Expected next investor conference call information:
Conference Call Date: 10/30/2009
Conference Call Time (ET): 12:00 PM
Conference Call URL: http://www.canfor.com

The Partnership generated standardized distributable cash of $42.9 million, or $0.60 per unit. Adjusted distributable cash was $11.4 million, or $0.16 per unit, in the third quarter of 2009. For the third quarter, the Partnership and the Fund declared distributions of $0.03 per unit.

Third quarter 2009 net income improved $16.8 million when compared to the second quarter of 2009. NBSK pulp US dollar list prices increased by 14%, but were partially offset by a 6% strengthening of the Canadian dollar. Unit manufacturing costs decreased 7% when compared to the prior quarter due primarily to the absence of any scheduled maintenance downtime and lower chemical prices. The Partnership's cash position increased $25.6 million during the third quarter of 2009 due to positive cash generated from operations and a reduction in working capital. On September 30, 2009, the Partnership completed a new $40 million bank credit facility with a maturity date of November 30, 2011. In addition, the Partnership has arranged a $25 million letter of credit facility, subject to completion of legal documentation.

Pulp markets showed further improvement in the third quarter of 2009 as continued reduction of supply and steady improvement in demand have resulted in further reductions in inventory stocks and subsequent price increases. NBSK US dollar North American list prices were US$660 in June rising to US$770 in September with announced prices for October of US$800 and for November of US$830. Mitigating the impact of stronger global pulp markets for Canadian producers has been the steady strengthening of the Canadian dollar in relation to the US dollar.

There was no scheduled maintenance downtime at the Partnership's operations during the third quarter of 2009. For the fourth quarter, a planned maintenance outage in October at our Northwood facility was extended for additional work on the recovery boiler, and resulted in total reduced production levels of approximately 31,000 tonnes.

On October 9, 2009 the Canadian federal government announced the allocation of credits from the billion dollar Pulp and Paper Green Transformation Program (the Program). The Partnership has been allocated $122.2 million from the Program announced by the Canadian government on June 17, 2009. The Program is designed as a reimbursement of funds to be spent on qualifying energy and environmental capital projects. Credits may be used until the Program end date of March 31, 2012. The Partnership has identified and will be submitting a number of projects for Program approval. These projects are expected to provide economic and environmental benefits to the Partnership's operations.

On October 21, 2009, the Fund announced a cash distribution of $0.01 per Fund unit for the month of October, to be paid on November 15, 2009. The cash distribution for the month of November will be announced on or before November 19, 2009.

Additional Information

A conference call to discuss the third quarter 2009 financial and operating results will be held on Monday, October 26, 2009 at 8:00 a.m. Pacific time.

To participate in the call, please dial 416-641-2140 or Toll-Free 1-800-952-4972. For instant replay access, please dial 416-695-5800 or Toll-Free 1-800-408-3053 and enter participant pass code 3521864. The conference call will be webcast live and will be available at www.canforpulp.com/investors/webcasts.asp.

This news release is available on the Partnership's website at www.canforpulp.com.

About Canfor Pulp Income Fund

Canfor Pulp Income Fund is an unincorporated, open-ended trust established under the laws of Ontario, created to indirectly acquire and hold an interest in the Canfor Pulp Limited Partnership. The Fund indirectly holds a 49.8% interest in the Partnership with Canadian Forest Products Ltd., a subsidiary of Canfor Corporation (collectively Canfor) holding the remaining 50.2% interest in the Partnership.

Forward-Looking Statements

Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by the Fund with the securities regulatory authorities in all of the provinces and territories of Canada to which recipients of this press release are referred to for additional information concerning the Fund and Partnership, its prospects and uncertainties relating to the Fund and Partnership and its prospects. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. New risk factors may arise from time to time and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance and achievements of the Fund and Partnership to be materially different from those contained in forward-looking statements. The forward-looking statements are based on current information and expectations and the Fund and Partnership assume no obligation to update such information to reflect later events or developments, except as required by law.

Forward-looking statements in this press release include statements made under:

- "Critical Accounting Estimates"

- "SIFT Conversion Rules"

- "Conversion to International Financial Reporting Standards"

- "Outlook - Pulp"

- "Outlook - Kraft Paper"

- "Liquidity and Financial Requirements"

- "Critical Accounting Estimates"

- "Conversion to International Financial Reporting Standards"

- "Distributable Cash and Cash Distributions"

Material risk factors that could cause actual results to differ materially from the forward-looking statements contained in this press release include: general economic, market and business conditions; product selling prices; raw material and operating costs; exchange rates; changes in law and public policy; and opportunities available to or pursued by the Fund and Partnership. Additional information concerning these and other factors can be found in the Fund's Annual Information Form dated February 17, 2009, which is available on www.sedar.com.

Canfor Pulp Income Fund and Canfor Pulp Limited Partnership

Third Quarter 2009

The information in this report is as at October 23, 2009.

CANFOR PULP INCOME FUND

The Fund is an unincorporated open-ended trust established under the laws of Ontario on April 21, 2006, pursuant to the Fund Declaration. The principal head office of the Fund is located at 1700 West 75th Avenue, Vancouver, BC, Canada. The Fund has been established to acquire and hold, through a wholly owned trust, the Canfor Pulp Trust (the Trust), investments in Limited Partnership Units of the Partnership, and such other investments as the Trustees of the Fund may determine. The general partner of the Partnership is Canfor Pulp Holding Inc. (the General Partner) and each limited partner holds an ownership interest in the General Partner equal to its proportionate interest in the Partnership.

At October 23, 2009, there were a total of 35,493,505 Fund units issued and outstanding, and the Fund indirectly held a total of 35,493,542 units of the Partnership, representing 49.8% of the Partnership and Canfor held 35,776,483 Class B Exchangeable Limited Partnership Units, representing 50.2% of the Partnership. The Class B Exchangeable Limited Partnership Units are indirectly exchangeable for an equivalent number of Fund Units pursuant to the terms of an exchange agreement (Exchange Agreement) dated July 1, 2006 among Canfor, the Fund, the Trust, the Partnership and Canfor Pulp Holding Inc. The Exchange Agreement contains, among other things, the procedure through which the Class B Exchangeable Limited Partnership Units may be exchanged for Fund Units.

Each unitholder participates pro-rata in any distributions from the Fund. Under present income tax legislation, income tax obligations related to the distributions of the Fund are the obligations of the unitholders and the Fund is only taxable on any amount not allocated to the unitholders.

SELECTED QUARTERLY FUND FINANCIAL INFORMATION

(thousands of
 dollars, except
 per unit
 amounts,            Q3    Q2      Q1       Q4      Q3     Q2     Q1     Q4
 unaudited)        2009  2009    2009     2008    2008   2008   2008   2007
---------------------------------------------------------------------------
Equity income
 (loss) in Canfor
 Pulp Limited
 Partnership      9,098   724 (10,740) (12,947)  5,513  9,046 21,667  5,999
Net income (loss) 8,497 4,406 (10,740) (13,686)  5,208  7,015 21,667  8,703
Net income (loss)
 per Fund unit    $0.24 $0.12  $(0.30)  $(0.39)  $0.15  $0.20  $0.61  $0.25
Distributions
 earned from the
 Partnership and
 declared to
 unitholders      1,065 1,065   2,130    9,938  12,778 12,777 12,778 13,487
Distributions
 declared per
 Fund unit        $0.03 $0.03   $0.06    $0.28   $0.36  $0.36  $0.36  $0.38
---------------------------------------------------------------------------

Equity income (loss) in Canfor Pulp Limited Partnership represents the fund's share of the Partnership's net income (loss). Net income (loss) is also impacted by future income tax expense (recovery) which is primarily influenced by changes in substantively enacted tax rates and the difference between the tax basis of the Fund's pro-rata ownership of the Partnership's assets and liabilities and the respective amounts reported in the financial statements.

OPERATING RESULTS AND LIQUIDITY

For the quarter ended September 30, 2009, the Fund had net income of $8.5 million or $0.24 per Fund unit. The net income is comprised of the Fund's share of the Partnership's income for the third quarter of 2009, less a future income tax expense of $0.6 million. The future income tax expense represents an adjustment to the future income tax liability based on the Fund's share of the differences between book and income tax values of the Partnership's assets and liabilities. The Fund's equity income in the Partnership is $8.4 million higher than the prior quarter due to the Fund's share of the Partnership's increased operating earnings. The Fund's share of operating earnings increased by $8.7 million due primarily to higher realized prices in Canadian dollar terms for the Partnership's pulp and paper products and lower unit manufacturing costs. Distributions declared by the Partnership and accruing to the Fund were $1.1 million of which $0.4 million was receivable at September 30, 2009. Cash distributions received from the Partnership are the only source of liquidity for the Fund. The Fund's requirements for administrative services are minimal and are funded and expensed by the Partnership. For further information refer to the Partnership's discussion of operating results and liquidity in this press release.

FUND DISTRIBUTIONS

The Fund is entirely dependent on distributions from the Partnership to make its own distributions and declares distributions on a monthly basis with the record date on the last business day of each month and payable within the 15 days following. Distributions payable by the Partnership to the Fund and distributions payable by the Fund to its unitholders are recorded when declared. During the third quarter of 2009, the Fund declared distributions of $0.03 per Fund unit or $1.1 million.

Monthly cash distributions from the Partnership are not directly equal to the Fund's pro-rata share of the Partnership's income (loss) under the equity method. This is primarily due to capital expenditures, foreign exchange gains or losses on translation of US dollar denominated debt, changes in value of derivative instruments, amortization, and other non-cash expenses of the Partnership.

RISKS AND UNCERTAINTIES

The Fund is subject to certain risks and uncertainties related to the nature of its investment in the Partnership and the structure of the Fund, as well as all of the risks and uncertainties related to the business of the Partnership. A comprehensive discussion of these risks and uncertainties is contained in the Fund's Annual Information Form dated February 17, 2009, which is available on www.sedar.com and www.canforpulp.com.

FUND UNITS

At October 23, 2009, there were a total of 35,493,505 Fund units outstanding.

RELATED PARTY TRANSACTIONS

All accounting, treasury, legal and administrative functions for the Fund are performed on its behalf, without charge, by the Partnership pursuant to a support agreement. Distributions earned from the Partnership for the three months ended September 30, 2009 were $1.1 million of which $0.7 million was received, with the balance of $0.4 million receivable on September 30, 2009.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the financial statements. Management regularly reviews these estimates and assumptions based on currently available information. Significant areas requiring the use of management's estimates are the determination of future income taxes, and assessing whether there has been an other than temporary decline in the value of the investment in the Partnership. The determination of the future income tax liability requires management to estimate the future impacts of the Partnership's amortization of capital assets, capital cost allowance claims for tax purposes, and changes to actuarial estimates of employee benefit plans. The Fund accounts for its investment in the Partnership using the equity method. Management periodically evaluates whether there has been an other than temporary decline in the value of the investment in the Partnership. The Fund relies on the recoverability analysis of the Partnership for the purposes of this assessment. Changes in these estimates could have a material impact on the calculation of the future income tax liability or equity investment in the Partnership.

SIFT CONVERSION RULES

On June 12, 2007, legislation was substantively enacted whereby distributions made by publicly traded income trusts and partnerships will be taxed similar to that of income earned and distributed by a corporation. The Specified Investment Flow-Through Trust (SIFT) Tax will become effective on January 1, 2011. On March 12, 2009 the Canadian government enacted legislation (SIFT Conversion Rules) which enables the conversion of a SIFT entity into a corporation on a tax-free rollover basis, prior to 2013. The Fund is currently analyzing impacts of the SIFT Conversion Rules and reviewing alternatives to the current structure.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

On February 13, 2008, the Accounting Standards Board (AcSB) announced that publicly accountable entities will be required to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011. The Fund will rely on the resources of the Partnership to ensure compliance with IFRS. The Partnership intends to convert to these new standards according to the timetable set for these new rules.

A detailed analysis is substantively complete and a number of areas identified for further consideration before the date of transition. Various accounting policy choices have been identified to date and are being considered by the steering committee of the Partnership. The Partnership continues to monitor standards development as issued by the International Accounting Standards Board (IASB) and the AcSB, as well as regulatory developments as issued by the Canadian Securities Administrators, which may affect the timing, nature or disclosure of the Partnership's adoption of IFRS. The IASB has issued several exposure drafts for new or amended IFRS, which will likely have mandatory application for the 2011 calendar year.

For further details on the key elements of the Partnership's transition plan see the Partnership's disclosure.

The Partnership will continue to review all proposed and continuing projects of the International Accounting Standards Board to determine their impact on the Fund, and will continue to invest in training and resources throughout the transition period to facilitate a timely conversion.

At this time, the impact on the Fund's future financial position and results of operations is not reasonably determinable.

CANFOR PULP LIMITED PARTNERSHIP

Structure

The Partnership is a limited partnership formed on April 21, 2006, under the laws of Manitoba to acquire and carry on the NBSK pulp and paper business of Canfor. The business consists of two NBSK pulp mills and one NBSK pulp and paper mill located in Prince George, BC and a marketing group based in Vancouver, BC (the Pulp Business).

At October 23, 2009, the Fund indirectly held a total of 14,254,005 Class A Limited Partnership Units and 21,239,537 Class B Limited Partnership Units, representing 49.8% of the Partnership and Canfor owns the remaining 50.2%. The Partnership is managed, on behalf of the limited partners, by Canfor Pulp Holding Inc., the General Partner. Below is a simplified schematic of the ownership structure.

Partnership Structure

http://media3.marketwire.com/docs/CFX1023.doc

Business

The Partnership is a leading global supplier of pulp and paper products with operations based in the central interior of British Columbia. The Partnership's strategy is to maximize cash flows and enhance the value of its assets by: (i) preserving its low-cost operating position, (ii) maintaining the premium quality of its products and (iii) opportunistically acquiring high quality assets.

The Partnership owns and operates three mills with annual capacity to produce over one million tonnes of northern softwood market kraft pulp, 90% of which is bleached to become NBSK pulp for sale to the market, and approximately 140,000 tonnes of kraft paper.

SUMMARY OF SELECTED PARTNERSHIP RESULTS

(millions of dollars,
 except for per unit         Q3         Q2        YTD         Q3        YTD
 amounts, unaudited)       2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Sales                     202.0      205.0      593.3      215.4      639.4
EBITDA (1)                 25.1        7.2       34.5       40.6      107.1Operating income (loss)    12.4       (5.0)      (2.4)      27.5       69.7
Net income (loss)          18.3        1.5       (1.8)      11.1       72.8
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Per Partnership unit,
 basic and diluted
 Net income (loss)         0.26       0.02      (0.02)      0.15       1.02
 EBITDA                    0.35       0.10       0.48       0.57       1.50
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Average exchange rate
 (US$/Cdn$) (2)           0.912      0.858      0.858      0.960      0.982
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Notes:  1  For calculation of EBITDA, see supplementary financial
           Information.
        2  Source - Bank of Canada (average noon rate for the period).

EBITDA for the third quarter of 2009 increased by $17.9 million from the second quarter of 2009 and was $15.5 million lower when compared to the third quarter of 2008. The improved results when compared to the second quarter of 2009 are attributable to a 14% increase in the NBSK pulp US dollar list price and lower unit manufacturing costs, partially offset by the stronger Canadian dollar, higher freight costs and lower realized paper prices. Realized pulp prices in Canadian dollar terms increased 8% as a 14% increase in NBSK list price was partially offset by a 6% strengthening of the Canadian dollar, while paper prices decreased 6% when compared to the second quarter of 2009. Unit manufacturing costs decreased 7% when compared to the prior quarter due to lower spending on maintenance costs, higher production volumes and lower chemical prices. Fibre costs remained relatively unchanged when compared to the prior quarter. Freight costs in US dollar terms were 9% higher when compared to the prior quarter primarily due to higher container rates into Asia and increased fuel surcharges.

When compared to the third quarter of 2008, the $15.5 million decrease in EBITDA was primarily attributable to lower NBSK pulp US dollar list prices and lower realized paper prices, partially offset by lower unit manufacturing costs, higher shipment volumes, and a weaker Canadian dollar. The NBSK pulp US dollar list price decreased 17% when compared to the same period a year ago which was partially offset by a 5% weaker Canadian dollar. Unit manufacturing costs decreased 12% due to lower fibre, chemical and energy prices, lower overall spending on fixed costs, and the impact of higher production volumes. Fibre costs decreased approximately 17% due to lower prices for sawmill residual and whole log chips. Realized paper prices in Canadian dollar terms decreased by 20% when compared to the third quarter of 2008. Shipment volumes of market pulp increased 11% when compared to the third quarter of 2008 due primarily to increased volume into Europe and Asia.

For the nine months ended September 30, 2009, EBITDA of $34.5 million decreased by $72.6 million when compared to the same period in 2008. The decrease in EBITDA was attributable to lower realized prices for the Partnership's pulp and paper products, partially offset by lower unit manufacturing costs and higher shipment volumes. Pulp and paper realized prices in Canadian dollar terms decreased 17% and 10% respectively when compared to the same period in 2008. The lower realized pulp prices were the result of a 22% decrease in NBSK pulp US dollar list price, and a higher percentage of sales into lower margin business, including non-contract business and the tissue segment, which were partially offset by a 13% weakening of the Canadian dollar. Lower unit manufacturing costs were attributable to the impact of a reduction in scheduled maintenance outages, lower spending on fixed costs, lower fibre costs, and lower chemical and energy prices. Shipment volumes of market pulp increased 13% when compared to the same period in 2008 due primarily to increased volume into China.

OPERATING RESULTS BY BUSINESS SEGMENT

Pulp

(millions of dollars
 unless otherwise noted,     Q3         Q2        YTD         Q3        YTD
 unaudited)                2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Sales (1)                 170.1      173.8      503.1      181.7      536.1
EBITDA (1)                 23.4        5.1       28.0       38.8      107.2
EBITDA margin (1)            14%         3%         6%        21%        20%
Operating income
 (loss) (1)                11.6       (6.2)      (6.2)      26.8       72.9
---------------------------------------------------------------------------
Average NBSK pulp list
 price - (US$ per
 tonne, delivered to USA)   733        645        684        880        880
Average NBSK pulp list
 price - (Cdn$ per
 tonne, delivered to USA)   804        752        797        917        896
---------------------------------------------------------------------------
Production - pulp
 (000 mt)                 264.4      260.1      754.9      255.6      713.2
Shipments -
 Partnership-produced
 pulp (000 mt)            259.5      286.2      786.0      234.5      697.2
Marketed on behalf of
 HSLP & Canfor (000 mt)   148.4      140.0      395.6      135.5      415.8
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Note:  1  Comparative figures have been reclassified to conform to current
          year presentation.

The third quarter 2009 operating income for the pulp segment of $11.6 million was a $17.8 million improvement when compared to the second quarter of 2009. The improved results are attributable to higher realized prices in Canadian dollar terms and lower unit manufacturing costs, partially offset by higher freight costs. Realized pulp prices in Canadian dollar terms increased 8% when compared to the prior quarter due to a 14% increase in NBSK pulp US dollar list price partially offset by a 6% stronger Canadian dollar. The reduction in unit manufacturing costs resulted from higher production volumes and reduced maintenance spending as a result of no scheduled maintenance downtime in the third quarter of 2009, combined with reduced chemical prices and other cost reduction initiatives. Fibre costs remained relatively unchanged when compared to the prior quarter. Manufacturing costs in the third quarter are typically at the lowest levels of the year due to favourable operating environment and lower energy costs.

The third quarter 2009 operating results were $15.2 million lower than the same period a year ago. The decrease was the result of lower NBSK pulp US dollar list prices, partially offset by lower unit manufacturing costs, a weaker Canadian dollar and higher shipment volumes. A 16% decrease of realized prices in Canadian dollar terms was attributable to a 17% decrease of NBSK pulp US dollar list price and increases in the Partnership's sales into lower margin businesses, partially offset by a 5% weakening of the Canadian dollar. Lower unit manufacturing costs were due to lower fibre, chemical and energy prices, lower overall spending on fixed costs and the impact of higher production volumes. In the third quarter of 2008, production was reduced by a scheduled maintenance outage at the Northwood Pulp Mill and the impact of the Prince George Pulp and Paper Mill fire. Fibre costs decreased approximately 17% due to lower prices for sawmill residual and whole log chips. Shipment volumes increased 25,000 tonnes when compared to the same period in 2008 primarily due to increased volume into China.

For the nine month period ended September 30, 2009, the operating loss of $6.2 million represents a deterioration of $79.1 million when compared to the same period in 2008. The decrease in operating results was attributable to lower realized prices in Canadian dollar terms, partially offset by lower unit manufacturing costs and higher shipment volumes. Realized pulp prices in Canadian dollar terms decreased 17%, as a 22% decrease in NBSK pulp US dollar list price and a higher percentage of sales into lower margin business, including non-contract business and the tissue segment, were partially offset by a 13% weakening of the Canadian dollar when compared to the same period in 2008. Lower unit manufacturing costs were attributable to the impact of a reduction in scheduled maintenance outages, lower spending on fixed costs, lower fibre costs, and lower energy and chemical prices. Fibre costs decreased approximately 11% due to lower prices for sawmill residual and whole log chips. Lower spending on fixed costs was attributable to lower maintenance costs and cost reduction initiatives including reductions in discretionary spending. Shipment volumes increased 88,800 tonnes when compared to the same period in 2008 primarily due to increased volumes into China.

