2022
ANNUAL REPORT
CANFOR CORPORATION
I N T H I S R E P O RT
01
M E S S AG E TO S H A R E H O L D E R S
2022 Highlights
03 2022 Management’s Discussion and Analysis
04
05 Company Overview
07 Overview of 2022
17 Overview of Consolidated Results - 2022 Compared to 2021
19 Operating Results by Business Segment - 2022 Compared to 2021 - Lumber
21 Operating Results by Business Segment - 2022 Compared to 2021 - Pulp and Paper
25 Other Comprehensive Income (Loss)
26 Summary of Financial Position
27 Changes in Financial Position
27 Liquidity and Financial Requirements
32 Transactions with Related Parties
32 Selected Quarterly Financial Information
33 Three-Year Comparative Review
34 Fourth Quarter Results
40 Changes in Financial Position
41 Specific Items Affecting Comparability
41 Outlook
42 Non-IFRS Financial Measures
43 Critical Accounting Estimates
46 Risks and Uncertainties
56 Outstanding Share Data
56 Disclosure Controls and Internal Controls Over Financial Reporting
57 C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
58 Management’s Responsibility
59
Independent Auditors’ Report
64 Consolidated Balance Sheets
65 Consolidated Statements of Income
66 Consolidated Statements of Other Comprehensive Income (Loss)
67 Consolidated Statements of Changes in Equity
68 Consolidated Statements of Cash Flows
69 Notes to the Consolidated Financial Statements
97
A D D I T I O N A L I N F O R M AT I O N
98 Directors and Officers
99 Corporate and Shareholder Information
MESSAGE TO SHAREHOLDERS
FROM THE PRESIDENT AND CEO
Canfor had yet another very strong year in 2022. We remained focused
on our long-term strategy of geographic and product diversification
and recorded our second highest profit ever. Against a backdrop
of volatile market conditions and amidst an uncertain political and
economic landscape, we continued to employ a focused and disciplined
approach, advancing our strategic objectives and delivering results.
This achievement was made possible through the ongoing commitment
and ability of our people, and I am extremely proud of the team we
have built and the performance of the organization over the last year.
Resilience from a Diversified Business
Our diversified business portfolio creates resilience to changing market
dynamics and fluctuations in demand, giving us access to new global
markets and the resources, flexibility, and reliability to consistently provide
our customers with high-quality products. Global megatrends such as
decarbonization, urbanisation, digitization, sustainable e-commerce and
a growing focus on green building, all present opportunities for continued
growth and optimism.
During the first half of 2022, lumber prices reached near record highs
that were supported by strong market fundamentals and demand
in the new home construction, and the repair and remodel sectors.
However, soaring inflation and rising energy costs contributed to sharply
rising interest rates and shrinking consumer buying power as the year
progressed. This significantly reduced demand for new home construction
and led to a steep decline in lumber prices in the latter part of 2022.
We anticipate that demand softness will persist in the near term, but
believe longer-term market fundamentals remain very strong, supported
by favourable demographic trends, pent-up demand for new home
construction, and the continuing strength in the repair and remodel sector.
Actions for Value Creation
By executing a program of disciplined capital allocation in 2022, we
continued to create value focussing on our objectives of diversification,
innovation, integration, and sustainability. Canfor continues to prioritize
reinvesting in the business to maintain top quartile assets, while
ensuring financial flexibility and strategically targeting external growth.
To that end, we made considerable progress on several strategic
initiatives in 2022.
Comprehensive evaluation of the availability of economic fibre and a
thorough project financial analysis is advancing, as planned, to support
a final investment decision by the end of the second quarter of 2023.
In the U.S., we are constructing two greenfield sawmills
in
DeRidder, Louisiana and Axis, Alabama, and undertaking a major
rebuild of our sawmill in Urbana, Arkansas. The DeRidder facility,
which reflects a US$160 million investment and is advantageously
located to serve strategic customers and markets, particularly
the robust Texas market, was substantially complete by the end of
the year with the first log through the sawmill in February 2023.
Canfor also announced a US$210 million investment to replace
the existing facility in the City of Mobile with a new, state-of-the-
art facility a short distance away. This will help us keep pace with
increasing demand for high value Southern Yellow Pine (SYP) lumber
from our preferred customers, while improving operating margins
and integrating innovative manufacturing technologies. The US$130
million Urbana modernization project capitalizes on access to high-
quality fibre and will add 115 million board feet to the mill’s existing
production capacity. In addition, the Urbana expansion will increase its
high value product mix, including mass timber materials like cross-
laminated timber and glulam, while meaningfully reducing its cost
structure and creating a modern work environment for our employees.
In Europe, where our Vida operations in Sweden now account for
approximately 23 per cent of Canfor’s total production capacity
and in 2022 comprised 15 per cent of our North American sales
volume. we have several capital projects underway. By integrating
innovation enhancements and technologies, we will boost mill margins
and enhance manufacturing efficiency, versatility, and flexibility. We
also see opportunities to expand in Europe through organic growth,
particularly where we can create synergies with our current operations.
Canfor is prepared to remain patient, disciplined, and strategic until the
right growth opportunities present themselves. We will also continue
to make the right decisions for the business by proactively balancing
production levels with market demand.
Strategic capital will continue to be deployed to improve our cost
structure, advance our global diversification, and grow our production
capacity through increased automation, innovation, and manufacturing
flexibility with a focus on high-value products and sustainability.
The completion of a significant acquisition in Alberta is helping to
ensure that Canfor maintains a solid foothold in Western Canada. We
fully integrated three former Millar Western solid wood operations and
associated forest tenure into our Wood Products Canada business. The
additional 630 million board feet of production capacity and access to high-
quality spruce-pine-fir (SPF) timber is delivering benefits to key strategic
markets, and generating higher, more stable returns for the business.
Sustainability is at the Core of What We Do and How We Do It
Canfor’s emphasis on social, environmental, and economic responsibility
in our operations and throughout our value chain has never been stronger.
Making sustainability a core value in our business is not only the right thing
to do for the planet, our people, stakeholders, partners and customers,
but it also makes us a better company. We aim to be a global leader.
To better align manufacturing capacity in British Columbia with the
available long-term fibre supply, in early 2023, we announced the decision
to restructure our B.C. operations by permanently closing the Chetwynd
facility and pellet plant, and temporarily closing the Houston facility
for an extended period to facilitate a major redevelopment on the site.
We intend to build a new, modern, globally competitive manufacturing
facility in Houston that employs state-of-the-art technology to produce
high value products from the sustainable timber supply in that region.
Our customers are asking us to grow with them and to help build the
bioeconomy by providing them with materials and solutions that are
renewable and low carbon. We are well positioned to respond.
Throughout 2022 we advanced several proof-of-concept projects through
our Bio-Innovation team and our joint venture, Arbios Biotech. As an
example, preparatory site work began at the industrial-scale Chuntoh
Ghuna biofuel demonstration facility in Prince George, B.C. This project
1
MESSAGE TO SHAREHOLDERS
will demonstrate how we can convert low-value forestry residues and
waste wood biomass into high-value, sustainable bio-oil that can be used
as renewable transportation biofuels —a direct substitute for fossil-
based crude oil, but with a lower carbon footprint and huge global market
potential. We are also advancing the development of bio-composite
materials that have the potential to make lower carbon alternatives for
traditional products used in the automotive, aerospace, building sector
and more. This work holds significant promise and is aligned with a
growing belief that everything that is made from fossil materials today
can be made from a tree tomorrow. We believe that climate-friendly
biomaterial innovations represent a big growth opportunity for Canfor.
Building on the comprehensive Sustainability Strategy we launched in
2021, last year we announced the implementation of a comprehensive
plan to achieve net-zero carbon emissions by 2050. To achieve this, we
developed near-term, science-based targets that include reducing the
carbon emissions from our pulp and wood products operations by 42
per cent by 2030 compared to our base year of 2020. These are defined
as our Scope 1 and Scope 2 emissions. In addition, by 2024 we will
measure and assess our global supply chain and woodlands emissions,
which are defined as Scope 3, and set a science-based reduction target
for those emissions.
Our commitment to net zero by 2050 positions us further along on our path
to becoming a global leader in sustainability. This commitment is backed
by an investment of at least $250 million in carbon emission reduction
projects to help us achieve our 2030 target over the next seven years.
Our People Make It Happen
People are the heartbeat of Canfor. Our performance comes down to our
employees. We recognize the responsibility we have for their well-being
and have placed significant focus on ensuring that every member of the
Canfor team feels safe, welcomed and rewarded. Through purpose-built
and intensive talent development programs we are strengthening our
future operational and corporate leadership pipelines. We have also
made significant strides on inclusion and diversity through our Employee
Network Groups, setting us on the path to ensure that our workforce
truly reflects the diversity of the communities where we operate. Our
refreshed values are at the core of who we are and how we work, and in
2022 new emphasis was put on inclusion, respect and sustainability. As
always, safety comes first.
To help measure our progress on our employee commitments, we
undertook an engagement survey to assist us in understanding how we
are doing, where we can do better, and how we can best focus our efforts
and resources to ensure we have the talent we need to deliver on our
vision. These results are providing valuable guidance to help us shape
Canfor’s culture and employee experience.
A Leader in the Low Carbon Economy On behalf of Canfor’s senior
executive team, I want to thank our employees, whose commitment and
resourcefulness contributed to our success in 2022. As a customer-
centric business, we know that we succeed when our customers succeed.
We are grateful for their continued loyalty, and we remain committed to
serving our customers’ evolving needs. I also want to thank the Board of
Directors for its guidance and support, and our shareholders for their
continued confidence in Canfor.
I am proud of leading this outstanding organization. I am also confident
that we are well equipped to deliver on Canfor’s strategy and be a
leader in the low carbon economy through the renewable materials we
manufacture.
Don Kayne
President and Chief Executive Officer
2
2022 MANAGEMENT’S DISCUSSION AND ANALYSIS
This Management’s Discussion and Analysis (“MD&A”) provides a review of Canfor Corporation’s (“Canfor” or “the
Company”) financial performance for the year ended December 31, 2022 relative to the year ended December 31,
2021, and the financial position of the Company at December 31, 2022. It should be read in conjunction with Canfor’s
Annual Information Form and its audited consolidated financial statements and accompanying notes for the years
ended December 31, 2022 and 2021 (available at www.canfor.com). The financial information contained in this MD&A
has been prepared in accordance with International Financial Reporting Standards (“IFRS”), which is the required
reporting framework for Canadian publicly accountable enterprises.
Throughout this discussion, reference is made to Operating Income before Amortization, Asset Write-Downs and
Impairments, Adjusted Operating Income before Amortization, Asset Write-Downs and Impairments and Adjusted
Operating Income (Loss) which Canfor considers to be a relevant indicator for measuring trends in the performance of
each of its operating segments and the Company’s ability to generate funds to meet its debt repayment and capital
expenditure requirements. Reference is also made to Adjusted Shareholder Net Income (Loss) (calculated as
Shareholder Net Income (Loss) less specific items affecting comparability with prior periods – for the full calculation,
see reconciliation included in the section “Overview of Consolidated Results – 2022 Compared to 2021”) and Adjusted
Shareholder Net Income (Loss) per Share (calculated as Adjusted Shareholder Net Income (Loss) divided by the
weighted average number of shares outstanding during the period). Operating Income before Amortization, Asset
Write-Downs and Impairments, Adjusted Operating Income before Amortization, Asset Write-Downs and Impairments,
Adjusted Operating Income (Loss), Adjusted Shareholder Net Income (Loss) and Adjusted Shareholder Net Income
(Loss) per Share are not generally accepted earnings measures under IFRS and should not be considered as an
alternative to net income (loss) or cash flows as determined in accordance with IFRS. As there is no standardized
method of calculating these measures, Canfor’s Operating Income before Amortization, Asset Write-Downs and
Impairments, Adjusted Operating Income before Amortization, Asset Write-Downs and Impairments, Adjusted
Operating Income (Loss), Adjusted Shareholder Net Income (Loss) and Adjusted Shareholder Net Income (Loss) per
Share may not be directly comparable with similarly titled measures used by other companies. Reconciliations of
Operating Income before Amortization, Asset Write-Downs and Impairments to Operating Income (Loss) and Adjusted
Shareholder Net Income (Loss) to Net Income (Loss) reported in accordance with IFRS are included in the “Non-IFRS
Financial Measures” section of this MD&A.
Also in this MD&A, reference is made to net debt (cash), net debt (cash) to total capitalization and return on invested
capital (“ROIC”) which the Company considers to be relevant performance indicators that are not generally accepted
under IFRS. Therefore, these indicators, defined herein, may not be directly comparable with similarly titled measures
used by other companies. Refer to the “Non-IFRS Financial Measures” section of this MD&A for further details.
Factors that could impact future operations are also discussed. These factors may be influenced by known and unknown
risks and uncertainties that could cause the actual results to be materially different from those stated in this discussion.
Factors that could have a material impact on any future oriented statements made herein include, but are not limited
to: general economic, market and business conditions; product selling prices; raw material and other operating costs;
currency exchange rates; interest rates; changes in law and public policy; the outcome of labour and trade disputes;
and opportunities available to or pursued by Canfor.
All financial references are in millions of Canadian dollars unless otherwise noted. Certain comparative amounts have
been reclassified to conform to current presentation. The information in this report is as at February 28, 2023.
Forward-Looking Statements
Certain statements in this press release constitute “forward-looking statements” which involve known and unknown
risks, uncertainties and other factors that may cause actual results to be materially different from any future results,
performance or achievements expressed or implied by such statements. Words such as “expects”, “anticipates”,
“projects”, “intends”, “plans”, “will”, “believes”, “seeks”, “estimates”, “should”, “may”, “could”, and variations of such
words and similar expressions are intended to identify such forward-looking statements. These statements are based
on Management’s current expectations and beliefs and actual events or results may differ materially. There are many
factors that could cause such actual events or results expressed or implied by such forward-looking statements to differ
materially from any future results expressed or implied by such statements. Forward-looking statements are based on
current expectations and Canfor assumes no obligation to update such information to reflect later events or
developments, except as required by law.
3 2022 HIGHLIGHTS
2022 was another strong year for Canfor, with the strength in global lumber market fundamentals experienced late in
2021 continuing well into the current year. Significant lumber demand led by solid activity in both new home
construction and the repair and remodel segment, encountered tight supply due to supply chain disruptions. The result
was ongoing global pricing pressure and high benchmark lumber prices through the first part of the year. As the year
progressed, rising interest rates and inflation put significant downward pressure on housing affordability and global
lumber market demand, leading to a rapid decline in global lumber market pricing in the latter part of the year. In
response, the Company implemented reduced operating schedules at its Western Canadian operations. The Company’s
strong earnings, however, reflect the continued benefit of its global diversification strategy which helped to moderate
these challenges in British Columbia (“BC”).
Early in 2023, after an extensive analysis of its pulp mill operating footprint and the long-term supply of economic
residual fibre, Canfor Pulp Products Inc. (“CPPI”) made the decision to permanently close the pulp line at its Prince
George Pulp and Paper Mill (“PG”). Similarly, in order to create a more sustainable operating footprint in BC and to
better align manufacturing capacity with the available long-term fibre supply, the Company made the difficult decision
to restructure its BC lumber operations by permanently closing its Chetwynd sawmill and pellet plant and temporarily
closing its Houston sawmill for an extended period to facilitate a major redevelopment on the site. The Company
intends to build a new, modern, globally competitive manufacturing facility that employs state of the art technology to
produce high value products from the sustainable timber supply in that region. The Company is currently undertaking
an evaluation of the availability of economic fibre and a thorough project financial analysis, and is targeting a final
investment decision by the end of the second quarter of 2023.
Recognizing these permanent closures as well as the ongoing challenges to the business posed by fibre availability and
costs, the Company recorded asset write-downs and impairments totaling $138.6 million in its results for the year
ended December 31, 2022.
Before taking account of adjusting items, largely comprised of the aforementioned asset write-down and impairment
charge, the Company’s operating income was $1,306.2 million for the current year, down $897.8 million compared to
the record-high adjusted operating earnings of $2,204.0 million for the prior year. The Company reported operating
income of $1,074.1 million for 2022, versus operating earnings of $1,908.1 million for 2021.
For the lumber segment, adjusted operating income for 2022 was $1,421.9 million, the second highest earnings on
record, but down $796.2 million year-over-year. Following the record-high lumber pricing in 2021, and notwithstanding
the strong lumber market fundamentals through much of 2022, lumber segment results in the current year principally
reflected an 11% decline year-over-year in the average Western Spruce/Pine/Fir (“SPF”) 2x4 #2&btr and Southern
Yellow Pine (“SYP”) East 2x4 #2 price. This downward pricing pressure was coupled with the impact of high inflation
on unit manufacturing costs as well as modestly lower production and shipment volumes in 2022, as transportation
and market-related temporary curtailments at the Company’s Western Canadian operations more than offset the
addition of Millar Western Forest Product Ltd.’s (“Millar Western”) solid wood operations in the first quarter of 2022.
Early in the year, North American lumber market conditions were very strong, principally led by strength in new home
construction activity. This significant demand against a backdrop of tight supply, due to global supply chain disruptions,
led to near record-high North American benchmark lumber pricing in the first quarter of 2022. Growing general
economic uncertainty and inflation, however, led to a series of interest rate hikes during the year which eroded housing
affordability. This resulted in a steady decline in residential home construction in the United States (“US”) and a
substantial drop in North American benchmark lumber prices, most notably through the second half of the year.
Strength in the repair and remodeling sector continued through much of 2022 largely driven by an aged housing stock
and higher-than-normal consumer spending combined with a decline in North American benchmark lumber prices in
the latter part of the year.
Throughout 2022, offshore lumber demand in Asia weakened as the year progressed. In China, the implementation of
a zero-COVID strategy mid-year and the impacts of a severe summer heatwave immobilized economic activities in the
region and resulted in reduced lumber consumption during the period. Demand in Japan and Korea declined throughout
the year, due in part to the aforementioned restrictions in China, coupled with high inventory levels and inflationary
cost pressures.
In Western Europe and Scandinavia, lumber demand and pricing was strong through the first half of the year, driven
primarily by sustained residential construction and increased activity in the European repair and remodeling sector.
4 During the latter half of the year, however, the combined impact of reduced home building and lower do-it-yourself
activity tied to high inflation and constrained consumer spending, gave rise to a decline in European lumber market
pricing.
For the pulp and paper segment, 2022 was a difficult year, as strong global pulp market fundamentals and near-record
high pulp list pricing were more than outweighed by the impact of global supply chain disruptions, fibre shortages in
BC as well as operational efficiency and reliability challenges at all of CPPI’s pulp mills.
Before taking account of adjusting items, largely comprised of CPPI’s asset-write down and impairment charge of $49.6
million, CPPI’s operating loss was $58.6 million for the current year, down $90.5 million from the adjusted operating
income of $31.9 million for the prior year.
Global pulp market conditions continued to strengthen through most of 2022, as persistent global supply chain
challenges and unplanned global pulp supply outages were combined with high levels of post-pandemic global demand
and gave rise to sustained periods of high global pulp pricing. Prices to China, the world’s largest consumer of softwood
pulp, continued its upward pricing momentum through the first half of 2022, reaching a near-record high of US$1,010
per tonne in July. However, as purchasing activity waned somewhat, prices to this region declined through the latter
part of the year to end the year at US$885 per tonne. For the 2022 year as a whole, Northern Bleached Softwood Kraft
(“NBSK”) pulp list prices to China averaged US$9491 per tonne, an increase of US$99 per tonne, or 12%, from 2021.
Further discussion on the more significant developments is provided in the “Overview of 2022” section of this document.
COMPANY OVERVIEW
Canfor is a global leader in the manufacturing of high-value low-carbon forest products including dimension and
specialty lumber, engineered wood products, pulp and paper, wood pellets and green energy. Headquartered in
Vancouver, BC, Canfor produces renewable products from sustainably managed forests, at more than 55 facilities
across its diversified operating platform in Canada, the United States and Europe. The Company has a 70% interest in
the Vida Group (“Vida”), one of Sweden’s largest sawmilling companies and also owns a 54.8% interest in CPPI, which
is one of the largest global producers of NBSK pulp and a leading producer of high performance kraft paper. As of
December 31, 2022, Canfor employed 7,908 people, of which 1,196 are employed by CPPI.
Significant changes to the Company’s business in 2022 and early in 2023 include the following:
•
•
•
•
•
On February 15, 2022, the Company announced the permanent reduction of 150 million board feet of production
capacity at its Plateau sawmill to resize the facility and align it with the available, sustainable timber supply in the
region. This capacity reduction took effect in the second quarter of 2022 following the depletion of log inventory.
On February 16, 2022, CPPI announced temporary capacity reductions at its Taylor Bleached Chemi-Thermo
Mechanical Pulp (“BCTMP”) mill (“Taylor”) in response to significant transportation shortages due to the
unprecedented global supply chain crisis. On March 29, 2022, the curtailment was extended by six weeks due to
ongoing high pulp inventory levels and continued through the balance of 2022. As a result of a reduction in the
long-term supply of fibre in the Peace region, CPPI does not see a path forward at this time to restarting the Taylor
mill and is exploring alternative uses for the site.
On February 24, 2022, the Company entered into a Letter of Intent with McLeod Lake Indian Band and Tsay Keh
Dene Nation to sell its forest tenure in the Mackenzie region of BC and a separate agreement with Peak Mackenzie
Properties Ltd. (“Peak Mackenzie”) to sell its Mackenzie site, plant and equipment for combined proceeds of $70.0
million.
On March 1, 2022, the Company completed the purchase of Millar Western for total consideration of $434.0 million,
including $99.0 million in net working capital.
On March 30, 2022, the Company announced the implementation of reduced operating schedules at its Western
Canadian sawmills effective April 4, 2022, due to the cumulative effects of the unprecedented global supply chain
crisis. On May 26, 2022, the Company announced the continuation of reduced operating schedules and two-weeks
of rotating downtime in July and August to help align production capacity with sustainable timber supply and
available transportation. On September 19, 2022, the Company announced a two-week market-related curtailment
beginning September 26, 2022 at the majority of its BC solid wood facilities followed by the resumption of reduced
operating schedules until the end of 2022. On December 5, 2022, the Company announced further market-driven
curtailments at its Western Canadian sawmills in December and January.
1 Resource Information Systems, Inc.
5 Combined, these factors reduced Western SPF production by approximately 775 million board feet in 2022.
• On April 21, 2022, the Company announced it will invest approximately US$130 million to significantly upgrade
and expand its sawmill and planer facility located in Urbana in Union County, Arkansas. The investment will increase
annual production at the facility by approximately 115 million board feet, with improvements commencing in the
third quarter of 2022 and taking approximately 18 months to complete.
• On April 26, 2022, Canfor announced the implementation of a comprehensive plan to achieve net-zero carbon
emissions by 2050.
• On July 28, 2022, the Company announced it will invest approximately US$210 million to build a new, state-of-
the-art sawmill complex in southern Alabama. The new sawmill will have an annual production capacity of
approximately 250 million board feet with startup of the facility anticipated in the third quarter of 2024.
• On October 17, 2022, CPPI announced a two-week curtailment of NBSK production at its Intercontinental
(“Intercon”) mill due to the lack of available economic fibre. On December 19, 2022, CPPI announced an additional
four-week fibre-driven curtailment at Intercon. Together, these curtailments reduced NBSK production by
approximately 40,000 tonnes in the fourth quarter of 2022.
• On January 3, 2023, the Company announced an extension of BC sawmill curtailments in the month due to ongoing
weak market conditions and lack of available economic fibre. These curtailments, when combined with the prior
market-driven curtailment announcements, reduced Western SPF production by a further 121 million board feet
in January 2023.
• On January 11, 2023, CPPI announced the right-sizing of its operating footprint to the long-term supply of
economic residual fibre with the permanent closure of the pulp line at its PG mill, which will result in a reduction
of approximately 280,000 tonnes of market kraft pulp annually.
• On January 25, 2023, the Company announced the restructuring of its BC operations to better align manufacturing
capacity in the region with available long-term fibre supply, resulting in the permanent closure of its Chetwynd
sawmill and pellet plant and temporary closure of its Houston sawmill for an extended period to facilitate a major
redevelopment on the site. The Company intends to build a new, modern, globally competitive manufacturing
facility that employs state of the art technology to produce high value products from the sustainable timber supply
in that region. The Company is currently undertaking an evaluation of the availability of economic fibre and a
thorough project financial analysis, and is targeting a final investment decision by the end of the second quarter
of 2023. The aforementioned facilities will be closed following an orderly wind-down, expected to be completed in
the second quarter of 2023, and will remove approximately 750 million board feet of annual Western SPF
production capacity.
Lumber
Combined, as at December 31, 2022, Canfor’s lumber operations had an annual production capacity of approximately
7.1 billion board feet of lumber. The majority of lumber produced by Canfor from its facilities is construction and high-
value specialty grade dimension lumber that ranges in size from one by three inches to two by twelve inches and in
lengths from six to twenty-six feet. A significant and increasing proportion of Canfor’s lumber production is comprised
of specialty products that command premium prices, and high-value products including Square Edge lumber for the
North American market, J-grade lumber for the Japanese market, and machine stress rated (“MSR”) lumber used in
engineered applications such as roof trusses and floor joists. Canfor has expanded its product offering in recent years
to include high-value engineered wood products, higher-grade MSR lumber, premium one-inch boards, as well as an
array of custom specialty products, including strength-rated trusses, beams, and tongue-and-groove timber.
Canfor’s North American lumber operations also include one finger-joint plant, two glulam plants, one whole log
chipping plant and a trucking division. As at December 31, 2022, the Company operated pellet plants at the Chetwynd
and Fort St. John sawmill sites. Canfor’s North American lumber business segment also includes a 60% interest in
Houston Pellet Inc., which has an annual capacity of approximately 225,000 tonnes of wood pellets. Canfor’s European
lumber operation includes its 70% interest in Vida’s nine value-added facilities (including the manufacturing and sale
of wood packaging and modular housing, industrial products and energy).
As at December 31, 2022, Canfor held approximately 10.3 million cubic metres (including Mackenzie) of annual
harvesting rights for its solid wood operations under various forest tenures located in the interior region of BC and
northern Alberta, and harvests logs from those tenures to supply its Western Canadian lumber operations. Any shortfalls
6
in mill requirements are made up with wood purchased from other tenure holders in those areas. The wood fibre
requirements in the US and Europe are met through open market purchases, substantially from private timberland
owners.
Canfor markets lumber products throughout North America and overseas through its sales offices in Canada, the US,
Japan, Sweden, the United Kingdom (“UK”), Denmark, the Netherlands, and Australia. In addition to its own production,
Canfor also markets lumber produced externally to complement its product line. While a significant proportion of
Canfor’s product is sold to markets in the US, shipments into Europe have increased following the acquisition of Vida,
while volumes to other offshore markets remain steady. The Company transports substantially all domestic lumber
sales volumes (both in North America and Europe) by truck and rail, while the vast majority of product sold offshore is
transported by container ship.
Pulp and Paper
During 2022, Canfor’s pulp and paper segment was comprised of three NBSK pulp mills and the Taylor BCTMP mill, all
of which are owned and operated by CPPI in BC. In 2022, CPPI produced NBSK pulp, BCTMP and specialty paper. NBSK
is a primarily bleached product, although unbleached and semi-bleached grades were also produced at the Prince
George pulp and paper mill.
As at December 31, 2022, CPPI had an annual production capacity of approximately 1.1 million tonnes of northern
softwood market kraft pulp, the significant majority of which was bleached to become NBSK pulp, and approximately
140,000 tonnes of kraft paper.
CPPI also owns the Taylor pulp mill, a BCTMP facility that has an annual production capacity of 230,000 tonnes.
Canfor supplies CPPI with residual wood chips and hog fuel (principally bark) produced at certain, specified sawmills.
Prices paid by CPPI for residual wood chips are based on a pricing formula to reflect market prices and conditions, with
hog fuel purchased by CPPI at market prices. CPPI also has fibre supply agreements with third parties to supplement
its supply of wood chips and hog fuel.
Business Strategy
Canfor’s overall business strategy and purpose is to be a global leader in supplying sustainable and innovative, quality
wood-based products to high-value customers, accomplished by:
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•
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Attaining world-class safety performance;
Achieving top-quartile margin performance while producing high-value products and maximizing the value
from all available fibre sources;
Implementing a sustainability strategy aimed at helping to protect our planet, supporting our people and
communities, and producing forest and pulp and paper products that are an important part of a low-carbon
economy;
• Growing an enterprise-wide culture of innovation, inclusion, diversity and engagement by attracting, retaining
and developing our employees;
•
Expanding geographical markets, increasing market share of value-added products and building strong long-
term partnership with valued customers;
• Attaining world-class supply chain performance and providing excellence in customer service; and
•
Focusing on an efficient allocation of capital and deployment of resources to sustain top-quartile operational
performance, capitalizing on attractive growth opportunities.
OVERVIEW OF 2022
Markets and Pricing
(i) Solid Wood
In 2022, strong global lumber market fundamentals experienced late in 2021 continued well into the year. Significant
lumber demand led by continued strength in both new home construction activity and the repair and remodel segment,
encountered tight supply due to supply chain disruptions. The result was ongoing global pricing pressure and high
benchmark lumber prices through the first part of the year. However, as general economic uncertainty rose due to
7
high inflation, progressive interest rate hikes materially impacted housing affordability, putting downward pressure on
lumber markets. As supply chain constraints moderated, decreased demand was met with increasing levels of supply
which resulted in a steep decline in global lumber benchmark pricing in the latter part of the year.
As a result, following the record-high pricing in 2021, the North American Random Lengths Western SPF 2x4 #2&btr
price reached a peak of US$1,4002 per Mfbm in March 2022. As mentioned however, as the year progressed, lumber
demand across North America came increasingly under pressure and the Western SPF 2x4 #2&btr price experienced a
rapid deceleration late in the year to end the year at US$345 per Mfbm.
For the year overall, the Western SPF 2x4 #2&btr price averaged US$783 per Mfbm, down US$97 per Mfbm, or 11%,
from 2021 with similar decreases seen across key grades and widths of Western SPF lumber, as outlined in the table
below. Premium lumber products such as J-grade, MSR and Square Edge, also experienced pricing pressure in the
latter part of 2022, although less pronounced than the declines in Western SPF 2x4 #2&btr.
(Average Western SPF US$ price, per thousand board feet)2
2022
2021
Change
2x4 #2&Btr
2x4 #3
2x6 #2&Btr
2x10 #2&Btr
2 Random Lengths Publications, Inc.
$
$
$
$
783
615
710
814
$
$
$
$
880
762
853
859
$
$
$
$
(97)
(147)
(143)
(45)
In 2022, the North American Random Lengths SYP East 2x4 #2 price moved similar to Western SPF, rising to an all-
time high of US$1,5153 per Mfbm in January and remaining above US$1,000 per Mfbm through March. By mid-June,
the benchmark price had fallen 56% to US$665 per Mfbm before rebounding through the summer. Once prices began
declining in August, however, they continued to fall quickly through the balance of the period, ending the year at
US$395 per Mfbm. As a result, for 2022 overall, the SYP East 2x4 #2 price decreased US$101 per Mfbm, or 11%, from
2021.
Wider width SYP lumber products, including SYP East 2x6 #2, experienced similar trends throughout 2022 as Western
SPF and SYP East 2x4 #2, albeit to a lesser degree, with the SYP East 2x6 #2 averaging US$642 per Mfbm for 2022,
a decrease of US$57 per Mfbm, or 8%, from 2021, as highlighted in the table below.
(Average SYP East US$ price, per thousand board feet)3
2022
2021
Change
2x4 #2
2x6 #2
2x8 #2
2x10 #2
2x12 #2
3 Random Lengths Publications, Inc.
829
642
591
652
925
$
$
$
$
$
930
699
692
729
989
$
$
$
$
$
(101)
(57)
(101)
(77)
(64)
$
$
$
$
$
Chart 1
8
US housing starts, on a seasonally adjusted basis, averaged 1,555,000 units4 in 2022, a decrease of 3% from 2021
(Chart 2). Single-family starts, which consume approximately three times more lumber than multi-family homes, were
down 11% in 2022, falling to an annual low in November 2022, principally reflecting housing affordability challenges
(Chart 3) stemming from high inflation and rising mortgage rates. Multi-family starts remained strong throughout 2022,
up 14% from the previous year largely attributable to strength in the rental housing market, as housing affordability
waned.
Chart 2
Chart 3
Total home inventory remained critically low throughout 2022. Existing home inventories remained well below historical
levels during the period, beginning the year at 1.6 months’ supply4 before trending upwards and remaining above 3.0
months’ supply through the latter half of the year (Chart 4). At the same time, the number of units under construction
increased significantly year-over-year, with the gap between completions and housing starts beginning to close in the
fourth quarter of 2022.
4 Source: US Bureau of the Census
9
Chart 4
The Canadian housing market weakened through 2022, with housing starts, at 263,000 units5 on a seasonally adjusted
basis, down 4% compared to 2021 (Chart 5), and multi-family starts making up 70% of overall starts in 2022 (2021:
66%). Despite falling 4% from the previous year, Canadian housing starts remained well above historical norms as
demand for housing in urban centres continued to grow year-over-year.
Chart 5
The repair and remodeling sector remained strong throughout most of 2022. Although disposable income levels
declined during the year, lower building material costs tied to benchmark pricing declines and high demand for
professional grade repair and remodel work amidst labour shortages supported high levels of activity in the sector
(Chart 6).
5 Canada Mortgage and Housing Corporation (“CMHC”)
10
Chart 6
Offshore lumber demand in Asian markets weakened compared to the prior year as labour shortages and global inflation
hampered economic output in the region. China was also impacted by strict testing and quarantine policies associated
with its zero-COVID strategy, as well as a severe heatwave which caused factory closures and reduced lumber
consumption during the period. Demand in Japan and Korea also declined throughout the year, due in part to the
aforementioned restrictions in China, coupled with high inventory levels and inflationary cost pressures.
European lumber market demand and pricing was strong through the first half of the year, despite the challenging
geo-political environment, due to sustained levels residential construction activity and strong demand in the repair and
remodeling sector. During the latter half of the year, however, the combined impact of reduced home building and do-
it-yourself activity6 (Chart 7) tied to high inflation and constrained consumer spending, led to significant pricing pressure
in the European lumber market.
Chart 7
The Canadian dollar weakened against the US-dollar in 2022, averaging $0.7687 per US-dollar, down 3 cents, or 4%,
from 2021, and significantly strengthened against the Swedish Krona (“SEK”), averaging 7.7537 per SEK, up 13%, in
the current year.
6 Source: Eurostat
7 Bank of Canada (monthly average for the period)
11
(ii) Pulp
Global pulp market conditions were very strong throughout most of 2022. The upward pricing momentum experienced
in the latter part of 2021 continued into the first half of 2022, as global pulp markets tightened significantly, primarily
driven by global transportation challenges, inflationary cost pressures as well as unplanned global production outages.
Towards the end of the year, however, market fundamentals came under pressure as a moderation in purchasing
activity from China was combined with an uplift in global pulp market supply, principally reflecting the combined impact
of incremental softwood supply in Europe and additional hardwood pulp capacity from South America.
As a result, NBSK pulp list prices to China reached near-record highs mid-2022, and for the 2022 year averaged US$949
per tonne, US$99 per tonne, or 12%, higher than the 2021 average price. Prices weakened somewhat, however, late
in the year, in response to slowing demand and an increase in supply, ending the year at US$885 per tonne. North
American pulp prices experienced similar trends to Asia with list prices to that region showing a notable improvement
from US$1,450 per tonne in January to a peak of US$1,805 per tonne mid-2022, before declining to US$1,720 per
tonne in December (before taking account of customer discounts, which were broadly unchanged year-over-year).
Global softwood pulp producer inventories started 2022 at 438 days of supply, and continued to increase through the
first quarter of 2022, as supply chain delays and congestion led to longer delivery times for pulp buyers, contributing
to lean consumer inventories and ongoing pricing pressure. As the year progressed, these conditions continued and
global softwood pulp inventories stayed at the high end of the balanced range, ending the year at 43 days of supply.
Market conditions are generally considered balanced when inventories are in the 32-438 days of supply range.
