International Forest Products Limited
TSX : IFP.SV.A

International Forest Products Limited

July 28, 2005 20:38 ET

Interfor Earns $9.0 Million in the 2nd Quarter of 2005

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - July 28, 2005) - International Forest Products Limited (TSX:IFP.SV.A) -

Molalla acquisition; strong results from U.S. operations key to earnings

OPERATING RESULTS

International Forest Products Limited ("Interfor" or the "Company") recorded net earnings of $9.0 million or $0.18 per share in the 2nd Quarter of 2005 compared to net earnings of $10.9 million or $0.22 per share in the immediately preceding quarter, and net earnings of $11.6 million or $0.24 per share in the 2nd Quarter of 2004. Through the first 6 months of 2005 Interfor has recorded net earnings of $19.9 million or $0.41 per share compared to net earnings of $12.5 million or $0.26 per share in the first 6 months of 2004.

Interfor's results for the 2nd Quarter include a net gain of $3.9 million or $0.08 per share relating to unusual items. Included in Other Income is an after-tax gain of $19.5 million or $0.40 per share on the sale of the Company's interest in Western Stevedoring Company Limited ("Western"), and a gain of $1.9 million pre-tax ($1.2 million or $0.03 per share after tax) from the sale of surplus equipment. The gains recorded in Other Income were offset in part by restructuring costs and capital asset write downs of $26.5 million pre-tax ($16.8 million after-tax, or $0.35 per share) which relate primarily to a revaluation of the carrying value of the Field sawmill in Courtenay, B.C. and certain other coastal assets (see note 8 of the attached Financial Statements).

In addition, Interfor's results in the 2nd Quarter include a $1.1 million pre-tax reduction in the provision for long-term incentive compensation ($0.7 million after tax, or $0.01 per share) compared to a charge of $1.7 million in the 1st Quarter ($1.1 million after tax, or $0.02 per share) and a charge of $0.2 million pre-tax ($0.1 million after tax, or $0.00 per share) in the 2nd Quarter last year.

"The acquisition of the Molalla sawmill at the end of May along with strong results from the balance of our U.S. operations helped to offset the impact of softer prices and reduced earnings in our B.C. Coast and Interior operations during the 2nd Quarter," said Duncan Davies, Interfor's President and Chief Executive Officer. "Compared with the last quarter, the results for our U.S. operations were off a total of 7%, while the results from our B.C. Coast and Interior operations were off 30% and 45% respectively, mostly as a result of lower product prices."

The sale of Western and the write-down of Field and other coastal assets were part of Interfor's ongoing strategic review of its assets and investments.

"We have offered the Field mill for sale in the hope that a buyer will come forward to allow the mill to restart under other ownership," said Davies. "So far, expressions of interest have been received from a number of parties, but it is too early to say whether an agreement can be consummated." During the 2nd Quarter, the fixed costs associated with the Field mill amounted to $0.5 million pre-tax ($0.3 million after-tax, or $0.01 per share).

Lumber shipments increased to 263 million board feet in the 2nd Quarter compared to 256 million board feet in the preceding three months and 195 million board feet in the same quarter last year.

Sales revenue increased to $213 million from $193 million in the 1st Quarter and $212 million in the 2nd Quarter of 2004. EBITDA excluding Other Income was $23.5 million compared to $21.2 million in the 1st Quarter and $30.1 million in the 2nd Quarter last year.

During the 2nd Quarter Interfor paid $8.0 million ($5.1 million after tax or $0.10 per share) in deposits for countervailing and antidumping duties on shipments of 80 million board feet from Canada to the U.S. At the end of the 2nd Quarter Interfor had paid total deposits of US$79.3 million (CAD$97.2 million utilizing June 30, 2005 exchange rates) since the deposit requirement came into effect in May 2002.

CASH FLOW AND BALANCE SHEET

During the 2nd Quarter Interfor generated $21.0 million in cash from operations before changes in working capital, and $13.5 million after changes in working capital were considered.

Capital spending in the 2nd Quarter amounted to $18.6 million including $6.0 million on roads, $2.4 million on maintenance projects, $9.2 million on discretionary projects and $0.9 million on land development.

The discretionary spending includes $4.6 million related to the rebuild of the Company's Queensboro sawmill in New Westminster, B.C. which is currently in its start-up phase. During the quarter $1.9 million in deferred start-up costs associated with the Queensboro rebuild were capitalized.

OUTLOOK

In spite of strong housing starts and consumption levels, the price of structural products fell by 8% in the 2nd Quarter from an average of US$398 per thousand board feet to US$365 per thousand board feet, and is currently trading in the range of US$340 to US$350 per thousand board feet. Absent supply disruptions or a deterioration in demand, prices are expected to remain in or near the same range throughout the 3rd Quarter.

