Interfor Corporation — Interim / Quarterly Report 2021

May 7, 2021

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Interfor Corporation First Quarter Report For the three months ended March 31, 2021

Management’s Discussion and Analysis

This Management’s Discussion and Analysis (“MD&A”) provides a review of financial condition and results of operations as at and for the three months ended March 31, 2021 (“Q1’21”). It should be read in conjunction with the unaudited condensed consolidated interim financial statements of Interfor Corporation and its subsidiaries (“Interfor” or the “Company”) for the three months ended March 31, 2021, and the notes thereto which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). This MD&A contains certain non-GAAP measures which, within the Non-GAAP Measures section, are discussed, defined and reconciled to figures reported in the Company’s unaudited condensed consolidated interim financial statements. This MD&A has been prepared as of May 6, 2021.

All figures are stated in Canadian Dollars, unless otherwise noted, and references to US$/USD are to the United States Dollar.

Forward-Looking Information

This MD&A contains forward-looking information about the Company’s business outlook, objectives, plans, strategic priorities and other information that is not historical fact. A statement contains forward-looking information when the Company uses what it knows and expects today, to make a statement about the future. Forward-looking information is included under the headings “Overview of First Quarter, 2021”, “Outlook”, “Liquidity”, “Capital Resources”, “Off-Balance Sheet Arrangements”, “Accounting Policy Changes” and “Risks and Uncertainties”. Statements containing forward-looking information may include words such as: will, could, should, believe, expect, anticipate, intend, forecast, projection, target, outlook, opportunity, risk or strategy.

Readers are cautioned that actual results may vary from the forward-looking information in this report, and undue reliance should not be placed on such forward-looking information. Risk factors that could cause actual results to differ materially from the forward-looking information in this report are described under the heading “Risks and Uncertainties” herein, and in Interfor’s 2020 annual Management’s Discussion and Analysis, which is available on www.sedar.com and www.interfor.com. Material factors and assumptions used to develop the forward-looking information in this report include volatility in the selling prices for lumber, logs and wood chips; the Company’s ability to compete on a global basis; the availability and cost of log supply; natural or man-made disasters; currency exchange rates; changes in government regulations; the availability of the Company’s allowable annual cut (“AAC”); claims by and treaty settlements with Indigenous peoples; the Company’s ability to export its products; the softwood lumber trade dispute between Canada and the U.S.; stumpage fees payable to the Province of British Columbia (“B.C.”); environmental impacts of the Company’s operations; labour disruptions; information systems security; the existence of a public health crisis (such as the current COVID-19 pandemic); and the assumptions described under the heading “Critical Accounting Estimates” herein and in Interfor’s 2020 annual Management’s Discussion and Analysis.

Unless otherwise indicated, the forward-looking statements in this report are based on the Company’s expectations at the date of this report. Interfor undertakes no obligation to update such forwardlooking information or statements, except as required by law.

Overview of First Quarter, 2021

Interfor recorded Net earnings in Q1’21 of $264.5 million, or $4.01 per share, compared to $149.1 million, or $2.24 per share in Q4’20 and $6.3 million, or $0.09 per share in Q1’20. Adjusted net earnings in Q1’21 was $270.6 million compared to $164.7 million in Q4’20 and $0.7 million in Q1’20.

Adjusted EBITDA was a record $392.1 million on sales of $849.3 million in Q1’21 versus $248.6 million on sales of $662.3 million in Q4’20.

Notable items in the quarter:

• Strong Free Cash Flow Generation

• Interfor generated $377.7 million of cash flow from operations before changes in working capital, or $5.73 per share. Working capital investment increased by $92.6 million, primarily related to higher trade receivables driven by lumber prices and seasonally higher log inventories in B.C.

• Net debt ended the quarter at $(236.0) million, or (21.7)% of invested capital, resulting in available liquidity of $943.6 million.

• Strategic Capital Investments

• Capital spending was $29.2 million, including $18.7 million on high-return discretionary projects. The majority of this discretionary spending was focused on a new kiln at the Adams Lake, BC sawmill and the ongoing multi-year rebuild of the Eatonton, Georgia sawmill.