The following charts show the NBSK pulp list price movements in 2022, before taking account of customer discounts
and rebates (Chart 8), global pulp shipments by destination (Chart 9), and the global pulp inventory levels (Chart 10).
Chart 8
8 World 20 data is based on twenty producing countries representing 80% of the world chemical market pulp capacity and is based on information
compiled and prepared by the Pulp and Paper Products Council (“PPPC”).
12
Chart 9
Chart 10
Solid Wood Operations – External Growth and Capital Investments
The Company’s confidence in the longer-term prospects for the lumber industry has driven an investment strategy over
the last 10 years aimed at positioning itself as a top-quartile margin performer, with greater global and product
diversification.
In support of this objective, the Company has completed a number of targeted strategic external growth and capital
initiatives at its sawmills over the years, all aimed at enhancing the quality and value offering of products to its
customers from a top-tier productivity and cost position. These strategic capital investments have been designed to
support the Company’s high-value and diversification focus, allowing the Company to improve the financial margins
and value from its operations in Western Canada, the US South and Europe.
For 2022, capital investments in the lumber segment, including acquisitions, totaled $941.7 million, up $559.0 million,
or 146%, from 2021.
In the current year, strategic initiatives in Western Canada included the acquisition of Millar Western’s solid wood
operations and tenure. These assets, located in Alberta, Canada, added approximately 630 million board feet of annual
production capacity and consist of three well-capitalized operations with access to high-quality sustainable fibre supply,
including two sawmills in Whitecourt and Fox Creek, and a high-value, specialty Spruceland Millworks facility in Acheson
dedicated to serving strategic markets and focused on generating higher, more stable returns.
In the US South, capital investments in 2022 were focused on the ongoing construction of the new, state-of-the-art
greenfield sawmill in DeRidder, Louisiana, which is scheduled to commence production in the first quarter of 2023, as
13
well as spend associated with the significant upgrade and expansion of the Urbana sawmill in Union County, Arkansas.
In addition, the Company announced mid-year that it will invest in a new world-class facility in southern Alabama. This
new facility’s versatility and flexibility will enhance the Company’s ability to more closely align production of high-quality
products with customer and market demands. With the start of this facility anticipated to be in the later part of 2024,
capital investment spend in this facility will occur in 2023 and 2024. Following completion of these initiatives, the
Company’s total SYP operating capacity is anticipated to be approximately 2.5 billion board feet.
Strategic initiatives in Europe in 2022, included the acquisition of V-Timber AB (“V-Timber”), adding approximately 60
million board feet of annual production capacity. Looking forward, the Company’s European operations has planned
capital investments aimed at increasing drying and sorting capacity at the Company’s Borgstena, Alvesta and Vislanda
sawmills, which combined, will add approximately 115 million board feet of annual production capacity in 2023.
When taking into consideration planned capital investments (including the aforementioned projects in Louisiana,
Arkansas and Alabama, as well as the capital investments in Sweden) and the impact of the permanent closure of the
Chetwynd sawmill and temporary closure of the Houston sawmill (announced in January 2023), the Company’s total
operating capacity remains at approximately 7.1 billion board feet.
Solid Wood Operations – Fibre Supply in British Columbia
Since the beginning of 2019, industry-wide rationalization in BC has removed approximately 3 billion board feet of
annual Western SPF production capacity. In recent years, in many areas of the province, the annual allowable cut
(“AAC”) has been reduced through Timber Supply Review determinations of applicable AAC by the BC Government.
The AAC in the BC Interior has also been impacted by the Mountain Pine Beetle (“MPB”) infestation, losses resulting
from wildfire events, forest policy decisions, as well as other pressures on BC’s Timber Harvesting Land Base.
In late 2021, the BC Government announced its intention to defer the harvest of 2.6 million hectares of BC’s old-growth
forests. Industry-wide analysis indicates that these deferrals, if made permanent, would result in the removal of close
to 1.4 million hectares from the Timber Harvesting Land Base and a reduction in AAC by approximately 4 million cubic
metres, of which 70% of this reduction is in the BC Interior. Other BC Government policies and legislative initiatives,
including with respect to the redistribution of Crown tenure in the province to Indigenous Nations, creates additional
uncertainty for the industry.
Looking forward, these factors are anticipated to continue to constrain AAC in the BC Interior. Furthermore, the
Company’s access to economically viable timber could be further impacted by unsettled land and title claims by various
Indigenous Nations in BC. The impacts of BC’s Declaration on the Rights of Indigenous Peoples Act, the federal
government’s Bill C-15, the William decision9 and the Blueberry River decision10 on the timber supply from Crown lands
and on the Company’s operations is unknown at this time, especially as they pertain to the Company’s current timber
supply and operational activities. As well, the Company does not know the extent to which these rulings or decisions
will lead to changes in BC or federal laws or policies which may affect its forestry operations. However, it is anticipated
that there will be adverse impacts on available timber supply and operational consequences associated with the
outcome of these ongoing negotiations and issues.
The Company has taken a number of actions in recent years in response to these fibre constraints, including securing
access to high-quality fibre and modifying manufacturing and harvesting operations to optimize the harvest of green,
non-pine leading stands. While the near-term outlook in BC remains challenging given the mid-term fibre supply
constraints, this province remains an important part of our diversified operating platform, allowing us to serve
customers around the globe, while providing good family supporting jobs here.
As a result of the fibre constraints, in January 2023, the Company announced the restructuring of its BC operations to
better align manufacturing capacity with the long-term available fibre supply by permanently closing its Chetwynd
sawmill and pellet plant, and temporarily closing its Houston sawmill for an extended period to facilitate a potential
major redevelopment on the site.
9 In June 2014, the Supreme Court of Canada, recognized Indigenous title for the Tsilhqot’in Nation over approximately 1,750 square kilometres of land
in central BC
10 In 2021, the BC Supreme Court released its decision in Yahey v British Columbia, in which it ruled that the Crown had unjustifiably infringed the Treaty
8 rights of the Blueberry River First Nation (“BRFN”) in permitting the cumulative impacts of industrial development to meaningfully diminish BRFN’s
ability to exercise its treaty rights in its traditional territory.
14
In recognizing these closures, as well as the increased fibre cost pressure and ongoing uncertainty surrounding fibre
availability, the Company recorded an asset write-down and impairment charge on its Western Canadian lumber
operations of $89.0 million in its results for the year ended December 31, 2022.
Further discussion on the fibre-related uncertainties faced by the Company’s BC sawmills is provided in the “Risk and
Uncertainties” section of this MD&A.
Pulp and Paper – Fibre Supply
Over the last few years, like other central and northern BC Interior pulp producers, CPPI’s supply of sawmill residual
chips has been significantly reduced, primarily driven by extensive permanent sawmill curtailments and closures in the
region. As a result, CPPI’s fibre purchases have experienced ongoing cost pressures that include an increase in the
proportion of higher-cost whole log chips as well as higher transportation costs.
CPPI has taken a number of actions in response to these fibre constraints, including securing additional fibre supply,
prioritizing discretionary capital spend on optimizing fibre procurement and maximizing fibre utilization and recovery.
However, there remains significant uncertainty with regards to the future of economically viable fibre within BC and it
is expected that the long-term aggregate available chip supply will continue to decline.
As a result, subsequent to year-end, CPPI announced the restructuring of its BC operating footprint to align its
manufacturing capacity with the long-term supply of economic residual fibre with the permanent closure of the pulp
line at its PG mill.
In recognizing this permanent closure, combined with the ongoing challenges to the business posed by fibre availability
and costs, CPPI recorded an asset write-down and impairment charge totaling $49.6 million in its results for the year
ended December 31, 2022.
Pulp and Paper – Operations
From an operational perspective, 2022 was an extremely challenging year for CPPI, as supply chain and fibre-related
headwinds were combined with capital and maintenance outages, which together, resulted in pulp production for the
year of 718,000 tonnes, down 300,000 tonnes, or 29%, from the prior year.
In the first half of the year, significant transportation shortages in BC disrupted operating rates at all of CPPI’s pulp
mills, as NBSK pulp production was limited to available transportation and CPPI’s Taylor mill was indefinitely curtailed.
Following the completion in mid-April of CPPI’s Northwood NBSK pulp mill’s (“Northwood”) recovery boiler number one
(“RB1”) capital upgrade, CPPI successfully completed scheduled maintenance outages at both Northwood and Intercon
and saw a resultant improvement in NBSK productivity. However, in the latter part of the year, CPPI’s supply of sawmill
residual chips came under significant pressure, mostly as a result of market-driven temporary sawmill curtailments in
the BC Interior, and when combined with winter weather conditions, placed a considerable strain on the operating
performance of CPPI’s pulp mills. In addition, as a result of these fibre constraints, CPPI took temporary production
curtailments at its Intercon pulp mill in the fourth quarter of 2022, which continued through January 2023. Combined,
these factors reduced NBSK pulp production by approximately 300,000 tonnes and BCTMP production by 210,000
tonnes in 2022.
Capital spending in 2022 totaled $112.6 million and was principally comprised of Northwood’s RB1 lower furnace
replacement early in the year, combined with maintenance-of-business capital spending.
Notwithstanding the aforementioned permanent closure that will occur in the first quarter of 2023, looking forward
CPPI is focused on optimizing its smaller but sustainable operating footprint, improving operational reliability and closely
managing its manufacturing and fibre costs, and anticipates capital spending in 2023 to be focused on these objectives.
Environmental, Social and Governance (“ESG”) Strategy, Reporting and Related Risks
One of Canfor’s primary objectives is to be the leading global supplier of sustainable wood products. As a Company
that uses a renewable resource to produce sustainable products, it is part of the climate change solution and the
circular economy. Canfor’s vision of creating a future as sustainable as the forests is grounded in a deep respect for
the people the business touches, the products it creates and the planet it relies on to thrive.
In 2021, as part of this leading role, the Company launched its updated sustainability strategy and Sustainability Report.
The Company’s Sustainability Report includes sustainability goals and targets and demonstrates progress made to date.
In 2022, the Company announced its climate ambition to be a net-zero company by 2050 through advancing climate-
15
positive forest management, producing sustainable forest products and developing impactful partnerships. In the 2022
Sustainability Report, the Company will share its continued advancement of its sustainability strategy. Canfor will further
evolve its ESG reporting by providing increasing transparency and disclosure, including defining additional goals and
targets for its ESG material topics.
The Company is actively monitoring the changing landscape of ESG reporting regulations and has aligned disclosures
with the Global Reporting Initiative (“GRI”), the recommendations from the Task Force on Climate-Related Financial
Disclosures (“TCFD”) and with the standards of the Sustainability Accounting Standards Board (“SASB”).
More detailed information on the Company’s sustainability strategy and performance is provided in the annual
Sustainability Report (to be issued in the second quarter of 2023) and at https://sustainability.canfor.com.
Furthermore, the Company is subject to risks related to ESG topics, including climate change and environmental issues.
Climate change risks include physical risks resulting from adverse events brought on by both natural and human-made
disasters, including, but not limited to, severe weather conditions, forest fires, hurricanes, earthquakes and timber
diseases and infestations. The Company is also subject to transition risks associated with climate change including
changes in laws, regulations and industry standards. There also may be reputation risks due to rising prominence of
ESG concerns among the Company’s stakeholders and Indigenous partners. These concerns could influence public
opinions about the Company and the broader industry and could adversely affect its reputation, business, strategy and
operations. The Company is also subject to a wide range of general and industry-specific regulations related to
protection of the environment.
The Company has published several sustainability-related goals and targets as part of its sustainability strategy. There
is a risk that these goals and targets may not be met or not be achieved within expected time periods, that some or
all of the expected opportunities may fail to materialize, result in increased capital expenditures or other costs to our
operations. This may be due to events and circumstances, such as, but not limited to: general global economic, market
and business conditions; pricing, supply, demand for our products; governmental and regulatory requirements and
actions; ability to access capital; commercial viability and scalability of emission reduction strategies and technology;
impacts from natural disturbances and extreme weather conditions.
The risks and uncertainties the Company faces associated with climate change and the environment are discussed
further under “Climate Change” and “Environmental Issues” and “Species at Risk” in the “Risks and Uncertainties”
sections of this document.
16
OVERVIEW OF CONSOLIDATED RESULTS – 2022 COMPARED TO
2021
Selected Financial Information and Statistics
(millions of Canadian dollars, except for per share amounts)
Sales
Operating income before amortization, asset write-downs and impairments11,12
Operating income
Adjusted operating income before amortization, asset write-downs and
impairments11,12,13
Adjusted operating income13
Net income
Net income attributable to equity shareholders of the Company
Net income per share attributable to equity shareholders of the Company,
basic and diluted
Adjusted net income13
Adjusted net income per share, basic and diluted13
ROIC – Consolidated13
Average exchange rate (US$ per Cdn$1.00)14
Average exchange rate (SEK per Cdn$1.00)14
$
$
$
$
$
$
$
$
$
$
2022
7,426.7
1,609.9
1,074.1
1,703.4
1,306.2
861.1
787.3
6.39
880.4
7.15
26.0%
$
$
$
$
$
$
$
$
$
$
2021
7,684.9
2,578.4
1,908.1
2,580.8
2,204.0
1,458.8
1,341.6
10.74
1,530.2
12.25
55.4%
$
0.768
$
0.798
7.753
6.839
11 Amortization includes amortization of certain capitalized major maintenance costs.
12 Adjusted for asset write-down and impairment charges of $138.6 million in 2022 (2021 – $293.5 million).
13 Adjusted results and consolidated ROIC are non-IFRS financial measures. Refer to the “Non-IFRS Financial Measures” section for further details.
Effective Q1 2022, results were no longer adjusted for restructuring and mill closure costs. Prior periods above have been restated to reflect this
change ($8.4 million expense in Q4 2021 and $11.2 million in YTD 2021).
14 Source – Bank of Canada (monthly average for the period).
17
Selected Cash Flow Information
(millions of Canadian dollars)
Operating income (loss) by segment:
Lumber
Pulp and Paper
Unallocated and Other
Total operating income
Add: Amortization15
Add: Asset write-downs and impairments
Total operating income before amortization, asset write-downs and
impairments
Add (deduct):
Working capital movements
Defined benefit plan contributions, net
Income taxes paid, net
Adjustment to accrued duties16
Other operating cash flows, net17
Cash from operating activities
Deduct:
Capital additions
Finance expenses paid
Repayments of term debt
Share purchases
Cash distributions to non-controlling interests
Acquisition of Millar Western
Phased acquisition of Elliott
Other, net17
Change in cash / operating loans
2022
2021
1,237.2 $
2,019.6
(106.0) $
(65.5)
(57.1) $
(46.0)
1,074.1 $
1,908.1
397.2 $
376.8
138.6 $
293.5
1,609.9 $
2,578.4
94.6 $
(12.2) $
(462.6) $
(156.3) $
39.6 $
(383.3)
(13.6)
(273.6)
11.9
(4.9)
1,113.0 $
1,914.9
(625.3) $
(21.1) $
(0.4) $
(78.9) $
(62.8) $
(434.0) $
-
$
14.3 $
(95.2) $
(428.2)
(25.1)
(422.8)
(19.2)
(19.7)
-
(38.2)
(32.5)
929.2
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
15 Amortization includes amortization of certain capitalized major maintenance costs.
16 Adjusted to true-up preliminary anti-dumping duty deposits to the Company’s current accrual rates.
17 Further information on cash flows can be found in the Company’s annual consolidated financial statements.
Analysis of Specific Items Affecting Comparability of Shareholder Net Income
After-tax impact, net of non-controlling interests
(millions of Canadian dollars, except for per share amounts)
Shareholder net income, as reported
Foreign exchange loss (gain) on term debt
Loss (gain) on derivative financial instruments
Asset write-downs and impairments
Net impact of above items
Adjusted shareholder net income18
Shareholder net income per share (EPS), as reported
Net impact of above items per share
2022
2021
$
$
$
$
$
$
$
$
787.3
10.8
$
$
(2.5) $
84.8
93.1
880.4
6.39
0.76
$
$
$
$
$
1,341.6
(5.5)
11.2
182.9
188.6
1,530.2
10.74
1.51
Adjusted shareholder net income per share18
12.25
18 Adjusted shareholder net income is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details. Effective Q1
2022, net income and net income per share were no longer adjusted for the after-tax impact of restructuring and mill closure costs. Prior periods above
have been restated to reflect this change (favourable per share impact of $0.07 in Q4 2021 and $0.09 in YTD 2021).
7.15
$
$
18
OPERATING RESULTS BY BUSINESS SEGMENT – 2022 COMPARED
TO 2021
The following discussion of Canfor’s operating results relates to the operating segments and the non-segmented items
as per the Segment Information note in the Company’s consolidated financial statements. Canfor’s operations include
the Lumber and Pulp and Paper segments.
Lumber
Selected Financial Information and Statistics – Lumber
Summarized results for the Lumber segment for 2022 and 2021 are as follows:
(millions of Canadian dollars, unless otherwise noted)
2022
2021
Sales19
Operating income before amortization, asset write-down and impairment19
Operating income19
Asset write-down and impairment
Inventory write-down, net
Adjusted operating income20
Capital expenditures (before acquisitions)
Average Western SPF 2x4 #2&Btr lumber price in US$21
Average Western SPF 2x4 #2&Btr lumber price in Cdn$21,23
Average SYP 2x4 #2 lumber price in US$22
Average SYP 2x4 #2 lumber price in Cdn$22,23
Average SYP 2x6 #2 lumber price in US$22
Average SYP 2x6 #2 lumber price in Cdn$22,23
US housing starts (thousand units SAAR) 24
Production – Western SPF lumber (MMfbm)25
Production – SYP lumber (MMfbm)25
Production – European lumber (MMfbm)25
Shipments – Western SPF lumber (MMfbm)26
Shipments – SYP lumber (MMfbm)26
Shipments – European lumber (MMfbm)26
$
$
$
$
$
$
$
$
$
$
$
$
$
6,341.3
1,623.9
1,237.2
89.0
95.7
1,421.9
507.7
783
1,020
829
1,079
642
836
1,555
2,321
1,618
1,363
2,325
1,610
$
$
$
$
$
$
$
$
$
$
$
$
$
6,540.5
2,506.2
2,019.6
198.5
-
2,218.1
344.5
880
1,102
930
1,165
699
876
1,605
2,513
1,641
1,397
2,458
1,637
1,550
1,528
19 2022 includes sales of $1,611.1 million, operating income of $420.8 million and operating income before amortization of $486.8 million from European
operations (2021 – sales of $1,697.2 million, operating income of $555.7 million and operating income before amortization of $631.3 million). Operating
income from the European operations in 2022 includes $37.2 million (2021 - $42.1 million) of incremental amortization and other expenses driven by
the purchase price allocation at the acquisition date.
20 Adjusted operating income is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
21 Western Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths Publications, Inc.)
22 Southern Yellow Pine, Eastside, per thousand board feet (Source – Random Lengths Publications, Inc.)
23 Average lumber prices in Cdn$ calculated as average price in US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of
Canada monthly average for the period.
24 Source – US Census Bureau, seasonally adjusted annual rate (“SAAR”).
25 Excluding production of trim blocks.
26 Includes Canfor produced lumber, as well as lumber purchased for resale, remanufacture and engineered wood, excluding trim blocks, wholesale
shipments and lumber sold on behalf of third parties.
Markets
As highlighted in the “Overview of 2022: Markets and Pricing – Solid Wood” section of this document, in 2022, the
strong global lumber market fundamentals experienced late in 2021 continued well into the year. Significant lumber
demand led by continued strength in both new home construction activity and the repair and remodel segment,
encountered tight supply due to supply chain disruptions. The result was ongoing global pricing pressure and high
benchmark lumber prices through the first part of the year. However, as general economic uncertainty rose due to
high inflation, progressive interest rate hikes materially impacted housing affordability putting downward pressure on
lumber markets. As supply chain constraints moderated, decreased demand was met with increasing levels of supply
which resulted in a steep decline in global lumber benchmark pricing in the latter part of the year.
19
In the repair and remodeling sector, strength continued through much of 2022 largely driven by an aged housing stock
and higher-than-normal consumer spending combined with a decline in North American benchmark lumber prices in
the latter part of the year.
US housing starts, on a seasonally adjusted basis, averaged 1,555,000 units in 2022, a decrease of 3% from 2021.
Single-family starts, which consume approximately three times more lumber than multi-family homes, were down 11%
in 2022, falling to an annual low in November 2022, principally reflecting housing affordability challenges stemming
from high inflation and rising mortgage rates. Multi-family starts remained strong throughout 2022, up 14% from the
previous year largely attributable to strength in the rental housing market, as housing affordability waned.
In Canada, the housing market weakened somewhat through 2022, with housing starts, at 263,000 units on a
seasonally adjusted basis, down 4% compared to 2021, and multi-family starts making up 70% of overall starts in
2022 (2021: 66%). Despite falling 4% from the previous year, Canadian housing starts remained well above historical
norms as demand for housing in urban centres continued to grow year-over-year.
Offshore lumber demand in Asian markets weakened compared to the prior year as labour shortages and global inflation
hampered economic output in the region. China was also impacted by strict testing and quarantine policies associated
with its zero-COVID strategy, as well as a severe heatwave which caused factory closures and reduced lumber
consumption during the period. Demand in Japan and Korea declined throughout the year, due in part to the
aforementioned restrictions in China, coupled with high inventory levels and inflationary cost pressures.
European lumber market demand and pricing was strong through the first half of the year, despite the challenging
geo-political environment, due to sustained levels residential construction activity and strong demand in the repair and
remodeling sector. During the latter half of the year, however, the combined impact of reduced home building and do-
it-yourself activity, tied to high inflation and constrained consumer spending, led to significant pricing pressure in the
European lumber market.
Sales
Revenues for the lumber segment were $6.3 billion for 2022, down 3% from record-high sales of $6.5 billion in 2021.
This decline was primarily due to lower unit sales realizations, particularly in Western Canada and Europe, driven by
the significant drop in global lumber pricing year-over-year, combined with 2% lower shipment volumes and a 13%
stronger Canadian dollar (versus the SEK). These factors outweighed the benefit of a 3 cent, or 4%, weaker Canadian
dollar (versus the US-dollar) in the current year.
Total lumber shipments were approximately 5.49 billion board feet for the year, down 2% from 5.62 billion board feet
shipped in the previous year, largely due to the 4% decrease in production volumes year-over-year, most notably in
Western Canada.
Following the record-high pricing in 2021, the North American Random Lengths Western SPF 2x4 #2&btr price reached
a peak of US$1,400 per Mfbm in March 2022. However, as the year progressed, lumber demand across North America
came increasingly under pressure and the Western SPF 2x4 #2&btr price experienced a rapid deceleration. As a result,
the North American Random Lengths Western SPF 2x4 #2&btr price ended the year at US$345 per Mfbm. For the year
overall, the Western SPF 2x4 #2&btr price averaged US$783 per Mfbm, down US$97 per Mfbm, or 11% from 2021.
The Company’s Western SPF unit sales realizations principally reflected the decline in North American benchmark
pricing year-over-year, combined with lower offshore unit sales realizations, offset in part by the 4% weaker Canadian
dollar (versus the US-dollar).
In 2022, the North American Random Lengths SYP East 2x4 #2 price moved similar to Western SPF, rising to an all-
time high of US$1,515 per Mfbm in January and remaining above US$1,000 per Mfbm through March. By mid-June,
the benchmark price had fallen 56% to US$665 per Mfbm before rebounding through the summer. Once prices began
declining in August, however, they continued to fall quickly through the balance of the period, ending the year at
US$395 per Mfbm. As a result, for 2022 overall, the SYP East 2x4 #2 price decreased US$101 per Mfbm, or 11%, from
2021. Wider width SYP lumber products, including SYP East 2x6 #2, experienced similar trends throughout 2022 as
Western SPF and SYP East 2x4 #2, albeit to a lesser degree, with the SYP East 2x6 #2 averaging US$642 per Mfbm
for 2022, a decrease of US$57 per Mfbm, or 8%, from 2021. These SYP benchmark pricing declines were offset by an
uplift in unit sales realizations for high value specialty lumber products in the current year. As a result, the Company’s
average SYP lumber unit sales realizations for 2022 were only slightly lower than 2021.
20
European lumber unit sales realizations experienced a moderate decrease year-over-year principally reflecting a decline
in European market pricing tied to the deterioration in global lumber market conditions in the latter part of the year,
combined with the 13% stronger Canadian dollar (versus the SEK).
Other revenues for the lumber segment (which are primarily comprised of residual fibre, pulp log and pellet sales as
well as the Company’s European operations’ other related revenues) were substantially higher than the prior year,
largely reflecting an increase in log sales in Western Canada year-over-year, and, to a lesser extent, an uplift in
engineered wood products sales in the US South and residual fibre revenues.
Operations
Total lumber production for 2022 was 5.30 billion board feet, down 4% from the prior year, primarily reflecting
temporary capacity reductions in Western Canada (driven by supply chain challenges early in the year and market-
related pressures later in the year), offset in part by the addition of Millar Western in March 2022, as production in the
US South and Europe were broadly comparable year-over-year.
Lumber unit manufacturing and product costs increased significantly in 2022, mostly driven by the impact of higher
global energy costs and inflationary pressures on conversion costs across all lumber operating regions, as well as an
uplift in log costs in North America. Higher log costs in Western Canada were largely driven by increased costs on
hauling and logging activities in the current year, while an uplift in log costs in the US South principally reflected
increased log demand in that region. Log costs in Europe were broadly in line with the prior year.
Asset Write-Downs and Impairments
In 2022, as a result of the announced permanent closure of the Chetwynd sawmill and pellet plant, combined with
ongoing uncertainty with regards to economically viable timber supply within BC, an asset write-down and impairment
charge in the Company’s lumber segment totaling $89.0 million was recognized (2021 – $198.5 million). See “Critical
Accounting Estimates – Asset Write-Downs and Impairments” for further details.
Pulp and Paper
Selected Financial Information and Statistics – Pulp and Paper27
Summarized results for the Pulp and Paper segment for 2022 and 2021 are as follows:
(millions of Canadian dollars, unless otherwise noted)
2022
2021
Sales
Operating income before amortization, asset write-down and impairment28
Operating loss
Asset write-down and impairment
Inventory write-down (recovery), net
Adjusted operating income (loss)29
Capital expenditures
Average NBSK pulp price delivered to China - US$30
Average NBSK pulp price delivered to China - Cdn$30
Production – pulp (000 mt)
Production – paper (000 mt)
Shipments – pulp (000 mt)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
1,085.4
41.4
(106.0)
49.6
(2.2)
(58.6)
112.6
949
1,236
718
132
750
1,144.4
116.8
(65.5)
95.0
2.4
31.9
78.7
850
1,065
1,018
126
1,007
Shipments – paper (000 mt)
127
27 Includes 100% of CPPI, which is consolidated in Canfor’s operating results. Pulp production and shipment volumes presented are for both NBSK pulp
and BCTMP.
28 Amortization includes amortization of certain capitalized major maintenance costs.
29 Adjusted operating income (loss) is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
30 Per tonne, NBSK pulp list price delivered to China (Resource Information Systems, Inc.); Average NBSK pulp price delivered to China – Cdn$ calculated
as average NBSK pulp price delivered to China – US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of Canada monthly
average rate for the period.
129
21
Markets
As previously highlighted, global pulp market conditions were very strong throughout most of 2022. The upward pricing
momentum experienced in the latter part of 2021 continued into the first half of 2022, as global pulp markets tightened
significantly, primarily driven by global transportation challenges, inflationary cost pressures as well as unplanned global
production outages. Towards the end of the year, however, market fundamentals came under pressure as a moderation
in purchasing activity from China was combined with an uplift in global pulp market supply, principally reflecting the
combined impact of incremental softwood supply in Europe and additional hardwood pulp capacity from South America.
As a result, NBSK pulp list prices to China reached near-record highs mid-2022, and for the 2022 year averaged US$949
per tonne, US$99 per tonne, or 12%, higher than the 2021 average price. Prices weakened somewhat, however, late
in the year, in response to slowing demand and an increase in supply, ending the year at US$885 per tonne. North
American pulp prices experienced similar trends to Asia with list prices to that region showing a notable improvement
from US$1,450 per tonne in January to a peak of US$1,805 per tonne mid-2022, before declining to US$1,720 per
tonne in December (before taking account of customer discounts, which were broadly unchanged year-over-year).
Global softwood pulp producer inventories started 2022 at 4331 days of supply, and continued to increase through the
first quarter of 2022, as supply chain delays and congestion led to longer delivery times for pulp buyers, contributing
to lean consumer inventories and ongoing pricing pressure. As the year progressed, these conditions continued and
global softwood pulp inventories stayed at the high end of the balanced range, ending the year at 43 days of supply.
Market conditions are generally considered balanced when inventories are in the 32-4331 days of supply range.
As previously mentioned, the post pandemic demand for food grade kraft paper products and home building supplies
packaged in kraft paper remained strong throughout most of 2022, particularly in North America. Demand in offshore
markets, that had been lagging North America, experienced an uptick in the first half of the current year and gave rise
to increased global supply pressures for most of the period. In the latter part of the year, however, demand plateaued
slightly as global kraft paper supply increased, and inventories started to return to more normalized levels.
Sales
Pulp shipments in 2022 were 750,000 tonnes, down 257,000 tonnes, or 26%, from 2021, principally reflecting a 29%
reduction in pulp production year-over-year, offset in part by a drawdown in pulp inventory at the end of 2022.
As mentioned, for the 2022 year as a whole, NBSK pulp list prices to China averaged at near-record highs at US$949
per tonne, up US$99 per tonne, or 12%, compared to 2021. North American NBSK pulp list prices averaged US$1,704
per tonne for the current year, up US$226 per tonne, or 15%, year-over-year (before discounts, which were largely
unchanged). Accordingly, average NBSK pulp unit sales realizations experienced a significant increase compared to
2021, amplified in part by the weaker Canadian dollar.
Energy revenues in 2022 were significantly down compared to the prior year as reduced pulp production led to a
decline in turbine operating days year-over-year.
Paper shipments in 2022, at 129,000 tonnes, were broadly comparable to 2021. Paper unit sales realizations for the
current year experienced a significant increase compared to the prior year, reflecting a notable improvement in US-
dollar kraft paper prices throughout most of 2022 combined with the weaker Canadian dollar.
31 World 20 data is based on twenty producing countries representing 80% of the world chemical market pulp capacity and is based on information
compiled and prepared by the PPPC.
22
Operations
As previously mentioned, from an operational perspective, 2022 was an extremely challenging year for CPPI, as supply
chain and fibre-related headwinds were combined with capital and maintenance outages, which together, resulted in
pulp production for the year of 718,000 tonnes, down 300,000 tonnes, or 29%, from the prior year.
In the first half of the year, significant transportation shortages in BC disrupted operating rates at all of CPPI’s pulp
mills, as NBSK pulp production was limited to available transportation and CPPI’s Taylor mill was indefinitely curtailed.
Following the completion in mid-April of Northwood’s RB1 capital upgrade, CPPI successfully completed scheduled
maintenance outages at both Northwood and Intercon and saw a resultant improvement in NBSK productivity.
However, in the latter part of the year, CPPI’s supply of sawmill residual chips came under significant pressure, mostly
as a result of market-driven temporary sawmill curtailments in the BC Interior, and when combined with winter weather
conditions, placed a considerable strain on the operating performance of CPPI’s pulp mills. In addition, as a result of
these fibre constraints, CPPI took temporary production curtailments at its Intercon pulp mill in the fourth quarter of
2022, which continued through January 2023. Combined, these factors reduced NBSK pulp production by approximately
300,000 tonnes and BCTMP production by 210,000 tonnes in 2022.
In 2021, pulp production was most notably impacted by wildfires, flooding and intense cold which interrupted
productivity at all of CPPI’s pulp mills and contributed to transportation-related production curtailments at Northwood
and Taylor. When combined with the commencement of Northwood’s RB1 lower furnace replacement late in 2021, as
well as scheduled outages at CPPI’s Intercon, PG and Taylor pulp mills, pulp production in the prior year was reduced
by approximately 195,000 tonnes.
Pulp unit manufacturing costs were substantially higher compared to the prior year, principally reflecting higher fibre
costs, combined with an increase in pulp unit conversion costs associated with lower year-over-year production, as well
as higher chemical and energy costs. The increase in fibre costs compared to 2021 largely reflected higher market-
based prices for sawmill residuals (linked to higher Canadian NBSK pulp prices), and, to a lesser extent, an uplift in
fibre transportation costs.
Paper production in 2022 was 132,000 tonnes, up 6,000 tonnes, from 2021, principally reflecting a slight improvement
in operating rates as well as the favourable impact on paper production of no scheduled maintenance outage in 2022.
In 2021, a scheduled maintenance outage reduced paper production by approximately 5,000 tonnes. Notably higher
paper unit manufacturing costs in 2022 were primarily due to a significant increase in slush pulp costs (linked to higher
Canadian dollar NBSK pulp market prices), and, to a lesser degree, higher chemical costs in 2022.
Asset Write-Down and Impairment
In 2022, CPPI recorded an asset write-down and impairment charge totaling $49.6 million (2021 – $95.0 million),
driven by the announced permanent closure of CPPI’s pulp line at PG combined with ongoing pressure on fibre costs
and continued uncertainty surrounding general fibre availability for CPPI’s pulp mills. See “Critical Accounting Estimates
– Asset Write-Downs and Impairments” for further details.
Unallocated and Other Items
(millions of Canadian dollars)
Corporate costs
Finance income (expense), net
Foreign exchange gain on term debt and duty deposits recoverable, net
Gain (loss) on derivative financial instruments
Other income, net
Corporate Costs
2022
2021
$
$
$
$
$
(57.1) $
1.0 $
(46.0)
(24.1)
2.4 $
1.9
3.9 $
27.1 $
(16.1)
27.0
Corporate costs were $57.1 million in 2022, up $11.1 million from 2021, largely due to the establishment of the
Company’s Good Things Come From Trees Foundation in the current year, and, to a lesser extent, higher consulting
and legal costs associated with the acquisition of Millar Western.
23
Finance Income (Expense), Net
Net finance income for 2022 of $1.0 million, compared to net finance expense of $24.1 million in 2021, largely reflecting
higher interest income associated with the Company’s US-dollar short-term investments, as well as an increase in
accrued interest income on recoverable duty deposits in the current year following the finalization of countervailing
(“CVD”) and anti-dumping duties (“ADD”) rates for the third period of review (“POR3”) (see the “Liquidity and Financial
Requirements” and “Countervailing and Anti-Dumping Duties” sections for further discussion).
Foreign Exchange Gain on Translation of Term Debt and Duty Deposits Recoverable,
Net
In 2022, the Company recognized a foreign exchange gain of $14.8 million on its US-denominated duty deposits
receivable, offset by a $12.4 million loss on US-dollar term debt held by Canadian entities, both due to the weakening
of the Canadian dollar at the close of 2022 relative to the exchange rate at the close of 2021 (see further discussion
on term debt in the “Liquidity and Financial Requirements” section).
Gain (Loss) on Derivative Financial Instruments
At times, the Company uses a variety of derivative financial instruments as partial economic hedges against
unfavourable changes in lumber prices, energy costs, interest and foreign exchange rates. In 2022, the Company
recorded a net gain of $3.9 million (2021 – net loss of $16.1 million) in relation to its derivative financial instruments,
which principally reflected unrealized mark-to-market gains on lumber futures contracts, and to a lesser extent realized
mark-to-market gains on foreign exchange forward contracts (see further discussion in the “Liquidity and Financial
Requirements” section).
The following table summarizes the gains (losses) recognized in the consolidated statement of income for each of the
various components during the comparable periods:
(millions of Canadian dollars)
Lumber futures
Foreign exchange forward contracts
Gain (loss) on derivative financial instruments
2022
2021
$
$
$
2.0
1.9
3.9
$
$
$
(12.7)
(3.4)
(16.1)
During 2022, a loss of $26.8 million (2021 – $3.5 million) was recognized in ‘Other equity’ on the Company’s
consolidated balance sheet following remeasurement of the put liability.
Additional information on financial instruments in place at year end can be found in the “Liquidity and Financial
Requirements” section, later in this document.
