WEST FRASER
ANNUAL REPORT 2019
Including Annual Information Form
Dated: February 11, 2020
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TABLE OF CONTENTS
REPORT TO SHAREHOLDERS ................................................................................................................................. 3
ANNUAL INFORMATION FORM ............................................................................................................................ 5
BUSINESS OVERVIEW ............................................................................................................................................ 5
CORPORATE STRATEGY .......................................................................................................................................... 5
CORPORATE STRUCTURE ........................................................................................................................................ 6
HISTORY AND DEVELOPMENT OF BUSINESS ................................................................................................................ 8
SALES REVENUE ................................................................................................................................................... 8
MARKETS ........................................................................................................................................................... 8
FIBRE SUPPLY ...................................................................................................................................................... 9
HUMAN RESOURCES ........................................................................................................................................... 13
CAPITAL EXPENDITURES AND ACQUISITIONS ............................................................................................................. 13
ENERGY ........................................................................................................................................................... 14
ENVIRONMENT AND SOCIAL .................................................................................................................................. 14
RESEARCH AND DEVELOPMENT .............................................................................................................................. 17
LUMBER .......................................................................................................................................................... 17
PANELS ............................................................................................................................................................ 19
PULP ............................................................................................................................................................... 19
NEWSPRINT ...................................................................................................................................................... 20
RISK FACTORS ................................................................................................................................................... 20
CAPITAL STRUCTURE ........................................................................................................................................... 20
TRANSFER AGENT .............................................................................................................................................. 22
EXPERTS .......................................................................................................................................................... 22
DIRECTORS AND OFFICERS .................................................................................................................................... 22
LEGAL PROCEEDINGS AND REGULATORY ACTIONS ...................................................................................................... 24
GOVERNANCE ................................................................................................................................................... 25
AUDIT COMMITTEE ............................................................................................................................................ 25
MATERIAL CONTRACTS ........................................................................................................................................ 26
ADDITIONAL INFORMATION .................................................................................................................................. 27
SCHEDULE 1 - AUDIT COMMITTEE CHARTER ............................................................................................................. 28
2019 MANAGEMENT’S DISCUSSION & ANALYSIS ................................................................................................ 31
INTRODUCTION AND INTERPRETATION ..................................................................................................................... 31
FORWARD-LOOKING STATEMENTS ......................................................................................................................... 31
NON-IFRS MEASURES ........................................................................................................................................ 32
ANNUAL RESULTS .............................................................................................................................................. 32
SELECTED QUARTERLY INFORMATION ..................................................................................................................... 33
DISCUSSION & ANALYSIS OF ANNUAL NON-OPERATIONAL ITEMS .................................................................................. 33
DISCUSSION & ANALYSIS OF ANNUAL RESULTS BY PRODUCT SEGMENT ........................................................................... 35
FOURTH QUARTER RESULTS .................................................................................................................................. 41
DISCUSSION & ANALYSIS OF FOURTH QUARTER NON-OPERATIONAL ITEMS ..................................................................... 42
DISCUSSION & ANALYSIS OF FOURTH QUARTER RESULTS BY PRODUCT SEGMENT .............................................................. 43
CAPITAL EXPENDITURES ....................................................................................................................................... 47
BUSINESS OUTLOOK ........................................................................................................................................... 47
ESTIMATED EARNINGS SENSITIVITY TO KEY VARIABLES ................................................................................................ 49
CAPITAL STRUCTURE AND LIQUIDITY ....................................................................................................................... 49
DEFINED BENEFIT PENSION PLANS ......................................................................................................................... 50
SUMMARY OF FINANCIAL POSITION ........................................................................................................................ 51
DEBT RATINGS .................................................................................................................................................. 51
CASH FLOW ...................................................................................................................................................... 51
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CONTRACTUAL OBLIGATIONS •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 53
FINANCIAL INSTRUMENTS ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 53
SIGNIFICANT MANAGEMENT JUDGMENTS AFFECTING FINANCIAL RESULTS ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 53
ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 55
NEW ACCOUNTING PRONOUNCEMENTS ADOPTED ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 55
RISKS AND UNCERTAINTIES ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 55
CONTROLS AND PROCEDURES ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 64
ADDITIONAL INFORMATION •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 64
RESPONSIBILITY OF MANAGEMENT ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 65
INDEPENDENT AUDITOR'S REPORT •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 66
CONSOLIDATED BALANCE SHEETS ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 69
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 70
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 71
CONSOLIDATED STATEMENTS OF CASH FLOWS •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 73
FOUR YEAR FINANCIAL REVIEW ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 104
DIRECTORS AND OFFICERS ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 106
CORPORATE INFORMATION ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 107
GLOSSARY OF INDUSTRY TERMS •••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• 109
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REPORT TO SHAREHOLDERS
Message from our Chief Executive Officer
Our strategy is to be the low-cost producer. We attain this by challenging our employees to contribute to our
success, by consistently reinvesting our profits in our operations and people, and by maintaining a prudent balance
sheet. The execution of this strategy is what results in long-term value creation throughout the commodity cycle.
2019 was a year of challenge and transition for West Fraser. In British Columbia, log shortages caused by the
devastating impacts of the Mountain Pine Beetle led to industry-wide, permanent lumber production curtailments.
For West Fraser, that reduction represented 600 MMfbm of lumber capacity, which included the closure of our
Chasm mill.
In the U.S. South we executed one of our largest capital programs in Company history, focusing on the
modernization of our southern yellow pine lumber production capacity. West Fraser’s U.S. facilities are located in
regions with ample timber supply and in close proximity to strong housing markets. These factors, combined with
solid demographic growth fundamentals, create significant opportunities for our southern mills.
Overall North American lumber production declined by 5% and was down approximately 3 billion board feet as a
result of permanent and temporary curtailments announced in the year. However, macroeconomic data indicators
for lumber demand indicate favourable growth trends, with housing construction and permits growing solidly. The
year ended with the highest annualized pace of housing starts since 2006.
World annual pulp shipments in 2019 followed recent trends, with little change expected for pricing in the near
term. We believe that strong operational results in our BCTMP business will continue, albeit in challenging global
markets. Mid to long-term forecasts for growth in pulp consumption remain strong.
We anticipate sustained capital spending of $275 - $325 million focused on cost reduction, increased yield, and
production growth. Our aggressive modernization and growth plan for our southern U.S. mills resulted in the
completion of several key capital projects in 2019. As we realize growth and efficiency gains, we are targeting a
10% increase in southern yellow pine lumber production for 2020.
We achieve a high level of resource efficiency by maximizing every log’s potential to be converted into valuable
wood products. What is not made into a product is converted into carbon-neutral bioenergy, which currently
provides 69% of our energy consumption, the energy equivalent of 7.6 million barrels of oil (Mboe). Today 75% of
energy needs are met from renewable sources. We continue to explore options to increase energy efficiency
throughout our operations and increase the generation and procurement of renewable energy.
Implementing the best available technology not only improves mill productivity and reduces costs. It also
improves safety performance, reduces turnover and increases the quality of the jobs while supporting our ability
to recruit and retain talented, skilled employees.
Safety performance is a crucial indicator for driving continuous performance improvement throughout the
Company’s operations. We dedicate significant resources towards our goal of eliminating serious incidents and
injuries through concentrated efforts in safety systems and training. West Fraser’s performance is trending in the
right direction. Our medical incident rate for 2019 was 2.45, a 25% improvement since 2015. The highest
frequency, serious injuries are hand and finger incidents. Our target is to reduce these injuries by 50% while
closely monitoring our leading safety indicators to ensure progressive improvement across the Company’s safety
performance metrics.
Our employees are the foundation of the Company’s ability to deliver on our objectives. West Fraser continues to
be recognized as a preeminent employer, re-named one of Canada’s Top 100 Employers and Top Employers for
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Young People. Over the last several years, we have been improving our employee training and development
systems. This is supported by our partnerships with academic institutions such as the College of the Ouachitas in
Malvern, Arkansas; West Fraser Tech Centre at the College of New Caledonia in Quesnel and new technical
programs at the British Columbia Institute of Technology in Burnaby, B.C. Working closely with these institutions
underpins our ability to increase technical skills and employee development training matched to our internal
curriculum.
The world is awakening to the advantages of responsibly-sourced wood in the carbon cycle: as a store of carbon,
to generate carbon-neutral bioenergy and as a renewable alternative to non-renewable and fossil fuel-derived
materials. We are proud to offer products that achieve all of these sustainable objectives, with the products we
manufactured in 2019 storing 2.6 million metric tonnes of carbon.
West Fraser’s certified responsible sourcing of wood fibre and sustainable forest management are crucial to these
planetary benefits. Because we replace what we harvest, Canadian forests managed for timber production are a
carbon sink. Our sustainable forest management practices, stewardship and silviculture activities ensure we
reforest planting two young trees for every tree we harvest. In 2019, we planted 63 million native tree seedlings
to grow thriving forests for the future.
The environmental benefits of building with wood have never been more apparent or more accepted, a
momentum that bodes well for West Fraser’s future. Converting more of the built environment to wood enables
structures to store more carbon and displace higher carbon building materials, in effect doubling wood’s
contribution to greenhouse gas abatement. North American lumber consumption is trending up approximately 2
billion board feet a year, and we are optimistic about the greater potential for growth in a carbon-conscious world.
Our goal is to be the premier forest products company in the industry, attracting and retaining people that want to
play a role in making the Company better while reinforcing and growing a great culture and working environment.
Our focus for 2020 is resolutely on achieving our operational performance expectations. Reducing cost while
improving value are the areas that we control. I see significant opportunity to improve both. I look forward to
2020 as a year where together, we will draw on our strengths to seize these opportunities.
I want to recognize and thank every employee for the contribution they have made towards the performance of
West Fraser in 2019. In particular, the employees and their families who were disrupted by the curtailments and
those impacted by the closure of our Chasm mill. I am most thankful for and proud of the dedication and
perseverance of our people throughout this organization.
I appreciate the advice, support and guidance of our Chairman and the Board of Directors through this transition
period, the patience and backing of our customers, our employees, and our communities that are vital to our
overall health and prosperity. It is this support and commitment that continues to inspire our management team
to build a bigger and stronger company for the future.
Ray Ferris
President and Chief Executive Officer
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ANNUAL INFORMATION FORM
Date
This Annual Information Form (“AIF”) of West Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us”, “our” or the
“Company”) is dated as of February 11, 2020. Except as otherwise indicated, the information contained in it is as
of December 31, 2019.
For definitions of various abbreviations and technical terms used in this AIF, please see the Glossary of Industry
Terms found in our most recent Annual Report.
Where this AIF includes information from third parties we believe that such information (including industry and
general publications and surveys) is generally reliable. However, we have not independently verified any such
third-party information and cannot assure you of its accuracy or completeness.
All financial information in this AIF is presented in Canadian dollars, unless otherwise indicated.
Forward-looking Statements
This AIF, and the Annual Report of which it forms a part, contain historical information, descriptions of current
circumstances and statements about potential future developments. The latter, which are forward-looking
statements, are presented to provide reasonable guidance to the reader but their accuracy depends on a number
of assumptions and are subject to various risks and uncertainties. Forward-looking statements are included herein
under the headings “Fibre Supply” (replantation expectations), “Fibre Supply - Fibre Consumption” (log
consumption), “Fibre Supply - Mountain Pine Beetle and B.C. Wildfires” (the timing of AAC reductions and the
effect on our AACs), “Fibre Supply - Caribou Recovery Planning” (impact on our access to timber supply), “Fibre
Supply - Aboriginal Matters” (the potential effect of aboriginal title or rights), “Human Resources” (status of
collective agreement negotiations) and “Capital Structure - Cash dividends”, and are included in our 2019
Management’s Discussion & Analysis incorporated herein under the heading “Risks and Uncertainties”. Actual
outcomes and results will depend on a number of factors that could affect the ability of the Company to execute
its business plans, including the matters described in these sections and under “Risk Factors”, and may differ
materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon
forward-looking statements which reflect management’s estimates, projections and views only as of the date
hereof. The Company undertakes no obligation to publicly revise these statements to reflect subsequent events or
changes in circumstances except as required by applicable securities laws.
Business Overview
We are a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips,
other residuals and energy with facilities in western Canada and the southern United States. We hold rights to
timber resources that are sufficient to supply a significant amount of the fibre required by our Canadian operations
and have long-term agreements for the supply of a portion of the fibre required by our United States operations.
We carry on our operations through subsidiaries and joint operations in British Columbia (“B.C.”), Alberta and the
southern United States (“U.S.”). Our operations located in western Canada manufacture all of the products
described above except SYP lumber. Our sawmills located in the southern U.S. produce SYP lumber, wood chips
and other residuals.
Corporate Strategy
We are a diversified producer of wood products with access to extensive timber resources. Our Canadian lumber,
plywood, LVL and veneer operations are directly or indirectly the primary source of raw material for our pulp &
paper, MDF and energy operations.
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Our goal at West Fraser is to generate strong financial results through the business cycle, relying on our committed
work force, the quality of our assets and our well established people and operating culture. This culture
emphasizes cost control in all aspects of the business and internal and external competitiveness. In our approach
to employee relations, we emphasize employee involvement and favour internal promotions whenever possible.
We are committed to operating in a financially conservative and prudent manner. The North American wood
products industry is cyclical and periodically faces difficult market conditions and serious challenges. Our earnings
are sensitive to changes in world economic conditions, primarily those in North America, Asia and Europe and
particularly to the U.S. housing market for both new construction and repair and renovation spending. Most of our
revenues are from sales of commodities for which prices are sensitive to variations in supply and demand. Since
most of these sales are in U.S. dollars, exchange rate fluctuations of the U.S. dollar against the Canadian dollar is a
major source of earnings volatility for us.
Maintaining a strong balance sheet and liquidity profile, along with our investment grade debt rating enables us to
execute a balanced capital allocation strategy. Our goal is to continually reinvest in our operations, across all
market cycles, to maintain a leading cost position and prudently return capital to shareholders. We believe that
maintaining a strong balance sheet also provides the financial flexibility to capitalize on growth opportunities and
is a key tool in managing our business over the long term.
Acquisitions and expansions are considered with a view to extending our existing business lines, particularly in
lumber operations, and to product and geographic diversification. Our earnings over the business cycle have
enabled us to make significant and ongoing capital investments in our facilities with the goal of achieving,
maintaining or improving an overall low-cost position.
Corporate Structure
The following chart shows the relationship of West Fraser to the principal direct and indirect subsidiaries and the
joint operations in which we participate and, where less than 100%, the percentage of our direct or indirect
ownership.
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West Fraser Timber Co. Ltd.
West Fraser Mills Ltd.
LUMBER
Canada
Quesnel
Williams Lake
Smithers
Chetwynd
Fraser Lake
100 Mile House
Blue Ridge1
Hinton
Edson
Sundre2
High Prairie
Manning3
U.S.
Joyce4
Huttig4
Henderson5
New Boston5
Leola4
Mansfield4
Russellville4
Maplesville4
Opelika4
McDavid4
Perry6
Lake Butler6
Whitehouse4
Maxville6
Blackshear6
Fitzgerald6
Dudley6
Augusta4
Newberry4
Armour4
Seaboard4
SPECIALTY LUMBER PRODUCTS
Sundre2
PULP & PAPER
Pulp
Hinton
Quesnel
Quesnel (50%)7
Slave Lake
Newsprint
Whitecourt (50%)8
PANELS
Plywood
Edmonton
Quesnel
Williams Lake
MDF
Blue Ridge
Quesnel
Veneer & LVL
Rocky Mountain
House2
Slave Lake
1. Owned through Blue Ridge Lumber Inc., a wholly-owned subsidiary.
2. Owned through Sundre Forest Products Inc., a wholly-owned subsidiary.
3. Owned through Manning Forest Products Ltd., a wholly-owned subsidiary.
4. Owned through West Fraser, Inc., a wholly-owned subsidiary.
5. Owned through West Fraser Wood Products Inc., a wholly-owned subsidiary.
6. Owned through West Fraser Southeast, Inc., a wholly-owned subsidiary.
7.
8.
50% interest in Cariboo Pulp & Paper Company.
50% interest in Alberta Newsprint Company owned through West Fraser Newsprint Ltd., a wholly-owned subsidiary.
West Fraser is organized under the Business Corporations Act (British Columbia) and assumed its present form in
1966 by the amalgamation of a group of companies under the laws of B.C. The principal operating subsidiary,
West Fraser Mills Ltd., assumed its present form on January 1, 2005 by amalgamation under those laws. West
Fraser, Inc., West Fraser Wood Products Inc. and West Fraser Southeast, Inc. are Delaware corporations, while
Blue Ridge Lumber Inc., Manning Forest Products Ltd. and Sundre Forest Products Inc. are Alberta corporations.
West Fraser Newsprint Ltd. subsists under the laws of Canada. Alberta Newsprint Company (“ANC”) and Cariboo
Pulp & Paper Company are unincorporated 50%-owned operations governed, respectively, by the laws of Alberta
and B.C.
Our executive office is located at 858 Beatty Street, Suite 501, Vancouver, B.C., Canada, V6B 1C1 and our
registered office is located at 1500 – 1055 West Georgia Street, Vancouver, B.C., Canada, V6E 4N7.
History and Development of Business
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West Fraser originated in 1955 when three brothers, Pete, Bill and Sam Ketcham, acquired a lumber planing mill
located in Quesnel, B.C. (“Quesnel”). From 1955 through 2019 the business expanded through the acquisition of a
number of sawmills and related timber harvesting rights and the acquisition or development of lumber, panel and
pulp & paper businesses.
Major developments for West Fraser during the last three years include the following:
2017
• MDF facility in Quesnel damaged by fire in 2016 was repaired and began
producing board on April 29.
• Acquired six sawmills in Florida and Georgia as well as an administrative office in
St. Marys, Georgia.
Softwood lumber duties were imposed by the U.S. Department of Commerce
(“USDOC”).
Completed four continuous kilns and two major sawmill upgrades.
•
•
2018
2019
Sales Revenue
($ millions)
Year ended December 31
Lumber
Panels
Pulp & Paper
Intracompany fibre sales
Markets
•
•
•
•
•
•
•
• Rebuild of sawmill in High Prairie, Alberta.
•
Commissioned an entirely new sawmill in Opelika, Alabama on the site of the
existing sawmill.
Completed five continuous dry kilns across Western Canada.
Completed planer mill upgrades at facilities in Fraser Lake, B.C., Smithers, B.C. and
Sundre, Alberta.
Implemented upgraded refining technology at our Quesnel River Pulp mill and an
additional concentrator at our Cariboo Pulp mill.
Permanently reduced lumber production capacity due to fibre shortages in B.C. by
roughly 600 MMfbm through the closure of the Chasm mill and the elimination of
the third shift at the Quesnel, Fraser Lake and 100 Mile House mills.
Completed primary breakdown upgrade at McDavid, Florida.
Completed log merchandizer at Joyce, Louisiana.
Completed new planer in Augusta, Georgia.
2019
3,442
605
966
(136)
4,877
2018
4,456
676
1,163
(177)
6,118
2017
3,671
600
988
(125)
5,314
2016
3,145
529
887
(111)
4,450
2015
2,764
554
900
(118)
4,100
The markets for our products are highly competitive and product pricing can be volatile. Our products are sold in
markets open to a number of companies with similar products and we compete with global producers. Our
competitive position is affected by factors such as cost and availability of raw materials, energy and labour, the
ability to maintain high operating rates and low per unit manufacturing costs, and the quality of our final products.
Some of our products may also compete with non wood fibre based alternatives or with alternative products in
certain market segments. Purchasing decisions by customers are generally based on price, quality, service and
availability of supply. However, because commodity products such as ours have few distinguishing properties from
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producer to producer, competition for these products is based primarily on price. Prices and sales volumes are
influenced by general economic conditions and the balance of supply and demand for the product. The following
table shows selected average benchmark prices for the past five years for the primary products of the type we
produced, although these prices do not necessarily reflect the prices we obtained.
Average Benchmark Prices
(In US$ except plywood)
2019
2015
SPF #2 & Better 2x4 (per Mfbm)1
360
278
SPF #3 Utility 2x4 (per Mfbm)1
285
209
SYP #2 West 2x4 (per Mfbm)2
384
376
Plywood (per Msf 3/8” basis)3 Cdn$
459
430
NBSK – U.S. (per tonne)4
1,239
972
NBSK – China (per tonne)5
634
644
Newsprint (per tonne)6
732
538
US$/CAD$7
0.754
0.782
Sources: (refer to our 2019 Management’s Discussion & Analysis for Canadian dollar equivalent prices of the products described herein)
1.
2.
3.
4.
5.
6.
7.
Random Lengths - Net FOB mill.
Random Lengths - Net FOB mill Westside.
Crow’s Market Report – Delivered Toronto.
Resource Information Systems, Inc. - U.S. list price, delivered U.S.
Resource Information Systems, Inc. - China list price, delivered China.
Resource Information Systems, Inc. - Newsprint 27.7lb East, delivered (2015-2017 - U.S. Newsprint 48.8 gram, delivered).
Bank of Canada annual average exchange rate.
2017
401
323
433
509
1,105
712
584
0.771
2016
305
240
409
432
978
599
560
0.755
2018
480
372
501
548
1,337
878
740
0.772
Fibre Supply
Our operations are dependent on the consistent supply of substantial quantities of wood fibre in various forms.
The primary manufacturing facilities, which produce lumber, plywood and LVL, consume whole logs while the
pulp & paper and MDF facilities mostly consume wood by-products in the form of wood chips (including from
whole-log chipping operations), shavings and sawdust resulting from the production of lumber, plywood or LVL.
Many facilities also consume hog fuel and wood waste in energy systems.
In B.C. and Alberta substantially, all timberlands are publicly owned and the right to harvest timber is acquired
through provincially granted licences. Licences grant the holder the right to harvest up to a specified quantity of
timber annually and either have a term of 15 to 25 years and are replaceable or have a shorter term but are not
replaceable. Government objectives in granting licences include responsible management of timber, soils, wildlife,
water and fish resources and the preservation of biodiversity and the protection of cultural values. The objectives
also include achieving the fullest possible economic utilization of the forest resources and employment in local
communities.
Timber tenures in B.C. and Alberta require the payment of a fee, commonly known as stumpage, for timber
harvested pursuant to its terms. Stumpage in Alberta is product/price specific and varies with the sales price of
the product into which the logs will be converted. Stumpage in B.C. is substantially based on the results of certain
publicly-auctioned timber harvesting rights.
Timber tenures in B.C. and Alberta require the holder to carry out reforestation to ensure re-establishment of the
forest after harvesting. Reforestation projects are planned and supervised by our woodlands staff and are subject
to approval by relevant government authorities. Our timber harvesting operations are carried out by independent
contractors under the supervision of our woodlands staff.
Canadian woodlands operations directly managed by West Fraser are independently audited and certified by the
Sustainable Forestry Initiative (“SFI”) for fibre sourcing and sustainable forest management. Sustainable forest
management means managing the forest in a way that maintains an ecologically sustainable and socially desired
- 10 -
balance of values. It aims to ensure all the values present in the forest today, such as recreation, biodiversity,
habitat protection, clean water, and others, will be there for future generations to use and enjoy. Our harvesting
practices are designed to harvest timber safely and efficiently while minimizing environmental impacts. Our
harvesting practices create openings that are consistent with the effects of natural disturbances common in our
forests, like those that fire and insects create. Openings create the best conditions for regeneration for most of
the tree species we manage. What we harvest and reforest reflects the profile of the tree species where we
operate. On average we plant approximately 60 million native tree seedlings annually and all harvest sites are
re-established as forests for the future.
The following table summarizes the timber tenures, as at December 31, 2019, which supply the Canadian mills that
we own or in which we have an interest, as well as our AAC for such tenures.
Timber Tenures
(thousand m3)
Location
B.C.
Alberta
Tenure1
Coniferous Long-term
Coniferous Short-term
Coniferous Long-term
Deciduous Long-term
Expiry
2022 - 2035
2035
2019 - 2033
2019 - 2033
AAC
5,278
200
6,380
1,319
1.
Long-term tenures include TFLs, FMAs, timber quotas and forest licences, which are renewable timber tenures. Short-term tenures
include non-replaceable forest licences.
We do not own or manage any timberlands in the U.S.
Fibre Consumption
Annual log requirements for our Canadian sawmills, plywood facilities and LVL plant, all operating at the capacities
described herein, would total approximately 14 million m3. Recently, we have been accessing approximately 65%
of these requirements from the quota-based tenures described in the above table and the balance is typically
acquired from third parties holding short or long-term timber harvesting rights, including independent logging
contractors, aboriginal groups, communities and woodlot owners. We do not necessarily consume the maximum
permitted volume of logs that may be harvested from our tenures annually but will adjust between tenure and
purchase logs depending on circumstances including the availability of purchase logs and our ability to secure
approvals to harvest in economically viable stands.
Our U.S. operations, which produce SYP lumber, would consume approximately 14 million tons of logs per year if
operating at the capacity described herein. Our U.S. operations have access to approximately 18% of their log
requirements under certain long-term supply contracts, and the balance is purchased on the open market. Open
market purchases come from timber real estate investment trusts, timberland investment management
organizations and private land owners.
Mountain Pine Beetle and B.C. Wildfires
The mountain pine beetle infestation in the B.C. interior reached a peak, in terms of the annual timber mortality
rate, more than 15 years ago. Approximately 40 % of B.C.’s crown forest is within the timber harvesting land base
(“THLB”), and approximately 29 % of the THLB is pine. When assessing the THLB of B.C.’s interior, approximately
37% is pine. The damage to the mature pine forests within our operating areas is significant.
The Province of B.C. previously increased the AAC on dead pine stands and limited the harvest of non-pine species
until the salvage of dead pine stands comes to a conclusion. The AAC has been or will be reduced to reflect lower
mature inventories as dead pine stands are harvested or when they are no longer economic to harvest. The
Province has reduced the AAC in B.C.’s central interior by approximately 38% in the past five years. We expect this
process to continue for another five years as the Province transitions AACs by incrementally reducing mountain
- 11 -
pine beetle uplifts. To date, B.C.’s Chief Forester has announced reductions of the AAC in eight of our operating
areas in the interior.
Wildfires in B.C. burned over two million hectares of forest land in 2017 and 2018 combined. Our Cariboo region
operating areas were significantly impacted. Salvage of fire damaged trees has begun and is expected to continue
for one to three years.
As the timing of future AAC reductions and the effect on our AACs will depend on a variety of factors, including the
impact of wildfires and the amount of non-pine species available for harvest, the full effect on our operations
cannot reasonably be determined at this time.
In Alberta, the Minister and the forest industry continue to implement aggressive programs for mountain pine
beetle detection, single tree control and focused harvesting activity. The mountain pine beetle infestation
significantly expanded from Jasper National Park into our Hinton forest management area (“FMA”) in 2017 and
2018. The mountain pine beetle has also spread into the Edson FMA and, to a lesser extent the Sundre FMA. We
continue to work aggressively to reduce the number of susceptible pine stands and conduct spread control
activities across the region in concert with other forest industry participants and the Alberta government.
Caribou Recovery Planning
Draft woodland caribou recovery plans were released by the Alberta government in December 2017. We have
been working with the Province to develop strategies that support caribou recovery while maintaining our access
to the forest resource. The AAC impact from these plans will depend on the final location of potential
conservation areas and the forest harvest regimes that are implemented. We anticipate this work will continue in
2020.
B.C. and Canada have initialled a conservation agreement for all Southern Mountain Caribou ranges in the
Province. The current focus is on the Central Group, which is comprised of three herds in the South Peace area.
The conservation agreement includes a partnership agreement with indigenous communities. Initial indications
from the draft partnership agreement for the Central Group are a potential for new protected areas and increased
conservation. This may have some impact on our access to timber supply, but we are unable to predict or quantify
the impact at this stage in the conservation agreement process.
Forestry Certification
We obtain external certification from a number of accredited standard-setting certification bodies which offer
independent verification of the measures that we take to mitigate the effects of our activities on the environment.
All of the Canadian woodlands operations directly managed by us are independently certified by the SFI, an
internationally recognized sustainable forest management certification program.
We also subscribe to the chain of custody certification Programme for Endorsement of Forest Certification
(“PEFC”) standard for our Canadian produced forest products. PEFC chain of custody assures customers that the
fibre in the supply chain comes from sources that comply with applicable laws, regulations and sustainable
resource standards. The standard also demonstrates avoidance of sourcing fibre from controversial sources.
PEFC is a global organization that provides a mutual recognition framework for national certification systems.
PEFC recognizes more than 25 national certification systems, including SFI, and assures customers that differing
systems provide a consistent level of sustainable forest management.
Our pulp operations and MDF mills are registered to the Forest Stewardship Council’s (“FSC”) Standard for Chain of
Custody Certification and the Standard for Company Evaluation of FSC Controlled Wood. This standard
independently verifies that these operations do not source fibre from wood harvested (i) illegally, (ii) in violation
- 12 -
of traditional and civil rights, (iii) in forests where high conservation values are threatened by management
activities, (iv) in forests being converted to plantations or non-forest use, (v) from forests in which genetically
modified trees are planted, or (vi) in violation of any of the International Labour Organization (“ILO”) Core
Conventions, as defined in the ILO Declaration on Fundamental Principles and Rights at Work, 1988.
We do not own or manage any forestlands in the United States. However, our U.S. sawmills procure wood from a
variety of sources normally within an approximate 70-mile radius of each mill. All our U.S. mills are certified under
the SFI Fiber Sourcing Standard.
For more information concerning our sustainable and environmentally sound forest practices see below under the
heading “Environment and Social” and our Responsibility Report at www.westfraser.com.
Residual Fibre Supply
In Canada substantially all our requirements for wood chips, shavings and sawdust and hog fuel are supplied from
our own operations, either directly or indirectly through trades. This reduces our exposure to risks associated with
price fluctuations and supply shortages of these products.
Our B.C. sawmills and plywood plants produce substantially all of the fibre requirements of our B.C. pulp
operations and MDF plant. The Alberta MDF plant obtains its fibre from the adjacent Blue Ridge sawmill and other
sawmills in the area. The Hinton pulp mill obtains its fibre from the adjacent Hinton sawmill and other sawmills in
the area owned by us. At times we produce whole log chips to supplement the supply of residual chips from our
various sawmills. The fibre requirements of our 50%-owned newsprint mill are obtained from local sawmills,
including our sawmill in Blue Ridge and the Slave Lake veneer operation, through chip purchase agreements and
log for chip trades using logs harvested from the newsprint mill’s tenures. The Slave Lake deciduous FMA provides
most of the fibre requirements of the Slave Lake pulp mill, with the balance being obtained from logs purchased
from local suppliers.
