainsworth Lumber Co. Ltd.(8)1.2
    
    Articles of Ainsworth Lumber Co. Ltd.(8)1.3
    
    Certificate of Amalgamation of Ainsworth Engineered Corp.(6)1.4
    
    Articles of Association of Ainsworth Engineered Corp.(6)1.5
    
    Certificate of Formation of Ainsworth Engineered (USA), LLC(7)1.6
    
    Limited Liability Company Agreement of Ainsworth Engineered (USA), LLC(7)1.7
    
    Articles of Incorporation of Ainsworth Corp.(10)1.8
    
    Bylaws of Ainsworth Corp.(10)1.9
    
    Certificate of Limited Partnership of Ainsworth Engineered Canada Limited Partnership(10)1.10
    
    Limited Partnership Agreement of Ainsworth Engineered Canada Limited Partnership(10)2.1
    
    Indenture, dated as of March 3, 2004, between Ainsworth Lumber Co. Ltd. and The Bank of
New York (the March Indenture)(5)2.2
    
    First Supplemental Indenture, dated as of May 19, 2004, to the March Indenture(5)2.3
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the March Indenture(7)2.4
    
    Third Supplemental Indenture, dated as of January 10, 2005, to the March Indenture(10)2.5
    
    Fourth Supplemental Indenture, dated as of January 31, 2006, to the March Indenture(10)2.6
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the March Indenture(8)2.7
    
    Indenture, dated as of May 19, 2004, between Ainsworth Lumber Co. Ltd. and The Bank of
New York (the May Indenture)(5)2.8
    
    First Supplemental Indenture, dated as of May 19, 2004, to the May Indenture(5)2.9
    
    Second Supplemental Indenture, dated as of September 22, 2004, to the May Indenture(7)2.10
    
    Third Supplemental Indenture, dated as of January 10, 2005, to the May Indenture(10)2.11
    
    Fourth Supplemental Indenture, dated as of January 31, 2006, to the May Indenture(10)2.12
    
    Fifth Supplemental Indenture, dated as of February 27, 2006, to the May Indenture(8)2.13
    
    Indenture, dated as of September 22, 2004, between Ainsworth Lumber Co. Ltd. and The Bank
of New York (the September Indenture)(7)2.14
    
    First Supplemental Indenture, dated as of September 22, 2004, to the September
Indenture(7)2.15
    
    Second Supplemental Indenture, dated as of January 10, 2005, to the September
Indenture(10)2.16
    
    Third Supplemental Indenture, dated as of January 31, 2006, to the September Indenture(10)2.17
    
    Indenture, dated as of April 18, 2006, among Ainsworth Lumber Co. Ltd., Ainsworth
Engineered Corp., Ainsworth Engineered Canada Limited Partnership, Ainsworth (USA), LLC,
Ainsworth Corp. and The Bank of New York(9)2.18
    
    Exchange and Registration Rights Agreement, dated as of April 18, 2006, among Ainsworth
Lumber Co. Ltd., Ainsworth Engineered Corp., Ainsworth Engineered Canada Limited
Partnership, Ainsworth (USA), LLC, Ainsworth Corp. and Deutsche Bank Securities Inc.(9)4.1
    
    Memorandum of Agreement, dated December 9, 1999, between Ainsworth Lumber Co. Ltd. and
Grant Forest Products Corp.(2)4.2
    
    Management and Consulting Agreement, dated April 25, 1999, between Ainsworth Lumber Co.
Ltd. and 2468 Holdings Ltd.(3)4.3
    
    Pulpwood Agreement No. 16, dated April 26, 1990, 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(1)4.4
    
    Forest License A18700, dated March 24, 1998, between The Regional Manager, on behalf of
Her Majesty the Queen in the Right of the Province of British Columbia, and Ainsworth
Lumber Co. Ltd.(2)4.5
    
    Letter Agreement with the Province of Alberta, dated July 16, 1999, with respect to High
Level Timber Allocation(3)4.6
    
    Deciduous Timber Allocation No. DTAF 510001 with respect to High Level(3)4.7
    
    Deciduous Timber Allocation No. DTAF 110001 with respect to High Level(5)4.8
    
    Deciduous Timber Allocation No. DTAF 110002 with respect to High Level(5)4.9
    
    Forest Management Agreement, dated June 25, 2002, among Her Majesty the Queen in the
Right of the Province of Alberta, Tolko Industries Ltd. and Footner Forest Products
Ltd.(5)4.10
    
    Amended Deciduous Timber Allocation No. DTAC 910001 with respect to Grande Prairie(2)4.11
    
    Deciduous Timber Permit DTPG 910001 with respect to Grande Prairie(3)4.12
    
    Contract for General Contracting Services related to the Grande Prairie expansion, dated
July 6, 2005, between Ainsworth Lumber Co. Ltd. and DEMAC Management Ltd.(8)
 71




---



##### 



4.13
    
    Credit and Guaranty Agreement, dated as of June 26, 2007(11)4.14
    
    Deutsche Bank Loan Agreement(12)4.15
    
    Deutsche Bank Loan Agreement Amendment No. 1(12)4.16
    
    Merrill Lynch Loan Agreement(12)8.1
    
    List of Significant Subsidiaries(10)11.1
    
    Code of Ethics(4)15.1
    
    Audit Committee Charter(8)31.1
    
    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
 
 (1)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd. (No. 333-07346), filed with the Commission on July 30, 1997.(2)
    
    Incorporated by reference to the Annual Report on Form 20-F of Ainsworth Lumber Co. Ltd.
for the fiscal year ended December 31, 1999, filed with the Commission on May 19, 2000.(3)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd. and Steen River Forest Products Ltd. (No. 333-83230), filed with the Commission on
February 19, 2002.(4)
    
    Incorporated by reference to the Annual Report on Form 20-F of Ainsworth Lumber Co. Ltd.
for the fiscal year ended December 31, 2003, filed with the Commission on May 26, 2004.(5)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd. (No. 333-116068), filed with the Commission on June 2, 2004.(6)
    
    Incorporated by reference to Amendment No. 1 to the Registration Statement on Form F-4 of
Ainsworth Lumber Co. Ltd. and Ainsworth Engineered Corp. (No. 333-116068), filed with the
Commission on July 15, 2004.(7)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd., Ainsworth Engineered Corp. and Ainsworth Engineered (USA), LLC (No. 333-119812), filed
with the Commission on October 18, 2004.(8)
    
    Incorporated by reference to the Annual Report on Form 20-F of Ainsworth Lumber Co. Ltd.
for the fiscal year ended December 31, 2005, filed with the Commission on March 31, 2006.(9)
    
    Incorporated by reference to the Form 6-K of Ainsworth Lumber Co. Ltd., furnished to the
Commission on April 21, 2006.(10)
    
    Incorporated by reference to the Registration Statement on Form F-4 of Ainsworth Lumber Co.
Ltd., Ainsworth Engineered Corp., Ainsworth Engineered Limited Partnership, Ainsworth Engineered
(USA), LLC and Ainsworth Corp. (No. 333- 134708), filed with the Commission on June 2, 2006.(11)
    
    Incorporated by reference to the Form 6-K of Ainsworth Lumber Co. Ltd., furnished to the
Commission on February 24, 2008.(12)
    
    Incorporated by reference to the Form 6-K of Ainsworth Lumber Co. Ltd., furnished to the
Commission on February 29, 2008. 72