WEST FRASER
ANNUAL REPORT 2020
Including Annual Information Form
Dated: February 11, 2021
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TABLE OF CONTENTS
REPORT TO SHAREHOLDERS ................................................................................................................................. 3
ANNUAL INFORMATION FORM ............................................................................................................................ 5
DATE .......................................................................................................................................................................... 5
FORWARD-LOOKING STATEMENTS ................................................................................................................................... 5
BUSINESS OVERVIEW ..................................................................................................................................................... 6
CORPORATE STRATEGY .................................................................................................................................................. 7
CORPORATE STRUCTURE ................................................................................................................................................ 8
HISTORY AND DEVELOPMENT OF BUSINESS ........................................................................................................................ 8
SALES REVENUE ............................................................................................................................................................ 9
MARKETS .................................................................................................................................................................... 9
FIBRE SUPPLY ............................................................................................................................................................. 10
HUMAN RESOURCES ................................................................................................................................................... 14
CAPITAL EXPENDITURES AND ACQUISITIONS ..................................................................................................................... 14
ENERGY EFFICIENCY AND GREEN ENERGY ........................................................................................................................ 14
ENVIRONMENT AND SOCIAL .......................................................................................................................................... 15
RESEARCH AND DEVELOPMENT ...................................................................................................................................... 18
LUMBER .................................................................................................................................................................... 18
PANELS ..................................................................................................................................................................... 20
PULP ........................................................................................................................................................................ 21
NEWSPRINT ............................................................................................................................................................... 21
RISK FACTORS ............................................................................................................................................................ 21
CAPITAL STRUCTURE .................................................................................................................................................... 22
TRANSFER AGENT ....................................................................................................................................................... 23
EXPERTS ................................................................................................................................................................... 23
DIRECTORS AND OFFICERS ............................................................................................................................................ 23
LEGAL PROCEEDINGS AND REGULATORY ACTIONS ............................................................................................................. 27
GOVERNANCE ............................................................................................................................................................ 28
AUDIT COMMITTEE ..................................................................................................................................................... 28
MATERIAL CONTRACTS ................................................................................................................................................ 29
ADDITIONAL INFORMATION .......................................................................................................................................... 30
SCHEDULE 1 – AUDIT COMMITTEE CHARTER .................................................................................................................... 31
2020 MANAGEMENT’S DISCUSSION & ANALYSIS ................................................................................................ 34
INTRODUCTION AND INTERPRETATION ............................................................................................................................. 34
FORWARD-LOOKING STATEMENTS ................................................................................................................................. 34
RECENT DEVELOPMENTS .............................................................................................................................................. 35
ANNUAL RESULTS ....................................................................................................................................................... 37
SELECTED QUARTERLY INFORMATION ............................................................................................................................. 38
DISCUSSION & ANALYSIS OF ANNUAL NON-OPERATIONAL ITEMS ......................................................................................... 38
DISCUSSION & ANALYSIS OF ANNUAL RESULTS BY PRODUCT SEGMENT ................................................................................. 40
FOURTH QUARTER RESULTS .......................................................................................................................................... 49
DISCUSSION & ANALYSIS OF FOURTH QUARTER NON-OPERATIONAL ITEMS ........................................................................... 49
DISCUSSION & ANALYSIS OF FOURTH QUARTER RESULTS BY PRODUCT SEGMENT .................................................................... 51
CAPITAL EXPENDITURES ............................................................................................................................................... 57
BUSINESS OUTLOOK .................................................................................................................................................... 58
ESTIMATED EARNINGS SENSITIVITY TO KEY VARIABLES ....................................................................................................... 60
CAPITAL STRUCTURE AND LIQUIDITY ............................................................................................................................... 60
DEFINED BENEFIT PENSION PLANS ................................................................................................................................. 62
SUMMARY OF FINANCIAL POSITION ................................................................................................................................ 63
DEBT RATINGS ........................................................................................................................................................... 63
CASH FLOW ............................................................................................................................................................... 64 C
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CONTRACTUAL OBLIGATIONS ........................................................................................................................................ 65
FINANCIAL INSTRUMENTS ............................................................................................................................................. 66
SIGNIFICANT MANAGEMENT JUDGMENTS AFFECTING FINANCIAL RESULTS ............................................................................. 66
ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED ................................................................................................... 68
NON-IFRS MEASURES ................................................................................................................................................. 68
RISKS AND UNCERTAINTIES ........................................................................................................................................... 73
CONTROLS AND PROCEDURES ....................................................................................................................................... 88
ADDITIONAL INFORMATION .......................................................................................................................................... 88
RESPONSIBILITY OF MANAGEMENT ................................................................................................................... 89
INDEPENDENT AUDITOR’S REPORT .................................................................................................................... 90
CONSOLIDATED BALANCE SHEETS .................................................................................................................................. 94
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS ........................................................................ 95
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ................................................................................. 96
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................................................................................................. 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ........................................................................................................... 98
FIVE YEAR FINANCIAL REVIEW ......................................................................................................................... 129
DIRECTORS AND OFFICERS ............................................................................................................................... 131
CORPORATE INFORMATION ............................................................................................................................. 132
GLOSSARY OF INDUSTRY TERMS ...................................................................................................................... 134
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REPORT TO SHAREHOLDERS
To Our Shareholders
2020 was another year that demonstrated the resiliency, adaptability, and long-term investment focus of West
Fraser. Despite a global pandemic and extreme volatility in demand, the Company not only prospered but
completed the major acquisition of Norbord, reinforcing our position as a global leader in lumber, and now,
engineered wood.
Our strategy remains simple and unchanged: be low cost (high margin), reinvest in your operations and people,
and maintain a prudent balance sheet.
Every social and economic aspect of our lives has been impacted by the pandemic. Perhaps we have never more
relied on our culture of innovation to keep our workplaces and communities safe. Our organization discovered
new, safer, and more efficient methods to conduct our business, which we believe improve our workplaces and
long-term value creation.
Safety is a core value and business priority for us. In 2020, we achieved new milestones with the lowest recordable
injury rate in our history. We achieved a 26% reduction in serious hand injuries and an overall decline of 28%
fewer serious injuries across our facilities compared to 2019 – a necessary step toward our goal of eliminating
serious incidents and injuries in the workplace.
After a temporary slowdown at the start of the COVID-19 pandemic, new housing demand has recovered to levels
greater than the beginning of the pandemic and higher than the previous two years. This is in line with the
forecasted long-term housing formation required to meet the needs of a growing population. In the second half of
the year, low inventory volumes in the supply chain, improved new home construction levels, and strong demand
from repair and remodelling activity drove lumber pricing to record highs. 2x4 #2 & Better SPF benchmark pricing
came from a low of US$282/Mfbm in April to a high of US$955/Mfbm in September. Similarly, benchmark SYP #2
West 2x4 vaulted from US$300/Mfbm in April to US$992/Mfbm in October.
Aging housing stock, work-from-home requirements, and the growing demand for sustainable, renewable building
products to transition to a lower-carbon economy are anticipated to continue to drive strong lumber demand
through 2021. West Fraser is well prepared to meet this demand for wood products as the Company recaptures
production lost due to temporary curtailments in the first half of 2020. We are realizing the benefits of capital
investments over the past several years, predominantly the recapitalization of our U.S. south operations, reflecting
an established footprint of high-performance lumber mills.
Looking at our pulp segment, while printing and writing paper consumption in North America continues to decline,
this is offset by improved demand from Asia. The ban on recycled paper in China coupled with high operating
rates for paperboard, tissue, and boxboard plants has increased demand for many grades of imported pulp. As a
result, we believe pulp markets are likely to improve in the first half of 2021.
In our panels segment, our plywood operations continue to operate at full capacity, with MDF and LVL production
schedules in 2020 appropriately matched to demand. The completion of the acquisition of Norbord in early 2021
introduces a complementary range of products, increased scale, greater geographic and end-market diversification
that sets the Company on a new path. It positions West Fraser as a global wood products leader, with established
operations and an expanded platform for growth in North America, the United Kingdom and Europe. With low
cost and profitable operations in complementary sectors, West Fraser is expected to generate more stable and
resilient earnings through the cycle, with a best-in-class platform for future growth and value enhancement as a
top global producer of both lumber and OSB. We are pleased to welcome Norbord’s skilled employees to our
team, expand our operating portfolio and add an impressive network of engineered wood product facilities.
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West Fraser’s sustainability story supports a bright future for our business. Our high-efficiency primary
manufacturing recovers raw materials for a range of valuable secondary products, with 75% of our energy needs
met by renewable sources. This strategic combination supports the promise of carbon-storing wood products to
expand market share close to home and abroad. Our business contributes to climate change mitigation by
capturing carbon dioxide (CO2) in forests and storing it in the products we make, resulting in environmentally
friendly alternatives to carbon-intensive materials and renewable energy generation. Increasingly, wood products
are being chosen over competing products because of the lighter carbon footprint and environmental attributes.
Wood is the sought-after choice for building construction in a world looking for climate-smart solutions. Where
the Company manages forest lands, our ecosystem-based, sustainable forest management approach aims to
increase the climate benefits from forests, create economic opportunity and manage forest lands in a way that
supports multiple other values, such as biodiversity, cultural use, conservation, and recreation.
All of this is not possible without dedicated and high-performing employees. We invest in our people and
operations to achieve best-in-class safety, environmental performance, and productivity, generating long-term
value creation and opportunities for growth. It is our responsibility to ensure opportunities for employees to grow,
progress and reach their potential. Through a challenging period, our people continued to demonstrate the
resiliency, adaptability, and teamwork that are the foundation of our Company’s success. I am proud that we have
the best employees in the business. It is why I have confidence that we will continue to seize the opportunities
that the future allows for us.
I recognize and appreciate the collaboration and cooperation of our customers, our employees, and our
communities that are so vital. 2020 was a difficult mix of peaks and valleys both personally and professionally for
everyone. I want to acknowledge and thank every person for their contribution, dedication, and teamwork that
enabled the Company to prosper despite the challenges. I thank our Board of Directors for their guidance and
expertise in supporting our management team to build an even stronger Company that is ready to embrace the
future.
As we begin 2021, I am proud of West Fraser’s position as a premier wood products company, committed to
continuous improvement in all aspects of our business. With the addition of Norbord’s operations and employees
to our organization, we are looking forward to continuing to demonstrate our leading performance across all our
segments in the coming year.
Ray Ferris
President and Chief Executive Officer
ANNUAL INFORMATION FORM
Date
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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, 2021. Except as otherwise indicated, the information contained in it is as
of December 31, 2020.
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, contains forward-looking information” and “forward-
looking statements” within the meaning of Canadian provincial securities laws and “forward-looking statements”
within the meaning of the U.S. Securities Act of 1933, the U.S. Securities Exchange Act of 1934, and the “safe
harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking
statements include statements that are predictive in nature, depend upon or refer to future events or conditions,
include statements which reflect management’s expectations regarding the operations, business, financial
condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing
objectives, strategies and outlook of West Fraser and its subsidiaries, including Norbord, as well as the outlook for
North American and international economies for the current fiscal year and subsequent periods, and include
words such as “expects,” “anticipates,” “plans,” “believes,” “estimates,” “seeks,” “intends,” “targets,” “projects,”
“forecasts” or negative versions thereof and other similar expressions, or future or conditional verbs such as
“may,” “will,” “should,” “would” and “could”.
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 2020 Management’s Discussion & Analysis incorporated herein under the heading “Risks and
Uncertainties”.
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. Factors that could cause actual results to differ materially from those contemplated or
implied by forward-looking statements include, but are not limited to: (1) the impact of the COVID-19 pandemic
on our operations and on customer demand, supply and distribution and other factors; (2) assumptions in
connection with the economic and financial conditions in the U.S., Canada, Europe and globally and consequential
demand for our products; (3) risks inherent in our product concentration and cyclicality; (4) effects of competition
and product pricing pressures; (5) risks inherent to customer dependence; (6) effects of variations in the price and
availability of manufacturing inputs, including continued access to fibre resources at competitive prices and the
impact of third-party certification standards; (7) availability of transportation services, including truck and rail
services, and port facilities; (8) various events that could disrupt operations, including natural, man-made or
catastrophic events and ongoing relations with employees; (9) impact of changes to, or non-compliance with,
environmental or other regulations; (10) government restrictions, standards or regulations intended to reduce
greenhouse gas emissions; (11) impact of weather and climate change on our operations or the operations or
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demand of our suppliers and customers; (12) impact of any product liability claims in excess of insurance coverage;
(13) risks inherent to a capital intensive industry; (14) impact of future outcomes of tax exposures; (15) potential
future changes in tax laws, including tax rates; (16) effects of currency exposures and exchange rate fluctuations;
(17) future operating costs; (18) availability of financing, bank lines, securitization programs and/or other means of
liquidity; (19) impact of future cross border trade rulings or agreements; (20) implementation of important
strategic initiatives and identification, completion and integration of acquisitions; (21) ability to implement new or
upgraded information technology infrastructure; (22) impact of information technology service disruptions or
failures; (23) changes in government policy and regulation; and (24) integration of the Norbord business.
In addition, actual outcomes and results of these statements will depend on a number of factors, including those
matters described under “Risks and Uncertainties” in our 2020 MD&A, 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
obligation to update or revise any forward-looking statements publicly, whether written or oral, to reflect
subsequent events or circumstances except as required by applicable securities laws.
Business Overview
Norbord Acquisition
On November 19, 2020, we announced that we had entered into an arrangement agreement with Norbord Inc.
(“Norbord”) under which we had agreed to acquire Norbord to create a leading global wood products company
focused on lumber, panels, pulp and oriented strand board (“OSB”) across North America, Europe and Asia (the
“Arrangement Agreement”).
We completed the acquisition of Norbord on February 1, 2021 (the “Acquisition”) and Norbord is now a
wholly-owned subsidiary of West Fraser. The Acquisition was completed pursuant to a plan of arrangement under
the Canada Business Corporations Act (the “CBCA”). We issued 54,484,188 Common shares to the shareholders of
Norbord in connection with this Acquisition and assumed Norbord’s outstanding stock options.
Norbord will be separately filing its audited financial statements for the year ended December 31, 2020 (the
“Norbord 2020 Audited Financial Statements”), its annual MD&A for the year ended December 31, 2020 (the
“Norbord 2020 MD&A”) and annual information form for the year ended December 31, 2020 (the “Norbord 2020
AIF”) in accordance with its continuing obligations as a reporting issuer (together, the “Norbord Annual Filings”) on
Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”) concurrently or shortly following the
filing of this AIF on SEDAR. The Norbord Annual Filings include important information regarding the business of
Norbord and the financial results of Norbord on a stand-alone basis in United States dollars for the year ended
December 31, 2020. Investors are referred to the Norbord 2020 AIF for a description of Norbord’s business and
products. Investors are referred to Norbord’s 2020 MD&A for a discussion of the results of operations and
financial condition of Norbord as at and for the year ended December 31, 2020. Additional information regarding
Norbord and the Acquisition is included in our management information circular dated December 15, 2020 (the
“Acquisition Information Circular”), for the special meeting of West Fraser’s shareholders that was held on
January 19, 2021, to approve the acquisition of Norbord.
Risk factors associated with our ownership of the Norbord business have been included in the risk factors included
in our Management Discussion and Analysis for the year ended December 31, 2020 (our “2020 MD&A”) under the
heading “Risks and Uncertainties”. This risk factor discussion presents the consolidated risk factors that are
material to our business moving forward, with Norbord as a consolidated entity, and include a discussion of risks
associated with the integration of Norbord into our business.
Principal Products and Markets
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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 the products described
above except SYP lumber. Our sawmills located in the southern U.S. produce SYP lumber, wood chips and other
residuals.
As a result of our acquisition of Norbord on February 1, 2021, we are now the world’s largest producer of OSB. In
addition to OSB, Norbord manufactures particleboard, MDF and related value-added products. Our business is
now comprised of 33 lumber mills, five pulp and paper mills and six renewable energy facilities, 14 OSB facilities,
three medium density fibreboard (MDF) facilities, three plywood facilities, two particle board facilities, one
laminated veneer lumber (LVL) facility, one treated wood facility and one veneer facility.
The discussion below is focused on West Fraser’s business as of December 31, 2020, and does not include a
discussion of Norbord’s business, operations, products or capital structure. Investors are referred to the Norbord
2020 AIF for discussion of the Norbord business, operations, products and capital structure.
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.
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
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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 joint 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.
The principal operating subsidiaries of the Company are:
Name
West Fraser Mills Ltd.
Blue Ridge Lumber Inc.
Sundre Forest Products Inc.
Manning Forest Products Ltd.
West Fraser, Inc.
West Fraser Wood Products Inc.
West Fraser Southeast, Inc.
Cariboo Pulp and Paper Company
West Fraser Newsprint Ltd.
Jurisdiction of
Incorporation
British Columbia
Alberta
Alberta
Alberta
Delaware
Delaware
Delaware
British Columbia
Alberta
Percentage of Voting
Securities Owned
100%
100%
100%
100%
100%
100%
100%
50%
50%
Effective February 1, 2021, we own all of the issued and outstanding common shares of Norbord, a corporation
incorporated under the CBCA. The principal operating subsidiaries of Norbord are described in the Norbord 2020
AIF under the heading “Corporate Structure”.
History and Development of Business
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 2020 the business expanded through the acquisition of a
number of sawmills and related timber harvesting rights and the acquisition or development of lumber, panels and
pulp & paper businesses.
Acquisition of Norbord
As described above, we acquired Norbord on February 1, 2021. In accordance with our obligations under the
Arrangement Agreement, West Fraser’s common shares were listed on and began trading on the New York Stock
Exchange under the symbol WFG on February 1, 2021. Concurrent with this listing, we changed our stock symbol
on the Toronto Stock Exchange to WFG. In accordance with the U.S. Exchange Act, the West Fraser Shares have
been deemed to be registered under Section 12g-3 of the U.S. Exchange Act as West Fraser is a “successor issuer”
to Norbord under the U.S. Exchange Act. Accordingly, we will be required to file continuous disclosure reports
with the United States Securities and Exchange Commission (the “SEC”) under the requirements of the U.S.
Exchange Act going forward.
Additional Major Developments
Major developments for West Fraser during the last three years include the following:
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2018
• 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
•
•
2019
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 merchandiser at Joyce, Louisiana.
• Completed new planer in Augusta, Georgia.
2020
• Completed the successful implementation of a new sales system for the
Company’s SPF lumber business.
• Completed a new planer mill in Opelika, Alabama.
• Completed an upgrade of the veneer dryers at our plywood facility in Edmonton,
Alberta.
Sales Revenue
($ millions - for the year ended December 31)
2020
4,491
634
867
(142)
5,850
Lumber
Panels
Pulp & Paper
Intracompany fibre sales
Markets
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
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
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)
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2019
360
285
384
459
669
620
732
0.754
2020
556
435
576
593
638
588
632
0.746
SPF #2 & Better 2x4 (per Mfbm)1
SPF #3 Utility 2x4 (per Mfbm)1
SYP #2 West 2x4 (per Mfbm)2
Plywood (per Msf 3/8” basis)3 Cdn$
NBSK - U.S. Spot (per tonne)4
NBSK - China (per tonne)5
Newsprint (per tonne)6
US$/CAD$7
Sources: (refer to our 2020 Management’s Discussion & Analysis for Canadian dollar equivalent prices of the products described herein)
1.
2.
3.
4.
5.
Random Lengths - Net FOB mill.
Random Lengths - Net FOB mill Westside.
Crow’s Market Report - Delivered Toronto.
Resource Information Systems, Inc. - U.S. spot price, delivered U.S. (2016-2018 - U.S. list price, delivered U.S.).
Resource Information Systems, Inc. - China net price, delivered China. The China net price is the average of the North America and
Scandinavia NBSK price (2016-2017 - China list price, delivered China).
Resource Information Systems, Inc. - Newsprint 27.7lb East, delivered (2016-2017 - U.S. Newsprint 48.8 gram, delivered).
Bank of Canada annual average exchange rate.
6.
7.
2017
401
323
433
509
1,105
712
584
0.771
2018
480
372
501
548
1,337
868
740
0.772
2016
305
240
409
432
978
599
560
0.755
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
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
- 11 -
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, 2020, 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
2021 - 2033
2021 - 2033
AAC
5,236
200
6,460
1,315
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 12 million m3. Recently, we have been accessing approximately 74%
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 13 million tons of logs per year if
operating at the capacity described herein. Our U.S. operations have access to approximately 14% of their log
requirements under certain long-term supply contracts, 7% from timber deeds and the balance is purchased on
the open market. Open market purchases come from timber real estate investment trusts, timberland investment
management organizations, the United States Forest Service and private landowners.
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 37% of B.C.’s crown forest is within the timber harvesting land base
(“THLB”), and approximately 29% of the THLB was represented as mature pine forest at the outset of the mountain
pine beetle epidemic. When assessing the THLB of B.C.’s interior, approximately 29% was the mature pine forest
estimate at the onset of the mountain pine beetle outbreak. The non-recoverable timber losses to the mature
pine forests within our operating areas are 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. Although the
majority of reductions have occurred, we expect this process to continue for up to another five years as the
Province transitions AACs by incrementally reducing mountain 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.
- 12 -
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 is largely completed, and
non-recoverable timber losses are significant in these burned forests due to a combination of burn intensity and
relatively quick onset of subsequent decay resulting in timber being unusable for primary wood products.
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
In 2020, the Government of Alberta signed an agreement with the Government of Canada consistent with
Section 11 of the Species at Risk Act. That agreement commits the Government of Alberta to prepare and
implement caribou recovery plans for at risk populations. The Government of Alberta has established Regional
Task Force to build plans and identify socio-economic impacts. 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 federal and provincial recovery plans will become evident when the final location of the conservation
areas and the forest management regimes are identified and implemented.
In British Columbia, the provincial and federal governments have entered into a conservation agreement for all
Southern Mountain Caribou ranges in the Province. The initial focus of that work has been 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 which identified specific zones and harvest deferral areas to manage
caribou recovery. These agreements will impact our access to timber supply, although the full extent is yet to be
determined.
Forestry Certification
All West Fraser operations have voluntary fibre supply chain standards certification. We obtain external
certification from several 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 timber sources that are
not forest management certified are procured following sourcing standard requirements to ensure West Fraser
only sources fibre from legal, responsible sources. Fibre sourcing requirements include landowner outreach
measures to promote the practice of biodiversity, use forestry best management practices to protect water
quality, and to encourage the use of qualified forest management and harvesting professionals.
Canadian operations are certified to the SFI Fiber Sourcing Standard, with all woodlands operations directly
managed by us certified to SFI’s Sustainable Forest Management Standard, both of which are internationally
recognized certification programs.
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.
- 13 -
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
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 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.
- 14 -
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 it.
This includes the passage of the Declaration on the Rights of Indigenous Peoples Act in British Columbia in
November 2019 and the introduction of similar legislation by the Federal Government in December 2020.
As the jurisprudence, legislation and government policies respecting Aboriginal title and rights and the
consultation process continue to evolve, we cannot 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, 2020, we employed approximately 8,115 individuals, including our proportionate share of
those in 50%-owned operations. Of these, approximately 5,555 are employed in our lumber segment, 1,275 in our
panels segment, 880 in our pulp & paper segment and 405 in our corporate segment. Approximately 36% of our
employees are covered by collective agreements. There are no expired collective agreements remaining as at
December 31, 2020. Union agreements representing 915 of our employees expire in 2021.
West Fraser believes inclusive, diverse teams build a more vibrant workforce, safer operations and a stronger
company overall. In 2020 we surveyed our employees to better understand the diversity of our workforce. At the
end of 2020, 14% of our workforce were women and a further 23% were under-represented minorities. Plans
have been developed to make measurable progress in 2021 in our ongoing journey of diversity and inclusion.
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 30% 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
Energy Efficiency and Green Energy
2020
200
14
25
2
241
-
241
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
West Fraser’s objectives are to further increase energy efficiency throughout our operations by investing capital,
recovering biomass from processing for bioenergy and developing ways to generate or procure renewable energy.
- 15 -
Currently, 75% of West Fraser’s energy consumption is met from renewable sources, a large portion of which,
would otherwise be disposed of as waste but are used in producing green energy.
Almost all the Company’s manufacturing facilities generate some form of renewable energy. Carbon-neutral
biomass provides the majority of the thermal energy consumed at our lumber operations. Since 2005, energy
initiatives have resulted in a 19% decrease in the intensity of purchased energy across our solid wood operations,
and a 31% drop in fossil fuel consumption. 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.
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. The electrical intensity of our BCTMP mills is lower by 35% per ADMT (air-dried metric
tonne) since 2005.
Half of our electrical energy comes from renewable sources. 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., most of the 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 environmental management 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.
Environmental Attributes of Wood Products
Within the carbon cycle and for climate change mitigation, wood products have three beneficial roles: as a store
of carbon, as an alternative to fossil fuel-based materials, and for generating carbon-neutral energy. West Fraser
can contribute to climate change mitigation by capturing carbon dioxide (CO2) through sustainable forest
management, fixing carbon in the products we make, and using renewable energy.
Our high-efficiency primary manufacturing recovers raw materials for a range of valuable secondary products. We
have reduced the waste and material sent to landfill through innovations to our production process to use more of
- 16 -
wood residuals, recovering them for value-added products and renewable energy generation. 99% of a log will be
utilized: (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 generate bioenergy in our mills or used to create innovative bioproducts
such as Amallin™ lignin and Propel™ bio-composite; and (iv) bark is used as fuel in our energy systems.