The North American cedar market remains challenging with pressure on low grade and merch product lines. Prices in the offshore market have dropped by upwards of 10% since the beginning of the year but appear to be firming at current levels.

Prices in Japan have come off 2-3% since the end of the 1st Quarter, with 105mm hemlock squares currently trading at the US$600 - US$610 per thousand board feet. Inventory levels have dropped considerably in recent months in response to reduced supply, and demand is steady.

Interfor expects to operate its B.C. Interior and U.S. sawmills on a normal schedule in the 3rd Quarter and will benefit to the extent that the Molalla facility will operate under Interfor's ownership for the full quarter. The Company's Coastal sawmills will operate on a reduced basis - with the Field mill to remain curtailed until a decision is made regarding that operation's ultimate future. The Company's remaining Coastal facilities will operate on a normal schedule in the 3rd Quarter. The Queensboro mill is progressing in its start-up and is expected to reach pro forma production levels by the end of this year. Logging operations will operate on a normal seasonal schedule pending unanticipated weather-related closures.

Interfor is continuing to review its strategic alternatives relating to a number of its assets and investments in order to determine whether shareholder value is being maximized under the current configuration. In addition, Interfor will continue to investigate opportunities for growth in the B.C. Interior and U.S. Pacific Northwest and in attractive product lines.

SUBSEQUENT EVENT

On July 25th Interfor announced that it had completed the sale of its former Squamish mill site for net proceeds of $13.3 million. As a result of the sale, Interfor will record an after-tax gain of approximately $7.5 million or $0.15 per share which will be reflected in the Company's 3rd Quarter financial statements.

FORWARD LOOKING STATEMENTS

This press release contains statements that are forward-looking in nature. Such statements involve known and unknown risks and uncertainties that may cause the actual results of the Company to be materially different from those expressed or implied by those forward-looking statements. Such risks and uncertainties include, among others: general economic and business conditions, product selling prices, raw material and operating costs, changes in foreign-currency exchange rates and other factors referenced herein and in the Company's annual statutory report.

EBITDA

In this Press Release reference is made to EBITDA and EBITDA excluding Other Income. EBITDA represents earnings before interest, taxes, depletion, amortization and restructuring costs and write-downs of plant and equipment. EBITDA excluding Other Income represents EBITDA less other income. The Company discloses EBITDA as it is a measure used by analysts and Interfor's management to evaluate the Company's performance. As EBITDA is a non-GAAP measure, it may not be comparable to EBITDA calculated by others. In addition, as EBITDA is not a substitute for net earnings, readers should consider net earnings in evaluating the Company's performance.

ABOUT INTERFOR

Interfor is one of the Pacific Northwest's largest producers of quality wood products for sale to markets around the world. The Company has operations in British Columbia, Washington and Oregon, including five sawmills in the Coastal region of British Columbia, one in the B.C. Interior, two in Washington and two in Oregon. In addition, Interfor operates a number of value-added remanufacturing and specialty products facilities in B.C. and Washington.

Additional information relating to the Company and its operations, including Interfor's Annual Statutory Information for 2004, can be found on its website at www.interfor.com and or on SEDAR at www.sedar.com.



SELECTED STATISTICS

Three Months Ended Six Months Ended
June 30 June 30
2005 2004 2005 2004
---- ---- ---- ----

Lumber volume (MMfbm)
- Sales 263 195 519 384
- Production (1) 266 204 519 407

Log Volume (000 m3)
- Production 765 924 1,213 1,500

Prices ($/Mfbm)
- Lumber (2) 565 702 571 662
- Pulp Chips 27 40 28 37

Shares Outstanding (millions)
- Total at period end (3) 48.7 48.4 48.7 48.4
- Weighted average 48.7 48.4 48.7 48.4

(1) excluding volumes custom cut for third parties
(2) FAS basis, net of duty
(3) as of July 26, 2005 the number of shares outstanding by class
are as follows:
Class A Class B Total
47,656,276 1,015,779 48,672,055


There will be a conference call on Friday, July 29, 2005 at 8:00 AM (Pacific Daylight Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose of reviewing the Company's release of its Second Quarter 2005 Financial Results. The dial-in number is 1-800-289-6406.

The conference call will also be recorded for those unable to join in for the live discussion. The number to call is 1-800-558-5253 Reservation 21250576# and will be available until August 12, 2005.

William L. Sauder,Chairman

Duncan K. Davies, President and C.E.O.



CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and six months ended June 30, 2005 and 2004
(unaudited)
--------------------------------------------------------------------
(thousands of Canadian 3 Months 3 Months 6 Months 6 Months
dollars except June 30, June 30, June 30, June 30,
earnings per share) 2005 2004 2005 2004
--------------------------------------------------------------------

Sales $ 213,408 $ 211,644 $ 406,334 $ 381,838

Costs and expenses:
Production 179,857 168,385 340,373 314,354
Selling and
administration 5,130 4,818 10,590 9,696
Long term incentive
compensation (1,122) 248 606 1,401
U.S. countervailing
and antidumping duty
deposits (note 11(a)) 8,013 10,188 14,899 18,755
Amortization of plant
and equipment 6,372 5,150 12,518 10,435
Depletion and
amortization of
timber, roads and
other 8,567 9,951 13,673 15,830
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206,817 198,740 392,659 370,471

--------------------------------------------------------------------
Operating earnings
before restructuring
costs and write-downs
of property, plant and
equipment 6,591 12,904 13,675 11,367

Restructuring costs and
write-downs of
property, plant and
equipment (note 8) 26,461 - 26,461 600
--------------------------------------------------------------------
Operating earnings
(loss) (19,870) 12,904 (12,786) 10,767

Interest expense on
long-term debt (820) (94) (1,584) (234)
Other interest expense (216) (283) (490) (698)
Other income (note 7) 21,417 1,662 28,359 2,783
Equity in earnings of
investee companies 1,948 2,062 4,780 4,216
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22,329 3,347 31,065 6,067

--------------------------------------------------------------------
Earnings before
income taxes 2,459 16,251 18,279 16,834
Income taxes
(recovery):
Current 249 450 2,334 850
Future (6,750) 4,170 (3,936) 3,450
--------------------------------------------------------------------
(6,501) 4,620 (1,602) 4,300
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Net earnings $ 8,960 $ 11,631 $ 19,881 $ 12,534
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Net earnings per share
(note 9)
Basic $ 0.18 $ 0.24 $ 0.41 $ 0.26
Diluted $ 0.18 $ 0.24 $ 0.40 $ 0.26
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--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the 6 months ended June 30, 2005 and 2004
(unaudited)
--------------------------------------------------------------------
6 Months 6 Months
(thousands of June 30, June 30,
Canadian dollars) 2005 2004
--------------------------------------------------------------------

Retained earnings,
beginning of year $ 66,218 $ 41,505

Net earnings 19,881 12,534
--------------------------------------------------------------------

Retained earnings,
end of period $ 86,099 $ 54,039
--------------------------------------------------------------------
--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three and six months ended June 30, 2005 and 2004
(unaudited)
--------------------------------------------------------------------
3 Months 3 Months 6 Months 6 Months
(thousands of June 30, June 30, June 30, June 30,
Canadian dollars) 2005 2004 2005 2004
--------------------------------------------------------------------
Cash provided by
(used in):
Operating activities:
Net earnings $ 8,960 $ 11,631 $ 19,881 $ 12,534
Items not involving
cash:
Amortization of
plant and equipment 6,372 5,150 12,518 10,435
Depletion and
amortization of
timber, roads and
other 8,567 9,951 13,673 15,830
Future income taxes (6,750) 4,170 (3,936) 3,450
Reforestation
liability 6 1,016 979 2,404
Other long-term
liabilities (804) (2,136) (1,963) (2,011)
Equity in earnings
of investee
companies (1,948) (2,062) (4,780) (4,216)
Writedown of
property, plant and
equipment 28,007 195 30,277 195
Other (21,413) (1,662) (28,342) (2,783)
-------------------------------------------------------------------
20,997 26,253 38,307 35,838

Cash generated from
(used in) operating
working capital:
Accounts receivable (11,809) (12,973) (9,306) (22,667)
Inventories 7,066 (31,232) 6,000 (37,503)
Prepaid expenses 202 (2,486) 2,102 (1,704)
Accounts payable and
accrued liabilities (199) 1,983 (4,507) 24,407
Income taxes (2,722) 41 (777) 231
-------------------------------------------------------------------
13,535 (18,414) 31,819 (1,398)

Investing activities:
Additions to
property, plant and
equipment (12,578) (2,688) (31,488) (6,082)
Additions to logging
roads and timber (5,987) (8,933) (10,988) (15,056)
Additions to deferred
start-up costs
(note 1(b)) (1,115) - (1,115) -
Proceeds on disposal
of property, plant
and equipment 2,298 3,435 24,258 6,109
Acquisitions (note 3) (79,905) - (79,905) -
Cash received on
acquisition of
subsidiary (note 3) 2,650 - 2,650 -
Investments and other
assets (107) 107 5,698 4,270
-------------------------------------------------------------------
(94,744) (8,079) (90,890) (10,759)

Financing activities:
Issuance of share
capital, net of
expenses 37 - 190 81
Increase in bank
indebtedness 14,150 25,027 14,150 12,076
Funds from promissory
note payable to
investee company
(note 5) 27,757 - 27,757 -
Additions to
long-term debt
(note 6(b)) 31,405 - 31,405 -
Repayments of
long-term debt
(note 6(b)) (12,396) - (32,910) -
-------------------------------------------------------------------
60,953 25,027 40,592 12,157

Foreign exchange gain
on cash and cash
equivalents held in a
foreign currency: 146 - 220 -
--------------------------------------------------------------------
Increase (decrease)
in cash (20,110) (1,466) (18,259) -

Cash on deposit,
beginning of period 20,110 1,466 8,259 -

--------------------------------------------------------------------

Cash on deposit,
end of period $ - $ - $ - $ -
--------------------------------------------------------------------
--------------------------------------------------------------------

See accompanying notes to consolidated financial statements.


