Interfor's Q4 Results Improve as Markets Strengthen

Thu Feb 14, 2013 9:08pm EST

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Marketwire

International Forest Products Limited

February 14, 2013 - 09:08:06 PM

Interfor's Q4 Results Improve as Markets Strengthen

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 14, 2013) - INTERNATIONAL
FOREST PRODUCTS LIMITED ("Interfor" or the "Company") (TSX:IFP.A) reported net
income of $3.7 million or $0.07 per share before one-time items and
share-based compensation expense in the fourth quarter of 2012.

These results compare with net earnings, reported on the same basis, of $2.9
million in the third quarter of 2012 and a loss of $2.8 million in the fourth
quarter of 2011.

EBITDA for the quarter, adjusted to exclude one-time items, other income and
the effects of share-based compensation, was $19.4 million compared with $17.2
million in the third quarter and $7.7 million in the fourth quarter last year.

One-time items and share-based compensation amounted to $7.3 million in the
fourth quarter.

The Company's results in the current quarter were negatively impacted by
certain costs associated with the rebuild of the Grand Forks sawmill, which
was curtailed on November 9th and resumed operations on December 3rd. The
estimated impact of these costs on earnings and EBITDA in the fourth quarter
was $2.8 million.

Since resuming operations, the Grand Forks mill has been moving through its
start-up processes and is currently running at approximately 97% of proforma.

Lumber production in the fourth quarter was 347 million board feet, slightly
below the level achieved in the third quarter. Production was negatively
affected by the curtailment at Grand Forks and by reduced shifting at the
Company's Coastal sawmills, attributable to log shortages post the extended
fire closures in that region in mid-year. Sales volume, including wholesale
activities, was 384 million board feet, the highest quarterly total in the
Company's history.

In the quarter, SPF 2x4 in the U.S. market averaged US$335 per mfbm, up US$35
per mfbm versus the third quarter as mild seasonal conditions and higher
activity levels spurred increased demand. Hem-Fir studs were US$360 per mfbm
in the quarter, up US$10 versus the third quarter. The market in China gained
strength in the quarter and, in Japan, green hemlock squares were up 1% while
J Grade dimension was up 7%. Cedar prices continued to inch upwards in the
quarter on limited supply.

Export taxes on shipments to the U.S. were 5% in October and 10% in November
and December.

In the quarter, Interfor generated $14.6 million in cash from operations after
working capital changes were considered. Capital spending amounted to $15.4
million, including $7.9 million on the Grand Forks and Castlegar projects.

Net debt closed the quarter at $120 million or 24.2% percent of invested
capital.

Subsequent to the end of the quarter, Interfor announced it had reached
agreement with Rayonier Inc. to acquire that Company's Wood Products Business
in the U.S. South for $80 million including working capital.

Rayonier's Wood Products Business, headquartered in Baxley, Georgia, consists
of three sawmills with a combined annual capacity of 360 million board feet of
southern pine dimension lumber. The Rayonier acquisition is consistent with
Interfor's strategy of adding capacity in attractive regional markets and will
bring Interfor's annual capacity to more than 2 billion board feet.

The transaction will be financed from Interfor's existing credit lines and is
scheduled to close March 1st. The acquisition is expected to be accretive to
the Company's earnings and free cash flow from the outset.

Business conditions are expected to continue to improve in 2013. In the U.S.,
the housing market continues to strengthen and further growth is expected in
China. In Japan, building activity in 2013 is expected to increase in
anticipation of a planned increase in the consumption tax in 2014 and as a
result of reconstruction efforts following the 2011 earthquake and tsunami.

While the near term outlook is more positive than it has been for some time,
there are numerous challenges to the global economy that have the potential to
undermine the economic recovery. With those concerns in mind, Interfor intends
to maintain its disciplined approach to production, cost control and inventory
management while remaining alert to opportunities to position the Company for
long-term success.

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 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 Friday, February 15, 2013 at 8:00 AM
(Pacific Time) hosted by INTERNATIONAL FOREST PRODUCTS LIMITED for the purpose
of reviewing the Company's release of its Fourth Quarter, 2012 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 March 1, 2013. The number to call is 1-866-245-6755, Passcode
568465.



SELECTED QUARTERLY FINANCIAL INFORMATION(1)                                 
----------------------------------------------------------------------------
                                                                            
Quarterly                                                                   
 Earnings                                                                   
 Summary                    2012                          2011              
               -------------------------------------------------------------
                    Q4      Q3     Q2     Q1      Q4      Q3     Q2      Q1 
               -------------------------------------------------------------
                 (millions of dollars except share, per share and foreign   
                                  exchange rate amounts)                    
Sales -                                                                     
 Lumber(2)       173.3   161.9  162.4  133.6   133.6   139.6  133.7   131.4 
  - Logs          24.5    26.8   35.6   27.0    22.9    36.0   28.6    20.8 
  - Wood chips                                                              
   and other                                                                
   residual                                                                 
   products       15.9    17.5   17.8   18.2    17.5    17.6   16.8    16.4 
  - Other          8.7     8.5    9.6    7.9    14.6     9.9    8.7    10.0 
               -------------------------------------------------------------
Total Sales      222.4   214.7  225.4  186.7   188.7   203.1  187.9   178.6 
               -------------------------------------------------------------
                                                                            
Operating                                                                   
 earnings                                                                   
 (loss) before                                                              
 restructuring                                                              
 costs and                                                                  
 asset                                                                      
 impairments(2)   (1.9)    2.5    2.9   (5.5)   (6.2)    3.9   (2.3)   (0.1)
Operating                                                                   
 earnings                                                                   
 (loss) (2)       (2.2)    2.4    2.8   (5.5)   (6.1)    4.2   (2.4)   (1.0)
Net earnings                                                                
 (loss)           (3.6)    1.1    0.3   (6.5)   (6.5)    0.0   (5.3)   (1.7)
Net earnings                                                                
 (loss) per                                                                 
 share - basic                                                              
 and diluted     (0.06)   0.02   0.01  (0.12)  (0.12)   0.00  (0.10)  (0.04)
Net earnings                                                                
 (loss),                                                                    
 adjusted for                                                               
 certain one-                                                               
 time and other                                                             
 items(2,3)        3.7     2.9    1.1   (3.9)   (2.8)    1.4   (6.3)    1.9 
Net earnings                                                                
 (loss),                                                                    
 adjusted for                                                               
 certain one-                                                               
 time and other                                                             
 items - per                                                                
 share(2)         0.07    0.05   0.02  (0.07)  (0.05)   0.03  (0.11)   0.04 
EBITDA(7)         13.2    15.2   16.5    6.0     6.7    17.6   11.3    11.6 
Adjusted                                                                    
 EBITDA(2,7)      19.4    17.2   16.7    7.2     7.7    16.3    8.2    15.1 
Cash flow from                                                              
 operations per                                                             
 share(4)         0.24    0.20   0.24   0.15    0.08    0.26   0.22    0.27 
Shares                                                                      
 outstanding -                                                              
 end of period                                                              
 (millions)(5)    55.9    55.9   55.9   55.9    55.9    55.9   55.9    47.5 
  - weighted                                                                
   average                                                                  
   (millions)     55.9    55.9   55.9   55.9    55.9    55.9   55.2    47.4 
Average foreign                                                             
 exchange rate                                                              
 per US$1.00(6) 0.9914  0.9954 1.0104 1.0010  1.0230  0.9808 0.9680  0.9856 
Closing foreign                                                             
 exchange rate                                                              
 per US$1.00(6) 0.9949  0.9832 1.0181 0.9975  1.0170  1.0482 0.9645  0.9696 

