Interfor Annual Report 2010

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2010

Annual Report

Includes:

• Financial Highlights 2010

• Message to Shareholders

• Management Discussion and Analysis Dated February 9, 2011

• Consolidated Financial Statements

• Annual Information Form Dated February 9, 2011

International Forest Products Limited

FINANCIAL HIGHLIGHTS

2010

2009
(in millions of dollars,
except share and per share amounts)

2008

Financial Summary
Sales
EBITDA (1)
Net earnings (loss)

Per Share Data
Net earnings (loss) per common share
- basic
- diluted
Price range per share
$ High
$ Low
Book value per share
Cash Flow per share before working capital change
Weighted average shares outstanding (millions)

Financial Position
Total assets
Total debt (2)
Total shareholders’ equity
Invested capital (1)

625.6
53.1
(3.9)

(0.08)
(0.08)

6.25
3.21
7.33
0.68
47.1

611.9
156.0
347.3
519.0

389.8
16.6
(23.9)

437.2
13.7
(55.4)

(0.51)
(0.51)

5.00
1.24
7.60
(0.46)
47.1

582.5
144.5
358.0
505.6

(1.18)
(1.18)

6.19
1.20
8.62
0.28
47.1

665.3
168.0
406.2
577.9

Financial Ratios (%)
Return on average shareholders’ equity (1)
Return on average invested capital, adjusted (1)
Net debt as a % of invested capital, adjusted (1)

(1.1%)
0.5%
29.7%

(6.3%)
(3.4%)
28.2%

(13.3%)
(10.3%)
29.2%

Notes:

1. See Glossary for definition.
2. Total debt, excluding short-term advances from the Seaboard partnership (2010 - $15.7m, 2009 - $3.1m, 2008 –

$3.7m)

“Business conditions in 2010 were much better than those in 2009. Interfor took advantage of
the opportunities presented to increase operating rates and to move forward with a number of
initiatives which we believe will serve the Company well in the years ahead.”

Message to Shareholders – March 2011

For further highlights, please see the Message to Shareholders and Management’s
Discussion and Analysis on the following pages.

International Forest Products Limited

MESSAGE TO SHAREHOLDERS

OVERVIEW

Business conditions in 2010 were much better than those in 2009. Interfor took advantage of the
opportunities presented to increase operating rates and to move forward with a number of initiatives
which we believe will serve the Company well in the years ahead.

Highlights for the year included:

• Production was up almost 70% versus 2009;

• The Company’s financial results were much improved;

• The Adams Lake sawmill ran well in excess of rated capacity and delivered outstanding

results;

• The Castlegar sawmill was re-commissioned in July and set new standards for

productivity and costs;

• Sales to China continued to ramp up;

• The Weyerhaeuser timber deal was finalized; and

• Our financing agreements were renewed and extended in January and again in August.

These steps, along with others taken in recent years, have added to Interfor’s position in the industry and
will make the company much stronger and profitable as markets recover.

I invite you to review the material covered in the next few pages and later in this report and to form your
own views on our progress. Please feel free to forward any comments you would like to make to me
directly at duncan.davies@interfor.com.

INCREASED PRODUCTION AND HIGHER COMMODITY PRICES CONTRIBUTE TO IMPROVED
FINANCIAL RESULTS

Interfor took advantage of its strong market position to increase production by almost 70% in 2010.

The Company’s performance in this area was well ahead of the industry’s results overall. In Canada,
production was up 13% year-over-year while the U.S. recorded an increase of 5% versus 2009.

Interfor increased production in each of its operating regions in 2010, most notably in the B.C. Interior
which benefitted from a full year of production at Adams Lake and Grand Forks and from the resumption
of activity at Castlegar in mid-year. For the year, Interfor produced 1.1 billion board feet compared to
660 million board feet in 2009.

By the 4th quarter, Interfor was operating at an annualized rate of 1.2 billion board feet, representing a
capacity utilization rate of about 75%.

The opportunity to increase production resulted from a number of factors including the strong
competitive position of our operations and from the growth of demand from outside North America,
particularly China.

Product prices responded accordingly in 2010. The Random Lengths’ Composite Index, which measures
pricing levels for a basket of products, increased from US$222 in 2009 to US$284 in 2010. More to the
point for West Coast producers, the commodity benchmark SPF 2x4 was up 41% in 2010 and Hem-Fir
studs were up 33% versus 2009.

These price increases helped to offset the impact of the stronger C$ which averaged US$0.971 in 2010
versus US$0.876 in 2009.

Not all product lines benefitted to the same extent as the key commodity items. Cedar -- which is
normally an important contributor to our results -- saw prices continue to drop after falling 20-30% last
year and the price of our key Japanese products were for all intents and purposes flat in 2010.

All together, the combination of higher production levels and stronger commodity prices contributed to
significantly better financial results in 2010 versus 2009. All-in, Interfor recorded a net loss (before one-
time items) of $3.1 million or $0.07 per share last year on sales of $626 million compared with a loss of
$33.7 million or $0.72 per share in 2009 on sales of $390 million. EBITDA, adjusted to exclude one-time
items, improved by $54.4 million year-over-year to $48.0 million.

Including a gain on the sale of certain assets and other one-time items, the Company’s net loss in 2010
was $3.9 million or $0.08 per share.

ADAMS LAKE DELIVERS OUTSTANDING RESULTS

The Adams Lake sawmill, which commenced full operations in April 2009, continued to perform well
above rated capacity in 2010 and delivered outstanding results.

The mill produced 339 million board feet in 2010, almost 10% above 2009 rated capacity, and almost
20% above the mill’s original proforma, operating on a two shift basis.

And, despite lumber prices that are well below those expected when the decision to rebuild the mill was
made, Adams Lake continues to generate returns very consistent with those anticipated.

We are delighted with the performance of Adams Lake and believe that the ability to design and execute
on major capital projects is one of the competitive attributes that distinguishes Interfor from many
companies in the industry.

We are currently looking at a number of small discretionary projects for Adams Lake which will further
enhance the mill’s competitive position. A secondary stacker was added late in the year and an
automated grading system is on the drawing board for the 2nd quarter of 2011.

CASTLEGAR RE-COMMISSIONED

Another significant achievement in 2010 was the re-commissioning of the Castlegar sawmill in July.

The Castlegar mill was acquired from Pope & Talbot, Inc. in April 2008 along with another mill in the B.C.
Southern Interior at Grand Forks. Both mills were high cost operations at the time of acquisition.

The Grand Forks mill resumed operations in late 2009 and has made a significant contribution to the
Company ever since.

However, as I reported to you last year, the situation at Castlegar was somewhat more difficult.

I can now report that a significant breakthrough was achieved at Castlegar in 2010.

A number of changes were made to the operating regime at the mill which in turn has contributed to
dramatically improved levels of productivity and costs.

The credit for these changes is due fully to the local management and crew who took control of their own
destiny by finding new and constructive ways to work together. Other local stakeholders also contributed
to the new spirit of cooperation at Castlegar.

So far, the results at Castlegar have been very encouraging. The mill has made a solid contribution to
our financial results since resuming operations and there is potential for further gains.

Looking back now, we feel very comfortable that the business opportunity we identified when the Grand
Forks and Castlegar mills were acquired is real. If anything, the opportunity may be even better than we
anticipated.

We’re currently looking at a number of discretionary investments in the area, including a major upgrade
to the Grand Forks sawmill, possibly in conjunction with a power plant that would utilize sawmill waste
and other forms of biomass, that could be very attractive long-term.

We hope to be in a position to announce our plans for the Grand Forks/Castlegar region in the next few
months.

SALES TO CHINA CONTINUE TO RAMP UP

Interfor has been working actively for a number of years to make in-roads into China. These efforts bore
fruit in 2010 as shipments to that market almost quadrupled last year to more than 220 million board
feet.

By the 4th quarter, sales to China had increased to the point where they represented a full 28% of
Interfor’s total shipments. And, significantly, more than 36% of our shipments to China in the 4th quarter
came from our U.S. operations.

For the year, shipments to China accounted for 20% of Interfor’s total sales compared to about 10% in
2009.

We continue to believe the Chinese market holds tremendous potential. The efforts of the B.C. and
Canadian governments and by the industry to promote North American construction technology and
products fits well with China’s rapidly growing housing requirements.

We remain committed to working with our industry counterparts and with the B.C. and Canadian
governments to develop the Chinese market and to growing our volumes to that market significantly in
the years ahead.

TIMBER PURCHASE FINALIZED

In mid-March last year we finalized the purchase of a timber tenure in the Kamloops region from
Weyerhaeuser Company Limited.

The tenure, which currently provides for an allowable cut of approximately 275,000 m3, strengthens the
long-term fibre supply for Adams Lake and helps to offset the potential impacts in future supply as a
result of the Mountain Pine Beetle infestation which is impacting timber supply in the B.C. Interior.

FINANCING AGREEMENTS EXTENDED; BALANCE SHEET REMAINS STRONG

Interfor renewed and extended its credit lines twice in 2010. In January, the Company’s operating and
term lines were extended to February 2011 and February 2012 respectively. In August, the two lines
were extended once again, this time to July 2012 and July 2013, with all other terms and conditions
remaining substantially the same except for a reduction in pricing.

At year-end, net debt amounted to $147 million or 30% of invested capital.

With the credit lines we have in place and our strong balance sheet, Interfor is well-positioned to
withstand any future issue or disruptions which may arise as markets recover.

MARKETING GROUPS REORGANIZED; NEW “LOOK” DEVELOPED

In December, we announced the amalgamation of our Cedar and Whitewood Marketing Groups into one
entity under the direction of Steven Hofer, who was subsequently appointed Vice-President, Sales &
Marketing.

The reorganization of our sales groups is a key element of our plan to fully leverage our size and product
line capabilities in the marketplace.

In addition, in 2011, we will be adopting a new, modern identity under a redesigned Interfor brand
replacing the existing Interfor, Adams Lake, Interfor Pacific and Cedarprime labels.

We are excited about the new “look” and look forward to using it to build the Company’s presence in the
marketplace and to support future growth.

CHALLENGES REMAIN; FOCUS REMAINS INTACT

While business conditions are better than a year ago, we are not out of the woods yet. The U.S. housing
market has been slow to recover, the Cedar business is struggling, and log markets in the U.S. are under
pressure.

In the face of these challenges we intend to maintain the same disciplined approach to managing our
business that has served us well over the last number of years.

We will focus on those items that will help position Interfor to deliver above average returns on capital
invested as markets renew.

We remain convinced we are on the right track and look forward to making good progress in 2011.

Thank you for your patience and support.

Duncan K. Davies
President and Chief Executive Officer
March 3, 2011

International Forest Products Limited

MANAGEMENT DISCUSSION AND ANALYSIS

Dated as of February 9, 2011

This Management’s Discussion and Analysis (“MD&A”) provides a review of Interfor’s financial performance for the year
ended December 31, 2010 relative to 2009, the Company’s financial condition and future prospects. The MD&A should
be read in conjunction with Interfor’s Annual Information Form and Consolidated Financial Statements for the years
ended December 31, 2010 and 2009 filed on SEDAR at www.sedar.com. The financial information contained in this
MD&A has been prepared in accordance with Canadian generally accepted accounting principles (“GAAP”). In this
MD&A, reference is made to EBITDA and Adjusted EBITDA. EBITDA represents earnings before interest, taxes,
depletion, amortization, restructuring costs, other foreign exchange gains and losses, and write-downs of plant and
equipment (“asset write-downs”). Adjusted EBITDA represents EBITDA adjusted for other income (expense) and other
income of the investee company. The Company discloses EBITDA as it is a measure used by analysts and Interfor’s
management to evaluate the Company's performance. As EBITDA is 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.

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

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

FORWARD LOOKING 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 of 2010”, “Strong
Financial Position”, “Income Taxes”, “Financing Activities”, “Liquidity and Capital Resources”, and “Summary
of Contractual Obligations”; 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 the U.S. and Canada,
as well as other factors management believes are appropriate in the circumstances including an assessment
of risks as described under “Risks and Uncertainties”. 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 in this 2010 annual Management’s
Discussion and Analysis under “Risks and Uncertainties” 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.

OVERVIEW OF 2010

Interfor’s results for 2010 were dramatically better than 2009. Growth in export markets, particularly China,
provided an alternative to U.S. markets adding upward pressure on North American pricing. This resulted in
higher sales values and supported increased operating rates.

Accomplishments in 2010 include:

•

the development of lumber and log export markets to take advantage of increasing demand from China;

increased operating rates, particularly in the B.C. Interior supported by increased demand from export
markets as well as improved demand in North American markets;

• marked improvements to the cost structure at the Castlegar sawmill through changes in the operating

configuration which allowed the mill to restart and contribute to 2010 earnings;

•

the acquisition of a timber tenure in the Kamloops region from Weyerhaeuser Company Limited which
added increased fibre for the Adams Lake sawmill;

•

a return to positive operating earnings in the fourth quarter, 2010 for the first time since 2006; and

an increase of $16.2 million in positive cash flow from operations, after working capital changes, and an
improvement of $54.4 million in Adjusted EBITDA over 2009.

The challenges of 2009 persisted into 2010, but to a lesser degree. 2010 continued to be impacted by slow
North American lumber demand as recovery in the U.S. housing market leveled off. Ongoing high
unemployment, foreclosures and an oversupply of homes in the U.S. weighed on the housing sector, but
government spending incentives, a slight uptick in housing starts and minimal ending inventories in 2009
caused an increase in demand in the first half of 2010. The pace of improvement eased mid-year for the
balance of 2010.

In an effort to lessen reliance on a sluggish U.S. housing market, the Company shifted its focus to the Asian
markets where demand for commodities is expected to remain strong. The impact of an industry-wide
redirection of wood products to fast-growing emerging markets, particularly China, has had a dual benefit.
In addition to finding replacement markets for the lost volume previously consumed by the U.S. the strong
export markets have caused a reduction in supply available to the North American market resulting in
improved lumber prices through the final months of 2010.

A downside to the Chinese demand for logs and lumber is that holders of timber in the U.S. Pacific
Northwest have expanded their log exports to Chinese sawmills. Strong export markets have caused sawlog
prices in the U.S. Pacific Northwest to increase for Interfor’s U.S. mills who source their fibre through
purchase and timber sale agreements.

Results year-over-year have also been impacted by the strengthened Canadian dollar which, relative to its
U.S. counterpart appreciated by almost ten percent on average for 2010 compared to 2009.

Interfor continued to benefit from its diversified product lines and markets, focus on effective cash
management and cost control, and investment in core assets. The Company continues to look for
opportunities to maximize shareholder value, including acquisition of full control over Seaboard Shipping
Company Limited (“Seaboard”) to ensure access to timely off-shore transportation and the exploration of the
biomass energy sector. A brief overview of the more significant developments in 2010 is presented below.

Markets and Pricing

Lumber

• Structural Lumber

The North American lumber industry continues to be affected by poor U.S. housing starts and a U.S.
housing market that is challenged by a supply/demand imbalance. Industry-wide production
curtailments in place for most of 2009 continued into early 2010 to balance output with demand levels.
As a result, inventory levels were drawn down significantly, leaving inadequate inventory in the supply
chain to meet any increases in demand. Consequently, when demand improved at the start of 2010
with government spending incentives, a slight upward movement in U.S. housing starts and the
restocking of inventories, production fell short of consumption. During the same period off-shore
demand increased, particularly from China, putting even more pressure on the demand for product. The
lagged ability of producers to ramp up supply resulted in a dramatic and rapid surge in lumber prices in
the first four months of 2010.

U.S. prices peaked in April, 2010, but as homebuyer’s tax incentives in the U.S. were withdrawn and as
output rose, production quickly outpaced demand bringing the market back into a position of excess
supply. Lumber prices fell sharply, particularly as economic indicators in the U.S. showed signs of slower
growth.

In mid-2010 prices stabilized with production curtailments again providing a balance between
supply/demand. Offshore demand also improved and production was redirected to export markets,
particularly those in the Pacific Rim. Reliance on U.S. markets edged down as shipments to China
helped offset slower U.S. demand and influenced price increases in both North American and export
markets. The average US$ price for Western SPF 2x4 #2&Btr for 2010 was US$74 per mfbm higher
than 2009 and ended the last week of December 2010 at an average US$308 per mfbm.

US HOUSING STARTS
Units: Millions

US TOTAL HOME INVENTORY
Units: For sale at end of period

1.50

1.00

0.50

0.00

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2008 2009 2010

5,000

4,500

4,000

3,500

BENCHMARK PRICE TRENDS
Western SPF (2 X 4 #2&Btr)
Units: US$ / Mfbm

350

250

150

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010

Source: Random Lengths, used with permission

Interfor Shipment Volumes to US and China

China

m
b
f
M

150,000

125,000

100,000

75,000

50,000

25,000

2009 2010

• Cedar

Demand for cedar products weakened significantly in 2009 due to poor North American demand. This
resulted in lower prices on North American product lines which did not recover in 2010. The year-over-
year average price for knotty Western Red Cedar 2x6 decreased by US$21 per mfbm with a sharp
decline from a January 2009 high of $US1,127 per mfbm to US$1,000 per mfbm in June 2009. Prices
languished at these levels through 2010.

BENCHMARK PRICE TRENDS
CEDAR (WRC 2 X 6 RL KD)
Units: US$ / Mfbm

1150

1100

1050

1000

950

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

Source: Random Lengths, used with permission

•

Japan

Continued stable economic conditions and the strength of the Yen relative to the US$ supported prices
for the Company’s products in Japan. Housing starts continued to show improvement in 2010 but a
significant increase in the global supply of lumber for Japan resulted in stagnant lumber prices.
Compared to 2009, the average 2010 price for Hemlock Square 4-1/8”, as reported by Random Lengths,
was flat at US$775 per mfbm through most of 2009 and 2010.

BENCHMARK PRICE TRENDS
HEMLOCK (Sq 4-1/8" 13' JP)
Units: US$ / Mfbm

800

775

750

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010

Source: Random Lengths, used with permission

Logs and Residuals

Log sales revenue improved 32.0% compared to 2009 with average prices attained in both Canadian and
export log markets higher by $7 per cubic metre and an improvement of 17.6% in sales volumes over 2009.
Compared to 2009, pulp chip and other by-product revenues for 2010 increased 63.7% year over year as
higher sales volumes were available with higher sawmill operating rates, particularly in the B.C. Interior.

Volatility of the Canadian Dollar

The Canadian dollar (“CAD$”) strengthened steadily against the US$ over the final three quarters of 2009
and through 2010, ending the year at CAD$0.995 per US$1.00, up 5.7% from the end of 2009. Year-over-
year, the average CAD$ was stronger at $1.030 for 2010 compared to $1.142 in 2009.

The significance of the volatility of the CAD$ on Canadian lumber producers’ sales realizations is highlighted
in the following chart, which shows the average US$ price and CAD$ equivalent of a thousand board feet of
Western SPF 2x4 #2&Btr for the period 2005 through 2010.

m
b
f
M

/
s
r
a

l
l

o
D

650

600

550

500

450

400

350

300

250

200

150

Impact of CAD$ on Sales Realizations
Western SPF (2 X 4 #2&Btr)
(Source: Random Lengths and Bank of Canada)

CAD equivalent $/Mfbm

US $/Mfbm

Spot $CAD per US$1.00

US$ / Mfbm

2005

2006

2007

2008

2009

2010

Monthly Average

$
D
A
C

:
$
S
U
t
o
p
S

1.60

1.50

1.40

1.30

1.20

1.10

1.00

0.90

0.80

Export Tax

As a result of the Softwood Lumber Agreement (“SLA”) implemented by the federal governments of Canada
and the United States on October 12, 2006, Canadian softwood lumber exporters pay an export charge
when the price of lumber is at or below US$355 per mfbm, as determined by the framing lumber composite
price (“RLCI”) produced by Random Lengths Publications Incorporated. The Province of B.C. has the right to
choose between an export charge only (“Option A”) or a lower export charge with a quota (“Option B”). The
Province of B.C. chose Option A for both the B.C. Coast and the B.C. Interior which results in the Company’s
Canadian lumber exports to the United States being subject to the following taxes:

Price (1)
Over US $355

US $336 - $355

US $316 - $335

US $315 or under
(1) Based on the prevailing RLCI

Export Tax (%)
Nil

As a result of higher commodity lumber prices in early 2010, the export tax paid under the SLA declined in
2010 for the first time since the implementation of the agreement in October 2006, though the decline was
short-lived. As the prevailing RLCI moved through the various thresholds, the Option A export charge
decreased from 15% to 10% in the month of May 2010 and no export tax was charged on U.S. shipments
from Canada in June 2010. Price declines resulted in a 10% export tax in July 2010, and further declines
resulted in a return to the 15% export tax level for the balance of 2010.

The Option A export charge was 15% throughout 2009.

Purchase of Kamloops Timber Tenure

On March 15, 2010, the Company completed the acquisition of a timber tenure in the Kamloops region from
Weyerhaeuser Company Limited following an extended period of regulatory review. The tenure represents
an Allowable Annual Cut (“AAC”) of approximately 275,000 cubic metres and strengthens the Company’s
long term timber supply for the new Adams Lake sawmill helping to offset anticipated declines in future
supply as a result of the Mountain Pine Beetle infestation.

Softwood Lumber Agreement Arbitration

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

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

While the arbitration process is ongoing, export tax will continue to apply on all shipments of B.C. lumber to
the U.S.

As the U.S. arbitration request is still in preliminary stages the existence of any potential claim has not been
determined and no provision has been recorded in the financial statements as at December 31, 2010.

Strong Financial Position

The Company maintained a strong financial position throughout 2010, ending the year with net debt of
$146.7 million or 29.7% of invested capital. Cash flow from operations, after working capital changes, for
the year was positive $21.0 million. In the fourth quarter of 2010, operating earnings returned to positive
levels for the first time in over four years. Adjusted EBITDA at $48.0 million improved considerably from
2009.

On January 15, 2010 the Company amended and extended its existing syndicated credit facilities. The
Company’s Operating Line was extended to February 28, 2011 and the Revolving Term Line increased from
$150 million to $200 million, and its maturity date was extended to February 28, 2012. All other terms and
conditions of the lines remained substantially unchanged.

In conjunction with the amendments to its credit facilities on January 15, 2010 the Company drew US$35.0
million ($35.8 million) on its Revolving Term Line and repaid and cancelled its U.S. dollar non-revolving term
line (the “Non-Revolving Term Line”).

On August 19, 2010, the Company further amended and extended its syndicated credit facilities. The
maturity date of the Operating Line was extended from February 28, 2011 to July 28, 2012 and the maturity
date of the Revolving Term Line was extended from February 28, 2012 to July 28, 2013. All other terms and
conditions of the lines remain substantially unchanged except for a reduction in pricing.

At December 31, 2010 the Company had unused available credit and cash of $113.5 million.

The slow pace of US housing starts continues to colour the near term outlook and despite the shift to Asian
markets the U.S. continues to be the largest consumer of our products. The expansion to off-shore markets,
however, has driven positive results with increased pricing in both North American and off-shore markets
and the Company remains committed to maintaining these customer relationships on a long-term basis.

Currency exchange rates have continued their volatility into 2010 and the Canadian dollar is expected to
remain strong relative to its U.S. counterpart for the foreseeable future. Although we continue to balance
production against sales and maintain our focus on cost containment, we are actively planning to take
advantage of opportunities and the upturn in North American markets when it comes.

REVIEW OF OPERATING RESULTS

Selected Annual Financial Information

Sales –Lumber
–Logs
–Wood chips and other by-products
–Other
Total Sales
Operating earnings (loss) before U.S. duty refunds, net,

restructuring costs and asset write-downs

Operating earnings (loss)
Net earnings (loss)
Net earnings (loss) per share – basic
Net earnings (loss) per share – diluted
EBITDA5
Adjusted EBITDA5
Cash flow from operations per share2
Shares outstanding
– weighted average (millions)
Average foreign exchange rate per US$1.004
Closing foreign exchange rate per US$1.004

– end of period (millions)3

2010

2009

2008

2007

2006

(millions of dollars except share, per share and
foreign exchange rate amounts)
434.5
297.4
288.6
118.6
103.6
60.4
50.2
30.6
34.3
5.6
6.4
7.7
611.0
437.2
389.8

482.0
79.8
56.2
7.7
625.6

625.6
103.2
41.9
53.7
824.4

(5.4)

(46.5)

(33.5)

(25.1)

15.4

(7.0)
(3.9)
(0.08)
(0.08)
53.1
48.0
0.68
47.4
47.1
1.0303
0.9946

(50.8)
(23.9)
(0.51)
(0.51)
16.6
(6.4)
(0.46)
47.1
47.1
1.1420
1.0510

(68.4)
(55.4)
(1.18)
(1.18)
13.7
12.3
0.28
47.1
47.1

(27.1)
(13.3)
(0.28)
(0.28)
30.8
24.8
0.51
47.1
47.6
1.0660 1.0750
1.2180 0.9913

104.7
96.2
1.98
1.96
185.7
68.6
2.95
48.1
48.5
1.1341
1.1654

1
2
3

4
5

Tables may not add due to rounding.
Cash generated from (used in) operations before taking account of changes in operating working capital.
As at February 9, 2011, the numbers of shares outstanding by class are: Class A Subordinate Voting shares – 46,374,676 Class B
Common shares – 1,015,779, Total – 47,390,455.
Rates are based on Bank of Canada closing foreign exchange rates per US$1.00.
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 net U.S. duty refunds, other income and other income of the investee company.

EBITDA and Adjusted EBITDA can be calculated from the statements of operations as follows:

Net earnings (loss)
Add: Income taxes (recovery)
Net interest (income) expense

Interest income on U.S. duty refunds, net of special charge

Depletion and amortization
Other foreign exchange (gains) losses
Restructuring costs, asset write-downs and other
EBITDA
Deduct:
U.S. duty refunds, net
Other income
Other income of investee company
Adjusted EBITDA

2010

2009

2008

2007

2006

(millions of dollars)

$(3.9)
(0.5)
8.5
-
47.1
0.3
1.6
53.1

$(23.9)
(9.9)
7.8
-
38.2
-
4.4
16.6

-
-
5.2
$48.0

-
23.0

$(6.4)

$(55.4)
(11.0)
5.1
-
41.0
(0.9)
34.9
13.7

-
1.4
-
$12.3

$(13.3)
(13.6)
(1.3)
-
49.7
7.3
2.0
30.8

-
6.0
-
$24.8

$96.2
42.5
3.4
(12.7)
51.0
(2.3)
7.6
185.7

96.9
20.2
-
$68.6

Volume and Price Statistics

(million fbm)

Lumber sales
Lumber production1
Log sales2
Log production2
Average selling price – lumber3
Average selling price – logs2
Average selling price – pulp chips ($/thousand fbm)

($/thousand fbm)

($/cubic metre)

(thousand cubic metres)

2010

2009

2008

2007

2006

1,132
1,110
1,081
2,661
$426
$67
$40

668
661
919
1,295
$432
$61
$40

503
498
1,319
1,881
$591
$74
$49

870
856
1,223
1,767
$499
$95
$49

1,172
1,165
1,190
2,381
$534
$86
$33

Excludes lumber produced on a custom cutting basis for customers who have previously purchased the logs

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

Comparison of Year ended December 31, 2010 to Year ended December 31, 2009

Interfor recorded a net loss of $3.9 million, or $0.08 per share for 2010, as compared to a net loss of $23.9
million, or $0.51 per share in 2009.

Included in 2010 results is an equity income inclusion of $6.1 million for a gain on disposal of capital assets
by the investee, a valuation charge of $4.1 million against future tax assets, and other one-time items.

Included in 2009 results are an after-tax gain on the sale of the former Queensboro sawmill site of $19.0
million, a valuation charge of $7.4 million against future tax assets, and other one-time items.

Before restructuring costs, foreign exchange gains (losses), other one-time items and a tax valuation
allowance (refer to Income Taxes), the Company’s net loss for 2010 was $3.1 million after-tax, or $0.07 per
share, as compared to a loss of $33.7 million after-tax, or $0.72 per share in 2009.

EBITDA and Adjusted EBITDA for 2010 were $53.1 million and $48.0 million, respectively, compared to
$16.6 million and negative $6.4 million for 2009.

Sales

Total sales revenues were $625.6 million in 2010, an improvement of $235.8 million over 2009.