Operations

NBSK market pulp production during the third quarter of 2009 was 4,300 tonnes higher than the second quarter of 2009. The increased production was attributable to decreased scheduled maintenance outages in the third quarter. When compared to the same period in 2008, third quarter 2009 production of 264,400 tonnes was 8,800 tonnes higher. The increased production in the third quarter of 2009 was primarily due to the impact of the Prince George Pulp and Paper Mill fire which reduced production by approximately 7,400 tonnes in the third quarter of 2008.

For the nine months ended September 30, 2009 production of 754,900 tonnes was 41,700 tonnes higher than the same period in 2008. The major components of the increased production were decreased scheduled maintenance outages (2009 - 14,100 tonnes, 2008 - 32,900 tonnes) and the Prince George Pulp and Paper Mill fire in 2008 totalling 35,000 tonnes of reduced production, partially offset by the market curtailment totalling approximately 14,000 tonnes reduced production in the first quarter of 2009 (2008 - nil). Markets - Pulp

A significant number of pulp mills remained idled during the third quarter of 2009, either indefinitely or permanently, which kept supply constrained, resulting in further reductions in producer inventory stocks. The consumption levels have been steadily improving since earlier in the year. Although preliminary Pulp and Paper Products Council statistics indicate that global demand for printing and writing papers was down 14% on a 2009 year-to-date basis, there has been steady improvement in monthly demand since the end of the first quarter of 2009.

The steady improvement in consumption and continued reduction of supply has resulted in lower pulp inventories. At the end of September 2009, World 20(1) producers of bleached softwood pulp inventories stood at 22 days of supply. By comparison, September 2008 inventories stood at 36 days of supply. Market conditions are considered balanced when inventories fall in the 27-30 days of supply range.

As a result of these tight market conditions, producers have been successful at implementing price increases in every month of the third quarter of 2009. These price increases totalled US$110 per tonne, bringing the US market to US$770 per tonne in September, Europe to US$740 per tonne, and China to US$650 per tonne.

Note: (1) World 20 data is based on twenty producing countries representing 80% of world chemical market pulp capacity and is based on information compiled and prepared by the Pulp and Paper Products Council (PPPC)

Outlook - Pulp

The outlook for the balance of 2009 and the first quarter of 2010 is for a continued positive pricing environment. Inventory levels held by producers and customers are low. With the supply/demand balance in the favour of producers there is potential for further price increases. There is some downside risk as higher global prices may allow idled mills to restart, to the extent that pricing increases are not diminished by a strengthening Canadian dollar. Subsequently, projected demand and low inventory levels suggest a balanced to tight market into the first quarter of 2010.

For the fourth quarter of 2009, a planned maintenance outage at our Northwood facility was extended for additional work on the recovery boiler, and resulted in total reduced production levels of approximately 31,000 tonnes.

On October 9, 2009 the Canadian federal government announced the allocation of credits from the billion dollar Pulp and Paper Green Transformation Program (the Program). The Partnership has been allocated $122.2 million from the Program announced by the Canadian government on June 17, 2009. The Program is designed as a reimbursement of funds to be spent on qualifying energy and environmental capital projects. Credits may be used until the program end date of March 31, 2012. The Partnership has identified and will be submitting a number of projects for Program approval. These projects are expected to provide economic and environmental benefits to the Partnership's operations.

The Partnership finalized an amending Energy agreement with BC Hydro effective September 15, 2009 which provides for the sale of power production that exceeds an amended commitment of the original cogeneration project at the Prince George Pulp and Paper Mill. A payment to BC Hydro of $4.3 million was made to reduce the Partnership's obligation for power production reflecting the cogeneration project's actual output. The obligation to produce power for the remainder of the term of the agreement, extending to August 2020, is reduced to 338 GWh per year from 390 GWh effective September 15, 2009. As a result of further investments by the Partnership, power production in excess of 338 GWh per year is now available for sale under the terms of our new Energy Purchase Agreement with BC Hydro.

Paper

(millions of dollars
 unless otherwise noted,     Q3         Q2        YTD         Q3        YTD
 unaudited)                2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Sales (1)                  31.9       31.2       90.2       33.7      103.3
EBITDA (1)                  4.0        4.4       13.0        4.7        9.8
EBITDA margin (1)            13%        14%        14%        14%         9%
Operating income (1)        3.2        3.5       10.5        3.7        6.9
---------------------------------------------------------------------------
Production - paper
 (000 mt)                  33.6       30.6       92.6       35.9      102.5
Shipments - paper
 (000 mt)                  37.4       34.3       96.9       31.6      100.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Note:  1  Comparative figures have been reclassified to conform to current
          year presentation.

The operating income of the paper segment for the third quarter of 2009 was $0.3 million lower than the second quarter of 2009 and $0.5 million lower than the same period last year. The decrease when compared to the second quarter of 2009 was primarily attributable to lower realized prices in Canadian dollar terms, partially offset by lower unit manufacturing costs and higher sales volumes. Realized prices in Canadian dollar terms decreased by approximately 6%. Lower unit manufacturing costs were the result of lower costs for slush pulp and the impact of higher production volumes. Sales volumes increased by 9% when compared to the second quarter of 2009.

When compared to the third quarter of 2008, the decrease in operating earnings was due to lower realized prices in Canadian dollar terms and the impact of lower production volumes, partially offset by lower costs for slush pulp and higher sales volumes. Realized prices in Canadian dollar terms decreased by approximately 20% due to a reduction in global demand. The cost of slush pulp transferred from the Partnership's pulp operating segment decreased 27% when compared to the second quarter of 2009 as a result of the reduction in the NBSK US dollar list price, partially offset by the weaker Canadian dollar. Sales volumes increased by 18% when compared to the same period in 2008.

For the nine month period ended September 30, 2009, operating income of $10.5 million improved by $3.6 million when compared to the same period in 2008. The increase is attributable to lower unit manufacturing costs partially offset by lower realized paper prices in Canadian dollar terms and lower sales volumes. The lower unit manufacturing costs are the result of lower raw material costs for slush pulp, partially offset by the impact of lower production volumes. Realized prices in Canadian dollar terms decreased by approximately 10% and sales volumes decreased by 3% when compared to the same period in 2008.

Operations

When compared to the second quarter of 2009, paper production increased by 3,000 tonnes due to completion of the scheduled maintenance outage in the prior quarter. When compared to the third quarter of 2008, production was 2,300 tonnes lower due to lower overall operating rates.

For the nine month period ended September 30, 2009, paper production of 92,600 tonnes was 9,900 tonnes lower than the same period in 2008. In addition to the scheduled maintenance outage completed in the second quarter of 2009 the market curtailment completed in January 2009 resulted in approximately 4,700 tonnes of lost production.

Markets

North America kraft paper demand showed signs of improvement in the third quarter of 2009 compared to the previous two quarters as customer inventory destocking appears to have been largely completed. American Forest and Paper Association reported that US total kraft paper shipments increased 3.5% in September following an 8% increase in August. Overall 2009 year-to-date shipments are 22% lower when compared to the same period in 2008. The year-to-date Pulp Shipping Sack Manufacturers' Association shipping sack statistics for September reveal that industry paper consumption was down 2% from the previous month.

The Partnership's total prime paper shipments in the third quarter of 2009 increased by 9% from the second quarter of 2009, and bleached shipments increased by 9.8% from the prior quarter.

Outlook - Kraft Paper

Demand is currently very strong and expected to continue through the fourth quarter of 2009. Price announcements in the range of 7% to 12% are expected to take effect in the fourth quarter of 2009 for both North America and Europe.

Non-Segmented Costs

(millions of                 Q3         Q2        YTD         Q3        YTD
 dollars, unaudited)       2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Unallocated costs           2.4        2.3        6.7        3.0       10.1
Interest expense, net       2.8        2.5        7.9        2.1        5.5
Foreign exchange (gain)
 loss on long-term debt    (9.9)     (10.7)     (16.7)       5.2        7.9
Loss (gain) on derivative
 financial instruments     (3.4)      (0.3)       2.0       12.7       (2.2)
Foreign exchange loss
 (gain) on working
 capital                    4.6        2.2        6.2       (3.8)      (6.1)
Net property damage
 insurance gain               -       (0.2)      (0.2)         -       (8.5)
Other expense                 -          -        0.2        0.2        0.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                           (3.5)      (4.2)       6.1       19.4        7.0
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Unallocated Costs

Unallocated costs, comprised principally of general and administrative expenses, totalled $2.4 million in the third quarter of 2009 compared to $2.3 million in the second quarter of 2009 and $3.0 million in the third quarter of 2008. The decrease in unallocated costs when compared to the third quarter of 2008 was mainly attributable to lower incentive plan accruals and reduced industry association dues, partially offset by higher legal costs. For the nine month period ended September 30, 2009, unallocated costs were reduced by $3.4 million when compared to the same period in the prior year. The reduction was primarily attributable to lower annual incentive plan accruals and reduced industry association dues, partially offset by higher legal costs. The Partnership requires a minimum threshold of profitability prior to any payout under the annual incentive plan. Management reviews the Partnership's financial performance on an ongoing basis and adjusts the accruals accordingly.

Interest Expense

The increased net interest expense in the quarter and nine month period ended September 30, 2009 compared to the same periods in the prior year, was due to the cost of funding short-term working capital requirements and fees relating to the new financing facility.

Other Non-segmented Items

The foreign exchange gain on long-term debt resulted from translating the US$110 million debt at period-end exchange rates.

The gain of $3.4 million on derivative financial instruments recorded in the third quarter of 2009 relates to the settlement of maturing contracts during the quarter and the revaluation to market of outstanding contracts at the end of the quarter for natural gas swaps and foreign exchange hedging contracts. The declining price of natural gas in the third quarter of 2009 resulted in a loss for the quarter of $2.5 million on settlement of contracts. The natural gas swaps are used to fix the price on a portion of the Partnership's future natural gas requirements. The increasing value of the Canadian dollar in the third quarter of 2009 resulted in a gain for the quarter of $1.9 million on settlement of US dollar foreign exchange contracts to hedge the impact of currency fluctuations on US dollar working capital. This gain was offset by the foreign exchange loss on working capital of $4.6 million. The revaluation to market of outstanding derivative instruments recorded in the quarter of $4.0 million relates to a revaluation to market of outstanding natural gas swaps and outstanding US dollar foreign exchange hedging contracts at the end of the quarter.

SUMMARY OF FINANCIAL POSITION

The following table summarizes the Partnership's financial position as at the end of and for the following periods:

(millions of dollars, except          September 30,            December 31,
 for ratios, unaudited)                       2009                    2008
--------------------------------------------------------------------------
Ratio of current assets
 to current liabilities                       1.81                    1.91
Ratio of net debt to
 partners' equity (1)                         0.14                    0.30
--------------------------------------------------------------------------
--------------------------------------------------------------------------
                                   Q3          YTD          Q3         YTD
                                 2009         2009        2008        2008
--------------------------------------------------------------------------
Increase (decrease) in
 cash and cash equivalents       25.6         43.5        (8.4)       (8.6)
Comprised of cash flow
 from (used in):
 Operating activities            49.1         93.7        26.7        83.2
 Financing activities           (17.3)       (35.9)      (26.5)      (72.8)
 Investing activities            (6.2)       (14.3)       (8.6)      (19.0)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Note:  1  Net debt consists of long-term debt and operating loans, net of
          cash and cash equivalents.

Changes in Financial Position

Cash generated from operating activities was $49.1 million in the third quarter of 2009 compared to $26.7 million in the third quarter of 2008. The increase was primarily due to a decrease in cash used in working capital partially offset by lower cash generated from operations. The decrease of cash used in working capital during the third quarter of 2009 was primarily the result of timing of payments in respect of chips and corporate services, partially offset by higher chip and pulp finished goods inventories. The lower cash generated from operations was primarily attributable to reductions in the price for the Partnership's pulp and paper products, partially offset by lower unit manufacturing costs.

The cash used in financing activities of $17.3 million in the quarter represents $2.2 million of distributions paid to the limited partners, namely Canfor and the Fund, and a reduction of $15.1 million in utilization of the Partnership's Revolving Facility.

The cash used in investing activities in the quarter is comprised of $6.2 million relating to capital expenditures. A payment to BC Hydro totalling $4.3 million is included in capital expenditures, in the third quarter of 2009. This represents a payment to reduce the Partnership's obligation for power production from the cogeneration project at the Prince George Pulp and Paper Mill. The obligation to produce power for the remainder of the term of the agreement, extending to August 2020, is reduced to 338 GWh per year from 390 GWh effective September 15, 2009.

LIQUIDITY AND FINANCIAL REQUIREMENTS

At the end of the current quarter, the Partnership had cash and cash equivalents of $43.9 million. On September 30, 2009, the Partnership completed a new $40 million bank credit facility with a maturity date of November 30, 2011. In addition, the Partnership has arranged a $25 million letter of credit facility, subject to completion of legal documentation. This replaced the Partnership's previous operating credit facility of $75 million which was scheduled to mature on November 30, 2009. On September 30, 2009, utilization of the new facility consisted of $16.5 million of standby letters of credit issued to B.C. Hydro. The general terms and conditions of the new financing are similar to the previous bank credit facility, with interest and other costs at prevailing market rates. The leverage ratio and interest coverage ratio remain consistent with the financial covenants under the long-term Note agreement, which agreement was unchanged and not affected by the new bank financing.

The Partnership manages cash resources to fund current and future operations through management of its capital structure in conjunction with cash flow forecasting, including anticipated investing and financing activities. The Partnership uses the revolving facility to meet short-term working capital requirements. The Partnership also reviews on an ongoing basis, the level of distributions, capital expenditures and timing of scheduled major maintenance outages and may adjust these periodically to manage cash resources.

The Partnership also discounts letters of credit on outstanding trade receivables to reduce borrowing costs, to reduce credit and foreign currency exposure, and to increase short-term liquidity.

The agreements covering the new financing facility and the long-term Notes contain financial covenants including four quarter trailing maximum allowable debt to EBITDA leverage ratio of 3.25 and minimum required EBITDA to interest coverage ratio of 2.5. The Partnership remained in compliance with all covenants at September 30, 2009, and believes it will remain in compliance with all covenants for the balance of 2009 based on current forecasts. A comprehensive discussion of risks and uncertainties that may impact the Partnership's forecasts is included in the Fund's Annual Information Form dated February 17, 2009, which is available on www.sedar.com and www.canforpulp.com.

OUTSTANDING UNITS

At October 23, 2009, there were 71,270,025 Limited Partnership Units outstanding, of which 35,493,542 units (consisting of 14,254,005 Class A Limited Partnership Units and 21,239,537 Class B Limited Partnership Units) are owned by the Fund through Canfor Pulp Trust and 35,776,483 Class B Exchangeable Limited Partnership Units are owned indirectly by Canfor.

RELATED PARTY TRANSACTIONS

The Partnership's transactions with related parties are consistent with the transactions described in the December 31, 2008 audited consolidated financial statements and are based on agreed upon amounts, and are summarized in note 10 of the unaudited interim consolidated financial statements.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the quarter ending September 30, 2009, there were no changes in the Partnership's internal controls over financial reporting that materially affected, or would be reasonably likely to materially affect, such controls.

RISKS AND UNCERTAINTIES

A comprehensive discussion of risks and uncertainties is included in the Fund's Annual Information Form dated February 17, 2009, which is available on www.sedar.com and www.canforpulp.com.

SELECTED QUARTERLY PARTNERSHIP FINANCIAL INFORMATION

(millions of
 dollars unless
 otherwise noted,       Q3     Q2     Q1     Q4     Q3     Q2     Q1     Q4
 noted, unaudited)    2009   2009   2009   2008   2008   2008   2008   2007
---------------------------------------------------------------------------
Sales and Income
Sales                202.0  205.0  186.3  186.1  215.4  212.6  211.4  215.1
Operating
 income (loss)        12.4   (5.0)  (9.8)  (1.0)  27.5   11.6   30.6   11.7
EBITDA                25.1    7.2    2.2    9.8   40.6   24.0   42.5   27.9
Net income (loss)     18.3    1.5  (21.6) (26.0)  11.1   18.2   43.5   12.1
---------------------------------------------------------------------------
Per Partnership
 unit (dollars)(1)
Net income
 (loss) basic
 and diluted          0.26   0.02  (0.30) (0.36)  0.15   0.26   0.61   0.17---------------------------------------------------------------------------
Statistics
Pulp shipments
 (000 mt)            259.5  286.2  240.3  208.2  234.5  233.8  228.9  253.6
Paper shipments
 (000 mt)             37.4   34.3   25.2   24.4   31.6   33.7   35.1   32.4
---------------------------------------------------------------------------
Average
 exchange rate
 (US$/Cdn$)(2)       0.912  0.858  0.803  0.825  0.960  0.990  0.996  1.019
---------------------------------------------------------------------------
Average NBSK
 pulp list
 price - (US$ per
 tonne, delivered
 to USA)               733    645    673    787    880    880    880    857
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Notes:  1  Based on Partnership units outstanding at September 30, 2009
           (71,270,025) for all periods.
        2  Source - Bank of Canada (average noon rate for the period).

Sales are primarily influenced by changes in market pulp prices, sales volumes and fluctuations in Canadian dollar exchange rates. Operating income (loss), net income (loss) and EBITDA are primarily impacted by the level of sales, freight costs and fluctuations of fibre, chemicals and energy prices, level of spending and the timing of scheduled maintenance downtime, and production curtailments. Net income (loss) is also impacted by fluctuations in the Canadian dollar exchange rate, market price of natural gas, the revaluation to the period end rate of US dollar denominated working capital balances and long-term debt, and revaluation of outstanding natural gas commodity swaps and US dollar forward sales contracts.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the financial statements. On an ongoing basis, management reviews its estimates, including those related to asset useful lives for amortization, impairment of long-lived assets, pension and other employee future benefit plans, asset retirement obligations, and provisions for insurance claims, based upon currently available information. While it is reasonably possible that circumstances may arise which cause actual results to differ from these estimates, management does not believe it is likely that any such differences will materially affect the Partnership's financial condition.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

On February 13, 2008, the Accounting Standards Board (AcSB) announced that publicly accountable entities will be required to prepare financial statements in accordance with International Financial Reporting Standards (IFRS) for interim and annual financial statements for fiscal years beginning on or after January 1, 2011. The Partnership intends to convert to these new standards according to the timetable set for these new rules.

The Partnership has completed the planning and high level diagnosis activities of its transition plan. The Partnership is currently in the analysis and accounting policy design phase and is assessing the impact of these policies on its consolidated financial statements, information systems, processes and controls. As the implementation process evolves, the Partnership expects to adapt its transition plan based on the new information available.

The key elements of the transition plan are as follows:

Project Structure

The Partnership has appointed a dedicated project manager to lead the conversion to IFRS. The project manager is working with other members of the finance team to execute the implementation plan. An implementation team is working closely with senior management in a number of different business areas to ensure that the impacts of the conversion throughout the business are managed in a timely and efficient manner. A steering committee has been established to oversee the project.

Process and Timing

The process of converting to IFRS has been divided into a number of different stages, many of which will run concurrently. A detailed analysis is substantively complete and a number of areas identified for further consideration before the date of transition. Various accounting policy choices have been identified to date and are being considered by the steering committee. The Partnership continues to monitor standards development as issued by the International Accounting Standards Board (IASB) and the AcSB, as well as regulatory developments as issued by the Canadian Securities Administrators, which may affect the timing, nature or disclosure of the Partnership's adoption of IFRS.

Any changes required to systems and controls (including information technology systems) will be identified as the project progresses; these are currently projected to be designed and tested by the end of the fourth quarter of 2009.

A draft opening balance sheet prepared under IFRS at the date of transition (January 1, 2010) is currently planned to be completed in the first half of 2010. Draft financial statements and disclosure information will be prepared for each quarter in 2010 (to be used for comparative purposes in 2011) and reporting under IFRS will commence for interim and annual periods in 2011.

Progress to Date

At September 30, 2009, the Partnership is close to completing a detailed diagnostic of the impact of IFRS on the Partnership's financial statements. A number of issues had been identified for discussion by senior management before final decisions are made with respect to accounting policy choices and elections. The Partnership has identified a number of key areas where it is likely to be impacted by changes in accounting policy. These include:

- Employee future benefits

- Property, plant, equipment

- Impairment of assets

- Provisions, including asset retirement obligations

- Presentation of financial statements

As the Partnership has not yet selected its accounting policy choices and IFRS 1 exemptions, the Partnership is unable to quantify the impact of IFRS on its financial statements. The areas of significance identified above are based on available information and the Partnership's expectations as of the date of this disclosure and thus, are subject to change for new facts and circumstances.