Other Income, Net
Other income, net of $27.1 million in 2022 was broadly in line with the prior year principally reflecting favourable
foreign exchange movements on US-dollar denominated working capital and receivables held by the Canadian
operations in the period. In 2021, other income, net of $27.0 million included favourable foreign exchange movements
on US-dollar denominated working capital balances of the Canadian operations, as well as the receipt of final insurance
proceeds related to CPPI’s Northwood recovery boiler number five (“RB5”) outage in 2018.
24
Income Tax Expense
The Company recorded an income tax expense of $247.4 million in 2022, compared to an expense of $438.0 million in
2021, with an overall effective tax rate of approximately 22% (2021 - 23%).
The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:
(millions of Canadian dollars)
Net income before income taxes
Income tax expense at statutory rate of 27% (2021 – 27%)
Add (deduct):
Non-taxable income related to non-controlling interests
Entities with different income tax rates and other tax adjustments
Permanent difference from capital gains and losses and other non-deductible items
Income tax expense
2022
2021
1,108.5
$
(299.3) $
1,896.8
(512.1)
0.3
53.5
$
$
(1.9) $
0.1
72.9
1.1
(247.4) $
(438.0)
$
$
$
$
$
$
The income tax recovery arising from entities with different income tax rates and other tax adjustments is largely
comprised of the Company’s US and European lumber operations which have lower statutory income tax rates.
In addition to the amounts recorded in net income, a tax expense of $9.9 million was recorded to other comprehensive
income (loss) in relation to actuarial gains, net, on the defined benefit plans in 2022 (December 31, 2021 – $13.2
million).
Other Comprehensive Income (Loss)
(millions of Canadian dollars)
Defined benefit plan actuarial gains, net of tax
Foreign exchange translation of foreign operations, net of tax
Other comprehensive income (loss), net of tax
2022
2021
$
$
$
26.9
36.7
63.6
$
$
$
33.7
(73.8)
(40.1)
Canfor measures its accrued retirement benefit obligations and the fair value of plan assets for accounting purposes
as at December 31 of each year. Any actuarial gains or losses which arise are recognized immediately by means of a
credit or charge through other comprehensive income (loss).
For 2022, a gain of $36.8 million (before-tax) was recorded to other comprehensive income (loss) related to changes
in the valuation of the Company’s defined benefit plans (comprised of defined benefit pension plans as well as other
benefit plans), largely reflecting a 1.8% increase in the discount rate used to value the defined benefit plans, offset in
part by a lower than anticipated return on plan assets, and to a lesser extent, an actuarial loss of $15.0 million
recognized in connection with the wind-up of one of the Company’s registered defined benefit plans and the
derecognition of the related plan surplus.
For 2021, a gain of $46.9 million (before-tax) was recorded to other comprehensive income (loss) related to changes
in the valuation of the Company’s defined benefit plans (comprised of defined benefit pension plans as well as other
benefit plans), largely reflecting a 0.3% increase in the discount rate used to value the defined benefit plans, and to a
lesser extent, a higher than anticipated return on plan assets.
As at December 31, 2022, one of the Company’s registered defined benefit pension plans held $308.2 million of buy-
in annuities purchased prior to 2019. Buy-in annuity contracts substantially mitigate the exposure to future volatility in
pension plan obligations, as future cash flows from the annuities match the amount and timing of benefits payable
under the plan. Subsequent to 2019, no buy-in annuities were purchased by the Company for this plan.
On December 31, 2022, the Company entered into contracts to convert all of its existing buy-in annuities to buy-out
annuities. As a result of these contracts, the Company’s buy-in annuity assets and corresponding accrued benefit
obligation of $308.2 million were derecognized from the Company’s consolidated balance sheet as at December 31,
2022.
For more information, see the “Employee Future Benefits” part of the “Critical Accounting Estimates” section later in
this report.
The Company recorded an after-tax gain of $36.7 million in other comprehensive income (loss) in 2022 related to
25
foreign exchange differences for foreign operations, largely reflecting a weaker Canadian dollar through the majority
of 2022 relative to the US dollar, offset in part by a stronger Canadian dollar relative to the SEK, compared to one year
earlier. This compared to an after-tax loss of $73.8 million in 2021 resulting from a weaker Canadian dollar relative to
the SEK, offset by a stronger Canadian dollar relative to the US-dollar.
SUMMARY OF FINANCIAL POSITION
The following table summarizes Canfor’s financial position as at December 31, 2022 and 2021:
(millions of Canadian dollars, except for ratios)
Cash and cash equivalents
Operating working capital (includes drawings on operating loans)
Net working capital
Property, plant and equipment
Right-of-use assets
Timber licenses
Goodwill and other intangible assets
Long-term investments and other (excluding deferred tax asset)
Net working capital and long-term assets
Term debt (long-term portion)
Retirement benefit obligations
Lease obligations
Deferred reforestation obligations (long-term portion)
Other long-term liabilities
Put liability
Deferred income taxes, net
Non-controlling interests
Equity attributable to shareholders of Company
Ratio of current assets to current liabilities
Net cash to total capitalization32
Cumulative duty deposits paid
2022
1,268.7
912.6
2,181.3
2,219.1
99.1
357.8
532.1
465.2
5,854.6
213.6
158.3
79.5
43.8
32.0
172.7
391.9
541.3
4,221.5
5,854.6
3.5 : 1
(26.0)%
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
887.9
$
2021
1,354.8
727.0
2,081.8
1,812.7
65.5
313.2
514.8
298.9
5,086.9
245.5
205.5
49.2
54.6
31.0
156.2
335.8
525.1
3,484.0
5,086.9
2.9 : 1
(37.3)%
682.5
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
32 Net cash to total capitalization is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
The ratio of current assets to current liabilities at the end of 2022 was 3.5:1 compared to 2.9:1 at the end of 2021,
largely reflecting the strong operating results, combined with, lower income taxes payable and accounts payable and
accrued liabilities at the end of the current year.
The Company’s net cash to capitalization was 26.0% at December 31, 2022 (December 31, 2021 – 37.3%) and
principally reflected increased capital spending combined with lower operating earnings compared to the prior period.
In 2022, the Company continued to pay cash deposits on Canadian lumber exports destined to the US as a result of
the imposition of duties by the US Department of Commerce (“DOC”) in the latter half 2017. As of December 31, 2022,
the Company had paid cumulative duty deposits of $887.9 million (December 31, 2021 – $682.5 million) and had
accrued interest on duty deposits recoverable of $40.8 million (December 31, 2021 – $24.8 million). Further discussion
is provided in the “Countervailing and Anti-Dumping Duties” section of this document.
26
CHANGES IN FINANCIAL POSITION
At the end of 2022, Canfor had $1,268.7 million of cash and cash equivalents.
(millions of Canadian dollars)
Increase (decrease) in cash and cash equivalents33
Operating activities
Financing activities
Investing activities
2022
2021
$
$
$
$
(113.0)
1,113.0
(179.4)
(1,046.6)
$
$
$
$
942.4
1,914.9
(504.1)
(468.4)
33 Increase (decrease) in cash and cash equivalents shown before foreign exchange translation on cash and cash equivalents.
The changes in the components of cash flows during 2022 are discussed in the following sections.
Operating Activities
For the 2022 year, Canfor generated cash from operations of $1,113.0 million, down $801.9 million from the cash
generated of $1,914.9 million in the previous year. The decrease in operating cash flows was largely a result of reduced
cash earnings in 2022, combined with higher income tax payments in the current year, offset in part by favourable
movements in non-cash working capital. The latter primarily reflected a lower accounts receivable balance at the end
of the current year tied to lower global lumber benchmark pricing, offset in part by a timing-related decrease in accounts
payable and accrued liabilities. Cash duty deposits paid in 2022 were $205.4 million compared to $88.5 million in the
prior year.
Financing Activities
Financing activities in 2022 used cash of $179.4 million compared to $504.1 million in 2021. Financing activities in 2022
primarily consisted of share purchases and distributions to non-controlling interests, and to a lesser extent, interest
and lease payments. Financing activities in 2021 were largely comprised of term debt repayments of $422.8 million, as
well as interest, lease obligations, share purchases and distributions to non-controlling interests.
Investing Activities
In 2022, the Company used net cash for investing activities of $1,046.6 million, compared to $468.4 million in 2021.
The significant increase in 2022 was principally associated with increased capital expenditures year-over-year,
combined with the Company’s investment in Millar Western in March 2022.
Additions to property, plant and equipment (before acquisitions) totaled $625.3 million in 2022, up $197.1 million from
2021, as sustained cash earnings provided for more strategic capital investments in the current period. In the lumber
segment, capital expenditures (before acquisitions) of $507.7 million included spend on the Company’s greenfield
sawmill in DeRidder, Louisiana, the commencement of spend on the upgrade and expansion of the Company’s Urbana
sawmill, smaller-scale discretionary capital projects in Western Canada and Europe as well as maintenance-of-business
capital expenditures. In the pulp and paper segment, capital spending of $112.6 million in 2022 was principally
comprised of Northwood’s RB1 lower furnace capital upgrade early in the year combined with capital spending on
maintenance-of-business projects.
LIQUIDITY AND FINANCIAL REQUIREMENTS
Operating Loans
Operating Loans - Consolidated
At December 31, 2022, on a consolidated basis, including CPPI and Vida, the Company had cash and cash equivalents
of $1,268.7 million, with $27.8 million drawn on its operating loans and facilities, and an additional $81.9 million
reserved for several standby letters of credit. At the end of the year, the Company had available, undrawn operating
loan facilities of $1,158.7 million, including an undrawn committed revolving credit facility.
Operating Loans – Canfor, excluding Vida and CPPI
On October 31, 2022, Canfor, excluding Vida and CPPI, extended the maturity date of its $775.0 million committed
operating loan facility from October 27, 2026 to October 31, 2027.
27
Interest is payable on Canfor’s committed operating and revolving loan facilities, excluding Vida and CPPI, at floating
rates based on the lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base rate or US-dollar LIBOR rate,
plus a margin that varies with the Company’s debt to total capitalization ratio.
As at December 31, 2022, Canfor, excluding Vida and CPPI, had available operating loan facilities totaling $1,048.2
million, with $69.0 million reserved for several standby letters of credit, the majority of which related to unregistered
pension plans, leaving $979.2 million available and undrawn on its operating loan facilities at the end of the year.
Operating Loans – Vida
Vida’s operating loan facilities are denominated in various currencies, with interest payable at fixed rates ranging from
2.8% to 5.9%. Vida also has separate overdraft facilities with fixed interest rates ranging from 3.9% to 5.9%. Vida’s
operating loan facilities have certain financial covenants including minimum equity and interest coverage ratios.
At December 31, 2022, Vida had $12.8 million drawn on its $110.2 million operating loan facilities, leaving $97.4 million
available and undrawn at the end of the year.
Operating Loans – CPPI
On November 1, 2022, CPPI extended the maturity date of its committed operating loan facility from December 15,
2025 to November 1, 2026.
The terms of CPPI’s operating loan facility include interest payable at floating rates that vary depending on the ratio of
debt to total capitalization and is based on lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base rate or
US-dollar LIBOR rate, plus a margin.
At December 31, 2022, CPPI had $15.0 million drawn on its $110.0 million operating loan facility, with $12.9 million
reserved for several standby letters of credit under the operating loan facility, leaving $82.1 million available and
undrawn at the end of the year.
Term Debt
Canfor’s and CPPI’s term debt, excluding Vida, is unsecured. Vida’s term debt is secured by its property, plant and
equipment.
On November 1, 2022, CPPI extended the maturity date of its $50.0 million non-revolving term debt from December
15, 2024 to November 1, 2025.
Net Cash and Liquidity
As at December 31, 2022, on a consolidated basis, including CPPI and Vida, the Company had total net cash of $982.0
million, a $108.1 million decline from net cash of $1,090.1 million at the end of the previous year. Available liquidity of
$2,427.4 million decreased by $74.7 million during 2022.
Debt Covenants
Canfor, excluding Vida, has certain financial covenants on its debt obligations that stipulate maximum debt to total
capitalization ratios. The debt to total capitalization is calculated by dividing total debt by shareholders’ equity plus total
debt. Debt obligations are held by various entities within the Canfor group and the individual debt agreements specify
the entities within the group that are to be included in the covenant calculations.
In circumstances when debt to total capitalization exceeds a certain threshold, Canfor is subject to an interest coverage
ratio that requires a minimum amount of earnings before interest, taxes, depreciation and amortization relative to net
interest expense. Canfor is not currently subject to this test.
Provisions contained in Canfor’s long-term borrowing agreements also limit the amount of indebtedness that the
Company may incur and the amount of dividends it may pay on its common shares. The amount of dividends the
Company is permitted to pay under its long-term borrowing agreements is determined by reference to consolidated
net earnings less certain restricted payments.
Vida is also subject to certain financial covenants, including minimum equity and interest coverage ratios.
28
Management reviews results and forecasts in monitoring the Company’s compliance with these covenant requirements.
Canfor, Vida and CPPI were fully in compliance with all debt covenants for the year ended December 31, 2022 and
expects to remain so for the foreseeable future.
Substantially all borrowings of Vida and CPPI are non-recourse to other entities within the Company.
Normal Course Issuer Bid
On March 17, 2022, the Company announced that it has received regulatory approval for an early renewal of its normal
course issuer bid whereby it can purchase for cancellation up to 6,224,680 common shares, or approximately 5% of
its issued and outstanding common shares as at March 15, 2022. The renewed normal course issuer bid is set to expire
on March 20, 2023.
In 2022, 3,434,021 common shares were purchased under this normal course issuer bid for $81.4 million (an average
price of $23.70 per common share), of which $78.9 million was paid during the year.
Shares Outstanding
As at December 31, 2022 and February 28, 2023 there were 121,059,579 common shares of the Company outstanding,
and Canfor’s ownership interest in CPPI and Vida was 54.8% and 70.0%, respectively (December 31, 2021 – 54.8%
and 70.0%).
Countervailing and Anti-Dumping Duties
In 2016, a petition was filed by the US Lumber Coalition to the US 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
December 31, 2022, Canfor has paid cumulative cash deposits of $887.9 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 United States-
Mexico-Canada Agreement and through the World Trade Organization, where Canadian litigation has proven successful
in the past.
Third Period of Review (POR3)
In January 2022, the DOC announced the preliminary results for POR3, which is based on sales and cost data in 2020,
and in July 2022, finalized the rates. The Company’s final CVD rate was determined to be 0.95% (versus a cash deposit
rate of 13.24% from January to November 2020 and 2.63% for December 2020), while the final ADD rate was 4.92%
(versus a cash deposit rate of 7.28% from January to November 2020 and 1.99% for December 2020, and estimated
accrual rate of 5.00%).
Upon finalization of these POR3 rates, a net recovery of $97.6 million (US$73.0 million) was recognized in the
Company’s consolidated statement of income during the third quarter of 2022, with a corresponding net receivable
included on the Company’s consolidated balance sheet as at December 31, 2022, reflecting the difference between the
combined accrual rates (18.24% from January to November 2020 and 7.63% for December 2020) and the DOC’s final
combined rate established for POR3 (5.87%).
The Company’s combined cash deposit rate of 19.54% was reset in August 2022 to the final rate of 5.87% as
determined in POR3. This cash deposit rate will apply to the Company’s Canadian lumber shipments destined to the
United States until completion of the administrative review for the fourth period of review (“POR4”) (final rates
anticipated in 2023). Despite the reduced rates for POR3, no cash duties will be refunded to the Company until such
time as the litigation regarding the imposition of CVD and ADD has been settled.
29
Fourth Period of Review (POR4)
Subsequent to year-end, in January 2023, the DOC announced the preliminary results for POR4, which indicated that
the Company’s preliminary CVD and ADD rate for 2021 was 2.04% and 5.25%, respectively. Upon finalization of these
rates (anticipated in the third quarter of 2023), a recovery, estimated at $10.9 million (US$8.8 million), will be
recognized in the Company’s consolidated financial statements to reflect the difference between the combined accrual
rate of 9.63% between January and November 2021 and 9.42% for December 2021, and the DOC rates for POR4. In
addition, once final, the Company’s current combined cash deposit rate of 5.87% will be reset to the DOC rates for
POR4 (currently estimated to be 7.29% based on the preliminary determination).
Fifth Period of Review (“POR5”)
On January 1, 2022, the Company moved into POR5, which is based on sales and cost data in 2022. 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 2.42% until July 2022 and 0.95% thereafter, while ADD was
expensed at an estimated rate of 9.00%. Despite cash deposits being made in 2022 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.
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 while the Administrative Reviews are taking place. Changes to the
DOC’s existing CVD and ADD rates during the course of each administrative review may also result in material
adjustments to the consolidated statement of income.
Additional details on duties are provided in the “Risks and Uncertainties – Softwood Lumber Agreement” section of this
document.
2023 Projected Capital Spending and Debt Repayments
Based on its current outlook, assuming no significant change in market conditions during the year, the Company
anticipates it will invest between $520 million and $570 million in 2023, which will include approximately $450 million
to $500 million in the lumber segment and approximately $70 million in the pulp and paper segment (including costs
related to scheduled maintenance outages).
For the lumber business, projected spending is anticipated to be focused on the Company’s greenfield sawmill in
DeRidder, Louisiana, the upgrade and expansion of the Urbana sawmill in Union County, Arkansas, and the construction
of a new state-of-the-art sawmill in southern Alabama, “Axis”, which will replace the Company’s existing Mobile sawmill.
In addition to these projects, spending in 2023 is also anticipated to reflect capital investments aimed at increasing
drying and sorting capacity at the Company’s European sawmills at Borgstena, Alvesta and Vislanda as well as various
high-returning discretionary projects, primarily concentrated in the US South and Europe.
For CPPI, it is anticipated that capital projects in 2023 will be primarily focused on optimizing the sustainable operating
footprint and reliability of its operations.
Details of the Company’s additional commitments and term debt obligations in 2023 are outlined in the “Other
Commitments” section of this document. Canfor (including CPPI and Vida) has sufficient liquidity in its cash reserves
and operating loans to finance its planned investments and support its lumber and pulp operations during 2023.
Derivative Financial Instruments
As at December 31, 2022, the Company had the following significant derivative financial instruments outstanding:
Maturity Date
Lumber Futures Contracts
Future sales contracts
0-6 months
As at December 31, 2022
Notional
Amount
(MMfbm)
Average
Rate
(US-dollars per
Mfbm)
5.2
$ 425.4
30
At a consolidated level, Canfor is exposed to foreign exchange risk related to the US-dollar, as Canfor’s products are
sold principally in US-dollars. In addition, Canfor holds US-dollar denominated financial assets and liabilities. Although
the Company’s Vida subsidiary primarily transacts in its functional currency of SEK, some of its products are sold in US-
dollars, British Pounds (“GBP”), Australian dollars (“AUD”), Euros (“EUR”) and Norwegian krone (“NOK”). The Company,
including Vida, holds US, SEK and AUD operating loan and term debt facilities and limits its exposure to foreign
exchange risk using forward foreign exchange contracts and foreign exchange options.
Maturity Date
Forward Foreign Exchange Contracts
0-6 months
0-12 months
0-6 months
Other Commitments
As at December 31, 2022
Notional Amount
Currency
Notional
Amount
GBP
USD
EUR
(millions)
£48.0
$108.0
€15.0
Exchange
Rates
(rate of SEK to
notional currency)
12.41
10.57
10.83
The following table summarizes Canfor’s term debt obligations excluding interest at December 31, 2022 for each of the
next five years and thereafter:
(millions of Canadian dollars)
2023
2024
2025
2026
2027
Thereafter
Total
Term debt obligations
$
45.3
$
45.2
$
95.2 $
-
$
0.1
$
73.1 $
258.9
Interest payments include interest of 4.4% on the Company’s US$100.0 million fixed-rate term loan. Interest is also
payable on floating rate debt. Interest payments have been excluded from the above commitments.
Other contractual obligations not included in the table above or highlighted previously are:
•
Contractual commitments totaling $215.7 million relating to the construction of capital assets, including those
related to the DeRidder greenfield sawmill, the upgrade and expansion of the Urbana sawmill and the construction
of the new Axis sawmill. Commitments related to leases of property, plant and equipment are detailed in Note 6
of Canfor’s 2022 consolidated financial statements.
• Deferred reforestation, for which a liability of $104.2 million has been recorded at December 31, 2022. The
reforestation liability is a fluctuating obligation, based on the area harvested. The future cash outflows are a
function of the actual costs of silviculture programs and of harvesting and are based on, among other things, the
location of the harvesting and the activities necessary to adequately stock harvested areas and achieve a “free-
to-grow” state.
• Obligations to pay pension and other post-employment benefits, for which the net liability for accounting purposes
at December 31, 2022 was $148.7 million. As at December 31, 2022, Canfor estimates that total contribution
payments of $8.6 million will be made to its defined benefit pension plans in 2023.
•
•
CPPI has energy purchase agreements with a BC energy company (the “Energy Agreements”) for all three of the
Company’s kraft pulp mills. Two of these agreements are for the sale of incremental electrical energy and the third
agreement is for load displacement. One of these Energy Agreements includes incentive funding from a BC energy
company to support capital investments for a turbo generator. All agreements include performance guarantees to
ensure minimum contractual amounts of electricity are generated, with penalty clauses if they are not met. As part
of these commitments, the Company has entered into standby letters of credit for these guarantees. The standby
letters of credit have variable expiry dates, depending on the capital invested and the length of the Energy
Agreement involved. As at December 31, 2022 the Company had posted $2.2 million of standby letters of credit
under these agreements and had no repayment obligations under the terms of any of these agreements.
Purchase obligations and contractual obligations in the normal course of business. Purchase obligations of a more
substantial dollar amount generally relate to the pulp business and are subject to “force majeure” clauses. In these
instances, actual volumes purchased may vary significantly from contracted amounts depending on Canfor's
requirements in any given year.
31
TRANSACTIONS WITH RELATED PARTIES
The Company undertakes transactions with various related entities. These transactions are in the normal course of
business, except where noted otherwise.
The Jim Pattison Group is Canfor’s largest shareholder with an ownership interest of 52.6% at December 31, 2022.
During 2022, subsidiaries owned by The Jim Pattison Group provided lease, insurance and other services to Canfor
totaling $4.9 million.
During 2022, CPPI sold paper to subsidiaries owned by the Jim Pattison Group totaling $2.5 million. CPPI also made
purchases from subsidiaries owned by the Jim Pattison group totaling $0.5 million. Additional details on related party
transactions are contained in Note 22 to Canfor’s 2022 consolidated financial statements.
SELECTED QUARTERLY FINANCIAL INFORMATION
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Sales and income (loss)
(millions of Canadian dollars)
Sales
$ 1,373.3 $ 1,666.4 $ 2,173.1 $ 2,213.9 $
1,571.3 $ 1,676.6 $ 2,495.2 $ 1,941.8
Operating income (loss) before
amortization, asset write-downs and
impairments34
Operating income (loss)
Net income (loss)
Shareholder net income (loss)
Per common share (Canadian dollars)
Shareholder net income (loss) – basic and
diluted
Book value35
Statistics
$
$
$
$
$
$
(62.6) $
211.5 $
630.3 $ 830.7 $
321.7 $ 425.4 $ 1,041.3 $ 600.4
(308.0) $
108.6 $
531.6 $ 741.9 $
(66.8) $ 331.0 $ 1,041.3 $ 602.6
(231.4) $
106.5 $
415.5 $ 570.5 $
(35.5) $ 256.8 $ 784.6 $ 452.9
(207.9) $
87.4 $
373.8 $ 534.0 $ (23.1) $ 210.0 $ 726.9 $ 427.8
(1.70) $
0.71 $
3.02 $
4.29 $ (0.19) $
1.68 $
5.81 $ 3.42
34.87 $
36.14 $
34.77 $
31.96 $ 27.99 $
28.23 $
26.26 $ 20.64
Lumber shipments (MMfbm)36
1,239
1,311
1,528
1,407
1,320
1,316
1,540
1,449
Pulp shipments (000 mt)
170
199
205
176
216
241
285
265
Average exchange rate – US$/Cdn$
$ 0.736 $
0.766 $
0.783 $ 0.790 $ 0.794 $ 0.794 $ 0.814 $
0.790
Average exchange rate – SEK/Cdn$
7.891
8.082
7.708 7.367
7.026
6.865
6.851
6.628
Average Western SPF 2x4 #2&Btr lumber
price (US$)
Average SYP (East) 2x4 #2 lumber price
(US$)
Average SYP (East) 2x6 #2 lumber price
(US$)
$
$
$
410 $
580 $
866 $ 1,274 $ 711 $ 494 $ 1,342 $ 972
451 $
722 $
769 $ 1,372 $ 862 $ 533 $ 1,163 $ 1,160
449 $
459 $
556 $ 1,102 $ 538 $ 407 $ 946 $ 904
Average NBSK pulp list price delivered to
China (US$)
1,008 $ 899 $ 723 $ 832 $ 962 $ 883
34 Amortization includes amortization of certain capitalized major maintenance costs; includes asset write-down and impairment charges of $138.6 million
in 2022 (2021 – $293.5 million).
35 Book value per common share is equal to shareholders’ equity at the end of the period, divided by the number of common shares outstanding at the
end of the period.
36 Includes Canfor produced lumber, as well as lumber purchased for resale, remanufacture and engineered wood, excluding trim blocks, wholesale
shipments and lumber sold on behalf of third parties.
920 $
969 $
$
In addition to exposure to changes in product prices and foreign exchange, the Company’s financial results are impacted
by seasonal factors such as weather and building activity. Adverse weather conditions, including hurricanes, flooding,
and forest fires, 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. For example, building activity and repair and renovation
work, which affects demand for lumber products, is generally stronger in the spring and fall months. Shipment volumes
are affected by these factors as well as by global supply and demand conditions. Net income is also impacted by
fluctuations in Canadian dollar exchange rates, and the revaluation to the period end rate of US-dollar and SEK
32
denominated working capital balances, US-dollar and SEK denominated debt and revaluation of outstanding derivative
financial instruments.
(millions of Canadian dollars)
Operating income (loss) by segment:
Lumber
Pulp and Paper
Unallocated and Other
Total operating income (loss)
Add: Amortization37
Add: Asset write-downs and impairments
Total operating income (loss) before
amortization, asset write-downs and
impairments
Add (deduct):
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
$ (199.5) $ 101.6 $ 552.1 $ 783.0 $
$ (91.1) $
$ (17.4) $ (12.2) $ (12.4) $ (15.1) $
19.2 $
(8.1) $ (26.0) $ (137.2) $
86.3
$
326.1 $ 1,000.5 $
51.0 $
(10.2) $
(10.9) $
15.8 $
$ (308.0) $ 108.6 $ 531.6 $ 741.9 $
$ 106.8 $ 102.9 $ 98.7 $
$ 138.6 $ - $ -
$ -
88.8 $
$ 293.5
331.0 $ 1,041.3 $
93.3 $
94.4 $
94.1
$
$ - $ - $ -
(15.9) $
(66.8) $
95.0
606.7
4.9
(9.0)
602.6
$
(62.6)
$ 211.5 $ 630.3
$
830.7
$
321.7
$
425.4
$
1,134.6
$
696.7
Working capital movements
$ (13.8) $ 185.6 $ 210.5 $ (287.7) $ (147.9) $
30.8 $
88.5 $ (354.7)
Defined benefit plan contributions, net
Income taxes paid, net
Adjustment to accrued duties38
Other operating cash flows, net39
(2.4) $
(3.0) $
(3.0) $
$
(3.8) $
$ (42.7) $ (98.9) $ (113.0) $ (208.0) $
45.3 $ (105.6) $ (45.3) $ (50.7) $
23.4 $
(2.1) $
23.5 $
(5.2) $
$
$
(2.3) $
(3.3) $
(3.9) $
(4.1)
(48.1) $
(43.7) $
(121.7) $
(60.1)
(27.5) $
27.0 $
2.0 $
(0.1) $
(15.8) $
(11.2) $
10.4
22.2
Cash from (used in) operating activities
$ (52.8) $ 184.4 $ 677.4 $ 304.0 $
95.8
$
420.4 $ 1,088.3 $
310.4
Add (deduct):
Capital additions, net
Finance expenses paid
Repayments of term debt, net
Share purchases
Acquisition of Millar Western
Phased acquisition of Elliott
Other, net39
$ (277.8) $ (138.8) $ (113.1) $ (81.3) $ (175.3) $
(128.5) $
(65.8)
(4.4) $
(6.4) $
(3.4) $
(7.7) $
(3.5) $
(0.1) $
(0.1) $
(0.1) $
(7.9) $
(0.3) $
(6.8)
(185.5) $ (229.1)
(2.4) $ (40.5) $ (5.7) $
(0.3) $
(10.9) $
(8.0) $ -
- $ (15.9) $ (418.1) $ -
$ - $ -
$
-
(58.6) $
(7.1) $
$
(6.9) $
(0.1) $
$
$ (30.3) $
$
$
-
-
$
$ - $ -
$
-
$ -
$ - $ -
$
39.4 $ 13.8 $ (70.3) $ (45.7) $
(13.2) $
2.0 $
$
(20.2) $
(38.2)
(20.8)
Change in cash / operating loans
$ (328.5) $ 52.5 $ 431.1 $ (250.3) $ (108.6) $
279.2 $
808.9 $
(50.3)
37 Amortization includes amortization of certain capitalized major maintenance costs.
38 Adjusted to true-up anti-dumping duties expensed for accounting purposes to current accrual rates.
39 Further information on cash flows may be found in the Company’s annual consolidated financial statements.
THREE-YEAR COMPARATIVE REVIEW
(millions of Canadian dollars, except per share amounts)
Sales
Net income
Shareholder net income
Total assets
Term debt
Shareholder net income per share, basic and diluted
2022
2021
2020
7,426.7 $
7,684.9 $
5,454.4
861.1 $
1,458.8 $
787.3 $
1,341.6 $
559.9
544.4
6,739.2 $
6,173.9 $
5,108.8
258.9 $
246.0 $
6.39 $
10.74
$
676.8
4.35
$
$
$
$
$
$
33
FOURTH QUARTER RESULTS
Overview
For the fourth quarter of 2022, the Company reported an operating loss of $308.0 million. After taking account of
adjusting items, largely comprised of asset write-downs and impairments, the Company’s operating loss for the fourth
quarter of 2022 was $163.8 million compared to an adjusted operating income of $197.1 million for the previous
quarter, largely reflecting a material decline in both the lumber and pulp and paper segment results.
An overview of the results by business segment for the fourth quarter of 2022 compared to the third quarter of 2022
and the fourth quarter of 2021 follows.
Lumber
Selected Financial Information and Statistics – Lumber
(millions of Canadian dollars, unless otherwise noted)
Sales40
$
Operating income (loss) before amortization, asset write-down and impairment40 $
Operating income (loss)40
$
Asset write-down and impairment
Inventory write-down
Adjusted operating income (loss)41
Average Western SPF 2x4 #2&Btr lumber price in US$42
Average Western SPF 2x4 #2&Btr lumber price in Cdn$42,44
Average SYP 2x4 #2 lumber price in US$43
Average SYP 2x4 #2 lumber price in Cdn$43,44
Average SYP 2x6 #2 lumber price in US$43
Average SYP 2x6 #2 lumber price in Cdn$43,44
US housing starts (thousand units SAAR)45
$
$
$
$
$
$
$
$
$
Production – Western SPF lumber (MMfbm)46
Production – SYP lumber (MMfbm)46
Production – European lumber (MMfbm)46
Shipments – Western SPF lumber (MMfbm)47
Shipments – SYP lumber (MMfbm)47
Shipments – European lumber (MMfbm)47
Q4
2022
Q3
2022
1,105.2
$
1,358.1
(30.6) $
(199.5) $
89.0
6.1
$
$
176.6
101.6
-
89.6
(104.4) $
191.2
410
557
451
613
449
610
$
$
$
$
$
$
580
757
722
943
459
599
1,403
1,450
$
$
$
$
$
$
$
$
$
$
$
$
507
388
349
464
371
504
401
272
595
417
Q4
2021
1,322.0
356.8
86.3
198.5
-
284.8
711
895
862
1,085
538
678
1,679
529
379
383
517
377
404
426
40 Q4 2022 includes sales of $307.5 million, operating income of $26.9 million and operating income before amortization of $43.3 million from European
operations (Q3 2022 – sales of $340.0 million, operating income of $41.6 million and operating income before amortization of $57.4 million; Q4 2021 –
sales of $434.7 million, operating income of $137.1 million and operating income before amortization of $155.3 million). Operating income from European
operations in Q4 2022 includes $9.2 million in incremental amortization and other expenses driven by the purchase price allocation at acquisition (Q3
2022 - $8.9 million; Q4 2021 - $10.2 million).
41 Adjusted operating income is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
42 Western Spruce/Pine/Fir, per thousand board feet (Source – Random Lengths Publications, Inc.).
43 Southern Yellow Pine, Eastside, per thousand board feet (Source – Random Lengths Publications, Inc.).
44 Average lumber prices in Cdn$ calculated as average price in US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of
Canada monthly average for the period.
45 Source – US Census Bureau, SAAR.
46 Excluding production of trim blocks.
47 Includes Canfor produced lumber, as well as lumber purchased for resale, remanufacture and engineered wood, excluding trim blocks, wholesale
shipments and lumber sold on behalf of third parties.
299
Markets
North American lumber market conditions remained under pressure through the fourth quarter of 2022, with supply
continuing to exceed demand. Persistent inflationary pressures alongside rising interest rates continued to reduce
housing affordability in the current period, which lowered residential construction activity. As a result, US housing starts
averaged 1,403,000 units on a seasonally adjusted basis for the current quarter, down 3% from the previous quarter,
primarily reflecting a 5% decline in single-family starts, as multi-family housing starts were largely unchanged quarter-
over-quarter. Activity in the repair and remodeling sector also trended downwards in the current quarter principally
34
driven by seasonal impacts, coupled with declining existing home sales. In Canada, housing starts averaged 259,000
units on a seasonally adjusted basis in the current period, down 8% from the third quarter of 2022, primarily reflecting
reduced construction of single-family dwellings, particularly in Ontario and Quebec.
Offshore lumber demand and prices in Asia continued to be negatively impacted by elevated global inventory and
reduced consumption in the fourth quarter of 2022, particularly in China as a result of COVID-19 related lockdowns in
that region through much of the current period. In Western Europe and Scandinavia, lumber demand and pricing
declined significantly due to an unseasonably high inventory build and weakness in both the home building and do-it-
yourself sectors tied to high inflation and energy costs which lowered consumer spending.
Sales
Sales for the lumber segment for the fourth quarter of 2022 were $1,105.2 million, compared to $1,358.1 million for
the previous quarter and $1,322.0 million for the fourth quarter of 2021. The 19% decrease in sales revenue over the
prior quarter principally reflected a material decline in global lumber market prices, and to a lesser extent, a 17%
decrease in North American shipment volumes. These factors significantly outweighed the benefit of a 35% increase
in European shipments, a 3 cent, or 4%, weaker Canadian dollar (versus the US-dollar), and a 2% weaker Canadian
dollar (versus the SEK) in the current quarter. Similarly, total lumber segment sales revenues were down 16% from
the fourth quarter of 2021 primarily as a result of the substantial drop in global lumber market prices in the current
period combined with a 12% stronger Canadian dollar (versus the SEK), and 6% lower shipment volumes, offset in
part by a 6 cent, or 7%, weaker Canadian dollar (versus US-dollar) in the current period.
Total lumber shipments of 1.24 billion board feet were 5% lower than the previous quarter principally reflecting a build
of finished inventory in North America towards the end of the current quarter, correlated to a slowdown in lumber
market activity, combined with 3% lower production in the US South. These drivers were offset in part by significantly
higher European lumber shipments in the current quarter following the traditional production downtime taken in the
prior period.
Total lumber shipments were 6% lower than the fourth quarter of 2021, largely driven by the combined impact of
market-driven temporary downtime in Western Canada and finished inventory build in the current period, despite the
benefit of incremental shipment volumes attributable to the acquisition of Millar Western’s solid wood operations earlier
in 2022. Shipment volumes in the US and Europe were slightly lower quarter-over-quarter, with the latter primarily
reflecting reduced production.
