Canfor Corporation — Interim / Quarterly Report 2025

May 9, 2025

CANFOR

Canfor Corporation.

2025 Quarter One – Financial statements

For the three months ended March 31, 2025.

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1

Canfor Corporation.

Condensed Consolidated Balance Sheets

(millions of Canadian dollars, unaudited)		As at March 31, 2025	As at December 31, 2024
ASSETS
Current assets
Cash and cash equivalents	$	128.5	$ 259.3
Trade receivables		413.9	318.3
Other receivables		97.3	100.4
Income taxes recoverable		92.4	86.9
Inventories (Note 3)		1,072.6	929.1
Prepaid expenses and other		142.4	125.1
Total current assets		1,947.1	1,819.1
Property, plant and equipment		2,477.1	2,440.9
Right-of-use assets		132.2	132.2
Timber licenses		320.3	323.0
Goodwill and other intangible assets		542.9	529.7
Long-term investments and other (Note 4)		314.5	327.0
Total assets	$	5,734.1	$ 5,571.9
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	$	775.9	$ 724.1
Operating loans (Note 5(a))		174.9	106.8
Current portion of deferred reforestation obligations		57.6	57.6
Current portion of term debt (Note 5(b))		47.7	48.1
Current portion of lease obligations		34.6	34.2
Income taxes payable		7.5	6.4
Total current liabilities		1,098.2	977.2
Term debt (Note 5(b))		71.9	72.5
Duty deposits loan		332.6	335.1
Retirement benefit obligations (Note 6)		134.7	133.4
Lease obligations		106.4	106.9
Deferred reforestation obligations		67.0	46.9
Other long-term liabilities		35.0	36.6
Put liability (Note 7)		123.8	110.7
Deferred income taxes, net		160.1	168.8
Total liabilities	$	2,129.7	$ 1,988.1
EQUITY
Share capital	$	932.0	$ 934.1
Contributed surplus and other equity		(90.5)	(87.6)
Retained earnings		2,232.4	2,267.5
Accumulated other comprehensive income		255.1	197.8
Total equity attributable to equity shareholders of the Company		3,329.0	3,311.8
Non-controlling interests		275.4	272.0
Total equity	$	3,604.4	$ 3,583.8
Total liabilities and equity	$	5,734.1	$ 5,571.9

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

APPROVED BY THE BOARD

"R.S. Smith"
"The Hon. J.R. Baird"
Director, R.S. Smith
Director, The Hon. J.R. Baird

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Canfor Corporation.

Condensed Consolidated Statements of Income (Loss)

(millions of Canadian dollars, except per share data, unaudited)	3 months ended March 31,
	2025	2024
Sales	$ 1,417.5	$ 1,382.7
Costs and expenses
Manufacturing and product costs	1,124.5	1,117.2
Freight and other distribution costs	156.1	175.2
Countervailing and anti-dumping duty expense, net (Note 12)	22.8	28.4
Amortization	101.1	105.6
Selling and administration costs	41.5	42.1
	1,446.0	1,468.5
Operating loss	(28.5)	(85.8)
Finance expense, net	(19.9)	(2.6)
Foreign exchange loss on term debt	(1.2)	(7.7)
Foreign exchange gain on duty deposits loan and duty deposits recoverable, net	1.8	7.8
Gain (loss) on derivative financial instruments (Note 7)	9.8	(10.3)
Other income (loss), net	(0.2)	19.2
Net loss before income taxes	(38.2)	(79.4)
Income tax recovery (Note 8)	12.2	15.1
Net loss	$ (26.0)	$ (64.3)
Net income (loss) attributable to:
Equity shareholders of the Company	$ (31.0)	$ (64.5)
Non-controlling interests	5.0	0.2
Net loss	$ (26.0)	$ (64.3)
Net loss per common share: (in Canadian dollars)
Attributable to equity shareholders of the Company
- Basic and diluted (Note 9)	$ (0.26)	$ (0.54)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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Canfor Corporation.

