Weatherford International Ltd.
Annual Report 2022

Plain-text annual report

W E S T F R A S E R • 2 0 2 2 A N N U A L R E P O R T 2022 ANNUAL REPORT NORTH AMERICA BRITISH COLUMBIA ALBERTA Quesnel Edmonton ONTARIO QUEBEC Vancouver Toronto MINNESOTA ARKANSAS TENNESSEE Memphis ALABAMA GEORGIA NORTH CAROLINA SOUTH CAROLINA UNITED KINGDOM Cowie TEXAS MISSISSIPPI LOUISIANA BELGIUM FLORIDA EUROPE LOCATIONS About West Fraser 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 products (OSB, LVL, MDF, plywood, and particleboard), pulp, newsprint, wood chips, other residuals, and renewable energy. West Fraser’s products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials. For more information, please visit WestFraser.com. West Fraser in Brief We make renewable, wood-based building products for the world, contributing to a more sustainable future. Our business strategy is simple: We aim to develop and maintain: • Keep costs low • Reinvest profits • Maintain a prudent balance sheet • Excellence in performance and people • Leadership in our field • Challenge and satisfaction • Responsibility in communities in which we work • Profitability • Growth Table of Contents West Fraser Operations ...................................................... 1 2022 Annual Management’s Discussion & Analysis ........... 8 Operating Footprint on Two Continents .............................. 1 2022 Audited Consolidated Financial Statements ............ 67 Message from Our Chief Executive Officer........................ 2 Directors & Officers .........................................................109 2022 Highlights ................................................................... 4 Glossary of Key Terms ..................................................... 110 Financial Performance ........................................................ 6 Corporate Information ..................................................... 111 Memberships ..................................................................112 * Unless otherwise indicated, all financial references are in U.S. dollars. 2022 ANNUAL REPORT 1 West Fraser Operations NORTH AMERICA BRITISH COLUMBIA ALBERTA Quesnel Edmonton ONTARIO QUEBEC Vancouver Toronto MINNESOTA ARKANSAS TENNESSEE Memphis ALABAMA GEORGIA NORTH CAROLINA SOUTH CAROLINA UNITED KINGDOM Cowie TEXAS MISSISSIPPI LOUISIANA BELGIUM FLORIDA EUROPE LOCATIONS Operating Footprint on Two Continents ~11,000 Employees Worldwide 34 Lumber Mills 5 6 Pulp & Newsprint Mills Renewable Energy Facilities ENGINEERED WOOD PRODUCT MILLS 14 OSB1 3 MDF 3 2 2 1 Plywood Particleboard Veneer & LVL Furniture Plant 1. Excludes currently idled Allendale OSB mill. 2 WEST FRASER Overall, 2022 was a strong year of performance for West Fraser. Robust markets from 2021 carried over into the first half of 2022, followed by slowing demand in the latter part of the year as both inflation and correspondingly rising mortgage rates impacted near- term housing affordability and consumer sentiment. In 2022, we generated $20.86 of diluted earnings per share and over $3.2 billion of Adjusted EBITDA,1 representing a 33% margin. For the full year, we repurchased nearly $2 billion of shares through our normal course issuer bids and a substantial issuer bid. Since early 2021, the Company has repurchased approximately 39.7 million common shares representing about 73% of the shares issued with the Norbord Acquisition. In addition, West Fraser also paid $99 million of dividends in 2022. West Fraser continues to benefit from the geographic diversity of our high-quality products and our proven track record of capital allocation. As a result, West Fraser closed 2022 with a solid balance sheet while reinvesting nearly $480 million back into the business through capital expenditures. SAFETY IS OUR TOP PRIORITY Our approach to safety is to foster a culture of continuous improvement and focus. We achieved a new milestone in 2022 by reducing our most serious injuries by 50% over the previous year, and our lost-time incidents decreased by 5% over 2021. Notwithstanding those successes, our overall rate of recordable injuries plateaued last year – an indication that much work remains to be done to ensure all our people go home safe each day. ADVANCING SUSTAINABILITY LEADERSHIP We strive to be a leader in sustainability. Indicative of our sustainability priorities, this last year we realized significant environmental and social achievements. In February, West Fraser became one of the first Canadian forest products companies committed to reduce Scope 1 and 2 emissions targets, aligning to a 1.5 degree scenario, to achieve material GHG reductions by 2030 through the Science Based Targets initiative (SBTi). By year-end, following submission to SBTi, the validation of our emissions reduction targets was underway. Another key accomplishment was joining the United Nations (UN) Global Compact, solidifying our commitment to the UN Sustainable Development Goals (SDGs). West Fraser’s sustainability performance included new initiatives to improve the diversity of our workforce; work to obtain certification for Progressive Aboriginal Relations (PAR); and a renewed commitment to our communities through our community investments. 1. Non-GAAP Financial Measure Message from Our Chief Executive Officer In our 68-year history at West Fraser, our strategy has remained simple and durable. That is, to be the low-cost producer, and to reinvest in the business while maintaining a prudent balance sheet. This proven and resilient strategy has historically allowed our Company to emerge from market downturns stronger and ready to execute on opportunity. The West Fraser team is experienced in navigating these commodity market cycles, has a proven track record, and is prepared for this cyclicality. 2022 ANNUAL REPORT 3 Our employees are the foundation of the Company’s ability to deliver on our strategy, and we believe inclusive and diverse teams build a more vibrant workforce, safer operations, and a stronger company overall. To that end, our new Diversity, Equity & Inclusion Policy was implemented in early 2022, and as a result of this enhanced focus, workforce representation of women and under-represented minorities increased to 15% and 25%, respectively. As part of our PAR commitment, we implemented a management statement and continued to inform our forest management practices with traditional knowledge. Our commitment to our communities was renewed with a revised, more robust community investment strategy. Over the year, $4.3 million was distributed to approximately 500 non-profit organizations, making a difference in the communities where we live and work. NORTH AMERICA’S LEADING SOFTWOOD LUMBER PRODUCER The world needs sustainable, renewable building materials that sequester carbon in the fight against climate change. West Fraser is well positioned to deliver on projected market demand. In 2022, 54% of West Fraser lumber was produced in the U.S. south, 24% in Alberta and 22% in B.C. As part of our ongoing modernization plans, we announced, complete with a renewable solar power strategy, an estimated $255 million1 brownfield redevelopment of our lumber manufacturing site in Henderson, Texas. With start-up planned for 2024, the replacement mill is positioned to be a low-cost leader that reflects our efforts to sustainably and profitably grow our business. 1. Non-GAAP Financial Measure A NORTH AMERICAN AND EUROPEAN ENGINEERED WOOD LEADER Our North American and European Engineered Wood segments each made significant positive EBITDA1 contributions over the year. The outlook remains strong as residential improvement and industrial have become more significant drivers of U.S. OSB consumption, combining for more than one-third of total 2022 industry demand. As part of the Company’s capital plan, approximately $75 million is being invested to upgrade and optimize the Allendale facility. The idled OSB mill was acquired in late 2021 and is scheduled to start up by mid-2023. With the help of our skilled OSB team, we expect the mill will be among the lowest cost mills in our OSB portfolio when operating at full capacity. A LOOK AHEAD In a global effort to reduce the impacts of climate change, the outlook for renewable and sustainable wood building materials continues to grow. We believe our sustainable and renewable building products coupled with our geographic diversity have positioned West Fraser well to be a key long-term supplier to our customers. I am proud of what West Fraser achieved in 2022 and look forward to the opportunities we have in front of us. On behalf of our executive team, I would like to thank our dedicated and committed employee team for their contributions to both our past and future success and thank our Board of Directors for their vision and guidance in support of our proud West Fraser story. Ray Ferris President and Chief Executive Officer 4 WEST FRASER 2022 Highlights FINANCE AND OPERATIONS Achieved earnings of and diluted earnings per share of Delivered Adjusted EBITDA1 of $1.98 billion $20.86 $3.21 billion representing 33.1% of sales Repurchased and returned Delivered ROCE of $1.99 billion $99 million worth of shares in dividends 28% SAFETY 50% 5% reduction in the most serious injuries over the last year decrease in lost time over the last year 1. Non-GAAP Financial Measure 2022 ANNUAL REPORT 5 ENVIRONMENTAL/FORESTRY Certified 100% responsible fibre sourcing for West Fraser’s managed forest area 99% of a log used 66 million Harvested <1% seedlings planted in West Fraser’s managed forest area in 2022 of West Fraser’s managed forest area (annually) One of the first Canadian forestry companies committed to set science-based targets through SBTi to achieve material GHG reduction targets by 2030 The first Canadian forestry company to join the UN Global Compact, solidifying our commitment to the UN SDGs OUR PEOPLE Established a West Fraser Health and Wellness Committee 8% of Canadian employees self-identify as Indigenous 15% 25% of our workforce is comprised of women, a 2% increase from last year of employees self-identify with an under-represented racial or ethnic identity, a 1% increase from last year Named as one of Canada’s Top 100 Employers for the 10th consecutive year Advanced our commitment to PAR Certification by defining a Leadership Commitment Statement COMMUNITY $4.3 million invested in community organizations ~500 community organizations received community investments 6 WEST FRASER Financial Performance FIVE-YEAR FINANCIAL REVIEW (in millions of U.S. dollars, except where indicated) Earnings Sales Cost of product sold Freight and other distribution costs Export duties, net1 Amortization Selling, general and administration Equity-based compensation Restructuring and impairment charges Operating earnings Finance expense, net Other Tax (provision) recovery Earnings Adjusted EBITDA2 Cash flows from operating activities Capital expenditures Financial position Current assets PPE & timber licenses Goodwill & other intangibles Export duty deposits3 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 2022 2021 2020 2019 2018 9,701 (5,142) (963) (18) (589) (365) (5) (60) 2,559 (3) 37 (618) 1,975 3,212 2,207 477 2,749 4,333 2,358 354 175 4 9,973 792 499 268 795 7,619 9,973 10,518 (4,645) (846) (146) (584) (312) (40) – 3,945 (45) (2) (951) 2,947 4,569 3,552 635 3,217 4,468 2,440 242 58 8 10,433 1,206 499 360 712 7,656 10,433 4,373 (2,559) (529) (57) (203) (185) (9) – 831 (27) (14) (202) 588 1,043 968 180 1,336 2,029 591 178 35 9 4,178 528 500 408 264 2,478 4,178 3,673 (2,750) (538) (122) (195) (159) (4) (25) (120) (37) (8) 52 (113) 104 87 309 883 2,028 594 61 20 8 3,594 644 500 350 195 1,905 3,594 4,722 (2,789) (565) (156) (199) (178) (5) – 830 (29) 29 (203) 627 1,034 702 286 986 1,883 562 55 23 2 3,511 435 508 231 214 2,123 3,511 EPS per common share (dollars) Adjusted EBITDA2 in millions of U.S. dollars Cash flows from operating activities in millions of U.S. dollars 30 25 20 15 10 5 0 -5 5,000 4,000 3,000 2,000 1,000 0 4,000 3,000 2,000 1,000 0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Per common share (dollars) Basic EPS TSX Price range (CAD): High Low Close NYSE Price range:4 High Low Close Dividends declared per share Shares outstanding at year-end ('000s) Ratios Return on capital employed5 Net debt to capitalization6 Number of employees at year-end Shipments SPF Lumber (MMfbm) SYP Lumber (MMfbm) NA OSB (MMsf 3/8” basis) EU OSB (MMsf 3/8” basis) Pulp (Mtonnes) 2022 ANNUAL REPORT 7 2022 2021 21.06 27.03 132.91 89.95 97.77 102.96 68.75 72.29 1.15 83,555 124.74 73.30 120.68 97.59 61.36 95.36 0.76 105,929 28% -9% 61% -16% 11,056 10,928 2,705 3,036 6,006 977 968 3,176 2,649 5,674 1,010 1,033 2020 8.56 86.50 21.60 81.78 n/a n/a n/a 0.56 68,679 25% 2% 8,115 3,214 2,861 – – 1,132 2019 (1.64) 80.13 43.93 57.28 n/a n/a n/a 0.60 68,663 -4% 29% 8,200 3,363 2,692 – – 1,173 2018 8.42 97.99 60.44 67.44 n/a n/a n/a 0.54 69,819 27% 19% 8,570 3,790 2,792 – – 1,138 1. 2. 3. 4. 5. 6. Export duties for 2022 are net of an $81 million recovery related to the USDOC finalization of the duty rates for the AR3 POI dated January 1, 2020 to December 31, 2020. Export duties for 2021 are net of a $55 million recovery related to the USDOC finalization of the duty rates for the AR2 POI dated January 1, 2019 to December 31, 2019. Export duties for 2020 are net of a $95 million recovery related to the USDOC finalization of the duty rates for the AR1 POI dated April 28, 2017 to December 31, 2018. Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of our 2022 Management’s Discussion & Analysis for more information on this measure. Effective January 1, 2022, and for all comparative periods, export duties are no longer excluded from the definition of Adjusted EBITDA. Export duty deposits for 2022 include export duty receivable of $81 million related to the USDOC finalization of the duty rates for the AR3 POI dated January 1, 2020 to December 31, 2020. Export duty deposits for 2021 include export duty receivable of $55 million related to the USDOC finalization of the duty rates for the AR2 POI dated January 1, 2019 to December 31, 2019. Export duty deposits for 2020 include export duty receivable of $95 million related to the USDOC finalization of the duty rates for AR1 POI dated April 28, 2017 to December 31, 2018. Our common shares began trading on the NYSE under the symbol WFG on February 1, 2021. Return on capital employed is calculated as GAAP EBIT divided by total assets minus current liabilities. Net debt to capitalization is a non-GAAP financial measure calculated as net debt divided by total capital, expressed as a percentage. Net debt is calculated as total debt less cash and cash equivalents. Total capital is defined as the sum of net debt plus total equity. Refer to the “Non-GAAP and Other Specified Financial Measures” section of our 2021 Annual MD&A for more information on this measure. SPF Lumber shipments in MMfbm SYP Lumber shipments in MMfbm NA OSB shipments in MMsf 3/8" basis EU OSB shipments in MMsf 3/8" basis 4,000 3,000 2,000 1,000 0 3,000 2,000 1,000 0 6,000 4,000 2,000 0 1,200 800 400 0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 8 MANAGEMENT’S DISCUSSION & ANALYSIS INTRODUCTION This discussion and analysis by management (“MD&A”) of West Fraser Timber Co. Ltd.’s (“West Fraser”, the “Company”, “we”, “us”, or “our”) financial performance for the year and three months ended December 31, 2022 should be read in conjunction with our annual audited consolidated financial statements and accompanying notes for the year ended December 31, 2022 (the “Annual Financial Statements”). Unless otherwise indicated, the financial information contained in this MD&A is derived from our Annual Financial Statements, which have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). This MD&A uses various Non-GAAP and other specified financial measures, including “Adjusted EBITDA”, “Adjusted EBITDA by segment”, “available liquidity”, “total debt to capital ratio”, “net debt to capital ratio”, and “expected capital expenditures”. An explanation with respect to the use of these Non- GAAP and other specified financial measures is set out in the section titled “Non-GAAP and Other Specified Financial Measures”. This MD&A includes statements and information that constitute “forward-looking information” within the meaning of Canadian securities laws and “forward-looking statements” within the meaning of United States securities laws (collectively, “forward-looking statements”). Please refer to the cautionary note entitled “Forward-Looking Statements” below for a discussion of these forward-looking statements and the risks that impact these forward-looking statements. Dollar amounts are expressed in the United States (“U.S.”) currency unless otherwise indicated and reflect the change in our functional and reporting currency from the Canadian dollar to the U.S. dollar effective February 1, 2021. This MD&A uses capitalized terms, abbreviations and acronyms that are defined under “Glossary of Key Terms”. The information in this MD&A is as at February 14, 2023 unless otherwise indicated. OUR BUSINESS AND STRATEGY West Fraser is a diversified wood products company with facilities in Canada, the U.S., the U.K. and Europe, manufacturing, selling, marketing and distributing lumber, engineered wood products (OSB, LVL, MDF, plywood, particleboard), pulp, newsprint, wood chips and other residuals and renewable energy. Our business is comprised of 34 lumber mills, 15 OSB facilities, 6 renewable energy facilities, 5 pulp and paper mills, 3 plywood facilities, 3 MDF facilities, 2 particleboard facilities, 1 LVL facility, 1 treated wood facility, and 1 veneer facility. Our goal at West Fraser is to generate strong financial results through the business cycle, relying on our committed workforce, the quality of our assets and our well-established people and culture. This culture emphasizes cost control in all aspects of the business and operating in a responsible, sustainable, financially conservative and prudent manner. The North American wood products industry is cyclical and periodically faces difficult market conditions. 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 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. As many of our costs are denominated in Canadian dollars, British pounds sterling and Euros, exchange rate fluctuations of the Canadian dollar, British pound sterling and Euro against the United States dollar can and are anticipated to be a significant source of earnings volatility for us. West Fraser strives to make sustainability a central principle upon which our people operate, and we believe the Company’s renewable building materials that sequester carbon are a truly natural solution in the fight against climate change. There are numerous government initiatives and proposals globally to address climate-related issues. Within the jurisdictions of West Fraser’s operations, some of these initiatives would regulate, and do regulate and/or tax the - 1 - production of carbon dioxide and other greenhouse gases to facilitate the reduction of carbon emissions, providing incentives to produce and use cleaner energy. In the first quarter of 2022, we joined the Science Based Targets Initiative (“SBTi”) demonstrating the Company’s commitment to sustainability leadership and contribution to global climate action, including setting specific science-based targets to achieve near-term greenhouse gas reductions across all of our operations located in Canada, the U.S., the U.K. and Europe. 