Converting more construction to wood is identified as a solution for reducing global Greenhouse Gas (“GHG”)
emissions because half the weight of solid wood products is stored carbon. Building with wood has a two-fold
emissions benefit: carbon storage in solid wood and the displacement of building materials that are more carbon-
intensive to produce. West Fraser’s 2020 production held 8.9 million metric tons of carbon dioxide equivalent
(CO2e).
West Fraser actively participates in numerous forestry sector and local associations. We support climate-smart
and green building initiatives through our membership in the Softwood Lumber Board (“SLB”) to increase market
demand for wood products. The SLB, through programs such as WoodWorks and ThinkWood, supports initiatives
that promote the benefits and encourage the uses of softwood lumber products in outdoor, residential and non-
residential construction.
Lumber, plywood, MDF and LVL are backed by Life Cycle Assessments (LCA)’s, environmental product declarations
(“EPD”) and EPD transparency briefs that support its increased use in lower carbon, environmentally-conscious
building construction. West Fraser’s certified wood products are eligible for points in one of the most widely used
green building rating systems globally, LEED (Leadership in Energy and Environmental Design), sponsored by the
United States Green Building Council (USGBC).
Responsible Resource Efficiency
Our goal is to conduct our business in an environmentally, socially and economically responsible manner. We are
committed to consciously managing our air and water emissions, working towards efficiency, reducing
consumption and developing sustainable energy solutions.
We are focused on replacing fossil fuel energy sources where feasible with renewable and carbon-neutral energy
sources. Renewable sources now supply 75% of our operations’ energy needs. We use manufacturing by-products
such as wood waste and pulp mill effluent to generate bioenergy and invest capital to improve manufacturing
processes’ energy efficiency. Company-wide, scope 1 and 2 GHG emissions have fallen 5% since 2005. Major
capital investments in our mills has helped to reduce scope 1 GHG emissions intensity in solid wood manufacturing
facilities by 22%. This decrease was achieved during a period of significant production growth due to several mill
acquisitions, with lumber production increasing by 41% (from 4,212 MMfbm in 2005 to 5,958 MMfbm in 2020).
With respect to air and GHG emissions, we continue to improve the tracking, management and reporting about
our emissions, and our operations are subject to carbon taxes. Carbon pricing and regulations that require
reductions in GHG emissions have been introduced in both Canadian provinces where we operate, such
as Alberta's Technology Innovation and Emissions Reduction (TIER) Regulation and B.C.'s Climate Change
Accountability Act (CCAA). 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 support national and international collaborative action and policies to combat climate change,
including market-based approaches to carbon pricing and recognizing the potential for climate change adaptation,
sequestration and storage of carbon through productive, sustainable forest management practices.
We specifically address, manage and monitor stream and watercourse protection as part of our sustainable forest
management activities. We operate under strict regulations with regard to water or watercourses on the lands
where we harvest, which are enforced within our land-use planning within sustainable forest management
activities. Our manufacturing plants have systems in place to monitor, treat and filter water and other discharges
from our facilities. Pulp operations use and treat large volumes of water and we have invested considerably in
- 17 -
improvements to water systems. 95% of the water we use in our pulp operations is treated and returned to the
environment.
Most of Canada’s forest land (94%) 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 twice as many trees as we harvest. Since 1955, the Company has planted more than 1.9
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
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 Health, Safety & Environment 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
- 18 -
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 practical 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; and (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
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.
Our goal is to measure and report our performance on an ongoing and comprehensive basis. We are
implementing internal monthly, quarterly and annual reporting that tracks performance indicators, including
compliance with permits, environmental monitoring, health and safety performance, material inputs and outputs,
community concerns expressed, and actions taken in response, and reforestation and regeneration activities.
We are committed to providing comprehensive and transparent information regarding our environmental, social
and governance (ESG) matters. Additional information is detailed in the 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. The report is also indexed to the Sustainable Accounting Board Standards
(SASB) for Building Products & Furnishings, Forest Management, Pulp and Paper Products and reflects certain
recommendations of the Task Force of Climate-Related Financial Disclosures (TCFD). It 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 bio-composites 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 2020, 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
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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. Operations in our U.S. south can be
affected by hurricanes and other extreme weather conditions. 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
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 U.S. Department of Commerce (“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 (“CVD”) in April 2017, and in June 2017 for antidumping duties
(“ADD”). In December of 2017 CVD and ADD 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 (“AR1”) for
the Period of Investigation from April 28, 2017 to December 31, 2018. On November 24, 2020, the USDOC
finalized the rates for AR1 and effective November 30, 2020 for ADD and December 1, 2020 for CVD, shipments
from Canada to the U.S. were subject to the revised cash deposit rate of 1.40% and 7.57%, respectively.
The details are described more fully in Note 25 to the 2020 annual consolidated financial statements and under
“Discussions & Analysis of Annual Results by Product Segment - Lumber Segment - Softwood Lumber Dispute” in
the 2020 Management’s Discussion & Analysis.
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
- 20 -
2020
2019
2018
2017
2016
1,835
1,700
3,200
6,735
1,558
1,599
2,801
5,958
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
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.
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 2020 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 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
2020
2019
2018
2017
2016
860
762
250
209
860
818
250
221
860
833
250
224
860
838
250
191
850
826
250
160
2,600
1,948
2,600
2,034
2,600
2,251
3,200
2,676
3,200
2,215
Pulp
Sales
- 21 -
Pulp is marketed out of our pulp sales office in Vancouver, B.C. In 2020, 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.
Capacity and Production
(Mtonnes)
BCTMP
Capacity (year-end)
Production
NBSK
Capacity (year-end)
Production1
1.
2020
2019
2018
2017
2016
690
662
570
462
690
677
570
460
690
652
570
499
690
674
570
498
680
665
570
527
Reflects West Fraser's 50% ownership of the Cariboo pulp mill.
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, 38,
40, 41.5, 43 and 45 grams per square metre.
Capacity and Production1
(Mtonnes)
Capacity (year-end)
Production
1.
Reflects West Fraser’s 50% ownership.
Risk Factors
2020
135
105
2019
135
114
2018
135
119
2017
135
122
2016
135
128
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, 2020, which is incorporated herein by reference. Our
Management’s Discussion & Analysis is available on SEDAR at www.sedar.com.
Capital Structure
Share Capital
- 22 -
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.
As at December 31, 2020, the issued share capital consisted of 66,397,144 Common shares and 2,281,478 Class B
Common shares for a total of 68,678,622 shares (as at December 31, 2019 - 69,662,767 shares). On February 1,
pursuant to the closing of the Norbord Acquisition, 54,484,188 Common shares were issued. Immediately after
the completion of the transaction, there were 123,163,635 Common shares and Class B common shares
outstanding, including a January 2021 issuance of West Fraser shares under our employee share purchase plan.
On February 1, 2021, West Fraser’s Common shares were listed on the New York Stock Exchange and began
trading under the symbol WFG. At the same time, the symbol on the Toronto Stock Exchange was also changed to
WFG.
Description of Debt Securities
In October 2014, we issued US$300 million of fixed-rate senior unsecured notes. The notes bear interest at the
rate of 4.35% per annum and mature in October 2024. The notes are redeemable, in whole or in part, at our
option at any time.
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$300 million notes maturing October 2024. The ratings are not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by each rating agency.
Agency
DBRS1
Moody’s2
Standard & Poor’s3
1.
Outlook
Stable
Stable
Stable
DBRS credit ratings for long-term obligations range from AAA to D. A rating of BBB is described by DBRS as “adequate credit quality. The
capacity for the payment of financial obligations is considered acceptable. May be vulnerable to future events”. Additional information
on the rating is available on DBRS’s website.
Rating
BBB(low)
Baa3
BBB-
2. Moody’s credit ratings for long-term obligations range from Aaa to C. Moody’s describes obligations rated Baa as “subject to moderate
credit risk. They are considered medium-grade and as such may possess certain speculative characteristics”. Additional information on
the rating is available on Moody’s website. On February 1, 2021, Moody’s revised our outlook from negative to stable.
S&P credit ratings for long-term obligations range from AAA to D. A rating of BBB- is described by S&P as “considered lowest investment
grade by market participants”. Additional information on the rating is available on S&P’s website.
3.
Market Prices
- 23 -
The following table sets forth adjusted market prices and trading volumes of our Common shares on the Toronto
Stock Exchange for each month of 2020 and 2019.
High
($)
62.16
65.11
51.24
41.00
41.19
48.63
67.04
75.30
73.90
68.42
76.14
86.50
January
February
March
April
May
June
July
August
September
October
November
December
Total
Source: http://tradingdata.tsx.com
Cash dividends
Low
($)
52.33
49.19
21.60
23.34
33.88
36.62
48.21
64.40
60.80
58.76
62.24
73.12
2020
2019
Close
($)
53.02
50.12
26.84
38.74
37.26
47.72
66.32
69.95
61.86
61.79
71.91
81.78
Volume
(000’s)
7,792
8,262
17,387
10,393
11,483
9,288
9,146
7,405
7,460
5,702
9,098
8,552
111,968
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
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 2020 and 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. 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
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, 2020. 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, 2021.
Directors and Officers
Directors
The names and municipalities of residence of the directors of the Company as of February 11, 2021, 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.
- 24 -
Principal Occupation
Director Since
Chairman of the Board
September 16, 1985
Corporate Director
April 19, 2016
President and Chief Executive Officer
April 23, 2019
John N. Floren2, 3 & 4
Eastham, Massachusetts
President and Chief Executive Officer, Methanex
Corporation
April 19, 2016
Brian G. Kenning2 & 4
Vancouver, B.C.
John K. Ketcham3
Santa Monica, California
Marian Lawson2 & 3
Toronto, Ontario
Colleen M. McMorrow1 & 3
Oakville, Ontario
Gerald J. Miller1 & 3
Kelowna, B.C.
Robert L. Phillips2, 4 & 5
Anmore, B.C.
Janice G. Rennie1, 2 & 4
Edmonton, Alberta
Gillian D. Winckler1 & 3
Vancouver, B.C.
Corporate Director
April 19, 2017
Real Estate Developer
April 28, 2015
Corporate Director
February 1, 2021
Corporate Director
February 1, 2021
Corporate Director
April 19, 2012
Corporate Director
April 28, 2005
Corporate Director
April 28, 2004
Corporate Director
April 19, 2017
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.
Each of our directors, other than Marian Lawson and Colleen McMorrow whose background and experience is
described below, 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.
We appointed each of Marian Lawson and Colleen McMorrow to our board of directors concurrently upon
completion of our Acquisition of Norbord on February 1, 2021 in accordance with our obligations under the
Arrangement Agreement.
- 25 -
• Ms. Lawson is a Corporate Director who recently retired after 32 years with Scotiabank. She was
Executive Vice President, Global Head, Financial Institutions and Transaction Banking at Scotiabank from
2014 to 2018. Prior thereto she served in several senior management positions, including Deputy Head of
Corporate Banking and Vice President of Internal Audit. She has over 33 years of experience in capital
markets, assisting numerous management teams and senior executives in the execution of their
strategies. In 2016, she received the Women in Capital Markets Award for Leadership and the Women’s
Executive Network, Top 100 Corporate Executive Award. Ms. Lawson is a director of Canadian Tire Bank
(2018 to present) and was a board member of 1832 Asset Management LP, (a wealth management
subsidiary of Scotiabank) from 2016 to 2018. Ms. Lawson was appointed as a director of Norbord in 2020.
• Ms. McMorrow is a Corporate Director, including for certain private companies and not-for-profit
corporations, and a Chartered Professional Accountant, Chartered Accountant. She was a senior client
assurance partner with Ernst & Young LLP (EY), a global professional services firm, until her retirement in
2016. She has more than 35 years of experience in advising audit committees and senior management of
public and private global companies. From 2009 to 2016, Ms. McMorrow was the National Director in
Canada of EY’s signature Entrepreneur of the Year awards program and the firm’s Growth Markets Leader
(high-growth entrepreneurial companies). Ms. McMorrow is a director of Ether Capital Corporation (2018
to present), Exco Technologies Limited (2017 to present) and was a director of LOGIC Asset Management
(2017 to 2018). Ms. McMorrow was appointed as a director of Norbord in 2020.
The term of office of each director will expire at the conclusion of the Company’s next annual general meeting.
Officers
The names and titles of the officers of the Company on February 11, 2021 are as follows:
Name and Municipality
of Residence
Raymond W. Ferris
Vancouver, B.C.
Christopher A. Virostek
North Vancouver, B.C.
Sean P. McLaren
Collierville, Tennessee
Peter C. Wijnbergen
Toronto, Ontario
Christopher D. McIver
North Vancouver, B.C.
Robin A. Lampard
Toronto, Ontario
Brian A. Balkwill
Quesnel, B.C.
Kevin J. Burke
Greenville, South Carolina
Office Held
President and Chief Executive Officer
Vice-President, Finance and Chief Financial Officer
President, Solid Wood
President, Engineered Wood
Senior Vice-President, Marketing and Corporate Development
Senior Vice-President, Finance
Vice-President, Canadian Wood Products
Vice-President, North American Engineered Wood Products
Name and Municipality
of Residence
Alan A. Caputo
Olds, Alberta
Keith D. Carter
Quesnel, B.C.
Mark R. Dubois-Phillips
West Vancouver, B.C.
Chester R. Fort
Eads, Tennessee
James W. Gorman
Victoria, B.C.
D’Arcy R. Henderson
Quesnel, B.C.
James R. Laundry
Quesnel, B.C.
Alan G. McMeekin
Milngavie, Scotland
Adrian A. Plante
Quesnel, B.C.
Scott W. Stubbington
Oakville, Ontario
Tom V. Theodorakis
Vancouver, B.C.
Matthew V. Tobin
Quesnel, B.C.
Charles H. Watkins
Memphis, Tennessee
- 26 -
Office Held
Vice-President, Human Resource
Vice-President, Pulp and Energy Operations
Vice-President, Marketing and Customer Strategy
Vice-President, U.S. Lumber Operations
Vice-President, Corporate and Government Relations
Vice-President, Canadian Woodlands
Vice-President, Canadian Plywood, MDF and LVL
Vice-President, European Engineered Wood Products
Vice-President, Canadian Lumber
Vice-President, Sales Engineered Wood Products
Secretary
Partner, McMillan LLP (lawyers)
Vice-President, Lumber Sales
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 and before February 15, 2016 was our General Manager, Canadian
Lumber; Keith Carter, who before February 15, 2016 was our General Manager, Pulp Operations;
D’Arcy Henderson, who before June 23, 2020 was our Vice-President, Canadian Woodlands Operations, before
December 10, 2019 was our General Manager, Canadian Woodlands and before September 23, 2019 was our
Cariboo Regional Manager; Christopher McIver, who before February 1, 2021 was our Vice-President, Sales and
Marketing and before February 16, 2016 was our Vice-President, Lumber Sales and Corporate Development;
Sean McLaren, who before February 1, 2021 was our Vice-President, U.S. Lumber and 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 and before
- 27 -
February 15, 2016 was our General Manager, U.S. Lumber Manufacturing; Alan Caputo, who before January 1,
2021 was our Director of Human Resources and before September 1, 2018 was our General Manager of Human
Resources; Adrian Plante, who before January 1, 2021 was our General Manager, Wood Products and before
February 12, 2020 was a Regional Manager and prior to April 5, 2016 was a mill manager of our Chasm sawmill;
James Laundry, who before January 1, 2021 was our General Manager, Wood Products, before February 12, 2020
was our General Manager, Engineered Wood and Panels and before July 16, 2018 was a Regional Manager;
Matthew Tobin, who before January 1, 2021 was our General Manager, Canadian Solid Wood Sales; Chester Fort,
who before January 1, 2021 was a Regional Manager; Peter Wijnbergen, who before February 1, 2021 was the
President and Chief Executive Officer of Norbord; Kevin Burke, who before February 1, 2021 was the Senior Vice
President, North American Operations of Norbord and before 2018 was the Vice President - Operations, South of
Norbord; Alan McMeekin, who before February 1, 2021 was the Senior Vice President, Europe of Norbord and
before 2018 was the Vice President, Finance and Operations Europe of Norbord; Scott Stubbington, who before
February 1, 2021 was the Vice President, Sales of Norbord and before January 2018 was Director, North American
Sales of Norbord; Robin Lampard, who before February 1, 2021 was the Senior Vice President and Chief Financial
Officer of Norbord; and Mark Dubois-Phillips, who before February 1, 2021 was the Senior Vice President, Sales,
Marketing and Logistics of Norbord, before November 2018 was the Vice President, Corporate Development of
Norbord and before January 2018 led Hedgehog Technologies International, a company focused on the
development of renewable energy.
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, 2020
1,422,244
2%
78,728
3%
2%
December 31, 2019
1,393,492
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, 2020, 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, 2020 or any other penalties or sanctions imposed by a court or regulatory body
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, 2020. See section “Discussion &
Analysis of Annual Results by Product Segment - Lumber - Softwood Lumber Dispute” in our 2020 annual
Management’s Discussion & Analysis for a description of developments related to the softwood lumber dispute.
- 28 -
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
website: www.westfraser.com. The Board of Directors has established a Governance & Nominating Committee
comprised of Robert Phillips (chair), Reid Carter, John Floren, Brian Kenning and Janice Rennie, all of whom are
independent 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 2020, 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 Financials’ Paper and Forest
Products Analyst.
Colleen M. McMorrow
Ms. McMorrow was appointed a member of our Audit Committee on February 11, 2021. Ms. McMorrow, who
holds a Bachelor of Commerce, is a Chartered Professional Accountant, Chartered Accountant and was a senior
client assurance partner with Ernst & Young LLP until her retirement in 2016. She was elected as a Fellow of the
Chartered Accountants in 2000. Ms. McMorrow has chaired or been a member of several audit committees of
public and private companies in the past and is currently the chair of the audit committees of Exco Technologies
Limited and Ether Capital Corporation.
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
- 29 -
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
Ms. Rennie, who holds a Bachelor of Commerce, is a Chartered Professional Accountant, Chartered Accountant.
She was elected as a 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 and Major Drilling Group International Inc.
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)
2020
908
131
130
155
2019
702
91
260
15
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,
1.
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 8, 2020 we obtained from a syndicate of lenders an additional $150 million committed revolving
2.
credit facility. This committed facility had a term of two years and is made available on substantially the same
terms and conditions as the Company’s existing syndicated revolving credit facility from certain lenders that are
part of that syndicate. On February 1, 2021, concurrent with the closing of the Acquisition, we amended the terms
of our $150 million committed revolving credit facility due 2022 and replaced the $150 million committed
- 30 -
revolving credit facility with a US$450 million committed revolving credit facility due 2024 on substantially the
same terms.
On July 18, 2019, we completed an amendment to our revolving lines of credit to extend the maturity
3.
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 remained unchanged. On February 1, 2021, concurrent with the closing
of the Acquisition, we completed various administrative amendments to our $850 million committed revolving
credit facility and our US$200 million term loan to facilitate the Acquisition.
Arrangement Agreement dated November 18, 2020 with respect to the Acquisition, the material terms of
4.
which are described in the Acquisition Circular.
Voting and Support Agreement dated November 18, 2020 between Brookfield Asset Management (BAM),
5.
the Company and Norbord, where BAM agreed to vote in favour of the Arrangement between the Company and
Norbord and provided certain covenants respecting the 2021 annual general meeting of the Company’s
shareholders (as described in the Acquisition Information Circular).
As part of the Acquisition, we assumed Norbord’s US$315 million senior notes due April 2023, bearing
6.
interest at 6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75%. In accordance with the
terms of the Norbord senior notes, we will be required to make a “change of control” offer to repurchase these
notes within 30 days of completion of the acquisition of Norbord on February 1, 2021. There is no assurance that
the holders of the notes will accept our change of control offers.
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
Management Information Circular for the annual general meeting of the Company to be held on April 20, 2021.
Additional financial information is provided in our annual consolidated financial statements and Management’s
Discussion & Analysis for the year ended December 31, 2020.
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, 2020
and our Management 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. Copies of the Norbord Annual Filings will also be available on SEDAR.
- 31 -
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
accounting principles or changes to such principles or their application and the treatment of financial
information discussed with management, together with management’s responses.
- 32 -
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.
• 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.
- 33 -
• 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.
2020 MANAGEMENT’S DISCUSSION & ANALYSIS
Introduction and Interpretation
- 34 -
This discussion and analysis by management (“MD&A”) of West Fraser Timber Co. Ltd.’s (“West Fraser”, the
“Company” or “we”, “us”, or “our”) financial performance for the year and three months ending December 31,
2020, should be read in conjunction with the cautionary statement regarding forward-looking statements below,
our 2020 annual audited consolidated financial statements and accompanying notes (the “Financial Statements”),
and our 2020 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 dollars.
Unless otherwise indicated, the financial information contained in this MD&A has been prepared in accordance
with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board.
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/balsam
fir lumber), “SYP” (southern yellow pine lumber), “MDF” (medium-density fibreboard), “LVL” (laminated veneer
lumber), “BCTMP” (bleached chemithermomechanical pulp),“NBSK” (northern bleached softwood kraft pulp) and
“OSB” (oriented strand board).
The information in this MD&A is as at February 11, 2021 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. These forward-looking statements constitute “forward-looking
information” within the meaning of Canadian provincial securities laws and “forward-looking statements” within
the meaning of the U.S. Securities Act of 1933, the U.S. Securities Exchange Act of 1934, and “safe harbor”
provisions of the United States Private Securities Litigation Reform Act of 1995.
Forward-looking statements are included under the headings:
•
•
•
•
•
“Recent Developments - Norbord Acquisition” (anticipated regulatory filings);
“Discussion & Analysis of Annual Non-Operational Items - Adjusted Earnings and Adjusted Basic Earnings
Per Share” (expected duty rate finalization dates and administrative review commencement);
“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);
“Capital Expenditures” (progress on construction-in-progress projects);
“Business Outlook” (market conditions, production levels, operating costs, production at the Chambord
mill, liquidity, cash flows, anticipated debt ratings, and U.S. dollar reporting);
- 35 -
•
•
•
•
•
“Estimated Earnings Sensitivity to Key Variables” (impact of changes in price and foreign exchange rate);
“Cash Flow - Operating Activities” (estimated final 2020 tax payment);
“Contractual Obligations” (financial arrangements related to Norbord Acquisition);
“Significant Management Judgments Affecting Financial Results - Softwood Lumber Dispute”
(administrative review commencement, adjustment of export duty rates and proceedings related to duty
rates); and
“Significant Management Judgments Affecting Financial Results - Recoverability of Long-lived Assets”
(judgments regarding carrying value of goodwill).
By their nature, these 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. Factors that could cause actual results to differ materially from those
contemplated or implied by forward-looking statements include, but are not limited to: (1) the impact of the
COVID-19 pandemic on our operations and on customer demand, supply and distribution and other factors; (2)
assumptions in connection with the economic and financial conditions in the U.S., Canada, Europe and globally and
consequential demand for our products; (3) risks inherent to product concentration and cyclicality; (4) effects of
competition and product pricing pressures; (5) risks inherent to customer dependence; (6) effects of variations in
the price and availability of manufacturing inputs, including continued access to fibre resources at competitive
prices and the impact of third-party certification standards; (7) availability of transportation services, including
truck and rail services, and port facilities; (8) various events that could disrupt operations, including natural, man-
made or catastrophic events and ongoing relations with employees; (9) impact of changes to, or non-compliance
with, environmental or other regulations; (10) government restrictions, standards or regulations intended to
reduce greenhouse gas emissions; (11) impact of weather and climate change on our operations or the operations
or demand of its suppliers and customers; (12) impact of any product liability claims in excess of insurance
coverage; (13) risks inherent to a capital intensive industry; (14) impact of future outcomes of tax exposures; (15)
potential future changes in tax laws, including tax rates; (16) effects of currency exposures and exchange rate
fluctuations; (17) future operating costs; (18) availability of financing, bank lines, securitization programs and/or
other means of liquidity; (19) impact of future cross border trade rulings or agreements; (20) implementation of
important strategic initiatives and identification, completion and integration of acquisitions; (21) ability to
implement new or upgraded information technology infrastructure; (22) impact of information technology service
disruptions or failures; (23) changes in government policy and regulation; and (24) integration of the Norbord
business.
In addition, 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 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.
Recent Developments
Final Administrative Review (“AR”) 1 Duty Rates
On November 24, 2020, the U.S. Department of Commerce (“USDOC”), issued its final duty rates for the AR1
Period of Investigation (“POI”) dated April 28, 2017 to December 31, 2018. The details on the final rates and the
impact on our earnings are under the section “Discussion & Analysis of Annual Results by Product Segment -
Lumber Segment - Softwood Lumber Dispute”. The cash deposit rate for SPF lumber shipments from Canada to
the U.S. on or after November 30, 2020 for antidumping duty and December 1, 2020 for countervailing duty will be
at 1.40% and 7.57%, respectively. These are the cash deposit rates until the USDOC finalizes AR2 for the POI dated
January 1, 2019 to December 31, 2019.
Norbord Acquisition
- 36 -
We completed the acquisition of Norbord Inc. (“Norbord”) on February 1, 2021 (the “Acquisition”). We issued
54,484,188 Common shares to the shareholders of Norbord in connection with this Acquisition, and Norbord is
now a wholly-owned subsidiary of West Fraser. Additional information regarding Norbord and the Acquisition is
included in our management information circular dated December 15, 2020, for the special meeting of West
Fraser’s shareholders that was held on January 19, 2021, to approve the acquisition of Norbord.