1.  Tables may not add due to rounding.
      
2.  The Company uses forward foreign exchange contracts which are designated
    as held for trading and are carried on the Statement of Financial
    Position at fair value. Previously changes in fair value were recorded
    as an adjustment to Sales in Net earnings. Effective January 1, 2012,
    the Company changed its accounting policy to align with the presentation
    adopted by companies in its peer group and changes in fair value are now
    recorded in Other foreign exchange gain (loss) in Net earnings.
     
    The policy has been applied on a retrospective basis and comparative
    information has been restated. There is no change to Net earnings as a
    result of the adoption of this new policy.
      
3.  Net earnings (loss) adjusted for certain one-time and other items
    represents the net loss before restructuring costs, long term incentive
    compensation expense (recovery), certain foreign exchange gains and
    losses, other income (expense) and the effect of unrecognized tax
    assets.
     
    Net earnings (loss), adjusted for certain one-time and other items is
    not a defined term under IFRS, and may not be comparable to adjusted net
    earnings (loss) calculated by others. Net earnings (loss), adjusted for
    certain one-time and other items may be calculated as follows: 

                                      2012                    2011          
                            ------------------------------------------------
                               Q4    Q3    Q2    Q1    Q4    Q3    Q2    Q1 
                            ------------------------------------------------
                                          (millions of dollars)             
Net earnings (loss)          (3.6)  1.1   0.3  (6.5) (6.5)  0.0  (5.3) (1.7)
Add (deduct):                                                               
  Restructuring costs, asset                                                
   impairments and other                                                    
   costs (recovery)           0.3   0.1   0.1     -  (0.1) (0.3)  0.1   0.8 
  Long term incentive                                                       
   compensation expense                                                     
   (recovery)                 6.2   2.3   0.2   1.3   0.9  (0.9) (3.1)  3.5 
  Other foreign exchange                                                    
   (gains) losses            (0.2) (0.1)  0.5  (0.4) (1.1)  2.5  (0.2) (1.1)
  Other (income) expense      0.0  (0.2) (0.0) (0.1)  0.0  (0.4) (0.0) (0.0)
  Income tax on adjustments   0.0   0.0   0.0   0.0   0.0   0.0   0.0   0.0 
  Deferred tax assets not                                                   
   recognized (recognized)    1.0  (0.4)  0.0   1.8   3.9   0.6   2.2   0.3 
                            ------------------------------------------------
  Net earnings (loss),                                                      
   adjusted for certain one-                                                
   time and other items       3.7   2.9   1.1  (3.9) (2.8)  1.4  (6.3)  1.9 
                            ------------------------------------------------

4.  Cash generated from operations before taking account of changes in
    operating working capital.
      
5.  As at February 14, 2013, the numbers 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.
      
6.  Rates are based on Bank of Canada closing foreign exchange rates per
    US$1.00.
      
7.  The Company discloses EBITDA as it is a measure used by analysts and
    Interfor's management to evaluate the Company's performance. As EBITDA
    is a non-GAAP measure, it may not be comparable to EBITDA calculated by
    others. In addition, as EBITDA is not a substitute for net earnings,
    readers should consider net earnings in evaluating the Company's
    performance. Adjusted EBITDA represents EBITDA adjusted for other
    income. EBITDA and Adjusted EBITDA can be calculated from the statements
    of operations as follows: 

                                      2012                    2011          
                            ------------------------------------------------
                               Q4    Q3    Q2    Q1    Q4    Q3    Q2    Q1 
                            ------------------------------------------------
                                          (millions of dollars)             
Net earnings (loss)          (3.6)  1.1   0.3  (6.5) (6.5)  0.0  (5.3) (1.7)
Add: Income taxes (recovery)  0.0   0.0   0.3     -   0.2   0.5   1.2  (0.4)
  Finance costs               1.5   1.6   1.7   1.5   1.3   1.7   1.9   2.3 
  Depreciation, depletion                                                   
   and amortization          15.1  12.4  13.6  11.3  13.0  13.3  13.6  11.7 
  Other foreign exchange                                                    
   (gains) losses            (0.2) (0.1)  0.5  (0.4) (1.1)  2.5  (0.2) (1.1)
  Restructuring costs, asset                                                
   impairments and other                                                    
   costs (recoveries)         0.3   0.1   0.1     -  (0.1) (0.3)  0.1   0.8 
                            ------------------------------------------------
EBITDA                       13.2  15.2  16.5   6.0   6.7  17.6  11.3  11.6 
Add (deduct):                                                               
  Long term incentive                                                       
   compensation expense                                                     
   (recovery)                 6.2   2.3   0.2   1.3   0.9  (0.9) (3.1)  3.5 
  Other (income) expense      0.0  (0.2) (0.0) (0.1)  0.0  (0.4) (0.0) (0.0)
                            ------------------------------------------------
Adjusted EBITDA              19.4  17.2  16.7   7.2   7.7  16.3   8.2  15.1 
                            ------------------------------------------------



The definition of Adjusted EBITDA was changed in the fourth quarter, 2012 to
include an adjustment for long term incentive compensation expense (recovery).
Prior periods have been restated to reflect this change.



Volume and Price Statistics                                                 
                                          2012                 2011         
                                  ------------------------------------------
                                     Q4   Q3   Q2   Q1   Q4     Q3   Q2   Q1
                                  ------------------------------------------
                                                                            
Lumber sales           (million                                             
                        fbm)        384  366  363  320  318    336  334  313
Lumber production      (million                                             
                        fbm)        347  350  333  323  294    313  325  332
Log sales(1)           (thousand                                            
                        cubic                                               
                        metres)     267  345  379  361  310    430  314  301
Log production(1)      (thousand                                            
                        cubic                                               
                        metres)     748  817  840  892  795  1,002  796  816
Average selling price  ($/thousand                                          
 - lumber(2)            fbm)       $452 $442 $448 $418 $420 $  415 $400 $419
Average selling price  ($/cubic                                             
 - logs(1)              metre)     $ 76 $ 75 $ 75 $ 64 $ 69 $   74 $ 82 $ 61
Average selling price  ($/thousand                                          
 - pulp chips           fbm)       $ 39 $ 43 $ 46 $ 48 $ 51 $   48 $ 44 $ 40

1.  B.C. operations 
2.  Gross sales before duties and export taxes 



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 started strong in the first quarter, 2011, with rapid growth
in demand from export markets, particularly China, offset by weak North
American demand due to the languishing housing sector and record low starts.
Rates tapered marginally through the end of the third quarter, 2011, as China
introduced measures to cool its overheated housing market and U.S. demand
remained weak. Demand from China stabilized through 2012, and modest but
steady recoveries in the U.S. housing market helped drive up domestic demand
and pricing through the end of 2012.