Lumber shipments improved by 464 million board feet in 2010 reflecting the addition of production from
Adams Lake, the recommenced operations at Grand Forks and Castlegar sawmills and higher operating rates
at the Company’s U.S. sawmills. There continues to be a significant shift in markets as strong growth in the
China markets helps to offset slower demand in the U.S. For 2010, excluding wholesale programs,
shipments to the U.S. accounted for 50% of total lumber shipments, a decline of 10% over 2009 with
shipments redirected to China which grew by 11% to 20% of total lumber shipments.

Unit lumber sales values declined by $6 per mfbm resulting from the sizeable shift in sales mix towards
North American structural lumber products and lower value products destined for the Pacific Rim and away
from high value cedar and Japan products, particularly with the substantial volumes added by the Adams
Lake sawmill. The shift in sales mix more than offset the impact of significantly improved North American
structural lumber product prices on the Company’s average unit sales price. A stronger Canadian dollar also
negatively impacted sales values for products priced in $US.

Log sales increased by $19.3 million or 32.0% in 2010 over 2009 with higher sales values attained in both
Canadian and export log markets. This was evidenced by improvements of $7 per cubic metre in the
average overall sales price for logs sold by Canadian divisions in 2010 as fir and pulp values moved up and
pulp fibre made up a lesser percentage of sales. In addition, Canadian log sales volumes grew by 162,000
cubic metres, or 17.6%.

Compared to 2009, pulp chip and other by-product revenues for 2010 were up $21.9 million, a reflection of
higher sawmill operating rates. Overall 2010 average chip prices remained constant as compared to 2009,
with improvements on the B.C. Coast which are tied to pulp prices offset by a slight decline in the U.S. and
amplified by the negative impact of the stronger Canadian dollar.

Operating Costs

Production costs for 2010 increased $182.6 million, or 48.8% over 2009. Comparative production volumes
and related costs for 2009 were extremely low as a result of significant market related curtailments in
manufacturing and logging, and the curtailment of the Adams Lake sawmill in the first several months of
2009, during the final stages of its rebuild. Lumber production increased by 449 million board feet for 2010
compared to 2009, with most of this increase driven by the B.C. Interior sawmills. The ramp-up of the new
Adams Lake sawmill and cost improvements at the Grand Forks and Castlegar sawmills resulted in sizeable
increases in operating rates over 2009.

Compared to 2009, B.C. log production grew by 1.4 million cubic metres in 2010. To match production to
consumption and reduce inventories, log production had been dramatically curtailed in 2009. Increased fibre
consumption resulting from improved operating rates in 2010, the acquisition of additional timber tenures,
and improved supply/demand balances led to increased log production on the B.C. Coast and particularly in
the B.C. Interior regions. Increased harvesting through higher cost heli-logging on the B.C. Coast
contributed to higher logging unit costs in 2010 as the percentage of heli-logged volumes almost doubled
those in 2009 to 22% of total log production on the B.C. Coast.

Manufacturing unit cash conversion costs declined by 17.6% in 2010 compared to 2009 primarily as a result
of the substantial increase in operating rates and improved cost structures in the B.C. Interior sawmills. For
U.S. operations costs were further improved by a stronger Canadian dollar. Sizeable increases in fibre costs
in the U.S. Pacific Northwest sawmills, however, served to partially offset the benefits of improved cash
conversion costs as fibre supply remains tight.

The export tax paid under the SLA for 2010 increased by $3.5 million or almost double that of 2009 and
resulted from an increase of 135 million board feet in Canadian shipments to the U.S. or 2.7 times the
volumes shipped in 2009. 2010 export taxes were also impacted by changing rates through 2010 as
commodity lumber prices met certain thresholds during the year and reduced the tax from its maximum of
15% to a low of zero for the month of June 2010. Declines in export tax rates were short-lived, however,
and most shipments attracted a rate of 15%.

As the export tax is based on U.S. dollars, the increased expense in 2010 was mitigated by the stronger
Canadian dollar in comparison to 2009.

Selling and administration costs in 2010 increased by $1.1 million as compared to 2009, arising primarily
from increased corporate development expenditures. Long-term incentive compensation (“LTIC”), which is
impacted by the Company’s share price, the number of grants made under the various plans and vesting
periods, showed an expense of $1.9 million in 2010 (2009 - LTIC expense of $3.2 million) due to the
Company’s rising share price.

An increase in amortization of plant and equipment of 13.2% compared to 2009 resulted from higher
operating rates primarily at the Adams Lake sawmill which did not operate until April 20, 2009 when the new
sawmill ramped-up.

Road amortization and depletion expense for 2010 increased $5.7 million or 42.5% compared to 2009 as a
result of significantly higher logging activity on the B.C. Coast, which had been dramatically curtailed in 2009
to manage inventory levels, and in the B.C. interior to supply the Adams Lake sawmill.

Restructuring costs and asset write-downs totaled $1.6 million in 2010, compared to $4.4 million in 2009.
The 2010 charge includes $0.5 million of impairment charges for assets no longer expected to provide future
benefit compared to $3.1 million in 2009, and a $1.1 million charge for severance costs compared to $1.6
million in 2009. 2009 was also partially offset by a $0.3 million accrual reversal.

The following table shows the components of restructuring costs and write-downs of plant and equipment
for both years:

2010

2009

Plant and equipment write-downs
Severance costs
Other (recovery)

Interest Expense

(millions of dollars)
$

3.1
1.6
(0.3)
4.4

0.5
1.1
-
1.6

In 2010, the Company recorded $8.5 million of total interest expense, compared to $7.8 million in 2009.
Average debt levels were unchanged year-over-year but an overall increase in bank average lending rates
over 2009 resulted in a higher effective interest rate than in 2009. Also impacting interest expense to a
much lesser extent was the volatility of the Canadian dollar which averaged 1.0303 in 2010 as compared to
1.1420 in 2009, and a decrease in pricing on the extension of debt facilities in August, 2010.

Other Foreign Exchange Gain

Other net foreign exchange gain was $0.3 million in 2010 compared to a net foreign exchange gain of $nil in
2009, which arose due to the following items.

Gain (loss) on:

Revaluation/settlement of forward exchange contracts
Interest rate swap
Revaluation and settlement of US$ denominated debt
Other

2010

2009

(millions of dollars)

(0.1)
-
0.1
0.3
0.3

(3.6)
(2.1)
5.8
(0.1)
0.0

Other Income

Other income was negligible in 2010 compared to $23.0 million in 2009. In 2009, $21.2 million arose
primarily from the sale of the Queensboro property, site of the Company’s former Queensboro sawmill
division that had been permanently closed in July 2008.

Gain on disposal of surplus property, plant
and equipment, and investment

Gain on settlement of timber takeback
Other

Equity Income

2010

2009

(millions of dollars)

(0.2)
0.4
(0.2)
-

22.1
1.0
(0.1)
23.0

The Company recorded equity income of $11.4 million in 2010, an increase of $9.6 million over 2009. Of
this increase, $5.2 million arose as the Seaboard Partnership (“Seaboard”) disposed of its two vessels, the
Skaubryn and Skaugran, during 2010 for a gain of $6.1 million offset by $0.9 million in one-time expenses.
The gain, coupled with significantly increased equity participation in the earnings of Seaboard due to greater
shipment volumes by the Company relative to the other partners, dramatically improved equity earnings in
comparison to 2009. Concurrent with the sale of the ships, Seaboard has entered into a charter agreement
which effectively replaces the lumber shipping capacity of the sold vessels. Seaboard expects to continue to
operate in a normal fashion.

Income Taxes

The Company recorded an income tax recovery of $0.5 million for 2010 and increased its valuation
allowance against certain future income tax assets arising from loss carry-forwards available to reduce future
taxable income by $4.1 million. For 2009 the increase in the valuation allowance reduced the Company’s
income tax recovery by $7.4 million to a net recovery of $9.9 million. Although the Company expects to
realize the full benefit of the loss carry-forwards, due to the cyclical nature of the wood products industry
and the economic conditions over the last several years the Company has provided a valuation allowance in
respect of its operating loss carry-forwards, net of temporary differences. The Company’s Canadian non-
capital loss carry-forwards and U.S. net operating loss carry-forwards totaling approximately $260 million
(2009 - $216 million) expire between 2011 and 2030, and are available to reduce future taxable income.

The overall effective rate of 10.6% for 2010 (2009 – 29.3%) differs significantly from the Canadian statutory
rate of 28.5% (2009 – 30.0%) mainly due to the valuation allowance of $4.1 million partially offset by non-
taxable income that is accounted for by the equity method.

Net Loss

As a result of the above factors, the Company recorded a net loss of $3.9 million, $0.08 per share, for the
year ended December 31, 2010 compared to a net loss of $23.9 million, $0.51 per share, for the year ended
December 31, 2009.

Cash Flows

Operating Activities

Before working capital changes, cash generated from operations was $32.0 million for 2010, compared to
cash used by operations of $21.6 million as poor lumber markets significantly diminished cash earnings in
2009.

Total cash generated from operations after changes in working capital was $21.0 million for the year, an
improvement of $16.2 million over 2009.

Cash used in working capital was $11.0 million (2009 – cash generated by working capital of $26.4 million).
Significant increases in operating rates, particularly in the B.C. Interior sawmills and the U.S. Pacific
Northwest (“PNW”) operations, resulted in an inventory build-up of $12.4 million and an increase of $15.2
million in related payables. Improved operating levels are also reflected in a $13.5 million increase in
accounts receivable over 2009.

Poor lumber markets in the comparative periods of 2009 resulted in weak cash from operations. In response
the Company significantly curtailed production with a focus on reducing inventories, resulting in a
contribution to cash generated from working capital of $16.9 million. Income taxes contributed $16.0 million
of the cash generated from operating working capital as the Company collected a refund of taxes paid in
prior years.

Investing Activities

Capital expenditures, excluding changes in amounts accrued, totaled $42.3 million for 2010 (2009 - $27.6
million), and include the acquisition of a timber tenure in the Kamloops region from Weyerhaeuser Company
Limited, adding approximately 275,000 cubic meters of allowable annual cut to its interior fibre supply. In
addition to the timber acquisition, expenditures were predominately for maintenance of operating capacity,
some discretionary spending on equipment upgrades and on road construction. Comparative spending for
2009 was predominantly for completion of the new Adams Lake sawmill and road construction.

Cash proceeds from the sale of non-core assets and final settlement compensation under the Forest Act for
timber and other assets totaled $1.3 million in 2010 (2009 - $37.0 million). By comparison, 2009 included
$29.9 million in proceeds from the sale of the Queensboro property, compensation of $2.0 million under the
Forest Act for timber takeback and proceeds of $4.1 million from the sale of surplus property and buildings
in Maple Ridge, B.C.

Financing Activities

During the course of 2010, Interfor drew additional funds on the Revolving Term Line primarily to fund the
acquisition of the timber tenure from Weyerhaeuser and road construction. Other than letters of credit, the
Operating Line remained undrawn throughout 2010. As at December 31, 2010 the unused available credit
under these facilities totaled $104.2 million and, combined with cash of $9.3 million, gave the Company a
total of $113.5 million of liquidity available.

During 2010, as share options approached their expiry dates and the Company’s share price rose a number
of option holders exercised their share options, generating $0.9 million of cash funds.

On January 4, 2010, Seaboard declared an income distribution to its partners. Interfor’s share was $3.1
million and was paid to the Company by way of setoff against the promissory note payable to the Seaboard
Limited Partnership. On July 30, 2010, subsequent to the sale of one of its two vessels, Seaboard made
another advance to its partners, with the Company’s share being $6.9 million. A second advance of which
the Company’s share was $8.8 million was received on December 30, 2010. Both advances were repaid by
way of set-off on January 3, 2011 when Seaboard declared an income distribution to its partners.

During the course of 2009, Interfor drew on the bank lines primarily for the completion of the new Adams
Lake sawmill. Proceeds from the sale of the Queensboro property, the advance from Seaboard and the
refund of taxes previously paid were used to pay down the long-term debt.

At December 31, 2010, the Company had cash of $9.3 million. After deducting the Company’s drawings
under its Revolving Term Line, the Company ended the quarter with net debt of $146.7 million or 29.7% of
invested capital.

The Company believes, based on projected selling prices, cash flow projections and existing credit lines, that
it has sufficient resources to meet operating and capital requirements through 2011. The Company
continues to maintain its disciplined approach to production, its focus on managing the business for cash,
ensuring adequate liquidity is maintained and realizing on the benefits of recent strategic activities and
investments. Capital expenditures continue to be monitored.

FINANCIAL POSITION

Summary of Financial Position¹

2010

2009

2008
(millions of dollars)

2007

2006

Current assets

Current liabilities

Working capital

Total assets

139.0

107.9

131.5

74.2

64.8

46.6

61.3

79.4

52.1

158.3

50.0

108.3

289.7

123.8

165.9

611.9

582.5

665.3

545.9

673.8

Total long-term liabilities and future income taxes

190.4

177.9

179.7

67.6

72.1

Operating debt

Payable to investee company

Long-term debt

Total debt

Shareholders’ equity

Invested capital

Ratio and Investment Information¹

Current ratio
Net debt as a percentage of invested capital, adjusted2

Total debt as a percentage of invested capital
Return on average shareholders’ equity2
Return on average invested capital, adjusted2
Pre-tax return on total assets1
Cash flow from operations as a percentage of total debt2

Equity per share

15.7

156.0

171.7

347.3

519.0

3.1

144.5

147.6

358.0

505.6

30.6

3.7

137.4

171.7

406.2

577.9

34.7

428.3

463.0

0.6

40.8

41.4

478.0

519.4

1.9

2.3

1.7

3.2

2.3

29.7%

28.2%

29.2%

1.9%

(29.1)%

33.1%

29.2%

29.7%

7.5%

8.0%

(1.1)%

(6.3)%

(13.3)%

(2.9)%

22.3%

0.5%

(3.4)%

(10.3)%

(3.5)%

25.1%

(0.4)%

(9.0)%

(5.1)%

(4.3)%

2.1%

18.6%

(14.6)%

7.6%

70.2%

345.8%

$7.33

$7.60

$8.62

$9.09

$9.93

2010

2009

2008
(millions)

2007

2006

Weighted average shares outstanding for the year

47.1

47.6

48.5

Number of shares outstanding at year end:
Class A subordinate voting3
Class B common3

Re-investment of Cash

Cash flow from operations2

46.3

1.0

47.4

46.1

1.0

47.1

46.1

1.0

47.1

46.1

1.0

47.1

1.0

48.1

2010

2009

2008

2007

2006

(millions of dollars)

32.0

(21.6)

13.0

24.4

143.1

Cash generated from (used in) operating working capital

(11.0)

Proceeds on disposal of assets

1.3

26.4

37.0

0.7

5.1

(70.3)

8.3

43.3

49.2

Capital expenditures and acquisitions

(42.3)

(27.6)

(158.9)

(81.8)

(90.6)

1
2
3

Tables may not add due to rounding.
See Glossary in Annual Information Form for definition.
As at February 9, 2011, the numbers of shares outstanding by class are: Class A Subordinate Voting shares – 46,374,676 Class B
Common shares – 1,015,779, Total – 47,390,455.

Current Assets

Cash on hand and deposits at December 31, 2010 totaled $9.3 million compared to $3.8 million from 2009.

Accounts receivable at December 31, 2010 were $46.0 million, up $13.0 million over 2009, primarily as a
result of higher year-end sales volumes and sales values.

Lumber inventory levels at December 31, 2010 were $27.4 million, up $3.1 million compared to 2009.
Lumber inventory volumes increased by 16.5% resulting from the additional volumes at the Adams Lake
sawmill and the restarted Castlegar sawmill. Lumber inventory unit values decreased primarily due to the
reduced levels of higher value cedar lumber in 2010 year-end inventories.

Log inventory levels at December 31, 2010 were $39.1 million, up $8.1 million compared to 2009, to support
the higher operating rates and increased log consumption of the Adams Lake sawmill and the restarted
Castlegar sawmill.

Investments and Other Assets

Investments and Other Assets increased by $11.6 million to $28.6 million, up as compared to 2009, primarily
due to equity income of $11.4 million earned from Seaboard in 2010. On January 3, 2011, the Seaboard
Partnership declared an income distribution to its partners. Interfor’s share was $15.7 million and was
settled by way of setoff against the promissory note payable to the Seaboard Partnership (see Current
Liabilities).

On January 5, 2011, all other partners in the Seaboard Partnership withdrew and the Company became the
sole owner of Seaboard. Seaboard Partnership was wound-up on January 7, 2011 and continues operations
as Seaboard Shipping Company Limited which is wholly owned by Interfor. Its accounts will be included in
the consolidated financial statements of the Company from the date of change in control.

Property, Plant and Equipment, Timber and Logging Roads

The Company’s net book value of $431.2 million for property, plant and equipment, timber, logging roads,
and assets held for sale was a decrease of $13.2 million over 2009. Capital expenditures including changes
in amounts accrued were $43.1 million, of which $32.1 million related to investments in road building and
the acquisition of the timber tenure from Weyerhaeuser Company Limited and the balance of $10.9 million
was primarily for maintenance of operating capacity with some discretionary spending on equipment
upgrades. The stronger Canadian dollar at the end of 2010 compared to the end of 2009 resulted in
reduction in capital assets of U.S. operations of $8.1 million due to foreign currency revaluations. Offsetting
the investments in capital assets were amortization and depletion expense of $46.0 million, and various
other minor write-downs and disposals.

Current Liabilities

As at December 31, 2010, the Company had a Canadian operating line of credit (“Operating Line”) of $65.0
million. Drawings under these lines are subject to borrowing base calculations dependent upon accounts
receivable, inventories and certain accounts payable. At year end, the Company had no borrowings under
its Operating Line, and its unused available Operating Line was $60.2 million, after outstanding letters of
credit of $4.8 million. The Company’s working capital ratio at December 31, 2010 was 1.9 to 1.

On January 15, 2010 the Company amended its existing Operating Line and the maturity date was extended
to February 28, 2011. On August 19, 2010 the Company further amended and extended its existing
syndicated credit facilities and the maturity date of the Operating Line was extended to July 28, 2012, with
all other terms and conditions remaining substantially unchanged except for a reduction in pricing.

Accounts payable levels at December 31, 2010 were $58.3 million for an increase of $14.8 million over 2009.
The increase in trade accounts payables and other accruals results from increased operating rates,
particularly from logging activities in B.C. The current portion of reforestation also increased by $3.0 million
due to increased levels of logging in 2010, the Weyerhaeuser timber acquisition and the rescheduling of
planting projects which had been delayed for cash management reasons during the global downturn.

In July 2010, the Company received an advance of $6.9 million from Seaboard, and a further $8.8 million
was received in December 2010. In January 2011, Seaboard declared an income distribution to its partners
of which Interfor’s share of $15.7 million was received by way of setoff against the advance payable to

Seaboard. This compares to the advance received in December, 2009 of $3.1 million which was also settled
by way of an income distribution of the same amount in January 2010.

Long-Term Liabilities

As part of its amendment and extension of existing syndicated credit facilities in January, 2010 the
Company’s Canadian revolving term line (the “Revolving Term Line”) was increased from $150 million to
$200 million, and its maturity date was extended to February 28, 2012. In August, 2010, the Company
further amended and extended its existing syndicated credit facilities and the maturity date of the Revolving
Term Line was extended to July 28, 2013. Except for a reduction in pricing, all other terms and conditions of
the line remained unchanged. The Revolving Term Line bears interest at rates based on bank prime plus a
premium, depending upon a financial ratio or, at the Company's option, at rates for Bankers' Acceptances or
LIBOR based loans.

In conjunction with the amendments to its credit facilities on January 15, 2010, the Company drew US$35.0
million ($35.8 million) on its Revolving Term Line and repaid and cancelled its U.S. dollar non-revolving term
line (the “Non-Revolving Term Line”). At December 31, 2009 the Non-Revolving Term Line was fully drawn
at US$35.0 million and was revalued at the year-end exchange rate to $36.8 million. The Company
subsequently drew a further $36.7 million and repaid the drawings of US$35.0 million used to repay the
Non-Revolving Term Line.

At December 31, 2010, the Revolving Term Line was drawn by $126.0 million (2009 - $76.0 million), and by
US$30.2 million (2009 – US$30.2 million) revalued at the year-end exchange rate to $30.0 million (2009 -
$31.7 million) for total drawings of $156.0 million (2009 - $107.7 million) and leaving an unused available
line of $44.0 million. Together with the Non-Revolving Term Line which was outstanding at December 31,
2009, drawings totaled $144.5 million, leaving an unused available line of $42.3 million.

Overall, long-term liabilities excluding long-term debt, increased only marginally by $0.7 million, with small
decreases in a number of areas slightly offsetting an increase of $1.2 million in long-term incentive
compensation reflecting an increase in the Company’s closing share price which rose from $4.69 at
December 31, 2009 to $5.60 at December 31, 2010.

Liquidity and Capital Resources

As at December 31, 2010, the Company had working capital of $64.8 million (2009 - $61.3 million), $104.2
million (2009 - $99.2 million) available on its operating and term lines and $9.3 million in cash.

On January 15, 2010, the Revolving Term Line was increased from $150 million to $200 million and the
maturity dates of the Operating Line and the Revolving Term Line were both extended. On August 10,
2010, the maturity dates were further extended to July 28, 2012 for the Operating Line and July 28, 2013
for the Revolving Term Line. The Non-Revolving Term Line facility of US$35.0 million was cancelled on
January 15, 2010 after drawings were fully repaid.

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

Interfor has had positive EDITDA in each of the past five years in total, and, despite the difficult economic
climate over the last three years, for ten of the past twelve quarters. In addition, in the fourth quarter, 2010
Interfor showed positive earnings from operations for the first time in over four years.

Interfor believes that its existing credit lines will be sufficient to satisfy the funding of operating and capital
requirements for the foreseeable future. The Company continues to maintain its disciplined approach to
production, focus on managing the business for cash, ensure adequate liquidity is maintained and realize on
the benefits of recent strategic activities and investments.

Summary of Contractual Obligations

The payments due in respect of contractual and legal obligations may be summarized as follows:

Accounts payable and accrued liabilities
Income taxes payable
Payable to investee company¹
Long-term debt
Reforestation liability
Other long-term liabilities
Pension solvency payments
Operating leases and
contractual commitments

Payments due by period
Up to
1 year

2-3
years

4-5
years

After 5
years

Total

44.4 $
0.2
15.7
156.0
28.2
21.8
4.2

(millions of dollars)

44.4 $
0.2
15.7
-
9.8
4.1
1.5

-
-
-
156.0
6.9
5.4
1.5

19.3

6.1

5.9

-
-
-
-
5.4
1.8
0.8

4.1

-
-
-
-
6.0
10.5
0.4

3.2

Total contractual obligations 2

289.9 $

81.8 $

175.9 $

12.1 $

20.1

1 On January 3, 2011, the Seaboard Partnership declared an income distribution to its partners, of which the Company’s share was
$15.7 million and was paid to the company by way of setoff against the promissory note payable to the Seaboard Partnership.

2 Table may not add due to rounding.

Related Party Transactions

Lumber sales to a significant shareholder amounted to $0.8 million (2009 - $0.9 million). Shipping services
provided by Seaboard International Shipping Company Limited totaled $7.0 million (2009 - $4.7 million). In
addition, the Company provided management and other support services to Seaboard totaling $0.5 million
(2009 - $nil). These transactions were conducted on a normal commercial basis, including terms and prices
and did not result in any ongoing contractual or other commitments.

Off-Balance Sheet Arrangements

The Company has off-balance sheet arrangements which encompass letters of credit and surety
performance bonds, primarily for timber sales. These are more fully described in Note 7(a) and Note 15(e)
in the Consolidated Financial Statements. At December 31, 2010, the total of such instruments aggregated
$12.9 million (2009 - $12.1 million). Off-balance sheet arrangements have not had, and are not reasonably
likely to have, any material impact on the Company’s current or future financial condition, results of
operations or cash flows.

Summary of Issuance of Shares

There have been no issuances of shares over the last five years, other than those shares issued on exercised
employee options.

SELECTED QUARTERLY FINANCIAL INFORMATION 1

Quarterly Earnings Summary

2010

2009

Q1
Q4
(millions of dollars except share, per share and foreign exchange rate amounts)

Sales – Lumber

– Logs

– Wood chips and other by-products

– Other

Total Sales

137.5

113.1

123.7

107.6

20.6

15.7

2.4

21.9

14.0

2.4

19.8

13.3

1.0

17.4

13.2

1.7

93.1

17.3

12.2

2.9

76.8

17.3

8.9

2.2

62.3

13.0

5.9

0.6

56.5

12.8

7.4

0.6

176.3

151.5

157.9

139.9

125.5

105.2

81.8

77.3

Operating earnings (loss) before restructuring costs

and asset write-downs

Operating earnings (loss)

Net earnings (loss)

Net earnings (loss) per share – basic and diluted
EBITDA5
Adjusted EBITDA5
Cash flow from operations per share2
Shares outstanding – end of period (millions)3

– weighted average (millions)
Average foreign exchange rate per US$1.004
Closing foreign exchange rate per US$1.004

1.3

0.6

(2.3)

(2.8)

1.5

(1.4)

(2.4)

(2.6)

(3.1)

(3.4)

(7.8)

(7.0)

(16.4)

(15.2)

(7.8)

(10.4)

(16.3)

(5.0)

9.7

(15.0)

(13.6)

0.01

0.03

(0.06)

(0.07)

(0.11)

0.21

(0.32)

(0.29)

14.6

15.3

13.5

14.5

0.19

47.4

47.2

10.6

0.13

47.1

13.1

0.19

47.1

9.7

6.3

5.7

25.3

(7.3)

(7.7)

3.6

(7.3)

(8.4)

0.17

0.06

(0.07)

(0.23)

(0.22)

47.1

1.0131

1.0395

1.0283

1.0401

1.0571

1.0980

1.1669

1.2446

0.9946

1.0290

1.0646

1.0158

1.0510

1.0707

1.1630

1.2613

1
2
3

Tables may not add due to rounding.
Cash generated from operations before taking account of changes in operating working capital.
As at February 9, 2011, the numbers of shares outstanding by class are: Class A Subordinate Voting shares – 46,374,676 Class B
Common shares – 1,015,779, Total – 47,390,455.
Accounting quarter-end dates may differ slightly from the reporting date. As such, the foreign exchange rate used to revalue quarter-
end balances may differ from those calculated using the Bank of Canada closing foreign exchange rate per US$1.00.
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 and other income of the investee company. EBITDA and Adjusted EBITDA can be
calculated from the statements of operations as follows:

Net earnings (loss)
Add: Income taxes (recovery)
Interest expense
Depletion and amortization
Other foreign exchange (gains) losses
Restructuring costs, asset write-downs and other
EBITDA
Deduct:
Other income (expense)
Other income of investee company
Adjusted EBITDA

2010

2009

0.6
(0.1)
2.1
11.9
0.2
-
14.6

(0.3)
0.4
14.5

1.5
(0.1)
2.1
11.2
0.1
0.5
15.3

(0.1)
4.8
10.6

(millions of dollars)
(5.0)
(3.3)
2.0
12.5
0.1
0.1
6.3

(3.4)
(0.4)
2.0
11.4
-
-
9.7

-
-
9.7

0.6
-
5.7

(2.6)
0.2
2.3
12.6
0.1
1.1
13.5

0.4
-
13.1

9.7
0.1
2.2
9.9
-
3.3
25.3

21.7
-
3.6

(15.0)
(3.6)
2.0
9.5
(0.1)
(0.1)
(7.3)

-
-
(7.3)

(13.6)
(3.1)
1.6
6.3
-
1.1
(7.7)

0.6
-
(8.4)

Volume and Price Statistics

2010

2009

Lumber sales

Lumber production
Log sales1

Log production1

Average selling price – lumber2
Average selling price – logs1

(million fbm)

(thousand cubic
metres)
(thousand cubic
metres)
($/thousand fbm)

($/cubic metre)

Average selling price – pulp chips

($/thousand fbm)

321

303

292

277

272

289

270

277

262

264

258

239

234

245

261

181

180

242

131

115

216

122

121

200

794

595

624

648

533

378

312

$428

$408

$459

$408

$398

$424

$477

$462

$64

$42

$73

$40

$68

$37

$64

$40

$62

$39

$69

$38

$56

$40

$54

$46

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 woods closures.
Generally, the Company’s 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 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.

The impact of the global recession on overall demand and poor lumber sales realizations increased the
operating losses in the first three quarters of 2009. Operating rates increased in the fourth quarter of 2009
and first quarter, 2010, as lumber prices rose in response to increased North American demand and a
temporary supply/demand imbalance. During the same period off-shore demand increased, particularly from
China which continued through the remaining quarters of 2010.