Norbord will be filing its audited financial statements for the year ended December 31, 2020 (the “Norbord 2020
Audited Financial Statements”), its annual MD&A for the year ended December 31, 2020 (the “Norbord 2020
MD&A”) and annual information form for the year ended December 31, 2020 (the “Norbord 2020 AIF”) (together,
the “Norbord Annual Filings”) on Canadian System for Electronic Document Analysis and Retrieval (“SEDAR”)
concurrently or shortly following the filing of this MD&A on SEDAR. The Norbord Annual Filings include important
information regarding the business of Norbord and the financial results of Norbord on a stand-alone basis in
United States dollars for the year ended December 31, 2020. This MD&A does not include a discussion of the
financial results or operations of Norbord for the year ended December 31, 2020, and investors are referred to
Norbord’s Annual MD&A for this discussion. In addition, investors are referred to the Norbord 2020 AIF for
information on Norbord’s business.
We will include the Norbord 2020 Financial Statements in a business acquisition report to be filed on SEDAR, as
required under Canadian securities laws. This business acquisition report will also include pro-forma financial
statements that will include (i) a pro-forma balance sheet as at December 31, 2020 that gives effect to the
Acquisition as if it had taken place as of December 31, 2020, and (ii) a pro-forma income statement for the year
ended December 31, 2020 that gives effect to the Acquisition as if it had taken place on January 1, 2020.
Information regarding the Acquisition is included in the “Subsequent Event” note 26 to our annual audited
financial statements for the year ended December 31, 2020. The full accounting for our acquisition of Norbord will
be reflected in our interim financial statements for the three months ended March 31, 2021, which will reflect our
consolidation of Norbord effective as of February 1, 2021.
In connection with the completion of the Acquisition, our Common shares began trading on the New York Stock
Exchange (“NYSE”) on February 1, 2021 under the symbol WFG. At the same time, the symbol on the Toronto
Stock Exchange (“TSX”) was also changed from WFT to WFG. In addition, the completion of the Acquisition has
resulted in our Common shares being deemed to be registered under Section 12(b) of the United States Exchange
Act of 1934, as amended (the “Exchange Act”). Under Rule 12g-3 of the Exchange Act, we are the “successor
issuer” to Norbord and will be required to file reports with the United States Securities and Exchange Commission
(the “SEC”) in accordance with the requirements of the Exchange Act.
The discussion and analysis that follows below regarding the earnings, cash flows and balance sheets refer only to
West Fraser as at and for the year ended December 31, 2020, on a stand-alone basis and does not incorporate the
Acquisition or results of Norbord. The discussion regarding Business Outlook reflects our outlook inclusive of the
impacts of the Acquisition. In addition, our discussion of the Risks and Uncertainties affecting our business
incorporates such Risks and Uncertainties relating to the Acquisition and the acquired operations.
Coronavirus
The impact of the novel Coronavirus (“COVID-19”) pandemic has required unprecedented actions to control the
spread of the virus and has resulted in governments and businesses worldwide enacting emergency measures and
restrictions to combat the spread of COVID-19. These measures and restrictions, which include the
implementation of travel bans, border restrictions, mandated and voluntary business closures, self-imposed and
mandatory quarantine periods, isolation orders, and physical distancing, have caused material disruption to
businesses globally, resulting in economic impacts and have led to disruptions to our workforce and operating
facilities, customers, production, sales, and supply chain. While some of these restrictions and closures were
eased or lifted in the summer, the resurgence of COVID-19 resulted in partial, complete, or expanded re-
- 37 -
imposition of these restrictions. Governments and central banks have reacted with significant monetary and fiscal
interventions and other measures designed to stabilize economic conditions.
As a result of the various impacts of COVID-19, we made several adjustments to our operating schedules starting in
March of 2020 and into the second quarter of 2020. Operating schedules were largely unaffected in the second
half of 2020, although there were minor operation impacts at some of our U.S. operations due to illness-related
employee and contractor shortages.
The full economic and financial impact of the COVID-19 outbreak is unknown at this time, as is the effectiveness of
government and central bank measures to stabilize the economy and limit the spread of COVID-19 and the
timeline for and efficacy of vaccines. It is not possible to reliably estimate the ongoing effects on the economy, our
operations, the markets for our products, or our financial results and condition. Since the second quarter of 2020,
we have seen a return of robust demand for SYP, SPF, and plywood, which in combination with what is believed to
be low inventory levels across the supply chain, and limited additional available capacity due to fibre constraints,
has led to increased prices. However, it is uncertain if these demand and supply dynamics will continue or if the
resurgence of COVID-19 will negatively impact demand.
The safety, health, and well-being of our employees and others on our sites and the communities in which we
operate remains our primary focus. Our goal is to continue to operate safely and to mitigate potential exposure
and the spread of COVID-19. We are guided by public health authorities' requirements, including physical
distancing strategies, increased cleaning and disinfection protocols at our sites, issuing protective equipment for
our employees, remote working policies in communities that have high rates of COVID-19 cases, the elimination of
non-essential travel, and exposure screening.
Annual Results
($ millions, except as otherwise indicated)
Earnings
Sales
Cost of products sold
Freight and other distribution costs
Export duties, net
Amortization
Selling, general and administration
Equity-based compensation
Restructuring and impairment charges
Operating earnings
Finance expense, net
Other
Tax (provision) recovery
Earnings
Adjusted EBITDA1
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
1.
See section “Non-IFRS Measures” in this MD&A.
2020
2019
2018
5,850
(3,434)
(709)
(79)
(272)
(247)
(11)
-
1,098
(37)
(19)
(266)
776
1,460
11.30
11.30
0.80
5,320
647
0.746
4,877
(3,652)
(713)
(162)
(259)
(211)
(6)
(33)
(159)
(49)
(11)
69
(150)
301
(2.18)
(2.34)
0.80
4,668
660
0.754
6,118
(3,617)
(732)
(202)
(257)
(231)
(7)
-
1,072
(37)
37
(262)
810
1,538
10.88
10.62
0.70
4,791
692
0.772
Selected Quarterly Information
($ millions, except EPS amounts which are in $)
- 38 -
Sales
Earnings
Basic EPS
Diluted EPS
Q4-20
1,689
366
5.34
5.34
Q3-20
1,690
350
5.09
5.09
Q2-20
1,276
48
0.70
0.70
Q1-20
1,195
12
0.18
(0.11)
Q4-19
1,129
(42)
(0.61)
(0.61)
Q3-19
1,190
(45)
(0.65)
(0.73)
Q2-19
1,317
(58)
(0.85)
(0.92)
Q1-19
1,241
(5)
(0.07)
(0.12)
Discussion & Analysis of Annual Non-Operational Items
Adjusted Earnings and Adjusted Basic EPS
($ millions, except EPS amounts which are in $)
Earnings
Add (deduct):
Export duties, net
Interest recognized on export duty deposits receivable
Equity-based compensation
Exchange loss on long-term financing
Exchange loss on export duty deposits receivable
Insurance gain on disposal of equipment
Power purchase dispute
Restructuring and impairment charges
Re-measurement of deferred income tax assets and liabilities
Net tax effect on the above adjustments
2020
776
79
(16)
11
1
5
(7)
7
-
-
(13)
843
12.27
2019
(150)
162
(4)
6
3
4
(4)
-
33
(18)
(53)
(21)
(0.31)
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.
On November 24, 2020, the USDOC finalized the duty rates for AR1 for the POI dated April 28, 2017 to
December 31, 2018. Export duties of $79 million, net of the AR1 duty recovery of $124 million, were expensed in
2020 related to SPF lumber compared to $162 million in 2019. As noted in the table above, we have recorded
interest income and foreign exchange adjustments on the estimated export duty deposits receivable. 2020
includes $14 million of interest income related to the finalization of AR1. The section below, “Discussion &
Analysis of Annual Results by Product Segment - Lumber Segment - Softwood Lumber Dispute,” contains details of
the final duty rates for AR1, a reconciliation of the duty expense and interest income, and additional information
on the dispute. The second AR covering the 2019 fiscal period commenced during the second quarter of 2020.
The preliminary results for AR2 are expected in May 2021 and final results in November 2021. On January 1, 2020,
the 12-month period of investigation for AR3 began. AR3 is expected to be reviewed by the USDOC in 2021, with
the rates finalized in 2022.
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 we record the resulting expense
or recovery over the vesting period. Our fair valuation models consider various factors, with the most significant
being the change in our Common shares’ market value from the beginning to the end of the relevant period. The
expense or recovery does not necessarily represent the actual value that 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
- 39 -
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
realized on our Canadian operations' working capital balances are identified under “Other Non-Operational Items”
below.
During the second quarter of 2020, we finalized the insurance settlement related to the 2016 involuntary disposal
of equipment associated with the fire at our WestPine MDF plant resulting in a $7 million gain recorded in other
income in the panels segment. Additional details regarding the claim are included under the “Discussion &
Analysis of Annual Results by Product Segment - Panels Segment”.
We finalized the insurance settlement related to the 2017 involuntary disposal of equipment at our 50%-owned
NBSK plant, resulting in a $4 million gain in the fourth quarter of 2019.
In the third quarter of 2020, as a result of certain administrative proceedings, we determined that a liability related
to certain retroactive adjustments to charges under a power purchase agreement (the “Power Purchase
Agreement”), terminated in 2016, should be recorded as a contingent liability. Although we dispute responsibility
for such retroactive adjustments and the associated liability, we have accrued $7 million for such contingent
liability. However, recognizing the expense does not prejudice our position that the liability is not our
responsibility.
In 2019, we recognized restructuring and impairment charges of $33 million. $25 million were related to the
permanent closure of our Chasm, British Columbia (“B.C.”) lumber mill in the second quarter, and $8 million of
plant and equipment impairment of certain B.C. lumber mill assets in the fourth quarter.
In the second quarter of 2019, the Alberta government enacted an income tax rate reduction from 12% to 8%
phased in over four years, starting on July 1, 2019. We recorded an $18 million gain in 2019 associated with the
remeasurement of deferred income tax assets and liabilities. On December 9, 2020, the Alberta government
substantially enacted an expedited rate reduction to 8% effective July 1, 2020. This expedited rate change did not
have a material impact on our 2020 tax expense as we had substantially recorded the change in 2019.
Other Non-Operational Items
The table above identifies foreign exchange revaluations on our long-term assets and liabilities. Foreign exchange
revaluations on working capital items were a loss of $8 million in 2020 compared to a $7 million loss in 2019.
Foreign exchange gains and losses on all monetary items are included in other income.
Remeasurement of our interest rate swaps to fair value at each balance sheet date has caused volatility in other
income as interest rates continue to decline. Fair value remeasurements will have no cumulative impact on
earnings over the life of the contract. The fair value adjustment was a loss of $5 million in 2020 compared to $3
million loss in 2019.
Finance expense for 2020 is net of $14 million of interest income related to the finalization of the AR1 duty rate.
Additional information regarding the interest income on the AR1 duty is disclosed under “Discussion & Analysis of
Annual Results by Product Segment - Lumber Segment - Softwood Lumber Dispute”. Finance expense excluding
the interest income was $51 million, which was $2 million higher than in 2019.
We recorded an income tax expense in 2020 of $266 million compared to a $69 million tax recovery in 2019. The
effective tax rate was 26% compared to 32% in 2019. The 2019 tax expense includes an $18 million benefit for the
reduction in the Alberta general corporate tax rate from 12% to 8%. Note 17 to the Financial Statements provides
a reconciliation of income taxes calculated at the statutory rate to the income tax expense.
Discussion & Analysis of Annual Results by Product Segment
- 40 -
Lumber Segment
($ millions unless otherwise indicated)
Lumber segment earnings
Sales
Lumber
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Export duties, net
Amortization
Selling, general and administration
Restructuring and impairment charges
Operating earnings
Finance expense, net
Other
Earnings before tax
Adjusted EBITDA1
Capital expenditures
SPF (MMfbm)
Production
Shipments
SYP (MMfbm)
Production
Shipments
Wood chip production
SPF (M ODTs)
SYP (M green tons)
2020
2019
3,992
365
134
4,491
(2,513)
(485)
(79)
(201)
(171)
-
1,042
(24)
(5)
1,013
1,322
200
3,157
3,214
2,801
2,861
1,473
3,629
2,945
384
113
3,442
(2,588)
(477)
(162)
(196)
(146)
(33)
(160)
(35)
(7)
(202)
231
339
3,211
3,363
2,703
2,692
1,471
3,570
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.
556
435
576
746
584
773
1.
2.
3.
4.
360
285
384
478
378
510
Sales and Shipments
2020 was a volatile year for lumber pricing, with SPF #2 & Better 2x4 benchmark pricing hitting a low of
US$282/Mfbm in April to a high of US$955/Mfbm in September. SYP #2 West 2x4 hit a low of US$300/Mfbm in
April and a high of US$992/Mfbm in October. We believe the lumber market pricing in the second half of the year
was impacted by low inventory volumes in the supply chain, improved new home construction levels, and strong
demand from repair and remodelling activity. This resulted in increased lumber pricing for 2020 and higher sales
- 41 -
revenue compared to 2019. A weaker Canadian dollar relative to the U.S. dollar compared to 2019 also
contributed to improved 2020 sales revenue. The price variance resulted in an increase in Adjusted EBITDA of
$1,031 million compared to 2019.
SPF shipment volumes were less than in 2019 due to the impact of permanent mill closures and shift reductions
implemented in 2019, which reduced our 2020 capacity and shipment volumes. SYP shipment volumes increased
compared to 2019 as demand was strong in the second half of 2020 and we had increased production due to
capital improvements and improved reliability at our mills. Production volume changes are discussed in the
section below. The volume variance resulted in an increase in Adjusted EBITDA of $16 million compared to the
previous year influenced by a larger percentage of our total shipments being SYP.
SPF Sales by Destination
U.S.
Canada
China
Other
Total
2020
2019
MMfbm
1,975
678
419
142
3,214
%
61
21
14
4
MMfbm
2,036
637
530
160
3,363
%
60
19
16
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 reduced SPF shipment volumes but remained a consistent percentage of total sales. China
demand fluctuated throughout the year and was down overall compared to North America, where the demand
was strong in the second half of 2020.
Wood chip and residual sales were lower than in 2019 due to lower chip revenue as the fibre pricing formula
follows the NBSK price, which declined in 2020. SPF chip production was in line with the changes in lumber
production while SYP chip production did not grow in proportion with lumber production due to benefits of higher
lumber yields from our capital program.
Costs and Production
Costs of products sold were slightly lower in 2020 than in 2019 due to changes in shipment volumes, reductions in
log costs, higher capacity utilization overall, and improved SYP productivity and recovery.
In 2019, we permanently eliminated capacity at certain B.C. mills resulting in an annual capacity reduction of
approximately 600 MMfbm. This reduction had a carryover impact of 200 MMfbm for 2020 compared to 2019.
We also implemented temporary SPF curtailments in both 2020 and 2019 in response to market demand, high log
costs, and log supply constraints, as noted in the table below. In aggregate, SPF operated at near capacity during
the second half of 2020 and at a higher capacity utilization rate than in 2019.
SPF temporary curtailments
(MMfbm)
SPF
SYP
2020
140
80
220
2019
200
-
200
Despite temporary curtailments of 80 MMfbm and some minor downtime due to employee illness, weather-
related log shortages and hurricanes in September and October 2020, SYP production increased as we continue to
see the results from our capital improvements made in prior years. The prior year was negatively affected by
- 42 -
downtime for capital upgrades and severe wet weather, particularly in Arkansas and Texas, which resulted in log
shortages and intermittent production interruptions.
SPF log costs declined compared to 2019 as a decrease in B.C. purchased log costs offset increased Alberta quota
log costs. Alberta log costs increased due to a stumpage system that is correlated to published lumber prices with
a short time lag. B.C. purchased log costs declined significantly compared to 2019, primarily due to reduced log
requirements as a result of permanent capacity curtailments, and a disciplined approach to log procurement. SYP
log costs were relatively stable over the comparative periods, although log costs increased in the first half of 2019
due to unusually wet weather.
Freight and other distribution costs generally trended with the changes in shipment volumes. A weaker Canadian
dollar relative to the U.S. dollar compared to 2019 contributed to increased freight costs, as a significant portion of
SPF freight costs are in U.S. dollars.
Selling, general, and administration costs increased compared to 2019 due primarily to increased variable
compensation expense.
Export duties for 2020 are net of a $124 million recovery related to the USDOC finalization of the AR1 duty rates.
The effective duty expense for the period, as disclosed in the table below, was $203 million compared to $162
million in 2019. The increase was due to higher SPF sales prices, which was partially offset by the lower estimated
antidumping duty rate of 3.40% for 2020 compared to 4.65% for 2019. A reconciliation of export duties can be
found under the section “Softwood Lumber Dispute” below.
In 2019, we recognized restructuring and impairment charges of $33 million. $25 million were related to the
permanent closure of our Chasm, B.C. lumber mill and $8 million for plant and equipment impairments at a B.C.
lumber mill.
As a consequence of the items discussed above, Adjusted EBITDA increased by $1,091 million compared to 2019.
The following table shows the Adjusted EBITDA variance for the period.
($ millions)
Adjusted EBITDA - comparative period
Price
Volume
Changes in costs
Selling, general, and administration
Adjusted EBITDA - current period
YTD-19 to YTD-20
231
1,031
16
69
(25)
1,322
Discussions on finance expense are included under the section “Discussion & Analysis of Annual Results by Product
Segment - Other Non-Operational Items” in this MD&A. The lumber segment finance expense for 2020 is net of
$14 million of interest income related to the AR1 duty rate finalization and an additional $2 million for other duty
deposit receivables. Further details on the AR1 duty rate finalization can be found under the section “Softwood
Lumber Dispute” below.
Fluctuations in other income were due to foreign exchange revaluations on our Canadian operation U.S. dollar-
denominated working capital.
Softwood Lumber Dispute
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. The USDOC
- 43 -
chose us as a “mandatory respondent” to both the countervailing and antidumping investigations, and as a result,
we 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 November 24, 2020, the USDOC finalized these rates based on its first Administrative Review
(“AR”) of the first Period of Investigation (“POI”) as listed below.
Effective November 30, 2020 for ADD and December 1, 2020 for CVD, shipments from Canada to the U.S. were
subject to the new cash deposit rate of 7.57% for CVD and 1.40% for ADD.
The respective Cash Deposit Rates, the AR1 Final 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, 20172
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
AR3 POI
January 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 20204
Cash Deposit
Rate
AR1 Final Rate3
(24-Nov-20)
24.12%
-
17.99%
17.99%
17.99%
17.99%
7.57%
6.76%
-
6.76%
7.57%
n/a5
n/a6
n/a6
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 USDOC published the Revised Rate.
2. On December 4, 2017, the USDOC revised our CVD Cash Deposit Rate effective December 28, 2017.
3. On February 3, 2020, the USDOC issued a preliminary CVD rate and, on November 24, 2020, a final CVD rate for the AR1 POI. This table
only reflects the final rate.
Effective December 1, 2020, shipments from Canada to the U.S. were subject to the new cash deposit rate of 7.57% for CVD.
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.
The CVD rate for the AR3 POI will be adjusted when AR3 is complete, and the USDOC finalizes the rate, which is not expected until 2022.
4.
5.
6.
Effective dates for ADD
AR1 POI
June 30, 2017 - December 3, 20171
December 4, 2017 - December 31, 20172
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
AR3 POI
Cash Deposit
Rate
AR1 Final
rate3
(24-Nov-20)
West Fraser
Estimated
Rate
6.76%
5.57%
5.57%
5.57%
1.40%
1.40%
1.40%
n/a5
1.46%
1.46%
1.46%
4.65%
January 1, 2020 - November 29, 2020
November 30, 2020 - December 31, 20204
n/a6
n/a6
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 Cash Deposit Rate effective December 4, 2017.
3. On February 3, 2020, the USDOC issued a preliminary ADD Rate and, on November 24, 2020, a final CVD rate for the AR1 POI. This table
3.40%
3.40%
5.57%
1.40%
only reflects the final rate.
Effective November 30, 2020, shipments from Canada to the U.S. were subject to the new cash deposit rate of 1.40% for ADD.
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.
The ADD rate for the AR3 POI will be adjusted when AR3 is complete, and the USDOC finalizes the rate, which is not expected until 2022.
4.
5.
6.
Accounting policy for duties
- 44 -
The CVD and ADD rates apply retroactively for each 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, along with
any true-up adjustments to finalized rates.
The difference between the cash deposit amount and the amount that would have been due based on the final AR
rate will incur interest based on the U.S. federally published interest rate. We record interest income on our duty
deposits receivable based on this rate and will record an interest expense if the balance becomes a liability.
Impact on results
The following table reconciles our cash deposits paid during the period to the amount recorded in our earnings
statement:
($ millions)
Cash deposits paid1
Adjust to West Fraser Estimated ADD rate2
Effective duty expense for period3
Duty recovery attributable to AR14
Duty expense
Interest income on duty deposits attributable to West Fraser
Estimated rate adjustments
Interest income on the AR1 duty deposits receivable5
Interest income on duty deposits
1.
2020
(215)
12
(203)
124
(79)
2
14
16
2019
(167)
5
(162)
-
(162)
4
-
4
Represents combined CVD and ADD cash deposit rate of 23.56% from January 1, 2019 to November 30, 2020, and 8.97% from
December 1 to December 31, 2020.
Represents adjustment to West Fraser Estimated ADD rate of 3.40% for 2020 and 4.65% for 2019.
The total represents the combined CVD cash deposit rate and West Fraser Estimated ADD rate of 21.39% from January 1 to November 30,
2020, 10.97% from December 1 to December 31, 2020, and 22.64% from January 1 to December 31, 2019.
$124 million represents the true-up to the final AR1 duty rates for the 2017 and 2018 POI.
$14 million represents interest income accrued on the $124 million duty deposit receivable.
2.
3.
4.
5.
As of December 31, 2020, export duties paid and payable on deposit with the USDOC are US$530 million.
AR2 and AR3
Each calendar year after December 31, 2018, represents an AR POI. AR2 covers the POI from January 1, 2019
through December 31, 2019. The USDOC commenced AR2 during the second quarter of 2020. AR3 covers the POI
from January 1, 2020 through December 31, 2020, and the USDOC is expected to begin its review in 2021. The
results of AR2 are not expected to be finalized until November 2021 and AR3 until 2022.
Appeals
On May 22, 2020, the North American Free Trade Agreement (“NAFTA”) panel issued its final decision on “Injury”.
The NAFTA panel rejected the Canadian parties’ arguments and upheld the USITC’s remand determination in its
entirety.
On August 28, 2020, the World Trade Organization’s (“WTO”) dispute-resolution panel ruled unanimously that U.S.
countervailing duties against Canadian softwood lumber are inconsistent with the WTO obligations of the United
- 45 -
States. The decision confirmed that Canada does not subsidize its softwood lumber industry. On September 28,
2020, the U.S. announced that it would appeal the WTO panel’s decision.
The softwood lumber case will continue to be subject to NAFTA or the new Canada-United States-Mexico
Agreement (“CUSMA”) and WTO dispute resolution processes, and litigation in the U.S. In the past, long periods of
litigation have led to negotiated settlements and duty deposit refunds. In the interim, duties remain subject to the
USDOC AR process, which results in an annual adjustment of duty deposit rates.
Notwithstanding the deposit rates assigned under the investigations, our final liability for CVD and ADD will not be
determined until each annual administrative review process is complete and related appeal processes are
concluded.
Panels Segment
($ millions unless otherwise indicated)
Panels segment earnings
Sales
Finished products
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Amortization
Selling, general and administration
Operating earnings
Finance expense
Other
Earnings before tax
Adjusted EBITDA1
Capital expenditures
Plywood (MMsf 3/8” basis)
Production
Shipments
MDF (MMsf 3/4” basis)
Production
Shipments
LVL (Mcf)
Production
Shipments
2020
2019
612
15
7
634
(408)
(55)
(16)
(30)
125
(4)
7
128
141
14
762
761
209
206
1,948
2,021
581
18
6
605
(466)
(63)
(16)
(25)
35
(4)
-
31
51
23
818
815
221
222
2,034
2,129
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.
The panels segment includes our plywood, MDF and LVL operations.
Sales and Shipments
593
459
Increased plywood pricing and robust Canadian plywood demand in the second half of 2020 positively impacted
the panels segment revenue resulting in higher sales in 2020 than 2019. Our plywood production is sold primarily
- 46 -
into Canada, and Canadian housing starts and the repair and remodelling market improved in the second half of
2020. Lower shipment volumes partially offset the improved plywood pricing compared to 2019. The lower
shipment volumes were due to the temporary plywood production curtailments in the spring of 2020, as discussed
below.
LVL pricing was consistent with the prior year and MDF marginally higher compared to 2019. MDF and LVL
demand was tempered in 2020 due to COVID-19 related economic impacts.
The panels segment price variance resulted in an increase in Adjusted EBITDA of $75 million compared to 2019.
Costs and Production
Freight and other distribution costs in our panels segment decreased in line with changes in shipment volumes.
Cost of products sold were impacted by changes in shipment volumes and the positive impacts from lower
purchased log costs in B.C. for 2020 relative to 2019. B.C. purchased log costs declined in 2020 due to reduced
demand from industry-wide temporary curtailments and permanent closures, and a disciplined approach to log
procurement. The Alberta stumpage increase had a marginal impact on the panels segment for 2020 as deliveries
of logs at the higher stumpage rates did not start until the fourth quarter of 2020.
2020 cost of products sold was also positively affected by the recognition of a $7 million business interruption
insurance settlement for the 2016 WestPine MDF fire. This settlement also included another $7 million of
insurance proceeds related to the involuntary disposal of equipment recognized in other income.
Plywood production was partially curtailed in 2020 by 60 Msf and in 2019 by 30 Msf. The curtailments in 2020
were in response to COVID-19 related market disruptions and for 2019 due to log supply constraints and market-
related and capital downtime. Plywood production was near capacity for the second half of 2020, with no
significant curtailments. MDF and LVL production schedules were reduced in 2020 to match demand resulting in
lower production than 2019.