9 We believe that 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 reinvest in our operations across all market cycles to strategically enhance productivity, product mix, and capacity and to maintain a leading cost position. We believe that a strong balance sheet also provides the financial flexibility to capitalize on growth opportunities, including the pursuit of opportunistic acquisitions and larger-scale strategic growth initiatives, and is a key tool in managing our business over the long term including returning capital to shareholders. RECENT DEVELOPMENTS Markets In North America, changes in new home construction activity in the U.S. are a significant driver of lumber and OSB demand. According to the U.S. Census Bureau, the seasonally adjusted annualized rate of U.S. housing starts averaged 1.38 million units in December 2022, with permits issued averaging 1.33 million units. U.S. housing starts were 1.55 million units for the full year, down 3% from 1.60 million units in 2021. While there are near-term headwinds to new home construction, owing in large part to the recent upward reset in interest rates and the impact on housing affordability, low supply of existing homes for sale, the backlog of new homes under construction caused by lagging completions and changes in home ownership trends stemming from the COVID-19 pandemic provide offsetting factors that are expected to support longer-term core demand for home construction activity. However, should interest rates continue to rise or housing prices remain elevated, housing affordability may be impacted, which could reduce near-term demand for new home construction and thus near-term demand for our wood building products. Relative to new home construction markets, demand for our products used in repair and remodelling applications remained robust in the fourth quarter. While there is risk of relatively high inflation tempering consumer spending and growth in near-term repair and remodelling demand, over the medium term an aging housing stock and the apparent entrenchment of greater work-from-home flexibility are expected to continue to drive renovation and repair spending that supports lumber, plywood and OSB demand. Indefinite Curtailment of Perry Sawmill On January 10, 2023, we announced the indefinite curtailment of our Perry sawmill in Florida as a result of high fibre costs and softening lumber markets. The indefinite curtailment will decrease our annual U.S. lumber production by 100 million board feet. In Q4-22 we recorded restructuring and impairment charges of $31 million relating to the indefinite curtailment. Curtailment of Cariboo Pulp & Paper On February 7, 2023, we announced the planned curtailment of operations at Cariboo Pulp & Paper located in Quesnel, British Columbia, beginning in mid-April for a month and then for another month in the third quarter, due to a decline in the availability of sawmill residuals. Downtime at Cariboo Pulp & Paper will help better align our production capacity this year with the available fibre supply. These plans may be adjusted should fibre forecasts change. CVD and ADD Duty Rates On January 24, 2023, the USDOC released the preliminary results from AR4 POI covering the 2021 calendar year, which indicated a rate of 2.48% for CVD and 6.90% for ADD for West Fraser. The duty rates are subject to an appeal process, and we will record an adjustment once the rates are finalized. If the AR4 rates were to be confirmed, it would result in a recovery of $62 million before the impact of interest for the POI covered by AR4. This adjustment would be in addition to the amounts already recorded on our balance sheet. If these rates were finalized, our combined cash deposit rate would be 9.38%. - 2 - 10 ANNUAL RESULTS Summary Annual Results ($ 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 Earnings Adjusted EBITDA1 Basic earnings per share ($) Diluted earnings per share ($) Cash dividends declared per share2 ($) Total assets Long-term debt, non-current Long-term debt, total $ $ $ 2022 2021 2020 9,701 $ (5,142) (963) (18) (589) (365) (5) (60) 2,559 (3) 37 (618) 1,975 $ 3,212 $ 21.06 20.86 1.15 9,973 499 499 10,518 $ (4,645) (846) (146) (584) (312) (40) — 3,945 (45) (2) (951) 2,947 $ 4,569 $ 27.03 27.03 0.76 10,433 499 499 4,373 (2,559) (529) (57) (203) (185) (9) — 831 (27) (14) (202) 588 1,043 8.56 8.56 0.59 4,178 500 507 1. 2. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Cash dividends of CAD$0.80 per share were declared during the year ended December 31, 2020. Cash dividends declared during the year ended December 31, 2021 were comprised of CAD$0.70 per share in aggregate for the first three quarters and USD$0.20 per share for the fourth quarter. The CAD amounts have been translated to USD for presentation purposes using the average exchange rate during the quarter that the dividends were declared. In 2022, our revenues were $9,701 million and we generated earnings of $1,975 million, or $20.86 of diluted earnings per share. This compares with revenues of $10,518 million and earnings of $2,947 million, or $27.03 of diluted earnings per share, in 2021, and revenues of $4,373 million and earnings of $588 million, or $8.56 of diluted earnings per share, in 2020. Our 2022 results were impacted primarily by decreases in lumber and OSB pricing, cost inflation across a number of our inputs, and restructuring and impairment charges compared to 2021. The acquisition of Norbord and increased pricing and demand for our products driven by increased home construction and repair and remodelling activity in North America increased our revenues and earnings in 2021 compared to 2020. - 3 - Discussion & Analysis of Annual Results by Product Segment 11 Lumber Segment Lumber Segment Earnings ($ millions unless otherwise indicated) 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 income (expense), net Other income Earnings before tax Adjusted EBITDA1 Capital expenditures SPF (MMfbm) Production Shipments SYP (MMfbm) Production Shipments $ $ $ $ 2022 2021 4,077 $ 309 79 4,465 (2,489) (435) (18) (186) (194) (31) 1,111 1 5 1,117 $ 4,520 289 101 4,910 (2,241) (404) (146) (164) (146) — 1,809 (17) 2 1,794 1,328 $ 184 $ 1,973 146 2,635 2,705 3,018 3,036 3,182 3,176 2,675 2,649 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. 2021 Adjusted EBITDA was decreased by a one-time charge of $2 million related to inventory purchase price accounting on the Angelina Acquisition. Sales and Shipments Lumber sales were lower compared to 2021 due to lower product pricing and, to a lesser extent, lower shipments. Lumber pricing decreased in the second half of 2022 as demand weakened. The price variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $352 million compared to 2021. SPF shipment volumes decreased compared to 2021 due primarily to transportation constraints in early 2022 and weakened demand in the second half of 2022. The first quarter of 2022 was impacted by disruptions to rail and truck services resulting from severe weather and flooding in B.C. in the fourth quarter of 2021. SYP shipment volumes increased compared to 2021 due primarily to the acquisition of the Angelina lumber mill in the fourth quarter of 2021 and ramp-up of production at our lumber mill in Dudley, Georgia. Shipment volumes in 2021 were also negatively impacted by a period of extreme weather conditions in the U.S. South. The volume variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $33 million compared to 2021. - 4 - 12 SPF Sales by Destination U.S. Canada China Other 2022 2021 MMfbm 1,755 837 35 78 2,705 % 65% 31% 1% 3% MMfbm 2,098 753 189 136 3,176 % 66% 24% 6% 4% We ship SPF to several export markets, while our SYP sales are almost entirely within the U.S. The relative proportion of SPF shipments to China decreased compared to 2021 due primarily to reduced demand from the construction industry as pandemic-related lockdowns in the country slowed economic activity and the strengthening of the USD against the Chinese renminbi reduced purchasing power for Chinese buyers. Additional restrictions implemented on Chinese ports and ongoing container shortages have also been contributing factors to the decrease in SPF shipments to China year over year. Wood chip and other residual sales increased compared to 2021 due primarily to the acquisition of the Angelina lumber mill and higher pricing, offset in part by decreases in chip production at our Western Canada locations. Chip production decreased in line with lumber production year over year. Logs and other sales decreased compared to 2021 due to the impacts of constrained fibre availability. Costs and Production SPF production volumes were lower compared to 2021 due primarily to reductions in operating schedules at our Western Canada locations to manage inventory levels and align operating capacity with constrained transportation and timber availability. The impact of the previously announced permanent curtailment of one shift at our Fraser Lake and Williams Lake sawmills was also a contributing factor. SYP production volumes increased compared to 2021 due primarily to the acquisition of the Angelina lumber mill and ramp-up of production at our lumber mill in Dudley, Georgia, which began producing during Q2-21. 2021 production volumes at certain of our locations were also negatively impacted by extreme winter conditions in the U.S. South. We have experienced significant cost inflation across a number of our inputs including supplies and materials, energy, employee costs, and transportation. Costs of products sold were higher compared to 2021 due primarily to higher log costs and higher manufacturing costs in both our Canadian and U.S. operations, offset in part by lower shipment volumes. Adjustments to write-down inventory to its net realizable value were $51 million higher in 2022, which contributed to the unfavourable variance year over year. Most of our SPF log requirements are harvested from crown lands owned by the provinces of B.C. or Alberta. B.C.’s stumpage system is tied to reported lumber prices, with a time lag, and publicly auctioned timber harvesting rights. Alberta’s stumpage system is correlated to published lumber prices with a shorter time lag. SPF log costs in 2022 were higher compared to 2021 due to higher purchased log costs and increases in logging and fuel costs in both B.C. and Alberta. Stumpage decreased year over year, driven primarily by a decrease in stumpage rates in B.C. SPF unit manufacturing costs increased versus 2021 due primarily to lower production and higher energy and supplies and materials costs. SYP log costs were higher compared to 2021 due to increased competition for logs. SYP unit manufacturing costs increased compared to 2021 due to higher supplies and materials, energy, and employee costs, offset in part by increased production. Freight and other distribution costs increased compared to 2021 due to higher fuel costs and higher rates for trucking and rail services, offset in part by lower shipment volumes. - 5 - Export duty expense decreased compared to 2021. Export duties in 2022 included a recovery of $81 million related to the USDOC finalization of AR3 duty rates whereas export duties in 2021 included a recovery of $55 million related to the USDOC finalization of AR2 duty rates. As disclosed in the table below, the effective duty expense for 2022 decreased compared to 2021 due primarily to a lower CVD cash deposit rate and estimated ADD rate, lower volumes of softwood lumber shipped to the U.S., and lower pricing. 13 The following table reconciles our cash deposits paid during the year to the amount recorded in our statements of earnings: Duty impact on earnings ($ millions) Cash deposits paid1 Adjust to West Fraser Estimated ADD rate2 Effective duty expense for period3 Duty recovery attributable to AR24 Duty recovery attributable to AR35 Export duty expense Net interest income on duty deposits receivable 2022 2021 (117) 18 (99) — 81 (18) 9 (132) (69) (201) 55 — (146) 9 1. 2. 3. 4. 5. Represents combined CVD and ADD cash deposit rate of 8.97% for January 1, 2021 to December 1, 2021, 11.12% from December 2, 2021 to January 9, 2022, 11.14% from January 10, 2022 to August 8, 2022, and 8.25% from August 9, 2022 to December 31, 2022. Represents adjustment to West Fraser Estimated ADD rate of 4.52% for 2022 and 6.80% for 2021. The total represents the combined CVD cash deposit rate and West Fraser Estimated ADD rate of 14.37% for January 1, 2021 to December 1, 2021, 11.86% for December 2, 2021 to December 31, 2021, 9.58% for January 1, 2022 to January 9, 2022, 9.60% from January 10, 2022 to August 8, 2022, and 8.14% from August 9, 2022 to December 31, 2022. $55 million represents the duty recovery attributable to the finalization of AR2 duty rates for the 2019 POI. $81 million represents the duty recovery attributable to the finalization of AR3 duty rates for the 2020 POI. Amortization expense was higher compared to 2021 due primarily to incremental amortization relating to the acquired Angelina lumber mill. Selling, general and administration costs were higher compared to 2021 due primarily to higher salaries and benefits, increased travel following easing of COVID restrictions, and increased levels of community investment. Updates in the allocation methodology for corporate overhead costs was also a contributing factor to the increase year over year. In 2022 we recorded restructuring and impairment charges of $31 million relating to the indefinite curtailment of operations at our Perry sawmill. Finance income, net in 2022 includes $9 million of interest income on export duties related primarily to the finalization of our AR3 duty rates. Finance expense, net in 2021 similarly includes $9 million of interest income related to the finalization of our AR2 duty rates. Finance expense excluding this amount decreased compared to 2021 due to a lower allocation of consolidated finance expense. Other income relates primarily to foreign exchange revaluations on the Canadian dollar monetary assets and liabilities held by our Canadian operations. Earnings before tax for the Lumber Segment decreased by $677 million compared to 2021 for the reasons explained above. Adjusted EBITDA for the Lumber Segment decreased by $645 million compared to 2021. The following table shows the Adjusted EBITDA variance for the period. - 6 - 14 Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in export duties Changes in costs Impact of inventory write-downs Other Adjusted EBITDA - current period Softwood Lumber Dispute 2021 to 2022 $ $ 1,973 (352) (33) 127 (307) (51) (29) 1,328 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 duties against Canadian softwood lumber imports. The USDOC has and continues to choose 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 We began paying CVD and ADD duties in 2017 based on the determination of duties payable by the USDOC. The CVD and ADD cash deposit rates are updated based on the USDOC’s AR for each POI, as summarized in the tables below. On March 9, 2022, the USDOC initiated AR4 POI covering the 2021 calendar year. West Fraser was selected as a mandatory respondent, which will result in West Fraser continuing to be subject to a company-specific rate. The respective Cash Deposit Rates, the AR POI Final Rate, and the West Fraser Estimated ADD Rate for each period are as follows: Effective dates for CVD AR1 POI1,2 April 28, 2017 - August 24, 2017 August 25, 2017 - December 27, 2017 December 28, 2017 - December 31, 20173 January 1, 2018 - December 31, 2018 AR2 POI4 January 1, 2019 - December 31, 2019 AR3 POI5 January 1, 2020 - November 30, 2020 December 1, 2020 - December 31, 20206 AR4 POI7 January 1, 2021 - December 1, 2021 December 2, 2021 - December 31, 20218 AR5 POI9 January 1, 2022 – January 9, 2022 January 10, 2022 – August 8, 202210 August 9, 2022 - December 31, 202211 Cash Deposit Rate AR POI Final Rate 24.12% —% 17.99% 17.99% 6.76% —% 6.76% 7.57% 17.99% 5.08% 17.99% 7.57% 3.62% 3.62% 7.57% 5.06% 5.06% 5.08% 3.62% n/a n/a n/a n/a n/a 1. 2. 3. 4. 5. 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. On November 24, 2020, the USDOC issued the final CVD rate for the AR1 POI. On December 4, 2017, the USDOC revised our CVD Cash Deposit Rate effective December 28, 2017. On November 24, 2021, the USDOC issued the final CVD rate for the AR2 POI. On January 10, 2022, the USDOC amended the final CVD rate for the AR2 POI from 5.06% to 5.08% for ministerial errors. This table only reflects the final rate. On August 4, 2022, the USDOC issued the final CVD rate for the AR3 POI. - 7 - On November 24, 2020, the USDOC revised our CVD Cash Deposit Rate effective December 1, 2020. The CVD rate for the AR4 POI will be adjusted when AR4 is complete and the USDOC finalizes the rate, which is not expected until 2023. On November 24, 2021, the USDOC revised our CVD Cash Deposit Rate effective December 2, 2021. The CVD rate for the AR5 POI will be adjusted when AR5 is complete and the USDOC finalizes the rate, which is not expected until 2024. 6. 7. 8. 9. 10. On January 6, 2022, the USDOC revised our CVD Cash Deposit Rate effective January 10, 2022. 11. On August 4, 2022, the USDOC revised our CVD Cash Deposit Rate effective August 9, 2022. 15 Effective dates for ADD AR1 POI1,2 June 30, 2017 - December 3, 2017 December 4, 2017 - December 31, 20173 January 1, 2018 - December 31, 2018 AR2 POI4 Cash Deposit Rate AR POI Final Rate West Fraser Estimated Rate 6.76% 5.57% 5.57% 1.40% 1.40% 1.40% 1.46% 1.46% 1.46% January 1, 2019 - December 31, 2019 5.57% 6.06% 4.65% AR3 POI5 January 1, 2020 - November 29, 2020 November 30, 2020 - December 31, 20206 AR4 POI7 January 1, 2021 - December 1, 2021 December 2, 2021 - December 31, 20218 AR5 POI9 January 1, 2022 - August 8, 2022 August 9, 2022 - December 31, 202210 5.57% 1.40% 1.40% 6.06% 6.06% 4.63% 4.63% 4.63% n/a n/a n/a n/a 3.40% 3.40% 6.80% 6.80% 4.52% 4.52% On June 26, 2017, the USDOC issued its preliminary rate in the ADD investigation effective June 30, 2017. On November 24, 2020, the USDOC issued the final ADD rate for the AR1 POI. On December 4, 2017, the USDOC revised our ADD Cash Deposit Rate effective December 4, 2017. On November 24, 2021, the USDOC issued the final ADD rate for the AR2 POI. On August 4, 2022, the USDOC issued the final ADD rate for the AR3 POI. On November 24, 2020, the USDOC revised our ADD Cash Deposit Rate effective November 30, 2020. The ADD rate for the AR4 POI will be adjusted when AR4 is complete and the USDOC finalizes the rate, which is not expected until 2023. On November 24, 2021, the USDOC revised our ADD Cash Deposit Rate effective December 2, 2021. The ADD rate for the AR5 POI will be adjusted when AR5 is complete and the USDOC finalizes the rate, which is not expected until 2024. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. On August 4, 2022, the USDOC revised our ADD Cash Deposit Rate effective August 9, 2022. Accounting policy for duties 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 a similar calculation methodology as the USDOC and adjust when an AR finalizes a new applicable rate for each POI. The difference between the cumulative cash deposits paid and cumulative export duty expense recognized for each POI is recorded on our balance sheet as export duty deposits receivable or payable. 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, net of any interest expense on our duty deposits payable, based on this rate. 