The volatility of the Canadian dollar also impacted results, given that
historically over 75% of the Canadian operation's lumber sales are to U.S. and
export markets and are priced in U.S. dollars. A weaker Canadian dollar
increases the lumber sales realizations in Canada, but increases 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
2011 or 2012, with one minor exception in the fourth quarter, 2012.

Quarter 4, 2012 Compared to Quarter 4, 2011

Overview

The Company recorded a net loss of $3.6 million, or $0.06 per share, for the
fourth quarter of 2012 compared to a net loss of $6.5 million, or $0.12 per
share in the fourth quarter, 2011. Before restructuring costs, long term
incentive compensation, certain foreign exchange gains (losses), certain other
one-time items and the effect of unrecognized tax assets, the Company's net
earnings for the fourth quarter, 2012 was $3.7 million, or $0.07 per share, as
compared to a net loss of $2.8 million, or $0.05 per share for the fourth
quarter, 2011.

EBITDA and Adjusted EBITDA for the fourth quarter of 2012 were $13.2 million
and $19.4 million, respectively, compared to $6.7 million and $7.7 million,
for the same period in 2011.

During the fourth quarter of 2012, lumber prices in the North American market
continued their rise, with the average price reported by Random Lengths for
SPF 2x4 #2&Btr at US$335 per mfbm for the fourth quarter, 2012 as compared to
US$238 per mfbm for the same quarter in 2011, and US$35 per mfbm higher than
the third quarter, 2012. Higher prices also drove lower export tax rates in
the fourth quarter, 2012 vis-a-vis the same quarter, 2011, positively
impacting sales realizations.

The stronger average Canadian dollar in the fourth quarter, 2012, which
appreciated by 3 cents relative to its U.S. counterpart, had a negative impact
on sales as compared to the same period, 2011.

Sales

The Company's record lumber shipments achieved in the third quarter, 2012 were
surpassed in the fourth quarter, 2012 as the Company's lumber sales volumes
reached 384 million fbm, an improvement of 21% over the fourth quarter, 2011.
Increases reflect the stronger domestic demand driven by improved U.S. housing
starts which increased from an average of 678,000 units in the fourth quarter,
2011 to 898,000 units, or 32% in the fourth quarter, 2012.

Fourth quarter, 2012 shipments to North America grew rapidly relative to the
previous three quarters, 2012, and exceeded shipments in the same quarter,
2011 by 30% in response to higher demand. Increases in operating rates allowed
the Company to also meet export demand, as shipments to export markets
remained constant in the fourth quarter, 2012 vis-a-vis the same quarter,
2011.

Improvements in average unit lumber sales values of $32 per mfbm, or 8%, in
the fourth quarter, 2012 over the respective period, 2011 reflects the higher
North American pricing, supplemented by higher realizations in China.

Log sales were up $1.6 million, or 7%, for the fourth quarter, 2012 despite a
decline in B.C. log sales volumes of 44,000 m3 or 14% over the same period in
2011. On the B.C. Coast, where the majority of log sales are transacted, the
price per cubic meter improved by 14% in the fourth quarter of 2012, compared
to the same period in 2011 reflecting tight supply as a result of an extended
fire season, higher export volume and improved log markets.

Compared to the same periods of 2011, pulp chip and other residuals revenues
for the fourth quarter of 2012 were down $1.7 million, resulting from lower
overall chip prices. Average chip prices for the fourth quarter, 2012
decreased by 22% over the same quarter, 2011, reflecting slower pulp markets
and, in the U.S. Pacific Northwest, decreases in export logs which increased
the availability of fibre used in whole log chipping.

Operations

Production costs for the fourth quarter of 2012 increased by $22.6 million, or
13% compared to the same quarter, 2011. The Company continued to achieve close
to record lumber production, at 347 million fbm, an 18% improvement over the
same quarter, 2011. Market driven increases in operating rates, supported by
the availability of economic fibre supply for the U.S. Pacific Northwest
sawmills more than offset curtailments at the Grand Forks sawmill for start -
up of the new production line.

Unit cash conversion costs for the fourth quarter, 2012 remained constant as
compared to the same period, 2011 despite improved operating rates, primarily
due to the start-up costs related to the new production line at Grand Forks.
Unit costs of logs consumed increased 4% quarter-over-quarter for 2012 as
compared to 2011, resulting from higher log prices and higher logging, hauling
and stumpage costs in the B.C. Interior, slightly mitigated by reduced export
pressure on the Olympic Peninsula which provided more affordable supply.

Compared to the same period in 2011, B.C. log production fell by 47,000 cubic
metres or 6% as the B.C. Coast continued to see hangover from the extended
fire season.

Export taxes declined by $0.5 million for the fourth quarter, 2012 as compared
to the same period, 2011 despite an increase of 6.5 million fbm, or 12%, in
Canadian shipments to the U.S. As a result of the lift in commodity lumber
prices in the latter half of 2012, the export tax paid under the SLA declined
to 5% for October, 2012 and 10% for November and December, 2012, as compared
to a 15% export tax rate in the fourth quarter, 2011.

Depreciation of plant and equipment for the fourth quarter, 2012 increased by
$0.8 million in comparison to the same period in 2011, largely driven by
increased operating rates.

Road amortization and depletion expense for the fourth quarter of 2012
increased by $1.3 million or 21% compared to the same quarter, 2011 as a
result of a shift on the B.C. Coast to logging on more difficult and higher
cost terrain.

Corporate and Other

Selling and administrative costs for the fourth quarter, 2012 remained
constant compared to the same quarter, 2011. Fourth quarter, 2012 LTIC expense
increased almost sevenfold over the fourth quarter, 2011, reflecting changes
in the estimated fair value of the share-based compensation plans. Though not
a direct correlation, the movement in the Company's share price had the
greatest impact on this expense, as reflected by increases in the closing
share price of 35% for the fourth quarter, 2012 (Quarter 4, 2011 - 8%).

Finance costs increased by $0.3 million for the fourth quarter, 2012, compared
to the same period, 2011 resulting from an overall increase in average debt
levels. Other foreign exchange gains (losses) fell $1.0 million when compared
to the fourth quarter, 2011 as volatility of the Canadian dollar and the
timing, rates and amount of forward foreign exchange contracts impact these
gains and losses.

Other income for the fourth quarter of 2012 and 2011 was negligible,
consisting primarily of minor surplus equipment and scrap sales.

Income Taxes

The Company's income tax expense, negligible for the fourth quarter, 2012 and
2011, excludes the benefit of $1.0 million related to the reduction of certain
unrecognized deferred income tax assets arising from loss carry-forwards
available to reduce future taxable income (Quarter 4, 2011 - $3.9 million).
Although the Company expects to realize the full benefit of the loss
carry-forwards and other deferred tax assets, due the cyclical nature of the
forest 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, with one minor exception.