Condensed Consolidated Statements of Other Comprehensive Income (Loss)

(millions of Canadian dollars, unaudited)	3 months ended March 31,
	2025	2024
Net loss	$ (26.0)	$ (64.3)
Other comprehensive income (loss)
Items that will not be reclassified subsequently to net income (loss):
Defined benefit plan actuarial gains (losses), net (Note 6)	(3.0)	8.6
Income tax recovery (expense) on defined benefit plan actuarial gains (losses), net (Note 8)	0.8	(2.3)
	(2.2)	6.3
Items that may be reclassified subsequently to net income (loss):
Foreign exchange translation of foreign operations, net of tax	57.3	11.2
Other comprehensive income, net of tax	55.1	17.5
Total comprehensive income (loss)	$ 29.1	$ (46.8)
Total comprehensive income (loss) attributable to:
Equity shareholders of the Company	$ 24.4	$ (48.2)
Non-controlling interests	4.7	1.4
Total comprehensive income (loss)	$ 29.1	$ (46.8)

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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Canfor Corporation.

Condensed Consolidated Statements of Changes in Equity

(millions of Canadian dollars, unaudited)	3 months ended March 31,
	2025	2024
Share capital
Balance at beginning of period	$ 934.1	$ 938.3
Share purchases (Note 9)	(2.1)	(1.8)
Balance at end of period	$ 932.0	$ 936.5
Contributed surplus and other equity
Balance at beginning of period	$ (87.6)	$ (169.8)
Put liability (Note 7)	(2.9)	(4.3)
Balance at end of period	$ (90.5)	$ (174.1)
Retained earnings
Balance at beginning of period	$ 2,267.5	$ 3,004.2
Net loss attributable to equity shareholders of the Company	(31.0)	(64.5)
Defined benefit plan actuarial gains (losses), net of tax	(1.9)	5.1
Share purchases (Note 9)	(2.2)	(2.0)
Balance at end of period	$ 2,232.4	$ 2,942.8
Accumulated other comprehensive income
Balance at beginning of period	$ 197.8	$ 45.5
Foreign exchange translation of foreign operations, net of tax	57.3	11.2
Balance at end of period	$ 255.1	$ 56.7
Total equity attributable to equity shareholders of the Company	$ 3,329.0	$ 3,761.9
Non-controlling interests
Balance at beginning of period	$ 272.0	$ 459.2
Net income attributable to non-controlling interests	5.0	0.2
Defined benefit plan actuarial gains (losses) attributable to non-controlling interests, net of tax	(0.3)	1.2
Distributions to non-controlling interests, net	(1.3)	(0.4)
Balance at end of period	$ 275.4	$ 460.2
Total equity	$ 3,604.4	$ 4,222.1

The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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Canfor Corporation.

Condensed Consolidated Statements of Cash Flows

(millions of Canadian dollars, unaudited)		3 months ended March 31, 2025	2024
Cash generated from (used in):
Operating activities
Net loss		$ (26.0)	$ (64.3)
Items not affecting cash:
Amortization		101.1	105.6
Income tax recovery (Note 8)		(12.2)	(15.1)
Change in long-term portion of deferred reforestation obligations, net		19.7	23.5
Foreign exchange loss on term debt		1.2	7.7
Foreign exchange gain on duty deposit loan and duty deposits recoverable, net		(1.8)	(7.8)
Duties paid less than (greater than) accruals (Note 12)		(0.6)	15.4
Changes in mark-to-market value of derivative financial instruments		(5.2)	9.8
Employee future benefits expense		1.1	2.5
Finance expense, net		19.9	2.6
Other, net		3.0	-
Defined benefit plan contributions, net		(2.5)	(3.3)
Income taxes paid, net		(6.9)	(2.9)
		90.8	73.7
Net change in non-cash working capital (Note 10)		(161.4)	(154.7)
		(70.6)	(81.0)
Financing activities
Operating loan drawings, net (Note 5(a))		67.7	5.7
Changes in term debt, net		(0.1)	0.2
Payments of lease obligations		(10.0)	(8.9)
Finance expenses paid		(7.0)	(8.6)
Share purchases (Note 9)		(3.6)	(3.3)
Distributions paid to non-controlling interests, net		(1.3)	(0.4)
		45.7	(15.3)
Investing activities
Additions to property, plant and equipment and intangible assets, net		(122.1)	(103.4)
Proceeds from the sale of property, plant and equipment and intangible assets		1.8	-
Interest income received		1.4	6.0
Other, net		1.5	(1.1)
		(117.4)	(98.5)
Foreign exchange gain (loss) on cash and cash equivalents		11.5	(11.3)
Decrease in cash and cash equivalents*		(130.8)	(206.1)
Cash and cash equivalents at beginning of period*		259.3	627.4
Cash and cash equivalents at end of period*		$ 128.5	$ 421.3

*Cash and cash equivalents include cash on hand less unpresented cheques.
The accompanying notes are an integral part of these condensed consolidated interim financial statements.