The average benchmark North American Random Lengths Western SPF 2x4 #2&Btr price opened the period at US$475
per Mfbm and fell steadily through the quarter, ending the year at US$345 per Mfbm. For the quarter overall, the
Western SPF 2x4 #2&Btr price averaged US$410 per Mfbm, down US$170 per Mfbm, or 29%, from the previous
quarter. The Company’s Western SPF lumber unit sales realizations reflected this significant decline in benchmark
pricing, as well as lower offshore unit sales realizations (most notably Japan). These drivers were moderated, in part,
by a favourable timing lag in shipments (versus orders), and the 4% weaker Canadian dollar (versus the US-dollar).
The movement in the North American Random Lengths SYP East 2x4 #2 price through the fourth quarter of 2022
followed a similar trend to that of Western SPF, beginning the quarter at US$535 per Mfbm and ending the year at
US$395 per Mfbm. For the quarter overall, the SYP East 2x4 #2 price averaged US$451 per Mfbm, down US$271 per
Mfbm, or 38%, from the previous quarter. However, significantly less pronounced pricing decreases for most wider-
width dimension products, including SYP East 2x6 #2 which averaged US$449 per Mfbm in the current period, down
US$10 per Mfbm, or 2%, tempered the decline in the Company’s average SYP unit sales realizations quarter-over-
quarter.
The Company’s European lumber unit sales realizations for the fourth quarter of 2022 were moderately lower than the
previous quarter principally reflecting ongoing downward pressure on European market pricing, offset to a degree by
the 2% weaker Canadian dollar (versus the SEK).
Compared to the fourth quarter of 2021, the Company’s lumber unit sales realizations were down significantly in
Western Canada and Europe, and moderately in the US South. In Western Canada, the decrease in lumber unit sales
realizations largely reflected a US$301 per Mfbm, or 42%, drop in the average North American Random Lengths
Western SPF 2x4 #2&Btr price and lower offshore unit sales realizations in the current period, which more than
outweighed the benefit of the 7% weaker Canadian dollar (versus US-dollar). The decline in the Company’s European
lumber unit sales realizations in the current period principally reflected lower European market demand and pricing,
35
combined with the 12% stronger Canadian dollar (versus the SEK). In the US South, the decrease in lumber unit sales
realizations was largely due to a US$411 per Mfbm, or 48%, decline in the average SYP 2x4 #2 price, combined with
a US$89 per Mfbm, or 17%, decrease in the SYP 2x6 #2 price, offset in part by less pronounced pricing declines for
certain wider-width dimension products.
Other revenues for the Company’s lumber segment (which are primarily comprised of residual fibre, pulp log and pellets
sales, as well as the Company’s European operations’ other related revenues) increased moderately compared to the
previous quarter primarily due to the impact of the seasonal production downtime taken at the Company’s European
operations in the prior quarter, combined with increased log sales at the Company’s Western Canadian operations in
the current period. Compared to the fourth quarter of 2021, an increase in other revenues largely reflected higher log
sales at the Company’s Western Canada operations combined with a quarter-over quarter uptick in engineered wood
sales from the Company’s US South operations in the current period.
Operations
Total lumber production, at 1.24 million board feet, was 6% higher than the prior quarter, as the benefit of increased
operating days at the Company’s European operations following the aforementioned seasonal downtime was offset in
part by a modest decline in SYP lumber production stemming from winter weather-related operational challenges.
Western SPF production was broadly in line with the prior quarter largely due to the reduced operating schedules and
market-driven curtailments in both periods. The challenging market conditions associated with declining lumber prices
that commenced in the third quarter, continued through the current period, and as a result, most of the Company’s
Western Canadian operations underwent a two-week curtailment late September, followed by reduced operating
schedules through the balance of 2022. Together, these capacity reductions lowered Western SPF production by
approximately 250 million board feet in the fourth quarter of 2022.
Compared to the fourth quarter of 2021, lumber production was down 4%, primarily driven by reduced production in
Western Canada due to a more significant impact of temporary downtime in the current quarter, and to a lesser extent,
lower European lumber production tied to a market-related reduction in certain operating shifts in the current quarter.
Production in the US South was broadly comparable quarter-over-quarter.
Lumber unit manufacturing and product costs were broadly in line with the previous quarter, as modest decreases in
both log and per-unit conversion costs in Western Canada and Europe were offset by a per-unit increase in the US
South primarily tied to the 4% weaker Canadian dollar (versus the US-dollar). Lower log costs in Western Canada
principally reflected reduced market-based stumpage costs in the current quarter following the historical highs in the
prior period. A decrease in log costs in Europe was largely correlated to the market-driven declines in European lumber
prices. Moderated per-unit conversion costs in Western Canada principally reflected reduced spend on maintenance-
related activities during the aforementioned downtime, while in Europe, lower per-unit conversion costs were tied to
the benefit of increased production in the current quarter.
Compared to the fourth quarter of 2021, lumber unit manufacturing and product costs were modestly higher, primarily
reflecting the impact of lower production volumes and inflationary pressures on unit cash conversion costs in the
current period. An uplift in log costs in the US South, tied to increased log demand in that region, was offset by lower
log costs in Western Canada and Europe largely driven by reduced market-based pricing.
Asset Write-Downs and Impairments
An asset write-down and impairment charge totaling $89.0 million was recorded in the fourth quarter of 2022 on the
timber licenses and property, plant and equipment for the Company’s Western Canadian lumber operations (results in
the fourth quarter of 2021 included an impairment expense of $198.5 million). See “Critical Accounting Estimates –
Asset Write-Downs and Impairments” for further details.
36
Pulp and Paper
Selected Financial Information and Statistics – Pulp and Paper48
Summarized results for the Pulp and Paper segment for the fourth quarter of 2022, third quarter of 2022 and fourth
quarter of 2021 were as follows:
(millions of Canadian dollars, unless otherwise noted)
2022
Q4
Q3
2022
Q4
2021
Sales
Operating income (loss) before amortization, asset write-down and impairment49
Operating income (loss)
Asset write-down and impairment
Inventory write-down (recovery)
Adjusted operating income (loss)50
Average NBSK pulp price delivered to China – US$51
Average NBSK pulp price delivered to China – Cdn$51
Production – pulp (000 mt)
Production – paper (000 mt)
Shipments – pulp (000 mt)
$
$
$
$
$
$
$
$
268.1 $
308.3
(15.1) $
(91.1) $
49.6 $
(0.5) $
$
$
$
$
249.3
(19.6)
(137.2)
95.0
46.7
19.2
-
(1.1) $
1.1
(42.0) $
18.1
$
(41.1)
920 $
969
$ 723
1,250 $
1,265
$ 911
160
32
170
195
190
33
199
31
216
Shipments – paper (000 mt)
27
48 Includes 100% of CPPI, which is consolidated in Canfor’s operating results. Pulp production and shipment volumes presented are for both NBSK pulp
and BCTMP.
49 Amortization includes amortization of certain capitalized major maintenance costs.
50 Adjusted operating income (loss) is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details.
51 Per tonne, NBSK pulp list net price delivered to China (as published by RISI); Average NBSK pulp list net price delivered to China in Cdn$ calculated
as average NBSK pulp list net price delivered to China – US$ multiplied by the average exchange rate – Cdn$ per US$1.00 according to Bank of Canada
monthly average rate for the period.
32
32
Markets
Following the strong global pulp market conditions experienced mid-year, market fundamentals came under modest
pressure in the current quarter, as a decline in demand and purchasing activity, particularly from Asian markets, as
well as an uptick in global pulp market supply, primarily from Europe and South America.
Average US-dollar NBSK pulp list prices to China were US$920 per tonne during the current quarter, down US$49 per
tonne, or 5%, from the previous quarter but up US$197 per tonne, or 27%, compared to fourth quarter of 2021. Prices
to other global regions experienced more modest declines in the current period, with the average US-dollar NBSK pulp
list price to North America at US$1,745 per tonne (before discounts), down US$55 per tonne, or 3%, from the prior
quarter and up US$273 per tonne, or 19% compared to the same period in the prior year.
Global softwood pulp producer inventories at the end of December 2022 remained on the high end of the balanced
range at 43 days of supply, a one day increase from September 2022. Market conditions are generally considered
balanced when inventories are in the 32-43 days of supply range.
Global kraft paper markets remained steady through the fourth quarter of 2022, as solid demand and lean inventories
in the North American market was offset by modest declines in offshore markets.
Sales
Pulp shipments for the fourth quarter of 2022 totaled 170,000 tonnes, down 29,000 tonnes, or 15%, from the previous
quarter, principally due to an 18% reduction in pulp production, offset in part by a drawdown of inventory in the current
quarter during the Intercon fibre-related curtailment at the end of the year. Compared to the fourth quarter of 2021,
pulp shipments were down 46,000 tonnes, or 21%, primarily reflecting the 16% reduction in pulp production in the
current period, and, to a lesser extent, the timing of vessels versus the prior quarter.
Average NBSK pulp unit sales realizations were broadly in line with the prior quarter, as a 5% decrease in US-dollar
NBSK pulp list prices to China was offset by the 4% weaker Canadian dollar. Compared to the fourth quarter of 2021,
CPPI’s average NBSK pulp unit sales realizations saw a substantial increase, as a notable uptick in global US-dollar pulp
list pricing quarter-over-quarter was combined with the 7% weaker Canadian dollar.
37
Energy revenues decreased significantly compared to both comparative periods, principally driven by the quarter-over-
quarter decline in pulp production and the correlated impact on energy generation.
Paper shipments in the fourth quarter of 2022 were 32,000 tonnes, broadly in line with the previous quarter, and up
5,000 tonnes from the fourth quarter of 2021, principally reflecting the timing of shipments quarter-over-quarter.
Paper unit sales realizations in the fourth quarter of 2022 were modestly higher than the previous quarter, as a slight
decline in global US-dollar paper pricing in the current period was more than offset by the weaker Canadian dollar.
Compared to the fourth quarter of 2021, paper unit sales realizations experienced a substantial increase, primarily
reflecting a notable improvement in US-dollar prices, especially to North American markets, quarter-over-quarter,
combined with the weaker Canadian dollar.
Operations
Pulp production was 160,000 tonnes for the fourth quarter of 2022, down 35,000 tonnes, or 18%, from the third
quarter of 2022, largely reflecting the quarter-over-quarter impact of downtime.
The current quarter was a challenging period for CPPI’s pulp mills, as a shortage of economic fibre, combined with
winter conditions in BC, significantly impacted operating performance and consequently pulp production, particularly
at Intercon and Northwood. Pulp production in the current period also reflected the completion in mid-October of a
scheduled maintenance outage at Intercon, as well as ongoing downtime at Taylor, which commenced in the first
quarter of 2022 and continued through the balance of the year. Combined, these factors reduced current quarter NBSK
pulp production by approximately 90,000 tonnes and BCTMP production by 60,000 tonnes. As a result of a reduction
in the long-term supply of fibre in the Peace region, CPPI does not see a path forward to restarting the Taylor mill at
this time and is exploring alternative uses for the site.
In the third quarter of 2022, following the completion of capital-related downtime in the first half of 2022, NBSK pulp
productivity steadily improved. However, NBSK pulp production was limited to available transportation, and reduced
by the completion of Northwood’s scheduled maintenance outage (approximately 16,000 tonnes) as well as the
commencement of Intercon’s planned maintenance downtime (approximately 6,000 tonnes). Concurrently, downtime
at Taylor reduced production by approximately 60,000 tonnes.
Compared to the fourth quarter of 2021, pulp production was down 30,000 tonnes, or 16%, reflecting an increase in
downtime in the current quarter. In the comparative 2021 period, unprecedented flooding resulted in material
transportation-related downtime at Northwood and Taylor. Production at Northwood was also impacted by the
extended outage on one production line from December to enable the replacement of the lower furnace of RB1.
Combined, these factors reduced NBSK pulp production in the fourth quarter of 2021 by approximately 100,000 tonnes
and BCTMP production by 20,000 tonnes.
Pulp unit manufacturing costs experienced a significant increase compared to the prior quarter, principally reflecting
reduced production in the current period, combined with a notable uplift in energy pricing, higher maintenance spend
and, to a lesser extent, an increase in fibre costs. The higher fibre costs were primarily driven by a larger proportion
of higher-cost whole log chips as a result of sawmill curtailments in the current quarter. Compared to the fourth quarter
of 2021, pulp unit manufacturing costs were substantially higher, mostly attributable to lower production combined
with market-related increases in fibre costs as well as higher energy and chemical costs in the current quarter.
Paper production for the fourth quarter of 2022 was 32,000 tonnes, broadly in line with both comparative periods.
Paper unit manufacturing costs were modestly higher than the third quarter of 2022, primarily reflecting an uplift in
chemical costs and increased spend on operating supplies in the current period (timing-related). Slush pulp costs were
broadly comparable quarter-over-quarter. Compared to the fourth quarter of 2021, paper unit manufacturing costs saw
a substantial increase, driven by higher slush pulp costs (tied to increased Canadian dollar NBSK pulp unit sales
realizations), as well as an increase in conversion costs quarter-over-quarter.
Asset Write-Down and Impairment
An asset write-down and impairment charge totaling $49.6 million was recorded in the fourth quarter of 2022 on the
property, plant and equipment for the pulp and paper segment (results in the fourth quarter of 2021 included an
impairment expense of $95.0 million). See “Critical Accounting Estimates – Asset Write-Downs and Impairments” for
further details.
38
Unallocated and Other Items
(millions of Canadian dollars)
Corporate costs
Finance income (expense), net
Foreign exchange gain (loss) on term debt and duty deposits recoverable, net
Gain (loss) on derivative financial instruments
Other income (expense), net
Q4
Q3
2022
Q4
2021
2022
(17.4)
3.8
(9.4)
4.7
(10.2)
$
$
$
$
$
$
$
$
$
$
(12.2) $
(15.9)
4.8 $
9.3 $
(1.0) $
16.8 $
(4.2)
(3.0)
(4.6)
5.3
Corporate costs were $17.4 million for the fourth quarter of 2022, up $5.2 million from the third quarter of 2022,
primarily reflecting a donation to the Company’s Good Things Come From Trees Foundation in the current period.
Net finance income of $3.8 million in the fourth quarter of 2022 was down $1.0 million from the previous quarter, as
an increase in interest income related to US-dollar short term investments quarter-over-quarter was more than offset
by lower accrued interest income associated with recoverable duty deposits in the current period. In the third quarter
of 2022, net finance income principally reflected accrued interest income on recoverable duty deposits following the
finalization of CVD and ADD rates for POR3. Net finance expense of $4.2 million in the fourth quarter of 2021 primarily
consisted of interest expense and, to a lesser extent, pension financing costs.
In the fourth quarter of 2022, the Company recognized a foreign exchange loss on US-dollar denominated net duty
deposits recoverable due to the strengthening of the Canadian dollar at the end of the current quarter compared to
the end of September 2022. This was offset in part by a gain on the Company’s US-dollar term debt held by Canadian
entities.
At times, the Company uses a variety of derivative financial instruments as partial economic hedges against
unfavourable changes in lumber prices, energy costs, interest and foreign exchange rates. In the fourth quarter of
2022, the Company recognized a net gain of $4.7 million, primarily related to unrealized gains on SEK foreign exchange
forward contracts, offset in part by realized mark-to-market losses on lumber futures contracts.
Other expense, net, of $10.2 million in the fourth quarter of 2022, was primarily comprised of unfavourable foreign
exchange movements on US-dollar and SEK denominated working capital at the end of the current period compared
to the end of the prior quarter. In the fourth quarter of 2021, other income, net, was primarily comprised of favourable
foreign exchange movements on US-dollar and SEK denominated working capital.
Other Comprehensive Income (Loss)
(millions of Canadian dollars)
Defined benefit actuarial gain (loss), net of tax
Foreign exchange translation differences for foreign operations, net of tax
Other comprehensive income (loss), net of tax
Q4
2022
(4.2) $
40.6 $
36.4 $
Q3
2022
(7.3)
84.5
77.2
Q4
2021
6.7
(26.4)
$
$
$ (19.7)
$
$
$
In the fourth quarter of 2022, the Company recorded a loss of $5.8 million (before tax) in relation to changes in the
valuation of the Company’s defined benefit plans (comprised of defined benefit pension plans as well as other benefit
plans), primarily reflecting updated membership data, partially offset by a greater than anticipated return on plan
assets.
This compared to a loss of $10.0 million (before tax) recognized in the third quarter of 2022 reflecting a 0.2% decrease
in the discount rate used to value the employee future benefit plans, offset in part by a higher than anticipated return
on plan assets.
In the fourth quarter of 2021, the Company recorded a gain of $9.9 million (before tax) primarily reflecting a higher
than anticipated return on plan assets.
For more information, see the “Employee Future Benefits” part of the “Critical Accounting Estimates” section later in
this report.
In addition, the Company recorded an accounting gain of $40.6 million in the fourth quarter of 2022 related to foreign
exchange differences for foreign operations mostly reflecting the weakening of the Canadian dollar relative to the SEK,
39
offset in part by the strengthening of the Canadian dollar relative to the US-dollar at the end of the current quarter.
This compared to a gain of $84.5 million in the previous quarter and a loss of $26.4 million in the fourth quarter of
2021.
CHANGES IN FINANCIAL POSITION
At the end of 2022, Canfor had $1,268.7 million of cash and cash equivalents.
(millions of Canadian dollars)
Increase (decrease) in cash and cash equivalents52
Operating activities
Financing activities
Investing activities
Q4
2022
Q3
2022
Q4
2021
$
$
$
$
(358.5) $
33.8 $
(95.0)
(52.8) $
184.4 $
95.8
(50.7) $
0.8 $
(23.6)
(255.0) $
(151.4) $
(167.2)
52 Increase (decrease) in cash and cash equivalents shown before foreign exchange translation on cash and cash equivalents.
The changes in the components of these cash flows are discussed in the following sections:
Operating Activities
Cash used from operating activities was $52.8 million in the fourth quarter of 2022, compared to cash generated of
$184.4 million in the previous quarter and cash generated of $95.8 million in the fourth quarter of 2021. The decrease
in operating cash flows from the previous quarter primarily reflected lower cash earnings and unfavourable movements
in non-cash working capital. The latter primarily reflected a timing-related decrease in accounts payable and accrued
liabilities combined with an increase in finished lumber and log inventories at the end of the current period. Compared
to the fourth quarter of 2021, operating cash flows were down $148.6 million, principally due to lower cash earnings
in the current quarter, offset in part by favourable non-cash working capital movements quarter-over-quarter.
Financing Activities
Cash used in financing activities was $50.7 million in the current quarter, compared to cash generated of $0.8 million
in the previous quarter and cash used of $23.6 million in the fourth quarter of 2021. Financing activities in the current
quarter were principally comprised of $30.3 million of share purchases, as well as lease and interest payments. In the
previous quarter, cash generated from financing activities primarily reflected a $15.0 million draw-down of CPPI’s
principal operating loan facility offset, to a degree, by lease and interest payments. Cash used for financing activities
in the fourth quarter of 2021 largely consisted of interest, lease and debt payments.
Investing Activities
Cash used for investing activities was $255.0 million in the current quarter, compared to $151.4 million in the previous
quarter and $167.2 million in the same quarter of 2021. Investing activities in these periods were principally comprised
of capital additions.
Capital additions in the fourth quarter of 2022 were $277.8 million, up $139.0 million from the previous quarter and
up $102.5 million from the fourth quarter of 2021. In the lumber segment, current quarter capital expenditures primarily
reflected the continued construction of the Company’s greenfield sawmill in DeRidder, Louisiana, the ongoing costs
related to the upgrade and expansion of the Company’s Urbana sawmill, as well as maintenance-of-business capital
across all lumber operating regions. In the pulp and paper segment, current quarter expenditures were principally
comprised of maintenance-of-business capital.
40
SPECIFIC ITEMS AFFECTING COMPARABILITY
Specific Items Affecting Comparability of Shareholder Net Income (Loss)
Factors that impact the comparability of the quarters are noted below:
After-tax impact, net of non-controlling interests
(millions of Canadian dollars, except for
per share amounts)
Q4
2022
Q3
2022
Q2
2022
Q1
2022
Q4
2021
Q3
2021
Q2
2021
Q1
2021
Shareholder net income (loss), as
reported
$ (207.9) $ 87.4 $
373.8 $ 534.0 $
(23.1) $
210.0 $ 726.9 $ 427.8
Foreign exchange (gain) loss on term debt $ (1.7) $ 10.6 $ 4.9 $
(3.0) $ 0.2 $ 2.6 $
(5.7) $
(2.6)
(Gain) loss on derivative financial
instruments
$ (2.0) $ 0.5 $ 1.0 $
(2.0) $
3.0 $
(0.8) $
Asset write-downs and impairments
$ 84.8 $
- $ - $
-
$ 182.9 $
-
$
-
-
$ 9.0
$
-
Net impact of above items
$ 81.1 $ 11.1 $ 5.9 $
(5.0) $
186.1 $
1.8 $
(5.7) $ 6.4
Adjusted shareholder net income
(loss)53
Shareholder net income (loss) per
share (EPS), as reported
$ (126.8) $ 98.5 $ 379.7 $
529.0 $
163.0 $
211.8 $ 721.2 $ 434.2
$ (1.70) $ 0.71 $ 3.02 $ 4.29 $
(0.19) $ 1.68 $
5.81 $ 3.42
Net impact of above items per share
$ 0.66 $ 0.09 $
0.05 $ (0.04) $
1.50 $
0.02 $
(0.05) $
0.05
Adjusted net income (loss) per share53 $ (1.04) $ 0.80 $ 3.07 $
53 Adjusted shareholder net income (loss) is a non-IFRS financial measure. Refer to the “Non-IFRS Financial Measures” section for further details. Effective
Q1 2022, net income (loss) and net income (loss) per share were no longer adjusted for the after-tax impact of restructuring costs. Prior periods above
have been restated to reflect this change (favourable per share impact of $0.07 in Q4 2021 and $0.09 in YTD 2021).
1.31 $ 1.70 $ 5.76 $ 3.47
4.25 $
OUTLOOK
Lumber Markets
Looking ahead, global lumber market conditions are anticipated to remain under pressure through the first quarter of
2023. High inflation and interest rates are projected to continue to weigh on housing affordability and slow down
demand for new home construction, especially in the single-family sector. On the other hand, the repair and remodeling
sector is anticipated to improve as existing homeowners look to “fix-up” in lieu of “moving-up” in a high interest rate
environment. In the longer term, underlying global lumber market fundamentals are projected to be solid, principally
reflecting strong demographic trends, consistent demand driven by an aging housing stock and low inventories of new
homes available.
The weakness in offshore lumber demand in Asia that was experienced in the fourth quarter of 2022 is forecast to
continue through the first quarter of 2023. However, this softness is anticipated to be mitigated in part by the
introduction of government incentive packages in key Asian markets intended to revive economies in those regions.
Lower lumber demand is also anticipated in Europe, driven for the most part by reduced activity in both the residential
construction and do-it-yourself sectors.
As a result of recent decisions, the Company’s results in the first quarter of 2023 will reflect the impact on production
and shipments of the wind down of the Company’s Chetwynd sawmill and pellet plant as well as the Houston sawmill.
Looking forward, the Company is focused on a smaller but stronger BC operating platform aimed at balancing mill
capacity with economically sustainable fibre supply to enhance the Company’s ability to compete in that region through
all market cycles.
Pulp and Paper Markets
In recent weeks, global softwood kraft pulp market conditions have experienced a modest uptick as unplanned global
supply outages, principally stemming from fibre-related downtime in Western Canada, has more than outweighed weak
global macroeconomic conditions. Reflecting this favourable momentum, CPPI announced a US$30 per tonne increase
to its NBSK pulp list price to China in February 2023 to US$970 per tonne. Looking forward, global softwood kraft pulp
markets are projected to remain relatively stable through the balance of the first quarter of 2023, as persistent high
global pulp inventory levels and additional hardwood pulp capacity predicted to come online in 2023, combine with
steady Chinese demand. Notwithstanding the projected increased supply, global pulp pricing is anticipated to remain
above historic average price levels in the short-term.
41
As a result of the recent decision, CPPI’s results in the first quarter of 2023 will reflect the impact on production and
shipments of the wind down of CPPI’s pulp line at PG. Looking forward, CPPI is focused on optimizing a sustainable
operating footprint, improving operational reliability and closely managing manufacturing and fibre costs.
No major maintenance outages are planned for the first and second quarters of 2023. In the third quarter of 2023, a
maintenance outage is currently planned at Northwood, with a projected 25,000 tonnes of reduced NBSK pulp
production.
Bleached kraft paper markets are projected to weaken somewhat through the first quarter of 2023 with a modest
slowdown in demand anticipated as global kraft paper inventories return to more normalized levels. A maintenance
outage is currently planned at CPPI’s paper machine in the second quarter of 2023 with a projected 5,000 tonnes of
reduced paper production.
NON-IFRS FINANCIAL MEASURES
Throughout this MD&A, reference is made to certain non-IFRS financial measures which are used to evaluate the
Company’s performance but are not generally accepted under IFRS. The following table provides a reconciliation of
these non-IFRS financial measures to figures reported in the Company’s consolidated financial statements:
(millions of Canadian dollars)
Reported operating income (loss)
Asset write-downs and impairments
Inventory write-down, net
Adjusted operating income (loss)54
Amortization
Adjusted operating income (loss) before
amortization, asset write-downs and impairments54
Q4
2022
(308.0) $
138.6 $
5.6 $
Q3
2022
108.6 $
$
88.5 $
-
YTD
2022
1,074.1
138.6
93.5
(163.8) $
197.1 $
1,306.2
106.8 $
102.9 $
397.2
Q4
2021
(66.8) $
293.5 $
1.1 $
YTD
2021
1,908.1
293.5
2.4
227.8 $
2,204.0
95.0 $
376.8
$
$
$
$
$
(57.0) $
300.0 $
1,703.4
$
322.8 $
2,580.8
$
$
$
$
$
$
54 Effective Q1 2022, adjusted operating income (loss) was no longer adjusted for restructuring, mill closure and other items, net. Prior periods have
been restated to reflect this change ($11.5 million net recovery in Q4 2021 and $15.3 million net recovery in YTD 2021).
(millions of Canadian dollars, except ratios)
Reported operating income (loss)
Realized loss on derivative financial instruments
Other income (expense), net
Less: non-controlling interests
Return
Average invested capital55
Return on invested capital (ROIC)
2022
$ 1,074.1 $
$
$
$
$
$
$
0.2
27.1
112.6
2021
1,908.1
13.2
27.0
180.6
$
$
988.8
$
1,767.7
3,801.3
26.0%
$
3,189.2
55.4%
55 Average invested capital represents the average during the period of total assets excluding cash and cash equivalents and total liabilities excluding
term debt, retirement benefit obligations, long-term deferred reforestation obligations, and deferred taxes, net of non-controlling interests.
(millions of Canadian dollars, except ratios)
Term debt
Operating loans
Less: Cash and cash equivalents
Net cash
Total equity
Total capitalization
Net cash to total capitalization
As at
December 31,
As at
December 31,
2021
2022
$
$
$
$
$
$
258.9 $
27.8 $
1,268.7 $
246.0
18.7
1,354.8
(982.0) $
(1,090.1)
4,762.8 $
4,009.1
3,780.8 $
(26.0)%
2,919.0
(37.3)%
42
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with IFRS requires Management to make estimates and
assumptions that affect the amounts recorded in the consolidated financial statements. Management regularly reviews
these estimates and assumptions based on currently available information. While it is reasonably possible that
circumstances may arise, which cause actual results to differ from these estimates, Management does not believe it is
likely that any such differences will materially affect Canfor's financial position, other than the possibility of material
effects to the income statement from the Company’s estimated ADD net duty deposits recoverable as discussed in
Notes 9 and 28 of the consolidated financial statements. Unless otherwise indicated, the critical accounting estimates
discussed affect all of the Company’s reportable segments.
Employee Future Benefits
Canfor has various defined benefit and defined contribution plans providing both pension and other non-pension post-
retirement benefits to most of its salaried employees and certain hourly employees not covered by forest industry union
plans. Canfor also provides certain health care benefits and pension bridging benefits to eligible retired employees. The
costs and related obligations of the pension and other retirement benefit plans are accrued in accordance with the
requirements of IFRS.
Canfor uses independent actuarial firms to perform actuarial valuations of the fair value of pension and other retirement
benefit plan obligations. The application of IFRS requires judgments regarding certain assumptions that affect the
accrued benefit provisions and related expenses, including the discount rate used to calculate the present value of the
obligations, the rate of compensation increases, mortality assumptions, and the assumed health care cost trend rates.
Management evaluates these assumptions quarterly based on experience and the recommendations of its actuarial
firms. Changes in these assumptions result in actuarial gains or losses, which are recognized in full in each period with
an adjustment through other comprehensive income (loss).
The actuarial assumptions used in measuring Canfor’s benefit plan provisions and benefit costs are as follows:
Discount rate
Rate of compensation increases
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate rate is reached
December 31, 2022
Defined
Benefit
Pension
Plans
4.8%
3.0%
n/a
n/a
n/a
Other
Benefit
Plans
4.8%
n/a
5.0%
4.5%
2025
December 31, 2021
Defined
Benefit
Pension
Plans
3.0%
3.0%
n/a
n/a
n/a
Other
Benefit
Plans
3.0%
n/a
5.0%
4.5%
2025
Assumed discount rates, medical cost trend rates and mortality assumptions have a significant effect on the accrued
benefit obligation and related plan assets. In addition, the average life expectancy of a 65-year-old at December 31,
2022 is between 21.3 years and 24.4 years. As at December 31, 2022, the weighted average duration of the defined
benefit obligation, which reflects the average age of the plan members, is 12.7 years. The weighted average duration
of the other benefit plans is 10.7 years.
For Canfor’s pension benefit plans, a one percentage point increase in the discount rate used in calculating the actuarial
estimate of future liabilities would reduce the accrued benefit obligation by an estimated $33.2 million and a one
percentage point decrease in the discount rate would increase the accrued benefit obligation by an estimated $43.0
million. These changes would only impact the Company’s funding requirements in years where a new actuarial funding
valuation was performed and regulatory approval for a change in funding contributions was obtained.
Annuity Contracts
On December 31, 2022, the Company entered into contracts to convert all of its existing buy-in annuities to buy-out
annuities. As a result of these contracts, the Company’s buy-in annuity assets and corresponding accrued benefit
obligation of $308.2 million were derecognized from the Company’s consolidated balance sheet as at December 31,
2022.
43
Deferred Reforestation
Canfor accrues an estimate of its future liability to perform forestry activities, defined to mean those silviculture
treatments or activities that are carried out to ensure the establishment of a free-growing stand of young trees,
including logging road rehabilitation on its forestry tenures in BC and Alberta. An estimate is recorded in the
consolidated financial statements based on the number of hectares of timber harvested in the period and the estimated
costs of fulfilling Canfor’s obligation. Payments in relation to reforestation are expected to occur over periods of up to
15 years and have been discounted accordingly at risk-free rates ranging from 3.3% to 4.6%. The actual costs that
will be incurred in the future may vary based on, among other things, the actual costs at the time of silviculture
activities.
Deferred Taxes
In accordance with IFRS, Canfor recognizes deferred income tax assets when it is probable that the deferred income
tax assets will be realized. This assumption is based on Management's best estimate of future circumstances and
events. If these estimates and assumptions are changed in the future, the value of the deferred income tax assets
could be reduced or increased, resulting in an income tax expense or recovery. Canfor re-evaluates its deferred income
tax assets on a regular basis.
Asset Retirement Obligations
Canfor records the estimated fair value of a liability for asset retirement obligations, such as landfill closures, in the
period when it is incurred. For landfill closure costs, the fair value is determined using estimated closure costs
discounted over the estimated useful life. Payments relating to landfill closure costs are expected to occur at periods
ranging from 3 to 44 years and have been discounted at risk-free rates ranging from 3.3% to 3.8%. The actual closure
costs and periods of payment may differ from the estimates used in determining the year-end liability. On initial
recognition, the fair value of the liability is added to the carrying amount of the associated asset and amortized over
its useful life. The liability is accreted over time through charges to earnings and reduced by actual costs of settlement.
Environmental Remediation Costs
Costs associated with environmental remediation obligations are accrued and expensed when there exists a present
legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits
will be required to settle the obligation. Such accruals are adjusted as further information develops or circumstances
change. Costs of future expenditures for environmental remediation obligations are discounted to their present value
when the amount and timing of expected cash payments are reliably determinable.
Asset Write-Downs and Impairments
The Company reviews the carrying values of its long-lived assets, including timber licenses, property, plant and
equipment and right-of-use assets, on a regular basis as events or changes in circumstances may warrant. An
impairment loss is recognized in net income (loss) at the amount that the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.
During the Company’s annual impairment review, the ongoing uncertainty with regard to economically viable timber
supply within British Columbia was identified as an impairment indicator. As a result, the Company performed an
impairment assessment on its Western Canadian lumber operations as at December 31, 2022.
The recoverable amount of the timber licenses and property, plant and equipment, within the Western Canadian lumber
operations was determined based on an assessment of value in use, estimated using a discounted cash flow model.
This discounted cash flow model was projected based on past experience and actual operating results as well as
Management’s assessment of future trends in the forest industry, based on both external and internal sources of data.
Significant assumptions include future production volume, commodity prices, log and production costs, as well as the
discount rate. Other assumptions include applicable foreign exchange rates, operating rates of the assets, and the
future capital required to maintain the assets in their current operating condition. Estimated future cash flows were
discounted at a rate of 11% (15% before tax), based on the Company’s weighted average cost of capital for that
region in 2022.
44
In addition, as a result of continued fibre cost pressures and ongoing uncertainty surrounding fibre availability for
CPPI’s pulp mills, CPPI performed an impairment assessment as at December 31, 2022 on the property, plant and
equipment of the pulp operations.
The recoverable amount of the property, plant and equipment within the pulp operations was determined based on an
assessment of value in use, estimated using a discounted cash flow model. This discounted cash flow model was
projected based on past experience and actual operating results as well as Management’s assessment of future trends
in the pulp industry, based on both external and internal sources of data. Significant assumptions include future
production volume, commodity prices, fibre and production costs, as well as the discount rate. Other assumptions
include applicable foreign exchange rates, operating rates of the assets, and the future capital required to maintain the
assets in their current operating condition. Estimated future cash flows were discounted at a rate of 9% (12% before
tax), based on CPPI’s weighted average cost of capital for 2022.
Subsequent to year-end, in early 2023, the Company announced the decision to permanently close the pulp line at
CPPI’s PG pulp and paper mill, as well as the Chetwynd sawmill and pellet plant.
As previously indicated, as a result of these announced closures, as well as the aforementioned impairment assessment,
an asset write-down and impairment charge totaling $138.6 million was recognized for the year ended December 31,
2022. Of the $138.6 million, $89.0 million was recognized as a reduction of the carrying value of the Company’s Western
Canadian lumber operations and $49.6 million as a reduction to the carrying value of pulp assets within the pulp and
paper segment.
Impairment of Goodwill
Goodwill, which is the excess of the cost of an acquisition over the fair value of the net identifiable assets acquired, is
not amortized, but is assessed annually for impairment, or more frequently if events or circumstances indicate that it
may be impaired. Canfor’s goodwill relates to its Canadian, US and European subsidiaries and is denominated in
Canadian dollars, US-dollars and SEK, respectively.
Goodwill is allocated separately to each of the Company’s cash generating units and tested at that level for impairment
purposes. The recoverable amount of goodwill is determined based on an assessment of value in use, estimated using
discounted cash flow models. Key assumptions used in the cash flow models for both the US and Europe include
forecast prices and foreign exchange rates, which Management determined with reference to both internal and external
publications. For the 2022 goodwill impairment assessments, a discount rate of 10.0% (13.0% before tax for the US
and 12.0% before tax for Europe) (2021 – 9.0%; 12.0% before tax for both the US and Europe) was utilized, based
on the Company’s current weighted average cost of capital for the US and Europe.
In this analysis prepared by Management, the net present value of future expected cash flows was compared to the
carrying value of the Company’s investment in these assets, including goodwill, at year end, with no impairment of
goodwill required at December 31, 2022. If actual results are materially lower than the forecast assumptions, there is
a possibility that an impairment of goodwill may be required in future periods.