CANFOR PULP LIMITED PARTNERSHIP

SUPPLEMENTARY FINANCIAL INFORMATION

(millions of             Three months ended           Nine months ended
 dollars,           September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
RECONCILIATION OF
 NET INCOME TO EBITDA
Net Income (loss)    $      18.3  $       11.1  $       (1.8) $       72.8
Add (deduct):
 Amortization               12.6          13.2          36.8          36.8
 Net interest expense        2.8           2.1           7.9           5.5
 Foreign exchange
  (gain) loss on
  long-term debt            (9.9)          5.2         (16.7)          7.9
 Loss (gain) on
  derivative financial
  instruments               (3.4)         12.7           2.0          (2.2)
 Foreign exchange
  loss (gain) on
  working capital            4.6          (3.8)          6.2          (6.1)
 Loss on disposal
  of fixed assets              -           0.7             -           1.2
 Net property damage
  insurance gain               -             -          (0.2)         (8.5)
 Gain on settlement
  of asset retirement
  obligation                   -          (0.9)            -          (0.9)
 Other expense               0.1           0.3           0.3           0.6
--------------------------------------------------------------------------
EBITDA               $      25.1  $       40.6  $       34.5  $      107.1
--------------------------------------------------------------------------
--------------------------------------------------------------------------
EBITDA per
 Partnership unit    $      0.35  $       0.57  $       0.48  $       1.50
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(millions of             Three months ended           Nine months ended
 dollars,           September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
CALCULATION OF
 STANDARDIZED AND
 ADJUSTED
 DISTRIBUTABLE CASH
Cash flow from
 operating
 activities (1)      $      49.1  $       26.7  $       93.7  $       83.2
Deduct: Capital
 expenditures - cash        (6.2)         (2.9)        (14.4)        (21.3)
--------------------------------------------------------------------------
Standardized
 distributable
 cash (1)            $      42.9  $       23.8  $       79.3  $       61.9
--------------------------------------------------------------------------
Adjustments to
 standardized
 distributable cash:
Add (deduct):
 Increase (decrease)
  in non-cash working
  capital (1)              (30.6)         19.8         (75.6)         28.9
 Net long-term
  deferred maintenance         -          (3.2)          1.1          (1.1)
 Capital
  expenditures -
  accruals                  (0.9)         (2.8)          3.4           2.8
 Asset retirement
  obligation -
  current expenditures
  and accruals (1)             -           1.2             -           2.1
--------------------------------------------------------------------------
Adjusted
 distributable cash  $      11.4  $       38.8  $        8.2  $       94.6
--------------------------------------------------------------------------
--------------------------------------------------------------------------Standardized
 distributable
 cash -  per
 Partnership unit
 (in dollars)(1)     $      0.60  $       0.33  $       1.11  $       0.87
Adjusted
 distributable
 cash - per
 Partnership
 unit (in dollars)   $      0.16  $       0.54  $       0.12  $       1.33
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash distributions
 declared (paid and
 payable)            $       2.2  $       25.7  $        8.6  $       77.0
Cash distributions
 declared - per
 Partnership unit
 (in dollars)        $      0.03  $       0.36  $       0.12  $       1.08
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Note:  1  Comparative figures have been reclassified to conform to current
          year presentation.

DISTRIBUTABLE CASH AND CASH DISTRIBUTIONS

The Partnership reports standardized distributable cash in accordance with the Canadian Institute of Chartered Accountants July 2007 interpretive release "Standardized Distributable Cash in Income Trusts and other Flow-Through Entities". In summary, for the purposes of the Partnership, standardized distributable cash is defined as the periodic cash flows from operating activities, including the effects of changes in non-cash working capital less total capital expenditures as reported in the GAAP financial statements.

Adjusted distributable cash is defined as the standardized distributable cash prior to the effects of changes in non-cash working capital and long-term deferred maintenance, asset retirement obligation expenditures and accruals, and after provision for accrued capital expenditures.

Management determines the level of cash distributions based on the level of cash flow from operations before changes in non-cash working capital and long-term deferred maintenance, asset retirement obligation expenditures and accruals, less actual capital expenditures. During the year distributions are based on estimates of full year cash flow and capital spending; thus distributions may be adjusted as these estimates change. It is expected that normal seasonal fluctuations in working capital will be funded from cash resources or the revolving short-term credit facility.

Distributions are declared monthly with date of record on the last day of the month and payable within 15 days following.

Canfor Pulp Income Fund
Consolidated Statements of Income, Comprehensive Income and Accumulated
Earnings and Distributions
(thousands of
 dollars, except         Three months ended           Nine months ended
 unit and per unit  September 30, September 30, September 30, September 30,
 amounts, unaudited)        2009          2008          2009          2008
--------------------------------------------------------------------------
Income
Equity income (loss)
 in Canfor Pulp
 Limited Partnership $     9,098  $      5,513  $       (918) $     36,226
--------------------------------------------------------------------------
Net income (loss)
 before future
 income taxes              9,098         5,513  $       (918) $     36,226
Future income taxes
 (recovery) (note 6)         601           305        (3,081)        2,336
--------------------------------------------------------------------------
Net income                 8,497         5,208         2,163        33,890
Distributions
 declared (note 4)        (1,065)      (12,778)       (4,260)      (38,333)
--------------------------------------------------------------------------
Earnings in excess
 of distributions -
 surplus (deficit)   $     7,432  $     (7,570) $     (2,097) $     (4,443)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income per unit,
 basic and diluted   $      0.24  $       0.15  $       0.06  $       0.95
Weighted average
 number of units      35,493,505    35,493,505    35,493,505    35,493,517
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income for the
 period              $     8,497         5,208         2,163        33,890
Equity interest in
 other comprehensive
 income (loss) of Canfor Pulp
 Limited Partnership          14          (104)          (15)         (284)
--------------------------------------------------------------------------
Comprehensive
 income              $     8,511  $      5,104  $      2,148  $     33,606
--------------------------------------------------------------------------
Accumulated Earnings
 and Distributions
--------------------------------------------------------------------------
Balance, beginning
 of period -
 distributions in
 excess of earnings  $   (82,392) $    (41,669) $    (72,863) $    (44,796)
Earnings in excess
 of distributions -
 surplus (deficit),
 current period      $     7,432  $     (7,570) $     (2,097) $     (4,443)
--------------------------------------------------------------------------
Balance, end of
 period -
 Accumulated
 distributions in
 excess of earnings  $   (74,960) $    (49,239) $    (74,960) $    (49,239)
--------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Canfor Pulp Income Fund
Consolidated Statements of Cash Flows
(thousands of            Three months ended           Nine months ended
 dollars,           September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
Cash generated from
 (used in)
Operating
 activities
Net income           $     8,497  $      5,208  $      2,163  $     33,890
 Items not
  affecting cash:
  Equity (income) loss
   in Canfor Pulp
   Limited Partnership    (9,098)       (5,513)          918       (36,226)
  Future income taxes
   (recovery)                601           305        (3,081)        2,336
Distributions
 received from
 Canfor Pulp Limited
 Partnership               1,065        12,778         5,324        38,333
--------------------------------------------------------------------------
                           1,065        12,778         5,324        38,333
--------------------------------------------------------------------------
Financing
 activities
Distributions paid
 to Unitholders      $    (1,065) $    (12,778) $     (5,324) $    (38,333)
--------------------------------------------------------------------------
Beginning, change
 and ending balance
 in cash and cash
 equivalents         $         -  $          -  $          -  $          -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Canfor Pulp Income Fund
Consolidated Balance Sheets
                                                   As at             As at
                                            September 30,      December 31,
(thousands of dollars, unaudited)                   2009              2008
--------------------------------------------------------------------------
ASSETS
Current assets
 Distributions receivable from Canfor
  Pulp Limited Partnership (notes 4,5)      $        355      $      1,420
--------------------------------------------------------------------------
Total current assets                                 355             1,420
--------------------------------------------------------------------------
Equity investment in Canfor Pulp
 Limited Partnership (note 3)                    261,081           266,274
--------------------------------------------------------------------------
                                            $    261,436      $    267,694
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES
Current liabilities
 Distributions payable (note 4)             $        355      $      1,420
--------------------------------------------------------------------------
Total current liabilities                            355             1,420
--------------------------------------------------------------------------
Future income taxes (note 6)                      36,628            39,709
--------------------------------------------------------------------------
                                            $     36,983      $     41,129
--------------------------------------------------------------------------
UNITHOLDERS' EQUITY
Unitholders' equity - 35,493,505
 Fund units outstanding                     $    299,351      $    299,351
Accumulated earnings and distributions           (74,960)          (72,863)
Accumulated other comprehensive
 income (note 7)                                      62                77
--------------------------------------------------------------------------
Total Unitholders' Equity                        224,453           226,565
--------------------------------------------------------------------------
                                            $    261,436      $    267,694
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Description of the fund and basis of presentation of financial statements
(note 1).
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Approved by the Trustees
"Stan Bracken-Horrocks"               "Charles Jago"
Stan Bracken-Horrocks                 Charles Jago

Canfor Pulp Income Fund

Notes to the Unaudited Interim Consolidated Financial Statements as at September 30, 2009

1. Description of the Fund and Basis of Presentation of Financial Statements

Canfor Pulp Income Fund (the Fund) is an unincorporated open-ended trust established under the laws of Ontario on April 21, 2006, pursuant to the Fund Declaration. The principal head office of the Fund is located at 1700 West 75th Avenue, Vancouver, BC, Canada. The Fund has been established to acquire and hold, through a wholly owned trust, the Canfor Pulp Trust (the Trust), investments in the Limited Partnership Units of the Canfor Pulp Limited Partnership (the Partnership), and such other investments as the Trustees of the Fund may determine. The general partner of the Partnership is Canfor Pulp Holding Inc. (the General Partner) and each partner holds an ownership interest in the General Partner equal to its Partnership interest.

Each unitholder participates pro-rata in any distributions from the Fund.

The Fund is entirely dependent on distributions from the Partnership to make its own distributions.

2. Significant Accounting Policies

These unaudited interim consolidated financial statements do not include all of the disclosures required by Canadian generally accepted accounting principles for annual financial statements and, accordingly, should be read in conjunction with the audited consolidated financial statements and notes included in the Fund's 2008 Annual Report available at www.canforpulp.com or www.sedar.com. These unaudited interim consolidated financial statements follow the same accounting policies and methods of computation as used in the 2008 audited consolidated financial statements.

3. Equity Investment in Canfor Pulp Limited Partnership

The Fund's equity investment in the Partnership is as follows:

                                         Nine months ended      Year ended
                                              September 30,    December 31,
(thousands of dollars, unaudited)                     2009            2008
--------------------------------------------------------------------------
Balance, beginning of period                       266,274         291,458
Equity interest in income (loss)
 of the Partnership                                   (918)         23,280
Equity interest in other comprehensive
 loss of the Partnership                               (15)           (193)
Distributions from the Partnership                  (4,260)        (48,271)
--------------------------------------------------------------------------
Balance, end of period                             261,081         266,274
--------------------------------------------------------------------------
--------------------------------------------------------------------------

4. Distributions

The Fund declared distributions during the first nine months of 2009 as follows:

(thousands of dollars, except per unit amounts, unaudited)
                                                   Amount per
                                                    Fund Unit        Amount
Record Date              Payable Date                       $             $
---------------------------------------------------------------------------
January 30, 2009         February 13, 2009               0.04         1,420
February 27, 2009        March 13, 2009                  0.01           355
March 31, 2009           April 15, 2009                  0.01           355
April 30, 2009           May 15, 2009                    0.01           355
May 29, 2009             June 15, 2009                   0.01           355
June 30, 2009            July 15, 2009                   0.01           355
July 31, 2009            August 14, 2009                 0.01           355
August 31, 2009          September 15, 2009              0.01           355
September 30, 2009       October 15, 2009                0.01           355
---------------------------------------------------------------------------
                                                         0.12         4,260
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The Fund's monthly distributions are based on the Partnership's monthly distributions.

Monthly cash distributions from the Partnership are based on the Partnership's cash flow and are not directly equal to the Fund's pro-rata share of the Partnership's income under the equity method.

5. Related Party Transactions

All accounting, treasury, legal and administrative functions for the Fund are performed on its behalf, without charge, by the Partnership pursuant to a support agreement. Distributions earned from the Partnership for the three months ended September 30, 2009 were $1.1 million of which $0.7 million was received, with the balance of $0.4 million receivable on September 30, 2009.

6. Future Income Taxes

The following table reconciles the income tax expense calculated using statutory tax rates to the actual income tax expense.

                                         Nine months ended      Year ended
                                              September 30,    December 31,
(thousands of dollars, unaudited)                     2009            2008
--------------------------------------------------------------------------
Expected income tax expense at statutory
 tax rate of nil (2008 - nil)                            -               -
Future income taxes (recovery) on
 temporary differences                              (3,081)          3,076
--------------------------------------------------------------------------
                                                    (3,081)          3,076
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The temporary differences based on the Fund's 49.8% ownership of the
Partnership are as follows:
                                              September 30,    December 31,
(thousands of dollars, unaudited)                     2009            2008
--------------------------------------------------------------------------
Future income tax liability:
Equity investment in the Partnership                43,476          44,453
Expected reversal of temporary
 differences prior to 2011                          (6,848)         (4,744)
--------------------------------------------------------------------------
                                                    36,628          39,709
--------------------------------------------------------------------------
--------------------------------------------------------------------------

In 2009 a future income tax recovery of $3.7 million was recorded as a result of a change in legislation impacting future taxation rates for Specified Investment Flow Through Trusts.

The future income tax liability is based on a current estimate of the balance at the beginning of 2011. The balance relates to the Fund's 49.8% ownership in the Partnership and is based on temporary differences between the accounting and tax basis of the Partnership's assets and liabilities expected to reverse after January 1, 2011.

7. Accumulated Other Comprehensive Income

                                         Nine months ended      Year ended
                                              September 30,    December 31,
(thousands of dollars, unaudited)                     2009            2008
--------------------------------------------------------------------------
Balance, beginning of period                            77             270
Other comprehensive loss                               (15)           (193)
--------------------------------------------------------------------------
Balance, end of period                                  62              77
--------------------------------------------------------------------------
--------------------------------------------------------------------------

8. Financial Instruments

The Fund's financial instruments consist of distributions receivable from the Partnership and distributions payable to unitholders. Distributions receivable are classified as loans and receivables, and are measured at amortized cost. Distributions payable are classified as other liabilities and are measured at amortized cost. The carrying values of these financial instruments approximate their fair values due to the relatively short period to maturity of these instruments.

The Fund is exposed to certain risks related to the nature of its investment in the Partnership and the structure of the Fund, as well as the underlying risks related to the business of the Partnership. The Fund relies on the objectives, policies and processes of the Partnership for managing these risks.

9. Segmented Information

The Fund operates in one industry segment, namely investing in pulp and paper producing assets in one geographic region, Canada.

Canfor Pulp Limited Partnership
Consolidated Statements of Income (Loss), Comprehensive Income (Loss) and
Partners' Equity
(millions of dollars,
 except units and          Three months ended          Nine months ended
 per unit amounts,  September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
Revenue
 Sales              $      202.0  $      215.4  $      593.3  $      639.4
 Business
  interruption
  insurance                    -           3.5           3.2          18.2
--------------------------------------------------------------------------
                           202.0         218.9         596.5         657.6
Costs and expenses
 Manufacturing and
  product costs            140.3         143.6         452.4         451.5
 Freight and other
  distribution costs        30.6          29.8          91.5          82.3
 Amortization               12.6          13.2          36.8          36.8
 Selling and
  administration
  costs                      6.1           5.7          18.2          18.2
 Settlement of asset
  retirement
  obligation                   -          (0.9)            -          (0.9)
--------------------------------------------------------------------------
                           189.6         191.4         598.9         587.9
Operating income
 (loss)                     12.4          27.5          (2.4)         69.7
Interest expense, net       (2.8)         (2.1)         (7.9)         (5.5)
Foreign exchange
 gain (loss) on
 long-term debt              9.9          (5.2)         16.7          (7.9)
Gain (loss) on
 derivative financial
 instruments
 (note 12)                   3.4         (12.7)         (2.0)          2.2
Foreign exchange
 (loss) gain on
 working capital            (4.6)          3.8          (6.2)          6.1
Net property damage
 insurance gain                -             -           0.2           8.5
Other expense                  -          (0.2)         (0.2)         (0.3)
--------------------------------------------------------------------------
                             5.9         (16.4)          0.6           3.1
Net income (loss)           18.3          11.1          (1.8)         72.8
Other
 comprehensive loss
 Adjustment for
  derivatives
  (note 15)                    -          (0.2)         (0.1)         (0.5)
--------------------------------------------------------------------------
Comprehensive
 income (loss)      $       18.3  $       10.9  $       (1.9) $       72.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net income (loss)
 per Partnership
 unit (in dollars)
 (note 11)
Basic and diluted   $       0.26  $       0.15  $      (0.02) $       1.02
Weighted average
 Partnership units
 outstanding          71,270,025    71,270,025    71,270,025    71,270,025
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Partners' Equity
Balance, beginning
 of period          $      507.8  $      595.0  $      534.4  $      584.9
Net income (loss)           18.3          11.1          (1.8)         72.8
Distributions
 declared to
 partners (note 14)         (2.2)        (25.7)         (8.6)        (77.0)
Other comprehensive
 loss (note 15)                -          (0.2)         (0.1)         (0.5)
--------------------------------------------------------------------------
Balance, end of
 period             $      523.9  $      580.2  $      523.9  $      580.2
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Canfor Pulp Limited Partnership
Consolidated Statements of Cash Flows
(millions of              Three months ended          Nine months ended
 of dollars,        September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
Cash and cash
 equivalents
 generated from
 (used in)
Operating
 activities
Net income (loss)   $       18.3  $       11.1  $       (1.8) $       72.8
 Items not
  affecting cash:
  Amortization              12.6          13.2          36.8          36.8
  Foreign exchange
   (gain) loss on
   long-term debt           (9.9)          5.2         (16.7)          7.9
  Reduction (increase)
   in value of
   outstanding
   derivative
   financial                (4.0)         12.7          (1.2)         (2.2)
   instruments
   (note 12)
  Employee future
   benefits                  1.5           2.0           3.7           6.1
  Loss on disposal
   of fixed assets             -           0.7             -           1.2
  Settlement of
   asset retirement
   obligation                  -          (0.9)            -          (0.9)
  Change in long-term
   maintenance
   provision                 0.8           3.4           2.3           8.3
  Net property damage
   insurance gain              -             -          (0.2)         (8.5)
  Other                      0.5           0.1           0.5           0.4
Asset retirement
 obligation
 expenditures                  -          (0.3)            -          (1.2)
Salary pension
 plan contribution          (0.5)         (0.5)         (1.9)         (1.4)
Long-term
 maintenance
 expenditure                (0.8)         (0.2)         (3.4)         (7.2)
--------------------------------------------------------------------------
Cash flow from
 operations before
 working capital
 changes                    18.5          46.5          18.1         112.1
 Changes in non-cash
  working capital
  (note 13)                 30.6         (19.8)         75.6         (28.9)
--------------------------------------------------------------------------
                            49.1          26.7          93.7          83.2
--------------------------------------------------------------------------
Financing
 activities
 Distributions paid
  to partners               (2.2)        (25.7)        (10.7)        (77.0)
 Operating loan
  (repayment) draw
  (note 8)                 (15.1)         (0.8)        (25.2)          4.2
--------------------------------------------------------------------------
                           (17.3)        (26.5)        (35.9)        (72.8)
--------------------------------------------------------------------------
Investing
 activities
 Property, plant and
  equipment, net
  (note 13)                 (6.2)         (8.6)        (14.4)        (27.0)
 Net insurance
  proceeds                     -             -           0.1           8.0
--------------------------------------------------------------------------
                            (6.2)         (8.6)        (14.3)        (19.0)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Increase (decrease)
 in cash and cash
 equivalents                25.6          (8.4)         43.5          (8.6)
Cash and cash
 equivalents,
 beginning of period        18.3           2.4           0.4           2.6
--------------------------------------------------------------------------
Cash and cash
 equivalents, end
 of period          $       43.9  $       (6.0) $       43.9  $       (6.0)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash and cash equivalents include cash on hand and highly liquid
investments with an original maturity date of 90 days or less net of
outstanding cheques.
Supplementary cash flow information (note 13).
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Canfor Pulp Limited Partnership
Consolidated Balance Sheets
                                                      As at          As at
                                               September 30,   December 31,
(millions of dollars, unaudited)                       2009           2008
--------------------------------------------------------------------------
ASSETS
Current assets
 Cash and cash equivalents                     $       43.9   $        0.4
 Accounts receivable (note 10)
  Trade                                               102.2           77.0
  Insurance                                               -            7.4
  Other                                                 4.5            7.5
 Inventories (note 3)                                 140.0          176.7
 Prepaid expenses and other assets                     13.5           16.5
--------------------------------------------------------------------------
Total current assets                                  304.1          285.5
--------------------------------------------------------------------------
Property, plant and equipment (note 4)                544.3          570.2
Other long-term assets (note 5)                        13.5           13.2
--------------------------------------------------------------------------
                                               $      861.9   $      868.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
LIABILITIES
Current liabilities
 Operating loan (note 8)                       $           -   $        25.2
 Accounts payable and accrued
  liabilities (note 10)                               166.9          121.6
 Distributions payable (note 14)                        0.7            2.8
--------------------------------------------------------------------------
Total current liabilities                             167.6          149.6
--------------------------------------------------------------------------
Long-term debt (note 8)                               117.9          134.7
Long-term liabilities (note 9)                         52.5           50.2
--------------------------------------------------------------------------
                                               $      338.0   $      334.5
--------------------------------------------------------------------------
PARTNERS' EQUITY - 14,254,005 Class A
 Limited Partnership Units and 57,016,020
 Class B Limited Partnership Units (note 1)           523.9          534.4
--------------------------------------------------------------------------                                               $      861.9   $      868.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Description of the Partnership and basis of presentation of financial
statements (note 1).
Contingency (note 13)
Subsequent event (note 17)
The accompanying notes are an integral part of these unaudited interim
consolidated financial statements.
Approved on behalf of Canfor Pulp Limited Partnership by its
General Partner, Canfor Pulp Holding Inc.,
"Stan Bracken-Horrocks"              "Paul Richards"
Stan Bracken-Horrocks                Paul Richards
Director                             Director

Canfor Pulp Limited Partnership

Notes to the Unaudited Interim Consolidated Financial Statements as at September 30, 2009

1. Business Description and Basis of Presentation

Canfor Pulp Limited Partnership (the Partnership) is a limited partnership formed on April 21, 2006, under the laws of Manitoba, to acquire and carry on the NBSK pulp and paper business of Canadian Forest Products Ltd. a subsidiary of Canfor Corporation (collectively Canfor). The business consists of two NBSK pulp mills and one NBSK pulp and paper mill located in Prince George, British Columbia and a marketing group based in Vancouver, British Columbia (the Pulp Business).