• The new kiln installed at our Adams Lake sawmill was fully operational by mid-February and allows for increased site-wide production and a significantly improved grade mix. This project was complementary to Interfor’s Q1’20 acquisition of 349,000 cubic metres of annual cutting rights from Canfor Corporation which solidified Adams Lake’s long-term log supply and operational platform.

• The major rebuild of our Eatonton, Georgia sawmill is on-track for completion in Q4 of 2021, with full ramp-up expected to take approximately nine months thereafter. This project will add approximately 110 million board feet of annual production capacity and result in lower cash conversion costs and improved grade mix. Inclusive of this project, US$108 million has been spent on the Company’s Phase II strategic capital plan through March 31, 2021.

• The Company has received Board approval to proceed with strategic capital investments at its sawmills in Castlegar, BC, and Perry, Georgia of approximately $35 million and US$30 million, respectively. These investments will provide a combination of benefits in the form of higher production, improved lumber recovery and grade mix, and lower conversion costs. Completion of both projects is expected in Q3 of 2022.

• Interfor’s total capital expenditures are expected to be approximately $150 million in 2021 and in the range of $150 - $180 million in 2022, as the Company continues to execute on its strategic capital plans with attractive returns at conservative lumber prices.

• Acquisition of Summerville sawmill

• On March 12, 2021, Interfor concluded the acquisition of sawmill operations in Summerville, South Carolina from WestRock Company for total consideration of US$58,618,000 ($73,630,000).

• Normal Course Issuer Bid (“NCIB”)

• During Q1’21, Interfor purchased 774,420 common shares under the Company’s NCIB for total consideration of $20.3 million.

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• Record Lumber Market

• Interfor’s average selling price was $1,143 per mfbm, up $301 per mfbm versus Q4’20. The key benchmark prices rose significantly quarter-over-quarter with the SYP Composite, Western SPF Composite and KD H-F Stud 2x4 9’ benchmarks increasing by US$312, US$283 and US$355 per mfbm to US$915, US$935 and US$1,162 per mfbm, respectively.

• Continued Strong Production

• Total lumber production in Q1’21 was 687 million board feet, which was consistent with Q4’20 and only 1 million board feet below Interfor’s production record for a quarter. The U.S. South and U.S. Northwest regions accounted for 338 million board feet and 141 million board feet, respectively, compared to 361 million board feet and 136 million board feet in Q4’20. Production in the B.C. region increased to 208 million board feet from 190 million board feet in the preceding quarter.

• Total lumber shipments were 666 million board feet, including agency and wholesale volumes, or 17 million board feet lower than Q4’20.

• Softwood Lumber Duties

• Interfor expensed $12.4 million of duties in the quarter, representing the full amount of countervailing and anti-dumping duties incurred on its Canadian shipments of softwood lumber into the U.S. at a combined rate of 8.99%.

• Cumulative duties of US$143.1 million have been paid by Interfor since the inception of the current trade dispute and are held in trust by the U.S. Except for US$32.9 million in respect of overpayments arising from duty rate adjustments, Interfor has recorded the duty deposits as an expense.

Outlook

North American lumber markets over the near term are expected to remain robust and above historical trends, albeit volatile, as relatively low levels of lumber inventories industry-wide combined with growing demand from new housing starts and repair and remodel activity put pressure on available lumber supply from manufacturers.

Interfor expects lumber demand to continue to grow over the mid-term, as repair and renovation activities and U.S. housing starts benefit from favourable underlying economic fundamentals and trends.

Interfor’s strategy of maintaining a diversified portfolio of operations allows the Company to both reduce risk and maximize returns on invested capital over the business cycle.

While uncertainty remains as to the duration and extent of the economic impact from the COVID-19 pandemic, Interfor is well positioned with its strong balance sheet and significant available liquidity.

