International Forest Products Limited
TSX : IFP.A

International Forest Products Limited

November 02, 2011 22:12 ET

Interfor's Q3 Results Improve on Higher Sales Revenue

$24 Million Investment Planned for Grand Forks and Castlegar Sawmills

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 2, 2011) - INTERNATIONAL FOREST PRODUCTS LIMITED ("Interfor" or the "Company") (TSX:IFP.A) reported net income of $6,000 or $0.00 per share in the third quarter of 2011. Included in the Company's accounts in the quarter was the effect of unrecognized tax assets of $0.6 million and other one-time items of $1.1 million.

Excluding these items, Interfor recorded a net loss of $0.5 million or $0.01 per share compared to a net loss of $2.9 million or $0.05 per share in the immediately preceding quarter and a loss of $1.1 million or $0.02 per share in the third quarter of 2010.

Also included in the Company's accounts in the third quarter was a recovery of share-based compensation expense of $0.9 million or $0.02 per share compared to a recovery of $3.1 million or $0.06 per in the second quarter.

Sales revenue in the third quarter was $200.2 million, up $12.0 million or 6.4% versus the second quarter, resulting from higher log and lumber sales volumes and prices.

EBITDA for the quarter (adjusted to exclude one-time items and "other income") was $14.3 million, up $2.7 million from the second quarter and up $3.7 million from the third quarter of 2010.

Lumber production in the third quarter was 313 million board feet, down 12 million board feet or 4 percent versus the second quarter as production rates were adjusted downwards in the face of weak market conditions and high log costs in the Pacific Northwest. Sales volumes, including wholesale activities, increased 2 million board feet to 336 million board feet versus 334 million board feet in the second quarter.

In the quarter, SPF 2x4 in the North American market was US$246, up US$6 versus the second quarter, and Hem-Fir studs were down US$7 to US$274. Prices and volumes to China softened as high in-market inventories, seasonal factors and tighter credit conditions combined to slow demand. Key Japanese grades were flat in the quarter while the cedar market was mixed with strength in certain products offset by weaker prices on others.

Results have also been impacted by changes in the value of the Canadian dollar which declined by 1% quarter-over-quarter but which closed the quarter at US$0.954, down 8% compared to the end of the second quarter.

In the quarter, Interfor generated $14.4 million in cash from operations before changes in working capital and $9.0 million in cash after working capital changes were considered. Capital spending in the quarter amounted to $7.6 million, including $4.9 million on roads.

Net debt closed the quarter at $94.9 million or 19 percent of invested capital.

Business conditions remain uncertain. Sovereign debt issues in Europe, slow progress in the U.S. and credit conditions in China bear watching. On the positive side, a noticeable reduction in demand from offshore buyers has resulted in some easing of log prices in the Pacific Northwest.

At its meeting today, Interfor's Board of Directors approved a $24 million capital plan to upgrade the Company's Grand Forks and Castlegar sawmills.

The plan involves the installation of a new small log line at Grand Forks to replace the existing two-line facility, along with funds to complete the installation of an automated lumber grading system. The Grand Forks project is budgeted at $19 million and will incorporate the same technology recently installed at the Company's Adams Lake sawmill. Construction will commence in the first quarter of 2012 and will be completed in mid 2013.

The investment at Castlegar, which totals $5 million, consists of a series of high return projects including the installation of an automated lumber grading system focused on increasing productivity and value extraction at that mill.

When completed, the Grand Forks and Castlegar mills will operate with a combined capacity of 375 million board feet on a full two-shift basis.

The Grand Forks and Castlegar sawmills were acquired by Interfor in April 2008. The projects announced are consistent with the Company's philosophy of operating top quartile manufacturing facilities capable of extracting full value from the available timber resource. The investment, which will be funded primarily out of operating cash flow, is made possible by the Company's strong financial position and by the support of the management and crew at the two mills, along with other stakeholders, who have helped create a positive operating and investment climate in the area. The improvements to be made at these mills will help support long term jobs in the local communities.

FORWARD-LOOKING STATEMENTS

This release contains information and statements that are forward-looking in nature, including, but not limited to, statements containing the words "will" and "is expected" and similar expressions. Such statements involve known and unknown risks and uncertainties that may cause Interfor's actual results 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 Interfor's 2010 Annual Report and Management Information Circular available on www.sedar.com. The forward-looking information and statements contained in this report are based on Interfor's current expectations and beliefs. Readers are cautioned not to place undue reliance on forward-looking information or statements. Interfor undertakes no obligation to update such forward-looking information or statements, except where required by law.

ABOUT INTERFOR

Interfor is a leading global supplier, with one of the most diverse lines of lumber products in the world. The Company has operations in British Columbia, Washington and Oregon, including two sawmills in the Coastal region of British Columbia, three in the B.C. Interior, two in Washington and two in Oregon. For more information about Interfor, visit our website at www.interfor.com.

There will be a conference call on Thursday, November 3, 2011 at 8:00 AM (Pacific Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose of reviewing the Company's release of its Third Quarter, 2011 Financial Results.

The dial-in number is 1-866-323-8540. The conference call will also be recorded for those unable to join in for the live discussion, and will be available until November 17, 2011. The number to call is 1-866-245-6755 Passcode 502667.


International Forest Products Limited                                       
Third quarter Report                                                        
For the three and nine months ended September 30, 2011                      

Management's Discussion and Analysis

Dated as of November 2, 2011

This Management's Discussion and Analysis ("MD&A") provides a review of Interfor's financial performance for the three and nine months ended September 30, 2011 relative to 2010, the Company's financial condition and future prospects. The MD&A should be read in conjunction with the interim Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2011 and 2010 and for the three months ended March 31, 2011 and 2010, and Interfor's Annual Information Form, Consolidated Financial Statements and Annual MD&A for the years ended December 31, 2010 and 2009 filed on SEDAR at www.sedar.com. The financial information contained in this MD&A has been prepared in accordance with IAS 34 Interim Financial Reporting and International Financial Reporting Standards ("IFRS") except as noted herein. In this MD&A, reference is made to EBITDA and Adjusted EBITDA. EBITDA represents earnings before finance costs, taxes, depreciation, depletion, amortization, restructuring costs, other foreign exchange gains and losses, and write-downs of property, plant, equipment ("asset write-downs"). Adjusted EBITDA represents EBITDA adjusted for other income (expense) and other income of an associate company. 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 not a defined term under IFRS, 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.

Unless otherwise noted, all financial references in this MD&A are in Canadian dollars.

References in this MD&A to "Interfor" and the "Company" mean International Forest Products Limited, together with its subsidiaries.

Forward-Looking Statements

This report contains forward-looking statements. Forward-looking statements are statements that address or discuss activities, events or developments that the Company expects or anticipates may occur in the future. Forward-looking statements are included in the description of areas which are likely to be impacted by the description of future cash flows and liquidity under the headings "Overview", "Income Taxes" and "Cash Flow and Financial Position"; changes in accounting policy under the heading "Accounting Policy Changes"; and in the description of economic conditions under the headings "Sales" and "Outlook". These forward-looking statements reflect management's current expectations and beliefs and are based on certain assumptions including assumptions as to general business and economic conditions in the U.S. and Canada, as well as other factors management believes are appropriate in the circumstances including, among others: product selling prices, raw material and operating costs, changes in foreign currency exchange rates, and other factors referenced herein. Such forward-looking statements are subject to risks and uncertainties and no assurance can be given that any of the events anticipated by such statements will occur or, if they do occur, what benefit the Company will derive from them. A number of factors could cause actual results, performance or developments to differ materially from those expressed or implied by such forward-looking statements, including those matters described herein and in Interfor's current Annual Information Form available on www.sedar.com. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstance, except as required by law.

Review of Operating Results

Overview

The Company recorded net earnings of $6,000 or $0.00 per share for the third quarter of 2011 as compared to net earnings of $1.4 million, or $0.03 per share for the third quarter of 2010. For the first nine months, 2011, Interfor recorded a net loss of $7.0 million, or $0.13 per share as compared to a net loss of $5.9 million, or $0.13 per share for the first nine months, 2010.

EBITDA and Adjusted EBITDA for the third quarter of 2011 were $14.7 million and $14.3 million, respectively, compared to $15.3 million and $10.6 million for the third quarter, 2010. EBITDA and Adjusted EBITDA for the first nine months of 2011 were $39.1 million and $38.6 million, respectively, compared to $39.0 million and $33.9 million for the same period in 2010.

Before restructuring costs, foreign exchange gains (losses), certain other one-time items and the effect of unrecognized tax assets, the Company's net loss was $0.5 million, or $0.01 per share for the third quarter, 2011 as compared to $1.1 million, or $0.02 per share for the third quarter of 2010. The Company recorded a recovery of share-based incentive compensation of $0.9 million, or $0.02 per share in the third quarter, 2011 as compared to an expense of $0.1 million, or $0.00 per share for the same period, 2010.

For the first nine months, 2011 Interfor's net loss before restructuring costs, foreign exchange gains (losses), certain other one-time items and the effect of unrecognized tax assets was $4.0 million, or $0.07 per share as compared to $3.9 million, or $0.08 per share for the first nine months, 2010. The Company recorded a recovery of share-based incentive compensation of $0.5 million, or $0.01 per share for the first nine months, 2011 as compared to a recovery of $0.5 million, or $0.01 per share for the same period, 2010.

North American lumber demand continued to be weak through the first nine months of 2011 as U.S. housing starts languished in the face of weak economic conditions and a glut of distressed and foreclosed properties on the market. In addition, difficult weather conditions in the first half of 2011 hampered building starts, transportation and seasonal buying for home improvement projects and resulted in lower sales volumes through the first nine months.

Increased export market demand in 2011, particularly from China, helped to offset weak domestic demand and provided some stability for pricing. In the first quarter, 2011 North American prices were buoyed by strong export demand but increased production in the second quarter created a supply-demand imbalance which resulted in lower domestic prices and negatively impacted export pricing, particularly as China's consumption slowed toward the end of the quarter. In the third quarter, 2011 Chinese demand cooled as measures introduced by the Chinese government to address inflation and an overheated housing market impacted credit availability.

Results have also been impacted by a stronger Canadian dollar which, relative to its U.S. counterpart, appreciated by 6% on average for both the third quarter, 2011 and for the nine months, 2011 as compared to the same periods of 2010. Concerns over the global economy and the European debt crisis in late summer caused a significant drop in interest rates and a sharp weakening of the Canadian dollar, which closed the third quarter, 2011 9% lower than the previous quarter's closing rate.

On April 8, 2011 the Company closed a public offering of 8,222,500 Class A Subordinate Voting shares at a price of $7.00 per share for gross proceeds of $57.6 million. For full details of the Offering see the short form prospectus filed on March 31, 2011 on www.sedar.com.

The Company's results are now being prepared in accordance with International Financial Reporting Standards ("IFRS"). Several of the Company's accounting policies have changed and the presentation, financial statement captions and terminology used in this discussion and the accompanying unaudited financial statements may differ from that used in previously issued financial statements and quarterly and annual reports. The new policies have been consistently applied to all of the quarters presented and comparative information has been restated or reclassified unless otherwise noted. Further details on the conversion to IFRS are provided in the First Quarter Report for the three months ended March 31, 2011 in the Management's Discussion and Analysis under "Accounting Policy Changes" and in the notes to the Condensed Consolidated Unaudited Financial Statements as at and for the three months ended March 31, 2011 filed on www.sedar.com.

Sales

Lumber shipments improved by 59 million board feet for the third quarter, 2011 and by 173 million board feet for the first nine months, 2011, up 21% over the comparative periods, 2010. Increases reflect the impact of strong export demand with China driving the majority of growth in lumber sales volume.

Shipments to China slowed in the third quarter, 2011 relative to the previous two quarters, 2011, but still outweighed shipments in the same quarter, 2010 by almost 20%. For the first nine months, 2011 shipments to China more than doubled those for the same period, 2010. Shipments to North American markets were flat for the first nine months, 2011 as compared to 2010, as the protracted downturn continued to impact demand.

Unit lumber sales values were virtually unchanged for the third quarter, 2011 and declined by $15 per mfbm, or 4% for the first nine months, 2011 relative to the same periods in 2010.

In the first quarter, 2011 high export demand helped bolster North American prices. In the second quarter, with U.S. housing starts returning to the lowest levels since the downturn began in 2008, demand faded and prices dropped. The decline in domestic prices impacted prices in China as well. The third quarter, 2011 saw softened demand in China due to normal seasonal factors along with specific actions taken to cool the housing market and reduce inflation.

Average unit sales values were further negatively impacted, though to a lesser extent, by a decline in cedar prices in 2011 as compared to 2010, a change in sales mix away from higher value cedar products, and a stronger average Canadian dollar.

Compared to the same periods of 2010, pulp chip and other by-product revenues improved by $3.6 million for the third quarter of 2011 and $10.3 million for the first nine months, 2011 corresponding to higher lumber production levels. Chip prices, boosted by strong global demand for pulp, improved by 21% in the third quarter, 2011 and 13% in the first nine months, 2011 as compared to the same periods, 2010.