Valuation of Log and Finished Product Inventories
Log and finished product inventories are recorded at the lower of cost and net realizable value. The cost of inventories
of solid wood products, is based on the weighted average cost principle, and includes raw materials, direct labour,
other direct costs and related production overheads (based on normal operating capacity). Net realizable value is the
estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses.
Canfor estimates the net realizable value of solid wood products by taking into account actual and forecasted sales
orders, as well as outlook prices and forecast exchange rates for the period over which the inventories are expected
to be sold. Outlook prices are determined using Management’s estimates at the end of the period and may differ from
the actual prices at which the inventories are sold.
45
RISKS AND UNCERTAINTIES
Risks and uncertainties fall into the general business areas of markets, international commodity prices, competition,
currency exchange rates, environmental issues, forest land base, government legislation and regulations, public policy
and labour disputes, and, for Canadian companies, a history of trade disputes and issues and Indigenous land claims.
The future impact of the various uncertainties and potential risks described in the following paragraphs (together with
the risks and uncertainties identified under each of the Company’s business segments) cannot be quantified or predicted
with certainty. However, Canfor does not foresee unmanageable adverse effects on its business operations from and
believes that it is well positioned to deal with, such matters as may arise. The risks and uncertainties are set out in
alphabetical order.
Climate Change
The Company’s operations are subject to risks and opportunities related to climate change. These risks include, but
are not limited to, chronic and acute physical risks such as the increasing frequency and severity of weather conditions,
forest fires, hurricanes, earthquakes and timber diseases and insect infestations. These events could damage or destroy
the Company’s operating facilities, adversely affect Canfor’s timber supply or result in reduced transportation
availability. These events could have similar effect on the facilities of the Company’s suppliers and customers. Any of
the damage caused by these events could increase costs and decrease production capacity at the Company’s operations
having an adverse effect on the Company’s financial results. The Company believes there are reasonable insurance
arrangements in place to cover certain outcomes of such incidents; however, there is no guarantee that these
arrangements will fully protect the Company against such losses. As is common practice in the industry, the Company
does not insure loss of standing timber for any cause.
There are also transition risks associated with climate change. These include changes in laws, regulations and industry
standards associated with climate change. The Company monitors all regulatory changes including any climate-related
regulations, to assess their impacts on operations. The Company considers adaptation and mitigation strategies to
manage and reduce greenhouse gas emissions and is in the process of establishing a decarbonization roadmap.
However, there is no guarantee that these efforts will be effective, and these risks may lead to increased capital
expenditures or payment of carbon taxes or other events that could adversely affect operations or financial condition.
The Company is committed to sustainable forest management practices, which considers climate change, in
consultation with Indigenous partners and stakeholders. However, there may be reputational risks due to the rising
prominence of environment, social and governance concerns among the Company’s stakeholders and Indigenous
partners which could impact public opinions about the Company and its industry and could adversely affect its
reputation, business, strategy and operations. The Company continues to work closely with our Indigenous partners
and stakeholders to understand their interests, identify risks and opportunities and gauge effectiveness of our
management actions.
Competitive Markets
The Company’s products are sold primarily in the US, Canada, Europe and Asia. The markets for the Company’s
products are highly competitive on a global basis, with various major companies competing in each market with no
company holding a dominant position. Competitive factors include quality of product, product mix, reliability of supply
and customer service. The Company’s competitive position is influenced by: the availability, quality, and cost of raw
materials; energy and labour costs; free access to markets; currency exchange rates; productivity; transportation costs
and customer service in relation to its competitors. Access to markets could be influenced by global trade agreements,
global Government relations and their impact on free trade including the direct and indirect impacts to global demand,
supply chains, the costs of production inputs and transportation due to geopolitical tensions and events such as US-
China relations. These factors could potentially limit market growth opportunities or limit Canfor’s ability to service its
customers. An unfavourable settlement of the Softwood Lumber Agreement could also result in a material increase in
duty expenditures. Additional details on the Softwood Lumber Agreement is provided in the “Risks and Uncertainties –
Softwood Lumber Agreement” section of this document.
Cyclicality of Product Prices
The Company’s financial performance is dependent upon the selling prices of its products, which have fluctuated
significantly in the past. The markets for these products are cyclical and may be characterized by (i) periods of excess
46
product supply due to industry capacity additions, variable production rates or capacity utilization and other factors;
and (ii) periods of insufficient demand due to weak general economic conditions. The economic climate of each region
where the Company’s products are sold has a significant impact upon the demand, and therefore, the prices for lumber
as well as pulp and paper.
Environmental Issues
Canfor's operations are subject to environmental regulation by federal, provincial, state and local authorities, including
specific environmental regulations relating to air emissions and pollutants, wastewater (effluent) discharges, solid
waste, landfill operations, forestry practices, site remediation and the protection of endangered species and critical
habitat. The Company’s European operations are subject to laws and regulations of the Swedish Government and more
broadly, the European Union, with its forest operations governed by the Swedish Forestry Act, Land Acquisition Act
and the Swedish Environmental Code.
Canfor has incurred, and will continue to incur, capital, operating, and other expenditures to comply with these
applicable environmental laws and regulations. In addition, Canfor’s operations in Canada will be subject to increasing
costs associated with carbon related taxes and will be actively working to mitigate through investment in technology.
No assurance can be given that changes in these laws and regulations or their application will not have a material
adverse effect on Canfor's business, operations, financial condition and operational results. Similarly, no assurance can
be given that capital expenditures necessary for future compliance with existing and new environmental laws and
regulations could be financed from Canfor's available cash flow. In addition, Canfor may discover currently unknown
environmental issues, contamination, or conditions relating to historical or present operations. This may require site or
other remediation costs to maintain compliance or remedy issues or result in governmental or private claims for damage
to person, property or the environment, which could have a material adverse effect on Canfor's business, financial
condition and operational results.
Canfor has systems in place to identify, account for and appropriately address potential environmental liabilities. The
Company also has governance in place including an Environmental, Health and Safety Committee of the Board, a
Corporate Environmental Management Committee including Officers of the Company, and environmental professionals
on staff to manage potential risks, issues and liabilities.
Canfor has in place internal policies and procedures under which all its forestry and manufacturing operations are
regularly audited for compliance with laws and accepted standards and with its environmental management system
requirements. CPPI’s pulp mills and Canfor’s woodlands operations and wood product facilities employ environmental
management systems, and the kraft pulp mills are certified under the ISO 14001 Environmental Management System
Standard. Further, all (100%) of Canfor’s forest tenures in Canada are third party certified to the Sustainable Forestry
Initiative (“SFI”), or the Forest Stewardship Council (“FSC”) sustainable forest management standards. All sourced
wood in the United States operations is certified to the SFI Fiber Sourcing Standard. The Company’s European
operations comply with their internal environmental policies and employ environmental management systems, with
raw materials certified through the FSC in Sweden and Program for the Endorsement of Forest Certification (“PEFC”).
Canfor’s operations and its ability to sell its products could be adversely affected if those operations did not, or were
perceived by the public as failing to, comply with applicable laws and standards and following responsible environmental
and sustainable forest management practices. Further discussion of environmental issues is included in the Company’s
Annual Information Form, incorporated by reference herein.
Fibre Cost and Availability
The Company’s fibre costs are affected by a number of different factors which could have a significant impact on
operating results. Lumber market fluctuations and log market bidding each play a significant role in both fibre supply
and costs.
In Western Canada, harvesting operations have transitioned away from MPB impacted timber stands (see “Forest
Health” below for more commentary regarding MPB). The AAC in BC in particular has been reduced in many areas, but
in several cases, the AAC has not yet been apportioned by the BC Government, which has exacerbated the log supply
and demand imbalance. As a result of these and other factors, the existing manufacturing capacity in many areas of
the BC Interior continues to exceed the available timber supply. Until this imbalance is corrected, Canfor expects to
see a continuation of higher log costs in BC for the foreseeable future.
47
Canfor’s ability to access timber could also be impacted by unsettled land and title claims by various Indigenous Nations
in BC. The BC Declaration on the Rights of Indigenous People Act was brought into force in November 2019 based on
the United Nations Declaration on the Rights of Indigenous Peoples. Among other things, it outlines the BC
Government’s commitment to achieve free, prior and informed consent of Indigenous Nations in connection with
government approval of resource-based projects (for additional discussion of this legislation, see the “Indigenous
Relations” section of this MD&A below). In 2021, the BC Supreme Court released its decision in Yahey v British
Columbia, in which it ruled that the Crown had unjustifiably infringed the Treaty 8 rights of the BRFN in permitting the
cumulative impacts of industrial development to meaningfully diminish BRFN’s ability to exercise its treaty rights in its
traditional territory (the “Blueberry River decision”). In January 2023, the Crown reached agreements with both the
BRFN, as well as four other Treaty 8 Nations in response to the Yahey v British Columbia legal decision. The specific
impacts of these agreements on timber supply from Crown lands and on the Company’s tenure and operations in the
Treaty 8 area are still to be determined. As well, the Company does not know if, how or the extent to which the decision
will lead to changes in BC or federal laws or policies which may affect its forestry operations. However, adverse impacts
on available timber supply and operational consequences associated with these agreements are expected (see
“Indigenous Relations” below for more commentary).
Furthermore, in 2021, the BC Government announced its intention to defer the harvest of 2.6 million hectares of BC’s
old-growth forests. Initial industry-wide analysis indicated that these deferrals, if made permanent, would result in the
removal of close to 1.4 million hectares from the Timber Harvesting Land Base in BC and a reduction in AAC by
approximately 4.0 million cubic metres, of which 70% of this reduction is in the BC Interior. Also, in 2021, the BC
Government introduced legislation affecting not only forestry operations planning activities, which could affect the cost
of Canfor’s operations, but also the redistribution of tenure harvesting rights from forest tenure holders such as the
Company. The implications associated with these government policy and legislative amendments on the Company’s
operations are not yet fully understood but are anticipated to be significant.
In addition, the Company’s ability to harvest fibre for use in its operations could be adversely impacted by natural
events such as forest fires, severe weather conditions or insect infestations. In the event that sufficient volumes of
economically viable fibre are not available to an operation, it may be necessary to close that operation for a period of
time, perhaps permanently. Such disruptions or closures could result in significant costs to the Company. The Company
is not insured for loss of standing timber.
In the Company’s US South and European operations, fibre requirements are satisfied primarily through log purchases
on open markets, principally from private timber owners. The prices for these fibre purchases are subject to adverse
weather and other market forces, including regional demand, which may reduce the supply of logs available and
subsequently put upward pressure on log prices negatively impacting the Company’s results. In addition, decreased
demand, primarily from pulp, paper and pellet mills for residual products produced by the Company’s operations, may
adversely impact the prices received for those residual products which could negatively impact results.
Financial Risk Management and Earnings Sensitivities
Canfor is exposed to a number of risks as a result of holding financial instruments. These risks include credit risk,
liquidity risk and market risk.
Canfor’s internal Risk Management Committee manages risk in accordance with a Board approved Price Risk
Management Controls Policy. This policy provides the framework for risk management related to commodity price,
foreign exchange, interest rate and counterparty credit risk of Canfor.
(a) Credit Risk:
Credit risk is the risk of financial loss to Canfor if a counterparty to a financial instrument fails to meet its contractual
obligations.
Financial instruments that are subject to credit risk include cash and cash equivalents, trade and other accounts
receivable, and certain investments and advances. Contract assets are also subject to credit risk. Cash and cash
equivalents include cash held through major Canadian and international financial institutions as well as temporary
investments that are readily convertible into known amounts of cash within three months or less from the date of
acquisition. The cash and cash equivalents balance at December 31, 2022 is $1,268.7 million.
48
Canfor utilizes credit insurance to mitigate the risk associated with some of its trade accounts receivables. As at
December 31, 2022, approximately 64% of the outstanding trade accounts receivables are covered by credit insurance.
Canfor’s trade accounts receivable balance at December 31, 2022 is $340.3 million, before a loss allowance of $4.3
million. At December 31, 2022, approximately 96% of the trade accounts receivable balance are within Canfor’s
established credit terms.
(b) Liquidity risk:
Liquidity risk is the risk that Canfor will be unable to meet its financial obligations as they come due. Canfor manages
liquidity risk through regular cash flow forecasting in conjunction with adequate operating loan and term debt facilities.
At December 31, 2022, Canfor had cash and cash equivalents of $1,268.7 million, with $27.8 million drawn on its
operating loans and facilities, and $81.9 million reserved for several standby letters of credit, leaving $1,158.7 million
available and undrawn. As a result, at December 31, 2022, Canfor had available liquidity of $2,427.4 million, accounts
payable and accrued liabilities of $678.7 million, and term debt of $258.9 million. For details of the Company’s term
debt obligations and maturities refer to the “Other Commitments” section of this document.
(c) Market risk:
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in interest rates, foreign currency, commodity and energy prices.
(i) Interest rate risk:
Canfor is exposed to interest rate risk through its current financial assets, operating loan facilities and term
debt that bear variable interest rates.
Canfor may use interest rate swaps to reduce its exposure to interest rate risk associated with financial
obligations bearing variable interest rates. At December 31, 2022, the Company had no interest rate swaps
outstanding.
Canfor is also exposed to interest rate risk in relation to the measurement of the Company’s pension liabilities.
(ii) Currency risk:
At a consolidated level, Canfor is exposed to foreign exchange risk related to the US-dollar, as Canfor’s
products are sold principally in US-dollars. In addition, Canfor holds US-dollar denominated financial assets
and liabilities.
An increase (decrease) in the value of the Canadian dollar by US$0.01 would result in a pre-tax: (i) loss (gain)
of approximately $3.3 million in relation to working capital balances denominated in US-dollars at year end
(including cash, accounts receivable and accounts payable); and a (ii) gain (loss) of approximately $1.8 million
in relation to term debt denominated in US-dollars.
A portion of the currency risk associated with US-dollar denominated sales is naturally offset by US-dollar
denominated expenses. A portion of the remaining exposure is sometimes reduced by foreign exchange collar
contracts that effectively limit the minimum and maximum Canadian dollar recovery related to the sale of
those US-dollars.
The Company also sells certain products in GBP, AUD, EUR and NOK and holds US, SEK and AUD denominated
operating loan and term debt facilities and limits its exposure to foreign exchange risk using forward foreign
exchange contracts and foreign exchange options.
(iii) Commodity price risk:
Canfor is exposed to commodity price risk principally related to the sale of lumber and related products, pulp
and paper. From time to time, Canfor enters into futures contracts on the Chicago Mercantile Exchange for
lumber and forward contracts direct with customers or on commodity exchanges for pulp. Under the
Company’s Price Risk Management Controls Policy, up to 15% of lumber sales and 1% of pulp sales may be
sold in this way. Canfor is also exposed to commodity price risk on the sale of electricity in Canada. Prices are
set by third party regulatory bodies.
49
(iv) Energy price risk:
Canfor is exposed to energy price risk relating to purchases of natural gas and diesel oil for use in its
operations.
The annual exposure is from time to time hedged up to 100% through the use of floating to fixed swap
contracts or option contracts with maturity dates up to a maximum of eighteen months.
Earnings Sensitivities
Estimates of the sensitivity of Canfor's pre-tax results to currency fluctuations and prices for its principal products,
based on 2023 forecast production and year end foreign exchange rates, are set out in the following table:
(millions of Canadian dollars)
Western SPF lumber – US$10 change per Mfbm56,57
SYP lumber – US$10 change per Mfbm56,57
European lumber – SEK100 change per Mfbm56,57
Softwood lumber duties – 5% change
NBSK Pulp – US$10 change per tonne58
Canadian dollar – 1% change per US dollar59
Canadian dollar – 1% change per SEK59
Impact on annual
pre-tax earnings
$ 30
$ 25
$ 16
$ 40
$ 8
$ 15
$ 1
56 Based on sales of Canfor-produced product, before softwood lumber duties.
57 Excluding impacts of exchange rate, freight, discounting, potential change in fibre costs and other deductions.
58 Includes 100% of CPPI.
59 A 1% increase in the Canadian dollar per US-dollar or SEK results in a decrease to pre-tax annual earnings. A 1% decrease in the Canadian dollar per
US-dollar or SEK results in an increase to pre-tax annual earnings.
Forest Health
Timber affected by the MPB directed Canfor’s harvesting activities in central and northern BC for two decades but given
the economic and biological shelf-life expiry of the dead pine stands, the focus has now shifted to other coniferous
species stands. To ensure that sufficient dead pine was being harvested to sustain the current allowable harvest rates
and minimize impacts to the mid-term timber supply, the Chief Forester of BC established “AAC partitions” in a number
of Timber Supply Areas (“TSA”). These partitions capped or restricted the harvest of non-pine species and are being
revisited during upcoming TSA reviews and AAC determinations as the viability of the merchantable dead pine stands
further declines. Upon reaching the end of shelf-life for the most severely impacted stands, the Chief Forester has
commenced the reduction of the AAC for each MPB-impacted TSA. The Company anticipates this process will continue
over the next decade.
Given the enormous extent and severity of the infestation, the mid-term and long-term operational and financial
impacts on Canfor may be significant. In response, the Company has taken various steps to mitigate its exposure to
these impacts, by modifying manufacturing and harvesting operations as follows: repurposing manufacturing facilities
(e.g. the Prince George, Fort St. John, Plateau and Polar sawmills) to optimize harvest of green, non-pine leading
stands that align with the available timber supply; and by permanently closing manufacturing facilities at Mackenzie,
Isle Pierre and Vavenby sawmills and, subsequent to year end, Chetwynd sawmill. In addition, the Company has taken
steps to fully utilize as much of the residual, non-sawlog fibre it harvests by redirecting this to its whole log chipping
and wood pellet plants located throughout Northern BC.
In Alberta, detection surveys continue to indicate a slow but steady rate of MPB spread in certain areas with declining
populations in others. The largest active beetle populations can be found in the West Central portion of the Province,
particularly within the Jasper National Park boundary and along the adjacent eastern slopes of the Rocky Mountains.
An accelerated harvest of susceptible pine on the Canfor Forest Management Agreement (“FMA”) area since 2009 in
conjunction with government control efforts, has largely contained the spread in this area and recent surveys indicate
a very low rate of spread. MPB populations are now largely at endemic levels in the Northwest portion of the Province.
Subsequently, pine mortality in areas north of the Peace River has been extensive and harvesting objectives continue
to be focused on the salvage of the remaining dead pine prior to expiration of its economic shelf life.
Some Northern Alberta harvest rates have been temporarily increased to deal with the rising MPB infestation and
additional temporary increases could be made for the same reason in other areas of the province. The significant AAC
increase approved for the quota area has maximized the opportunity to harvest infected pine stands before a significant
50
reduction in log quality occurs. In addition, the Alberta Government has committed funds for the rehabilitation of dead
pine stands that have not been harvested due to merchantability limitations.
The recent outbreak of spruce bark beetle in the Mackenzie TSA, the northeastern portion of the Prince George TSA
and TFL 48 has caused Canfor to shift its harvesting into stands under imminent threat or of high susceptibility to
spruce beetle infestation. Canfor is working collaboratively with other forest companies and with local and Provincial
Government agencies to develop planning and harvesting tactics and strategies to arrest the spread of this pest as well
as endeavor to maximize the salvage of the dead timber before its economic shelf life expires. At this time Canfor has
sufficient capacity to handle the outbreak within its operating areas and has provided assistance to neighbouring
operators who lack the harvesting capacity to address the issue.
A variety of tactics are being deployed to mitigate the spread and impact of the spruce beetle, including aerial and
ground reconnaissance, trap trees, pheromone baiting, log yard and log transportation management, sanitation harvest
(focused on leading edge attack zones) and finally salvage harvest. Canfor has also swiftly increased its capacity to
harvest steep slopes where much of the spruce beetle outbreak currently exists.
Wildfire activity in Canfor operating areas remained relatively low in 2022. However, with significant warming trends
in the summer, resultant severe drought, along with increased human recreational activity on the landscape, wildfire
activity continues to grow. Spurred by record breaking wildfire seasons in 2017 and 2018, Canfor along with other
forest companies and forest sector associations began to collaborate much more closely with BC Wildfire Service. The
objectives were to strengthen wildfire preparedness through strategic placement of resources and better training, and
to elevate response action effectiveness through better and more frequent communication, along with making company
and contractor resources readily available where required.
Government and Other Regulations
Canfor is subject to a wide range of general and industry-specific forestry and forest practices, environmental, health
and safety, building and product standards and other laws and regulations imposed by federal, provincial and local
authorities, including those governing the use, storage, handling, generation, treatment, emission, release, discharge
and disposal of certain hazardous materials and wastes, the remediation of contaminated soil and ground water, the
use and design values of Canfor’s products and the health and safety of employees. Further, certain agreements and
contracts relating to the ownership or transfer of forestry tenures and licenses are subject to review by applicable
regulatory bodies. If Canfor is unable to extend or renew a material license or permit required by such laws, any
transfer is challenged by a regulatory body, or if there is a delay in renewing any material approval, license or permit,
Canfor’s business, financial condition, results of operations and cash flows could be materially adversely affected.
Future events such as any changes in these laws and regulations or any change in their interpretation or enforcement,
or the discovery of currently unknown conditions, may give rise to additional expenditures or liabilities.
Health & Safety
Canfor prioritizes health and safety throughout the organization and strives to ensure that its employees return home
safely at the end of each shift. Despite these efforts, the nature of the Company’s operations and failure to follow
policies and procedures subject employees to a variety of risks, including those related to wood dust, heavy machinery,
and chemicals. Apart from the impact on its people, threats to health and safety could cause interruptions to Canfor’s
business and have an adverse effect on the Company’s reputation, operations and financial results.
Indigenous Relations
Canfor sources the majority of its fibre from areas subject to claims of Indigenous rights or title. In November 2019,
the Government of BC passed legislation (Declaration on the Rights of Indigenous People Act) regarding the
implementation in BC of the United Nations’ Declaration on the Rights of Indigenous Peoples Act. The legislation
provides for processes for the BC Government to create a path forward that respects the human rights of Indigenous
peoples while introducing better transparency and predictability to the work the BC Government and Indigenous
peoples do together. This work aims to foster increased and lasting certainty on the land base while ensuring that the
benefits of sustainable forest harvesting are realized equitably by those engaged in and impacted by the forestry
industry.
In June 2021, the BC Government released its Draft Action Plan relating to the implementation of the Declaration on
the Right of Indigenous People Act, which proposes a number of new measures, although these initiatives are described
only at a high level. Some of the measures include: a new framework for resource revenue sharing and other fiscal
51
mechanisms to support Indigenous peoples; and the negotiation of joint-decision making agreements and agreements
in which consent from Indigenous governing bodies will be required before the BC Government exercises a statutory
decision-making power. However, no detail is provided on the scope or content of such agreements. Thus, the impacts
on the Company’s timber harvesting operations of any such future agreements remains uncertain at this time.
In December 2020, the Government of Canada tabled Bill C-15, which is the federal government’s response to
implementing the United Nations’ Declaration on the Rights of Indigenous People Act. The Bill proceeded through the
legislative process and was enacted into law in June 2021.
Canadian judicial decisions have recognized the continued existence of Indigenous rights and title to lands continuously
and exclusively used or occupied by Indigenous groups. In June 2014, the Supreme Court of Canada, for the first time,
recognized Indigenous title for the Tsilhqot’in Nation over approximately 1,750 square kilometres of land in central BC
(“William decision”). It found that provisions of BC’s Forest Act, dealing with the disposition or harvest of Crown timber,
no longer applied to timber located on these lands, but also confirmed provincial law can apply on Indigenous title
lands.
While Indigenous title had previously been assumed to exist over specific, intensively occupied areas such as villages,
the William decision marks the first time Canada’s highest court has recognized Indigenous title over a specific piece
of land and, in so doing, affirmed a broader territorial use-based approach to Indigenous title. The decision also further
defines what Indigenous title means and the types of land uses consistent with this form of collective ownership.
Presently, Indigenous title has not been established by law in any areas overlapping Canfor’s tenure areas; however,
Indigenous rights continue to exist over traditional territories, and there is no assurance that Canfor ‘s timber harvesting
rights will not be affected in the future. The Government of BC delegates procedural aspects of consultation to tenure
holders, including Canfor, and Canfor works to establish productive and mutually beneficial relationships with
Indigenous Nations whose traditional territories overlap Canfor operating areas. The Government of BC has also taken
steps to improve certainty and access to timber resources through interim agreements with Indigenous Nations that
include timber rights. Canfor holds numerous agreements with individual Indigenous Nations whereby it manages
and/or purchases their timber.
On June 29, 2021, the BC Supreme Court released its Blueberry River decision, in which it ruled that the Crown had
unjustifiably infringed the Treaty 8 rights of the BRFN “in permitting the cumulative impacts of industrial development
to meaningfully diminish BRFN’s ability to exercise its treaty rights in its traditional territory”. The Blueberry River
decision has potentially significant implications on regulatory and operational requirements for industrial development
activities in northeast BC where Canfor has operations and could extend to other areas in Canada where similar claims
may be made.
On January 18, 2023, BRFN and the Province of BC reached an agreement that will guide them forward in a partnership
approach to land, water and resource stewardship, including forestry. The agreement includes land restoration, new
areas protected from industrial development and constraints on development activities while a long-term cumulative
effects management regime is implemented. Timber harvesting in the Fort St. John Timber Supply Area will be reduced
by approximately 350,000 cubic metres per year. The full impacts of the agreement on Canfor are still to be determined.
The impacts of BC’s Declaration on the Rights of Indigenous Peoples Act, the federal government’s Bill C-15, the William
decision, the Blueberry River decision and other proceedings presently before the courts in BC on the timber supply
from Crown lands and on Canfor’s operations is unknown at this time, especially as they pertain to Canfor’s current
timber supply and operational activities on the traditional territory of BRFN and other Indigenous Nations. As well,
Canfor does not know if, how and to the extent these rulings or decisions will lead to changes in BC or federal laws or
policies which may affect its forestry operations. However, there is the potential for adverse timber supply and
operational implications associated with the outcome of these ongoing negotiations and issues. As these negotiations
and issues relating to Indigenous rights and title develop, Canfor will continue to engage and cooperate with Indigenous
Nations and the BC Government to foster good relationships and seek to minimize risks to Canfor’s tenures and
operational activities.
Inflation
Canfor relies on logs, wood chips, chemicals, gas, electricity, transportation and labour in its operations. Costs
associated with these goods and services experienced unusual inflationary pressures throughout 2022. Continued
inflationary pressures will increase Canfor’s operating costs and reduce operating margins. There is no guarantee that
52
the effects of these cost pressures would be fully offset through price increases, productivity improvements or cost-
reduction initiatives.
Information Technology
Canfor’s information technology systems serve an important role in the operation of its business. Canfor relies on
various technologies to access fibre, operate its production facilities, interact with customers, vendors and employees
and to report on its business. Interruption, failure or unsuccessful implementation and integration of Canfor’s
information technology systems could result in material and adverse impacts on the Company’s financial condition,
operations, production, sales, and reputation and could also result in environmental and physical damage to Company
operations or surrounding areas.
Canfor’s information technology systems and networks could be interrupted or fail due to a variety of causes, such as
natural disaster, fire, power outages, vandalism, or cyber-based attacks. Any such interruption or failure could result
in operational disruptions or the misappropriation of sensitive or proprietary data that could subject Canfor to civil and
criminal penalties, litigation or have a negative impact on the Company’s reputation. There can be no assurance that
such disruptions or misappropriations and the resulting repercussions will not negatively impact the Company’s cash
flows and have a material adverse effect on its business, operations, financial condition and operational results.
Although to date Canfor has not experienced any material losses relating to cyber risks, there can be no assurance that
the Company will not incur such losses in the future. Canfor’s risk and exposure cannot be fully mitigated due to the
nature of these threats. The Company continues to develop and enhance internal controls, policies and procedures
designed to protect systems, servers, computers, software, data and networks from attack, damage or unauthorized
access remain a priority. Canfor has established a Management Cyber Risk Committee to assess and monitor risk
mitigation efforts and to respond to emerging threats. As cyber threats continue to evolve, the Company may be
required to expend additional resources to continue to modify or enhance protective measures or to investigate and
remediate any security vulnerabilities.
Labour Agreements and Competition for Professional Skilled Labour
Any labour disruptions and any costs associated with labour disruptions at the Company’s mills could have a material
adverse effect on the Company’s production levels and results of operations. Any inability to negotiate acceptable
contracts with the unions as they expire could result in a strike or work stoppage by the affected workers and increased
operating costs as a result of higher wages or benefits paid to unionized workers.
A new collective agreement with the United Steelworkers (“USW”), which represents the majority of the workers of the
BC operations, was ratified in August of 2019. The new agreement will expire on June 30, 2023.
The contract with the Public and Private Workers of Canada (“PPWC”), which represents workers at Canfor’s Mackenzie
operation, expired on June 30, 2019. As the sawmill was indefinitely curtailed before the contract expired, an agreement
was reached with the PPWC to postpone negotiations until such time as any change in status of the facility would
necessitate negotiation of a new contract.
In 2022, Canfor negotiated its labour agreement with UNIFOR at its Grande Prairie lumber operation; the new
agreement was ratified on January 8, 2023 and expires on October 1, 2028.
For the Company’s European lumber operations, 44% of workers are represented by GS and Unionen, with the current
agreements effective until March 31, 2023. The Company’s operations in the US South are not unionized.
CPPI negotiated its collective agreements with UNIFOR and PPWC at its PG operations in February 2022. The new
agreement will expire on April 30, 2025.
Maintenance Obligations and Facility Disruptions
Canfor’s manufacturing processes are vulnerable to operational problems that could impair its ability to manufacture
its products. Canfor could experience a breakdown in any of its machines, or other important equipment, and from
time to time, planned or unplanned maintenance outages that cannot be performed safely or efficiently during
operations must be conducted. Such disruptions could cause a significant loss of production, which could have a
material adverse effect on Canfor’s business, financial condition and operating results. The Company believes there are
53
reasonable insurance arrangements in place to cover certain outcomes of such incidents; however, there can be no
guarantees that these arrangements will fully protect the Company against such losses.
Residual Fibre Revenues
Wood chips are a residual product of Canfor's lumber manufacturing process and, in Canada, are primarily sold to CPPI.
Residuals and wood waste in the US South and Europe are sold primarily to third party pulp and paper mills and pellet
plants. Pricing for residuals is subject to supply and demand in the regions our sawmill facilities are located. Market
conditions, including residual pricing, could be adversely impacted by increased sawmill capacities in these regions.
Conversely, increased demand from new and existing pellet facilities may help offset downward pressure on pricing.
In Canada, these chips are the principal raw material utilized by CPPI in its pulp manufacturing operations. If market
conditions caused CPPI to cease pulp operations for an extended period of time, Canfor would have a limited market
and/or reduced value for its chip supply and this could affect its ability to run its sawmills economically. Similarly, if
lumber market conditions or fibre availability were such that Canfor or other suppliers were unable to provide the
current volume of chips to CPPI as a result of AAC reductions, lower sawmill production or sawmill closures, whether
temporary or permanent, CPPI's chip supply, chip cost and production results could be materially affected.
Bark hog is another residual product of Canfor’s lumber manufacturing process. Bark hog has exhibited increasing
value to Canfor over the past several years. It is utilized in Canfor’s bark-fueled thermal oil energy systems to dry
lumber or, in the case of Canfor’s cogeneration facilities, to produce heat and electricity. Surplus bark hog is sold
predominantly to pulp customers, including CPPI, to be used in the generation of steam to manufacture power and
heat.
Softwood Lumber Agreement
The Softwood Lumber Agreement expired on October 12, 2015 without being renewed or replaced. On November 25,
2016, a petition was filed by the US Lumber Coalition to the US DOC and ITC alleging certain subsidies and administered
fees below the fair market value of timber that favour Canadian lumber producers, an assertion the Canadian industry
and Provincial and Federal Governments strongly deny and have successfully disproven in international courts in the
past. Canfor was selected by the DOC as a “mandatory respondent” to the countervailing and anti-dumping
investigations and is subject to company specific countervailing and anti-dumping duties.
On April 24, 2017, the DOC announced its preliminary countervailing duty of 20.26% specific to Canfor, to be posted
by cash deposits or bonds on the exports of softwood lumber to the US effective April 28, 2017 to August 25, 2017.
Following this period, CVD duties were not applicable on lumber shipments destined to the US from August 26, 2017
to December 27, 2017. On June 23, 2017, the DOC announced its preliminary anti-dumping duty determination of
7.72% specific to Canfor, to be posted by cash deposits or bonds on the exports of softwood lumber to the US effective
June 30, 2017.
Final countervailing and anti-dumping duty determinations were announced by the DOC on November 2, 2017, while
the ITC issued an affirmative determination of injury on December 7, 2017. As a result, Canfor was issued a final ADD
rate of 7.28% (after taking account of ministerial errors) effective November 8, 2017 and was subject to countervailing
duties on Canadian lumber exports destined to the US at a reduced rate of 13.24%, effective December 28, 2017.
Notwithstanding the final rate established in the DOC’s investigation, the final liability for the assessment of CVD and
ADD will not be determined until an official administrative review of the respective period is complete.
In early 2020, the DOC announced the preliminary results for the first period of review (POR1) and on November 24,
2020, finalized the rates. The Company’s final CVD rate was determined to be 2.94% for 2017 and 2.63% for 2018,
while the final ADD rate was 1.99% for the entire first period of review. The DOC’s final combined duty and cash
deposit rate of 4.62% applied to the Company’s Canadian lumber shipments destined to the United States from
December 1, 2020 until completion of the administrative review for the second period of review on November 30, 2021.
In May 2021, the DOC announced the preliminary results for the second period of review (POR2), which was based on
sales and cost data for 2019, and on November 24, 2021, finalized the rates. The Company’s final CVD rate was
determined to be 2.42%, while the final ADD rate was 17.12%. The DOC’s final combined cash deposit rate of 19.54%
applied to the Company’s Canadian lumber shipments destined to the United States from December 2021 until August
2022, upon completion of the administrative review for the third period of review.
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In January 2022, the DOC announced the preliminary results for the third period of review (POR3), which was based
on sales and cost data for 2020, and in August 2022, finalized the rates. The Company’s final CVD rate was determined
to be 0.95%, while the final ADD rate was 4.92%. The DOC’s final combined cash deposit rate of 5.87% applied to the
Company’s Canadian lumber shipments destined to the United States from August 2022 until completion of the
administrative review for the fourth period of review (anticipated in mid-2023).
Subsequent to year-end, in January 2023, the DOC announced the preliminary results for period of review (POR4),
which indicated that the Company’s preliminary CVD and ADD rate for 2021 was 2.04% and 5.25%, respectively.
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 US-Mexico-Canada
Agreement and through the WTO, where Canadian litigation has proven successful in the past. Despite the reduced
rates for POR3, no cash duties will be refunded to the Company until such time as the litigation regarding the imposition
of CVD and ADD has been settled.
Species at Risk
The Government of Canada pursuant to its authority under the Species at Risk Act (“SARA”), has determined several
wildlife species to be critically imperiled and has listed them as Endangered or Threatened. The Environment and
Climate Change Canada (“ECCC”) ministry is required under SARA to create and publish a Recovery Strategy for such
listed species. In 2012 and in 2014, Canada published a Recovery Strategy for the Boreal Caribou (Rangifer Tarandus
Caribou – Boreal population) and the Southern Mountain Caribou (Rangifer Tarandus Caribou) – Southern Mountain
population), each of which are species native to large tracts of boreal forests in northern BC and Alberta, and of the
mountains of BC and the eastern slopes of the Rocky Mountains in Alberta, respectively. The Recovery Strategy
identifies critical habitat and prescribes that each Province must develop and implement an action plan to recover the
species and protect its critical habitat. If Canada determines that a Province is not providing for adequate protection
for a species, then Canada reserves the right to levy protection orders that would prohibit activities deemed harmful
to the species or destructive to its critical habitat.
Canada has entered into separate five-year conservation agreements with BC and Alberta per Section 11 of SARA. In
BC the two parties along with two Treaty 8 First Nations, subsequently executed the Caribou Recovery Partnership
Agreement (the “Partnership Agreement”), on February 21, 2020. This 30-year Partnership Agreement encompasses
several Caribou herds in the south Peace River region of the Province. The Partnership Agreement has created the
obligation for BC to preserve certain sections of land from all resource, commercial, and recreational use and will
ultimately result in a reduction of AAC in the three affected timber management units.