Cash Flow

The Company generated cash of $13.4 million from operations, before changes in
working capital, during the fourth quarter, 2012, an improvement of $8.8
million over the fourth quarter, 2011. Higher domestic shipments and North
American sales prices, lower export taxes and higher operating rates drove
cash earnings for the fourth quarter, 2012.

Cash generated from operations, after changes in working capital, improved
$10.7 million for the fourth quarter, 2012, compared to the same period, 2011,
reflecting the shift to domestic markets in 2012, lower logging production and
the curtailment of Grand Forks during start-up in the fourth quarter, 2012.
Increased export demand drove the build-up of inventory in the fourth quarter,
2011.

In the fourth quarter of 2012, funds drawn on the Revolving Term Line equalled
funds repaid during the quarter. In the fourth quarter, 2011 funds drawn from
the Revolving Term Line exceeded repayments by $5.0 million, and were used to
fund capital spending.

Cash capital expenditures for the fourth quarter, 2012 totalled $15.4 million,
with $7.9 million spent on the capital upgrades for the Grand Forks and
Castlegar mills, $1.1 million on other high-return discretionary projects,
$1.7 million on other maintenance of operating capacity, and $4.8 million on
road construction. Comparable spending for the fourth quarter, 2011 of $9.0
million saw $2.2 million invested in high return discretionary projects and
$1.3 million on maintenance of operating capacity, with a further $5.4 million
on road construction.

The Company had cash of $15.0 million at December 31, 2012 and ended the
quarter with net debt of $120.1 million or 24% of invested capital as compared
to 20% at December 31, 2011, primarily as a result of the sawmill rebuild at
Grand Forks.

Controls and Procedures

As required by National Instrument 52-109 issued by the Canadian Securities
Administrators, Interfor carried out an evaluation of the design and
effectiveness of the Company's disclosure controls and procedures as of
December 31, 2012. The evaluation was carried out under the supervision of,
and with the participation of the Chief Executive Officer ("CEO") and the
Chief Financial Officer ("CFO"). Based on the evaluation, the CEO and CFO
concluded that the Company's disclosure controls and procedures were effective
as of December 31, 2012.

As required by National Instrument 52-109 issued by the Canadian Securities
Administrators, Interfor carried out an evaluation of the design and
effectiveness of the Company's internal controls over financial reporting
("ICFR") as of December 31, 2012. The evaluation was carried out within the
COSO framework and under the supervision of, and with the participation of the
CEO and the CFO. Based on the evaluation, the CEO and CFO concluded that the
Company's ICFR were effective as of December 31, 2012.

The CEO and CFO acknowledge responsibility for the design of ICFR, and confirm
that there were no changes in these controls that occurred during the most
recent interim period ended December 31, 2012 which materially affected, or
are reasonably likely to materially affect, the Company's ICFR.

ACCOUNTING POLICY CHANGES

Change in Accounting Policy

The Company uses derivative forward exchange contracts and options which are
designated as at fair value through profit or loss and are carried on the
Statement of Financial Position at fair value. Previously, changes in fair
value were recorded as an adjustment to Sales in Net earnings. Effective,
January 1, 2012, the Company changed its accounting policy to align with the
presentation adopted by companies in its peer group and changes in fair value
are now recorded in Other foreign exchange gain (loss) in Net earnings.

The policy has been applied on a retrospective basis and comparative
information has been restated. The change had no effect on the comparative
Statement of Financial Position.

Future Accounting Policy 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. This standard is in effect for accounting
periods beginning on or after January 1, 2015, with earlier adoption
permitted.

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.

Application of this standard will also impact the calculation of finance
costs, resulting in an increase to Production expense in the Statement of
Earnings, which will be fully offset by an increase in Defined benefit plan
actuarial gains (losses) in the Statement of Comprehensive Income. Prior to
this standard, the impact of defined benefit plans on Net earnings included an
interest cost on the obligation using the discount rate (based on current bond
yields), and a credit on the plan assets using the expected rate of return
(based on long term expected bond and equity returns). Under the new standard,
the credit on plan assets will no longer recognize the equity risk premium and
will be based on the discount rate only.

This standard is in effect for accounting periods beginning on or after
January 1, 2013.

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.

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 financial instruments and leases currently on the
International Accounting Standards Board agenda.

ACQUISITION OF RAYONIER'S WOOD PRODUCTS BUSINESS

On January 21, 2013, the Company reached an agreement to acquire the assets of
Rayonier Inc.'s Wood Products Business ("Rayonier Acquisition") for US$73.9
million plus working capital. The transaction is scheduled to close on March
1, 2013.

Rayonier's Wood Products Business, headquartered in Baxley, Georgia, consists
of three sawmills located in Baxley, Swainsboro and Eatonton, Georgia, with a
combined annual capacity of 360 million board feet of southern pine dimension
lumber. The acquisition is consistent with Interfor's strategy of adding
capacity in attract ive regional markets and will bring Interfor's annual
capacity to more than 2 billion board feet.

The acquisition will be financed from Interfor's existing credit lines and is
expected to be accretive from the outset.

DEBT FACILITY MODIFICATIONS

On January 24, 2013, the Company obtained a financing commitment from its
lenders to increase and extend its syndicated credit facilties. The Revolving
Term Line will increase from $200 million to $250 million, conditional upon
completion of the Rayonier Acquisition. The existing Operating Line remains
unchanged. The financing is scheduled to close on February 27, 2013.

The maturity dates of both the Operating Line and the Revolving Term Lines
will be extended to a four year term. All other terms remain substantially
unchanged except for a reduction in pricing.

On January 24, 2013, the Company also obtained a financing commitment from a
U.S. lender for a US$20 million Operating Line ("U.S. Line"). The U.S. Line
will be secured by accounts receivable and in ventories of Interfor U.S. Inc.
(formerly Interfor Pacific Inc.), and have an initial term of two years.

OUTLOOK

Business conditions are expected to continue to improve, albeit slowly. In the
U.S. the housing market is expected to continue to recover, China remains an
important market for North American lumber and further growth is expected.
Building activity in Japan is expected to gain momentum in 2013 in
anticipation of a planned increase in the consumption tax and as a result of
reconstruction efforts following the 2011 earthquake and tsunami. Interest
rates are forecasted to remain low and the Canadian dollar is expected to
trade at close to parity against the U.S. Dollar.

Interfor's recently announced acquisition of the three Rayonier mills will add
another 360 million board feet to the Company's production capacity. While the
near term outlook is more positive than it has been for some years, there are
numerous challenges to the global economy that have the potential to undermine
the economic recovery. With this uncertainty in mind, Interfor intends to
maintain its disciplined approach to production, cost control, and inventory
management while, at the same time, remaining alert to opportunities to
position the Company for long-term success.