Log sales improved by 64% or $14.0 million and by 44% or $26.3 million for the third quarter and first nine months, 2011 respectively in comparison to the same periods, 2010. Canadian log sales volume increased by 49% in the third quarter, 2011 and by 33% year-to-date relative to the same periods, 2010 reflecting increased domestic demand for fibre, but driven primarily by increased demand for logs from export markets. On the B.C. Coast, export log sales volume more than doubled in the third quarter, 2011 and for the first nine months, 2011 as compared to 2010.

The impact on average unit sales values of the increase in export log shipments and shift in sales mix towards higher value export logs in the third quarter, 2011 and first nine months, 2011 was tempered by sales of smaller, lower value logs in the B.C. Interior.

Unrealized foreign exchange gains (losses) on changes in the fair value of forward exchange contracts are classified as a component of sales revenue. The significant weakening of the Canadian dollar at the end of September, 2011 resulted in a charge against net earnings (loss) of $2.4 million for the third quarter, 2011 and $2.6 million for the nine months, 2011. As the Canadian dollar recovered much of its strength, moving close to parity again in late October, 2011, a portion of unrealized foreign exchange losses are likely to reverse in the fourth quarter, 2011.

For the third quarter, 2010, the Company recognized an unrealized foreign exchange gain of $0.6 million, and a loss of $0.3 million for the first nine months, 2010 relating to changes in the fair value of forward exchange contracts.

Operating Costs

Production costs for the third quarter of 2011 increased $43.2 million, or 32%, and $105.2 million, or 26%, for the first nine months of 2011, compared to the same periods in 2010.

Lumber production increased by 41 million board feet, or 15% in the third quarter, 2011 and by 163 million board feet, or 20% in the first nine months, 2011 vis-a-vis the same periods of 2010. The increase was driven by higher operating rates in the U.S. Pacific Northwest and B.C. Interior divisions, particularly the Castlegar sawmill, which had been curtailed in the first nine months, 2010 but operated throughout the first nine months, 2011. Lumber production on the B.C. Coast was impeded in the first half of 2011 by the availability of logs as a result of reduced logging activity on the B.C. Coast in the first quarter, 2011 due in part to access issues caused by storm damage in late 2010.

In June, 2011 the Company finalized an insurance claim as compensation for lost profits and reimbursement of costs resulting from storm damage on the B.C. Coast which occurred in the late fall, 2010. The Company recorded $2.7 million of business interruption recoveries for the first nine months, 2011. The diminished ability to log in storm damaged areas reduced the logs available for external sales and resulted in downtime for the B.C. Coastal sawmills and consequently, the insurance proceeds were netted against production costs.

Compared to the same period in 2010, B.C. log production in the third quarter, 2011 grew by 68% to 1.0 million cubic metres from 595,000 cubic metres and by 40% to 2.6 million cubic metres from 1.9 million cubic metres for the first nine months, 2011. Increased logging activity in B.C. was driven by increased fibre demands resulting from higher operating rates in the B.C. Interior, little downtime due to a short fire season, and strong export demand.

The Company's overall per unit cost of conversion declined as increases in per unit lumber conversion costs on the B.C. Coast caused by reduced activity were more than offset by improved unit costs in the U.S. and the B.C. Interior sawmills. Unit cash conversion costs fell by 5%, for the third quarter, 2011 and 8% for the first nine months, 2011 vis-a-vis the same periods, 2010.

Log supply in the U.S. Pacific Northwest remains tight as a result of strong export markets for logs causing increases in log costs for the U.S. sawmills who source their logs through purchase and timber sale agreements. Competition for logs has increased their U.S.$ log costs by 13% for the third quarter and first nine months, 2011 as compared to the same periods, 2010.

Production costs were also impacted by the sharp decline in interest rates in the latter part of September, 2011 driving increases in the fair value of reforestation and other decommissioning obligations of $1.2 million in the third quarter, 2011 and for the first nine months, 2011 (Quarter 3, 2010 - $0.3 million; first nine months, 2010 - $0.6 million).

Export taxes for the third quarter, 2011 increased by $0.9 million, or 49% over the third quarter, 2010 with an increase in Canadian shipment volumes to the U.S. of almost 12% over the same period. For the first nine months, 2011, export taxes increased $1.8 million, or 37% as compared to the same period, 2010 although year-over-year Canadian shipment volumes to the U.S. remained flat.

Higher commodity lumber prices in the third quarter, 2010 caused export tax rates to drop from 15% to 10% on May 1, 2010, and from 10% to 0% on June 1, 2010. The decline in export tax rates prompted a surge in Canadian shipments to the U.S. in the second quarter, 2010 to take advantage of the lower taxes. As lumber prices dropped in the third quarter, 2010, export taxes rose to 10% for July, 2010 and to 15% on August 1, 2010 for the balance of the year. Export tax rates for 2011 remained constant at 15%.

Relative to the same periods of 2010, selling and administrative costs increased by $0.3 million and $2.1 million for the third quarter and first nine months, 2011 respectively. In response to higher sales and customer service levels, additional selling and export market administration resulted in increased costs.

Long-term incentive compensation ("LTIC") expense, which reflects changes in the estimated fair value of the share-based compensation plans was a recovery of $0.9 million for the third quarter, 2011 (Quarter 3, 2010 - $0.1 million expense) and a recovery of $0.5 million for the first nine months, 2011 (first nine months, 2010 - $0.5 million recovery). Fair value is estimated based on a number of contributors including current market price of the underlying shares, strike price, expected volatility, vesting periods and the expected life of the awards. The decline in the Company's share price over the third quarter and the first nine months, 2011 and 2010 is the most significant component of the change in fair value of the LTIC liability.

Depreciation of plant and equipment for the third quarter, 2011 declined by $0.5 million as compared to the same quarter, 2010. In reviewing its strategic capital plans in the third quarter, 2010 the useful lives of certain assets were adjusted resulting in accelerated depreciation charges. For the first nine months, 2011 depreciation of plant and equipment was essentially unchanged over the corresponding periods in 2010.

Road amortization and depletion expense increased $2.8 million and $3.9 million for the third quarter and first nine months, 2011 as compared to the same periods in 2010, corresponding to 68% and 40% respective increases in logging activity in B.C.

During the third quarter, 2011 the Company reversed an amount of $0.4 million for a write-down of an asset previously considered impaired. This, partially offset with severance costs for early retirement of hourly workers resulted in the recognition of a $0.3 million recovery of restructuring costs. For the first nine months, 2011 payments in relation to the buyout of logging contractor's Bill 13 entitlements together with severance costs, primarily for early retirement of hourly workers, and partially offset by the impairment reversal resulted in the recognition of $0.7 million expense.

Restructuring costs in the comparative periods of 2010 totalled $0.5 million for the third quarter and $1.6 million for the first nine months as the Company accrued severance costs as it restructured certain of its manufacturing operations and impaired an asset by $0.5 million.

Finance Costs, Other Foreign Exchange Gain (loss), Other Income (Expense)

Net proceeds of $54.9 million received from a public offering of Class A Subordinate Voting shares on April 8, 2011 reduced the Company's debt levels in the second quarter, 2011. This, together with a decrease in the Company's overall lending rates and the impact of a stronger average Canadian dollar on interest on U.S. denominated debt, resulted in a decline of 44% and 30% in interest expenses for the third quarter and first nine months, 2011 respectively vis-a-vis the same periods, 2010.

Under IFRS finance costs also include accretion expense on decommissioning liabilities and amortization of prepaid financing costs. Prior year figures have been retroactively restated to conform to this presentation.

The Company reported a $0.4 million gain in Other income (expense) for the third quarter and first nine months, 2011 arising from the minor disposals of surplus equipment and gains from lumber futures trading. This compares to a loss of $0.1 million for the third quarter, 2010 and a gain of $0.3 million for the first nine months, 2010 arising primarily from the final settlement of compensation under the Forest Act for timber and other assets resulting from the 2006 legislated takeback of certain logging rights on the B.C. Coast.

The significant weakening of the Canadian dollar at the end of September, 2011 resulted in a foreign exchange gain of $0.5 million in the third quarter, 2011 and $0.3 million for the first nine months, 2011. Other foreign exchange gain (loss) was impacted by the strengthening Canadian dollar for the comparable periods in 2010 and amounts were negligible.

Equity income at $6.5 million for the third quarter, 2010 and $9.8 million for the first nine months, 2010 represented equity participation in the earnings and gains on the disposals of vessels of the Seaboard General Partnership ("the SGP"). The SGP was wound-up on January 7, 2011 and continues operations as Seaboard Shipping Company Limited ("Seaboard") which became a wholly owned subsidiary of Interfor. Seaboard's accounts are included in the consolidated financial statements of the Company from the date of change in control.

Income Taxes

In the third quarter of 2011, the Company recorded an income tax expense of $0.5 million (Quarter 3, 2010 - $0.2 million recovery) which excludes the benefit of $0.6 million of certain deferred income tax assets arising from loss carry-forwards available to reduce future taxable income which were not recognized (Quarter 3, 2010 - $1.6 million). For the first nine months, 2011, the income tax expense of $1.3 million (first nine months, 2010 - $1.0 million) excluded the benefit of $3.1 million of deferred tax assets (first nine months, 2010 - $5.4 million). Although the Company expects to realize the full benefit of the loss carry-forwards and other deferred tax assets, due to the cyclical nature of the wood products industry and the economic conditions over the last several years, the Company has not recognized the benefit of its deferred tax assets in excess of its deferred tax liabilities.

Cash Flow and Financial Position

The Company generated cash from operating activities, before changes in non-cash working capital, of $39.0 million for the first nine months, 2011 as compared to $30.1 million for the first nine months, 2010. Higher export sales volumes drove cash earnings in 2011 while a short-lived spike in North American sales values in the second quarter, 2010 impacted year-to-date results in 2010. Year-over-year, the increase in cash flow was due to higher export sales volumes partially offset by lower overall sales realizations and a stronger average Canadian dollar.

Cash generated by the Company from operations, after changes in working capital, was $24.5 million for the nine months ended September 30, 2011 compared to cash generated of $24.4 million in the first nine months, 2010. Significant increases in lumber production for export markets resulted in an inventory build-up in lumber and logs of $17.8 million. The increase in accounts receivable of $4.7 million, offset by a $10.9 million rise in accounts payable was the result of the higher manufacturing and logging operating rates and the increase in export shipments through the first nine months of 2011.

Capital expenditures for the first nine months of 2011 totalled $27.3 million (first nine months, 2010 - $33.1 million). For the first nine months, 2011 spending was $14.6 million on road construction, $7.4 million on high-return discretionary projects with the balance spent on business maintenance. Capital expenditures in the first nine months, 2010 include the acquisition of a timber tenure in the Kamloops region in the first quarter, 2010.

On January 3, 2011 the SGP declared an income distribution to its partners. Interfor's share was $15.7 million and was paid to the Company by way of setoff against the promissory note payable to the SGP. On January 5, 2011 by virtue of the withdrawal of all other partners in the SGP, Interfor acquired control of its net assets. Cash generated from investments includes cash received on acquisition of the SGP of $4.8 million.

In the second quarter, 2011 the Company also settled an insurance claim in respect of severe storm damage to logging roads and bridges in the fall, 2010. Net cash proceeds of $4.8 million were received in June 2011, with $2.7 million reflected in net earnings, $0.5 million applied against receivables, and the remainder set up as provisions for future remediation.

On April 8, 2011 the Company closed a public offering of 8,222,500 Class A Subordinate Voting shares at a price of $7.00 per share for net proceeds of $54.9 million. The closing of the Offering included the exercise in full of the overallotment option of 1,072,500 shares by the Underwriters. In addition, in the first nine months, 2011 several stock option holders exercised their options generating $1.4 million in cash.

Funds received from the issuance of shares enabled the Company to reduce its drawings under its Revolving Term Line by $56.0 million over the first nine months, 2011.

On August 25, 2011, the Company entered into two interest rate swaps, each with notional value of $25.0 million and maturing July 28, 2015. Under the terms of the swaps the Company pays an amount based on a fixed annual interest rate of 1.56% and receives a 90 day BA CDOR plus a margin which is recalculated at set interval dates. The intent of these swaps is to convert floating-rate interest expense to fixed-rate interest expense. As these interest rate swaps have been designated as cash flow hedges the fair value of these interest rate swaps at September 30, 2011 being a liability of $500,000 (measured based on Level 2 of the fair value hierarchy) has been recorded in Trade accounts payable and accrued liabilities and a charge of $500,000 has been recognized in Other comprehensive income.

As at September 30, 2011, the Revolving Term Line was drawn by US$30.2 million (revalued at the quarter-end exchange rate to $31.7 million) and $75.0 million for total drawings of $106.7 million, leaving an unused available line of $93.3 million. The Company's Operating Line had an unused available line of $60.1 million, after including outstanding letters of credit of $4.9 million in the line utilization. Including unrestricted cash of $11.6 million, the Company had available resources of $165.0 million as at September 30, 2011.

These resources, together with cash generated from operations, will be used to support our working capital requirements, debt servicing commitments, and any capital expenditures.

On July 11, 2011 the Company extended and modified its syndicated credit facilities. The maturity date of the Operating Line was extended from July 28, 2012 to July 28, 2015 and the maturity date of the Revolving Term Line was extended from July 28, 2013 to July 28, 2015. All other terms and conditions of the lines remain substantially unchanged except for a reduction in pricing.