Selling, general, and administration costs increased compared to 2019 due primarily to increased variable
compensation expense.
As a consequence of the items discussed above, Adjusted EBITDA increased by $90 million compared to 2019. The
following table shows the Adjusted EBITDA variance for the period.
($ millions)
Adjusted EBITDA - comparative period
Price
Volume
WestPine business interruption insurance settlement
Changes in costs
Selling, general, and administration
Adjusted EBITDA - current period
YTD-19 to YTD-20
51
75
(4)
7
17
(5)
141
Discussions on finance expense are included above under the “Discussion & Analysis of Annual Results by Product
Segment - Other Non-Operational Items” in this MD&A.
Fluctuations in the panels segment other income for 2020 were due to the $7 million insurance proceeds related
to the 2016 involuntary disposal of equipment associated with the fire at our WestPine MDF plant.
- 47 -
Pulp & Paper Segment
($ millions unless otherwise indicated)
Pulp & paper segment earnings
Sales
Cost of products sold
Freight and other distribution costs
Amortization
Selling, general and administration
Operating earnings
Finance expense
Other
Earnings before tax
Adjusted EBITDA1
Capital expenditures
BCTMP (Mtonnes)
Production
Shipments
NBSK (Mtonnes)
Production
Shipments
Newsprint (Mtonnes)
Production
Shipments
2020
867
(655)
(169)
(42)
(43)
(42)
(8)
(11)
(61)
-
25
662
667
462
465
105
109
2019
966
(734)
(173)
(43)
(39)
(23)
(10)
4
(29)
20
39
677
701
460
472
114
112
Benchmark prices (per tonne)
NBSK U.S. Spot - US$2
NBSK China - US$3
Newsprint - US$4
NBSK U.S. Spot - Cdn$5
NBSK China - Cdn$5
Newsprint - Cdn$5
See section “Non-IFRS Measures” in this MD&A.
Source: Resource Information Systems, Inc. - U.S. spot price, delivered U.S.
Source: Resource Information Systems, Inc. - China net price, delivered China. The China net price is the average of the North America
and Scandinavia NBSK price.
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.
669
620
732
888
823
971
638
588
632
856
789
848
1.
2.
3.
4.
5.
The pulp & paper segment includes our NBSK, BCTMP and newsprint operations.
Sales and Shipments
Sales revenue declined compared to 2019 due to lower pulp and newsprint prices and lower shipment volumes.
The decline was partially offset by a weaker Canadian dollar relative to the U.S. dollar than in 2019.
Printing and writing demand continued to decline in 2020, which negatively affected our pulp and newsprint
pricing. We have been able to ship the pulp that we produced due to strong paperboard and tissue demand out of
China and North America. Newsprint temporarily reduced production to match demand, and BCTMP had a
delayed vessel sailing from 2018, which impacted BCTMP shipments in 2019.
- 48 -
The pulp & paper segment price variance resulted in a decrease in Adjusted EBITDA of $73 million compared to
2019.
Costs and Production
BCTMP production was relatively stable compared to 2019, with minor planned downtime in 2020.
NBSK production was similar as both years had planned major maintenance shutdowns. In addition, 2020 included
a four-week temporary shutdown at our Cariboo pulp mill in response to low fibre availability, and 2019 had an
unplanned shutdown at our Hinton pulp mill due to an unexpected loss of power and data connections. Although
there were more shutdown days in 2020 than in 2019, the impact was offset by the improved operating
performance at our Hinton pulp mill.
Fibre, energy and maintenance costs were lower in 2020 than in 2019. The cost of fibre is based on a pricing
formula that follows the NBSK price and has decreased in-line with the pulp price. Our NBSK maintenance costs
were significantly lower as the work conducted during our 2019 maintenance shutdowns was more extensive than
in 2020.
Freight and other distribution costs generally trended with the changes in shipment volumes.
Selling, general, and administration costs increased compared to 2019 due primarily to increased variable
compensation expense.
As a consequence of the items discussed above, Adjusted EBITDA decreased by $20 million compared to 2019. The
following table shows the Adjusted EBITDA variance for the period.
($ millions)
Adjusted EBITDA - comparative period
Price
Volume
Changes in costs
Selling, general, and administration
Adjusted EBITDA - current period
YTD-19 to YTD-20
20
(73)
1
56
(4)
-
Discussions on finance expense are included above under the “Discussion & Analysis of Annual Results by Product
Segment - Other Non-Operational Items” in this MD&A.
Fluctuations in other income were due to foreign exchange revaluations on our Canadian operation U.S. dollar-
denominated working capital. 2020 included a $7 million expense for a dispute related to the Power Purchase
Agreement terminated in 2016. Details on the dispute related to the Power Purchase Agreement is included under
the section “Discussion & Analysis of Annual Non-Operational Items - Adjusted Earnings and Adjusted Basic EPS.”
2019 included a $4 million gain for our Cariboo NBSK operation for insurance settlement related to the 2017
involuntary disposal of equipment.
- 49 -
Fourth Quarter Results
($ millions, except as otherwise indicated)
Earnings
Sales
Cost of products sold
Freight and other distribution costs
Export duties, net
Amortization
Selling, general and administration
Equity-based compensation
Restructuring and impairment charges
Operating earnings
Finance expense, net
Other
Tax (provision) recovery
Earnings
Adjusted EBITDA1
Cdn$1.00 converted to US$ - average
1.
See section “Non-IFRS Measures” in this MD&A.
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, net
Interest income recognized on export duty deposits
receivable
Equity-based compensation
Exchange loss on long-term financing
Exchange loss on export duty deposits receivable
Insurance gain on disposal of equipment
Power purchase dispute
Restructuring and impairment charges
Re-measurement of deferred income tax assets and liabilities
Net tax effect on the above adjustments
Q4-20
Q3-20
Q4-19
1,689
(896)
(182)
47
(71)
(67)
(5)
-
515
3
(17)
(135)
366
544
0.768
1,690
(838)
(175)
(49)
(66)
(72)
(3)
-
487
(11)
(11)
(115)
350
605
0.751
1,129
(830)
(166)
(35)
(66)
(53)
(2)
(8)
(31)
(13)
(2)
4
(42)
80
0.758
Q4-20
366
Q3-20
350
Q4-19
(42)
(47)
(14)
5
3
8
-
(1)
-
-
18
338
4.92
49
(1)
3
1
1
-
8
-
-
(9)
402
5.85
35
(1)
2
1
1
(4)
-
8
(1)
(10)
(11)
(0.16)
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 above table's adjustments, see the corresponding section under “Discussion & Analysis of
Annual Non-Operational Items” in this MD&A. The section below, “Discussion & Analysis of Fourth Quarter Results
by Product Segment - Lumber Segment,” contains a reconciliation of the duty expense and interest income by
quarter, including the recoveries booked related to the finalization of duty rates for AR1.
Other Non-Operational Items
- 50 -
The table above identifies foreign exchange revaluations on our long-term assets and liabilities. Foreign exchange
revaluations on working capital items were a $10 million loss in the current quarter, a $2 million loss in the
previous quarter, and a $3 million loss in the fourth quarter of 2019.
Finance expense for the fourth quarter of 2020 is net of $14 million of interest income related to the finalization of
the AR1 duty rate. Finance expense for the fourth quarter of 2020, excluding the AR1 duty interest, was $11
million compared to $11 million in the previous quarter and $13 million in the fourth quarter of 2019. Additional
information regarding the interest income on the AR1 duty is under the title “Discussion & Analysis of Fourth
Quarter Results by Product Segment - Lumber Segment.”
Remeasurement of our interest rate swaps to fair value at each balance sheet date has caused volatility in other
income as interest rates continue to decline. Fair value remeasurements will have no cumulative impact on
earnings over the life of the contract. The fair value adjustment was a gain of $1 million for each of the quarters
presented.
We recorded an income tax expense in the current quarter of $135 million compared to $115 million in the
previous quarter and a $4 million recovery in the fourth quarter of 2019. The effective tax rate was 27% in the
current quarter compared to 25% in the previous quarter and 9% in the fourth quarter of 2019. Note 7 to the
fourth quarter 2020 unaudited condensed consolidated interim financial statements provides a reconciliation of
income taxes calculated at the B.C. statutory rate to the income tax expense.
Q4-20
Q3-20
Q4-19
Discussion & Analysis of Fourth Quarter Results by Product Segment
- 51 -
Lumber Segment
($ millions unless otherwise indicated)
Lumber segment earnings
Sales
Lumber
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Export duties, net
Amortization
Selling, general and administration
Restructuring and impairment charges
Operating earnings
Finance expense, net
Other
Earnings before tax
Adjusted EBITDA1
Capital expenditures
SPF (MMfbm)
Production
Shipments
SYP (MMfbm)
Production
Shipments
1,195
90
35
1,320
(637)
(127)
47
(52)
(48)
-
503
7
(11)
499
508
46
810
840
692
711
1,205
95
31
1,331
(612)
(118)
(49)
(49)
(49)
-
454
(8)
(5)
441
552
52
800
791
731
716
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.
768
532
748
1,023
709
996
700
584
751
912
761
979
1.
2.
3.
4.
Sales and Shipments
Despite COVID-19, lumber demand continued to be robust in the fourth quarter, which we believe was impacted
by low inventory volumes in the supply chain, improved new home construction levels, and strong demand from
repair and remodelling activity. Lumber prices for some products tempered during the quarter as markets
prepared for the typical winter slowdown in the construction industry, resulting in lower sales revenue than the
previous quarter. Lumber pricing was significantly higher than in the fourth quarter of 2019, resulting in higher
sales revenue for that comparative period. The current quarter’s sales were negatively impacted by a stronger
Canadian dollar relative to the U.S. dollar.
665
86
34
785
(573)
(106)
(35)
(49)
(37)
(8)
(23)
(10)
(4)
(37)
69
74
724
702
699
683
380
257
387
502
339
511
- 52 -
The price variance resulted in a decrease in Adjusted EBITDA of $32 million compared to the previous quarter and
an increase of $402 million compared to the fourth quarter of 2019.
SPF shipment volumes were higher compared to the previous quarter and the fourth quarter of 2019. Some
intermittent rail service issues affected shipment volumes to the U.S. in the previous quarter, and the fourth
quarter of 2019 included some temporary curtailments as our mills operated on variable schedules. SYP shipment
volumes were similar to the previous quarter and increased compared to the fourth quarter of 2019 as SYP
shipment volumes typically trend with production levels. Production volume changes are discussed in the section
below. The volume variance resulted in an increase in Adjusted EBITDA of $14 million compared to the previous
quarter and $55 million compared to the fourth quarter of 2019.
SPF Sales by Destination
(MMfbm)
U.S.
Canada
China
Other
Q4-20
567
177
64
32
840
Q3-20
469
204
93
25
791
Q4-19
440
114
106
42
702
Quarterly shipments to China were more volatile in 2020 than other years due to market conditions in China and in
North America. On an annualized basis, shipments to China were relatively stable as a percentage of shipments.
Robust North American markets reduced the amount of product available for export markets.
Costs and Production
Costs of products sold were higher than the previous quarter and fourth quarter of 2019 due primarily to changes
in shipment volumes and higher log costs.
SPF production was higher than the fourth quarter of 2019 due to approximately 60 MMfbm of temporary SPF
curtailments in the fourth quarter of 2019, in response to market demand, high log costs, and log supply
constraints. The permanent curtailments did not impact the quarterly comparisons as the reductions were in
effect for all comparative periods. There were no temporary curtailments in the third and fourth quarter of 2020.
SYP production was lower than the previous quarter but similar to the fourth quarter of 2019 due primarily to less
operating days in the fourth quarter from the winter holiday season. Weather-related log shortages in the U.S.
southeast, October hurricanes, and employee illness also negatively impacted production in the current quarter.
SPF log costs increased compared to the previous quarter as higher Alberta quota log costs offset lower B.C.
purchased log costs. Alberta log costs increased due to a stumpage system that is directly correlated to published
lumber prices with a short time lag. B.C. purchased log costs declined significantly compared to the fourth quarter
of 2019, primarily due to lower log requirements as a result of permanent capacity curtailments, and a disciplined
approach to log procurement. SYP log costs were relatively stable over the comparative periods, although log
costs slightly increased in the current quarter due to log shortages.
Freight and other distribution costs generally trended with the changes in shipment volumes.
Selling, general, and administration costs increased compared to the fourth quarter of 2019 due primarily to
increased variable compensation expense.
Export duties are net of a $124 million recovery related to the USDOC finalization of the AR1 duty rates. The
effective duty expense for the period, as disclosed in the table below, was $77 million compared to $49 million in
the previous quarter and $35 million in the fourth quarter of 2019. The expense was higher than both
- 53 -
comparative periods as the current quarter had a higher realized SPF sales price and increased shipment volumes
to the U.S. The change in the West Fraser Estimated antidumping duty rates also impacted the quarterly
comparison. The current quarter rate was 3.40% compared to 1.85% in the previous quarter and 4.65% in the
fourth quarter of 2019. The following table reconciles our cash deposits paid during the period to the amount
recorded in our earnings statement:
Duty impact on earnings
($ millions)
Cash deposits paid1
Adjust to West Fraser Estimated ADD rate2
Effective duty expense for period3
Duty recovery attributable to AR14
Duty recovery (expense)
Interest income on duty deposits attributable to West
Fraser Estimated rate adjustments
Interest income on the AR1 duty deposits receivable5
Interest income on duty deposits
1.
Q4-20
(70)
(7)
(77)
124
47
-
14
14
Q3-20
(57)
8
(49)
-
(49)
1
-
1
Q4-19
(38)
3
(35)
-
(35)
1
-
1
Represents combined CVD and ADD cash deposit rate of 23.56% from January 1, 2019 to November 30, 2020, and 8.97% from
December 1 to December 31, 2020.
Represents adjustment to West Fraser Estimated ADD rate of 3.40% for Q4-20, 1.85% for Q3-20 and 4.65% for Q4-19.
The total represents the combined CVD cash deposit rate and West Fraser Estimated ADD rate of 21.39% from October 1 to November 30,
2020, 10.97% from December 1 to December 31, 2020, 19.84% for Q3-20, and 22.64% for Q4-19.
$124 million represents the true-up to the final AR1 duty rates for the 2017 and 2018 POI.
$14 million represents interest income accrued on the $124 million duty deposit receivable.
2.
3.
4.
5.
In the fourth quarter of 2019, we recognized restructuring and impairment charges of $8 million for the
impairment of a B.C. lumber mill’s property, plant and equipment.
As a consequence of the items discussed above, Adjusted EBITDA decreased by $44 million compared to the
previous quarter and increased by $439 million compared to the fourth quarter of 2019. The following table
shows the Adjusted EBITDA variance for each comparative period.
($ millions)
Adjusted EBITDA - comparative period
Price
Volume
Changes in costs
Selling, general, and administration
Adjusted EBITDA - current period
Q3-20 to Q4-20
552
(32)
14
(27)
1
508
Q4-19 to Q4-20
69
402
55
(7)
(11)
508
Discussions on finance expense are included under the section “Discussion & Analysis of Fourth Quarter Results by
Product Segment - Other Non-Operational Items” in this MD&A. The lumber segment finance expense for the
quarter is net of $14 million of interest income related to the AR1 duty rate's finalization. Additional details on the
AR1 duty rate finalization can be found under the section “Discussion & Analysis of Annual Results by Product
Segment - Softwood Lumber Dispute” above.
Fluctuations in other income were due to foreign exchange revaluations on our Canadian operation U.S. dollar-
denominated working capital.
Panels Segment
($ millions unless otherwise indicated)
Panels segment earnings
Sales
Finished products
Wood chips and other residuals
Logs and other
Cost of products sold
Freight and other distribution costs
Amortization
Selling, general and administration
Operating earnings
Finance expense
Other
Earnings before tax
Adjusted EBITDA1
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.
Sales and Shipments
- 54 -
Q4-20
Q3-20
Q4-19
192
4
1
197
(113)
(14)
(5)
(8)
57
(1)
(1)
55
62
2
200
197
55
52
569
573
788
170
4
2
176
(103)
(14)
(4)
(8)
47
(1)
1
47
51
3
207
202
57
55
559
588
675
137
4
1
142
(108)
(15)
(5)
(6)
8
(1)
-
7
13
7
204
206
53
52
508
493
420
Plywood prices continued to rise in the quarter with continued strong demand, which positively impacted the
panels segment revenue compared to the previous quarter and fourth quarter of 2019. Lower plywood shipment
volumes partially offset the improved plywood pricing for all comparative quarters.
MDF and LVL pricing was flat compared to the previous quarter and fourth quarter of 2019.
The panels segment price variance resulted in an increase in Adjusted EBITDA of $26 million compared to the
previous quarter and $58 million compared to the fourth quarter of 2019.
Costs and Production
The impact of increased stumpage rates in Alberta exceeded the positive impacts from lower purchased log costs
in B.C., resulting in higher cost of goods sold in the quarter compared to the previous quarter and similar cost of
goods sold compared to the fourth quarter of 2019. B.C. purchased log costs declined in 2020 due to reduced
demand from industry-wide temporary curtailments and permanent closures, and a disciplined approach to log
- 55 -
procurement. The Alberta stumpage system fluctuates with published veneer prices, and the panels segment
began delivering logs under the higher price structure in the fourth quarter of 2020.
Plywood production continued to operate near capacity for the fourth quarter of 2020, with no significant
curtailments.
Selling, general, and administration costs increased compared to the fourth quarter of 2019 due primarily to
increased variable compensation expense.
As a consequence of the items discussed above, Adjusted EBITDA increased by $11 million compared to the
previous quarter and by $49 million compared to the fourth quarter of 2019. The following table shows the
Adjusted EBITDA variance for each comparative period.
($ millions)
Adjusted EBITDA - comparative period
Price
Volume
Changes in costs
Selling, general, and administration
Adjusted EBITDA - current period
Q3-20 to Q4-20
51
26
(3)
(12)
-
62
Q4-19 to Q4-20
13
58
(2)
(5)
(2)
62
Pulp & Paper Segment
($ millions unless otherwise indicated)
Pulp & paper segment earnings
Sales
Cost of products sold
Freight and other distribution costs
Amortization
Selling, general and administration
Operating earnings
Finance expense
Other
Earnings before tax
Adjusted EBITDA1
Capital expenditures
BCTMP (Mtonnes)
Production
Shipments
NBSK (Mtonnes)
Production
Shipments
Newsprint (Mtonnes)
Production
Shipments
- 56 -
Q4-20
Q3-20
Q4-19
206
(180)
(41)
(10)
(11)
(36)
(3)
(5)
(44)
(26)
14
156
167
103
112
29
29
221
(161)
(43)
(10)
(12)
(5)
(1)
(8)
(14)
5
5
172
172
130
128
27
27
232
(179)
(44)
(11)
(10)
(12)
(3)
3
(12)
(1)
4
176
179
123
130
26
29
Benchmark prices (per tonne)
NBSK U.S. Spot - US$2
NBSK China - US$3
Newsprint - US$4
NBSK U.S. Spot - Cdn$5
NBSK China - Cdn$5
Newsprint - Cdn$5
See section “Non-IFRS Measures” in this MD&A.
Source: Resource Information Systems, Inc. - U.S. spot price delivered U.S.
Source: Resource Information Systems, Inc. - China net price, delivered China. The China net price is the average of the North America
and Scandinavia NBSK price.
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.
620
563
701
818
743
925
643
637
605
838
830
788
618
572
615
823
762
819
1.
2.
3.
4.
5.
Sales and Shipments
Sales revenue was lower in the fourth quarter of 2020 than the comparative quarters due primarily to lower pulp
shipment volumes. NBSK prices increased compared to the previous quarter and the fourth quarter of 2019, but
the impact was offset by lower BCTMP and newsprint prices and a stronger Canadian dollar relative to the U.S.
dollar.
Printing and writing demand remained low in the fourth quarter of 2020, which negatively affected our pulp and
newsprint pricing. We have been able to ship the pulp that we produced due to continued paperboard and tissue
demand out of China and North America.
The pulp & paper segment price variance resulted in a decrease in Adjusted EBITDA of $1 million compared to the
previous quarter and $5 million compared to the fourth quarter of 2019.
Costs and Production
- 57 -
BCTMP production declined compared to the previous quarter and fourth quarter of 2019 due to a four-day minor
shutdown and reliability issues at our Quesnel BCTMP mill during the quarter. Our Hinton NBSK pulp mill had a 16-
day major maintenance shutdown during the quarter, resulting in lower NBSK production volumes than the
previous quarter and fourth quarter of 2019. The result was significantly higher maintenance costs for both
BCTMP and NBSK relative to the comparative periods.
Fibre costs increased compared to the previous quarter in response to the increase in NBSK price but declined
compared to the fourth quarter of 2019.
Freight and other distribution costs trended with shipment volumes over all the comparative periods.
As a consequence of the items discussed above, Adjusted EBITDA decreased by $31 million compared to the
previous quarter and by $25 million compared to the fourth quarter of 2019. The following table shows the
Adjusted EBITDA variance for each comparative period.
($ millions)
Adjusted EBITDA - comparative period
Price
Volume
Changes in costs
Adjusted EBITDA - current period
Q3-20 to Q4-20
Q4-19 to Q4-20
5
(1)
(1)
(29)
(26)
(1)
(5)
-
(20)
(26)
Discussions on finance expense are included above under the “Other Non-Operational Items” section in this
MD&A.
Fluctuations in other income were due to foreign exchange revaluations on our Canadian operation U.S. dollar-
denominated working capital. The previous quarter included an $8 million expense for a dispute related to the
Power Purchase Agreement terminated in 2016. We decreased this expense to $7 million in the fourth quarter of
2020. Details on the Power Purchase Agreement dispute are included under the section “Discussion & Analysis of
Annual Non-Operational Items - Adjusted Earnings and Adjusted Basic EPS” in this MD&A. The fourth quarter of
2019 included a $4 million gain for our Cariboo NBSK operation for insurance settlement related to the 2017
involuntary disposal of equipment.
Capital Expenditures
($ millions)
Segment
Lumber
Panels
Pulp & Paper
Corporate
Total
Profit
Improvement
143
9
5
-
157
Maintenance of
Business1
47
3
16
2
68
Safety
10
2
4
-
16
Total
200
14
25
2
241
1. Maintenance of business includes expenditures for roads, bridges, mobile equipment and major maintenance shutdowns.
Capital expenditures of $241 million in 2020 reflect our philosophy of continued reinvestment in our mills.
Projects put into service included a new sales system for SPF lumber, a new planer in Opelika, Alabama, and a
plywood dryer upgrade in Edmonton, Alberta.
Construction-in-progress projects include a greenfield lumber mill in Dudley, Georgia and two continuous dry kilns
in Fitzgerald, Georgia. The Dudley mill should begin production in the second quarter and the Fitzgerald kilns in
the third quarter of 2021.
- 58 -
Business Outlook
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 applications. After a temporary slowdown at the start of the COVID-19
pandemic, new housing demand as measured by housing starts and permits has recovered to levels greater than
the beginning of the pandemic and higher than the previous two years. Low mortgage rates, a low inventory of
homes for resale, and favourable demographics appear to have positively influenced the demand for new housing.
An aging housing stock, working from home requirements, and several other pandemic-related consumer changes
should continue to drive strong lumber demand for home repair and remodelling applications. The pandemic
negatively impacted industrial activity, and as it slowly recovers, the use of lumber in packaging materials should
increase.
Canadian lumber exports to Asia saw an overall decrease in 2020 as the Coronavirus took a toll on housing starts
and economies. Although we are now starting to see improved demand for lumber in Asia, competition from
suppliers in other countries and current North American pricing will continue to impact export markets.
Canadian softwood lumber exports to the U.S. have been the subject of trade disputes and managed trade
arrangements for 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 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. This increase may not be solely for the benefit of Canadian producers and could, in turn, cause the
price of SYP lumber to rise, but SYP would not be subject to the duty. 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. In November 2020, the USDOC completed the first administrative review and
finalized the duty rates for 2017 and 2018. The USDOC commenced AR2 in the second quarter of 2020, and they
should begin AR3 in 2021.
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. Plywood should continue to benefit from a
strong housing start and repair and remodelling market. MDF and LVL demand is heavily influenced by North
American new home construction. Following the Acquisition, we will include the acquired North American OSB
business results as part of our Panels segment. OSB demand is influenced by the same new housing market
conditions as described above.
The acquired businesses in Europe will be reported as a separate segment following the Acquisition. Demand for
OSB as an alternative to plywood in Europe continues to grow.
Our BCTMP and NBSK pulp is primarily used in printing and writing, boxboard and tissue applications. Pulp
markets are expected to improve in the first half of 2021, with an increase in demand out of China for all pulp
grades. China’s printing papers, tissue, and boxboard operating rates are high, resulting in increased demand for
many grades of imported pulp. The full implementation in China of a ban on recycled paper has resulted in further
incremental demand for imported pulp, favourably impacting the overall global supply and demand balance of
pulp. Printing and writing paper consumption in North America has continued to decline, but this has been
significantly offset by improved demand out of Asia.