The Partnership Agreement requires that the Province bring forward regulatory measures for approval, and that these
measures will take the form of legal land use objectives that will govern how recreational, commercial and industrial
activities will be allowed to occur. The Partnership Agreement will also result in the creation of a Class A Park where
commercial, recreational and industrial activities will be restricted or prohibited. The Company continues to work with
governments at all levels (federal, provincial, municipal) and with its provincial and national forest associations in an
effort to minimize economic impacts that will result from these land use decisions.
Stumpage Rates
Stumpage is the fee that businesses or individuals pay the Government for harvested timber from Crown land in BC.
Stumpage rates in BC are determined using a transaction evidence-based timber pricing system known as the Market
Pricing System (“MPS”). MPS uses market forces, such as lumber market pricing and the results and characteristics of
competitively sold BC Timber Sales (“BCTS”) auctions of timber, to establish the market value of timber (and ultimately
stumpage rates in BC). For cutting authorities harvested under long-term tenure agreements, an adjustment is made
for tenure obligation costs imposed on and incurred by licensees (such as forest management administration and
silviculture) before determining final stumpage rates.
The BC Government is scheduled to make its next annual update to the MPS on July 1, 2023. Further changes to the
BC Interior market driven stumpage system and resulting stumpage rates could have a material impact on Canfor’s
business. The Alberta Government will be reviewing their provincial stumpage rates (timber dues); however, the
Company is not aware of any planned material changes at this point in time.
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Transportation Services
Canfor relies primarily on third parties for transportation of its products, as well as delivery of raw materials, a significant
portion of which are transported by railroad, trucks and ships. If any of Canfor’s third-party transportation providers
were to fail to deliver the raw materials or products or distribute them in a timely manner, Canfor may be unable to
sell those products at full value, or at all, or unable to manufacture its products in response to customer demand, which
could have a material adverse effect on Canfor’s financial condition and operating results. In addition, if any of these
third parties were to cease operations, suffer labour-related disruptions, or cease doing business with Canfor, the
Company’s operations or cost structure may be adversely impacted. Transportation services may also be impacted by
seasonal factors, which could impact the timely delivery of raw materials and distribution of products to customers and
have a resulting material adverse impact on Canfor’s financial condition and operating results. As a result of increased
government regulation on truck driver work hours and rail capacity constraints, access to adequate transportation
capacity has at times been strained and could affect Canfor’s ability to move its log, lumber and wood chips at
competitive market prices.
OUTSTANDING SHARE DATA
At February 28, 2023, there were 124,493,600 common shares issued and outstanding.
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER
FINANCIAL REPORTING
The Company has established disclosure controls and procedures to ensure that information disclosed in this MD&A
and the related consolidated financial statements was properly recorded, processed, summarized and reported to the
Board of Directors and the Audit Committee. The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer
(“CFO”) have evaluated the effectiveness of these disclosure controls and procedures for the year ended December
31, 2022 and have concluded that they are effective.
The CEO and CFO acknowledge responsibility for the design of internal controls over financial reporting (“ICFR”). During
the year, with the acquisition of Millar Western, the Company included the design of disclosure controls and procedures
(“DC&P”) and ICFR for its Millar Western 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.
The CEO and CFO confirm that there were no changes in the Company’s ICFR during the year ended December 31,
2022 that materially affected, or would be reasonably likely to materially affect, such controls.
Based upon their evaluation of these controls for the year ended December 31, 2022, the CEO and CFO have concluded
that these controls are operating effectively.
Additional information about the Company, including its 2022 Annual Information Form, is available at
www.sedar.com or at www.canfor.com.
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C ONSO LIDATE D FI NANCIAL STATEM ENTS
57 MANAGEMENT’S RESPONSIBILITY
The information and representations in these consolidated financial statements are the responsibility of Management
and have been approved by the Board of Directors. The consolidated financial statements were prepared by
Management in accordance with International Financial Reporting Standards and, where necessary, reflect
Management’s best estimates and judgments at this time. It is reasonably possible that circumstances may arise which
cause actual results to differ.
Canfor Corporation maintains systems of internal controls over financial reporting, policies and procedures to provide
reasonable assurance as to the reliability of the financial records and the safeguarding of its assets.
The Board of Directors is responsible for ensuring that Management fulfills its responsibilities for financial reporting and
is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out these
activities primarily through its Audit Committee.
The Audit Committee is comprised of four Directors who are not employees of the Company. The Audit Committee
meets periodically throughout the year with Management, external auditors and internal auditors to review their
respective responsibilities, results of the reviews of internal controls over financial reporting, policies and procedures
and financial reporting matters. The external and internal auditors meet separately with the Audit Committee.
The consolidated financial statements have been reviewed by the Audit Committee and approved by the Board of
Directors. The consolidated financial statements have been audited by KPMG LLP, the external auditors, whose report
follows.
February 28, 2023
Donald B. Kayne
President and Chief Executive Officer
Patrick A. J. Elliott
Chief Financial Officer and Senior Vice President, Sustainability
58 INDEPENDENT AUDITOR’S REPORT
To the Shareholders of Canfor Corporation
Opinion
We have audited the consolidated financial statements of Canfor Corporation (the Entity), which comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2022 and December 31, 2021
the consolidated statements of income for the years then ended
the consolidated statements of other comprehensive income (loss) for the years then ended
the consolidated statements of changes in equity for the years then ended
the consolidated statements of cash flows for the years then ended
• and notes to the consolidated financial statements, including a summary of significant accounting
policies
(Hereinafter referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated financial position of the Entity as at December 31, 2022 and December 31, 2021, and its
consolidated financial performance and its consolidated cash flows for the years then ended in accordance
with International Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the "Auditor’s Responsibilities for the
Audit of the Financial Statements" section of our auditor’s report.
We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit
of the financial statements in Canada and we have fulfilled our other responsibilities in accordance with
these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
59
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the financial statements for the year ended December 31, 2022. These matters were addressed in
the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
We have determined the matters described below to be the key audit matters to be communicated in our
auditor’s report.
Evaluation of the acquisition date fair values of property, plant and equipment related to
the Millar Western Acquisition
Description of the matter
We draw attention to Notes 3, 5 and 27 to the financial statements. On March 1, 2022, the Entity acquired
Millar Western’s solid wood operations and associated forest tenure for total consideration of $434.0 million,
of which the total fair value of acquired property, plant and equipment is $236.7 million. The determination
of the acquisition date fair value of the acquired property, plant and equipment involved significant
estimates, including replacement cost new estimates and physical depreciation assumptions.
Why the matter is a key matter
We identified the evaluation of the acquisition date fair value of the property, plant and equipment acquired
in the Millar Western Acquisition as a key audit matter. Significant auditor judgment was required in
evaluating the results of our audit procedures regarding the estimates of the replacement cost new
estimates and physical depreciation assumptions for the acquired property, plant and equipment. Further,
specialized skills and knowledge were needed to evaluate these estimates.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
We involved valuation professionals with specialized skills and knowledge who assisted in:
• Assessing the reasonableness of the Entity’s replacement cost new estimates of the acquisition
date fair values of acquired plant and equipment by comparing the Entity’s estimates to market data
for comparable assets
• Assessing the appropriateness of physical depreciation assumptions by comparing the Entity’s
estimated depreciated cost to a depreciation cost range that was independently developed using
market data for comparable assets.
Assessment of the recoverable amounts of the Western Canadian lumber operations and
the pulp and paper segment
Description of the matter
We draw attention to Notes 3, 5, 7 and 19 to the financial statements. The Entity identified indicators of
impairment for its Western Canadian lumber operations and for its pulp and paper segment and performed
impairment tests to estimate the recoverable amounts. The Entity has recorded impairment losses of $89.0
million and $49.6 million related to the Western Canadian lumber operations in the lumber segment and
the pulp assets within the pulp and paper segment, respectively, for the year ended December 31, 2022.
The recoverable amounts are determined based on an assessment of value in use. Significant assumptions
60 used in determining value in use include future production volumes, commodity prices, log, fibre and
production costs and discount rates.
Why the matter is a key audit matter
We identified the assessment of the recoverable amounts of the Western Canadian lumber operations and
the pulp and paper segment as a key audit matter. The values in use were sensitive to changes in certain
significant assumptions. Significant auditor judgment was required to evaluate the results of our audit
procedures. Further, specialized skills and knowledge were required in evaluating the discount rates.
How the matter was addressed in the audit
The primary procedures we performed to address this key audit matter included the following:
• We evaluated the appropriateness of forecasted production volumes and forecasted log, fibre and
production costs of the Entity by comparing to actual historical production volumes and log, fibre and
production costs. We considered changes in conditions and events affecting the Entity to assess the
adjustments or lack of adjustments made by the Entity in arriving at the assumptions.
• We compared forecasted commodity prices to third party industry pricing publications and to the Entity’s
historical realized prices over the past five years.
• We involved a valuation professional with specialized skills and knowledge, who assisted in evaluating
the discount rates used in the estimated value in use by comparing to a discount range that was
independently developed using publicly available market data for comparable entities.
Other Information
Management is responsible for the other information. Other information comprises:
•
•
the information included in Management's Discussion and Analysis filed with the relevant Canadian
Securities Commissions.
the information, other than the financial statements and the auditor’s report thereon, included in a
document likely to be entitled "2022 Canfor Corporation Annual Report".
Our opinion on the financial statements does not cover the other information and we do not and will not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
We obtained the information included in Management's Discussion and Analysis filed with the relevant
Canadian Securities Commissions as at the date of this auditor’s report. If, based on the work we have
performed on this other information, we conclude that there is a material misstatement of this other
information, we are required to report that fact in the auditor’s report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditor’s report thereon, included in a
document likely to be entitled “2022 Canfor Corporation Annual Report” is expected to be made available
61 to us after the date of this auditor’s report. If, based on the work we will perform on this other information,
we conclude that there is a material misstatement of this other information, we are required to report that
fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the
Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), and for such internal control as management determines is necessary
to enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity's ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Entity or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes
our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material
misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of the
financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
• Obtain an understanding of internal control relevant to the audit 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.
62 •
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to
the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Entity to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in
a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
•
Provide those charged with governance for the financial statements with a statement that we have
complied with relevant ethical requirements regarding independence and communicate with them all
relationships and other matters that may reasonably be thought to bear on our independence, and
where applicable, related safeguards.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the group Entity to express an opinion on the financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
• Determine, from the matters communicated with those charged with governance, those matters that
were of most significance in the audit of the financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our auditor’s report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
Chartered Professional Accountants
The engagement partner on the audit resulting in this auditor’s report is Andrew James.
Vancouver, Canada
February 28, 2023
63 Canfor Corporation
Consolidated Balance Sheets
(millions of Canadian dollars)
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable - Trade
- Other
Income taxes recoverable
Inventories (Note 4)
Prepaid expenses and other
Total current assets
Property, plant and equipment (Note 5)
Right-of-use assets (Note 6(a))
Timber licenses (Note 7)
Goodwill and other intangible assets (Note 8)
Long-term investments and other (Note 9)
Total assets
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities (Note 10)
Operating loans (Note 11)
Current portion of deferred reforestation obligations (Note 14)
Current portion of term debt (Note 12)
Current portion of lease obligations (Note 6(b))
Income taxes payable
Total current liabilities
Term debt (Note 12)
Retirement benefit obligations (Note 13)
Lease obligations (Note 6(b))
Deferred reforestation obligations (Note 14)
Other long-term liabilities (Note 15)
Put liability (Note 26)
Deferred income taxes, net (Note 20)
Total liabilities
EQUITY
Share capital (Note 16)
Contributed surplus and other equity
Retained earnings
Accumulated other comprehensive income
Total equity attributable to equity shareholders of the Company
Non-controlling interests (Note 17)
Total equity
Total liabilities and equity
As at
December 31,
2022
As at
December 31,
2021
$
$
$
$
$
$
$
1,268.7
336.0
87.3
54.2
1,180.7
138.0
3,064.9
2,219.1
99.1
357.8
532.1
466.2
6,739.2
678.7
27.8
60.4
45.3
26.2
45.2
883.6
213.6
158.3
79.5
43.8
32.0
172.7
392.9
1,976.4
$
$
$
$
955.1 $
(157.7)
3,341.5
82.6
4,221.5
541.3
4,762.8 $
6,739.2 $
1,354.8
430.4
84.1
-
1,173.8
120.3
3,163.4
1,812.7
65.5
313.2
514.8
304.3
6,173.9
730.2
18.7
58.3
0.5
21.9
252.0
1,081.6
245.5
205.5
49.2
54.6
31.0
156.2
341.2
2,164.8
982.2
(130.9)
2,586.8
45.9
3,484.0
525.1
4,009.1
6,173.9
Commitments and Contingencies (Note 24) and Subsequent Events (Notes 19 and 28)
The accompanying notes are an integral part of these consolidated financial statements.
APPROVED BY THE BOARD
“R.S. Smith”
Director, R.S. Smith
“The Hon. J.R. Baird”
Director, The Hon. J.R. Baird
64 Canfor Corporation
Consolidated Statements of Income
(millions of Canadian dollars, except per share data)
Sales
Costs and expenses
Manufacturing and product costs
Freight and other distribution costs
Countervailing and anti-dumping duty expense, net (Note 28)
Amortization
Selling and administration costs
Restructuring and other items, net (Note 19)
Asset write-downs and impairments (Note 19)
Operating income
Finance income (expense), net (Note 18)
Foreign exchange gain (loss) on term debt
Foreign exchange gain (loss) on duty deposits recoverable, net
Gain (loss) on derivative financial instruments (Note 26)
Other income, net
Net income before income taxes
Income tax expense (Note 20)
Net income
Net income attributable to:
Equity shareholders of the Company
Non-controlling interests (Note 17)
Net income
Net income per common share: (in Canadian dollars)
Attributable to equity shareholders of the Company
-
Basic and diluted (Note 16)
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2021
2022
$
7,426.7
$
7,684.9
4,795.0
790.6
49.1
397.2
174.2
7.9
138.6
6,352.6
4,173.3
701.0
100.4
376.8
147.1
(15.3)
293.5
5,776.8
1,074.1
1,908.1
1.0
(12.4)
14.8
3.9
27.1
(24.1)
6.3
(4.4)
(16.1)
27.0
1,108.5
(247.4)
861.1 $
1,896.8
(438.0)
1,458.8
787.3 $
73.8
861.1 $
1,341.6
117.2
1,458.8
$
$
$
$
6.39 $
10.74
65
Canfor Corporation
Consolidated Statements of Other Comprehensive Income (Loss)
(millions of Canadian dollars)
Net income
Other comprehensive income (loss)
Items that will not be reclassified subsequently to net income:
Defined benefit plan actuarial gains, net (Note 13)
Income tax expense on defined benefit plan actuarial gains, net (Note 20)
Items that may be reclassified subsequently to net income:
Foreign exchange translation of foreign operations, net of tax
Other comprehensive income (loss), net of tax
Total comprehensive income
Total comprehensive income attributable to:
Equity shareholders of the Company
Non-controlling interests (Note 17)
Total comprehensive income
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2022
2021
$
861.1
$
1,458.8
36.8
(9.9)
26.9
36.7
63.6
46.9
(13.2)
33.7
(73.8)
(40.1)
$
924.7
$
1,418.7
$
$
845.7
79.0
$
1,298.4
120.3
924.7
$
1,418.7
66
Canfor Corporation
Consolidated Statements of Changes in Equity
(millions of Canadian dollars)
Share capital
Balance at beginning of year
Share purchases (Note 16)
Balance at end of year
Contributed surplus and other equity
Balance at beginning of year
Put liability (Note 26)
Balance at end of year
Retained earnings
Balance at beginning of year
Net income attributable to equity shareholders of the Company
Defined benefit plan actuarial gains, net of tax
Dissolution of non-controlling interest (Note 17)
Share purchases (Note 16)
Balance at end of year
Accumulated other comprehensive income
Balance at beginning of year
Foreign exchange translation of foreign operations, net of tax
Balance at end of year
Total equity attributable to equity shareholders of the Company
Non-controlling interests
Balance at beginning of year
Net income attributable to non-controlling interests
Defined benefit plan actuarial gains attributable to non-controlling interests, net of tax
Distributions to non-controlling interests (Note 17)
Dissolution of non-controlling interest (Note 17)
Balance at end of year (Note 17)
Total equity
The accompanying notes are an integral part of these consolidated financial statements.
Years ended December 31,
2022
2021
$
982.2
$
(27.1)
$
955.1 $
987.9
(5.7)
982.2
$
(130.9) $
(127.4)
(26.8)
(3.5)
$
(157.7) $
(130.9)
$
2,586.8
$
787.3
21.7
-
(54.3)
1,227.3
1,341.6
30.6
0.8
(13.5)
$
3,341.5 $
2,586.8
$
$
$
45.9
$
36.7
82.6 $
119.7
(73.8)
45.9
4,221.5 $
3,484.0
$
525.1
$
73.8
5.2
(62.8)
-
541.3 $
426.2
117.2
3.1
(19.7)
(1.7)
525.1
$
$
4,762.8 $
4,009.1
67
Years ended December 31,
2022
2021
Canfor Corporation
Consolidated Statements of Cash Flows
(millions of Canadian dollars)
Cash generated from (used in):
Operating activities
Net income
Items not affecting cash:
Amortization
Income tax expense (Note 20)
Change in long-term portion of deferred reforestation obligations, net
Foreign exchange (gain) loss on term debt
Foreign exchange (gain) loss on duties recoverable, net
Duties paid (greater) less than accruals (Note 28)
Changes in mark-to-market value of derivative financial instruments (Note 26)
Employee future benefits expense
Finance (income) expense, net
Asset write-downs and impairments (Note 19)
Other, net
Defined benefit plan contributions, net
Income taxes paid, net
Net change in non-cash working capital (Note 21)
Financing activities
Operating loan drawings, net (Note 11)
Repayments of term debt, net (Note 12)
Payments of lease obligations (Note 6(b))
Finance expenses paid
Share purchases (Note 16)
Cash distributions paid to non-controlling interests (Note 17)
Investing activities
Additions to property, plant and equipment and intangible assets, net (Notes 5 and 8)
Acquisition of Millar Western (Note 27)
Phased acquisition of Elliott
Interest income received
Other, net
Foreign exchange gain (loss) on cash and cash equivalents
Increase (decrease) in cash and cash equivalents*
Cash and cash equivalents at beginning of year*
Cash and cash equivalents at end of year*
*Cash and cash equivalents include cash on hand less unpresented cheques.
The accompanying notes are an integral part of these consolidated financial statements.
$
861.1
$ 1,458.8
397.2
247.4
(16.6)
12.4
(14.8)
(156.3)
(4.1)
11.1
(1.0)
138.6
18.2
(12.2)
(462.6)
1,018.4
94.6
1,113.0
10.7
(0.4)
(26.9)
(21.1)
(78.9)
(62.8)
(179.4)
(625.3)
(434.0)
-
11.6
1.1
(1,046.6)
26.9
(86.1)
1,354.8
$ 1,268.7
376.8
438.0
(7.4)
(6.3)
4.4
11.9
2.9
10.8
24.1
293.5
(22.1)
(13.6)
(273.6)
2,298.2
(383.3)
1,914.9
8.0
(422.8)
(25.3)
(25.1)
(19.2)
(19.7)
(504.1)
(428.2)
-
(38.2)
1.2
(3.2)
(468.4)
(6.8)
935.6
419.2
$ 1,354.8
68
Canfor Corporation
Notes to the Consolidated Financial Statements
Years ended December 31, 2022 and December 31, 2021
(millions of Canadian dollars unless otherwise noted)
1.
Reporting Entity
Canfor Corporation is a company incorporated and domiciled in Canada and listed on the Toronto Stock Exchange. The
address of the Company’s registered office is 100-1700 West 75th Avenue, Vancouver, British Columbia, Canada, V6P
6G2. The consolidated financial statements of the Company as at and for the year ended December 31, 2022 comprise
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 70.0%, respectively, at December 31, 2022.
Canfor is an integrated forest products company with facilities in Canada, the United States (“US”) and Europe. The
Company produces softwood lumber, pulp and paper products, remanufactured lumber products, engineered wood
and other lumber-related products, wood pellets, and energy.
2.
Basis of Preparation
Statement of compliance
The consolidated financial statements of the Company have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The consolidated financial statements were authorized for issue by the Board of Directors on February 28, 2023.
Basis of measurement
The consolidated financial statements have been prepared on a historical cost basis, except for certain items as
discussed in the applicable accounting policies under Note 3.
Use of estimates and judgments
The preparation of the consolidated financial statements in accordance with IFRS requires Management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of
assets, liabilities, income and expenses. Actual results may differ from these estimates.
The Company regularly reviews its estimates and assumptions; however, it is possible that circumstances may arise
which may cause actual results to differ from Management’s estimates. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected. Information about the
significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most
significant effect on the amounts recognized in the consolidated financial statements is included in the applicable notes:
• Note 4 – Inventories;
• Note 19 – Asset Write-Downs, Impairments and
• Note 5 – Property, Plant and Equipment;
Restructuring Costs;
• Note 8 – Goodwill and Other Intangible Assets;
• Note 20 – Income Taxes;
• Note 9 – Long-Term Investments and Other;
• Note 27 – Millar Western Acquisition; and
• Note 13 – Employee Future Benefits;
• Note 28 – Countervailing and Anti-Dumping Duties.
3.
Significant Accounting Policies
The following accounting policies have been applied to the financial information presented.
Basis of consolidation
Subsidiaries are entities controlled by the Company. Control exists when Canfor is able to govern the financial and
operating activities of those other entities to generate returns for the Company. Inter-company transactions, balances
and unrealized gains and losses on transactions between different entities within the Company are eliminated.
Associates are those entities in which Canfor exercises significant influence, but not control, over financial and operating
policies. Unless circumstances indicate otherwise, significant influence is presumed to exist when Canfor holds between
20 and 50 percent of the voting power of another entity. Associates are accounted for using the equity method and
69
are recognized initially at cost. The consolidated financial statements include Canfor’s share of the post-acquisition
income and expenses and equity movement of these equity accounted investees. Joint ventures are accounted for
using the equity method of accounting.
Business combinations
Business combinations are accounted for using the acquisition method as at the acquisition date. Canfor measures
goodwill at the acquisition date as the fair value of the consideration transferred, including any non-controlling interest
when applicable, less the fair value of the identifiable assets acquired and liabilities assumed. When the excess is
negative, a bargain purchase gain is recognized immediately in net income. Transaction costs in connection with
business combinations are expensed as incurred.
Cash and cash equivalents
Cash and cash equivalents include cash in bank accounts and liquid money market instruments that are readily
convertible into known amounts of cash within three months or less from the date of acquisition, and are valued at
amortized cost, which approximates market value. Cash is presented net of unpresented cheques. When the amount
of unpresented cheques is greater than the amount of cash, the net amount is presented as cheques issued in excess
of cash on hand. Interest is earned at variable rates dependent on the amount, credit quality and term of the Company’s
deposits.
Financial instruments
Financial instruments comprise cash and cash equivalents, trade and other accounts receivable, certain investments
and advances, net duty deposits recoverable, derivative instruments, accounts payable and accrued liabilities, other
liabilities, operating loans and term debt, as well as the Company’s put liability. Canfor uses derivative financial
instruments in the normal course of its operations as a means to manage its foreign exchange, interest rate, lumber
price and energy price risks. Canfor’s policy is not to utilize derivative financial instruments for trading or speculative
purposes. Canfor’s derivative financial instruments are not designated as hedges for accounting purposes.
Classification and measurement of financial assets
Financial assets are classified as either measured at amortized cost, fair value through other comprehensive income
(“FVOCI”), or fair value through net income (“FVTPL”) based on the business model in which a financial asset is
managed, its contractual cash flow characteristics and when certain conditions are met:
•
•
•
Amortized cost – measured at amortized cost using the effective interest rate method. Where applicable,
amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and
impairments are recognized in net income.
FVOCI – measured at FVOCI if not designated as FVTPL. Interest income, foreign exchange gains and losses
and impairments are recognized in net income. Other net gains and losses are recognized in other
comprehensive income. On derecognition, gains and losses accumulated in Other Comprehensive Income
(“OCI”) are reclassified to net income.
FVTPL – measured at FVTPL if not classified as amortized cost or FVOCI with net gains and losses, including
any interest or dividend income, recognized in net income.
Equity investments are required to be classified as measured at fair value. However, on initial recognition of an equity
investment that is not held-for-trading, the Company may irrevocably elect to present subsequent changes in the
investments’ fair value in other comprehensive income. This election is made on an investment-by-investment basis.
The Company currently records gains and losses on its equity investments in net income.
Classification and measurement of financial liabilities
Financial liabilities (other than the put liability) are classified as either measured at amortized cost or FVTPL. A financial
liability is classified as FVTPL if it is held-for-trading, a derivative, or if it is designated as such on initial recognition.
Financial liabilities at FVTPL are measured at fair value with net gains and losses, including interest expense, recognized
in net income. Other financial liabilities are initially measured at fair value and subsequently measured at amortized
cost using the effective interest rate method. Any gains or losses on derecognition of financial liabilities (other than the
put liability) are also recognized in net income. The Company’s put liability is measured initially at fair value with
subsequent net gains and losses recognized in other equity (“FVTEQ”). Interest expense and foreign exchange gains
and losses of all financial liabilities are recognized in net income.
70
Canfor’s financial instruments are classified and subsequently measured as follows:
Financial Assets:
Cash and cash equivalents
Trade and other accounts receivable
Long-term advances and other assets
Duty deposits recoverable, net
Investments in debt and equity securities
Derivative contracts
Foreign exchange forward contracts
Financial Liabilities:
Accounts payable and accrued liabilities
Other liabilities
Operating loans
Term debt
Put liability
Impairment
Amortized cost
Amortized cost
Amortized cost
FVTPL
FVTPL
FVTPL
FVTPL
Amortized cost
Amortized cost
Amortized cost
Amortized cost
FVTEQ
The Company applies the simplified approach in determining expected credit losses (“ECLs”), which requires a
probability-weighted estimate of expected lifetime credit losses to be recognized upon initial recognition of financial
assets measured at amortized cost and contract assets. Credit losses are measured as the present value of cash
shortfalls from all possible default events, discounted at the effective interest rate of the financial asset. Any loss
allowances for financial assets at amortized cost are deducted from the gross carrying amount of the assets.
Inventories
Inventories include logs, lumber, engineered wood and other lumber-related products, pulp, paper, wood pellets, chips,
and materials and supplies. These are measured at the lower of cost and net realizable value and are presented net of
applicable write-downs. The cost of inventories is based on the weighted average cost principle, and includes raw
materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). Net
realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and
selling expenses. The Company estimates the net realizable value of finished goods inventories based on actual and
forecasted sales orders, as well as outlook prices and forecast exchange rates for the period over which the inventories
are expected to be sold. Outlook prices are determined using Management’s estimates at the end of the period, and
may differ from the actual prices at which the inventories are sold.
Leases
Lease definition
At inception of a contract, the Company assesses whether the contract is, or contains, a lease. A contract is, or contains,
a lease if it conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
An identified asset may be implicitly or explicitly specified in a contract, but must be physically distinct, and must not
have the ability for substitution by a lessor. The Company has the right to control an identified asset if it obtains
substantially all of its economic benefits and either pre-determines or directs how and for what purpose the asset is
used.
Measurement of right-of-use assets and lease obligations
At lease commencement, the Company recognizes a right-of-use asset (“ROU asset”) and a lease obligation. The ROU
asset is initially measured at cost, which comprises the initial amount of the lease obligation adjusted for any lease
payments made at, or before, the commencement date, plus any initial direct costs incurred, less any lease incentives
received.
The ROU asset is subsequently amortized on a straight-line basis over the shorter of the term of the lease, or the useful
life of the assets determined on the same basis as the Company’s property, plant and equipment. The ROU asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease obligation.
The lease obligation is initially measured at the present value of lease payments remaining at the lease commencement
date, discounted using the Company’s incremental borrowing rate. Lease payments included in the measurement of
the lease obligation, when applicable, may comprise fixed payments, variable payments that depend on an index or
71
rate, amounts expected to be payable under a residual value guarantee and the exercise price under a purchase,
extension or termination option that the Company is reasonably certain to exercise.
The lease obligation is subsequently measured at amortized cost using the effective interest method. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the
Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes
its assessment of whether it will exercise a purchase, extension or termination option. When the lease obligation is
remeasured, a corresponding adjustment is made to the carrying amount of the ROU asset.
Recognition exemptions
The Company has elected not to recognize ROU assets and lease obligations for short-term leases that have a lease
term of twelve months or less or for leases of low-value assets. Payments associated with these leases are recognized
as an operating expense on a straight-line basis over the lease term within costs and expenses on the consolidated
statement of income.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated amortization, write-downs and
impairment losses.
Cost includes expenditures which are directly attributable to the acquisition of the asset. The cost of self-constructed
assets includes the cost of materials and direct labour, borrowing costs (as applicable), and any other costs directly
attributable to bringing assets to the location and condition necessary for it to be used in the manner intended by
Management.
The cost of replacing a major component of an item of property, plant and equipment is recognized in the carrying
amount of the item if the future economic benefits embodied within the component part will flow to Canfor and its cost
can be measured reliably. The carrying amount of the replaced component is removed. The costs of the day-to-day
servicing of property, plant and equipment are recognized in net income as incurred.
Amortization is recognized in net income on a straight-line basis over the estimated useful lives of each component of
an item of property, plant and equipment, as set out in the table below. Land is not amortized. The majority of Canfor’s
amortization expense for property, plant and equipment is recognized in manufacturing and product costs.
Amortization methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each reporting
date. The following rates have been applied to Canfor’s capital assets:
Buildings
Pulp and paper machinery and equipment
Sawmill machinery and equipment
Logging machinery and equipment
Logging roads and bridges
Mobile and other equipment
Timber licenses
5 to 50 years
8 to 20 years
1 to 15 years
4 to 20 years
5 to 25 years
2 to 10 years
Timber licenses include tree farm licenses, forest licenses and timber licenses with the Provinces of British Columbia
and Alberta. Timber licenses are carried at cost less accumulated amortization and impairment losses. Renewable
licenses are amortized using the straight-line method over 50 years, while non-renewable licenses are amortized over
the period of the license.
Other intangible assets
Goodwill
Goodwill represents the excess of the cost of a business acquisition over the fair value of Canfor’s share of the net
identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill is tested annually for impairment and
carried at cost less any accumulated impairment losses.
72
Computer software
Software development costs relate to major software systems purchased or developed by the Company. These costs
are amortized on a straight-line basis over periods ranging from four to ten years.
Government assistance
Government assistance relating to the acquisition of property, plant and equipment is recorded as a reduction of the
cost of the asset to which it relates, with any amortization calculated on the net amount. Government grants related
to income are recognized as income or a reimbursement of costs on a systematic basis over the periods necessary to
match them with the related costs which they were intended to compensate, unless the conditions for the grant are
met after the related expenses have been recognized. In this case, the grant is recognized when it becomes receivable.
Asset impairments
Canfor’s property, plant and equipment, ROU assets, timber licenses and other intangible assets are assessed at each
reporting date to determine whether there are any indications of impairment, and an impairment test is performed
whenever events or circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized in net income at the amount the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the
purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable
cash inflows that are largely independent of cash inflows from other assets or groups of assets (cash-generating unit).
Non-financial assets, other than goodwill, for which impairment was recorded in a prior period, are reviewed for possible
reversal of the impairment at each reporting date. When an impairment loss is reversed, the increased carrying amount
of the asset cannot exceed the carrying amount that would have been determined (net of amortization) had no
impairment loss been recognized in prior years.
For the purpose of impairment testing, goodwill is allocated to the Company’s operating regions which represent the
lowest level within the Company at which the goodwill is monitored for internal management purposes.
Employee future benefits
Defined contribution plans
A defined contribution plan is a post-employment benefit plan under which an entity makes contributions to a separate
entity and has no legal or constructive obligation to pay further amounts. Obligations for contributions to defined
contribution plans are recognized as an employee future benefits expense when they are earned.
For hourly employees covered by forest industry union defined contribution or benefit plans, the consolidated statement
of income is charged with the Company’s contributions required under the collective agreements.
Defined benefit plans
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. Canfor has various
defined benefit plans that provide both pension and other non-pension post-retirement benefits to certain salaried
employees, and certain hourly employees not covered by forest industry union plans. The other non-pension post-
retirement benefits include certain health care benefits and pension bridging benefits to eligible retired employees.
The surplus and/or obligation recognized in the consolidated balance sheet in respect of a defined benefit pension plan
is the net of the accrued benefit obligation and the fair value of the plan assets. The accrued benefit obligation, the
related service cost and, where applicable, the past service cost is determined separately for each defined benefit
pension plan based on actuarial determinations. The accrued benefit obligation is calculated as the present value of
each member’s prospective benefits earned in respect of credited service prior to the valuation date and the related
service cost is calculated as the present value of the benefits the member is assumed to earn for credited service in
the ensuing year. The actuarial assumptions used in these calculations, such as salary escalation and health care
inflation, are based upon best estimates selected by Canfor. The discount rate assumptions are based on the yield at
the reporting date on high quality corporate bonds that have maturity dates approximating the terms of Canfor’s
obligations.
Actuarial gains and losses can arise from differences between actual and expected outcomes or changes in the actuarial
assumptions or legislated amounts payable. Actuarial gains and losses, including the return on plan assets, are
recognized in other comprehensive income in the period in which they occur.
73
A gain or loss on settlement is recognized in net income, calculated as the difference between the present value of the
defined benefit obligation being settled, as determined on the date of settlement, and the settlement amount.
Provisions
Canfor recognizes a provision if, as a result of a past event, it has a present legal or constructive obligation that can
be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
The provision recorded is Management’s best estimate of the expenditure required to settle the present obligation at
the end of the reporting period. Provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the liability. The
expense arising from the unwinding of the discount due to the passage of time is recorded as a finance expense. The
main classes of provisions recognized by Canfor are as follows:
Asset retirement obligations
Canfor recognizes liabilities for asset retirement obligations in the period in which they are incurred. The site restoration
costs are capitalized as part of the cost of the related item of property, plant and equipment and amortized on a basis
consistent with the expected useful life of the related asset. Asset retirement obligations are discounted at the risk-
free rate in effect at the balance sheet date.
Deferred reforestation obligations
Forestry legislation in British Columbia and Alberta requires Canfor to incur the cost of reforestation of its forest, timber
and tree farm licenses and forest management agreements. Accordingly, Canfor records an expense and a liability for
the costs of reforestation in the period in which the timber is harvested. In periods subsequent to the initial
measurement, changes in the liability resulting from the passage of time and revisions to Management’s estimates are
recognized in net income as they occur. Deferred reforestation obligations are discounted at the risk-free rate in effect
at the balance sheet date.
Restructuring
A provision for restructuring is recognized as an expense and a liability, when Canfor has approved a detailed and
formal restructuring plan, which may include the indefinite or permanent closure of one of its operations, and the
restructuring has either commenced, or has been announced publicly. Provisions are not recognized for future operating
costs.
Share-based compensation
Canfor has one share-based compensation plan. Compensation expense is recognized for Canfor’s Deferred Share Unit
(“DSU”) Plan when the DSUs are granted, with a corresponding increase to the liability. The liability is remeasured at
each reporting date and at settlement date, with any changes in the fair value of the liability recognized as a
compensation expense or recovery in net income. The fair value of the DSUs is determined with reference to the market
price of Canfor’s shares as at the date of valuation.
Revenue recognition
Canfor’s revenues are derived from the sale of lumber, engineered wood and other lumber-related products, pulp,
paper, residual fibre, logs, wood pellets and energy. Revenue is measured based on the consideration specified in a
contract with a customer, net of applicable sales taxes, returns, rebates and discounts and after eliminating sales within
the Company. Revenue is recognized when the Company transfers the control of a product to a customer. Energy
revenue is recognized at month-end based on energy produced and transferred to the customer under the terms and
conditions of electricity purchase and load displacement agreements.