ADDITIONAL INFORMATION

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

FORWARD LOOKING INFORMATION

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", "Acquisition of Rayonier's Wood Products
Business"; changes in accounting policy under the heading "Future Accounting
Policy Changes"; and in the description of economic conditions under the
heading "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
Canada, the U.S., Japan and China, as well as other factors management
believes are appropriate in the circumstances. 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.



CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)                        
For the three months and years ended December 31, 2012 and 2011 (unaudited) 
                                                                            
                                     3 Months  3 Months      Year      Year 
(thousands of Canadian dollars       Dec. 31,  Dec. 31,  Dec. 31,  Dec. 31, 
 except loss per share)                  2012      2011      2012      2011 
----------------------------------------------------------------------------
                                                                            
Sales (note 3(a))                    $222,400  $188,690  $849,196  $758,245 
Costs and expenses:                                                         
  Production                          196,037   173,412   758,893   681,363 
  Selling and administration            5,162     5,300    20,719    20,548 
  Long term incentive compensation                                          
   expense                              6,245       934    10,065       449 
  Export taxes                          1,768     2,313     9,044     9,029 
  Depreciation of plant and                                                 
   equipment (note 8)                   7,565     6,751    28,745    27,291 
  Depletion and amortization of                                             
   timber, roads and other (note 8)     7,528     6,208    23,648    24,263 
  --------------------------------------------------------------------------
                                      224,305   194,918   851,114   762,943 
----------------------------------------------------------------------------
                                                                            
Operating loss before restructuring                                         
 costs                                 (1,905)   (6,228)   (1,918)   (4,698)
                                                                            
Restructuring (costs) recovery (note                                        
 9)                                      (283)      104      (529)     (580)
----------------------------------------------------------------------------
Operating loss                         (2,188)   (6,124)   (2,447)   (5,278)
                                                                            
Finance costs (note 10)                (1,527)   (1,268)   (6,324)   (7,094)
Other foreign exchange gain               174     1,135       189       (25)
Other income (expense) (note 11)           (5)      (45)      334       371 
----------------------------------------------------------------------------
                                       (1,358)     (178)   (5,801)   (6,748)
----------------------------------------------------------------------------
                                                                            
Loss before income taxes               (3,456)   (6,302)   (8,248)  (12,026)
Income tax expense (recovery):                                              
    Current                               137       282       640       817 
    Deferred                              (54)     (117)     (182)      610 
  --------------------------------------------------------------------------
                                           83       165       458     1,427 
----------------------------------------------------------------------------
                                                                            
Net loss                             $ (3,629) $ (6,467) $ (8,706) $(13,453)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Net loss per share, basic and                                               
 diluted (note 12)                   $  (0.06) $  (0.12) $  (0.16) $  (0.25)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)            
For the three months and year ended December 31, 2012 and 2011 (unaudited)  
----------------------------------------------------------------------------
                                      3 Months 3 Months      Year      Year 
                                      Dec. 31, Dec. 31,  Dec. 31,  Dec. 31, 
                                          2012     2011      2012      2011 
----------------------------------------------------------------------------
                                                                            
Net loss                               $(3,629) $(6,467) $ (8,706) $(13,453)
                                                                            
Other comprehensive income (loss):                                          
  Foreign currency translation                                              
   differences - foreign operations      1,492   (3,907)   (2,805)    2,632 
  Defined benefit plan actuarial                                            
   losses                                  439    1,030    (3,568)   (4,541)
  Gain (loss) in fair value of                                              
   interest rate swaps (note 14)            90       (3)      371      (503)
  Income tax on other comprehensive                                         
   income                                   44     (117)      (84)      250 
  --------------------------------------------------------------------------
                                         2,065   (2,997)   (6,086)   (2,162)
                                                                            
----------------------------------------------------------------------------
                                                                            
Total comprehensive loss for the                                            
 period                                $(1,564) $(9,464) $(14,792) $(15,615)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See accompanying notes to consolidated financial statements                 
                                                                            
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                             
For the years ended December 31, 2012 and 2011 (unaudited)                  
                                                                            
                                                            Year       Year 
                                                        Dec. 31,   Dec. 31, 
(thousands of Canadian dollars)                             2012       2011 
----------------------------------------------------------------------------
                                                                            
Cash provided by (used in):                                                 
Operating activities:                                                       
  Net loss                                             $  (8,706) $ (13,453)
  Items not involving cash:                                                 
    Depreciation of plant and equipment                   28,745     27,291 
    Depletion and amortization of timber, roads and                         
     other                                                23,648     24,263 
    Deferred income tax expense (recovery)                  (182)       610 
    Current income tax expense                               640        817 
    Finance costs                                          6,324      7,094 
    Other assets                                          (1,953)       238 
    Reforestation liability                                 (516)       (90)
    Other liabilities and provisions                      (1,361)    (2,761)
    Write-down (recovery) of plant and equipment             164       (423)
    Unrealized foreign exchange losses and other             150        191 
    Other (note 11)                                         (309)      (184)
  --------------------------------------------------------------------------
                                                          46,644     43,593 
  Cash generated from (used in) operating working                           
   capital:                                                                 
    Trade accounts receivable and other                   (3,798)     3,191 
    Inventories                                             (879)   (25,613)
    Prepayments                                           (1,087)    (1,698)
    Trade accounts payable and accrued liabilities         5,592      9,588 
    Income taxes paid                                     (1,090)      (622)
  --------------------------------------------------------------------------
                                                          45,382     28,439 
                                                                            
Investing activities:                                                       
  Additions to property, plant and equipment             (39,830)   (16,099)
  Additions to logging roads                             (20,662)   (19,987)
  Additions to timber and other intangible assets           (319)      (126)
  Proceeds on disposal of property, plant, and                              
   equipment                                                 537        273 
  Cash received on acquisition of subsidiary                   -      4,846 
  Investments and other assets                              (298)      (921)
  --------------------------------------------------------------------------
                                                         (60,572)   (32,014)
Financing activities:                                                       
  Issuance of capital stock, net of share issue                             
   expenses                                                    -     56,256 
  Interest payments                                       (5,241)    (5,629)
  Additions to long-term debt (note 6(b))                 82,000    100,000 
  Repayments of long-term debt (note 6(b))               (57,000)  (146,000)
  --------------------------------------------------------------------------
                                                          19,759      4,627 
Foreign exchange gain (loss) on cash and cash                               
 equivalents held in a foreign currency                      (10)        82 
----------------------------------------------------------------------------
Increase in cash                                           4,559      1,134 
                                                                            
Cash and cash equivalents, beginning of year              10,435      9,301 
----------------------------------------------------------------------------
                                                                            
Cash and cash equivalents, end of period               $  14,994  $  10,435 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
See accompanying notes to consolidated financial statements                 
                                                                            
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION                     
December 31, 2012 and 2011 (unaudited)                                      
                                                                            
                                                         Dec. 31,  Dec. 31, 
(thousands of Canadian dollars)                              2012      2011 
----------------------------------------------------------------------------
                                                                            