At September 30, 2009, Canfor owned 50.2% and Canfor Pulp Income Fund (the Fund) indirectly owned 49.8% of the issued and outstanding units of the Partnership.

The general partner of the Partnership is Canfor Pulp Holding Inc. (the General Partner), which holds an interest of 0.001% of the Partnership.

These unaudited interim consolidated financial statements are those of the Partnership and do not include the assets, liabilities, revenues and expenses of its partners. The Partnership, other than its incorporated subsidiaries, is not subject to income taxes as its income is allocated for tax purposes to its partners. Accordingly, no recognition has been made for income taxes related to Partnership income in these financial statements. The tax attributes of the Partnership's net assets flow directly to the partners.

Certain comparative figures have been reclassified to conform to current year presentation.

Economic Dependence

The Partnership depends on Canfor to provide approximately 62% (2008 Year - 64%) of its fibre supply as well as to provide certain key business and administrative services as described in the Fund's 2008 Annual Report available at www.canforpulp.com or www.sedar.com. As a result of these relationships the Partnership considers its operations to be dependent on its ongoing relationship with Canfor.

2. Significant Accounting Policies

These unaudited interim consolidated financial statements do not include all of the note disclosures required by Canadian generally accepted accounting principles for annual financial statements. The Partnership's accounting policies are as disclosed in the annual consolidated financial statements of the Partnership included in the Fund's 2008 Annual Report available at www.canforpulp.com or www.sedar.com. These unaudited interim consolidated financial statements follow the same accounting policies and methods of computation as used in the 2008 audited consolidated financial statements.

3. Inventories

                                               September 30,   December 31,
(millions of dollars, unaudited)                       2009           2008
--------------------------------------------------------------------------
Pulp                                                   59.2           86.7
Paper                                                  15.5           20.6
Wood chips                                             21.9           23.3
Processing materials and supplies                      43.4           46.1
--------------------------------------------------------------------------
                                                      140.0          176.7
--------------------------------------------------------------------------
--------------------------------------------------------------------------

4. Property, Plant and Equipment

                                                September 30, 2009
                                        -----------------------------------
                                                     Accumulated
(millions of dollars, unaudited)            Cost    amortization        Net
---------------------------------------------------------------------------
Land and improvements                        5.4               -        5.4
Asset retirement - Landfill                  2.3             0.8        1.5
Buildings, machinery and equipment       1,321.8           793.5      528.3
Construction in progress                     9.1               -        9.1
---------------------------------------------------------------------------
                                         1,338.6           794.3      544.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                 December 31, 2008
                                        -----------------------------------
                                                     Accumulated
(millions of dollars, unaudited)            Cost    amortization        Net
---------------------------------------------------------------------------
Land and improvements                        5.4               -        5.4
Asset retirement - Landfill                  2.3             0.8        1.5
Buildings, machinery and equipment       1,318.6           757.7      560.9
Construction in progress                     2.4               -        2.4
---------------------------------------------------------------------------
                                         1,328.7           758.5      570.2
---------------------------------------------------------------------------
---------------------------------------------------------------------------

5. Other Long-term Assets

                                              September 30,    December 31,
(millions of dollars, unaudited)                      2009            2008
--------------------------------------------------------------------------
Pension benefit plan                                  11.4            11.7
Maintenance shutdown costs                             1.9             0.9
Other                                                  0.2             0.6
--------------------------------------------------------------------------
                                                      13.5            13.2
--------------------------------------------------------------------------
--------------------------------------------------------------------------

6. Employee Future Benefits

The Partnership, in participation with Canfor, has funded and unfunded defined benefit plans, as well as a defined contribution plan, that provide pension, other retirement and post-employment benefits to substantially all salaried employees and for its hourly employees covered under collective agreements. The defined benefit plans are based on years of service and final average salary. The post-employment benefit plans are non-contributory and include a range of health care and other benefits.

Total employee future benefit expenses were as follows:

(millions of              Three months ended         Nine months ended
 dollars,           September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
Pension plans                1.2           0.9           3.7           2.8
Other employee future
 benefit plans               0.9           1.5           2.6           4.5
Contributions to forest
 industry union plans        1.7           1.7           5.0           5.1
--------------------------------------------------------------------------
                             3.8           4.1          11.3          12.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------

7. Asset Retirement Obligations

                                              September 30,    December 31,
(millions of dollars, unaudited)                      2009            2008
--------------------------------------------------------------------------
Balance beginning of period                            2.8            11.3
Accretion expense                                      0.1             0.4
Current expenditures                                     -            (1.2)
Gain on settlement                                       -            (0.9)
Change in estimate                                       -            (6.8)
--------------------------------------------------------------------------
Balance end of period                                  2.9             2.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------

8. Credit Facilities and Long-term Debt

At the end of the current quarter, the Partnership had cash and cash equivalents of $43.9 million. On September 30, 2009, the Partnership completed a new $40 million bank credit facility with a maturity date of November 30, 2011. In addition, the Partnership has arranged a $25 million letter of credit facility, subject to completion of legal documentation. This replaced the Partnership's previous operating credit facility of $75 million which was scheduled to mature on November 30, 2009. On September 30, 2009, utilization of the new facility consisted of $16.5 million of standby letters of credit issued to B.C. Hydro. The general terms and conditions of the new financing are similar to the previous bank credit facility, with interest and other costs at prevailing market rates. The leverage ratio and interest coverage ratio remain consistent with the financial covenants under the long-term Note agreement, which agreement was unchanged and not affected by the new bank financing. At September 30, 2009 the Partnership has outstanding long-term debt of $117.9 million (US$110.0 million) in the form of unsecured US dollar private placement notes (the Notes). The Notes bear interest at 6.41% and are repayable in full on their maturity date of November 30, 2013.

The agreements covering the new financing facility and the long-term Notes contain financial covenants including four quarter trailing maximum allowable debt to EBITDA leverage ratio of 3.25 and minimum required EBITDA to interest coverage ratio of 2.5. The Partnership remained in compliance with all covenants at September 30, 2009.

The fair value of long-term debt at September 30, 2009 was $123.7 million (US$115.4 million).

9. Long-term Liabilities

                                              September 30,    December 31,
(millions of dollars, unaudited)                      2009            2008
--------------------------------------------------------------------------
Accrued pension obligations                            5.7             5.9
Post-employment benefits                              42.6            40.8
Derivative financial instruments (note 12)             1.3             0.7
Asset retirement obligations (note 7)                  2.9             2.8
--------------------------------------------------------------------------
                                                      52.5            50.2
--------------------------------------------------------------------------
--------------------------------------------------------------------------

10. Related Party Transactions

The Partnership's transactions with related parties are consistent with the transactions described in the December 31, 2008 audited consolidated financial statements and are based on agreed upon amounts between the parties, and are summarized below:

(millions of              Three months ended         Nine months ended
 dollars,           September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
Transactions
Canfor                      33.8          34.0          89.1         111.0
Howe Sound
 LP - commission             0.7           0.7           1.9           2.1
Howe Sound LP - sale
 of wood chips                 -           0.1           0.1           0.5
Lakeland Mills Ltd.
 and Winton Global
 Lumber Ltd. -
 purchase of
 wood chips                  0.9           1.1           2.7           5.1
                                                September 30,  December 31,
                                                        2009          2008
--------------------------------------------------------------------------
Balance Sheet
Included in accounts
 payable and accrued
 liabilities:
 Canfor                                                 63.2          27.4
 Howe Sound LP                                          37.0          20.4
 Lakeland Mills Ltd. and
  Winton Global Lumber Ltd.                              0.3           0.2
Included in trade
 accounts receivable:
 Product marketed
  for Canfor                                            19.7           9.9
 Product marketed for
  Howe Sound LP                                         21.1          16.9
--------------------------------------------------------------------------

Transactions and payables to Canfor include purchases of wood chips, pulp and administrative services.

11. Net Income (loss) per Partnership Unit

Basic net income (loss) per Partnership unit is based on the weighted average number of Limited Partnership units outstanding during the period. All outstanding Partnership units were issued on July 1, 2006, and there was no change in the number of outstanding Partnership units during the quarter.

12. Financial Instruments

Classification of Financial Instruments

The Partnership has classified its cash and cash equivalents as held-for-trading. Accounts receivable are classified as loans and receivables and are measured at amortized cost. Accounts payable and accrued liabilities, distributions payable, operating loan and long-term debt, including interest payable, are classified as other liabilities, all of which are measured at amortized cost. Derivative instruments are recorded in the balance sheet at fair value. The Partnership has no derivatives embedded in its financial or non-financial contracts that are not closely related to the host contract.

Financial Risk Management

The Partnership is exposed to a number of risks as a result of holding financial instruments. These risks include credit risk, liquidity risk and market risk.

Risk management is carried out by the risk management committee under a "Risk Management Controls Policy". The policy sets out the responsibilities, reporting and counter party credit and communication requirements associated with all Partnership risk management activity. Responsibility for overall philosophy, direction and approval is that of the Board of Directors.

I. Credit risk:

Credit risk is the risk of financial loss to the Partnership if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Partnership to credit risk include cash and cash equivalents, accounts receivable and derivatives.

In order to mitigate the risk of financial loss, cash on deposit is held with major Canadian and international financial institutions. The cash and cash equivalents balance at September 30, 2009 was $43.9 million. The Partnership does not believe there is any significant credit risk associated with cash on deposit held in major Canadian and international financial institutions.

The Partnership utilizes a combination of credit insurance and self-insurance to manage the risk associated with trade receivables. Approximately 74% of the outstanding trade receivables are covered under credit insurance. In addition, the Partnership requires letters of credit on certain export trade receivables and periodically discounts these letters of credit without recourse. The Partnership recognizes the sale of the letters of credit at the settlement date, and accordingly reduces the related trade account receivable balance. At September 30, 2009, the Partnership had reduced the trade accounts receivable balance by $33.2 million due to discounting of letters of credit. The Partnership's trade receivable balance at September 30, 2009 was $102.2 million. The Partnership believes that its approach to managing credit risk associated with the collection of outstanding trade accounts receivable is appropriate in the current credit market.

The Partnership does not believe that there is any significant counter party credit risk in respect of outstanding derivatives.

II. Liquidity risk:

Liquidity risk is the risk that the Partnership will be unable to meet its financial obligations as they fall due. The Partnership manages liquidity risk through management of its capital structure in conjunction with cash flow forecasting including anticipated investing and financing activities, and use of the new revolving credit facility to meet short-term working capital requirements. On September 30, 2009, the Partnership completed a new $40 million bank credit facility with a maturity date of November 30, 2011. In addition, the Partnership has arranged a $25 million letter of credit facility, subject to completion of legal documentation.

The Partnership also actively reviews on an ongoing basis, the level of distributions, capital expenditures and timing of scheduled major maintenance outages and may adjust these amounts periodically to ensure adequate cash is available. In addition, the Partnership discounts letters of credit on outstanding trade receivables to manage liquidity risk. At September 30, 2009, the impact of discounting of letters of credit accelerated cash collection and reduced the trade accounts receivable balance by $33.2 million. The Partnership believes it will be able to meet all financial obligations as they come due.

At September 30, 2009, the Partnership accounts payable and accrued liabilities totalled $166.9 million, all of which fall due for payment within one year of the balance sheet date. The Partnership's distributions payable at September 30, 2009 totalled $0.7 million, which fall due for payment on October 15, 2009.

III. Market risk:

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates and foreign currency.

a. Interest rate risk:

The Partnership is exposed to interest rate risk though its financial assets and financial obligations bearing variable interest rates and through its operating lease obligations. The Partnership's cash and cash equivalents include term deposits with an original maturity date of 90 days or less.

Fluctuations in the market interest rates are not expected to have a material impact on the Partnership's results of operations due to the short-term nature of the respective financial assets and obligations and the fixed interest rate on long-term debt.

The Partnership currently does not use derivative instruments to reduce its exposure to interest rate risk.

b. Currency risk:

The Partnership is exposed to foreign exchange risk. The Partnership's products are sold globally with prices primarily denominated in US dollars or linked to prices quoted in US dollars with certain expenditures transacted in US dollars. In addition, the Partnership holds financial assets and liabilities in US dollars. These primarily include US dollar bank accounts and investments, trade accounts receivable and long-term debt.

The Partnership enters into US dollar forward sales contracts to reduce exposure to fluctuations in US exchange rates on US dollar denominated accounts receivable and accounts payable balances. c. Commodity price risk:

The Partnership's financial performance is dependant on the selling price of its products and the purchase price of raw material inputs. Consequently, the Partnership is exposed to changes in commodity prices for pulp and paper, as well as changes in fibre, freight, chemical and natural gas prices. The markets for pulp and paper are cyclical and are influenced by a variety of factors. These factors include periods of excess supply due to industry capacity additions, periods of decreased demand due to weak global economic activity, inventory destocking by customers and fluctuations in currency exchange rates. During periods of low prices, the Partnership is subject to reduced revenues and margins, which adversely impact profitability.

The Partnership may periodically use derivative instruments to mitigate commodity price risk. For the quarter ended September 30, 2009 the Partnership used derivative instruments to reduce exposure to natural gas prices.

Derivative Instruments

Periodically, the Partnership uses a variety of derivative instruments to reduce its exposure to risks associated with fluctuations in foreign exchange rates, pulp and natural gas prices.

For the third quarter of 2009 the Partnership recorded a gain on derivative financial instruments of $3.4 million (third quarter 2008 - loss of $12.7 million) relating to the settlement of maturing contracts during the quarter, and the revaluation to market of outstanding contracts at the end of the quarter, for natural gas swaps and foreign exchange hedging contracts.

The Partnership recorded losses of $2.5 million during the third quarter of 2009 (third quarter 2008 - gain of $0.8 million) relating to settlement of maturing natural gas contracts as a charge to non-operating income. At September 30, 2009 the Partnership had outstanding commodity swaps hedging future natural gas purchases of 2.1 million gigajoules extending to October, 2011. At September 30, 2009 the loss of $4.3 million (December 31, 2008 - $3.2 million) on these outstanding commodity swaps was recorded as a liability in accounts payable and accrued liabilities and in long-term liabilities.

The Partnership recorded a gain of $1.9 million during the third quarter of 2009 (third quarter 2008 - nil) on settlement of maturing US dollar forward sales contracts as a charge to non-operating income. At September 30, 2009 the Partnership had outstanding US dollar forward sales contracts of $57.0 million extending to December, 2009. At September 30, 2009 the gain of $1.0 million (December 31, 2008 - $1.3 million) on these outstanding US dollar forward sales contracts was recorded as an asset in other accounts receivable.

13. Supplementary Cash Flow Information

(millions of              Three months ended         Nine months ended
 dollars,           September 30, September 30, September 30, September 30,
 unaudited)                 2009          2008          2009          2008
--------------------------------------------------------------------------
Changes in non-cash
 working capital
Accounts receivable -
 trade and other            11.2          16.8         (21.1)         21.6
Insurance receivable           -          (3.7)          7.3          (8.8)
Inventories                 (6.0)        (17.4)         36.8         (33.7)
Prepaid expenses and
 other assets               (0.3)         (1.6)          3.0          (7.7)
Accounts payable and
 accrued liabilities        25.7         (13.9)         49.6          (0.3)
--------------------------------------------------------------------------
                            30.6         (19.8)         75.6         (28.9)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Capital expenditures
Capital expenditures -
 cash                        6.2           8.6          14.4          27.0
Less property damage
 insurance proceeds            -          (5.7)            -          (5.7)
--------------------------------------------------------------------------
Net capital
 expenditures -
 cash                        6.2           2.9          14.4          21.3
Capital expenditures -
 net accruals                0.9           2.8          (3.4)         (2.8)
--------------------------------------------------------------------------
                             7.1           5.7          11.0          18.5
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net interest paid            0.5           0.2           5.3           3.7
--------------------------------------------------------------------------
--------------------------------------------------------------------------

A payment to BC Hydro totaling $4.3 million is included in capital expenditures - cash, in the third quarter of 2009. This represents a payment to reduce the Partnership's obligation for power production from the cogeneration project at the Prince George Pulp and Paper Mill. The obligation to produce power for the remainder of the term of the agreement, extending to August 2020, is reduced to 338 GWh per year from 390 GWh effective September 15, 2009.

14. Distributions

The Partnership declared distributions in the first nine months of 2009 as follows:

(millions of dollars, except per unit amounts, unaudited)
                                                     Amount per
                                               Partnership Unit      Amount
Record Date              Payable Date                         $           $
---------------------------------------------------------------------------
January 30, 2009         February 13, 2009                 0.04         2.9
February 27, 2009        March 13, 2009                    0.01         0.7
March 31, 2009           April 15, 2009                    0.01         0.7
April 30, 2009           May 15, 2009                      0.01         0.7
May 29, 2009             June 15, 2009                     0.01         0.7
June 30, 2009            July 15, 2009                     0.01         0.7
July 31, 2009            August 14, 2009                   0.01         0.8
August 31, 2009          September 15, 2009                0.01         0.7
September 30, 2009       October 15, 2009                  0.01         0.7
---------------------------------------------------------------------------
                                                           0.12         8.6
---------------------------------------------------------------------------
---------------------------------------------------------------------------

15. Accumulated Other Comprehensive Income

                                         Nine months ended      Year ended
                                              September 30,    December 31,
(millions of dollars, unaudited)                      2009            2008
--------------------------------------------------------------------------
Balance, beginning of period                           0.1             0.5
Adjustment for exchange translation                   (0.1)            0.2
Adjustment for derivatives recorded
 in other comprehensive income                           -            (0.6)
--------------------------------------------------------------------------
Balance, end of period                                   -             0.1
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Since the inception of the Partnership, the total of the cumulative comprehensive income, less cumulative distributions is as follows:

                                                              September 30,
(millions of dollars, unaudited)                                      2009
--------------------------------------------------------------------------
Cumulative comprehensive income                                      261.5
Cumulative distributions                                            (325.1)
--------------------------------------------------------------------------
                                                                     (63.6)
Partners' capital - at July 1, 2006                                  587.5
--------------------------------------------------------------------------
Partners' equity, end of period                                      523.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------

16. Segmented Information (a)

                                                      Unallocated
(millions of dollars, unaudited)        Pulp    Paper       Costs    Total
--------------------------------------------------------------------------
Three months ended September 30, 2009
--------------------------------------------------------------------------
Sales to external customers (b)        170.1     31.9           -    202.0
Sales of pulp to paper segment (c)      16.2    (16.2)          -        -
Operating income (loss)                 11.6      3.2        (2.4)    12.4
Amortization                            11.7      0.8         0.1     12.6
Capital expenditures, net                7.1        -           -      7.1
Three months ended September 30, 2008
--------------------------------------------------------------------------
Sales to external customers (b)        181.7     33.7           -    215.4
Sales of pulp to paper segment (c)      21.1    (21.1)          -        -
Operating income (loss)                 26.8      3.7        (3.0)    27.5
Amortization                            12.2      1.0           -     13.2
Capital expenditures, net               11.2        -         0.2     11.4
Nine months ended September 30, 2009
--------------------------------------------------------------------------
Sales to external customers (b)        503.1     90.2           -    593.3
Sales of pulp to paper segment (c)      42.8    (42.8)          -        -
Operating income (loss)                 (6.2)    10.5        (6.7)    (2.4)
Amortization                            34.1      2.5         0.2     36.8
Capital expenditures, net               10.9        -         0.1     11.0
Identifiable assets                    735.0     65.0        61.9    861.9
Nine months ended September 30, 2008
--------------------------------------------------------------------------
Sales to external customers (b)        536.1    103.3           -    639.4
Sales of pulp to paper segment (c)      61.4    (61.4)          -        -
Operating income (loss)                 72.9      6.9       (10.1)    69.7
Amortization                            33.8      2.9         0.1     36.8
Capital expenditures, net               23.5      0.4         0.3     24.2
Identifiable assets                    831.8     71.9        17.1    920.8
--------------------------------------------------------------------------
(a) Operations are presented by product lines. Operations are considered
    to be in one geographic area since all production facilities are in
    Canada. Substantially all sales are exported outside Canada, with
    sales to the United States representing 36% (Year 2008 - 43%).
(b) Sales to the largest customer represented approximately 8% of pulp
    segment sales (Year 2008 - 22%).
(c) Sales of slush pulp to the paper segment are accounted for at
    approximate market value. The sales are transacted as a cost transfer
    and are not reflected in Pulp sales.