CONSOLIDATED BALANCE SHEETS
June 30, 2005 and 2004 (unaudited) and December 31, 2004 (audited)
--------------------------------------------------------------------
(thousands of June 30, December 31, June30,
Canadian dollars) 2005 2004 2004
--------------------------------------------------------------------
Assets
Current assets:
Cash $ - $ 18,259 $ -
Accounts receivable
(note 13(b)) 55,808 42,228 48,945
Income taxes receivable 263 - -
Inventories 113,107 108,763 130,548
Prepaid expenses 8,254 10,231 8,384
Future income taxes 5,060 7,281 4,589
-------------------------------------------------------------------
182,492 186,762 192,466
Investments and other assets:
Investments and advances 55,990 47,236 41,193
Deferred financing fee,
net of accumulated
amortization 526 509 -
-------------------------------------------------------------------
56,516 47,745 41,193

Property, plant and equipment,
net of accumulated
amortization (note 1(b)) 299,548 235,449 186,622
Timber and logging roads,
net of accumulated
depletion and amortization 63,476 82,556 85,955
Goodwill and other
intangible assets 15,733 14,062 13,862
--------------------------------------------------------------------

$ 617,765 $ 566,574 $ 520,098
--------------------------------------------------------------------
--------------------------------------------------------------------

Liabilities and Shareholders'
Equity
Current liabilities:
Bank indebtedness
(note 6(a)) $ 14,150 $ - $ 25,027
Accounts payable and
accrued liabilities 82,408 85,802 93,723
Income taxes payable - 579 589
Promissory note payable to
investee company (note 5) 27,757 - -
-------------------------------------------------------------------
124,315 86,381 119,339

Reforestation liability,
net of current portion 17,961 16,982 18,574
Long-term debt (note 6(b)) 73,524 74,163 -
Other long-term liabilities 7,470 9,968 11,953
Future income taxes 2,592 6,332 10,369
Shareholders' equity:
Share capital
Class A subordinate
voting shares 294,771 294,581 293,543
Class B common shares 4,080 4,080 4,080
Contributed surplus 8,201 8,201 8,201
Cumulative translation
adjustment (1,248) (332) -
Retained earnings 86,099 66,218 54,039
-------------------------------------------------------------------
391,903 372,748 359,863

--------------------------------------------------------------------

$ 617,765 $ 566,574 $ 520,098
--------------------------------------------------------------------
--------------------------------------------------------------------

Contingencies (note 11)
Subsequent event (note 14)

See accompanying notes to consolidated financial statements

On behalf of the Board:

W. L. Sauder, Director J. A. Milroy, Director


INTERNATIONAL FOREST PRODUCTS LIMITED
Notes to Unaudited Interim Consolidated Financial Statements
(Tabular amounts expressed in thousands except per share amounts)
Three and six months and ended June 30, 2005 and 2004 (unaudited)


1. Significant accounting policies:

These unaudited interim consolidated financial statements include the accounts of International Forest Products Limited and its subsidiaries (collectively referred to as "Interfor" or the "Company"). These interim consolidated financial statements do not include all disclosures required by Canadian generally accepted accounting principles for annual financial statements, and accordingly, these interim consolidated financial statements should be read in conjunction with Interfor's most recent annual consolidated financial statements. These interim consolidated financial statements follow the same accounting policies and methods of application used in the Company's audited annual consolidated financial statements as at and for the year ended December 31, 2004 except for the new accounting policy adopted subsequent to that date and the disclosure of an existing policy that is now significant, as detailed below.

(a) Variable interest entities

Effective January 1, 2005, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline 15, Consolidation of Variable Interest Entities on a prospective basis. The guideline prescribes the application of consolidation principles for entities that meet the definition of a variable interest entity ("VIE"). An enterprise holding other than a voting interest in a VIE could, subject to certain conditions, be required to consolidate the VIE if it is considered its primary beneficiary whereby it would absorb the majority of the VIE's expected losses, receive the majority of its expected residual returns, or both. The adoption of this new standard had no effect on the consolidated financial statements as the Company does not have any VIEs.

(b) Deferred start-up costs

The Company has a historical accounting policy of deferring start-up costs on major plant construction to the extent these costs meet the criteria under CICA Emerging Issues Communication 27. During the quarter, the Company completed major plant construction on its Queensboro mill and has applied this accounting policy in the quarter for start-up costs incurred. The Company will defer start-up costs until the mill reaches commercial production levels which have been defined as the earlier of:

(i) Seventy percent of production capacity for two consecutive months; or

(ii) Six months.