The volatility of the Canadian dollar also impacted results, given that historically over 75% of the Canadian
operation’s sales are to export markets and priced in $US. A strong Canadian dollar reduces the lumber
sales realizations in Canada, but lessens the impact of any losses in U.S. operations. All quarters of 2009
and 2010 include the effect of a tax valuation allowance against future tax assets which serves to reduce or
eliminate any income tax recoveries on the Statement of Operations. The third quarter of 2009 includes an
after-tax gain of $19.0 million from the sale of the former Queensboro sawmill site.

Quarter 4, 2010 Compared to Quarter 4, 2009

Overview

The Company recorded net earnings of $0.6 million, or $0.01 per share, for the fourth quarter of 2010 as
compared to a net loss of $5.0 million, or $0.11 per share in the fourth quarter of 2009. Before
restructuring costs, foreign exchange gains (losses), other one-time items and a tax valuation allowance, the
Company’s net earnings for the fourth quarter, 2010 was $0.7 million after-tax, or $0.01 per share, as
compared to a net loss of $4.4 million after-tax, or $0.09 per share for the fourth quarter, 2009.

EBITDA and Adjusted EBITDA for the fourth quarter of 2010 were $14.6 million and $14.5 million,
respectively, compared to $6.3 million and $5.7 million, for the comparative quarter in 2009.

Lumber pricing in the North American markets have been impacted by record volumes of lumber, particularly
from the Pacific Northwest and B.C., exported to meet increased demand from China as they look to satisfy
their growing need for construction lumber and industrial timber applications. Increased shipments to China
impacted supply available to the North American markets which improved pricing of North American
products due to a supply/demand imbalance and the existence of lean inventories. This is evidenced by the

movement of the average price reported by Random Lengths for SPF 2x4 #2&Btr from US$233 per mfbm for
September, 2010 to US$285 per mfbm at the end of December, 2010 and is magnified even more in
comparison to the fourth quarter, 2009 average price of US$206 per mfbm.

Improved pricing impacted both sales realizations and ending inventory valuations for the Company in the
fourth quarter, 2010 resulting in positive operating earnings in the quarter for the first time since the third
quarter, 2006.

Changes in the Castlegar sawmill operating configuration in early 2010, achieved with the support of the
mill’s employees and other local stakeholders and without the benefit of any significant capital expenditures,
continued to contribute a marked improvement in the mill’s cost structure and impact fourth quarter, 2010
results.

The Company continued to monitor and adjust production levels in all operations to match product demand
and control inventory levels.

Sales

Compared to the same quarter of 2009, lumber shipments were up 37.1% or 87 million board feet for the
fourth quarter of 2010, reflecting additional production from Adams Lake and the recommenced operations
at Grand Forks and Castlegar sawmills. Slower growth in demand in the U.S. markets continues to be
replaced by strong growth in the demand for product from China. For the fourth quarter, 2010, in
comparison to the fourth quarter, 2009 and excluding wholesale programs, 44% of all lumber shipments
were directed to the U.S., a decline of 13%, and more than offset by shipments to Chinese markets which
grew by 16%.

Relative to the same periods in 2009, unit lumber sales values increased by $31 per mfbm, or 7.8%, for the
fourth quarter, 2010 reflecting significantly improved North American structural lumber product prices,
somewhat tempered by the negative impact of a stronger Canadian dollar. Compared to the average of the
fourth quarter of 2009, the Canadian dollar appreciated 4 cents relative to its U.S. counterpart.

Log sales were up $3.3 million, or 18.9%, for the fourth quarter, 2010 as sales volumes increased by 32,000
m3 or 12.1% vis-à-vis its comparative in 2009. Unit sales values on the B.C. Coast, where the majority of
log sales are transacted, moved up 5.2% reflecting improved log markets and a lesser pulp log component.

Compared to the same periods of 2009, pulp chip and other by-product revenues for the fourth quarter of
2010 were up $3.5 million, a reflection of higher sawmill operating rates. Average chip prices for the fourth
quarter, 2010 increased on both the B.C. Coast as well as in the U.S. reflecting increased global demand for
pulp over the same quarter, 2009. More significant price increases in the U.S. were negated by the stronger
Canadian dollar.

Operating Costs

Production costs for the fourth quarter of 2010 increased $40.8 million, or 35.8% compared to the same
period in 2009. Lumber production increased by 58 million board feet for the fourth quarter, 2010 compared
to the same quarter, 2009 driven by increased production at the B.C. Interior sawmills.

Unit cash conversion costs remained constant, quarter-over-quarter as compared to 2009 as increased per
unit conversion costs resulting from a curtailment at the Beaver sawmill were offset by a stronger Canadian
dollar. In addition, fibre supply for the U.S. Pacific Northwest sawmills remains tight and resulted in
sizeable increases in log costs for U.S. operations.

Compared to the same period in 2009, B.C. log production grew by 260,000 cubic metres for the fourth
quarter, 2010 driven by the seasonality of logging in the B.C. interior and the increased demand for logs in
the B.C. Interior sawmills resulting from improved operating rates as compared to 2009. Unit logging costs
for the fourth quarter remained relatively constant, year-over-year.

Compared to the same period, 2009, Canadian shipments to the U.S. for the fourth quarter, 2010 rose by 25
million board feet or 70.2% which corresponds with a 70% increase in export taxes, or $1.0 million as the
tax rate for both periods remained at 15%.

Selling and administrative costs for the fourth quarter, 2010 increased by $0.6 million compared to the same
quarter, 2009 primarily as a result of additional corporate development expenditures and expansion of

export sales administration. Long-term incentive compensation (“LTIC”) expense is impacted by the change
in the Company’s share price and showed an expense of $1.4 million for the fourth quarter, 2010, reflecting
a 40.4% increase in the Company’s share price over the quarter. Similarly, LTIC expense in the fourth
quarter, 2009, resulted from a 49.8% improvement of the share price for that quarter.

Fourth quarter, 2010 amortization of plant and equipment remained flat in comparison to the fourth quarter,
2009 despite the inclusion of Castlegar sawmill for 2010 as the investment in capital assets at the mill is
extremely low.

Road amortization and depletion expense for the fourth quarter of 2010 declined by $0.5 million or 10.8%
for the quarter vis-à-vis the same quarter, 2009 as a result of decreased logging activity on the B.C. Coast
with log production lower by 58,000 cubic metres or 13.8%.

Interest, Other Foreign Exchange Gain (loss), Other Income

Fourth quarter, 2010, interest expense was virtually unchanged as compared to the fourth quarter of 2009,
with an increase in average lending rates in 2010 partially offset by a stronger Canadian dollar. Other
foreign exchange gains (losses) were negligible for both years.

The Company reported Other income (expense) of ($0.3) million for the fourth quarter, 2010 from the
disposal of surplus equipment and roads as compared to a gain of $0.6 million realized in the fourth quarter,
2009. Increased equity participation in the earnings of Seaboard with greater shipment volumes by the
Company relative to the other partners, improved equity earnings in comparison to 2009.

Income Taxes

The Company recorded an income tax recovery of $0.1 million in the fourth quarter of 2010 as compared to
a $3.3 million recovery in the comparative period of 2009. The valuation allowance against certain future
income tax assets arising from loss carry-forwards available to reduce future taxable income was increased
by $0.1 million (fourth quarter, 2010 - $1.0 million). Although the Company expects to realize the full
benefit of the loss carry-forwards, the Company has provided a valuation allowance in respect of its
operating loss carry-forwards, net of temporary differences.

Cash Flow

Cash generated by the Company from operations, after changes in working capital, was $3.7 million for the
fourth quarter of 2010, compared to cash used of $12.7 million for the fourth quarter of 2009. The increase
in accounts receivable partially offset by a rise in accounts payable was the result of the higher operating
rates and export shipments in the fourth quarter of 2010.

Capital expenditures continued to be closely monitored. Spending of $4.6 million on plant and equipment
was evenly divided between high return discretionary projects and spending related to maintenance of
operating capacity, with spending on road construction totaling $4.6 million. Comparative spending for the
fourth quarter, 2009 was primarily for road construction as all other capital expenditures were severely
curtailed.

In the fourth quarter, 2010 the Company received an $8.8 million advance from Seaboard which it used to
pay down a portion of its Revolving Term Line. An advance from Seaboard of $3.1 million received in the
fourth quarter, 2009 was used together with drawings of $15.0 million on the Revolving Term Line to fund
cash used in operations and priority capital expenditures.

The Company had cash of $9.3 million at December 31, 2010 and ended the quarter with net debt of $146.7
million or 29.7% of invested capital.

Controls and Procedures

As required by Multilateral 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, 2010. 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, 2010.

As required by Multilateral 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, 2010. 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, 2010.

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, 2010
which materially affected, or are reasonably likely to materially affect, the Company’s ICFR.

Critical Accounting Estimates

Valuation of Accounts Receivable. Interfor regularly reviews the collectability of its accounts receivable and
records an allowance for doubtful accounts based on its best estimate of any potentially uncollectible
accounts. Consideration is given to current economic conditions and specific customer circumstances to
determine the amount of any bad debt expenses to be recorded.

The Company’s exposure to credit risk is dependent upon individual characteristics of each customer. Each
new customer is assessed for creditworthiness before standard payment and delivery terms and conditions
are offered, with such review encompassing any external ratings, and bank and other references. Purchase
limits are established for each customer, and are regularly reviewed. In some cases, where customers fail to
meet the Company’s benchmark creditworthiness, the Company may choose to transact with the customer
on a prepayment basis.

All North American sales are conducted under standard industry terms. All lumber sales outside of the North
American markets are either insured by the Export Development Corporation or letters of credit or are
prepaid in advance of shipment.

The Company regularly reviews the collectability of its accounts receivable and establishes an allowance for
doubtful accounts based on its best estimate of any potentially uncollectible accounts. Historically, the
Company has experienced minimal bad debts and this held true for 2010, despite the impacts of the global
economic downturn and historical low housing starts. Based on this past experience and its detailed review
of trade accounts receivable past due, a negligible reserve (2009 - $0.1 million) was set up for specific trade
receivables.

Although Interfor has not experienced any significant bad debt expenses in prior periods, declines in the
economy could result in collectability concerns. Accounts receivable balances for individual customers could
potentially be material at any given time.

Valuation of Inventories. Interfor values its lumber inventories at the lower of cost and net realizable value
on a specific product basis. Log inventories are valued at the lower of cost and net realizable value on a
specific boom or sort basis. Other inventories consist primarily of seedlings, spare parts, and supplies and
are recorded at the lower of cost and replacement cost. The unit net realizable value for lumber inventories
and Coastal log inventories is determined by reference to the average sales values by specific product in the
period immediately following the reporting date. The unit realizable value for Interior and U.S. log
inventories is determined by reference to the value of the projected lumber and residual outturns. The unit
cost for lumber is based on a three month moving average actual cost, lagged by one month and adjusted
for unusual items. The unit cost for Coastal logs is based on a twelve month moving average actual cost
and for Interior logs is based on a three month moving average actual cost, both lagged by one month and
adjusted for unusual items. The unit cost for U.S. logs is based on actual specific cost. Instances where net
realizable value is lower than cost result in a charge to operating earnings in the period. Downward
movements in commodity prices could result in a material write-down of inventory at any given time.

Recoverability of Property, Plant and Equipment, Logging Roads, Timber and Goodwill. Interfor’s
assessment of recoverability of property, plant and equipment, timber and logging roads is made with
reference to projections of future cash flows to be generated by its operations. The assessment of
recoverability of goodwill is also made with reference to projections of future cash flows to be generated by
the related reporting unit, and discounted to estimate the fair value of goodwill.

These projections necessitate the estimation of sales and production volumes, future commodity pricing,
operating costs, foreign currency exchange rates, export taxes, and other factors. There is a high degree of
uncertainty in such estimations, and, as such, any significant change in assumptions could result in a
conclusion that the carrying value of these assets could not be recovered, which could necessitate a material
charge against operating earnings.

For goodwill, an appropriate discount rate is determined by reference to current market conditions and
specific company factors.

Interfor assesses the recoverability of Property, Plant and Equipment, and Timber and Logging Roads as
conditions and events warrant. Goodwill is tested for impairment annually, and whenever events or changes
in circumstances indicate that an impairment may exist. The Company assessed the recoverability of these
assets as at December 31, 2010, and concluded that there were no impairments.

Reforestation and Other Forestry-related Liabilities. Crown legislation requires the Company to complete
reforestation activities on its forest and timber tenures. Accordingly, Interfor records the estimated cost of
reforestation as the timber is cut, and includes these expenses in the cost of current production. The
estimate of future reforestation costs is based on detailed prescriptions of reforestation as prepared by
Registered Professional Foresters employed or contracted by the Company. Considerations include the
specifics of the areas logged and the treatments prescribed for those areas, as well as the timing and
success rates of the planned activities. Estimates of reforestation liability could be materially impacted by
forest fires, wildlife grazing, unfavourable weather conditions, changing legislative requirements and
standards, or inaccurate projections, which could result in a charge against operating earnings.

The Company also has a legal obligation to deactivate certain roads constructed and used to access timber
once that access is no longer required. Accordingly, Interfor also accrues the cost of road deactivation as
the related timber is cut, including those expenses in the cost of current production. The estimate of future
road deactivation cost is based on comprehensive plans prepared by Professional Foresters and Engineers
employed by Interfor and includes such considerations as road structure and terrain. Estimates of road
deactivation liability could be materially impacted by unfavourable terrain, changing legislative requirements
and standards, or inaccurate projections, which could result in a charge against operating earnings.

Each of these estimates is reviewed regularly on an ongoing basis.

Environmental Obligations. Environmental expenditures that relate to an existing condition caused by past
operations are charged as current production costs once existence of a liability and costs of rehabilitation
efforts can be reasonably determined. Interfor engages independent third party experts to assist in
determining the existence of environmental liabilities, appropriate prescriptions for treatment and related
costs. Estimates of environmental obligations could be materially impacted by a number of factors including
incorrect or incomplete problem definition and identification of treatments, or inaccurate cost projections.
Incorrect estimates could result in a material charge against operating earnings.

Pension and Other Post-retirement Benefits. Interfor sponsors various defined contribution pension plans
available, based on eligibility requirements, to all Canadian salaried and all US employees. The Company
sponsors two defined benefit plans for those hourly employees not covered by forest industry union plans.
It also sponsors a post-retirement medical and life insurance plan.

The Company retains independent actuarial consultants to value the defined pension benefit obligations, the
post retirement medical and life insurance obligations and related plan asset values. Actuarial assumptions
used in the valuation of obligations and values include assumptions of the discount rate used in calculations
of net present value of obligations, expected rates of return on plan assets to be used to fund obligations,
and assumed rates of increase for employee compensation and health care costs. Actual experience can
vary materially from estimates and could result in a material charge against operating earnings as well as
necessitate a current cash funding requirement.

Income Taxes. The Company’s provision for income taxes, both current and future, is based on various
judgments, assumptions and estimates including the tax treatment of transactions recorded in the
Company’s consolidated financial statements. Interfor records provisions for federal, provincial and foreign

taxes based on the respective tax rules and regulations in the jurisdictions in which the Company operates.
Due to the number of variables associated with the judgments, assumptions and estimates, and differing tax
rules and regulations across the multiple jurisdictions, the precision and reliability of the resulting estimates
are subject to uncertainties and may change as additional information becomes known.

Income tax assets and liabilities, both current and future, are measured according to the income tax
legislation that is expected to apply when the asset is realized or the liability settled. Future income tax
assets and liabilities are comprised of the tax effect of temporary differences between the carrying amount
and tax basis of assets and liabilities, tax loss carry forwards and tax credits. Assumptions underlying the
composition of tax assets and liabilities include estimates of future results of operations and the timing of the
reversal of temporary differences as well as the tax rates and laws in the applicable jurisdictions at the time
of the reversal. The composition of income tax assets and liabilities is reasonably likely to change from
period to period due to the uncertainties surrounding these assumptions.

NEW ACCOUNTING POLICIES AND ACCOUNTING POLICY CHANGES

Effective January 1, 2010, the Company adopted three new CICA accounting standards:

(a) Handbook Section 1582, Business Combinations which replaces CICA Handbook Section 1581, Business
Combinations, and establishes revised standards for the recognition, measurement, presentation and
disclosure of business acquisitions and aligns Canadian GAAP with IFRS standards.

(b) Handbook Section 1601, Consolidated Financial Statements and Handbook Section 1602, Non-Controlling
Interests, which replace Handbook Section 1600, Consolidated Financial Statements, and establish
revised standards for the preparation of consolidated financial statements.

Adoption of these standards had no retrospective impact on the consolidated financial statements.

Future Accounting Policy Changes

Convergence with International Financial Reporting Standards

In February 2008, the Canadian Accounting Standards Board confirmed that Canadian generally accepted
accounting principles (“Canadian GAAP”) will be converged with International Financial Reporting Standards
(“IFRS”) for fiscal years commencing January 1, 2011. The transition from Canadian GAAP to IFRS will be
applicable for the Company for the first quarter of 2011 when the Company will prepare both the current
and comparative financial information using IFRS.

While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant differences on
recognition, measurement, and disclosures. The Company has identified a number of key areas that will be
impacted by changes in accounting policies, including: property, plant, and equipment; impairment of
assets; provisions, including reforestation liabilities and asset retirement obligations; share-based payments;
employee future benefits; and future income taxes. Management is finalizing the determination of the
impact of the application of IFRS on the financial statements and having these impacts audited.

A review of the Company’s information systems and the day-to-day accounting processes and controls has
been carried out during the IFRS conversion project and no significant impacts were identified. No
significant changes to computer systems have been required and no changes which materially affect, or are
reasonably likely to materially affect, the Company’s controls have been required. To ensure the
effectiveness of the key monitoring controls under IFRS, additional training has been performed in relation to
the specific impacts of IFRS on the Company’s financial policies and statements.

As a first-time adopter of IFRS, the Company is required to apply IFRS 1 First time adoption of International
Reporting Standards which provides a number of optional exemptions to first-time adopters to ease the
transition to IFRS. The Company expects to apply exemptions under each of the following IFRS 1 categories
which are significant to the Company’s opening balance sheet:

Property, plant and equipment

The Company has identified a property at its Hammond sawmill site for which it will take this election at the
transition date. The impact is expected to increase property, plant and equipment on the Balance Sheet as
at January 1, 2010 by $15.7 million.

Cumulative translation adjustments

IFRS 1 provides an exemption that allows the cumulative translation adjustments to be set to zero at the
date of transition as an adjustment to Retained earnings in the opening Balance Sheet. Interfor expects to
take advantage of this exemption which would result in Accumulated other comprehensive loss and Retained
earnings in the opening Balance sheet to each decrease by $24.9 million at January 1, 2010.

Employee future benefits

IFRS 1 provides an exemption that allows recognition of all unamortized actuarial gains and losses at the
transition date as an adjustment to Retained earnings in the opening Balance Sheet. The impact of this is
expected to be a reduction in Investments and other assets on the Balance Sheet as at January 1, 2010 by
$7.2 million for the defined benefit pension plan liabilities of the Company. In addition, Investments and
other assets are expected to be reduced by a further $0.8 million to reflect the Company’s share of its
investee’s pension adjustment as at January 1, 2010.

Business combinations

IFRS 1 provides an exemption which eliminates the requirement to restate business combinations entered
into prior to the date of transition. Interfor does not expect to restate any of its previous business
combination accounting.

Impairment of assets

IFRS requires the assessment of asset impairment to be based on a comparison of the asset carrying value
and its recoverable amount, usually based on its value in use as represented by its discounted future cash
flows. Under Canadian GAAP the assessment of impairments provides for a two-step test with no
impairment recognized if the undiscounted future cash flows exceed the carrying value of the related asset.
Discounting is required only as a second step to quantify an impairment.

As such, impairments are more likely under IFRS standards. Where an impairment is required under IFRS,
future amortization charges will decrease with a lower amortization base.

IFRS also provides for the reversal of previously recognized asset impairments, excluding goodwill, where
conditions justify such reversals. Canadian GAAP does not allow reversal of impairments recognized in the
financial statements.

These changes in standards may result in the potential for more impairments recognized against income in
the future as well as more volatility as reversals occur.

Based on the Company’s analysis, Interfor does not expect any impairments to be recorded as at January 1,
2010 under IFRS.

Provisions

IFRS has a broader threshold for the recognition of provisions than that provided under Canadian GAAP and
may result in additional liabilities being recognized under IFRS and requires the discount rate for evaluation
of asset retirement obligations to reflect the current risk-free interest rate. As a result, the Company expects
to increase its Reforestation liability, net of current portion on the Balance Sheet by $1.9 million, and its
Other long-term liabilities by $0.9 million under IFRS on January 1, 2010, for a total of $2.8 million increase
in liabilities.

Share based compensation

IFRS requires recognition of compensation expense for share based compensation to be based on fair values
rather than implicit values, determined through the use of Black-Scholes and other option modeling
techniques. As a result, the Company expects to increase the current portion recorded in Accounts payable
and accrued liabilities by $0.4 million and the long term portion in Other long-term liabilities by $0.5 million
as at January 1, 2010 under IFRS.

Future income taxes

As a result of the aforementioned adjustments, future income taxes on the Balance Sheet as at January 1,
2010 are expected to be reduced by $0.3 million under IFRS.

Presentation of financial statements

There are a number of presentation changes and reclassifications amongst line items on the financial
statements that are expected under IFRS. In addition, IFRS requires significantly more financial statement
note disclosure than required under Canadian GAAP standards. These will be fully disclosed in our March 31,
2011 quarter-end financial statements.

The impact of the changeover from Canadian GAAP to IFRS is expected to be as follows¹:

Balance as at January 1, 2010 under Canadian GAAP

Transition election to fair value property at Hammond sawmill site
Employee future benefits adjustments to reflect unamortized actuarial gains (losses)
Increase in decommissioning liabilities resulting from change to credit-free discount rate
Increase in share based compensation liability to reflect fair values
Reduction in future income taxes liability arising from aforementioned adjustments

Accumulated

other

comprehensive

loss

Retained
earnings

(millions of dollars)
88.9

(24.9)

15.7
(8.0)
(2.8)
(0.9)
0.3
4.4

-
-
-
-
-
-

Transition election to set cumulative translation adjustments to zero

(24.9)

24.9

Balance as at January 1, 2010 under IFRS

68.4

¹ Table may not add due to rounding

Since the impacts of conversion to IFRS standards are still in process of being finalized and audited, it is
possible that further differences may arise that could have a significant impact on the Company’s financial
statements under IFRS. Interfor expects to meet all filing requirements and deadlines for its first reporting
under IFRS for the March 31, 2011 quarter-end.

RISKS AND UNCERTAINTIES

Pricing

Interfor’s operating results are affected by fluctuations in the selling prices for lumber, logs and wood chips.
Product selling prices are, in turn, affected by such factors as the general level of economic activity in the
markets in which Interfor sells its products, interest rates, construction activity (in particular, housing starts
in the United States, Canada, Japan and China), and log and chip supply/demand relationships. Interfor’s
financial results may be significantly affected by changes in the selling prices of its products. Based on 2010
levels of operations, a $10 change in the Company’s average selling price of its products would impact net
earnings as follows:

Lumber

$10 increase per thousand fbm

$8.5 million increase in net income

Chips

$10 increase per unit1

$4.2 million increase in net income

Interfor sells chips in either volumetric units (VU’s or GPU’s - B.C. Coastal operations) or bone dry units (BDU’s - B.C. Interior and

1
Pacific Northwest operations).

Competition

Interfor’s competitors have greater financial resources than the Company and a number are, in certain
product lines, lower cost producers than Interfor.

Factors which affect the Company’s competitive position include:

•

the foreign exchange rate;

the cost of labour;

the costs of harvesting or purchasing logs;

the quality of its products and customer service;

the ability to secure space on vessels for overseas shipments and on trucks and railcars for North
American shipments;

the cost of export taxes payable on sales to the U.S.; and

its ability to maintain high operating rates and thus lower manufacturing costs.

If the Company is unable to successfully compete on a global basis, its financial condition could suffer.

Availability of Log Supply

The log requirements of Interfor’s mills are met using logs harvested from its timber tenures, by long-term
trade and purchase agreements and by purchases on the open market. Logs produced but unsuitable for
use in Interfor’s mills are either traded for suitable logs or sold on the open market. Operating at normal
capacity, the Company’s Canadian mills generally purchase less than 50% of their log requirements either
through purchase agreements or on the open market. The Company relies almost entirely on purchased
fibre for its U.S. based mills, with some logs for the sawmills located on the Olympic Peninsula provided by
the Company’s Canadian coastal logging operations. As a result, fluctuations in the price, quality or
availability of log supply can have a material effect on Interfor’s business, financial position, results of
operations and cash flow.

Additionally, in order to ensure uninterrupted access to logs harvested from its timber tenures in Canada,
Interfor must also focus on the continuous development of road networks. This encompasses an integrated
plan by foresters, engineers and logging operations personnel to identify future logging areas and develop
the engineering for roads. Interfor expects to fund its ongoing road development through the cash
generated from operations and through utilization of its existing bank facilities.

Use of Financial and Other Instruments

From time to time, the Company employs financial instruments, such as interest rate swaps and foreign
currency forward and option contracts, to manage exposure to fluctuations in interest rates and foreign
exchange rates. The Company’s policy is not to use derivatives for trading or speculative purposes. The risk
management strategies and relationships are formally documented and assessed on a regular, ongoing basis
to ensure derivatives are effective in offsetting changes in fair values or cash flows of hedged items.

The counter-parties for all derivative contracts are the Company’s Canadian bankers who are highly-rated
and, hence, the risk of credit loss on the instruments is mitigated.

Currency Exchange Sensitivity

The Company’s Canadian operations ordinarily sell approximately 75% of their lumber into export markets,
with the majority of these sales denominated in foreign currency, predominantly US$ and a small amount in
Japanese Yen. While the Canadian operations also incur some US$ denominated expenses, primarily for
ocean freight and other transportation, and equipment operating leases, the majority of expenses are
incurred in CAD$.

An increase in the value of the CAD$ relative to the US$ would reduce the amount of revenue in CAD$
realized by the Company from lumber sales made in US$. This would reduce the Company’s operating
margin and the cash flow available to fund operations. As a result, any such increase in the value of the
CAD$ relative to the US$ could have a material adverse effect on the Company’s business, financial
condition, results of operations and cash flows.

The Company actively manages its currency exchange risk for fluctuations in US$ and Japanese Yen by
identifying opportunities from time to time to enter into foreign exchange contracts to effectively hedge its
net exposure. As at December 31, 2010, the Company has outstanding obligations to sell a maximum of
US$22.5 million at an average rate of CAD$1.0168 to the USD$1.00 and sell Japanese ¥75.0 million at an
average rate of ¥83.03 to the US$1.00 during 2011. All foreign currency gains or losses to December 31,
2010 have been recognized in the Statement of Operations and the fair value of the foreign currency
contracts has been recorded as an asset of $0.5 million in accounts receivable and a negligible liability in
accounts payable (2009 - $0.4 million asset fair value recorded in accounts receivable).

Based on the Company’s net exposure to foreign currencies and related financial instruments in 2010, the
sensitivity of Interfor’s net earnings is as follows:

US$

$0.01 increase vs. CAD$

$1.3 million increase in net income

Japanese Yen 1¥ increase vs. US$

$0.1 mllion increase in net income

Until 2010, Interfor’s U.S. operations produced and sold products almost exclusively for the U.S. market, but
with the poor U.S. housing starts and increased demand from China and other overseas markets there has
been some sizable growth in export sales in 2010. All revenues and expenses are denominated in US$. All
foreign currency denominated assets and liabilities of the self-sustaining operations are translated at
exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average
rates for the period. Unrealized gains and losses arising upon translation of net foreign currency investment
positions in self-sustaining operations, together with any gain or losses arising from hedges of those net
investment positions to the extent effective, are credited or charged to net change in unrealized foreign
currency translation gains (losses) in the Statement of Comprehensive Income. Upon sale, reduction or
substantial liquidation of an investment position, the previously recorded net unrealized gains (losses)
thereon in Accumulated Other Comprehensive Income (“AOCI”) are reclassified to the Statement of
Operations.

The Company recorded a $7.6 million an unrealized foreign exchange loss on translation of its self-sustaining
operations in 2010 (2009 - $24.3 million loss) to Other comprehensive income (loss).