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 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. - 8 - 16 The softwood lumber case will continue to be subject to NAFTA or the new Canada-United States-Mexico Agreement (“CUSMA”), 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. Softwood Lumber - Sunset Review The USDOC issued antidumping and countervailing duty orders on certain softwood products from Canada on January 3, 2018. U.S. trade law requires that the USDOC and USITC conduct a so-called “sunset review” five years after the publication of an antidumping and countervailing duty order. Accordingly, in late 2022 the USDOC and USITC indicated they will conduct separate, but related, sunset reviews of the duty orders in 2023. The purpose of the USDOC review is to contemplate the effect of a revocation of duties and assess the duty margins that would prevail. The purpose of the USITC review is to determine whether revocation of a duty order would lead to a “continuation or recurrence of material injury” of the U.S. industry. Neither process is expected to change the duty regime currently in place and is subject to annual Administrative Reviews. North America Engineered Wood Products Segment NA EWP Segment Earnings ($ millions unless otherwise indicated) Sales OSB Plywood, LVL and MDF Wood chips, logs and other Cost of products sold Freight and other distribution costs Amortization Selling, general and administration Operating earnings Finance expense, net Other income (expense) Earnings before tax Adjusted EBITDA1 Capital expenditures2 OSB (MMsf 3/8” basis) Production Shipments Plywood (MMsf 3/8” basis) Production Shipments $ $ $ $ 2022 2021 3,004 $ 759 26 3,789 (1,677) (329) (306) (106) 1,371 (4) 16 1,383 $ 1,677 $ 235 $ 6,109 6,006 716 707 3,450 796 27 4,273 (1,521) (262) (289) (76) 2,125 (3) (1) 2,121 2,414 424 5,654 5,674 763 756 1. 2. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. 2021 Adjusted EBITDA was decreased by a one-time charge of $86 million related to inventory purchase price accounting. 2021 capital expenditures include $276 million relating to the acquisition of the idled OSB mill near Allendale, South Carolina. Our NA EWP segment includes our North American OSB, plywood, MDF, and LVL operations. Our financial results up to February 1, 2021 only reflect activities associated with our plywood, MDF, and LVL operations. Subsequent to February 1, - 9 - 2021, our operations and financial results reflect the consolidated activities and operations of West Fraser and Norbord, including incorporating the North American operations and financial results of Norbord into our NA EWP segment. 17 Sales and Shipments Sales decreased compared to 2021 due primarily to lower OSB and plywood pricing, offset by increased OSB shipments and higher MDF and LVL pricing. The price variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $671 million compared to 2021. OSB shipment volumes increased compared to 2021 due primarily to the inclusion of an additional month of OSB shipments and ramp-up of our Chambord OSB mill. The impacts of constrained railcar availability in the first quarter of the year and weakening demand in the fourth quarter of the year partially offset the aforementioned increases. Plywood shipment volumes decreased compared to 2021 due primarily to weakening demand and reductions in production volumes, discussed further in the section below. The volume variance resulted in an increase in earnings before tax and Adjusted EBITDA of $115 million compared to 2021. Costs and Production OSB production volumes increased versus 2021 due primarily to the inclusion of an additional month of production in 2022 and incremental production from the ramp-up of our Chambord mill, offset by the impacts of production curtailments taken to manage inventory levels and align operating capacity with constrained transportation availability. Plywood production volumes decreased compared to 2021 due to the impact of the previously announced permanent curtailment of one shift at our Quesnel Plywood mill and incremental production curtailments taken in 2022 to manage inventory levels and align operating capacity with constrained transportation and fibre availability. Our costs of products sold increased compared to 2021 due primarily to higher resin, energy and fibre costs and the inclusion of an additional month of OSB shipments. These factors were offset in part by the impact of a one-time charge of $86 million related to inventory purchase price accounting in 2021 and lower plywood shipment volumes. Freight and other distribution costs increased compared to 2021 in part due to the substitution of trucking services for rail services and the inclusion of an additional month of OSB shipments in 2022. Higher fuel costs and overall inflationary pressures were also contributing factors. Amortization expense increased compared to 2021 due to the inclusion of an additional month of OSB results and amortization in relation to the idled OSB mill near Allendale, South Carolina, offset in part by decreases as certain assets reached the end of their estimated useful lives. Selling, general and administration costs were higher than 2021 due primarily to higher salaries and wages, increased travel following easing of COVID restrictions, and updates in the allocation methodology for corporate overhead costs. The inclusion of an additional month of OSB results was also a contributing factor to the increase compared to 2021. Finance expense was comparable to 2021. Fluctuations in Other relates primarily to intercompany transactions that eliminate upon consolidation through an offsetting balance in the Corporate & Other segment. Earnings before tax for the NA EWP Segment decreased $738 million compared to 2021 due to the reasons explained above. Adjusted EBITDA for the NA EWP Segment decreased by $737 million from 2021. The following table shows the Adjusted EBITDA variance for the period. Our Adjusted EBITDA analysis includes OSB, plywood, LVL and MDF, as the OSB results were included in both years. - 10 - 18 Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in costs Other Adjusted EBITDA - current period Pulp & Paper Segment Pulp & Paper Segment Earnings ($ millions unless otherwise indicated) Sales Cost of products sold Freight and other distribution costs Amortization Selling, general and administration Restructuring and impairment charges Operating loss Finance expense Other income (expense) Loss before tax Adjusted EBITDA1 Capital expenditures Pulp (Mtonnes) Production Shipments 2021 to 2022 $ $ 2,414 (671) 115 (185) 4 1,677 $ $ $ $ 2022 2021 807 $ (596) (153) (35) (32) (13) (22) (2) 1 (23) $ 26 $ 29 $ 727 (541) (137) (34) (34) — (19) (5) 2 (22) 15 35 940 968 1,051 1,033 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Sales and Shipments Sales increased compared to 2021 due primarily to increases in pulp pricing, offset in part by lower shipment volumes. The price variance resulted in an increase in earnings before tax and Adjusted EBITDA of $123 million compared to 2021. Pulp shipments decreased compared to 2021 due to reductions in production volumes, discussed further in the section below. The volume variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $8 million compared to 2021. Costs and Production Pulp production decreased compared to 2021 due primarily to reductions in operating schedules in the first half of the year to manage inventory levels as a result of transportation disruptions, the transition of the Hinton pulp mill to single- line production of UKP, and lower overall uptime. Costs of products sold increased compared to 2021 due primarily to higher fibre, energy, maintenance, and chemical costs. Lower shipment volumes provided an offsetting factor. Freight and other distribution costs increased compared to 2021 due to the substitution of trucking services for rail services as well as higher fuel and ocean freight costs. Lower shipment volumes compared to 2021 provided an offsetting effect. - 11 - Amortization, selling, general, and administration costs, finance expense, and other were similar to 2021. 19 A $13 million impairment charge was recorded in 2022 relating to equipment that was permanently decommissioned as part of the transition of the Hinton pulp mill to single-line production of UKP. Loss before tax for the Pulp & Paper Segment increased by $1 million compared to 2021 due to the reasons explained above. Adjusted EBITDA for the Pulp & Paper Segment increased by $11 million compared to 2021. The following table shows the Adjusted EBITDA variance for the period. Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in costs Other Adjusted EBITDA - current period Europe Engineered Wood Products Segment Europe EWP Segment Earnings ($ millions unless otherwise indicated) Sales Cost of products sold Freight and other distribution costs Amortization Selling, general and administration Restructuring and impairment charges Operating earnings Finance expense Other income (expense) Earnings before tax Adjusted EBITDA1 Capital expenditures OSB (MMsf 3/8” basis) Production Shipments USD - GBP exchange rate Closing rate Average rate 2021 to 2022 $ $ 2022 2021 $ $ $ $ 738 $ (479) (46) (53) (28) (15) 117 — — 118 $ 186 $ 20 $ 15 123 (8) (90) (14) 26 723 (457) (43) (88) (22) — 113 (1) — 112 201 28 954 977 1,035 1,010 0.8298 0.8083 0.7400 0.7268 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. 2021 Adjusted EBITDA was decreased by a one-time charge of $7 million related to inventory purchase price accounting. Our Europe EWP segment includes our U.K. and Belgium OSB, MDF, and particleboard operations effective February 1, 2021. Revenues and expenses of our European operations, which have British pound sterling and Euro functional currencies, are translated at the average rate of exchange prevailing during the period. - 12 - 20 Sales and Shipments Sales increased compared to 2021 due to higher product pricing in local currency terms, offset in part by lower shipment volumes and the strengthening of the USD against the GBP. The price variance resulted in an increase in earnings before tax and Adjusted EBITDA of $136 million compared to 2021. The price variance represents the impact of changes in product pricing in local currency terms, with any associated foreign exchange impact from the strengthening or weakening of the GBP against USD presented under Other in the Adjusted EBITDA variance table. Shipment volumes decreased versus 2021 due to reductions in operating schedules to balance inventory as demand weakened in the second half of the year. The inclusion of an additional month of shipments provided a partial offsetting impact compared to 2021. The volume variance resulted in a decrease of $37 million compared to 2021. Costs and Production Production volumes decreased compared to 2021 due to the impacts of reductions in operating schedules described above. The inclusion of an additional month of production in 2022 provided a partial offsetting impact. Costs of products sold increased compared to 2021 due primarily to higher input costs, offset in part by lower shipment volumes. Energy and resin costs accounted for the most significant components of input cost increases year over year, driven by constraints on availability and increasing natural gas costs. Fibre costs also increased compared to 2021. The impact of a one-time charge of $7 million related to inventory purchase price accounting in 2021 and sales of carbon allowances provided a partial offsetting impact in the year over year comparison. Freight and other distribution costs increased compared to 2021 due primarily to the impact of higher fuel prices. Amortization decreased compared to 2021 as certain assets reached the end of their estimated useful lives. The inclusion of an additional month of results provided an offsetting impact compared to 2021. Selling, general and administration costs increased compared to 2021 due primarily to the inclusion of an additional month of results. Restructuring and impairment charges of $15 million were recorded in 2022 relating to our South Molton, England location, driven by a decline in demand from a key customer for our kitchen cabinet products. Finance expense and Other were comparable to prior periods. Earnings before tax for the Europe EWP Segment increased by $6 million compared to 2021 due to the reasons explained above. Adjusted EBITDA for the Europe EWP Segment decreased by $15 million from 2021. The following table shows the Adjusted EBITDA variance for the period. The variances presented represent the impact of changes in price, volume and cost in local currency terms, with any associated foreign exchange impact from the strengthening or weakening of the GBP against USD presented under Other. The impact of the sale of carbon allowances during 2022 is also included under Other. Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in costs Other Adjusted EBITDA - current period - 13 - 2021 to 2022 $ $ 201 136 (37) (125) 11 186 Discussion & Analysis of Specific Items Selling, general and administration 21 Selling, general and administration costs for 2022 were $365 million (2021 - $312 million). Selling, general and administration costs increased compared to 2021 due to higher salaries and wages, increased travel, higher professional fees relating to ongoing integration activities, and the inclusion of an additional month of operating expenses relating to our OSB team. Selling, general and administration costs in 2021 included professional fees incurred for the Norbord Acquisition, which partially offset the aforementioned increases. Selling, general and administration expense related to our operating segments are also discussed under “Discussion & Analysis of Annual Results by Product Segment”. Equity-based compensation Our equity-based compensation includes our share purchase option, phantom share unit, and deferred share unit plans (collectively, the “Plans”), all of which had been partially hedged by an equity derivative contract during 2021. The equity derivative matured in December 2021 and was closed out. Our Plans are fair valued at each period-end, and the resulting expense or recovery is recorded over the vesting period. The Plans include those equity-based plans assumed from Norbord as part of the Norbord Acquisition. The assumed Norbord share purchase option plans (“Assumed Option Plans”) were fair valued at the Norbord Acquisition date. From February 1 to April 20, 2021, the Assumed Option Plans were accounted for as equity-settled plans. On April 20, 2021, our board of directors approved a change to allow the Assumed Option Plans holders the right to elect to receive a cash payment in lieu of exercising an option to purchase Common shares. The change required us to fair value the Assumed Option Plan on April 20, 2021 and convert from equity-based accounting to cash-settled accounting for the Assumed Option Plans. Cash-settled accounting is consistent with the West Fraser option plan. Any changes in fair value from April 20, 2021 onwards will result in an expense or recovery over the vesting period in the same manner as the rest of our Plans. This change to the Assumed Option Plans did not in any way affect the value of the instruments to the holders. Our valuation models consider various factors, with the most significant being the change in the market value of our shares from the beginning to the end of the relevant period. The expense or recovery does not necessarily represent the value that the holders of options and units will ultimately receive. We recorded an expense of $5 million during 2022 (2021 - expense of $40 million). The expense for 2022 was influenced by changes in the price of our Common shares, vesting of granted units, and changes in the expected payout multiple on our performance share units. The expense for 2021 reflects the impacts of the Assumed Option Plans and an increase in the price of our Common shares traded on the TSX during the year, offset in part by a recovery relating to our equity derivative contract. Finance expense, net Finance expense, net includes interest earned on short-term investments and interest income recognized on our duty deposits as discussed under “Discussion & Analysis of Annual Results by Product Segment - Lumber Segment - Softwood Lumber Dispute”. The paragraph below discusses finance expense, net on a consolidated basis. Finance expense, net decreased compared to 2021 due primarily to additional interest incurred on the Norbord senior notes for the two months following the Norbord Acquisition prior to their redemption in Q2-21 and the write-off of deferred financing costs related to prior credit facilities that were extinguished upon the execution of our $1 billion revolving credit facility in Q3-21. Higher interest income on our short-term investments in 2022 was also a contributing factor. - 14 - 22 Other Other income of $37 million was recorded in 2022 (2021 - other expense of $2 million). Other income in 2022 relates primarily to foreign exchange gains recorded on our CAD-denominated monetary assets and liabilities and mark-to- market gains on our interest rate swap contracts. Other income of $14 million was recorded for our Corporate & Other segment in 2022 (2021 - other expense of $5 million). Other income for our Corporate & Other segment in 2022 relates primarily to mark-to-market gains on our interest rate swap contracts and foreign exchange gains recorded on certain of our CAD-denominated monetary assets and liabilities held within the Corporate & Other segment, offset in part by consolidation eliminations for intercompany transactions relating to our NA EWP segment. Other related to our operating segments are discussed under “Discussion & Analysis of Annual Results by Product Segment”. Income tax We recorded an income tax expense in 2022 of $618 million compared to $951 million in 2021. The effective tax rate was 24% in 2022 compared to 24% in 2021. Note 19 to the Annual Financial Statements provides a reconciliation of income taxes calculated at the statutory rate to the income tax expense. Other comprehensive earnings – translation of operations with different functional currencies Our European operations have British pound sterling and Euro functional currencies and our jointly-owned newsprint operation has a Canadian dollar functional currency. Assets and liabilities of these entities are translated at the rate of exchange prevailing at the reporting date, and revenues and expenses at average rates during the period. Gains or losses on translation are included as a component of shareholders’ equity in accumulated other comprehensive loss. We recorded a translation loss of $83 million during 2022 (2021 - translation loss of $9 million). In general, a strengthening (weakening) of the USD against the Canadian dollar, British pound sterling or Euro results in a translation loss (gain). The translation loss in the current year reflects a strengthening of the USD against the CAD, British pound sterling and Euro for our European and jointly-owned newsprint operations. Other comprehensive earnings – actuarial gains/losses on retirement benefits The funded position of our defined benefit pension plans and other retirement benefit plans is estimated at the end of each period. The funded position, as shown in note 13 to the Annual Financial Statements, is determined by subtracting the value of the plan assets from the plan obligations. We recorded an after-tax actuarial gain of $164 million during 2022 (2021 - after-tax actuarial gain of $153 million). The actuarial gain in 2022 reflects an increase in the discount rate used to calculate plan liabilities offset in part by lower returns on plan assets. - 15 - FOURTH QUARTER RESULTS Summary Fourth Quarter Results ($ millions) 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 (loss) Finance income (expense), net Other Tax recovery (provision) Earnings (loss) Adjusted EBITDA1 23 Q4-22 Q3-22 Q4-21 $ $ $ 1,615 $ (1,209) (209) (29) (148) (98) (6) (47) (130) 3 2 31 (94) $ 2,088 $ (1,371) (260) 53 (140) (84) (5) — 281 3 12 (80) 216 $ 2,038 (1,158) (207) 30 (153) (88) (12) — 450 (1) (11) (104) 334 70 $ 426 $ 615 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Selected Quarterly Amounts ($ millions, unless otherwise indicated) Sales Earnings (loss) Basic EPS (dollars) Diluted EPS (dollars) Q4-22 Q3-22 Q2-22 Q1-22 Q4-21 Q3-21 Q2-21 Q1-21 $ 1,615 $ 2,088 $ 2,887 $ 3,110 $ 2,038 $ 2,358 $ 3,779 $ 2,343 (94) (1.12) (1.13) 216 2.50 2.50 762 7.66 7.59 1,090 10.35 10.25 334 3.13 3.13 460 4.20 4.20 1,488 12.32 12.32 665 6.96 6.96 The Norbord Acquisition led to the incorporation of additional sales and earnings from our North American OSB and European EWP operations, which are reflected in our results from February 1, 2021 onwards. Pricing for our products reached record highs in Q2-21 before moderating in Q3-21. Pricing improved through Q4-21 and Q1-22, although these pricing gains were offset in part by lower shipments as a result of constraints on transportation availability. Subsequent decreases in sales and earnings through Q4-22 were driven primarily by decreases in lumber and OSB pricing, inventory write-downs, and restructuring and impairment charges. The cost inflation that impacted our results through Q3-22 moderated in Q4-22. - 16 - 24 Discussion & Analysis of Fourth Quarter Results by Product Segment Lumber Segment Lumber Segment Earnings ($ millions unless otherwise indicated) 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 (loss) Finance income, net Other income (expense) Earnings (loss) before tax Adjusted EBITDA1 SPF (MMfbm) Production Shipments SYP (MMfbm) Production Shipments Q4-22 Q3-22 Q4-21 $ $ $ 611 $ 73 17 701 (607) (92) (29) (51) (51) (31) (160) 2 (2) (161) $ 831 $ 84 20 935 (665) (118) 53 (45) (45) — 115 5 7 127 $ 796 70 22 888 (546) (93) 30 (45) (39) — 195 1 (2) 194 (77) $ 160 $ 240 594 582 707 713 649 714 765 764 720 673 659 632 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Q4-21 Adjusted EBITDA was decreased by a one-time charge of $2 million related to inventory purchase price accounting. Sales and Shipments Lumber sales were lower compared to Q3-22 due to lower product pricing and lower shipments. Q4-22 lumber sales were lower compared to Q4-21 due primarily to lower product pricing. The price variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $132 million compared to Q3-22, and a decrease of $176 million compared to Q4-21. SPF shipment volumes decreased 18% compared to Q3-22 due to weakening demand and reductions in production volumes, and decreased 14% compared to Q4-21, a quarter that saw shipments under significant downward pressure due to severe weather and flooding in B.C., which disrupted rail and truck services. SYP shipment volumes decreased compared to Q3-22 due primarily to weakening demand and reductions in operating schedules to manage inventory. SYP shipment volumes increased compared to Q4-21 due primarily to the acquisition of the Angelina lumber mill on December 1, 2021 and ramp-up of production at our lumber mill in Dudley, Georgia, which began producing in the second quarter of 2021. The volume variance resulted in a change in earnings before tax and Adjusted EBITDA of nil compared to Q3-22 and an increase of $3 million compared to Q4-21. - 17 - SPF Sales by Destination U.S. Canada China Other Q4-22 Q3-22 Q4-21 25 MMfbm 347 213 5 17 582 % 60% 37% 1% 2% MMfbm 481 213 — 20 714 % 67% 30% —% 3% MMfbm 461 128 60 24 673 % 68% 19% 9% 4% We ship SPF to several export markets, while our SYP sales are almost entirely within the U.S. The relative proportion of shipments of SPF to China was comparable to Q3-22 as demand from the construction industry remained muted as pandemic-related lockdowns in the country slowed economic activity. This, along with the strengthening of the USD against the Chinese renminbi, additional restrictions implemented on Chinese ports, and ongoing container shortages have driven the decrease in SPF shipments to China compared to Q4-21. Wood chip, log, and other residual sales remained broadly consistent to comparative periods. Costs and Production SPF production volumes were lower versus comparative periods due primarily to the impact of the previously announced permanent curtailment of one shift at our Fraser Lake and Williams Lake sawmills and reductions in operating schedules to manage inventory levels. SYP production volumes decreased compared to Q3-22 due primarily to reductions in operating schedules to manage inventory levels. SYP production volumes increased compared to Q4-21 due primarily to the acquisition of the Angelina lumber mill and ramp-up of production at our lumber mill in Dudley, Georgia. Costs of products sold were lower compared to Q3-22 due primarily to lower shipment volumes and lower per unit log costs, offset in part by higher manufacturing costs in both our Canadian and U.S. operations and $32 million of incremental inventory write-downs recorded in Q4-22. We recorded significant inventory valuation reserves in Q4-22 due to low product pricing at period-end. Costs of products sold were higher compared to Q4-21 due primarily to higher SPF log costs, higher manufacturing costs in both our Canadian and U.S. operations, and $47 million of incremental inventory write-downs recorded in Q4-22. Most of our SPF log requirements are harvested from crown lands owned by the provinces of B.C. or Alberta. B.C.’s stumpage system is tied to reported lumber prices, with a time lag, and publicly auctioned timber harvesting rights. Alberta’s stumpage system is correlated to published lumber prices with a shorter time lag. SPF log costs in Q4-22 decreased compared to Q3-22 due primarily to lower Alberta stumpage rates. SPF log costs increased compared to Q4-21 due primarily to higher purchased log costs in B.C. and increases in logging and fuel costs, offset in part by a decrease in overall stumpage rates. SPF unit manufacturing costs increased versus comparative periods due primarily to lower production in the current period. We ran our mills in Western Canada at 70% of capacity in Q4-22, down from 76% of capacity in Q3-22 and 85% of capacity in Q4-21. As operating schedules were selectively reduced, a higher proportion of our Q4-22 production related to lower cost mills and this partially offset the aforementioned cost impact. Inflationary pressures on inputs was a contributing factor to the increase versus Q4-21 also. SYP log costs decreased compared to Q3-22 as competition for logs moderated with weakening market conditions for lumber. SYP log costs were higher compared to Q4-21 due to increased competition for logs year over year. SYP unit manufacturing costs increased compared to Q3-22 due primarily to lower production in the current period. SYP unit manufacturing costs increased compared to Q4-21 due primarily to higher supplies and materials, energy, and employee costs. Freight and other distribution costs decreased compared to Q3-22 due to decreases in shipment volumes, lower trucking and rail rates, and lower fuel costs. Freight and other distribution costs were comparable to Q4-21. - 18 - 26 We recorded export duty expense in Q4-22, compared to export duty recoveries in the comparative periods, which were attributable to the finalization of AR2 and AR3 in Q4-21 and Q3-22 respectively. As disclosed in the table below, the effective duty expense for Q4-22 increased versus comparative quarters. In Q4-22, higher antidumping duties incurred during the quarter was offset in part by lower shipment volumes to the U.S. and lower pricing. The following table reconciles our cash deposits paid during the period to the amount recorded in our statements of earnings: Duty impact on earnings ($ millions) Cash deposits paid1 Adjust to West Fraser Estimated ADD rate2 Effective duty expense for period3 Duty recovery attributable to AR24 Duty recovery attributable to AR35 Export duty (expense) recovery Net interest income on duty deposits receivable Q4-22 Q3-22 Q4-21 (12) (17) (29) — — (29) 3 (23) (5) (28) — 81 53 7 (20) (5) (25) 55 — 30 7 1. 2. 3. 4. 5. Represents combined CVD and ADD cash deposit rate of 8.97% for January 1, 2021 to December 1, 2021, 11.12% from December 2, 2021 to January 9, 2022, 11.14% from January 10, 2022 to August 8, 2022, and 8.25% from August 9, 2022 to December 31, 2022. Represents adjustment to the annualized West Fraser Estimated ADD rate of 4.52% for Q4-22, 2.23% for Q3-22, and 6.80% for Q4-21. The total represents the combined CVD cash deposit rate and West Fraser Estimated ADD rate of 14.37% for January 1, 2021 to December 1, 2021, 11.86% for December 2, 2021 to December 31, 2021, 9.58% for January 1, 2022 to January 9, 2022, 9.60% from January 10, 2022 to August 8, 2022, and 8.14% from August 9, 2022 to December 31, 2022. $55 million represents the duty recovery attributable to the finalization of AR2 duty rates for the 2019 POI. $81 million represents the duty recovery attributable to the finalization of AR3 duty rates for the 2020 POI. The increase in amortization expense versus comparative periods related to continuing capital investments in our U.S. operations. Incremental amortization related to the acquired Angelina lumber mill was also a contributing factor to the increase versus Q4-21. Selling, general and administration costs increased versus comparative periods. The increase versus Q3-22 related to higher salaries and wages, increased travel, and increased levels of community investment. The increase versus Q4-21 was driven by similar factors as well as updates in the allocation methodology for corporate overhead costs. Restructuring and impairment charges of $31 million were recorded in Q4-22 relating to the indefinite curtailment of operations at our Perry sawmill. Q4-22 finance income, net included $3 million of interest income on export duties. We accrued $7 million of interest income in Q3-22 and Q4-21 related primarily to the finalization of our AR3 and AR2 duty rates in those periods. Finance income excluding these amounts was comparable to Q3-22. Finance income excluding these amounts were also impacted by a lower allocation of consolidated finance expense, net compared to Q4-21. Other relates primarily to foreign exchange revaluations on the Canadian dollar monetary assets and liabilities held by our Canadian operations. Earnings before tax for the Lumber Segment decreased by $288 million compared to Q3-22 and decreased by $355 million compared to Q4-21 for the reasons explained above. Adjusted EBITDA for the Lumber Segment decreased by $237 million compared to Q3-22 and decreased by $317 million compared to Q4-21. The following table shows the Adjusted EBITDA variance for the period. - 19 - Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in export duties Changes in costs Impact of inventory write-downs Other Adjusted EBITDA - current period North America Engineered Wood Products Segment Q3-22 to Q4-22 Q4-21 to Q4-22 27 $ $ 160 $ (132) — (83) 20 (32) (10) (77) $ 240 (176) 3 (59) (44) (47) 6 (77) NA EWP Segment Earnings ($ millions unless otherwise indicated) Sales OSB Plywood, LVL and MDF Wood chips, logs and other Cost of products sold Freight and other distribution costs Amortization Selling, general and administration Operating earnings Finance income (expense), net Other income (expense) Earnings before tax Adjusted EBITDA1 OSB (MMsf 3/8” basis) Production Shipments Plywood (MMsf 3/8” basis) Production Shipments $ $ $ Q4-22 Q3-22 Q4-21 447 $ 157 6 610 (397) (76) (73) (27) 35 1 3 40 $ 596 $ 194 8 798 (468) (92) (71) (23) 144 (2) 2 144 $ 666 162 6 834 (398) (72) (73) (21) 270 — (5) 265 109 $ 215 $ 343 1,442 1,409 162 181 1,560 1,600 194 193 1,469 1,543 175 190 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Our NA EWP segment includes our North American OSB, plywood, MDF, and LVL operations. Sales and Shipments Sales decreased versus both comparative periods due primarily to lower OSB pricing and shipment volumes. Lower sales of MDF and plywood were also contributing factors to the decrease compared to Q3-22, driven primarily by lower shipment volumes. Shipment volumes decreased in Q4-22 due to weakening demand. The price variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $100 million compared to Q3-22, and a decrease of $182 million compared to Q4-21. The volume variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $24 million compared to Q3-22, and a decrease of $19 million compared to Q4-21. - 20 - 28 Costs and Production OSB production volumes decreased versus both comparative periods due primarily to incremental production curtailments taken to manage inventory levels. Plywood production volumes decreased versus both comparative periods due primarily to the impact of the previously announced permanent curtailment of one shift at our Quesnel Plywood mill. Costs of products sold decreased compared to Q3-22 due primarily to lower shipment volumes, recognition of $14 million in insurance recoveries, and decreases in resin and energy costs as cost inflation across our inputs moderated. The recognition of insurance recoveries partially offset repair costs and lost margins charged to earnings in Q4-21 and Q1-22 relating to unscheduled downtime at one of our manufacturing locations. We recorded $3 million of incremental inventory write-downs in Q4-22 compared to Q3-22. Costs of products sold remained comparable to Q4-21 as the impacts of lower shipment volumes and the insurance recovery proceeds were largely offset by higher resin, energy, and fibre costs. Resin accounted for the most significant component of input cost increases year over year, driven by constraints on availability. Freight and other distribution costs decreased compared to Q3-22 due primarily to lower shipment volumes. Freight and other distribution costs increased compared to Q4-21 due to higher fuel costs, inflationary pressures, and the substitution of trucking services for rail services. Lower shipment volumes compared to Q4-21 provided a partial offsetting effect. Amortization expense was comparable to Q3-22 and Q4-21. Selling, general and administration costs increased compared to Q3-22 due to higher salaries and wages and increased travel. The increase versus Q4-21 was driven by similar factors as well as updates in the allocation methodology for corporate overhead costs. We recorded finance income in Q4-22 due to the impacts of higher interest income earned on our short-term investments. Fluctuations in Other related primarily to intercompany transactions that eliminate upon consolidation through an offsetting balance in the Corporate & Other segment and foreign exchange movements recorded on CAD- denominated monetary assets and liabilities. Earnings before tax for the NA EWP Segment decreased by $104 million compared to Q3-22 and decreased by $225 million compared to Q4-21 due to the reasons explained above. Adjusted EBITDA for the NA EWP Segment decreased by $106 million compared to Q3-22 and decreased by $234 million compared to Q4-21. The following table shows the Adjusted EBITDA variance for the period. The impact of the insurance recovery recorded in Q4-22 is included under Other. Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in costs Other Adjusted EBITDA - current period Q3-22 to Q4-22 $ Q4-21 to Q4-22 215 $ (100) (24) 4 14 109 $ 343 (182) (19) (49) 16 109 $ - 21 - Pulp & Paper Segment Pulp & Paper Segment Earnings ($ millions unless otherwise indicated) Sales Cost of products sold Freight and other distribution costs Amortization Selling, general and administration Restructuring and impairment charges Operating earnings (loss) Finance expense Other income (expense) Earnings (loss) before tax Adjusted EBITDA1 Pulp (Mtonnes) Production Shipments 29 Q4-22 Q3-22 Q4-21 190 $ (136) (32) (9) (8) — 6 — (5) 1 $ 233 $ (155) (41) (9) (8) — 20 (1) 3 22 $ 159 (132) (33) (9) (8) — (23) — (2) (25) 15 $ 29 $ (14) $ $ $ 221 217 255 256 226 231 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Sales and Shipments Sales decreased compared to Q3-22 due primarily to decreases in shipment volumes and, to a lesser extent, lower product pricing. Sales increased compared to Q4-21 due to higher product pricing, offset in part by decreases in shipment volumes. The price variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $14 million compared to Q3-22 and an increase of $40 million compared to Q4-21. Pulp shipments decreased versus comparative periods due to reductions in production volumes, discussed further in the section below. The volume variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $3 million compared to Q3-22 and a decrease of $2 million compared to Q4-21. Costs and Production Pulp production decreased compared to Q3-22 due to the transition of the Hinton pulp mill from a double-line NBSK producer to a single-line UKP producer in October 2022, and the previously announced Q4-22 curtailment at Cariboo Pulp & Paper to align operating capacity with the available supply of wood chips. Pulp production was comparable to Q4-21 as the impact of the aforementioned reductions in Q4-22 was similar to the impact of the Q4-21 production curtailments taken in response to severe weather and flooding in B.C. Costs of products sold decreased compared to Q3-22 due primarily to decreases in shipment volumes. Costs of products sold was comparable to Q4-21 as the impacts of higher fibre and energy costs were largely offset by lower shipment volumes. Freight and other distribution costs decreased compared to Q3-22 due to lower shipment volumes and lower container and rail rates. Freight and other distribution costs decreased compared to Q4-21 due to lower shipment volumes. Amortization, selling, general, and administration costs, and finance expense were similar to comparative periods. Other expense in Q4-22 relates to foreign exchange revaluations on Canadian dollar monetary assets and liabilities and settlement costs relating to pension plan annuity purchase agreements for certain retired employees. - 22 - 30 Earnings before tax for the Pulp & Paper Segment decreased by $21 million compared to Q3-22 and increased by $26 million compared to Q4-21 due to the reasons explained above. Adjusted EBITDA for the Pulp & Paper Segment decreased by $14 million compared to Q3-22 and increased by $29 million compared to Q4-21. The following table shows the Adjusted EBITDA variance for the period. Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in costs Other Adjusted EBITDA - current period Europe Engineered Wood Products Segment Europe EWP Segment Earnings ($ millions unless otherwise indicated) Sales Cost of products sold Freight and other distribution costs Amortization Selling, general and administration Restructuring and impairment charges Operating earnings Finance expense Other income (expense) Earnings before tax Adjusted EBITDA1 OSB (MMsf 3/8” basis) Production Shipments USD - GBP exchange rate Closing rate Average rate Q3-22 to Q4-22 Q4-21 to Q4-22 $ $ 29 $ (14) (3) (4) 7 15 $ (14) 40 (2) (14) 5 15 $ $ $ Q4-22 Q3-22 Q4-21 142 $ (97) (9) (12) (7) (15) 3 — (2) 1 $ 149 $ (110) (9) (12) (6) — 12 — 1 13 $ 184 (109) (9) (24) (5) — 37 (1) — 36 30 $ 24 $ 61 184 201 208 202 194 178 0.8298 0.8512 0.9079 0.8506 0.7400 0.7415 1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Our Europe EWP segment includes our U.K. and Belgium OSB, MDF, and particleboard operations. Revenues and expenses of our European operations, which have British pound sterling and Euro functional currencies, are translated at the average rate of exchange prevailing during the period. Sales and Shipments Sales decreased compared to Q3-22 due primarily to lower shipments of MDF and particleboard. Pricing for our products remained broadly consistent in local currency terms. Sales decreased compared to Q4-21 as a result of lower product pricing and lower shipment volumes of MDF and particleboard, offset in part by higher shipment volumes of OSB. The strengthening of the USD against the GBP also contributed to the decrease in sales compared to Q4-21. - 23 - The price variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $1 million compared to Q3-22 and a decrease of $9 million compared to Q4-21. The price variance represents the impact of changes in product pricing in local currency terms, with any associated foreign exchange impact from the strengthening or weakening of the GBP against USD presented under Other in the Adjusted EBITDA variance table. 