Deferred start-up costs are amortized over five years on a straight-line basis and are included in property, plant and equipment.

2. Comparative figures:

Certain of the prior year's figures have been reclassified to conform to the presentation adopted in the current year.

3. Acquisitions:

On May 31, 2005, the Company acquired the sawmill assets and inventory of Floragon Forest Products Molalla Inc. and Floragon Manufacturing LLC (together, "Floragon"), a sawmill in the U.S. Pacific Northwest for US$55,363,000. In addition, the vendors may qualify for an incentive payment based on the financial performance of the Floragon operation in the 12 months following the closing. To acquire these assets, the Company paid CAD$69,546,000, of which $31,405,000 was financed through the existing Revolving Line, $6,281,000 was financed through an operating line of credit with a U.S. bank, and the balance through cash on hand.

In late 2004, the majority shareholders of an investee company exercised their option under a shareholders' agreement to put their shares to the Company. Consequently, effective May 31, 2005, Interfor acquired the remaining 51% of the common shares of Mapri Developments Ltd. ("Mapri"), in which the Company previously held a 49% interest. The consideration paid for the acquisition totalled $10,359,000 and was funded through cash on hand.



These acquisitions have been accounted for using the purchase method
and the purchase price is allocated as follows:
--------------------------------------------------------------------

Net assets acquired:
Cash $ 2,650
Other current assets 9,092
Property, plant and equipment 70,857
--------------------------------------------------------------------
82,599

Liabilities assumed:
Current liabilities 664
Future income taxes 2,030
--------------------------------------------------------------------
2,694
--------------------------------------------------------------------
$ 79,905
--------------------------------------------------------------------
--------------------------------------------------------------------

--------------------------------------------------------------------
Consideration funded out of:
Cash on hand $ 42,219
Operating Lines 6,281
Revolving Line 31,405
--------------------------------------------------------------------
$ 79,905
--------------------------------------------------------------------
--------------------------------------------------------------------

Any further consideration that may be payable as a result of the
incentive payment represents contingent consideration which will be
recorded when the outcome is likely and the amount reasonably
determinable.


4. Seasonality of operating results:

The Company operates in the solid wood business which includes logging and sawmill operations. Logging activities vary throughout the year due to a number of factors including weather, ground and fire season conditions. Generally, the Company operates its logging divisions in the latter half of the first quarter, throughout the second and third quarters and in the first half of the fourth quarter. Sawmill operations are less seasonal than logging operations but do depend on the availability of logs from the logging operations. In addition, the market demand for lumber and related products is generally lower in the first quarter due to reduced construction activity which increases during the spring, summer and fall.

5. Promissory note payable to investee company:

On April 21, 2005, Seaboard Shipping Company Limited ("Seaboard"), in which the Company holds an equity interest, sold its 50% interest in Western Stevedoring Limited for $40,000,000 plus a $2,500,000 dividend. The after-tax proceeds of this transaction were loaned to Seaboard's shareholders at that time based on a formula related to each shareholder's share of shipments over a two year period. Interfor's share of the net after-tax cash proceeds on the sale totalled $27,757,000. The Company signed an unsecured promissory note which is payable on demand on or before January 31, 2006 and is non-interest bearing until January 31, 2006 and bears interest at the rate of 5% per annum thereafter.

6. Bank indebtedness and long-term debt:

(a) Bank indebtedness:

In the 1st Quarter of 2005, the Company secured a new operating line of credit with a U.S. bank in the amount of US$15,000,000. The line is subject to a borrowing base calculation dependent upon certain accounts receivable and inventories of the Company's subsidiary, Interfor Pacific Inc. As at June 30, 2005, the maximum borrowing available was US$15,000,000, of which US$12,140,000 was unused. The line utilization includes outstanding letters of credit of US$360,000. The loan bears interest at U.S. bank prime or, at the Company's option, at LIBOR plus 1 3/8%. The line of credit is secured by the accounts receivables and inventories of Interfor Pacific Inc. and is subject to certain financial covenants including a maximum ratio of total debt to total capitalization. The line matures on March 1, 2006.

On acquisition of Mapri on May 31, 2005, the Company renewed Mapri's existing revolving line of credit of $4,000,000. This demand line bears interest at bank prime plus 1/4%, is secured by a general charge over all assets of Mapri and a specific charge against the inventories of B.W. Creative Wood Industries Ltd., a wholly-owned subsidiary of Mapri, with the agreement maturing on August 1, 2006. This line is not utilized at June 30, 2005.