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Financial and Operating Highlights[1]

Financial and Operating Highlights1
Unit	For the three months ended
	Mar. 31, Mar. 31, Dec. 31, 2021 2020 2020
Financial Highlights2 Total sales $MM Lumber $MM Logs, residual products and other $MM Operating earnings $MM Net earnings $MM Net earnings per share, basic $/share Adjusted net earnings3 $MM Adjusted net earnings per share, basic3 $/share Operating cash flow per share (before working capital changes)3 $/share Adjusted EBITDA3 $MM Adjusted EBITDA margin3 % Total assets $MM Total debt $MM Net debt3 $MM Net debt to invested capital3 % Annualized return on capital employed3 % Operating Highlights Lumber production million fbm Total lumber sales million fbm Lumber sales - Interfor produced million fbm Lumber sales - wholesale and commission million fbm Lumber - average selling price4 $/thousand fbm Average USD/CAD exchange rate5 1 USD in CAD Closing USD/CAD exchange rate5 1 USD in CAD	849.3 479.6 662.3 762.4 379.3 575.0 86.9 100.3 87.3 355.6 14.6 203.2 264.5 6.3 149.1 4.01 0.09 2.24 270.6 0.7 164.7 4.11 0.01 2.47 5.73 0.57 3.05 392.1 36.6 248.6 46.2% 7.6% 37.5% 2,159.7 1,569.5 1,843.2 377.3 425.6 382.0 (236.0) 322.0 (75.4) (21.7)% 26.7% (7.5)% 79.2% 4.0% 48.4% 687 627 687 666 641 683 662 632 675 4 9 8 1,143 592 842 1.2660 1.3449 1.3030 1.2575 1.4187 1.2732

Notes:

• 1 Figures in this table may not equal or sum to figures presented elsewhere due to rounding.

• 2 Financial information presented for interim periods in this MD&A is prepared in accordance with IFRS and is unaudited.

• 3 Refer to the Non-GAAP Measures section of this MD&A for definitions and reconciliations of these measures to figures reported in the Company’s consolidated financial statements.

• 4 Gross sales before duties.

• 5 Based on Bank of Canada foreign exchange rates.

Summary of First Quarter 2021 Financial Performance

Sales

Interfor recorded $849.3 million of total sales, up 77.1% from $479.6 million in the first quarter of 2020, driven by the sale of 666 million board feet of lumber at an average price of $1,143 per mfbm. Average selling price increased $551 per mfbm, or 93.0%, while lumber sales volume increased 25 million board feet, or 3.9%, as compared to the same quarter of 2020.

Increases in the average selling price of lumber reflect higher prices for Southern Yellow Pine, Western SPF and KD HF Stud 2x4 9’ in Q1’21 as compared to Q1’20.

The SYP Composite, Western SPF Composite and KD H-F Stud 2x4 9’ benchmarks increased by US$312, US$283 and US$355 per mfbm to US$915, US$935 and US$1,162 per mfbm, respectively.

Sales generated from logs, residual products and other decreased by $13.4 million or 13.4% in Q1’21 compared to Q1’20 due mainly to reduced availability of surplus logs.

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Operations

Production costs increased by $8.9 million, or 2.1%, compared to Q1’20, explained by a 3.9% increase in lumber sales volume and accruals for short term incentive compensation offset by a stronger dollar on average.

Lumber production of 687 million board feet in Q1’21 was 60 million board feet higher than Q1’20.

Production from the Canadian operations increased by 22 million board feet to 208 million board feet in Q1’21, compared to Q1’20 during which temporary COVID-19 related curtailments were taken. Production from the Company’s U.S. South sawmills totaled 338 million board feet in Q1’21, up 27 million board feet compared to Q1’20, due to increased operating schedules related to market demand and the Summerville sawmill acquisition. Additionally, production from the U.S. South sawmills in Q1’20 was impacted by COVID-19 related curtailments and project-related downtime. Production from the Company’s U.S. Northwest operations totaled 141 million board feet in Q1’21, up 12 million board feet compared to Q1’20, due to increased operating schedules and higher productivity from the U.S. Northwest stud mills offset by the sale of the sawmill in Gilchrist, Oregon in Q4’20.