The majority of the wood chips produced by our U.S. operations are sold to pulp mills at market prices pursuant to
long-term contracts.
Aboriginal Matters
We are committed to working with Indigenous Peoples (including First Nations, Métis and others) with mutual
respect and understanding of each other's interests, values, and goals. Our voluntary forest certification standards
include respect for Indigenous Peoples’ property, tenure and use rights. This is specifically addressed in the
SFI 2015-2019 Standards and Rules, which recognizes the principles outlined in the United Nations Declaration for
the Rights of Indigenous Peoples. As a program participant, West Fraser communicates and collaborates with local
Indigenous Peoples and communities in order to better understand their traditional practices with respect to
forest management.
Notwithstanding these efforts, our continued access to the forest resource in Canada could be adversely affected
by aboriginal rights and title claims, treaties with aboriginal groups, non-treaty agreements governments may
choose to enter into with Aboriginal groups, other legislation governments may to pass related to Aboriginal
groups and other commitments made to Aboriginal groups by governments. These, and related duties of
government to consult and accommodate Aboriginal groups, could affect the issuance, validity, renewal and
exercise and terms and conditions of Crown timber rights and authorizations to harvest, or the timeliness of
obtaining such rights.
The Canadian federal government and the provincial governments in Alberta and B.C. have made commitments to
renew their relationships with aboriginal groups, and in some case have expressed their support for the United
Nations Declaration on the Rights of Indigenous Peoples (“UNDRIP”) and their intent to adopt and implement it.
- 13 -
This includes the passage of the Declarations on the Rights of Indigenous Peoples Act in British Columbia in
November 2019.
If Aboriginal title is proven over any of the lands where we have interests or rights, it could result in aboriginal
ownership of the resources on title lands. However, to date there has been only one court case finding aboriginal
title in B.C. where aboriginal title was found to be held by the Tsilhqot’in Nation in respect of an area that is less
than 0.2% of B.C., and in areas where we do not hold cutting permits. It is uncertain at present what rights
(including rights to compensation), if any, third party tenure holders may have in relation to tenures on lands
found to be subject to Aboriginal title.
As the jurisprudence and government policies respecting aboriginal title and rights and the consultation process
continue to evolve, we cannot at this time predict whether aboriginal claims will have a material adverse effect on
our timber harvesting rights or on our ability to exercise, renew or transfer them, or secure other timber
harvesting rights. West Fraser is and will continue to be proactive in its efforts to engage and work with
Indigenous Peoples to seek positive and beneficial working relationships and maintain access to the timber
harvesting land base.
Human Resources
As at December 31, 2019, we employed approximately 8,200 individuals, including our proportionate share of
those in 50%-owned operations. Of these, approximately 5,630 are employed in our lumber segment, 1,300 in our
panels segment, 860 in our pulp & paper segment and 410 in our corporate segment. Approximately 34% of our
employees are covered by collective agreements. There are no expired collective agreements remaining as at
December 31, 2019.
The safety of our employees is a core value and business priority and our safety goal is to eliminate serious
incidents and injuries. We have achieved a 10% reduction in our medical incident rate since 2016. We provide
ongoing safety training for our employees to minimize potential risks inherent in forestry-related manufacturing
industries. Our Health and Safety Policy and objectives and a description of external safety certifications obtained
by us are described in our Responsibility Report available on our website at www.westfraser.com.
Capital Expenditures and Acquisitions
We regularly invest in upgrading and expanding our facilities and operations. However, during periods when
earnings are weak, we may reduce capital and other expenditures in order to preserve liquidity. The following
table shows the capital expenditures and acquisitions during the past five years.
Capital Expenditures and Acquisitions
($ millions)
Year ended December 31
Lumber
Panels
Pulp & Paper
Corporate & Other
Acquisitions
2019
339
23
39
9
410
-
410
2018
284
16
60
10
370
-
370
2017
247
22
58
9
336
526
862
2016
195
25
42
11
273
-
273
2015
172
5
32
11
220
76
296
Energy
- 14 -
Currently, 75% of West Fraser’s energy requirements are met from renewable sources. West Fraser’s energy
objectives are to further increase energy efficiency throughout our operations by investing capital and to continue
to research and develop alternate ways to generate or procure renewable energy.
Almost all of the Company’s manufacturing facilities generate some form of renewable energy. Carbon-neutral
biomass makes up 69% of our energy consumption. This bioenergy generation represents the energy equivalent
offset of 7.6 million barrels of oil. Since 2005, energy initiatives have resulted in a 29% decrease in the intensity of
purchased energy across our solid wood operations. The electrical intensity of our BCTMP mills has also been
reduced by 28% per ADMT (air-dried metric tonne).
Our pulp, paper and MDF operations use substantially more energy than our lumber and plywood operations. We
have completed several projects to reduce our purchased energy dependence by utilizing sawmill residuals, waste
biomass and pulp mill effluent streams to produce heat and steam to dry our wood products as well as generate
electricity. Such projects include those at our Hinton and Cariboo pulp mills, which have generating facilities which
produce electricity to satisfy most of their energy requirements and in some cases sell excess electricity to the
provincial utility. In addition, our Slave Lake pulp mill produces electricity for its own use from bio-gas reclaimed
from effluent treatment.
Co-generation projects at our Fraser Lake, B.C., Chetwynd, B.C. and Manning, Alberta sawmills produce electricity
from residuals and waste biomass. Most of this electricity is sold under long-term contracts.
In B.C., electricity is purchased from the provincial utility at regulated prices based largely on generation costs. In
Alberta, electricity is purchased at market prices through the Alberta power pool. In the U.S., the majority of
electricity is purchased from large utility producers at established regulated market rates and a small number of
facilities purchase electricity distributed through local electric cooperatives with a cost plus distribution fee
structure.
In Alberta, we operate a natural gas-fired power plant at our 50%-owned newsprint mill which provides a partial
hedge against high prices of electricity and transmission costs.
Our exposure to energy costs includes the cost to purchase electricity, natural gas, gasoline, diesel fuels, carbon
taxes and fuel surcharges on purchased transportation.
Environment and Social
Regulatory Requirements
Our manufacturing operations are subject to environmental protection laws and regulations. We have developed
and apply internal programs and policies to help ensure that our operations are in compliance with applicable laws
and standards and to address any instances of non-compliance. We have incurred, and will continue to incur,
capital expenditures and operating costs to comply with environmental laws and regulations, which are not
expected to have material financial or operational effects on us or our competitive position. We are required to
carry out remediation activities, including site decommissioning, under applicable environmental protection laws
and regulations. In addition, we are required to carry out reforestation activities under our various timber
licences. We maintain accruals in our financial statements for certain environmental, reforestation and
decommissioning obligations.
- 15 -
Responsible Management of Energy, Woodlands, and Water
West Fraser is committed to utilizing energy, woodlands and water resources responsibly and takes meaningful,
ongoing steps to reduce our impact on the environment. Within the carbon cycle and for climate change adaption
and mitigation, wood products have three beneficial roles: (i) as a store of carbon, (ii) as an alternative to fossil
fuel-based materials, and (iii) for generating carbon-neutral energy. Wood is 50% carbon and an ecological,
renewable alternative to products like concrete, steel, plastics, and petroleum-based chemicals. Converting more
of the built environment to wood has been identified as a solution for reducing global Greenhouse Gas (“GHG”)
emissions. West Fraser’s 2019 production stored 2.6 million metric tons of carbon in our products.
From a manufacturing perspective, we address GHG emissions by improving our energy efficiency and generating
electricity at our operations from manufacturing by-products such as wood waste and pulp mill effluent. We are
committed to consciously managing our energy use, reducing our consumption and developing sustainable energy
solutions. Enterprise-wide, we’ve reduced GHG emissions intensity in our solid wood manufacturing facilities by
9.6% since 2005. We achieved this decrease during a period of significant production growth due to several mill
acquisitions (lumber production grew 57%, from 4,212 MMfbm in 2005 to 6,609 MMfbm in 2018).
In May 2016, West Fraser committed to the Canadian forest products industry’s pledge to remove 30 megatonnes
(MT) of CO2 per year by 2030 - more than 13% of the Canadian government’s emissions target. We continue to
invest in bioenergy systems that more effectively capture the heat and steam generated during the production of
wood products and other future relevant technology as it continues to improve. Additional information on our
energy initiatives is included herein under the heading “Energy” and in our Responsibility Report available on our
website at www.westfraser.com.
Our manufacturing plants have systems in place to treat and filter water and air discharges from our facilities. We
have reduced the waste and materials that may previously have been sent to landfills through innovations to our
production process to use more of the wood residuals, recovering them for value-added products and energy
generation. We use more than 95% of each log, turning it into wood products: panels, pulp, paper, to create new
bioproducts and other valuable products or it used in a bioenergy system. Virtually every part of a log will find a
use within our operations: (i) sawdust and shavings are used in our MDF plants or are transformed into fuel and
energy to run mill operations; (ii) wood chips and the wood cores from our plywood and veneer operations are
used in pulping operations; and (iii) heat, steam, gases and biomass liquids (such as black liquor) that develop
during our manufacturing processes are captured to provide energy to our mills or used to create other value
added bioproducts such as Amallin™ lignin and biocomposites (such as Propel™).
We treat water as an important and protected resource throughout our operations. We specifically address,
manage and monitor stream and watercourse protection as part of our sustainable forest management activities.
Our pulp operations use and treat large volumes of water and we have invested considerably in improvements to
water systems. At West Fraser, 94% of the water we use in our pulp operations is treated and returned to the
environment.
Most of Canada’s forest land (93%) is publicly owned and the right to harvest timber is only allowed through
government granted licences. West Fraser follows strict forest management requirements to be able to maintain
and renew government-granted harvesting rights in Canada. We engage in sustainable forest management and
our harvesting practices are designed to harvest timber safely and efficiently while minimizing environmental
impacts. We replant the trees we harvest and, since 1955, West Fraser has planted more than 1.8 billion trees to
ensure the forests where we operate are constantly renewed. We are proud of our excellent reforestation record,
and we continue to explore new ways to improve our reforestation and silviculture practices. Our goal is to move
beyond mere regulatory compliance to focus on conducting our business in an environmentally, socially and
economically responsible manner.
Community and Stakeholder Engagement
- 16 -
Stakeholder engagement and consultation is a crucial part of our success as a business. Stakeholder engagement
and consultation is embedded in our forest management planning process through our sustainable forest
management and fibre sourcing certifications. Identification and consultation with stakeholders is also required by
Canadian law to meet the standards and provincial regulations governing the permitting and approval of
harvesting and forest management planning on public lands.
Our mills and forest operations often work in partnership with Indigenous Peoples in the regions where we
operate. We seek to build respectful, long-term, mutually beneficial working relationships with the Indigenous
communities located near the areas in which we operate. In Canada within our forest planning, engagement and
consultation processes as well as separate outreach, we work with more than 100 Indigenous communities and
organizations in the regions where we harvest timber and manage public forest land under government licences.
Oversight and Further Information
Our Board, particularly the Environmental, Health & Safety Committee, together with our executive and our senior
leadership teams, set the policy and practice of our environmental, social and governance activities within our
business and are responsible for monitoring our safety and environmental performance, including identifying and
managing environmental risks.
We have adopted and implemented social and environmental policies and practices that are essential to our
operations. Our social, environmental and safety practices are governed by the principles set out in our Code of
Conduct, our Environmental Policy and our Health and Safety Policy.
Our Code of Conduct emphasizes our overall commitment to sustainability and sets out specific requirements in
areas related to: (i) legal and ethical business conduct; (ii) promotion of safe and healthy work practices; (iii)
commitment to operating in an environmentally sustainable manner; (iv) the commitment to human rights and a
harassment, discrimination and violence-free workplace; and (v) maintaining a confidential feedback mechanism
and conducting regular audits to ensure adherence to the Code.
Our Environmental Policy sets out our commitment to do business in an environmentally, socially, and
economically responsible manner. This commitment includes: (i) responsible stewardship of the environment;
(ii) sustainable forest management; and (iii) protection of the health and safety of our employees, customers, and
the public. Our operating philosophy involves continually improving our forest practices and manufacturing
procedures, optimizing the use of resources, and minimizing or eliminating the impact of our operations on the
environment.
Environmental excellence is an integral aspect of our long-term business success. We are committed to:
(i) complying with all applicable environmental laws and regulations and striving to maintain biodiversity and to
protect wildlife habitat and ecosystems; (ii) developing and implementing best practices to continuously improve
our environmental performance; (iii) preventing pollution and continuing to improve our environmental
performance by setting and reviewing environmental objectives and targets; (iv) conserving, reducing, reusing and
recycling wherever practicable the resources and materials that we use and ensuring that all waste is safely and
responsibly handled and disposed of; (v) employing and encouraging the development and use of environmentally
friendly practices and technology; (vi) conducting periodic environmental audits; (vii) providing training for
employees and contractors to ensure environmentally responsible work practices; (viii) communicating our
sustainable forest management and environmental performance openly and transparently to our Board of
Directors, employees, customers, shareholders, local communities and other stakeholders.
In addition, we have also adopted a Health and Safety Policy. Safety is a core value and a business priority and we
are committed to maintaining a safe workplace and strive to be an industry leader by managing an effective safety
program, complying with all laws and regulations, and continuously improving our performance. Within our safety
- 17 -
program, we have identified key responsibilities for executive management, operating site management,
employees and contractors, as detailed in our safety policy. The Health and Safety Policy requires management to
develop and maintain company-wide and site-specific occupational health and safety programs, that include core
guidelines and systems to measure ongoing effectiveness. Our employees are also responsible for following
established safe work procedures as outlined in their job duties and company safety guidelines, including reporting
unsafe conditions, acts, and practices.
We measure and report our performance on an ongoing and comprehensive basis. We implemented internal
monthly, quarterly and annual reporting that tracks performance indicators, including compliance with permits,
environmental monitoring, health and safety performance, materials inputs and outputs, community concerns
expressed and actions taken in response, and reclamation and remediation activities.
We are committed to providing comprehensive and transparent information regarding our environmental, social
and governance (ESG) matters, and additional information including our Responsibility Report prepared in
alignment with the Global Reporting Initiative (GRI), a global standard for reporting on a range of economic,
environmental and social impacts, is available in the “Responsibility” section of our website (at
www.westfraser.com).
Research and Development
We support industry research and development organizations and conduct research and development at several
plants to improve processes, maximize resource utilization and develop new products and environmental
applications. In addition, in the previous five years we have focused on projects in bioenergy generation and
bioproducts, including cellulose biocomposites and alternative uses for lignin recovered during the pulping
process.
Lumber
Sales
Lumber produced at our Canadian sawmills and sold to North American customers is marketed and sold from our
sales office in Quesnel, B.C. while sales to offshore markets are made from our export sales office in Vancouver,
B.C. Offshore sales activities are complemented by a customer service office in Japan. Lumber produced at our
U.S. sawmills is marketed by our sales group in Memphis, Tennessee and St. Marys, Georgia. From time to time,
we purchase lumber for resale in order to meet requirements of customers.
In 2019, sales of lumber were made to customers in the U.S. and Canada and to customers offshore,
predominantly in China and Japan. Most lumber shipments to North American customers by our Canadian
operations were made by rail and the balance by truck. Most lumber shipments to North American customers by
our U.S. operations were delivered by truck and the balance by rail. Offshore shipments from both Canada and the
U.S. were made through various public terminals in bulk or container vessels.
Shipments and sales of our lumber products can be impacted by seasonal influences. Shipments from our Western
Canadian mills can be affected by winter weather that affects rail and other transportation services. In the
summer months, during fire season, logging, manufacturing and transportation can all be affected by wildfire
activity or by evacuation alerts or orders in regions where we operate. Home construction activity which
significantly influences the demand for our products has historically been higher in the first half of the year and
experiences a seasonal slow down in the third quarter. A significant portion of our SYP products are used in
treated wood applications and demand for these products is often highest in anticipation of spring and summer
construction activity.
Softwood Lumber Dispute
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The Canada - U.S. Softwood Lumber Agreement (“SLA”) expired in October 2015 and on the expiry of that
agreement a one year moratorium on trade sanctions by the U.S. came into place. The Government of Canada and
the U.S. Trade Representative have been unable to reach agreement on a new managed trade agreement.
In November of 2016 a coalition of U.S. lumber producers petitioned the USDOC and the U.S. International Trade
Commission (“USITC”) to investigate alleged subsidies to Canadian producers and levy countervailing and
antidumping duties against Canadian imports. The USDOC made its preliminary determination regarding
countervailing duties in April 2017, and in June 2017 for antidumping duties. In December of 2017 countervailing
and antidumping rates for West Fraser were revised to 17.99% and 5.57% respectively. On February 3, 2020, the
USDOC released the preliminary results from the first Administrative Review for the Period of Investigation from
April 28, 2017 to December 31, 2018. The details are described more fully in Note 27 to the annual consolidated
financial statements and under “Softwood Lumber Dispute” in the Lumber section of Management’s Discussion &
Analysis for the year end December 31, 2019. Assuming these rates are finalized our combined cash deposit rate
would be revised to 9.08%. The duty rates are subject to an appeal process and are not expected to be finalized
until August of 2020 at which time any required adjustment will be recorded.
A substantial portion of our products that are manufactured in Canada are exported for sale. Our financial results
are dependent on continued access to the export markets and tariffs and other trade barriers that restrict or
prevent access represent a continuing risk to us. The SLA had provided our Canadian lumber operations with
continued access to the U.S. market and the imposition of future trade barriers could impair that access.
Operations
We operate 33 sawmills and a wood treating facility at the Sundre, Alberta sawmill. Our Canadian sawmills, of
which six are in B.C. and another six are in Alberta, produce spruce, pine, fir lumber of various grades and
dimensions. Our 21 U.S. sawmills produce southern yellow pine lumber of various grades and dimensions.
Capacity and Production
(both MMfbm)
Capacity (year-end)
B.C.
Alberta
U.S. South
Production
B.C.
Alberta
U.S. South
2019
2018
2017
2016
2015
1,835
1,700
3,200
6,735
1,682
1,529
2,703
5,914
2,170
1,700
3,200
7,070
2,236
1,556
2,817
6,609
2,460
1,690
3,050
7,200
2,257
1,552
2,424
6,233
2,465
1,635
2,400
6,500
2,303
1,493
2,139
5,935
2,400
1,600
2,300
6,300
2,225
1,374
2,008
5,607
Lumber production capacity is generally based on our sawmills running on a five-day, two-shift basis with certain
exceptions where logs may be available to run a third shift. The capacity figures stated above for 2018 and 2019
give effect to the permanent production curtailments at a number of our B.C. sawmills in 2018 and 2019.
- 19 -
Panels
Sales
Plywood, LVL and MDF are marketed from our sales office in Quesnel, B.C. to retail outlets, wholesale distributors,
remanufacturers and treating businesses. MDF is marketed under the names “Ranger”™, “WestPine”™, and
“Eco-Gold”™ both from our sales office and through distributors.
In 2019 most of our sales of plywood were made to customers in Canada and sales of MDF and LVL were to
customers in the U.S. and Canada. Shipments were by rail or truck. Plywood sales follow a seasonal pattern of
demand with the strongest demand being centred in September and October.
Operations
Our panel operations include three plywood mills that primarily produce standard softwood sheathing plywood,
two MDF mills, each with the flexibility to manufacture varying thicknesses and sizes, an LVL mill, and a veneer mill
that produces veneer for use in our Edmonton plywood mill. A fire at our MDF plant in Quesnel on March 9, 2016
resulted in the closure of the plant while repairs and reconstruction took place. The rebuilt plant began producing
board on April 29, 2017 and returned to normal production levels by the end of 2017. This reduced 2016 and 2017
MDF production compared to prior years. In 2018, we reduced the operating schedule at our LVL mill to more
closely match market conditions which resulted in reduced capacity.
Capacity and Production
Plywood (MMsf 3/8” basis)
Capacity (year-end)
Production
MDF (MMsf 3/4” basis)
Capacity (year-end)
Production
LVL (Mcf)
Capacity (year-end)
Production
Pulp
Sales
2019
2018
2017
2016
2015
860
818
250
221
860
833
250
224
860
838
250
191
850
826
250
160
830
797
250
220
2,600
2,034
2,600
2,251
3,200
2,676
3,200
2,215
3,200
1,627
Pulp is marketed out of our pulp sales office in Vancouver, B.C. In 2019, sales of both NBSK and BCTMP were to
customers in North America, Asia (predominantly China) and to other offshore customers. Shipments within North
America were primarily by rail and those to offshore customers were by rail and truck to Vancouver, B.C. and then
by bulk or container vessels.
Operations
BCTMP is produced at our Slave Lake pulp mill, primarily from hardwood aspen, and is also produced at our
Quesnel River pulp mill, primarily from softwood species. These pulps are used by paper manufacturers to
produce paperboard products, printing and writing papers and a variety of other paper grades. NBSK is produced
at our Hinton and Cariboo pulp mills and is used by paper manufacturers to produce a variety of paper products,
including tissues and printing and writing papers.
- 20 -
Capacity and Production
(Mtonnes)
2019
2018
2017
2016
2015
BCTMP
Capacity (year-end)
Production
NBSK
Capacity (year-end)
Production1
1.
570
460
Reflects West Fraser's 50% ownership of the Cariboo pulp mill.
690
677
690
652
570
499
690
674
570
498
680
665
570
527
650
645
570
497
Newsprint
Sales
Newsprint is sold to various publishers and printers in North America and delivered by rail and truck.
Operations
Our 50%-owned newsprint mill at Whitecourt, Alberta produces standard newsprint in basis weights: 34, 36, 40,
43 and 45 grams per square metre.
Capacity and Production1 (Mtonnes)
Capacity (year-end)
Production
1.
Reflects West Fraser’s 50% ownership.
Risk Factors
2019
135
112
2018
135
109
2017
135
122
2016
135
128
2015
135
133
A detailed discussion of risk factors is included under the heading “Risks and Uncertainties” in Management's
Discussion & Analysis for the year ended December 31, 2019, which is incorporated herein by reference. Our
Management’s Discussion & Analysis is available on SEDAR at www.sedar.com.
Capital Structure
Share Capital
Our authorized share capital consists of 430,000,000 shares divided into:
(a)
(b)
(c)
400,000,000 Common shares,
20,000,000 Class B Common shares, and
10,000,000 Preferred shares, issuable in series.
The Common shares and Class B Common shares are equal in all respects, including the right to dividends, rights
upon dissolution or winding up and the right to vote, except that each Class B Common share may at any time be
exchanged for one Common share. The Common shares are listed and traded on the Toronto Stock Exchange
under the symbol WFT while our Class B Common shares are not. Certain circumstances or corporate transactions
may require the approval of the holders of our Common shares and Class B Common shares on a separate class by
class basis.
- 21 -
As at December 31, 2019, the issued share capital consisted of 66,381,289 Common shares and 2,281,478 Class B
Common shares for a total of 68,662,767 shares (as at December 31, 2018 - 69,818,838 shares).
Credit Ratings
As shown in the table below, West Fraser is rated by three rating agencies. West Fraser pays annual fees to
maintain its debt and corporate ratings. The ratings are assigned both on a corporate level and specifically to our
US$300 million notes maturing October 2024. The ratings are not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by each rating agency.
Agency
DBRS1
Moody’s2
Standard & Poor’s3
1.
Outlook
Positive
Stable
Stable
DBRS credit ratings for long-term obligations range from AAA to D. A rating of BBB is described by DBRS as “adequate credit quality. The
capacity for the payment of financial obligations is considered acceptable. May be vulnerable to future events”. Additional information
on the rating is available on DBRS’s website.
Rating
BBB(low)
Baa3
BBB-
2. Moody’s credit ratings for long-term obligations range from Aaa to C. Moody’s describes obligations rated Baa as “subject to moderate
credit risk. They are considered medium-grade and as such may possess certain speculative characteristics”. Additional information on
the rating is available on Moody’s website.
S&P credit ratings for long-term obligations range from AAA to D. A rating of BBB- is described by S&P as “considered lowest investment
grade by market participants”. Additional information on the rating is available on S&P’s website.
3.
Market Prices
The following table sets forth adjusted market prices and trading volumes of our Common shares on the Toronto
Stock Exchange for each month of 2019 and 2018.
Low
($)
65.79
63.54
62.30
63.28
52.01
52.14
51.17
43.93
44.93
49.22
56.91
53.60
High
($)
78.59
80.13
71.85
69.09
70.46
66.43
61.80
52.42
56.17
62.02
62.21
59.34
January
February
March
April
May
June
July
August
September
October
November
December
Total
Source: http://tradingdata.tsx.com
Cash dividends
2019
2018
Close
($)
78.27
64.77
65.00
68.97
52.69
59.70
51.59
46.90
53.00
60.90
57.77
57.28
Volume
(000’s)
8,344
7,975
8,344
8,432
8,828
8,242
7,724
7,213
7,116
8,176
6,495
6,947
93,836
Close
($)
86.06
89.38
85.61
86.97
94.23
90.49
80.80
86.57
73.51
66.14
69.35
67.44
Volume
(000’s)
5,048
5,966
7,030
5,334
9,196
10,283
12,100
11,056
10,576
20,129
10,141
8,130
114,989
The declaration and payment of cash dividends is within the discretion of our Board of Directors. Historically, cash
dividends have been declared on a quarterly basis payable after the end of each quarter. On an annual basis,
dividends of $0.80 per share were declared in 2019, $0.70 per share were declared in 2018, $0.36 per share were
declared in 2017 and $0.28 per share were declared in 2016 and 2015. There can be no assurance that dividends
will continue to be declared and paid by us in the future, as the discretion of the Board of Directors will be
exercised from time to time taking into account our current circumstances.
Transfer Agent
- 22 -
Our transfer agent and registrar is AST Trust Company (Canada), with registers of transfers in Vancouver, B.C. and
Toronto, Ontario.
Experts
Our auditors are PricewaterhouseCoopers LLP (“PwC”), who prepared the Auditor’s Report included with our
annual consolidated financial statements for the year ended December 31, 2019. PwC has confirmed that it is
independent with respect to us, within the meaning of the Rules of Professional Conduct of the Institute of
Chartered Accountants of B.C., as of February 11, 2020.
Directors and Officers
Directors
The names and municipalities of residence of the directors of the Company, their principal occupations during the
past five years and the periods during which they have been directors of the Company are as follows:
Name and Municipality
of Residence
Henry H. Ketcham
Vancouver, B.C.
Reid E. Carter1 & 4
West Vancouver, B.C.
Raymond W. Ferris
Vancouver, B.C.
John N. Floren2, 3 & 4
Eastham, Massachusetts
Brian G. Kenning2 & 4
Vancouver, B.C.
John K. Ketcham3 & 4
Santa Monica, California
Gerald J. Miller1,3 & 4
Kelowna, B.C.
Robert L. Phillips2, 4 & 5
Anmore, B.C.
Janice G. Rennie1, 2 & 4
Edmonton, Alberta
Principal Occupation
Director Since
Chairman of the Board
September 16, 1985
Corporate Director
April 19, 2016
Chief Executive Officer
July 1, 2019
President and Chief Executive Officer, Methanex
Corporation
April 19, 2016
Corporate Director
April 19, 2017
Real Estate Developer
April 28, 2015
Corporate Director
April 19, 2012
Corporate Director
April 28, 2005
Corporate Director
April 28, 2004
- 23 -
Name and Municipality
of Residence
Principal Occupation
Corporate Director
Gillian D. Winckler1, 3 & 4
Vancouver, B.C.
1. Member of the Audit Committee.
2. Member of the Human Resources & Compensation Committee.
3. Member of the Health, Safety & Environment Committee.
4. Member of the Governance & Nominating Committee.
5.
Lead Director.
Director Since
April 19, 2017
Each director has held the same or a similar principal occupation with the organization indicated or a predecessor
thereof for the last five years except for Henry Ketcham who before April 19, 2016 was our Executive Chairman;
Reid Carter who before December 31, 2018 was President, Brookfield Timberlands Management LP;
Raymond Ferris who before July 1, 2019 was our President and Chief Operating Officer, before February 15, 2016
was our Vice-President, Wood Products and Gillian Winckler who before June 2015 was CEO and President, as well
as CFO for a brief period of Coalspur Limited. The term of office of each director will expire at the conclusion of
the Company’s next annual general meeting.
Officers
Name and Municipality
of Residence
Raymond W. Ferris
Vancouver, B.C.
Brian A. Balkwill
Quesnel, B.C.
Keith D. Carter
Quesnel, B.C.
Larry E. Gardner
Quesnel, B.C.
James W. Gorman
Victoria, B.C.
Christopher D. McIver
North Vancouver, B.C.
D’Arcy R. Henderson
Quesnel, B.C.
Sean P. McLaren
Collierville, Tennessee
Tom V. Theodorakis
Vancouver, B.C.
Christopher A. Virostek
North Vancouver, B.C.
Office Held
President and Chief Executive Officer
Vice-President, Canadian Wood Products
Vice-President, Pulp and Energy Operations
Vice-President, Canadian Woodlands
Vice-President, Corporate and Government Relations
Vice-President, Sales and Marketing
Vice-President, Canadian Woodlands Operations
Vice-President, U.S. Lumber
Secretary
Partner, McMillan LLP (lawyers)
Vice-President, Finance and Chief Financial Officer
Name and Municipality
of Residence
Charles H. Watkins
Memphis, Tennessee
- 24 -
Office Held
Vice-President, Capital and Technology
Each officer has held the same or a similar office with the organization indicated or a predecessor thereof for the
last five years except for Raymond Ferris (see disclosure under “Directors”); Brian Balkwill, who before July 1, 2018
was our Vice-President, Canadian Lumber, before February 15, 2016 was our General Manager, Canadian Lumber
and before December 1, 2014 was our General Manager, Engineered Wood; Keith Carter, who before February 15,
2016 was our General Manager, Pulp Operations, before September 1, 2014 was our Operations Manager,
Mechanical Pulp and before February 1, 2014 was our General Manager, Quesnel River Pulp; Larry Gardner, who
before February 16, 2016 was our General Manager, Canadian Woodlands and before December 1, 2014 was our
Chief Forester, B.C.; D’Arcy Henderson, who before December 10, 2019 was our General Manager, Canadian
Woodlands and before September 23, 2019 was our Cariboo Regional Manager; James Gorman, who before
May 19, 2015 was President and Chief Executive Officer of the Council of Forest Industries; Christopher McIver,
who before February 16, 2016 was our Vice-President, Lumber Sales and Corporate Development; Sean McLaren,
who before February 15, 2016 was our Vice-President, U.S. Lumber Operations; Christopher Virostek, who before
April 1, 2017 was the Senior Vice-President of Strategy and Corporate Development of Masonite International
Corporation; and Charles Watkins, who before February 11, 2020 was Vice-President, U.S. Lumber Manufacturing,
before February 15, 2016 was our General Manager, U.S. Lumber Manufacturing and before August 18, 2015 was
our Regional Manager, U.S. Lumber.