Under the Company's existing established operating line of credit of $75,000,000, the maximum borrowing available at June 30, 2005 was $70,066,000 (2004 - $75,000,000), of which $51,600,000 (2004 - $45,362,000) was unused. The line utilization includes outstanding letters of credit of $4,283,000 (2004 - $4,611,000).

(b) Long-term debt:

By April 30, 2005, the Company had repaid US$26,700,000 (CAD$32,910,000) on its Canadian revolving term line (the "Revolving Line") to eliminate the outstanding balance.

On May 31, 2005, the Company drew US$25,000,000 on its Revolving Line in order to facilitate the acquisition of the sawmill assets of Floragon. As at June 30, 2005, the Revolving Line was drawn by US$25,000,000 (2004 - $nil) and revalued at the month-end exchange rate to CAD$30,635,000 (2004 - $nil). The Revolving Line bears interest at rates based on bank prime plus a premium, depending upon a financial ratio or, at the Company's option, at rates for Bankers' Acceptances or Libor based loans and matures on April 27, 2007.

As at June 30, 2005, the $US non-revolving term line (the "Non-Revolving Line") remains fully drawn at US$35,000,000 (2004 - $nil) and revalued at the month-end exchange rate to CAD$42,889,000 (2004 - $nil). The Non-Revolving Line bears interest at rates based on bank prime plus a premium depending upon a financial ratio or, at the Company's option, at rates for Libor based loans and matures on September 1, 2009.

Both lines are secured and are subject to certain financial covenants including a minimum working capital requirement and a maximum ratio of total debt to total capitalization.



Minimum principal amounts due on long-term debt within the next five
years are as follows:
--------------------------------------------------------------------
--------------------------------------------------------------------

2006 $ -
2007 30,635
2008 -
2009 42,889
2010 -
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$ 73,524
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7. Other income:
--------------------------------------------------------------------
--------------------------------------------------------------------
3 Months 3 Months 6 months 6 months
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------------------------------------------------------------------
Gain on settlement of
timber takeback $ - $ - $ 6,373 $ -
Gain on disposal of
surplus property, plant
and equipment 1,916 1,662 2,485 2,783
Equity income
participation in gain
on disposal of Western
Stevedoring 19,501 - 19,501 -
--------------------------------------------------------------------
$ 21,417 $ 1,662 $ 28,359 $ 2,783
--------------------------------------------------------------------
--------------------------------------------------------------------


Under the terms of the Forest Revitalization Act, the Company received $22,111,000 in compensation for the loss of logging rights on the B.C. Coast, including $17,611,000 related to the 20% reduction in harvest volumes and a $4,500,000 advance payment against lost infrastructure and road construction costs. $1,300,000 was recorded as a recovery of production costs and $20,811,000 was recorded as proceeds on the disposal of timber and roads and resulted in a net gain on settlement of timber takeback of $6,373,000 in the 1st Quarter.

On April 21, 2005, Seaboard Shipping Company Limited ("Seaboard"), in which the Company holds an equity interest, sold its 50% interest in Western Stevedoring Limited for $40,000,000 plus a $2,500,000 dividend. As net earnings of Seaboard are distributed based on a percentage of shipments of product by the shareholders, Interfor participated in 71.2% of the net after-tax gain on the sale, with its share totalling $19,501,000, which was recorded in the 2nd Quarter.

8. Restructuring costs and write-downs of property, plant and equipment:

In the quarter, following an extensive evaluation of its operations, the Company identified certain B.C. coastal assets which it did not consider to be part of its future core operations and reviewed the valuation of these non-core assets. An impairment charge of $28,007,000 was recorded in the quarter to reduce the carrying values of these assets to estimated fair values.

During the quarter, the Company also received $1,546,000 from the B.C. Forestry Revitalization Trust set up by the Government of British Columbia, as reimbursement for severance costs of workers who were displaced by the reductions in harvesting rights taken under the Forestry Revitalization Act. The associated costs had been expensed in prior years as restructuring costs. Interfor also recorded additional severances for hourly woodlands employees of $4,196,000 which were fully recovered from the B.C. Forestry Revitalization Trust. The recovery was recorded as an offset to the severance costs in restructuring. The Company continues to pursue mitigation of certain restructuring costs which it feels it is entitled to under the terms of the Trust, but the amount of any additional mitigation is not yet determinable and will be recorded when received.