Assets                                                                      
Current assets:                                                             
  Cash and cash equivalents (note 6(c))                  $ 14,994  $ 10,435 
  Trade accounts receivable and other                      47,392    44,000 
  Inventories (note 5)                                     98,024    97,645 
  Prepayments                                              11,749    10,757 
  --------------------------------------------------------------------------
                                                          172,159   162,837 
                                                                            
Employee future benefits                                      878     1,256 
Other investments and assets                                4,198     2,836 
Property, plant and equipment                             349,779   340,034 
Logging roads and bridges                                  17,316    16,753 
Timber licences                                            73,796    76,792 
Other intangible assets                                       738     1,250 
Goodwill                                                   13,078    13,078 
Deferred income taxes                                          98         - 
----------------------------------------------------------------------------
                                                                            
                                                         $632,040  $614,836 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Liabilities and Equity                                                      
Current liabilities:                                                        
  Trade accounts payable and accrued liabilities         $ 70,597  $ 60,692 
  Reforestation liability                                  10,864    14,121 
  Income taxes payable                                        593     1,058 
  --------------------------------------------------------------------------
                                                           82,054    75,871 
                                                                            
Reforestation liability                                    17,621    17,777 
Long-term debt (note 6(b))                                135,046   110,713 
Employee future benefits                                    9,631     8,186 
Other liabilities and provisions                           11,658    11,467 
Equity:                                                                     
  Share capital (note 7)                                                    
    Class A subordinate voting shares                     342,285   342,285 
    Class B common shares                                   4,080     4,080 
    Contributed surplus                                     7,476     7,476 
  Reserves                                                 (7,950)   (5,432)
  Retained earnings                                        30,139    42,413 
  --------------------------------------------------------------------------
                                                                            
                                                          376,030   390,822 
----------------------------------------------------------------------------
                                                                            
                                                         $632,040  $614,836 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Contingencies (note 15)                                                     
Subsequent events (note 16)                                                 



See accompanying notes to consolidated financial statements                 

On behalf of the Board:

L. Sauder, Director

D. Whitehead, Director        



CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY                      
For the years ended December 31, 2012 and 2011 (unaudited)                  
                                                                            
(thousands of   Class A Class B Contri-  Trans-                             
 Canadian         Share   Share   buted  lation Hedging  Retained           
 dollars)       Capital Capital Surplus Reserve Reserve  Earnings     Total 
----------------------------------------------------------------------------
Balance at                                                                  
 December 31,                                                               
 2010          $285,362 $ 4,080 $ 5,408 $(7,646) $    -  $ 60,246  $347,450 
                                                                            
Net loss for                                                                
 the period:          -       -       -       -       -   (13,453)  (13,453)
Other                                                                       
 comprehensive                                                              
 earnings                                                                   
 (loss):                                                                    
Foreign                                                                     
 currency                                                                   
 translation                                                                
 differences,                                                               
 net of tax           -       -       -   2,717       -         -     2,717 
Defined                                                                     
 benefit plan                                                               
 actuarial                                                                  
 losses, net                                                                
 of tax               -       -       -       -       -    (4,376)   (4,376)
Loss in fair                                                                
 value of                                                                   
 interest rate                                                              
 swaps                -       -       -       -    (503)        -      (503)
                                                                            
Contributions:                                                              
Share options                                                               
 exercised        1,370       -       -       -       -         -     1,370 
Share                                                                       
 issuance, net                                                              
 of share                                                                   
 issue                                                                      
 expenses        55,553       -       -       -       -         -    55,553 
                                                                            
Changes in                                                                  
 ownership                                                                  
 interests in                                                               
 investee:                                                                  
Acquisition of                                                              
 subsidiary           -       -   2,068       -       -        (4)    2,064 
----------------------------------------------------------------------------
                                                                            
Balance at                                                                  
 December 31,                                                               
 2011          $342,285 $ 4,080 $ 7,476 $(4,929) $ (503) $ 42,413  $390,822 
Net loss for                                                                
 the period:          -       -       -       -       -    (8,706)   (8,706)
Other                                                                       
 comprehensive                                                              
 loss:                                                                      
Foreign                                                                     
 currency                                                                   
 translation                                                                
 differences,                                                               
 net of tax           -       -       -  (2,889)      -         -    (2,889)
Defined                                                                     
 benefit plan                                                               
 actuarial                                                                  
 losses, net                                                                
 of tax               -       -       -       -       -    (3,568)   (3,568)
Gain in fair                                                                
 value of                                                                   
 interest rate                                                              
 swaps                -       -       -       -     371         -       371 
----------------------------------------------------------------------------
                                                                            
                                                                            
Balance at                                                                  
 December 31,                                                               
 2012          $342,285 $ 4,080 $ 7,476 $(7,818) $ (132) $ 30,139  $376,030 
----------------------------------------------------------------------------
----------------------------------------------------------------------------
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 months and year ended December 31, 2012 and 2011 (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 months and year ended December 31, 2012 comprise the Company
and its subsidiaries. The consolidated financial statements of the Company as
at and for the year ended December 31, 2011 are available on www.sedar.com. 

2. Statement of Compliance: 

(a) Statement of compliance:

These condensed consolidated interim financial statements, including
comparatives, have been prepared in accordance with IAS 34 Interim Financial
Reporting using accounting policies consistent with the International
Financial Reporting Standards ("IFRS") issued by the International Accounting
Standards Board ("IASB") and Interpretations of the International Financial
Reporting Interpretations Committee ("IFRIC"). These condensed consolidated
interim financial statements were approved by the Board of Directors on
February 14, 2013. 

(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. 

The functional and presentation currency of the parent company is Canadian
dollars. 

3. Significant accounting policies:

These condensed consolidated interim financial statements have been prepared
using the significant accounting policies and methods of computation
consistent with those applied in the Company's December 31, 2011 annual
consolidated financial statements, except for the accounting policy adopted
subsequent to that date, as discussed below. 

(a) Change in accounting policy:

The Company uses derivative forward foreign exchange contracts which are
designated as at fair value through profit or loss and are carried on the
Statement of Financial Position at fair value. Previously, changes in fair
value were recorded as an adjustment to Sales in Net earnings. Effective
January 1, 2012, the Company changed its accounting policy to align with the
presentation adopted by companies in its peer group and changes in fair value
are now recorded in Other foreign exchange gain (loss) in Net earnings.

The policy has been applied on a retrospective basis and comparative
information has been restated. The following changes to historical financial
statements have been made to reflect the new policy: 



----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                               As                           
                                       previously                           
                                         reported   Adjustment     Restated 
----------------------------------------------------------------------------
For the three months ended December                                         
 31, 2011                                                                   
  Sales                               $   189,952  $    (1,262) $   188,690 
  Other foreign exchange gain (loss)         (127)       1,262        1,135 
                                                                            
For the year ended December 31, 2011                                        
  Sales                               $   758,016  $       229  $   758,245 
  Other foreign exchange gain (loss)          204         (229)         (25)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
There are no changes to previously issued Statements of Financial Position  
as a result of this change in accounting policy.                            