17. Subsequent event

On October 9, 2009 the Canadian federal government announced the allocation of credits from the billion dollar Pulp and Paper Green Transformation Program (the Program). The Partnership has been allocated $122.2 million from the Program announced by the Canadian government on June 17, 2009. The Program is designed as a reimbursement of funds to be spent on qualifying energy and environmental capital projects. Credits may be used until the program end date of March 31, 2012.

Contacts:
Canfor Pulp Income Fund
Terry Hodgins
Chief Financial Officer and Secretary
604-661-5421
Terry.Hodgins@canforpulp.com
www.canforpulp.com

SOURCE: Canfor Pulp Income Fund

mailto:Terry.Hodgins@canforpulp.com
http://www.canforpulp.com

After taking account of all items affecting comparability, the Company's adjusted net loss for the third quarter of 2009 was $32.2 million ($0.23 per share), compared to a similarly adjusted net loss of $17.0 million ($0.12 per share) for the second quarter of 2009 and an adjusted net loss of $1.0 million ($0.01 per share) for the third quarter of 2008. For year-to-date 2009, the adjusted net loss was $127.4 million ($0.89 per share), double the similarly adjusted net loss of $63.5 million ($0.45 per share) for the comparative period in 2008.

U.S. housing starts showed a marginal improvement through the third quarter, but remain at very depressed levels. Western Spruce/Pine/Fir ("SPF") 2x4 lumber prices showed modest gains in the quarter, mostly in response to additional curtailment and concerns over supply disruption, but prices retreated from their August highs towards the end of the quarter. Southern Yellow Pine ("SYP") 2x4 lumber prices declined slightly through the period. Pulp prices continued their upward momentum in the third quarter, driven primarily by historically low global inventory levels and a steady improvement in demand. For Canadian operations, the pricing gains were offset to some extent by the strengthening of the Canadian dollar in the quarter.

The Company's reported EBITDA of $7 million was in line with the amount reported for the second quarter of 2009. However, excluding the impact of inventory accounting adjustments, which significantly skewed the second quarter's results, and restructuring costs, EBITDA for the third quarter of $15 million was up $48 million from the second quarter. This increase reflected higher sales revenues, particularly for pulp products, and lower lumber and pulp unit manufacturing costs, as well as costs in the second quarter related to settling the Company's North Central Plywoods mill fire insurance claim.

Cash conservation efforts continue to be a primary focus. The Company achieved further reductions in working capital, and operating and overhead cash costs, in the quarter, and continues to limit capital spending to essential projects. At the end of the third quarter, the Company had cash of $153 million (unchanged from the previous quarter), and $413 million of undrawn operating lines of credit.

Commenting on the results, Canfor's President and CEO Jim Shepard said, "Our third quarter results reflect further progress in our cost reduction efforts and a welcome uplift in pulp prices, but there is no disguising the continued challenges presented by the troubled U.S. housing market."

The Company operated at approximately 50% of lumber capacity for the quarter. In addition to indefinitely idling its Radium, Rustad and Vavenby sawmills in June and July, the Company curtailed another 95 million board feet of lumber production, in the form of summer vacation shuts, at its continuing Western SPF and SYP operations in the third quarter. In late July, the Company restarted its Mackenzie sawmill after a 13-month curtailment. "The restarting of our Mackenzie operation is a good news story in very trying times and has been made possible through the cooperation of our employees and other stakeholders," said Shepard.

Lumber market conditions are expected to remain difficult through the balance of 2009 and into 2010, with the recent surge in the Canadian dollar creating additional challenges for Canadian producers. "We will continue to adjust our production levels to match demand," said Shepard. He added that the Company's top priorities in the short term would remain cash conservation and sustainable performance improvements. "Our overriding objective is the same - to emerge from this downturn stronger than ever so that we can take full advantage of the recovery when it comes," said Shepard.

In addition, the Company announced today that it will be taking curtailments at most of its sawmills over the Christmas period. This decision will reduce Canfor's lumber production by approximately 37 million board feet of SPF lumber.

Additional Information and Conference Call

A conference call to discuss the third quarter's financial and operating results will be held on Friday, October 30, 2009 at 9:00 AM Pacific time. To participate in the call, please dial 416-340-8018 or Toll-Free 866-223-7781. For instant replay access until November 27, 2009, please dial 416-695-5800 or 800-408-3053 and enter participant pass code 7345171#. The conference call will be webcast live and will be available at www.canfor.com. This news release, the attached financial statements and presentation used during the conference call can be accessed via the Company's website at http://www.canfor.ca/investors/webcasts.asp.

Forward Looking Statements

Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. There are many factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements. Forward-looking statements are based on current expectations and the Company assumes no obligation to update such information to reflect later events or developments, except as required by law.

Canfor is a leading integrated forest products company based in Vancouver, British Columbia (BC) with interests in BC, Alberta, Quebec, Washington state, and North and South Carolina. The Company produces the most softwood lumber in BC while also producing oriented strand board (OSB), remanufactured lumber products and specialized wood products. Canfor also owns a 50.2% interest in Canfor Pulp Limited Partnership, which is one of the largest producers of northern softwood kraft pulp in Canada and a leading producer of high performance kraft paper. Canfor shares are traded on the Toronto Stock Exchange under the symbol CFP.

Canfor Corporation

Third Quarter 2009

Management's Discussion and Analysis

This interim Management's Discussion and Analysis ("MD&A") provides a review of Canfor Corporation's ("Canfor" or "the Company") financial performance for the quarter ended September 30, 2009 relative to the quarters ended June 30, 2009 and September 30, 2008, and the financial position of the Company. It should be read in conjunction with Canfor's unaudited interim consolidated financial statements and accompanying notes for the quarters ended September 30, 2009 and 2008, as well as the 2008 annual MD&A and the 2008 audited consolidated financial statements and notes thereto, which are included in Canfor's Annual Report for the year ended December 31, 2008 (available at www.canfor.com). The financial information in this interim MD&A has been prepared in accordance with Canadian generally accepted accounting principles ("GAAP").

Throughout this discussion, reference is also made to EBITDA (calculated as operating income before amortization) which Canfor considers to be an important indicator for measuring trends in the performance of each of its operating segments and the Company's ability to generate funds to meet its debt repayment and capital expenditure requirements. Reference is also made to Adjusted Net Loss (calculated as Net Loss less specific items affecting comparability with prior periods - for the full calculation, see reconciliation included in the section "Analysis of Specific Items Affecting Comparability of Net Loss") and Adjusted Net Loss per Share (calculated as Adjusted Net Loss divided by the weighted average number of shares outstanding during the period). EBITDA, Adjusted Net Loss and Adjusted Net Loss per Share are not generally accepted earnings measures and should not be considered as an alternative to net income or cash flows as determined in accordance with Canadian GAAP. As there is no standardized method of calculating these measures, Canfor's EBITDA, Adjusted Net Loss and Adjusted Net Loss per Share may not be directly comparable with similarly titled measures used by other companies. Reconciliations of EBITDA and Adjusted Net Loss to net income reported in accordance with GAAP are included in this MD&A.

Factors that could impact future operations are also discussed. These factors may be influenced by both known and unknown risks and uncertainties that could cause the actual results to be materially different from those stated in this discussion. Factors that could have a material impact on any future oriented statements made herein include, but are not limited to: general economic, market and business conditions; product selling prices; raw material and operating costs; foreign exchange rates; interest rates; changes in law and public policy; the outcome of trade disputes; and opportunities available to or pursued by Canfor.

Certain prior period comparative information throughout this report has been restated for consistency with the presentation in the current period. All financial references are in millions of Canadian dollars unless otherwise noted. The information in this report is as at October 28, 2009.

Forward Looking Statements

Certain statements in this MD&A constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "projects", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. There are many factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ materially from any future results expressed or implied by such statements. Forward-looking statements are based on current expectations and the Company assumes no obligation to update such information to reflect later events or developments, except as required by law.

THIRD QUARTER 2009 EARNINGS OVERVIEW

Selected Financial Information and Statistics(1)

(millions of dollars,
 except for per share        Q3         Q2        YTD         Q3        YTD
 amounts)                  2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Sales                 $   540.9  $   541.7  $ 1,570.8  $   668.0  $ 2,022.9
EBITDA                $     7.0  $     7.3  $   (70.3) $    55.1  $    43.3
Operating (loss)
 income               $   (31.4) $   (31.2) $  (186.8) $    12.8  $   (83.9)
Foreign exchange gain
 (loss) on long-term
 debt and
 investments, net     $    26.2  $    29.1  $    42.4  $   (16.2) $   (28.3)
Gain (loss) on
 derivative financial
 instruments(2)       $    17.7  $    25.7  $    22.1  $   (38.8) $    (6.8)
Gain on sale of mill
 property             $       -  $       -  $    44.6  $       -  $       -
North Central
 Plywoods mill fire,
 net                  $       -  $    (3.0) $    (3.0) $       -  $    57.9
Prince George Pulp &
 Paper mill fire, net $       -  $       -  $       -  $       -  $     8.5
Asset impairments     $       -  $       -  $       -  $   (70.0) $   (70.0)
Net income (loss)     $    (5.2) $    10.5  $   (53.5) $   (94.2) $  (115.4)
Net income (loss)
 per share, basic
 and diluted          $   (0.04) $    0.07  $   (0.38) $   (0.66) $   (0.81)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Average exchange rate
 (US$/CDN$)(3)        $   0.912  $   0.858  $   0.858  $   0.960  $   0.982
---------------------------------------------------------------------------
---------------------------------------------------------------------------
U.S. housing starts
 (million units SAAR)
 (4)                      0.590      0.540      0.553      0.868      0.981
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(1) Certain amounts in prior periods have been reclassified to conform
    to the presentation in the current period.
(2) Includes gains (losses) from natural gas, diesel, foreign exchange and
    lumber future derivative financial instruments (see "Unallocated and
    Other" section for more details).
(3) Source - Bank of Canada (average noon rate for the period).
(4) Source - U.S. Census Bureau, seasonally adjusted annual rate ("SAAR").

The Company's net income (loss) and adjusted net income (loss), together with the related adjustments, for the third quarter of 2009, the second quarter of 2009 and the third quarter of 2008 are detailed in the table below:

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

After-tax impact, net
 of non-controlling
 interests
(millions of dollars,
 except for per share        Q3         Q2        YTD         Q3        YTD
 amounts)                  2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Net income (loss), as
 reported             $    (5.2) $    10.5  $   (53.5) $   (94.2) $  (115.4)
Restructuring, mill
 closure and
 severance costs      $     5.3  $     7.5  $    17.0  $     3.6  $    28.5
Foreign exchange
 (gain) loss on
 long-term
 debt and
 investments, net     $   (19.6) $   (19.7) $   (30.2) $    11.3  $    20.0
(Gain) loss on
 derivative financial
 instruments          $   (12.7) $   (17.3) $   (17.6) $    21.4  $     4.2
Gain on sale of mill
 property             $       -  $       -  $   (37.8) $       -  $       -
North Central
 Plywoods mill
 fire, net            $       -  $      2.0 $     2.0  $       -  $   (45.0)
Prince George Pulp &
 Paper mill fire, net $       -  $       -  $       -  $       -  $    (3.6)
Asset impairments     $       -  $       -  $       -  $    56.9  $    56.9
Corporate income tax
 rate reductions      $       -  $       -  $    (7.3) $       -  $    (9.1)
---------------------------------------------------------------------------
Net impact of above
 items                $   (27.0) $   (27.5) $   (73.9) $    93.2  $    51.9
---------------------------------------------------------------------------
Adjusted net income
 (loss)               $   (32.2) $   (17.0) $  (127.4) $    (1.0) $   (63.5)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Net income (loss) per
 share (EPS), as
 reported             $   (0.04) $    0.07  $   (0.38) $   (0.66) $   (0.81)
Net impact of above
 items per share      $   (0.19) $   (0.19) $   (0.51) $    0.65  $    0.36
---------------------------------------------------------------------------
Adjusted net income
 (loss) per share     $   (0.23) $   (0.12) $   (0.89) $   (0.01) $   (0.45)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

EBITDA

The following table reconciles the Company's net loss, as reported in accordance with GAAP, to EBITDA:

                             Q3         Q2        YTD         Q3        YTD
(millions of dollars)      2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Net income (loss), as
 reported             $    (5.2) $    10.5  $   (53.5) $   (94.2) $  (115.4)
Add (subtract):
Amortization          $    38.4  $    38.5  $   116.5  $    42.2  $   127.2
Interest expense, net $     6.9  $     7.0  $    22.2  $     6.7  $    17.7
Foreign exchange
 (gain) loss on
 long-term
 debt and
 investments, net     $   (26.2) $   (29.1) $   (42.4) $    16.2  $    28.3
(Gain) loss on
 derivative financial
 instruments          $   (17.7) $   (25.7) $   (22.1) $    38.8  $     6.8
Gain on sale of mill
 property             $       -  $       -  $   (44.6) $       -  $       -
North Central
 Plywoods mill
 fire, net            $       -  $     3.0  $     3.0  $       -  $   (57.9)
Prince George Pulp
 Paper mill fire, net $       -  $       -  $       -  $       -  $    (8.5)
Asset impairments     $       -  $       -  $       -  $    70.0  $    70.0
Other expense
 (income)             $     8.7  $     2.5  $     8.7  $    (0.1) $     0.2
Income tax (recovery)
 expense              $    (7.2) $    (1.0) $   (57.9) $   (30.0) $   (61.7)
Non-controlling
 interests            $     9.3  $     1.6  $    (0.2) $     5.4  $    36.6
---------------------------------------------------------------------------
EBITDA, as reported   $     7.0  $     7.3  $   (70.3) $    55.1  $    43.3
Included in above:
 Restructuring, mill
  closure and
  severance costs     $     6.2  $    11.4  $    24.0  $     5.4  $    43.2
 Negative (positive)
  impact of inventory
  write downs(5)      $     1.7  $   (52.2) $   (20.7) $     3.5  $   (46.0)
---------------------------------------------------------------------------
EBITDA excluding
 impact of inventory
 write-downs and
 restructuring        $    14.9  $   (33.5) $   (67.0) $    64.0  $    40.5
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(5) In accordance with Canadian GAAP, Canfor records its log and finished
    product inventories at the lower of cost and net realizable value (NRV).
    Significant movements in inventory volumes occur due to the seasonal
    build and drawdown of logs in the first and second quarters each year.
    Where NRV is below cost this can result in large swings in inventory
    write-down amounts recorded in those periods. In addition to inventory
    volumes, the level of inventory write-downs recorded in a reporting
    period reflects changes in market prices, foreign exchange rates, and
    costs over the respective reporting periods.

The prolonged downturn in the U.S. housing market continued to weigh heavily on Canfor's results in the third quarter of 2009 with U.S. housing starts showing only a marginal improvement from the record lows seen in the second quarter. In the Pulp segment, demand for printing and writing papers, the largest consuming segment of market pulp, showed a modest increase, but was still down over 14% from 2008 levels on a year-to-date basis.

Average prices across all solid wood and pulp products were higher compared to the second quarter, but were well off the levels of the corresponding quarter of 2008. Prices for most solid wood products faltered towards the end of the third quarter, but NBSK pulp prices remained firm and further increases of US$30 per tonne were announced for October.

The benchmark Western Spruce/Pine/Fir ("SPF") 2x4 #2&Btr lumber price averaged US$191(6) per thousand board feet ("Mfbm") in the third quarter, up US$17 from the previous quarter, but was down US$72, or 27%, from the third quarter of 2008. The average benchmark Southern Yellow Pine ("SYP") 2x4 #2 price in the third quarter was US$230 per Mfbm, down slightly from the previous quarter, and US$59 per Mfbm, or 20%, lower than for the corresponding quarter of 2008. The northern bleached softwood kraft ("NBSK") pulp list price for U.S. delivery climbed US$88 per tonne to US$733 per tonne in the third quarter, but was still US$147 per tonne, or 17%, lower than the third quarter of 2008. The value of the Canadian dollar relative to its U.S. counterpart increased 6% to 91 cents in the third quarter compared to the previous quarter, and offset much of the improvement in US dollar prices. Compared to the same quarter of 2008, the Canadian dollar was down 5 cents, or 5%.

(6) Random Lengths Publications, Inc.

The Company's lumber operations operated at approximately 50% of capacity in the third quarter of 2009, with lumber shipments and production reflecting the indefinite idling of the Company's Radium, Rustad and Vavenby sawmills in June and July, and the curtailment of another 95 million board feet at its continuing Western SPF and SYP operations, in the form of summer vacation shuts. In late July, the Company restarted its Mackenzie sawmill after a 13-month curtailment.

The Company reported EBITDA of $7.0 million for the third quarter of 2009, which was unchanged from the previous quarter. Excluding the impact of restructuring, mill closure and severance ("restructuring") costs and inventory accounting adjustments, EBITDA for the third quarter was up $48.4 million compared to the second quarter, as improved pulp and Western SPF lumber prices and lower operational and overhead costs (including reduced natural gas costs) more than offset the impact of the 6% higher Canadian dollar. The second quarter's operating results reflected higher costs related to the indefinite idling of the Radium, Rustad and Vavenby operations and the Company's settlement of its North Central Plywoods ("NCP") mill fire insurance claim in April.

Compared to the same quarter in 2008, reported EBITDA was down by $48.1 million, reflecting to a large extent significantly lower solid wood and pulp demand and prices, partly offset by reduced unit manufacturing costs across all businesses and a 5% lower Canadian dollar.

Other significant items affecting comparability with prior periods included the following amounts (net of tax and non-controlling interests):

- A foreign exchange translation gain on the Company's US dollar denominated debt, net of investments, of $19.6 million ($0.14 per share), as a result of the stronger Canadian dollar. Year-to-date, the gain is $30.2 million ($0.21 per share).

- Gains recorded on derivative financial instruments totaling $12.7 million ($0.09 per share), principally reflecting an increase in the value of the Canadian dollar relative to the US dollar in the third quarter. The year-to-date net gain is $17.6 million ($0.12 per share).