Restructuring costs and write-downs of property, plant and equipment
are as follows:
--------------------------------------------------------------------
--------------------------------------------------------------------
3 Months 3 Months 6 months 6 months
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------------------------------------------------------------------
Property, plant,
equipment and timber
write-downs $ 28,007 $ - $ 30,277 $ -
Severance and other
restructuring costs
(recoveries) (1,546) - (1,546) 600
Other (recoveries) - - (2,270) -
--------------------------------------------------------------------
$ 26,461 $ - $ 26,461 $ 600
--------------------------------------------------------------------
--------------------------------------------------------------------


9. Net earnings per share
--------------------------------------------------------------------
--------------------------------------------------------------------
3 months June 30, 2005 3 months June 30, 2004
----------------------- -----------------------
Net Per Net Per
earnings Shares share earnings Shares share
--------------------------------------------------------------------
Basic earnings
per share $ 8,960 48,678 $ 0.18 $ 11,631 48,409 $ 0.24
Share options - 629 - - 736 -
--------------------------------------------------------------------

Diluted earnings
per share $ 8,960 49,307 $ 0.18 $ 11,631 49,145 $ 0.24
--------------------------------------------------------------------
--------------------------------------------------------------------

6 months June 30, 2005 6 months June 30, 2004
----------------------- -----------------------
Net Per Net Per
earnings Shares share earnings Shares share
--------------------------------------------------------------------
Basic earnings
per share $ 19,881 48,667 $ 0.41 $ 12,534 48,406 $ 0.26
Share options - 653 - - 659 -
--------------------------------------------------------------------

Diluted earnings
per share $ 19,881 49,320 $ 0.40 $ 12,534 49,065 $ 0.26
--------------------------------------------------------------------
--------------------------------------------------------------------


10. Segmented information:

The Company manages its business as a single operating segment, solid wood. The Company purchases and harvests logs which are then manufactured into lumber products at the Company's sawmills, or sold. Substantially all of the Company's operations are located in British Columbia, Canada and the Pacific Northwest, U.S.A.



The Company sells to both foreign and domestic markets as follows:
--------------------------------------------------------------------
--------------------------------------------------------------------
3 months 3 months 6 months 6 months
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------------------------------------------------------------------

Canada $ 64,163 $ 88,557 $ 116,716 $ 146,698
United States 113,568 56,275 205,089 104,184
Japan 16,857 44,483 43,896 83,413
Other export 18,820 22,329 40,633 47,543
--------------------------------------------------------------------
$ 213,408 $ 211,644 $ 406,334 $ 381,838
--------------------------------------------------------------------
--------------------------------------------------------------------

Sales by product line
are as follows:
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--------------------------------------------------------------------
3 months 3 months 6 months 6 months
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------------------------------------------------------------------

Lumber $ 161,812 $ 152,068 $ 323,906 $ 287,241
Logs 30,425 37,391 47,783 59,813
Wood chips and other by
products 8,282 9,705 16,494 17,844
Other 12,889 12,480 18,151 16,940
--------------------------------------------------------------------
$ 213,408 $ 211,644 $ 406,334 $ 381,838
--------------------------------------------------------------------
--------------------------------------------------------------------

The Company has capital assets, goodwill and other intangible assets
located in:
--------------------------------------------------------------------
--------------------------------------------------------------------
June 30, 2005 June 30, 2004
--------------------------------------------------------------------

Canada $ 238,160 $ 278,655
United States 140,597 7,784
--------------------------------------------------------------------
$ 378,757 $ 286,439
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--------------------------------------------------------------------


11. Contingencies:

(a) U.S. Softwood Lumber dispute:

The softwood lumber trade discussions and legal actions between the Government of Canada, the provincial governments and the U.S. Government are continuing. On August 31, 2004, a North American Free Trade Agreement ("NAFTA") Panel reaffirmed its prior rulings that the U.S. International Trade Commission ("ITC") had not demonstrated that the U.S. softwood lumber industry is threatened with material injury by reason of Canadian imports and remanded this determination back to the ITC to make a new determination consistent with the Panel's decision, which the ITC did under protest. On October 12, 2004, the NAFTA panel issued an order affirming the negative determination of the ITC. The U.S. administration has filed an appeal of the NAFTA injury decision to an Extraordinary Challenge Committee.

Effective December 20, 2004, the USDOC implemented new deposit rates based on the USDOC's final rate determinations for the first Administrative review period (May 22, 2002 to March 31, 2003 for the countervailing duty case; and May 22, 2002 to April 30, 2003 for the antidumping duty case). The USDOC reduced the countervailing duty deposit rate to 17.18% from 18.79% and reduced the all others antidumping deposit rate to 4.03% from 8.43%. These rates were subsequently amended by the USDOC on January 24, 2005 (antidumping deposit rate was reduced to 3.78%) and February 24, 2005 (countervailing duty deposit rate was reduced to 16.37%). At the date of this report the Company's combined deposit rate is 20.15%.

The Company has recorded $8,013,000 (2004 - $10,188,000) for the quarter and $14,899,000 (2004 - $18,755,000) for the six months ended June 30, 2005 in respect of the countervailing and antidumping duties assessed on Canadian softwood lumber exports to the United States. Cumulative duties for the period from May 22, 2002 to June 30, 2005 charged to operations total $107,890,000 (US$79,298,000). These total U.S. deposits translated at quarter-end exchange rates equate to CAD$97,172,000 at June 30, 2005.