Shareholdings of Directors and Officers
The directors and officers of the Company as a group, beneficially owned or controlled or directed, directly or
indirectly, the following shares of the Company:
Common shares
% of total Common shares
Class B Common shares
% of total Class B Common shares
% of all shares outstanding
December 31, 2019
1,393,492
2%
78,728
3%
2%
December 31, 2018
1,414,601
2%
78,728
3%
2%
Cease Trade Orders, Bankruptcies, Penalties or Sanctions
Christopher Virostek, our Vice-President, Finance and Chief Financial Officer, was a director of Masonite (Africa)
Limited (“MAL”), a majority owned subsidiary of Masonite International Corporation (“Masonite”), when MAL
commenced voluntary business rescue proceedings in South Africa in December 2015. Mr. Virostek served as a
director of MAL in connection with his duties as an employee of Masonite. The business rescue plan of MAL was
substantially implemented as provided under its terms and the business rescue proceedings ended in August 2016,
at which time Mr. Virostek resigned as a director.
Legal Proceedings and Regulatory Actions
Other than as disclosed below, there are no legal or regulatory proceedings to which we are or were a party, or to
which any of our property is or was the subject of, during our financial year ended December 31, 2019, which
involve claims that exceed 10% of our current assets. In addition, there are no penalties or sanctions imposed
against us by a court relating to Canadian securities legislation or by a securities regulatory authority during our
financial year ended December 31, 2019 or any other penalties or sanctions imposed by a court or regulatory body
- 25 -
against us which would likely be considered important to a reasonable investor in making an investment decision,
and we have not entered into any settlement agreements with a court relating to Canadian securities legislation or
by a securities regulatory authority during our financial year ended December 31, 2019. See section “Discussion &
Analysis of Annual Results by Product Segment - Lumber - Softwood Lumber Dispute” in our 2019 annual
Management’s Discussion & Analysis for a description of developments related to the softwood lumber dispute.
Our 50%-owned newsprint mill in Whitecourt, Alberta has made a claim against the Government of Alberta for
compensation under its crown timber tenures related to the woodland caribou recovery plans and associated
restrictions on harvesting in certain areas, limitations on volumes that may be harvested and loss of access to
harvestable timber that have been imposed or resulted under such plans.
Governance
Corporate governance is guided by our Corporate Governance Policy, a copy of which may be viewed on our web
site: www.westfraser.com. The Board of Directors has established a Governance & Nominating Committee
comprised of all non-management directors. The committee provides support for the stewardship and governance
role of the Board in reviewing and making recommendations on the composition of the Board, the functioning of
the Board and its committees, succession planning and all other corporate governance matters and practices. On
the occasion of each regularly-scheduled meeting of the Board in 2019, the committee met without management
representatives present and reviewed these and other issues.
The Corporate Governance Policy includes a Code of Conduct which sets out our policies and requirements relating
to, among other categories, legal compliance, safety, environmental stewardship, human rights, anti-corruption
and whistleblowing. Additional information is available on our website www.westfraser.com under Corporate
Governance.
Audit Committee
The Audit Committee of our Board of Directors assists the Board in fulfilling its responsibility to oversee our
financial reporting and audit process. The full text of the Audit Committee’s Charter is attached as Schedule 1.
Members
The following identifies each current member of the Audit Committee, and the education and experience of each
member that is relevant to the performance of the member’s responsibilities as an Audit Committee member. All
members of the Audit Committee are considered “independent” and “financially literate” within the meaning of
NI 52-110.
Reid E. Carter
Mr. Carter holds a combined undergraduate degree in Forestry and Biology and a master’s degree in Forest Soils.
He was president of a large timberlands investment firm and has been involved with that firm and related firms in
various senior roles for the last 14 years. Prior to that he served as National Bank Financial’s Paper and Forest
Products Analyst.
Gerald J. Miller
Mr. Miller, who holds a Bachelor of Commerce, is a Chartered Professional Accountant, Chartered Accountant. He
spent 25 years in various roles at West Fraser until his retirement in 2011. While at West Fraser he served in a
number of executive positions including Vice-President Finance and Chief Financial Officer. Mr. Miller is currently
the Chair of the audit committee of Granite Real Estate Investment Trust.
Janice G. Rennie
- 26 -
Ms. Rennie, who holds a Bachelor of Commerce, is a Chartered Professional Accountant, Chartered Accountant.
She was elected as Fellow of the Chartered Accountants in 1998. Ms. Rennie has chaired or been a member of
several audit committees of public companies in the past and currently is a member of the audit committees of
Methanex Corporation, Major Drilling Group International Inc. and WestJet Airlines Ltd.
Gillian D. Winckler
Ms. Winckler, who holds a Bachelor of Science and Bachelor of Commerce obtained in South Africa, is a Chartered
Accountant (South Africa). Ms. Winckler worked in the audit profession for five years, in corporate finance for five
years, and in a number of executive positions with Coalspur Limited and BHP Billiton. Ms. Winckler is currently a
member of the audit committees of Pan American Silver Corporation and FLSmidth.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that sets out the pre-approval requirements related to services to be
performed by our independent auditors. The policy provides that the Committee will annually review proposed
audit, audit-related, tax and other services (to be submitted by the Chief Financial Officer and the independent
auditor), and will provide general approval of described services, usually including specific maximum fee amounts.
Unless a service has received general pre-approval, it will require specific pre-approval by the Committee. The
Committee is permitted to delegate pre-approval authority to any of its members. The Committee reports on the
pre-approval process to the full Board of Directors from time to time.
Fees Paid to Auditors
($ thousands)
2019
702
91
260
15
2018
878
96
263
140
Audit Fees1
Audit-Related Fees2
Tax Fees
All Other Fees3
1.
2.
3.
Represents actual and estimated fees related to fiscal year ends.
For assurance and related services that are reasonably related to the performance of the audit but are not reported as “Audit Fees”.
Includes fees in connection with financial and tax due diligence assignments and various other compliance reporting matters.
Material Contracts
On October 15, 2014, we issued US$300 million of fixed-rate senior unsecured notes due October 15, 2024
pursuant to a private placement in the U.S. The notes bear interest of 4.35% with semi-annual payments
commencing on April 15, 2015 and are redeemable, in whole or in part, at our option at any time. In the event of a
change in control in respect of the Company which is followed within 60 days by ratings downgrades to below
investment grade in certain circumstances, unless we have exercised the right to redeem all of the notes, each
holder will have the right to require us to repurchase all or any part of such holder’s notes at a purchase price in
cash equal to 101% of the principal amount of the notes plus any accrued and unpaid interest.
On April 24, 2019, we expanded our letters of credit facility by an additional $20 million. On July 18, 2019, we
completed an amendment to our revolving lines of credit to extend the maturity date to August 28, 2024, and to
increase the size of our Canadian and U.S. syndicated committed revolving credit facilities from $500 million to
$850 million. At the same time, we also amended the terms of the US$200 million term loan to extend the
maturity date from August 25, 2022 to August 28, 2024 and terminated the uncommitted $100 million credit
facility that was temporarily established on April 24, 2019. All other material terms of the revolving lines of credit
and the term loan remain unchanged. Also on January 17, 2020, we entered into an agreement for a new
- 27 -
uncommitted, demand letter of credit facility of up to $40 million that can be used for the purposes of funding
pension plan liabilities.
Additional Information
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our
securities and securities authorized for issuance under equity compensation plans, will be contained in the
Information Circular for the annual general meeting of the Company to be held on April 21, 2020. Additional
financial information is provided in our annual consolidated financial statements and Management’s Discussion &
Analysis for the year ended December 31, 2019.
Copies of our Annual Report, which will include this AIF and the documents incorporated by reference herein, our
annual consolidated financial statements (including the auditor’s report) for the year ended December 31, 2019
and our Information Circular may be obtained at any time upon request from us once these documents have been
published, but we may require the payment of a reasonable charge if the request is made by a person who is not a
security holder of the Company.
This AIF, our Annual Report (once published) and additional information concerning the Company may also be
obtained on our website www.westfraser.com and on the System for Electronic Document Analysis and Retrieval
(“SEDAR”) at www.sedar.com.
- 28 -
Schedule 1 - Audit Committee Charter
The Audit Committee Charter, which is set out below, was approved by the Board on February 11, 2020.
General Mandate
To assist the Board in fulfilling its responsibility to oversee the Company’s financial reporting and audit processes,
its system of internal controls and its process for monitoring compliance with applicable financial reporting and
disclosure laws and its own policies.
Responsibilities
The Committee will carry out the following responsibilities:
Financial Statements
• Review significant accounting and financial reporting issues, including complex or unusual transactions,
significant contingencies and highly judgmental areas, and recent professional and regulatory
pronouncements, and understand their impact on the Company’s financial statements.
• Review the interim financial reports (including financial statements, management’s discussion and analysis,
and related news releases) with management and the auditors, consider whether they are complete and
consistent with the information known to Committee members and either provide a recommendation to the
Board with respect to the approval of the interim financial reports or, if so delegated by the Board, approve
the interim financial reports and the filing of the same together with all required documents and information
with regulators.
• Understand how management develops interim financial information, and the nature and extent of auditor
involvement.
• Review with management and the auditors the results of the audit, including any difficulties encountered.
• Review the annual financial statements, the annual management discussion and analysis and related news
releases, and consider whether they are complete, consistent with information known to Committee
members, and reflect appropriate accounting principles, and provide a recommendation to the Board with
respect to the approval of the statements, the management discussion and analysis and the news release.
• Review with management and the auditors all matters required to be communicated to the Committee under
generally accepted auditing standards.
Internal Control
• Require management of the Company to implement and maintain appropriate internal control procedures
over annual and interim financial reporting.
• Review with management and auditors the adequacy and effectiveness of the Company’s internal control over
annual and interim financial reporting, including information technology security and control and controls
related to the prevention and detection of fraud and improper or illegal transactions or payments, the status
of the remediation of any identified control deficiencies, and elicit recommendations for improvements.
• Understand the scope of the auditors’ review of internal control over financial reporting, and obtain and
review reports on significant findings and recommendations, including those in respect of the Company’s
- 29 -
accounting principles or changes to such principles or their application and the treatment of financial
information discussed with management, together with management’s responses.
Audit
• Review the auditors’ proposed audit scope and approach.
• Review the performance of the auditors and provide a recommendation to the Board with respect to the
nomination of the auditors for appointment and remuneration.
• Review and confirm the independence of the auditors by obtaining statements from the auditors on
relationships between the auditors and the Company, including non-audit services, and discussing the
relationships with the auditors.
•
Periodically evaluate the need for the establishment of an internal audit function and make appropriate
recommendations to the Board.
Compliance
• Review with management the adequacy and effectiveness of the Company’s systems for monitoring
compliance with financial reporting and disclosure laws, including the Company’s disclosure controls and
procedures, and the results of management’s investigation and follow-up (including disciplinary action) of any
instances of non-compliance.
• Review the findings of any examinations by regulatory agencies, and any auditor observations.
• Obtain regular updates from management and Company legal counsel regarding compliance matters.
Reporting Requirements
• Regularly report to the Board about Committee activities, issues and related recommendations.
•
Provide an open avenue of communication between the auditors and the Board.
• Review any reports the Company issues that relate to Committee responsibilities.
Other Responsibilities
•
Institute and oversee special investigations as needed.
• Develop and implement a policy for the approval of the provision of non-audit services by the auditors and
assessing the independence of the auditors in the context of these engagements.
•
Establish procedures for: (a) the receipt, retention and treatment of complaints received regarding non-
compliance with the Company’s Code of Conduct, violations of laws or regulations, or concerns regarding
accounting, internal accounting controls or auditing matters; and (b) the confidential, anonymous submission
by officers or employees of the Company or by other persons of concerns regarding questionable accounting,
auditing or financial reporting and disclosure matters or non-compliance with the Company’s Code of Conduct
or other matters that are of a sensitive or “whistleblower” nature.
- 30 -
• Assist the Board with its responsibility to, with the advice of management, identify the principal financial and
audit risks of the Company and establish systems and procedures to ensure these principal financial and audit
risks are monitored, and to make recommendations to the Board.
• Assist the Board with its responsibility to, with the advice of management, identify the principal information
technology, cyber security, information security and IT networks and information systems risks of the
Company and establish systems and procedures to ensure these risks are monitored, and to make
recommendations to the Board.
• Annually review the expenses of the Chief Executive Officer.
• Annually review and approve: (i) the calculation of the ROSE (as such term is defined under the Company’s
Executive Bonus Plan) for the purposes of the calculation of executive bonuses under the Executive Bonus
Plan; (ii) the calculation of the performance phantom share unit multiple (referred to in the Phantom Share
Unit Plan as the Adjusted Performance Phantom Share Unit Amount) and the related calculations of TSR (or
total cumulative shareholder return) and ROCE (or average of the aggregate total annual return on capital
employed over the applicable period) for the purposes of the calculation of the cash award payout on vested
performance phantom share units granted under the Company’s Phantom Share Unit Plan; and (iii) the
calculation of such other performance metrics as may be incorporated into any other executive incentive
plans or equity based compensation plans used to determine executive bonuses or cash award payouts.
•
Perform other activities related to this charter as requested by the Board.
• Review and assess the adequacy of this charter annually, requesting Board approval for proposed changes.
• Review terms of any Code of Conduct established by the Board and respond to any related compliance issues.
•
Confirm annually to the Board that all responsibilities outlined in this charter have been carried out.
Qualifications and Procedures
•
•
•
•
•
The composition of the Committee will comply with applicable laws including requirements for independence,
unrelated to management, financial literacy and audit experience.
The Chair of the Committee will be designated by the Board.
The Committee will meet at least four times annually, and more frequently as circumstances dictate, and the
CFO and a representative of the auditors should be available on request to attend all meetings.
The Committee should meet privately in executive session with representatives of each of management and of
the auditors to discuss any matters of concern to the Committee or such members, including any post-audit
management letter.
The Committee may retain any outside advisor at the expense of the Company, without the Board’s approval,
at any time and has the authority to determine any such advisor’s fees and other retention terms.
• Minutes of each meeting should be prepared, approved by the Committee and circulated to the full Board.
- 31 -
2019 MANAGEMENT’S DISCUSSION & ANALYSIS
Introduction and Interpretation
This discussion and analysis by West Fraser’s management (“MD&A”) of the Company’s financial performance for
the year and three months ending December 31, 2019 should be read in conjunction with the cautionary
statement regarding forward-looking statements below, our 2019 annual audited consolidated financial
statements and accompanying notes (the “Financial Statements”), and our 2019 fourth quarter unaudited
condensed consolidated interim financial statements and accompanying notes. Dollar amounts are expressed in
Canadian currency, unless otherwise indicated and references to US$ are to the United States dollar.
Unless otherwise indicated, the financial information contained in this MD&A has been prepared in accordance
with International Financial Reporting Standards (“IFRS”). An advisory with respect to the use of non-IFRS
measures is set out below.
This MD&A includes references to benchmark prices over selected periods for products of the type produced by
West Fraser. These benchmark prices are for one product, dimension or grade and do not necessarily reflect the
prices obtained by West Fraser during those periods as we produce and sell a wide offering of products,
dimensions, grades and species. For definitions of other abbreviations and technical terms used in this MD&A,
please see the Glossary of Industry Terms found in our most recent Annual Report.
Where this MD&A includes information from third parties we believe that such information (including information
from industry and general publications and surveys) is generally reliable. However, we have not independently
verified any such third-party information and cannot assure you of its accuracy or completeness.
This MD&A uses the following terms that are found in our most recent Annual Report: “SPF” (spruce-pine-fir
lumber), “SYP” (southern yellow pine lumber), “MDF” (medium density fibreboard), “LVL” (laminated veneer
lumber), “BCTMP” (bleached chemithermomechanical pulp) and “NBSK” (northern bleached softwood kraft pulp).
The information in this MD&A is as at February 11, 2020 unless otherwise indicated.
Forward-Looking Statements
This MD&A contains historical information, descriptions of current circumstances and statements about potential
future developments and anticipated financial results. The latter, which are forward-looking statements, are
presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions
and are subject to various risks and uncertainties. Forward-looking statements are included under the headings
“Discussion & Analysis of Annual Non-Operational Items - Adjusted Earnings and Adjusted Basic Earnings Per
Share” (expected duty rate finalization date and adjustment of export duty rates); “Discussion & Analysis of Annual
Results by Product Segment - Lumber Segment - Softwood Lumber Dispute” (administrative review
commencement, adjustment of export duty rates and proceedings related to duty rates); “Discussion & Analysis of
Annual Results by Product Segment - Pulp & Paper Segment - Sales and Shipments” (hardwood supply in South
America); “Business Outlook”; “Estimated Earnings Sensitivity to Key Variables”; “Significant Management
Judgments Affecting Financial Results - Softwood Lumber Dispute” (administrative review commencement and
adjustment of export duty rates); “Significant Management Judgments Affecting Financial Results - Recoverability
of Long-lived Assets” (judgments regarding carrying value of goodwill); and “Contractual Obligations”. By their
nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general
and specific, which contribute to the possibility that the predictions, forecasts and other forward-looking
statements will not occur. Actual outcomes and results of these statements will depend on a number of factors
including those matters described under “Risks and Uncertainties” and may differ materially from those
anticipated or projected. This list of important factors affecting forward-looking statements is not exhaustive and
reference should be made to the other factors discussed in public filings with securities regulatory authorities.
Accordingly, readers should exercise caution in relying upon forward-looking statements and we undertake no
- 32 -
obligation to publicly update or revise any forward-looking statements, whether written or oral, to reflect
subsequent events or circumstances except as required by applicable securities laws.
Non-IFRS Measures
Throughout this MD&A reference is made to Adjusted EBITDA, Adjusted earnings, Adjusted basic earnings per
share, and net debt to total capital ratio (collectively “these non-IFRS measures”). We believe that, in addition to
earnings, these non-IFRS measures are useful performance indicators for investors with regards to operating and
financial performance. Adjusted EBITDA is also used to evaluate the operating and financial performance of our
operating segments, generate future operating plans, and make strategic decisions. These non-IFRS measures are
not generally accepted earnings measures under IFRS and do not have standardized meanings prescribed by IFRS.
Investors are cautioned that none of these non-IFRS measures should be considered as an alternative to earnings,
earnings per share (“EPS”) or cash flow, as determined in accordance with IFRS. As there is no standardized
method of calculating these non-IFRS measures, our method of calculating each of them may differ from the
methods used by other entities and, accordingly, our use of any of these non-IFRS measures may not be directly
comparable to similarly titled measures used by other entities. Accordingly, these non-IFRS measures are intended
to provide additional information and should not be considered in isolation or as a substitute for measures of
performance prepared in accordance with IFRS. The reconciliation of the non-IFRS measures used and presented
by the Company to the most directly comparable IFRS measures is provided in the tables set forth below.
Annual Results
($ millions, except as otherwise indicated)
Sales
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Export duties
Equity-based compensation
Amortization
Restructuring and impairment charges
Operating earnings
Finance expense
Other
Tax (provision) recovery
Earnings
1.
See section “Non-IFRS Measures” in this MD&A.
Basic earnings per share ($)
Diluted earnings per share ($)
Cash dividends declared per share ($)
Total assets
Long-term debt, includes current portion
Cdn$1.00 converted to US$ - average
2019
2018
2017
4,877
(3,652)
(713)
(211)
301
(162)
(6)
(259)
(33)
(159)
(49)
(11)
69
(150)
(2.18)
(2.34)
0.80
4,668
660
0.754
6,118
(3,617)
(732)
(231)
1,538
(202)
(7)
(257)
-
1,072
(37)
37
(262)
810
10.88
10.62
0.70
4,791
692
0.772
5,134
(3,124)
(633)
(217)
1,160
(48)
(32)
(210)
-
870
(31)
7
(250)
596
7.63
7.63
0.36
4,517
636
0.771
- 33 -
Selected Quarterly Information
($ millions, except EPS amounts which are in $)
Sales
Earnings
Basic EPS
Diluted EPS
Q4-19
1,129
(42)
(0.61)
(0.61)
Q3-19
1,190
(45)
(0.65)
(0.73)
Q2-19
1,317
(58)
(0.85)
(0.92)
Q1-19
1,241
(5)
(0.07)
(0.12)
Q4-18
1,274
29
0.42
0.29
Q3-18
1,646
238
3.25
2.99
Q2-18
1,834
346
4.52
4.52
Q1-18
1,364
197
2.53
2.53
Discussion & Analysis of Annual Non-Operational Items
Adjusted Earnings and Adjusted Basic Earnings Per Share
($ millions, except EPS amounts which are in $)
Earnings
Add (deduct):
Export duties
Interest recognized on export duty deposits receivable
Equity-based compensation
Exchange (gain) loss on long-term financing
Exchange (gain) loss on export duty deposits receivable
Insurance gain on disposal of equipment
Restructuring and impairment charges
Re-measurement of deferred income tax assets and liabilities
Net tax effect on the above adjustments
2019
(150)
162
(4)
6
3
4
(4)
33
(18)
(53)
(21)
(0.31)
2018
810
202
(2)
7
(10)
(5)
-
-
-
(57)
945
12.70
Adjusted earnings1
Adjusted basic EPS1,2
1.
2.
See section “Non-IFRS Measures” in this MD&A.
Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.
Export duties of $162 million were expensed in 2019 related to SPF lumber compared to $202 million in 2018. We
have also recorded interest income and foreign exchange on the estimated export duty deposits receivable as
noted in the above table. The preliminary results of the administrative review of our duty rates for the April 28,
2017 to December 31, 2018 period has been issued by the U.S. Department of Commerce (“USDOC”). The second
administrative review covering the 2019 fiscal period will commence in 2020 and results are not expected to be
finalized until 2021. We believe that the U.S. allegations of subsidy and dumping are unwarranted and that the
rates applied will be adjusted upon review. See “Softwood Lumber Dispute” under the heading “Lumber Segment”
in this MD&A and Note 27 of the Financial Statements for further information.
Our equity-based compensation includes our share purchase option, phantom share unit, and directors’ deferred
share unit plans (collectively, the “Plans”), all of which have been partially hedged by an equity derivative contract.
The Plans and equity derivative contract are fair valued at each quarter-end and the resulting expense or recovery
is recorded over the vesting period. Our fair valuation models consider various factors with the most significant
being the change in the market value of our shares from the beginning to the end of the relevant period. The
expense or recovery does not necessarily represent the actual value which will ultimately be received by the
holders of options and units.
Any change in the value of the Canadian dollar relative to the value of the U.S. dollar results in the revaluation of
our U.S. dollar denominated assets and liabilities. The revaluation of these assets and liabilities for our Canadian
operations is included in other income, while the revaluation related to our U.S. operations is included in other
comprehensive earnings. The table above reports our exchange gains or losses on U.S. dollar denominated
long-term financing and export duty deposits receivable during the periods presented. Exchange gains or losses
- 34 -
realized on the working capital balances of our Canadian operations are identified under “Other Non-Operational
Items” below.
We finalized the insurance settlement related to the 2017 involuntary disposal of equipment at our 50%-owned
NBSK plant resulting in a gain of $4 million in the fourth quarter of 2019.
Restructuring and impairment charges of $33 million were recognized in 2019 of which $25 million were related to
the permanent closure of our Chasm, British Columbia (“B.C.”) lumber mill and $8 million of plant and equipment
impairment of certain B.C. lumber mill assets.
Alberta income tax rate reductions from 12% to 8% over the next four years resulted in a decrease to deferred
income tax expense of $18 million in 2019 associated with the re-measurement of deferred income tax assets and
liabilities.
Other Non-Operational Items
Other income includes a number of non-operational items the most significant being foreign exchange revaluation
on the assets and liabilities of our Canadian operations as discussed above. Foreign exchange on working capital
items was a loss of $7 million in 2019 compared to a gain of $13 million in 2018.
Finance expense was higher in 2019 due to higher average borrowings on our line of credit during the year and
lower interest income due to lower cash balances compared to 2018.
The results of the current year include an income tax recovery of $69 million compared to a provision for income
tax of $262 million in 2018. The effective tax rate was 32% in the current year compared to 24% in 2018. The 2019
tax expense includes an $18 million benefit for the reduction in the Alberta general corporate tax rate from 12% to
8% over the next four years. Note 19 to the Financial Statements provides a reconciliation of income taxes
calculated at the B.C. statutory rate to the income tax expense.
Discussion & Analysis of Annual Results by Product Segment
- 35 -
Lumber Segment
($ millions unless otherwise indicated)
Sales
Lumber
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Export duties
Amortization
Restructuring and impairment charges
Operating earnings
Finance expense
Other
Earnings before tax
Capital expenditures
SPF (MMfbm)
Production
Shipments
SYP (MMfbm)
Production
Shipments
Wood chip production
SPF (M ODTs)
SYP (M green tons)
2019
2,945
384
113
3,442
(2,588)
(477)
(146)
231
(162)
(196)
(33)
(160)
(35)
(7)
(202)
339
3,211
3,363
2,703
2,692
1,471
3,570
2018
3,888
456
112
4,456
(2,635)
(503)
(162)
1,156
(202)
(196)
-
758
(25)
20
753
284
3,792
3,790
2,817
2,792
1,784
3,785
Benchmark prices (per Mfbm)
SPF #2 & Better 2x42 - US$
SPF #3 Utility 2x42 - US$
SYP #2 West 2x43 - US$
SPF #2 & Better 2x4 - Cdn$4
SPF #3 Utility 2x4 - Cdn$4
SYP #2 West 2x4 - Cdn$4
See section “Non-IFRS Measures” in this MD&A.
Source: Random Lengths - Net FOB mill.
Source: Random Lengths - Net FOB mill Westside.
Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
360
285
384
478
378
510
1.
2.
3.
4.
480
372
501
622
482
649
Sales and Shipments
Lumber sales declined by $943 million compared to the prior year as selling prices for lumber were lower in 2019
and shipments were reduced by 527 MMfbm. The average SPF #2 & Better 2x4 benchmark price was US$360 per
Mfbm and was US$120 per Mfbm lower compared to the prior year. SYP followed a similar trend to SPF, with the
average benchmark SYP #2 & Better 2x4 price declining by US$117 per Mfbm to US$384 per Mfbm. Lumber prices
- 36 -
began to decline in the second half of 2018 as the U.S. new housing market softened and additional supply from
delayed shipments from the first quarter of 2018 arrived in end markets.
Lower lumber prices combined with fibre input cost increases led to permanent and temporary curtailments in B.C.
Shipments were lower compared to 2018 due to reduced production from the temporary and permanent
curtailments, partially offset by a reduction in finished goods. Shipments of SPF exceeded production by 152
MMfbm.
Costs and Production
The cost of fibre consumed in our lumber operations was higher in 2019 as compared to the prior year. B.C. log
costs continued to escalate through 2019 due to a highly competitive purchase log market and an increase in the
annual market-based stumpage implemented on July 1, 2019 which is based on open market log purchases. The
shrinking timber supply in B.C. continued to put pressure on the purchase log market, causing prices to remain
elevated well into the fourth quarter of 2019. Due to the long planning and harvesting cycle in Western Canada,
there was a carryover impact of higher cost fibre sourced in prior years. Periods of wet weather in Alberta and the
U.S. South temporarily compromised log availability necessitating changes in logging activities which also
temporarily increased delivered log costs.
SPF production was down by 581 MMfbm compared to 2018. The permanent elimination of third shifts and the
Chasm, B.C. lumber mill closure accounted for 400 MMfbm of reduced production and temporary curtailments
accounted for a further reduction of 200 MMfbm in the year. Increased productivity offset some of the reductions
from these shift reductions and mill closure. SYP production declined 114 MMfbm as we reduced hours at some
mills due to market conditions and log availability. We also experienced downtime for capital upgrades and
integration activities at a number of our mills. Reduced production levels increased the unit cost of products sold.
Freight and distribution costs declined in line with shipment volumes. Selling general and administrative costs
were $17 million lower than 2018 as a result of lower variable compensation costs, mill closures and cost
containment activities.
As a result of the items discussed above, Adjusted EBITDA declined by $925 million to $231 million in our lumber
segment. Export duties were also lower due to lower average SPF lumber prices on shipments to the U.S. and
lower SPF shipment quantities, all partially offset by an increased antidumping estimated rate. We recorded a $33
million restructuring and impairment charge in the lumber segment. The closure of our Chasm, B.C. lumber mill
accounted for $25 million of this amount and we recorded an additional $8 million of plant and equipment
impairment associated with certain B.C. lumber mill assets.
Discussions on finance expenses and other income is included above under the annual section called “Discussion &
Analysis of Annual Results by Product Segment - Other Non-Operational Items” in this MD&A.
SPF Sales by Destination
U.S.
Canada
China
Other
Total
2019
2018
MMfbm
2,036
637
530
160
3,363
%
60
19
16
5
MMfbm
2,249
871
473
197
3,790
%
59
23
13
5
We ship SPF to several export markets, while our SYP sales are almost entirely in the U.S. U.S. destined shipments
were lower due to softer demand in the U.S. and reduced SPF production. Our geographic mix of shipments was
impacted by product and species mix and relative pricing dynamics between the different geographies.
Softwood Lumber Dispute
- 37 -
On November 25, 2016, a coalition of U.S. lumber producers petitioned the USDOC and the U.S. International
Trade Commission (“USITC”) to investigate alleged subsidies to Canadian softwood lumber producers and levy
countervailing (“CVD”) and antidumping (“ADD”) duties against Canadian softwood lumber imports. We were
chosen by the USDOC as a “mandatory respondent” to both the countervailing and antidumping investigations and
as a result have received unique company specific rates.
Developments in CVD and ADD rates
On April 24, 2017, the USDOC issued its preliminary determination in the CVD investigation and on June 26, 2017,
the USDOC issued its preliminary determination in the ADD investigation. On December 4, 2017, the duty rates
were revised. On February 3, 2020, the USDOC reassessed these rates based on its first Administrative Review
(“AR”) as noted in the tables below.
The CVD and ADD rates apply retroactively for each Period of Investigation (“POI”). We record CVD as export duty
expense at the cash deposit rate until an AR finalizes a new applicable rate for each POI. We record ADD as export
duty expense by estimating the rate to be applied for each POI by using our actual results and the same calculation
methodology as the USDOC and adjust when an AR finalizes a new applicable rate for each POI. The difference
between the cash deposits and export duty expense is recorded on our balance sheet as export duty deposits
receivable.