OPERATING RESULTS BY BUSINESS SEGMENT

Lumber

Selected Financial Information and Statistics - Lumber

(millions of dollars
 unless otherwise            Q3         Q2        YTD         Q3        YTD
 noted)                    2009       2009       2009       2008       2008
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Sales                 $   301.1  $   299.2  $   877.6  $   378.8  $ 1,126.6
Operating income
 (loss)               $   (36.3) $   (12.0) $  (140.6) $    (8.2) $  (104.2)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
EBITDA, as reported   $   (14.6) $    10.6  $   (72.8) $    15.3  $   (31.4)
Restructuring, mill
 closure and
 severance costs      $     4.5  $     9.6  $    16.6  $     3.1  $    15.0
Negative (positive)
 impact of inventory
 write downs          $     2.5  $   (43.1) $   (16.3) $     6.6  $   (29.4)
---------------------------------------------------------------------------
EBITDA excluding
 impact of inventory
 write downs and
 restructuring        $    (7.6) $   (22.9) $   (72.5) $    25.0  $   (45.8)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Average SPF 2x4
 #2&Btr lumber price
 in US$(7)            $     191  $     174  $     173  $     263  $     233
Average SPF price in
 Cdn$                 $     209  $     203  $     202  $     274  $     237
Average SYP 2x4 #2
 lumber price in
 US$(8)               $     230  $     236  $     234  $     289  $     289
Average SYP price in
 Cdn$                 $     252  $     275  $     273  $     301  $     295
---------------------------------------------------------------------------
Production - SPF
 lumber (MMfbm)           613.9      759.3    2,075.1      747.1    2,507.8
Production - SYP
 lumber (MMfbm)            70.5       58.6      191.5       99.6      310.0
Shipments - SPF
 lumber (MMfbm) (9)       714.7      764.5    2,164.1      755.9    2,553.9
Shipments - SYP
 lumber (MMfbm) (9)        66.0       69.1      201.8      110.3      346.5
Shipments -
 wholesale lumber
 (MMfbm)                   56.1       50.1      145.2       39.8      135.3
---------------------------------------------------------------------------
(7) Western Spruce/Pine/Fir, per thousand board feet (Source - Random
    Lengths Publications, Inc.)
(8) Southern Yellow Pine, Eastside, per thousand board feet (Source -
    Random Lengths Publications, Inc.)
(9) Canfor-produced lumber, including lumber purchased for remanufacture.

Overview

EBITDA for the Lumber segment was negative $14.6 million for the third quarter of 2009, an adverse movement of $25.2 million compared to the second quarter of 2009, and $29.9 million lower than the $15.3 million reported for the third quarter of 2008. For September year-to-date, EBITDA for the Lumber segment was negative $72.8 million, an adverse movement of $41.4 million compared to the same period in 2008.

Shipments and production in the third quarter were well down from those of the previous quarter and the same period of 2008, reflecting significantly weaker product demand and resulting higher curtailment.

EBITDA for the second quarter of 2009 included a significant positive impact from inventory write-down adjustments, principally as a result of the drawdown of log inventories after the Company's seasonal build in the first quarter. Excluding the impact of inventory write-down adjustments and restructuring costs, EBITDA in the current quarter was up $15.3 million, due largely to higher Western SPF sales values (particularly wide-dimension lumber) and lower unit manufacturing costs, which more than offset the appreciation of the Canadian dollar. US dollar prices for SYP 2x4 #2 lumber were down slightly over the same period, although moderate price gains were recorded for wider dimensions. Cash unit manufacturing costs were down marginally compared to the previous quarter despite additional curtailments.

The decrease in EBITDA, excluding the impact of inventory write-down adjustments and restructuring costs, of $32.6 million, when compared to the third quarter of 2008, was primarily attributable to significantly lower US dollar prices across most Western SPF and SYP products and grades, which outweighed a 6% decline in unit manufacturing costs and a 5% decrease in the value of the Canadian dollar over the same period. Western SPF 2x4 #2&Btr and SYP 2x4 #2 US dollar prices were down 27% and 20%, respectively, and significant decreases were also seen for most other dimensions and grades.

Restructuring costs in the third quarter of 2009 were down $5.1 million compared to the previous quarter, principally reflecting the decision in the second quarter to indefinitely idle three sawmills.

Markets

Demand for softwood lumber showed marginal improvement during the third quarter of 2009 compared to the second quarter, in part explained by the U.S. federal government's $8,000 tax credit for first-time homebuyers. Despite this improvement, housing starts were still much lower than during the third quarter of 2008. Compared to the same period last year, total housing starts decreased by 32% and single family starts fell by 17%.

Canadian housing starts improved slightly in the third quarter of 2009 to an average 148,000 units SAAR(10). This is an increase of 20,000 units SAAR, or 15%, compared to the previous quarter, and down 60,000 units SAAR, or 29%, compared to the third quarter of 2008.

Offshore lumber demand in the third quarter was buoyed by increased demand from China, with that market leading all export shipments. Shipments to Japan were stable, reflecting steady demand.

Sales

Lumber sales revenues for the third quarter of 2009 were $301.1 million, substantially unchanged from the second quarter of 2009, but were down $77.7 million, or 21%, compared to the third quarter of 2008.

SPF and SYP lumber prices were up for most grades compared to the prior quarter, reflecting tighter supply. Prices for wide-dimension lumber, in particular, moved up sharply from those in the second quarter. However, compared to the same quarter a year ago, prices for most grades were well down, reflecting the significant fall-off in demand over the past year. The average price of Western SPF 2x4 #2&Btr increased by US$17 per Mfbm, or 10%, compared to the previous quarter, but was down US$72 per Mfbm, or 27%, compared to the third quarter of 2008. Average prices for SYP 2x4 #2 were down US$6 compared to the second quarter at US$230, and were down US$59, or 20%, compared to the third quarter of 2008. Canadian dollar sales realizations were negatively impacted by a 6% increase in the value of the Canadian dollar compared to the previous quarter, but benefited from a 5% decrease in the dollar compared to the same quarter a year ago.

The Random Lengths Framing Lumber Composite price averaged US$237 per Mfbm for the third quarter of 2009, up US$28, or 13%, compared to the previous quarter, but remained well below the trigger price of US$315 per Mfbm required to reduce the export tax rate on all U.S. bound shipments below the current rate of 15%.

Shipments for the third quarter of 2009 were 837 million board feet, down 47 million board feet, or 5%, compared to the previous quarter, reflecting lower production and targeted reductions in finished product inventories. Compared to the third quarter of 2008, shipments were down 69 million board feet, or 8%.

Total residual fibre revenue compared to the previous quarter reflected the lower production in the current quarter. Compared to the same quarter of 2008, revenue was down sharply due to the combination of reduced operating rates and weaker pulp and lumber prices in the current period.

Operations

Lumber production of 684 million board feet for the third quarter of 2009 reflected the previously noted curtailments, and was 134 million board feet, or 16%, lower than the prior quarter, and 162 million board feet, or 19%, lower than production for the same quarter in 2008.

Overall, the Company's unit manufacturing (log and conversion) costs were down slightly compared to the previous quarter as continued cost reduction efforts and lower market stumpage rates offset the impact on unit fixed costs of lower production levels. Compared to the third quarter of 2008, unit manufacturing costs were down 6%, reflecting lower log costs, operational and overhead cost savings, as well as lower energy prices.

Restructuring costs in the current quarter amounted to $4.5 million, compared to $9.6 million for the second quarter of 2009, and $3.1 million for the third quarter of 2008. The higher costs in the second quarter reflected the Company's decision to indefinitely idle three sawmills.

(10) CMHC

Pulp and Paper(11)

Selected Financial Information and Statistics -- Pulp and Paper

(millions of dollars
 unless otherwise            Q3         Q2        YTD         Q3        YTD
 noted)                    2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Sales                 $   227.2  $   232.4  $   664.9  $   253.2  $   746.5
Operating income
 (loss)(12)           $    13.0  $    (6.8) $   (11.1) $    31.5  $    79.0
EBITDA(12)            $    25.9  $     5.7  $    26.6  $    45.1  $   116.7
---------------------------------------------------------------------------
Average pulp price
 delivered to U.S. -
 US$(13)              $     733  $     645  $     684  $     880  $     880
Average price in Cdn$ $     804  $     752  $     797  $     917  $     896
---------------------------------------------------------------------------
Production - pulp
 (000 mt)                 315.6      299.1      884.7      307.8      868.5
Production - paper
 (000 mt)                  33.6       30.7       92.7       35.9      102.5
Shipments -
 Canfor-produced pulp
 (000 mt)                 307.1      344.4      928.1      284.0      852.4
Pulp marketed on
 behalf of HSLP (000
 mt)(14)                  101.9       81.9      254.7       86.0      260.5
Shipments - paper
 (000 mt)                  37.4       34.3       96.9       31.7      100.5
---------------------------------------------------------------------------
(11) Includes the Taylor Pulp mill and 100% of Canfor Pulp Limited
     Partnership ("CPLP"), which is consolidated in Canfor's operating
     results. Pulp production and shipment volumes presented are for both
     northern bleached softwood kraft ("NBSK") and bleached chemi-thermo
     mechanical pulp ("BCTMP").
(12) Earnings for Q3 2009 include a positive impact from inventory
     write-down adjustments of $0.7 million, compared to a positive impact
     in Q2 2009 of $5.5 million and no impact in Q3 2008.
(13) Per tonne, NBSK pulp list price delivered to U.S. (RISI).
(14) Howe Sound Pulp and Paper Limited Partnership pulp mill.

Overview

EBITDA in the Pulp and Paper segment in the third quarter of 2009 was up $20.2 million compared to the previous quarter. The improvement resulted principally from higher NBSK and BCTMP prices (reflecting tight supply and a modest improvement in demand) and, to a lesser extent, lower fibre and chemical costs. These factors more than offset the stronger Canadian dollar and higher freight costs in the current quarter, as well as positive inventory write-down adjustments and a $3.5 million business interruption insurance receivable recorded by Canfor Pulp Limited Partnership ("CPLP") in the second quarter.

Compared to the same quarter of 2008, EBITDA was down $19.2 million primarily as a result of significantly lower NBSK pulp and BCTMP US dollar prices and a higher percentage of sales of lower margin business (including non-contract business and the tissue segment), which more than offset a weaker Canadian dollar, and lower fibre, chemical and energy costs in the current period.

Markets

A significant number of pulp mills remained idled during the third quarter of 2009, either indefinitely or permanently, which kept supply constrained, resulting in further reductions in producer inventory stocks. Consumption levels have been steadily improving since earlier in the year. Although preliminary Pulp and Paper Products Council statistics indicate that global demand for printing and writing papers was down 14% on a 2009 year-to-date basis, there has been steady improvement in monthly demand since the end of the first quarter of 2009.

The steady improvement in consumption and continued reduction of supply has resulted in lower pulp inventories. At the end of September 2009, World 20 producers of bleached softwood pulp inventories stood at 22 days of supply(15). By comparison, September 2008 inventories stood at 36 days of supply. Market conditions are considered balanced when inventories fall in the 27-30 days of supply range.

North American kraft paper demand showed signs of improvement in the third quarter of 2009 compared to the previous two quarters as customer inventory destocking appeared to have been largely completed.

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

Sales

Shipments of Canfor-produced pulp in the third quarter of 2009 were down 37,000 tonnes, or 11%, from the previous quarter, mostly due to inventory drawdowns and high volumes sold into China in the second quarter, and up 23,000 tonnes, or 8%, compared to the third quarter of 2008, due primarily to increased volume into Europe and Asia.

The improved market conditions resulted in the successful implementation of price increases in every month of the third quarter of 2009. Average NBSK market pulp list prices for U.S. delivery in the third quarter were US$733 per tonne, up US$88, or 14%, from the previous quarter. Prices ended the quarter at US$770 per tonne. Solid price gains were also seen in European and Asian markets, with NBSK list prices in Europe increasing to US$740 per tonne in September and prices to China rising to US$650 per tonne by quarter end. BCTMP prices also moved up through the quarter in response to the improved market conditions. The pricing gains were partly eroded by the stronger Canadian dollar.

Compared to the third quarter of 2008, the current quarter's sales realizations reflected a 17% decline in NBSK list prices for U.S. delivery and increased sales of lower margin business, partly offset by a 5% decrease in the value of the Canadian dollar over the same period.

Operations

Pulp production for the third quarter of 2009 was 316,000 tonnes, up 17,000 tonnes, or 6%, from the previous quarter due primarily to fewer scheduled maintenance outages and less market downtime. Pulp production was also up slightly compared to the third quarter of 2008.

Unit manufacturing costs for the third quarter of 2009 were down compared to the previous quarter, reflecting the higher production volumes and reduced maintenance spending as a result of no scheduled maintenance downtime in the third quarter, as well as lower fibre and chemical costs. The lower fibre costs resulted principally from a reduction in higher-cost whole log chipping. Unit manufacturing costs were also down compared to the corresponding quarter of 2008, with lower fibre, energy and overhead costs being the primary contributing factors. The lower fibre costs reflected lower market prices for sawmill residual and whole log chips.

Inventory write-down movements had minimal impact on operating results for the third quarters of 2009 and 2008; However, the second quarter of 2009's results were positively impacted by $5.5 million due primarily to reduced inventory levels and improving pulp prices at the end of June, relative to March.

Unallocated and Other Items

                             Q3         Q2        YTD         Q3        YTD
(millions of dollars)      2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Operating loss
 of Panels
 operations(16)       $    (3.8) $    (6.3) $   (19.5) $    (3.4) $   (41.7)
Corporate costs       $    (4.3) $    (6.1) $   (15.6) $    (7.1) $   (17.0)
Interest expense, net $    (6.9) $    (7.0) $   (22.2) $    (6.7) $   (17.7)
Foreign exchange gain
 (loss) on long-term
 debt and
 investments, net     $    26.2  $    29.1  $    42.4  $   (16.2) $   (28.3)
Gain (loss) on
 derivative financial
 instruments          $    17.7  $    25.7  $    22.1  $   (38.8) $    (6.8)
Gain on sale of mill
 property             $       -  $       -  $    44.6  $       -  $       -
North Central
 Plywoods mill
 fire, net            $       -  $    (3.0) $    (3.0) $       -  $    57.9
Prince George Pulp &
 Paper mill fire, net $       -  $       -  $       -  $       -  $     8.5
Asset impairments     $       -  $       -  $       -  $   (70.0) $   (70.0)
Other income
 (expense), net       $    (8.7) $    (2.5) $    (8.7) $     0.1  $    (0.2)
---------------------------------------------------------------------------
(16) The Panels operations include the Peace Valley OSB joint venture, the
     only facility currently operating, and the Company's Tackama and
     PolarBoard plants, both of which are currently indefinitely idled.

Results of the Panels operations in the third quarter of 2009 continued to reflect weak OSB market conditions and the ongoing costs of indefinitely idling the Tackama and PolarBoard plants. The operating loss for the third quarter of 2009 was $3.8 million, a positive variance of $2.5 million compared to the previous quarter. The second quarter's results included a $5.8 million charge related to the NCP claim settlement in that quarter, which more than offset positive inventory write-down movements, principally related to spring break-up, over the same period. The improvement in the third quarter operating results also reflected higher US dollar prices and productivity gains, which more than offset the impact of the stronger Canadian dollar.

Corporate costs were $4.3 million in the third quarter of 2009, down $1.8 million compared to the second quarter of 2009 and down $2.8 million compared to the third quarter of 2008. The lower costs for the most part reflected cost reduction initiatives (including related severance costs recorded in the previous quarter) and, compared to the third quarter of 2008, the elimination of short term incentive compensation in 2009.

Net interest expense of $6.9 million in the third quarter of 2009 was substantially unchanged from the comparable quarters. Compared to the third quarter of 2008, savings from lower debt levels in the current quarter were mostly offset by the impact of the weaker Canadian dollar on interest arising on US dollar denominated debt, as well as lower interest income on reduced cash balances.

The Company recorded a foreign exchange translation gain on its US dollar denominated debt, net of investments, for the third quarter of 2009 of $26.2 million. This resulted from a 7.3 cent, or 8%, increase in the value of the Canadian dollar over the quarter.

The Company uses a variety of derivative financial instruments as partial economic hedges against unfavourable changes in natural gas and diesel costs, foreign exchange rates and lumber prices. In the third quarter of 2009, the Company recorded a net gain of $17.7 million related to its derivative instruments, which was due principally to the stronger Canadian dollar. The following table summarizes the gain (loss) on derivative financial instruments for the comparable periods.

Gain (loss) on derivative financial instruments:

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Foreign exchange collars
 and forward contracts          $     16.8  $    (9.4) $    33.3  $   (20.6)
Natural gas swaps               $     (1.5) $   (25.3) $   (14.5) $     5.8
Diesel options and swaps        $      0.2  $    (3.5) $     1.2  $     8.0
Lumber futures                  $      2.2  $    (0.6) $     2.1  $       -
---------------------------------------------------------------------------
                                $     17.7  $   (38.8) $    22.1  $    (6.8)
---------------------------------------------------------------------------

Other expense, net of $8.7 million was primarily attributable to foreign exchange losses on working capital as a result of the 8% increase in the Canadian dollar over the quarter.

SUMMARY OF FINANCIAL POSITION

The following table summarizes Canfor's cash flow and financial position for and as at the end of the following periods:

                             Q3         Q2        YTD         Q3        YTD
(millions of dollars)      2009       2009       2009       2008       2008
---------------------------------------------------------------------------
Increase (decrease)
 in cash and cash
 equivalents          $    (0.1) $    (2.4) $  (209.7) $    36.6  $    38.7
Operating activities  $    33.3  $    38.9  $   (54.8) $    65.3  $   136.4
Financing activities  $   (16.1) $   (79.2) $  (205.7) $   (14.0) $   (50.5)
Investing activities  $   (15.9) $    37.7  $    51.8  $   (15.8) $   (48.3)
Foreign exchange
 gains on cash
 and cash
 equivalents of
 self-sustaining
 operations           $    (1.4) $     0.2  $    (1.0) $     1.1  $     1.1
Ratio of current
 assets to current
 liabilities                                  2.4 : 1               2.3 : 1
Ratio of net debt to
 capitalization                                    14%                   10%
---------------------------------------------------------------------------

Changes in Financial Position

Operating activities generated cash of $33.3 million in the third quarter of 2009, down $5.6 million compared to the previous quarter. Higher cash earnings in the current quarter were offset by higher working capital reductions in the second quarter that included the seasonal drawdown of log inventories and an income tax refund. Compared to the third quarter of 2008, cash generated from operating activities was down $32.0 million and reflected the weaker market conditions.

Financing activities used cash of $16.1 million in the third quarter of 2009, principally reflecting the repayment of operating loans by CPLP. Cash distributions paid to non-controlling interests were $1.6 million, substantially unchanged from the second quarter, but down from $12.7 million paid in the same quarter of 2008 as a result of significantly reduced CPLP distributions.

Investing activities in the third quarter of 2009 used cash of $15.9 million. Included within this amount was capital spending of $22.4 million, which included the completion of various capital projects in the period. Also included in investing activities were proceeds from the partial redemption of the Company's investment in asset-backed commercial paper ("ABCP") of $3.9 million, and net proceeds from the disposal of property, plant and equipment of $1.8 million.

Changes in Equity

In addition to the $5.2 million net loss for the quarter which was debited to retained earnings, other comprehensive income decreased by $10.5 million, substantially due to the impact of the stronger Canadian dollar on the translation of the Company's foreign subsidiaries.

Liquidity and Financial Requirements

At September 30, 2009, the Company, on a consolidated basis, had cash and cash equivalents of $152.7 million and $447.7 million of bank operating lines of credit, of which $34.6 million was reserved for several standby lines of credit. Included within the operating lines of credit is a new $40 million bank credit facility for CPLP completed on September 30, 2009. In addition, CPLP arranged a $25 million letter of credit facility, subject to completion of legal documentation. These new facilities replace CPLP's previous operating credit facility of $75 million.

The Company's net debt to capitalization ratio at the end of third quarter was 14%.

Long-term debt repayments totaling $175.5 million (US$137.3 million) were made by the Company in the first half of 2009.

As at September 30, 2009 the Company was in compliance with the covenants relating to its operating lines of credit and long term debt, and expects to remain so for the foreseeable future.

B.C. Interior Labour Negotiations Update

The contract between the Company's B.C. Interior manufacturing operations and the United Steelworkers Union ("USW") expired on July 1, 2009. At that time the Company exchanged proposals with the USW regarding a new labour agreement.

Green Transformation Program

On October 9, 2009, the Canadian federal government announced the allocation of credits from a billion dollar Pulp and Paper Green Transformation Program (the "Program", which was originally announced on June 17, 2009). The Program is designed as a reimbursement of funds to be spent on qualifying energy and environmental capital projects. Credits may be used until the program end date of March 31, 2012. CPLP was allocated $122.2 million from this Program, and has identified and will be submitting a number of projects for Program approval which are expected to provide economic and environmental benefits to CPLP's operations.

Howe Sound Pulp and Paper Limited Partnership ("HSPP"), in which the Company holds an investment, was allocated $45.5 million under the Program. HSPP's results are not reflected in the Company's consolidated financial statements.

OUTLOOK

Lumber

Demand for lumber is expected to soften during the traditionally slower fourth quarter, and this may cause prices to drift lower until the expected seasonal industry shutdowns in December. The repair and renovation sector is expected to remain relatively stable as many homeowners renovate their existing homes, rather than buy new ones. New and existing home inventories are projected to continue to decrease but at a much slower pace than the third quarter. In Canada, lumber consumption is expected to level off through the remainder of the year. Offshore shipments are expected to continue to trend higher during the fourth quarter, buoyed by demand from both China and Japan.

Pulp and Paper

The outlook for the balance of 2009, and the first quarter of 2010, is for a continued positive pricing environment. Inventory levels held by producers and customers are low. With the supply/demand balance in the favour of producers, there is potential for further price increases. There is some downside risk as higher global prices may allow idled mills to restart to the extent that pricing increases are not diminished by a strengthening Canadian dollar. Overall, projected demand levels and low inventory levels suggest a balanced to tight market into the first quarter of 2010.