Operations
- 59 -
We expect lumber production in 2021 to improve slightly from 2020 levels as we recapture production lost due to
temporary curtailments in the first half of 2020 and continue to realize the benefits of capital investments over the
past several years. As a result, we expect SPF production to be approximately 3.3 billion board feet in 2021. In the
U.S. south, we expect 2021 lumber production to be approximately 3.0 billion board feet. Anticipated production
levels assume continued strong demand, availability of sufficient logs within our economic return criteria, and no
further temporary curtailments. Our operations and results could be negatively affected by the availability of
labour due to the continuing impacts of COVID-19, adverse weather conditions in our operating areas, intense
competition for logs in the B.C. Interior, and elevated stumpage fees. On January 1, 2021, stumpage rates
increased in B.C. due to the market-based adjustments related to lumber costs, and we do not expect much
change over the balance of 2021. In Alberta, stumpage rates will remain elevated as long as SPF lumber prices are
high, as they are closely linked to the price of lumber and respond rapidly to changes in lumber prices. We do not
expect significant log cost inflation in the U.S. south.
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 will increase in 2021.
With respect to the acquired North American facilities, production at the previously curtailed mill in Chambord,
Quebec, will resume in spring 2021. Input costs for the OSB business are expected to increase marginally.
We executed maintenance shutdowns at both our NBSK mills in 2020 and have scheduled similar downtime for
2021. We expect a slight improvement in 2021 pulp production levels compared to 2020 of approximately 40,000
tonnes.
Cash Flows
We anticipate levels of cash flows, taking into account duties on Canadian softwood lumber exports to the U.S., to
support approximately $550 million of capital spending and dividend payments in 2021. This is inclusive of capital
spending estimated for the acquired Norbord operations post-close. We have paid a dividend in every quarter
since we became a public company in 1986. As a result of the additional shares issued to effect the Acquisition, at
the dividend rate of $0.80 per share, the total anticipated cash payment of dividends will be $99 million.
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. The assumption of US$665 million of debt as part of
the Acquisition will increase our annual interest expense by approximately US$40 million per year.
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.
U.S. Dollar Reporting
As a result of the Acquisition, we have determined that our operations' functional currency will become the U.S.
dollars. Accordingly, we will also transition our reporting currency to the U.S. dollar effective with our first quarter
2021 results.
Estimated Earnings Sensitivity to Key Variables1
(based on 2020 production - $ millions)
Factor
Lumber price
Plywood price
NBSK price
BCTMP price
U.S. - Canadian $ exchange rate2
1.
2.
- 60 -
Variation
US$10 (per Mfbm)
Cdn$10 (per Msf)
US$10 (per tonne)
US$10 (per tonne)
US$0.01 (per Cdn $)
Change in pre-tax earnings3
80
8
6
9
34
Each sensitivity has been calculated on the basis that all other variables remain constant and assume year-end foreign exchange rates.
Excludes the 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.
The earnings sensitivity of changes in the OSB price can be found in Norbord’s 2020 Management’s Discussion & Analysis as published on
SEDAR and is based on Norbord’s reporting currency.
3.
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
Refinancing and amendments
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 January 17, 2020, we entered into a new uncommitted, demand letter of credit facility of up to $40 million.
On February 1, 2021, concurrent with the closing of the Acquisition, we completed various administrative
amendments to our $850 million committed revolving credit facility and our US$200 million term loan to facilitate
the Acquisition. We also amended the terms of our $150 million committed revolving credit facility due 2022 that
we arranged in April of 2020. We replaced the $150 million committed revolving credit facility with a US$450
million committed revolving credit facility due 2024 on substantially the same terms.
Available liquidity
On December 31, 2020, our operating facilities consisted of an $850 million committed revolving credit facility, a
$150 million committed revolving credit facility with a two-year term, 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 $129 million dedicated to letters of
credit, of which US$15 million is committed to our U.S. operations.
On December 31, 2020, our revolving credit facility was undrawn. Letters of credit in the amount of $64 million
were supported by our facilities.
Available liquidity on December 31, 2020, was $1,619 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
- 61 -
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 London Inter-bank
Offered Rate (“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. On March 9, 2020, we extended the duration of our US$100 million notional interest rate
swap from August 2022 to August 2024, resulting in a change to the fixed interest rate on the swap from 2.47% to
1.78% through August of 2024. On April 15, 2020, we entered into additional interest rate swaps for another
notional amount of US$100 million, resulting in a fixed interest rate of 0.51% through August of 2024. The two
swap agreements fix the interest rate on the US$200 million 5-year term loan floating rate debt discussed above.
As part of the Acquisition, we assumed Norbord’s US$315 million senior notes due April 2023, bearing interest at
6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75%. Norbord’s accounts receivable
securitization facility and secured revolving credit facilities were terminated at closing and the security related to
such debt is subject to release and discharge. Upon such release and discharge, we will seek to release and
discharge the security granted in respect of the Norbord notes in order that the Norbord notes become unsecured
debt obligations.
Upon such release and discharge, the Norbord notes will become unsecured debt obligations.
Equity
Our outstanding Common share equity consists of 120,882,157 Common shares and 2,281,478 Class B Common
shares for a total of 123,163,635 shares issued and outstanding as of February 11, 2021, including 54,484,188
Common shares issued in connection with the Acquisition.
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 TSX, 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.
Concurrent with the completion of the Norbord acquisition, the Common shares of West Fraser commenced
trading on the NYSE on February 1, 2021 under the symbol WFG. In addition, the trading symbol for the Common
shares on the TSX was changed to WFG on February 1, 2021.
Share Buybacks
- 62 -
The following table shows our purchases under various NCIB programs, including a summary of all purchases since
the program was started in 2013. As of December 31, 2020, there was no NCIB program in place.
(number of Common shares and price per share)
NCIB period
September 19, 2018 to September 18, 2019
September 19 to December 31, 2018
January 1 to September 18, 2019
September 19, 2019 to September 18, 2020
September 17, 2013 to February 11, 2021
Share Options
Common Shares
Average Price
2,230,436
1,178,400
-
17,226,864
$70.05
$68.30
-
$66.05
As of February 11, 2021, there were 2,150,800 share purchase options outstanding with exercise prices ranging
from $23.68 to $85.40 per Common share. This includes 887,966 West Fraser options that were issued as
replacement options as part of the Norbord Acquisition.
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 12 to our Financial Statements, is determined by
subtracting the value of the plan assets from the plan obligations. In 2020, we recorded in other comprehensive
earnings an after-tax actuarial loss of $14 million, compared to $99 million in 2019. The current year loss reflected
a decrease in the discount rate used to calculate plan liabilities, the effect of plan revaluations, partially offset by
an actual rate of return on assets that was higher than the discount rate.
- 63 -
Summary of Financial Position
($ millions, except as otherwise indicated)
Cash and short-term investments
Current assets
Current liabilities
Ratio of current assets to current liabilities
Available liquidity
Cash and short-term investments
Operating lines available (excluding newsprint operation)1
Cheques issued in excess of funds on deposit
Borrowings on operating lines
Available liquidity2
Debt
December 31, 2020 December 31, 2019
587
1,701
673
2.5
587
1,032
1,619
-
-
1,619
16
1,147
837
1.4
16
882
898
(16)
(377)
505
Total debt
Cash and short-term investments
Open letters of credit3
Interest rate swaps3
Cheques issued in excess of funds on deposit
Operating loans
Current and long-term lease obligation
Current and long-term debt
Interest rate swaps3
Open letters of credit3
377
11
663
3
61
1,115
(16)
(61)
(3)
16
1,051
2,474
31%
30%
Excludes $8 million demand line of credit dedicated to our jointly-owned newsprint operation as West Fraser cannot draw on it.
Operating lines available includes a US$25 million demand line of credit translated at the balance sheet date foreign exchange rate.
See section “Non-IFRS Measures” in this MD&A.
Letters of credit facilities and the fair value of interest rate swaps are part of our bank covenants’ total debt calculation.
Total capital is total debt or net debt plus shareholders’ equity.
-
8
650
8
64
730
(587)
(64)
(8)
-
71
3,155
19%
2%
Net Debt
Shareholders’ equity
Total debt to capital2,4
Net debt to total capital2,4
1.
2.
3.
4.
Debt Ratings
We are considered investment grade by three leading rating agencies. In April 2020, both Moody’s and Standard &
Poor’s revised our outlook from stable to negative, and Dominion Bond Rating Service from positive to stable. In
November 2020, Standard & Poor’s revised its outlook from negative to stable. On February 1, 2021, Moody’s
revised our outlook from negative to stable. The ratings in the table below are as of February 11, 2021.
Agency
DBRS
Moody’s
Standard & Poor’s
Rating
BBB(low)
Baa3
BBB-
Outlook
Stable
Stable
Stable
These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or
withdrawal at any time by the rating agencies.
Cash Flow
- 64 -
Other than for operating purposes, our cash requirements are primarily for interest payments, repayment of debt,
additions to property, plant, equipment and timber, acquisitions, and dividends. In normal business cycles and in
years without a major acquisition or debt repayment, cash on hand and cash provided by operations have typically
been sufficient to meet these requirements.
Cash Flow Statement
($ millions - cash provided by (used in))
Operating Activities
Earnings
Amortization
Restructuring and impairment charges
Restructuring charges paid
Finance expense, net
Exchange loss on long-term financing
Exchange loss on export duty deposits
Export duty deposits
Post-retirement expense
Contributions to post-retirement plans
Tax provision (recovery)
Income taxes received (paid)
Other
Changes in accounts receivable
Changes in inventories
Changes in prepaid expenses
Changes in payables and accrued liabilities
Financing Activities
Operating loans received (paid)
Finance expense paid
Dividends
Repurchases of Common shares
Other
Investing Activities
Additions to capital assets
Other
Change in cash
Operating Activities
2020
2019
776
272
-
-
37
1
5
(136)
100
(66)
266
59
(1)
(106)
(9)
(7)
104
1,295
(377)
(41)
(55)
-
(3)
(476)
(241)
19
(222)
597
(150)
259
33
(7)
49
3
4
(5)
80
(85)
(69)
(62)
-
70
51
5
(61)
115
314
(43)
(55)
(81)
(5)
130
(410)
19
(391)
(146)
The table above shows the cash used in or provided by operations for 2020 compared to 2019. The significant
factors affecting the comparison were improved earnings, working capital changes, and income tax receipts
(payments).
Most of our finished goods inventory and log volumes are lower than in 2019, but the cost per unit is higher,
resulting in an overall inventory increase. 2019 had lower inventory volumes primarily due to the reduction of
lumber inventory from the temporary and permanent curtailments and lower than normal log inventories in
Alberta due to forest fires and an unusually wet summer.
- 65 -
Accounts payable balances increased during the quarter due primarily to higher variable compensation and equity-
based compensation accruals and higher stumpage payable due to the increase in Alberta stumpage rates.
Accounts receivable balances increased in 2020 due primarily to higher lumber and plywood prices.
We received an income tax refund of $124 million in 2020, mostly related to our Canadian loss carry-back request
from our 2019 tax returns. U.S. tax installments for fiscal 2020 were $33 million, as we absorbed our eligible tax
loss carry-forwards in 2020 and returned to a taxable position. Canadian installment rules allow most of the 2020
tax payments to be made in February 2021. We estimate the final 2020 tax payment to be $124 million. We made
income tax payments of $62 million in 2019, of which $36 million was the final Canadian income tax payment for
fiscal 2018.
Financing Activities
We have repaid our operating loan and increased cash by $597 million due to improved earnings.
The weighted average interest rate on our outstanding borrowings at December 31, 2020, was 3.73%, after giving
effect to the interest rate swaps.
In 2020, the Canadian and U.S. governments enacted various COVID-19 payment deferral programs for taxes and
fees to help businesses with short-term liquidity issues due to the economic disruptions that arose from the
voluntary and mandated business closures, travel bans, social distancing, and quarantine periods. No payment
deferrals were remaining as of December 31, 2020.
We also returned $55 million to our shareholders through dividend payments in 2020.
Investing Activities
Our 2020 additions to capital assets include $200 million for the lumber segment, $14 million for the panels
segment, $25 million for the pulp & paper segment and $2 million for our corporate segment. Additional details
are found under the section “Capital Expenditures” above.
Contractual Obligations
On February 1, 2021, concurrent with the closing of the Acquisition, we completed various administrative
amendments to our $850 million committed revolving credit facility and our US$200 million term loan to facilitate
the Acquisition. We also amended the terms of our $150 million committed revolving credit facility due 2022 that
we arranged on April 9, 2020. We replaced the $150 million committed revolving credit facility with a US$450
million committed revolving credit facility due 2024 on substantially the same terms.
As part of the Acquisition, we assumed Norbord’s US$315 million senior notes due April 2023, bearing interest at
6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75%. In accordance with the terms of
the Norbord senior notes, we will be required to make a “change of control” offer to repurchase these notes
within 30 days of completion of the acquisition of Norbord on February 1, 2021. There is no assurance that the
holders of the notes will accept our change of control offers.
Norbord’s accounts receivable securitization facility and secured revolving credit facilities were terminated at
closing and the security related to such debt is subject to release and discharge. Upon such release and discharge,
we will seek to release and discharge the security granted in respect of the Norbord notes in order that the
Norbord notes become unsecured debt obligations.
On April 9, 2020, we obtained an additional $150 million committed revolving credit facility with a two-year term.
The new credit facility is available for general corporate purposes and is on substantially similar terms to the
- 66 -
existing $850 million credit facility. On February 1, 2021, this facility was replaced with a US $450 million
committed revolving credit facility due 2024.
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. On March 9, 2020, we extended the duration of our US$100 million notional interest rate
swap from August 2022 to August 2024, resulting in a change to the fixed interest rate on the swap from 2.47% to
1.78% through August of 2024. On April 15, 2020, we entered into additional interest rate swaps for another
notional amount of US$100 million, resulting in a fixed interest rate of 0.51% through August of 2024. The two
swap agreements fix the interest rate on the US$200 million 5-year term loan floating rate debt discussed above
and are accounted for as derivatives.
Contractual Obligations
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, lease 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.
West Fraser Contractual Obligations
(at December 31, 2020, in $ millions)
Long-term debt1
Interest on long-term debt
Lease obligations
Contributions to defined benefit pension plans2
Asset purchase commitments
Total
2021
10
20
3
44
53
130
2022
-
20
3
60
-
83
2023
3
19
2
68
-
92
2024
637
15
-
-
-
652
Total
650
74
8
172
53
957
1.
2.
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.
On February 1, 2021, we assumed Norbord’s contractual obligations as part of the Acquisition. These obligations
can be found in Norbord’s 2020 MD&A as published on SEDAR.
Financial Instruments
Details of our financial instruments can be found in Note 22 to our Financial Statements.
Significant Management Judgments Affecting Financial Results
Financial statement preparation requires management to make estimates and assumptions and 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
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 CVD and ADD against Canadian softwood
lumber imports. The USDOC chose us as a “mandatory respondent” to both the countervailing and antidumping
investigations, and as a result, we have received unique company-specific rates.
- 67 -
Details can be found under the section “Discussion & Analysis of Annual Results by Product Segment - Lumber -
Softwood Lumber Dispute.”
Accounting policy for duties
The CVD and ADD rates are subject to adjustment by the USDOC through an AR of POI. The CVD and ADD rates
apply retroactively for each 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, along with any true-up
adjustments to finalized rates. Such adjustments for CVD and ADD could be material.
The difference between the cash deposit amount and the amount that would have been due based on the final AR
rate will incur interest based on the U.S. federally published interest rate. We record interest income on our duty
deposits receivable based on this rate and will record an interest expense if the balance becomes a liability.
Adjustments to the CVD and ADD rates could cause a material adjustment to the interest recorded, and that
adjustment could be material.
Appeals
On May 22, 2020, the NAFTA panel issued its final decision on “Injury”. The NAFTA panel rejected the Canadian
parties’ arguments and upheld the USITC’s remand determination in its entirety.
On August 28, 2020, the WTO’s dispute-resolution panel ruled unanimously that U.S. countervailing duties against
Canadian softwood lumber are inconsistent with the WTO obligations of the United States. The decision
confirmed that Canada does not subsidize its softwood lumber industry. On September 28, 2020, the U.S.
announced that it would appeal the WTO panel’s decision.
The softwood lumber case will continue to be subject to NAFTA or the new CUSMA and WTO dispute resolution
processes, and litigation in the U.S. In the past, long periods of litigation have led to negotiated settlements and
duty deposit refunds. In the interim, duties remain subject to the USDOC AR process, which results in an annual
adjustment of duty deposit rates.
Notwithstanding the deposit rates assigned under the investigations, our final liability for CVD and ADD will not be
determined until each annual administrative review process is complete and related appeal processes are
concluded.
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 to sell and value-in-use. There were no impairments in 2020. In 2019, the B.C. lumber industry
faced low product pricing and high purchased log costs resulting in $33 million of impairment charges. $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 a B.C. lumber mill.
We review the amortization periods for our manufacturing equipment and machinery to ensure that the periods
appropriately reflect anticipated obsolescence and technological change. The 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
- 68 -
value is more than the estimated discounted cash flows, then a goodwill impairment will be recorded. We tested
goodwill for impairment in 2020 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 anticipate that
we will record a significant amount of goodwill in connection with the Acquisition.
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
In Canada, provincial regulations require timber quota holders to carry out reforestation to ensure re-
establishment 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. We review this liability at least once a year and update it to our current estimate of the costs to
complete the remainder of the reforestation activities. In 2020, the reforestation obligation review resulted in an
increase of $2 million to the obligation (2019 - an increase of $4 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 2020 review increased the liability by $5 million, which was primarily
related to the decommissioning of our Chasm, B.C. mill site and a landfill closure on Vancouver Island (2019 - an
increase of $2 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 12 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
In August 2020, the International Accounting Standards Board issued Interest Rate Benchmark Reform Phase 2,
which amends various standards requiring interest rates or interest rate calculations. The amendments provide
guidance on financial reporting after the LIBOR reform, including its replacement with alternative benchmark
rates. The amendments are effective for annual periods beginning on or after January 1, 2021. These
amendments have no impact on our financial statements.
Non-IFRS Measures
Throughout this MD&A, reference is made to Adjusted EBITDA, Adjusted earnings, Adjusted basic earnings per
share, available liquidity, and total 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
regard to operating and financial performance. These Non-IFRS measures are not generally accepted financial
measures under IFRS and do not have standardized meanings prescribed by IFRS. Investors are cautioned that
- 69 -
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 any of
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.
Adjusted EBITDA
Adjusted EBITDA is used to evaluate the operating and financial performance of our operating segments, generate
future operating plans, and make strategic decisions. Adjusted EBITDA is defined as earnings determined in
accordance with IFRS adding back the following line items from the consolidated statements of earnings and
comprehensive earnings: finance expense, tax provision or recovery, amortization, export duties, equity-based
compensation, restructuring and impairment charges, and other.
The following tables reconcile Adjusted EBITDA to the most directly comparable IFRS measures.
Annual Adjusted EBITDA
($ millions)
Earnings
Add: Finance expense, net
Add (deduct): Tax provision (recovery)
Add: Amortization
Add: Equity-based compensation
Add: Export duties, net
Add: Restructuring and impairment charges
Add (deduct): Other
Adjusted EBITDA
Quarterly Adjusted EBITDA
($ millions)
Earnings
Add: Finance expense, net
Add (deduct): Tax provision (recovery)
Add: Amortization
Add: Equity-based compensation
Add (deduct): Export duties, net
Add: Restructuring and impairment charges
Add: Other
Adjusted EBITDA
2020
776
37
266
272
11
79
-
19
1,460
Q4-20
366
(3)
135
71
5
(47)
-
17
544
2019
(150)
49
(69)
259
6
162
33
11
301
Q3-20
350
11
115
66
3
49
-
11
605
2018
810
37
262
257
7
202
-
(37)
1,538
Q4-19
(42)
13
(4)
66
2
35
8
2
80
Annual Adjusted EBITDA by segment
($ millions)
2020
Earnings before tax
Add: Finance expense, net
Add: Amortization
Add: Equity-based compensation
Add: Export duties, net
Add (deduct): Other
Adjusted EBITDA by segment
2019
Earnings before tax
Add: Finance expense, net
Add: Amortization
Add: Equity-based compensation
Add: Export duties, net
Add: Restructuring and impairment
charges
Add (deduct): Other
Adjusted EBITDA by segment
2018
Earnings before tax
Add: Finance expense, net
Add: Amortization
Add: Equity-based compensation
Add: Export duties, net
Deduct: Other
Adjusted EBITDA by segment
Quarterly Adjusted EBITDA by segment
($ millions)
Q4-20
Earnings before tax
Add (deduct): Finance expense, net
Add: Amortization
Add: Equity-based compensation
Deduct: Export duties, net
Add: Other
Adjusted EBITDA by segment
Lumber
1,013
24
201
-
79
5
1,322
Lumber
(202)
35
196
-
162
33
7
231
Lumber
753
25
196
-
202
(20)
1,156
Lumber
499
(7)
52
-
(47)
11
508
- 70 -
- 70 -
Panels
128
4
16
-
-
(7)
141
Panels
31
4
16
-
-
-
-
51
Panels
110
2
15
-
-
-
127
Panels
55
1
5
-
-
1
62
Pulp &
Paper
(61)
8
42
-
-
11
-
Pulp &
Paper
(29)
10
43
-
-
-
(4)
20
Pulp &
Paper
215
10
44
-
-
(11)
258
Pulp &
Paper
(44)
3
10
-
-
5
(26)
Corporate &
Other
(38)
1
13
11
-
10
(3)
Corporate &
Other
(19)
-
4
6
-
-
8
(1)
Corporate &
Other
(6)
-
2
7
-
(6)
(3)
Corporate &
Other
(9)
-
4
5
-
-
-
Total
1,042
37
272
11
79
19
1,460
Total
(219)
49
259
6
162
33
11
301
Total
1,072
37
257
7
202
(37)
1,538
Total
501
(3)
71
5
(47)
17
544
Q3-20
Earnings before tax
Add: Finance expense, net
Add: Amortization
Add: Equity-based compensation
Add: Export duties, net
Add (deduct): Other
Adjusted EBITDA by segment
Q4-19
Earnings before tax
Add (deduct): Finance expense, net
Add: Amortization
Add: Equity-based compensation
Add: Export duties, net
Add: Restructuring and impairment
charges
Add (deduct): Other
Adjusted EBITDA by segment
- 71 -
- 71 -
Panels
47
1
4
-
-
(1)
51
Panels
7
1
5
-
-
-
-
13
Lumber
441
8
49
-
49
5
552
Lumber
(37)
10
49
-
35
8
4
69
Pulp &
Paper
(14)
1
10
-
-
8
5
Pulp &
Paper
(12)
3
11
-
-
-
(3)
(1)
Corporate &
Other
(9)
1
3
3
-
(1)
(3)
Corporate &
Other
(4)
(1)
1
2
-
-
1
(1)
Total
465
11
66
3
49
11
605
Total
(46)
13
66
2
35
8
2
80
Adjusted Earnings and Adjusted Basic Earnings Per Share
The following tables reconcile Adjusted earnings and Adjusted basic earnings per share to the most directly
comparable IFRS measures.
Annual Adjusted Earnings and Adjusted Basic Earnings Per Share
($ millions, except EPS amounts which are in $)
Earnings
Add: Export duties, net
Deduct: Interest recognized on export duty deposits receivable
Add: Equity-based compensation
Add: Exchange loss on long-term financing
Add: Exchange loss on export duty deposits receivable
Deduct: Insurance gain on disposal of equipment
Add: Power purchase dispute
Add: Restructuring and impairment charges
Deduct: Re-measurement of deferred income tax assets and liabilities
Deduct: Net tax effect on the above adjustments
Adjusted earnings
Adjusted basic EPS1
1.
Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.
2020
776
79
(16)
11
1
5
(7)
7
-
-
(13)
843
12.27
2019
(150)
162
(4)
6
3
4
(4)
-
33
(18)
(53)
(21)
(0.31)
Quarterly Adjusted Earnings and Adjusted Basic Earnings Per Share
($ millions except EPS amounts, which are in $)
- 72 -
- 72 -
Earnings
Add: Export duties, net
Deduct: Interest income recognized on export duty deposits
receivable
Add: Equity-based compensation
Add: Exchange loss on long-term financing
Add: Exchange loss on export duty deposits receivable
Deduct: Insurance gain on disposal of equipment
Add: Power purchase dispute
Add: Restructuring and impairment charges
Deduct: Re-measurement of deferred income tax assets and
liabilities
Add (deduct): Net tax effect on the above adjustments
Adjusted earnings
Adjusted basic EPS1
1.
Q4-20
366
(47)
Q3-20
350
49
Q4-19
(42)
35
(14)
5
3
8
-
(1)
-
-
18
338
4.92
(1)
3
1
1
-
8
-
-
(9)
402
5.85
(1)
2
1
1
(4)
-
8
(1)
(10)
(11)
(0.16)
Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.
Available liquidity
The following table reconciles Available liquidity to the most directly comparable IFRS measures.
($ millions)
December 31, 2020 December 31, 2019
Available liquidity
Cash and short-term investments
Operating lines available (excluding newsprint operation)1
16
882
898
(16)
(377)
505
Excludes $8 million demand line of credit dedicated to our jointly-owned newsprint operation as West Fraser cannot draw on it.
Operating lines available includes a US$25 million demand line of credit translated at the balance sheet date foreign exchange rate.
Cheques issued in excess of funds on deposit
Borrowings on operating lines
587
1,032
1,619
-
-
1,619
Available liquidity
1.
Total and net debt to total capital ratio
- 73 -
- 73 -
The following table reconciles total and net debt to total capital ratio to the most directly comparable IFRS
measures.
($ millions)
December 31, 2020 December 31, 2019
Debt
Operating loans
Current and long-term lease obligation
Current and long-term debt
Interest rate swaps1
Open letters of credit1
Total debt
Cash and short-term investments
Open letters of credit1
Interest rate swaps1
Cheques issued in excess of funds on deposit
Net Debt
Shareholders’ equity
Total debt to capital2
Net debt to total capital2
1.
2.