On February 3, 2020, the USDOC released the preliminary results from AR1 as shown in the table below. The duty
rates are subject to an appeal process and are not expected to be finalized until August of 2020 at which time any
required adjustment will be recorded.
If the AR1 rates were to be confirmed, it would result in a U.S. dollar adjustment of $93 million for the POI covered
by AR1. Assuming these rates are finalized, our combined cash deposit rate would be revised to 9.08%.
The respective Cash Deposit Rates, the December 4, 2017 Revised Rate, the AR1 Preliminary Rate and the West
Fraser Estimated ADD Rate for each period are as follows.
Effective dates for CVD
AR1 POI
April 28, 2017 - August 24, 20171
August 25, 2017 - December 27, 20171
December 28, 2017 - December 31, 2017
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
Cash Deposit
Rate
Revised Rate2
(Dec. 4, 2017)
AR1 Preliminary
Rate3
(Feb. 3, 2020)
24.12%
-
17.99%
17.99%
17.99%
17.99%
-
17.99%
17.99%
17.99%
7.07%
-
7.07%
7.51%
n/a4
1. On April 24, 2017, the USDOC issued its preliminary rate in the CVD investigation. The requirement that we make cash deposits for CVD
was suspended on August 24, 2017 until the revised rate was published by the USITC.
2. On December 4, 2017, the USDOC revised our CVD rate effective December 28, 2017.
3. On February 3, 2020, the USDOC issued its preliminary CVD rate for the AR1 POI.
4.
The CVD rate for the AR2 POI will be adjusted when AR2 is complete and the USDOC finalizes the rate, which is not expected until 2021.
- 38 -
Effective dates for ADD
AR1 POI
June 30, 2017 - December 3, 20171
December 4, 2017 - December 31, 2017
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
Cash Deposit
Rate
Revised Rate2
(Dec. 4, 2017)
AR1
Preliminary
Rate3
(Feb. 3, 2020)
West Fraser
Estimated
Rate
6.76%
5.57%
5.57%
5.57%
5.57%
5.57%
5.57%
5.57%
1.57%
1.57%
1.57%
n/a4
1.46%5
1.46%5
1.46%
4.65%
1. On June 26, 2017, the USDOC issued its preliminary rate in the ADD investigation effective June 30, 2017.
2. On December 4, 2017, the USDOC revised our ADD rate effective December 4, 2017.
3. On February 3, 2020, the USDOC issued its preliminary ADD rate for the AR1 POI.
4.
5.
The ADD rate for the AR2 POI will be adjusted when AR2 is complete and the USDOC finalizes the rate, which is not expected until 2021.
In fiscal 2017, our estimated ADD was recorded at a rate of 0.9%. AR1 covers both the 2017 and 2018 periods. In 2018 we recorded ADD
such that the cumulative rate for the periods covered by AR1 would be 1.46%.
Duty expense and cash deposits
Export duties incurred in the period
Countervailing duties
Antidumping duties
Total
$
$
Recognized in the financial statements as
Export duties recognized as expense in consolidated statements of earnings $
Export duties recognized as long-term duty deposits receivable in
consolidated balance sheets
Total
$
2019
127
40
167
2019
162
5
167
$
$
$
$
2018
178
55
233
2018
202
31
233
As at December 31, 2019, export duties paid and payable on deposit with the USDOC are US$275 million for CVD
and US$98 million for ADD for a total of US$373 million. Additional details can be found in Note 27 to our Financial
Statements.
AR2
AR2 covers the POI from January 1, 2019 through December 31, 2019 and will commence in 2020. The results of
AR2 are not expected to be finalized until 2021. Notwithstanding the deposit rates assigned under the
investigations, our final liability for the assessment of CVD and ADD will not be determined until each annual
administrative review process is complete and related appeal processes are concluded.
Appeals
We, together with other Canadian forest product companies and the Canadian federal and provincial governments
(the “Canadian Interests”) categorically deny the allegations by the coalition of U.S. lumber producers and disagree
with the countervailing and antidumping determinations by the USDOC and the USITC. The Canadian Interests
continue to aggressively defend the Canadian industry in this trade dispute and have appealed the decisions to
North America Free Trade Agreement panels and the World Trade Organization.
- 39 -
Panels Segment
($ millions unless otherwise indicated)
Sales
Finished products
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Amortization
Operating earnings
Finance expense
Earnings before tax
Capital expenditures
Plywood (MMsf 3/8” basis)
Production
Shipments
MDF (MMsf 3/4” basis)
Production
Shipments
LVL (Mcf)
Production
Shipments
Benchmark prices (per Msf)
Plywood (3/8” basis)2 Cdn$
See section “Non-IFRS Measures” in this MD&A.
Source: Crow’s Market Report - Delivered Toronto.
1.
2.
2019
581
18
6
605
(466)
(63)
(25)
51
(16)
35
(4)
31
23
818
815
221
222
2,034
2,129
2018
648
22
6
676
(461)
(63)
(25)
127
(15)
112
(2)
110
16
833
837
224
224
2,251
2,155
459
548
The panels segment is comprised of our plywood, MDF and LVL operations.
Sales and Shipments
Panels sales declined by $67 million compared to the prior year. The average benchmark selling price of plywood
declined this year to $459 Msf which is a reduction of $89 Msf compared to 2018. Our plywood production is sold
primarily into Canada. Canadian housing starts declined in 2019 compared to the prior year. Also, during the year
the Canadian government removed tariffs on U.S. plywood which resulted in more imports of U.S. plywood into
Canada. These factors negatively impacted plywood prices and shipments in the year. MDF shipments were
consistent with production. LVL shipments exceeded production as inventory was drawn down but were
consistent with the prior year shipments.
Costs and Production
The cost of logs consumed in our plywood facilities increased this year. B.C.’s purchase log market remained highly
competitive for the declining fibre supply and stumpage rates increased under B.C.’s market-based stumpage
system.
- 40 -
Plywood production increases were partially offset by temporary market related and capital downtime, which
reduced plywood production by 30 MMsf. LVL production was reduced by 217 Mcf to meet demand.
As a result of the items discussed above, Adjusted EBITDA declined by $76 million to $51 million in our panels
segment.
Discussions on finance expenses is included above under the section entitled “Discussions & Analysis of Annual
Results by Product Segment - Other Non-Operational Items” in this MD&A.
Pulp & Paper Segment
($ millions unless otherwise indicated)
Sales
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Amortization
Operating earnings
Finance expense
Other
Earnings before tax
Capital expenditures
BCTMP (Mtonnes)
Production
Shipments
NBSK (Mtonnes)
Production
Shipments
Newsprint (Mtonnes)
Production
Shipments
2019
966
(734)
(173)
(39)
20
(43)
(23)
(10)
4
(29)
39
677
701
460
472
114
112
2018
1,163
(698)
(166)
(41)
258
(44)
214
(10)
11
215
60
652
642
499
496
119
117
Benchmark prices (per tonne)
NBSK U.S. - US$2,4
NBSK China - US$3,4
Newsprint - US$5
NBSK U.S. - Cdn$6
NBSK China - Cdn$6
Newsprint - Cdn$6
See section “Non-IFRS Measures” in this MD&A.
Source: Resource Information Systems, Inc. - U.S. list price, delivered U.S.
Source: Resource Information Systems, Inc. - China list price, delivered China.
The differences between the U.S. and China NBSK list prices are largely attributable to the customary sales practice of applying material
discounts from the U.S. list price for North American sales compared to relatively small discounts from the China list price for sales into
China.
Source: Resource Information Systems, Inc. - Newsprint 27.7-lb East, delivered.
Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
1,239
634
732
1,644
841
971
1,337
878
740
1,732
1,138
959
1.
2.
3.
4.
5.
6.
The pulp & paper segment is comprised of our NBSK, BCTMP and newsprint operations.
Sales and Shipments
- 41 -
Sales declined by $197 million compared to the prior year. Both U.S. and China NBSK benchmark prices declined in
the year. Record high global pulp inventories at the beginning of 2019 and slowing paper production in China and
Europe resulted in price declines throughout 2019. There is also excess hardwood supply in South America which
continues to put downward pressure on pulp pricing.
NBSK and newsprint shipment volumes were in-line with production volumes in 2019. BCTMP shipments were in
excess of production in the year due to a delayed vessel sailing from 2018 that carried over into 2019.
Costs and Production
The cost of products sold increased by $36 million in 2019 compared to the prior year. Maintenance costs were
higher than 2018 as work conducted during our 2019 maintenance shutdowns was more extensive than the prior
year. Energy costs also increased year over year due to increased electricity rates in 2019.
NBSK production was down in 2019 compared to the prior year due to longer planned maintenance downtime at
both NBSK mills. Our Hinton NBSK pulp mill continued to have intermittent reliability issues in 2019 which
negatively affected production. BCTMP production increased in the year primarily due to better production from
our Quesnel pulp mill that had scheduled downtime in 2018 for capital and planned maintenance.
In 2019, our Cariboo NBSK operation also recognized in other income a gain of $4 million for insurance settlement
related to the 2017 involuntary disposal of equipment.
As a result of the items discussed above, adjusted EBITDA declined by $238 million to $20 million in our pulp and
paper segment.
Discussions on finance expenses and other income is included above under the section called “Discussion &
Analysis of Annual Results by Product Segment - Other Non-Operational Items” in this MD&A.
Fourth Quarter Results
($ millions, except as otherwise indicated)
Sales
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Export duties
Equity-based compensation
Amortization
Restructuring and impairment charges
Operating earnings
Finance expense
Other
Tax recovery
Earnings
Q4-19
Q3-19
Q4-18
1,129
(830)
(166)
(53)
80
(35)
(2)
(66)
(8)
(31)
(13)
(2)
4
(42)
1,190
(906)
(181)
(48)
55
(44)
(1)
(65)
1
(54)
(12)
2
19
(45)
1,274
(917)
(174)
(63)
120
(37)
1
(69)
-
15
(9)
22
1
29
Cdn$1.00 converted to US$ - average
1.
See section “Non-IFRS Measures” in this MD&A.
0.758
0.757
0.758
- 42 -
Discussion & Analysis of Fourth Quarter Non-Operational Items
Adjusted Earnings and Adjusted Basic Earnings Per Share
($ millions except EPS amounts which are in $)
Earnings
Add (deduct):
Export duties
Interest recognized on export duty deposits receivable
Equity-based compensation
Exchange (gain) loss on long-term financing
Exchange (gain) loss on export duty deposits receivable
Insurance gain on disposal of equipment
Restructuring and impairment charges
Re-measurement of deferred income tax assets and liabilities
Net tax effect on the above adjustments
Q4-19
Q3-19
Q4-18
(42)
35
(1)
2
1
1
(4)
8
(1)
(10)
(11)
(0.16)
(45)
44
-
1
(1)
(1)
-
(1)
-
(12)
(15)
(0.22)
29
37
(1)
(1)
(6)
(4)
-
-
-
(11)
43
0.63
Adjusted earnings1
Adjusted basic EPS1,2
1.
2.
See section “Non-IFRS Measures” in this MD&A.
Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.
For a description of the adjustments in the above table, see the corresponding section under “Discussion &
Analysis of Annual Non-Operational Items” in this MD&A.
Other Non-Operational Items
Other income includes a number of non-operational items, the most significant being foreign exchange revaluation
on the assets and liabilities of our Canadian operations as discussed under the “Discussion & Analysis of Annual
Non-Operational Items” above. Foreign exchange on working capital items was a loss of $3 million in the current
quarter compared to a gain of $1 million in the previous quarter and a gain of $9 million in the fourth quarter of
2018.
The results of the current quarter include an income tax recovery of $4 million compared to $19 million in the
previous quarter and $1 million in the fourth quarter of 2018. Note 6 to the fourth quarter 2019 unaudited
condensed consolidated interim financial statements provides a reconciliation of income taxes calculated at the
B.C. statutory rate to the income tax expense.
Q4-19
Q3-19
Q4-18
Discussion & Analysis of Fourth Quarter Results by Product Segment
- 43 -
Lumber Segment
($ millions unless otherwise indicated)
Sales
Lumber
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Export duties
Amortization
Restructuring and impairment charges
Operating earnings
Finance expense
Other
Earnings before tax
SPF (MMfbm)
Production
Shipments
SYP (MMfbm)
Production
Shipments
665
86
34
785
(573)
(106)
(37)
69
(35)
(49)
(8)
(23)
(10)
(4)
(37)
724
702
699
683
728
93
27
848
(654)
(122)
(33)
39
(44)
(49)
1
(53)
(9)
3
(59)
793
855
700
686
Benchmark prices (per Mfbm)
SPF #2 & Better 2x42 - US$
SPF #3 Utility 2x42 - US$
SYP #2 West 2x43 - US$
SPF #2 & Better 2x4 - Cdn$4
SPF #3 Utility 2x4 - Cdn$4
SYP #2 West 2x4 - Cdn$4
See section “Non-IFRS Measures” in this MD&A.
Source: Random Lengths - Net FOB mill.
Source: Random Lengths - Net FOB mill Westside.
Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
356
277
376
470
366
496
380
257
387
502
339
511
1.
2.
3.
4.
Sales and Shipments
Lumber sales declined $63 million in the fourth quarter of 2019 compared to the previous quarter and declined
$92 million compared to the fourth quarter of 2018. SPF shipments declined by 153 MMfbm or 18% in the quarter
compared to the previous quarter and were 241 MMfbm or 26% lower than the fourth quarter of 2018.
Permanent and temporary sawmill curtailments and a CN Rail strike resulted in lower shipments in the quarter
compared to the previous quarter and the fourth quarter of 2018, which negatively impacted sales.
Product pricing provided an offset to the volume decline as the average SPF #2 & Better 2x4 benchmark increased
to US$380 per Mfbm in the quarter compared to US$356 per Mfbm in the previous quarter and US$327 per Mfbm
in the fourth quarter of 2018. The SYP #2 & Better 2x4 price improved in the quarter to US$387 per Mfbm
compared to US$376 per Mfbm in the previous quarter but is lower than the average price of US$419 per Mfbm in
757
111
30
898
(669)
(120)
(41)
68
(37)
(53)
-
(22)
(6)
10
(18)
907
943
652
626
327
268
419
432
354
553
- 44 -
the fourth quarter of 2018. Wood chip and residual sales were lower in the quarter due to lower lumber
production as a result of temporary and permanent curtailments.
Costs and Production
Cost of products sold declined $81 million in the quarter compared to the previous quarter and declined $96
million compared to the fourth quarter of 2018. Temporary and permanent curtailments in B.C. lowered
production and overall manufacturing costs in the quarter. Log costs were consistent with the previous quarter in
both Alberta and the U.S. but were lower in B.C. as stumpage rates were adjusted downward in the fourth quarter
and we were able to reduce our consumption of higher priced fibre due to temporary and permanent
curtailments. Freight costs were lower in the quarter principally due to lower shipments. Selling, general and
administration costs are lower in the quarter compared to the fourth quarter of 2018 due to lower variable
employee compensation. Export duties declined in the quarter compared to the previous quarter due to lower
shipments partially offset by higher prices. Restructuring and impairment charges were recognized in the quarter
on certain B.C. sawmill assets.
SPF production was 69 MMfbm lower in the quarter compared to the previous quarter and 183 MMfbm lower
compared to the fourth quarter on 2018. Our Chasm, B.C. lumber mill was permanently closed in the third quarter
of 2019 and most B.C. lumber facilities operated on a variable schedule in the fourth quarter of 2019. The third
shifts at our B.C. sawmills in Quesnel, Fraser Lake and 100 Mile House were also eliminated during the year which
reduced production compared to the fourth quarter of 2018.
SYP production was consistent with the previous quarter but increased 47 MMfbm compared to the fourth quarter
of 2018 as we begin to operationalize capital spent in this segment.
As a result of the items discussed above, Adjusted EBITDA improved by $30 million to $69 million when compared
to the third quarter of 2019 and improved by $1 million when compared to the fourth quarter of 2018.
Discussions on other income is included above under the section called “Discussion & Analysis of Fourth Quarter
Results by Product Segment - Other Non-Operational Items” in this MD&A.
- 45 -
Panels Segment
($ millions unless otherwise indicated)
Sales
Finished products
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Amortization
Operating earnings
Finance expense
Earnings before tax
Plywood (MMsf 3/8” basis)
Production
Shipments
MDF (MMsf 3/4” basis)
Production
Shipments
LVL (Mcf)
Production
Shipments
Benchmark prices (per Msf)
Plywood (3/8” basis)2 Cdn$
See section “Non-IFRS Measures” in this MD&A.
Source: Crow’s Market Report - Delivered Toronto.
1.
2.
Q4-19
Q3-19
Q4-18
137
4
1
142
(108)
(15)
(6)
13
(5)
8
(1)
7
204
206
53
52
508
493
143
4
2
149
(115)
(16)
(5)
13
(4)
9
-
9
192
196
57
58
526
555
144
5
2
151
(120)
(15)
(7)
9
(5)
4
-
4
205
212
55
52
430
482
420
452
465
Sales and Shipments
Panels sales declined $6 million in the fourth quarter of 2019 when compared to the previous quarter and declined
$7 million when compared to the fourth quarter of 2018. The average benchmark price of plywood declined by
Cdn$32 per Msf to Cdn$420 per Msf in the quarter when compared to the previous quarter and declined by
Cdn$45 per Msf when compared to the fourth quarter of 2018. In the second quarter of 2018 the Canadian
Government imposed tariffs on U.S. imported plywood, which caused the price of Canadian plywood to rise during
the second half of 2018 and into 2019. In the second quarter of 2019 these tariffs were removed, and U.S. imports
gained strength again in Canada, causing a reduction in the benchmark price of plywood.
Shipments of plywood in the fourth quarter of 2019 were in-line with the fourth quarter of 2018 and recovered
slightly from the previous quarter where we had some temporary log shortage curtailments.
Costs and Production
The cost of products sold in our panels segment declined in the quarter by $7 million to $108 million when
compared to the previous quarter and declined by $12 million when compared to the fourth quarter of 2018.
Fibre input costs were lower than both comparative periods as stumpage rates declined in B.C. due to the
market-based element of the formula.
- 46 -
Plywood production increased by 12 MMsf to 204 MMsf in the quarter when compared to the previous quarter as
production in the third quarter was negatively impacted by temporary curtailments and wet weather and
fire-related log shortages in Alberta. LVL production declined by 18 Mcf in the quarter to 508 Mcf when compared
to the previous quarter due to fewer operating days. LVL production increased 78 Mcf when compared to the
fourth quarter of 2018 due to capital improvements and upgrades which improved reliability and uptime.
As a result of the items discussed above, Adjusted EBITDA was flat compared to the third quarter of 2019 but
increased by $4 million when compared to the fourth quarter of 2018.
Pulp & Paper Segment
($ millions unless otherwise indicated)
Sales
Cost of products sold
Freight and other distribution costs
Selling, general and administration
Adjusted EBITDA1
Amortization
Operating earnings
Finance expense
Other
Earnings before tax
BCTMP (Mtonnes)
Production
Shipments
NBSK (Mtonnes)
Production
Shipments
Newsprint (Mtonnes)
Production
Shipments
Q4-19
232
(179)
(44)
(10)
(1)
(11)
(12)
(3)
3
(12)
176
179
123
130
26
29
Q3-19
224
(168)
(44)
(9)
3
(11)
(8)
(2)
1
(9)
172
169
126
122
31
32
Q4-18
268
(171)
(39)
(11)
47
(11)
36
(3)
7
40
157
139
121
118
32
30
Benchmark prices (per tonne)
NBSK U.S. - US$2,4
NBSK China - US$3,4
Newsprint - US$5
NBSK U.S. - Cdn$6
NBSK China - Cdn$6
Newsprint - Cdn$6
See section “Non-IFRS Measures” in this MD&A.
Source: Resource Information Systems, Inc. - U.S. list price delivered U.S.
Source: Resource Information Systems, Inc. - China list price, delivered China.
The differences between the U.S. and China NBSK list prices are largely attributable to the customary sales practice of applying material
discounts from the U.S. list price for North American sales compared to relatively small discounts from the China list price for sales into
China.
Source: Resource Information Systems, Inc. - Newsprint 27.7-lb East, delivered.
Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. benchmark price.
1,115
588
701
1,472
776
925
1,170
585
731
1,545
772
965
1,428
805
766
1,886
1,063
1,011
1.
2.
3.
4.
5.
6.
Sales and Shipments
Sales of $232 million were $8 million better than the prior quarter but $36 million lower than the fourth quarter of
2018. The NBSK benchmark prices were relatively consistent with the prior quarter but were off from the fourth
quarter of 2018. The impact of high global pulp inventories and reduced paper production negatively impacted
- 47 -
pulp pricing in 2019. Shipments were in line with production and improved for both BCTMP and NBSK as
compared to the prior quarter and the fourth quarter of 2018.
Costs and Production
Cost of products sold increased $11 million in the quarter to $179 million when compared to the previous quarter
and increased by $8 million when compared to the fourth quarter of 2018 primarily due to higher BCTMP
shipments and inventory valuation adjustments. BCTMP production increased in the quarter compared to the
fourth quarter of 2018 due to higher production at Quesnel River Pulp which had scheduled downtime in 2018.
Per unit costs for both our BCTMP and NBSK operations decreased in this quarter as compared to the previous two
quarters and the fourth quarter of 2018. The reduction in costs was primarily due to lower furnish costs, resulting
from increased utilization, lower log costs in Alberta and a lower chip price in B.C. based on NBSK formula pricing
in the quarter. Maintenance costs were also lower in the quarter as a result of no planned shutdowns.
As a consequence of the items discussed above, adjusted EBITDA declined by $4 million to a loss of $1 million
when compared to the third quarter of 2019 and decreased by $48 million when compared to the fourth quarter
of 2018.
Discussions on other income is included above under the section called “Discussion & Analysis of Fourth Quarter
Results by Product Segment - Other Non-Operational Items” in this MD&A.
Capital Expenditures
($ millions)
Segment
Lumber
Panels
Pulp & Paper
Corporate & Other
Total
Profit
Improvement
240
11
3
-
254
Maintenance of
Business
77
9
32
9
127
Safety
22
3
4
-
29
Total
339
23
39
9
410
2019 capital expenditures of $410 million reflect our philosophy of continual reinvestment in our mills and we
made significant investments in our U.S. operations. The largest projects completed in the year were at our
McDavid, Florida facility where we replaced the primary breakdown line which is expected to result in higher
throughput and increased lumber recovery; at our Joyce, Louisiana facility where we installed a new merchandiser
to improve lumber recovery and throughput; and our Augusta, Georgia facility where we installed a new planer to
improve lumber grade and throughput. We also completed a number of profit improvement projects during the
year aimed at increasing lumber recovery and grade in our lumber operations. We started the final phase of our
Opelika, Alabama modernization with the construction of a new planer mill and broke ground on the construction
of a new lumber manufacturing complex at Dudley, Georgia. Business expenditures related to maintenance are
primarily for roads, bridges, mobile equipment and major maintenance shutdowns.
Business Outlook
Operations
We expect lumber production in 2020 to improve from 2019 levels. The carryover impact in SPF production from
eliminated shifts at our B.C. mills in Quesnel, Fraser Lake and 100 Mile House along with the closure of the Chasm,
B.C. facility will approximately offset by the recapture of production lost due to temporary curtailments. As a
result, we expect SPF production to increase by approximately 50 MMfbm with the majority of that coming from
our facilities in Alberta. In the U.S. South, we expect lumber production to increase by approximately 300 MMfbm
and reach 3,000 MMfbm for the year. Anticipated production gains assume improved demand, availability of
- 48 -
sufficient logs within our economic return criteria, and no further temporary curtailments. Our operations and
results could be negatively affected by adverse weather conditions in our operating areas and continuing intense
competition for logs in the B.C. interior. We expect slight moderation in log costs in the B.C. interior as sawmill
closures and curtailments take effect. We expect log cost inflation in the U.S. South to be limited.
In our panels segment, our plywood operations are expected to continue to operate at full capacity. Two of our
plywood operations are in the B.C. interior, and we expect log costs for those operations to moderate slightly in
2020.
We executed maintenance shutdowns at both our NBSK mills in the first half of 2019 and have scheduled similar
downtime for the second quarter of 2020 at Cariboo Pulp and the fourth quarter of 2020 at Hinton Pulp. We
expect a slight improvement in 2020 pulp production levels compared to 2019.
Markets
The most significant market for our lumber is the U.S., and our products are used in new residential construction,
repair and remodelling, and industrial uses. Recent improvements in new housing related indicators have been
favorable but has yet to translate into increased demand for lumber. Indicators for repair and remodelling are
indicating a slowing pace of growth. Spending on industrial goods which creates demand for lumber in packaging,
shipping and other uses has also been slowing.
Canadian lumber exports to Asia have been softening in the second half of 2019 as the pace of consumption has
slowed and competition has increased from suppliers in other countries. We have maintained our overall export
business volume to date, however it is currently very difficult to predict how and to what extent trade disputes and
lumber from other countries will affect our business in Asia. The impact of the Novel Coronavirus epidemic on
economic activity is also a risk.
Canadian softwood lumber exports to the U.S. have been the subject of trade disputes and managed trade
arrangements for the last several decades. Countervailing and antidumping duties have been in place since April
of 2017 and we are required to make deposits in respect of these duties. Whether and to what extent we can
realize a selling price to fully recover the impact of duties payable will largely depend on the strength of demand
for softwood lumber. If duties can be passed through to consumers, in whole or in part, the price of Canadian
softwood lumber will increase (although the increase will not necessarily be for the benefit of Canadian producers)
which in turn could cause the price of SYP lumber, which would not be subject to the duty, to increase as well.
Regardless of the commodity price, export duties on SPF shipments to the U.S. remain a cost to our Company to
the extent we cannot pass on the cost through increased selling prices. The first administrative review process has
been completed and there may be an adjustment to the countervailing and antidumping deposit rates in August of
2020. The timing and extent of any such adjustment is not possible to estimate nor is the impact of changes in
duty rates on the price of lumber.
The major component of our panels segment is plywood which is sold mainly in Canada and is influenced by levels
of home construction, repair and renovation and industrial activity. Following a period of escalated prices due to
supply constraints from production curtailments, import duties and transportation restrictions, plywood pricing
has returned more in line with long-term trends. MDF and LVL demand is heavily influenced by North American
new home construction.
We are anticipating that pulp markets may soften in the near term as a result of the impact of the Novel
Coronavirus but there is potential improvement in the second half with a strengthening economy in China and
higher paper production rates.
- 49 -
Cash Flows
We are anticipating levels of cash flows, taking into account duties on Canadian softwood lumber exports to the
U.S., to support between $275 and $325 million of capital spending in 2020 as well as to continue to support
dividend payments. We have paid a dividend in every quarter since we became a public company in 1986. We
expect to maintain our investment grade rating and intend to preserve sufficient liquidity to be able to take
advantage of strategic growth opportunities that may arise.
We are authorized under our normal course issuer bid, which expires in September of 2020, to purchase up to
3,318,823 Common shares of the Company, representing approximately 5% of the issued and outstanding
Common shares of the Company. We will continue to consider share repurchases with excess cash if we are
satisfied that this will enhance shareholder value and does not compromise our financial flexibility.
Estimated Earnings Sensitivity to Key Variables1
(based on 2019 production - $ millions)
Factor
Lumber price
Plywood price
NBSK price
BCTMP price
U.S. - Canadian $ exchange rate2
1.
2.
Variation
US$10 (per Mfbm)
Cdn$10 (per Msf)
US$10 (per tonne)
US$10 (per tonne)
US$0.01 (per Cdn $)
Each sensitivity has been calculated on the basis that all other variables remain constant and assumes year-end foreign exchange rates.
Excludes exchange impact of translation of U.S. dollar-denominated debt and other monetary items. Reflects the amount of the initial
US$0.01 change; additional changes are substantially, but not exactly, linear.
Change in pre-tax earnings
78
8
6
9
28
Capital Structure and Liquidity
Our capital structure consists of Common share equity and long-term debt and our liquidity includes our operating
facilities.
Operating Borrowing Facilities
On July 18, 2019, we completed an amendment to our revolving lines of credit to extend the maturity date to
August 28, 2024, and to increase the size of our Canadian and U.S. syndicated committed revolving credit facilities
from $500 million to $850 million. At the same time, we also amended the terms of the US$200 million term loan
to extend the maturity date from August 25, 2022 to August 28, 2024. All other material terms of the revolving
lines of credit and the term loan remain unchanged.
On December 31, 2019, our operating facilities consisted of an $850 million committed revolving credit facility, a
$32 million (US$25 million) demand line of credit dedicated to our U.S. operations and an $8 million demand line
of credit dedicated to our 50%-owned newsprint operation. In addition, we have demand lines of credit totalling
$89 million dedicated to letters of credit of which US$15 million is committed to our U.S. operations. On
January 17, 2020, we entered into a new uncommitted, demand letter of credit facility of up to $40 million.
On December 31, 2019, $377 million was outstanding under our revolving credit facility. In addition, letters of
credit in the amount of $61 million were supported by our facilities.
Available liquidity at December 31, 2019 was $505 million. Available liquidity includes cash and short-term
investments, cheques issued in excess of funds on deposit and amounts available on our operating loans excluding
the $8 million operating loan dedicated to our 50%-owned newsprint operation.
All debt is unsecured except the $8 million 50%-owned newsprint operation demand line of credit, which is
secured by that operation’s current assets.
Material Long-term Debt
- 50 -
In October 2014, we issued US$300 million of fixed-rate senior unsecured notes, bearing interest at 4.35% and due
October 2024, pursuant to a private placement in the U.S. The notes are redeemable, in whole or in part, at our
option at any time.
In August 2017, we were advanced a US$200 million 5-year term loan that, with the July 2019 extension, matures
on August 25, 2024. Interest is payable at floating rates based on Base Rate Advances or LIBOR Advances at our
option. This loan is repayable at any time, in whole or in part, at our option and without penalty but cannot be
redrawn after payment.
On March 15, 2019, we entered into an interest rate swap agreement, maturing in August 2022, with a US$100
million notional amount to limit our exposure to fluctuations in interest rates and fix interest rates on a portion of
our long-term debt. Under this agreement, we pay a fixed interest rate of 2.47% and receive a floating interest
rate equal to 3-month LIBOR.
Equity
Our outstanding Common share equity consists of 66,382,329 Common shares and 2,281,478 Class B Common
shares for a total of 68,663,807 shares issued and outstanding as of February 11, 2020.