OUTSTANDING SHARES

At October 28, 2009, there were 142,589,297 common shares outstanding.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts recorded in the financial statements. On an ongoing basis, management reviews its estimates, including those related to useful lives for amortization, impairment of long-lived assets, certain accounts receivable, pension and other employee future benefit plans and asset retirement obligations based upon currently available information. While it is reasonably possible that circumstances may arise which cause actual results to differ from these estimates, management does not believe it is likely that any such differences will materially affect the Company's financial condition.

CHANGES IN ACCOUNTING POLICIES

Effective January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants' new Handbook Section 3064, Goodwill and Intangible Assets. This section replaces CICA Handbook Section 3062, Goodwill and Intangible Assets and Section 3450, Research and Development Costs, and establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. On adoption of this new Standard, EIC 27, Revenues and Expenditures During the Pro-operating Period, is withdrawn and so various preproduction and start-up costs are required to be expensed as incurred. This Standard did not have a material impact on Canfor's consolidated financial statements.

CONVERSION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

In February 2008, the Accounting Standards Board announced that publicly accountable entities will be required to prepare financial statements in accordance with International Financial Reporting Standards ("IFRS") for interim and annual periods in fiscal years beginning on or after January 1, 2011.

The Company has developed a conversion implementation plan to ensure that differences between Canadian GAAP and IFRS that affect Canfor are identified, and any required changes to accounting processes and controls (including information technology systems) are made in a timely manner to ensure a smooth transition on January 1, 2010.

The key elements of the conversion implementation plan are as follows:

Project Structure

The Company has a project manager leading the conversion to IFRS. The project manager is working with other members of the finance team to execute the elements of the implementation plan. An implementation team is working closely with senior management in a number of different business areas to ensure that the impacts of the conversion throughout the business are managed in a timely and efficient manner. A steering committee is overseeing the project.

Process and Timing

The process of converting to IFRS has been divided into a number of different stages, many of which will run concurrently. A detailed diagnostic has now been completed, and a number of areas identified for further consideration before the date of transition. Various accounting policy choices have been identified and are being considered by the steering committee.

Any changes required to systems and controls (including information technology systems) are being identified as the project progresses. The implementation of any significant changes to systems and controls, as well as related training, is currently scheduled to take place before the end of 2009.

A draft opening balance sheet prepared under IFRS at the date of transition (January 1, 2010) is currently planned to be completed in the first half of 2010. Draft financial statements and disclosure information will be prepared for each quarter in 2010 (to be used for comparative purposes in 2011) and reporting under IFRS will commence for interim and annual periods in 2011.

Progress to Date

At September 30, 2009, the Company had completed its evaluation and diagnostic of the impact of IFRS on Canfor's financial statements. Training of staff impacted by the transition has commenced and is expected to continue throughout the transition and conversion process. A number of issues had been identified for discussion by senior management before final decisions are made with respect to accounting policy choices and elections. The Company has identified a number of key areas where it is likely to be impacted by changes in accounting policy. These include:

- Employee future benefits

- Property, plant, equipment and timber

- Intangible assets

- Impairment of assets

- Provisions, including deferred reforestation obligations and asset retirement obligations

- Presentation of financial statements, including presentation of minority interests

As a first-time adopter of IFRS, the Company is required to apply IFRS 1 "First time adoption of International Financial Reporting Standards". A number of elections are available under this standard which the Company is currently evaluating. The more significant elections include: recognizing through opening retained earnings all cumulative actuarial gains and losses on employee benefit plans, and cumulative translation adjustments on self sustaining operations; avoiding a retroactive restatement of previous business combinations under IFRS; using fair value at the transition date as deemed cost for capital assets in certain circumstances.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the quarter ending September 30, 2009, there were no changes in the Company's internal controls over financial reporting that materially affected, or would be reasonably likely to materially affect, such controls.

RISKS AND UNCERTAINTIES

A comprehensive discussion of risks and uncertainties is included in the Company's 2008 annual statutory reports which are available on www.sedar.com or www.canfor.com.

SELECTED QUARTERLY FINANCIAL INFORMATION

--------------------------------------------------------------------------
                   Q3     Q2      Q1      Q4     Q3     Q2      Q1      Q4
                 2009   2009    2009    2008   2008   2008    2008    2007
--------------------------------------------------------------------------

Sales and income
(millions of
 dollars)
Sales          $540.9 $541.7 $ 488.2 $ 588.7 $668.0 $706.4 $ 648.5 $ 711.0
Operating
 (loss)
 income        $(31.4)$(31.2)$(124.2)$ (74.2)$ 12.8 $ 20.8 $(117.5)$(124.7)
Net income
 (loss)        $ (5.2)$ 10.5 $ (58.8)$(229.8)$(94.2)$ 64.2 $ (85.4)$(237.0)

Per common
 share (dollars)
Net income
(loss) -
 basic and
 diluted       $(0.04)$ 0.07 $ (0.41)$ (1.61)$(0.66)$ 0.45 $ (0.60)$ (1.66)
--------------------------------------------------------------------------

Statistics
Lumber
 shipments
 (MMfbm)          837    884     791     956    906  1,107   1,023   1,149
OSB shipments
 (MMsf 3/8")       69     61      30      56     91    153     164     166
Pulp shipments
 (000 mt)         307    344     277     236    284    289     279     308

--------------------------------------------------------------------------
Average
 exchange
 rate -
 US$/Cdn$      $0.912 $0.858 $ 0.803 $ 0.825 $0.960 $0.990 $ 0.996 $ 1.019
--------------------------------------------------------------------------

Average
 Western
 SPF 2x4
 #2&Btr
 lumber
 price (US$)   $  191 $  174 $   155 $   190 $  263 $  230 $   205 $   230
Average
 SYP (East)
 2x4 #2
 lumber
 price
 (US$)         $  230 $  236 $   235 $   258 $  289 $  294 $   285 $   277
Average
 OSB price -
 North Central
 (US$)         $  178 $  145 $   154 $   172 $  202 $  174 $   138 $   165
Average NBSK
 pulp list
 price
 delivered to
 U.S. (US$)    $  733 $  645 $   673 $   787 $  880 $  880 $   880 $   857
--------------------------------------------------------------------------
--------------------------------------------------------------------------

In addition to exposure to changes in product prices and foreign exchange, the Company's financial results are impacted by seasonal factors such as weather and building activity. Adverse weather conditions can cause logging curtailments, which can affect the supply of raw materials to sawmills, OSB plants, and pulp mills. Market demand also varies seasonally to some degree. For example, building activity and repair and renovation work, which affects demand for lumber products, is generally stronger in the spring and summer months. These factors, along with global supply and demand conditions, affect the Company's shipment volumes. Also, the global economic slowdown has adversely impacted the Company's results since late 2008.

Other factors that impact the comparability of the quarters are noted below:

--------------------------------------------------------------------------
After-tax impact,
 net of
 non-controlling
 interests
(millions of
 dollars, except
 for per share     Q3     Q2      Q1      Q4     Q3     Q2      Q1      Q4
 amounts)        2009   2009    2009    2008   2008   2008    2008    2007
--------------------------------------------------------------------------

Net income
(loss), as
 reported      $ (5.2)$ 10.5 $ (58.8)$(229.8)$(94.2)$ 64.2 $ (85.4)$(237.0)
Export tax
 refund        $    - $    - $     - $  (7.1)$    - $    - $     - $     -
Restructuring,
 mill closure
 and severance
 costs         $  5.3 $  7.5 $   4.2 $   6.8 $  3.6 $ 22.3 $   2.6 $  14.2
Foreign
 exchange
 (gain) loss
 on long-term
 debt and
 investments,
 net           $(19.6)$(19.7)$   9.1 $  52.2 $ 11.3 $    - $   8.7 $   3.5
(Gain) loss on
 derivative
 financial
 instruments   $(12.7)$(17.3)$  12.4 $  50.3 $ 21.4 $(14.5)$  (2.7)$  (3.5)
Gain on sale
 of mill
 property      $    - $    - $ (37.8)$     - $    - $    - $     - $     -
North Central
 Plywoods mill
 fire, net     $    - $  2.0 $     - $     - $    - $(45.0)$     - $     -
Prince George
 Pulp & Paper
 mill fire,
 net           $    - $    - $     - $   0.2 $    - $    - $  (3.6)$     -
Asset
 impairments   $    - $    - $     - $  74.1 $ 56.9 $    - $     - $ 189.1
Corporate
 income tax
 rate
 reductions    $    - $    - $  (7.3)$     - $    - $    - $  (9.1)$ (35.8)
Other items    $    - $    - $     - $     - $    - $    - $     - $  (0.1)
--------------------------------------------------------------------------
Net impact of
 above items   $(27.0)$(27.5)$ (19.4)$ 176.5 $ 93.2 $(37.2)$  (4.1)$ 167.4
--------------------------------------------------------------------------
Net (loss)
 income, as
 adjusted      $(32.2)$(17.0)$ (78.2)$ (53.3)$ (1.0)$ 27.0 $ (89.5)$ (69.6)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Net (loss)
 income per
 share (EPS),
 as reported   $(0.04)$ 0.07 $ (0.41)$ (1.61)$(0.66)$ 0.45 $ (0.60)$ (1.66)
Net impact of
 above items
 per share     $(0.19)$(0.19)$ (0.14)$  1.24 $ 0.65 $(0.26)$ (0.03)$  1.17
--------------------------------------------------------------------------
Net (loss)
 income per
 share, as
 adjusted      $(0.23)$(0.12)$ (0.55)$ (0.37)$(0.01)$ 0.19 $ (0.63)$ (0.49)
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Canfor Corporation
Consolidated Balance Sheets

                                                       As at          As at
                                                September 30,   December 31,
(millions of dollars, unaudited)                        2009           2008
---------------------------------------------------------------------------
ASSETS

Current Assets
 Cash and cash equivalents                     $       152.7  $       362.4
 Accounts receivable
  Trade                                                150.0          105.9
  Other                                                 15.0           93.7
 Income taxes recoverable                               36.0           47.1
 Future income taxes, net                               13.6           31.2
 Inventories (Note 2)                                  323.0          404.9
 Prepaid expenses                                       35.8           35.1
---------------------------------------------------------------------------
Total current assets                                   726.1        1,080.3
---------------------------------------------------------------------------
Long-term investments and other (Note 3)                96.6          125.7
Property, plant, equipment and timber                1,717.3        1,798.5
Goodwill                                                76.4           85.7
Deferred charges                                       115.5          110.2
---------------------------------------------------------------------------
                                               $     2,731.9  $     3,200.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------
LIABILIITES

Current Liabilities
 Operating loans (Note 4(a))                   $         0.2  $        25.2
 Accounts payable and accrued liabilities              230.1          322.9
 Current portion of long-term debt (Note 4(b))          34.9          168.3
 Current portion of deferred reforestation
  obligation                                            32.2           32.5
---------------------------------------------------------------------------
Total current liabilities                              297.4          548.9
---------------------------------------------------------------------------
Long-term debt (Note 4(b))                             341.6          428.7
Long-term accrued liabilities and obligations
 (Note 5)                                              204.5          208.8
Future income taxes, net                               204.2          242.4
Non-controlling interests                              271.3          276.8
---------------------------------------------------------------------------
                                               $     1,319.0  $     1,705.6
---------------------------------------------------------------------------
---------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital - 142,589,297 common shares
 outstanding                                   $     1,124.7  $     1,124.7
Contributed surplus                                     31.9           31.9
Retained earnings                                      263.2          316.7
Accumulated other comprehensive income                  (6.9)          21.5
---------------------------------------------------------------------------
                                               $     1,412.9  $     1,494.8
---------------------------------------------------------------------------
                                               $     2,731.9  $     3,200.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.

APPROVED BY THE BOARD

Director, R.S. Smith                       Director, J.F. Shepard


Canfor Corporation
Consolidated Statements of Income (Loss)

                                       3 months ended        9 months ended
(millions of dollars,                    September 30,         September 30,
 unaudited)                           2009       2008       2009       2008
---------------------------------------------------------------------------
Sales                            $   540.9  $   668.0  $ 1,570.8  $ 2,022.9

Costs and expenses
 Manufacturing and product
  costs                              399.0      459.2    1,228.0    1,480.6
 Freight and other
  distribution costs                 101.0      114.3      306.2      359.1
 Export taxes                         13.3       17.5       37.5       49.1
 Amortization                         38.4       42.2      116.5      127.2
 Selling and administration
  costs                               14.4       16.6       45.4       47.6
 Restructuring, mill closure
  and severance costs (Note 6)         6.2        5.4       24.0       43.2
---------------------------------------------------------------------------
                                     572.3      655.2    1,757.6    2,106.8
---------------------------------------------------------------------------
Operating income (loss)              (31.4)      12.8     (186.8)     (83.9)

Interest expense, net                 (6.9)      (6.7)     (22.2)     (17.7)
Foreign exchange gain
 (loss) on long-term
 debt and
 investments, net                     26.2      (16.2)      42.4      (28.3)
Gain (loss) on derivative
 financial instruments
 (Note 13)                            17.7      (38.8)      22.1       (6.8)
Gain on sale of mill
 property (Note 7)                       -          -       44.6          -
North Central Plywoods mill
 fire, net (Note 8)                      -          -       (3.0)      57.9
Prince George Pulp and
 Paper mill fire, net                    -          -          -        8.5
Asset impairments                        -      (70.0)         -      (70.0)
Other income (expense), net           (8.7)       0.1       (8.7)      (0.2)
---------------------------------------------------------------------------
Net income (loss) before
 income taxes and
 non-controlling
 interests                            (3.1)    (118.8)    (111.6)    (140.5)
Income tax recovery
 (expense) (Note 10)                   7.2       30.0       57.9       61.7
Non-controlling interests             (9.3)      (5.4)       0.2      (36.6)
---------------------------------------------------------------------------
Net income (loss)                $    (5.2)     (94.2)     (53.5)    (115.4)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Per common share (in
 dollars) (Note 11)
Net income (loss) - Basic
 and Diluted                     $   (0.04) $   (0.66) $   (0.38) $   (0.81)

The accompanying notes are an integral part of the consolidated financial
statements.


Canfor Corporation
Consolidated Statements of Changes in Shareholders' Equity and Comprehensive
Income (Loss)

                                       3 months ended        9 months ended
(millions of dollars,                    September 30,         September 30,
 unaudited)                           2009       2008       2009       2008
---------------------------------------------------------------------------

Consolidated Statements of Changes
 in Shareholders' Equity

Share capital
---------------------------------------------------------------------------
Balance at beginning and
 end of period                   $ 1,124.7  $ 1,124.7  $ 1,124.7  $ 1,124.7
---------------------------------------------------------------------------

Contributed surplus
---------------------------------------------------------------------------
Balance at beginning and
 end of period                   $    31.9  $    31.9  $    31.9  $    31.9
---------------------------------------------------------------------------

Retained earnings
Balance at beginning of
 period                          $   268.4  $   640.7  $   316.7  $   692.5
Change in accounting for
 inventories                             -          -          -      (30.6)
Net income (loss) for the
 period                               (5.2)     (94.2)     (53.5)    (115.4)
---------------------------------------------------------------------------
Balance at end of period         $   263.2  $   546.5  $   263.2  $   546.5
---------------------------------------------------------------------------

Accumulated other
 comprehensive income (loss)
Balance at beginning of
 period                          $     3.6  $   (27.0) $    21.5  $   (32.0)
Net change in foreign
 exchange translation
 adjustment on
 self-sustaining foreign
 subsidiaries                        (10.5)       5.1      (28.5)      10.5
Reclassification to income
 of losses on derivative
 instruments designated as
 cash flow hedges in prior
 periods                                 -       (0.3)       0.1       (0.7)
---------------------------------------------------------------------------
Balance at end of period         $    (6.9) $   (22.2) $    (6.9) $   (22.2)
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Total shareholders' equity
 - Balance at end of period      $ 1,412.9  $ 1,680.9  $ 1,412.9  $ 1,680.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Consolidated Statement of
 Comprehensive Income (Loss)

Net income (loss) for the
 period                          $    (5.2) $   (94.2) $   (53.5) $  (115.4)

Other comprehensive income
 (loss)
Net change in foreign
 exchange translation
 adjustment on
 self-sustaining foreign
 subsidiaries                        (10.5)       5.1      (28.5)      10.5
Reclassification to income
 of losses on derivative
 instruments designated as
 cash flow hedges in prior
 periods                                 -       (0.3)       0.1       (0.7)
---------------------------------------------------------------------------
Other comprehensive income
 (loss)                              (10.5)       4.8      (28.4)       9.8
---------------------------------------------------------------------------

Total comprehensive income
 (loss)                          $   (15.7) $   (89.4) $   (81.9) $  (105.6)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.


Canfor Corporation
Consolidated Cash Flow Statements

                                       3 months ended        9 months ended
(millions of dollars,                    September 30,         September 30,
 unaudited)                           2009       2008       2009       2008
---------------------------------------------------------------------------
Cash generated from (used
 in)
Operating activities
 Net income (loss) for the
  period                         $    (5.2) $   (94.2) $   (53.5) $  (115.4)
 Items not affecting cash
  Amortization                        38.4       42.2      116.5      127.2
  Future income taxes                 (3.3)     (12.8)     (21.1)     (31.8)
  Long-term portion of
   deferred reforestation             (7.9)     (10.2)      (8.1)      (9.7)
  Gain on sale of mill
   property (Note 7)                     -          -      (44.6)         -
  North Central Plywoods mill
   fire, net (Note 8)                    -          -        3.0      (57.9)
  Prince George Pulp & Paper
   mill fire, net                        -          -          -       (8.5)
  Foreign exchange (gain)
   loss on long-term debt and
   investments, net                  (26.2)      16.2      (42.4)      28.3
  Unrealized (gain) loss on
   derivative financial
   instruments                       (22.6)      40.2      (60.9)      14.9
  Asset impairments                      -       70.0          -       70.0
  Non-controlling interests            9.3        5.4       (0.2)      36.6
  Other, net                           1.9       11.4        8.2       15.6
 Net proceeds from replacement
  of derivative financial
  instruments                            -          -          -       11.0
 Salary pension plan
  contributions                       (3.8)      (4.1)     (12.3)      (8.7)
 Deferred scheduled
  maintenance spending                (0.8)      (0.3)      (3.4)      (7.2)
 Net change in non-cash
  working capital (Note 12)           53.5        1.5       64.0       72.0
---------------------------------------------------------------------------
                                      33.3       65.3      (54.8)     136.4
---------------------------------------------------------------------------
Financing activities
 Repayment of long-term debt             -          -     (175.5)     (14.8)
 (Decrease) increase in
  operating bank loans               (15.7)      (1.2)     (25.0)       4.1
 Cash distributions paid to
  non-controlling interests           (1.6)     (12.7)      (6.3)     (39.5)
 Other                                 1.2       (0.1)       1.1       (0.3)
---------------------------------------------------------------------------
                                     (16.1)     (14.0)    (205.7)     (50.5)
---------------------------------------------------------------------------
Investing activities
 Additions to property,
  plant, equipment and timber        (22.4)     (22.4)     (48.7)     (58.3)
 Proceeds from disposal of
  property, plant and
  equipment                            1.8       (2.4)      48.8        4.3
 Proceeds from North Central
  Plywoods mill fire claim
  (Note 8)                               -       10.0       33.3       10.0
 Proceeds from Prince George
  Pulp & Paper mill fire
  claim                                  -          -          -        8.0
 Advances to affiliated
  companies                              -          -          -      (11.5)
 Interest received for
  restructuring period of
  asset-backed
  commercial paper (Note 3)              -          -        4.5          -
 Proceeds from redemption of
  asset-backed commercial
  paper (Note 3)                       3.9          -       14.3          -
 Other                                 0.8       (1.0)      (0.4)      (0.8)
---------------------------------------------------------------------------
                                     (15.9)     (15.8)       51.8     (48.3)
---------------------------------------------------------------------------
Foreign exchange gain on
 cash and cash equivalents            (1.4)       1.1       (1.0)       1.1
---------------------------------------------------------------------------
(Decrease) increase in cash
 and cash equivalents                 (0.1)      36.6     (209.7)      38.7
Cash and cash equivalents
 at beginning of period              152.8      297.6      362.4      295.5
---------------------------------------------------------------------------
Cash and cash equivalents
 at end of period                $   152.7  $   334.2  $   152.7  $   334.2
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Cash payments (receipts) in
 the period
  Interest, net                  $     6.6  $     6.1  $    22.0  $    18.7
  Income taxes                   $     0.1  $   (12.1) $   (48.2) $  (135.7)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes are an integral part of the consolidated financial
statements.