31 OSB shipment volumes were comparable to Q3-22 and increased compared to Q4-21. Q4-21 volumes were negatively impacted by a more pronounced seasonal slowing of demand for OSB late in the quarter as customers managed-down inventory following very high levels of activity in Q3-21. MDF and particleboard shipment volumes decreased versus both comparative quarters due to reductions in operating schedules taken in Q4-22 to manage inventory as demand weakened. The volume variance resulted in a decrease in earnings before tax and Adjusted EBITDA of $7 million compared to Q3-22 and a decrease of $8 million compared to Q4-21. Costs and Production Production volumes decreased versus comparative periods due to the impacts of reductions in operating schedules described above. Costs of products sold decreased versus comparative periods. The decrease in costs of products sold compared to Q3-22 related to lower shipment volumes, lower energy prices, and the inclusion of a $7 million gain from the sale of carbon allowances during Q4-22 as a recovery in costs of products sold. Energy prices moderated from levels in Q3-22 due to a mild winter and higher gas supplies in Europe. The decrease in costs of products sold compared to Q4-21 related primarily to lower shipment volumes, sales of carbon allowances in Q4-22, and the strengthening of the USD against the GBP, offset in part by higher energy, resin, and fibre costs. Freight and other distribution costs generally trended with changes in shipment volumes. Amortization was comparable to Q3-22. Amortization decreased compared to Q4-21 as certain assets reached the end of their estimated useful lives. Restructuring and impairment charges of $15 million was recorded in Q4-22 relating to our South Molton, England location, driven by a decline in demand from a key customer for our kitchen cabinet products. Selling, general and administration costs, finance expense, and Other were consistent with comparable periods. Earnings before tax for the Europe EWP Segment decreased by $12 million compared to Q3-22 and decreased by $35 million compared to Q4-21 due to the reasons explained above. Adjusted EBITDA for the Europe EWP Segment increased by $6 million compared to Q3-22, and decreased by $31 million compared to Q4-21. The following table shows the Adjusted EBITDA variance for the period. The variances presented represent the impact of changes in price, volume and cost in local currency terms, with any associated foreign exchange impact from the strengthening or weakening of the GBP against USD presented under Other. The impact of the sale of carbon allowances during Q4-22 is also included under Other. Adjusted EBITDA ($ millions) Adjusted EBITDA - comparative period Price Volume Changes in costs Other Adjusted EBITDA - current period Q3-22 to Q4-22 $ Q4-21 to Q4-22 24 $ (1) (7) 8 6 30 $ 61 (9) (8) (15) 1 30 $ - 24 - 32 Discussion & Analysis of Specific Items Selling, general and administration Selling, general and administration costs for Q4-22 was $98 million (Q3-22 - $84 million and Q4-21 - $88 million). Selling, general and administration costs increased compared to Q3-22 due to higher salaries and wages, increased travel, and increased levels of community investment. The increase versus Q4-21 was driven by similar factors. Selling, general and administration expense related to our operating segments are also discussed under “Discussion & Analysis of Fourth Quarter Results by Product Segment”. Equity-based compensation We recorded an expense of $6 million during Q4-22 (Q3-22 - expense of $5 million; Q4-21 - expense of $12 million). The expense in the current quarter reflects an increase in the expected payout multiple on our performance share units. Finance income (expense), net Finance income, net includes interest earned on short-term investments and interest income recognized on our duty deposits as discussed under “Discussion & Analysis of Fourth Quarter Results by Product Segment - Lumber Segment”. The paragraph below discusses finance income (expense), net on a consolidated basis. We recorded finance income, net of $3 million in Q4-22 compared to finance income, net of $3 million in Q3-22 and finance expense, net of $1 million in Q4-21. Finance income increased versus comparative periods due to the impacts of higher interest income earned on our short-term investments, offset in part by a reduction in interest income on export duties. We accrued $7 million of interest income in Q3-22 and Q4-21 related primarily to the finalization of our AR3 and AR2 duty rates in those periods. Other Other income of $2 million was recorded in Q4-22 (Q3-22 - other income of $12 million; Q4-21 - other expense of $11 million). Other income in Q4-22 relates primarily to foreign exchange gains recorded on our CAD-denominated monetary assets and liabilities, offset in part by settlement costs relating to pension plan annuity purchase agreements for certain retired employees. Other income of $8 million was recorded for our Corporate & Other segment in Q4-22 (Q3-22 - other expense of $1 million; Q4-21 - other expense of $2 million). Other income for our Corporate & Other segment in Q4-22 relates primarily to foreign exchange gains recorded on certain of our CAD-denominated monetary assets and liabilities held within the Corporate & Other segment, offset in part by consolidation eliminations for intercompany transactions relating to our NA EWP segment. Other related to our operating segments are discussed under “Discussion & Analysis of Fourth Quarter Results by Product Segment”. Income tax Q4-22 results include an income tax recovery of $31 million, compared to income tax expense of $80 million in Q3-22 and $104 million in Q4-21, resulting in an effective tax rate of 25% in the current quarter compared to 27% in Q3-22 and 24% in Q4-21. Other comprehensive earnings – translation of operations with different functional currencies We recorded a translation gain of $50 million during Q4-22 (Q3-22 - translation loss of $62 million; Q4-21 - translation gain of $3 million). - 25 - In general, a strengthening (weakening) of the USD against the Canadian dollar, British pound sterling or Euro results in a translation loss (gain). The translation gain in the current quarter reflects a weakening of the USD against the CAD, British pound sterling and Euro for our European and jointly-owned newsprint operations. 33 Other comprehensive earnings – actuarial gains/losses on retirement benefits We recorded an after-tax actuarial gain of $15 million during Q4-22 (Q3-22 - after-tax actuarial loss of $14 million; Q4-21 - after-tax actuarial gain of $8 million). The actuarial gain in Q4-22 reflect an increase in the discount rate used to calculate our plan liabilities. OUTLOOK AND OPERATIONS Business Outlook Markets Several key trends that have served as positive drivers in recent years are expected to continue to support medium and longer-term demand for new home construction in North America. The most significant uses for our North America lumber, OSB and wood panel products are residential construction, repair and remodelling and industrial applications. Over the medium term, we expect that an aging housing stock, the backlog of homes to be built due to lagging completions of previously started new home construction and greater entrenchment of work-from-home flexibility will help to offset near-term headwinds and spur repair and renovation spending that supports lumber, plywood and OSB demand. Over the longer term, growing market penetration of mass timber in industrial and commercial applications is also expected to become a more significant source of demand growth for wood building products in North America. The seasonally adjusted annualized rate of U.S. housing starts averaged 1.38 million units in December 2022, with permits issued averaging 1.33 million units, according to the U.S. Census Bureau. Demand for new home construction and our wood building products may decline in the near term should interest rates remain elevated or continue to rise and consequently impact consumer sentiment and housing affordability. The demand for our European products is expected to remain robust over the longer term as use of OSB as an alternative to plywood grows. Further, an aging housing stock supports long-term repair and renovation spending and additional demand for our wood building products. Near-term challenges, including relatively high and rising interest rates, ongoing geopolitical developments and inflationary pressures, are expected to cause a temporary slowing of demand for our products in Europe, however, we are confident that we will be able to navigate through these periods and respond to opportunities for long-term growth ahead. Our BCTMP, NBSK and UKP pulp is primarily used in printing and writing paper, boxboard, tissue applications, paper grocery bags and other specialty products. Pulp demand is anticipated to grow over the longer term due to increasing boxboard and tissue production in Asia and greater substitution of single-use plastics that are subject to increasing risk from government restrictions. Recently, there have been industry announcements of both temporary and permanent pulp capacity reductions in Western Canada as a result of constrained access to fibre. We continue to ramp production of UKP at our pulp mill in Hinton, Alberta, which offers environmental benefits such as reduced greenhouse gas emissions, water use, air emissions and waste generation and elimination of chlorine dioxide emissions. Softwood lumber dispute 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 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. The USDOC published the final rates for Administrative Review 3 (“AR3”) in Q3-22. AR4 commenced in March 2022, with final rates expected in August 2023. Additional details can be found under the section “Discussion & Analysis of Annual Results by Product Segment - Lumber Segment - Softwood Lumber Dispute". - 26 - 34 Operations Anticipated shipment levels assume no significant deterioration from current market demand conditions, sufficient availability of logs within our economic return criteria, and no further temporary, indefinite or permanent curtailments. Our operations and results could be negatively affected by increasing or elevated interest rates, softening demand, the availability of transportation, the availability of labour due to the continuing impacts of COVID-19, disruption to the global economy resulting from the conflict in the Ukraine, inflationary pressures, including increases in energy prices, adverse weather conditions in our operating areas, intense competition for logs, elevated stumpage fees and production disruptions due to other uncontrollable factors. We expect total lumber shipments in 2023 to be similar to 2022 levels as the transportation challenges that we faced last year are not expected to be as severe in 2023, offset by relative year-over-year softness in new home construction demand, the permanent B.C. mill curtailments announced in August 2022 and the indefinite curtailment of the Perry, Florida sawmill announced in January 2023. As such we expect 2023 SPF shipments to be 2.6 to 2.8 billion board feet, and in the U.S. South, we expect 2023 SYP shipments to be 2.9 to 3.1 billion board feet. On January 1, 2023, stumpage rates decreased in B.C. due to the market-based adjustments related to lumber prices, and given the current commodity price environment, B.C. stumpage rates are expected to decline modestly in Q2-23. In Alberta, stumpage rates are expected to remain low as long as SPF prices remain depressed, as they are closely linked to the price of lumber and respond relatively quickly to changes in lumber prices. We expect log costs to moderate in the U.S. South in 2023. In our NA EWP segment, we expect 2023 OSB shipments to be similar to 2022 levels and therefore we expect shipments of 5.9 to 6.2 billion square feet (3/8-inch basis) this year. Our modernization capital investment in Allendale is continuing. Given ongoing supply chain delays, the timing for a potential restart has moved to the end of the second quarter. We anticipate a ramp-up period of up to three years to meet targeted production and as such we do not anticipate the Allendale mill contributing materially to shipments in 2023. While there are near-term headwinds to demand, our overall OSB platform is expected to be better and lower cost with a modern Allendale facility operating. As with all our wood products operations, demand is a key input in determining our operating schedules across our manufacturing footprint. Input costs for the NA EWP business are expected to moderate in 2023. Pulp & Paper segment shipments are not expected to increase from 2022 levels this year. In our Europe EWP segment, we expect 2023 OSB shipments to be 1.0 to 1.2 billion square feet (3/8-inch basis), moderately above 2022 levels, as demand markets stabilize. Input costs for the Europe EWP business are expected to remain relatively elevated due primarily to higher energy and resin costs. Across much of our supply chain in Q4-22, we experienced moderation of costs and availability constraints for raw materials such as resins and chemicals, transportation, and energy, though labour availability remained challenging. We expect these trends to persist over the near-term. We will continue to regularly evaluate the factors above as well as evolving market conditions in making production decisions across the business. Cash Flows We anticipate levels of operating cash flows and available liquidity will support our capital spending estimate for 2023. Based on our current outlook, assuming no deterioration from current market demand conditions during the year and that there is no additional lengthening of lead times for projects underway or planned, we anticipate we will invest approximately $500 million to $600 million in 2023. Our total capital budget consists of various improvement projects and maintenance expenditures, projects focused on optimization and automation of the manufacturing process, and projects targeted to reduce greenhouse gas emissions. Expected capital expenditures1 in 2023 include approximately $100 million for the modernization of the Henderson, Texas lumber manufacturing facility. We expect to maintain our investment grade debt rating and intend to preserve sufficient liquidity to be able to take advantage of strategic growth opportunities that may arise. Our 2022 NCIB, which expires February 22, 2023, authorized us to purchase up to 10,194,000 Common shares of the Company. As of February 13, 2023, 10,194,000 shares have been repurchased, leaving no shares available to purchase until the February 22, 2023 expiry of the NCIB. An additional 281,115 shares were acquired in 2022 under our 2021 NCIB for a total repurchase of 10,475,115 shares for 2022. - 27 - On June 7, 2022, we completed the 2022 SIB pursuant to which we purchased for cancellation a total of 11,898,205 Common shares at a price of $95.00 per share for an aggregate purchase price of $1.13 billion. 35 As of February 13, 2023, we have repurchased for cancellation 39,741,794 of the Company’s Common shares since the closing of the Norbord Acquisition on February 1, 2021 through the completion of the 2021 SIB, the 2022 SIB and normal course issuer bids, equalling 73% of the shares issued in respect of the Norbord Acquisition. We have paid a dividend in every quarter since we became a public company in 1986 and expect to continue this practice. At the latest declared quarterly dividend rate of $0.30 per share, the total anticipated cash payment of dividends in 2023 is $100 million based on the number of Common and Class B Common shares outstanding on December 31, 2022. We will continue to consider share repurchases with excess cash, subject to regulatory approvals, if we are satisfied that this will enhance shareholder value and does not compromise our financial flexibility. 1. This is a supplementary financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Estimated Earnings Sensitivity to Key Variables (based on 2022 shipment volumes - $ millions) Factor Lumber price NA OSB price Europe OSB price Canadian - U.S. $ exchange rate2 Variation $10 (per Mfbm) $10 (per Msf) £10 (per Msf) $0.01 (per CAD) $ Change in pre-tax earnings1 59 58 9 18 1. 2. Each sensitivity has been calculated on the basis that all other variables remain constant and is based on changes in our realized sales prices. Represents the USD impact of the initial $0.01 change on CAD revenues and expenses. Additional changes are substantially, but not exactly, linear. LIQUIDITY AND CAPITAL RESOURCES Capital Management Framework 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 lower points in the business cycle. Our main policy relating to capital management is to maintain a strong balance sheet and otherwise meet financial tests that rating agencies commonly apply 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 to ensure that debt levels are prudent, taking into account the anticipated direction of the business cycle. When financing acquisitions, we combine cash on hand, 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. A strong balance sheet and liquidity profile, along with our investment-grade debt rating, are key elements of our goal to maintain a balanced capital allocation strategy. Priorities within this strategy include reinvesting in our operations across all market cycles to strategically enhance productivity, product mix, and capacity; maintaining a leading cost position; maintaining financial flexibility to capitalize on growth opportunities, including the pursuit of acquisitions and larger-scale strategic growth initiatives; and returning capital to shareholders through dividends and share repurchases. - 28 - 36 Liquidity and Capital Resource Measures Our capital structure consists of Common share equity and long-term debt, and our liquidity includes our operating facilities. Summary of Liquidity and Debt Ratios ($ millions, except as otherwise indicated) Available liquidity Cash and cash equivalents Operating lines available (excluding newsprint operation) Available liquidity Total debt to total capital1 Net debt to total capital1 December 31, 2022 December 31, 2021 $ $ 1,162 1,053 2,215 $ $ 1,568 1,025 2,593 7% (9%) 7% (16%) 1. This is a capital management measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. Available liquidity on December 31, 2022 was $2,215 million (2021 - $2,593 million). Available liquidity includes cash and cash equivalents, cheques issued in excess of funds on deposit, and amounts available on our operating loans, excluding the demand line of credit dedicated to our 50% jointly-owned newsprint operation. Cash and cash equivalents on hand decreased in 2022 due to lower earnings and significant returns of capital to our shareholders through share buybacks and dividend payments during the year. Available liquidity decreased and net debt to total capital increased compared to last year, but we remain well positioned with a strong balance sheet and liquidity profile. Total debt to total capital remained comparable to prior year. Credit Facilities As at December 31, 2022, our credit facilities consisted of a $1 billion committed revolving credit facility which matures July 2026, $35 million of uncommitted revolving credit facilities available to our U.S. subsidiaries, a $18 million (£15 million) credit facility dedicated to our European operations, and a $10 million (CAD$13 million) demand line of credit dedicated to our jointly-owned newsprint operation. As at December 31, 2022, our revolving credit facilities were undrawn (December 31, 2021 - undrawn) and the associated deferred financing costs of $1 million (December 31, 2021 - $1 million) were recorded in other assets. Interest on the facilities is payable at floating rates based on Prime, Base Rate Advances, Bankers’ Acceptances, or London Inter-Bank Offered Rate (“LIBOR”) Advances at our option. Our $1 billion committed revolving credit facility contains transition provisions relating to the elimination of LIBOR whereby Secured Overnight Financing Rate (“SOFR”) can be elected by mutual consent with the lenders. In addition, we have credit facilities totalling $131 million (December 31, 2021 - $137 million) dedicated to letters of credit. Letters of credit in the amount of $61 million (December 31, 2021 - $65 million) were supported by these facilities. All debt is unsecured except the $10 million (CAD$13 million) jointly-owned newsprint operation demand line of credit, which is secured by that joint operation’s current assets. As at December 31, 2022, we were in compliance with the requirements of our credit facilities. Long-Term Debt In October 2014, we issued $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 as provided in the indenture governing the notes. In August 2017, we were advanced a $200 million 5-year term loan that, with the July 2019 extension, matures on August 25, 2024. Interest is payable at floating rates based on Base Rate Advances or LIBOR Advances at our option. This - 29 - loan is repayable at any time, in whole or in part, at our option and without penalty but cannot be redrawn after payment. 