(b) New standards and interpretations not yet adopted: 

The IASB periodically issues new standards and amendments or interpretations
to existing standards. The following new pronouncements are those that the
Company considers most significant and are not intended to be a complete list
of new pronouncements that may affect the financial statements. 

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. This standard is in effect for accounting
periods beginning on or after January 1, 2015, with earlier adoption
permitted. The Company does not expect this standard to have a significant
effect on its financial statements. 

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.  

Application of this standard will also impact the calculation of finance
costs, resulting in an increase to Production expense in the Statement of
Earnings, which will be fully offset by an increase in Defined benefit plan
actuarial gains (losses) in the Statement of Comprehensive Income. Prior to
this standard, the impact of defined benefit plans on Net earnings included an
interest cost on the obligation using the discount rate (based on current bond
yields), and a credit on the plan assets using the expected rate of return
(based on long term expected bond and equity returns). Under the new standard,
the credit on plan assets will no longer recognize the equity risk premium and
will be based on the discount rate only. 

This standard is in effect for accounting periods beginning on or after
January 1, 2013. 

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. 

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. Inventories:                                                             
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                      Dec. 31,      Dec. 31,
                                                          2012          2011
----------------------------------------------------------------------------
                                                                            
Logs                                             $      59,772 $      59,412
Lumber                                                  31,833        31,729
Other                                                    6,419         6,504
----------------------------------------------------------------------------
                                                 $      98,024 $      97,645
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Inventory expensed in the period includes production costs, amortization of 
plant and equipment, and depletion and amortization of timber and roads. The
inventory writedown in order to record inventory at the lower of cost and   
net realizable value at December 31, 2012 was $7,050,000 (December 31, 2011 
- $10,006,000).                                                             
                                                                            
6. Cash and borrowings:                                                     
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                        Revolving           
                                             Operating       Term           
December 31, 2012                                 Line       Line      Total
----------------------------------------------------------------------------
                                                                            
Available line of credit                    $   65,000 $  200,000 $  265,000
Maximum borrowing available                     65,000    200,000    265,000
Drawings                                             -    135,046    135,046
Outstanding letters of credit included in                                   
 line utilization                                5,190          -      5,190
Unused portion of line                          59,810     64,954    124,764
----------------------------------------------------------------------------
----------------------------------------------------------------------------
December 31, 2011                                                           
----------------------------------------------------------------------------
                                                                            
Available line of credit                    $   65,000 $  200,000 $  265,000
Maximum borrowing available                     65,000    200,000    265,000
Drawings                                             -    110,713    110,713
Outstanding letters of credit included in                                   
 line utilization                                5,062          -      5,062
Unused portion of line                          59,938     89,287    149,225
----------------------------------------------------------------------------
----------------------------------------------------------------------------



(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 EBITDA1.  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 December 31, 2012 other than outstanding
letters of credit included in the line utilization the Operating Line was
undrawn (December 31, 2011 - $nil).

The maturity date of the Operating Line is July 28, 2015. See also Note 16(b).

(b) Long-term debt:

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 fin ancial 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. The
maturity date of the Revolving Term Line is July 28, 2015. See also Note
16(b).

As at December 31, 2012, the Revolving Term Line was drawn by US$30,200,000
(December 31, 2011 - US$30,200,000) revalued at the year-end exchange rate to
$30,046,000 (December 31, 2011 - $30,713,000), and $105,000,000 (December 31,
2011 - $80,000,000) for total drawings of $135,046,000 (December 31, 2011 -
$110,713,000).

The US$30,200,000 drawing under the Revolving Term Line has been designated as
a hedge against the Company's investment in its U.S. operations and unrealized
foreign exchange gains of $667,000 for the year ended December 31, 2012
(December 31, 2011 - $676,000 loss) arising on revaluation of the
Non-Revolving Term Line were recognized in Foreign exchange translation
differences in Other comprehensive income. For the fourth quarter, 2012 the
unrealized foreign exchange loss of $353,000 (Quarter 4, 2011 - $942,000 gain)
was recognized in Other comprehensive income.

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



----------------------------------------------------------------------------
----------------------------------------------------------------------------
Twelve months ending                                                        
  Dec. 31, 2013                                                     $      -
  Dec. 31, 2014                                                            -
  Dec. 31, 2015                                                      135,046
  Dec. 31, 2016                                                            -
  Dec. 31, 2017                                                            -
----------------------------------------------------------------------------
                                                                   $ 135,046
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) EBITDA represents earnings before interest, taxes, depreciation,        
depletion and amortization.                                                 



(c) Cash and cash equivalents

At December 31, 2012 Company's cash balances are restricted by $652,000 for
contractor holdbacks (December 31, 2011 - $134,000 for subsidiary's
outstanding letters of credit). 

7. Share capital:

The transactions in share capital are described below: 



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                                                Number                      
                                   --------------------------------         
                                       Class A   Class B      Total   Amount
----------------------------------------------------------------------------
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   55,553
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Balance, December 31, 2011 and                                              
 December 31, 2012                  54,847,176 1,015,779 55,862,955 $346,365
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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.                                               



8. Depreciation, depletion and amortization: 

Depreciation, depletion and amortization can be allocated by function as
follows: 



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----------------------------------------------------------------------------
                                3 Months    3 Months  Year ended  Year ended
                                Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                                    2012        2011        2012        2011
----------------------------------------------------------------------------
                                                                            
Production                   $    14,848 $    12,722 $    51,471 $    50,644
Selling and administration           245         237         922         910
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                             $    15,093 $    12,959 $    52,393 $    51,554
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----------------------------------------------------------------------------



9.  Restructuring costs:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
                            3 Months     3 Months   Year ended   Year ended 
                            Dec. 31,     Dec. 31,     Dec. 31,     Dec. 31, 
                                2012         2011         2012         2011 
----------------------------------------------------------------------------
                                                                            
Severance costs                                                             
 (recovery)              $       339  $      (104) $       724  $       265 
Plant, equipment and                                                        
 road impairments                                                           
 (reversal)                       35            -          164         (423)
Contractor buyout                  -            -            -          840 
Other recovery                   (91)           -         (359)        (102)
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                         $       283  $      (104) $       529  $       580 
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----------------------------------------------------------------------------



Restructuring costs of $285,000 in the second quarter, 2012 resulted from the
early retirement of hourly workers. In addition, the cancellation of a cutting
permit gave rise to a recovery of previously accrued restructuring of $268,000
in the second quarter, 2012, partially offsetting a $129,000 impairment of
related road infrastructure, and augmented by an additional cutting permit
cancellation in the fourth quarter, 2012 generating a $91,000 recovery,
partially offset by a $35,000 impairment of related road infrastructure.

Restructuring costs of $339,000 and $100,000 for severance were recorded in
the fourth and third quarters, 2012 respectively, as the Company embarked on
its "Achieving Excellence" program.

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.