Based on current pricing and cash flow projections and existing credit lines the Company believes it has sufficient resources to meet all of its financial obligations.

At September 30, 2011, the Company had cash of $11.7 million. After deducting the Company's drawings under its Operating Line and Revolving Term Line, the Company ended the third quarter, 2011 with net debt of $94.9 million or 19% of invested capital down from 30% of invested capital at December 31, 2010.


Selected Quarterly Financial Information(1)                             

                ------------------------------------------------------------
                                                                   Previous 
                                                                   Canadian 
                    International Financial Reporting Standards        GAAP 
                ------------------------------------------------------------
Quarterly                                                                   
 Earnings                                                                   
 Summary                2011                     2010               2009(2) 
                ------------------------------------------------------------
                    Q3     Q2     Q1      Q4     Q3     Q2     Q1        Q4 
                ------------------------------------------------------------
                   (millions of dollars except share and per share amounts) 
Sales                                                                       
  - Lumber       136.7  134.0  132.5   137.5  113.1  123.7  107.6      93.1 
  - Logs          36.0   28.6   20.8    20.6   21.9   19.8   17.4      17.3 
  - Wood chips                                                              
   and other by-                                                            
   products       17.6   16.8   16.4    15.7   14.0   13.3   13.2      12.2 
  - Ocean                                                                   
   freight and                                                              
   other(3)        9.9    8.7   10.0     2.4    2.4    1.0    1.7       2.9 
                ------------------------------------------------------------
Total Sales      200.2  188.2  179.7   176.3  151.5  157.9  139.9     125.5 
                ------------------------------------------------------------
Operating                                                                   
 earnings (loss)                                                            
 before                                                                     
 restructuring                                                              
 costs and asset                                                            
 impairments       1.0   (2.0)   1.0     1.5   (2.0)  (0.9)  (2.4)     (7.8)
Operating                                                                   
 earnings (loss)   1.3   (2.1)   0.2     1.5   (2.5)  (2.0)  (2.5)     (7.8)
Net earnings                                                                
 (loss)            0.0   (5.3)  (1.7)    0.8    1.4   (3.5)  (3.8)     (5.0)
Net earnings                                                                
 (loss) per                                                                 
 share - basic                                                              
 and diluted      0.00  (0.10) (0.04)   0.02   0.03  (0.07) (0.08)    (0.11)
Net earnings                                                                
 (loss),                                                                    
 adjusted for                                                               
 one-time                                                                   
 items(4)         (0.5)  (2.9)  (0.5)    0.5   (1.1)  (0.6)  (2.2)     (4.4)
Net earnings                                                                
 (loss),                                                                    
 adjusted for                                                               
 one-time items                                                             
 - per share(4)  (0.01) (0.05) (0.01)   0.01  (0.02) (0.01) (0.05)    (0.09)
EBITDA(8)         14.7   11.6   12.8    14.6   15.3   13.7   10.0       6.3 
Adjusted                                                                    
 EBITDA(8)        14.3   11.6   12.7    14.5   10.6   13.3   10.0       5.7 
Cash flow from                                                              
 operations per                                                             
 share(5)         0.26   0.22   0.27    0.22   0.18   0.25   0.21      0.06 
Shares                                                                      
 outstanding -                                                              
 end of period                                                              
 (millions)(6)    55.9   55.9   47.5    47.4   47.1   47.1   47.1      47.1 
  - weighted                                                                
   average                                                                  
   (millions)     55.9   55.2   47.4    47.2   47.1   47.1   47.1      47.1 
Average foreign                                                             
 exchange rate                                                              
 per US$1.00(7) 0.9808 0.9680 0.9856  1.0131 1.0395 1.0283 1.0401    1.0571 
Closing foreign                                                             
 exchange rate                                                              
 per US$1.00(7) 1.0482 0.9645 0.9696  0.9946 1.0290 1.0646 1.0158    1.0510 

1.  Tables may not add due to rounding. 
2.  Quarter is not restated for conversion to IFRS. 
3.  Other revenues include ocean freight revenues of Seaboard which are
    included in the consolidated results from the date of change in control
    on January 5, 2011. The Company's share of Seaboard results were
    previously recognized in equity income. 
4.  Net earnings (loss), adjusted for one-time items represents net earnings
    (loss) before restructuring costs, foreign exchange gains and losses,
    other income (expense), other one-time items and the effect of
    unrecognized tax assets. 
5.  Cash generated from operations before taking account of changes in
    operating working capital. 
6.  As at November 2, 2011, the number of shares outstanding by class are:
    Class A Subordinate Voting shares - 54,847,176; Class B Common shares -
    1,015,779; Total - 55,862,955. 
7.  Accounting quarter-end dates may differ slightly from the reporting
    date. As such, the foreign exchange rate used to revalue quarter-end
    balances may differ from those calculated using the Bank of Canada
    closing foreign exchange rate per US$1.00. 
8.  EBITDA represents earnings before finance costs, taxes, depreciation,
    depletion, amortization, restructuring costs, other foreign exchange
    gains and losses, and asset write-downs. 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 not a defined term under IFRS,
    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. Adjusted EBITDA
    represents EBITDA adjusted for other income and other income of the
    associate company. EBITDA and Adjusted EBITDA can be calculated from the
    Statements of Operations as follows(4):


                ------------------------------------------------------------
                                                                   Previous 
                                                                   Canadian 
                   International Financial Reporting Standards         GAAP 
                ------------------------------------------------------------
                        2011                     2010               2009(3) 
                ------------------------------------------------------------
                    Q3     Q2     Q1     Q4     Q3     Q2     Q1      Q4(3) 
                ------------------------------------------------------------
                                   (millions of dollars)                    
Net earnings                                                                
 (loss)            0.0   (5.3)  (1.7)   0.8    1.4   (3.5)  (3.8)      (5.0)
Add: Income                                                                 
 taxes                                                                      
 (recovery)        0.5    1.2   (0.4)  (0.5)  (0.2)   1.0    0.2       (3.3)
  Finance costs    1.7    1.9    2.3    2.5    2.6    2.8    2.6        2.0 
  Depreciation,                                                             
   depletion and                                                            
   amortization   13.3   13.6   11.7   11.7   11.0   12.3   11.1       12.5 
  Other foreign                                                             
   exchange                                                                 
   (gains)                                                                  
   losses         (0.5)   0.1    0.1    0.2    0.1    0.1      -        0.1 
  Restructuring                                                             
   costs, asset                                                             
   impairments                                                              
   and other                                                                
   costs                                                                    
   (recoveries)   (0.3)   0.1    0.8      -    0.5    1.1      -        0.1 
                ------------------------------------------------------------
EBITDA            14.7   11.6   12.8   14.6   15.3   13.7   10.0        6.3 
Deduct:                                                                     
  Other income                                                              
   (expense)       0.4      -      -   (0.3)  (0.1)   0.4      -        0.6 
  Other income                                                              
   of associate                                                             
   company           -      -      -    0.4    4.8      -      -          - 
                ------------------------------------------------------------
Adjusted EBITDA   14.3   11.6   12.7   14.5   10.6   13.3   10.0        5.7 
                ------------------------------------------------------------



Volume and Price Statistics             2011               2010         2009
                                 -------------------------------------------
                                       Q3   Q2   Q1   Q4   Q3   Q2   Q1   Q4
                                 -------------------------------------------
Lumber sales    (million fbm)         336  334  313  321  277  270  264  234
Lumber                                                                      
 production     (million fbm)         313  325  332  303  272  277  258  245
Log sales(1)    (thousand cubic                                             
                 metres)              430  314  301  292  289  262  239  261
Log             (thousand cubic                                             
 production(1)   metres)            1,002  796  816  794  595  624  648  533
Average selling                                                             
 price -                                                                    
 lumber(2)      ($/thousand fbm)  $   407 $401 $423 $428 $408 $459 $408 $398
Average selling                                                             
 price - logs(1)($/cubic metre)   $    74 $ 82 $ 61 $ 64 $ 73 $ 68 $ 64 $ 62
Average selling                                                             
 price - pulp                                                               
 chips          ($/thousand fbm)  $    48 $ 44 $ 40 $ 42 $ 40 $ 37 $ 40 $ 39

1.  B.C. operations  
2.  Gross sales before export taxes 
3.  Quarter is not restated for conversion to IFRS 
4.  Tables may not add due to rounding 

Quarterly trends normally reflect the seasonality of the Company's operations. Logging operations are seasonal due to a number of factors including weather, ground conditions and fire season closures. Generally, the Company's B.C. Coastal logging divisions experience higher production levels in the latter half of the first quarter, throughout the second and third quarters and in the first half of the fourth quarter. Logging activity in the B.C. Interior is generally higher in the first half of the first quarter, slows during spring thaw and increases in the third and fourth quarters. Sawmill operations are less seasonal than logging operations but are dependent on the availability of logs from logging operations, including those from suppliers. In addition, the market demand for lumber and related products is generally lower in the winter due to reduced construction activity, which increases during the spring, summer and fall.

Operating rates increased in the fourth quarter of 2009 and first quarter, 2010, as lumber prices rose in response to increased North American demand and a temporary supply/demand imbalance. During the same period off-shore demand increased, particularly from China, with rapid export market growth through the remaining quarters of 2010 and the first three quarters, 2011.

The volatility of the Canadian dollar also impacted results, given that historically over 75% of the Canadian operation's lumber sales are to export markets and priced in $U.S. A strong Canadian dollar reduces the lumber sales realizations in Canada, but reduces the impact of losses in U.S. operations when converted to Canadian dollars. No deferred tax assets arising from loss carry-forwards were recognized during 2010 or 2011.

In the first quarter, 2011 the Company acquired complete control of SGP. SGP was wound up on early January, 2011 but continued operations as Seaboard and its accounts were consolidated from the date of change in control on January 5, 2011. Other sales revenues include the ocean freight revenues of Seaboard.

Softwood Lumber Agreement Arbitration

On October 8, 2010, the U.S. Trade Representative's office filed a request for consultations with Canada under the terms of the Softwood Lumber Agreement ("SLA") over its concern that the province of British Columbia is charging too low a price for certain grades of timber harvested on public lands in the B.C. Interior.

Under the terms of the SLA, consultations between the two governments were held but the matter was not resolved and on January 18, 2011 the U.S. Trade Representative filed for arbitration. The arbitration will be conducted by the London Court of International Arbitration ("LCIA"). Decisions by the LCIA are final and binding on both parties. The Company believes that B.C. and Canada are complying with their obligations under the SLA.

In August, 2011 the U.S. Trade Representative filed a detailed statement of claim with the LCIA and Canada is expected to deliver its initial response in November, 2011. A hearing before the arbitration panel is expected to take place in early 2012 with a final decision expected by the end of 2012.

As the arbitration process is still in its early stages, the existence of any potential claim has not been determined and no provision has been recorded in the financial statements as at September 30, 2011.

Accounting Policy Changes

Adoption of International Financial Reporting Standards

Effective January 1, 2011 Canadian publicly listed entities were required to prepare their financial statements in accordance with IFRS. Due to the requirement to present comparative financial information, the effective transition date was January 1, 2010. The Company's first reporting period under IFRS is the quarter ended March 31, 2011.

While IFRS uses a conceptual framework similar to Canadian Generally Accepted Accounting Principles ("GAAP"), there are significant differences on recognition, measurement, and disclosures. The Company identified a number of key areas impacted by changes in accounting policies, including: property, plant, and equipment; impairment of assets; provisions, including reforestation liabilities and other decommissioning obligations; share-based payments; employee future benefits; and deferred income taxes.

Note 18 to the consolidated interim financial statements provides more detail on key Canadian GAAP to IFRS differences, accounting policy decisions and IFRS 1, First-Time Adoption of International Financial Reporting Standards optional exemptions for significant or potentially significant areas that have had an impact on Interfor's financial statements on transition to IFRS or may have an impact in future periods.