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6

Canfor Corporation.

Notes to the Condensed Consolidated Interim Financial Statements

Three months ended March 31, 2025 and 2024

1. Basis of Preparation

These condensed consolidated interim financial statements (the "financial statements") have been prepared in accordance with International Accounting Standards ("IAS") 34 Interim Financial Reporting, and include the accounts of Canfor Corporation and its subsidiaries, hereinafter referred to as "Canfor" or "the Company." Significant subsidiaries include Canfor Southern Pine, Inc. ("CSP") and entities related to the acquisition of Millar Western Forest Products Ltd. ("Millar Western"), which are wholly owned, as well as Canfor Pulp Products Inc. ("CPPI") and the Vida Group ("Vida"), of which Canfor owned 54.8% and 77.0%, respectively, at March 31, 2025 and May 7, 2025.

These financial statements do not include all of the disclosures required by IFRS Accounting Standards ("IFRS") for annual financial statements. Additional disclosures relevant to the understanding of these financial statements, including the accounting policies applied, can be found in the Company's Annual Report for the year ended December 31, 2024, available at www.canfor.com or www.sedarplus.com.

These financial statements were authorized for issue by the Company's Board of Directors on May 7, 2025.

2. Seasonality of Operations

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

3. Inventories

(millions of Canadian dollars, unaudited)	As at March 31, 2025	As at December 31, 2024
Logs	$ 249.6	$ 138.5
Finished products	620.9	595.2
Residual fibre	50.4	44.8
Materials and supplies	151.7	150.6
	$ 1,072.6	$ 929.1

The above inventory balances are stated at the lower of cost and net realizable value. For the three months ended March 31, 2025, a $3.7 million net reversal of a previously recognized inventory write-down was recognized for the lumber segment (three months ended March 31, 2024 – $30.2 million net reversal). As a result of this remeasurement, combined with a net foreign exchange gain of $0.1 million for the three months ended March 31, 2025 (three months ended March 31, 2024 – nil), an inventory provision of $8.1 million has been recognized for logs and lumber (December 31, 2024 – provision of $11.9 million).

4. Long-Term Investments and Other

(millions of Canadian dollars, unaudited)	As at March 31, 2025	As at December 31, 2024
Duty deposits recoverable, net (Note 12)	$ 93.0	$ 98.2
Other deposits, loans, advances and long-term assets	48.8	52.7
Other investments	117.2	116.9
Retirement benefit surplus	14.8	16.5
Deferred income taxes, net	40.7	42.7
	$ 314.5	$ 327.0

The duty deposits recoverable, net balance represents US-dollar countervailing duties ("CVD") and anti-dumping duties ("ADD") and duty cash deposits paid in excess of the calculated expense accrued at March 31, 2025, including interest receivable of $52.7 million (December 31, 2024 – $54.5 million) (Note 12).

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Included in this $52.7 million is $13.4 million in interest receivable from the US government on certain CVD and ADD related accounts receivable balances secured under the terms of the duty deposits loan related to the period from September 27, 2024 to March 31, 2025 and payable to Farallon Capital Management L.L.C. ("Farallon"). A similar amount has been recognized as interest payable within 'Accounts payable and accrued liabilities' at March 31, 2025.