Interfor expensed the full amount of CV and AD duty deposits levied on its Canadian shipments of softwood lumber into the U.S., which totaled $12.4 million for Q1’21, up $1.8 million from Q1’20. The increase is due to higher lumber sales prices to the U.S. from Canadian sawmills partially offset by lower cash deposit rates as compared to Q1’20.

Depreciation of plant and equipment was $21.5 million in Q1’21, up $1.4 million from Q1’20, due primarily to the completion of Phase I capital projects in the U.S. South. Depletion and amortization of timber, roads and other was $7.0 million, down $3.6 million from Q1’20, primarily due to decreased conventional logging on the B.C. Coast.

Corporate and Other

Selling and administration expenses were $12.9 million, up $3.7 million from Q1’20 primarily as a result of accruals for short term incentive compensation and costs related to various information technology system implementations.

The $7.7 million long term incentive compensation expense mostly reflects the impact of a 10.6% increase in the price of Interfor common shares used to value share-based awards during the quarter. The long term incentive compensation recovery of $8.9 million in Q1’20 mostly reflects the impact of a 60.6% decline in the market price of Interfor common shares used to value share-based awards.

Restructuring costs in Q1’21 and Q1’20 were negligible.

Finance costs increased to $4.5 million from $4.1 million in Q1’20 primarily due to the completion of the additional US$100 million Senior Secured Note financing with Prudential Private Capital on March 26, 2020.

Other foreign exchange loss of $2.3 million in Q1’21 and $0.8 million in Q1’20 result primarily from the quarter-end revaluation of U.S. Dollar denominated short-term intercompany funding and U.S. Dollar cash held by Canadian operations. The Company held higher U.S. Dollar cash balances in Q1’21 compared to Q1’20 primarily due to the strong cash flow from operations during the quarter.

Other income of $2.0 million in Q1’21 primarily resulted from the sale of surplus land on the B.C. Coast. Other expense of $0.1 million in Q1’20 resulted from the disposal of surplus equipment.

Income Taxes

The Company recorded income tax expense of $86.3 million in Q1’21 at an effective tax rate of 25%, comprised of $83.2 million current income tax expense and $3.1 million deferred tax expense. The Company recorded income tax expense of $3.2 million in Q1’20 at an effective tax rate of 34%, comprised of $0.3 million in current income tax expense and $2.9 million deferred tax expense.

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Net Earnings

The Company recorded Net earnings of $264.5 million, or $4.01 per share, compared to $6.3 million, or $0.09 per share in Q1’20. Operating margins and Net earnings were positively impacted by higher lumber prices. Net earnings per share was positively impacted by share purchases under the Company’s NCIB.

Summary of Quarterly Results[1]