IFRS Transitional Impact on Equity

As a result of the policy choices selected and changes required under IFRS, Interfor has recorded an increase in equity of $3.4 million as at the date of transition, January 1, 2010. The table below outlines adjustments to equity on adoption of IFRS on January 1, 2010, and at September 30, 2010 and December 31, 2010 for comparative purposes(1):


                                    January 1       Sept. 30    December 31 
                                         2010           2010           2010 
----------------------------------------------------------------------------
                                           (millions of dollars)            
Equity under Canadian GAAP      $       358.0  $       350.5  $       347.3 
Transition election to fair                                                 
 value property                          15.7           15.7           15.7 
Employee future benefits                 (6.9)         (11.0)          (9.0)
Decommissioning liabilities              (2.8)          (3.9)          (3.3)
Share based compensation                 (2.1)          (1.1)          (2.2)
Equity participation in                                                     
 associate's income                      (0.9)          (1.4)          (1.1)
Deferred income taxes                     0.3              -              - 
----------------------------------------------------------------------------
Total IFRS adjustments to                                                   
 equity                                   3.4           (1.6)           0.2 
----------------------------------------------------------------------------
Equity under IFRS               $       361.4  $       348.9  $       347.5 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Table may not add due to rounding                                  

IFRS Impact on Comprehensive Income

The following is a summary of the adjustments to Comprehensive Income for the three and nine months ended Sept. 30, 2010 under IFRS:1


                                       Three months ended Nine months ended 
                                           Sept. 30, 2010    Sept. 30, 2010 
----------------------------------------------------------------------------
                                             (millions of dollars)          
Comprehensive income (loss) under                                           
 Canadian GAAP                       $               (3.4)$            (7.5)
Profit adjustments                                                          
  Employee future benefits(2)                           -                 - 
  Decommissioning liabilities                        (0.4)             (1.1)
  Share based compensation                            0.1               0.9 
  Equity participation in associate's                                       
   income(2)                                            -                 - 
  Deferred income taxes                               0.1              (1.3)
----------------------------------------------------------------------------
Total IFRS adjustments to net                                               
 earnings                                            (0.1)             (1.5)
----------------------------------------------------------------------------
Other comprehensive income                                                  
 adjustments                                                                
  Employee future benefits -                                                
   actuarial gains (losses)                           0.3              (4.1)
  Equity participation in associate's                                       
   employee future benefits                                                 
   actuarial gains (losses)                           0.1              (0.5)
  Deferred income taxes                              (0.1)              1.0 
----------------------------------------------------------------------------
Total other comprehensive income                                            
 adjustments                                          0.3              (3.6)
----------------------------------------------------------------------------
Comprehensive income (loss) under                                           
 IFRS                                $               (3.2)$           (12.6)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Table may not add due to rounding                                       
(2) Due to rounding, amount appears to have no impact                       

New Accounting Policy - Derivative Financial Instruments, Interest Rate Swaps

On August 25, 2011, the Company entered into two interest rate swaps and designated these financial instruments as cash flow hedges. The intent of these swaps is to convert floating-rate interest expense to fixed-rate interest expense based on BA CDOR. As these derivatives are designated as the hedging instrument in a cash flow hedge of fluctuations in market interest rates associated with specific drawings under the Revolving Term Line, the effective portion of changes in the fair value of the derivative is recognized in Other comprehensive income (loss) and presented in the Hedging reserve in Equity. Any ineffective portion of the changes in the fair value of the derivative is recognized immediately in Net earnings (loss).

IFRS Future Accounting Policy Changes

The standard-setting bodies that set IFRS have significant ongoing projects that could impact the IFRS accounting policies selected. Specifically, it is anticipated that there will be additional new or revised IFRS or IFRIC standards in relation to consolidation, and leases with Exposure Drafts currently in circulation for comment. Currently the following standards have been issued:

IFRS 9, Financial Instruments, replaces the multiple classification and measurement models in IAS 39, Financial Instruments: Recognition and Measurement, with a single model that has only two classification categories: amortized cost and fair value.

IAS 19, Employee Benefits, was revised to eliminate the option to defer recognition of gains and losses, known as the "corridor method", and to enhance disclosure requirements for defined benefit plans. As the Company did not choose the corridor method in accounting for its defined benefit plans, there is no impact on its financial statements as a result of the elimination of this option.

Both standards are in effect for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. As at the reporting date, no assessment has been made of the impact of these standards on the Company's financial statements other than the effect of the elimination of the corridor method.

Controls and Procedures

There were no changes in the Company's internal controls over financial reporting ("ICFR") during the quarter ended September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's ICFR.

Critical Accounting Estimates

There were no material changes to the Company's critical accounting estimates during the quarter ended September 30, 2011. For a full discussion of critical accounting estimates, please refer to the Company's discussion in its MD&A for the year ended December 31, 2010 and to the First Quarter, 2011 Report for the three months ended March 31, 2011 for the impact of changes on accounting estimates due to the adoption of IFRS. Both documents are filed on SEDAR at www.sedar.com.

Outlook

Business conditions remain uncertain. Sovereign debt issues in Europe, slow progress in the U.S. and credit conditions in China bear watching. On the positive side, a noticeable reduction in demand from offshore buyers has resulted in some easing of log prices in the Pacific Northwest.

At its meeting today, Interfor's Board of Directors approved a $24 million capital plan to upgrade the Company's Grand Forks and Castlegar sawmills.

The plan involves the installation of a new small log line at Grand Forks to replace the existing two-line facility, along with funds to complete the installation of an automated lumber grading system. The Grand Forks project is budgeted at $19 million and will incorporate the same technology recently installed at the Company's Adams Lake sawmill. Construction will commence in the first quarter of 2012 and will be completed in mid 2013.

The investment at Castlegar, which totals $5 million, consists of a series of high return projects including the installation of an automated lumber grading system focused on increasing productivity and value extraction at that mill.

When completed, the Grand Forks and Castlegar mills will operate with a combined capacity of 375 million board feet on a full two-shift basis.

Additional Information

Additional information relating to the Company and its operations can be found on its website at www.interfor.com, in the Annual Information Form and on SEDAR at www.sedar.com. Interfor's trading symbol on the Toronto Stock Exchange is IFP.A.

E. Lawrence Sauder, Chairman

Duncan K. Davies, President and Chief Executive Officer


CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME                   
For the three and nine months ended September 30, 2011 and 2010 (unaudited) 

(thousands of Canadian dollars except loss per share)                 

                               3 Months    3 Months    9 Months    9 Months 
                              Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30, 
                                   2011        2010        2011        2010 
----------------------------------------------------------------------------
Sales                        $  200,165  $  151,493  $  568,064  $  449,315 
Costs and expenses:                                                         
  Production                    179,166     135,969     507,951     402,781 
  Selling and administration      5,008       4,728      15,248      13,180 
  Long term incentive                                                       
   compensation expense                                                     
   (recovery)                      (945)        129        (485)       (480)
  Depreciation of plant and                                                 
   equipment (note 10)            6,629       7,091      20,540      20,131 
  Depletion and amortization                                                
   of timber, roads and                                                     
   other (note 10)                6,698       3,870      18,055      14,164 
----------------------------------------------------------------------------
                                199,166     153,533     568,025     454,679 
----------------------------------------------------------------------------
Operating earnings (loss)                                                   
 before restructuring costs         999      (2,040)         39      (5,364)
Restructuring (costs)                                                       
 recovery (note 11)                 305        (480)       (684)     (1,587)
----------------------------------------------------------------------------
Operating earnings (loss)         1,304      (2,520)       (645)     (6,951)
Finance costs (note 12)          (1,657)     (2,565)     (5,826)     (7,932)
Other foreign exchange gain                                                 
 (loss)                             461         (67)        331        (111)
Other income (expense)                                                
 (note 13)                          359        (129)        416         259 
Equity in earnings of                                                       
 associate company                    -       6,481           -       9,779 
----------------------------------------------------------------------------
                                   (837)      3,720      (5,079)      1,995 
----------------------------------------------------------------------------
Earnings (loss) before                                                      
 income taxes                       467       1,200      (5,724)     (4,956)
Income tax expense                                                          
 (recovery):                                                                
  Current                           145           8         535          42 
  Deferred                          316        (213)        727         951 
----------------------------------------------------------------------------
                                    461        (205)      1,262         993 
----------------------------------------------------------------------------
Net earnings (loss)                   6       1,405      (6,986)     (5,949)
Other comprehensive income                                                  
 (loss):                                                                    
  Foreign currency                                                          
   translation differences -                                                
   foreign operations            10,713      (4,930)      6,741      (3,046)
  Defined benefit plan                                                      
   actuarial losses              (4,913)        314      (5,571)     (4,134)
  Equity share of                                                           
   associate's defined                                                      
   benefit plan actuarial                                                   
   losses                             -          84           -        (487)
  Loss in fair value of                                                     
   interest rate swaps             (500)          -        (500)          - 
  Income tax recovery                                                       
   (expense) on defined                                                     
   benefit plan actuarial                                                   
   losses                             -         (78)        165       1,034 
----------------------------------------------------------------------------
                                  5,300      (4,610)        835      (6,633)
----------------------------------------------------------------------------
Total comprehensive income                                                  
 (loss) for the period       $    5,306  $   (3,205) $   (6,151) $  (12,582)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net earnings (loss) per                                                     
 share, basic and diluted                                                   
 (note 14)                   $     0.00  $     0.03  $    (0.13) $    (0.13)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements                 



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                             
For the nine months ended September 30, 2011 and 2010 (unaudited)           

----------------------------------------------------------------------------
(thousands of Canadian dollars)                    9 Months        9 Months 
                                             Sept. 30, 2011  Sept. 30, 2010 
----------------------------------------------------------------------------
Cash provided by (used in):                                                 
Operating activities:                                                       
  Net loss                                      $    (6,986)    $    (5,949)
  Items not involving cash:                                                 
    Depreciation of plant and equipment              20,540          20,131 
    Depletion and amortization of timber,                                   
     roads and other                                 18,055          14,164 
    Deferred income tax expense                         727             951 
    Income tax expense                                  535              42 
    Finance costs                                     5,826           7,932 
    Other assets                                         76              15 
    Reforestation liability                             580           1,411 
    Other liabilities and provisions                 (2,296)            327 
    Equity in earnings of associate company               -          (9,779)
    Write-downs (reversals) of plant and                                    
     equipment                                         (423)            809 
    Unrealized foreign exchange losses                2,551             312 
    Other (note 13)                                    (228)           (259)
----------------------------------------------------------------------------
                                                     38,957          30,107 
  Cash generated from (used in) operating                                   
   working capital:                                                         
    Trade accounts receivable and other              (4,715)          1,511 
    Inventories                                     (17,792)        (11,566)
    Prepayments                                      (2,465)         (1,363)
    Trade accounts payable and accrued                                      
     liabilities                                     10,936           5,293 
    Income taxes refunded (paid)                       (410)            399 
----------------------------------------------------------------------------
                                                     24,511          24,381 
Investing activities:                                                       
  Additions to property, plant and equipment        (12,603)         (6,252)
  Additions to logging roads                        (14,597)        (11,839)
  Additions to timber and other intangible                                  
   assets                                               (59)        (15,050)
  Proceeds on disposal of property, plant,                                  
   and equipment                                        257           1,301 
  Cash received on acquisition of subsidiary                                
   (note 5)                                           4,846               - 
  Investments and other assets                         (736)         (3,536)
----------------------------------------------------------------------------
                                                    (22,892)        (35,376)
Financing activities:                                                       
  Issuance of capital stock, net of share                                   
   issue expenses (note 9)                           56,256              39 
  Interest payments                                  (4,624)         (7,098)
  Funds from promissory note payable to                                     
   associate                                              -           6,896 
  Additions to long-term debt (note 8(b))            70,000         120,819 
  Repayments of long-term debt (note 8(b))         (121,000)       (102,534)
----------------------------------------------------------------------------
                                                        632          18,122 
Foreign exchange gain on cash and cash                                      
 equivalents held in a foreign currency                 179             102 
----------------------------------------------------------------------------
Increase in cash                                      2,430           7,229 
Cash and cash equivalents, beginning of year          9,301           3,802 
----------------------------------------------------------------------------
Cash and cash equivalents, end of period        $    11,731     $    11,031 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements                 



CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                     
September 30, 2011 and December 31, 2010 (unaudited)                        

(thousands of Canadian dollars)                   Sept. 30,        Dec. 31, 
                                                       2011            2010 
----------------------------------------------------------------------------
                                                                    (note 2)
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents (note 8(c))         $    11,731     $     9,301 
  Trade accounts receivable and other                51,909          45,961 
  Inventories (note 7)                               90,359          71,762 
  Prepayments                                        11,760           8,334 
----------------------------------------------------------------------------
                                                    165,759         135,358 
Investment in associate company                                 
 (notes 5 and 6)                                          -          16,074 
Employee future benefits                                811             515 
Other investments and assets                          2,907           2,636 
Property, plant and equipment                       347,511         347,990 
Logging roads and bridges                            16,545          17,063 
Timber licences                                      77,658          80,154 
Other intangible assets                               1,354           1,723 
Goodwill                                             13,078          13,078 
----------------------------------------------------------------------------
                                                $   625,623     $   614,591 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Equity                                                      
Current liabilities:                                                        
  Trade accounts payable and accrued                                        
   liabilities                                  $    65,789     $    50,053 
  Reforestation liability                            12,784           9,785 
  Income taxes payable                                  972             230 
  Payable to associate (note 6)                           -          15,738 
----------------------------------------------------------------------------
                                                     79,545          75,806 
Reforestation liability                              18,348          17,325 
Long-term debt (notes 8(a), 8(b))                   106,656         156,037 
Employee future benefits                              8,957           5,815 
Other liabilities and provisions                     11,830          12,158 
Equity:                                                                     
  Share capital (note 9)                                                    
    Class A subordinate voting shares               342,286         285,362 
    Class B common shares                             4,080           4,080 
    Contributed surplus                               7,476           5,408 
  Translation reserve                                  (905)         (7,646)
  Hedging reserve                                      (500)              - 
  Retained earnings                                  47,850          60,246 
----------------------------------------------------------------------------
                                                    400,287         347,450 
----------------------------------------------------------------------------
                                                $   625,623     $   614,591 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Contingencies (note 17)                                                   

See accompanying notes to consolidated financial statements               

On behalf of the Board:                                                   