-
8
650
8
64
730
(587)
(64)
(8)
-
71
3,155
19%
2%
377
11
663
3
61
1,115
(16)
(61)
(3)
16
1,051
2,474
31%
30%
Letters of credit facilities and the fair value of interest rate swaps are part of our bank covenants’ total debt calculation.
Total capital is total debt or net debt plus shareholders’ equity.
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. These risks include risks associated with our Acquisition of Norbord and its OSB
business. References to the Norbord business below refer to the Norbord OSB business, which is not operated as a
subsidiary of West Fraser until the close on February 1, 2021. 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
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, European and other international
economies, particularly U.S. and Canadian housing markets and their mix of single and multifamily construction,
repair, renovation and remodelling spending; (2) alternative products to lumber or panels; (3) construction and
home building disruptor technologies that may reduce the use of lumber or panels; (4) changes in industry
production capacity; (5) changes in world inventory levels; (6) increased competition from other consumers of logs
and producers of lumber or panels; 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.
In addition, our Norbord business is highly exposed to fluctuations in demand and pricing of OSB as OSB accounts
for approximately 90% of Norbord’s panel production capacity. The price of commodity grades of OSB is one of
the most volatile in the wood products industry. Norbord’s concentration on OSB increases its sensitivity to
product pricing and may result in a high degree of sales and earnings volatility. In the past, Norbord has been
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negatively affected by declines in product pricing and has taken production downtime or indefinite curtailments to
manage working capital and minimize cash losses. Severe and prolonged weakness in the markets for Norbord’s
products, particularly OSB, could seriously harm our financial position, operating results and cash flows.
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 sawmills 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, OSB, 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 14% 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
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.
Fibre Resource for the Norbord Business
Fibre for Norbord’s OSB mills comes from roundwood logs while the MDF and particleboard mills source fibre in
the form of roundwood logs, wood chips, sawdust and recycled wood. This wood fibre supply comes from several
different sources. In the U.S., roundwood logs are primarily sourced from private and industry-owned woodlands.
In Canada, we hold forest licences and agreements to source roundwood logs from Crown timberlands, which are
supplemented by open market purchases and private supply agreements. In Europe, wood fibre is purchased from
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government and private landowners. When timber, wood chips, fibre and other wood recycled materials are
acquired on the open market, we are in competition with other uses of such resources, where prices and the
availability of supply are influenced by factors beyond our control. Fibre supply for the Norbord business could
also be influenced by natural events, such as forest fires, severe weather conditions, insect epidemics and other
natural disasters, which may increase wood fibre costs, restrict access to wood fibre or force production
curtailments.
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.
With respect to our acquisition of Norbord, our OSB business’ future performance is dependent upon international
trade and, in particular, cross border trade between Canada and the U.S. and between the UK and European
Union. Access to markets in the U.S., the European Union and other countries may be affected from time to time
by various trade-related events. The financial condition and results of operations of our OSB business could be
materially adversely affected by trade rulings, the failure to reach or adopt trade agreements, the imposition of
customs duties or other tariffs, or an increase in trade restrictions in the future. In addition, the exit of the United
Kingdom from the European Union, or “Brexit” is anticipated to continue to cause uncertainty, as well as volatility
in the financial markets and economy generally, which may in turn have a material adverse effect on our OSB
business, financial condition and results of operations and could contribute to instability in global financial and
foreign exchange markets, including volatility in the value of the Pound Sterling and Euro.
Contagious Disease
A local, regional, national or international outbreak or escalation of a contagious disease, virus or other illness
including COVID-19, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus,
avian flu or any other similar illness, or fear of the foregoing, could cause interruptions to our business and
operations and otherwise have an adverse effect on our business, financial condition and/or results of operations
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including as a result of the effects on: (i) global economic activity, (ii) the business, operations, financial condition,
and solvency of our customers caused by operating shutdowns or disruptions or financial or liquidity issues, (iii) the
demand for and price of our products, (iv) the health of our employees and the impact on their ability to work or
travel, (v) our ability to operate our manufacturing facilities, (vi) our supply chain and the ability of third party
suppliers, service providers and/or transportation carriers to supply goods or services on which we rely on to
transport our products to market, and (vii) our revenues, cash flow, liquidity and ability to maintain compliance
with the covenants in our credit agreements.
Demand and prices for our products may be adversely affected by such outbreaks and pandemics that affect levels
of economic activity, and we are unable to predict or estimate the timing or extent of the impact of such outbreaks
and pandemics. Governmental measures or restrictions, including those requiring the closures of businesses,
restrictions on travel, country, provincial or state and city-wide isolation orders, and physical distancing
requirements, may directly affect our operations and employees and those of our customers, suppliers and service
providers, and the demand for and pricing of our products. The spread of such viruses among our employees or
those of our suppliers or service providers could result in lower production and sales, higher costs, and supply and
transportation constraints. Accordingly, our production, costs, and sales may be negatively affected, which could
have a material adverse effect on our business, financial condition and/or results of operation.
Given the ongoing and dynamic nature of the COVID-19 outbreak, it is challenging to predict the impact on the
Company’s business. The extent of such impact will depend on future developments, which are highly uncertain,
including the resurgence of COVID-19 as restrictions are eased or lifted, new information that may emerge
concerning the spread and severity of COVID-19, and actions taken to address its impact, among others. It is
difficult to predict how this virus may affect our business in the future, including its effect (positive or negative;
long or short term) on the demand and price for our products. It is possible that COVID-19, particularly if it has a
prolonged duration, could have a material adverse effect on our supply chain, market pricing and customer
demand, and distribution networks. These factors may further impact our operating plans, business, financial
condition, liquidity, the valuation of long-lived assets, and operating results.
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.
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. The adoption of these laws and regulations may increase
our costs of operations, including energy, transportation and raw material costs, which may adversely impact our
operations.
Mountain Pine Beetle and B.C. Wildfires
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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 and as has the processing of fire damaged logs from wildfire activity. 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
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. Our
ability to refinance or renew such facilities will be dependent upon our financial condition, profitability and credit
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ratings and prevailing financial market conditions. 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.
Following completion of the Acquisition, we have notes maturing in 2023 (Norbord), 2024 and 2027 (Norbord) and
a term loan maturing in 2024. There is no assurance that financing will be available to us when required or may
not be available to us on commercially favourable or otherwise satisfactory terms in the future to re-finance these
notes and loan when they become due. In addition, we will be required to make a “change of control” offer to the
holders of the Norbord 2023 and 2027 notes as a result of the completion of the Acquisition, as required by the
indentures governing the notes. There is no assurance that our change of control offers to the holders will be
accepted.
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 other fibre sources, 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.
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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. Any failure of
third-party transportation providers to deliver finished goods or raw materials in a timely manner, including failure
caused by adverse weather conditions or work stoppages, could harm our reputation, negatively affect customer
relationships or disrupt production at our mills. 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 and adversely impact our profitability. 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.
As at December 31, 2020, we employed approximately 8,115 individuals, including our proportionate share of
those in 50%-owned operations. Of these, approximately 5,555 are employed in our lumber segment, 1,275 in our
panels segment, 880 in our pulp & paper segment and 405 in our corporate segment. Approximately 36% of our
employees are covered by collective agreements. There are no expired collective agreements remaining as at
December 31, 2020. Union agreements representing 915 of our employees expire in 2021.
Norbord’s U.S. employees are non-unionized while its UK, Belgian and most of its Canadian mill employees are
unionized - representing approximately 35% of the workforce. All of Norbord’s UK and Belgian union contracts are
evergreen. Canadian union contracts typically cover a three-to-five-year term, and the current contracts with
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Unifor representing members at the OSB mills in La Sarre, Quebec, Barwick, Ontario and Chambord, Quebec expire
on June 30, 2021, July 31, 2022 and June 1, 2026, respectively. Strikes or work stoppages could result in lost
production and sales, higher costs or supply constraints if Norbord is unable to negotiate acceptable contracts with
its various trade unions upon expiry. In addition, disputes with Norbord's trade unions may lead to litigation, the
result of which may adversely impact cash flow and profitability of Norbord’s operations.
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.
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. These regulations include environmental laws and regulations relating
to air emissions, wastewater discharges, solid and hazardous waste management, plant and wildlife protection and
site remediation, as well as workplace safety. 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. Failure to comply with applicable laws and regulations
could result in fines, penalties or other enforcement actions that could impact our production capacity or increase
our production costs. In addition, laws and regulations could become more stringent or subject to different
interpretation in the future.
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 environmental 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, 2020. 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.
Third Party Sustainability Certification
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The majority of our European wood suppliers and Canadian Crown timberlands are subject to third-party
certification to the Forest Stewardship Council (FSC) or the Sustainable Forestry Initiative (SFI) sustainable forest
management standards. Customers may require a different certification than one we currently have, and there is
no certainty such certification will be obtained, and demand may be reduced based on this requirement. Demand
for our products in Europe may be reduced if certification is not maintained. In addition, changes in sustainable
forest management standards or our determination to seek certification for conformance with alternate
sustainable forest management standards may increase the cost of wood fibre.
Aboriginal Groups
Issues relating to Aboriginal groups, including First Nations, Métis 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 or steps governments may take in favour of 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 and, where possible, agreements 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 provincial governments have made various 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”). In this regard, B.C. has passed and brought
into force the Declaration on the Rights of Indigenous Peoples Act, which is principally a framework for future
action. At this time, it is unclear whether or how UNDRIP will be further 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 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
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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 license, 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. Upon the close of the
Acquisition, West Fraser will be converting to U.S. functional and U.S. reporting currency. Following the
conversion, there will no longer be translation gains or losses for our Canadian operations in respect of U.S. dollar
balances reported in earnings in the Financial Statements. Rather, translation gains and losses for our Canadian
operations will be reported in earnings in the Financial Statements in respect of Canadian dollar transactions and
balances.
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. Following the conversion to U.S. functional and U.S. reporting currency, there will no longer be
translation gains or losses reported in other comprehensive earnings in respect of our U.S. operations. 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.
In addition, a portion of Norbord’s product prices and costs are influenced by relative currency values (particularly
the Canadian dollar, Pound Sterling and Euro). Significant fluctuations in relative currency values could negatively
affect the cost competitiveness of Norbord’s facilities, the value of its foreign investments, the results of its
operations and its financial position. Norbord’s foreign exchange exposure arises from the following sources: (i)
net investments in foreign operations, limited to Norbord’s investment in its European operations which transact
in both Pounds Sterling and Euros; (ii) net Canadian dollar-denominated monetary assets and liabilities; and (iii)
committed or anticipated foreign currency-denominated transactions, primarily Canadian dollar costs in
Norbord’s Canadian operations and Euro revenues in Norbord’s UK operations.
Competition
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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.
In addition, continued consolidation in the retail and construction industries could expose us to increased
concentration of customer dependence and increase customers’ ability to exert pricing pressure on us and our
products. In addition, concentration of our business with fewer customers as a result of consolidation could
expose us to risks associated with the loss of key customers. For example, the loss of a significant customer, any
significant customer order cancellations or bad debts could negatively affect Norbord’s sales and earnings.
Pension Plan Funding
We are the sponsor of several defined benefit pension plans including plans of Norbord which we assumed as part
of the Acquisition 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 order to optimize performance, we regularly implement business process improvement initiatives and invest
capital to upgrade our information technology infrastructure. These initiatives may involve risks to the operations
and we may experience difficulties during the transition to these new or upgraded systems and processes.
Difficulties in implementing new or upgraded information systems or significant system failures could disrupt
operations and have a material adverse effect on the business.
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. Further, disruptions resulting from
cyber security breaches could expose us to potential liability or other proceedings by affected individuals, business
partners and/or regulators. As a result, we could face increased costs if any future claims exceed our insurance
coverage.
Product Liability and Legal Proceedings
We produce a variety of wood-based panels that are used in new home construction, repair-and-remodelling of
existing homes, furniture and fixtures, and industrial applications. In the normal course of business, the end users
of our products have in the past made, and could in the future make, claims with respect to the fitness for use of
its products or claims related to product quality or performance issues. In addition, we have been in the past and
may in the future be involved in legal proceedings related to antitrust, negligence, personal injury, property
damage, environmental matters, and labour and other claims against us or our predecessors. We could face
increased costs if any future claims exceed purchased insurance coverage.
Capital Intensity
Our business and the production of wood-based panels is capital intensive. There can be no assurance that key
manufacturing facilities and pieces of equipment will not need to be updated, modernized, repaired or replaced,
or that operation of our manufacturing facilities could not otherwise be disrupted unexpectedly, for example by
adverse weather, labour disputes, information technology disruptions, power outages, fire, explosion or other
hazards including combustible wood dust. In certain circumstances, the costs of repairing or replacing equipment,
and the associated downtime of the affected production line, may not be insurable.
We are required to review our long-lived assets for indicators that their carrying values will not be recovered.
Indicators could include high raw material costs, changes in demand for our products, declines in product pricing,
changes in technology, prolonged negative results or operational curtailments, and may result in non-cash
impairment or accelerated depreciation charges in the future and therefore have a negative impact to earnings in
the period when these charges are recorded.
International Sales
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A portion of our products are exported to customers in China and in developing markets. International sales
present a number of risks and challenges, including but not limited to the effective marketing of our products in
foreign countries, collectability of accounts receivable, tariffs and other barriers to trade and recessionary
environments in foreign economies.
Strategic Initiatives and Acquisitions
Our future success may in part be dependent on the performance of strategic initiatives, which could include
growth in certain segments or markets and acquisitions. There can be no assurance that we will be able to
successfully implement important strategic initiatives in accordance with our expectations, which may adversely
affect our business, financial results and future growth prospectus. We may evaluate potential acquisitions from
time to time and have in the past grown through acquisitions. However, there is no assurance that we in the
future will be able to successfully identify potential acquisitions or efficiently and cost-effectively integrate any
assets or business that we acquire without disrupting existing operations.
Tax Exposures
In the normal course of business, we take various positions in the filing of our tax returns, and there can be no
assurance that tax authorities will not challenge such filing positions. In addition, we are subject to further
uncertainties concerning the interpretation and application of tax laws in various operating jurisdictions. We
provide for known estimated tax exposures in all jurisdictions. These exposures are settled primarily through the
closure of audits with the jurisdictional taxing authorities. However, future settlements could differ materially
from our estimated liabilities.
Potential Future Changes in Tax Laws, including Tax Rates
Our corporate structure is based on prevailing taxation law, regulations and practice in the local jurisdictions in
which it operates. We are aware that new taxation rules could be enacted or that existing rules could be applied in
a manner that subjects our profits to additional taxation or otherwise has a material adverse effect on our
profitability, results of operations, deferred tax assets and liabilities, financial condition or the trading price of its
securities. Our management is continually monitoring changes in tax policy, tax legislation (including in relation to
taxation rates), and the interpretation of tax policy or legislation or practice that could have such an effect.
Governments around the world are increasingly seeking to regulate multinational companies and their use of
differential tax rates between jurisdictions. This effort includes a greater emphasis by various nations to
coordinate and share information regarding companies and the taxes they pay. Changes in governmental taxation
policies and practices could adversely affect West Fraser or Norbord or result in negative media coverage and,
depending on the nature of such policies and practices, could have a greater impact on the Company than on other
companies.
Additional Risks and Uncertainties Related to Our Acquisition of Norbord
We May Not Achieve the Anticipated Benefits from the Acquisition
Our ability to realize the anticipated benefits of our acquisition on Norbord will depend in part on our successfully
consolidating Norbord’s business and integrating Norbord’s operations, procedures and personnel in a timely and
efficient manner, as well as on our ability to realize the anticipated growth opportunities and synergies, efficiencies
and cost savings from the combined business. This integration will require the dedication of substantial
management effort, time and resources which may divert our management’s focus and resources from other
strategic opportunities and from other operational matters during this process. The integration process may result
in the loss of key employees and the disruption of ongoing business, customer and employee relationships that
may adversely affect our ability to achieve the anticipated benefits of the Acquisition.
The Acquisition May Not Maximize Our Growth Potential
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One of our principal reasons for the Acquisition is to maximize the growth potential of West Fraser beyond the
level that West Fraser could have achieved on its own without the acquisition of Norbord. Achieving this growth
potential is dependent on a number of factors, many of which will be beyond our control. Our inability to realize
the full extent of the anticipated growth opportunities from the Acquisition, as well as any delays encountered in
the integration process, could have an adverse effect upon our revenues, operating results and financial strength.
In addition, there is no assurance that any additional prospective organic growth opportunities and potential
merger and acquisition growth opportunities may be realized or prove to be accretive to West Fraser.
The amount of any dividends paid by West Fraser after Closing is not guaranteed
The declaration and payment of cash dividends remains 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 CDN$0.80 per share were declared in 2020 and 2019. There is no assurance that the
acquisition of Norbord will not adversely impact our financial condition and our ability to maintain our dividend at
the current rate. Our board of directors will retain the power to declare dividends in its discretion and in any
manner and at any time as it may deem necessary or appropriate in the future. For these reasons, as well as
others, there can be no assurance that dividends that we pay in the future will be equal or similar to the dividends
historically paid by West Fraser or that our board of directors will not decide to suspend or discontinue the
payment of cash dividends in the future.
Our Access to Financing May be Adversely Impacted
Our continued access to financing will depend on, among other things, suitable market conditions and
maintenance of long-term credit ratings. The credit ratings of West Fraser may be adversely affected by various
factors, including increased debt levels, decreased earnings, declines in customer demands, increased competition
and the deterioration in general economic and business conditions. Any downgrades in the credit ratings of West
Fraser, whether resulting from the Acquisition of Norbord or otherwise, may impede our ability to access debt
markets or raise our borrowing rates.
There is No Assurance that the Acquisition of Norbord will Strengthen Our Financial Position or Improve Our Capital
Markets Profile
While the Acquisition of Norbord has increased our asset and revenue base, it has also increased our debt and our
exposure (in absolute dollar terms) to negative downturns in the market for wood products if both the existing
West Fraser and Norbord businesses are adversely impacted by these downturns. Such downturns may force us to
draw against our credit facilities in order to fund our operations to the extent that these downturns result in
negative cash flows for the combined business. In addition, downturns in the wood products market may
adversely impact our ability to repay or refinance the outstanding debt of West Fraser or Norbord when this debt
matures and becomes payable. There is also no assurance that the completion of the acquisition of Norbord and
the listing of the West Fraser Shares on the NYSE will result in our being able to increase our investor base, gain
increased investor exposure, increase trading liquidity or become a leading investment vehicle for investors
seeking wood products exposure in North America.
Risks Associated with the NYSE Listing and Litigation
We have listed the West Fraser Shares on the NYSE in connection with our completion of the Acquisition. Listing
on the NYSE may expose us to additional regulatory proceedings, litigation (including class actions), mediation,
and/or arbitration from time to time, which could adversely affect our business, financial condition and operations.
Monitoring and defending against legal actions, with or without merit, can be time-consuming, may divert
management’s attention and resources and can cause us to incur significant expenses. In addition, legal fees and
costs incurred in connection with such activities may be significant and we may, in the future, be subject to
judgments or enter into settlements of claims for significant monetary damages. While we have insurance that
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may cover the costs and awards of certain types of litigation, the amount of insurance may not be sufficient to
cover any costs or awards. Substantial litigation costs or an adverse result in any litigation may adversely impact
our business, financial condition, or operations. Litigation, and any decision resulting therefrom, may also create a
negative perception of West Fraser.
Risk Associated with Internal Controls
We are required to maintain and evaluate the effectiveness of our internal controls over financial reporting under
National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings in Canada and under
the Exchange Act in the United States. Effective internal controls are required for us to accurately and reliably
report our financial results and other financial information. There is no assurance that we will be able to achieve
and maintain the adequacy of our internal controls over financial reporting as such standards are modified,
supplemented, or amended from time to time, and we may not be able to ensure that we can conclude on an
ongoing basis that our internal controls over financial reporting is effective. Our failure to establish and maintain
effective internal controls over financial reporting could result in our inability to meet our reporting obligations,
our inability to prevent fraud and our ability to detect material misstatements. As a result, any failure to maintain
effective internal controls over financial reporting may result in investors losing confidence in our ability to report
timely, accurate and reliable financial and other information, may expose us to legal or regulatory actions and may
adversely impact the market value of our Common shares.
In addition, under Section 404 of the Sarbanes-Oxley Act (“SOX”), we will be required to design, document and test
the effectiveness of our internal controls over financial reporting. There is no assurance that our efforts to develop
and maintain our internal controls will be successful or sufficient to meet our obligations under SOX.
The Acquisition May Increase the Volatility of Our Common Shares
Our Common shares will be subject to material fluctuations and may increase or decrease in response to a number
of events and factors, which will include events factors that affect the combined business of West Fraser and
Norbord:
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changes in the market price of the commodities that we sell and purchase;
current events affecting the economic situation in North America, Europe and the international markets in
which our products are sold;
trends in the lumber and OSB industries and other industries in which we operate;
regulatory and/or government actions;
changes in financial estimates and recommendations by securities analysts;
sales by Brookfield of any of the West Fraser Shares held by it following closing of the Acquisition;
acquisitions and financings;
the economics of current and future projects undertaken by us, both with respect to our existing business
and the Norbord business;
variations in our operating results, financial condition or dividend policies;
the operating and share price performance of other companies, including those that investors may deem
comparable to West Fraser; and
the issuance of additional equity securities by us.
In addition to factors directly affecting West Fraser and the combined business of West Fraser and Norbord, our
Common shares may also experience volatility that is attributable to the overall state of the stock markets in which
wide price swings may occur as a result of a variety of financial, economic and market perception factors. This
overall market volatility may adversely affect the price of our Common shares, regardless of our own relative
operating performance.
Controls and Procedures
Disclosure Controls and Procedures
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Our management is responsible for establishing and maintaining a system of disclosure controls and procedures to
provide reasonable assurance that all material information relating to our Company is gathered and reported to
senior management, including the President and Chief Executive Officer and the Vice-President, Finance and Chief
Financial Officer. The information must be presented on a timely basis so that appropriate decisions can be made
regarding public disclosure.
Internal Controls over Financial Reporting
Our management is also responsible for establishing and maintaining adequate internal controls 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 as issued by the
International Accounting Standards Board.
There has been no change in West Fraser’s internal controls over financial reporting that occurred during the year
ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal
controls over financial reporting.
In August 2020, the Company successfully implemented a new Enterprise Resource Planning software system to
manage the sales, transportation, and supply chain for a large part of its Canadian lumber business. In connection
with this implementation, the Company replaced multiple internal controls over financial reporting that were
previously considered effective with similar internal controls that are also expected to be effective. In
management’s judgment, these changes do not have a material effect on internal controls over financial reporting.
Evaluation of Effectiveness of Internal Controls
National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), requires
our management, under the supervision of the President and Chief Executive Officer and the Vice-President,
Finance and Chief Financial Officer, to evaluate the effectiveness of the disclosure controls and procedures and
internal controls over financial reporting as of December 31, 2020. 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 controls over financial reporting were effective as of
December 31, 2020.
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 as issued
by the International Accounting Standards Board 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, 2021
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,
2020 and 2019, 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:
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the consolidated balance sheets as at December 31, 2020 and 2019;
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 significant accounting policies and other
explanatory information
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.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of
the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters.
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Key audit matter
How our audit addressed the key audit matter
Valuation of plan assets and post-retirement defined
benefit pension plan assets and obligations
Our approach to addressing the matter involved the
following procedures, among others:
Refer to note 8, Other assets, note 10 Other liabilities
and note 12, Post-retirement benefits to the
consolidated financial statements.
As at December 31, 2020, total defined benefit plan
assets were valued at $1,503 million and total defined
benefit obligations were $1,837 million. Management
records a post-retirement asset or liability for the
Company’s defined benefit pension plans by netting the
plan assets with the plan obligations on a plan-by-plan
basis.
Plan assets are recorded at their fair value at each
balance sheet date and plan obligations are recorded at
the present value of estimated expected benefit
payments. Cash outflows are discounted using market
yields from high quality corporate bonds.
In determining the post-retirement benefit obligations,
the key assumptions used by management included the
discount rate, employee service periods, compensation
escalation rates, expected retirement ages of
employees, mortality rates, and expected health-care
costs. These assumptions were reviewed with
management’s independent actuaries (management’s
experts).
We considered this a key audit matter due to the
subjectivity and complexity in applying audit procedures
relating to the key assumptions applied by
management, including the use of management’s
experts, in determining the valuation of plan assets and
post-retirement pension obligations. We were also
assisted by a professional with specialized skill and
knowledge in performing our procedures.
Other information
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Confirmed, on a sample basis, investments held
by custodians of the pension plans.
Compared on a sample basis the fair value of
pension plan assets to market rates for equity
investments or audited fund statements for
fixed income and all other investments.
The work of management’s experts was used in
performing the procedures to evaluate the
reasonableness of the post-retirement pension
obligations. As a basis for using this work,
management’s experts’ competence, capability
and objectivity were evaluated, their work
performed was understood and the
appropriateness of their work as audit evidence
was evaluated by considering the relevance and
reasonableness of the methods, assumptions
and findings.
● Assessed the reliability of employee data used
by management’s experts in determining the
value of post-retirement pension obligations by
comparing it on a sample basis to employee
contracts.
● Utilized a professional with specialized skill and
knowledge in the field of actuarial valuation
who assisted us in satisfying ourselves that the
assumptions used in the calculation of the
defined benefit obligations, including discount
rates, employee service periods, compensation
escalation rates, expected retirement ages of
employees, mortality rates and expected
health-care costs, were reasonable, taking into
account the specifics of each post-retirement
pension plan.
Management is responsible for the other information. The other information comprises the Management’s
Discussion and 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.