5. Operating Loans and Term Debt

(a) Available Operating Loans

(millions of Canadian dollars, unaudited)	As at March 31, 2025	As at December 31, 2024
Canfor (excluding Vida and CPPI)
Available operating loans:
Operating loan facility	$ 925.0	$ 925.0
Revolving credit facility (US$150.0 million)	214.6	216.2
Facilities for letters of credit	80.0	80.0
Total operating loan facilities	1,219.6	1,221.2
Operating loan facility drawn	(94.4)	-
Letters of credit covered under operating loan facility	(2.7)	(1.4)
Letters of credit covered under facilities for letters of credit	(46.0)	(46.8)
Total available operating loan facilities - Canfor	$ 1,076.5	$ 1,173.0
Vida
Available operating loans:
Operating loan facilities	$ 73.0	$ 67.1
Overdraft facilities	35.0	34.3
Total operating loan facilities	108.0	101.4
Operating loan facilities drawn	(5.5)	(8.8)
Total available operating loan facilities - Vida	$ 102.5	$ 92.6
CPPI
Available operating loans:
Operating loan facility	$ 160.0	$ 160.0
Letters of credit	(6.0)	(6.0)
Operating loan facility drawn	(75.0)	(98.0)
Total available operating loan facility - CPPI	$ 79.0	$ 56.0
Consolidated:
Total operating loan facilities	$ 1,487.6	$ 1,482.6
Total operating loan facilities drawn	$ (174.9)	$ (106.8)
Total letters of credit	$ (54.7)	$ (54.2)
Total available operating loan facilities	$ 1,258.0	$ 1,321.6

Interest is payable on Canfor's committed operating and revolving loan facilities at floating rates based on the lenders' Canadian prime rate, bankers' acceptances, US-dollar base rate or US-dollar floating rate, plus a margin that varies with Canfor's debt to total capitalization ratios.

Canfor's principal committed operating loan facility matures on April 16, 2028. Canfor's committed revolving credit facility matures on June 28, 2025. On June 28, 2025, any amounts drawn on the committed revolving credit facility will be converted to US-dollar denominated floating rate term debt, with a maturity date of June 28, 2030.

CPPI's operating loan facility is repayable on May 2, 2027, with interest payable at floating rates that vary depending on the ratio of CPPI's net debt to total capitalization and based on the lenders' Canadian prime rate, bankers' acceptances, US-dollar base rate or US-dollar floating rate, plus a margin.

Vida's operating loan facilities are denominated in various currencies, with interest payable at fixed rates ranging from 4.2% to 6.6%. Vida also has separate overdraft facilities with fixed interest rates ranging from 3.8% to 7.5%.

Canfor and CPPI's operating loan facilities have certain financial covenants, including a maximum net debt to total capitalization ratio of 50.0% (Canfor) and 60.0% (CPPI) and a minimum earnings before interest, taxes, depreciation and amortization ("EBITDA") interest coverage ratio test of two times, which becomes effective if the net debt to total capitalization ratio exceeds 42.5%. In addition, if CPPI's net debt to total capitalization reaches a certain threshold, a

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general security agreement on the property of CPPI is introduced and the minimum EBITDA interest coverage ratio is lowered to one and a half times.

Vida is also subject to certain financial covenants, including minimum equity and interest coverage ratios.

As at March 31, 2025, Canfor, Vida and CPPI were fully in compliance with all covenants relating to their operating loan facilities. Substantially all borrowings of Vida and CPPI are non-recourse to other entities within the Company.

(b) Term Debt

(millions of Canadian dollars, unaudited)	As at March 31, 2025	As at December 31, 2024
Canfor (excluding Vida and CPPI)
US$50.0 million, floating interest, repayable on June 28, 2031	$ 71.5	$ 72.1
US$33.3 million, fixed interest of 4.4%, repayable on October 2, 2025	47.7	48.1
Vida
AUD$0.5 million, floating interest, repayable on February 12, 2027	0.4	0.4
Term debt at end of period	$ 119.6	$ 120.6
Less: Current portion	(47.7)	(48.1)
Long-term portion	$ 71.9	$ 72.5

Canfor's and CPPI's term debt (excluding Vida) is unsecured. Vida's term debt is secured by its property, plant and equipment. Canfor's and CPPI's borrowings (excluding Vida) are subject to certain financial covenants, including a maximum net debt to total capitalization ratio. Vida's borrowings are subject to certain financial covenants, including minimum equity and interest coverage ratios. As at March 31, 2025, Canfor, Vida and CPPI were fully in compliance with all covenants relating to their term debt.

Fair value of total term debt

At March 31, 2025, the fair value of the Company's term debt is $119.7 million (December 31, 2024 – $119.9 million).