Our Class B Common shares are equal in all respects to our Common shares, including the right to dividends and
the right to vote, and are exchangeable on a one-for-one basis for Common shares. Our Common shares are listed
for trading on the Toronto Stock Exchange while our Class B Common shares are not. Certain circumstances or
corporate transactions may require the approval of the holders of our Common shares and Class B Common shares
on a separate class by class basis.
On September 17, 2019, we renewed our NCIB allowing us to acquire an additional 3,318,823 Common shares for
cancellation until the expiry of the bid on September 19, 2020. The following table shows our purchases under
various NCIB programs, including a summary of all purchases since the program was started in 2013.
Share Buybacks
(number of common shares and price per share)
NCIB period
September 17, 2017 to September 18, 2018
September 19 to December 31, 2017
January 1 to September 18, 2018
September 19, 2018 to September 18, 2019
September 19 to December 31, 2018
January 1 to September 18, 2019
September 19, 2019 to December 31, 2019
September 17, 2013 to February 11, 2020
Share Options
Common Shares
Average Price
85,094
5,905,360
2,230,436
1,178,400
-
17,226,864
$68.52
$88.06
$70.05
$68.30
-
$66.05
As of February 11, 2020, there were 1,211,137 share purchase options outstanding with exercise prices ranging
from $23.68 to $85.40 per Common share.
Defined Benefit Pension Plans
The funded position of our defined benefit pension plans and other retirement benefit plans is estimated at the
end of each period. The funded position, as shown in Note 13 to our Financial Statements, is determined by
- 51 -
subtracting the value of the plan assets from the plan obligations. In 2019, we recorded in other comprehensive
earnings an after-tax actuarial loss of $99 million, compared to an after-tax gain of $24 million in 2018. The
current year loss reflected a decrease in the discount rate used to calculate plan liabilities, the effect of plan
revaluations, partially offset by an actual rate of return on assets that was higher than the expected return.
Summary of Financial Position
($ millions, except as otherwise indicated)
As at December 31
Cash and short-term investments
Current assets
Current liabilities
Ratio of current assets to current liabilities
Net debt
2019
16
1,147
837
1.4
2018
160
1,345
595
2.3
Cash and short-term investments
Deferred financing costs1
Cheques issued in excess of funds on deposit
Operating loans
Current and long-term lease obligation
Current and long-term debt
(160)
(6)
13
63
-
696
606
2,896
3,502
17%
For our balance sheet presentation, these costs are applied to reduce the associated debt or, in instances when the operating loan is
undrawn, these costs associated with the operating loan are included in other assets.
See section “Non-IFRS Measures” in this MD&A.
(16)
(6)
16
377
11
663
1,045
2,474
3,519
30%
Shareholders’ equity
Total capital
Net debt to total capital2
1.
2.
Debt Ratings
We are rated by three rating agencies and their ratings as of December 31, 2019 are shown in the table below. All
three ratings are considered investment grade.
Agency
DBRS
Moody’s
Standard & Poor’s
Rating
BBB(low)
Baa3
BBB-
Outlook
Positive
Stable
Stable
These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the rating agencies.
Cash Flow
Our cash requirements, other than for operating purposes, are primarily for interest payments, repayment of debt,
additions to property, plant, equipment and timber, acquisitions and payment of dividends. In normal business
cycles and in years without a major acquisition or debt repayment, cash on hand and cash provided by operations
have normally been sufficient to meet these requirements.
- 52 -
Selected Cash Flow Items
($ millions – cash provided by (used in))
For the year ended December 31
Operating Activities
Earnings
Amortization
Restructuring and impairment charges
Restructuring charges paid
Export duty deposits
Post-retirement expense
Contributions to post-retirement plans
Tax provision (recovery)
Income taxes paid
Changes in inventories
Other
Financing Activities
Proceeds from operating loan
Finance expense paid
Dividends
Repurchases of Common shares
Other
Investing Activities
Additions to capital assets
Other
Change in cash
Operating Activities
2019
2018
(150)
259
33
(7)
(5)
80
(85)
(69)
(62)
51
70
115
314
(43)
(55)
(81)
(5)
130
(410)
19
(391)
(146)
810
257
-
-
(31)
84
(103)
262
(316)
(105)
51
909
63
(32)
(37)
(675)
-
(681)
(370)
16
(354)
(126)
The table above shows the main components of cash flow from operations for 2019 compared to 2018. The
significant factors affecting the comparison were lower earnings, inventory changes, post-retirement plan
contributions and income tax payments.
The current year inventory reduction was primarily due to lower SPF lumber inventories as a result of the 2019
temporary and permanent curtailments as well as lower pulp inventories.
We made tax payments of $62 million during the year compared to $316 million in 2018. Tax installments for 2019
have been reduced to reflect lower earnings in both Canada and the U.S. Cash payments in 2019 included
approximately $36 million on account of 2018 income while 2018 included approximately $104 million on account
of 2017 income.
Contributions to post-retirement plans in 2018 included $17 million of deferred contributions from 2017 as a result
of regulatory reform initiatives in B.C. and Alberta.
Financing Activities
During 2019 we borrowed an additional $314 million on our operating loan. We also returned $136 million to our
shareholders compared to $712 million in 2018, through dividend payments and Common share repurchases
under our NCIB program.
Investing Activities
- 53 -
2019 additions to capital assets include $339 million for the lumber segment, $23 million for the panels segment,
$39 million for the pulp & paper segment and $9 million for our corporate segment. Additional details are found
under the section “Capital Expenditures” above.
Contractual Obligations
On March 15, 2019, we entered into an interest rate swap agreement, maturing in August 2022, with a US$100
million notional amount to limit our exposure to fluctuations in interest rates and fix interest rates on a portion of
our long-term debt. Under this agreement, we pay a fixed interest rate of 2.47% and receive a floating interest
rate equal to 3-month LIBOR. The agreement is accounted for as a derivative.
On April 24, 2019, we expanded our letters of credit facility by an additional $20 million. On July 18, 2019, we
completed an amendment to our revolving lines of credit to extend the maturity date to August 28, 2024, and to
increase the size of our Canadian and U.S. syndicated committed revolving credit facilities from $500 million to
$850 million. At the same time, we also amended the terms of the US$200 million term loan to extend the
maturity date to August 28, 2024 and terminated the uncommitted $100 million credit facility that was temporarily
established on April 24, 2019. All other material terms of the revolving lines of credit and the term loan remain
unchanged.
On January 17, 2020, we entered into an agreement for a new uncommitted, demand letter of credit facility of up
to $40 million.
Contractual Obligations1
(at December 31, 2019 in $ millions)
Long-term debt2
Interest on long-term debt
Operating loan
Lease obligation
Contributions to defined benefit
2020
10
25
377
3
2021
-
25
-
3
2022
-
26
-
3
2023
3
26
-
2
Thereafter
650
20
-
3
Total
663
122
377
14
pension plans3
49
179
643
Asset purchase commitments
Total
1.
150
50
179
-
1,505
78
Contractual obligations mean an agreement related to debt, leases and enforceable agreements to purchase goods or services on
specified terms, but does not include payroll obligations, reforestation and decommissioning obligations, energy purchases under various
agreements, non-defined benefit post-retirement contributions payable, equity-based compensation including equity hedges, accounts
payable in the ordinary course of business or contingent amounts payable.
Includes U.S. dollar-denominated debt of US$508 million.
Contributions to the defined benefit pension plans are based on the most recent actuarial valuation. Future contributions will be
determined at the next actuarial valuation date.
-
-
673
-
-
31
51
-
80
2.
3.
Financial Instruments
Details of our financial instruments can be found in Note 24 to our Financial Statements.
Significant Management Judgments Affecting Financial Results
The preparation of financial statements requires management to make estimates and assumptions, and to select
accounting policies, that affect the amounts reported. The significant accounting policies followed by our
Company are disclosed in our Financial Statements. The following judgments are considered the most significant:
Softwood Lumber Dispute
- 54 -
On November 25, 2016, a coalition of U.S. lumber producers petitioned the USDOC and the USITC to investigate
alleged subsidies to Canadian softwood lumber producers and levy countervailing and antidumping duties against
Canadian softwood lumber imports. We were chosen by the USDOC as a “mandatory respondent” to both the
countervailing and antidumping investigations and as a result, we have received West Fraser specific rates.
Details can be found under the section “Discussion & Analysis of Annual Results by Product Segment - Lumber -
Softwood Lumber Dispute”.
The CVD and ADD rates are subject to adjustment by the USDOC through an Administrative Review (“AR”) of
Periods of Investigation (“POI”). The rates published after each AR are retroactively applied to the related POI,
therefore we record on our balance sheet the difference between the cash deposit rate and the published rate
once the rate is finalized. Additionally, for ADD, we estimate the rate to be applied for each POI by using our
actual results and the same calculation methodology as the USDOC and adjust to the final rate when published.
Such adjustments for CVD and ADD could be material.
We, together with other Canadian forest product companies and the Canadian federal and provincial governments
(the “Canadian Interests”) categorically deny the allegations by the coalition of U.S. lumber producers and disagree
with the countervailing and antidumping determinations by the USDOC and the USITC. The Canadian Interests
continue to aggressively defend the Canadian industry in this trade dispute and have appealed the decisions to
North America Free Trade Agreement panels and the World Trade Organization.
Recoverability of Long-lived Assets
We assess the carrying value of an asset when there are indicators of impairment. The assessment compares the
asset’s estimated discounted future cash flows to the carrying value of the asset. If the carrying value of the asset
exceeds the asset’s estimated discounted future cash flows, the carrying value is written down to the higher of fair
value less costs of disposal and value-in-use. The B.C. lumber industry faced low product pricing and high
purchased log costs in 2019. As a result, restructuring and impairment charges of $33 million were recognized in
2019 of which $25 million was related to the permanent closure of our Chasm, B.C. lumber mill and $8 million to a
plant and equipment impairment associated with certain B.C. lumber mill assets.
We review the amortization periods for our manufacturing equipment and machinery to ensure that the periods
appropriately reflect anticipated obsolescence and technological change. Current amortization periods for
manufacturing equipment range from 6 to 20 years. Timber licences are amortized over 40 years.
Goodwill is not amortized. We compare the carrying value of goodwill and related assets, at least once a year, to
the estimated discounted cash flows that the assets are expected to generate. If it is determined that the carrying
value is more than the estimated discounted cash flows, then a goodwill impairment will be recorded. We tested
goodwill for impairment in 2019 and concluded that its carrying value is not impaired. The testing of goodwill for
impairment involves significant estimates including future production and sales volumes, product selling prices,
U.S. dollar exchange rates, operating costs, capital expenditures and the appropriate discount rate to apply. In all
cases, we have used our best estimates of these projected amounts and values. Given the current global economic
uncertainty and the volatility of the markets for our products, it is possible that our estimates will be adjusted in
the future and that these adjusted estimates could result in the future impairment of goodwill.
We also review the carrying value of deferred income tax assets to ensure that the carrying value is appropriate.
The key factors considered are our history of profitability, future expectations of profitability, the expected
reversal of temporary differences and the timing of expiry of tax loss carry-forwards and limitations on their use.
Reforestation and Decommissioning Obligations
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In Canada, provincial regulations require timber quota holders to carry out reforestation to ensure reestablishment
of the forest after harvesting. Reforested areas must be tended for a period sufficient to ensure that they are well
established. The time needed to meet regulatory requirements depends on a variety of factors.
In our operating areas, the time to meet reforestation standards usually spans 12 to 15 years from the time of
harvest. We record a liability for the estimated cost of the future reforestation activities when the harvesting
takes place. This liability is reviewed, at least annually, and is updated to our current estimate of the costs to
complete the remainder of the reforestation activities. In 2019, the review of the reforestation obligation resulted
in an increase of $4 million to the obligation (2018 - increase of $5 million).
We record the estimated fair value of a liability for decommissioning obligations, such as landfill closures, in the
period when a reasonable estimate of fair value can be made. We review these estimates at least annually and
adjust the obligations as appropriate. The 2019 review resulted in an increase to the obligation of $2 million,
which was primarily related to the permanent closure of our Chasm, B.C. lumber mill (2018 - increase of $4
million).
Defined Benefit Pension Plan (“D.B. Plan”) Assumptions
We maintain several D.B. Plans for many of our employees. The annual funding requirements and pension
expenses are based on (i) various assumptions that we determine in consultation with our actuaries, (ii) actual
investment returns on the pension fund assets, and (iii) changes to the employee groups in the pension plans.
Note 13 to the Financial Statements provides the sensitivity of a change in key assumptions to our post-retirement
obligations.
Accounting Standards Issued but Not Yet Applied
The International Accounting Standards Board periodically issues new standards and amendments or
interpretations to existing standards. There are no pronouncements that would cause a significant change to our
Financial Statements.
New Accounting Pronouncements Adopted
IFRS 16 - Leases
On January 1, 2019, we adopted IFRS 16 - Leases as a replacement of the old International Accounting Standard
(“IAS”) 17 - Leases and the related interpretations. The new standard requires, among other things, lessees to
recognize leases traditionally recorded as operating leases in the same manner as financing leases. On January 1,
2019, we have recorded a $14 million right-of-use asset and a $14 million lease obligation on our balance sheet.
Please see Note 3 of our Financial Statements for additional information.
Risks and Uncertainties
Our business is subject to a number of risks and uncertainties that can significantly affect our operations, financial
condition and future performance. We have a comprehensive process to identify, manage, and mitigate risk,
wherever possible. The risks and uncertainties described below are not necessarily the only risks we face.
Additional risks and uncertainties that are presently unknown to us or deemed immaterial by us may adversely
affect our business.
Product Demand and Price Fluctuations
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Our revenues and financial results are primarily dependent on the demand for, and selling prices of, our products,
which are subject to significant fluctuations. The demand and prices for lumber, panels, pulp, newsprint, wood
chips and other wood products are highly volatile and are affected by factors such as: (1) global economic
conditions including the strength of the U.S., Canadian, Chinese, Japanese and other international economies,
particularly U.S. and Canadian housing markets and their mix of single and multifamily construction, repair,
renovation and remodeling spending; (2) alternative products to lumber; (3) construction and home building
disruptor technologies that may reduce the use of lumber; (4) changes in industry production capacity; (5) changes
in world inventory levels; (6) increased competition from other consumers of logs and producers of lumber; and (7)
other factors beyond our control. In addition, unemployment levels, interest rates, the availability of mortgage
credit and the rate of mortgage foreclosures have a significant effect on residential construction and renovation
activity, which in turn influences the demand for, and price of, building materials such as lumber and panel
products. Declines in demand, and corresponding reductions in prices, for our products may adversely affect our
financial condition and results of operations.
We cannot predict with any reasonable accuracy future market conditions, demand or pricing for any of our
products due to factors outside our control. Prolonged or severe weakness in the market for any of our principal
products would adversely affect our financial condition.
Availability of Fibre and Changes in Stumpage Fees in Canada
Substantially all of our Canadian log requirements are harvested from lands owned by a provincial government
(the “Crown”). Provincial governments control the volumes that can be harvested under provincially-granted
tenures and otherwise regulate the availability of Crown timber for harvest. Provincial governments also control
the renewal or replacement of provincially-granted tenures, the issuance of operating permits to harvest timber
under such tenures and the ability to transfer or acquire such tenures. Determinations by provincial governments
to reduce the volume of timber, to issue or not issue operating permits to harvest timber, the areas that may be
harvested under timber tenures, to restrict the transfer or acquisition of timber tenures or to regulate the
processing of timber or use of harvesting contractors, including to protect the environment or endangered species,
species at risk and critical habitat or as a result of forest fires or in response to jurisprudence or government
policies respecting aboriginal rights and title or reconciliation efforts or to restrict log processing to local or
appurtenant saw mills or to mandate amounts of work to be provided or rates to be paid to harvesting
contractors, may reduce our ability to secure log or residual fibre supply and may increase our log purchase and
residual fibre costs and may impact our lumber, plywood, LVL, pulp and MDF operations.
In addition, provincial governments prescribe the methodologies that determine the amounts of stumpage fees
that are charged in respect of harvesting on Crown lands. Determinations by provincial governments to change
stumpage fee methodologies or rates could increase our log costs.
We rely on third party independent contractors to harvest timber in areas over which we hold timber tenures.
Increases in rates charged by these independent contractors or the limited availability of these independent
contractors or new regulations on the work to be provided and rates to be paid to these contractors may increase
our timber harvesting costs.
We also rely on the purchase of logs and increased competition for logs, or shortages of logs may result in
increases in our log purchase costs.
Availability of Fibre and Fibre Costs in the United States
We rely on log supply agreements in the U.S. which are subject to log availability and based on market prices.
Approximately 18% of the aggregate log requirements for our U.S. sawmills may be supplied under long-term
agreements with the balance purchased on the open market. Open market purchases come from timber real
- 57 -
estate investment trusts, timberland investment management organizations and private land owners. Changes in
the log markets in which we operate may reduce the supply of logs available to us and may increase the costs of
log purchases, each of which could adversely affect our results. In addition, changes in the market for residuals
may reduce the demand and selling price for the residuals produced by our operations and increase the disposal
costs, which could adversely affect our results.
Trade Restrictions
A substantial portion of our products that are manufactured in Canada are exported for sale. Our financial results
are dependent on continued access to the export markets and tariffs, quotas and other trade barriers that restrict
or prevent access represent a continuing risk to us. Canadian softwood lumber exports to the U.S. have been the
subject of trade disputes and managed trade arrangements for the last several decades. During the period from
October 2006 through October 2015 these exports were subject to a trade agreement between the U.S. and
Canada and on the expiry of that agreement, a one-year moratorium on trade sanctions by the U.S. came into
place. That moratorium has expired and in November 2016 a group of U.S. lumber producers petitioned the
USDOC and the USITC to impose trade sanctions against Canadian softwood lumber exports to the U.S. In 2017
duties were imposed on Canadian softwood lumber exports to the U.S. The current duties are likely to remain in
place until and unless some form of trade agreement can be reached between the U.S. and Canada (which trade
agreement could include other tariffs or duties or quotas that restrict lumber exports) or a final, binding
determination is made as a result of litigation. Unless the additional costs imposed by duties can be passed along
to lumber consumers, the duties will increase costs for Canadian producers and, in certain cases, could result in
some Canadian production becoming unprofitable. Whether and to what extent duties can be passed along to
consumers will largely depend on the strength of demand for softwood lumber, which is significantly influenced by
the levels of new residential construction in the U.S. which has been gradually improving over the past several
years. If duties can be passed through to consumers in whole or in part the price of Canadian softwood lumber will
increase (although the increase will not necessarily be for the benefit of Canadian producers) which in turn could
cause the price of SYP lumber, which would not be subject to the duty, to increase as well.
The application of U.S. trade laws could, in certain circumstances, create significant burdens on us. We are a
mandatory respondent in current investigations being conducted by the USDOC into alleged subsidies and
dumping of Canadian softwood lumber. In addition, the current trade dispute between the U.S. and China could
negatively impact either or both the U.S. and Chinese economies which could have an adverse effect on the
demand for our products and could adversely affect our financial results. Further the current diplomatic and trade
issues between Canada and China could result in tariffs and other trade barriers that restrict access to the market
in China for our products.
Natural and Man-Made Disasters and Climate Change
Our operations are subject to adverse natural or man-made events such as forest fires, flooding, hurricanes and
other severe weather conditions, climate change, timber diseases and insect infestations including those that may
be associated with warmer climate conditions, and earthquake activity. Over the past several years, changing
weather patterns and climatic conditions due to natural and man-made causes have added to the unpredictability
and frequency of natural events such as severe weather, hurricanes, flooding, hailstorms, wildfires, snow, ice
storms, and the spread of disease and insect infestations. These events could damage or destroy or adversely
affect the operations at our physical facilities or our timber supply or our access to or availability of timber, and
similar events could also affect the facilities of our suppliers or customers. Any such damage or destruction could
adversely affect our financial results as a result of the reduced availability of timber, decreased production output,
increased operating costs or the reduced availability of transportation. Although we believe we have reasonable
insurance arrangements in place to cover certain of such incidents related to damage or destruction, there can be
no assurance that these arrangements will be sufficient to fully protect us against such losses. As is common in the
industry, we do not insure loss of standing timber for any cause.
- 58 -
In addition, government action to address climate change, carbon emissions, water and land use and the
protection of threatened or endangered species and critical habitat may result in the enactment of additional or
more stringent laws and regulations that may require us to incur significant capital expenditures, pay higher taxes
or fees, including carbon related taxes, or otherwise could adversely affect our operations or financial conditions.
Further, the rising prominence of environmental, social and governance concerns among investors and
institutional investor advisory groups may impact the investment making decisions of investors in companies
requiring access to natural resources or the land base.
Mountain Pine Beetle and B.C. Wildfires
The long-term effect of the mountain pine beetle infestation and the 2017 and 2018 wildfire outbreaks in B.C. on
our Canadian operations is uncertain. The potential effects include a reduction of future Annual Allowable Cut
(“AAC”) levels to below current and pre-infestation AAC levels. Many of our B.C. operations are experiencing a
diminished grade and volume of lumber recovered from beetle-killed and fire damaged logs as well as increased
production costs. These effects are also present in some of our Alberta operations where the mountain pine
beetle infestation has expanded. The timing and extent of the future effect on our timber supply, lumber grade
and recovery, and production costs will depend on a variety of factors and at this time cannot be reasonably
determined. The effects of the deterioration of beetle-killed and fire damaged logs could include increased costs,
reduced operating rates due to shortages of commercially merchantable timber and mill closures.
Wood Dust
Our operations generate wood dust which has been recognized for many years as a potential health and safety
hazard and operational issue. The potential risks associated with wood dust have been increased in those of our
B.C. and Alberta facilities that have been processing mountain pine beetle-killed logs and fire damaged logs as the
wood dust generated from these logs tends to be drier, lighter and finer than wood dust typically generated. We
have adopted a variety of measures to reduce or eliminate the risks and operational challenges posed by the
presence of wood dust in our facilities and we continue to work with industry and regulators to develop and adopt
best mitigation practices. Any explosion or similar event at any of our facilities or any third-party facility could
result in significant loss, increases in expenses and disruption of operations, each of which would have a material
adverse effect on our business.
Financial
Capital Plans
Our capital plans will include, from time to time, expansion, productivity improvement, technology upgrades,
operating efficiency optimization and maintenance, repair or replacement of our existing facilities and equipment.
In addition, we may undertake the acquisition of facilities or the rebuilding or modernization of existing facilities.
If the capital expenditures associated with these capital projects are greater than we have projected or if
construction timelines are longer than anticipated, or if we fail to achieve the intended efficiencies, our financial
condition, results of operations and cash flows may be adversely affected. In addition, our ability to expand
production and improve operational efficiencies will be contingent on our ability to execute on our capital plans.
Our capital plans and our ability to execute on such plans may be adversely affected by availability of, and
competition for, qualified workers and contractors, machinery and equipment lead times, changes in government
regulations, unexpected delays and increases in costs of completing capital projects including due to increased
materials, machinery and equipment costs resulting from trade disputes and increased tariffs and duties.
Capital Resources
We believe our capital resources will be adequate to meet our current projected operating needs, capital
expenditures and other cash requirements. Factors that could adversely affect our capital resources include
prolonged and sustained declines in the demand and prices for our products, unanticipated significant increases in
- 59 -
our operating expenses and unanticipated capital expenditures. If for any reason we are unable to provide for our
operating needs, capital expenditures and other cash requirements on commercially reasonable terms, we could
experience a material adverse effect to our business, financial condition, results of operations and cash flows.
Availability of Credit
We rely on long-term borrowings and access to revolving credit in order to finance our ongoing operations. Any
change in availability of credit in the market, as could happen during an economic downturn, could affect our
ability to access credit markets on commercially reasonable terms. In the future we may need to access public or
private debt markets to issue new debt. Deteriorations or volatility in the credit markets could also adversely
affect:
•
•
•
•
our ability to secure financing to proceed with capital expenditures for the repair, replacement or
expansion of our existing facilities and equipment;
our ability to comply with covenants under our existing credit or debt agreements;
the ability of our customers to purchase our products; and
our ability to take advantage of growth, expansion or acquisition opportunities.
In addition, deteriorations or volatility in the credit market could result in increases in the interest rates that we
pay on our outstanding non-fixed rate debt, which would increase our costs of borrowing and adversely affect our
results.
Credit Ratings
Credit rating agencies rate our debt securities based on factors that include our operating results, actions that we
take, their view of the general outlook for our industry and their view of the general outlook for the economy.
Actions taken by the rating agencies can include maintaining, upgrading or downgrading the current rating or
placing us on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or
placing us on a watch list for possible future downgrading could limit our access to the credit markets, increase our
cost of financing and have an adverse effect on our financial condition.
Costs of Materials and Energy
We rely heavily on certain raw materials, including logs, wood chips and chemicals, and energy sources, including
natural gas and electricity, in our manufacturing processes. Competition from our industry and other industries
may result in increased demand and costs for these raw materials and energy sources. Increases in the costs of
these raw materials and energy sources will increase our operating costs and will reduce our operating margins.
There is no assurance that we will be able to fully offset the effects of higher raw material or energy costs through
hedging arrangements, price increases, productivity improvements or cost-reduction programs.
Operational Curtailments
From time to time, we suspend or curtail operations at one or more of our facilities in response to market
conditions, environmental risks, or other operational issues, including, but not limited to scheduled and
unscheduled maintenance, temporary periods of high electricity prices, power failures, equipment breakdowns,
adverse weather conditions, labour disruptions, fire hazards, and the availability or cost of raw materials including
logs and wood chips.
In addition, our ability to operate at full capacity may be affected by ongoing capital projects. As a result, our
facilities may from time to time operate at less than full capacity. These operational suspensions could have a
material adverse effect on our financial condition as a result of decreased revenues and lower operating margins.
- 60 -
In Canada, a substantial portion of the wood chip requirements of our Canadian pulp and paper operations are
provided by our Canadian sawmills and plywood and LVL plants. If wood chip production is reduced because of
production curtailments, improved manufacturing efficiencies or any other reason, our pulp and paper operations
may incur additional costs to acquire or produce additional wood chips or be forced to reduce production.
Conversely, pulp and paper mill production curtailments may require our sawmills and panel mills to find other
ways to dispose of residual wood fibre and may result in curtailment or suspension of lumber, plywood or LVL
production and increased costs.
Transportation Requirements
Our business depends on our ability to transport a high volume of products and raw materials to and from our
production facilities and on to both domestic and international markets. We rely primarily on third-party
transportation providers for both the delivery of raw materials to our production facilities and the transportation
of our products to market. These third-party transportation providers include truckers, bulk and container
shippers and railways. Our ability to obtain transportation services from these transportation service providers is
subject to risks which include, without limitation, availability of equipment and operators, disruptions due to
weather, natural disasters and labour disputes. Transportation services may also be impacted by seasonal factors,
which could impact the timely delivery of raw materials and distribution of products to customers. As a result of
rail capacity constraints, access to adequate transportation capacity has at times been strained and could affect
our ability to transport our products to markets and could result in increased product inventories. Transportation
costs are also subject to risks that include, without limitation, increased rates due to competition and increased
fuel costs. Increases in transportation costs will increase our operating costs. If we are unable to obtain
transportation services or if our transportation costs increase, our revenues may decrease due to our inability to
deliver products to market and our operating expenses may increase, each of which would adversely affect our
results of operations.
Labour and Services
Our operations rely on experienced local and regional management and both skilled and unskilled workers as well
as third party services such as logging and transportation and services for our capital projects. Because our
operations are generally located away from major urban centres, we often face strong competition from our
industry and others such as oil and gas production, mining and manufacturing for labour and services, particularly
skilled trades. Shortages of key services or shortages of management leaders or skilled or unskilled workers,
including those caused by a failure to attract and retain a sufficient number of qualified employees and other
personnel or high employee turnover could impair our operations by reducing production or increasing costs or
the ability to execute on our capital projects including timing and costs.
We employ a unionized workforce in a number of our operations. Walkouts or strikes by employees could result in
lost production and sales, higher costs and supply constraints that could have a material adverse effect on our
business. Also, we depend on a variety of third parties that employ unionized workers to provide critical services
to us. Labour disputes experienced by these third parties could lead to disruptions at our facilities.
Environment
We are subject to regulation by federal, provincial, state, municipal and local environmental authorities, including,
among other matters, environmental regulations relating to air emissions and pollutants, wastewater (effluent)
discharges, solid and hazardous waste, landfill operations, forestry practices, permitting obligations, site
remediation and the protection of threatened or endangered species and critical habitat. Concerns over climate
change, carbon emissions, water and land-use practices and the protection of threatened or endangered species
and critical habitat could also lead governments to enact additional or more stringent environmental laws and
regulations that may require us to incur significant capital expenditures, pay higher taxes or fees, including carbon
related taxes or otherwise could adversely affect our operations or financial conditions.
- 61 -
We have incurred, and will continue to incur, capital expenditures and operating costs to comply with
environmental laws and regulations, including the U.S. Environmental Protection Agency’s Boiler MACT (maximum
achievable control technology) regulations. In addition, changes in the regulatory environment respecting climate
change have and may lead governments and regulatory bodies to enact additional or more stringent laws and
regulations and impose operational restrictions or incremental levies and taxes applicable to our Company.
No assurance can be given that changes in these laws and regulations or their application will not have a material
adverse effect on our 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 our available cash flow.
We may discover currently unknown environmental problems, contamination, or conditions relating to our past or
present operations. This or any failure to comply with environmental laws and regulations may require site or
other remediation costs or result in governmental or private claims for damage to person, property, natural
resources or the environment or governmental sanctions, including fines or the curtailment or suspension of our
operations, which could have a material adverse effect on our business, financial condition and operational results.
We are currently involved in investigation and remediation activities and maintain accruals for certain
environmental matters or obligations, as set out in the notes to our Financial Statements for the year ended
December 31, 2019. There can be no assurance that any costs associated with such obligations or other
environmental matters will not exceed our accruals.
Our Canadian woodland operations, and the harvesting operations of our many key U.S. log suppliers, in addition
to being subject to various environmental protection laws, are subject to third-party certification as to compliance
with internationally recognized, sustainable forest management standards. Demand for our products may be
reduced if we are unable to achieve compliance or are perceived by the public as failing to comply, with these
applicable environmental protection laws and sustainable forest management standards, or if our customers
require compliance with alternate forest management standards for which our operations are not certified. In
addition, changes in sustainable forest management standards or our determination to seek certification for
compliance with alternate sustainable forest management standards may increase our costs of operations.