37 On March 15, 2019, we entered into an interest rate swap agreement, maturing in August 2022, with a $100 million notional amount to limit our exposure to fluctuations in interest rates and fix interest rates on a portion of our 5-year term loan. On March 9, 2020, we extended the duration of our $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 2024. On April 15, 2020, we entered into additional interest rate swaps for another notional amount of $100 million, resulting in a fixed interest rate of 0.51% through August 2024. These swap agreements fix the interest rate on the $200 million 5- year term loan discussed above. Debt Ratings We are considered investment grade by three leading rating agencies. The ratings in the table below are as at February 13, 2023. Agency DBRS Moody’s Standard & Poor’s Rating BBB 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. Shareholder’s Equity Our outstanding Common share equity consists of 81,273,936 Common shares and 2,281,478 Class B Common shares for a total of 83,555,414 shares issued and outstanding as at February 13, 2023. 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. Our Common shares are listed for trading on the TSX and NYSE under the symbol WFG, 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. Share Repurchases Normal Course Issuer Bid On February 23, 2022, we renewed our normal course issuer bid (“NCIB”) allowing us to acquire up to 10,194,000 Common shares for cancellation until the expiry of the bid on February 22, 2023. As of December 31, 2022, we had repurchased and cancelled all 10,194,000 Common shares available under the 2022 NCIB. For the year ended December 31, 2022, we repurchased 10,475,115 Common shares at an average price of $82.01 per share under our 2021 and 2022 NCIB programs. 2022 Substantial Issuer Bid On June 7, 2022, we completed a substantial issuer bid pursuant to which we purchased for cancellation a total of 11,898,205 Common shares at a price of $95.00 per share for an aggregate purchase price of $1.13 billion. 2021 Substantial Issuer Bid On August 20, 2021, we completed a substantial issuer bid pursuant to which we purchased for cancellation a total of 10,309,278 Common shares at a price of CAD$97.00 (US$76.84) per Common share for an aggregate purchase price of CAD$1.0 billion. - 30 - 38 The following table shows our purchases under our NCIB and SIB programs in 2021 and 2022: Share repurchases (number of common shares and price per share) NCIB: January 1, 2021 to December 31, 2021 2021 SIB: August 20, 2021 NCIB: January 1, 2022 December 31, 2022 2022 SIB: June 7, 2022 Share Options Common Shares Average Price in USD 7,059,196 $ 10,309,278 $ 10,475,115 $ 11,898,205 $ 74.60 76.84 82.01 95.00 As at February 13, 2023, there were 837,425 share purchase options outstanding with exercise prices ranging from CAD$40.82 to CAD$123.63 per Common share. Cash Flow Our cash is deployed primarily for operating purposes, interest payments, repayment of debt, investments in property, plant, equipment, acquisitions, share repurchases, and dividends. In normal business cycles and in years without a major acquisition or debt repayment, cash on hand and cash provided by operations have typically been sufficient to meet these uses. We are exposed to commodity price changes. To manage our liquidity risk, we maintain adequate cash and cash equivalents balances and appropriate lines of credit. In addition, we regularly monitor and review both actual and forecasted cash flows. Refinancing risks are managed by extending maturities through regular renewals and refinancing when market conditions are supportive. - 31 - Cash Flow Statement ($ millions - cash provided by (used in)) Cash provided by operating activities Earnings Adjustments Amortization Restructuring and impairment charges Finance expense, net Foreign exchange (gain) loss Export duty Retirement benefit expense Contributions to retirement benefit plans Tax provision Income taxes paid Other Changes in non-cash working capital Receivables Inventories Prepaid expenses Payables and accrued liabilities Cash used for financing activities Repayment of long-term debt Repayment of lease obligations Make-whole premium paid Finance expense paid Financing fees paid Repurchase of Common shares for cancellation Issuance of Common shares Dividends paid Cash used for investing activities Acquired cash and cash equivalents from Norbord Acquisition1 Angelina Acquisition, net of cash acquired Additions to capital assets Interest received Other Change in cash and cash equivalents 2022 2021 39 $ 1,975 $ 2,947 589 60 3 (28) (99) 103 (76) 618 (982) (11) 140 20 (6) (99) 2,207 — (14) — (23) — 584 — 45 5 14 111 (77) 951 (946) (13) 5 (139) (14) 79 3,552 (667) (9) (60) (37) (4) (1,990) (1,319) — (99) 7 (75) (2,126) (2,164) — — (477) 17 1 642 (302) (635) 2 7 $ $ (459) $ (286) (378) $ 1,102 1. The Norbord Acquisition was a non-cash share consideration transaction and therefore only the acquired cash is included in the cash flow statement. Changes in Norbord’s cash position subsequent to February 1, 2021 are incorporated into the cash flow statement. Operating Activities The table above shows the main components of cash flows provided by operating activities for each year. The significant factor contributing to the decrease compared to 2021 was lower earnings, driven primarily by lower product pricing and higher input costs. Changes in working capital provided a partial offsetting factor. - 32 - 40 Income tax payments were higher in 2022 due primarily to a higher prior year top-up payment, as discussed below, and changes in installment levels. Canadian income tax installments are based on the lower of prior year installments and estimated taxable earnings, with the final or top-up payment due in February of the following year. U.S. income tax installments are based on estimated taxable earnings. Of the $982 million in income tax payments (net of refunds) paid in 2022, $328 million was the final income tax payment for 2021 earnings. Of the $946 million income tax payments (net of refunds) paid in 2021, $216 million was the final income tax payment for 2020 earnings. Working capital decreased in 2022 due primarily to decreases in accounts receivable, offset in part by decreases in payables and accrued liabilities. Accounts receivable decreased due to lower product pricing and shipment activity. Accounts payable and accrued liabilities decreased due primarily to decreases in stumpage, trade accounts, and equity- based compensation and compensation accruals. The decrease in inventory is driven primarily by inventory write-downs on log and lumber inventory, reductions in volumes of SPF and SYP lumber finished goods at year-end, and reductions in volumes of pulp raw materials and finished goods related to the transition of Hinton pulp mill to single-line production of UKP. Partially offsetting these reductions were increases in OSB finished goods and supplies inventory driven by increases in input costs and a lower comparative balance for OSB finished goods at 2021 year-end. Financing Activities Cash used in financing activities in 2022 was comparable to 2021 as lower repayments of long-term debt were largely offset by higher share repurchases and dividend payments. We completed the early redemption of Norbord’s 2023 and 2027 Notes in 2021 whereas no repayments of long-term debt took place in the current year. We returned a total of $1,990 million during 2022 to our shareholders through Common shares repurchased under our NCIB and SIB programs, as compared to $1,319 million during 2021. 2022 share repurchases were higher compared to 2021 as we repurchased more shares at a higher average price per share in the current year. We also returned a total of $99 million during 2022 to our shareholders through dividend payments (2021 - $75 million). The increase versus 2021 related to increases in the dividend amount per share, offset by a decrease in the number of shares outstanding. Investing Activities The Norbord Acquisition was a non-cash share consideration transaction and therefore only the acquired cash was included in investing activities in 2021. Cash payment of $302 million, representing the cash consideration transferred net of acquired cash, was made in relation to the Angelina Acquisition during 2021. Interest received increased compared to 2021 due to higher interest income earned on our short-term investments. Capital expenditures of $477 million in 2022 (2021 - $635 million) reflect our philosophy of continued reinvestment in our mills. Additions to capital assets in 2021 included $276 million relating to the asset acquisition of the idled OSB mill near Allendale, South Carolina. We increased profit improvement and maintenance capital expenditures in the North America EWP and U.S. lumber segments in 2022. Capital Expenditures by Segment ($ millions) Profit Improvement Maintenance of Business1 Safety Total Lumber North America EWP Pulp & Paper Europe EWP Corporate Total 102 135 2 7 — 246 62 82 26 10 9 189 20 18 1 3 — 42 184 235 29 20 9 477 1. Maintenance of business includes expenditures for roads, bridges, mobile equipment and major maintenance shutdowns. - 33 - Contractual Obligations 41 The estimated cash payments due in respect of contractual and legal obligations as at December 31, 2022, including debt and interest payments and major capital improvements, are summarized as follows. Contractual obligations do not include energy purchases under various agreements, defined contribution pension plans, equity-based compensation, or contingent amounts payable. Contractual Obligations (at December 31, 2022, in $ millions) Long-term debt Interest on long-term debt1 Lease obligations Contributions to defined benefit pension plans2 Payables and accrued liabilities Purchase commitments Reforestation and decommissioning obligations Electricity swaps Total Total 2023 2024 2025 2026 $ 500 $ 33 42 120 722 278 159 7 — $ 19 12 36 722 278 60 (1) $ 1,861 $ 1,126 $ 500 $ 14 8 43 — — 15 (2) 578 $ — $ — 7 41 — — 10 (1) 57 $ Thereafter — — 12 — — — 68 10 90 — $ — 3 — — — 6 1 10 $ 1. 2. Assumes debt remains at December 31, 2022 levels and includes the impact of interest rate swaps terminating August 2024. 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. Financial Instruments Our financial instruments, their accounting classification, and associated risks are described in Note 23 to the Annual Financial Statements. ACCOUNTING MATTERS Critical Accounting Estimates and Judgments The preparation of financial statements in conformity with IFRS requires management to make estimates, assumptions, and judgments that affect the amounts reported. Our significant accounting policies are disclosed in our Annual Financial Statements. In determining our critical accounting estimates, we consider trends, commitments, events or uncertainties that we reasonably expect to materially affect our methodology or assumptions. Our statements in this MD&A regarding such considerations are made subject to the “Forward-Looking Statements” section. We have outlined below information about judgments, assumptions, and other sources of estimation uncertainty as at December 31, 2022 that have the most significant impact on the amounts recognized in our financial statements. The discussion of each critical accounting estimate does not differ between our reportable segments unless explicitly noted. Recoverability of Goodwill Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination from which it arose. Goodwill exists in relation to our Lumber, North America EWP, and Europe EWP reporting segments. Goodwill is tested annually for impairment, or more frequently if an indicator of impairment is identified. Recoverability of goodwill is assessed by comparing the carrying value of the CGU or group of CGUs associated with the goodwill balance to its estimated recoverable amount, which is the higher of its estimated fair value less costs of disposal and its value in use. - 34 - 42 We determined the value in use of CGU groups using discounted cash flow models. Key assumptions used in estimating recoverable amount were based on industry sources as well as management estimates. Key assumptions included production volume, product pricing, raw material input cost, production cost, terminal multiple, and discount rate. An impairment write-down is recorded if the carrying value exceeds the estimated recoverable amount. We assessed the recoverability of goodwill as at December 31, 2022 and December 31, 2021 and concluded there were no impairment losses. The estimates and assumptions regarding expected cash flows and the appropriate discount rates require considerable judgment and are based upon historical experience, approved financial forecasts and industry trends and conditions. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU groups, given the necessity of making key economic and operating assumptions about the future. If the future were to differ adversely from our best estimate and associated cash flows were to materially decrease, we could potentially experience future impairment charges in respect of our goodwill balances. Recoverability of Capital Assets We assess property, plant and equipment, timber licences, and other definite-lived intangible assets for indicators of impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. We conduct a review of external and internal sources of information to assess for any impairment indicators. Examples of such triggering events related to our long-lived assets include, but are not limited to: a significant adverse change in the extent or manner in which the asset is being used or in its physical condition; a change in management’s intention or strategy for the asset, including a plan to dispose of the asset or idle the asset for a significant period of time; a significant adverse change in our long-term price assumption or in the price or availability of inputs required for manufacturing; a significant adverse change in legal factors or in the business climate that could affect the asset’s value; and a current period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with the asset’s use. When a triggering event is identified, recoverability of long-lived assets is assessed by comparing the carrying value of an asset or cash-generating unit to its estimated recoverable amount, which is the higher of its estimated fair value less costs of disposal and its value in use. We determined the value in use of assets and cash-generating units using discounted cash flow models. Key assumptions used in estimating recoverable amount were based on industry sources as well as management estimates. Key assumptions included production volume, product pricing, raw material input cost, production cost, and discount rate. An impairment write-down is recorded if the carrying value exceeds the estimated recoverable amount. We recorded $51 million of impairment charges during the year ended December 31, 2022 relating to our Hinton, Alberta pulp mill (Pulp & Paper segment), Perry, Florida lumber mill (Lumber segment), and South Molton, England mill (Europe Engineered Wood Products segment). No impairments were recorded for 2021. The assessment of impairment indicators requires the exercise of judgment given the necessity of making key economic and operating assumptions about the future. If the future were to differ adversely from our best estimate and associated cash flows were to materially decrease, we could potentially experience future impairment charges in respect of our capital assets. Defined Benefit Pension Plan Assumptions We maintain defined benefit pension plans for many of our employees. We use independent actuarial specialists to perform actuarial valuations of our defined benefit pension plans. Key assumptions used in determining defined benefit pension expense and accrued benefit obligations included assumed rates of increase for employee compensation and discount rate. Note 13 to the Annual Financial Statements provides the sensitivity of our accrued benefit obligations to changes in these key assumptions. - 35 - If the future were to adversely differ from our best estimate of assumptions used in determining our accrued benefit obligations, we could experience future increased defined benefit pension expense, financing costs and charges to other comprehensive earnings. 43 CVD and ADD Duty Rates 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. Details can be found under the section “Discussion & Analysis of Annual Results by Product Segment - Lumber - Softwood Lumber Dispute.” The CVD and ADD rates are subject to adjustment by the USDOC through an 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 a similar calculation methodology as the USDOC and adjust when an AR finalizes a new applicable rate for each POI. The difference between the cumulative cash deposits paid and cumulative export duty expense recognized for each POI is recorded on our balance sheet as export duty deposits receivable or payable. 