E.L. Sauder                                 G.H. MacDougall               

Director                                    Director                      


CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                      
For the nine months ended September 30, 2011 and 2010 (unaudited)           
----------------------------------------------------------------------------
(thousands  of Canadian dollars)                                
              Class A  Class B  Contri-  Trans- 
                Share    Share    buted  lation Hedging  Retained           
              Capital  Capital  Surplus Reserve Reserve  Earnings     Total 
----------------------------------------------------------------------------
Balance at                                                                  
 January 1,                                                                 
 2011        $285,362 $  4,080 $  5,408 $(7,646) $    -  $ 60,246  $347,450 
Net loss for                                                                
 the period:        -        -        -               -    (6,986)   (6,986)
Other                                                                       
 comprehen-                                                                
 sive earnings                                                              
 (loss):                                                                    
Foreign                                                                     
 currency                                                                   
 translation                                                                
 differences                                                                
- foreign                                                                   
 operations         -        -        -   6,741       -         -     6,741 
Defined                                                                     
 benefit                                                                    
 plan                                                                       
 actuarial                                                                  
 losses, net                                                                
 of income                                                                  
 tax benefit        -        -        -       -       -    (5,406)   (5,406)
Loss in fair                                                                
 value of                                                                   
 interest                                                                   
 rate swaps         -        -        -       -    (500)        -      (500)
Contributions:                                                              
Share                                                                       
 options                                                                    
 exercised      1,370        -        -       -       -         -     1,370 
Share                                                                       
 issuance,                                                                  
 net of                                                                     
 share issue                                                                
 expenses                                                                   
 and income                                                                 
 tax benefit   55,554        -        -       -       -         -    55,554 
Changes in                                                                  
 ownership                                                                  
 interests                                                                  
 in                                                                         
 investee:                                                                  
Acquisition                                                                 
 of                                                                         
 subsidiary         -        -    2,068       -       -        (4)    2,064 
----------------------------------------------------------------------------
Balance at                                                                  
 September                                                                  
 30, 2011    $342,286 $  4,080 $  7,476 $  (905) $ (500) $ 47,850  $400,287 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                   Hedg-                    
                Class A  Class B  Contri-  Trans-    ing       
                  Share    Share    buted  lation    Re- Retained           
                Capital  Capital  Surplus Reserve  serve Earnings     Total 
----------------------------------------------------------------------------
Balance at                                                                  
 January 1,                                                                 
 2010          $284,500 $  4,080 $  5,408 $     -  $   - $ 67,421  $361,409 
Net loss for                                                                
 the period:          -        -        -       -      -   (5,949)   (5,949)
Other                                                                       
 comprehensive                                                              
 loss:                                                                      
Foreign                                                                     
 currency                                                                   
 translation                                                                
 differences                                                                
- foreign                                                                   
 operations           -        -        -  (3,046)     -        -    (3,046)
Defined                                                                     
 benefit plan                                                               
 actuarial                                                                  
 losses, net                                                                
 of income tax                                                              
 benefit              -        -        -       -      -   (3,100)   (3,100)
Equity in                                                                   
 associate                                                                  
 defined                                                                    
 benefit plan                                                               
 actuarial                                                                  
 losses               -        -        -       -      -     (487)     (487)
Contributions:                                                              
Share options                                                               
 exercised           39        -        -       -      -        -        39 
----------------------------------------------------------------------------
Balance at                                                                  
 September 30,                                                              
 2010          $284,539 $  4,080 $  5,408 $(3,046) $   - $ 57,885  $348,866 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.                



INTERNATIONAL FOREST PRODUCTS LIMITED                                       
Notes to Unaudited Condensed Consolidated Interim Financial Statements      
(Tabular amounts expressed in thousands except number of shares and per     
share amounts)                                                              
Three and nine months ended September 30, 2011 and 2010 (unaudited)         

1. Nature of operations:

International Forest Products Limited and its subsidiaries (the "Company" or "Interfor") is a producer of wood products in British Columbia and the U.S. Pacific Northwest for sale to markets around the world.

The Company is a publicly listed company incorporated under the Business Corporations Act (British Columbia) with shares listed on the Toronto Stock Exchange. Its head office, principal address and records office is located at Suite 3500, 1055 Dunsmuir Street, Vancouver, British Columbia, V7X 1H7.

The condensed consolidated interim financial statements of the Company as at and for the three and nine months ended September 30, 2011 comprise the Company and its subsidiaries. The consolidated financial statements of the Company as at and for the year ended December 31, 2010 which were prepared under Canadian generally accepted accounting principles ("GAAP") are available on www.sedar.com.

2. Statement of Compliance:

a. Statement of compliance and conversion to International Financial Reporting Standards ("IFRS"):

For fiscal years commencing January 1, 2011 Canadian GAAP were converged with IFRS. Consequently, the Company has prepared current and comparative financial information under IFRSs for the reporting period ending September 30, 2011. These condensed consolidated interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. As these IFRS condensed consolidated interim financial statements are for part of the period covered by the first IFRS annual financial statements IFRS 1 First-time Adoption of International Financial Reporting Standards has been applied. The condensed consolidated interim financial statements do not include all of the information required for full annual financial statements.

An explanation of how the transition to IFRSs has affected the reported financial position, financial performance and cash flows of the Company as at the date of transition of January 1, 2010 and as at December 31, 2010 have been fully described in note 19 of the Company's unaudited condensed consolidated interim financial statements as at and for the three months ended March 31, 2011 as filed on www.sedar.com.

Reconciliations of equity as at September 30, 2010 and total comprehensive income for the three and nine months ended September 30, 2010 comparative periods reported under Canadian GAAP to those reported for those periods under IFRSs are provided in note 18.

In these financial statements the term Canadian GAAP refers to Canadian GAAP before the adoption of IFRS.

These condensed consolidated interim financial statements were approved by the Board of Directors on November 2, 2011.

b. Basis of measurement:

The condensed consolidated interim financial statements have been prepared on the historical cost basis except for the following material items in the Statement of Financial Position:

i. Derivative financial instruments are measured at fair value;

ii. Liabilities for cash-settled share-based payment arrangements are measured at fair value; and

iii.The employee benefit assets and liabilities are recognized as the net of the fair value of the plan assets and the present value of the benefit obligations on a plan by plan basis.

3. Significant accounting policies:

The accounting policies that the Company has adopted in its consolidated financial statements for the year ended December 31, 2011 have been fully described in note 3 of the Company's unaudited condensed consolidated interim financial statements as at and for the three months ended March 31, 2011 and as filed on www.sedar.com. These accounting policies have been applied consistently to all periods presented in these condensed consolidated interim financial statements.

New Accounting Policy - Derivative Financial Instruments, Interest Rate Swaps:

On August 25, 2011, the Company entered into two interest rate swaps and designated these financial instruments as cash flow hedges. The intent of these swaps is to convert floating-rate interest expense to fixed-rate interest expense based on BA CDOR. As these derivatives are designated as the hedging instrument in a cash flow hedge of fluctuations in market interest rates associated with specific drawings under the Revolving Term Line, the effective portion of changes in the fair value of the derivative is recognized in Other comprehensive income (loss) and presented in the Hedging reserve in Equity. Any ineffective portion of the changes in the fair value of the derivative is recognized immediately in Net earnings (loss).

Future accounting changes:

IFRS 9, Financial Instruments, replaces the multiple classification and measurement models in IAS 39, Financial Instruments: Recognition and Measurement, with a single model that has only two classification categories: amortized cost and fair value.

IAS 19, Employee Benefits, was revised to eliminate the option to defer recognition of gains and losses, known as the "corridor method", and to enhance disclosure requirements for defined benefit plans. As the Company did not choose the corridor method in accounting for its defined benefit plans, there is no impact on its financial statements as a result of the elimination of this option.

Both standards are in effect for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. As at the reporting date, no assessment has been made of the impact of the standard on the Company's financial statements other than the effect of the elimination of the corridor method.

4. Seasonality of operating results:

Quarterly trends normally reflect the seasonality of the Company's operations. Logging operations are seasonal due to a number of factors including weather, ground conditions and fire season woods closures. Generally, the Company's B.C. Coastal logging divisions experience higher production levels in the latter half of the first quarter, throughout the second and third quarters and in the first half of the fourth quarter. Logging activity in the B.C. Interior is generally higher in the first half of the first quarter, slows during spring thaw and increases in the third and fourth quarters. Sawmill operations are less seasonal than logging operations but are dependent on the availability of logs from logging operations, including those from suppliers. In addition, the market demand for lumber and related products is generally lower in the winter due to reduced construction activity, which increases during the spring, summer and fall.

5. Acquisition:

On January 5, 2011, all partners in the Seaboard General Partnership ("the SGP") withdrew with the exception of Interfor. The SGP was wound-up on January 7, 2011 and continues shipping operations as Seaboard Shipping Company Limited ("Seaboard") which became a wholly-owned subsidiary of Interfor. Seaboard's accounts are included in the consolidated financial statements of the Company from the date of change in control.

This acquisition has been accounted for using the purchase method. At the date of change in control the identifiable assets acquired and liabilities and residual equity assumed were recorded at fair value based on management's best estimates and allocated as follows:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets acquired:                                                            
  Cash                                                         $      4,846 
  Other current assets                                                1,950 
  Employee future benefits                                            1,659 
----------------------------------------------------------------------------
                                                                      8,455 
Liabilities assumed:                                                        
  Current liabilities                                                (5,422)
  Employee future benefits                                             (326)
  Deferred income taxes                                                (307)
Residual equity assumed:                                                    
  Contributed surplus                                                (2,068)
  Withdrawing partners' share of actuarial gains and losses                 
   recognized through Other Comprehensive Income                          4 
----------------------------------------------------------------------------
Previous carrying value of investment in associate             $        336 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

There was no cash consideration paid and the net assets acquired were equal to the existing interest in the SGP at the date of change in control.

6. Payable to associate company:

On July 30, 2010 the SGP made an advance to its partners, with the Company's share of the advance being $6,896,000. A second advance was made on December 30, 2010 and Interfor received an additional $8,842,000. The Company signed unsecured promissory notes in respect of each of these advances, payable on demand on or before January 3, 2011 and non-interest bearing until January 3, 2011.

On January 3, 2011, the SGP declared an income distribution to its partners, of which the Company's share of $15,738,000 was received by way of setoff against the promissory note payable to the SGP. In accordance with equity accounting, the income distribution was recorded as a reduction of the investment in associate company.

7. Inventories:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                               Sept. 30, 2011   Dec.31, 2010
----------------------------------------------------------------------------
Logs                                              $    48,741    $    39,107
Lumber                                                 34,987         27,353
Other                                                   6,631          5,302
----------------------------------------------------------------------------
                                                  $    90,359    $    71,762
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Inventory expensed in the period includes production costs, amortization of plant and equipment, and depletion and amortization of timber, roads and other. The inventory writedown in order to record inventory at the lower of cost and net realizable value at September 30, 2011 was $6,761,000 (December 31, 2010 - $6,253,000).

8. Cash and borrowings:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                       Revolving            
                                           Operating        Term            
September 30, 2011                          Facility    Facility       Total
----------------------------------------------------------------------------
Available line of credit                 $    65,000 $   200,000 $   265,000
Maximum borrowing available                   65,000     200,000     265,000
Drawings                                           -     106,656     106,656
Outstanding letters of credit included                                      
 in line utilization                           4,909           -       4,909
Unused portion of line                        60,091      93,344     153,435
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2010                                                           
----------------------------------------------------------------------------
Available line of credit                 $    65,000 $   200,000 $   265,000
Maximum borrowing available                   65,000     200,000     265,000
Drawings                                           -     156,037     156,037
Outstanding letters of credit included                                      
 in line utilization                           4,756           -       4,756
Unused portion of line                        60,244      43,963     104,207
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Minimum principal amounts due on long-term debt within the next five years  
 are follows:                                                               
----------------------------------------------------------------------------
Twelve months ending                                                        
  September 30, 2012                                             $         -
  September 30, 2013                                                       -
  September 30, 2014                                                       -
  September 30, 2015                                                 106,656
  September 30, 2016                                                       -
----------------------------------------------------------------------------
                                                                 $   106,656
----------------------------------------------------------------------------
----------------------------------------------------------------------------

a. Operating Line:

The Canadian operating line of credit ("Operating Line") may be drawn in either CAD$ or US$ advances, and bears interest at bank prime plus a margin or, at the Company's option, at rates for Bankers' Acceptances or LIBOR based loans plus a margin, and in all cases dependent upon a financial ratio of total debt divided by twelve months' trailing EBITDA(1). Borrowing levels under the Operating Line are subject to a borrowing base calculation dependent on certain accounts receivable and inventories.

The Operating Line is secured by a general security agreement which includes a security interest in all accounts receivable and inventories, charges against timber tenures, and mortgage security on sawmills. The Operating Line is subject to certain financial covenants including a minimum working capital requirement, a maximum ratio of total debt to total capitalization and a minimum net worth calculation. As at September 30, 2011, other than outstanding letters of credit included in the line utilization, the Operating Line was undrawn (December 31, 2010 - $nil).

On July 11, 2011, the Company extended and amended its Operating Line with the maturity date of the Operating Line extended from July 28, 2012 to July 28, 2015. All other terms and conditions of the line remain substantially unchanged except for a reduction in pricing.

b. Revolving Term Line:

The Revolving Term Line may be drawn in either CAD$ or US$ advances, and bears interest at bank prime plus a margin or, at the Company's option, at rates for Bankers' Acceptances or LIBOR based loans plus a margin, and in all cases dependent upon a financial ratio of total debt divided by twelve months' trailing EBITDA(1).