6. Employee Future Benefits

For the three months ended March 31, 2025, actuarial losses of $3.0 million (before tax) were recognized in other comprehensive income (loss) in relation to the Company's net defined benefit obligations (comprised of defined benefit pension plans as well as other benefit plans), principally reflecting a 0.1% decrease in the discount rate used to value the net defined benefit obligations.

For the three months ended March 31, 2024, actuarial gains of $8.6 million (before tax) were recognized in other comprehensive income (loss) in relation to the Company's net defined benefit obligations (comprised of defined benefit plans as well as other benefit plans), primarily reflecting a 0.3% increase in the discount rate used to value the net defined benefit obligations.

The discount rate assumptions used to estimate the changes in net retirement benefit obligations were as follows:

	Defined Benefit Pension Plans	Other Benefit Plans
March 31, 2025	4.6%	4.6%
December 31, 2024	4.7%	4.7%
March 31, 2024	4.9%	4.9%
December 31, 2023	4.6%	4.6%

7. Financial Instruments

IFRS 13 Fair Value Measurement requires classification of financial instruments within a hierarchy that prioritizes the inputs to fair value measurement. The three levels of the fair value hierarchy are:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 – Inputs other than quoted prices that are observable for the asset or liability, directly or indirectly;

Level 3 – Inputs that are not based on observable market data.

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The following table summarizes Canfor's financial instruments measured at fair value at March 31, 2025 and December 31, 2024, and shows the level within the fair value hierarchy in which the financial instruments have been classified:

(millions of Canadian dollars, unaudited)	Fair Value Hierarchy Level	As at March 31, 2025	As at December 31, 2024
Financial assets measured at fair value
Investments	Level 1	$ 114.8	$ 114.5
Derivative financial instruments	Level 2	1.5	1.1
Duty deposits recoverable, net (Note 4)	Level 3	93.0	98.2
		$ 209.3	$ 213.8
Financial liabilities measured at fair value
Derivative financial instruments	Level 3	$ 0.9	$ 5.2
Put liability	Level 3	123.8	110.7
		$ 124.7	$ 115.9

The following table summarizes the gains (losses) on derivative financial instruments in the condensed consolidated interim statement of income (loss):

(millions of Canadian dollars, unaudited)		3 months ended March 31, 2025	2024
Lumber futures		$ (1.5)	$ (0.5)
Foreign exchange forward contracts		11.3	(9.8)
Gain (loss) on derivative financial instruments		$ 9.8	$ (10.3)

For the three months ended March 31, 2025, a loss of $2.9 million was recognized in 'Other Equity' on the Company's condensed consolidated interim balance sheet following remeasurement of the put liability (three months ended March 31, 2024 – loss of $4.3 million), primarily reflecting the passage of time. As a result of this remeasurement, combined with a net foreign exchange loss of $10.2 million for the three months ended March 31, 2025 (three months ended March 31, 2024 – foreign exchange gain of $7.0 million), the balance of the put liability was $123.8 million at March 31, 2025 (December 31, 2024 – $110.7 million).

8. Income Taxes

The components of the Company's income tax recovery are as follows:

(millions of Canadian dollars, unaudited)		3 months ended March 31, 2025	2024
Current		$ (3.4)	$ -
Deferred		15.6	15.1
Income tax recovery		$ 12.2	$ 15.1

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

(millions of Canadian dollars, unaudited)		3 months ended March 31, 2025	2024
Income tax recovery at statutory rate of 27.0% (2024 – 27.0%)		$ 10.3	$ 21.4
Add (deduct):
Non-taxable income related to non-controlling interests		(0.2)	(0.2)
Entities with different income tax rates and other tax adjustments		1.8	(5.0)
Permanent difference from capital gains and losses and other non-deductible items		0.3	(1.1)
Income tax recovery		$ 12.2	$ 15.1

In addition to the amounts recorded to net income (loss), a tax recovery of $0.8 million was recorded to other comprehensive income (loss) in relation to actuarial losses, net, on the defined benefit plans for the three months ended March 31, 2025 (three months ended March 31, 2024 – $2.3 million tax expense).

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9. Earnings (Loss) Per Common Share and Normal Course Issuer Bid

Basic net income (loss) per common share is calculated by dividing the net income (loss) attributable to common equity shareholders by the weighted average number of common shares outstanding during the period.