Summary of Quarterly Results1
Unit	2021 2020	2019
	Q1 Q4 Q3 Q2 Q1	Q4 Q3 Q2
Financial Performance2 Total sales $MM Lumber $MM Logs, residual products and other $MM Operating earnings (loss) $MM Net earnings (loss) $MM Net earnings (loss) per share, basic $/share Adjusted net earnings (loss)3 $MM Adjusted net earnings (loss) per share, basic3 $/share Operating cash flow per share (before working capital changes)3 $/share Adjusted EBITDA3 $MM Adjusted EBITDA margin3 % Annualized return on capital employed3 % Shares outstanding - end of period million Shares outstanding - weighted average million Operating Performance Lumber production million fbm Total lumber sales million fbm Lumber sales - Interfor produced million fbm Lumber sales - wholesale and commission million fbm Lumber - average selling price4 $/thousand fbm Average USD/CAD exchange rate5 1 USD in CAD Closing USD/CAD exchange rate5 1 USD in CAD	849.3 662.3 644.9 396.8 479.6 762.4 575.0 562.4 322.1 379.3 86.9 87.3 82.5 74.7 100.3 355.6 203.2 171.4 13.3 14.6 264.5 149.1 121.6 3.2 6.3 4.01 2.24 1.81 0.05 0.09 270.6 164.7 140.0 10.6 0.7 4.11 2.47 2.08 0.16 0.01 5.73 3.05 3.20 0.56 0.57 392.1 248.6 221.7 42.8 36.6 46.2% 37.5% 34.4% 10.8% 7.6% 79.2% 48.4% 45.6% 2.4% 4.0% 65.3 66.0 67.3 67.3 67.3 65.9 66.7 67.3 67.3 67.3 687 687 642 421 627 666 683 618 499 641 662 675 609 488 632 4 8 9 11 9 1,143 842 910 646 592 1.2660 1.3030 1.3321 1.3862 1.3449 1.2575 1.2732 1.3339 1.3628 1.4187	456.8 486.5 481.3 385.2 403.5 406.9 71.6 83.0 74.4 (49.0) (44.8) (18.2) (41.7) (35.6) (11.2) (0.62) (0.53) (0.17) (17.4) (11.8) (16.2) (0.26) (0.17) (0.24) 0.25 0.03 0.14 17.6 16.8 12.6 3.9% 3.5% 2.6% (16.0)% (13.6)% (3.6)% 67.3 67.3 67.3 67.3 67.3 67.3 668 685 647 681 692 674 671 681 664 10 11 10 566 583 603 1.3200 1.3204 1.3377 1.2988 1.3243 1.3087

Notes:

• 1 Figures in this table may not equal or sum to figures presented elsewhere due to rounding.

• 2 Financial information presented for interim periods in this MD&A is prepared in accordance with IFRS and is unaudited. 3 Refer to the Non-GAAP Measures section of this MD&A for definitions and reconciliations of these measures to figures reported in the Company’s unaudited condensed consolidated interim financial statements.

• 4 Gross sales before duties.

• 5 Based on Bank of Canada foreign exchange rates.

The Company’s quarterly financial trends are most impacted by typical industry-wide seasonality, levels of lumber production, log costs, market prices for lumber, the USD/CAD foreign currency exchange rate and long term asset impairments and restructuring charges.

Logging operations are seasonal due to several factors including weather, ground conditions and fire season closures. Generally, production from the Company’s B.C. Coastal logging operations is relatively low in the second half of the fourth quarter and the first half of the first quarter due to the impact of winter storms. Logging activity in the B.C. Interior is typically reduced during the annual spring break-up. Sawmill operations are dependent on the availability of logs from our logging operations and our suppliers. In addition, the market demand for lumber and related products is generally lowest in the winter season due to reduced construction and renovation activities.

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The Hammond sawmill closure reduced lumber production and sales commencing in Q4’19, and the sale of the sawmill in Gilchrist, Oregon reduced lumber production and sales commencing in Q4’20. The Summerville sawmill acquisition increased lumber production and sales commencing in Q1’21.

Asset and goodwill impairments and other costs resulting from the B.C. Coastal reorganization and other restructuring activities affected results in Q3’19 and Q4’19. Asset impairments resulting from the sale of the sawmill in Gilchrist, Oregon affected results in Q4’20.

In the latter part of Q1’20 and majority of Q2’20, operations were impacted by the pandemic outbreak of COVID-19.

The volatility of the Canadian Dollar against the U.S. Dollar also impacted results. A weaker Canadian Dollar increases the lumber sales realizations of Canadian operations, all else equal, and increases Net earnings of U.S. operations when translated to Canadian Dollars.

Liquidity

Balance Sheet

Interfor’s Net debt at March 31, 2021 was $(236.0) million, or (21.7)% of invested capital, representing a decrease of $160.5 million from the level of Net debt at December 31, 2020.

As at March 31, 2021 the Company had net working capital of $744.5 million and available liquidity of $943.6 million, based on the full borrowing capacity under its $350 million Revolving Term Line.

The Revolving Term Line and Senior Secured Notes are subject to financial covenants, including net debt to total capitalization ratios, and an EBITDA interest coverage ratio.