Aboriginal Groups
Issues relating to Aboriginal groups, including First Nations, Metis and others, have the potential for a significant
adverse effect on resource companies operating in Canada including West Fraser. Risks include potential delays or
effects of governmental decisions relating to Canadian Crown timber harvesting rights (including their grant,
renewal or transfer or authorization to harvest) in light of the government’s duty to consult and accommodate
aboriginal groups in respect of aboriginal rights or treaty rights, agreements governments may choose to enter into
with Aboriginal groups even if not required by law, related terms and conditions of authorizations and potential
findings of aboriginal title over land.
We participate, as requested by government, in the consultation process in support of the government fulfilling its
duty to consult. We also seek to develop and maintain good relationships with aboriginal groups that may be
affected by our business activities. However, as the jurisprudence and government policies respecting aboriginal
rights and title and the consultation process continue to evolve, and as treaty and non-treaty negotiations
continue, we cannot assure that aboriginal claims will not in the future have a material adverse effect on our
timber harvesting rights or our ability to exercise or renew them or secure other timber harvesting rights.
In addition, the Canadian federal government and the provincial governments in Alberta and B.C. have made
commitments to renew their relationships with aboriginal groups and in some cases have expressed their support
for the United Nations Declaration on the Rights of Indigenous Peoples (“UNDRIP”) and their intent to adopt and
implement UNDRIP. At this time, it is unclear whether or how UNDRIP will be adopted into Canadian law and its
impact on the Crown’s duty to consult with and accommodate aboriginal groups. At this time, we are unable to
- 62 -
assess the effect, if any, that the adoption and implementation of UNDRIP by federal and provincial governments
may have on land claims or consultation requirements or on our business, but the impact may be material.
On June 26, 2014 the Supreme Court of Canada (the “SCC”) released its reasons for judgment in Tsilhqot’in Nation
v. British Columbia. The SCC declared that the Tsilhqot’in Nation had established aboriginal title over an area of
B.C. comprising approximately 1,750 square kilometres. The SCC also held that the provisions of the Forest Act
(British Columbia) dealing with the disposition or harvest of Crown timber, as presently drafted, no longer applied
to timber located on those lands, by virtue of the definition of “Crown Timber” in the Forest Act. But the SCC also
confirmed that provincial laws can apply on aboriginal title lands but only if the legislature so intends, and if the
government can justify infringements of aboriginal title in certain cases (according to tests set out in the case law).
It also confirmed that the existing Forest Act continues to apply to lands unless and until title is established.
We do not have any cutting permits in the area that was the subject of the Tsilhqot’in case. However, claims of
aboriginal title have been asserted by many aboriginal groups throughout B.C. (including lands in which we have
interests or rights) and there is a risk that other aboriginal groups may pursue further rights or title claims through
litigation, or treaty negotiations with governments. It is difficult to predict how quickly other claims will be
litigated or negotiated and in what manner our Crown timber harvesting rights and log supply arrangements will
be affected.
Regulatory
Our operations are subject to extensive general and industry-specific federal, provincial, state, municipal and other
local laws and regulations and other requirements, including those governing forestry, exports, taxes (including,
but not limited to, income, sales and carbon taxes), employees, labour standards, occupational health and safety,
waste disposal, environmental protection and remediation, protection of endangered and protected species and
land use and expropriation. We are required to obtain approvals, permits and licences for our operations, which
may require advance consultation with potentially affected stakeholders including aboriginal groups and impose
conditions that must be complied with. If we are unable to obtain, maintain, extend or renew, or are delayed in
extending or renewing, a material approval, permit or licence, our operations or financial condition could be
adversely affected. There is no assurance that these laws, regulations or government requirements, or the
administrative interpretation or enforcement of existing laws and regulations, will not change in the future in a
manner that may require us to incur significant capital expenditures, pay higher taxes or otherwise could adversely
affect our operations or financial condition. Failure to comply with applicable laws or regulations, including
approvals, permits and licences, could result in fines, penalties or enforcement actions, including orders
suspending or curtailing our operations or requiring corrective measures or remedial actions.
Foreign Currency Exchange Rates
Our Canadian operations sell the majority of its products at prices denominated in U.S. dollars or based on
prevailing U.S. dollar prices. A significant portion of its operational costs and expenses are incurred in Canadian
dollars. Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the revenue in
Canadian dollar terms realized by our Canadian operations from sales made in U.S. dollars, which reduces
operating margin and the cash flow available to fund operations. Canadian operations are also exposed to the risk
of exchange rate fluctuations in the period between sale and payment. To mitigate the exposure of Canadian
operations to currency fluctuations, we have long-term debt repayable in U.S. dollars which is valued in Canadian
dollars at the end of each reporting period by applying the prevailing exchange rate. The translation gains or
losses for our Canadian operations are reported in earnings in the Financial Statements.
Our U.S. operations transact and report in U.S. dollars, but their results are translated into Canadian dollars for
Financial Statement purposes with the resulting translation gains or losses being reported in other comprehensive
earnings.
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Exchange rate fluctuations result in exchange gains or losses and changes in other comprehensive earnings. This
results in significant earnings sensitivity to changes in the Canadian/U.S. dollar exchange rate. The Canadian/U.S.
dollar exchange rate is affected by a broad range of factors which makes future rates difficult to accurately predict.
Competition
We compete with global producers, some of which may have greater financial resources and lower production
costs than we do. Currency devaluations can have the effect of reducing our competitors’ costs and making our
products less competitive in certain markets. In addition, European lumber producers and South American panel
producers may enter the North American market during periods of peak prices. Markets for our products are
highly competitive. Our ability to maintain or improve the cost of producing and delivering products to those
markets is crucial. Factors such as cost and availability of raw materials, energy and labour, the ability to maintain
high operating rates and low per-unit manufacturing costs, and the quality of our final products and our customer
service all affect our earnings. Some of our products are also particularly sensitive to other factors including
innovation, quality and service, with varying emphasis on these factors depending on the product. To the extent
that one or more of our competitors become more successful with respect to any key competitive factor, our
ability to attract and retain customers could be materially adversely affected. If we are unable to compete
effectively, such failure could have a material adverse effect on our business, financial condition and results of
operations.
Our products may compete with non-fibre based alternatives or with alternative products in certain market
segments. For example, steel, engineered wood products, plastic, wood/plastic or composite materials may be
used by builders as alternatives to the products produced by our wood products businesses such as lumber,
plywood and MDF products. Changes in prices for oil, chemicals and wood-based fibre can change the competitive
position of our products relative to available alternatives and could increase substitution of those products for our
products. As the use of these alternatives grows, demand for our products may further decline.
Because commodity products have few distinguishing properties from producer to producer, competition for these
products is based primarily on price, which is determined by supply relative to demand and competition from
substitute products. Prices for our products are affected by many factors outside of our control, and we have no
influence over the timing and extent of price changes, which often are volatile. Accordingly, our revenues may be
negatively affected by pricing decisions made by our competitors and by decisions of our customers to purchase
products from our competitors.
Pension Plan Funding
We are the sponsor of several defined benefit pension plans which exposes us to market risks related to plan
assets. Funding requirements for these plans are based on actuarial assumptions concerning expected return on
plan assets, future salary increases, life expectancy and interest rates. If any of these assumptions differs from
actual outcomes such that a funding deficiency occurs or increases, we would be required to increase cash funding
contributions which would in turn reduce the availability of capital for other purposes. We are also subject to
regulatory changes regarding these plans which may increase the funding requirements which would in turn
reduce the availability of capital for other purposes.
Information Technology and Cyber Security
We are reliant on our information and operations technology systems to operate our manufacturing facilities,
access fibre, communicate internally and with suppliers and customers, to sell our products and to process
payments and payroll as well as for other corporate purposes and financial reporting. An interruption or failure or
unsuccessful implementation and integration of our information and operations technology systems could result in
a material adverse effect on our operations, business, financial condition and results of operations.
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In the ordinary course of our business, we collect and store sensitive data, including intellectual property,
proprietary business and confidential financial information and identifiable personal information of our
employees. We rely on industry accepted security measures and technology to protect our information systems
and confidential and proprietary information.
However, our information and operations technology systems, including process control systems, are still subject
to cyber security risks and are vulnerable to natural disasters, fires, power outages, vandalism, attacks by hackers
or others or breaches due to employee error or other disruptions. Any such attack on or breach of our systems
including through exposure to potential computer viruses or malware could compromise our systems and stored
information may be accessed, publicly disclosed, lost or compromised, which could result in legal claims or
proceedings, liability under laws that protect the privacy of personal information, regulatory penalties, disruptions
to our operations, decreased performance and production, increased costs, and damage to our reputation, which
could have a material adverse effect on our business, financial condition and results of operations. As cyber
security threats continue to evolve, we may be required to expend additional resources to continue to modify or
enhance protective measures or to investigate and remediate any security vulnerabilities. However, our exposure
to these risks cannot be fully mitigated due to the nature of these threats.
Controls and Procedures
Disclosure Controls and Procedures
West Fraser’s management is responsible for establishing and maintaining a system of disclosure controls and
procedures to provide reasonable assurance that all material information relating to West Fraser is gathered and
reported to senior management, including the President and Chief Executive Officer and the Vice-President,
Finance and Chief Financial Officer, on a timely basis so that appropriate decisions can be made regarding public
disclosure.
Internal Control over Financial Reporting
West Fraser’s management is also responsible for establishing and maintaining adequate internal control over
financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements for external reporting purposes in accordance with IFRS.
There has been no change in the design of West Fraser’s internal control over financial reporting during the year
ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
Evaluation of Effectiveness of Internal Controls
As required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-
109), West Fraser’s management, under the supervision of the President and Chief Executive Officer and the
Vice-President, Finance and Chief Financial Officer, has caused the effectiveness of the disclosure controls and
procedures and internal control over financial reporting to be evaluated as of December 31, 2019. Based on that
evaluation, the President and Chief Executive Officer and the Vice-President, Finance and Chief Financial Officer
have concluded that West Fraser’s disclosure controls and procedures and internal control over financial reporting
were effective as of December 31, 2019.
Additional Information
Additional information relating to West Fraser, including our Annual Information Form, can be found on our
website at www.westfraser.com or on SEDAR at www.sedar.com.
RESPONSIBILITY OF MANAGEMENT
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The management of West Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us” or “our”) is responsible for the
preparation, integrity, objectivity and reliability of the consolidated financial statements. The consolidated
financial statements have been prepared in accordance with International Financial Reporting Standards and
necessarily include amounts that represent the best estimates and judgments of management.
We maintain a system of internal controls over financial reporting that encompasses policies, procedures and
controls to provide reasonable assurance that assets are safeguarded against loss or unauthorized use,
transactions are executed and recorded with appropriate authorization and financial records are accurate and
reliable.
Our independent auditor, which is appointed by the shareholders upon the recommendation of the Audit
Committee and the Board of Directors, has completed its audit of the consolidated financial statements in
accordance with generally accepted auditing standards in Canada and its report follows.
The Board of Directors provides oversight to the financial reporting process through its Audit Committee, which is
comprised of four Directors, none of whom is an officer or employee of West Fraser. The Audit Committee meets
regularly with representatives of management and of the auditor to review the consolidated financial statements
and matters relating to the audit. The auditor has full and free access to the Audit Committee. The Audit
Committee reports its findings to the Board of Directors for consideration in approving the consolidated financial
statements for issuance to the shareholders.
Raymond Ferris
President and Chief Executive Officer
February 11, 2020
Chris Virostek
Vice-President, Finance
and Chief Financial Officer
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INDEPENDENT AUDITOR’S REPORT
To the Shareholders of West Fraser Timber Co. Ltd.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
financial position of West Fraser Timber Co. Ltd. and its subsidiaries (together, the Company) as at December 31,
2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
•
•
•
•
•
the consolidated balance sheets as at December 31, 2019 and 2018;
the consolidated statements of earnings and comprehensive earnings for the years then ended;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include a summary of significant accounting
policies.
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 consolidated
financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of
the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance
with these requirements.
Other information
Management is responsible for the other information. The other information comprises the Management's
Discussion & Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially inconsistent
- 67 -
with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRS, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’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 Company or to cease operations,
or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated 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
these consolidated 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 consolidated 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 Company’s internal control.
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 Company’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 consolidated 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 Company to cease to continue as a going concern.
- 68 -
•
•
Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the group audit. We remain solely
responsible for our audit opinion.
We 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.
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is John Bunting.
Chartered Professional Accountants
Vancouver, British Columbia
February 11, 2020
- 69 -
West Fraser Timber Co. Ltd.
Consolidated Balance Sheets
As at December 31, 2019 and 2018
(in millions of Canadian dollars, except where indicated)
Assets
Current assets
Cash and short-term investments
Receivables (note 24)
Income taxes receivable
Inventories (note 5)
Prepaid expenses
Property, plant and equipment (note 6)
Timber licences (note 7)
Goodwill and other intangibles (note 8)
Export duty deposits (note 27)
Other assets (note 9)
Deferred income tax assets (note 19)
Liabilities
Current liabilities
Cheques issued in excess of funds on deposit
Operating loans (note 12)
Payables and accrued liabilities (note 10)
Current portion of long-term debt (note 12)
Current portion of reforestation and decommissioning obligations (note 11)
Income taxes payable
Long-term debt (note 12)
Other liabilities (note 11)
Deferred income tax liabilities (note 19)
Shareholders’ Equity
Share capital (note 14)
Accumulated other comprehensive earnings
Retained earnings
Approved by the Board of Directors
Reid Carter
Director
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Robert L. Phillips
Lead Director
2019
2018
$
$
$
$
16
258
135
729
9
1,147
2,140
493
772
80
26
10
4,668
16
374
396
10
41
-
837
650
454
253
2,194
483
132
1,859
2,474
4,668
$
$
$
$
160
332
48
791
14
1,345
2,056
513
767
75
32
3
4,791
13
61
448
-
39
34
595
692
316
292
1,895
491
170
2,235
2,896
4,791
- 71 -
- 70 -
- 71 -
West Fraser Timber Co. Ltd.
Consolidated Statements of Earnings and Comprehensive Earnings
For the years ended December 31, 2019 and 2018
(in millions of Canadian dollars, except where indicated)
Sales
Costs and expenses
Cost of products sold
Freight and other distribution costs
Export duties (note 27)
Amortization
Selling, general and administration
Equity-based compensation (note 15)
Restructuring and impairment charges (note 16)
Operating earnings
Finance expense (note 17)
Other (note 18)
Earnings before tax
Tax recovery (provision) (note 19)
Earnings
Earnings per share (dollars) (note 21)
Basic
Diluted
Comprehensive earnings
Earnings
Other comprehensive earnings
Translation gain (loss) on foreign operations1
Actuarial gain (loss) on post-retirement benefits2
Comprehensive earnings
1.
2.
Recycled through earnings in the event of a disposal in net investment in foreign operations.
Adjusted through retained earnings. Net of tax recovery of $33 million (2018 - $9 million provision).
2019
2018
$
4,877
$
6,118
3,652
713
162
259
211
6
33
5,036
(159)
(49)
(11)
(219)
69
(150)
(2.18)
(2.34)
(150)
(38)
(99)
(287)
$
$
$
$
$
3,617
732
202
257
231
7
-
5,046
1,072
(37)
37
1,072
(262)
810
10.88
10.62
810
62
24
896
$
$
$
$
$
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- 71 -
West Fraser Timber Co. Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2019 and 2018
(in millions of Canadian dollars, except where indicated)
Share capital
Number
of shares
Amount
Translation
of foreign
operations
Retained
earnings
Total
equity
Balance - December 31, 2017
77,946,036 $
549
$
108
$
2,069
$
2,726
Changes in Shareholders’ Equity for 2018
Translation gain on foreign operations
Actuarial gain on post-retirement
benefits
Issuance of Common shares
Repurchase of Common shares
Earnings for the year
Dividends1
Balance - December 31, 2018
Changes in Shareholders’ Equity for 2019
Translation loss on foreign operations
Actuarial loss on post-retirement
benefits
Issuance of Common shares
Repurchase of Common shares
Earnings for the year
Dividends1
Balance - December 31, 2019
1.
-
-
-
8,598
(8,135,796)
-
-
69,818,838 $
-
1
(59)
-
-
491
$
62
-
-
-
-
-
170
-
62
24
-
(617)
810
(51)
2,235
24
1
(676)
810
(51)
2,896
$
$
-
-
(38)
-
(38)
-
22,329
(1,178,400)
-
-
68,662,767 $
-
1
(9)
-
-
483
$
-
-
-
-
-
132
(99)
-
(72)
(150)
(55)
1,859
(99)
1
(81)
(150)
(55)
2,474
$
$
Represents dividends declared of $0.80 per share for 2019 and $0.70 per share for 2018.
- 73 -
- 72 -
- 73 -
West Fraser Timber Co. Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31, 2019 and 2018
(in millions of Canadian dollars, except where indicated)
Cash provided by operations
Earnings
Adjustments
Amortization
Restructuring and impairment charges
Restructuring charges paid (note 16)
Finance expense
Foreign exchange loss (gain) on long-term financing
Foreign exchange loss (gain) on long-term duty deposits
Export duty deposits (note 27)
Post-retirement expense
Contributions to post-retirement benefit plans
Tax provision (recovery)
Income taxes paid
Other
Changes in non-cash working capital
Receivables
Inventories
Prepaid expenses
Payables and accrued liabilities
Cash provided by (used for) financing
Proceeds from operating loans
Finance expense paid
Dividends
Repurchase of Common shares
Other
Cash used for investing
Additions to capital assets
Government assistance
Proceeds from disposal of capital assets
Other
Change in cash
Foreign exchange effect on cash
Cash - beginning of year
Cash - end of year
Cash consists of
Cash and short-term investments
Cheques issued in excess of funds on deposit
2019
2018
$
(150)
$
810
259
33
(7)
49
3
4
(5)
80
(85)
(69)
(62)
-
70
51
5
(61)
115
314
(43)
(55)
(81)
(5)
130
(410)
5
14
-
(391)
(146)
(1)
147
-
16
(16)
-
$
$
$
257
-
-
37
(10)
(5)
(31)
84
(103)
262
(316)
(2)
39
(105)
(3)
(5)
909
63
(32)
(37)
(675)
-
(681)
(370)
6
11
(1)
(354)
(126)
15
258
147
160
(13)
147
$
$
$
- 72 -
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- 73 -
West Fraser Timber Co. Ltd.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(figures are in millions of Canadian dollars, except where indicated)
1.
Nature of operations
West Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us” or “our”) is a diversified wood products company producing
lumber, LVL, MDF, plywood, pulp, newsprint, wood chips, other residuals and energy with facilities in western
Canada and the southern United States. Our executive office is located at 858 Beatty Street, Suite 501, Vancouver,
British Columbia (“B.C.”). West Fraser was formed by articles of amalgamation under the Business Corporations
Act (British Columbia) and is registered in B.C., Canada. Our Common shares are listed for trading on the Toronto
Stock Exchange under the symbol WFT.
2.
Basis of presentation
These consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (“IFRS”) and were approved by our Board of Directors on February 11, 2020.
Our consolidated financial statements have been prepared under the historical cost basis, except for certain items
as discussed in the applicable accounting policies.
Accounting policies that relate to the consolidated financial statements as a whole are incorporated in this note.
Where an accounting policy is applicable to a specific note disclosure, the policy is described within the respective
note.
Accounting policies
Basis of consolidation
These consolidated financial statements include the accounts of West Fraser and its wholly-owned subsidiaries
after the elimination of intercompany transactions and balances. Principal operating subsidiaries are West Fraser
Mills Ltd., West Fraser, Inc., West Fraser Wood Products Inc., West Fraser Southeast, Inc., Blue Ridge Lumber Inc.,
Sundre Forest Products Inc., Manning Forest Products Ltd. and West Fraser Newsprint Ltd.
Our 50%-owned joint operations, Alberta Newsprint Company and Cariboo Pulp & Paper Company, are accounted
for by recognizing our share of the assets and liabilities, revenues and expenses related to these joint operations.
Use of estimates and judgments
The preparation of consolidated financial statements requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial statements and accompanying notes. It also
requires management to exercise judgment in the process of applying accounting policies. Significant areas
requiring estimates include recoverability of long-lived assets and goodwill, export duty deposits related to the
softwood lumber dispute, fair value of derivatives, reforestation and decommissioning obligations, employee
future benefits, equity-based compensation, income taxes and litigation. Actual amounts could differ materially
from these and other estimates, the impact of which would be recorded in future periods. Management uses
judgments and assumptions in assessing potential indicators of impairment, determining the appropriate cash
generating unit level used in impairment testing and determining the accounting treatment for certain investments
where we own less than 100% of the entity.
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Revenue recognition
Revenue is derived primarily from product sales and is recognized when a customer obtains control over the
goods. For most of our sales, control is obtained by the customer when the product is loaded on a common carrier
at our mill. Some of our revenue is recognized when the product is delivered to the customer or when it is loaded
on an ocean carrier. The amount of revenue recognized is net of our estimate for early payment discounts and
volume rebates.
Revenue includes charges for freight, handling, countervailing and antidumping duties. The costs related to these
revenues are recorded in freight and other distribution costs and export duties.
Foreign currency translation
Our functional and presentation currency is Canadian dollars.
U.S. operations
Assets and liabilities of our U.S. operations have a functional currency of U.S. dollars and are translated at the
period-end exchange rate. Revenues and expenses are translated at average exchange rates during the reporting
period. The resulting unrealized translation gains or losses are included in other comprehensive earnings.
Translation of other foreign currency balances and transactions
Monetary assets and liabilities denominated in foreign currencies, including long-term financing, are translated at
the period-end exchange rate. Income and expense items are translated at the average or transaction date
exchange rates during the reporting period. The resulting translation gains or losses are included in other income.
Cash and short-term investments
Cash and short-term investments consist of cash on deposit and short-term interest-bearing securities maturing
within three months of the date of purchase.
Impairment of long-lived assets
We review property, plant, equipment, timber licences, goodwill and other intangibles for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be fully recoverable. For the
purpose of impairment testing, assets are separated into cash generating units (“CGUs”). We have identified each
of our mills as a CGU for impairment testing of property, plant, equipment and other intangibles unless there is
economic interdependence of CGUs, in which case they are grouped for impairment testing. Timber licences and
goodwill are tested for impairment by combining CGUs within the economic area of the related assets. We
perform an annual test for goodwill impairment.
Recoverability is assessed by comparing the carrying amount of the CGU or grouped CGUs to the discounted
estimated net future cash flows the assets are expected to generate. If the carrying amount exceeds the
discounted estimated net future cash flows, the assets are written down to the higher of fair value less cost of
disposal and value-in-use (being the present value of the estimated net future cash flows of the relevant asset or
CGU).
Goodwill impairment is assessed by comparing the fair value of its CGU to the underlying carrying amount of the
CGU’s net assets, including goodwill. When the carrying amount of the CGU exceeds its fair value, the fair value of
the CGU’s goodwill is compared with its carrying amount. An impairment loss is recognized for any excess of the
carrying value of goodwill over its fair value.
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- 76 -
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Estimated net future cash flows are based on several assumptions concerning future circumstances including
selling prices of products, U.S./Canadian dollar exchange rates, production rates, input costs and capital
requirements. The estimated net future cash flows are discounted at rates reflective of market risk.
Where an impairment loss for long-lived assets, other than goodwill, subsequently reverses, the carrying amount
of the asset or CGU is increased to the lesser of the revised estimate of its recoverable amount and the carrying
amount that would have been recorded had no impairment loss been previously recognized. Goodwill impairment
losses cannot be reversed.
Fair value measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date, regardless of whether that price is directly observable or
estimated using another valuation technique. For financial reporting purposes, fair value measurements are
categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurement are
observable and the significance of the inputs. Our fair value hierarchy prioritizes the inputs to valuation
techniques used to measure fair value.
The three levels of the fair value hierarchy are:
Level 1
Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for
identical assets or liabilities.
Level 2
Values based on quoted prices in markets that are not active or model inputs that are observable either directly or
indirectly for substantially the full term of the asset or liability.
Level 3
Values based on prices or valuation techniques that require inputs which are both unobservable and significant to
the overall fair value measurement.
3.
Changes in accounting standards
IFRS 16 - Leases
We have adopted IFRS 16 effective January 1, 2019 using the modified retrospective approach, accordingly the
information presented for 2018 has not been restated. The new standard replaces International Accounting
Standards (“IAS”) 17 - Leases and the related interpretations. IFRS 16 provides a single lessee accounting model
and requires lessees to recognize assets and liabilities for all major leases.
The adoption of this new standard has resulted in recognizing a right-of-use (“ROU”) asset and related lease
liability in connection with all former operating leases except for those identified as low-value or having a
remaining lease term of less than 12 months from the date of initial application.
On initial application, we elected to record ROU assets equal to the corresponding present value of the remaining
lease liability. ROU assets and lease obligations of $14 million were recorded as of January 1, 2019 for leases
related to some of our office spaces and mobile equipment. On the consolidated balance sheets, ROU assets have
been included in property, plant and equipment. The current portion of lease liabilities has been included in
payables and accrued liabilities and the long-term portion has been included in other liabilities.
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- 76 -
- 77 -
During the year ended December 31, 2019, we recorded a $3 million amortization expense on the ROU assets, and
we made a $3 million payment on the lease obligations.
IAS 19 - Amendments, Employee Benefits
We have adopted the IAS 19 - Amendments, Employee Benefits effective January 1, 2019. The amendments
require an entity to use updated assumptions to determine current service costs and net interest for the
remainder of the period after a plan amendment, curtailment or settlement.
The adoption of this standard had no significant impact on our consolidated financial statements and no
retrospective adjustments were necessary.
4.
Accounting standards, amendments and interpretations issued but not yet applied
There are no standards or amendments or interpretations to existing standards issued but not yet effective which
are expected to have a material impact on our consolidated financial statements.
5.
Inventories
Accounting policies
Inventories of manufactured products, logs and other raw materials are valued at the lower of average cost and
net realizable value. Processing materials and supplies are valued at the lower of average cost and replacement
cost.
Supporting information
Manufactured products
Logs and other raw materials
Processing materials and supplies
2019
341
226
162
729
$
$
2018
421
218
152
791
$
$
Inventories at December 31, 2019 were written down by $39 million (December 31, 2018 - $30 million) to reflect
net realizable value being lower than cost.
The carrying amount of inventory recorded at net realizable value was $182 million at December 31, 2019
(December 31, 2018 - $149 million), with the remaining inventory recorded at cost.
6.
Property, plant and equipment
Accounting policies
Property, plant and equipment are stated at historical cost, less accumulated amortization and impairment losses.
Expenditures for additions and improvements are capitalized. Borrowing costs are capitalized when the asset
construction period exceeds 12 months and the borrowing costs are directly attributable to the asset.
Expenditures for maintenance and repairs are charged to earnings. Upon retirement, disposal or destruction of an
asset, the cost and related amortization are removed from the accounts and any gain or loss is included in
earnings.
- 76 -
- 78 -
- 77 -
Property, plant and equipment are amortized on a straight-line basis over their estimated useful lives as follows:
Buildings
Manufacturing plant, equipment and machinery
Fixtures, mobile and other equipment
Roads and bridges
Major maintenance shutdowns
10 - 30 years
6 - 20 years
3 - 10 years
Not exceeding 40 years
12 to 36 months
Manufacturing plant, equipment and machinery includes ROU assets related to some of our office spaces and
mobile equipment. ROU assets are initially measured at the amount of lease liability reduced for any lease
incentives received, and increased for:
•
•
•
lease payments made at or before commencement of the lease;
initial direct costs incurred; and
an estimate of costs, if any, to be incurred in restoring the underlying asset to the condition required by
the terms and conditions of the lease.
The ROU assets are amortized on a straight-line basis from the lease commencement date to the earlier of the end
of the useful life of the ROU asset or the end of the lease term. If it is reasonably certain that we will exercise the
option to purchase the asset, the amortization period is to the end of the ROU asset’s useful life.
- 79 -
- 78 -
- 79 -
Supporting Information
Manufacturing
plant,
equipment and
machinery
1,610
168
(218)
54
(5)
169
1,778
4,444
(2,666)
1,778
1,778
222
(220)
(23)
(37)
(1)
144
1,863
Construction-
in-progress
195
151
-
10
-
(169)
187
187
-
187
187
180
-
-
(6)
-
(178)
183
$
$
$
$
$
$
Roads
and
bridges
45
17
(15)
-
-
-
47
148
(101)
47
47
20
(16)
-
-
-
-
51
$
$
$
$
$
$
As at December 31, 2017
Additions
Amortization1
Foreign exchange
Disposals
Transfers
As at December 31, 2018
As at December 31, 2018
Cost
Accumulated amortization
Net
As at December 31, 2018
Additions
Amortization1
Impairment2 (note 16)
Foreign exchange
Disposals
Transfers
As at December 31, 2019
$
$
$
$
$
$
$
$
$
$
$
Other
$
Total
1,892
337
(233)
65
(5)
-
2,056
4,830
(2,774)
2,056
2,056
423
(236)
(23)
(44)
(2)
(34)
2,140
$
$
$
$
$
$
42
1
-
1
-
-
44
51
(7)
44
44
1
-
-
(1)
(1)
-
43
As at December 31, 2019
4,997
Cost
(2,857)
Accumulated amortization
2,140
$
Net
1. Amortization of $232 million relates to cost of products sold and $4 million relates to selling, general and administration expense (2018 -
4,604
(2,741)
1,863
160
(109)
51
183
-
183
50
(7)
43
$
$
$
$
$
$
$
$
$
$230 million and $3 million, respectively).
2. As disclosed in note 16, we recorded asset impairment charges totalling $24 million, with $16 million related to the permanent closure of
our Chasm, B.C. lumber mill and $8 million related to certain B.C. lumber mill assets. Of the total, $23 million of this impairment was
recorded against manufacturing plant, equipment and machinery, with the remaining $1 million recorded against inventory.
7.
Timber licences
Accounting policies
Timber licences, which are renewable or replaceable, are stated at historical cost, less accumulated amortization
and impairment losses. Amortization is provided on a straight-line basis over their estimated useful lives of 40
years.
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- 80 -
- 79 -
Supporting information
As at December 31, 2017
Amortization1
As at December 31, 2018
As at December 31, 2018
Cost
Accumulated amortization
Net
As at December 31, 2018
Amortization1
As at December 31, 2019
As at December 31, 2019
Cost
Accumulated amortization
Net
1.
Amortization relates to cost of products sold.
8.
Goodwill and other intangibles
Accounting policies
Timber
licences
533
(20)
513
800
(287)
513
513
(20)
493
800
(307)
493
$
$
$
$
$
$
$
$
Goodwill represents the excess purchase price paid for a business acquisition over the fair value of the net assets
acquired. Goodwill is not amortized but is subject to an annual impairment test. An additional impairment test is
conducted if events or circumstances indicate that goodwill may be impaired.