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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
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 scepticism throughout the audit. We also:
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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
- 93 -
- 93 -
●
●
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.
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.
From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is John Bunting.
Chartered Professional Accountants
Vancouver, British Columbia
Canada
February 11, 2021
- 94 -
- 94 - West Fraser Timber Co. Ltd. Consolidated Balance Sheets As at December 31, 2020 and 2019 (in millions of Canadian dollars, except where indicated) 2020 2019 Assets Current assets Cash and short-term investments $ 587 $ 16 Receivables (note 22) 353 258 Income taxes receivable 10 135 Inventories (note 4) 735 729 Prepaid expenses 16 9 1,701 1,147 Property, plant and equipment (note 5) 2,110 2,140 Timber licences (note 6) 473 493 Goodwill and other intangibles (note 7) 753 772 Export duty deposits (note 25) 227 80 Other assets (note 8) 44 26 Deferred income tax assets (note 17) 12 10 $ 5,320 $ 4,668 Liabilities Current liabilities Cheques issued in excess of funds on deposit $ - $ 16 Operating loans (note 11) - 374 Payables and accrued liabilities (note 9) 495 396 Current portion of long-term debt (note 11) 10 10 Current portion of reforestation and decommissioning obligations (note 10) 44 41 Income taxes payable 124 - 673 837 Long-term debt (note 11) 637 650 Other liabilities (note 10) 519 454 Deferred income tax liabilities (note 17) 336 253 2,165 2,194 Shareholders’ Equity Share capital (note 13) 484 483 Accumulated other comprehensive earnings 105 132 Retained earnings 2,566 1,859 3,155 2,474 $ 5,320 $ 4,668 Approved by the Board of Directors Reid Carter Robert L. Phillips Director Lead Director - 95 -
- 95 -
West Fraser Timber Co. Ltd.
Consolidated Statements of Earnings and Comprehensive Earnings
For the years ended December 31, 2020 and 2019
(in millions of Canadian dollars, except where indicated)
Sales
Costs and expenses
Cost of products sold
Freight and other distribution costs
Export duties, net (note 25)
Amortization
Selling, general and administration
Equity-based compensation (note 14)
Restructuring and impairment charges
Operating earnings
Finance expense, net (note 15)
Other (note 16)
Earnings before tax
Tax recovery (provision) (note 17)
Earnings
Earnings per share (dollars) (note 19)
Basic
Diluted
Comprehensive earnings
Earnings
Other comprehensive earnings
Translation loss on foreign operations1
Actuarial 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 $4 million (2019 - $33 million).
2020
2019
$
5,850
$
4,877
3,434
709
79
272
247
11
-
4,752
1,098
(37)
(19)
1,042
(266)
776
11.30
11.30
776
(27)
(14)
735
$
$
$
$
$
3,652
713
162
259
211
6
33
5,036
(159)
(49)
(11)
(219)
69
(150)
(2.18)
(2.34)
(150)
(38)
(99)
(287)
$
$
$
$
$
- 96 -
- 96 -
West Fraser Timber Co. Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2020 and 2019
(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, 2018
69,818,838
$
491 $
170
$
2,235 $ 2,896
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
-
22,329
(1,178,400)
-
-
68,662,767
$
-
1
(9)
-
-
483 $
Changes in Shareholders’ Equity for 2020
Translation loss on foreign operations
Actuarial loss on post-retirement
-
-
benefits
Issuance of Common shares
Earnings for the year
Dividends1
Balance - December 31, 2020
1.
-
15,855
-
-
68,678,622
$
-
1
-
-
484 $
Represents dividends declared of $0.80 per share for 2020 and $0.80 per share for 2019.
(38)
-
-
-
-
-
132
(27)
-
-
-
-
105
$
$
-
(38)
(99)
-
(72)
(150)
(55)
(99)
1
(81)
(150)
(55)
1,859 $ 2,474
-
(27)
(14)
-
776
(55)
(14)
1
776
(55)
2,566 $ 3,155
- 97 -
- 97 -
West Fraser Timber Co. Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31, 2020 and 2019
(in millions of Canadian dollars, except where indicated)
Cash provided by operations
Earnings
Adjustments
Amortization
Restructuring and impairment charges
Restructuring charges paid
Finance expense, net
Foreign exchange loss on long-term financing
Foreign exchange loss on long-term duty deposits
Export duty deposits (note 25)
Post-retirement expense
Contributions to post-retirement benefit plans
Tax provision (recovery)
Income taxes received (paid)
Other
Changes in non-cash working capital
Receivables
Inventories
Prepaid expenses
Payables and accrued liabilities
Cash provided by (used for) financing
Proceeds from (repayment of) 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
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
2020
2019
$
776
$
(150)
272
-
-
37
1
5
(136)
100
(66)
266
59
(1)
(106)
(9)
(7)
104
1,295
(377)
(41)
(55)
-
(3)
(476)
(241)
5
14
(222)
597
(10)
-
587
587
-
587
$
$
$
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)
-
$
$
$
- 98 -
- 98 -
West Fraser Timber Co. Ltd.
Notes to Consolidated Financial Statements
For the years ended December 31, 2020 and 2019
(figures are in millions of Canadian dollars, except where indicated)
1.
Nature of operations
West Fraser Timber Co. Ltd. (“West Fraser”, the “Company” or “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 (“TSX”) under the symbol WFT.
As disclosed in our subsequent event note 26, on February 1, 2021, West Fraser completed the acquisition of
Norbord Inc. (the “Acquisition”), listed its shares on the New York Stock Exchange (“NYSE”) and began trading
under the symbol WFG. At the same time, the symbol on the TSX was also changed to WFG.
2.
Basis of presentation
These consolidated financial statements are prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board and were approved by our Board of
Directors on February 11, 2021.
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
- 99 -
- 99 -
generating unit level used in impairment testing and determining the accounting treatment for certain investments
where we own less than 100% of the entity.
Impact of coronavirus (“COVID-19”)
Given the ongoing and dynamic nature of the COVID-19 outbreak, it is challenging to predict the impact on our
Company. The extent of such impact will depend on future developments, which are highly uncertain, including
the resurgence of COVID-19 as restrictions are eased or lifted, new information that may emerge concerning the
spread and severity of COVID-19, and actions taken to address its impact, among others. It is difficult to predict
how this virus may affect our business in the future, including its effect (positive or negative; long or short term) on
the demand and price for our products. It is possible that COVID-19, particularly if it has a prolonged duration,
could have a material adverse effect on our supply chain, market pricing, customer demand, and distribution
networks. These factors may further impact our operating plans, business, financial condition, liquidity, and
operating results, which would, in turn, affect our estimates, including the valuation of inventories, allowance for
expected credit losses, fair value measurements, the valuation of long-lived assets, and cash flow projections used
for impairment testing. Actual results may materially differ from these estimates.
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
The consolidated financial statements are presented in Canadian dollars, which was determined to be the
functional currency of the Company and its Canadian subsidiaries.
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.
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.
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
- 100 -
- 100 -
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 to sell
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.
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.
- 101 -
- 101 -
3.
Accounting standards, amendments and interpretations issued but not yet applied
In August 2020, the International Accounting Standards Board issued Interest Rate Benchmark Reform Phase 2,
which amends various standards requiring interest rates or interest rate calculations. The amendments provide
guidance on financial reporting after the London Inter-bank Offered Rate (“LIBOR”) reform, including its
replacement with alternative benchmark rates. The amendments are effective for annual periods beginning on or
after January 1, 2021. These amendments will not have a significant impact on our financial statements.
There are no other 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.
4.
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
2020
343
240
152
735
$
$
2019
341
226
162
729
$
$
Inventories at December 31, 2020 were subject to a valuation reserve of $3 million (December 31, 2019 - $39
million) to reflect net realizable value being lower than cost.
The carrying amount of inventory recorded at net realizable value was $27 million at December 31, 2020
(December 31, 2019 - $182 million), with the remaining inventory recorded at cost.
5.
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.
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
- 102 -
- 102 -
Construction-in-progress includes the purchase price and any costs directly attributable to bringing the asset to the
location and condition necessary for its intended use. Construction-in-progress is not depreciated. Once the asset
is complete and available for use, the costs of construction are transferred to the appropriate category of property,
plant and equipment, and depreciation commences.
Supporting Information
Manufacturing
plant,
equipment and
machinery
1,778
222
(220)
(23)
(37)
(1)
144
1,863
4,604
(2,741)
1,863
1,863
157
(222)
(19)
(1)
67
1,845
Construction-
in-progress
187
180
-
-
(6)
-
(178)
183
183
-
183
183
63
-
(4)
-
(67)
175
$
$
$
$
$
$
$
$
$
$
$
$
As at December 31, 2018
Additions
Amortization1
Impairment2
Foreign exchange
Disposals
Transfers
As at December 31, 2019
As at December 31, 2019
Cost
Accumulated amortization
Net
As at December 31, 2019
Additions
Amortization1
Foreign exchange
Disposals
Transfers
As at December 31, 2020
$
$
$
$
$
$
Roads
and
bridges
Other
44
1
-
-
(1)
(1)
-
43
47 $
20
(16)
-
-
-
-
51 $
160 $
(109)
51 $
51 $
14
(17)
-
-
-
48 $
50
(7)
43
43
-
-
(1)
-
-
42
Total
2,056
423
(236)
(23)
(44)
(2)
(34)
2,140
4,997
(2,857)
2,140
2,140
234
(239)
(24)
(1)
-
2,110
$
$
$
$
$
$
As at December 31, 2020
5,152
Cost
(3,042)
Accumulated amortization
Net
2,110
$
1. Amortization of $235 million relates to cost of products sold and $4 million relates to selling, general and administration expense (2019 -
4,759
(2,914)
1,845
175
-
175
49
(7)
42
169 $
48 $
(121)
$
$
$
$
$
$
$
$232 million and $4 million, respectively).
2. Relates to the asset impairment of our Chasm, B. C. lumber mill and other B.C. lumber mill assets.
6.
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.
- 103 -
- 103 -
Supporting information
As at December 31, 2018
Amortization1
As at December 31, 2019
As at December 31, 2019
Cost
Accumulated amortization
Net
As at December 31, 2019
Amortization1
As at December 31, 2020
As at December 31, 2020
Cost
Accumulated amortization
Net
1.
Amortization relates to cost of products sold.
7.
Goodwill and other intangibles
Accounting policies
Timber
licences
513
(20)
493
800
(307)
493
493
(20)
473
800
(327)
473
$
$
$
$
$
$
$
$
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, which is performed in the fourth
quarter of each year. 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.
Supporting information
As at December 31, 2018
Additions
Amortization1
Foreign exchange
Disposals
Transfers
As at December 31, 2019
As at December 31, 2019
Cost
Accumulated amortization
Net
As at December 31, 2019
Additions
Amortization1
Foreign exchange
As at December 31, 2020
- 104 -
- 104 -
Goodwill
743
-
-
(23)
-
-
720
720
-
720
720
-
-
(9)
711
Other
24
7
(3)
-
(10)
34
52
79
(27)
52
52
3
(13)
-
42
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
767
7
(3)
(23)
(10)
34
772
799
(27)
772
772
3
(13)
(9)
753
As at December 31, 2020
Cost
Accumulated amortization
Net
792
(39)
753
1. Amortization of $2 million relates to cost of products sold and $11 million relates to selling, general and administration expense (2019 - $1
81
(39)
42
711
-
711
$
$
$
$
$
$
million and $2 million, respectively).
Goodwill
We have attributed $218 million of goodwill to a CGU made up of our Canadian lumber operations, $447 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 2020 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 a forecast of 2021 to 2023 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 on goodwill has been recognized.
- 105 -
- 105 -
8.
Other assets
Post-retirement (note 12)
Other
9.
Payables and accrued liabilities
Trade accounts
Equity-based compensation
Compensation
Export duties
Dividends
Interest
Other
10.
Other liabilities
Post-retirement (note 12)
Long-term portion of reforestation
Long-term portion of decommissioning
Interest swap contracts (note 11)
Other
Reforestation and decommissioning obligations
2020
6
38
44
2020
275
66
78
17
14
5
40
495
2020
376
74
31
8
30
519
$
$
$
$
$
$
2019
6
20
26
2019
239
33
55
18
14
5
32
396
2019
314
74
31
3
32
454
$
$
$
$
$
$
Reforestation and decommissioning obligations relate to our responsibility for reforestation under various timber
licences and our obligations related to landfill closure 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 at least annually, 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.
Supporting information
Beginning of year
Liabilities recognized
Liabilities settled
Change in estimates
End of year
Less: current portion
- 106 -
- 106 -
Reforestation
2020
114
53
(57)
2
112
(38)
74
2019
115
48
(53)
4
114
(40)
74
$
$
$
$
$
$
$
Decommissioning
2020
32
3
(3)
5
37
(6)
31
2019
29
2
(1)
2
32
(1)
31
$
The total undiscounted amount of the estimated cash flows required to satisfy these obligations is $152 million
(2019 - $159 million). The cash flows have been discounted using interest rates ranging from 0.20% to 0.39%
(2019 - 1.68% to 1.69%).
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 45 years.
11.
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 $150 million committed revolving credit facility which matures April 2022, 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.
At December 31, 2020, our revolving credit facilities were undrawn and the associated deferred financing costs of
$3 million were recorded in other assets. At December 31, 2019, $374 million (net of deferred financing costs of
$3 million) was drawn under our revolving credit facilities.
Interest on the facilities is payable at floating rates based on Prime, Base Rate Advances, Bankers’ Acceptances or
LIBOR Advances at our option.
In addition, we have credit facilities totalling $129 million dedicated to letters of credit, of which US$15 million is
dedicated to our U.S. operations. Letters of credit in the amount of $64 million (December 31, 2019 - $61 million)
were supported by these facilities.
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.
As disclosed in our subsequent event note 26, on February 1, 2021, concurrent with the closing of the Acquisition,
we completed various administrative amendments to our $850 million committed revolving credit facility and our
US$200 million term loan. The $150 million committed revolving credit facility was replaced with a US$450 million
committed revolving credit facility due April 2024.
- 107 -
- 107 -
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 March 2021; interest at 2%
Notes payable
Less: deferred financing costs
Less: current portion
Required principal repayments are disclosed in note 22.
Interest rate swap contracts
2020
382
255
10
3
650
(3)
(10)
637
$
$
2019
390
260
10
3
663
(3)
(10)
650
$
$
On March 9, 2020, we extended the duration of our interest rate swap with a notional amount of US$100 million
from August 2022 to August 2024, resulting in a change to the fixed interest rate on the swap from 2.47% to 1.78%
through August of 2024. We continue to receive a floating interest rate equal to 3-month LIBOR over the duration.
The result is a fixed interest rate of 2.47% for the period of May 28, 2019 to February 25, 2020, and 1.78% for the
period of February 25, 2020 to August 25, 2024. On April 15, 2020, we entered into additional interest rate swaps
for another notional amount of US$100 million. Under the agreements, we pay a combined fixed interest rate of
0.51% and receive a floating interest rate equal to 3-month LIBOR.
The fair value of the interest rate swap contracts at December 31, 2020 is a liability of $8 million (December 31,
2019 - liability of $3 million). The 2020 impact of the change in fair value of these contracts is a $5 million loss
(2019 - $3 million loss) which was recorded in other income.
12.
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
- 108 -
- 108 -
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 2020 is a gain of $127 million (2019 - $166 million). The total pension expense
for the defined benefit pension plans is $93 million (2019 - $68 million). In 2020, we made contributions to our
defined benefit pension plans of $48 million (2019 - $66 million). We expect to make cash contributions of
approximately $44 million to our defined benefit pension plans during 2021 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 2020 (2019 - $2 million).
The total pension expense and funding contributions for the defined contribution pension plans is $16 million
(2019 - $17 million).
The status of the defined benefit pension plans and other retirement benefit plans, in aggregate, is as follows:
- 109 -
- 109 -
Accrued benefit obligations
Benefit obligations - opening
Service cost
Finance cost on obligation
Benefits paid
Actuarial loss due to change in financial
assumptions
Actuarial loss 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
Other
Fair value - ending
Defined benefit
pension plans
Other retirement
benefit plans
2020
2019
2020
2019
$
$
$
$
1,658
79
52
(52)
99
3
1
-
(3)
1,837
1,385
42
85
48
(52)
(5)
1,503
$
$
$
$
1,347
63
52
(46)
235
14
1
(4)
(4)
1,658
1,204
46
120
66
(46)
(5)
1,385
$
$
$
$
35
1
1
(2)
1
-
-
-
-
36
-
-
-
2
(2)
-
-
$
$
$
$
34
1
-
(2)
3
-
-
-
(1)
35
-
-
-
2
(2)
-
-
Funded status1
Post-retirement assets (note 8)
Post-retirement liabilities (note 10)
-
(35)
(35)
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)
6
(340)
(334)
-
(36)
(36)
$
$
$
$
$
$
$
$
Other retirement benefit plans continue to be unfunded.
Expense
Service cost
Administration fees
Settlement
Curtailment gain
Net finance expense
Defined benefit
pension plans
Other retirement
benefit plans
2020
2019
2020
2019
$
$
79
3
1
-
10
93
$
$
63
2
1
(4)
6
68
$
$
1
-
-
-
1
2
$
$
1
-
-
-
-
1
Assumptions and sensitivities
- 110 -
- 110 -
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, 2020 are as follows:
2021
2022
2023 to
2025
Thereafter
Total
Defined benefit pension
plans
$
53
$
55
$
156
$
2,797
$
3,061
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 determined by
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 rate1
Future compensation rate increase1
Benefit expense:
Defined benefit
pension plans
Other retirement
benefit plans
2020
2.69%
3.65%
2019
3.00%
3.50%
2020
2.70%
n/a
2019
3.00%
n/a
3.00%
Discount rate - beginning of year
3.50%
Future compensation rate increase
The December 31, 2020 discount rate and future compensation rate increase represent a weighted average rate for the defined benefit
pension plans.
3.75%
3.50%
3.00%
n/a
3.50%
n/a
1.
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 6.50% in year one, grading down
by 0.25% per year for years two to eight, to 4.5% per year thereafter.
The impact of a change in these assumptions on our post-retirement obligations as at December 31, 2020 is as
follows:
Discount rate - 0.50% change
Compensation rate - 0.50% change
Health-care cost trend rate - 1.00% change
Increase
(162)
33
2
$
$
$
Decrease
$
$
$
193
(33)
(2)
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.
Assets
- 111 -
The assets of the pension plans are invested predominantly in a diversified range of equities, pooled funds 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%
2020
22%
38%
33%
7%
100%
2019
13%
27%
40%
20%
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.
13.
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
Issued
Common
Class B Common
Total Common
2020
Number
66,397,144 $
2,281,478
68,678,622 $
Amount
484
-
484
2019
Number
66,381,289 $
2,281,478
68,662,767 $
Amount
483
-
483
Our Normal Course Issuer Bid ("NCIB") under which we were authorized to purchase up to 3,318,823 of our
Common shares expired on September 19, 2020. We did not repurchase any Common shares under this NCIB.
- 112 -
As disclosed in our subsequent event note 26,54,484,188 of Common shares were issued in connection with the
Acquisition.
Rights and restrictions of Common shares
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.
As disclosed in our subsequent event note 26, on February 1, 2021, West Fraser listed its Common shares on the
NYSE and began trading under the symbol WFG. At the same time, the symbol on the TSX was also changed to
WFG.
14.
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 $11 million (2019 - $6 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 182,506 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 an expense of $27 million (2019 - recovery of $8 million) related
to the share option plan.
A summary of the activity in the share option plan is presented below:
- 113 -
Outstanding - beginning of year
Granted
Exercised
Expired / Cancelled
Outstanding - end of year
Exercisable - end of year
2020
2019
Weighted
average
price
(dollars)
51.78
64.53
43.45
55.74
53.64
49.58
$
$
$
$
$
$
Number
1,204,448
148,805
(138,964)
(3,152)
1,211,137
937,397
Weighted
average
price
(dollars)
44.94
72.11
13.96
62.58
51.78
47.78
$
$
$
$
$
$
Number
1,211,137
160,410
(49,689)
(4,864)
1,316,994
991,119
The following table summarizes information about the share options outstanding and exercisable at December 31,
2020:
Exercise price range
(dollars)
$23.68 - $25.75
$40.82 - $55.62
$64.50 - $85.40
Weighted
average
remaining
contractual
life
(years)
0.7
4.4
7.4
5.0
Number of
outstanding
options
(number)
221,826
564,671
530,497
1,316,994
Weighted
average
exercise price
(dollars)
24.61
46.84
72.99
53.64
Number of
exercisable
options
(number)
221,826
506,150
263,143
991,119
$
$
$
$
$
$
$
$
Weighted
average
exercise
price
(dollars)
24.61
46.58
76.39
49.58
The weighted average share price at the date of exercise for share options exercised during the year was $69.73
per share (2019 - $64.40 per share).
The accrued liability related to the share option plan based on a Black-Scholes valuation model is $47 million at
December 31, 2020 (December 31, 2019 - $21 million). The weighted average fair value of the options used in the
calculation was $35.74 per option at December 31, 2020 (December 31, 2019 - $17.71 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
2020
$81.72
$53.64
$0.80
44.52%
0.26%
2.81
2019
$57.26
$51.78
$0.80
36.09%
1.69%
3.03
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.
The intrinsic value of options issued under the share option plan at December 31, 2020 was $37 million
(December 31, 2019 - $14 million). The intrinsic value is determined based on the difference between the period
- 114 -
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.
On January 19, 2021, our shareholders approved an amendment to our share option plan to increase the
maximum number of Common shares that may be issued on the exercise of options by 1,000,000 Common shares.
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 $6 million (2019 - $4 million) related to the PSU plan. The number of units
outstanding as at December 31, 2020 was 111,262 (December 31, 2019 - 131,792), including performance share
units totalling 81,825 (December 31, 2019 - 78,008).
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.
We have recorded an expense of $3 million (2019 - nil) related to the DSU plan. The number of units outstanding
as at December 31, 2020 was 87,294 (December 31, 2019 - 70,822).
Equity-based compensation hedge
A recovery of $25 million (2019 - 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.
15.
Finance expense, net
- 115 -
Interest expense
Interest income on short-term investments
Interest income on long-term duty deposits receivable (note 25)
Finance expense on employee future benefits
Accretion on long-term liabilities
16.
Other
Foreign exchange loss on working capital
Foreign exchange loss on intercompany financing1
Foreign exchange gain on long-term debt
Foreign exchange loss on export duty deposits receivable (note 25)
Insurance gain on disposal of equipment2
Loss on interest rate swap contracts (note 11)
Power purchase dispute3
Other
2020
(43)
1
16
(11)
-
(37)
2020
(8)
(13)
12
(5)
7
(5)
(7)
-
(19)
$
$
$
$
2019
(44)
-
4
(8)
(1)
(49)
2019
(7)
(36)
33
(4)
4
(3)
-
2
(11)
$
$
$
$
1.
2.
3.
Foreign exchange relates to financing provided to our U.S. Operations of US$550 million from January to beginning of November and
US$539 million thereafter (2019 - US$550 million). 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.
The 2020 gain represents insurance proceeds related to the settlement of WestPine's 2016 involuntary disposal of equipment. The 2019
gain represents insurance gain related to the 2017 involuntary disposal of equipment at our 50%-owned NBSK plant in Quesnel, B.C.
In 2020, as a result of certain administrative proceedings, we determined that a liability related to certain retroactive adjustments to
charges under a purchase power agreement, terminated in 2016, should be recorded as a contingent liability. Although we dispute
responsibility for such retroactive adjustments and the associated liability, we have accrued $7 million for such contingent liability.
However, recognizing the expense does not prejudice our position that the liability is not our responsibility.
17.
Tax provision
Accounting policies
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
- 116 -
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 on post-retirement actuarial loss
Tax recovery (provision) on comprehensive earnings
1.
Includes the impact of the 2019 statutory rate changes for Alberta.
2020
(177)
(89)
(266)
4
(262)
20191
57
12
69
33
102
$
$
$
$
$
$
$
$
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)
2019
59
2
(3)
18
(7)
69
Represents the re-measurement of deferred income tax assets and liabilities for the Alberta tax rate reduction from 12% to 8% initially to
be phased in over four years. On December 9, 2020, the Alberta government substantially enacted an expedited rate reduction to 8%
effective July 1, 2020, but this had no impact on our 2020 tax provision as it was previously recognized.
2020
(281)
(7)
28
-
(6)
(266)
$
$
$
$
1.
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
2020
441
(35)
(111)
58
(18)
(11)
324
$
$
2019
402
(34)
(87)
20
(53)
(5)
243
$
$
Represented by:
Deferred income tax assets
Deferred income tax liabilities
(10)
253
243
Includes $31 million for federally restricted net operating losses and $232 million for state net operating losses. A portion of these losses
expire over the periods 2022 to 2033.
(12)
336
324
$
$
$
$
1.
18.
Employee compensation
Our employee compensation expense includes salaries and wages, employee future benefits, termination costs
and bonuses. Total compensation expense is $936 million (2019 - $911 million).
Key management includes directors and officers, and their compensation expense and balance sheet date payables
are as follows:
- 117 -
Expense
Salary and short-term employee benefits
Post-retirement benefits
Equity-based compensation1
Payables and accrued liabilities
Compensation
Equity-based compensation1
2020
2019
$
$
$
$
9
2
23
34
4
41
45
$
$
$
$
6
2
(2)
6
-
21
21
1.
Amounts do not necessarily represent the actual value which will ultimately be paid.
19.
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.
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
20.