Management believes, based on circumstances known today, that Interfor has sufficient working capital and liquidity to fund operating and capital requirements for the foreseeable future.

Thousands of Dollars		For the three months ended
	Mar. 31, 2021	Dec. 31, Mar. 31 2020 2020
Net debt Net debt, period opening Issuance of Senior Secured Notes Revolving Term Line net repayments Impact on U.S. Dollar denominated debt from (strengthening) weakening CAD Increase in cash and cash equivalents Impact on U.S. Dollar denominated cash and cash equivalents from strengthening CAD	$(75,432) - - (4,710) (162,167) 6,343	$88,705 $224,860 - 140,770 - (59) (18,210) 25,139 (165,294) (68,984) 19,367 310
Net debt, period ending	$(235,966)	$(75,432) $322,036

On March 26, 2020, the Company issued US$50,000,000 of Series F Senior Secured Notes, bearing interest at 3.34%, and US$50,000,000 of Series G Senior Secured Notes, bearing interest at 3.25%. Each series of these Senior Secured Notes have equal payments of US$16,667,000 due on each of March 26, 2028, 2029 and on maturity in 2030.

Cash Flow from Operating Activities

The Company generated $377.7 million of cash flow from operations before changes in working capital in Q1’21, for an increase of $339.3 million over Q1’20. There was a net cash inflow from operations after changes in working capital of $285.1 million in Q1’21, with $92.6 million of cash invested in operating working capital.

Higher lumber prices contributed to the $67.9 million outflow related to trade receivables and seasonally higher log inventories in B.C. contributed to the $24.4 million outflow from inventories. Income taxes payable increased by $74.7 million in Q1’21, with payment of this expected to occur in installments over the remaining quarters of 2021.

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In Q1’20, $38.4 million of cash was generated from operations with $19.1 million of cash invested in operating working capital.

Cash Flow from Investing Activities

Investing activities totaled $97.0 million, with $73.6 million for the acquisition of sawmill operations in Summerville, South Carolina from WestRock Company, $26.3 million for plant and equipment and $2.9 million for development of roads and bridges, partially offset by $5.7 million in proceeds on disposal of property, plant and equipment.

Discretionary mill improvements of $18.7 million in Q1’21 were mainly focused on a new kiln at the Adams Lake, BC sawmill and the ongoing multi-year rebuild of the Eatonton, Georgia sawmill.

Maintenance capital investments excluding roads totaled $7.6 million in Q1’21.

In Q1’20, investing activities were $84.2 million, with $56.6 million for the acquisition from Canadian Forest Products Ltd. of timber licences and other assets, net of assumed liabilities, $24.9 million for plant and equipment and $2.7 million for development of roads and bridges.

Discretionary and maintenance mill improvements totaled $21.2 million and $3.7 million, respectively, in Q1’20, of which the majority was spent on U.S. South operations.

Cash Flow from Financing Activities

The net cash outflow of $25.9 million in Q1’21 resulted from $20.3 million used to purchase shares under the Company’s NCIB, interest payments of $4.3 million and lease liability payments of $3.3 million, partially offset by $1.9 million in proceeds received on the issuance of shares under the Company’s stock option plan.

The net cash inflow of $133.9 million in Q1’20 resulted from the US$100 million Senior Secured Note financing with Prudential Private Capital, partly offset by interest and lease liability payments of $3.8 million and $2.9 million, respectively.

Capital Resources

The following table summarizes Interfor’s credit facilities and availability as of March 31, 2021:

Revolving Term Thousands of Canadian Dollars Line	Senior Secured Notes Total
Available line of credit and maximum borrowing available $350,000 Less: Drawings - Outstanding letters of credit included in line utilization 19,613	$377,250 $727,250 377,250 377,250 - 19,613
Unusedportion of facility $330,387	$- 330,387 613,216
Add: Cash and cash equivalents
Available liquidityat March 31,2021	$943,603

Interfor’s Revolving Term Line matures in March 2024 and its Senior Secured Notes have maturities principally in the years 2024-2030.