The Revolving Term Line is available to a maximum of $200,000,000 and is secured by a general security agreement which includes a security interest in all accounts receivable and inventories, charges against timber tenures, and mortgage security on sawmills. The line is subject to certain financial covenants including a minimum working capital requirement and a maximum ratio of total debt to total capitalization and a minimum net worth calculation.

As at September 30, 2011, the Revolving Term Line was drawn by US$30,200,000 (December 31, 2010 - US$30,200,000) revalued at the quarter-end exchange rate to $31,656,000 (December 31, 2010 - $30,037,000), and $75,000,000 (December 31, 2010 - $126,000,000) for total drawings of $106,656,000 (December 31, 2010 - $156,037,000).

The US$30,200,000 drawing under the line has been designated as a hedge against the Company's investment in its U.S. operations and unrealized foreign exchange loss of $1,619,000 (September 30, 2010 - $664,000 gain) arising on revaluation of the Revolving Term Line for the year ending September 30, 2011 were recognized in Other comprehensive income (loss). For the third quarter, 2011 the unrealized foreign exchange loss of $2,528,000 (Quarter 3, 2010 - $1,075,000 gain) was recognized in Other comprehensive income (loss).

On July 11, 2011, the Company extended and amended its Revolving Line with the maturity date of the Revolving Line extended from July 28, 2013 to July 28, 2015. All other terms and conditions of the line remain substantially unchanged except for a reduction in pricing.

(1) EBITDA represents earnings before interest, taxes, depreciation, depletion and amortization.

c. Other:

On January 5, 2011 the Company acquired full control of Seaboard and its wholly-owned subsidiaries, Seaboard Shipping Company Limited ("SSCo") and Seaboard International Shipping Company ("SISCO") (see note 5). Seaboard had demand facilities with a Canadian bank which were secured by a general assignment of accounts receivable, inventory and insurance. The demand lines could be drawn in either CAD$ or US$ and bore interest at either the bank prime rate plus a margin for CAD$ borrowings or the U.S. base rate plus a margin for $US borrowings. Borrowing levels under the line were subject to a borrowing base calculation dependent on certain accounts receivable.

On September 29, 2011 both lines were cancelled and the related security was released.

At September 30, 2011 Company's cash balances are restricted by the amount of Seaboard's outstanding letters of credit of $138,000 (December 31, 2010 - $nil).

9. Share capital:

The transactions in share capital are described below:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                           Number                           
                         ------------------------------------               
                              Class A     Class B       Total         Amount
----------------------------------------------------------------------------
Balance, December 31,                                                       
 2009                      46,101,476   1,015,779  47,117,255  $     288,580
Shares issued on exercise                                                   
 of options                   236,200           -     236,200            862
----------------------------------------------------------------------------
Balance, December 31,                                                       
 2010                      46,337,676   1,015,779  47,353,455        289,442
Shares issued on exercise                                                   
 of options                   287,000           -     287,000          1,370
Share issuance, net of                                                      
 share issue costs and                                                      
 income tax benefit         8,222,500           -   8,222,500         55,554
----------------------------------------------------------------------------
Balance, September 30,                                                      
 2011                      54,847,176   1,015,779  55,862,955  $     346,366
----------------------------------------------------------------------------
----------------------------------------------------------------------------

On April 8, 2011 the Company closed a public offering of 8,222,500 Class A Subordinate Voting shares at a price of $7.00 per share for net cash proceeds of $54,886,000.

10. Depreciation, depletion and amortization:

Depreciation, depletion and amortization allocated by function is as follows:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                3 Months    3 Months    9 Months    9 Months
                               Sept. 30,   Sept. 30,   Sept. 30,   Sept. 30,
                                    2011        2010        2011        2010
----------------------------------------------------------------------------
Production                   $    13,108 $    10,716 $    37,922 $    33,532
Selling and administration           219         245         673         763
----------------------------------------------------------------------------
                             $    13,327 $    10,961 $    38,595 $    34,295
----------------------------------------------------------------------------
----------------------------------------------------------------------------

11. Restructuring costs:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                      3 Months  3 Months  9 Months  9 Months
                                     Sept. 30, Sept. 30, Sept. 30, Sept. 30,
                                          2011      2010      2011      2010
----------------------------------------------------------------------------
Severance costs                       $    118  $     (5) $    369  $  1,102
Contractor buyout                            -         -       840         -
Plant and equipment write-downs                                             
 (reversal)                               (423)      485      (423)      485
Other recovery                               -         -      (102)        -
----------------------------------------------------------------------------
                                      $   (305) $    480  $    684  $  1,587
----------------------------------------------------------------------------

Restructuring costs of $850,000 in the first quarter, 2011 resulted from the buyout of a logging contractor's Bill 13 entitlements and severance costs related to early retirement of hourly workers.

Additional payments in the second quarter, 2011 resulted in the recognition of further restructuring costs of $175,000 for the buyout of Bill 13 entitlements. Further hourly worker early retirements were slightly offset by revisions to previously accrued severances resulted in a recovery of $102,000 in the second quarter, and an expense of $118,000 in the third quarter, 2011.

During the third quarter, 2011, the Company also reversed an amount of $423,000 for a write-down for an asset previously considered impaired.

During the first quarter of 2010 the Company revised its estimated severance costs and recorded $33,000 in additional restructuring costs. In the second quarter of 2010 the Company restructured certain of its manufacturing operations resulting in additional severance costs of $1,074,000. The Company recorded $485,000 in asset write-downs in the third quarter, 2010, as it determined certain assets were impaired.

12. Finance costs:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                      3 Months  3 Months  9 Months  9 Months
                                     Sept. 30, Sept. 30, Sept. 30, Sept. 30,
                                          2011      2010      2011      2010
----------------------------------------------------------------------------
Interest on borrowing                $   1,173 $   2,097 $   4,488 $   6,421
Accretion expense                          194       195       575       614
Amortization of prepaid finance                                             
 costs                                     290       273       763       897
----------------------------------------------------------------------------
                                     $   1,657 $   2,565 $   5,826 $   7,932
----------------------------------------------------------------------------
----------------------------------------------------------------------------

13. Other income (expense):


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                    3 Months  3 Months   9 Months  9 Months 
                                   Sept. 30, Sept. 30,  Sept. 30, Sept. 30, 
                                        2011      2010       2011      2010 
----------------------------------------------------------------------------
Gain (loss) on disposal of surplus                                          
 plant and equipment, and licences $     171 $    (146) $     228 $    (117)
Gain on settlement of timber                                                
 takeback                                  -         -          -       376 
Gain on lumber futures trading           188         -        188         - 
Other (expense)                            -        17          -         - 
----------------------------------------------------------------------------
                                   $     359 $    (129) $     416 $     259 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

In the first, second and third quarters, 2011, the Company disposed of surplus equipment and a timber licence which generated $257,000 in proceeds and a gain of $228,000.

During the third quarter, 2011 the Company generated a gain of $188,000 on lumber futures trading.

In the first quarter of 2010, minor disposals of surplus equipment resulted in proceeds of $14,000 and a loss of $8,000. In the second quarter, 2010, the Company received further compensation under the Forest Act for timber, roads and bridges resulting from the 2006 legislated takeback of certain logging rights on the B.C. Coast which, combined with further minor disposals of surplus equipment, resulted in proceeds of $475,000 and a gain of $413,000. Additional minor sales of surplus equipment in the third quarter, 2010 generated proceeds of $812,000 and a loss of $146,000.

14. Net earnings (loss) per share:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                  3 Months Sept. 30, 2011        3 Months Sept. 30, 2010    
              --------------------------------------------------------------
                      Weighted Average               Weighted Average       
                         Number of                      Number of           
                      Net                            Net                    
                 earnings   Shares  Per share   earnings   Shares  Per share
----------------------------------------------------------------------------
Basic earnings                                                              
 per share     $        6   55,863 $     0.00 $    1,405   47,128 $     0.03
Share options                    -          -          -        -          -
----------------------------------------------------------------------------
Diluted                                                                     
 earnings per                                                               
 share         $        6   55,863 $     0.00 $    1,405   47,128 $     0.03
----------------------------------------------------------------------------

----------------------------------------------------------------------------
----------------------------------------------------------------------------
                   9 Months Sept. 30, 2011       9 Months Sept. 30, 2010    
                ------------------------------------------------------------
                       Weighted Average              Weighted Average       
                          Number of                     Number of           
                  Net loss   Shares Per share   Net loss   Shares Per share 
----------------------------------------------------------------------------
Basic loss per                                                              
 share           $  (6,986)  52,852 $   (0.13) $  (5,949)  47,123 $   (0.13)
Share options            -        -                    -    56(i)         - 
----------------------------------------------------------------------------
Diluted loss per                                                            
 share           $  (6,986)  52,852 $   (0.13) $  (5,949)  47,123 $   (0.13)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(i)Where the addition of share options to the total shares outstanding has an anti-dilutive impact on the diluted earnings (loss) per share calculation, those share options have not been included in the total shares outstanding for purposes of the calculation of diluted earnings (loss) per share.

15. 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 U.S. Pacific Northwest, U.S.A.

In the first quarter, 2011 the Company acquired complete control of the SGP. The SGP was wound up on early January, 2011 but continued operations as Seaboard and its accounts were consolidated from the date of change in control on January 5, 2011. Other sales revenues in sales by product line include the ocean freight revenues of Seaboard.

The Company sales to both foreign and domestic markets are as follows:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                   3 Months   3 Months   9 Months   9 Months
                                  Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                                       2011       2010       2011       2010
----------------------------------------------------------------------------
Canada                           $   57,089 $   44,601 $  157,185 $  127,325
United States                        71,898     53,164    194,443    182,760
China/Taiwan                         33,057     23,773    110,391     46,400
Japan                                27,000     19,956     71,110     57,764
Other export                         11,121      9,999     34,935     35,066
----------------------------------------------------------------------------
                                 $  200,165 $  151,493 $  568,064 $  449,315
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Sales by product line are as                                                
 follows:                                                                   
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                   3 Months   3 Months   9 Months   9 Months
                                  Sept. 30,  Sept. 30,  Sept. 30,  Sept. 30,
                                       2011       2010       2011       2010
----------------------------------------------------------------------------
Lumber                           $  136,695 $  113,103 $  403,241 $  344,434
Logs                                 35,979     21,946     85,473     59,186
Wood chips and other by products     17,624     14,000     50,817     40,486
Ocean freight and other               9,867      2,444     28,533      5,209
----------------------------------------------------------------------------
                                 $  200,165 $  151,493 $  568,064 $  449,315
----------------------------------------------------------------------------

16. Financial instruments:

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

As at September 30, 2011, the Company has outstanding obligations to sell a maximum of US$39,800,000 at an average rate of CAD$0.99652 to the USD$1.00 and sell Japanese yen 65,507,077 at an average rate of yen 80.19 to the US$1.00 during 2011. All foreign currency gains or losses to September 30, 2011 have been recognized in Sales revenue in net earnings and the fair value of these foreign currency contracts being a liability of $2,077,000 (measured based on Level 2 of the fair value hierarchy) has been recorded in Trade accounts payable and accrued liabilities (December 31, 2010 - $492,000 asset recorded in Trade accounts receivable and other and $18,000 liability recorded in Trade accounts payable and accrued liabilities measured based on Level 2 of the fair value hierarchy).

On August 25, 2011, the Company entered into two interest rate swaps, each with notional value of $25,000,000 and maturing July 28, 2015. Under the terms of the swaps the Company pays an amount based on a fixed annual interest rate of 1.56% and receives a 90 day BA CDOR which is recalculated at set interval dates. The intent of these swaps is to convert floating-rate interest expense to fixed-rate interest expense. As these interest rate swaps have been designated as cash flow hedges the fair value of these interest rate swaps at September 30, 2011 being a liability of $500,000 (measured based on Level 2 of the fair value hierarchy) has been recorded in Trade accounts payable and accrued liabilities and a charge of $500,000 has been recognized in Other comprehensive income.

During the third quarter, 2011 the Company also traded lumber futures to manage price risk and which were designated as held for trading with changes in fair value recorded in Other income (expense) in net earnings. At September 30, 2011 there were no outstanding lumber futures contracts and a gain of $188,000 was recognized in Other income (expense) on completed contracts for the third quarter, 2011.

17. Contingencies:

a. Softwood Lumber Agreement:

On January 18, 2011 U.S. Trade Representative's office filed for arbitration under the provisions of the Softwood Lumber Agreement ("SLA") over its concern that the Province of British Columbia ("B.C.") is charging too low a price for certain timber harvested on public lands in the B.C. Interior. The arbitration will be conducted by the London Court of International Arbitration ("LCIA"). The Company believes that B.C. and Canada are complying with their obligations under the SLA.

In August, 2011 the U.S. Trade Representative filed a detailed statement of claim with the LCIA and Canada is expected to deliver its initial response in November, 2011. A hearing before the arbitration panel is expected to take place in early 2012 with a final decision expected by the end of 2012.