The timing of transfer of control to customers varies depending on the individual terms of the contract of sale, but is
typically as follows for Canfor’s principal revenue generating activities:
• Lumber – At the time lumber and lumber-related products are loaded onto a truck or rail carrier, upon vessel
departure, or when lumber and lumber-related products have been picked up by the buyer at a designated
transfer point at the Company’s mill or warehouse. The amount of revenue recognized is adjusted for volume
rebates and discounts at the point in time control is transferred.
• Pulp and Paper – At the time pulp and paper is loaded onto a truck or rail carrier, upon vessel departure, upon
delivery, as the goods are used by the customer, or when pulp and paper has been picked up by the buyer
at a designated transfer point at the Company’s mill or warehouse. The amount of revenue recognized is
adjusted for commissions, volume rebates and discounts at the point in time control is transferred.
74
Amounts charged to customers for shipping and handling are recognized as revenue, and shipping and handling costs
incurred by Canfor are reported as a component of freight and other distribution costs. Countervailing and anti-dumping
duties are recorded as a component of operating income.
Income taxes
Income tax expense comprises current and deferred taxes. Current and deferred taxes are recognized in net income
except to the extent that they relate to items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the period, using the tax rates
enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous
periods.
Canfor recognizes deferred income tax in respect of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred income tax is
measured at tax rates expected to be applied to the temporary differences when they reverse, based on the laws that
have been enacted or substantively enacted by the reporting date.
A deferred income tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to
the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred
income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that
the related tax benefit will be realized. Investment tax credits are credited to manufacturing and product costs in the
period in which it becomes reasonably assured that the Company is entitled to them. Unused investment tax credits
are recorded as other current or long-term assets in the Company’s consolidated balance sheet, depending upon when
the benefit is expected to be received.
Foreign currency translation
Items included in the financial statements of each of the Company’s entities are measured using the currency of the
primary economic environment in which the entity operates (the “functional currency”). The consolidated financial
statements are presented in Canadian dollars, which is the Company’s functional currency.
The majority of Canfor’s sales are denominated in foreign currencies, primarily the US-dollar, as well as Swedish Krona
(“SEK”). Transactions in foreign currencies are translated to the functional currency at exchange rates on the dates of
transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to
the functional currency at the exchange rate on that date. Foreign currency differences arising on translation are
recognized in net income.
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are
translated to the Canadian dollar at exchange rates on the reporting date. The income and expenses of foreign
operations are translated to the Canadian dollar at exchange rates on the transaction dates. Foreign exchange
differences arising from translation of foreign operations are recognized in other comprehensive income, and recorded
to the accumulated foreign exchange translation account. Canfor’s foreign operations include CSP, Vida, and all entities
owned or partly owned by CSP and Vida.
Segment reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating
decision-maker. Segment results reported to the chief operating decision-maker include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest-
bearing liabilities, head office expenses, and income tax assets and liabilities. Segment capital expenditure is the total
cost incurred during the year to acquire property, plant and equipment, timber licenses and intangible assets, other
than goodwill.
75
4.
Inventories
(millions of Canadian dollars)
Logs
Finished products
Residual fibre
Materials and supplies
$
As at
December 31,
2022
305.3
693.5
27.0
154.9
$
As at
December 31,
2021
343.4
639.2
56.5
134.7
$
1,180.7
$
1,173.8
The above inventory balances are stated at the lower of cost and net realizable value. For the year ended December
31, 2022, a $95.7 million inventory write-down expense was recognized for the lumber segment (2021 – no inventory
valuation adjustment). At December 31, 2022, an inventory provision of $95.7 million has been recognized for logs and
lumber (December 31, 2021 – no provision).
For the year ended December 31, 2022, a $2.2 million net inventory write-down recovery was recognized for the pulp
and paper segment (2021 – $2.4 million net write-down expense), resulting in an inventory provision for logs of $2.4
million at December 31, 2022 (December 31, 2021 – $4.6 million).
Inventory expensed in 2022 and 2021 is included in ‘Manufacturing and product costs’ and ‘Amortization’ on the
consolidated statement of income.
5.
Property, Plant and Equipment
Pulp and
paper
mills
Solid wood
operations2
Logging assets
and other
equipment
Construction in
progress
$
$
(millions of Canadian dollars)
Cost
Balance at January 1, 2021
Additions1
Disposals
Transfers
Effect of movements in exchange rates
Balance at December 31, 2021
Additions1
Acquisition (Note 27)
Disposals
Transfers
Effect of movements in exchange rates
Balance at December 31, 2022
Amortization and Impairments
Balance at January 1, 2021
Amortization for the year
Disposals
Asset write-downs and impairments (Note 19)
Transfers
Effect of movements in exchange rates
Balance at December 31, 2021
Amortization for the year
Disposals
Asset write-downs and impairments (Note 19)
Transfers
Effect of movements in exchange rates
Balance at December 31, 2022
$
$
$
$
Land
58.4 $
-
-
0.9
(1.1)
58.2 $
-
15.2
-
-
1.3
74.7 $
-
(26.4)
74.5
-
1,808.1 $ 2,712.5
8.8
(60.2)
195.3
(61.3)
1,856.2 $ 2,795.1
17.2
219.8
(40.3)
249.7
18.2
1,928.5 $ 3,259.7
-
-
(33.2)
105.5
-
$
$
$
(1.7) $
(1,275.3) $ (1,463.2) $
-
-
-
-
-
(80.1)
23.9
(95.0)
-
-
(229.0)
48.9
(94.5)
0.1
16.4
(1.7) $
(1,426.5) $ (1,721.3) $
-
-
-
-
-
(90.6)
31.1
(49.6)
-
-
(239.7)
37.5
(61.6)
(0.4)
(17.1)
(1.7) $
(1,535.6) $ (2,002.6) $
241.7
-
(0.6)
18.4
-
259.5
-
1.7
(12.0)
19.3
0.6
269.1
$
$
$
(191.2) $
(14.4)
0.6
-
(0.1)
-
(205.1) $
(15.4)
11.8
-
0.4
(0.2)
(208.5) $
86.8
401.9
-
(289.1)
(1.3)
198.3
598.5
-
-
(374.5)
13.2
435.5
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
4,907.5
410.7
(87.2)
-
(63.7)
5,167.3
615.7
236.7
(85.5)
-
33.3
5,967.5
(2,931.4)
(323.5)
73.4
(189.5)
-
16.4
(3,354.6)
(345.7)
80.4
(111.2)
-
(17.3)
(3,748.4)
$
$
$
$
$
$
Carrying Amounts
At January 1, 2021
At December 31, 2021
At December 31, 2022
$
$
$
56.7 $
56.5 $
73.0 $
$
532.8 $ 1,249.3
429.7 $ 1,073.8
$
392.9 $ 1,257.1 $
$
50.5
54.4
$
60.6 $
$
$
1,976.1
86.8
198.3
1,812.7
435.5 $ 2,219.1
1 Net of capital expenditures by CPPI that are financed by government grants.
2 Solid Wood operations include those sawmills, pellet plants, engineered wood and other lumber-related product plants, plywood and oriented strand
board plants that are consolidated on a line-by-line basis.
76
6.
Leases
(a) Right-of-Use Assets
(millions of Canadian dollars)
Cost
Balance at January 1, 2021
Additions
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2021
Additions
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2022
Amortization
Balance at January 1, 2021
Amortization for the year
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2021
Amortization for the year
Disposals and transfers
Effect of movements in exchange rates
Balance at December 31, 2022
Carrying Amounts
At January 1, 2021
At December 31, 2021
At December 31, 2022
(b) Lease Obligations
Pulp and
paper
mills
Solid wood
operations
Logging assets
and other
equipment
Facilities
and other
Land
$
$
$
$
$
$
$
$
$
1.4 $
0.2
-
-
1.6 $
2.1
-
0.1
3.8 $
(0.9) $
(0.1)
-
-
(1.0) $
(0.2)
-
-
(1.2) $
0.5 $
0.6 $
2.6 $
8.0 $
1.4
(0.2)
-
9.2 $
0.8
(0.7)
(0.1)
97.6 $
12.8
(12.2)
(1.1)
97.1 $
22.7
(10.4)
5.2
$
6.9
2.7
(0.9)
-
$
27.5
2.4
(4.8)
(0.8)
8.7
$
24.3
$
3.1
(2.7)
0.3
29.8
(1.9)
0.4
9.2 $
114.6 $
9.4
$
52.6 $
(6.0) $
(1.3)
0.1
0.1
(7.1) $
(1.1)
0.6
0.2
(7.4) $
(35.3) $
(19.1)
8.9
0.3
(45.2) $
(20.2)
9.9
(2.8)
(58.3) $
2.0 $
2.1 $
1.8 $
62.3 $
51.9 $
56.3 $
(4.1) $
(1.9)
0.9
-
(5.1) $
(2.4)
2.1
(0.1)
(5.5) $
2.8
3.6
$
$
3.9 $
(15.8) $
(3.7)
2.2
0.3
(17.0) $
(2.9)
1.8
-
(18.1) $
11.7 $
7.3 $
34.5 $
Total
141.4
19.5
(18.1)
(1.9)
140.9
58.5
(15.7)
5.9
189.6
(62.1)
(26.1)
12.1
0.7
(75.4)
(26.8)
14.4
(2.7)
(90.5)
79.3
65.5
99.1
Contractual, undiscounted cash flows associated with the Company’s lease obligations are as follows:
(millions of Canadian dollars)
Within one year
Between one and five years
Beyond five years
Total undiscounted lease obligations
As at
December 31,
2022
29.5
55.8
39.0
$
As at
December 31,
2021
24.3
43.9
7.6
$
$
124.3
$
75.8
Interest expense on lease obligations for 2022 was $2.9 million (2021 – $3.2 million) and is included in ‘Finance income
(expense), net’ on the consolidated statement of income.
Operating lease expenses relating to short-term and low-value leases not included in the measurement of lease
obligations for 2022 were $7.5 million (2021 – $5.9 million). The variable lease expense not included in the
measurement of lease obligations for 2022 was nominal (2021 – $0.2 million).
Total cash outflows for leases in 2022 were $34.4 million, including $7.5 million for short-term and low-value leases,
as well as variable lease expenses (2021 – $31.4 million and $6.1 million, respectively).
77
7.
Timber Licenses
(millions of Canadian dollars)
Cost
Balance at January 1, 2021 and December 31, 2021
Acquisition (Note 27)
Balance at December 31, 2022
Amortization and Impairment
Balance at January 1, 2021
Amortization for the year
Asset write-down and impairment (Note 19)
Balance at December 31, 2021
Amortization for the year
Asset write-down and impairment (Note 19)
Balance at December 31, 2022
Carrying amounts
At January 1, 2021
At December 31, 2021
At December 31, 2022
8. Goodwill and Other Intangible Assets
(millions of Canadian dollars)
Cost
Balance at January 1, 2021
Additions
Effect of movement in exchange rates
Balance at December 31, 2021
Additions
Acquisition (Note 27)
Derecognition of goodwill
Disposals
Effect of movement in exchange rates
Balance at December 31, 2022
Amortization
Balance at January 1, 2021
Amortization for the year
Balance at December 31, 2021
Amortization for the year
Disposals
Effect of movement in exchange rates
Balance at December 31, 2022
Carrying amounts
At January 1, 2021
At December 31, 2021
At December 31, 2022
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Goodwill
Other intangible
assets
$
$
499.5
-
(22.5)
477.0
-
26.4
(10.5)
-
5.6
108.2
7.0
(0.1)
115.1
8.5
-
-
(2.4)
1.5
498.5
$
122.7
$
-
-
-
-
-
-
-
499.5
477.0
498.5
$
$
$
$
$
$
(64.2) $
(13.1)
(77.3) $
(13.0)
2.4
(1.2)
(89.1) $
44.0
37.8
$
$
33.6 $
682.2
83.7
765.9
(250.9)
(14.1)
(104.0)
(369.0)
(11.7)
(27.4)
(408.1)
431.3
313.2
357.8
Total
607.7
7.0
(22.6)
592.1
8.5
26.4
(10.5)
(2.4)
7.1
621.2
(64.2)
(13.1)
(77.3)
(13.0)
2.4
(1.2)
(89.1)
543.5
514.8
532.1
Canfor’s goodwill at December 31, 2022 relates to its Canadian ($26.4 million), US ($292.5 million) and European
($179.6 million) subsidiaries and is denominated in Canadian dollars, United States dollars and SEK, respectively.
Goodwill is allocated separately to each of the Company’s cash generating units and tested at that level for impairment
purposes. The recoverable amount of goodwill is determined based on assessments of value in use, estimated using
discounted cash flow models.
Key assumptions used in the cash flow models for both the US and Europe include forecast prices and foreign exchange
rates, which Management determined with reference to both internal and external publications. For the 2022 goodwill
impairment assessments, a discount rate of 10.0% (13.0% before tax for the US and 12.0% before tax for Europe)
(2021 – 9.0%; 12.0% before tax for both the US and Europe) was utilized, based on the Company’s current weighted
78
average cost of capital for the US and Europe. In this analysis prepared by Management, the net present value of
future expected cash flows was compared to the carrying value of the Company’s investment in these assets, including
goodwill, at year end, with no impairment of goodwill required at December 31, 2022.
On July 28, 2022, the Company announced a significant capital project in the US South. As a result, goodwill of $10.5
million was derecognized during the year ended December 31, 2022 and included in ‘Manufacturing and product costs’
on the consolidated statement of income.
9.
Long-Term Investments and Other
(millions of Canadian dollars)
Duty deposits recoverable, net (Note 28)
Other deposits, loans, advances and long-term assets
Other investments
Retirement benefit surplus (Note 13)
Deferred income taxes, net (Note 20)
$
As at
December 31,
2022
372.9
49.3
33.4
9.6
1.0
$
As at
December 31,
2021
188.4
49.0
37.5
24.0
5.4
$
466.2
$
304.3
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 December 31, 2022, including
interest receivable of $40.8 million (December 31, 2021 – $24.8 million), as well as a $97.6 million (US$73.0 million)
receivable recognized in the third quarter of 2022 upon finalization of the CVD and ADD rates applicable to the third
period of review (Note 28).
10. Accounts Payable and Accrued Liabilities
(millions of Canadian dollars)
Trade payables and accrued liabilities
Accrued payroll and related liabilities
As at
December 31,
2022
$
$
525.7 $
153.0
678.7 $
As at
December 31,
2021
559.8
170.4
730.2
79
11. Operating Loans
(millions of Canadian dollars)
Canfor (excluding Vida and CPPI)
Available operating loans:
Operating loan facility
Revolving credit facility (US$150.0 million)
Facilities for letters of credit
Total operating loan facilities
Letters of credit
Total available operating loan facilities - Canfor
Vida
Available operating loans:
Operating loan facilities
Overdraft facilities
Total operating loan facilities
Operating loan facilities drawn
Total available operating loan facilities - Vida
CPPI
Available operating loans:
Operating loan facility
Letters of credit
Operating loan facility drawn
Total available operating loan facility - CPPI
Consolidated:
Total operating loan facilities
Total operating loan facilities drawn
Total letters of credit
Total available operating loan facilities
As at
December 31,
2022
As at
December 31,
2021
$
$
$
$
$
$
$
$
$
$
$
775.0
203.2
70.0
1,048.2
(69.0)
979.2
$
$
66.4
43.8
110.2
(12.8)
97.4
$
$
110.0
(12.9)
(15.0)
82.1
$
1,268.4
$
(27.8) $
(81.9) $
1,158.7
$
775.0
190.2
70.0
1,035.2
(67.8)
967.4
71.3
30.2
101.5
(18.7)
82.8
110.0
(12.9)
-
97.1
1,246.7
(18.7)
(80.7)
1,147.3
On October 31, 2022, Canfor (excluding Vida and CPPI) extended the maturity date of its $775.0 million committed
operating loan facility from October 27, 2026 to October 31, 2027.
Interest is payable on Canfor’s committed operating and revolving loan facilities (excluding Vida and CPPI) at floating
rates based on the lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base rate or US-dollar LIBOR rate,
plus a margin that varies with the Company’s debt to total capitalization ratio.
Canfor (excluding Vida and CPPI) has a separate facility to cover letters of credit. At December 31, 2022, $66.3 million
of letters of credit outstanding are covered under this facility with the balance of $2.7 million covered under Canfor’s
general committed operating loan facility.
Vida’s operating loan facilities are denominated in various currencies, with interest payable at fixed rates ranging from
2.8% to 5.9%. Vida also has separate overdraft facilities with fixed interest rates ranging from 3.9% to 5.9%.
On November 1, 2022, CPPI extended the maturity date of its committed operating loan facility from December 15,
2025 to November 1, 2026.
The terms of CPPI’s operating loan facility include interest payable at floating rates that vary depending on the ratio of
debt to total capitalization, and is based on the lenders’ Canadian prime rate, bankers’ acceptances, US-dollar base
rate or US-dollar LIBOR rate, plus a margin.
Canfor and CPPI’s operating loan facilities have certain financial covenants, including maximum debt to total
capitalization ratios. Vida is also subject to certain financial covenants, including minimum equity and interest coverage
ratios. As at December 31, 2022, 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.
80
12. Term Debt
(millions of Canadian dollars)
Canfor (excluding Vida and CPPI)
As at
December 31,
2022
As at
December 31,
2021
US$50.0 million, floating interest, repayable on June 28, 2031
$
67.7
$
63.4
US$100.0 million, fixed interest of 4.4%, repayable in three equal tranches
on October 2, 2023, 2024 and 2025
Other
Vida
SEK 0.3 million, floating interest, repayable April 30, 2023
SEK 1.0 million, floating interest, repayable November 30, 2024
AUD$0.5 million, floating interest, repayable between April 23, 2024 and May 31, 2028
135.4
5.2
0.1
0.1
0.4
CPPI
CAD$50.0 million, floating interest, repayable November 1, 2025
Term debt at end of year
Less: Current portion
Long-term portion
$
$
50.0
258.9
$
(45.3)
213.6
$
126.8
4.6
0.2
0.5
0.5
50.0
246.0
(0.5)
245.5
On November 1, 2022, CPPI extended the maturity date of its $50.0 million non-revolving term debt from December
15, 2024 to November 1, 2025.
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 debt to total capitalization ratio. Vida’s borrowings are subject to certain financial covenants, including
minimum equity and interest coverage ratios. As at December 31, 2022, Canfor, Vida and CPPI were fully in compliance
with all covenants relating to their term debt.
Fair value of total term debt
At December 31, 2022, the fair value of the Company’s term debt is $241.7 million (December 31, 2021 – $247.8
million), determined based on prevailing market rates for term debt with similar characteristics and risk profile.
13. Employee Future Benefits
The Company has several funded and unfunded defined benefit pension plans and defined contribution plans that
provide benefits to substantially all salaried employees and certain hourly employees. Benefits are also provided to
certain salaried and hourly employees through the Company’s non-pension post-retirement benefit plans, which are
unfunded. Defined benefit pension plans are based on years of service and final average salary (for salaried employees),
and flat rate benefit and years of service (for hourly employees). Canfor’s other non-pension post-retirement benefit
plans are non-contributory and include a range of health care and other benefits. Canfor also provides pension bridge
benefits to certain eligible former employees.
Total cash payments for employee future benefits for 2022 were $48.0 million (December 31, 2021 – $46.2 million),
consisting of cash contributed by Canfor to its funded pension plans, cash payments directly to beneficiaries for its
unfunded other non-pension post-retirement benefit plans, and cash contributed to its defined contribution and other
plans.
Defined benefit plans
Canfor measures its accrued retirement benefit obligations and the fair value of plan assets for accounting purposes
as at December 31 of each year.
As at December 31, 2022, Canfor has four registered defined benefit pension plans for which actuarial funding
valuations are performed at least once every three years. Actuarial valuations for funding purposes as at December
31, 2021 were completed in 2022 for three of the four plans. The next actuarial valuation for funding purposes is
currently scheduled for December 31, 2024, to be completed in 2025. The remaining registered pension plan and the
non-registered pension plans underwent actuarial valuations as at December 31, 2020, which were completed in 2021.
In addition, Canfor has other non-contributory benefit plans that provide certain non-pension post-retirement benefits
to its members. The actuarial valuations for the non-pension post-retirement benefit plans were conducted as at
December 31, 2020.
81
Information about Canfor’s defined benefit plans, in aggregate, is as follows:
2022
Defined Benefit
Pension Plans
$
724.7 $
Other Benefit
Plans
Fair market value of plan assets
(millions of Canadian dollars)
Beginning of year
Interest income on plan assets
Return on plan assets greater (less) than discount rate
Employer contributions
Employee contributions
Benefit payments
Settlement of buy-in annuity contracts
Administration costs
Other
21.1
(100.2)
9.1
0.3
(65.3)
(308.2)
(1.0)
1.7
2021
Defined Benefit
Pension Plans
765.9
$
19.9
12.1
10.4
0.3
(47.1)
(35.9)
(0.8)
(0.1)
$
Other Benefit
Plans
-
-
-
3.2
-
(3.2)
-
-
-
-
-
-
3.1
-
(3.1)
-
-
-
End of year
$
282.2 $
-
$
724.7
$
-
Plan assets consist of the following:
Asset category
Equity securities
Debt securities
Annuities
Other
Accrued benefit obligations
(millions of Canadian dollars)
Beginning of year
Current service cost
Interest cost
Benefit payments
Employee contributions
Settlement of buy-in annuity contracts
Actuarial gain
Derecognition of plan surplus
Other
2022
Defined Benefit
Pension Plans
$
Other Benefit
Plans
83.4
1.1
2.4
(3.1)
-
-
(15.8)
-
0.4
817.0 $
7.0
23.7
(65.3)
0.3
(308.2)
(136.6)
15.0
3.8
End of year
$
356.7 $
68.4
$
As at
December 31,
2022
As at
December 31,
2021
Percentage of Plan Assets
28%
18%
53%
1%
100%
44%
55%
0%
1%
100%
2021
Defined Benefit
Pension Plans
$
Other Benefit
Plans
86.4
1.1
2.2
(3.2)
-
-
(3.3)
-
0.2
83.4
899.2 $
8.0
23.4
(47.1)
0.3
(35.2)
(31.5)
-
(0.1)
817.0 $
Of the defined benefit pension plan obligation of $356.7 million (December 31, 2021 – $817.0 million), $291.3 million
(December 31, 2021 – $740.0 million) relates to the registered plans that are partially funded and $65.4 million
(December 31, 2021 – $77.0 million) relates to the supplemental plans that are unfunded, with letters of credit securing
$58.7 million (December 31, 2021 – $59.5 million) of the unfunded liability.
The total obligation for the non-pension post-retirement benefit plans of $68.4 million (December 31, 2021 – $83.4
million) is unfunded.
Annuity contracts
As at December 31, 2022, one of the Company’s registered defined benefit pension plans held $308.2 million of buy-
in annuities purchased prior to 2019. Buy-in annuity contracts substantially mitigate the exposure to future volatility in
pension plan obligations, as future cash flows from the annuities match the amount and timing of benefits payable
under the plan. Subsequent to 2019, no buy-in annuities were purchased by the Company for this plan.
On December 31, 2022, the Company entered into contracts to convert all of its existing buy-in annuities to buy-out
annuities. As a result of these contracts, the Company’s buy-in annuity assets and corresponding accrued benefit
obligation of $308.2 million were derecognized from the Company’s consolidated balance sheet as at December 31,
2022.
82
Reconciliation of funded status of defined benefit plans to amounts recorded in the consolidated financial
statements
(millions of Canadian dollars)
Fair market value of plan assets
Accrued benefit obligations
Funded status of plans – deficit
Other pension plans
Total accrued benefit liability, net
$
December 31, 2022
December 31, 2021
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
$
$
282.2 $
(356.7)
(74.5) $
(5.8)
(80.3) $
$
-
(68.4)
(68.4) $
-
(68.4) $
724.7
$
(817.0)
(92.3) $
(5.8)
(98.1) $
-
(83.4)
(83.4)
-
(83.4)
The net accrued benefit liability is included in Canfor’s consolidated balance sheet as follows:
December 31, 2022
December 31, 2021
(millions of Canadian dollars)
Retirement benefit surplus
Retirement benefit obligations
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
$
9.6 $
(89.9)
$
-
(68.4)
(68.4) $
Other Benefit
Plans
-
(83.4)
24.0 $
(122.1)
(98.1) $
(83.4)
Total accrued benefit liability, net
$
(80.3) $
Of the net defined benefit pension plan obligation of $80.3 million, $58.7 million (December 31, 2021 – $59.5 million)
is secured by letters of credit.
At December 31, 2022 and December 31, 2021, certain defined benefit pension plans are in a surplus position reflecting
the return on plan assets, actuarial gains and employer contributions to the pension plans during 2022 and 2021. The
plans with a net retirement surplus have been classified as non-current assets and included in ‘Long-term investments
and other’ on the balance sheet.
Components of pension cost
The following table shows the before tax impact on net income and other comprehensive income (loss) of the
Company’s defined benefit pension and other non-pension post-retirement benefit plans:
(millions of Canadian dollars)
Recognized in net income
Current service cost
Administration cost
Interest cost
Settlement loss
Other
2022
2021
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
$
7.0 $
0.9
2.6
-
1.7
1.1
-
2.4
-
0.4
3.9
$
$
8.0
0.8
3.5
0.7
-
$
13.0
$
1.1
-
2.2
-
0.2
3.5
Total expense included in net income
$
12.2 $
(millions of Canadian dollars)
2022
2021
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
Recognized in other comprehensive income (loss)
Actuarial gain – experience
$
Actuarial loss – demographic assumptions
Actuarial gain – financial assumptions
Return on plan assets less (greater) than discount rate
Derecognition of plan surplus
Other
(1.2) $
(0.5) $
-
(135.4)
100.2
15.0
0.4
-
(15.3)
-
-
-
(0.3) $
0.5
(31.7)
(12.1)
-
-
(0.2)
-
(3.1)
-
-
-
Total gain in other comprehensive income (loss)
$
(21.0) $
(15.8) $
(43.6) $
(3.3)
For the year ended December 31, 2022, an actuarial loss of $15.0 million was recognized in other comprehensive
income (loss) in connection with the wind up of one of the Company’s registered defined benefit plans and the
derecognition of the related plan surplus (December 31, 2021 – no loss).
83
Significant assumptions
The actuarial assumptions used in measuring Canfor’s benefit plan provisions and benefit costs are as follows:
Discount rate
Rate of compensation increases
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate rate is reached
December 31, 2022
December 31, 2021
Defined Benefit
Pension Plans
Other Benefit
Plans
Defined Benefit
Pension Plans
Other Benefit
Plans
4.8%
3.0%
n/a
n/a
n/a
4.8%
n/a
5.0%
4.5%
2025
3.0%
3.0%
n/a
n/a
n/a
3.0%
n/a
5.0%
4.5%
2025
In addition to the significant assumptions listed in the table above, the average life expectancy of a 65-year-old at
December 31, 2022 is between 21.3 years and 24.4 years (December 31, 2021 – 21.3 years and 24.3 years). As at
December 31, 2022, the weighted average duration of the defined benefit plan obligation, which reflects the average
age of the plan members, is 12.7 years (December 31, 2021 – 12.8 years). The weighted average duration of the other
benefit plans is 10.7 years (December 31, 2021 – 12.1 years).
Sensitivity analysis
Assumed discount rates and medical cost trend rates have a significant effect on the accrued retirement benefit
obligation and related plan assets. A one percentage point change in these assumptions would have the following
effects on the accrued retirement benefit obligation for 2022:
(millions of Canadian dollars)
Defined benefit pension plan liabilities
Discount rate
Other benefit plan liabilities
Discount rate
Initial medical cost trend rate
1% Increase
1% Decrease
$
(33.2)
$
43.0
$
$
(7.4)
3.3
$
$
8.3
(3.3)
With respect to the discount rate sensitivity effect on the defined benefit pension plan liabilities, it is noted that 43%
(December 31, 2021 – 15%) is partially offset through the plan’s investment in debt securities.
As at December 31, 2022, estimated contribution payments of $8.6 million will be made to the Company’s defined
benefit pension plans in 2023 based on the last actuarial valuation for funding purposes.
Defined contribution and other plans
The total expense recognized in 2022 for Canfor’s defined contribution plans was $16.6 million (December 31, 2021 –
$12.7 million). Canfor contributes to various forest industry union benefit plans providing both pension and other
retirement benefits. These plans are accounted for as defined contribution plans. Contributions to these plans, not
included in the expense for defined contribution plans above, amounted to $19.2 million in 2022 (December 31, 2021
– $19.9 million).
14. Deferred Reforestation Obligations
The following table provides a reconciliation of the deferred reforestation obligations as at December 31, 2022 and
December 31, 2021:
(millions of Canadian dollars)
Reforestation obligations at beginning of year
Expense for year
Accretion expense
Acquisition (Note 27)
Changes in estimates
Paid during the year, net
Reforestation obligations at end of year
Less: Current portion
Long-term portion
2022
2021
$
$
$
112.9
46.9
0.6
11.8
(4.2)
(63.8)
104.2
(60.4)
43.8
$
$
$
114.7
44.1
0.2
-
2.7
(48.8)
112.9
(58.3)
54.6
The total undiscounted amount of the estimated cash flows required to settle the obligations at December 31, 2022 is
$110.3 million (December 31, 2021 – $115.7 million), with payments expected to occur over 15 years. Due to the
84
general long-term nature of the liability, the most significant area of uncertainty in estimating the provision is the future
costs that will be incurred. The estimated cash flows have been adjusted for inflation and discounted using risk-free
rates ranging from 3.3% to 4.6% at December 31, 2022 (December 31, 2021 – 0.8% to 1.5%).
15. Asset Retirement Obligations
The following table provides a reconciliation of the asset retirement obligations as at December 31, 2022 and
December 31, 2021:
(millions of Canadian dollars)
Asset retirement obligations at beginning of year
Accretion expense
Cash payments
Changes in estimates
Asset retirement obligations at end of year
Less: Current portion
Long-term portion
2022
2021
$
$
$
12.9
0.3
(1.0)
-
12.2
-
12.2
$
$
$
14.0
0.2
-
(1.3)
12.9
(1.4)
11.5
Canfor’s asset retirement obligations (excluding CPPI) represent estimated undiscounted future payments of $11.2
million to remediate landfills at the operations at the end of their useful lives. The payments are expected to occur
over periods ranging from 4 to 44 years and have been discounted at risk-free rates ranging from 3.3% to 3.6%
(December 31, 2021 – 1.3% to 1.7%).
CPPI’s asset retirement obligations include $9.3 million of estimated undiscounted future payments to remediate
landfills at the operations at the end of their useful lives. The payments are expected to occur over periods ranging
from 3 to 29 years and have been discounted at risk-free rates ranging from 3.3% to 3.8% (December 31, 2021 –
0.6% to 1.7%).
Canfor and CPPI have certain assets that have indeterminable retirement dates and, therefore, there is an
indeterminate settlement date for the related asset retirement obligations. As a result, no asset retirement obligations
are recorded for these assets. These assets include wastewater and effluent ponds that will have to be drained once
the related operating facility is closed and storage sites for which removal of chemicals, fuels and other related materials
will be required once the related operating facility is closed. When the retirement dates of these assets become
determinable and an estimate can be made, an asset retirement obligation will be recorded.
It is possible that changes in future conditions could require a material change in the recognized amount of the asset
retirement obligations. The asset retirement obligation balance is included in ‘Other long-term liabilities’ on the
consolidated balance sheet.
16. Share Capital
Authorized
10,000,000 preferred shares, with a par value of $25 each.
1,000,000,000 common shares without par value.
Issued and fully paid
(millions of Canadian dollars, except number of shares)
Common shares at beginning of year
Common shares purchased
Common shares at end of year3
3 Based on trade date.
2022
2021
Number of
Shares
124,493,600
$
(3,434,021)
Amount
982.2
(27.1)
Number of
Shares
125,219,400
(725,800)
$
Amount
987.9
(5.7)
121,059,579
$
955.1
124,493,600
$
982.2
The holders of common shares are entitled to vote at all meetings of shareholders of the Company, except meetings
at which only holders of preferred shares would be entitled to vote. The common shareholders are entitled to receive
dividends as and when declared on the common shares. The holders of preferred shares are not generally entitled to
receive notice of, or to attend or vote at, general meetings of shareholders of the Company. Preferred shareholders
are entitled to preference over the common shares with respect to payment of dividends and upon any distribution of
assets in the event of liquidation, dissolution and winding-up of the Company. The Company does not have any
preferred shares outstanding.
85
Basic net income per common share is calculated by dividing the net income available to common shareholders by the
weighted average number of common shares outstanding during the year. The weighted average number of common
shares outstanding for 2022 is 123,198,290 (December 31, 2021 – 124,909,404).
Normal course issuer bid
On March 17, 2022, the Company announced that it has received regulatory approval for an early renewal of its normal
course issuer bid whereby it can purchase for cancellation up to 6,224,680 common shares, or approximately 5% of
its issued and outstanding common shares as at March 15, 2022. The renewed normal course issuer bid is set to expire
on March 20, 2023.
During the year ended December 31, 2022, the Company purchased 3,434,021 common shares for $81.4 million (an
average of $23.70 per common share), of which $78.9 million was paid during the year. During the year ended
December 31, 2021, the Company purchased 725,800 common shares for $19.2 million (an average of $26.45 per
common share).
As at December 31, 2022 and February 28, 2023, based on the trade date, there were 121,059,579 common shares
of the Company outstanding and Canfor’s ownership interest in CPPI and Vida was 54.8% and 70.0%, respectively
(December 31, 2021 – 54.8% and 70.0%).
17. Non-Controlling Interests
The following table summarizes the non-controlling financial information for the Company’s lumber operations and
CPPI before inter-company eliminations:
Summarized Balance Sheets:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
As at December 31, 2022
As at December 31, 2021
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
Total equity
Total liabilities and equity
Lumber4,5
$
$
$
$
$
$
325.6 $
119.0
444.6 $
90.7 $
36.6
127.3 $
317.3 $
444.6 $
CPPI
142.0
199.4
$
Total
467.6
318.4
Lumber4,5
$ 305.2 $
131.0
CPPI
168.0 $
212.1
341.4 $
786.0
$ 436.2 $
380.1 $
75.0
73.4
148.4
193.0
341.4
$
$
$
$
165.7
110.0
$ 111.7 $
30.9
68.1 $
88.4
275.7 $ 142.6 $
156.5 $
510.3 $ 293.6 $
786.0 $ 436.2 $
223.6 $
380.1 $
Total
473.2
343.1
816.3
179.8
119.3
299.1
517.2
816.3
Summarized Statements of Income (Loss) and Other Comprehensive Income:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
Year ended December 31, 2022
Year ended December 31, 2021
Lumber4
515.4 $
109.6 $
-
CPPI
490.3
(35.8) $
5.2
Total
Lumber4
$ 1,005.7 $ 531.3 $
$ 137.3 $
-
73.8
5.2
CPPI
517.0
$
(20.1) $
3.1
109.6 $
(30.6) $
79.0
$ 137.3 $
(17.0) $
62.8 $
-
$
62.8
$
19.7 $
-
$
Total
1,048.3
117.2
3.1
120.3
19.7
Sales
Net income (loss)
Other comprehensive income
Total comprehensive income (loss)
Dividends paid to non-controlling interests
$
$
$
$
Summarized Statements of Cash Flows:
Amounts presented below represent non-controlling %
(millions of Canadian dollars)
Year ended December 31, 2022
Lumber4
CPPI
20.5
$
Total
168.3 $ 147.3 $
Lumber4
CPPI
67.2
$
Total
214.5
Year ended December 31, 2021
Cash flows from operating activities
$
147.8 $
Cash flows from (used in) in financing
activities
$
$
(20.5) $
(11.8) $
3.7
$
(50.7) $
(16.8) $
(62.5) $
(20.8) $
(14.4) $
(1.9) $
(35.3) $
(22.7)
(49.7)
Cash flows used in investing activities
4 Lumber non-controlling interest includes non-controlling interest related to Vida (30%), Houston Pellet Limited Partnership (40%), CSP Moultrie
Investment, LLC (5%) for the year ended December 31, 2022. Lumber non-controlling interest also includes Canfor Energy North Limited Partnership
(“CENLP”) (15%) for the period between January 1, 2021 and December 15, 2021. On December 15, 2021, Canfor acquired the remaining 15% of
CENLP, bringing its ownership interest to 100%, resulting in an increase of $0.8 million and a decrease of $1.7 million to ‘Retained earnings’ and ‘Non-
controlling interests,’ respectively, on the Company’s consolidated balance sheet.