Notes to the Consolidated Interim Financial Statements

(unaudited, in millions of dollars unless otherwise noted)

1. Significant Accounting Policies and Changes in Accounting Policies

(a) Basis of Presentation

These interim financial statements do not include all of the disclosures required by Canadian generally accepted accounting principles for annual financial statements and, accordingly, should be read in conjunction with the financial statements and notes included in Canfor's Annual Report for the year ended December 31, 2008 available at www.canfor.com or www.sedar.com. These interim financial statements follow the same accounting policies and methods of computation as used in the 2008 consolidated financial statements, except as noted below.

Canfor's financial results are impacted by seasonal factors such as weather and building activity. Adverse weather conditions can cause logging curtailments, which can affect the supply of raw materials to sawmills and pulp mills. Market demand also varies seasonally to some degree. For example, building activity and repair and renovation work, which affects demand for solid wood products, is generally stronger in the spring and summer months. Shipment volumes are affected by these factors as well as by global supply and demand conditions.

(b) Changes in Accounting Policies

Effective January 1, 2009, the Company adopted the Canadian Institute of Chartered Accountants' new Handbook Section: 3064 - "Goodwill and Intangible Assets". These requirements have been incorporated into the unaudited interim consolidated financial statements.

This Section replaced Section 3062 - "Goodwill and Intangible Assets" and Section 3450 - "Research and Development Costs", and establishes revised standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. On adoption of this new Standard, EIC 27 - "Revenues and Expenditures During the Pre-operating Period" is withdrawn and so various pre-production and start-up costs are required to be expensed as incurred. No material adjustments were required upon adoption of this new Standard.

2. Inventories

                                                       As at          As at
                                                   September       December
(millions of dollars)                               30, 2009       31, 2008
---------------------------------------------------------------------------
Logs                                           $        30.0  $        49.1
Lumber                                                 102.9          118.7
Pulp                                                    65.3           97.2
Paper                                                   15.6           20.7
Panel products                                           0.7            1.5
Residual fibre                                          22.4           25.3
Processing materials and supplies                       86.1           92.4
---------------------------------------------------------------------------
                                               $       323.0  $       404.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The above inventory balances are stated after inventory write-downs from cost to net realizable value, which reflect historically low prices for most products at both reporting dates. Inventory write-downs at September 30, 2009 totaled $26.2 million (December 31, 2008 - $46.2 million).

3. Long-Term Investments and Other

                                                       As at          As at
                                                   September       December
(millions of dollars)                               30, 2009       31, 2008
---------------------------------------------------------------------------
Non-bank asset-backed commercial paper          $       43.5  $        69.3
Other investments                                       28.8           28.9
Customer agreements                                     18.2           22.9
Other deposits, loans and advances                       6.1            4.6
---------------------------------------------------------------------------
                                                $       96.6  $       125.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------

he first half of 2009, the Company received interest related to its non-bank asset-backed commercial paper ("ABCP") of $4.5 million (US$3.6 million). During the second and third quarters of 2009, the Company also received proceeds of $14.3 million (US$12.4 million) from the partial redemption of its ABCP. The interest and partial redemption proceeds were recorded as reductions to the carrying value of the ABCP, all of which is denominated in U.S. dollars. Effective July 1, 2009, all interest received is being credited to the income statement (Q3 - $0.1 million). The balance of the movement in the ABCP between December 31, 2008 and September 30, 2009 reflects the impact of the stronger Canadian dollar over the period.

4. Operating Loans and Long-Term Debt

(a) Operating Loans

On a consolidated basis, at September 30, 2009, the Company had $447.7 million of unsecured operating loan facilities (December 31, 2008 - $432.0 million), of which $0.2 million was drawn down (December 31, 2008 - $25.2 million) and an additional $34.6 million was reserved for several standby letters of credit (December 31, 2008 - $41.4 million).

The Company's operating loan facilities include two facilities currently in the amounts of US$13.1 million ("Facility A") and US$34.9 million ("Facility B") at September 30, 2009, which were negotiated in the first quarter of 2009. Facility A expires in January 2012, with the option of four one-year extensions, and is non-recourse to the Company under normal circumstances, except for an amount of US$6.7 million. Facility B expires in January 2011, with the option of five one-year extensions, and is non-recourse to the Company under normal circumstances. The ABCP assets of the Company have been pledged as security to support these credit facilities.

The Company's bank operating lines, excluding Canfor Pulp Limited Partnership ("CPLP"), were $407.7 million (December 31, 2008 - $357.0 million) of which $0.2 million was drawn down (December 31, 2008 - nil) and $18.1 million (December 31, 2008 - $17.3 million) was reserved for several standby letters of credit, the majority of which relates to unregistered pension plans. Except for Facility A and Facility B, interest is payable at floating rates based on lenders' Canadian prime rate, bankers acceptances, US dollar base rate or US dollar LIBOR rate, plus a margin that varies with the Company's net debt to total capitalization ratio. Facility A and Facility B have similar terms, except that their interest rate is plus or minus a margin. Other than Facility A and Facility B, substantially all of the bank operating lines expire in June 2011.

On September 30, 2009, CPLP completed a new $40 million bank credit facility with a maturity date of November 30, 2011. In addition, CPLP has arranged a $25 million letter of credit facility, subject to completion of legal documentation. These replace CPLP's previous operating credit facility of $75 million which was scheduled to mature on November 30, 2009. On September 30, 2009, utilization of the new facility consisted of $16.5 million of standby letters of credit issued to BC Hydro. The general terms and conditions of the new facility are similar to the previous bank facility, with interest payable at floating rates that vary depending on the ratio of net debt to operating earnings before interest, taxes, depreciation, amortization and certain other non-cash items, and is based on lenders' Canadian prime rate, bankers acceptances, US dollar base rate or US dollar LIBOR rate, plus a margin.

As at September 30, 2009, the Company was in compliance with all covenants relating to its operating lines of credit.

(b) Long-Term Debt

On March 2, 2009, the Company repaid $99.7 million (US$77.3 million) of privately placed senior notes (US$45.0 million at 7.98% interest rate and US$32.3 million at 8.03% interest rate).

On April 1, 2009, the Company repaid $75.8 million (US$60.0 million) of 5.66% interest rate privately placed senior notes.

At September 30, 2009, the fair value of the Company's long-term debt, which was measured at its amortized cost of $376.5 million, was $384.8 million. The fair value of long-term debt was determined based on prevailing market rates for long-term debt with similar characteristics and risk profile.

5. Long-term Accrued Liabilities and Obligations

                                                       As at          As at
                                                   September       December
(millions of dollars)                               30, 2009       31, 2008
---------------------------------------------------------------------------
Deferred reforestation obligation              $        55.0  $        63.1
Accrued pension obligations                             20.3           20.0
Accrued pension bridge benefit
 obligations                                             9.0            8.7
Other post-employment benefits                         102.6           98.3
Asset retirement obligations                             4.8            4.7
Other                                                   12.8           14.0
---------------------------------------------------------------------------
                                               $       204.5  $       208.8
---------------------------------------------------------------------------

6. Restructuring, Mill Closure and Severance Costs

Restructuring, mill closure and severance costs represent costs associated with the indefinite or permanent closures of facilities and staff reductions. The expense for the third quarter of 2009 amounted to $6.2 million and resulted principally from ongoing costs related to the Company's indefinitely-idled operations.

The following table provides a breakdown of the restructuring, mill closure and severance costs by reporting segment:

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Lumber                           $     4.5  $     3.1  $    16.6  $    15.0
Unallocated and other                  1.7        2.3        7.4       28.2
---------------------------------------------------------------------------
                                 $     6.2  $     5.4  $    24.0  $    43.2
---------------------------------------------------------------------------

The following table provides a reconciliation of the restructuring, mill closure and severance liabilities at September 30, 2009 and December 31, 2008:

                                                       As at          As at
                                                   September       December
(millions of dollars)                               30, 2009       31, 2008
---------------------------------------------------------------------------
Accrued liability at beginning of period       $        23.3  $        29.8
Costs in the period (a)                                 24.4           39.8
Paid during the period                                 (25.1)         (46.3)
---------------------------------------------------------------------------
Accrued liability at end of period             $        22.6  $        23.3
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) Excluding non-cash expenses and recoveries related to provisions for
    capital asset and inventory write-downs resulting from indefinite and
    permanent mill closures.

7. Sale of Mill Property

In February of 2009, the Company completed the sale of a property located in New Westminster, British Columbia, for net proceeds of $46.0 million. The property was the site of the Company's former Panel and Fibre operation, which was permanently closed at the beginning of 2008. The sale transaction resulted in a pre-tax gain of $44.6 million ($37.8 million after-tax).

8. Settlement of North Central Plywoods Mill Fire Insurance Claim

In April of 2009, the Company reached a final settlement of the North Central Plywoods mill fire claim for gross proceeds of $65.5 million, less a deductible of $2.2 million, for net proceeds of $63.3 million. The balance of the settlement proceeds of $33.3 million was received from the insurer in the second quarter of 2009. The final settlement resulted in a pre-tax loss of $8.8 million ($6.0 million after-tax) in the second quarter of 2009 of which $5.8 million was recorded to manufacturing and product costs and $3.0 million was recorded to North Central Plywoods mill fire, net. Under the terms of the settlement, there are no conditions attached to the use of the proceeds.

9. Employee Future Benefits Expense

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Defined benefit pension plans    $     3.5  $     0.8  $    10.5  $     2.4
Other employee future benefit
 plans                                 3.0        4.3        8.9       12.8
Defined contribution pension
 plans and 401(k) plans                0.9        0.9        2.7        2.6
Contributions to forest industry
 union plans                           3.4        4.2       11.0       14.6
---------------------------------------------------------------------------
                                 $    10.8  $    10.2  $    33.1  $    32.4
---------------------------------------------------------------------------
---------------------------------------------------------------------------

10. Income Taxes

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Current                          $     3.9  $    17.2  $    36.8  $    29.9
Future                                 3.3       12.8       21.1       31.8
---------------------------------------------------------------------------
Income tax recovery              $     7.2  $    30.0  $    57.9  $    61.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------

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

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Income tax recovery (expense) at
 statutory rate                  $     0.9  $    36.8  $    33.5  $    43.5
Add (deduct):
 Non-controlling interests             2.8        1.6       (0.1)      11.3
 Change in corporate income tax
  rates                                  -          -        7.3        9.1
 Entities with different income
  tax rates and other tax
  adjustments                          0.9        1.8        3.2        3.5
 Tax recovery (expense) at rates
  other than statutory rate           (0.6)       2.2        2.5        2.6
 Permanent difference from
  capital gains and losses and
  other non-deductible items           3.2      (12.4)      11.5       (8.3)
---------------------------------------------------------------------------
Income tax recovery (expense)    $     7.2  $    30.0  $    57.9  $    61.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------

11. Net Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing the net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is calculated by dividing the net income (loss) available to common shareholders by the weighted average number of common shares during the period using the treasury stock method. Under this method, proceeds from the potential exercise of stock options are assumed to be used to purchase the Company's common shares. When there is a net loss, the exercise of stock options would result in a calculated diluted net loss per share that is anti-dilutive.

                                   3 months ended            9 months ended
                                     September 30,             September 30,
                                2009         2008         2009         2008
Weighted average number
 of common shares        142,589,297  142,589,297  142,589,297  142,589,297
Incremental shares from
 potential exercise of
 options (a)                       -        3,419            -        2,371
---------------------------------------------------------------------------
Diluted number of
 common shares (a)       142,589,297  142,589,297  142,589,297  142,589,297
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(a) Where the addition of share options to the total shares outstanding
    has an anti-dilutive impact on the diluted net income (loss) per share
    calculation, those share options have not been included in the total
    common shares outstanding for purposes of the calculation of diluted
    net income (loss) per share.

12. Net Change in Non-Cash Working Capital

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Accounts receivable              $    14.1  $    (2.8) $   (11.1) $    15.5
Income taxes recoverable              (4.2)      (4.8)      11.1      107.6
Inventories                           18.6       (1.4)      78.8      (11.0)
Prepaid expenses                       3.8        4.3       (1.4)     (16.0)
Accounts payable, accrued
 liabilities and current
 portion of deferred
 reforestation obligation             21.2        6.2      (13.4)     (24.1)
---------------------------------------------------------------------------
Net (increase) decrease in
 working capital                 $    53.5  $     1.5  $    64.0  $    72.0
---------------------------------------------------------------------------
---------------------------------------------------------------------------

13. Derivative Financial Instruments

The Company uses a variety of derivative financial instruments to reduce its exposure to risks associated with fluctuations in foreign exchange rates, lumber prices and energy costs. At September 30, 2009, the fair value of derivative financial instruments was a net liability of $11.3 million (December 31, 2008 - net liability of $69.3 million). The fair value of these financial instruments was determined based on prevailing market rates for instruments with similar characteristics.

The following table summarizes the gain (loss) on derivative financial instruments for the three and nine months ended September 30, 2009 and 2008:

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Foreign exchange collars and
 forward contracts               $    16.8  $    (9.4) $    33.3  $   (20.6)
Natural gas swaps                     (1.5)     (25.3)     (14.5)       5.8
Diesel options and swaps               0.2       (3.5)       1.2        8.0
Lumber futures                         2.2       (0.6)       2.1          -
---------------------------------------------------------------------------
                                 $    17.7  $   (38.8) $    22.1  $    (6.8)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The following table summarizes the fair market value of the derivative financial instruments included in the balance sheet at September 30, 2009 and December 31, 2008:

                                                        As at         As at
                                                    September      December
(millions of dollars)                                30, 2009      31, 2008
---------------------------------------------------------------------------
Foreign exchange collars and forward contracts  $       (0.5)  $      (53.2)
Natural gas swaps                                       (8.5)          (6.5)
Diesel options and swaps                                (2.5)          (9.6)
Lumber futures                                           0.2              -
---------------------------------------------------------------------------
                                                       (11.3)         (69.3)
Less: current portion                                   (8.7)         (65.4)
---------------------------------------------------------------------------
Long-term portion                               $       (2.6)  $       (3.9)
---------------------------------------------------------------------------
---------------------------------------------------------------------------

14. Segmented Information (a)

Business Segment Information

                                               Unallo-  Elimin-
                                     Pulp &     cated    ation
                            Lumber    Paper   & Other   Adjust-    Consoli-
(millions of dollars)           (b)      (d)       (e)    ment       dated
--------------------------------------------------------------------------

3 months ended
 September 30, 2009
Sales to external
 customers               $   301.1    227.2      12.6        -  $    540.9
Sales to other
 segments (c)            $    15.5        -         -    (15.5) $        -
Operating (loss) income  $   (36.3)    13.0      (8.1)       -  $    (31.4)
Amortization             $    21.7     12.9       3.8        -  $     38.4
Capital expenditures     $    15.8      6.5       0.1        -  $     22.4
--------------------------------------------------------------------------

3 months ended
 September 30, 2008
Sales to external
 customers               $   378.8    253.2      36.0        -  $    668.0
Sales to other
 segments (c)            $    22.7        -       0.5    (23.2) $        -
Operating income (loss)  $    (8.2)    31.5     (10.5)       -  $     12.8
Amortization             $    23.4     13.6       5.2        -  $     42.2
Capital expenditures     $    14.1      7.8       0.3        -  $     22.2
--------------------------------------------------------------------------

9 months ended
 September 30, 2009
Sales to external
 customers               $   877.6    664.9      28.3        -  $  1,570.8
Sales to other
 segments (c)            $    47.7        -       0.1    (47.8) $        -
Operating loss           $  (140.6)   (11.1)    (35.1)       -  $   (186.8)
Amortization             $    67.8     37.7      11.0        -  $    116.5
Capital expenditures     $    33.5     15.0       0.2        -  $     48.7
Identifiable assets      $ 1,326.2    885.6     520.1        -  $  2,731.9
--------------------------------------------------------------------------

9 months ended
 September 30, 2008
Sales to external
 customers               $ 1,126.6    746.5     149.8        -  $  2,022.9
Sales to other
 segments (c)            $    73.3        -       3.2    (76.5) $        -
Operating income (loss)  $  (104.2)    79.0     (58.7)       -  $    (83.9)
Amortization             $    72.7     37.7      16.8        -  $    127.2
Capital expenditures     $    30.7     26.9       0.7        -  $     58.3
Identifiable assets      $ 1,510.7    941.5     869.2        -  $  3,321.4
--------------------------------------------------------------------------

(a) Operations are presented by product line.
(b) Sales for the third quarter include sales of Canfor-produced lumber of
    $235.5 million (three months ended September 30, 2008 - $300.8 million)
    and $695.2 million for the year-to-date (nine months ended
    September 30, 2008 - $916.4 million).
(c) Sales to other segments are accounted for at prices that approximate
    market value.
(d) Includes 100% of Canfor Pulp Limited Partnership and the Taylor Pulp
    Mill.
(e) Effective January 1, 2009, the operating results, capital expenditures
    and identifiable assets of the Company's panels business are no longer
    reported separately as an operating segment. With the exception of the
    Peace Valley OSB Limited Partnership, of which the Company owns a 50%
    share, all panel operations are currently indefinitely idled. Operating
    results, capital expenditures and identifiable assets of the panels
    business are now included in the Unallocated & Other segment. Sales of
    panels for the third quarter were $12.6 million (three months ended
    September 30, 2008 - $36.0 million) and $28.3 million for the
    year-to-date (nine months ended September 30, 2008 - $149.8 million).

Geographic Information

                                       3 months ended        9 months ended
                                         September 30,         September 30,
(millions of dollars)                 2009       2008       2009       2008
---------------------------------------------------------------------------
Sales by location of customer
 Canada                          $    89.2  $   132.9  $   251.2  $   395.9
 United States                       260.0      341.5      780.9    1,060.7
 Europe                               43.0       40.9      116.0      137.2
 Far East and Other                  148.7      152.7      422.7      429.1
---------------------------------------------------------------------------
                                 $   540.9  $   668.0  $ 1,570.8  $ 2,022.9
---------------------------------------------------------------------------
---------------------------------------------------------------------------


                                                       As at          As at
                                                September 30,   December 31,
(millions of dollars)                                   2009           2008
---------------------------------------------------------------------------
Capital assets and goodwill by location
 Canada                                        $     1,632.1  $     1,697.9
 United States                                         161.5          186.1
 Far East and Other                                      0.1            0.2
---------------------------------------------------------------------------
                                               $     1,793.7  $     1,884.2
---------------------------------------------------------------------------
---------------------------------------------------------------------------

15. Subsequent Event

On October 9, 2009 the Canadian federal government announced the allocation of credits from the billion dollar Pulp and Paper Green Transformation Program (the "Program", which was originally announced on June 17, 2009). The Program is designed as a reimbursement of funds to be spent on qualifying energy and environmental capital projects. Credits may be used until the program end date of March 31, 2012. CPLP has been allocated $122.2 million from this Program.

16. Comparative Figures

Certain comparative information has been reclassified to conform to the presentation in the current period.

SOURCE: Canfor Corporation

Canfor Corporation - Media Contact
Dave Lefebvre
Director, Public Affairs & Corporate Communications
(604) 661-5225
Dave.Lefebvre@canfor.com
Canfor Corporation - Investor Contact
Pat Elliott
Treasurer
(604) 661-5441
Patrick.Elliott@canfor.com
www.canfor.ca

Forward Looking Statements

Certain statements in this press release constitute "forward-looking statements" which involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from any future results, performance or achievements expressed or implied by such statements. Words such as "expects", "anticipates", "intends", "plans", "will", "believes", "seeks", "estimates", "should", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. The risks and uncertainties are detailed from time to time in reports filed by the Fund with the securities regulatory authorities in all of the provinces and territories of Canada to which recipients of this press release are referred to for additional information concerning the Fund and Partnership, its prospects and uncertainties relating to the Fund and Partnership and its prospects. These statements are based on management's current expectations and beliefs and actual events or results may differ materially. New risk factors may arise from time to time and it is not possible for management to predict all of those risk factors or the extent to which any factor or combination of factors may cause actual results, performance and achievements of the Fund and Partnership to be materially different from those contained in forward-looking statements. The forward-looking statements are based on current information and expectations and the Fund and Partnership assume no obligation to update such information to reflect later events or developments, except as required by law.

About Canfor Pulp Income Fund

The Fund is an unincorporated, open-ended trust established under the laws of Ontario, created to indirectly acquire and hold an interest in the Canfor Pulp Limited Partnership (the "Partnership"). The Fund indirectly holds a 49.8% interest in the Partnership with Canadian Forest Products Ltd. (a subsidiary of Canfor Corporation) holding the remaining 50.2% interest.

For more information about Canfor Pulp Income Fund and the Partnership, please visit www.canforpulp.com.

Contacts:
Canfor Pulp Income Fund
Terry Hodgins
Chief Financial Officer and Secretary
604-661-5421
Terry.Hodgins@canforpulp.com
www.canforpulp.com

SOURCE: Canfor Pulp Income Fund

mailto:Terry.Hodgins@canforpulp.com
http://www.canforpulp.com