As the arbitration process is still in its early stages, the existence of any potential claim has not been determined and no provision has been recorded in the financial statements as at September 30, 2011.

b. Storm and earthquake damage:

In September 2011, an earthquake on Vancouver Island and heavy rains on the B.C. mainland coastal and inlet areas resulted in mudslides and debris torrents with some logging areas impacted by road washouts and bridge and culvert damage. Due to the remoteness and magnitude of the areas impacted the Company has been unable to fully assess the extent of the damage and its related costs.

Similarly, in the latter half of September 2010, heavy rains and strong winds on northern Vancouver Island and the B.C. Central Coast triggered mudslides, road washouts and flooding and caused bridge and culvert damage. Certain losses relating to the 2010 storm damage were covered by insurance and in June, 2011 the Company settled with its insurers for recovery of qualifying expenditures, net of the insurance deductible for total proceeds of $4,836,000 of which $4,815,000 was received in the second quarter, 2011.

During the first quarter, 2011, the Company recorded business interruption insurance recoveries of $2,211,000 as a reduction in Production costs in net earnings with a further recovery of $503,000 recognized during the second quarter, 2011 for total recoveries reflected in net earnings of $2,714,000.

A further $525,000 was applied against amounts previously set up as receivable for costs already incurred. The remaining $1,576,000 was set up as a provision for future remediation on roads and bridges, with $482,000 recorded in Trade accounts payable and accrued liabilities and $1,094,000 recorded in Other liabilities and provisions.

As at September 30, 2011 $1,237,000 of these provisions remain unspent.

18. Explanation of transition to IFRS:

As stated in note 2 (a), these consolidated interim financial statements are prepared in accordance with IFRSs.

As described in note 3, the accounting policies adopted by the Company under IFRSs have been applied in preparing the interim financial statements for the comparative information presented in these unaudited condensed consolidated interim financial statements for both the three and nine months ended September 30, 2010.

An explanation of how the transition from previous GAAP to IFRSs has affected the Company's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables.

Reconciliation of equity


September 30, 2010                
(thousands of Canadian  dollars)                                           
                                  Previous      IFRSs      IFRSs            
                            Note      GAAP Reclassify Adjustment      IFRSs 
----------------------------------------------------------------------------
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents      $  11,031  $       -  $       -  $  11,031 
  Trade accounts receivable                                                 
   and other                        30,980          -          -     30,980 
  Inventories                       71,324          -          -     71,324 
  Prepayments                        9,570          -          -      9,570 
  Deferred tax assets          a     3,222     (3,222)         -          - 
----------------------------------------------------------------------------
                                   126,127     (3,222)         -    122,905 
Investment in associate                                                     
 company                    b, j         -     15,423     (1,373)    14,050 
Employee future benefits    c, i         -      7,464     (7,243)       221 
Other investments and                                                       
 assets                     b, c    26,311    (23,361)         -      2,950 
Property, plant and                                                         
 equipment                  d, k   338,474     (1,853)    15,748    352,369 
Logging roads and bridges           16,390          -          -     16,390 
Timber licences                     80,623          -          -     80,623 
Other intangible assets        d         -      1,853          -      1,853 
Goodwill                            13,078          -          -     13,078 
Asset classified as held                                                    
 for sale                            3,424          -          -      3,424 
----------------------------------------------------------------------------
                                 $ 604,427  $  (3,696) $   7,132  $ 607,863 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Liabilities and Equity                                                      
Current liabilities:                                                        
  Trade accounts payable                                                    
   and accrued liabilities  e, n $  49,270  $  (8,906) $   1,031  $  41,395 
  Reforestation liability      e         -      8,906          -      8,906 
  Income taxes payable                 215          -          -        215 
  Payable to investee                                                       
   company                           6,896          -          -      6,896 
----------------------------------------------------------------------------
                                    56,381          -      1,031     57,412 
Reforestation liability        m    16,501          -      2,711     19,212 
Long-term debt                     162,076          -          -    162,076 
Employee future benefits    c, i         -      4,611      3,765      8,376 
Other liabilities and      c, m,                                            
 provisions                    n    15,745     (5,085)     1,261     11,921 
Deferred income taxes       a, p     3,222     (3,222)         -          - 
Equity:                                                                     
  Share capital                                                             
  Class A subordinate                                                       
   voting shares                   284,539          -          -    284,539 
  Class B common shares              4,080          -          -      4,080 
  Contributed surplus                5,408          -          -      5,408 
  Translation reserves         h   (27,901)    24,855          -     (3,046)
  Retained earnings         h, q    84,376    (24,855)    (1,636)    57,885 
----------------------------------------------------------------------------
                                   350,502          -     (1,636)   348,866 
----------------------------------------------------------------------------
                                 $ 604,427  $  (3,696) $   7,132  $ 607,863 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Reconciliation of comprehensive income (loss):


                                               Three months ended           
                                               September 30, 2010           
----------------------------------------------------------------------------
                                                  IFRSs     IFRSs           
(thousands of Canadian               Previous  Reclass-   Adjust-           
 dollars)                       Note     GAAP       ify      ment     IFRSs 
----------------------------------------------------------------------------
Sales                                $151,493  $      -  $      -  $151,493 
Costs and Expenses:                                                         
  Production              f, i, k, m  135,830      (195)      334   135,969 
  Selling and                                                               
   administration                       4,728         -         -     4,728 
  Long term incentive                                                       
   compensation expense                                                     
   (recovery)                      n      249         -      (120)      129 
  Export taxes                          1,746         -         -     1,746 
  Amortization of plant                                                     
   and equipment                   d    7,246      (155)        -     7,091 
  Depletion and                                                             
   amortization of                                                          
   timber, roads and                                                        
   other                           f    3,988      (118)        -     3,870 
----------------------------------------------------------------------------
                                      153,787      (468)      214   153,533 
----------------------------------------------------------------------------
Operating earnings                                                          
 (loss) before                                                              
 restructuring costs                   (2,294)      468      (214)   (2,040)
Restructuring costs                      (480)        -         -      (480)
----------------------------------------------------------------------------
Operating earnings                                                          
 (loss)                                (2,774)      468      (214)   (2,520)
Finance costs                      f        -    (2,565)        -    (2,565)
Interest expense on                                                         
 long-term debt                    f   (1,956)    1,956         -         - 
Other interest expense             f     (141)      141         -         - 
Other foreign exchange                                                      
 loss                                     (67)        -         -       (67)
Other income                             (129)        -         -      (129)
Equity in earnings of                                                       
 associate company                 j    6,465         -        16     6,481 
----------------------------------------------------------------------------
                                        4,172      (468)       16     3,720 
----------------------------------------------------------------------------
Earnings (loss) before                                                      
 income taxes                           1,398         -      (198)    1,200 
Income tax expense                                                          
 (recovery):                                                                
  Current                                   8         -         -         8 
  Deferred                         p     (135)        -       (78)     (213)
----------------------------------------------------------------------------
                                         (127)        -       (78)     (205)
----------------------------------------------------------------------------
Net earnings (loss)                     1,525         -      (120)    1,405 
Other comprehensive                                                         
 income (loss):                                                             
  Foreign currency                                                          
   translation                                                              
   differences - foreign                                                    
   operations                          (4,930)        -         -    (4,930)
  Defined benefit plan                                                      
   actuarial losses                i        -         -       314       314 
  Equity share of                                                           
   associate's defined                                                      
   benefit plan                                                             
   actuarial losses                j        -         -        84        84 
  Income tax recovery on                                                    
   defined benefit plan                                                     
   actuarial losses                p        -         -       (78)      (78)
----------------------------------------------------------------------------
                                       (4,930)        -       320    (4,610)
----------------------------------------------------------------------------
Total comprehensive                                                         
 income (loss) for the                                                      
 period                              $ (3,405) $      -  $    200  $ (3,205)
----------------------------------------------------------------------------
Net earnings (loss) per                                                     
 share, basic and                                                           
 diluted                             $   0.03  $      -  $      -  $   0.03 
----------------------------------------------------------------------------

                                               Nine months ended            
                                               September 30, 2010           
----------------------------------------------------------------------------
                                     Previous     IFRSs     IFRSs           
(thousands of Canadian               Previous  Reclass-    Adjust-          
 dollars)                       Note     GAAP       ify      ment     IFRSs 
----------------------------------------------------------------------------
Sales                                $449,315  $      -  $      -  $449,315 
Costs and Expenses:                                                         
  Production              f, i, k, m  402,309      (614)    1,086   402,781 
  Selling and                                                               
   administration                      13,180         -         -    13,180 
  Long term incentive                                                       
   compensation expense                                                     
   (recovery)                      n      454         -      (934)     (480)
  Export taxes                          4,903         -         -     4,903 
  Amortization of plant                                                     
   and equipment                   d   20,622      (491)        -    20,131 
  Depletion and                                                             
   amortization of                                                          
   timber, roads and                                                        
   other                           f   14,570      (406)        -    14,164 
----------------------------------------------------------------------------
                                      456,038    (1,511)      152   454,679 
----------------------------------------------------------------------------
Operating earnings                                                          
 (loss) before                                                              
 restructuring costs                   (6,723)    1,511      (152)   (5,364)
Restructuring costs                    (1,587)        -         -    (1,587)
----------------------------------------------------------------------------
Operating earnings                                                          
 (loss)                                (8,310)    1,511      (152)   (6,951)
Finance costs                      f        -    (7,932)        -    (7,932)
Interest expense on                                                         
 long-term debt                    f   (5,976)    5,976         -         - 
Other interest expense             f     (445)      445         -         - 
Other foreign exchange                                                      
 loss                                    (111)        -         -      (111)
Other income                              259         -         -       259 
Equity in earnings of                                                       
 associate company                 j    9,745         -        34     9,779 
----------------------------------------------------------------------------
                                        3,472    (1,511)       34     1,995 
----------------------------------------------------------------------------
Earnings (loss) before                                                      
 income taxes                          (4,838)        -      (118)   (4,956)
Income tax expense                                                          
 (recovery):                                                                
  Current                                  42         -         -        42 
  Deferred                         p     (395)        -     1,346       951 
----------------------------------------------------------------------------
                                         (353)        -     1,346       993 
----------------------------------------------------------------------------
Net earnings (loss)                    (4,485)        -    (1,464)   (5,949)
Other comprehensive                                                         
 income (loss):                                                             
  Foreign currency                                                          
   translation                                                              
   differences - foreign                                                    
   operations                          (3,046)        -         -    (3,046)
  Defined benefit plan                                                      
   actuarial losses                i        -         -    (4,134)   (4,134)
  Equity share of                                                           
   associate's defined                                                      
   benefit plan                                                             
   actuarial losses                j        -         -      (487)     (487)
  Income tax recovery on                                                    
   defined benefit plan                                                     
   actuarial losses                p        -         -     1,034     1,034 
----------------------------------------------------------------------------
                                       (3,046)        -    (3,587)   (6,633)
----------------------------------------------------------------------------
Total comprehensive                                                         
 income (loss) for the                                                      
 period                              $ (7,531) $      -  $ (5,051) $(12,582)
----------------------------------------------------------------------------
Net earnings (loss) per                                                     
 share, basic and                                                           
 diluted                             $  (0.10) $      -  $  (0.03) $  (0.13)
----------------------------------------------------------------------------

Presentation reclassifications:

a. Deferred taxes:

Under Canadian GAAP deferred taxes are split between current and non-current components on the basis of either the underlying asset or liability or the expected reversal of items not related to an asset or liability.

Under IFRS deferred tax assets and liabilities are classified as non-current.

Consequently, current deferred tax assets under Canadian GAAP have been reclassified against non-current deferred tax liabilities to conform to IFRS requirements.

b. Investment in associate company:

Under Canadian GAAP separate disclosure of investments accounted for on the equity basis is required but may be disclosed in either the financial statements or the notes to the financial statements.

Under IAS 1, Presentation of Financial Statements, investments accounted for using the equity method must be disclosed separately in the Statement of Financial Position.

The Company's investment in an associate company has been reclassified from Other investments and assets as a separate line item on the Statement of Financial Position to conform to IFRS requirements.

c. Employee future benefits:

Employee benefit plan assets and obligations have been reclassified from Other investments and assets and Other liabilities and provisions to highlight items where there has been a significant transitional IFRS adjustment in accordance with IAS 34, Interim Financial Reporting.

d. Other intangible assets, net of accumulated amortization:

Under Canadian GAAP computer software acquired or developed for use is treated as a component of Property, plant and equipment.

Under IAS 38, Intangible Assets, computer software acquired or developed for use meets the definition of an intangible asset and is therefore reclassified from Property, plant and equipment on the Statement of Financial Position as is the related amortization on the Statement of Comprehensive Income.

e. Reforestation liability, current:

IAS 1, Presentation of Financial Statements, requires the separate disclosure of provisions, where significant. Consequently, the current portion of reforestation liability has been reclassified from Trade accounts payable and other accrued liabilities.

f. Finance costs:

Under IFRS 7, Financial Instruments: Disclosures, interest expense on borrowings, the unwinding of the discount on provisions (accretion expense), the amortization of prepaid financing costs and other related transaction costs are disclosed as finance costs.

Under Canadian GAAP, interest expense on borrowings was disclosed separately, accretion expense was included in Production costs and the amortization of prepaid financing costs were included in Depletion and amortization of timber, roads and other.