Other intangibles are stated at historical cost less accumulated amortization and impairments. Other intangibles
include software which is amortized over periods of up to five years and non-replaceable finite term timber rights
which are amortized as the related timber is logged.
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- 80 -
- 81 -
Supporting information
As at December 31, 2017
Additions
Amortization1
Foreign exchange
Disposals
As at December 31, 2018
As at December 31, 2018
Cost
Accumulated amortization
Net
As at December 31, 2018
Additions
Amortization1
Foreign exchange
Disposal
Transfers
As at December 31, 2019
Goodwill
705
-
-
38
-
743
743
-
743
743
-
-
(23)
-
-
720
$
$
$
$
$
$
$
$
$
$
$
$
Other
26
6
(4)
-
(4)
24
48
(24)
24
24
7
(3)
-
(10)
34
52
Total
731
6
(4)
38
(4)
767
791
(24)
767
767
7
(3)
(23)
(10)
34
772
$
$
$
$
$
$
As at December 31, 2019
Cost
Accumulated amortization
Net
1. Amortization of $1 million relates to cost of products sold and $2 million relates to selling, general and administration expense (2018 - $2
799
(27)
772
79
(27)
52
720
-
720
$
$
$
$
$
$
million and $2 million, respectively).
Goodwill
We have attributed $218 million of goodwill to a CGU made up of our Canadian lumber operations, $456 million of
goodwill to a CGU made up of our U.S. lumber operations and $46 million of goodwill to a CGU made up of our
plywood and LVL operations.
For the purpose of the 2019 impairment test of goodwill, the fair value of CGUs has been determined based on
value-in-use calculations using a discount rate of 8.5%. These calculations are approved by management and use
cash flow projections based on the 2020 business plan, a forecast of 2021 and 2022 and trend level earnings for
subsequent years. Assumptions were developed by management based on industry sources after taking into
account management’s best estimates. No impairment of goodwill has been recognized.
9.
Other assets
Post-retirement (note 13)
Other
2019
6
20
26
$
$
2018
12
20
32
$
$
- 80 -
- 82 -
- 81 -
10.
Payables and accrued liabilities
Trade accounts
Equity-based compensation
Compensation
Export duties
Dividends
Restructuring charges (note 16)
Interest
Current portion of lease obligation (note 11)
Other
11.
Other liabilities
Post-retirement (note 13)
Long-term portion of reforestation
Long-term portion of decommissioning
Long-term portion of lease obligation
Other
2019
239
33
55
18
14
6
5
3
23
396
2019
314
74
31
8
27
454
$
$
$
$
2018
260
51
78
17
14
-
5
-
23
448
2018
189
76
29
-
22
316
$
$
$
$
Reforestation and decommissioning obligations
Reforestation and decommissioning obligations relate to our responsibility for reforestation under various timber
licences and our obligations related to landfill closures and other site remediation costs.
Accounting policies
Reforestation obligations are measured at the present value of the expenditures expected to be required to settle
the obligations and are accrued and charged to earnings when timber is harvested. The reforestation obligation is
reviewed periodically and changes to estimates are credited or charged to earnings.
We record the present value of a liability for decommissioning obligations in the period that a reasonable estimate
can be made. The present value of the liability is added to the carrying amount of the associated asset and
amortized over its useful life or, if there is no associated asset, it is expensed. Decommissioning obligations are
reviewed annually and changes to estimates result in an adjustment of the carrying amount of the associated asset
or, where there is no asset, they are credited or charged to earnings.
Reforestation and decommissioning obligations are discounted at the risk-free rate at the balance sheet date and
accreted over time through periodic charges to earnings. The liabilities are reduced by actual costs of settlement.
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- 83 -
Supporting information
Beginning of year
Liabilities recognized
Liabilities settled
Change in estimates
End of year
Less: current portion
Reforestation
2019
115
48
(53)
4
114
(40)
74
$
$
2018
108
48
(46)
5
115
(39)
76
$
$
$
$
$
Decommissioning
2019
29
2
(1)
2
32
(1)
31
2018
25
-
-
4
29
-
29
$
The total undiscounted amount of the estimated cash flows required to satisfy these obligations is $159 million
(2018 - $158 million). The cash flows have been discounted using interest rates ranging from 1.68 % to 1.69%
(2018 - 1.86% to 1.88%).
The timing of the reforestation payments is based on the estimated period required to attain free to grow status in
a given area, which is generally between 12 to 15 years. Payments relating to landfill closures and site remediation
are expected to occur over periods ranging up to 46 years.
Lease obligations
Lease obligations relate to major lease contracts on certain office spaces and mobile equipment.
Accounting policies
All leases are accounted for by recognizing a ROU asset and a lease obligation except for low value asset leases and
leases with a duration of 12 months or less. These lease payments are recognized as an expense on a straight-line
basis over the lease term.
The lease liability is measured at the present value of the lease payments using the discount rate implicit in the
lease, if that rate is readily available, or our incremental borrowing rate. The lease liability is remeasured to reflect
any reassessment or modification. When the lease liability is remeasured, the corresponding adjustment is
reflected in the ROU asset, or earnings if the ROU asset is already reduced to zero.
Supporting information
Liabilities recognized January 1, 2019
Liabilities paid during the year
End of year
Less: current portion (note 10)
$
$
2019
14
(3)
11
(3)
8
The total undiscounted cash flows required to satisfy these lease obligations is $14 million over the next five years.
Short-term leases and leases of low value assets
We expensed $2 million of lease payments under certain short-term and low value assets lease contracts.
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- 83 -
12.
Operating loans and long-term debt
Accounting policies
Transaction costs related to debt financing or refinancing are deferred and amortized over the life of the
associated debt. When our operating loan is undrawn, the related deferred financing costs are recorded in other
assets.
Supporting information
Operating loans
Our revolving lines of credit consist of an $850 million committed revolving credit facility which matures August
2024, a $32 million (US$25 million) demand line of credit dedicated to our U.S. operations and an $8 million
demand line of credit dedicated to our jointly-owned newsprint operation. In addition, we have letter of credit
facilities totalling $89 million, of which US$15 million is dedicated to our U.S. operations.
At December 31, 2019, $374 million was drawn under our revolving credit facility. This amount is net of deferred
financing costs of $3 million (December 31, 2018 - $61 million, net of deferred financing costs of $2 million).
Letters of credit in the amount of $61 million (December 31, 2018 - $58 million) were also supported by our
facilities.
Interest on the facilities is payable at floating rates based on Prime, Base Rate Advances, Bankers’ Acceptances or
LIBOR Advances at our option.
All debt is unsecured except the $8 million 50%-owned newsprint operation demand line of credit, which is
secured by that operation’s current assets.
Long-term debt
US$300 million senior notes due October 2024; interest at 4.35%
US$200 million term loan due August 2024; floating interest rate
US$8 million note payable due October 2020; interest at 2%
Notes payable
Less: deferred financing costs
Less: current portion related to the US$8 million note payable due October 2020
2019
390
260
10
3
663
(3)
(10)
650
$
$
2018
409
273
10
4
696
(4)
-
692
$
$
Required principal repayments are disclosed in note 24.
On March 15, 2019, we entered into an interest rate swap agreement, maturing in August 2022, with a US$100
million notional amount to limit our exposure to fluctuations in interest rates and fix interest rates on a portion of
our long-term debt. Under this agreement, we pay a fixed interest rate of 2.47% and receive a floating interest
rate equal to 3-month LIBOR. The agreement is accounted for as a derivative. The gains or losses related to
changes in the fair value are included in other income in our consolidated statements of earnings. For the year, a
$3 million loss associated with the agreement was recorded in other income.
On January 17, 2020, we completed an agreement for a new uncommitted, demand letter of credit facility in the
maximum amount of up to $40 million.
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- 85 -
13.
Post-retirement benefits
We maintain defined benefit and defined contribution pension plans covering a majority of our employees. The
defined benefit plans generally do not require employee contributions and provide a guaranteed level of pension
payable for life based either on length of service or on earnings and length of service, and in most cases do not
increase after commencement of retirement.
The defined benefit pension plans are operated in Canada and the U.S. under broadly similar regulatory
frameworks. The majority are funded arrangements where benefit payments are made from plan assets which are
held in trust. Responsibility for the governance of the plans, including investment and contribution decisions,
resides with our Retirement Committees which report to the Human Resources & Compensation Committee of the
Board of Directors. For the registered defined benefit pension plans, regulations set minimum requirements for
contributions for benefit accruals and the funding of deficits.
Accounting policies
We record a post-retirement asset or liability for our employee defined benefit pension and other retirement
benefit plans by netting our plan assets with our plan obligations, on a plan-by-plan basis.
The cost of defined benefit pensions and other retirement benefits earned by employees is actuarially determined
using the projected unit credit method. The present value of the defined benefit obligation is determined by
discounting the estimated future cash outflows using market yields from high quality corporate bonds with cash
flows that approximate expected benefit payments at the balance sheet date. Plan assets are valued at fair value
at each balance sheet date.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged
or credited to equity in other comprehensive earnings in the period in which they arise.
Past service costs arising from plan amendments are recognized immediately.
The finance amount on net post-retirement balances is classified as finance expense.
For defined contribution plans, pension expense is the amount of contributions we are required to make in respect
of services rendered by employees.
Supporting information
The actual return on plan assets for 2019 is a gain of $166 million (2018 - $4 million loss). The total pension
expense for the defined benefit plans is $68 million (2018 - $73 million). In 2019, we made contributions of $66
million (2018 - $86 million). We expect to make cash contributions of approximately $49 million to our defined
benefit pension plans during 2020 based on the most recent valuation report for each pension plan. We also
provide group life insurance, medical and extended health benefits to certain employee groups, for which we
contributed $2 million in 2019 (2018 - $2 million).
The total pension expense and funding contributions for the defined contribution pension plans is $17 million
(2018 - $15 million).
In 2019, we announced the permanent closure of our Chasm, B.C. lumber mill. This closure resulted in the
curtailment of the defined benefit pension plan for the Chasm hourly employees. Included in restructuring and
impairment charges is a $4 million curtailment gain related to the reduction in the post-retirement obligation.
- 84 -
- 86 -
- 85 -
In 2018, we entered into annuity purchase agreements to settle approximately $480 million of our defined benefit
obligations by purchasing annuities using our plan assets. These agreements transferred the pension obligations of
retired employees under certain pension plans to financial institutions. The difference between the cost of the
annuity purchase and the liabilities held for these pension plans is reflected as a settlement cost.
The status of the defined benefit pension plans and other retirement benefit plans, in aggregate, is as follows:
Accrued benefit obligations
Benefit obligations – opening
Service cost
Finance cost on obligation
Benefits paid
Actuarial loss (gain) due to change in financial
assumptions
Actuarial loss (gain) due to
demography/experience
Settlement
Curtailment gain
Other
Benefit obligations - ending
Plan assets
Fair value - opening
Finance income on plan assets
Actual return on plan assets, net of finance
income
Employer contributions
Benefits paid
Settlement
Other
Fair value - ending
Defined benefit
pension plans
Other retirement
benefit plans
2019
2018
2019
2018
$
$
$
$
1,347
62
52
(46)
235
14
1
(4)
(3)
1,658
1,204
46
120
66
(46)
-
(5)
1,385
$
$
$
$
1,821
66
61
(66)
(83)
16
(480)
-
12
1,347
1,658
54
(58)
86
(66)
(479)
9
1,204
$
$
$
$
34
1
-
(2)
3
-
-
-
(1)
35
-
-
-
2
(2)
-
-
-
$
$
$
$
43
3
2
(2)
(5)
(7)
-
-
-
34
-
-
-
2
(2)
-
-
-
Funded status1
Post-retirement assets (note 9)
Post-retirement liabilities (note 11)
-
(34)
(34)
1. Plans in a surplus position are classified as assets and plans in a deficit position are shown as liabilities on the consolidated balance sheets.
6
(279)
(273)
12
(155)
(143)
-
(35)
(35)
$
$
$
$
$
$
$
$
Other retirement benefit plans continue to be unfunded.
Expense
Service cost
Net finance expense
Defined benefit
pension plans
Other retirement
benefit plans
2019
2018
2019
2018
$
$
62
6
68
$
$
66
7
73
$
$
1
-
1
$
$
3
2
5
- 87 -
- 86 -
- 87 -
Assumptions and sensitivities
The weighted average duration of the defined benefit pension obligations is 19 years. The projected future benefit
payments for the defined benefit pension plans at December 31, 2019 are as follows:
2020
2021
2022 to
2024
Thereafter
Total
Defined benefit pension
plans
$
38
$
42
$
149
$
2,977
$
3,206
The estimation of post-retirement benefit obligations involves a high degree of judgment for matters such as
discount rate, employee service periods, compensation escalation rates, expected retirement ages of employees,
mortality rates, expected health-care costs and other variable factors. These estimates are reviewed annually with
independent actuaries. The significant actuarial assumptions used to determine our balance sheet date
post-retirement assets and liabilities and our post-retirement benefit plan expenses are as follows:
Benefit obligations:
Discount rate
Future compensation rate increase
Benefit expense:
Discount rate - beginning of year
Future compensation rate increase
Defined benefit
pension plans
Other retirement
benefit plans
2019
2018
2019
2018
3.00%
3.50%
3.75%
3.50%
3.75%
3.50%
3.50%
3.50%
3.00%
n/a
3.50%
n/a
3.75%
n/a
3.50%
n/a
Health-care benefit costs, shown under other retirement benefit plans, are funded on a pay-as-you-go basis. The
actuarial assumptions for extended health-care costs are estimated to increase 6.75% in year one, grading down
by 0.25% per year for years two to nine, to 4.5% per year thereafter.
The impact of a change in these assumptions on our post-retirement obligations as at December 31, 2019 is as
follows:
Discount rate
Decrease in assumption from 3.00% to 2.50%
Increase in assumption from 3.00% to 3.50%
Rate of increase in future compensation
Decrease in assumption from 3.50% to 3.00%
Increase in assumption from 3.50% to 4.00%
Health-care cost trend rates
Decrease in assumption by 1.00%
Increase in assumption by 1.00%
Obligations
$
$
$
$
$
$
157
(143)
(28)
28
(2)
1
The sensitivities have been calculated on the basis that all other variables remain constant. When calculating the
sensitivity of the defined benefit obligation, the same methodology is applied as was used to generate the financial
statement asset/liability.
- 86 -
- 88 -
- 87 -
Assets
The assets of the pension plans are invested predominantly in a diversified range of equities and bonds. The
weighted average asset allocations of the defined benefit plans at December 31, by asset category, are as follows:
Canadian equities
Foreign equities
Fixed income investments
Other investments
Risk management practices
Target range
9% - 25%
12% - 52%
30% - 50%
5% - 32%
2019
13%
27%
40%
20%
100%
2018
10%
24%
44%
22%
100%
We are exposed to various risks related to our defined benefit pension and other post-retirement benefit plans:
• Uncertainty in benefit payments: The value of the liability for post-retirement benefits will ultimately
depend on the amount of benefits paid and this in turn will depend on the level of future
compensation increase and how long individuals live.
• Volatility in asset value: We are exposed to changes in the market value of pension plan investments
which are required to fund future benefit payments.
• Uncertainty in cash funding: Movement in the value of the assets and obligations may result in
increased levels of cash funding, although changes in the level of cash funding required can be spread
over several years. We are also exposed to changes in pension regulation and legislation.
Our Retirement Committees manage these risks in accordance with a Statement of Investment Policies and
Procedures for each pension plan or group of plans administered under master trust agreements. The following
are some specific risk management practices employed:
• Retaining and monitoring professional advisors including an outsourced chief investment officer (“OCIO”).
• Monitoring our OCIO’s adherence to asset allocation guidelines and permitted categories of investments.
• Monitoring investment decisions and performance of the OCIO and asset performance against
benchmarks.
14.
Share capital
Authorized
400,000,000 Common shares, without par value
20,000,000 Class B Common shares, without par value
10,000,000 Preferred shares, issuable in series, without par value
- 89 -
- 88 -
- 89 -
Issued
Common
Class B Common
Total Common
2019
Number
66,381,289 $
2,281,478
68,662,767 $
Amount
483
-
483
2018
Number
67,537,360 $
2,281,478
69,818,838 $
Amount
491
-
491
In 2019 we repurchased 1,178,400 Common shares for $81 million and in 2018 we repurchased 8,135,796
Common shares for $676 million.
On September 17, 2019, our Board of Directors authorized the renewal of our normal course issuer bid (“NCIB”)
program to repurchase for cancellation up to 3,318,823 Common shares, representing approximately 5% of the
issued and outstanding Common shares. The NCIB will expire on September 19, 2020. Our previous NCIB expired
on September 18, 2019.
Rights and restrictions of Common shares
Common shares and Class B Common shares are equal in all respects except that each Class B Common share may
at any time be exchanged for one Common share. Certain circumstances or corporate transactions may require
the approval of the holders of our Common shares and Class B Common shares on a separate class-by-class basis.
15.
Equity-based compensation
We have share option, phantom share unit (“PSU”) and directors’ deferred share unit (“DSU”) plans. We have
partially hedged our exposure under these plans with an equity derivative contract. The equity-based
compensation expense included in the consolidated statement of earnings is $6 million (2018 - $7 million).
Accounting policies
We estimate the fair value of outstanding share options using the Black-Scholes valuation model and the fair value
of our PSU plan and directors’ DSU plan using an intrinsic valuation model at each balance sheet date. We record
the resulting expense or recovery, over the related vesting period, through a charge to earnings.
From time to time, we enter into equity derivative contracts to provide a partial offset to our exposure to
fluctuations in equity-based compensation from our stock option, PSU and DSU plans. These derivatives are fair
valued at each balance sheet date using an intrinsic valuation model and the resulting expense or recovery is offset
against the related equity-based compensation. If a share option holder elects to acquire Common shares, both
the exercise price and the accrued liability are credited to shareholders’ equity.
Supporting information
Share option plan
Under our share option plan, officers and employees may be granted options to purchase up to 7,295,940
Common shares, of which 338,052 remain available for issuance. The exercise price of a share option is the closing
price of a Common share on the trading day immediately preceding the grant date. Our share option plan gives
share option holders the right to elect to receive a cash payment in lieu of exercising an option to purchase
Common shares. Options vest at the earlier of the date of retirement or death and 20% per year from the grant
date and expire after 10 years. We have recorded a recovery of $8 million (2018 - $9 million) related to the share
option plan.
- 88 -
- 90 -
- 89 -
A summary of the activity in the share option plan is presented below:
Outstanding - beginning of year
Granted
Exercised
Expired / Cancelled
Outstanding - end of year
Exercisable - end of year
2019
2018
Weighted
average
price
(dollars)
44.94
72.11
13.96
62.58
51.78
47.78
$
$
$
$
$
$
Number
1,435,938
112,715
(335,306)
(8,899)
1,204,448
809,740
Weighted
average
price
(dollars)
37.19
85.40
25.16
51.88
44.94
37.37
$
$
$
$
$
$
Number
1,204,448
148,805
(138,964)
(3,152)
1,211,137
937,397
The following table summarizes information about the share options outstanding and exercisable at December 31,
2019:
Exercise price range
(dollars)
$23.68 - $25.75
$40.82 - $55.62
$72.11 - $85.40
Number of
outstanding
options
(number)
229,946
608,693
372,498
1,211,137
Weighted
average
remaining
contractual life
(years)
1.7
5.4
7.6
5.3
Weighted
average
exercise price
(dollars)
24.62
46.81
76.66
51.78
$
$
$
$
Number of
exercisable
options
(number)
229,946
500,988
206,463
937,397
$
$
$
$
Weighted
average
exercise
price
(dollars)
24.62
46.48
76.75
47.78
The weighted average share price at the date of exercise for share options exercised during the year was $64.40
per share (2018 - $83.43 per share).
The accrued liability related to the share option plan based on a Black-Scholes valuation model is $21 million at
December 31, 2019 (December 31, 2018 - $36 million). The weighted average fair value of the options used in the
calculation was $17.71 per option at December 31, 2019 (December 31, 2018 - $30.15 per option).
The inputs to the option model are as follows:
Share price on balance sheet date
Weighted average exercise price
Expected dividend
Expected volatility
Weighted average interest rate
Weighted average expected remaining life in years
2019
$57.26
$51.78
$0.80
36.09%
1.69%
3.03
2018
$67.30
$44.93
$0.80
35.19%
1.87%
3.39
The expected dividend on our shares was based on the annualized dividend rate at each period end. Expected
volatility was based on five years of historical data. The interest rate for the life of the options was based on the
implied yield available on government bonds with an equivalent remaining term at each period-end. Historical
data was used to estimate the expected life of the options and forfeiture rates.
- 91 -
- 90 -
- 91 -
The intrinsic value of options issued under the share option plan at December 31, 2019 was $14 million
(December 31, 2018 - $29 million). The intrinsic value is determined based on the difference between the period
end share price and the exercise price, multiplied by the sum of the related vested options plus unvested options
for those holders eligible to retire.
Phantom share unit plan
Our PSU plan is intended to supplement, in whole or in part, or replace the granting of share options as long-term
incentives for officers and employees. The plan provides for two types of units which vest on the third anniversary
of the grant date. A restricted share unit pays out based on the Common share price over the 20 trading days
immediately preceding its vesting date (the “vesting date value”). A performance share unit pays out at a value
between 0% and 200% of its vesting date value contingent upon our performance relative to a peer group of
companies over the three-year performance period. Officers and employees granted units under the plan are also
entitled to additional units to reflect cash dividends paid on Common shares from the applicable grant date until
payout.
We have recorded an expense of $3 million (2018 - $5 million) related to the PSU plan. The number of units
outstanding as at December 31, 2019 was 131,792 (December 31, 2018 - 155,595), including performance share
units totalling 78,008 (December 31, 2018 - 84,966).
Directors’ deferred share unit plan
We have a DSU plan which provides a structure for non-employee directors to accumulate an equity-like holding in
West Fraser. The DSU plan allows directors to participate in the growth of West Fraser by providing a deferred
payment based on the value of a Common share at the time of redemption. Each director receives deferred share
units in payment of an annual equity retainer until a minimum equity holding is reached and may elect to receive
units in payment of up to 100% of other fees earned. After a minimum equity holding is reached, directors may
elect to receive the equity retainer in units or cash. The units are issued based on our Common share price at the
time of issue. Additional units are issued to take into account the value of dividends paid on Common shares from
the date of issue to the date of redemption. Units are redeemable only after a director retires, resigns or
otherwise leaves the board. The redemption value is equal to the Common share price at the date of redemption.
A holder of units may elect to redeem units in cash or receive Common shares having an equivalent value.
No expense related to the DSU plan was recorded during this year or during 2018. The number of units
outstanding as at December 31, 2019 was 70,822 (December 31, 2018 - 57,930).
Equity-based compensation hedge
An expense of $10 million (2018 - expense of $10 million) is included in equity-based compensation related to our
equity derivative contract. Under this contract, we hedged 1,000,000 Common share equivalent units.
16.
Restructuring and impairment charges
On June 17, 2019, we announced the permanent closure of our Chasm, B.C. lumber mill and recorded impairment
charges of $16 million. In addition, we recorded an impairment charge of $8 million related to certain B.C. lumber
mill assets in the fourth quarter of 2019.
- 90 -
- 92 -
- 91 -
During the year, we recognized charges of $33 million for the restructuring and impairment costs as follows:
2019
8
3
2
13
16
8
(4)
33
2019
-
14
(7)
(1)
6
Severance
Lease obligation and other commitments
Decommissioning obligation
Restructuring charges
Asset impairment related to Chasm, B.C. lumber mill
Asset impairment related to certain B.C. lumber mill assets
Curtailment gain on post-retirement obligation
Total restructuring and impairment charges
$
$
A reconciliation of restructuring charges included in payables and accrued liabilities is as follows:
Beginning of year
Restructuring charges recognized
Restructuring charges paid
Change in estimate
End of year
17.
Finance expense, net
Interest expense1
Interest income on short-term investments
Interest income on long-term duty deposits receivable (note 27)
Finance expense on employee future benefits
Accretion on long-term liabilities
1.
Interest expense includes $1 million (2018 – nil) of interest expense for lease contracts.
18.
Other
Foreign exchange gain (loss) on working capital
Foreign exchange gain (loss) on intercompany financing1
Foreign exchange gain (loss) on long-term debt
Foreign exchange gain (loss) on export duty deposits receivable (note 27)
Insurance gain on disposal of equipment2
Gain on disposal of intangible assets and gain on sale of lumber futures
Other
$
$
$
$
$
$
2019
(44)
-
4
(8)
(1)
(49)
2019
(7)
(36)
33
(4)
4
1
(2)
(11)
$
$
$
$
2018
(34)
5
2
(9)
(1)
(37)
2018
13
65
(55)
5
-
11
(2)
37
1.
2.
Relates to US$550 million (2018 - US$600 million from January to mid-December and US$550 million thereafter) of financing provided to
our U.S. operations. IAS 21 requires that the exchange gain or loss be recognized through earnings as the financing is not considered part
of our permanent investment in our U.S. subsidiaries. The balance sheet amounts and related financing expense are eliminated in these
consolidated financial statements.
Represents the insurance gain of $4 million related to the 2017 involuntary disposal of equipment at our 50%-owned NBSK plant in
Quesnel, B.C.
- 93 -
- 92 -
- 93 -
19.
Tax provision
Accounting policies
The tax expense for the period is comprised of current and deferred tax. Tax is recognized in the consolidated
statement of earnings, except to the extent that it relates to items recognized in other comprehensive earnings in
which case it is recognized in other comprehensive earnings.
Deferred taxes are provided for using the liability method. Under this method, deferred taxes are recognized for
temporary differences between the tax and financial statement basis of assets, liabilities and certain carry-forward
items.
Deferred tax assets are recognized only to the extent that it is probable that they will be realized. Deferred income
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of substantive
enactment.
Supporting information
The major components of income tax included in comprehensive earnings are as follows:
Earnings:
Current tax
Deferred tax
Tax recovery (provision) on earnings
Other comprehensive earnings:
Deferred tax recovery (provision) on post-retirement actuarial loss (gain)
Tax recovery (provision) on comprehensive earnings
Includes the impact of the 2019 statutory changes for Alberta.
1.
20191
57
12
69
33
102
$
$
$
$
2018
(207)
(55)
(262)
(9)
(271)
$
$
$
$
The tax provision differs from the amount that would have resulted from applying the B.C. statutory income tax
rate to earnings before tax is as follows:
Income tax recovery (expense) at statutory rate of 27%
Non-taxable amounts
Rate differentials between jurisdictions and on specified activities
Decrease in Alberta provincial tax rate1
Other
Tax recovery (provision)
1.
2018
(289)
2
20
-
5
(262)
Represents the re-measurement of deferred income tax assets and liabilities for the 2019 Alberta tax rate change from 12% to 8% over
the next four years.
2019
59
2
(3)
18
(7)
69
$
$
$
$
- 92 -
- 94 -
- 93 -
Deferred income tax liabilities (assets) are made up of the following components:
Property, plant, equipment and intangibles
Reforestation and decommissioning obligations
Employee benefits
Export duty deposits
Tax loss carry-forwards1
Other
2019
402
(34)
(87)
20
(53)
(5)
243
$
$
2018
407
(35)
(60)
20
(38)
(5)
289
$
$
Represented by:
Deferred income tax assets
Deferred income tax liabilities
(3)
292
289
Includes federal and state net operating loss (“NOL”) carry-forwards of $324 million. A portion of these NOLs expire over the periods
2022 to 2033 and a portion of these NOLs are subject to restrictions on use.
(10)
253
243
$
$
$
$
1.
20.
Employee compensation
Our employee compensation expense includes salaries and wages, employee future benefits, termination costs
and bonuses. Total compensation expense is $911 million (2018 - $933 million).
Key management includes directors and officers, and their compensation expense and balance sheet date payables
are as follows:
Expense
Salary and short-term employee benefits
Post-retirement benefits
Equity-based compensation1
Payables and accrued liabilities
Compensation
Equity-based compensation1
2019
2018
$
$
$
$
6
2
(2)
6
-
21
21
$
$
$
$
10
1
(3)
8
4
42
46
1.
Amounts do not necessarily represent the actual value which will ultimately be paid.
21.
Earnings per share
Basic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using
the weighted average number of Common shares and Class B Common shares outstanding.
Diluted earnings per share is calculated based on earnings available to Common shareholders adjusted to remove
the actual share option expense (recovery) charged to earnings and after deducting a notional charge for share
option expense assuming the use of the equity-settled method, as set out below. The diluted weighted average
number of shares is calculated using the treasury stock method. When earnings available to Common
shareholders for diluted earnings per share are greater than earnings available to Common shareholders for basic
earnings per share, the calculation is anti-dilutive and diluted earnings per share are deemed to be the same as
basic earnings per share.
- 95 -
- 94 -
- 95 -
Earnings
Basic
Share option recovery
Equity settled share option adjustment
Diluted
Weighted average number of shares (thousands)
Basic
Share options
Diluted
Earnings per share (dollars)
Basic
Diluted
22.
Commitments
2019
2018
$
$
(150)
(8)
(4)
(162)
$
$
810
(9)
(3)
798
68,882
290
69,172
74,451
652
75,103
$
$
(2.18)
(2.34)
$
$
10.88
10.62
Based on expected contract prices, at December 31, 2019, we had contractual commitments for $179 million
(December 31, 2018 - $108 million).
23.
Government assistance
Accounting policies
Government assistance received that relates to the construction of manufacturing assets is applied to reduce the
cost of those assets. Government assistance received that relates to operational expenses is applied to reduce the
amount charged to earnings for the operating item.
Supporting information
Government assistance of $1 million (2018 - $16 million) was recorded as a reduction to property, plant and
equipment.
Government assistance of $5 million (2018 - $5 million) was recorded as a reduction to cost of products sold. The
government assistance related primarily to research and development and apprenticeship tax credits.
24.
Financial instruments
Accounting policies
All financial assets and liabilities, except for derivatives, are initially measured at fair value and subsequently
measured at amortized cost using the effective interest rate method. Derivatives are measured at fair value
through profit or loss (“FVTPL”).