10. Finance costs:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                3 Months    3 Months  Year ended  Year ended
                                Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                                    2012        2011        2012        2011
----------------------------------------------------------------------------
                                                                            
Interest on borrowing        $     1,278 $     1,120 $     5,221 $     5,608
Accretion expense                    100         132         454         707
Amortization of prepaid                                                     
 finance costs                       149          16         649         779
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                             $     1,527 $     1,268 $     6,324 $     7,094
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----------------------------------------------------------------------------



11. Other income: 



----------------------------------------------------------------------------
----------------------------------------------------------------------------
                              3 Months     3 Months   Year ended  Year ended
                              Dec. 31,     Dec. 31,     Dec. 31,    Dec. 31,
                                  2012         2011         2012        2011
----------------------------------------------------------------------------
                                                                            
Gain (loss) on disposal of                                                  
 surplus equipment,        $        (5) $       (44)$        309$        184
 licences, and roads                                                        
Gain on lumber futures                                                      
 trading                             -           (1)          25         187
Other                                -            -            -           -
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                           $        (5) $       (45)$        334$        371
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----------------------------------------------------------------------------



12. Net earnings (loss) per share:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
                       3 Months Dec. 31, 2012       3 Months Dec. 31, 2011  
                     --------------------------- -------------------------- 
                               Weighted                    Weighted         
                                Average                     Average         
                              Number of     Per       Net Number of     Per 
                     Net loss    Shares   share      loss    Shares   share 
----------------------------------------------------------------------------
                                                                            
Basic and diluted                                                           
 loss per share       $(3,629)   55,863 $ (0.06)  $(6,467)   55,863 $ (0.12)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                   Year ended Dec. 31, 2012       Year ended Dec. 31, 2011  
                 -----------------------------  ----------------------------
                             Weighted                      Weighted         
                              Average                       Average         
                            Number of     Per       Net   Number of     Per 
                 Net loss      Shares   share      loss      Shares   share 
----------------------------------------------------------------------------
                                                                            
Basic and diluted                                                           
 loss per share   $(8,706)     55,863 $ (0.16) $(13,453)     53,611 $ (0.25)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



13. 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. 

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



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----------------------------------------------------------------------------
                                3 Months    3 Months  Year ended  Year ended
                                Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                                    2012        2011        2012        2011
----------------------------------------------------------------------------
                                                                            
Canada                       $    51,496 $    57,691 $   234,750 $   214,876
United States                    100,510      67,461     365,095     263,395
China/Taiwan                      31,712      27,030     103,982     137,421
Japan                             28,460      26,978     105,952      98,088
Other export                      10,222       9,530      39,417      44,465
----------------------------------------------------------------------------
                             $   222,400 $   188,690 $   849,196 $   758,245
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                                                            
Sales by product line are as follows:                                       
----------------------------------------------------------------------------
----------------------------------------------------------------------------
                                3 Months    3 Months  Year ended  Year ended
                                Dec. 31,    Dec. 31,    Dec. 31,    Dec. 31,
                                    2012        2011        2012        2011
----------------------------------------------------------------------------
                                                                            
Lumber                       $   173,344 $   133,635 $   631,238 $   538,367
Logs                              24,515      22,940     113,902     108,413
Wood chips and other by                                                     
 products                         15,849      17,538      69,376      68,355
Ocean freight and other            8,692      14,577      34,680      43,110
----------------------------------------------------------------------------
                             $   222,400 $   188,690 $   849,196 $   758,245
----------------------------------------------------------------------------
----------------------------------------------------------------------------



14. 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 changes in 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 December 31, 2012, the Company has outstanding foreign currency forward
contract obligations to sell a maximum of US$2,725,000 at an average rate of
CAD$0.99894 to the US$1.00, call option obligations to sell a maximum of
US$3,000,000 at a rate of CAD$1.01 to the US$1.00 and put option obligations
to buy a maximum of CAD$6,060,000 at a rate of CAD$1.01 to the US$1.00 during
2013. All foreign currency gains or losses to December 31, 2012 have been
recognized in Other foreign exchange gain (loss) in Net earnings and the fair
value of these foreign currency contracts, being an asset of $134,000
(measured based on Level 2 of the fair value hierarchy), has been recorded in
Trade accounts receivable and other (December 31, 2011 - $283,000 asset
recorded in Trade accounts receivable and other measured based on Level 2 of
the fair value hierarchy). 

On August 25, 2011, the Company entered into two interest rate swaps, each
with a 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
December 31, 2012, being a liability of $133,000 (measured based on Level 2 of
the fair value hierarchy), has been recorded in Trade accounts payable and
accrued liabilities (December 31, 2011 - $503,000 liability recorded in Trade
accounts payable and accrued liabilities measured based on Level 2 of the fair
value hierarchy) and a gain of $371,000 (December 31, 2011 - $503,000 loss)
has been recognized in Other comprehensive income for the year ending December
31, 2012. For the fourth quarter, 2012 a gain of $90,000 (Quarter 4, 2011 -
$3,000 loss) was recognized in Other comprehensive income. 

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 December 31, 2012 there were no
outstanding lumber futures contracts and a gain of $25,000 was recognized in
Other income (expense) on completed contracts for the year ended December 31,
2012 (December 31, 2011 - $187,000 gain). There were no lumber futures traded
in the fourth quarter, 2012 (Quarter 4, 2011 - $1,000 loss). 

15. Contingencies:

In April, 2012 the U.S. Lumber Coalition approached the U.S. Trade
Representative's office asserting that the B.C. government is undercharging
B.C. Coastal forest companies for timber harvested on Crown lands. As this
complaint is in the very preliminary stages of investigation, the existence of
any potential claim has not been determined and no provision has been recorded
in the financial statements as at December 31, 2012. 

16. Subsequent events: 

(a) Acquisitions: 

On January 21, 2013, the Company reached an agreement to acquire three
sawmills in Georgia, U.S.A. from Rayonier, Inc. ("Rayonier Acquisition") for
US$73,900,000 plus working capital. The transaction is scheduled to close on
March 1, 2013. 

(b) Bank financing:

On January 24, 2013, the Company obtained a financing commitment from its
lenders to increase and extend its syndicated credit facilities. The Revolving
Term Line will increase from $200,000,000 to $250,000,000, conditional upon
completion of the Rayonier Acquisition. The existing Operating Line remains
unchanged. The financing is scheduled to close on February 27, 2013 and have a
term of four years, extended from July 28, 2015. 

All other terms remain substantially unchanged except for a reduction in
pricing. 

On January 24, 2013, the Company obtained a financing commitment from a U.S.
lender for a US$20,000,000 Operating Line ("U.S. Line"). The U.S. Line will be
secured by accounts receivable and inventories of Interfor U.S. Inc. (formerly
Interfor Pacific Inc.), and have a term of two years. 



FOR FURTHER INFORMATION PLEASE CONTACT: 
International Forest Products Limited
John A. Horning
Senior Vice President and Chief Financial Officer
(604) 689-6800
(604) 688-0313 (FAX)
www.interfor.com