The Company and other Canadian forest product companies, the Federal Government and Canadian provincial governments ("Canadian Interests") continue to categorically deny the U.S. allegations that sales of Canadian softwood lumber into the U.S. threatens material injury to the U.S. industry. Canadian interests continue to pursue appeals of the final countervailing and dumping determinations with the appropriate courts, NAFTA panels and the World Trade Organization ("WTO").

The final amount of countervailing and antidumping duties that may be assessed on Canadian softwood lumber exports to the U.S. cannot be determined at this time and will depend on appeals of the final determinations to any reviewing courts, NAFTA or WTO panels. Notwithstanding the final rates established in the investigations, the final liability for the assessment of countervailing and antidumping duties will not be determined until each annual administrative review process is complete, including appeals.

(b) B.C. Forest Revitalization Plan:

In March 2003, the Government of B.C ("Crown") introduced the Forestry Revitalization Plan (the "Plan") that provides for significant changes to Crown forest policy and to the existing allocation of Crown timber tenures to licensees. The changes prescribed in the Plan include: the elimination of minimum cut control regulations, the elimination of existing timber processing regulations, and the elimination of restrictions limiting the transfer and subdivision of existing licenses. As well, through legislation, licensees, including the Company, will be required to return 20% of their replaceable tenure to the Crown. The Plan states that approximately half of this volume will be redistributed to open up opportunities for woodlots, community forests and First Nations and the other half will be available for public auction. The Crown has acknowledged that licensees will be fairly compensated for the return of tenure and related infrastructure costs.

In December 2004, the Crown issued Ministerial Orders to the Company specifying the timing and the volume of the take-back for replaceable tenures. Approximately 344,000 cubic metres of the Company's existing allowable annual cut on their replaceable tenures was taken in December 2004, and the balance of 235,000 cubic metres will be taken by December 31, 2005, for a total of 579,000 cubic metres. In addition, 20% of the Company's non-replaceable timber licences will also be reduced.

On March 28, 2005 the Company concluded a comprehensive agreement with the Province of British Columbia to compensate the Company for loss of forest tenure through the government's timber reallocation program. The Company received $22,111,000 in compensation for the loss of logging rights on the B.C. Coast, including $17,611,000 related to the 20% reduction in harvest volumes and a $4,500,000 advance payment against lost infrastructure and road construction costs. The Company is continuing its negotiation with the Crown for further compensation for infrastructure, but the amount and timing of additional compensation is not yet determinable. The Company will record any other compensation at the time the amounts to be recorded can be estimated.

12. Employee future benefits:



The total benefits cost under its various pension plans (described
in the Company's audited annual consolidated financial statements)
as follows:
--------------------------------------------------------------------
--------------------------------------------------------------------
3 Months 3 Months 6 months 6 months
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
--------------------------------------------------------------------

Defined contribution plan $ 431 $ 467 $ 911 $ 942
Defined benefit plan 125 141 271 268
Unionized employees'
pension plan 1,070 1,235 2,178 2,407
U.S. operations benefit
plan 170 - 313 -
Senior management
supplementary pension
plan 157 26 235 53
--------------------------------------------------------------------
Total pension expense $ 1,953 $ 1,869 $ 3,908 $ 3,670
--------------------------------------------------------------------
--------------------------------------------------------------------


13. Financial instruments:

(a) Derivative financial instruments:

The Company employs financial instruments, such as interest rate swaps and foreign currency forward and option contracts, to manage exposure to fluctuations in interest rates and foreign exchange rates. The Company does not expect any credit losses in the event of non-performance by counter parties as the counter parties are the Company's bankers.

As at June 30, 2005, the Company has outstanding obligations to sell a maximum of US$11,000,000 at an average rate of CAD$1.2454 and Japanese yens 130,000,000 at an average rate of yens 85.72 to the CAD$1.00 during 2005. All foreign currency gains or losses to June 30,2005 have been recognized in the statement of operations.

There were no interest rate swaps outstanding as at June 30, 2005.

(b) Sale of receivables:

During 2000, the Company entered into an agreement to sell designated trade receivables, with limited recourse, to a Trust. As these trade receivables are collected, they are replaced by new receivables to maintain the aggregate outstanding balance. At June 30, 2005, the company received cash proceeds of $25,000,000 (2004 - $25,000,000), from the sale of receivables.

14. Subsequent event:

On July 25, 2005, the Company completed the sale of surplus property located in Squamish, British Columbia (former location of its Squamish Lumber mill). The Company will record sale proceeds of $13,300,000 and will record an after-tax gain of approximately $7,500,000 million in the 3rd Quarter of 2005.


Contact Information

  • International Forest Products Limited
    Gerald J. Friesen
    Vice President and Corporate Secretary
    (604) 689-6804
    (604) 688-0313 (FAX)
    www.interfor.com