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. If the future were to adversely differ from our best estimate of the duty deposit rate, we could experience material adjustments to duty expense and such adjustments could result in an increase of cash outflows. Reforestation and Decommissioning Obligations We recognize provisions for various statutory, contractual or legal 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, discounted at an appropriate rate. The liability is accreted over time through charges to finance expense and reduced by silviculture expenditures. We record the best estimate of the expenditure to be incurred to settle decommissioning obligations, such as landfill closures. This liability is determined using estimated closure and/or remediation costs discounted using an appropriate discount rate. On initial recognition, the carrying value of the liability is added to the carrying amount of the associated asset and amortized over its useful life or expensed when there is no related asset. The liability is accreted over time through charges to finance expense and reduced by actual costs of settlement. Key assumptions underlying the reforestation and decommissioning obligations included the timing and the amount of forecasted expenditures and discount rate. Material changes in financial position can arise as the actual costs incurred at the time of silviculture activities or decommissioning may differ from the estimates used in determining the liability. If the provisions for the reforestation and decommissioning obligations were to be inadequate, we could experience an increase to expenses in the future. A charge for an inadequate reforestation and decommissioning obligation provision would result in an increase of cash outflows proximate to the time that the obligation is satisfied. - 36 - 44 Accounting Policy Developments Note 2 to the Annual Financial Statements contains a description of current and future changes in accounting policies, including: (1) initial application of standards, interpretations and amendments to standards and interpretations in the reporting period and (2) standards, interpretations and amendments to standards and interpretations issued but not yet effective. RISKS AND UNCERTAINTIES Our business is subject to a number of risks and uncertainties that can significantly affect our operations, financial condition and future performance. We have a comprehensive process to identify, manage, and mitigate risk, wherever possible. The risks and uncertainties described below are not necessarily the only risks we face. Additional risks and uncertainties that are presently unknown to us or deemed immaterial by us may adversely affect our business. Product Demand and Price Fluctuations 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, plywood, OSB, particleboard, MDF, LVL, pulp, newsprint, wood chips and other wood products are highly volatile and are affected by factors such as: • • • • • • • • • • 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 and industrial application; alternative products to lumber or panels; construction and home building disruptor technologies that may reduce the use of lumber or panels; changes in industry production capacity; changes in global inventory levels; increased competition from other consumers of logs and producers of lumber or panels; regulatory regimes setting a price on carbon that would increase the price of energy or fuel affecting the manufacturing cost of our products; elevated and continued rising of, interest rates, ongoing geo-political developments, including disruptions to the global economy resulting from the conflict in the Ukraine; inflationary pressures, including increases in energy prices; and 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. Our business is highly exposed to fluctuations in demand for and pricing of our wood products. Our sensitivity to commodity product pricing may result in a high degree of sales and earnings volatility. In the past, we have been negatively affected by declines in product pricing and have taken production downtime or indefinite curtailments to manage working capital and minimize cash losses. Severe and prolonged weakness in the markets for our wood products 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. Future demand could also be impacted by the perceived sustainability of our wood products in contrast with competing alternatives. Competition We compete with global producers, some of which may have greater financial resources and lower production costs than we do. Currency devaluations can have the effect of reducing our competitors’ costs and making our products less competitive in certain markets. In addition, European lumber producers and South American panel producers may enter the North American market during periods of peak prices. Markets for our products are highly competitive. Our ability to maintain or improve the cost of producing and delivering products to those markets is crucial. Factors such as cost and - 37 - 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. 45 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, OSB, LVL, particleboard 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. In addition, our customers or potential customers may factor in environmental and sustainability factors in assessing whether to purchase our wood 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 our sales and earnings. Availability of Fibre Canada A significant majority of our Canadian log requirements are harvested from lands owned by a provincial government. Provincial governments control the volumes that can be harvested under provincially-granted tenures and otherwise regulate the availability of Crown timber for harvest. Determinations by provincial governments to (i) reduce the volume of timber, to issue or not issue operating permits to harvest timber; (ii) to limit the areas that may be harvested under timber tenures; (iii) to restrict the transfer or acquisition of timber tenures; (iv) 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, mountain pine beetle infestations, harvest and caribou conservation plans; (v) in response to jurisprudence or government policies respecting Indigenous rights and title or reconciliation efforts, land use management and planning processes, including those agreements between the B.C. provincial government and the Blueberry River First Nations or potential reallocation of harvesting rights to Indigenous Nations or communities; or (vi) 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; or (vii) change the methodology or rates for stumpage, may reduce our ability to secure log or residual fibre supply, may increase our log purchase and residual fibre costs, may adversely impact lumber grade and recovery and may impact our operations, including require us to reduce operating rates. In addition, our timber supply in B.C. may also be negatively impacted by the announced intention of the Government of B.C. to defer logging in 2.6 million hectares of forests described as “old growth” forests. While the scope of the actions to be taken by the Government of B.C. under these amended forestry statutes and “old growth” deferral proposals cannot be determined at this time, these actions could have a material impact on both the amount of our AAC forest tenures and the amount of timber that we are able to harvest from these tenures. 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. - 38 - 46 We also rely on the purchase of logs through open market purchases and private supply agreements and log exchange agreements and increased competition for logs, or shortages of logs may result in increases in our log purchase costs. United States We rely on log supply agreements in the U.S. which are subject to log availability and based on market prices. The majority of the aggregate log requirements for our U.S. mills is 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. We may experience higher competition for sustainable log supply sourcing as supply is limited by alternative demand for forests in carbon sequestration and through the increase in conversion to forest plantations or non-forest use where there is significant regional forest area decline. Europe Wood fibre for our European OSB, particleboard and MDF operations is purchased from government and private landowners. 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. Additional Risks to Availability of Fibre When timber, wood chips, other residual fibre and wood recycled materials are purchased 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 can 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. 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 onto 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. To the extent that climate change results in more frequent severe weather occurrences, we may experience increased frequency of transportation disruptions in future years which may again result in a disruption of our ability to ship lumber and other products that we manufacture, including significant transportation disruptions from severe flooding, hurricanes, and other natural disasters. In addition, the potential of increased frequency of severe weather events may ultimately result in increased transportation costs as transportation providers, including railways, undertake capital expenditures to improve the ability of the transportation infrastructure to withstand severe weather events or to repair damage from severe weather events in order to maintain services. 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 and truck 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, increased fuel costs and increased capital expenditures related to repair, maintenance and upgrading of transportation infrastructure. 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. - 39 - Costs and Availability of Materials and Energy 47 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, as well as supply disruptions may result in increased demand and costs for these raw materials and energy sources. We have experienced significant cost inflation across a number of our inputs including supplies and materials and energy. 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 reduction programs. or energy costs through hedging arrangements, price increases, productivity improvements or cost Our operations depend on an uninterrupted supply of resins and chemicals, production inputs, and other supplies and resources such as skilled personnel. Supply may be interrupted due to a shortage or the scarce nature of inputs, especially with regard to chemicals. Supply might also be interrupted due to transportation and logistics associated with the remote location of some of our operations, and government restrictions or regulations which delay importation of necessary items. COVID-19 has had a significant impact on global supply chains, which has impacted our ability to source supplies required for our operations and has increased the costs of those supplies. Any interruptions to the procurement and supply of resins, chemicals, production inputs and other supplies, or the availability of skilled personnel, as well as increasing rates of inflation, could have an adverse impact on our future cash flows, earnings, results of operations, and financial condition. - 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, transportation disruptions, unavailability of staff, fire hazards, and the availability or cost of raw materials including logs, wood chips, resins and chemicals. In addition, the potential increased frequency of extreme weather events associated with climate change may result in operational curtailments becoming more frequent than we have experienced historically. 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. 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. 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 centers, 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 impacting 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, supply constraints and litigation that could have a material adverse effect on our business. In addition, disputes with the unions that represent our employees may lead to litigation, the result of which may adversely impact cash flow and profitability of certain of our operations. 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. - 40 - 48 Approximately 34% of our employees are covered by collective agreements. There were no expired collective agreements remaining as at December 31, 2022, other than the collective agreement with respect to our Barwick OSB operations in Ontario, Canada. All of our U.K. and Belgian union contracts are evergreen. Union agreements representing approximately 36% and 12% of our unionized employees expire in 2023 and 2024, respectively. In the event that we are unable to renew these collective agreements upon their expiry or the Barwick collective agreement in the near term, we could experience strikes or labour stoppages at the impacted facilities which could result in lost production and sales, higher costs and/or supply constraints. 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. 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. While the USDOC has issued its final duty rates for 2017 through 2020, the duty rates for the 2021 POI has not been finalized, and there is no assurance that the final rates for antidumping duty and countervailing duty will not differ materially from the cash deposit rates in place for those years. 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. The future performance of our business is dependent upon international trade and, in particular, cross border trade between Canada and the U.S. and between the U.K. and European Union. Access to markets in the U.S., the European Union, China and other countries may be affected from time to time by various trade-related events. The financial condition and results of operations of our 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. 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. - 41 - 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 which could require us to incur increased capital expenditures or result in increased operating expenses. In addition, we anticipate incurring additional capital expenditures in connection with capital projects that we plan to undertake in order to achieve our targeted greenhouse gas emission objectives. These capital expenditures may be greater than initially projected, and changes in environmental laws could impose more stringent requirements than our targeted objectives and result in increased capital expenditures or acceleration of the time for completion of the capital projects. 49 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 the Annual Financial Statements. Changing weather patterns and climatic conditions due to natural and man-made causes, including temperature shifts and changes to seasonal norms for winter and summer, can adversely impact our ability to meet our reforestation obligations and the expected cost to settle these liabilities. 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 and European wood fibre 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 wood fibre and operations. Climate Change, Environmental and Social Risks We face direct risks associated with climate change and the environment, as well as indirect risks resulting from the growing international concern regarding climate change, environmental and social matters. Specifically, there has been a significant increase in focus on the timing and ability of organizations to transition to a lower-carbon economy and to demonstrate a commitment to environmental, social and governance issues. Governments, financial institutions, insurance companies, environmental and governance organizations, institutional investors, social and environmental activists, and individuals are increasingly seeking to implement, among other things, regulatory developments, policy changes and investment patterns, which, individually and collectively may have financial implications for both us and our stakeholders (i.e., customers, suppliers, shareholders). Our business operations face risks associated with climate change and the environment, as identified and discussed in this Risk and Uncertainties section of this MD&A. In addition, climate change and its associated impacts may increase our exposure to, and magnitude of, other risks identified in this Risk and Uncertainties section of this MD&A. - 42 - 50 Overall, we are not able to estimate at this time the degree to which climate change related regulatory, climatic conditions, and climate-related transition risks could impact our financial and operating results. Our business, financial condition, results of operations, cash flows, reputation, access to capital, access to insurance, cost of borrowing, access to liquidity, ability to fund dividend payments and/or business plans may, in particular, without limitation, be adversely impacted as a result of climate change and its associated impacts. We have initiated a formal climate change scenario analysis, informed by the Task Force on Climate-related Disclosures (TCFD) recommendations, to understand the potential impacts of climate-related risks and opportunities using different scenarios to help enhance our corporate strategy, supply planning and risk management and create awareness with our stakeholders, and build business resiliency. We also face potential strategic, reputational, business, legal and regulatory risks relating to our actual or perceived actions, or inaction, in relation to climate change and other environmental and social risk issues, progress against our environmental or social commitments, or our disclosures on these matters. Investors and stakeholders increasingly compare companies based on climate-related performance and a perception among financial institutions and investors that our ESG initiatives, including the forestry industry’s sustainability initiatives, are insufficient, could adversely affect our reputation and ability to attract investors and capital. In 2022, we joined the Science-Based Targets Initiative, which included setting specific science-based targets to achieve GHG emissions reduction across all our operations by 2030, as part of our overall sustainability and ESG initiatives. There is a risk that we will not meet our GHG emissions reduction targets, that some or all of the expected benefits and opportunities of achieving our various GHG and sustainability targets may fail to materialize, and that achieving the targets may cost more to achieve than projected or may not occur within anticipated time periods. Our failure to achieve our GHG or our sustainability targets, or a perception by key stakeholders, including our customers and our investors, that our GHG targets or other ESG initiatives are insufficient, could adversely affect our reputation and our ability to attract investors, capital and insurance coverage. Further, actions taken by us to meet our GHG targets and achieve our sustainability objectives may ultimately increase our projected capital expenditures and our costs of operations. In addition, our ability to access capital or the costs of available capital may be adversely affected in the event that financial institutions, investors, rating agencies and/or lenders adopt more restrictive sustainability policies than we have committed to. Indigenous Groups Issues relating to Indigenous groups, including Indigenous Nations, Métis and others, have the potential for an impact 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 Indigenous groups in respect of Aboriginal rights or treaty rights, agreements governments may choose to enter into with Indigenous groups or steps governments may take in favour of Indigenous 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 the 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 Indigenous rights and title and the consultation process continue to evolve, as treaty and non-treaty negotiations continue, and as governments continue to announce and implement further policy and legislative changes to Indigenous interests (including, but not limited to the British Columbia Declaration of the Rights of Indigenous Peoples Act) and the federal United Nations Declaration on the Rights of Indigenous Peoples Act, we cannot assure that Indigenous 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, if the Government of British Columbia implements its plan to defer logging in “old growth” forest areas, our ability to secure timber supply from affected areas may be impacted by our ability to foster and maintain good relations with Indigenous Nations in the impacted areas, and their willingness to approve or consent to logging of portions of our forest licences that are considered “old growth” forests. The unwillingness of Indigenous Nations to approve or consent to logging in areas impacted by the deferral could reduce the amount of timber supply available to us. Further, the Government of British Columbia recently reached agreement with the Blueberry First Nations which commits the province to a pathway to restoring the land through new co-management processes, funding and a variety of - 43 - protection measures, including protecting new areas, significantly reducing harvest areas and developing a new land use planning process. The land use planning process is expected to reduce the availability of and increase the timeline for, receipt of cutting permits and restrict volume available for harvest. 