To comply with IFRS, these items have been reclassified to Finance costs on the Statement of Comprehensive Income.

g. Interest paid:

Cash flows relating to interest paid have been classified as financing activities in the Statement of Cash Flows.

First-time adoption elections and changes due to IFRS:

h. Currency translation differences:

Retrospective application of IFRS would require the Company to determine cumulative currency translation differences in accordance with IAS 21, The Effects of Changes in Foreign Exchange Rates, from the date a foreign subsidiary was formed or acquired. IFRS 1, First-time Adoption of International Financial Reporting Standards, permits cumulative translation gains and losses to be reset to zero at the transition date. The Company elected to reset all cumulative translation gains and losses to zero in the opening retained earnings at January 1, 2010.

The impact on the Statement of Financial Position is summarized as follows:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Reserve increase                                      $              24,855 
----------------------------------------------------------------------------
Reduction to retained earnings                        $             (24,855)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

i. Employee future benefits:

IFRS 1 provides the option to retrospectively apply the corridor approach under IAS 19, Employee Benefits, for the recognition of actuarial gains and losses, or to recognize all cumulative gains and losses deferred under Canadian GAAP in opening retained earnings as at the transition date. The Company elected to recognize all cumulative actuarial gains and losses that existed at its transition date of January 1, 2010 in opening retained earnings for all of its employee benefit plans.

Under Canadian GAAP actuarial gains and losses that arise in calculating the present value of the defined benefit obligations and the fair value of plan assets are recognized on a systematic and consistent basis subject to a minimum required amortization based on a "corridor" approach. The corridor was 10% of the greater of the accrued benefit obligation at the beginning of the year and the fair value of plan assets at the beginning of the year. The unamortized net actuarial gains and losses in excess of the corridor is amortized as a component of pension expense on a straight-line basis over the expected average remaining service life of active participants. Actuarial gains and losses below the 10% corridor are deferred.

Under IFRS the Company elected to recognize all actuarial gains and losses immediately Other comprehensive income without recycling to the income statement in subsequent periods. As a result, actuarial gains and losses are not amortized to the income statement but rather are recorded directly to other comprehensive income at the end of each period. Consequently, the Company adjusted its pension expense to remove the amortization of actuarial gains and losses.

Under Canadian GAAP when a defined benefit plan gives rise to an accrued benefit asset, a provision is recognized for any excess of the accrued benefit asset over the expected future benefit. The accrued benefit asset is presented in the Statement of Financial Position net of the provision. A change in the provision is recognized in earnings for the period in which the change occurs.

IFRS also limits the recognition of the net benefit asset under certain circumstances to the amount that is recoverable. Since the Company has elected to recognize all actuarial gains and losses in Other comprehensive income, changes in the provision are recognized in other comprehensive income in the period in which the change occurs. The Company did not have a provision in respect of its benefit assets for any of the periods presented.

The impact on the Statement of Financial Position was:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Employee benefit assets decrease                          $          (7,243)
Employee benefit obligations increase                                (3,765)
Related tax effect                                                    2,752 
----------------------------------------------------------------------------
Reduction to retained earnings                            $          (8,256)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The impact on the Statement of                                              
 Comprehensive Income was:                                                  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                3 Months           9 Months 
                                          Sept. 30, 2010     Sept. 30, 2010 
----------------------------------------------------------------------------
Production expense increase (decrease) $             (18) $               3 
Other comprehensive loss (income):                                          
  Defined benefit plan actuarial                                            
   losses (gains)                                   (314)             4,134 
----------------------------------------------------------------------------
Reduction to (increase in)                                                  
 comprehensive income before income                                         
 taxes                                 $            (332) $           4,137 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

j. Investment in associate company:

In applying the equity method of accounting for an investment in an associate company both Canadian GAAP and IFRS require the accounting policies of the associate entity to be consistent with those of the parent company. As such, the employee defined benefit asset of the associate company has been adjusted to reflect the same policies as described in Note 19 (i) for employee future benefits and the Company has reflected its proportionate share of the associate's after-tax adjustments to earnings and comprehensive income.

The impact on the Statement of Financial Position was:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Investment in associate decrease                           $         (1,373)
----------------------------------------------------------------------------
Reduction to retained earnings                             $         (1,373)
----------------------------------------------------------------------------

The impact on the Statement of                                              
 Comprehensive Income was:                                                  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                 3 Months          9 Months 
                                           Sept. 30, 2010     Sept.30, 2010 
----------------------------------------------------------------------------
Equity in income                         $            (16) $            (34)
Other comprehensive loss (income):                                          
  Equity share of associate's defined                                       
   benefit plan actuarial losses (gains)              (84)              487 
----------------------------------------------------------------------------
Reduction to (increase in) comprehensive                                    
 income before income taxes              $           (100) $            453 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

k. Property, plant and equipment:

IFRS 1 allows a company to elect to measure an item of property, plant and equipment at the date of transition at its fair value and use that fair value as its deemed cost at that date. The Company identified a property at its Hammond sawmill site which it elected to use fair value as its deemed cost. As at January 1, 2010 the fair value of the property was estimated to be $16,320,000 with a historical cost of $572,000.

In addition, the Company reversed certain costs related to the transfer of equipment from one sawmill site to another which, under previous GAAP, qualified for capital treatment, but under IFRS do not.

The impact on the Statement of Financial Position was:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Property, plant and equipment increase                $              15,748 
Related tax effect                                                   (1,969)
----------------------------------------------------------------------------
Increase in retained earnings                         $              13,779 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The was no impact on the Statement of Comprehensive Income for the three months and nine months ended September 30, 2010.

l. Borrowing costs:

IAS 23, Borrowing Costs, requires an entity to capitalize the borrowing costs for qualifying assets for which the commencement date for capitalization is on or after January 1, 2009. Early adoption is permitted. IFRS 1 contains an exemption allowing companies to apply this standard to assets for which the commencement date is the later of January 1, 2009 and the date of transition. The Company elected to take this IFRS 1 exemption and, therefore, borrowing costs prior to January 1, 2010 are expensed.

m. Decommissioning provisions:

The Company's logging activities give rise to obligations for reforestation and deactivation of logging roads. In addition, the Company has also recognized some environmental provisions.

Provisions are measured at the expected value of future cash flows, discounted to their present value and determined according to the probability of alternative estimates of cash flows occurring for each operation. Canadian GAAP requires the provision to be measured at fair value based on the amount a third party would charge for performing the remediation work. The measurement under IAS 37, Provisions, Contingent Liabilities and Contingent Assets, is based on "best estimate". The best estimate calculation can be based on internal or external costs, depending upon which is most likely.

Discount rates used under Canadian GAAP for decommissioning provisions (known as asset retirement obligations under Canadian GAAP) are based on the Company's credit-adjusted risk-free rate. Adjustments are made to decommissioning provisions for changes in the timing or amount of the cashflows and the unwinding of the discount. Changes in estimates that decrease provisions are discounted using the discount rate applied upon initial recognition of the liability; changes in estimates that increase the provision are discounted using the current discount rate.

Discount rates used under IFRS reflect the risks specific to the decommissioning provision. Adjustments are made to decommissioning provisions each period for changes in the timing or amount of cash flows, changes in the discount rate and the unwinding of the discount. As such, the discount rate reflects the current risk-free rate given that risks are incorporated into the future cash flow estimates.

The impact on the Statement of Financial Position was:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Reforestation liability, non-current                                        
 increase                                                  $         (2,711)
Other liabilities and provisions increase                            (1,151)
Related tax effect                                                      966 
----------------------------------------------------------------------------
Reduction to retained earnings                             $         (2,896)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The impact on the Statement of                                              
 Comprehensive Income was:                                                  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                  3 Months         9 Months 
                                            Sept. 30, 2010   Sept. 30, 2010 
----------------------------------------------------------------------------
Production expense increase               $            352 $          1,083 
----------------------------------------------------------------------------
Reduction to comprehensive income before                                    
 income taxes                             $            352 $          1,083 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

n. Share-based payments:

The Company has granted certain cash-settled share-based payments to certain employees. The Company accounted for these share-based payment arrangements by reference to their intrinsic value under Canadian GAAP.

Under IFRSs the related liability has been adjusted to reflect the fair value of the outstanding cash-settled share-based payments. The fair value is estimated by applying an option pricing model and until the liability is settled the fair value of the liability is remeasured at each reporting date, with changes in fair value recognized as the awards vest. Additionally, IFRS requires an estimate of the number of awards expected to vest, which is revised if subsequent information indicates that actual forfeitures are likely to differ from the estimate.

As a result, the Company adjusted expenses associated with cash-settled share-based payments to reflect the changes of the fair values of these awards.

The impact on the Statement of Financial Position was:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Trade accounts payable and accrued                                          
 liabilities increase                                      $         (1,031)
Other liabilities and provisions                                            
 increase                                                              (110)
Related tax effect                                                      285 
----------------------------------------------------------------------------
Reduction to retained earnings                             $            856 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The impact on the Statement of                                              
 Comprehensive Income was:                                                  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                 3 Months          9 Months 
                                           Sept. 30, 2010    Sept. 30, 2010 
----------------------------------------------------------------------------
Long term incentive compensation                                            
 recovery                                $           (120) $           (934)
----------------------------------------------------------------------------
Increase in comprehensive income before                                     
 income taxes                            $           (120) $           (934)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

o. Business combinations:

IFRS 1 provides the option to apply IFRS 3, Business Combinations, retrospectively or prospectively from the date of transition of January 1, 2010. The retrospective basis would require restatement of all business combinations that occurred prior to the transition date. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to its transition date and such business combinations have not been restated. Any goodwill arising on such business combinations prior to the transition date has not been adjusted from the carrying value previously determined under Canadian GAAP as a result of applying these exemptions.

p. Income taxes:

Due to the cyclical nature of the wood products industry and the economic conditions over the last several years, the Company has not recognized the benefit of deferred tax assets in excess of deferred tax liabilities under Canadian GAAP or IFRS.

The above changes had the following impact on deferred income tax liabilities based on a tax rate of 25 percent:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Employee future benefits                                   $          2,752 
Property, plant and equipment                                        (1,969)
Decommissioning provisions                                              966 
Share-based payments                                                    285 
Reduction of deferred income tax assets                                     
 for loss carry-forwards not recognized                              (2,034)
----------------------------------------------------------------------------
Reduction to deferred income tax                                            
 liability and increase in retained                                         
 earnings                                                  $              - 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The impact on the Statement of                                              
 Comprehensive Income was:                                                  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                 3 Months          9 Months 
                                           Sept. 30, 2010    Sept. 30, 2010 
----------------------------------------------------------------------------
Deferred income tax expense (recovery)   $            (78) $          1,346 
Income tax expense (recovery) on other                                      
 comprehensive losses                                  78            (1,034)
----------------------------------------------------------------------------
Reduction to comprehensive income        $              -  $            312 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

First-time adoption elections and changes due to IFRS:

q. Retained earnings:

The above changes had the following impact on retained earnings:


----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                             Sept. 30, 2010 
----------------------------------------------------------------------------
Employee future benefits                                   $         (8,256)
Investment in associate company                                      (1,373)
Property, plant and equipment                                        13,779 
Decommissioning provisions                                           (2,896)
Share-based payments                                                   (856)
Tax reduction of deferred income tax                                        
 assets for loss carry-forwards not                                         
 recognized                                                          (2,034)
----------------------------------------------------------------------------
Reduction to retained earnings due to                                       
 IFRS adjustments                                                    (1,636)
Reclassifications due to IFRS                                               
  Currency translation adjustments                                  (24,855)
----------------------------------------------------------------------------
Reduction to retained earnings                             $        (26,491)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The impact on the Statement of                                              
 Comprehensive Income was:                                                  
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                 3 Months          9 Months 
                                           Sept. 30, 2010    Sept. 30, 2010 
----------------------------------------------------------------------------
Production expense increase (decrease)                                      
  Employee future benefits increase                                         
   (decrease)                            $            (18) $              3 
  Decommissioning provisions increase                 352             1,083 
----------------------------------------------------------------------------
                                                      334             1,086 
Long term incentive compensation                                            
 recovery                                            (120)             (934)
Equity in earnings of associate company                                     
 increase                                             (16)              (34)
Deferred income tax expense                           (78)            1,346 
----------------------------------------------------------------------------
Decrease to net earnings/increase to net                                    
 loss                                                 120             1,464 
----------------------------------------------------------------------------
Other comprehensive loss increase                                           
 (decrease):                                                                
  Defined benefit plan actuarial losses                                     
   (gains)                                           (314)            4,134 
  Equity share of associate's defined                                       
   benefit plan actuarial losses (gains)              (84)              487 
  Income tax recovery on other                                              
   comprehensive losses                                78            (1,034)
----------------------------------------------------------------------------
Increase in (reduction to) other                                            
 comprehensive loss                                  (320)            3,587 
----------------------------------------------------------------------------
Increase in (reduction to) comprehensive                                    
 loss                                    $           (200) $          5,051 
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Contact Information

  • International Forest Products Limited
    John A. Horning, Senior Vice President,
    Chief Financial Officer and Corporate Secretary
    (604) 689-6829
    www.interfor.com