On October 1, 2008, the Company designated the US$30.2 million drawn under its Revolving Term Line for
the acquisition of its Beaver operations as a hedge against its investment in its self-sustaining U.S.
operations. Unrealized foreign exchange gains of $1.7 million (2009 - $5.0 million gain) have been recorded
in Other comprehensive income (loss) in 2010.

The Company had previously designated its US$35.0 million Non-Revolving Term Line as a hedge against its
investment in its self-sustaining U.S. operations. Effective April 1, 2007, the Company terminated the
designation of the hedging relationship and discontinued its hedge accounting. Previously recognized
unrealized foreign exchange gains as a result of applying hedge accounting totaled $5.5 million and continue
to be recorded in AOCI.

In conjunction with the amendments to its credit facilities on January 15, 2010, the Company drew US$35.0
million ($35.8 million) on its Revolving Term Line and repaid and cancelled its U.S. dollar non-revolving term
line (the “Non-Revolving Term Line”). Upon repayment of the loan, the foreign exchange gain of $1.0
million realized on repayment of the Non-Revolving Term Line was recognized in Other foreign exchange
gain (loss) on the Statement of Operations.

The Company subsequently drew a further $36.7 million and repaid the drawings of US$35.0 million used to
repay the Non-Revolving Term Line, realizing a foreign exchange loss of $0.9 million which was recognized
in Other foreign exchange gain (loss) on the Statement of Operations.

Cost of Debt Financing and Sensitivity

As at December 31, 2010 Interfor had drawn a total of $160.8 million (2009 - $149.5 million) of floating rate
debt under its operating and term credit facilities, including letters of credit.

The Company’s operating and term credit facilities bear interest at the bank prime rate plus a premium, or,
at the Company's option, at rates for Bankers' Acceptances for CAD$ loans or at LIBOR for US$ loans, in all
cases depending upon a financial ratio. The lines are 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 requirement.

During September 2005, the Company entered into a cross currency interest rate swap. The Company
received US$20.0 million at maturity on September 1, 2009 in exchange for payment of CAD$23.5 million
(an exchange rate of 1.1765). In addition, during the term of the swap the Company paid an amount based
on annual interest of 5.84% on the CAD$23.5 million and received 90 day LIBOR plus a spread of 200 basis
points on the US$20.0 million, with LIBOR recalculated at set interval dates. The swap matured on
September 1, 2009 and total foreign exchange losses of $2.1 million were recognized in 2009.

Based on the Company’s average debt level during 2010, the sensitivity of a 100 basis point increase in
interest rates would result in an approximate decrease of $1.1 million in net earnings.

Regulatory Issues

Interfor’s operations are subject to extensive provincial, state, federal or other laws and regulations that
apply to most aspects of our business activities. Where applicable, Interfor is required to obtain approvals,
permits and licences for its operations as a condition to operate.

From time to time the changes in government policy or regulation may impact the company’s operations.
Until the details of all such changes are announced and implemented, the full impact of these changes on
the Company’s production, costs, financial position and results of operations cannot be determined.

Allowable Annual Cut (“AAC”)

Interfor holds cutting rights in B.C. that represent an AAC of approximately of 3.7 million cubic metres. Of
this amount 3.5 million cubic metres is in the form of replaceable tenures. The remaining portion is held in
non-replaceable tenures (timber Licences and non-replaceable forest licences) that will expire over time.

The AAC is regulated by the Ministry of Forests and Range and subject to periodic reviews that assess and
then make determinations to set harvesting rates for each tenure. Many factors affect the AAC such as
timber inventory, operable land base, growth rates, regulations, forest health, land use and environmental
and social considerations.

Reductions in Interfor’s AAC from any new protected areas are subject to compensation, once these areas
have been formally removed. Currently there are no compensation claims outstanding.

The amount of timber available for harvest in the B.C. Southern Interior is expected to remain high for the
next five years as a consequence of an accelerated harvest to address the impact from the pine beetle
epidemic. The overall timber supply is expected to be reduced in the BC interior once the surplus of dead
pine is no longer useable. The amount and duration of the AAC increase and subsequent decline will vary by
location.

Aboriginal Issues

Aboriginal groups have claimed aboriginal title and rights over substantial portions of British Columbia,
including areas where Interfor’s forest tenures are situated, creating uncertainty as to the status of
competing property rights. The Federal and Provincial governments have been seeking to negotiate
settlements with aboriginal groups throughout British Columbia in order to resolve aboriginal rights and title
claims. In addition, the governments have entered, and may continue to enter, into interim measures
agreements with aboriginal groups. Any interim measures agreements or settlements that may result from
the treaty process may involve a combination of cash, resources, grants of conditional rights to resources on
public lands and rights of self government. The impact of aboriginal claims or treaty settlements on
Interfor’s forest tenures or the amounts of compensation to Interfor, if any, cannot be estimated at this
time.

The courts have also established that the Crown has a duty to consult with aboriginal groups and where
appropriate accommodate aboriginal interests. However, questions of responsibility and appropriateness of
balancing interests will continue to evolve as the parties try to address these long standing complex issues.
In British Columbia the Province has initiated a New Relationship process with First Nations that is intended
to improve the functional relationship between the Crown and aboriginal groups prior to treaty settlement.

In late 2009 the Province and six Coastal First Nations signed a Reconciliation Protocol that provides a
shared decision making process for resource and land use, as well as new forest sector opportunities. This
agreement overlaps a portion of Interfor’s Central Coast tenures. The agreement will be assessed and
monitored in the years ahead to determine the extent of any implications on those operations.

Stumpage Fees

Stumpage is the fee the Crown charges companies to harvest timber from Crown land. Stumpage
payments for a harvesting area is based on a competitive market pricing system (MPS) that has been
established for both the coast and interior regions of BC.

Amending the stumpage system is complex and the subject of discussion involving, among other things,
lumber trade agreements between Canada and the United States. The primary variable in MPS is log pricing
established through open market bidding for standing timber. In addition to bid prices, there are a number
of operational and administrative factors that go into determining an individual stumpage rate for each
cutting permit.

On July 1, 2010 The Ministry of Forests and Range implemented changes to the interior market pricing
system in response to the Mountain Pine Beetle (MPB) epidemic. These changes included the introduction of
stand as a whole pricing with cruise based billing for MPB damaged timber. The impact of these changes is
to increase the overall market sensitivity to pricing of MPB damaged timber. These changes in the pricing
system are consistent with Canada’s obligation under the 2006 Softwood Lumber Agreement (“SLA”).

On October 8, 2010, the U.S. Department of Commerce informed Canada that it was requesting
consultations under the SLA agreement with respect to current and past pricing of MPB damaged timber. As
of December 31, 2010 the consultation period was still in effect. On January 18, 2011 the U.S. government
filed for arbitration under the terms of the SLA, with the arbitration to be conducted by the London Court of
International Arbitration as required by the SLA. Decisions by the LCIA are final and binding on both parties.
As the U.S. arbitration request is still in preliminary stages the existence of any potential claim has not been
determined and no provision has been recorded in the financial statements as at December 31, 2010.

Periodic changes in the British Columbia government’s administrative policy can affect the market price for
timber and the viability of individual logging operations. There can be no assurance that current changes or
future changes will not have a material impact on stumpage rates.

Environment

Interfor has incurred, and will continue to incur, costs to minimize environmental impact, prevent pollution
and for continuous improvement of its environmental performance. Interfor may discover currently
unknown environmental problems or conditions relating to its past or present operations, or it may be faced
with unforeseen environmental liability in the future. This may require site or other remediation costs to
maintain compliance or correct violations of environmental laws and regulations or result in governmental or
private claims for damage to person, property or the environment, which could have a material adverse
effect on Interfor’s financial condition and results of operations.

Labour Disruptions

The Company’s Acorn, Hammond, Grand Forks, and Castlegar sawmill employees are members of the
Canadian USW union. The collective agreement with the Southern Interior USW agreement (Grand Forks
and Castlegar) expired on June 30, 2009 while the USW agreement for the B.C. Coast (Acorn and
Hammond) expired on June 14, 2010. The Company also has 16 employees in the B.C. Interior who are
members of the Canadian Marine Service Guild, and their collective agreement expires September 30, 2011.
Negotiations with the USW regarding renewal of the expired agreements are ongoing, with employees
continuing to work under the terms of the expired agreement with no workplace disruptions.

Production disruptions resulting from walkouts or strikes by unionized employees could result in lost
production and sales, which could have a material adverse impact on the Company’s business. The
Company believes that its current labour relations are stable and does not anticipate any related disruptions
to its operations in the foreseeable future.

OUTLOOK

Business conditions remain uncertain. The North American market has softened in recent weeks as harsh
weather has impacted building activity in a number of regions. Sales to China and other offshore markets
continue to positively impact pricing in North America. Cedar remains soft; Japan is stable.

The Canadian dollar is expected to remain relatively stable in 2011, hovering near parity relative to its U.S.
counterpart throughout the year.

The Company will continue to diversify its lumber markets to reduce its reliance on the U.S.

Interfor is continuing to move ahead with its high return capital program. So far, a total of $4.3 million has
been spent and a number of projects are scheduled for completion in the first six months of 2011. Total
capital spending in the first quarter of 2011 is expected to be in the range of $10 million; spending for the
year is projected at $45 - $47 million.

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.

International Forest Products Limited

CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of International Forest Products Limited (Interfor) is responsible for preparing

the accompanying consolidated financial statements. The financial statements were prepared in

accordance with Canadian generally accepted accounting principles and are necessarily based in part

on management’s best estimates and judgements. The financial information included elsewhere (in

the Statutory Reports) is consistent with that in the consolidated financial statements.

Interfor maintains a system of internal accounting control which management believes provides

reasonable assurance that financial records are reliable and form a proper basis for preparation of

financial statements. The internal accounting control process includes communications to employees

of Interfor’s standards for ethical business conduct.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for

financial reporting and internal controls. The Board exercises this responsibility through its Audit

Committee, the members of which are neither officers nor employees of Interfor. The Committee

meets periodically with management and the independent Auditors to satisfy itself that each group is

properly discharging its responsibilities and to review the consolidated financial statements and the

independent Auditors’ report. The Company’s Auditors have full and free access to the Audit

Committee. The Audit Committee reports its findings to the Board of Directors for consideration in

approving the consolidated financial statements for issuance to the shareholders. The Committee also

makes recommendations to the Board with respect to the appointment and remuneration of the

Auditors.

The consolidated financial statements have been examined by the independent Auditors, KPMG

LLP and their report follows.

Duncan K. Davies

John A. Horning

President and Chief Executive Officer

Senior Vice President, Chief Financial Officer and
Corporate Secretary

February 9, 2011

International Forest Products Limited

CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT

To the Shareholders

We have audited the accompanying consolidated financial statements of International Forest Products

Limited, which comprise the consolidated balance sheets as at December 31, 2010 and December 31,

2009, the consolidated statements of operations, retained earnings, cashflows, and comprehensive

income (loss) and accumulated other comprehensive income (loss) for the years then ended, and

notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial

statements in accordance with Canadian generally accepted accounting principles, and for such

internal control as management determines is necessary to enable the preparation of consolidated

financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our

audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.

Those standards require that we comply with ethical requirements and plan and perform the audit to

obtain reasonable assurance about whether the consolidated financial statements are free from

material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures

in the consolidated financial statements. The procedures selected depend on our judgment, including

the assessment of the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error. In making those risk assessments, we consider internal control

relevant to the entity’s preparation and fair presentation of the consolidated financial statements in

order to design audit procedures that are appropriate in the circumstances, but not for the purpose of

expressing an opinion on the effectiveness of the entity's internal control. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of accounting

estimates made by management, as well as evaluating the overall presentation of the consolidated

financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to

provide a basis for our audit opinions.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the

financial position of International Forest Products Limited as at December 31, 2010 and December 31,

2009, and the results of its operations and its cash flows for the years then ended in accordance with

Canadian generally accepted accounting principles.

KPMG LLP, Chartered Accountants

Vancouver, Canada

February 9, 2011

International Forest Products Limited
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
December 31, 2010 and 2009

Assets
Current assets:

Cash and cash equivalents
Accounts receivable
Income taxes recoverable
Inventories (note 3)
Prepaid expenses
Future income taxes (note 14)

Investments and other assets (note 4)
Property, plant and equipment (note 5)
Logging roads and bridges (note 6)
Timber tenures (note 6)
Goodwill
Long-lived assets held for sale (note 2)

Liabilities and Shareholders' Equity
Current liabilities:

Accounts payable and accrued liabilities
Income taxes payable
Payable to investee company (notes 8 and 22(a))

Reforestation liability, net of current portion (note 10)
Long-term debt (note 7(b))
Other long-term liabilities (note 9)
Future income taxes (note 14)

Shareholders' equity:

Share capital (note 11):

Issued and fully paid:

Class A subordinate voting shares
Class B common shares
Contributed surplus (note 11(a))
Accumulated other comprehensive loss
Retained earnings

2010

2009

9,301
45,961
-
71,762
8,334
3,627
138,985

28,618
333,989
17,063
80,154
13,078
-

3,802
32,951
230
60,159
7,777
2,974
107,893

17,060
357,501
16,485
67,010
13,078
3,424

$ 611,887

$ 582,451

$ 58,267
230
15,738
74,235

15,017
156,037
15,695
3,627

43,510
-
3,096
46,606

14,724
144,525
15,316
3,286

285,362
4,080
5,408
(32,501)
84,927
347,276

284,500
4,080
5,408
(24,855)
88,861
357,994

$ 611,887

$ 582,451

Commitments and contingencies (note 15)
Subsequent events (notes 1(e), 8, 15(c) and 22)
See accompanying notes to consolidated financial statements.

Approved on behalf of the Board:

E.L. Sauder, Director

G.H. MacDougall, Director

International Forest Products Limited
Consolidated Statements of Operations
(Expressed in thousands of Canadian dollars, except earnings per share amounts)
Years ended December 31, 2010 and 2009

2010

2009

Sales

$ 625,618

$ 389,775

Costs and expenses:
Production
Selling and administration
Long term incentive compensation
Export taxes
Amortization of plant and equipment
Depletion and amortization of timber, roads and other

Operating loss before restructuring costs
and write-downs of plant, equipment

Restructuring costs and write-downs of plant and

and equipment (note 13)

Operating loss

Other earnings (expenses):

Interest expense on long-term debt
Other interest expense
Other foreign exchange gain (loss)
Other income (expense) (note 12)
Equity in earnings of investee companies (note 4)

Loss before income taxes

Income taxes (note 14):

Current (recovery)
Future (recovery)

Net loss

Net loss per share (note 16):

Basic and diluted

557,122
17,508
1,873
7,427
28,117
19,008
631,055

374,488
16,445
3,211
3,903
24,838
13,340
436,225

(5,437)

(46,450)

(1,578)

(7,015)

(7,944)
(581)
(280)
(25)
11,446
2,616

(4,399)

60
(525)
(465)

(4,367)

(50,817)

(6,442)
(1,401)
37
22,965
1,885
17,044

(33,773)

(183)
(9,703)
(9,886)

(3,934)

(23,887)

(0.08)

(0.51)

See accompanying notes to consolidated financial statements.

Consolidated Statements of Retained Earnings
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2010 and 2009

Retained earnings, beginning of year
Net loss

Retained earnings, end of year

See accompanying notes to consolidated financial statements.

2010

2009

$ 88,861
(3,934)

$ 112,748
(23,887)

$ 84,927

88,861

International Forest Products Limited
Consolidated Statements of Cash Flows
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2010 and 2009

Cash provided by (used in):
Operating activities:

Net loss
Items not involving cash:

Amortization of plant and equipment
Depletion and amortization of timber, roads and other
Future income taxes (recovery)
Other assets
Reforestation liability
Other long-term liabilities
Equity in earnings of investee company (note 4)
Write-down of plant, equipment, and roads
Unrealized foreign exchange gains
Other expense (income) (note 12)

Cash generated from (used in) operating working capital:

Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes

Investing activities:

Additions to property, plant and equipment
Additions to logging roads and timber
Proceeds on disposal of property, plant and equipment (note 12)
Investments and other assets

Financing activities:

Issuance of share capital, net of expenses (note 11(a))
Decrease in bank indebtedness
Funds from promissory note payable to investee company (note 8)
Additions to long-term debt (note 7(b))
Repayments of long-term debt (note 7(b))

Foreign exchange loss on cash and cash equivalents held

in a foreign currency

Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

Supplementary disclosures:
Cash interest paid, net
Cash income taxes received

See accompanying notes to consolidated financial statements.

2010

2009

(3,934)

(23,887)

28,117
19,008
(525)
(5)
(449)
456
(11,446)
809
(71)
25
31,985

(13,460)
(12,421)
(744)
15,169
456
20,985

(10,912)
(31,398)
1,325
(4,383)
(45,368)

862
-
15,738
125,819
(112,534)
29,885

(3)
5,499
3,802
9,301

8,525
397

24,838
13,340
(9,703)
759
(961)
2,909
(1,885)
3,067
(6,969)
(23,089)
(21,581)

(8,580)
16,882
(625)
2,702
15,976
4,774

(20,781)
(6,811)
36,985
(942)
8,451

-
(30,589)
3,096
59,000
(41,000)
(9,493)

(114)
3,618
184
3,802

7,843
16,179

International Forest Products Limited
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2010 and 2009

Net loss

Other comprehensive loss:

Net change in unrealized foreign currency
translation losses on translation of
self-sustaining foreign subsidiaries

Other comprehensive loss

Comprehensive loss

See accompanying notes to consolidated financial statements.

2010

2009

(3,934)

$ (23,887)

(7,646)
(7,646)

(24,301)
(24,301)

$ (11,580)

(48,188)

Consolidated Statements of Accumulated Other Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars)
Years ended December 31, 2010 and 2009

Accumulated other comprehensive loss,

beginning of year
Other comprehensive loss

2010

2009

$ (24,855)
(7,646)

(554)
(24,301)

Accumulated other comprehensive loss, end of year

$ (32,501)

(24,855)

See accompanying notes to consolidated financial statements.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

1. Significant accounting policies and change in accounting policies:

International Forest Products Limited (the “Company” or “Intefor”) is incorporated under the
Business Corporations Act (British Columbia) and its primary business activity is the production of
wood products in British Columbia and the U.S. Pacific Northwest for sale to markets around the
world.

(a) Principles of consolidation:

These consolidated financial statements include the accounts of the Company and its wholly
owned subsidiaries from their respective dates of acquisition or incorporation. All
intercompany balances and transactions have been eliminated on consolidation.

(b) Adoption of changes in accounting policies:

Effective January 1, 2010, the Company adopted three new Canadian Institute of Chartered
Accountants (“CICA”) accounting standards:

(i) CICA Handbook Section 1582, Business Combinations which replaces CICA Handbook
Section 1581, Business Combinations, and establishes revised standards for the
recognition, measurement, presentation and disclosure of business acquisitions and
aligns Canadian GAAP with International Financial Reporting Standards (“IFRS”).

(ii) CICA Handbook Section 1601, Consolidated Financial Statements and CICA Handbook
Section 1602, Non-Controlling Interests, which replace CICA Handbook Section 1600,
Consolidated Financial Statements, and establish revised standards for the preparation of
consolidated financial statements.

Adoption of these standards has no impact on the consolidated financial statements.

Cash consists of cash on deposit and short-term interest bearing securities with maturities at
their purchase date of three months or less.

(d) Inventories:

Lumber inventories are valued at the lower of cost and net realizable value on a specific
product basis. Cost is determined as the weighted average of cost of production on a three
month rolling average, lagged by one month and adjusted for exceptional costs, as in the
case of a curtailment.

Log inventories are valued at the lower of cost and net realizable value on a specific boom
basis where logs are in boom form, or in aggregate on a species and sort basis where the
logs do not exist in boom form. Cost for internally produced log inventories is determined as
the weighted average cost of logging on a twelve month rolling average on the B.C. Coast
and on a three month rolling average in the B.C. Interior. For both areas, costs are lagged by
one month and adjusted for exceptional costs, as in the case of a curtailment. Log
inventories purchased from external sources are costed at acquisition cost. Net realizable
value of logs is based on either replacement cost or, for logs for which have been committed
to processing into lumber, on estimated net realizable value after taking into consideration
costs of completion and sale.

Other inventories consist primarily of supplies which are recorded at lower of cost and
replacement cost.

(e) Investments and advances:

Investments over which the Company is able to exert significant influence are accounted for
on the equity basis. Advances are accounted for at amortized cost.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

1. Significant accounting policies and change in accounting policies (continued):

(e) Investments and advances (continued):

The Company has been the holder of 60% of the outstanding common shares of Seaboard
Shipping Company Ltd. (“Seaboard”). The remaining common shares have been held by
other British Columbia forestry companies. Seaboard’s subsidiary company operates ocean-
going vessels that provide service to world ports with contractual commitments for lumber
and plywood volumes, as well as other cargo. Although the Company owns over 50% of the
common shares of Seaboard, the shareholders have entered into agreements that limit the
Company’s ability to control Seaboard’s strategic decisions. In addition, net earnings of
Seaboard are distributed based on a percentage of shipments of product by the shareholders
and not based on common share ownership.

The Company accounts for its investment in Seaboard using the equity method with the
investment adjusted for earnings of Seaboard based on the Company’s percentage of
earnings as determined based on its shipment percentage and decreased for distributions
made by Seaboard.

Effective January 5, 2011, there was a restructuring of Seaboard such that the Company
became sole owner of Seaboard after all other partners withdrew. (See Subsequent events -
note 22(b)).

(f) Property, plant and equipment and timber tenures and logging roads and bridges:

Property, plant and equipment and timber tenures and logging roads and bridges are
recorded at cost. Amortization on plant and equipment is provided on a straight-line basis
during periods of production at rates (ranging from 2.5% to 25%) based on the estimated
useful lives of the assets. Timber licence depletion and road and bridge amortization are
computed on the basis of timber cut relative to available timber. Tree farm and forest
licences are depleted on a straight-line basis over 40 years. Amortization rates are reviewed
periodically to ensure they are aligned with estimates of remaining economic useful lives of
the associated capital assets.

(g) Reforestation liability:

Forestry legislation in British Columbia requires the Company to incur the cost of reforestation
on its forest, timber and tree farm licences. Accordingly, the Company records the fair value
of the costs of reforestation in the period in which the timber is cut, with the fair value of the
liability determined with reference to the present value of estimated future cash flows. In
periods subsequent to the initial measurement, changes in the liability resulting from the
passage of time and revisions to fair value calculations are recognized in the statement of
operations as they occur. These costs are included in the cost of current production.

(h) Environmental costs:

Environmental expenditures are expensed or capitalized depending upon their future
economic benefit. Expenditures that prevent future environmental contamination are
capitalized as plant and equipment. Expenditures that relate to an existing condition caused
by past operations are expensed. Liabilities are recorded when rehabilitation efforts are likely
to occur and the costs can be reasonably estimated.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

1. Significant accounting policies and change in accounting policies (continued):

(i) Use of estimates:

The preparation of financial statements in conformity with Canadian generally accepted
accounting principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant areas requiring the use of management
estimates relate to the determination of restructuring, reforestation, road deactivation,
environmental and tax obligations, recoverability of assets, rates for depletion and
amortization, and determination of fair values of assets and liabilities acquired in business
combinations. Actual results could differ from those estimates.

(j) Income taxes:

Income taxes are accounted for under the asset and liability method. Future tax assets and
liabilities are recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Future tax assets and liabilities
are measured using substantively enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The
effect on future tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the substantive enactment date. When the realization of future tax
assets is not considered to be more likely than not, a valuation allowance is provided.

(k) Share-based compensation:

The Company has share option plans and other share-based compensation plans for
directors, officers and certain other eligible employees.

The Company follows the fair value method of accounting for share options granted to
directors, officers and employees. Under the fair value method, compensation expense is
recorded for share options over the vesting period based on the estimated fair market value
of the option at the date of grant.

For other share based compensation plans which are based on changes in the value of the
Company’s share price, the Company records a liability and recognizes an expense (recovery)
for changes in the estimated compensation over the vesting period based on the quoted
market price of the Company’s shares over the strike price of the grant.

(l) Sales recognition and presentation policies:

The Company recognizes sales to external customers when the product is shipped and title
passes. Sales are recorded on a gross basis, before freight, wharfage and handling costs,
and export taxes.

(m) Employee future benefits:

The estimated costs for defined benefit pensions and other post-retirement benefits provided
to employees by the Company are accrued using actuarial methods and assumptions,
including Management’s best estimates of the discount rate, future investment earnings,
salary escalation, and health care costs.

The actuarial liability, and the associated annual cost of accruing benefits for the defined
benefit pension plans and other post-retirement benefits is calculated using the projected
accrued benefit cost method pro-rated on service.

For the purpose of calculating the expected return on plan assets, those assets are valued at
fair value.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

1. Significant accounting policies and change in accounting policies (continued):

(m) Employee future benefits (continued):

Actuarial gains and losses arise from actual experience being different from the assumptions,
or changes in actuarial assumptions used to determine the actuarial liability.

The unamortized net actuarial gains or losses in excess of ten percent of the greater of the
benefit obligation and the fair value of the plan assets are amortized on a straight-line basis
over the average remaining service period of active employees. The average remaining
service period of the active employees covered by the plans is twelve years in 2010 (2009 -
thirteen years).

(n) Hedging relationships and accounting for derivative financial instruments:

The Company at times uses derivative financial instruments for economic hedging purposes in
the management of foreign currency and interest rate exposures. The Company’s policy is
not to use derivatives for trading or speculative purposes. The risk management strategies
and relationships are formally documented and assessed on a regular, on-going basis to
ensure the derivatives are effective in offsetting changes in fair values or cash flows of
hedged items. Foreign exchange exposure to foreign currency receipts and related
receivables, primarily U.S. currency, is managed through the use of foreign exchange forward
contracts and options.

Exposure to interest rates on a component of long-term debt was managed through the use
of a cross currency interest rate swap. This swap agreement required the periodic exchange
of payments without the exchange of the notional principal amount on which the payments
are based. Foreign exchange adjustments accounted for under the cross currency interest
rate swap agreement were recognized in Other foreign exchange gain (loss) on the
Statement of Operations. The cross currency interest rate swap matured on September 1,
2009.

The Company has chosen not to designate its derivative forward foreign exchange contracts,
options and interest rate swap as hedges. Consequently, derivatives for which hedge
accounting is not applied are carried on the balance sheet at fair value, with changes in fair
value being recorded in the statement of operations.

(o) Foreign currency translation:

Foreign currency denominated assets and liabilities of self-sustaining foreign operations are
translated into Canadian Dollars at exchange rates in effect at the balance sheet date.
Related unrealized gains and losses are included in the net change in unrealized foreign
currency translation gains (losses) in the Statement of Comprehensive Income.

For the Company’s integrated foreign operations foreign currency monetary assets and
liabilities are translated into Canadian Dollars at exchange rates in effect at the balance sheet
date, while foreign currency non-monetary assets and liabilities are translated into Canadian
dollars at the historical exchange rate in effect when the related asset was acquired or
obligation incurred. Related unrealized translation gains and losses are included in Operating
earnings or Other foreign exchange gain (loss) in the Statement of Operations, depending
upon the nature of the item translated.

Long-term obligations denominated in foreign currencies are from time to time designated as
a hedge of the Company’s investments in self-sustaining foreign operations and hedge
accounting is utilized with resulting unrealized foreign exchange gains and losses recorded in
Other Comprehensive Income in the period in which they occur. When the Company
terminates the designation of the hedging relationship and discontinues its use of hedge
accounting any accumulated unrealized foreign exchange gains and losses remain in
Accumulated Other Comprehensive Income. Unrealized foreign exchange gains and losses
arising subsequent to termination of the designation of the hedge relationship are recorded in
Other foreign exchange gain (loss) in the Statement of Operations.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

1. Significant accounting policies and change in accounting policies (continued):

(o) Foreign currency translation (continued):

Unrealized foreign exchange gains and losses residing in Accumulated Other Comprehensive
Income will be released to the Statement of Operations upon the reduction of the net
investment in self-sustaining foreign operations through the sale, reduction or substantial
liquidation of an investment position.

Revenues and expenses denominated in foreign currencies are translated at average rates for
the period with the exception of depreciation and amortization of foreign currency
denominated long term assets of the Company’s integrated foreign operations, which are
translated at historical exchange rates.

(p) Net earnings (loss) per share:

Basic earnings (loss) per share are computed by dividing net earnings by the weighted
average shares outstanding during the reporting period. Diluted earnings (loss) per share
are computed using the treasury stock method.