	3 months ended March 31,
	2025	2024
Weighted average number of common shares	118,381,455	118,905,217

On March 19, 2025, the Company announced that it has received regulatory approval for a renewal of its normal course issuer bid whereby it can purchase for cancellation up to 5,916,775 common shares, or approximately 5% of its issued and outstanding common shares as at March 14, 2025. The renewed normal course issuer bid is set to expire on March 20, 2026.

During the three months ended March 31, 2025, the Company purchased 275,827 common shares for $4.2 million (an average of $15.34 per common share), before tax of $0.1 million, of which $3.5 million was paid during the quarter.

As at March 31, 2025, and May 7, 2025, based on the trade date, there were 118,129,252 and 117,436,141 common shares of the Company outstanding, respectively. Canfor's ownership interest in CPPI and Vida was 54.8% and 77.0%, respectively.

10. Net Change in Non-Cash Working Capital

(millions of Canadian dollars, unaudited)	3 months ended March 31,
	2025	2024
Trade and other receivables	$ (69.8)	$ (91.8)
Inventories	(118.7)	(133.2)
Prepaid expenses and other	(8.3)	(6.7)
Accounts payable and accrued liabilities and current portion of deferred reforestation obligations	35.4	77.0
Net change in non-cash working capital	$ (161.4)	$ (154.7)

11. Segment Information

Canfor has two reportable segments (lumber segment and pulp and paper segment), which offer different products and are managed separately because they require different production processes and marketing strategies.

Sales between segments are accounted for at prices that approximate fair value. These include sales of residual fibre from the lumber segment to the pulp and paper segment for use in the pulp production process.

(millions of Canadian dollars, unaudited)	Lumber	Pulp & Paper	Unallocated & Other	Elimination Adjustment	Consolidated
3 months ended March 31, 2025
Sales from contracts with customers	$ 1,221.3	$ 196.2	$ -	$ -	$ 1,417.5
Sales to other segments	27.5	-	-	(27.5)	-
Operating income (loss)	(25.5)	10.8	(13.8)	-	(28.5)
Amortization	89.9	10.5	0.7	-	101.1
Capital expenditures¹	113.0	9.0	0.1	-	122.1
Total assets	4,794.5	394.5	545.1	-	5,734.1
3 months ended March 31, 2024
Sales from contracts with customers	$ 1,160.4	$ 222.3	$ -	$ -	$ 1,382.7
Sales to other segments	39.4	-	-	(39.4)	-
Operating loss	(57.1)	(15.7)	(13.0)	-	(85.8)
Amortization	88.1	16.9	0.6	-	105.6
Capital expenditures¹	90.7	12.0	0.7	-	103.4
Total assets	4,521.8	634.8	999.9	-	6,156.5

¹ Capital expenditures represent cash paid for capital assets during the periods, excluding assets purchased as part of acquisitions.

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Geographic information

Canfor operates manufacturing facilities in Canada, the US and Europe. Canfor's products are marketed worldwide, with sales made to customers in a number of different countries. In presenting information on the basis of geographical location, sales are based on the geographical location of customers.

(millions of Canadian dollars, unaudited)	3 months ended March 31,
		2025	2024
Sales by location of customer
Canada	11%	$ 150.5	10%	$ 140.5
United States	47%	659.9	50%	679.8
Europe	27%	389.3	23%	320.1
Asia	12%	177.8	15%	209.9
Other	3%	40.0	2%	32.4
	100%	$ 1,417.5	100%	$ 1,382.7

1. Countervailing and Anti-Dumping Duties

In 2016, a petition was filed by the US Lumber Coalition to the US Department of Commerce ("DOC") and the US International Trade Commission ("ITC") alleging certain subsidies and administered fees below the fair market value of timber that favour Canadian lumber producers. Canfor was selected by the DOC as a "mandatory respondent" to the countervailing and anti-dumping investigations and is subject to company specific CVD and ADD rates. As a result of the DOC's investigation, CVD and ADD were imposed on the Company's Canadian lumber exports to the United States beginning in 2017. As at March 31, 2025, Canfor has paid cumulative cash deposits of $1,020.3 million.