Contractual Obligations
Accounting policies
2020
776
27
(3)
800
$
$
2019
(150)
(8)
(4)
(162)
$
$
68,672
191
68,863
68,882
290
69,172
$
$
11.30
11.30
$
$
(2.18)
(2.34)
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.
- 118 -
Supporting information
At December 31, 2020, we had the following contractual obligations:
Long-term debt1
Interest on long-term debt
Lease obligation
Contributions to defined benefit pension plans2
Asset purchase commitments
Total
2021
10
20
3
44
53
130
$
$
2022
-
20
3
60
-
83
$
$
2023
3
19
2
68
-
92
$
$
2024
637
15
-
-
-
652
$
$
Total
650
74
8
172
53
957
$
$
1.
2.
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.
21.
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. Government assistance is recognized when there is
reasonable assurance that the amount will be collected and that all the conditions will be complied with.
Supporting information
Government assistance of $4 million (2019 - $1 million) was recorded as a reduction to property, plant and
equipment.
Government assistance of $7 million (2019 - $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.
22.
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”).
Supporting information
- 119 -
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”:
2020
Financial assets
Cash and short-term investments
Receivables
Export duty deposits (note 25)
Financial liabilities
Payables and accrued liabilities1
Long-term debt (note 11)2
Interest rate swaps (note 10 & 11)3
Amortized
cost
Level
FVTPL
Other
financial
liabilities
Carrying
value
Fair value
2 $
587
3
353
3
227
$ 1,167
2 $
2
2
$
-
-
-
-
$
$
$
$
-
-
-
-
3
-
8
11
$
$
$
$
-
-
-
-
$
587
353
227
$ 1,167
492
650
-
1,142
$
495
650
8
$ 1,153
$
$
$
$
587
353
227
1,167
495
667
8
1,170
1.
2.
3.
Payables and accrued liabilities include our equity derivative payable 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,
2020 for long-term debt with similar terms and remaining maturities.
The interest rate swap contracts are included in other liabilities in our consolidated balance sheets.
Amortized
cost
Level
FVTPL
Other
financial
liabilities
Carrying
value
Fair value
2 $
3
3
$
16
255
80
351
$
$
-
3
-
3
$
$
-
-
-
-
$
$
16
258
80
354
$
$
16
258
80
354
2019
Financial assets
Cash and short-term investments
Receivables1
Export duty deposits (note 25)
Financial liabilities
Cheques issued in excess of funds on
$
$
deposit
Operating loans (note 11)
Payables and accrued liabilities
Long-term debt (note 11)2
Interest rate swaps (note 10 & 11)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 contracts are included in other liabilities in our consolidated balance sheets.
16
377
396
663
3
$ 1,455
16
377
396
663
-
1,452
2 $
2
2
2
2
$
-
-
-
-
3
3
1.
2.
3.
$
$
$
$
$
16
377
396
677
3
1,469
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.
- 120 -
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 that have been 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.
We have interest rate swap contracts with a US$200 million notional amount to limit our exposure to fluctuations
in interest rates and fix interest rates on a portion of our long-term debt. The interest rate swap contracts are
measured at FVTPL based on an estimated discounted cash flow.
No energy related derivatives were outstanding at December 31, 2020 or 2019.
No lumber futures or foreign exchange contracts were outstanding at December 31, 2020 or 2019.
Currency fluctuation
Our Canadian operations sell most of their products at prices denominated in U.S. dollars or based on prevailing
U.S. dollar prices. A significant portion of their operational costs and expenses are incurred in Canadian dollars.
Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the revenue in
Canadian dollar terms realized by our Canadian operations from sales made in U.S. dollars, which reduces
operating margin and the cash flow available to fund operations.
Our U.S. operations transact and report in U.S. dollars, but their results are translated into Canadian dollars for
financial statement purposes with the resulting translation gains or losses being reported in other comprehensive
earnings.
Impact of U.S. dollar currency fluctuation
The U.S. dollar foreign currency balance sheet exposure at December 31, 2020 is as follows:
Canadian operations
Net working capital
Export duty deposits
Intercompany financing1
Long-term debt
Interest rate swap contracts
US$
US$
2020
237
178
539
(500)
(6)
448
U.S. operations
Net investment
1.
2020
1,365
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$
- 121 -
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 $5 million decrease (increase) in earnings and an $22 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, 2020, approximately 24% 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 2020 or 2019, we have recorded minimal expected credit losses. We consider the credit quality of
the trade accounts receivable at December 31, 2020 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
Liquidity
2020
2019
$
$
$
280
28
2
1
311
1
6
35
353
$
$
$
195
11
-
-
206
11
7
34
258
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 extending maturities through regular renewals and refinancing when market
conditions are supportive.
The following table summarizes the aggregate amount of contractual future cash outflows for long-term debt:
Long-term debt (note 11)
Interest on long-debt1
$
2021
10
20
30
$
$
$
2022
-
20
20
2023
3
19
22
2024
637
15
652
Total
650
74
724
$
$
$
Assumes debt level, foreign exchange rate and interest rates remain at December 31, 2020 levels and rates.
$
$
$
1.
Interest rates
- 122 -
Interest rate risk relates mainly to floating interest rate debt. By maintaining a mix of fixed and floating rate debt
along with interest rate swap contracts, we mitigate the exposure to interest rate changes.
At December 31, 2020, the impact of a 100-basis point change in interest rate affecting our floating rate debt
would not result in a change in annual interest expense.
23.
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.
Two key measurements used to monitor our capital position is total debt to total capital and net debt to total
capital, calculated as follows at December 31:
Debt
Operating loans
Current and long-term lease obligation
Current and long-term debt
Interest rate swaps1
Open letters of credit1
Total debt
Cash and short-term investments
Open letters of credit1
Interest rate swaps1
Cheques issued in excess of funds on deposit
Net debt
Shareholders’ equity
Total debt to total capital2
Net debt to total capital2
1.
2.
2020
2019
$
$
$
-
8
650
8
64
730
(587)
(64)
(8)
-
71
3,155
19%
2%
$
$
$
377
11
663
3
61
1,115
(16)
(61)
(3)
16
1,051
2,474
31%
30%
Letters of credit facilities and the fair value of interest rate swaps are part of our bank covenants’ total debt calculation.
Total capital is total debt or net debt plus shareholders’ equity.
24.
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.
- 123 -
Lumber
Panels
Pulp &
Paper
Corporate &
Other
$
$
$
$
$
$
$
$
$
$
$
$
$
$
4,359
132
4,491
(2,513)
(485)
(79)
(201)
(171)
-
1,042
(24)
(5)
1,013
3,995
662
200
$
$
$
$
$
$
$
624
10
634
(408)
(55)
-
(16)
(30)
-
125
(4)
7
128
318
58
14
Lumber
Panels
3,317
125
3,442
(2,588)
$
$
594
11
605
(466)
(477)
(162)
(196)
(146)
-
(33)
(160)
(35)
(7)
(202)
3,589
681
339
$
$
$
$
$
(63)
-
(16)
(25)
-
-
35
(4)
-
31
316
56
23
$
$
$
$
$
$
$
$
$
$
$
$
$
$
867
-
867
(655)
(169)
-
(42)
(43)
-
(42)
(8)
(11)
(61)
550
165
25
Pulp &
Paper
966
-
966
(734)
(173)
-
(43)
(39)
-
-
(23)
(10)
4
(29)
559
159
39
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
(142)
(142)
142
-
-
(13)
(3)
(11)
(27)
(1)
(10)
(38)
457
1,280
2
Corporate &
Other
-
(136)
(136)
136
-
-
(4)
(1)
(6)
-
(11)
-
(8)
(19)
204
1,298
9
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Total
5,850
-
5,850
(3,434)
(709)
(79)
(272)
(247)
(11)
1,098
(37)
(19)
1,042
5,320
2,165
241
Total
4,877
-
4,877
(3,652)
(713)
(162)
(259)
(211)
(6)
(33)
(159)
(49)
(11)
(219)
4,668
2,194
410
2020
Sales
To external customers
To other segments
Cost of products sold
Freight and other distribution
costs
Export duties, net
Amortization
Selling, general and
administration
Equity-based compensation
Operating earnings
Finance expense, net
Other
Earnings before tax
Total assets
Total liabilities
Capital expenditures
2019
Sales
To external customers
To other segments
Cost of products sold
Freight and other distribution
costs
Export duties, net
Amortization
Selling, general and
administration
Equity-based compensation
Restructuring and impairment
charges
Operating earnings
Finance expense, net
Other
Earnings before tax
Total assets
Total liabilities
Capital expenditures
Adjusted EBITDA by segment
- 124 -
Adjusted EBITDA is used to evaluate the operating and financial performance of our operating segments, generate
future operating plans, and make strategic decisions. Adjusted EBITDA is defined as earnings determined in
accordance with IFRS adding back the following line items from the statements of earnings and comprehensive
earnings: finance expense, tax provision or recovery, amortization, export duties, equity-based compensation,
restructuring and impairment charges, and other.
The following table reconciles Adjusted EBITDA by segment to the most directly comparable IFRS measures.
$
$
$
2020
Earnings before tax
Add: Finance expense, net
Add: Amortization
Add: Equity-based
compensation
Deduct: Export duties, net
Add (deduct): Other
Adjusted EBITDA by segment
2019
Earnings before tax
Add: Finance expense, net
Add: Amortization
Add: Equity-based
compensation
Add: Export duties, net
Add: Restructuring and
impairment charges
Add (deduct): Other
Adjusted EBITDA by segment
$
Lumber
1,013
24
201
-
79
5
1,322
Lumber
(202)
35
196
-
162
33
7
231
Panels
128
4
16
-
-
(7)
141
Panels
31
4
16
-
-
-
-
51
$
$
$
$
$
$
$
$
Pulp &
Paper
(61)
8
42
-
-
11
-
Pulp &
Paper
(29)
10
43
-
-
-
(4)
20
The geographic distribution of non-current assets and external sales is as follows:
Canada
United States
China
Other Asia
Other
Non-current assets
2020
2,107
1,512
-
-
-
3,619
$
$
2019
2,049
1,472
-
-
-
3,521
$
$
$
$
1.
Sales distribution is based on the location of product delivery.
25.
Countervailing (“CVD”) and antidumping (“ADD”) duty dispute
Accounting policy
Corporate
& Other
$
$
Total
(38) $ 1,042
37
272
1
13
11
11
79
-
10
19
(3) $ 1,460
Corporate
& Other
$
$
(19) $
-
4
6
-
-
8
(1) $
Total
(219)
49
259
6
162
33
11
301
$
Sales by geographic area1
2019
2020
979
1,140
2,890
3,824
650
627
321
233
37
26
4,877
5,850
$
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 Administrative Review (“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
- 125 -
and the same calculation methodology as the U.S. Department of Commerce (“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.
The difference between the cash deposit amount and the amount that would have been due based on the final AR
rate will incur interest based on the U.S. federally published interest rate. We record interest income on our duty
deposits receivable based on this rate and will record an interest expense if the balance becomes a liability.
Background information
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. The USDOC
chose us as a “mandatory respondent” to both the countervailing and antidumping investigations, and as a result,
we 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 November 24, 2020, the USDOC finalized these rates based on its first AR for the first POI as
listed below.
Effective November 30, 2020 for ADD and December 1, 2020 for CVD, shipments from Canada to the U.S. were
subject to the new cash deposit rate of 7.57% for CVD and 1.40% for ADD.
Supporting information
The respective Cash Deposit Rates, the AR1 Final 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, 20172
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
AR3 POI
January 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 20204
Cash Deposit
Rate
AR1 Final Rate3
(24-Nov-20)
24.12%
-
17.99%
17.99%
17.99%
17.99%
7.57%
6.76%
-
6.76%
7.57%
n/a5
n/a6
n/a6
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 USDOC published the Revised Rate.
2. On December 4, 2017, the USDOC revised our CVD Rate effective December 28, 2017.
3. On February 3, 2020, the USDOC issued a preliminary CVD rate and, on November 24, 2020, a final CVD rate for the AR1 POI. This table
only reflects the final rate.
Effective December 1, 2020, shipments from Canada to the U.S. were subject to the new cash deposit rate of 7.57% for CVD.
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.
The CVD rate for the AR3 POI will be adjusted when AR3 is complete, and the USDOC finalizes the rate, which is not expected until 2022.
4.
5.
6.
Effective dates for ADD
AR1 POI
June 30, 2017 - December 3, 20171
December 4, 2017 - December 31, 20172
January 1, 2018 - December 31, 2018
AR2 POI
January 1, 2019 - December 31, 2019
AR3 POI
January 1, 2020 - November 29, 2020
November 30, 2020 - December 31, 20204
- 126 -
Cash Deposit
Rate
AR1 Final
rate3
(24-Nov-20)
West Fraser
Estimated
Rate
6.76%
5.57%
5.57%
5.57%
5.57%
1.40%
1.40%
1.40%
1.40%
n/a5
n/a6
n/a6
1.46%
1.46%
1.46%
4.65%
3.40%
3.40%
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 Cash Deposit Rate effective December 4, 2017.
3. On February 3, 2020, the USDOC issued a preliminary ADD Rate and, on November 24, 2020, a final CVD rate for the AR1 POI. This table
only reflects the final rate.
Effective November 30, 2020, shipments from Canada to the U.S. were subject to the new cash deposit rate of 1.40% for ADD.
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.
The ADD rate for the AR3 POI will be adjusted when AR3 is complete, and the USDOC finalizes the rate, which is not expected until 2022.
4.
5.
6.
Impact on results
The following table reconciles our cash deposits paid during the period to the amount recorded in our earnings
statement:
Cash deposits paid1
Adjust to West Fraser Estimated ADD rate2
Effective export duties expense for period3
Export duties recovery attributable to AR14
Export duties, net
Interest income on export duties deposits attributable to West
Fraser Estimated Rates
Interest income on export duties deposits attributable to
finalization of AR15
2020
(215)
12
(203)
124
(79)
2
14
16
$
$
$
$
$
$
$
$
$
$
2019
(167)
5
(162)
-
(162)
4
-
4
Interest income on export duties deposits
1.
2.
3.
Represents combined CVD and ADD cash deposit rate of 23.56%.
Represents adjustment to West Fraser Estimated ADD rate of 3.40% for 2020 and 4.65% for 2019.
Represents combined CVD and ADD rate of 21.39% from January 1, 2020 to November 30, 2020, 10.97% from December 1, 2020 to
December 31, 2020, and 22.64% for 2019.
$124 million represents the difference between the AR1 West Fraser Estimated rates and the final AR1 duty rates.
$14 million represents interest income accrued on the $124 million duty deposit receivable recognized above.
4.
5.
As of December 31, 2020, export duties paid and payable on deposit with the USDOC are US$530 million.
AR2 and AR3
Each calendar year after December 31, 2018, represents an AR POI. AR2 covers the POI from January 1, 2019
through December 31, 2019. The USDOC commenced AR2 during the second quarter of 2020. AR3 covers the POI
from January 1, 2020 through December 31, 2020, and the USDOC is expected to begin its review in 2021. The
results of AR2 are not expected to be finalized until November 2021 and AR3 until 2022.
- 127 -
Impact on balance sheet
Export duty deposits receivable
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
$
$
2020
80
136
16
(5)
227
$
$
2019
75
5
4
(4)
80
Appeals
On May 22, 2020, the North American Free Trade Agreement (“NAFTA”) panel issued its final decision on “Injury”.
The NAFTA panel rejected the Canadian parties’ arguments and upheld the U.S. International Trade Commission’s
(“USITC”) remand determination in its entirety.
On August 28, 2020, the World Trade Organization’s (“WTO”) dispute-resolution panel ruled unanimously that U.S.
countervailing duties against Canadian softwood lumber are inconsistent with the WTO obligations of the United
States. The decision confirmed that Canada does not subsidize its softwood lumber industry. On September 28,
2020, the U.S. announced that it would appeal the WTO panel’s decision.
The softwood lumber case will continue to be subject to NAFTA or the new Canada-United States-Mexico
Agreement (“CUSMA”) and WTO dispute resolution processes, and litigation in the U.S. In the past, long periods of
litigation have led to negotiated settlements and duty deposit refunds. In the interim, duties remain subject to the
USDOC AR process, which results in an annual adjustment of duty deposit rates.
Notwithstanding the deposit rates assigned under the investigations, our final liability for CVD and ADD will not be
determined until each annual administrative review process is complete and related appeal processes are
concluded.
26.
Subsequent event
We completed the acquisition of 100% of the issued and outstanding shares of Norbord Inc. (“Norbord”) on
February 1, 2021 (the “Acquisition”). The Norbord shareholders received 0.675 of a Common share for each
Norbord Common share held. We issued 54,484,188 Common shares to the shareholders of Norbord in
connection with this Acquisition, and Norbord is now a wholly-owned subsidiary of West Fraser. The value of the
shares issued in consideration of the transaction is $4.5 billion, based on West Fraser’s January 29, 2020 closing
price of $81.94 per share multiplied by 54,484,188 Common shares issued.
On the completion of the Acquisition, we issued replacement share purchase options (the “Replacement Options”)
in exchange for share purchase options that were outstanding under Norbord’s stock option plans. In total, an
additional 887,966 Common shares have become issuable on the exercise of these Replacement Options. These
Replacement Options continue with their original vesting schedule and exercise price (as adjusted in accordance
with the exchange ratio under the Acquisition).
Concurrent with the closing of the Acquisition, we amended our $850 million revolving credit facility to
accommodate the new subsidiaries acquired. In addition, our $150 million revolving credit facility was replaced
with a US$450 million revolving credit facility that matures on April 9, 2024.
At the closing of the Acquisition, Norbord terminated its revolving credit facilities and accounts receivable
securitization facilities. As part of the Acquisition, we assumed Norbord’s US$315 million senior notes due April
- 128 -
2023, bearing interest at 6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75% (the
“Norbord bonds”). Pursuant to the terms of the Norbord Bonds, we are required to make an offer to repurchase
the Norbord Bonds at 101% of their principal amount, plus accrued and unpaid interest. Any Norbord Bonds not
purchased under this offer will remain outstanding. Details of the offer will be provided in a notice of the offer to
be mailed to the holders of the Norbord Bonds.
On February 1, 2021, our Common shares commenced trading on the NYSE and began trading under the symbol
WFG. At the same time, our stock symbol on the TSX was changed to WFG. It was determined that as a result of
the transaction, the functional currency of West Fraser’s Canadian operations has become the U.S. dollar and West
Fraser has also determined that a change in reporting currency to the U.S. dollar is appropriate. Starting with first
quarter 2021 results, West Fraser will report its results in U.S. dollars. We began consolidating the operating
results, cash flows and net assets of Norbord from February 1, 2021 onwards. As the Acquisition closed on
February 1, 2021, we will undertake to allocate the purchase price to the assets and liabilities acquired. We will
disclose a preliminary purchase price allocation in our first quarter 2021 interim financial statements.
FIVE YEAR FINANCIAL REVIEW
(in millions of Canadian dollars, except where indicated)
- 129 -
Earnings
Sales
Cost of product sold
Freight and other distribution costs1
Export duties, net2
Amortization
Selling, general and administration1
Equity-based compensation
Restructuring and impairment charges
Operating earnings
Finance expense, net
Other
Tax (provision) recovery
Earnings
Adjusted EBITDA3
Cash flows from operating activities
Capital expenditures & acquisitions
Financial position
Current assets
PPE & timber licenses
Goodwill & other intangibles
Export duty deposits4
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
2020
2019
2018
2017 1
2016 1
5,850
(3,434)
(709)
(79)
(272)
(247)
(11)
-
1,098
(37)
(19)
(266)
776
1,460
1,295
241
1,701
2,583
753
227
44
12
5,320
663
647
519
336
3,155
5,320
4,877
(3,652)
(713)
(162)
(259)
(211)
(6)
(33)
(159)
(49)
(11)
69
(150)
301
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)
(202)
(257)
(231)
(7)
-
1,072
(37)
37
(262)
810
5,134
(3,124)
(633)
(48)
(210)
(217)
(32)
-
870
(31)
7
(250)
596
1,538
1,160
909
370
1,345
2,569
767
75
32
3
4,791
595
692
316
292
2,896
4,791
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)
-
(197)
(176)
5
-
482
(29)
(9)
(118)
326
674
689
273
938
2,236
371
-
20
35
3,600
459
413
272
215
2,241
3,600
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
- 130 -
2020
2019
2018
2017 1
2016 1
11.30
(2.18)
10.88
7.63
4.06
86.50
21.60
81.78
0.80
68,679
18%
29%
2%
80.13
43.93
57.28
0.80
68,663
-3%
-6%
30%
97.99
60.44
67.44
0.70
69,819
20%
28%
17%
83.50
42.98
77.57
0.36
77,946
54.18
35.35
48.01
0.28
78,163
17%
24%
12%
11%
15%
14%
Number of employees at year-end
8,115
8,200
8,570
8,600
7,800
Production
Lumber (MMfbm)5
Pulp (Mtonnes)
Newsprint (Mtonnes)
Plywood (3/8" MMsf)
MDF (3/4" MMsf)6
LVL (Mcf)
1. For 2017, we reclassified approximately $20 million from freight and other distribution costs to selling, general and administration to conform
6,609
1,151
119
833
224
2,251
6,233
1,172
122
838
191
2,676
5,914
1,137
114
818
221
2,034
5,958
1,124
105
762
209
1,948
5,935
1,192
128
826
160
2,215
to our current presentation. 2016 has not been restated for this reclassification.
2. Export duties for 2020 are net of a $124 million recovery related to the USDOC finalization of the duty rates for the AR1 POI
dated April 28, 2017 to December 31, 2018.
3. Adjusted EBITDA is described in the section titled “Non-IFRS Measures” of our 2020 Management’s Discussion & Analysis.
4. Export duty deposits for 2020 include export duty receivable of $124 million related to the USDOC finalization of the duty rates for the AR1 POI
dated April 28, 2017 to December 31, 2018.
5. 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.
6. 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.
DIRECTORS AND OFFICERS
Effective February 11, 2021
Directors
Henry H. Ketcham
Reid E. Carter
Raymond W. Ferris
John N. Floren
Brian G. Kenning
John K. Ketcham
Marian Lawson
Colleen M. McMorrow
Gerald J. Miller
Robert L. Phillips
Janice G. Rennie
Gillian D. Winckler
Officers
Raymond W. Ferris
Christopher A. Virostek
Sean P. McLaren
Peter C. Wijnbergen
Christopher D. McIver
Robin A. Lampard
Brian A. Balkwill
Kevin J. Burke
Alan A. Caputo
Keith D. Carter
Mark R. Dubois-Phillips
Chester R. Fort
James W. Gorman
D’Arcy R. Henderson
James R. Laundry
Alan G. McMeekin
Adrian A. Plante
Scott W. Stubbington
Tom V. Theodorakis
Matthew V. Tobin
Charles H. Watkins
- 131 -
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
Corporate Director
Corporate Director
Office Held
President and Chief Executive Officer
Vice-President, Finance and Chief Financial Officer
President, Solid Wood
President, Engineered Wood
Senior Vice-President, Marketing and Corporate Development
Senior Vice-President, Finance
Vice-President, Canadian Wood Products
Vice-President, North American Engineered Wood Products
Vice-President, Human Resource
Vice-President, Pulp and Energy Operations
Vice-President, Marketing and Customer Strategy
Vice-President, U.S. Lumber Operations
Vice-President, Corporate and Government Relations
Vice-President, Canadian Woodlands
Vice-President, Canadian Plywood, MDF and LVL
Vice-President, European Engineered Wood Products
Vice-President, Canadian Lumber
Vice-President, Sales Engineered Wood Products
Secretary
Partner, McMillan LLP (lawyers)
Vice-President, Lumber Sales
Vice-President, Capital and Technology
CORPORATE INFORMATION
Effective February 11, 2021
ANNUAL GENERAL MEETING
The Annual General Meeting of
the shareholders of the
Company will be held on
April 20, 2021 at 11:30 a.m. at
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
www.sec.gov/edgar.shtml
Shares are listed on the Toronto
Stock Exchange & New York
Stock Exchange under the
symbol: WFG
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
- 132 -
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
OSB
1 Toronto Street, Suite 600
Toronto, Ontario
Canada M5C 2W4
Tel: (416) 365-0705
Pulp
858 Beatty Street, Suite 501
Vancouver, British Columbia
Canada V6B 1C1
Tel: (604) 895-2700
E: pulpsales@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
OSB Operations
1 Toronto Street, Suite 600
Toronto, Ontario
Canada M5C 2W4
Tel: (416) 365-0705
European Operations
Cowie, Stirlingshire, Scotland
Station Road, Cowie
Stirlingshire FK7 7BQ
Tel: +44 (0) 1786 812921
- 133 -
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
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
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
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.
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.
- 134 -
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 Panel
products (such as OSB, MDF and
plywood) equal to one
thousand square feet on a 3/4
inch basis for MDF, on a 3/8
inch basis for plywood and on
either a 3/8-inch or 7/16-inch
thick basis for OSB. MMsf
means one million square feet.
NBSK Northern Bleached
Softwood Kraft Pulp
OSB Oriented Strand Board An
engineered structural wood
panel produced by chemically
bonding wood strands in a
uniform direction under heat
and pressure.
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.
WEST FRASER is a diversified wood products company with more than 60 facilities
in Canada, the United States, the United Kingdom, and Europe. From responsibly
sourced and sustainably managed forest resources, the Company produces lumber,
engineered wood (OSB, LVL, MDF, plywood, particleboard), and other products including
pulp, newsprint, wood chips, and renewable energy. West Fraser’s products are used
in home construction, repair and remodeling, industrial applications, papers, tissue
and box materials.
West Fraser Timber Co. Ltd.
Tel: 604.895.2700 Fax: 604.681.6061 www.westfraser.com