(q) Asset retirement obligations:

Asset retirement obligations are recognized at the fair value in the period in which the legal
obligation was incurred, with fair value of a liability determined with reference to the present
value of estimated future cash flows. In periods subsequent to the initial measurement,
changes in the liability resulting from the passage of time and revisions to fair value
calculations are recognized in the statement of operations as they occur.

(r) Impairment of long-lived assets, goodwill and related measurement uncertainty:

Long-lived assets are tested for recoverability whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The Company determines if an
impairment loss exists by comparing the carrying amount of a long-lived asset to the sum of
the undiscounted cash flows expected to result from its use and eventual disposition. If an
impairment loss exists, the amount of the loss is measured as the amount by which the long-
lived asset’s carrying amount exceeds its fair value.

As at December 31, 2010, the Company tested the recoverability of its long-lived assets. The
recoverability tests performed include management forecasts of cash flows arising from the
use and disposition of the relevant assets. Based on the management forecasts,
undiscounted cash flows exceed the carrying value of the Company’s long-lived assets and no
impairment charge is required at December 31, 2010.

Goodwill is tested for impairment annually, and whenever events or changes in circumstances
indicate that an impairment may exist. The Company determines if an impairment loss exists
by estimating the fair value of the goodwill and related reporting unit and comparing it to the
carrying amount of the goodwill and related reporting unit. When the carrying value of a
reporting unit’s goodwill exceeds its fair value, an impairment loss is recognized in an amount
equal to the excess.

The Company uses a discounted cash flow methodology to estimate the fair value of the
goodwill and related reporting unit. The cash flows are based on management forecasts and
an appropriate discount rate as determined by reference to current market conditions and
specific company factors. For the year ended December 31, 2010, the estimated fair value of
the goodwill and related reporting unit exceeds the carrying value of these assets.
Therefore, no impairment charge is required.

Numerous assumptions are required in conducting the recoverability tests and the more
significant ones include lumber and residual chip sales prices, applicable foreign exchange
rates, operating rates of the assets, raw material and conversion costs, and the amount of
sales to the U.S. from Canada and the level of export taxes. The Company has analyzed
external data in determining appropriate assumptions.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

1. Significant accounting policies and change in accounting policies (continued):

(r) Impairment of long-lived assets, goodwill and related measurement uncertainty (continued):

Given the judgements and estimates required to carry out the tests for recoverability of long-
lived assets and goodwill, and the sensitivity of results to significant assumptions used, it is
possible that future conditions may change and may result in different assumptions in the
future, which could result in impairment of the carrying values of the assets at that time.

(s) Comparative figures:

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

(t) Future accounting changes:

In February 2008, the Canadian Accounting Standards Board confirmed that Canadian
generally accepted accounting principles (“Canadian GAAP”) will be converged with
International Financial Reporting Standards for fiscal years commencing January 1, 2011.
The transition from Canadian GAAP to IFRS will be applicable for the Company for the first
quarter of 2011 when the Company will prepare both the current and comparative financial
information using IFRS.

While IFRS uses a conceptual framework similar to Canadian GAAP, there are significant
differences on recognition, measurement, and disclosures. The Company has identified a
number of key areas that will be impacted by changes in accounting policies, including:
property, plant, and equipment; impairment of assets; provisions, including reforestation
liabilities and asset retirement obligations; share-based payments; employee future benefits;
and future income taxes. Management is finalizing the determination of the impact of the
application of IFRS on the financial statements and having these impacts audited.

As a first-time adopter of IFRS, the Company is required to apply IFRS 1 First time adoption
of International Reporting Standards which provides a number of optional exemptions to first-
time adopters to ease the transition to IFRS. The Company expects to apply exemptions
under each of the following IFRS 1 categories which are significant to the Company’s opening
balance sheet:

Property, plant and equipment

IFRS 1 allows a company to use fair value as the deemed cost for items of property, plant
and equipment at the date of transition which results in an adjustment to Retained earnings
in the opening Balance Sheet. The Company has identified a property at its Hammond
sawmill site for which it will take this election at the transition date

Cumulative translation adjustments

IFRS 1 provides an exemption that allows the cumulative translation account to be set to zero
at the date of transition as an adjustment to Retained earnings in the opening Balance Sheet.

Employee future benefits

IFRS 1 provides an exemption that allows recognition of all unamortized actuarial gains and
losses at the transition date as an adjustment to Retained earnings in the opening Balance
Sheet.

Business combinations

IFRS 1 provides an exemption which eliminates the requirement to restate business
combinations entered into prior to the date of transition.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

2. Long-lived assets held for sale:

In 2009, the Company had classified the property at the former Field sawmill site located in
Courtenay, B.C., as held for sale at December 31, 2009. As at December 31, 2010, the property
was reclassified to Property, plant and equipment, note 5.

3. Inventories:

Logs
Lumber
Other

2010

2009

$ 39,107
27,353
5,302

$ 31,011
24,301
4,847

$ 71,762

$ 60,159

Inventory expensed in the period includes production costs, amortization of plant and equipment,
and depletion and amortization of timber, roads and other. The inventory writedown to record
inventory at the lower of cost and net realizable value at December 31, 2010 was $7,589,000
(2009 - $9,578,000).

4. Investments and other assets:

Seaboard Shipping Company Limited
Other investments and deposits
Pension asset (note 17(b))
Deferred financing fees, net of accumulated amortization

Summarized information of Seaboard is as follows:

Total assets
Shareholders’ equity
Net sales

Interfor’s shipment percentage
Interfor’s equity in earnings
Distributions received

2010

$ 17,125
523
8,858
2,112

2009

8,774
563
7,121
602

$ 28,618

$ 17,060

2010

2009

$ 30,202
23,228
41,995

$ 21,620
17,699
36,278

96.8%

$ 11,446
3,096

75.7%
1,885
3,651

In 2010, a distribution was made to the partners, of which the Company’s share was $3,096,000
(2009 - $3,651,000). In accordance with equity accounting, the distributions were recorded as a
reduction of the investment. See also Payable to investee company, note 8.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

5. Property, plant and equipment:

2010

Land
Buildings
Machinery and equipment
Mobile equipment
Computer software and equipment
Site improvements
Other

2009

Land
Buildings
Machinery and equipment
Mobile equipment
Computer software and equipment
Site improvements
Other

6. Roads, bridges and timber tenures:

2010

Roads and bridges
Timber tenures

2009

Roads and bridges
Timber tenures

Cost

19,274
61,808
405,244
13,589
20,433
32,002
6,201

Accumulated
amortization

-
22,444
158,367
11,045
13,643
14,662
4,401

Net book
value

19,274
39,364
246,877
2,544
6,790
17,340
1,800

$ 558,551

$ 224,562

$ 333,989

15,990
71,198
420,160
8,892
20,509
25,400
4,588

-
29,324
151,110
6,778
11,321
7,088
3,615

15,990
41,874
269,050
2,114
9,188
18,312
973

$ 566,737

$ 209,236

$ 357,501

Cost

Accumulated
amortization

Net book
value

43,958
117,597

26,895
37,443

17,063
80,154

$ 161,555

64,338

97,217

41,730
101,718

25,245
34,708

16,485
67,010

$ 143,448

59,953

83,495

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

7. Bank indebtedness and long-term debt:

(a) Bank indebtedness:

Available line of credit
Maximum borrowing available
Operating Line drawings
Outstanding letters of credit included in line utilization
Unused portion of line

2010

$ 65,000
65,000
-
4,756
60,244

2009

65,000
61,926
-
4,997
56,929

On January 15, 2010 the Company amended its existing operating line of credit (“Operating
Line”) and the maturity date was extended to February 28, 2011. On August 19, 2010, the
Company further amended and extended its existing syndicated credit facilities and the
maturity date of the Operating Line was extended to July 28, 2012. All other terms and
conditions of the Operating Line remained substantially unchanged except for a reduction in
pricing.

The 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 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, 2010, there were no drawings under the Operating Line (December 31,
2009 - $nil).

(b) Long-term debt:

On January 15, 2010 the Company amended and extended its existing syndicated credit
facilities.
from $150,000,000 to
$200,000,000, and its maturity date was extended to February 28, 2012.

The Company’s Revolving Term Line

increased

On August 19, 2010, the Company further amended and extended its existing syndicated
credit facilities and the maturity date of the Revolving Term Line was extended to July 28,
2013. All other terms and conditions of the Revolving Term Line remained substantially
unchanged except for a reduction in pricing.

The Revolving Term Line may be drawn in either CAD$ or US$ advances, and bears interest
at bank prime plus a margin or, at the Company’s option, at rates for Bankers’ Acceptances
or LIBOR based loans plus a margin, and in all cases dependent upon a financial ratio of total
debt divided by twelve months’ trailing EBITDA¹.

The Revolving Term 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 term 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.

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

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

7. Bank indebtedness and long-term debt (continued):

(b) Long-term debt (continued):

As at December 31, 2010, the Revolving Term Line was drawn by US$30,200,000 (December
31, 2009 – US$30,200,000) revalued at the year-end exchange rate to $30,037,000
(December 31, 2009 - $31,740,000), and $126,000,000 (December 31, 2009 - $76,000,000)
for total drawings of $156,037,000 (December 31, 2009 - $107,740,000), and leaving an
unused available line of $43,963,000.

In conjunction with the amendments to its credit facilities on January 15, 2010, the Company
drew US$35,000,000 ($35,819,000) on its Revolving Term Line and repaid and cancelled its
U.S. dollar non-revolving term line (the “Non-Revolving Term Line”). At December 31, 2009
the Non-Revolving Term Line was fully drawn at US$35,000,000 and was revalued at the
year-end exchange rate to $36,785,000. Upon repayment of the loan, the foreign exchange
gain of $966,000 realized on repayment of the Non-Revolving Term Line was recognized in
Other foreign exchange gain (loss) on the Statement of Operations (2009 - $5,845,000
unrealized foreign exchange gain on revaluation of loan).

The Company subsequently drew a further $36,715,000 and repaid the drawings of
US$35,000,000 used to repay the Non-Revolving Term Line, realizing a foreign exchange loss
of $896,000 which was recognized in Other foreign exchange gain (loss) on the Statement of
Operations.

The US$30,200,000 drawing under the Revolving Term Line has been designated as a hedge
against the Company’s investment in its self-sustaining U.S. operations and unrealized foreign
exchange gains of $1,703,000 (2009 - $5,043,000 gain) arising on revaluation of the Non-
Revolving Term Line were recognized in Other comprehensive income.

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

2011
2012
2013
2014
2015

$ -
-
156,037
-

$ 156,037

8. Payable to investee company:

On July 30, 2010, subsequent to the sale of one of its two vessels, the Seaboard Limited
Partnership (“the Seaboard Partnership”), made an advance to its partners, with Interfor’s share
of the advance being $6,896,000. The Seaboard Partnership made a second advance to its
partners, and Interfor received $8,842,000 on December 30, 2010. The Company signed
unsecured promissory notes in respect of each of these advances, payable on demand on or
before January 3, 2011 and non-interest bearing until January 3, 2011 and bearing interest at
the rates of 4.5% thereafter for the July 30, 2010 advance and 4.0% per annum thereafter for
the remaining advance.

These advances were settled subsequent to December 31, 2010 (see Subsequent events, note
22(a)).

On December 29, 2009, the Seaboard Partnership made an advance to its partners, with
Interfor’s share of the advance being $3,096,000. On January 4, 2010, the Seaboard Partnership
declared an income distribution to its partners, of which the Company’s share of $3,096,000 was
received by way of setoff against the promissory note payable to the Seaboard Partnership.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

9. Other long-term liabilities:

Road deactivation and environmental
Pension and other post-retirement benefits (notes 17(b) and (e))
Long term incentive compensation

Share based (notes 11(c) and (d))
Total shareholder return plan

Other

2010
4,529
5,152

1,649
2,130
2,235

2009
5,026
4,706

1,550
2,280
1,754

$ 15,695

$ 15,316

In 2003, the Company introduced a Total Shareholder Return Plan (“TSR Plan”) for certain key
executives. Under the TSR Plan, the Company will pay compensation to the TSR Plan members if
the compound annual growth rate of the Company’s share price exceeds 5% per annum over a
three year period. The amount of compensation payable varies with the amount of the
compound annual growth rate to a maximum of 15% per annum, the member’s salary and a
target award amount. For the three year period which concluded December 31, 2009, a
minimum target award was guaranteed for the Chief Operating Officer irrespective of the actual
compound growth rate. The guaranteed target award matured on December 31, 2009 and was
converted in March 2010 into a long-term payable account under the Deferred Share Unit Plan
(“DSU Plan”) and is included in Other in Other long-term liabilities. Valuation adjustments are
made monthly to the plan based on a referenced investment fund and are charged to
compensation expense.

The Company recorded compensation expense under the TSR Plan of $1,065,000 (2009 -
$1,470,000) and $102,000 (2009 - $nil) under the long-term payable under the DSU Plan for the
year ended December 31, 2010.

10. Reforestation liability:

The Company has an obligation to reforest areas harvested under various timber rights. The
obligation is incurred as production occurs and the fair value of the liability for reforestation is
determined with reference to the present value of estimated future cash flows required to settle
the obligation.

Changes in the reforestation liability for the years ended December 31 are as follows:

Reforestation liability, beginning of year
Reforestation expense on current production
Reforestation liability addition on acquisition of
Weyerhaeuser timber tenure
Reforestation expenditures
Accretion expense
Changes in estimated future reforestation expenditures

Consisting of:
Current portion included in accounts payable

and accrued liabilities

Long term reforestation liability

2010
$ 21,496
7,992

2009
24,345
2,779

742
(6,260)
1,031
(199)

-
(5,969)
1,098
(757)

$ 24,802

21,496

9,785
15,017

6,772
14,724

$ 24,802

21,496

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

10. Reforestation liability (continued):

The total undiscounted amount of the estimated future expenditures required to settle the
reforestation obligation at December 31, 2010 is $28,165,000 (2009 - $24,610,000). The
reforestation expenditures are expected to occur over the next one to fifteen years and have
been discounted at the Company’s estimated credit-adjusted risk-free interest rate of 7.0%.
Reforestation expense incurred due to current production and accretion expense are included in
production costs for the year.

11. Share capital:

(a) Share transactions:

Authorized capital at December 31, 2010 and 2009 consists of:

100,000,000 Class A subordinate voting shares without par value

1,700,000 Class B common shares without par value

5,000,000 preference shares without par value

Share transactions during 2010 and 2009 were as follows:

Balance, December 31, 2008
Shares issued on exercise of options

Class A
46,101,476
-

Number

Class B
1,015,779
-

Total
47,117,255
-

Amount
$ 288,580
-

Balance, December 31, 2009
Shares issued on exercise of options

46,101,476
236,200

1,015,779
-

47,117,255
236,200

288,580
862

Balance, December 31, 2010

46,337,676

1,015,779

47,353,455

$ 289,442

The first 13-1/3¢ per share per annum of dividends to common shareholders declared are
paid on the Class A shares. Any additional dividends must be declared in equal per share
amounts on the Class A and B shares.

The Class B shares (carrying ten votes per share) are exchangeable into Class A shares
(carrying one vote per share) at any time at the option of the holder or, under certain
conditions which will result in the automatic conversion of the Class B shares into Class A
shares, on the basis of one Class A share for one Class B share.

On January 3, 2008, the Company received approval to make a normal course issuer bid to
acquire up to 1,300,000 Class A shares (representing approximately 2.8% of the outstanding
Class A shares as at December 31, 2007) through the facilities of the Toronto Stock
Exchange. Any Class A shares purchased by the Company are at market prices and are
cancelled as purchased. The program commenced on January 8, 2008 and terminated on
January 7, 2009.

The Company did not repurchase any Class A shares through the normal course issuer bid in
2009.

There was no change in contributed surplus in 2010 or 2009.

At December 31, 2010, Class A shares are reserved for possible future issuance as follows:

(i) 1,015,779 Class A shares are reserved for the conversion of Class B shares; and

(ii) 1,918,740 Class A shares are reserved for possible issuance pursuant to the share option

plan.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

11. Share capital (continued):

(b) Share option plan:

The Company has an employee share option plan for its key employees and directors. The
vesting of the options occurs at a rate of 40% two years after granting and 20% per annum
thereafter. Options expire ten years after the date of the grant. Options outstanding at
December 31, 2010 are exercisable at prices ranging from $3.65 to $4.94 per share, being
the closing market price for the shares on the dates that the options were granted. The
options expire on January 18, 2011 and April 30, 2011.

Details of the Company’s share option plan for the years ended December 31, 2010 and 2009
are as follows:

2010

2009

Options
Outstanding, beginning of year 751,340
-
Granted
(236,200)
Exercised
(228,140)
Expired or cancelled

Weighted
average
exercise price
$ 4.44
-
3.65
4.85

Weighted
average
exercise price
$ 4.59
-
-
5.00

Options
1,021,340
-
-
(270,000)

Outstanding, end of year

287,000

$ 4.77

751,340

$ 4.44

Options exercisable, year end

287,000

$ 4.77

751,340

$ 4.44

The options outstanding at December 31, 2010 have a weighted average remaining life of 0.3
years.

Awards under the Share Appreciation Rights Plan (“SAR Plan”) have been granted to
directors, officers and senior managers of the Company. Under the SAR Plan, awards will be
expensed over the vesting periods when the market price of the common shares exceeds the
strike price under the plan. Changes in the quoted market value of those shares between the
date of grant and the measurement date result in a change in the measure of the
compensation for the award and will be amortized over the remaining vesting periods. The
SAR Plan uses notional units that are valued based on the Company’s common share price on
the Toronto Stock Exchange. The units are exercisable for cash and recorded as liabilities
(see Other long-term liabilities, note 9).

2010

2009

Units
Outstanding, beginning of year 1,732,580
290,000
Granted
-
Exercised
(64,400)
Expired or cancelled

Weighted
average
strike price
$ 5.01
4.73
-
3.70

Units
1,428,320
363,500
-
(59,240)

Weighted
average
strike price
$ 5.90
1.38
-
4.28

Outstanding, end of year

1,958,180

$ 5.01

1,732,580

$ 5.01

Units exercisable, year end

1,110,580

$ 5.88

921,960

$ 5.85

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

11. Share capital (continued)

Details of units outstanding under the SAR Plan at December 31, 2010 are as follows:

Number
outstanding,
December 31,
2010
311,000
912,860
590,820
143,500

Strike
price
$1.38
$3.40-$5.21
$6.07-$7.30
$8.02

Units outstanding
Weighted
average
remaining
unit life (yrs)

Weighted
average
strike price
$ 1.38
4.75
6.60
8.02

8.2
5.6
3.2
6.1

Units exercisable

Number
exercisable,
December 31,
2010
-
451,160
573,320
86,100

Weighted
average
strike price
-
$
4.57
6.59
8.02

1,958,180

$ 5.01

1,110,580

$ 5.88

The Company recorded compensation expense in respect of the SAR Plan of $582,000 (2009
– expense of $546,000) for the year ended December 31, 2010. Accrued compensation
payable on unexercised units totaled $1,128,000 (2009 - $546,000) at December 31, 2010, of
which $741,000 (2009 - $184,000) was classified current and recorded in accounts payable
and accrued liabilities and the balance was recorded in long-term liabilities (see Other long-
term liabilities, note 9).

(d) Deferred Share Unit Plan:

In January 2004, the Company introduced a DSU Plan for Directors and senior officers of the
Company. The Plan, which allows for immediate vesting, is intended to provide a better link
between share performance and compensation for the participants, in that DSU’s either
increase or decrease in value in a direct relationship with the Company’s Class “A”
Subordinate Voting shares.

Participants in the TSR Plan may elect, subject to the approval of the Company’s Board of
Directors, to receive their award in DSU’s at the end of any performance period. In respect
of the guaranteed 2009 TSR award, the Board exercised its discretion and required the award
to be converted in March 2010 into a long-term payable account under the Deferred Share
Unit Plan included in Other in Other long-term liabilities (note 9).

DSU’s may also be granted directly to Directors or senior employees of the Company at the
discretion of the Board and Directors may also elect to take DSU’s as payment of their annual
retainer. In 2010 a total of 46,784 DSU’s (2009 – 31,602) were granted to or taken by
Directors under the plan at an average value of $4.94 (2009 - $2.29) per unit.

The Company recorded compensation expense of $124,000 (2009 – $1,195,000) for the year
ended December 31, 2010 in respect of the DSU Plan. Subsequent changes to share values
will result in adjustments to the compensation accrual and expense. At December 31, 2010,
the Company had 480,249 (2009 – 361,465) DSU’s outstanding. At December 31, 2010,
accrued compensation payable in respect of the DSU Plan totaled $2,135,000 (2009 -
$1,781,000), of which $873,000 (2009 - $593,000) was classified current and recorded in
accounts payable and accrued liabilities and the balance was recorded in long-term liabilities
(see Other long-term liabilities, note 9).

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

12. Other income (expense):

Gain (loss) on disposal of surplus property, plant,

and equipment, and investment
Gain on settlement of timber takeback
Other

2010

2009

(201)
376
(200)

$ 22,085
1,004
(124)

(25)

$ 22,965

In 2010, the Company received further compensation under the Forest Act for timber, roads and
bridges resulting from the 2006 legislated takeback of certain logging rights on the B.C. Coast
which, combined with minor disposals of surplus equipment and roads, resulted in proceeds of
$1,325,000 and a net loss of $25,000.

In 2009, the Company completed the sale of its former Queensboro millsite, located in New
Westminster, B.C. and its remaining surplus equipment, yielding net proceeds of $30,197,000 and
a gain of $21,169,000. The Company also disposed of surplus property and buildings in Maple
Ridge, B.C. which, combined with other disposals of surplus equipment and an investment,
generated sales proceeds of $4,788,000 and a gain of $916,000. The Queensboro millsite and
surplus property and buildings in Maple Ridge, B.C. had been classified as held for sale at
December 31, 2008.

In addition, under the terms of the Forest Act, the Company received $2,000,000 as advance
compensation for timber, roads and bridges resulting from the 2006 legislated takeback of certain
logging rights on the B.C. Coast, and recorded a gain of $1,004,000 in 2009.

13. Restructuring costs and write-downs of plant and equipment:

The Company recorded restructuring costs, and write-downs of plant and equipment consisting of
the following:

Plant and equipment write-downs
Severance costs
Other (recovery)

2010
485
1,093
-

2009
3,067
1,565
(265)

1,578

4,367

During 2010 the Company restructured certain of its manufacturing operations and revised
certain of its previous estimates resulting in severance costs of $1,093,000. The Company also
recorded $485,000 in asset write-downs as it determined certain assets were impaired.

During 2009, the Company determined certain assets were impaired in the current operating
environment and recorded $3,067,000 in asset write-downs. In addition, total severance costs of
$1,565,000 were recorded as the Company downsized its workforce in response to reduced
operating rates. A successful defense of a legal dispute in 2009 allowed the Company to reverse
restructuring costs of $265,000 previously accrued.

As at December 31, 2010, $742,000 (2009 - $1,359,000) in severance and other cash
restructuring costs are included in accounts payable and accrued liabilities. The Company
expects to pay this amount in 2011 in accordance with its restructuring plans. In addition, a
further $523,000 (2009 - $618,000) in other restructuring costs are also included in accounts
payable and accrued liabilities.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

14. Income taxes:

Future income taxes are determined as follows:

Future income tax assets:
Losses carried forward
Reforestation, restructuring and other accruals
deductible when paid
Tax credits

Valuation allowance

Future income tax liabilities:

Property, plant and equipment
Other

Current future income tax assets
Non-current future income tax liabilities

2010

2009

80,289

$ 68,502

7,968
2,520
90,777
(25,527)
65,250

(67,366)
2,116

3,627
(3,627)

7,139
2,779
78,420
(22,734)
55,686

(58,013)
2,015

(312)

2,974
(3,286)

(312)

The reconciliation of income taxes at the statutory rate to the income tax recovery is as follows:

Income tax expense (recovery) at the statutory rate of

28.5% (2009 – 30.0%)

Valuation allowance on future income tax assets
Non-taxable income of investments accounted for by

the equity method

Entities with different tax rates
Non-taxable portion of capital losses (gains)
Change in future tax rates and statutory and tax recovery

rate difference

Other

2010

2009

(1,253)
4,096

$ (10,132)
7,449

(3,262)
(599)
(148)

411
290

(565)
(1,245)
(6,013)

789
(169)

(465)

(9,886)

The Company’s Canadian non-capital loss carry-forwards and U.S. net operating loss carry-
forwards totalling approximately $260,000,000 (2009 - $216,000,000) expire between 2011 and
2030, and are available to reduce future taxable income. The Company has provided a valuation
allowance in respect of approximately $72,000,000 (2009 - $62,000,000) of its operating loss
carry-forwards, net of temporary differences. The Company also has B.C. Manufacturing and
Processing tax credit and Canadian investment tax credit carry-forwards of $2,520,000 (2009 -
$2,779,000) which expire between 2011 and 2026.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

15. Commitments and contingencies:

(a) Operating leases and contractual obligations:

The Company is obligated under various operating leases and contracts requiring minimum
annual payments in each of the next five years as follows:

2011
2012
2013
2014
2015

6,070
3,360
2,580
2,230
1,840

(b) Central and North Coast Land Use Decisions:

In 2006, the Government of B.C. announced land use decisions for the Central Coast and the
North Coast regions of B.C. which recently resulted in permanent reductions in the Company’s
allowable annual cut (“AAC”) in the plan areas. The Company has not been harvesting its full
AAC in this region for a number of years due to temporary reductions put in place during the
negotiation period and uncertainty around operating areas.

In 2009, the Company received $2,500,000 as an advance of compensation under the Forest
Act for timber, roads and bridges, and forestry and engineering work related to timber
returned pursuant to the Plan. The Company recorded $2,000,000 as proceeds on disposition
of related assets, and $500,000 as a recovery of production costs.

In 2010, the Company received $376,000 as final settlement of compensation which was
recorded as proceeds on disposition of related assets.

No further compensation payable to the Company as a result of the AAC reductions is
expected.

On January 18, 2011 U.S. trade representatives filed for arbitration under the provisions of
the Softwood Lumber Agreement ("SLA") over its concern that the Province of British
Columbia ("B.C.") is charging too low a price for certain timber harvested on public lands in
the B.C. Interior. The Company believes that B.C. and Canada are complying with their
obligations under the SLA.

As the U.S. arbitration request is still in preliminary stages the existence of any potential
claim has not been determined and no provision has been recorded in the financial
statements as at December 31, 2010.

(d) Storm damage:

In the latter half of September 2010, heavy rains and strong winds on northern Vancouver
Island and the B.C. Central Coast triggered severe power outages, mudslides, road washouts
and flooding, with a state of emergency declared in several populated areas. Some logging
areas were impacted by these severe storms with bridge and culvert damage, road washouts
and slides in reforested areas. Due to the remoteness and magnitude of the areas impacted
it has been difficult to fully assess the extent of the damage and its related costs. The
Company continues to pursue provincial and federal government assistance. Certain losses
are covered by insurance and as at December 31, 2010, a receivable of $113,000 has been
set up for recovery of qualifying expenditures, net of the insurance deductible.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

15. Commitments and contingencies (continued):

(d) Storm damage (continued):

To December 31, 2010, $103,000 has been expensed in the Statement of Operations as a
result of storm damage related expenses.

The Company is actively working with its insurers to ensure maximum recovery of future
restoration expenditures and business interruption losses.

(e) Surety Performance Bonds

The Company has posted $8,109,000 in surety performance bonds, with various expiry dates
extending through 2014.

(f) Other contingencies:

The Company is subject to a number of claims arising in the normal course of business in
respect of which either an adequate provision has been made or for which no material
liability is expected.

16. Net earnings per share:

Net earnings (loss) per share is calculated utilizing the treasury stock method approach for
determining the dilutive effect of options issued. The reconciliation of the numerator and
denominator is determined as follows:

2010
Weighted
average
number of

Net loss

Shares Per share

2009
Weighted
average
number of
Shares

Net loss

Per share

(3,934)
-

47,134 $

(0.08)
-

$ (23,887)
-

47,117
-

(0.51)
-

Basic earnings

(loss) per share $

Share options

Diluted earnings

(loss) per share $

(3,934)

47,134 $

(0.08)

$ (23,887)

47,117

$ (0.51)

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

17. Pension and other post-retirement plans:

In Canada, the Company maintains a number of savings and retirement plans that are available
to employees that meet certain eligibility requirements. A Group Registered Retirement Savings
Plan (“RRSP”) and a Deferred Profit Sharing Plan (“DPSP”) is available to salaried employees. A
defined benefit pension plan is available to non-union hourly employees at the Adams Lake
operations. Based on eligibility, either a defined benefit pension plan and a post retirement
medical and life insurance plan or a defined contribution pension plan is available to Canadian
Merchant Service Guild (“CMSG”) employees in the Interior of B.C. In addition, the Company
contributes to an industry-wide defined benefit pension plan for United Steelworkers unionized
employees.