5 Lumber total equity includes a $31.0 million foreign exchange loss arising from the translation of foreign operations, recognized in 'Accumulated other
comprehensive income' on the consolidated balance sheet (December 31, 2021 – $7.9 million foreign exchange loss).
86
18. Finance Income (Expense), Net
(millions of Canadian dollars)
Interest expense on borrowings
Interest expense on retirement benefit obligations, net (Note 13)
Interest income from duty deposits recoverable, net (Note 28)
Interest income
Other finance expenses
Finance income (expense), net
$
2022
(22.3)
(5.0)
13.4
16.0
(1.1)
$
2021
(24.4)
(5.7)
5.0
1.6
(0.6)
$
1.0
$
(24.1)
19. Asset Write-Downs, Impairments and Restructuring Costs
During the Company’s annual impairment review, the ongoing uncertainty with regard to economically viable timber
supply within British Columbia was identified as an impairment indicator. As a result, the Company performed an
impairment assessment on its Western Canadian lumber operations as at December 31, 2022.
The recoverable amount of the timber licenses and property, plant and equipment within the Western Canadian lumber
operations was determined based on an assessment of value in use, estimated using a discounted cash flow model.
This discounted cash flow model was projected based on past experience and actual operating results as well as
Management’s assessment of future trends in the forest industry, based on both external and internal sources of data.
Significant assumptions include future production volume, commodity prices, log and production costs, as well as the
discount rate. Other assumptions include applicable foreign exchange rates, operating rates of the assets, and the
future capital required to maintain the assets in their current operating condition. Estimated future cash flows were
discounted at a rate of 11% (15% before tax) (2021 – 10%; 14% before tax), based on the Company’s weighted
average cost of capital for that region in 2022.
In addition, as a result of continued fibre cost pressures and ongoing uncertainty surrounding fibre availability for
CPPI’s pulp mills, CPPI performed an impairment assessment as at December 31, 2022 on the property, plant and
equipment of the pulp operations.
The recoverable amount of the property, plant and equipment within the pulp operations was determined based on an
assessment of value in use, estimated using a discounted cash flow model. This discounted cash flow model was
projected based on past experience and actual operating results as well as Management’s assessment of future trends
in the pulp industry, based on both external and internal sources of data. Significant assumptions include future
production volume, commodity prices, fibre and production costs, as well as the discount rate. Other assumptions
include applicable foreign exchange rates, operating rates of the assets, and the future capital required to maintain the
assets in their current operating condition. Estimated future cash flows were discounted at a rate of 9% (12% before
tax) (2021 – 8%; 11% before tax), based on CPPI’s weighted average cost of capital for 2022.
Subsequent to year-end, in early 2023, the Company announced the decision to permanently close the pulp line at
CPPI’s Prince George pulp and paper mill and the Chetwynd sawmill and pellet plant.
As a result of these closures, as well as the aforementioned impairment assessment, an asset write-down and
impairment charge of $89.0 million was recognized in the Company’s lumber segment as a reduction of the carrying
value of the Company’s Western Canadian lumber operations for the year ended December 31, 2022 (December 31,
2021 – $198.5 million) (Notes 5 and 7). An additional $49.6 million was recognized as a reduction to the carrying value
of pulp assets within the pulp and paper segment for the year ended December 31, 2022 (December 31, 2021 – $95.0
million) (Note 5).
In addition, CPPI recognized restructuring costs of $7.9 million during the year ended December 31, 2022 related to
the curtailment during the current year at CPPI’s Taylor BCTMP mill.
20. Income Taxes
The components of income tax expense are as follows:
(millions of Canadian dollars)
Current
Deferred
Income tax expense
2022
(200.2)
(47.2)
(247.4)
2021
(502.5)
64.5
(438.0)
$
$
$
$
87
The reconciliation of income taxes calculated at the statutory rate to the actual income tax provision is as follows:
(millions of Canadian dollars)
Income tax expense at statutory rate of 27.0% (2021 – 27.0%)
Add (deduct):
Non-taxable income related to non-controlling interests
Entities with different income tax rates and other tax adjustments
Permanent difference from capital gains and losses and other non-deductible items
Income tax expense
2022
(299.3)
$
2021
$
(512.1)
0.3
53.5
(1.9)
0.1
72.9
1.1
$
(247.4)
$
(438.0)
In addition to the amounts recorded to net income, a tax expense of $9.9 million was recorded to other comprehensive
income (loss) in relation to actuarial gains, net, on the defined benefit plans for the year ended December 31, 2022
(December 31, 2021 – $13.2 million).
The tax effects of the significant components of temporary differences that give rise to deferred income tax assets and
liabilities are as follows:
(millions of Canadian dollars)
Deferred income tax assets
Accruals not currently deductible
Loss carryforwards
Retirement benefit obligations
Lease obligations
Goodwill and other intangible assets, net
Other
Deferred income tax liabilities
Depreciable capital assets
Untaxed reserves
Duty deposits recoverable, net
Right-of-use assets
Other
Total deferred income tax liabilities, net
Less: Entities in a net deferred income tax asset position
Net deferred income tax liabilities
21. Net Change in Non-Cash Working Capital
(millions of Canadian dollars)
Accounts receivable
Inventories
Prepaid expenses and other
Accounts payable and accrued liabilities, and current portion of deferred reforestation
obligations
Net change in non-cash working capital
22. Related Party Transactions
As at
December 31,
2022
As at
December 31,
2021
$
$
$
$
$
$
$
$
48.4
47.5
40.5
28.0
(1.7)
12.0
174.7
(361.0)
(71.6)
(100.7)
(25.8)
(7.5)
(566.6)
(391.9)
1.0
(392.9)
2022
100.9
88.2
(11.0)
(83.5)
94.6
$
$
$
$
$
$
$
48.1
2.3
48.8
18.9
1.1
28.9
148.1
(353.3)
(54.9)
(50.9)
(17.3)
(7.5)
(483.9)
(335.8)
5.4
(341.2)
2021
(103.3)
(356.3)
(24.1)
100.4
$
(383.3)
Canfor undertakes transactions with various related entities. These transactions are in the normal course of business,
except where noted otherwise. The Jim Pattison Group is Canfor’s largest shareholder with an ownership interest of
52.6% at December 31, 2022 (December 31, 2021 – 51.2%). During 2022, subsidiaries owned by The Jim Pattison
Group provided lease, insurance and other services to Canfor totaling $4.9 million (December 31, 2021 – $4.9 million).
During 2022, CPPI sold paper to subsidiaries owned by The Jim Pattison Group totaling $2.5 million (December 31,
2021 – $1.7 million). CPPI also made purchases from subsidiaries owned by The Jim Pattison Group totaling $0.5
million (December 31, 2021 – $0.6 million).
At December 31, 2022, an outstanding balance of $0.1 million was owed from subsidiaries owned by the Jim Pattison
Group (December 31, 2021 – $0.1 million).
88
Key management personnel
Key management includes members of the Board of Directors and the senior executive management team. The
compensation expense for key management for services is as follows:
(millions of Canadian dollars)
Short-term benefits
Post-employment benefits
2022
14.2
1.0
$
15.2
$
$
$
2021
13.6
3.1
16.7
Short-term benefits for members of the Board of Directors include an annual retainer.
23. Segment Information
Canfor has two reportable segments, as described below, which offer different products and are managed separately
because they require different production processes and marketing strategies. The following summary describes the
operations of each of the Company’s reportable segments:
Lumber – Includes logging operations and manufacturing and sale of various grades, widths and lengths of
lumber, engineered wood and other lumber-related products, wood chips and wood pellets; and
Pulp and Paper – Includes purchase of residual fibre, and production and sale of pulp and paper products,
including Northern Bleached Softwood Kraft (“NBSK”) and BCTMP, as well as energy revenues. This segment
includes 100% of CPPI.
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. Information regarding
the operations of each reportable segment is included in the table below. The accounting policies of the reportable
segments are described in Note 3.
The Company’s interest-bearing liabilities are not considered to be segment liabilities, but rather are managed centrally
by the treasury function. Other liabilities are not split by segment for the purposes of allocating resources and assessing
performance.
(millions of Canadian dollars)
Year ended December 31, 2022
Sales from contracts with
customers
Sales to other segments
Operating income (loss)
Amortization
Capital expenditures6
Total assets
$
Lumber
6,341.3
140.1
1,237.2
297.7
507.7
4,226.9
Pulp &
Paper
Unallocated
& Other
Elimination
Adjustment
Consolidated
$
.2
$
1,085.4
0.2
(106.0)
97.8
112.6
738.5
-
-
(57.1)
1.7
5.0
1,773.8
$
-
$
(140.3)
-
-
-
-
7,426.7
-
1,074.1
397.2
625.3
6,739.2
$
Year ended December 31, 2021
Sales from contracts with customers
Sales to other segments
Operating income (loss)
Amortization
Capital expenditures6
Total assets
6 Capital expenditures represent cash paid for capital assets during the periods, excluding assets purchased as part of acquisitions (Note 27). Pulp &
1,144.4
0.5
(65.5)
87.3
78.7
767.8
-
-
(46.0)
1.4
5.0
1,653.8
6,540.5
191.1
2,019.6
288.1
344.5
3,752.3
7,684.9
-
1,908.1
376.8
428.2
6,173.9
-
-
-
-
(191.6)
$
$
$
$
-
Paper includes capital expenditures by CPPI that were partially financed by government grants.
89
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 and assets are based on the geographical location
of the assets.
(millions of Canadian dollars)
Sales by location of customer
Canada
United States
Europe
Asia
Other
(millions of Canadian dollars)
Property, plant and equipment, ROU assets, timber licenses, goodwill and
other intangible assets by location
Canada
United States
Europe
Asia and Other
2022
2021
11% $
55%
17%
15%
2%
100% $
823.2
4,062.4
1,264.5
1,122.5
154.1
7,426.7
9% $
54%
17%
18%
2%
100% $
698.8
4,155.9
1,293.7
1,370.9
165.6
7,684.9
As at
December 31,
2022
As at
December 31,
2021
45% $
38%
17%
0%
100% $
1,427.2
1,225.9
554.5
0.4
3,208.0
43% $
35%
22%
0%
100% $
1,172.9
934.9
597.6
0.8
2,706.2
24. Commitments and Contingencies
In the ordinary course of its business activities, the Company may be subject to, or enter into, legal actions and claims
with customers, unions, suppliers or others.
In circumstances where the Company is not able to determine the outcome of a legal action and claim, no amount is
recognized in the consolidated financial statements, with an amount accrued only when a reliable estimate of the
obligation can be made. Although there can be no assurance as to the disposition of a legal action and claim, it is the
opinion of Management, based upon the information available at this time, that the expected outcome of a legal action
and claim, individually or in aggregate, is unlikely to have a material adverse effect on the operating results and financial
condition of the Company as a whole.
(a) Capital Commitments
On June 8, 2021, the Company announced its plans to construct a new sawmill near DeRidder, Louisiana. On April 21,
2022, the Company announced its plans to upgrade and expand its sawmill and planer facility located in Urbana in
Union County, Arkansas, and on July 28, 2022, announced its plans to construct a new sawmill in southern Alabama.
At December 31, 2022, Canfor had contractual obligations of $215.7 million (December 31, 2021 – $250.3 million)
reflecting commitments for the construction of capital assets, including those mentioned above, and other working
capital items. The majority of these commitments are expected to be settled within two years. In addition, the Company
has committed to leases of property, plant and equipment as outlined under Note 6.
25. Risks and Uncertainties
Financial risk management
Canfor is exposed to a number of risks as a result of holding financial instruments. These risks include credit risk,
liquidity risk and market risk.
Canfor’s internal Risk Management Committee manages risk in accordance with a Board approved Price Risk
Management Controls Policy. This policy provides the framework for risk management related to commodity price,
foreign exchange, interest rate and counterparty credit risk of Canfor.
90
Credit risk:
Credit risk is the risk of financial loss to Canfor if a counterparty to a financial instrument fails to meet its contractual
obligations.
Financial instruments that are subject to credit risk include cash and cash equivalents, trade and other accounts
receivable, and certain investments and advances. Contract assets are also subject to credit risk. Cash and cash
equivalents include cash held through major Canadian and international financial institutions as well as temporary
investments that are readily convertible into known amounts of cash within three months or less from the date of
acquisition. The cash and cash equivalents balance at December 31, 2022 is $1,268.7 million (December 31, 2021 –
$1,354.8 million).
Canfor utilizes credit insurance to mitigate the risk associated with some of its trade accounts receivables. As at
December 31, 2022, approximately 64% (December 31, 2021 – 56%) of the outstanding trade accounts receivables
are covered by credit insurance. Canfor’s trade accounts receivable balance at December 31, 2022 is $340.3 million,
before a loss allowance of $4.3 million (December 31, 2021 – $434.7 million, before a loss allowance of $4.3 million).
At December 31, 2022, approximately 96% (December 31, 2021 – 97%) of the trade accounts receivable balance is
within Canfor’s established credit terms.
Liquidity risk:
Liquidity risk is the risk that Canfor will be unable to meet its financial obligations as they come due. Canfor manages
liquidity risk through regular cash flow forecasting in conjunction with adequate operating loan and term debt facilities.
At December 31, 2022, Canfor had cash and cash equivalents of $1,268.7 million (December 31, 2021 – $1,354.8
million), with $27.8 million drawn on its operating loans and facilities (December 31, 2021 – $18.7 million) and $81.9
million reserved for several standby letters of credit (December 31, 2021 – $80.7 million), leaving $1,158.7 million
available and undrawn (December 31, 2021 – $1,147.3 million). As a result, at December 31, 2022, Canfor had available
liquidity of $2,427.4 million (December 31, 2021 – $2,502.1 million), accounts payable and accrued liabilities of $678.7
million (December 31, 2021 – $730.2 million), and term debt of $258.9 million (December 31, 2021 – $246.0 million).
Market risk:
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes
in interest rates, foreign currency, commodity and energy prices.
(i) Interest rate risk:
Canfor is exposed to interest rate risk through its current financial assets, operating loan facilities and term
debt that bear variable interest rates.
Canfor may use interest rate swaps to reduce its exposure to interest rate risk associated with financial
obligations bearing variable interest rates. At December 31, 2022, the Company had no interest rate swaps
outstanding (December 31, 2021 – three fixed interest rate swaps at 0.3% outstanding, with a combined
notional value of US$100.0 million).
(ii) Currency risk:
At a consolidated level, Canfor is exposed to foreign exchange risk related to the US-dollar, as Canfor’s
products are sold principally in US-dollars. In addition, Canfor holds US-dollar denominated financial assets
and liabilities.
An increase (decrease) in the value of the Canadian dollar by US$0.01 would result in a pre-tax: (i) loss (gain)
of approximately $3.3 million in relation to working capital balances denominated in US-dollars at year end
(including cash, accounts receivable and accounts payable); and a (ii) gain (loss) of approximately $1.8 million
in relation to term debt denominated in US-dollars at year end.
A portion of the currency risk associated with US-dollar denominated sales is naturally offset by US-dollar
denominated expenses. A portion of the remaining exposure is sometimes reduced by foreign exchange collar
contracts that effectively limit the minimum and maximum Canadian dollar recovery related to the sale of
those US-dollars. At December 31, 2022 and December 31, 2021, the Company had no foreign exchange
collar contracts outstanding.
91
The Company also sells certain products in British Pounds (“GBP”), AUD, Euros (“EUR”), and Norwegian krone
(“NOK”) and holds US, GBP, AUD and EUR denominated operating loan and term debt facilities (Notes 11 and
12) and limits its exposure to foreign exchange risk using forward foreign exchange contracts and foreign
exchange options.
At December 31, 2022 and December 31, 2021, the following forward foreign exchange contracts were
outstanding:
Maturity Date
Forward Foreign Exchange Contracts
0-6 months
0-12 months
0-6 months
Maturity Date
Forward Foreign Exchange Contracts
0-6 months
0-6 months
0-6 months
0-3 months
(iii) Commodity price risk:
As at December 31, 2022
Notional Amount
Currency
Notional
Amount
Exchange
Rates
(millions)
£48.0
$108.0
€15.0
GBP
USD
EUR
(rate of SEK to
notional currency)
12.41
10.57
10.83
As at December 31, 2021
Notional Amount
Currency
Notional
Amount
Exchange
Rates
(millions)
(rate of SEK to
notional currency)
GBP
USD
EUR
NOK
£35.0
$35.0
€4.0
kr6.0
11.94
8.83
10.27
0.97
Canfor is exposed to commodity price risk principally related to the sale of lumber and related products, pulp
and paper. From time to time, Canfor enters into futures contracts on the Chicago Mercantile Exchange for
lumber and forward contracts direct with customers or on commodity exchanges for pulp. Under the
Company’s Price Risk Management Controls Policy, up to 15% of lumber sales and 1% of pulp sales may be
sold in this way. Canfor is also exposed to commodity price risk on the sale of electricity in Canada. Prices are
set by third party regulatory bodies.
Canfor had the following lumber futures contracts at December 31, 2022 and December 31, 2021:
Maturity Date
Lumber Futures Contracts
Future sales contracts
0-6 months
(iv) Energy price risk:
As at December 31, 2022
As at December 31, 2021
Notional
Amount
(MMfbm)
Average
Rate
Notional
Amount
Average
Rate
(US-dollars per
Mfbm)
(MMfbm) (US-dollars per
Mfbm)
5.2
$425.4
6.8
$904.5
Canfor is exposed to energy price risk relating to purchases of natural gas and diesel oil for use in its
operations.
The annual exposure is, from time to time, hedged up to 100% through the use of floating to fixed swap contracts or
option contracts with maturity dates up to a maximum of eighteen months. At December 31, 2022 and December 31,
2021, the Company had no energy fixed swaps or option contracts outstanding.
Capital management
Canfor’s objectives when managing capital are to maintain a strong balance sheet and a globally competitive cost
structure that ensures adequate liquidity to maintain and develop the business throughout the commodity price cycle.
92
Canfor’s capital is comprised of net cash and shareholders’ equity:
(millions of Canadian dollars)
Total debt (including operating loans)
Less: cash and cash equivalents
Net cash
Total equity
$
As at
December 31,
2022
286.7
(1,268.7)
(982.0)
4,762.8
3,780.8
$
As at
December 31,
$
2021
264.7
1, (1,354.8)
(1, (1,090.1)
4,009.1
2,919.0
$
The Company has certain financial covenants on its debt obligations, including a maximum debt to total capitalization
ratio that is calculated by dividing total debt by shareholders’ equity plus total debt. Debt obligations are held by various
entities within the Canfor group and the individual debt agreements specify the entities within the group that are to be
included in the covenant calculations. Canfor’s strategy is to ensure it remains in compliance with all of its existing debt
covenants, so as to ensure continuous access to capital. Canfor was fully in compliance with all its debt covenants for
the years ended December 31, 2022 and December 31, 2021.
The Company manages its capital structure through rigorous planning, budgeting and forecasting processes, and
ongoing management of operations, investments and capital expenditures. In 2022, the Company’s management of
capital primarily comprised of strategic acquisitions, maintenance of business capital, and working capital
initiatives. Neither the Company nor any of its subsidiaries are subject to externally imposed capital requirements.
26. Financial Instruments
Canfor’s cash and cash equivalents, trade and other accounts receivable, certain long-term investments and advances,
accounts payable and accrued liabilities, other liabilities, operating loans, and term debt are classified as measured at
amortized cost in accordance with IFRS 9 Financial Instruments. The carrying amounts of these instruments, excluding
term debt, approximate fair value at December 31, 2022 and December 31, 2021.
Derivative instruments, investments in debt and equity securities (excluding associates accounted for under the equity
method) and net duty deposits recoverable are classified as measured at FVTPL. The put liability is measured initially
at fair value and subsequently at FVTEQ. 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.
There were no transfers between fair value hierarchy levels in 2022 or 2021. The following table summarizes Canfor’s
financial instruments measured at fair value at December 31, 2022 and December 31, 2021, and shows the level within
the fair value hierarchy in which they have been classified:
(millions of Canadian dollars)
Financial assets measured at fair value
Investments
Derivative financial instruments
Duty deposits recoverable, net (Notes 9 and 28)
(millions of Canadian dollars)
Financial liabilities measured at fair value
Derivative financial instruments
Put liability
Fair Value
Hierarchy
Level
As at
December 31,
2022
As at
December 31,
2021
Level 1 $
Level 2
Level 3
$
31.7
2.0
372.9
$
406.6
$
36.1
-
188.4
224.5
Fair Value
Hierarchy
Level
As at
December 31,
2022
As at
December 31,
2021
Level 2 $
Level 3
-
$
172.7
$
172.7
$
2.1
156.2
158.3
93
Canfor invests in equity and debt securities, which are traded in an active market and valued using closing prices on
the measurement date with any gains or losses recognized through net income.
The Company uses a variety of derivative financial instruments from time to time to reduce its exposure to risks
associated with fluctuations in foreign exchange rates, lumber prices, energy prices, and floating interest rates on term
debt.
At December 31, 2022, the fair value of derivative financial instruments includes an asset of $2.0 million, which is
included in ‘Accounts receivable – Other’ on the Company’s consolidated balance sheet (December 31, 2021 – liability
of $2.1 million included in ‘Accounts payable and accrued liabilities’). The fair value of these financial instruments was
determined based on prevailing market rates for instruments with similar characteristics.
The following table summarizes the losses on derivative financial instruments recognized in the consolidated statement
of income:
(millions of Canadian dollars)
Lumber futures
Foreign exchange forward contracts
Gain (loss) on derivative financial instruments
$
$
2022
2.0
1.9
3.9
$
$
2021
(12.7)
(3.4)
(16.1)
At December 31, 2022, the fair value of duty deposits recoverable is a net asset of $372.9 million, recognized on the
Company’s consolidated balance sheet in ‘Long-term investments and other’ (Note 9) and adjusted to fair value through
the recognition of interest in ‘Finance income (expense), net’ on the consolidated statement of income (Note 18).
During the year ended December 31, 2022, a loss of $26.8 million was recognized in ‘Other equity’ on the Company’s
consolidated balance sheet following remeasurement of the put liability (December 31, 2021 – loss of $3.5 million). As
a result of this remeasurement, combined with a foreign exchange gain of $10.3 million for the year ended December
31, 2022 (December 31, 2021 – $17.3 million), the balance of the put liability was $172.7 million at December 31,
2022 (December 31, 2021 – $156.2 million).
27. Millar Western Acquisition
On March 1, 2022, Canfor completed the acquisition of Millar Western’s solid wood operations and associated forest
tenure for total consideration of $434.0 million, including $99.0 million in net working capital. Millar Western’s solid
wood operations, located in Alberta, Canada, consist of two sawmills and one high-value specialty facility and have an
annual production capacity of 630 million board feet. The transaction was accounted for as a business combination
under IFRS 3 Business Combinations (“IFRS 3”) and is included in Canfor’s lumber segment.
The following table summarizes the preliminary and final recognized amounts of net assets acquired by Canfor at the
acquisition date:
(millions of Canadian dollars)
Property, plant and equipment (Note 5)
Timber licenses (Note 7)
Non-cash working capital, net (including inventory)
Goodwill (Note 8)
Deferred reforestation obligations (Note 14)
Total net assets
Preliminary
$
235.5 $
83.7
97.1
29.5
(11.8)
$
434.0 $
Final
236.7
83.7
99.0
26.4
(11.8)
434.0
The significant assumptions included replacement cost estimates of the acquisition date fair values of acquired property,
plant and equipment and physical depreciation assumptions. The Company leveraged insurance appraisals to estimate
the replacement cost of the assets.
The fair value of timber licenses acquired was determined by leveraging a market comparison technique based on
precedent tenure transactions in Alberta.
The fair value of inventory was determined by Canfor applying a market comparison technique, determined based on
the estimated selling price in the ordinary course of business, less the estimated costs of completion and sale, and a
reasonable profit margin based on the effort required to complete and sell the inventories.
Goodwill of $26.4 million has been recognized as part of the purchase, calculated as the excess of the aggregate
consideration transferred over the fair value of the net assets acquired. The goodwill arising from the acquisition is
94
attributable to expected future income and cash-flow projections, access to new customers and markets, and the ability
to further diversify Canfor’s product offering.
Following the completion of final review procedures, the Company recognized valuation adjustments resulting in a $3.1
million decrease in goodwill, a $1.2 million increase in property, plant and equipment and a $1.9 million increase in
inventory.
The Company incurred acquisition-related costs of $4.1 million, primarily related to external legal fees and due diligence
costs, which have been included in ‘Selling and administration costs’ in the consolidated statement of income when
incurred.
28.
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 December 31, 2022, Canfor has paid cumulative cash deposits of $887.9 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 United States-
Mexico-Canada Agreement and through the World Trade Organization, where Canadian litigation has proven successful
in the past.
Third Period of Review (“POR3”)
In January 2022, the DOC announced the preliminary results for POR3, which was based on sales and cost data for
2020, and in July 2022, finalized the rates. The Company’s final CVD rate was determined to be 0.95% (versus a cash
deposit rate of 13.24% from January to November 2020 and 2.63% for December 2020), while the final ADD rate was
4.92% (versus a cash deposit rate of 7.28% from January to November 2020 and 1.99% for December 2020, and
estimated accrual rate of 5.00%).
Upon finalization of these POR3 rates, a net recovery of $97.6 million (US$73.0 million) was recognized in the
Company’s consolidated statement of income during the third quarter of 2022, with a corresponding net receivable
included in ‘Long-term investments and other’ (Note 9) on the Company’s consolidated balance sheet as at December
31, 2022, reflecting the difference between the combined accrual rates (18.24% from January to November 2020 and
7.63% for December 2020) and the DOC’s final combined rate established for POR3 (5.87%).
The Company’s combined cash deposit rate of 19.54% was reset in August 2022 to the final rate of 5.87% as
determined in POR3. This cash deposit rate will apply to the Company’s Canadian lumber shipments destined to the
United States until completion of the administrative review for the fourth period of review (“POR4”) (final rates
anticipated in 2023). Despite the reduced rates for POR3, no cash duties will be refunded to the Company until such
time as the litigation regarding the imposition of CVD and ADD has been settled.
Fourth Period of Review (POR4)
Subsequent to year-end, in January 2023, the DOC announced the preliminary results for POR4, which indicated that
the Company’s preliminary CVD and ADD rate for 2021 was 2.04% and 5.25%, respectively. Upon finalization of these
rates (anticipated in the third quarter of 2023), a recovery, estimated at $10.9 million (US$8.8 million), will be
recognized in the Company’s consolidated financial statements to reflect the difference between the combined accrual
rate of 9.63% between January and November 2021 and 9.42% for December 2021, and the DOC rates for POR4. In
addition, once final, the Company’s current combined cash deposit rate of 5.87% will be reset to the DOC rates for
POR4 (currently estimated to be 7.29% based on the preliminary determination).
Fifth Period of Review (“POR5”)
On January 1, 2022, the Company moved into POR5, which was based on sales and cost data for 2022. 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 2.42% until July 2022 and 0.95% thereafter, while ADD
was expensed at an estimated rate of 9.00%. Despite cash deposits being made in 2022 at rates determined by the
95 DOC, the final liability associated with duties is not determined until the completion of administrative reviews performed
by the DOC.
Summary
A summary of the various combined rates is as follows:
Time Period
April 2017 – December 2018
January 2019 – December 2019
January 2020 – November 2020
December 2020
January 2021 – November 2021
December 2021
January 2022 – July 2022
August 2022 – thereafter
Deposit
Rate
20.52%
20.52%
20.52%
4.62%
4.62%
19.54%
19.54%
5.87%
Accrued
Final
Rate
DOC Rate
15.84%
4.62%
29.24%
19.54%
5.87%
18.24%
5.87%
7.63%
9.63% Anticipated in 2023
9.42% Anticipated in 2023
11.42% Anticipated in 2024
9.95% Anticipated in 2024
Description
First Period of Review (“POR1”)
Second Period of Review (“POR2”)
POR3
POR3
POR4
POR4
POR5
POR5
For accounting purposes, a net duty recoverable of $372.9 million is included on the Company’s consolidated balance
sheet (Note 9) reflecting differences between the cash deposit rates and the Company’s combined accrual rates for
each period of review, including interest.
For the year ended December 31, 2022, the Company recorded a net duty expense of $49.1 million (December 31,
2021 – net duty expense of $100.4 million), comprised of the following:
(millions of Canadian dollars)
Cash deposits paid
Duty recovery attributable to POR5 – combined CVD and ADD7
Duty recovery attributable to POR3 – combined CVD and ADD8
$
2022
205.4
(58.7)
(97.6)
Duty expense, net
7 Reflects Canfor’s combined accrual rate (11.42% until July 2022 and 9.95% thereafter) compared to the DOC’s deposit rate (19.54% until July 2022
$
49.1
and 5.87% thereafter) for POR5.
8 Reflects Canfor’s combined accrual rate (18.24% from January to November 2020 and 7.63% for December 2020) compared to the DOC’s final
combined rate (5.87% for the entirety of 2020) for POR3.
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 while the Administrative Reviews are taking place. Changes to the
DOC’s existing CVD and ADD rates during the course of each administrative review may also result in material
adjustments to the consolidated statement of income.
96 ADDI TION AL INF ORMATION
97 DIRECTORS AND OFFICERS
DIRECTORS
The name and municipality, province/state and country of residence of the Directors of the Company and their principal occupations as at
December 31, 2022 are as below. For more information visit www.canfor.com.
John Baird
Chairman
Canfor Corporation
Toronto, Ontario, Canada
Donald Kayne
President and Chief Executive Officer
Canfor Corporation
Delta, British Columbia, Canada
Ross Smith, FCPA, FCA (1)(2)
Member of the Board of Directors of
Rotherham Holdings Ltd.
West Vancouver, British Columbia, Canada
Ryan Barrington-Foote, FCPA, FCA (1)(2)
President
The Jim Pattison Group
Vancouver, British Columbia, Canada
Glen Clark(3)(5)
Former President and Chief Operating Officer
The Jim Pattison Group
Vancouver, British Columbia, Canada
Dieter Jentsch(1)(5)
Senior Advisor
Corporate Director
King City, Ontario, Canada
Anders Ohlner(4)
Senior Advisor
Malmö, Skåne, Sweden
Conrad Pinette(1)(5)
President
Condor Holdings
Vancouver, British Columbia, Canada
Dallas Ross(1)(2)(5)
Founder and General Partner
Kinetic Capital Partners
Vancouver, British Columbia, Canada
Frederick Stimpson III(4)
Senior Advisor
Mobile, Alabama, United States
William Stinson(3)
Chairman and Chief Executive Officer
Westshore Terminals Investment Corporation
Vancouver, British Columbia, Canada
Sandra Stuart(4)
Senior Advisor
Vancouver, British Columbia, Canada
Dianne Watts(3)(4)
Senior Advisor
Corporate Director
Surrey, British Columbia, Canada
OFFICERS
The name and municipality, province/state and country of residence of the executive officers of the Company and the offices held by them as at
December 31, 2022 are as below. For more information visit www.canfor.com.
John Baird
Chairman
Canfor Corporation
Toronto, Ontario, Canada
Donald Kayne
President and Chief Executive Officer
Delta, British Columbia, Canada
Patrick Elliott
Chief Financial Officer and Senior Vice
President, Sustainability
Vancouver, British Columbia, Canada
Stephen Mackie
Executive Vice President, North American
Operations
Kelowna, British Columbia, Canada
David Calabrigo, K.C.
Senior Vice President, Corporate Development,
Legal Affairs and Corporate Secretary
Vancouver, British Columbia, Canada
Kevin Horsnell
Senior Vice President, Canadian Operations
Prince George, British Columbia, Canada
Kevin Pankratz
Senior Vice President, Sales and Marketing
North Vancouver, British Columbia, Canada
Jim Bogle
Vice President, Technology & Digital
Surrey, British Columbia, Canada
Katy Player
Senior Vice President, People
North Vancouver, British Columbia, Canada
Bob Hayes
Vice President, Global Supply Chain
Delta, British Columbia, Canada
David Trent
Senior Vice President, Global Supply Chain
and Digital
West Vancouver, British Columbia, Canada
Andreas Kammenos
Vice President, Residual Fibre and
Business Analytics
Abbotsford, British Columbia, Canada
Susan Yurkovich
Senior Vice President, Global Business
Development
Vancouver, British Columbia, Canada
Måns Johansson
Chief Executive Officer, Vida Group
Växjö, Kronobergs Iän, Sweden
Tony Sheffield(7)
President, Canfor Southern Pine
Daphne, Alabama, United States
Ross Lennox
Vice President, Woodlands Canada
Prince George, British Columbia, Canada
Bob Smith
Vice President, North American Sales
Surrey, British Columbia, Canada
Michelle Ward
Vice President, Corporate Communications
Vancouver, British Columbia, Canada
Katrina Wilson
Vice President, Controller
Surrey, British Columbia, Canada
(1) M e m b e r o f t h e A u d i t C o m m i t t e e .
( 2 ) M e m b e r o f t h e J o i n t M a n a g e m e n t R e s o u r c e s a n d C o m p e n s a t i o n C o m m i t t e e .
( 3 ) M e m b e r o f t h e J o i n t G o v e r n a n c e a n d S u s t a i n a b i l i t y C o m m i t t e e ( f o r m e r l y t h e J o i n t G o v e r n a n c e C o m m i t t e e ) .
( 4 ) M e m b e r o f t h e J o i n t E n v i r o n m e n t a l , H e a l t h a n d S a f e t y C o m m i t t e e .
( 5 ) M e m b e r o f t h e J o i n t C a p i t a l E x p e n d i t u r e C o m m i t t e e .
( 6 ) A l l c o m m i t t e e s o f t h e C o m p a n y, o t h e r t h a n t h e A u d i t C o m m i t t e e , h a v e a s m e m b e r s o n e o r m o r e d i r e c t o r s o f C P P I a n d a r e j o i n t c o m m i t t e e s w i t h C P P I . F o r m o r e i n f o r m a t i o n o n t h e p o w e r,
r e s p o n s i b i l i t i e s a n d c o m p o s i t i o n o f t h e j o i n t c o m m i t t e e s , s e e t h e C o m p a n y ’s I n f o r m a t i o n C i r c u l a r d a t e d M a r c h 13 , 2 0 2 3 , w h i c h c a n b e f o u n d o n S E D A R a t w w w . s e d a r. c o m .
( 7 ) To n y S h e f f i e l d s t e p p e d d o w n a s P r e s i d e n t , C a n f o r S o u t h e r n P i n e o n J a n u a r y 2 0 , 2 0 2 3 .
T h e t e r m o f o f f i c e o f e a c h D i r e c t o r e x p i r e s o n t h e d a t e o f t h e n e x t A n n u a l G e n e r a l M e e t i n g o f t h e C o m p a n y.
98
CORPORATE AND SHAREHOLDER INFORMATION
Annual General Meeting
The Annual General Meeting of Canfor Corporation will be held via webcast on May 3, 2023.
Auditors
KPMG LLP
Vancouver, BC
Transfer Agent and Registrar
AST Trust Company (Canada)
1600 - 1066 W. Hastings St.
Vancouver, BC, V6E 3X1
Stock Listing
Toronto Stock Exchange
Symbol: CFP
Canfor also produces an Annual Information Form. To obtain this publication or more information about the Company, please contact Canfor
Corporation or visit our website at http://canfor.com/investor-relations.
Investor Contact
Patrick Elliott
Chief Financial Officer and Senior Vice
President, Sustainability
Canfor Corporation
T: (604) 661-5441
E: patrick.elliott@canfor.com
Media Contact
Michelle Ward
Vice President, Corporate
Communications
Canfor Corporation
T: (604) 661-5311
E: michelle.ward@canfor.com
Canfor Corporation
Head Office
#100 – 1700 West 75th Avenue
Vancouver, BC, V6P 6G2
T: (604) 661-5241
E: info@canfor.com
www.canfor.com
Investor Contact
Dan Barwin
Director, Corporate Finance
Canfor Corporation
T: (604) 661-5390
E: daniel.barwin@canfor.com
99
CANFOR.COM