- 94 -
- 96 -
- 95 -
Supporting information
The following tables provide the carrying and fair values of our financial instruments by category, as well as the
associated fair value hierarchy levels as defined in note 2 under “Fair value measurements”:
2019
Financial assets
Cash and short-term investments
Receivables1
Export duty deposits (note 27)
Financial liabilities
Cheques issued in excess of funds on
deposit
Operating loans (note 12)
Payables and accrued liabilities
Long-term debt (note 12)
Interest rate swap contract (note 12)
2
3
Level
Amortized
cost
FVTPL
Other
financial
liabilities Carrying value Fair value
2
3
3
2
2
2
2
2
$
$
$
$
16
255
80
351
-
-
-
-
-
-
$
$
$
$
-
3
-
3
-
-
-
-
3
3
$
$
$
$
-
-
-
-
16
377
396
663
-
1,452
$
$
$
$
16
258
80
354
16
377
396
663
3
1,455
$
$
$
$
16
258
80
354
16
377
396
677
3
1,469
1.
2.
3.
Receivables include our equity derivative receivable of $3 million.
Includes current portion of the long-term debt. The fair value of the long-term debt is based on rates available to us at December 31,
2019 for long-term debt with similar terms and remaining maturities.
The interest rate swap contract is included in other liabilities in our consolidated balance sheets.
2018
Financial assets
Cash and short-term investments
Receivables1
Export duty deposits (note 27)
Financial liabilities
Cheques issued in excess of funds on
deposit
Operating loans (note 12)
Payables and accrued liabilities
Long-term debt (note 12)
2
Level
Amortized
cost
FVTPL
Other
financial
liabilities Carrying value Fair value
2
3
3
2
2
2
2
$
$
$
$
160
331
75
566
-
-
-
-
-
$
$
$
$
-
1
-
1
-
-
-
-
-
$
$
$
$
-
-
-
-
13
63
448
696
1,220
$
$
$
$
160
332
75
567
13
63
448
696
1,220
$
$
$
$
160
332
75
567
13
63
448
689
1,213
1.
2.
Receivables include our equity derivative receivable of $1 million.
The fair value of the long-term debt is based on rates available to us at December 31, 2018 for long-term debt with similar terms and
remaining maturities.
- 97 -
- 96 -
- 97 -
Financial risk management
Our activities result in exposure to a variety of financial risks including risks related to derivative contracts,
currency fluctuation, credit, liquidity and interest rates.
The sensitivities provided give the effect of possible changes in the relevant prices and rates on earnings. The
sensitivities are hypothetical and should not be considered to be predictive of future performance or earnings.
Changes in fair values or cash flows based on market variable fluctuations cannot be extrapolated since the
relationship between the change in the market variable and the change in fair value or cash flows may not be
linear.
Derivative contracts
From time to time, we use derivatives to manage our exposure to U.S. dollar exchange fluctuations, commodity
prices, equity-based compensation and floating interest rates. Commodity contracts used by West Fraser include
lumber futures and energy related agreements.
Our equity derivative contract provides an offset for 1,000,000 Common share equivalents against our exposure to
fluctuations in equity-based compensation from our stock option, PSU and DSU plans. This derivative is fair valued
at each balance sheet date using an intrinsic valuation model and the resulting expense or recovery is offset
against the related equity-based compensation.
During 2019, we entered into an interest rate swap agreement with a US$100 million notional amount to limit our
exposure to fluctuations in interest rates and fix interest rates on a portion of our long-term debt. The interest
rate swap contract is measured at FVTPL based on an estimated discounted cash flow.
No energy related derivatives were outstanding at December 31, 2019 or 2018.
No lumber futures or foreign exchange contracts were outstanding at December 31, 2019 or 2018.
Currency fluctuation
Our Canadian operations sell most of their products at prices denominated in U.S. dollars or based on prevailing
U.S. dollar prices. A significant portion of their operational costs and expenses are incurred in Canadian dollars.
Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the revenue in
Canadian dollar terms realized by our Canadian operations from sales made in U.S. dollars, which reduces
operating margin and the cash flow available to fund operations.
Our U.S. operations transact and report in U.S. dollars, but their results are translated into Canadian dollars for
financial statement purposes with the resulting translation gains or losses being reported in other comprehensive
earnings.
- 96 -
- 98 -
- 97 -
Impact of U.S. dollar currency fluctuation
The U.S. dollar foreign currency balance sheet exposure at December 31, 2019 is as follows:
Canadian operations
Net working capital
Export duty deposits
Intercompany financing1
Long-term debt
Interest rate swap contract
US$
US$
2019
51
61
550
(500)
(2)
160
U.S. operations
Net investment
1.
2019
1,088
IAS 21 requires that the exchange gain or loss be recognized through earnings as the financing is not considered part of our permanent
investment in our U.S. subsidiaries. The balance sheet amounts and related financing expense are eliminated in these consolidated
financial statements.
US$
Based on these balances, with other variables unchanged, a $0.01 increase (decrease) in the exchange rate for one
U.S. dollar into Canadian currency would result in a $2 million decrease (increase) in earnings and an $18 million
increase (decrease) in the translation loss on foreign operations included in other comprehensive earnings.
Credit
Credit risk arises from the non-performance by counterparties of contractual financial obligations. Investments in
cash and short-term investments are primarily made using major banks and only made with counterparties
meeting certain credit-worthiness criteria. Credit risk for trade and other receivables is managed through
established credit monitoring activities such as:
•
Customer credit limits are established and monitored.
• Ongoing evaluations of key customer financial conditions are performed.
•
In certain market areas, we have undertaken additional measures to reduce credit risk including credit
insurance, letters of credit and prepayments. At December 31, 2019, approximately 40% of trade
accounts receivable was covered by at least some of these additional measures.
Given our credit monitoring activities, the low percentage of overdue accounts and our low customer defaults with
no bad debts in 2019 or 2018, we have recorded minimal expected credit losses. We consider the credit quality of
the trade accounts receivable at December 31, 2019 to be high. The aging analysis of trade accounts receivable is
presented below:
Trade accounts receivable – gross
Current
Past due 1 to 30 days
Past due 31 to 60 days
Past due over 60 days
Trade accounts receivable – net
Insurance receivable
Government assistance
Other
Receivables
2019
2018
$
$
$
195
11
-
-
206
11
7
34
258
$
$
$
260
7
1
-
268
14
10
40
332
- 99 -
- 98 -
- 99 -
Liquidity
We manage liquidity by maintaining adequate cash and short-term investment balances and by having appropriate
lines of credit available. In addition, we regularly monitor and review both actual and forecasted cash flows.
Refinancing risks are managed by ensuring debt has a balanced maturity schedule where possible.
The following table summarizes the aggregate amount of contractual future cash outflows for long-term debt:
Long-term debt (note 12)
Interest on long-term debt1,2
2020
10
25
35
$
$
2021
-
25
25
2022
-
26
26
$
$
2023
3
26
29
$
$
$
$
$
$
Thereafter
650
20
670
$
$
Total
663
122
785
1.
2.
Assumes debt level, foreign exchange rate and interest rates remain at December 31, 2019 levels and rates.
At December 31, 2019, we had drawn $377 million under our revolving credit facility. The potential interest payable on this loan has not
been included in the above table.
Interest rates
Interest rate risk relates mainly to floating interest rate debt. By maintaining a mix of both fixed and floating rate
debt, we mitigate some of the exposure to interest rate changes. As disclosed in note 12, during 2019, we entered
into an interest rate swap contract to convert floating rate debt to a fixed rate debt which will reduce our exposure
to fluctuations in interest rates.
At December 31, 2019, the impact of a 100-basis point change in interest rate affecting our floating rate debt
would result in a change in annual interest expense, after giving effect to the interest rate swap agreement, of
approximately $5 million. This analysis assumes that all other variables remain constant.
25.
Capital disclosures
Our business is cyclical and is subject to significant changes in cash flow over the business cycle. In addition,
financial performance can be materially influenced by changes in product prices and the relative values of the
Canadian and U.S. dollars. Our objective in managing capital is to ensure adequate liquidity and financial flexibility
at all times, particularly at the bottom of the business cycle.
Our main policy relating to capital management is to maintain a strong balance sheet and otherwise meet financial
tests that are commonly applied by rating agencies for investment grade issuers of public debt. Our debt is
currently rated as investment grade by three major rating agencies.
We monitor and assess our financial performance in order to ensure that net debt levels are prudent taking into
account the anticipated direction of the business cycle. When financing acquisitions, we combine debt and equity
financing in a proportion that is intended to maintain an investment grade rating for debt throughout the cycle.
Debt repayments are arranged, where possible, on a staggered basis that takes into account the uneven nature of
anticipated cash flows. We have established committed revolving lines of credit that provide liquidity and
flexibility when capital markets are restricted.
One key measurement used to monitor our capital position is net debt to total capital, calculated as follows at
December 31:
- 98 -
- 100 -
- 99 -
Net debt
Cash and short-term investments
Deferred financing costs1
Cheques issued in excess of funds on deposit
Operating loans
Lease obligation (current and long-term portion)
Long-term debt (current and long-term portion)
2019
2018
$
$
$
(16)
(6)
16
377
11
663
1,045
2,474
3,519
30%
$
$
$
(160)
(6)
13
63
-
696
606
2,896
3,502
17%
Shareholders’ equity
Total capital
Net debt to total capital
1.
For our balance sheet presentation, these costs are applied to reduce the associated debt or, in instances when the operating loan is
undrawn, these costs are included in other assets.
26.
Segment and geographical information
The segmentation of manufacturing operations into lumber, panels and pulp and paper is based on a number of
factors, including similarities in products, production processes and economic characteristics. Transactions
between segments are at market prices and on standard business terms. The segments follow the accounting
policies described in these consolidated financial statement notes, where applicable.
The table below provides a reconciliation of our non-IFRS measure Adjusted EBITDA. This measurement is used by
management to evaluate the operating and financial performance of our operating segments, generate future
operating plans, and make strategic decisions, including those relating to operating earnings.
- 101 -
- 100 -
- 101 -
Lumber
Panels
Pulp &
Paper
Corporate &
Other
Total
2019
Sales
To external customers
To other segments
Cost of products sold
Freight and other distribution
costs
Selling, general and
administration
Adjusted EBITDA
Export duties
Equity-based compensation
Amortization
Restructuring and impairment
charges
Operating earnings
Finance expense
Other
Earnings before tax
Total assets
Total liabilities
Capital expenditures
$
$
$
$
$
$
$
$
3,317
125
3,442
(2,588)
(477)
(146)
231
(162)
-
(196)
(33)
(160)
(35)
(7)
(202)
3,589
681
339
$
$
$
$
$
$
$
$
594
11
605
(466)
(63)
(25)
51
-
-
(16)
-
35
(4)
-
31
316
56
23
$
$
$
$
$
$
$
$
966
-
966
(734)
(173)
(39)
20
-
-
(43)
-
(23)
(10)
4
(29)
559
159
39
$
$
$
$
$
$
$
$
-
(136)
(136)
136
-
(1)
(1)
-
(6)
(4)
-
(11)
-
(8)
(19)
204
1,298
9
$
$
$
$
$
$
$
$
4,877
-
4,877
(3,652)
(713)
(211)
301
(162)
(6)
(259)
(33)
(159)
(49)
(11)
(219)
4,668
2,194
410
- 100 -
- 102 -
- 101 -
Lumber
Panels
Pulp &
Paper
Corporate &
Other
Total
2018
Sales
To external customers
To other segments
Cost of products sold
Freight and other distribution
costs
Selling, general and
administration
Adjusted EBITDA
Export duties
Equity-based compensation
Amortization
Operating earnings
Finance expense
Other
Earnings before tax
Total assets
Total liabilities
Capital expenditures
$
$
$
$
$
$
$
$
4,291
165
4,456
(2,635)
(503)
(162)
1,156
(202)
-
(196)
758
(25)
20
753
3,739
701
284
$
$
$
$
$
$
$
$
664
12
676
(461)
(63)
(25)
127
-
-
(15)
112
(2)
-
110
320
62
16
$
$
$
$
$
$
$
$
1,163
-
1,163
(698)
(166)
(41)
258
-
-
(44)
214
(10)
11
215
659
156
60
$
$
$
$
$
$
$
$
-
(177)
(177)
177
-
(3)
(3)
-
(7)
(2)
(12)
-
6
(6)
73
976
10
$
$
$
$
$
$
$
$
6,118
-
6,118
(3,617)
(732)
(231)
1,538
(202)
(7)
(257)
1,072
(37)
37
1,072
4,791
1,895
370
The geographic distribution of non-current assets and external sales is as follows:
Canada
United States
China
Other Asia
Other
Non-current assets
2019
2,049
1,472
-
-
-
3,521
$
$
2018
2,121
1,325
-
-
-
3,446
$
$
$
$
1.
Sales distribution is based on the location of product delivery.
27.
Countervailing (“CVD”) and antidumping (“ADD”) duty dispute
$
Sales by geographic area1
2019
2018
1,239
3,661
734
442
42
6,118
979
2,890
650
321
37
4,877
$
On November 25, 2016, a coalition of U.S. lumber producers petitioned the U.S. Department of Commerce
(“USDOC”) and the U.S. International Trade Commission (“USITC”) to investigate alleged subsidies to Canadian
softwood lumber producers and levy countervailing and antidumping duties against Canadian softwood lumber
imports. We were chosen by the USDOC as a “mandatory respondent” to both the countervailing and
antidumping investigations and as a result have received unique company specific rates.
Developments in CVD and ADD rates
On April 24, 2017, the USDOC issued its preliminary determination in the CVD investigation and on June 26, 2017,
the USDOC issued its preliminary determination in the ADD investigation. On December 4, 2017, the duty rates
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- 103 -
were revised. On February 3, 2020, the USDOC reassessed these rates based on its first Administrative Review
(“AR”) as noted in the tables below.
The CVD and ADD rates apply retroactively for each Period of Investigation (“POI”). We record CVD as export duty
expense at the cash deposit rate until an AR finalizes a new applicable rate for each POI. We record ADD as export
duty expense by estimating the rate to be applied for each POI by using our actual results and the same calculation
methodology as the USDOC and adjust when an AR finalizes a new applicable rate for each POI. The difference
between the cash deposits and export duty expense is recorded on our balance sheet as export duty deposits
receivable.
On February 3, 2020, the USDOC released the preliminary results from AR1 as shown in the table below. The duty
rates are subject to an appeal process and are not expected to be finalized until August of 2020 at which time any
required adjustment will be recorded.
If the AR1 rates were to be confirmed, it would result in a U.S. dollar adjustment of $93 million for the POI covered
by AR1. Assuming these rates are finalized, our combined cash deposit rate would be revised to 9.08%.
The respective Cash Deposit Rates, the December 4, 2017 Revised Rate, the AR1 Preliminary Rate and the West
Fraser Estimated ADD Rate for each period are as follows:
Effective dates for CVD
AR1 POI
April 28, 2017 - August 24, 20171
August 25, 2017 - December 27, 20171
December 28, 2017 - December 31, 2017
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
Cash Deposit
Rate
Revised Rate2
(Dec. 4, 2017)
AR1 Preliminary
Rate3
(Feb. 3, 2020)
24.12%
-
17.99%
17.99%
17.99%
17.99%
-
17.99%
17.99%
17.99%
7.07%
-
7.07%
7.51%
n/a4
1. On April 24, 2017, the USDOC issued its preliminary rate in the CVD investigation. The requirement that we make cash deposits for CVD
was suspended on August 24, 2017 until the revised rate was published by the USITC.
2. On December 4, 2017, the USDOC revised our CVD rate effective December 28, 2017.
3. On February 3, 2020, the USDOC issued its preliminary CVD rate for the AR1 POI.
4.
The CVD rate for the AR2 POI will be adjusted when AR2 is complete and the USDOC finalizes the rate, which is not expected until 2021.
Effective dates for ADD
AR1 POI
June 30, 2017 - December 3, 20171
December 4, 2017 - December 31, 2017
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
Cash Deposit
Rate
Revised Rate2
(Dec. 4, 2017)
AR1
Preliminary
Rate3
(Feb. 3, 2020)
West Fraser
Estimated
Rate
6.76%
5.57%
5.57%
5.57%
5.57%
5.57%
5.57%
5.57%
1.57%
1.57%
1.57%
n/a4
1.46%5
1.46%5
1.46%
4.65%
1. On June 26, 2017, the USDOC issued its preliminary rate in the ADD investigation effective June 30, 2017.
2. On December 4, 2017, the USDOC revised our ADD rate effective December 4, 2017.
3. On February 3, 2020, the USDOC issued its preliminary ADD rate for the AR1 POI.
4.
5.
The ADD rate for the AR2 POI will be adjusted when AR2 is complete and the USDOC finalizes the rate, which is not expected until 2021.
In fiscal 2017, our estimated ADD was recorded at a rate of 0.9%. AR1 covers both the 2017 and 2018 periods. In 2018 we recorded ADD
such that the cumulative rate for the periods covered by AR1 would be 1.46%.
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- 104 -
- 103 -
Duty expense and cash deposits
Export duties incurred in the period
Countervailing duties
Antidumping duties
Total
$
$
Recognized in the financial statements as
Export duties recognized as expense in consolidated statements of earnings $
Export duties recognized as long-term duty deposits receivable in
consolidated balance sheets
Total
$
2019
127
40
167
2019
162
5
167
$
$
$
$
2018
178
55
233
2018
202
31
233
We have recorded long-term duty deposits receivable related to CVD for the excess of deposits made at the Cash
Deposit Rate of 24.12% compared to the December 4, 2017 Revised Rate of 17.99%, and to ADD for the difference
between the 5.57% Cash Deposit Rate and our West Fraser Estimated Rate. The details are as follows:
Export duty deposits receivable
Beginning of year
Export duties recognized as long-term duty deposits receivable in
consolidated balance sheets
Interest recognized on the long-term duty deposits receivable
Foreign exchange on the long-term duty deposits
End of year
$
$
2019
75
5
4
(4)
80
$
$
2018
37
31
2
5
75
As at December 31, 2019, export duties paid and payable on deposit with the USDOC are US$275 million for CVD
and US$98 million for ADD for a total of US$373 million.
AR2
AR2 covers the POI from January 1, 2019 through December 31, 2019 and will commence in 2020. The results of
AR2 are not expected to be finalized until 2021. Notwithstanding the deposit rates assigned under the
investigations, our final liability for the assessment of CVD and ADD will not be determined until each annual
administrative review process is complete and related appeal processes are concluded.
Appeals
We, together with other Canadian forest product companies and the Canadian federal and provincial governments
(the “Canadian Interests”) categorically deny the allegations by the coalition of U.S. lumber producers and disagree
with the countervailing and antidumping determinations by the USDOC and the USITC. The Canadian Interests
continue to aggressively defend the Canadian industry in this trade dispute and have appealed the decisions to
North America Free Trade Agreement panels and the World Trade Organization.
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- 104 -
- 105 -
FOUR YEAR FINANCIAL REVIEW
(in millions of Canadian dollars, except where indicated)
Earnings
Sales
Cost of product sold
Freight and other distribution costs 1
Selling, general and administration1
Adjusted EBITDA2
Export duties
Amortization
Equity-based compensation
Restructuring and impairment charges
Operating earnings
Finance expense
Other
Tax provision
Earnings
Cash flows from operating activities
Capital expenditures & acquisitions
Financial position
Current assets
PPE & timber licenses
Goodwill & other intangibles
Export duty deposits
Other assets
Deferred income tax assets
Total assets
Current liabilities
Long-term debt (including current portion)
Other liabilities
Deferred income tax liabilities
Shareholders' equity
Total liabilities & equity
2019
2018
2017 1
2016 1
4,877
(3,652)
(713)
(211)
301
(162)
(259)
(6)
(33)
(159)
(49)
(11)
69
(150)
115
410
1,147
2,633
772
80
26
10
4,668
827
660
454
253
2,474
4,668
6,118
(3,617)
(732)
(231)
1,538
(202)
(257)
(7)
-
1,072
(37)
37
(262)
810
909
370
1,345
2,569
767
75
32
3
4,791
595
692
316
292
2,896
4,791
5,134
(3,124)
(633)
(217)
1,160
(48)
(210)
(32)
-
870
(31)
7
(250)
596
902
862
1,291
2,425
731
37
27
6
4,517
583
636
347
225
2,726
4,517
4,450
(2,971)
(629)
(176)
674
-
(197)
5
-
482
(29)
(9)
(118)
326
689
273
938
2,236
371
-
20
35
3,600
459
413
272
215
2,241
3,600
- 104 -
- 106 -
- 105 -
Per common share (dollars)
Basic EPS
Price range:
High
Low
Close
Dividends declared per share
Shares outstanding at year-end ('000s)
Ratios
Return on capital employed
Return on common shareholders' equity
Net debt to capitalization
2019
2018
2017 1
2016 1
(2.18)
10.88
7.63
4.06
80.13
43.93
57.28
0.80
68,663
97.99
60.44
67.44
0.70
69,819
83.50
42.98
77.57
0.36
77,946
54.18
35.35
48.01
0.28
78,163
-3%
-6%
30%
20%
28%
17%
17%
24%
12%
11%
15%
14%
Number of employees at year-end
8,200
8,570
8,600
7,800
Production
Lumber (MMfbm)3
Pulp (Mtonnes)
Newsprint (Mtonnes)
Plywood (3/8" MMsf)
MDF (3/4" MMsf)4
LVL (Mcf)
1. For 2017, we reclassified approximately $20 million from freight and other distribution costs to selling, general and
5,914
1,137
114
818
221
2,034
6,233
1,172
122
838
191
2,676
5,935
1,192
128
826
160
2,215
6,609
1,151
119
833
224
2,251
administration to conform to our current presentation. 2016 has not been restated for this reclassification.
2. Adjusted EBITDA is described in the section titled “Non-IFRS Measures” of our 2019 Management’s Discussion & Analysis.
3. The permanent elimination of third shifts at certain B.C. mills and the Chasm, B.C. mill closure accounted for 400 MMfbm of reduced
production and temporary curtailments accounted for a further reduction of 200 MMfbm in 2019.
4. A fire at our MDF plant in Quesnel, B.C. on March 9, 2016 resulted in the closure of the plant until April 29, 2017.
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- 107 -
DIRECTORS AND OFFICERS
Effective February 11, 2020
Directors
Henry H. Ketcham
Reid E. Carter
Raymond W. Ferris
John N. Floren
Brian G. Kenning
John K. Ketcham
Gerald J. Miller
Robert L. Phillips
Janice G. Rennie
Gillian D. Winckler
Officers
Raymond W. Ferris
Brian A. Balkwill
Keith D. Carter
Larry E. Gardner
James W. Gorman
D’Arcy R. Henderson
Christopher D. McIver
Sean P. McLaren
Tom V. Theodorakis
Christopher A. Virostek
Charles H. Watkins
Principal Occupation
Chairman of the Board
Corporate Director
President and Chief Executive Officer
President and Chief Executive Officer, Methanex Corporation
Corporate Director
Real Estate Developer
Corporate Director
Corporate Director
Corporate Director
Corporate Director
Office Held
President and Chief Executive Officer
Vice-President, Canadian Wood Products
Vice-President, Pulp and Energy Operations
Vice-President, Canadian Woodlands
Vice-President, Corporate and Government Relations
Vice-President, Canadian Woodlands Operations
Vice-President, Sales and Marketing
Vice-President, U.S. Lumber
Secretary
Partner, McMillan LLP (lawyers)
Vice-President, Finance and Chief Financial Officer
Vice-President, Capital and Technology
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- 108 -
- 107 -
CORPORATE INFORMATION
Effective February 11, 2020
ANNUAL GENERAL MEETING
The Annual General Meeting of
the shareholders of the
Company will be held on
April 21, 2020 at 11:30 a.m. in
Quesnel, British Columbia,
Canada.
AUDITORS
PricewaterhouseCoopers LLP
Vancouver, British Columbia,
Canada
LEGAL COUNSEL
McMillan LLP
Vancouver, British Columbia,
Canada
TRANSFER AGENT
AST Trust Company (Canada)
Vancouver, Calgary, Toronto,
and Montreal, Canada
FILINGS
www.sedar.com
Shares are listed on the Toronto
Stock Exchange under the
symbol: WFT
INVESTOR CONTACT
Chris Virostek
Vice-President, Finance
and Chief Financial Officer
Tel: (604) 895-2700
Fax: (604) 681-6061
E-mail Address
shareholder@westfraser.com
WEBSITE
www.westfraser.com
Newsprint
2900-650 W Georgia Street
Vancouver, British Columbia
Canada V6B 4N8
Tel: (604) 681-8817
OPERATIONS
Lumber, Plywood and LVL
Canadian Operations
1250 Brownmiller Road
Quesnel, British Columbia
Canada V2J 6P5
Tel: (250) 992-9244
Fax: (250) 992-9233
US Operations
1900 Exeter Road, Suite 105
Germantown, Tennessee
USA 38138
Tel: (901) 620-4200
Fax: (901) 620-4204
MDF
WestPine MDF
300 Carradice Road
Quesnel, British Columbia
Canada V2J 5Z7
Tel: (250) 991-7100
Fax: (250) 991-7115
Ranger Board
P.O. Box 6
Blue Ridge, Alberta
Canada T0E 0B0
Tel: (780) 648-6333
Fax: (780) 648-6397
CORPORATE OFFICE
858 Beatty Street, Suite 501
Vancouver, British Columbia
Canada V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061
SALES OFFICES
SPF Lumber, Plywood,
MDF, LVL
1250 Brownmiller Road
Quesnel, British Columbia
Canada V2J 6P5
Tel: (250) 992-9254
Fax: (250) 992-3034
SPF Export Lumber
858 Beatty Street, Suite 501
Vancouver, British Columbia
Canada V6B 1C1
Tel: (604) 895-2700
Fax: (604) 895-2976
SYP Lumber
1900 Exeter Road, Suite 105
Germantown, Tennessee
USA 38138
Tel: (901) 620-4200
Fax: (901) 620-4204
2900 Saint Marys Road
St. Marys, Georgia
USA 31558
Tel: (912) 576-0300
Fax: (912) 576-0322
Pulp
858 Beatty Street, Suite 501
Vancouver, British Columbia
Canada V6B 1C1
Tel: (604) 895-2700
E: pulpsales@westfraser.com
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- 108 -
- 109 -
Pulp & Paper
Cariboo Pulp & Paper
P.O. Box 7500
50 North Star Road
Quesnel, British Columbia
Canada V2J 3J6
Tel: (250) 992-0200
Fax: (250) 992-2164
Quesnel River Pulp
1000 Finning Road
Quesnel, British Columbia
Canada V2J 6A1
Tel: (250) 992-8919
Fax: (250) 992-2612
Hinton Pulp
760 Switzer Drive
Hinton, Alberta
Canada T7V 1V7
Tel: (780) 865-2251
Fax: (780) 865-6666
Slave Lake Pulp
P.O. Box 1790
Slave Lake, Alberta
Canada T0G 2A0
Tel: (780) 849-7777
Fax: (780) 849-7725
Alberta Newsprint Company
Postal Bag 9000
Whitecourt, Alberta
Canada T7S 1P9
Tel: (780) 778-7000
Fax: (780) 778-7070
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- 110 -
- 109 -
GLOSSARY OF INDUSTRY TERMS
AAC Annual Allowable Cut
The volume of timber that
may be harvested annually
from a specific timber
tenure.
BCTMP Bleached
Chemithermomechanical
Pulp
Dimension Lumber Standard
commodity lumber ranging
in sizes from 1 x 3’s to 4 x
12’s, in various lengths.
FMA Forest Management
Agreement An FMA is
granted by the Alberta
government and entitles the
holder to establish, grow and
harvest timber on specified
lands.
LVL Laminated Veneer
Lumber Large sheets of
veneer bonded together with
resin then cut to lumber
equivalent sizes.
m3 A solid cubic metre, a unit
of measure for timber, equal
to approximately 35 cubic
feet.
Mcf One thousand cubic
feet. A unit of measure for
laminated veneer lumber.
MDF Medium Density
Fibreboard A composite
product made from wood
fibre.
Mfbm One thousand board
feet (equivalent to one
thousand square feet of
lumber, one inch thick).
MMfbm means one million
board feet.
Msf A unit of measure for
MDF and plywood equal to
one thousand square feet on
a 3/4 inch basis for MDF and
on a 3/8 inch basis for
plywood. MMsf means one
million square feet.
NBSK Northern Bleached
Softwood Kraft Pulp
Return on Capital Employed
Earnings before after-tax
financing expense divided by
average assets less average
current non-interest-bearing
liabilities.
Return on Common
Shareholders' Equity
Earnings available to
common shareholders
divided by average
shareholders’ equity.
SPF Dimension lumber
produced from
spruce/pine/balsam fir
species.
SYP Dimension lumber
produced from southern
yellow pine species.
Ton A unit of weight equal to
2,000 pounds, generally
known as a U.S. ton.
Tonne A unit of weight in the
metric system equal to one
thousand kilograms or
approximately 2,204 pounds.
Mtonne means one
thousand tonnes.
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- 110 -
- 111 -
- 110 -
- 111 -
- 112 -
OPERATIONS West Fraser is a diversified wood products company producing lumber,
LVL, MDF, plywood, pulp, newsprint, wood chips, other residuals and energy with facilities
in western Canada and the southern United States.
PULP & PAPER
0
34. Hinton
35. Quesnel (2)
36. Slave Lake
37. Whitecourt
PLYWOOD
0
38. Edmonton
39. Quesnel
40. Williams Lake
MDF
0
41. Blue Ridge
42. Quesnel
VENEER & LVL
0
43. Rocky Mountain House
44. Slave Lake
LUMBER
0
1. Quesnel
2. Williams Lake
3. Smithers
4. Chetwynd
5. Fraser Lake
6. 100 Mile House
7. Blue Ridge
8. Hinton
9. Edson
10. Sundre
11. High Prairie
12. Manning
LUMBER
0
13. Joyce
14. Huttig
15. Henderson
16. New Boston
17. Leola
18. Mansfield
19. Russellville
20. Maplesville
21. Opelika
22. McDavid
23. Perry
24. Lake Butler
25. Maxville
26. Whitehouse
27. Blackshear
28. Fitzgerald
29. Dudley
30. Augusta
31. Newberry
32. Armour
33. Seaboard
A L B E R T A
12
11
36
44
37
41
7
934
8
EDMONTON
38
43
10
B R I T I S H
C O L U M B I A
4
3
5
42
QUESNEL
39
1
35
2
40
6
VANCOUVER
33
NORTH CAROLINA
TENNESSEE
MEMPHIS
GEORGIA
31
SOUTH
CAROLINA
30
32
18 19
ARKANSAS
17
16
15
TEXAS
14
13
LOUISIANA
20 21
ALABAMA
22
29
28 27
23 24
26
25
FLORIDA
West Fraser Timber Co. Ltd.
Tel: 604.895.2700 Fax: 604.681.6061 www.westfraser.com