In the U.S., the Company maintains a 401(k) plan that is available to all eligible employees.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

17. Pension and other post-retirement plans (continued):

The Company also maintains supplementary pension plans for certain senior management in both
Canada and the U.S.

Total cash payments for employee future benefits for 2010, consisting of cash contributed by the
Company to its funded pension plans, cash contributed to the DPSP and 401(k) plans, cash
contributed to a multiemployer defined benefit pension plan, and cash paid under senior
management supplementary pension plans was $6,018,000 (2009 - $4,675,000).

(a) RRSP AND DPSP for Canada:

In Canada, salaried employees of the Company are provided with the opportunity of making
voluntary contributions based on a percentage of an employee’s earnings to the RRSP. The
Company matches employees’ RRSP contributions in the DPSP with the employee’s future
retirement benefits based on these contributions along with investment earnings on the
contributions.

For the DPSP, the Company’s funding obligations are satisfied upon making cash
contributions to an employee’s account. For 2010, the pension expense for this plan is equal
to the Company’s contribution of $1,107,000 (2009 - $1,145,000).

Certain eligible employees of the CMSG are required to make contributions based on a
percentage of earnings into the defined contribution plan. For 2010, the pension expense is
equal to the Company’s contribution of $8,000 (2009 - $nil).

(b) Defined benefit plans:

The Company measures its accrued benefit obligations and the fair value of plan assets for
accounting purposes as at December 31 of each year. The most recent actuarial valuation of
the Adams Lake and CMSG pension plans was as of December 31, 2009, and for the CMSG
post-retirement benefits obligations was as of April 30, 2008. The next required funding
valuations for the defined benefit pension plans is as of December 31, 2012 and the next
scheduled valuation for the other post-retirement benefits obligation will be as of April 30,
2011.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

17. Pension and other post-retirement plans (continued):

(b) Defined benefit plans (continued):

Other Post-retirement Benefits

Pension Benefits

2010

2009

2010

2009

Accrued benefit obligation:
Beginning of year
Actuarial (gain) loss
Service cost
Interest cost on accrued
benefit obligation
Benefit payments
Impact of new discount
rate at year-end
End of year

Plan assets:

Fair value, beginning of year
Expected return on plan assets
Employer contributions
Employee contributions
Benefit payments
Actuarial gain (loss)
Fair value, end of year

1,025 $
-
21

874 $
9
15

29,136 $
730
587

64
(54)

113
1,169

-
-
54
-
(54)
-
-

62
(59)

124
1,025

-
-
59
-
(59)
-
-

1,841
(1,993)

2,925
33,226

29,881
2,106
2,177
219
(1,993)
578
32,968

25,311
-
275

1,797
(1,593)

3,346
29,136

25,575
1,787
1,379
125
(1,593)
2,608
29,881

Funded status
– plan surplus (deficit)
Unamortized actuarial loss (gain)

(1,169)
99

(1,025)
(14)

(258)
9,116

745
6,376

Accrued benefit asset (liability) $

(1,070) $

(1,039) $

8,858 $

7,121

Plan assets consist of:
Asset category

Equity securities
Debt securities
Other

Total

2010

2009
Percentage of plan assets
55%
42%
3%

63%
37%
0%

100%

The Company’s accrued benefit asset (liabilities) are included in the Company’s balance sheet
as follows (see Investments and other assets, note 4 and Other long-term liabilities, note 9):

Investments and other assets $
Accounts payable and accrued
liabilities
Other long-term liabilities

Post-Retirement Benefits
2009

2010

- $

Pension Benefits

2010
8,858 $

2009
7,121

(54)
(1,016)

(50)
(989)

-
-

(1,070) $

(1,039) $

8,858 $

7,121

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

17. Pension and other post-retirement plans (continued):

(b) Defined benefit plans (continued):

The Company’s net expense for the Company’s defined benefit pension and post-retirement
benefits plans are as follows:

Current service cost
Interest cost
Expected return on plan assets
Amortization of actuarial

gains (losses)

Post-Retirement Benefits
2009

2010

21 $
64
-

15 $
62
-

Pension Benefits

2010

368 $

1,841
(2,106)

2009
150
1,797
(1,787)

(5)

337

280

440

85 $

72 $

440 $

Actuarial assumptions used in accounting for the Company maintained benefit plans are:

Post-Retirement Benefits
2009

Pension Benefits

2010

2009

2010
Accrued benefit obligation as of December 31
5.5%
-

Discount rate
Compensation increases¹

Pension expense
Discount rate
Expected return on plan assets
Compensation increases¹

6.25%
-
-

6.25%
-

7.25%
-
-

5.5%
3.25%

6.25%
7.0%
3.25%

6.25%
3.5%

7.25%
7.0%
3.5%

For measurement purposes at December 31, 2010, the Company has assumed a 6.0% health
care cost trend in 2011 grading down to 3.5% in 2014 (2009 – 7.90% health care cost trend
in 2010 grading down to 4.27% in 2015).

¹Compensation increases only relate to the CMSG plan.

The Company contributes to an industry-wide benefit plan for unionized employees based on
a predetermined amount per hour worked by an employee. For 2010, the pension expense
for these plans is equal to the Company’s contribution of $1,882,000 (2009 - $1,276,000).
The Company’s liability is limited to its contributions.

(d) 401(k) plan for U.S.:

IPI and Cedarprime Inc., the Company’s U.S. operating subsidiaries, match employee
contributions based on a percentage of the employee’s earnings and vest immediately. The
Company’s funding obligations are satisfied upon making cash contributions to an employee’s
account. For 2010, the pension expense for this plan is equal to the Company’s contribution
of $589,000 (2009 - $573,000).

In 2005, contributions based on a discretionary profit sharing allocation were replaced with
the matching component. Previous contributions under profit sharing allocation component
continue to vest in years two through six of employment at a rate of 20% per annum.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

17. Pension and other post-retirement plans (continued):
(e) Senior management supplementary pension plans:

The Company provides supplementary pension benefits to certain members of its senior
management in the form of a notional extension of the Deferred Profit Sharing Plan in
Canada and the 401(k) plan in the U.S. These commitments are not funded but are fully
accrued by the Company (note 9), with a portion of the commitments being secured by
irrevocable letters of credit.

The Company also maintains a defined benefit pension plan for a former senior executive.
The accrued benefit obligation is $839,000 (2009 - $733,000), of which $359,000 (2009 -
$361,000) is funded.

During 2010 the Company made cash payments of $202,000 (2009 - $243,000) and recorded
an expense of $644,000 (2009 - $459,000) in respect of these plans.

The amounts accrued are as follows:

2010

2009

Accrual for defined contribution commitments
Accrual for defined benefit commitments

$ 3,945
480

3,629
372

The accrued liabilities are included in the Company’s balance sheet as follows:

$ 4,425

4,001

Accounts payable and accrued liabilities
Other long-term liabilities (note 9)

2010

2009

289
4,136

284
3,717

$ 4,425

4,001

18. Related party transactions:

In 2010 the Company had lumber sales to a significant shareholder in the amount of $751,000
(2009 - $926,000). Shipping services provided by Seaboard totaled $7,005,000 (2009 -
$4,650,000). In addition, the Company provided management and other support services to
Seaboard totaling $500,000 in 2010 (2009 - $nil) and lumber sales to Seaboard of $148,000
(2009 - $138,000). These transactions were conducted on a normal commercial basis, including
terms and prices.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

19. Segmented information:

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

The Company sells to both foreign and domestic markets as follows:

Canada
United States
Japan
China/Taiwan
Other export

Sales by product line are as follows:

Lumber
Logs
Wood chips and other by products
Other

2010

2009

$ 171,113
244,625
80,856
79,625
49,399

$ 113,558
160,955
56,403
18,412
40,447

$ 625,618

$ 389,775

2010

2009

$ 481,983
79,763
56,217
7,655

$ 288,627
60,443
34,349
6,356

$ 625,618

$ 389,775

Capital assets, goodwill and other intangibles by geographic location are as follows:

Canada
United States

20. Capital management:

2010

2009

$ 302,319
141,965

$ 299,365
158,133

$ 444,284

$ 457,498

The Company’s policy is to maintain a strong capital base so as to maintain investor, creditor and
market confidence and to sustain future development of the business. The Company monitors
the return on average invested capital, which it defines as net earnings (loss) plus after tax
interest cost divided by the average of opening and closing invested capital comprised of the total
of bank indebtedness, long-term debt and shareholders’ equity.

The Company seeks to maintain a balance between the higher returns that might be possible
with the leverage afforded by higher borrowing levels and the security afforded by a sound
capital position. The Company’s target is to create value for its shareholders over the long-term
through increases in share value.

In 2009, in the face of the global economic downturn and extremely poor housing markets, the
Company’s focus was on managing the business for cash, severely curtailing discretionary capital
spending and ensuring adequate liquidity was maintained.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

20. Capital management (continued):

In 2010, as the global economy showed signs of recovery the Company reassessed its capital
spending programs and approved some capital spending on discretionary projects in addition to
expenditures related to maintenance of operating capacity and increased expenditures on road
construction. In addition, the Company acquired a timber tenure in the B.C. Interior from
Weyerhaeuser Company Limited, securing approximately 275,000 cubic metres of allowable
annual cut to its interior fibre supply.

There were no changes in the Company’s approach to capital management during the period.
Under its debt financing agreement, the Company cannot exceed a total debt to total
capitalization ratio of 45%, with total debt defined as the total of bank indebtedness, including
letters of credit, and long-term debt, net of cash and cash equivalents and total capitalization
defined as total debt plus Shareholders’ Equity. The financial covenants under the debt financing
agreement also carry a minimum working capital and a minimum net worth requirement.

The Company is in compliance with all of its debt covenants and expects to remain in compliance.

21. Financial instruments:

(a) Fair value of financial instruments:

At December 31, 2010, the fair value of the Company's long-term debt and bank
indebtedness approximated its carrying value of $156,037,000 (2009 - $144,525,000). The
fair values of other financial instruments approximate their carrying values due to their short-
term nature.

(b) Derivative financial instruments:

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

As at December 31, 2010, the Company has outstanding obligations to sell a maximum of
US$22,500,000 at an average rate of CAD$1.0168 to the US$1.00, and sell Japanese
¥75,000,000 at an average rate of ¥83.03 to the USD$1.00 during 2011. All foreign currency
gains or losses to December 31, 2010 have been recognized in the Statement of Operations
and the fair value of these foreign currency contracts has been measured based on Level 2 of
the fair value hierarchy and has been recorded as an asset of $492,000 in accounts
receivable and a liability of $18,000 in accounts payable (2009 - $403,000 asset fair value
measured based on Level 2 and recorded in accounts receivable).

During September 2005, the Company entered into a cross currency interest rate swap. The
Company had agreed to receive US$20,000,000 at maturity on September 1, 2009 in
exchange for payment of CAD$23,530,000 (an exchange rate of 1.1765). In addition, during
the term of the swap the Company paid an amount based on annual interest of 5.84% on the
CAD$23,530,000 and received a 90 day LIBOR plus a spread of 200 basis points on the
US$20,000,000. LIBOR was recalculated at set interval dates. The swap matured on
September 1, 2009 and total foreign exchange losses of $2,050,000 were recognized in 2009.

On October 1, 2008, the Company designated the US$30,200,000 funds drawn under its
Revolving Term Line for the acquisition of its Beaver operations as a hedge against its
investment in its self-sustaining U.S. operations. Unrealized foreign exchange gains of
$1,703,000 in 2010 (2009 - $5,043,000 gain) have been recorded in Other Comprehensive
Income.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

21. Financial instruments (continued):

(d) Financial risk management:

Financial instrument assets include cash resources, deposits and accounts receivable. Cash
resources and deposits are designated as held-for-trading and measured at fair value, while
accounts receivable are designated as loans and receivables and measured at amortized cost.

Financial instrument liabilities include bank indebtedness, accounts payable and accrued
liabilities, long-term debt, and certain other long-term liabilities. All financial liabilities are
designated as other liabilities and are measured at amortized cost.

There are no financial instruments classified as available-for-sale or held-to-maturity.

The use of financial instruments exposes the Company to credit, liquidity and market risk.

The Board of Directors has overall responsibility for the establishment and oversight of the
Company’s risk management framework. The Company’s risk management policies are
established to identify and analyze the risks faced by the Company, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions and the
Company’s activities. Through its standards and procedures, management has developed a
control environment in which employees are clear on roles and obligations and management
regularly monitors compliance with its risk management policies and procedures.

(i) Credit risk:

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises primarily from the
Company’s receivables from customers and from cash.

Accounts receivable

The Company’s exposure to credit risk is dependent upon individual characteristics of
each customer. Each new customer is assessed for creditworthiness before standard
payment and delivery terms and conditions are offered, with such review encompassing
any external ratings, and bank and other references. Purchase limits are established for
each customer, and are regularly reviewed. In some cases, where customers fail to meet
the Company’s benchmark creditworthiness, the Company may choose to transact with
the customer on a prepayment basis.

All North American sales are conducted under standard industry terms. All lumber sales
outside of the North American markets are either insured by the Export Development
Corporation or are secured by irrevocable letters of credit.

Accounts receivable (continued)

The Company regularly reviews the collectibility of its accounts receivable and establishes
an allowance for doubtful accounts based on its best estimate of any potentially
uncollectible accounts. Historically, the Company has managed its credit tightly and
experienced minimal bad debts, despite the impacts of the global economic downturn.
Based on this past experience and its detailed review of trade accounts receivable past
due which were considered uncollectible, a reserve in respect of doubtful accounts of
$4,000 was recorded (2009 - $57,000) for specific trade receivables.

Deposits

The Company limits it exposure to credit risk by only investing in liquid securities and only
with counterparties that have a high credit rating. As such, management does not
expect any counterparty to fail to meet its obligations.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

21. Financial instruments (continued):

(d) Financial risk management (continued):

(i) Credit risk (continued):

Guarantees

In 2009, the Company provided a parent guarantee on the U.S. Line utilized by its U.S.
operating subsidiary. This was in compliance with the Company’s policy to provide
financial guarantees only with respect to wholly-owned subsidiary companies. The U.S.
Line was not extended when it matured on April 24, 2009 and the guarantee was
withdrawn.

The Company did not provide any guarantees in 2010.

Exposure to credit risk

The carrying amount of financial assets represents the maximum credit exposure for
receivables in North America. As lumber sales outside of the North American markets are
insured by the Export Development Corporation to 90% or secured by irrevocable letters
of credit, credit exposure for these sales is limited.

Accounts receivable carrying value at the reporting date by geographic region was:

Canada
United States
Japan
China/Taiwan
Other

(ii) Liquidity risk:

2010

2009

$ 15,418
13,259
6,057
7,268
3,959

$ 11,626
11,517
5,300
951
3,557

$ 45,961

$ 32,951

Liquidity risk is the risk that the Company will not be able to meet its financial obligations
as they fall due. The Company ensures, as far as possible, that it will always have
sufficient liquidity to meet obligations when due and monitors cash flow requirements
daily and projections weekly. Weekly debt graphs are reviewed by senior management
to monitor cash balances and debt line utilizations. Given the global economic downturn
experienced through most of 2009, Company executive focused on cash management to
ensure maintenance of adequate liquidity and continued this discipline through 2010.

The Company also maintains a revolving Canadian Operating Line that can be drawn
down to meet short-term financing needs. In early 2009, the Company amended and
extended its existing Canadian syndicated credit facilities and as part of the amendment,
margining availability was extended to include inventory domiciled in the United States.

As a consequence of the extension of margining coverage, all U.S. working capital is
included in the Canadian operating facility and the U.S. Line was not extended when it
matured on April 24, 2009 with all outstanding drawings under the U.S. Line repaid.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

21. Financial instruments (continued):

(d) Financial risk management (continued):

(ii) Liquidity risk (continued):

The estimated cash payments due in respect of contractual and legal obligations are
summarized as follows:

Payments due by period
Up to
1 year

2-3
years

4-5
years

After 5
years

Total

Accounts payable and
accrued liabilities
Income taxes payable
Payable to investee
company (note 22(a))
Long-term debt
Reforestation liability
Other long-term liabilities
Pension solvency payments
Operating leases and
contractual commitments

$ 44,407
230

$ 44,407 $
230

- $
-

-
-

15,738
156,037
28,165
21,774
4,214

15,738
-
9,785
4,075
1,505

-
156,037
6,949
5,419
1,522

-
-
5,423
1,809
800

-
-
6,008
10,471
387

19,290

6,070

5,940

4,070

3,210

Total contractual obligations

$289,855 $ 81,810

$175,867 $ 12,102

$ 20,076

(iii) Market risk:

Market risk is the risk that changes in market prices, such as foreign exchange rates,
interest rates and equity prices, will affect the Company’s income or the value of its
holdings of financial instruments. The objective of market risk management is to manage
and control market risk exposures within acceptable parameters, while optimizing the
return on risk.

Currency risk

The Company is exposed to currency risk on cash and deposits, sales, purchases and
loans that are denominated in a currency other than the respective functional currencies
of the Company’s domestic and foreign operations, primarily Canadian (CAD) and U.S.
dollars (USD), but also the Euro, Sterling and Yen. As required, the Company uses
forward exchange contracts and cross currency interest rate swaps to manage its
currency risk, as described in Note 21(b), Derivative financial instruments. Daily, the
Company assesses its foreign exchange exposure by reviewing outstanding contracts,
pending order files and working capital denominated in foreign currencies.

At December 31, 2010, the Company has US$ drawings under its Revolving Term Line of
US$30,200,000 (2009 – US$30,200,000). The US$ drawings under this Line have been
designated as a hedge against the investment in the Company’s self-sustaining U.S.
operations.

In conjunction with amendments to its credit facilities on January 15, 2010, the Company
drew US$35,000,000 ($35,819,000) on its Revolving Term Line and repaid and cancelled
its U.S. dollar Non-Revolving Term Line. Upon repayment of the loan, the realized
foreign exchange gain of $966,000 was recognized in Other foreign exchange gain(loss)
on the Statement of Operations.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

21. Financial instruments (continued):

(d) Financial risk management (continued):

(iii) Market risk: (continued):
Currency risk (continued)

At December 31, 2009, the Non-Revolving Term Line was fully drawn at US$35,000,000.

As at December 31, the Company’s accounts receivable were denominated in the
following currencies (in thousands):
2010

Japanese ¥

USD

CAD

Accounts receivable
Accounts receivable held by

17,351

17,938

44,335

self-sustaining foreign subsidiaries

10,480

2009

Accounts receivable
Accounts receivable held by

17,351

28,418

44,335

CAD

USD

Japanese ¥

14,661

9,507

46,853

self-sustaining foreign subsidiaries

7,362

14,661

16,869

46,853

As at December 31, 2010, the domestic operations of the Company held cash and cash
equivalents of US$6,171,000 (2009 – US$1,462,000) and no bank indebtedness (2009 -
$nil). Cash and cash equivalents held by self-sustaining and other foreign U.S.
subsidiaries totalled US$564,000 (2009 - US$1,348,000).

Based on the Company’s net exposure to foreign currencies as at December 31, 2010,
including USD denominated cash held in deposits and cash equivalents and USD
denominated debt and other USD denominated financial instruments, the sensitivity of
the USD balances to the Company’s net annual earnings is as follows:

U.S. Dollar

$0.01 increase vs CAD$

$negligible decrease in net income

Based on the Company’s net exposure to foreign currencies as at December 31, 2010, in
respect of its net investment in its U.S. subidiaries, the sensitivity of the USD balances to
the Company’s Other comprehensive income (loss) is as follows:

U.S. Dollar

$0.01 increase vs CAD$

$1,315,000 decrease in OCI

Interest rate risk

The Company reduced its exposure to changes in interest rates on borrowings by
entering into cross currency interest rate swap, as described in Note 21(b) Derivative
financial instruments. This agreement matured on September 1, 2009.

Based on the Company’s average debt level during 2010, the sensitivity of a 100 basis
point increase in interest rates would result in an approximate decrease of $1,135,000
(2009 - $1,140,000) in net annual earnings.

Other market price risk

The Company does not enter into commodity contracts other than to meet the
Company’s expected usage and sale requirements and such contracts are not settled net.

International Forest Products Limited

Notes to Consolidated Financial Statements
Years ended December 31, 2010 and 2009
(Tabular amounts expressed in thousands of Canadian dollars, except number of shares and per share amounts)

22. Subsequent events:

(a) Seaboard Partnership:

On January 3, 2011, the Seaboard Partnership declared an income distribution to its partners.
Interfor’s share was $15,738,000 and was settled by way of setoff against the promissory
note payable to the Seaboard Partnership (see Payable to investee company, note 8).

(b) Seaboard Partnership windup:

On January 5, 2011, all other partners in the Seaboard Partnership withdrew and the
Company became the sole owner of Seaboard. Seaboard Partnership was wound-up on
January 7, 2011 and continues operations as Seaboard Shipping Company Limited which is
wholly owned by Interfor. Its accounts will be included in the consolidated financial
statements of the Company from the date of change in control.

International Forest Products Limited

ANNUAL INFORMATION FORM

Dated as of February 9, 2011

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. These forward-looking
statements reflect management’s current expectations and beliefs and are based on certain assumptions
including assumptions as to general business and economic conditions in the U.S. and Canada, as well as
other factors management believes are appropriate in the circumstances. 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
in the 2010 annual Management’s Discussion and Analysis under “Risks and Uncertainties” and in
Interfor’s current Annual Information Form. 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.

DESCRIPTION OF THE BUSINESS

We are one of the Pacific Northwest’s largest producers of quality wood products for sale to markets
around the world. We have operations in British Columbia (“B.C.”), Washington and Oregon, including
two sawmills in the Coastal region of B.C., three in the B.C. Interior, two in Washington and two in
Oregon. We also operate a value-added remanufacturing facility in Washington.

Our Company was incorporated under the Company Act (British Columbia) on May 6, 1963. On
December 1, 1979 we amalgamated with our subsidiary, Whonnock Forest Products Limited. On January
1, 1988 we changed our name from Whonnock Industries Limited to International Forest Products
Limited. On February 10, 2006 we transitioned under the Business Corporations Act (British Columbia).
Our head office as well as our registered and records offices are located at Suite 3500, 1055 Dunsmuir
Street, Vancouver, British Columbia, V7X 1H7.

In this document, a reference to the “Company”, “Interfor”, “we” or “our” means International Forest
Products Limited and its predecessors and all our subsidiaries. Our major subsidiary, Interfor Pacific Inc.,
owns and operates our U.S. sawmills. It is wholly owned and is incorporated in the State of Washington.
Other wholly owned subsidiaries whose operations are described below are CEDARPRIME Inc.
(incorporated in the State of Washington), and Interfor Japan Ltd. (incorporated in British Columbia).
Effective January 5, 2011, Seaboard Shipping Company Limited became a wholly owned subsidiary of
Interfor.

HISTORY AND RECENT DEVELOPMENT OF THE BUSINESS

Our business originated in the 1930’s with a sawmill in Whonnock, about 48 kilometres east of Vancouver
B.C. Since that time, we have made significant investments to expand, upgrade and diversify our
production facilities and timber base through capital programs and the acquisition of manufacturing
plants and timber resources from other companies.

2007

2007 was a very challenging year for the Company, with a combination of depressed North American
structural lumber prices, a record-high Canadian dollar, and a 15% export tax. In addition, a 15 week

strike by the United Steel Workers (“USW”) in the second half of 2007 disrupted our B.C. Coastal lumber
and logging operations.

In February 2007, the Company completed the installation of a new primary breakdown line at its Port
Angeles operation. In late 2007, a new log merchandizer and planer were installed at Port Angeles. By
year end, both installations were generating targeted productivity improvements. In April 2007, the
Company’s Board of Directors (the “Board”) approved the construction of a new sawmill at Adams Lake,
to replace the existing facility.

2008

2008 was one of the most difficult periods experienced in the lumber industry in recent history. The
unprecedented turmoil in financial markets along with the lowest level of U.S. housing starts in over 50
years had a significant impact on the Company’s results.

In July 2008, following a prolonged curtailment, the Company permanently closed its Queensboro sawmill
division, located in New Westminster, B.C. The property was sold in the third quarter of 2009 for gross
proceeds of $30.1 million.

During the course of 2008, we acquired the Castlegar, B.C. and Grand Forks, B.C. sawmills, related
timber harvesting rights and other related assets from Pope and Talbot, Inc., and acquired the Beaver
and Forks sawmill, planer mill and inventories on the Olympic Peninsula, WA from Portac, Inc.

2009

2009 saw extremely weak North American markets continue to challenge the lumber industry. The
turbulence in financial markets, particularly in the first half of 2009, combined with the historically low
levels of U.S. housing starts and strengthening Canadian dollar had a significant impact on the Company’s
results.

Important 2009 accomplishments included the completion and impressive ramp-up of the new Adams
Lake sawmill, a return to positive EBITDA for the final two quarters of 2009, and a continued strong
financial position.

2010

2010 provided many opportunities and successes for Interfor, despite the challenges faced with
continued stagnant U.S. housing starts. A refocus on export markets, particularly China, provided
alternate markets for slower U.S. demand, added upward pressure on North American pricing resulting in
higher sales values, and supported increased operating rates.

Important accomplishments in 2010 include:

•

the acquisition of a timber tenure in the Kamloops region from Weyerhaeuser Company Limited to
support the increased fibre requirements of the Adams Lake sawmill;

the development of lumber and log export markets to take advantage of increasing demand from
China and reduce the reliance on U.S. lumber markets;

• marked improvements to the cost structure at the Castlegar sawmill through changes in the

operating configuration which allowed the mill to restart and contribute to 2010 earnings; and

•

a continued strong financial position magnified by the return to positive operating earnings in the
fourth quarter, 2010 for the first time since 2006.

Strong Financial Position

Despite the extraordinary challenges that the industry faced in 2010, the Company has continued to
maintain a strong financial position and experienced some significant successes. Interfor ended 2010
with net debt of $146.7 million (29.7% of invested capital), up $6.0 million from 2009. Cash flow from
operations, after working capital changes, for the year was positive at $21.0 million, significantly
improved from 2009 at $4.8 million. In the fourth quarter, 2010 the Company generated positive
operating earnings for the first time in over four years.

On January 15, 2010, the Company amended and extended its syndicated credit facilities. The
Revolving Term Line increased from $150 million to $200 million, and the maturity date was extended
from April 24, 2011 to February 28, 2012. The Operating Line remained at $65 million and was extended
to February 28, 2011. All other terms and conditions of the lines remain substantially unchanged.

On August 19, 2010 the Company further amended and extended its existing syndicated credit facilities
and the maturity of the Revolving Term Line was extended to July 28, 2013 and the Operating Line was
extended to July 28, 2012.

In conjunction with the amendments to its credit facilities, the Company repaid and cancelled its existing
Non-Revolving Term Line of US$35.0 million on January 15, 2010.

Outlook

After navigating through the global recession in relatively good shape, economic activity in Canada
appears to be transitioning to a more subdued rate of expansion into 2011. Recovery in the U.S. new
housing market continues to be stagnant but it does appear that U.S. housing starts may have found a
floor improving significantly since the historic low of 477,000 units in April 2009.

There continues to be optimism about the growth of exports to emerging markets, including China as it
provides a new market to help offset reduced demand in the U.S. and a strong market for lower grade
products.

With the prospect of continuing challenges in the North American markets, the Company continues its
disciplined approach to production, inventory management and capital spending and looks to continuing
to build its relationships with the emerging export markets.

See our Management Discussion and Analysis for the year ended December 31, 2010, a copy of which is
available from SEDAR at www.sedar.com.

MANUFACTURING

We operate nine sawmills and one remanufacturing plant in B.C., Washington and Oregon. These
operations produce a wide range of products for sale in North American and offshore markets. The
products range from commodity structural lumber through to specialty products, such as exterior decking
and siding, machine stress rated products, industrial timbers and a wide range of appearance grade
items.