As of March 31, 2021, the Company had commitments for capital expenditures totaling $75.7 million for both maintenance and discretionary capital projects.

Transactions between Related Parties

Other than transactions in the normal course of business with key management personnel, the Company had no transactions between related parties in the three months ended March 31, 2021.

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Off-Balance Sheet Arrangements

The Company has off-balance sheet arrangements which include letters of credit and surety performance and payment bonds, primarily for timber purchases and AD and CV duty deposits. At March 31, 2021, such instruments aggregated $61.0 million (December 31, 2020 - $62.8 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.

Financial Instruments and Other Instruments

The Company did not enter into any foreign exchange contracts, interest rate derivatives contracts or lumber futures contracts in Q1’21 or Q1’20.

Outstanding Shares

As of May 6, 2021, Interfor had 65,306,539 common shares issued and outstanding. These common shares are listed on the Toronto Stock Exchange under the symbol IFP.

As of May 6, 2021, there were 557,722 stock options outstanding with exercise prices ranging from $9.78 to $25.52 per common share.

On November 5, 2020, the Company announced a NCIB whereby it can purchase for cancellation up to 5,981,751 common shares. During the first three months of 2021, Interfor purchased 774,420 common shares at a cost of $20.3 million and cancelled 390,850 of these common shares, with the remaining 383,570 common shares cancelled in April 2021. No common shares were purchased in 2020 under the Company’s prior NCIB that expired on March 6, 2020.

Controls and Procedures

During the quarter ended March 31, 2021, the Company included the design of disclosure controls and procedures (“DC&P”) and internal controls over financial reporting (“ICFR") for its Summerville operations within its ICFR framework. Based on procedures performed, there were no matters arising that materially affected, or would be reasonably likely to materially affect, the design and/or operating effectiveness of such controls for the Company, when taken as a whole.

Other than the aforementioned, there were no changes in the Company’s DC&P and ICFR during the quarter ended March 31, 2021 that materially affected, or would be reasonably likely to materially affect, such controls.

Critical Accounting Estimates

Potential impacts of the COVID-19 outbreak on the Company’s critical accounting estimates are being monitored on a regular basis. However, there were no significant identified changes during the quarter ended March 31, 2021. Interfor’s critical accounting estimates are described in its MD&A for the year ended December 31, 2020, filed under the Company’s profile on www.sedar.com.

Accounting Policy Changes

Several new standards, and amendments to existing standards and interpretations, were not yet effective for the quarter ended March 31, 2021, and have not been applied in preparing the Company’s unaudited condensed consolidated interim financial statements. None of these are expected to have a significant effect on future financial statements.

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Non-GAAP Measures

This MD&A makes reference to the following non-GAAP measures: Adjusted net earnings, Adjusted net earnings per share, EBITDA, Adjusted EBITDA, Adjusted EBITDA margin, Net debt to invested capital, Operating cash flow per share (before working capital changes), and Annualized return on capital employed which are used by the Company and certain investors to evaluate operating performance and financial position. These non-GAAP measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers.

The following table provides a reconciliation of these non-GAAP measures to figures as reported in the Company’s audited consolidated financial statements (unaudited for interim periods) prepared in accordance with IFRS:

Company’s audited consolidated financial statements (unaudited for accordance with IFRS:	interim periods) prepared in	interim periods) prepared in
Thousands of Canadian Dollars except number of shares andper share amounts	For the three months ended
	Mar. 31, 2021	Mar. 31, Dec. 31, 2020 2020
Adjusted Net Earnings Net earnings Add: Asset write-downs and restructuring costs Other foreign exchange loss Long term incentive compensation expense (recovery) Other (income) expense Post closure wind-down costs Income tax effect of above adjustments	$264,487 142 2,346 7,670 (1,996) 224 (2,229)	$6,309 $149,148 371 1,793 849 8,162 (8,946) 10,254 115 92 - 949 2,043 (5,652)
Adjusted net earnings Weighted average number of shares - basic ('000) Adjusted net earningsper share	$270,644 65,927 $4.11	$741 $164,746 67,260 66,687 $0.01 $2.47
Adjusted EBITDA Net earnings Add: Depreciation of plant and equipment Depletion and amortization of timber, roads and other Finance costs Income tax expense	$264,487 21,474 6,968 4,524 86,256	$6,309 $149,148 20,061 21,947 10,530 10,511 4,096 1,891 3,205 43,889
EBITDA Add: Long term incentive compensation expense (recovery) Other foreign exchange loss Other (income) expense Asset write-downs and restructuring costs Post closure wind-down costs	383,709 7,670 2,346 (1,996) 142 224	44,201 227,386 (8,946) 10,254 849 8,162 115 92 371 1,793 - 947
Adjusted EBITDA	$392,095	$36,590 $248,634
Sales	$849,307	$479,646 $662,301
Adjusted EBITDA margin	46.2%	7.6% 37.5%
Net debt to invested capital Net debt Total debt Cash and cash equivalents	$377,250 (613,216)	$425,610 $381,960 (103,574) (457,392)
Total net debt	$(235,966)	$322,036 $(75,432)
Invested capital Net debt Shareholders'equity	$(235,966) 1,322,222	$322,036 $(75,432) 882,917 1,080,312
Total invested capital	$1,086,256	$1,204,953 $1,004,880
Net debt to invested capital1	(21.7)%	26.7% (7.5)%
Operating cash flow per share (before working capital changes) Cash provided by operating activities Cash used in (generated from) operating working capital	$285,080 92,604	$19,319 $229,947 19,109 (26,514)
Operating cash flow (before working capital changes) Weighted average number of shares-basic ('000)	$377,684 65,927	$38,428 $203,433 67,260 66,687
Operatingcash flowper share(before workingcapital changes)	$5.73	$0.57 $3.05

Note: 1 Net debt to invested capital as of the period end.

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Thousands of Canadian Dollars except number of shares andper share amounts	For the three months ended
	Mar. 31, Mar. 31, Dec. 31, 2021 2020 2020
Annualized return on capital employed Net earnings Add: Finance costs Income tax expense	$264,487 $6,309 $149,148 4,524 4,096 1,891 86,256 3,205 43,889
Earnings before income taxes and finance costs	$355,267 $13,610 $194,928
Capital employed Total assets Current liabilities Less: Current portion of long term debt Current portion of lease liabilities	$2,159,692 $1,569,508 $1,843,187 (263,526) (149,748) (189,726) 6,811 - 6,897 12,169 11,819 11,745
Capital employed, end of period Capital employed, beginning of period	$1,915,146 $1,431,579 $1,672,103 1,672,103 1,214,375 1,555,212
Average capital employed	$1,793,624 $1,322,977 $1,613,657
Earnings before income taxes and finance costs divided by average capital employed Annualization factor	19.8% 1.0% 12.1% 4.0 4.0 4.0
Annualized return on capital employed	79.2% 4.0% 48.4%

Risks and Uncertainties

The Company is exposed to many risks and uncertainties in conducting its business including, but not limited to: a public health crisis; price volatility; competition; availability and cost of log supply; natural or man-made disasters; currency exchange sensitivity; government regulation; allowable annual cut; indigenous peoples; barriers to lumber trade between Canada and the U.S.; stumpage fees; environmental matters; labour disruptions; and information systems security. These risks and uncertainties are described in the Company’s MD&A for the year ended December 31, 2020, filed under the Company’s profile on www.sedar.com.

Additional Information

Additional information relating to the Company and its operations, including the Company’s Annual Information Form, can be found on its website at www.interfor.com and on SEDAR at www.sedar.com.

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Interfor Corporation Metrotown II 1600 – 4720 Kingsway Bunaby, BC, Canada V5H 4N2 Telephone: (604) 422-3400 Fax: (604) 422-3452

Contact: Richard Pozzebon, Senior Vice President and Chief Financial Officer Web Site: www.interfor.com

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