Canfor and other Canadian forest product companies, the Federal Government and Canadian Provincial Governments continue to categorically deny the US allegations and strongly disagree with the current countervailing and anti-dumping determinations made by the DOC. Canada has proceeded with legal challenges under the Canada-United States-Mexico ("CUSMA") Agreement and through the World Trade Organization, where Canadian litigation has proven successful in the past. In October 2023, a CUSMA dispute panel ruled that certain elements of the DOC's calculation of softwood lumber duties were inconsistent with US law. The panel directed the DOC to revisit key elements of its duty calculations. In January 2024, Canada filed a notice of intent to challenge the US ITC's decision to maintain duties on Canadian softwood lumber products under Chapter 10 of the CUSMA Agreement. Most recently, September 9, 2024, the Canadian Federal Government launched two legal challenges against the US DOC related to the final rates for POR5. The results of this dispute could potentially result in adjustments to Canfor's prescribed duties and therefore its consolidated statement of income (loss).

On January 1, 2025, the Company moved into the eighth period of review ("POR8"), which is based on sales and cost data in 2025. Consistent with prior periods of review, the Company was unable to estimate an applicable CVD rate separate from the DOC's cash deposit rate. As a result, CVD was expensed at a rate of 6.14% and ADD was expensed at an estimated accrual rate of 10.00%. This resulted in a combined accounting rate of 16.14% for the first quarter of 2025 (versus the DOC's combined cash deposit rate of 16.58% for the same period).

In March 2025, the DOC announced the preliminary ADD results for the sixth period of review ("POR6") which indicated that the Company's preliminary ADD rate for 2023 was 34.61%. Subsequently, in April 2025, the DOC announced the preliminary CVD results for POR6, which indicated that the Company's preliminary CVD rate for 2023 was 11.87%, resulting in a preliminary combined rate of 46.48%. Upon finalization of these rates (anticipated in the third quarter of 2025), an expense estimated at $83.1 million (US$57.8 million), will be recognized in the Company's interim consolidated financial statements to reflect the difference between the combined accrual rate of 35.95% between January and July 2023 and 36.36% for August to December 2023, and the DOC's combined rate for POR6 (currently estimated to be 46.48%). In addition, once final, the Company's current combined cash deposit rate of 16.58% will be reset to the DOC rates for POR6 (currently estimated to be 46.48% based on the preliminary determination).

Despite cash deposits being made in 2025 at rates determined by the DOC, the final liability associated with duties is not determined until the completion of administrative reviews performed by the DOC for these periods.

Summary

For accounting purposes, a net duty deposits recoverable of $93.0 million is included on the Company's consolidated balance sheet (Note 4) as at March 31, 2025 (December 31, 2024 - $98.2 million) reflecting differences between the cash deposit rates and the Company's combined accrual rates for each period of review, including interest of $52.7 million (December 31, 2024 - $54.5 million).

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Included in this $52.7 million is $13.4 million in interest receivable from the US government on certain CVD and ADD related accounts receivable balances secured under the terms of the duty deposits loan related to the period from September 27, 2024 to March 31, 2025 (December 31, 2024 - $6.5 million) and payable to Farallon. A similar amount has been recognized as interest payable within ‘Accounts payable and accrued liabilities’ at March 31, 2025.

For the three months ended March 31, 2025, the Company recorded a duty expense of $22.8 million (three months ended March 31, 2024 – a net duty expense of $28.4 million), comprised of the following:

(millions of Canadian dollars, unaudited)	3 months ended March 31,		3 months ended March 31,
	2025		2024
Cash deposits paid	$	23.4	$	13.0
Duty expense attributable to POR8 – combined CVD and ADD²		(0.6)		15.4
Duty expense, net	$	22.8	$	28.4

² For the three months ended March 31, 2025, reflecting Canfor’s combined accrual rate of 16.14% compared to the DOC’s deposit rate of 16.58%

Canfor will continue to reassess the ADD accrual estimate at each quarter-end, applying the DOC’s methodology to updated sales and cost data as this becomes available. Quarterly revisions to the ADD rate may result in a material adjustment to the consolidated statement of income (loss) while the Administrative Reviews are taking place. Changes to the DOC’s existing CVD and ADD rates during each administrative review may also result in material adjustments to the consolidated statement of income (loss).

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