Interfor Sawmills - Capacity
(based on two-shift operation)

B.C. Interior:
Adams Lake:
Castlegar:
Grand Forks: 175 MMbf SPF & DFir

750 MMbf

325 MMbf DFir & SPF Dimension
250 MMbf DFir, Cedar & SPF Dimension

B.C. Coast: 315 MMbf
Hammond:
Acorn:

165 MMbf Cedar Specialty
150 MMbf Hem & DFir Japan/Specialty

U.S. Pacific Northwest: 635 MMbf
Port Angeles: 165 MMbf Hem & DFir Studs
180 MMbf DFir & Hem Studs
Molalla:
120 MMbf Pines, DFir, White Fir Dimension/Specialty
Gilchrist:
170 MMbf Hem & DFir, Dimension/Timbers
Beaver:

The mills are capable of cutting logs of various species and grades ranging in diameter from 4 inches to
80 inches. Many of our manufacturing facilities have recently been upgraded and modified to improve the
matching of timber resources with customers' lumber requirements.

In addition to improving our manufacturing capability through upgrades, we have increased our efficiency
and geographic diversity and expanded our capacity through recent additions of sawmills in Washington
and B.C. These acquisitions also enabled us to expand our business while closing several sawmills for
which upgrades would not have represented a viable investment.

Rated capacity and production of lumber, by mill, for each of the periods specified, is set out in the
following table:

Sawmills

B.C. Coast
Hammond (2)

Acorn (2)

B.C. Interior
Adams Lake (3)

Castlegar (4)

Grand Forks (4)

U.S. Pacific Northwest
Gilchrist (5)

Molalla (6)

Port Angeles (5)

Beaver (7)

Sawmills Closed or Sold
Queensboro (8)

MacKenzie (9)

Total

Present
Rated
Capacity (1)

Number
of Shifts
(per day)

Years ended December 31
2010 2009 2008 2007 2006

(millions of board feet)

165

150

325

250

175

120

180

165

170

118

339

113

125

103

—

104

134

—

110

—

106

108

158

154

—

206

286

—

127

151

129

—

136

194

—

111

1,700

1,110

661

498

855

1,178

(1) Based on two shifts per day and 250 operating days per year.
(2) Volumes include lumber custom-cut at third party facilities under the direction of Hammond and Acorn management

amounting to 16.0 million board feet for Hammond and 1.2 million board feet for Acorn in 2010.

(3) The old Adams Lake sawmill was closed during 2008. The new Adams Lake sawmill began production in April 2009.
(4) Castlegar and Grand Forks were acquired on April 30, 2008. Volumes reported are Interfor only. Castlegar was curtailed

until July, 2010. Grand Forks was curtailed from February to September 2009, inclusive.

(5) Gilchrist and Port Angeles were acquired on September 1, 2004.
(6) Molalla was acquired on May 31, 2005.
(7) Beaver was acquired September 30, 2008.
(8) Queensboro (formerly Western Whitewood) was curtailed indefinitely in December 2007 and permanently closed in July

2008.

(9) Volumes include custom-cutting.

B.C. Coast Operations

Hammond

The Hammond operation is located on the Fraser River in Maple Ridge, B.C. The facility is focused on
western red cedar and supplies siding, decking, fascia and timbers for both offshore and North American
markets. The facility consists of a three-line sawmill, a planer mill and dry kilns. In late 2010, the
Company spent $2.0 million on a quad upgrade.

Acorn

The Acorn operation is located on leased land in Delta, B.C. The facility consists of a log dewatering and
merchandizing system, a sawmill, a planer mill and dry kilns. The sawmill specializes in sizes and grades
of lumber for use in Japanese traditional housing made primarily from hemlock and Douglas-fir logs.

B.C. Interior Operations

Adams Lake

Adams Lake is located near Kamloops, B.C. The mill manufactures kiln-dried lumber for the U.S. and
Canadian construction markets as well as for offshore markets. Adams Lake has the capability to cut
Douglas-fir as well as spruce-pine-fir (“SPF”), western red cedar, and hemlock. In 2003, a planer and
sorter were installed at a cost of $6.8 million and an additional dry kiln was constructed at a cost of $1.0
million. In 2006 and 2007 we spent $32.1 million on an energy system, new hog and barker and
infrastructure improvements to facilitate further growth and cost savings.

In 2007, to complete the overall plan for the site, the Company commenced the construction of a new
sawmill at Adams Lake. Construction was completed on time at a cost of $100.3 million. The first line
was commissioned in December 2008, had an extremely successful start-up and commenced full
operation on April 20, 2009 on a one-shift basis, and has steadily increased operating hours and
productivity since. This mill has a two-shift capacity of 325 MMbf.

The new mill has been specifically designed to match the current and future timber resource in the area
and to address the challenges of sawing timber affected by the Mountain Pine Beetle. The mill
incorporates proven technology that materially improves the operating efficiency and cost structure of the
Adams Lake operation.

In 2010, Interfor acquired a timber tenure in the Kamloops region from Weyerhaeuser Company Limited
to support the increased fibre requirements of the Adams Lake sawmill, adding approximately 275,000
m³ of annual allowable cut.

Grand Forks

Our Grand Forks mill was acquired April 30, 2008 as part of our purchase of Pope and Talbot’s southern
B.C. assets. The mill is located in the southern interior of B.C. approximately 100 kilometres from
Castlegar on a 75 acre site. We also acquired timber tenures with an allowable annual cut of 502,000
m3. The two line mill manufactures kiln dried lumber for the U.S. and Canadian construction markets as
well as the housing market in Japan. Grand Forks cuts 60% SPF and 40% fir-larch. In 2006, the
previous owner completed a modernization and upgrade of the sawmill with a new planermill and two
new thermal oil kilns.

Castlegar

Our Castlegar facilities were acquired April 30, 2008 as part of our purchase of Pope and Talbot’s
southern B.C. assets. In addition to timber tenures with an allowable annual cut of 491,000 m3, the
facility includes a sawmill, dry kilns and planer and manufactures fir-larch, SPF, cedar and hemlock
dimension lumber. The operation includes a complete transportation system for moving logs on Arrow
Lake. The operation of the mill was curtailed from February, 2008 through June, 2010 due to poor
market conditions and an unfavourable cost structure. Marked improvements to the cost structure
through changes in the operating configuration achieved with the support of the mill’s employees and
other local stakeholders allowed the mill to restart in July, 2010.

U.S. Operations

Gilchrist

The Gilchrist mill is located in Gilchrist, Oregon on approximately 140 acres. In 2001 the previous owner
completed modernization of the facility to efficiently convert small diameter logs. The mill primarily
processes lodgepole pine, ponderosa pine and white fir to produce a wide range of specialty and
dimension lumber products. The mill has an on-site cogeneration plant to produce electricity for its own
use as well as steam for its dry kilns. At this location, we own and operate a short line railroad to
connect to a mainline for shipment of lumber and chips and to deliver logs to the mill. In 2005 and 2006
we installed six new dry kilns at a cost of US$5.7 million to replace obsolete kilns and increase drying
capacity.

Port Angeles

The Port Angeles mill was newly constructed in 1998. It is situated in Port Angeles, Washington on a 64
acre site near a major highway and waterways which are convenient for shipping lumber and chips as
well as for receiving logs at the mill. The mill primarily processes hemlock and Douglas-fir logs to
produce stud dimension lumber for the U.S. market but is also capable of producing metric sizes for
export. In 2005, we modified the dry kilns at a cost of US$1.1 million to increase drying capacity. We
also installed a new planer grade optimizer, trimmer and sorter at a cost of US$5.0 million to increase
planer capacity and significantly reduce planing costs. In 2006 and 2007, we constructed a new primary
saw line at a cost of US$18.3 million to increase recovery and lumber production. In October 2007, we
installed a new log merchandiser, planer and planer infeed at a total cost of US$5.8 million.

Beaver

The Beaver sawmill consists of a single line 20’ dimension sawmill on a 45 acre owned site originally
constructed in 1991 by Portac Inc. We acquired the assets on September 30, 2008. The boiler, dry kilns,
and planermill are situated approximately 15 kilometres south of the sawmill on a 29 acre site leased
from the City of Forks. The operation is 75 kilometres west of our Port Angeles facility and is a strong
strategic fit with that operation. The mill has traditionally produced hemlock, Douglas-fir and spruce
products for domestic markets. Recently we have added some export products to complement the
domestic programs.

Molalla

The Molalla mill was acquired in May 2005. It is located in Molalla, Oregon approximately 50 kilometres
southeast of Portland. The mill primarily processes hemlock and Douglas-fir logs to produce stud
dimension lumber for the U.S. market. The mill’s machine centres were fully optimized by the previous
owners. A number of infrastructure improvements were undertaken in 2005 and 2006 at a cost of
US$5.8 million. In 2006, we also completed the construction of two dry kilns for US$2.4 million and a
new planermill complex with grade optimization for US$10.3 million.

Cedarprime

CEDARPRIME Inc. is located on leased premises in Sumas, Washington approximately one kilometre
south of the Canada/U.S. border. The plant has a siding line, chop line, planing and finger-jointing
equipment as well as access to on-site dry kilns enabling it to produce 20 million board feet of finger-
jointed and cut-stock products for both offshore and North American markets. Some of the products are
sold under the brand name CEDARPRIME®.

SALES, MARKETING AND COMPETITIVE POSITION

The markets for the Company’s products are highly competitive on a global basis and producers compete
primarily on the basis of price. In addition, a majority of Interfor’s lumber production is sold in markets
where Interfor competes against many producers of approximately the same or larger capacity. Some of
Interfor’s competitors have greater financial resources than the Company and a number may be, in
certain product lines, lower cost producers than Interfor.

The following table shows our lumber sales by geographic area and total sales by product line for the
past five years:

2010

2009

Years ended December 31
2008
(thousands of dollars)

2007

2006

Lumber
— Canada

— U.S.A

— Japan

— China

— Other export

Offshore transportation and handling

Logs

Wood chips and other by-products

Contract services and other

$ 70,247

$ 40,886

$ 45,996

$ 76,909

$ 102,996

214,965

135,576

139,394

65,314

61,384

40,437

29,636

48,726

16,305

34,369

12,765

481,983

288,627

79,763

56,217

7,655

60,443

34,349

6,356

35,766

3,251

61,554

11,473

297,434

103,620

30,610

5,557

241,398

46,237

282

57,873

11,769

434,468

118,571

50,260

7,709

393,222

59,235

222

55,480

14,397

625,552

103,250

41,868

53,769

Total sales

$625,618

$389,775

$437,221

$611,008

$824,439

Lumber Sales

Lumber is similar to many other commodities in that demand is cyclical. Factors such as interest rates,
exchange rates, freight rates, government tariff and import policies, and demand for housing affect the
demand for lumber. In recent years, the residential repair and remodeling market in North America has
become a significant consumer of lumber and has lessened the impact of fluctuations in new housing
starts. In order to diminish the impact of rapid cyclical changes in any one market, we strategically
target worldwide markets and maintain product diversification. The Company has a particular customer
and product base in various countries, providing us with a diversified sales profile, including targeting the
rapidly growing Wood Frame Construction market in China. Product and market diversification is
particularly important for B.C. Coast producers where the variability inherent in the log resource produces
a much wider spectrum of product sizes and quality than is the case in the B.C. Interior or U.S. Pacific
Northwest (the “PNW”). A continuing priority for us is to develop products and markets that more fully
realize the potential for higher grades, special dimensions and value-added items.

Lumber sales and marketing activities are organized into two sales groups to leverage global expertise: i)
Export and ii) North American Sales Groups. Interfor Japan Ltd., with an office in Tokyo, has developed
niche markets and has increased sales directly to end users. We also have an office in France. The
major market for our cedar lumber continues to be North America where markets are serviced through a
combination of regional wholesale distributors and direct retail sales. Gains have been made, however, in
diversifying cedar sales into offshore markets in Europe, China, Japan, and Australia. North American
dimension and stud lumber produced in Canada and the U.S. is sold out of our office in Bellingham,
Washington to leverage our U.S. expertise and to provide a more diverse customer base for the Canadian
mills in terms of geographic and market sectors.

The following graph shows the percentage of lumber sales revenue to our major markets in the past five
years:

Geographic Distribution of Lumber Revenues

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Log Sales

Pacif ic Rim

China

Europe & Other

Japan

United States

Canada

2006

2007

2008

2009

2010

We purchase and sell logs in order to obtain the appropriate size, grade, and species of log to suit market
conditions and each mill’s cutting preferences. We buy or trade logs through agreements and open
market transactions and sell logs that are either unsuitable for cutting or in excess of our manufacturing
requirements.

Wood Chip and Sawmill Residuals Sales

As a by-product of lumber production, our sawmills produce wood chips. Essentially all of our wood chips
produced in B.C. are sold under short and long-term contracts to pulp producers. In general, wood chips
produced on the B.C. Coast are sold at prices related to current Northern Bleached Softwood Kraft
(“NBSK”) pulp prices, while the wood chips produced in the B.C. Interior are sold at current market prices
for chips.

Chips from our Washington and Oregon operations are sold to pulp producers or fibre board
manufacturers under short-term arrangements.

DISTRIBUTION

We use various modes of surface transportation to deliver our lumber products. Shipments to export
markets are made in container and breakbulk vessels while shipments of lumber within North America are
made by truck and rail. The majority of breakbulk shipments are carried by Seaboard International
Shipping Company Limited (Barbados) which is a wholly-owned subsidiary of Seaboard Shipping
Company Limited in which we have a 60.5% interest as at December 31, 2010. Chips and logs are
normally delivered by tug and barge or by truck. In Gilchrist, Oregon, and in Grand Forks, B.C., we own
short line railroads to connect to mainlines for shipping lumber and chips.

In January, 2011 Seaboard Shipping Company Limited became a wholly-owned subsidiary of Interfor.

TIMBER SUPPLY

British Columbia

The Province of British Columbia (the “Crown”) owns about 95% of the timberlands from which the
majority of timber is harvested. The remaining 5% of timberland is private land which is primarily
located on Vancouver Island and held by a few large industrial forest landowners.

The Province provides for the use of Crown forest land through the granting of various forms of timber
tenures. These tenure agreements provide timber harvesting rights in exchange for management
obligations and stumpage fees payable to the Crown.

Our timber supply needs are met by a combination of internal logs harvested from our own timber
tenures, long-term trade and supply agreements, and by purchases on the open market. When
operating at normal capacity, our mills in BC would require approximately one-third of their log supply
from external sources.

We hold various Forest Licence (“FL”), Tree Farm Licence (“TFL”) and Timber Licence (“TL”) tenures that
currently provide for an allowable annual cut (“AAC”) of approximately of 3.7 million cubic metres (m3).
The majority of Interfor’s tenures are long-term (15 and 25 year) renewable agreements that are
generally replaced every five years.

On the Coast, we harvest a variety of species consisting primarily of western hemlock, amabilis fir,
western red cedar and Douglas-fir. In the Interior, the species mix consists of SPF, Douglas-fir, fir-larch
and cedar. The harvest is derived from both old growth and second growth stands. Whereas one-third of
the harvest currently comes from second growth stands on the coast, this amount is expected to increase
significantly over the next several decades.

The following table shows our AAC under our FL and TFL tenures and other cutting rights and the volume
of timber harvested under our FLs and TFLs and other cutting rights in each region for the periods
specified. They also show the volume of purchases and sales during that period.

B.C. Operations

2011

Years ended December 31
2008 2007

2009

2010

2006

Allowable Annual Cut (1)
— Forest Licences

— Non Replaceable Forest Licences

— Tree Farm Licences
— Discretionary Annual Harvest Levels (2)

(thousands of cubic metres)

2,701

2,426

2,418

2,084

2,105

2,325

220

801

313

854

313

867

375

196

155

262

155

272

3,762

3,633

3,638

2,695

2,562

2,817

Log Production

— Coast

— Interior

Total Log Production

Log Purchases

Log Sales

1,522

1,139

2,661

1,081

1,754

1,655

214

127

112

1,295

1,881

1,767

2,082

299

2,381

1,343

794

447

1,316

1,487

1,081

919

1,319

1,223

1,190

(1) AAC status at the beginning of each year (includes a provision for non-recoverable fibre).
(2) Volumes not included in AAC.

U.S. Pacific Northwest

Timber supply in the PNW is sourced from a broad distribution of forest land ownership (forest industrial
lands; small private landowners; and State and Federal lands). These sources represent a long-term

supply base from which mills purchase their timber supply. About 70% of the log supply in the PNW
comes from land that is owned by industrial and small private landowners, while the remainder is sourced
from State, Federal and tribal lands.

Our timber supply requirements in Washington are heavily weighted to western hemlock with smaller
volumes of Douglas-fir and sitka spruce. In Molalla, the specie mix is weighted to Douglas-fir with smaller
volumes of western hemlock and white fir. Both the Washington mills and Molalla depend on private
industrial landowners and small private landowners for the majority of their supply. This timber is
supplemented with State, Federal, and tribal volumes in the case of the Washington mills.

In Gilchrist, log purchases consist primarily of lodgepole pine, ponderosa pine and white fir that have
come from second growth harvesting and the thinning of young stands from surrounding National
Forests.

The total 2011 log supply requirement for the mills in the U.S. is projected to be supplied from various
sources, estimated to be as follows:

U.S. Pacific Northwest Operations

State and Federal Lands

Industrial Lands

Private Lands

Expected Sources of Timber 2011
45%

100%

Forestry and Logging in B.C.

Forest and timber harvesting operations on Crown land in B.C. are regulated under the B.C.
Government’s Forest and Range Practices Act (British Columbia) and the Forest Act (British Columbia).
The Government is responsible for setting the AAC, approving forest development plans and cutting
permits, determining the stumpage system and managing compliance and enforcement.

Our Company is required to manage forest resources under our tenures in accordance with the
requirements of the applicable laws and regulations. Forest management of our tenures is guided by a
team of forest professionals that are engaged in a wide array of activities such as resource planning,
forest development, road building and harvesting, reforestation, forest protection and environmental
certification.

We pay stumpage to the Province for timber harvested on Crown land according to market pricing
systems in place on the Coast and in the Interior. In addition the Crown charges an annual rent based
on the AAC for each licence to cover general administration and fire preparedness.

Our Coastal logging operations are widely dispersed in primarily remote locations between Vancouver and
Prince Rupert. Our woodlands harvesting activities are performed entirely by independent logging
contractors.

Our Interior woodlands operations are located at Adams Lake, northeast of Kamloops, and in the
Kootenay region at Nakusp and Grand Forks.

Logging operations are seasonal due to a number of factors including weather, ground conditions and fire
season closures. These and other factors are described in the Selected Quarterly Financial Information
section of our Management Discussion and Analysis for the year ended December 31, 2010, a copy of
which is available on SEDAR at www.sedar.com.

CAPITAL EXPENDITURES

Our acquisitions and capital expenditures on sawmill and logging operations and timber holdings are as
shown in the following table:

2010

Years ended December 31
2009

2008

2007

2006

Acquisitions
Land, buildings, equipment
— Manufacturing
— Forestry and logging

(thousands of dollars)

—
—

$52,885
—

—
—

Logging roads and timber

—

40,148

—

$93,033

—

Other capital expenditures
Land, buildings, equipment
— Manufacturing and other
— Forestry and logging

Logging roads and timber

$10,897
15

31,398

42,310

$20,752
29

6,811

27,592

$72,911
1,365

17,512

91,788

$47,948
130

28,340

76,418

$71,176
733

18,694

90,603

Total

$42,310

$27,592

$184,821

$76,418

$90,603

Our capital expenditures over the five years ended December 31, 2010 were financed through internally
generated funds, through our bank lines and through proceeds generated from the sale of surplus land
and other non-core and surplus logging and manufacturing assets.

HUMAN RESOURCES

The United Steel Workers (USW)

In B.C., we directly employ approximately 950 people in our logging and manufacturing operations and
corporate offices.
for
approximately 500 of these people. The agreement with the USW for the B.C. Coast expired on June 14,
2010, while the Southern Interior USW agreement expired on June 30, 2009. The Canadian Marine
Service Guild (CMSG) represents 16 employees, and their collective agreement expires September 30,
2011. Negotiations with the USW regarding renewal of the expired Southern Interior USW agreement
are ongoing, but employees continue to work under the terms of the expired agreement with no
workplace disruptions.

the certified bargaining agent

In the U.S., we employ approximately 415 employees in our sawmill and remanufacturing operations in
Washington and Oregon and in our office located in Bellingham, Washington.

Our employees are governed by a Policy Manual, including a Code of Conduct, Environment Policy, Health
and Safety Policy, Disclosure Policy, Whistleblower Policy, Financial Reporting Policy, Internet, Email and
Computer Use Policy, Compensation Policy, and Insider Trading Policy. The Code of Conduct may be
found on SEDAR at www.sedar.com. The Environment and Safety Policies are described below.
Employees are also protected by a Privacy Policy. Our employees, management and directors have
adopted the following Core Values:

Core Values

We will conduct ourselves with honesty, integrity and professionalism.

• People:

• Safety:

People are the foundation of our business.

Safety is a prerequisite for work.

• Environment:

Environmental integrity must be maintained in everything we do.

• Customers:

Customers pay our way.

• Shareholders:

Returns to our shareholders facilitate investment, employment, and
public benefits.

We Are Responsible For Our Own Success

HEALTH AND SAFETY

Our Health and Safety Policy embodies our commitment to the health, safety and well-being of all
employees.

Our Board approved the policy and established a committee of the Board to monitor these safety
commitments. The Environment and Safety Committee of the Board (the “E&S Committee”) is mandated
to monitor the implementation and maintenance of our policy of ongoing commitment to health and
safety values and principles with continuous operational improvement. The E&S Committee ensures that
our management develops, implements and maintains a comprehensive safety program.

Safety is a core value for us. We maintain an active and comprehensive safety program at each of our
operations.

We continued to make good progress at each of our operations and our injury metrics in 2010 were
comparable to 2009. Our Medical Incident Rate (“MIR”) increased to 3.2 from 2.5 and our Lost Time
Accident (“LTA”) frequency decreased to 1.1 from 1.2 when compared to 2009.

Health and Safety Policy

Health and Safety is the uncompromised right and responsibility of all employees.

• We will integrate Health and Safety into our business with the knowledge that all accidents

are preventable.

• We will hold all levels of management accountable for providing a safe work environment

and enforcing safe work practices, including timely follow-up of safety incidents.

• We will train all employees to identify hazards and to protect themselves and fellow workers.

• We will hold all employees and contractors working for Interfor accountable for following

safe work practices and reporting unsafe acts and conditions.

• We will use audits to measure and improve our Health and Safety performance.

• We will actively involve our employees in effective Safety programs.

• We will operate in compliance with Health and Safety Regulations.

• We will monitor and report regularly on our Health and Safety performance.

International Forest Products Limited is committed to the health, safety, and well being of all
employees.

THE ENVIRONMENT

Our Environmental Policy embodies our commitment to responsible stewardship of the environment.

Our Board approved the policy and established a committee of the Board to monitor our commitment to
principles, values and policies on environment matters.

Management has implemented an environmental compliance program. Audits are performed regularly in
both the woodlands and manufacturing operations to verify its effectiveness.

Our Coast and Adams Lake woodlands have been certified to the Sustainable Forestry Initiative®
Program (“SFI”) as an international standard for certification of forest land. The SFI program is a
comprehensive system of principles, objectives and performance measures that combine the perpetual
growing and harvesting of trees with the protection of wildlife, plants, soil and water quality.

Interfor has obtained Forest Stewardship Council certification in the mid-coast Timber Supply Area as part
of the Coast Forest Conservation Initiative.

We maintain an Environmental Management System (“EMS”) for all of our manufacturing facilities. The
EMS provides a structure for identifying, addressing and managing environmental issues. Each
manufacturing business unit is responsible for compliance and ensuring the EMS is functioning as
intended.

We have also received Chain-of-Custody certification that tracks certified logs coming from sustainable
forests through the manufacturing process for certain mills.

We are a global leader in environmental management through the application of science–based
principles, collaborative approaches, sustainable forest practices and independent certifications. We were
a recipient of the 2000 Millennium Business Award from the United Nations Environmental Programme
and the International Chamber of Commerce, a co-recipient of World Wildlife Fund’s Gift to the Earth
award in 2007 and a recipient of an SFI Conservation Leadership award in 2009 for a partnership with
Aboriginal people along British Columbia’s Pacific Coast.

Additional information about our environmental work, audit summaries and Forest Sustainability Report is
available on our website at www.interfor.com.

We are committed to responsible stewardship of the environment.

Environment Policy

• We will minimize environmental impact, prevent pollution and strive for continuous

improvement of our environmental performance.

• We will operate in compliance with all applicable laws pertaining to the environment.

• We will regularly review our practices and procedures to monitor and report on

environmental performance.

• We will provide training for employees and contractors in environmentally responsible work

practices.

• We will manage our forest resources in a sustainable manner that is environmentally

appropriate, socially beneficial and economically viable.

• We will promote the use of our wood products as a good choice for the environment.

RESEARCH AND DEVELOPMENT

We contribute to and participate in industry research organizations that have made numerous technical
developments beneficial to us in areas such as sawing technology, drying techniques, and anti-sapstain
applications. We also are committed to applied research and development in the areas of environment,
health and safety, forest management and product and market development. We also conduct product
and market research on our own in Canada and the U.S.

CAPITAL STRUCTURE

The authorized share structure of the Company consists of:

• 100,000,000 Class “A” Subordinate Voting shares without par value (“Subordinate Voting

Shares”);

• 1,700,000 Class “B” Common shares without par value (“Multiple Voting Shares”); and

• 5,000,000 Preference shares without par value issuable in series with such special rights and
restrictions as the Directors of the Company may determine before issue thereof (“Preference
Shares”).

The Subordinate Voting Shares and Multiple Voting Shares are referred to as “Equity Shares”.

Subordinate Voting Shares

The holders of Subordinate Voting Shares are entitled to non-cumulative preferential dividends of 13 1/3
cents per annum for each share in priority to any dividends paid on the Multiple Voting Shares and to
further participate, share for share with the Multiple Voting Shares, in any dividends paid on the Equity
Shares for any fiscal year after 13 1/3 cents per share has been paid or set aside for payment on the
Subordinate Voting Shares. The holders of Subordinate Voting Shares are entitled to one vote for each
share and the holders of the Subordinate Voting Shares are entitled, as a class, to elect one member of
the Board and if there are no Multiple Voting Shares outstanding, are entitled to elect the entire Board
except in certain circumstances where the holders of Preference Shares are entitled to elect two
Directors.

The provisions relating to the Subordinate Voting Shares may not be varied unless sanctioned by a
special resolution of the holders of the Subordinate Voting Shares and the Multiple Voting Shares voting
together and by separate resolutions of the respective holders of the Subordinate Voting Shares and the
Multiple Voting Shares, the special resolution and separate resolutions in each case requiring a majority
of three-fourths of the votes cast.

In the event of liquidation, dissolution or winding-up of the Company or any other distribution of its
assets, holders of Subordinate Voting Shares are entitled to declared and unpaid dividends prior to the
holders of the Multiple Voting Shares and thereafter to participate, share for share, with the Multiple
Voting Shares, subject to all rights of the holders of Preference Shares.

Multiple Voting Shares

The holders of Multiple Voting Shares are entitled to participate, share for share, with the Subordinate
Voting Shares, in any dividends paid for any fiscal year after 13 1/3 cents has been provided for payment
on the Subordinate Voting Shares. The holders of Multiple Voting Shares are entitled to ten votes on a
poll for each share held and the holders of Multiple Voting Shares are entitled, as a class, to elect all
members of the Board except one member to be elected by the holders of the Subordinate Voting Shares
and, in certain circumstances, two Directors to be elected by the holders of Preference Shares.

In the event of liquidation, dissolution, or winding-up of the Company or any distribution of its assets,
holders of Multiple Voting Shares are entitled after payment of any declared and unpaid dividends on the
Subordinate Voting Shares to participate, share for share, with the Subordinate Voting Shares, subject to
all rights of the holders of Preference Shares.

Any holder of Multiple Voting Shares is entitled at any time to exchange his Multiple Voting Shares for
Subordinate Voting Shares on a share for share basis without adjustment for any unpaid dividends.

The provisions relating to the Multiple Voting Shares may not be varied unless sanctioned by a special
resolution of the holders of the Subordinate Voting Shares and the Multiple Voting Shares voting together
and by separate resolutions of the respective holders of the Subordinate Voting Shares and the Multiple
Voting Shares, the special resolution and separate resolutions in each case requiring a majority of three-
fourths of the votes cast.

In the event of any subdivision, consolidation, or conversion of either Subordinate Voting Shares or
Multiple Voting Shares, an appropriate adjustment is to be made in the rights and conditions attaching to
the Subordinate Voting Shares and the Multiple Voting Shares to preserve the benefits conferred on the
holders of each class.

Rights on Take-Over Bids and Conversion of Multiple Voting Shares

Any transfer of a Multiple Voting Share:

a. by any of W.L. Sauder’s executors, administrators, or other trustee or legal representative with
respect to his personal estate, members of his immediate family, their descendants and controlled
companies (collectively the “Controlling Shareholder Group”) to any person other than another
member of the Controlling Shareholder Group or a person (the “Qualified Purchaser”) who is
acquiring a majority of the outstanding Multiple Voting Shares and who makes an offer to purchase
all outstanding Subordinate Voting Shares, Preference Shares, and Multiple Voting Shares at an
equivalent price; or

b. by a Qualified Purchaser to any person other than another Qualified Purchaser,

will result in the automatic conversion of the Multiple Voting Shares into Subordinate Voting Shares.

The Multiple Voting Shares will be automatically converted into Subordinate Voting Shares if:

the Controlling Shareholder Group or a Qualified Purchaser ceases to beneficially own more than 50%
of the issued and outstanding Multiple Voting Shares; or

the Controlling Shareholder Group or a Qualified Purchaser ceases to beneficially own equity shares
carrying at least 9.2 million votes, subject to adjustments upon: (i) the subdivision, consolidation, or
reclassification of any outstanding equity shares, or (ii) the issue of equity shares by way of a stock
dividend other than an ordinary course stock dividend.

Preference Shares

The Preference Shares of each series rank on a parity with the Preference Shares of every other series,
and are entitled to preference over the Equity Shares and over any other shares ranking junior to the
Preference Shares with respect to payment of dividends and the distribution of assets of the Company in
the event of liquidation, dissolution, or winding-up of the Company.

MARKET FOR SECURITIES OF THE COMPANY

The Subordinate Voting Shares are listed on the Toronto Stock Exchange under the symbol IFP.A. The
following table sets out the market price ranges and trading volumes for the Subordinate Voting Shares
on the Toronto Stock Exchange for each month during 2010 (January 1, 2010 through December 31,
2010).

Month

January
February
March
April
May
June
July
August
September
October
November
December

Toronto Stock Exchange (TSX)
2010 Trading Volumes
Ticker: IFP.A

High

Low

5.10
4.90
5.44
6.25
5.60
5.50
4.40
4.30
4.10
5.19
5.27
5.60

4.14
4.10
4.27
5.22
4.90
3.92
3.71
3.21
3.22
3.78
4.33
4.50

Volume

837,283
2,204,801
1,282,963
2,128,620
1,830,036
775,663
520,873
1,260,196
1,582,505
3,574,166
1,158,547
1,200,935

TRANSFER AGENTS

The transfer agent for our Subordinate Voting Shares is Computershare Investor Services Inc. at its
principal offices in Vancouver, British Columbia.

DIRECTORS AND OFFICERS

Directors as of February 9, 2011

The following table sets out the Company’s directors as of February 9, 2011, their respective
municipalities of residence, principal occupations within the past five years and the period during which
each director has served as a director.

Name and
Municipality of Residence
LAWRENCE I. BELL*
Vernon, BC, Canada

Director Since
April 1998

Principal Occupations
Corporate Director

Non-executive Chairman
British Columbia Hydro and Power Authority

From
2007

To
Present

2003

2007

Chairman and Chief Executive Officer
British Columbia Hydro and Power Authority

2001

2003

DUNCAN K. DAVIES
Vancouver, BC, Canada

November 1998

President and Chief Executive Officer
International Forest Products Limited

President and Chief Operating Officer
International Forest Products Limited

HAROLD C. KALKE
West Vancouver, BC, Canada

July 2000

President and Founder
Kalico Developments Ltd., a real estate development
and management company

PETER M. LYNCH
Toronto, ON, Canada

October 2006

Corporate Director

GORDON. H. MacDOUGALL
West Vancouver, BC, Canada

February 2007

Executive Vice President and Director
Grant Forest Products Inc. (and its predecessor)

Vice Chairman and Director
Connor, Clark & Lunn Investment Management Ltd.,
an asset management firm

2000

Present

1998

2000

1971

Present

2010

Present

1993

2010

2007

Present

Partner
Connor, Clark & Lunn Investment Management
Partnership

1996

2006

Head of Portfolio Strategy Team and
Head of Client Solutions Team
Connor, Clark & Lunn Investment Management Ltd.

1996

2006

J. EDDIE McMILLAN
Perdido Key, Florida, USA

October 2006

Independent Business Consultant

2002

Present

Executive Vice President – Wood Products Group
Willamette Industries, Inc.

1998

2002

E. LAWRENCE SAUDER
Vancouver, BC, Canada

April 1984

Non-Executive Chairman
International Forest Products Limited

Chief Executive Officer
Sauder Industries Limited, a manufacturer and
distributor of building products

Chairman
Sauder Industries Limited

Non-executive Chairman
Hardwoods Distribution Income Fund

Non-executive Vice Chairman
International Forest Products Limited

President
Sauder Industries Limited

2008

Present

2010

Present

2007

Present

2008

Present

2004

2008

1988

2004

JOHN P. SULLIVAN
Vancouver, BC, Canada

May 2001

Corporate Director

Vice President
International Forest Products Limited

DOUGLAS W.G. WHITEHEAD
North Vancouver, BC, Canada

April 2007

Non-Executive Chairman
Finning International Inc., a distributor of Caterpillar
products and support services

2003

Present

2001

2003

2008

Present

President and Chief Executive Officer
Finning International Inc.

2000

2008

*Lead Director

To our knowledge, only one of the Company’s directors has in the last 10 years been an officer or
director of a company that, while the person was acting in that capacity, was subject to bankruptcy or
similar proceedings or securities regulatory sanctions described in National Instrument 51-102 Continuous
Disclosure Obligations. From 1993 to 2010, Mr. Lynch was an executive director of Grand Forest
Products Inc. (“Grant Forest”). On June 25, 2009, Grant Forest filed and obtained protection under the
Companies’ Creditors Arrangement Act in order to restructure its business affairs.

The term of office for all current directors will end on the day of the next Annual General Meeting of the
Company’s shareholders. The next Annual General Meeting is scheduled for May 17, 2011.

Committees of the Board

The Company currently has 4 Committees of the Board of Directors: Audit Committee, the Corporate
Governance & Nominating Committee, the Management Resources & Compensation Committee and the
Environment & Safety Committee. The members of each Committee are indicated below.

Audit
Committee

Management
Resources &
Compensation
Committee

Lawrence I. Bell

Duncan K. Davies

Harold C. Kalke

Peter M. Lynch

Gordon H. MacDougall

Chair

James E. McMillan

E. Lawrence Sauder

John P. Sullivan

Douglas W.G. Whitehead

Chair

Corporate
Governance &
Nominating
Committee
x

Environment
& Safety
Committee

Chair

Officers as of February 9, 2011

The following table sets out the Company’s officers as of February 9, 2011, their respective municipalities
of residence and their principal occupations for at least the last five years:

Name and
Municipality of Residence

Positions Held

DUNCAN K. DAVIES
Vancouver, BC, Canada

President and Chief Executive Officer
International Forest Products Limited

From

2000

Present

JOHN A. HORNING
West Vancouver, BC, Canada

Senior Vice President, Chief Financial Officer and Corporate Secretary
International Forest Products Limited

2007

Present

Senior Vice President and Chief Financial Officer
International Forest Products Limited

SANDY M. FULTON
Blaine, Washington, USA

Senior Vice President and Chief Operating Officer
International Forest Products Limited

Senior Vice President, U.S. Operations
International Forest Products Limited

OTTO F. SCHULTE
Black Creek, BC, Canada

Vice President, Coastal Woodlands
International Forest Products Limited

RICHARD J. SLACO
Delta, BC, Canada

Vice President and Chief Forester
International Forest Products Limited

STEPHEN D.A. WILLIAMS
North Vancouver, BC, Canada

Vice President, Finance and Administration

Vice President and Corporate Treasurer
International Forest Products Limited

2002

2007

Present

2004

2007

2000

Present

2002

Present

2010

2006

Present

2010

SHAREHOLDINGS OF DIRECTORS AND OFFICERS

As at December 31, 2010, the directors and officers of the Company as a group owned, directly or
indirectly, or exercised control of or direction over 2,674,157 Subordinate Voting Shares representing
approximately 5.77% of the outstanding Subordinate Voting Shares and 1,011,735 Multiple Voting Shares
representing approximately 99.6% of the outstanding Multiple Voting Shares. In respect of the
foregoing, the outstanding Multiple Voting Shares are owned by Sauder Industries Limited. Sauder
Industries Limited is indirectly owned in part by Mr. Sauder, the non-executive Chairman of the Company.
Mr. Sauder controls or directs the exercise of the voting rights attached to the voting securities of the
Company held by Sauder Industries Limited with respect to routine matters such as the election of
directors and appointment of auditors.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Since the commencement of our most recently completed financial year, and for the three most recently
completed financial years, no director or executive officer of the Company, no person or company that is
the direct or indirect beneficial owner of, or who exercises control or direction over, more than 10% of
the Company’s voting securities or any associate or affiliate of such persons, has had any material
interest in any transaction involving the Company.

LEGAL PROCEEDINGS

We are not a party to, and our property is not the subject of, any material legal proceedings which are
currently in place or which we know to be contemplated.

INTEREST OF EXPERTS

KPMG LLP are the external auditors of the Company and have confirmed that they are independent with
respect to the Company within the meaning of the Rules of Professional Conduct of Institute of Chartered
Accountants of British Columbia and the applicable rules and regulations thereunder.

AUDIT COMMITTEE INFORMATION

The Audit Committee Terms of Reference

The Audit Committee (the "Committee") is appointed by the Board to assist the Board in fulfilling its
oversight responsibility relating to:

the integrity of the Company’s financial statements,

the financial reporting process,

the systems of internal accounting and financial controls,

the professional qualifications and independence of the external auditors,

the performance of the external auditors, risk management processes,

financial plans,

g. pension plans, and

h. compliance by the Company with ethics and legal and regulatory requirements.

The Committee’s Terms of Reference, attached as Appendix “A” to this Annual Information Form, sets out
its responsibilities and duties.

The Committee met 4 times in 2010 in conjunction with regularly scheduled Board meetings.

Composition of the Audit Committee

The Committee consists of 4 directors: Gordon H. MacDougall (Chair), Lawrence I. Bell, Peter M. Lynch
and Douglas W.G. Whitehead. Each Committee member is independent and financially literate in
compliance with Multilateral Instrument 52-110 – Audit Committees.

Relevant Education and Experience

The following is a brief summary of the education and experience of each member of the Committee that
is relevant to the performance of his responsibilities as a member of the Committee, including any
education or experience that has provided the member with an understanding of the accounting
principles used by the Company to prepare its annual and interim financial statements.

Mr. Gordon H. MacDougall

Mr. MacDougall is the Chairman of the Committee. Mr. MacDougall is Vice Chairman and Partner of
Connor, Clark & Lunn Investment Management Ltd., an asset management firm. From 1996 to 2006, he
was a Partner at Connor, Clark & Lunn Investment Management Partnership and Director, Head of
Portfolio Strategy Team and Head of Client Solutions Team of Connor, Clark & Lunn Investment
Management Ltd. He previously served as lead director for Intrawest Corporation. Mr. MacDougall is
currently the Chairman of the Investment Committee and a director of Vancouver Foundation.

He holds a CFA from the University of Virginia, a MBA from the University of Pittsburgh and a B.Comm. in
Finance from Sir George Williams University (now Concordia University).

Mr. MacDougall has served on the Committee since April 2007 and chaired the Committee since April
2009.

Mr. Lawrence I. Bell

Mr. Bell is a Corporate Director. In addition to being a director of the Company, he is a director of
Goldcorp Inc., Capstone Mining, Silver Wheaton Corp. and Matrix Asset Management Inc. Mr. Bell is a
fellow of the Institute of Corporate Directors. From 2003 until his retirement in 2007, Mr. Bell served as
the non-executive Chairman of British Columbia Hydro and Power Authority. From 2001 to 2003, he was
Chairman and Chief Executive Officer of British Columbia Hydro and Power Authority. He has also served
as the Chairman of the Canada Line (Rapid Transit Project), Chairman of the Board of Governors of the
University of British Columbia, Chairman and President of the Westar Group and Chief Executive Officer
of Vancouver City Savings Credit Union. In addition, he has served on the boards of a number of private
and public companies, including Kimber Resources Inc., B.C. Gas, Canadian Hunter and Miramar Mining
Corporation, and as a trustee of Hardwoods Distribution Income Fund. In the British Columbia public
sector, Mr. Bell has served as Deputy Minister of Finance and Secretary to the Treasury Board.

Mr. Bell holds a M.A. in Economics and has received numerous awards for his public service.

Mr. Bell has served on the Committee since April 2009.

Mr. Peter M. Lynch

Mr. Lynch is a Corporate Director. From 1993 to 2010, he was the Executive Vice President and a
director of Grant Forest Products Inc. (and its predecessor), a producer of OSB and engineered wood
products. Prior thereto, he practiced law.

Mr. Lynch holds a LL.B from Osgoode Law School and is a member of the Law Society of Upper Canada,
the Canadian Bar Association and the Ontario Bar Association.

Mr. Lynch has served on the Committee since April 2009.

Mr. Douglas W.G. Whitehead

Mr. Whitehead is currently the Chairman of Finning International Inc. (“Finning”), a distributor of
Caterpillar products and support services. From 2000 to 2008, he was the President and Chief Executive
Officer of Finning. Prior to joining Finning, Mr. Whitehead held a number of senior executive positions
with Fletcher Challenge Canada, including President and Chief Executive Officer, Senior Vice President
and Chief Operating Officer and Vice President of the Crown Packaging Division. Mr. Whitehead is also
currently a director of Ballard Power Systems Inc., Belkorp Industries and Inmet Mining Corporation.
Over the years, he has served as director of Terasen Inc., Fletcher Challenge Canada, Finlay Forest
Industries and Timberwest Forest Limited.

Mr. Whitehead holds a MBA from the University of Western Ontario and a B.Sc. in Engineering from the
University of British Columbia.

Mr. Whitehead has served on the Committee since April 2009.

AUDIT FEES

The Committee annually recommends the appointment of the Company’s external auditors and approves
the annual audit plan and compensation of the external auditors for all audit, audit related and non-audit
services. In the case of non-audit services, the services and compensation is approved by the Committee
before the services commence.

KPMG LLP, Chartered Accountants, Vancouver, are the independent auditors of the Company. Fees paid
or accrued to KPMG LLP for audit and other services for the years ended December 31, 2010 and
December 31, 2009 were as follows:

Total audit fees

Audit-related fees (1)

Tax fees (2)

All other fees

TOTAL

2010 Fees

2009 Fees

451,000

9,300

266,678

50,500

777,478

392,500

33,300

17,875

36,350

$ 480,025

(1) Audit-related fees consist principally of fees for professional services rendered with respect to audits of a defined benefit

pension plan, subsidiary companies, and advice and assistance related to accounting issues.

(2) Tax fees consist of fees for tax compliance services, professional services related to U.S. cross border transfer pricing and

sales tax.

CODE OF ETHICS

We have adopted a code of ethics that applies to our directors, officers and employees. A copy of the
code, entitled “Code of Conduct”, can be found on our website at www.interfor.com.

ADDITIONAL INFORMATION

Additional information relating to the Company, including directors’ and officers’ remuneration and
indebtedness, principal holders of the Company’s securities and securities authorized for issuance under
equity compensation plans, is contained in the Company’s Information Circular.

Additional financial information about the Company is provided in the Company’s financial statements and
Management’s Discussion and Analysis for the year ended December 31, 2010.

Copies of the documents referred to above are available on the SEDAR website at www.sedar.com and
may also be obtained upon request from:

International Forest Products Limited
Corporate Secretary
3500-1055 Dunsmuir Street
Vancouver, British Columbia,
Canada, V7X 1H7
Telephone: 604 689 6800
Facsimile: 604 689 6825
E-mail: info@interfor.com

Additional information relating to the Company may be found on the SEDAR website at www.sedar.com.

Appendix “A”

AUDIT COMMITTEE
Terms of Reference

PURPOSE

The Audit Committee has been established by the Board and under powers delegated to it by the Board
is mandated to oversee the accounting and financial reporting processes of the Company and audits of its
financial statements in accordance with the Board’s objectives.

COMPOSITION AND TERM OF OFFICE

The Audit Committee shall consist of four or more Directors.

All members of the Audit Committee shall be independent within the meaning of Multilateral
Instrument 52-110-Audit Committees.

All members must be financially literate or become financially literate within a reasonable period
following appointment and at least one member should have accounting or related expertise.

The Chairman of the Audit Committee along with other Audit Committee members will be
appointed annually by the Board following the AGM to hold office until the next AGM, unless the
member becomes unable to serve or is removed by the Board. A casual vacancy may be filled
and additional members may be appointed at any time by the Board to hold office until the next
AGM.

A quorum shall consist of a simple majority.

DUTIES AND RESPONSIBILITIES

The Audit Committee shall perform the following functions, as well as any other functions specifically
authorized by the Board:

General

Schedule regular meetings and meet, at a minimum, four times per year. Extraordinary meetings
may be called by any member of the Audit Committee or at the request of the Chairman of the
Board.

Appoint a Secretary who shall record the proceedings of the Audit Committee’s meetings.

Report to the Board activities and recommendations, if any, requiring Board approval.

Financial Disclosure, Risk Management and Internal Controls

Review the following documents before the public disclosure of same by the Company, and, if
appropriate, recommend approval by the Board of the Company’s:

(a)

(b)

(c)

annual and quarterly financial statements;

Management’s Discussion and Analysis; and

annual and interim earnings press releases.

The review will involve direct discussions with Management and the Company’s external auditor
(the “Auditor”), including an opportunity for an in-camera meeting with the Auditor independent
of Management.

Review and approve the disclosures required by applicable securities laws to be included in the
Company’s Annual Information Form and Management Information Circular relating to the Audit
Committee and audit and non-audit services and fees.

Review the process for certification of the interim and annual financial statements by the CEO
and Chief Financial Officer (“CFO”) and the certification made by the CEO and CFO.

Review all news releases announcing financial results, containing financial information based on
unreleased financial results or non-GAAP financial measures or providing earnings guidance,
forward-looking financial information and future-oriented financial information or financial
outlooks before the public disclosure of same by the Company.

Review financial information contained in any prospectus, take-over bid circular, issuer bid
circular, rights offering circular and any other document that the Audit Committee is to review
before the public disclosure of same by the Company, and, if appropriate, recommend approval
by the Board.

Review matters related to internal controls over financial reporting of the Company and ensure
the Company has adequate procedures in place in respect thereof. Ensure that the necessary
measures are taken to follow up suggestions from the Auditor’s reports.

Review the principal risks of the Company and ensure that an effective risk management strategy
is in place.

10.

Review the Company’s derivatives policies and activities, including details of exposures to banks
and other counterparties.

External Auditor

11.

12.

13.

14.

15.

16.

17.

18.

Review and recommend to the Board the appointment of the Auditor to be nominated for the
purposes of preparing or issuing an Auditor’s report and performing other audit, review or attest
services for the Company.

Establish the mandate of the Auditor, including the annual engagement, audit plan, audit scope
and compensation for the audit services, subject to shareholder approval.

Oversee the activities of the Auditor. The Auditor shall report directly to the Audit Committee.

Directly communicate and meet with the Auditor, with and without Management present, to
discuss the results of their examinations.

Review the independence of the Auditor, any rotation of the partners assigned to the audit in
accordance with applicable laws and professional standards, the internal quality control findings
of the Auditor’s firm and peer reviews.

Review the performance of the Auditor, including the relationship between the Auditor and
Management and the evaluation of the lead partner of the Auditor.

Resolve disagreements between Management and the Auditor regarding financial reporting.

Review material written communications between the Auditor and Management.

Non-Audit Services

19.

Pre-approve non-audit services. The Audit Committee may delegate to one or more of its
members the authority to pre-approve non-audit services. The pre-approval of non-audit
services by any member to whom authority has been delegated shall be presented to the
Committee at its first scheduled meeting following such pre-approval.

Company Policies

20.

21.

Satisfy itself that adequate procedures are in place for the review of the public disclosure of
financial information extracted or derived from the Company’s financial statements and
periodically assess the adequacy of those procedures.

Establish and periodically review the policies and procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal accounting
controls or auditing matters, and the confidential, anonymous submissions by the employees of
the Company regarding questionable accounting or auditing matters.

22.

Review and approve the Company’s hiring policies regarding partners, employees and former
partners and employees of the former and present Auditor.

Insurance

23.

Review the Company’s insurance programs, including the Company’s directors’ and officers’
insurance coverage, and make recommendations for their renewal or replacement.

AUTHORITY

The Audit Committee is authorized to engage any outside advisor it deems necessary to carry out
its duties and responsibilities and to arrange payment of the advisor’s compensation by the
Company.

The Audit Committee may, at the request of the Board or at its own initiative, investigate such
other matters as it considers appropriate in furtherance of the Audit Committee’s purpose.

GLOSSARY

“Adjusted EBITDA” EBITDA less other income and other income of investee company.

“Allowable Annual Cut (AAC)” The average annual volume of timber which the holder of a licence from the
Province of British Columbia may harvest on Crown land under the licence in a five-year control period.

“Bone Dry Unit (BDU)” A unit of measurement for wood chips and other sawmill by-products, being equal to 2,400
pounds.

“Cash flow from operations” Cash generated from operations before considering changes in operating working
capital.

“Custom cutting” An arrangement under which a mill contracts to cut logs owned by a customer into products of
specifications defined by the customer.

“EBITDA” Earnings before interest, income taxes, depletion, amortization, restructuring costs, other foreign
exchange gains and losses, and write-downs of plant and equipment.

“Forest Licence” Replaceable, volume-based timber cutting rights for a specific volume of Crown timber within a
Timber Supply area.

“Invested Capital” The total of bank indebtedness, short term advances from the Seaboard partnership, long-term
debt and shareholders’ equity.

“Invested Capital, adjusted” Invested Capital less cash, deposits and short term advances from the Seaboard
partnership.

“m³” A measure of one cubic metre of solid wood, British Columbia metric scale, as determined under the Forest Act,
equal to 35.3 cubic feet of solid wood.

“Mfbm” or “Mbf” One thousand foot board measure equal to one thousand square feet of lumber, one inch thick.

“Net debt” Total Debt less cash, deposits and short term advances from the Seaboard partnership.

“Pre-tax return on total assets” Earnings (loss) before taxes, restructuring costs, other foreign exchange gains
and losses, and write-downs of property, plant, equipment and timber, U.S. duty refunds, net and Other income
divided by closing total assets.

“Return on average Invested Capital, adjusted” Net earnings (loss) plus after tax interest cost (excluding
interest income on U.S. duty refund, net of special charge) divided by the average of opening and closing Invested
Capital, adjusted.

“Return on average shareholders’ equity” Net earnings (loss) divided by the average of opening and closing
shareholders’ equity.

“Silviculture” The art and science of controlling the establishment, growth, composition, health and quality of
forests.

“Stumpage” A charge assessed by the provincial government on all Crown timber harvested.

“Sustained yield (sustainable log supply)” The yield that a forest area can produce on an ongoing basis without
impairment of the long-term productivity of the land.

“Timber Licence” Non-replaceable, area based, Crown timber cutting rights.

“Total Debt” The total of bank indebtedness, short-term advances from the Seaboard partnership, long-term debt.

“Tree Farm Licence” A renewable 25-year licence to manage a forest area to yield an annual harvest on a
sustainable basis.

“Value-added product” A commodity or other product that has been further processed to increase financial value.

“Volumetric unit” A unit of measurement for wood chips and other sawmill by-products, being equal to 200 cubic
feet. A volumetric unit represents between 60% and 85% of the chips in a Bone Dry Unit, depending on the species.

“Whitewood” Includes the Coastal species hemlock, Balsam Fir, Douglas-fir and spruce; the term whitewood is used
on British Columbia Coast to differentiate the above species from Red Cedar and Yellow Cedar.

DIRECTORS AND OFFICERS

100

DIRECTORS

L.I. Bell (Lead Director) - Vernon, BC

D.K. Davies - Vancouver, BC

H.C. Kalke - West Vancouver, BC

P.M. Lynch - Toronto, ON

G.H. MacDougall - West Vancouver, BC

J.E. McMillan - Perdido Key, Florida

E.L. Sauder (Chairman of the Board) - Vancouver, BC

J.P. Sullivan - Vancouver, BC

D.W.G. Whitehead - North Vancouver, BC

OFFICERS

E.L. Sauder – Chairman

D.K. Davies - President and Chief Executive Officer

J.A. Horning - Senior Vice President, Chief Financial Officer and Corporate Secretary

S.M. Fulton - Senior Vice President and Chief Operating Officer

S.D.A. Williams - Vice President, Finance and Administration

O.F. Schulte - Vice President, Coastal Woodlands

R.J. Slaco - Vice President and Chief Forester

101

CORPORATE INFORMATION

Interfor U.S. Office
220 - 2211 Rimland Drive
Bellingham, WA 98226
Tel: 360- 788-2299
Fax: 360- 788-2290

Stock Exchange
Class “A” shares listed on
The Toronto Stock
Exchange
Symbol: IFP.A

Auditors
KPMG LLP,
Vancouver, BC

Transfer Agent
Computershare
Investor Services Inc.
Vancouver, BC and
Toronto, ON

SALES & ADMINISTRATION OFFICES

North America – Whitewood
220 – 2211 Rimland Drive
Bellingham, WA 98226
Tel: 360-788-2200
Fax: 360-788-2210

International
Suite 600-2700 Production Way
Burnaby, BC, V5A 4X1
Tel: 604-422-3468
Fax: 604-422-3250

Interfor Head Office
PO Box 49114
Bentall Tower Four
3500-1055 Dunsmuir Street
Vancouver, BC V7X 1H7
Tel: 604-689-6800
Fax: 604-688-0313

North America – Cedar
20580 Maple Crescent
Maple Ridge, BC
Canada, V2X 1B1
Tel: 604-465-1850
Fax: 604-465-2230

Japan
Kasahara Bldg. 6F, 1-7-7
Nihonbashi, Ningyocho, Chuo-ku
Tokyo, Japan 103-0013
Tel: +81 3 5641 2351
Fax: +81 3 5641 2383

Europe
Z.I. du Port de Nantes
Chevire Amont, 7, Rue de l'Houmaille
Bouguenais, France 44340
Tel: 33 2 40 32 05 25
Fax: 33 2 40 32 02 25

Production Way
Suite 600-2700 Production Way
Burnaby, BC V5A 4X1
604-422-3400

OPERATIONS AND LOCATIONS

Acorn
Sawmill
9355 Alaska Way
Delta, BC V4C 4R7
604-581-0494

Adams Lake
Sawmill
9200 Holding Road
Chase, BC V0E 1M2
250-679-3234

Avalon
Log Sorting
Port Mellon Highway
Port Mellon, BC V0N 2S0
604-884-5300

Beaver
Sawmill
200673 Highway 101
Beaver, WA 98305
360-327-3377

Campbell River
Coastal Woodlands
1250-A Ironwood Street
Campbell River, BC V9W 6H5
250-286-1881

Castlegar
Sawmill
PO Box 3728
2705 Arrow Lakes Drive
Castlegar, BC V1N 3W4
250-365-4400

CEDARPRIME
Remanfacturing
601C West Front Street
Sumas, WA 98295
360-988-2120

Forks
Planermill
143 Sitkum Solduc Road
PO Box 2299
Forks, WA 98331
360-374-4347

Gilchrist
Sawmill
#1 Sawmill Road
Gilchrist, OR 97737
541-433-2222

Nakusp
Castlegar Woodlands
442 Highway 6 West
PO Box 2000
Nakusp, BC V0G 1R0
250-265-3741

Grand Forks
Sawmill and Woodlands
570 68th Ave.
PO Box 39
Grand Forks, BC V0H 1H0
250-443-2400

Port Angeles
Sawmill
243701 Hwy 101 W.
Port Angeles, WA 98363
360-457-6266

Hammond Cedar
Sawmill
20580 Maple Crescent
Maple Ridge, BC V2X 1B1
604-465-5401

Molalla
Sawmill
15555 South Highway 211
Molalla, OR 97038
503-829-9131

Sechelt
Woodlands
208 – 5760 Teredo Street
Sechelt, BC V0N 3A0
604-740-8220