51 Contagious Disease Pandemics, epidemics and other outbreaks of contagious diseases, including COVID-19 and future COVID-19 variants, could cause interruptions to our business and operations and otherwise have an adverse effect on our business, financial condition and/or results of operations 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. In addition, our future business may be impacted by the local, regional, national or international outbreak or escalation of other contagious diseases, viruses or other illnesses, including the resurgence of COVID-19 and any future variants, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1 influenza virus, avian flu or any other similar illness, or fear of the foregoing, Demand and prices for our products may be adversely affected by contagious diseases that affect levels of economic activity, and we are unable to predict or estimate the timing or extent of the impact of such pandemics, epidemics, and other outbreaks. 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 contagious diseases 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 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 uncertain, including the resurgence of COVID-19 and any variants, new information that may emerge concerning the spread and severity, 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 the resurgence of COVID-19, including any future variants, 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 and may result in our inability to fully staff our manufacturing facilities, with the result that we may be forced to temporarily close facilities or reduce production rates during periods. These factors may further impact our operating plans, business, financial condition, liquidity, the valuation of long-lived assets, and operating results. Regulatory Our operations are subject to extensive general and industry-specific federal, provincial, state, municipal and other local laws and regulations and other requirements, including those governing forestry, exports, taxes (including, but not limited to, income, sales and carbon taxes), employees, labour standards, occupational health and safety, waste disposal, environmental protection and remediation, protection of endangered and protected species and land use and expropriation. We are required to obtain approvals, permits and licences for our operations, which may require advance consultation with potentially affected stakeholders including Indigenous 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. - 44 - 52 Natural and Man-Made Disasters and Climate Change Adaptation 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, including temperature shifts and changes to seasonal norms for winter and summer, have added to the unpredictability and frequency of natural events such as severe weather, hurricanes, flooding, hailstorms, wildfires, mudslides, road washouts, snow, ice storms, and the spread of disease and insect infestations. Trends towards heavier precipitation patterns, changes to water quality and water storage on the land base can result in the overall degradation of water quality and reduced water supply levels. These events could damage or destroy or adversely affect the operations at our physical facilities or the cost, availability, and quality of our timber supply, 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. 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. 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. In addition to risks we face from cyber security incidents directed at our systems, we also face risks from cyber security incidents impacting third parties, including but not limited to contractors, consultants and suppliers, directly or indirectly - 45 - involved in our business and operations. We are vulnerable to damage and interruptions from incidents involving these third parties, and may be exposed to consequences that could have a material adverse effect on our financial condition, operations, production, sales and business. 53 Legal Proceedings The Company is subject to various investigations, claims and legal, regulatory and tax proceedings covering a wide range of matters that arise in the ordinary course of business activities, including civil claims and lawsuits, regulatory examinations, investigations, audits and requests for information by various governmental regulatory agencies and law enforcement authorities in various jurisdictions. Each of these matters is subject to various uncertainties and it is possible that some of these matters may be resolved unfavourably. We establish provisions for matters that are probable and can be reasonably estimated in accordance with our accounting policies, however there is no assurance that our estimates will be accurate. We also carry liability insurance coverage, however such insurance does not cover all risks to which we might be exposed and in other cases, may only partially cover losses incurred by us. In addition, we may be involved in disputes with other parties in the future that may result in litigation, which may result in a material adverse effect on our financial position, cash flow and results of operations. 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 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 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. Capital Intensity Our business and the production of wood-based products 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 are not recoverable. Indicators could include high raw material costs, high energy 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. 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 we operate. 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 our 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. At any given time, we may face tax exposures arising out of changes in tax or transfer pricing laws, tax reassessments or otherwise. Governments around the world are increasingly seeking to regulate multinational companies and their use of differential tax rates between jurisdictions. This - 46 - 54 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 us 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. Foreign Currency Exchange Rates Our Canadian operations sell the majority of their products at prices denominated in U.S. dollars or based on prevailing U.S. dollar prices while a significant portion of their operational costs and expenses are incurred in Canadian dollars. Upon closing of the Norbord Acquisition, we changed the functional currency and presentation currency of our Canadian operations, with the exception of our Canadian newsprint operation, from Canadian dollars to United States dollars. Our U.K. operations sell a portion of their products at prices denominated in Euros while the majority of their costs are incurred in British pounds sterling. Accordingly, exchange rate fluctuations will result in exchange gains or losses recorded in earnings and other comprehensive earnings. This results in significant earnings sensitivity to changes in the relative value of the United States dollar in comparison to the value of the Canadian dollar, British pound sterling and Euro. These exchange rates are affected by a broad range of factors which makes future rates difficult to accurately predict. Significant fluctuations in relative currency values may also negatively affect the cost competitiveness of our facilities, the value of our foreign investments, the results of our operations and our financial position. Long-Lived Assets and Recoverability of Goodwill Our long-lived assets and goodwill could become impaired, which could have a material non-cash adverse effect on our results of operations. We review our operations for events and circumstances that could indicate that the carrying value of our long-lived assets and goodwill may not be recoverable. If indicators of impairment are determined to exist, we review the recoverability of the carrying value of long-lived assets by estimating the recoverable amount of the asset, which is the higher of its estimated fair value less costs of disposal and its value in use. We also review our goodwill for impairment annually and when events or changes in circumstances indicate that the carrying value of the CGU or group of CGUs associated with the goodwill balance is not recoverable. We determine the value in use of assets and cash- generating units using discounted cash flow models. Management makes multiple assumptions in estimating future cash flows. Key assumptions include production volume, product pricing, raw material input cost, production cost, trend multiple, and discount rate. There are numerous uncertainties inherent in making these estimates, including many factors beyond our control, that could cause actual results to differ materially from expected financial and operating results. We may be required to recognize material non-cash charges relating to impairments of long-lived assets and/or goodwill in the future if actual results differ materially from management’s estimates. If a goodwill impairment charge is incurred, such charges are not reversible at a later date even when the events and circumstances that caused the impairment loss are favourably resolved. As a result of these uncertainties and the significant amount of goodwill ($1,944 million at December 31, 2022), our operating results may be significantly impacted from both the impairment and the underlying trends in the business that triggered the impairment, and actual results may be less favourable than estimated returns and initial financial outlook. For additional information regarding goodwill, see Note 8 to the Annual Financial Statements. Further, our auditors have identified our goodwill impairment assessments as a “critical audit matter” in their report on their audit of the Annual Financial Statements. 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 will from time to time undertake the acquisition of facilities or the rebuilding or modernization of existing facilities, including the rebuilding and modernization of existing and newly acquired facilities. We may also in the future be required to undertake capital projects to (i) address or mitigate the impacts of climate change and extreme weather events at our facilities, (ii) comply with new government regulation directed at reducing the impacts of climate change; (iii) reduce the carbon intensity or footprint of our existing operations by reducing or eliminating fossil fuel usage, or (iv) comply with new government regulation directed at improving environmental protection. 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 - 47 - 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. 55 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 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. We have notes maturing in 2024 and a term loan maturing in 2024. There is no assurance that financing will be available to us when required or available to us on commercially favourable or otherwise satisfactory terms in the future to re- finance these borrowings when they become due. 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. 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. - 48 - 56 Pension Plan Funding We are the sponsor of several defined benefit pension plans which exposes us to market risks related to plan assets and liabilities. 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. International Sales A portion of our products are exported to customers in China, Japan 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 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 prospects. Acquisitions We may evaluate and complete 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. Acquisitions are subject to a range of inherent risks, including the assumption of incremental regulatory/compliance, pricing, labour relations, litigation, environmental, tax and other risks. Further, we may not be able to successfully integrate or achieve anticipated synergies from those acquisitions which we do complete and/or such acquisitions may be dilutive in the short to medium term. Any of these adverse outcomes could result in us not achieving the financial benefits of prospective acquisitions and have a material adverse effect on our profitability. Return of Capital to Shareholders We have returned capital to our shareholders in 2022 through a combination of dividends and share repurchases, both through our normal course issuer bid and our substantial issuer bid. There is no assurance that we will continue to return capital to shareholders in future years, or as to the amount of capital that will be returned. Further, decisions to return capital to shareholders remain at the discretion of our board of directors and shareholders may not agree with the manner and the amounts of capital that are returned to shareholders. 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. There is no assurance that our board of directors will continue to maintain our dividend at the current rate. Our board of directors has the power to declare dividends at 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. Risks Associated with the NYSE Listing and Litigation The West Fraser Common shares are listed on the NYSE. Our continued 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 - 49 - may, in the future, be subject to judgments or enter into settlements of claims for significant monetary damages. While we have insurance that 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. 57 Risk Associated with Internal Controls We are required to maintain and evaluate the effectiveness of our internal control over financial reporting under National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings in Canada and under the Securities Exchange Act of 1934 in the United States. Effective internal controls are required for us to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with IFRS. Management assesses the effectiveness of our internal control over financial reporting based on the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also engage an independent registered public accounting firm to audit and provide an independent opinion on the effectiveness of our internal control over financial reporting. There is no assurance that we will be able to achieve and maintain the adequacy of our internal control 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 control over financial reporting are effective. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. No evaluation can provide complete assurance that our internal control over financial reporting will prevent or detect misstatements on a timely basis, or detect or uncover all failures of persons employed by us to disclose material information otherwise required to be reported. The effectiveness of our controls and procedures could also be limited by simple errors or faulty judgments. In addition, as we continue to expand, the challenges involved in implementing appropriate internal control over financial reporting will increase and will require that we continue to improve our internal control over financial reporting. Our failure to satisfy these requirements on a timely basis could result in the loss of investor confidence in the accuracy and reliability of our financial statements, which in turn could harm our business, expose us to legal or regulatory actions and negatively impact the trading price of our Common shares. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. There can be no assurance that we will be able to remediate material weaknesses, if any, identified in future periods, or maintain all of the controls necessary for continued compliance, and there can be no assurance that we will be able to retain sufficient skilled finance and accounting personnel, especially in light of the increased demand for such personnel among publicly traded companies. Future acquisitions of companies may provide us with challenges in implementing the required processes, procedures and controls in our acquired operations. Acquired companies may not have disclosure controls and procedures or internal control over financial reporting that are as thorough or effective as those required by securities laws currently applicable to us. Our Common Shares May be Subject to Trading Volatility Our Common shares will be subject to material fluctuations in trading prices and volumes which may increase or decrease in response to a number of events and factors, which will include: • • • • • • • • • • 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; future acquisitions and financings; the economics of current and future projects undertaken by us; 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; the issuance of additional equity securities by us; and - 50 - 58 • the occurrence of any of the risks and uncertainties described above. In addition to factors directly affecting West Fraser, 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 West Fraser is responsible for establishing and maintaining disclosure controls and procedures and internal control over financial reporting, each as defined in NI 52-109 in Canada and under the Securities Exchange Act of 1934, as amended, in the United States. Disclosure Controls and Procedures We have designed our disclosure controls and procedures to provide reasonable assurance that information that is required to be disclosed by us in our annual filings, interim filings and other reports that we file or submit under securities legislation is recorded, processed, summarized and reported within the time periods specified in the securities legislation. These include controls and procedures designed to ensure that information that we are required to disclose under securities legislation is accumulated and communicated to our management, including our President and Chief Executive Officer (“CEO”) and the Senior Vice-President, Finance and Chief Financial Officer (“CFO”), as appropriate to allow timely decisions regarding required disclosure. Our management, under the supervision and with the participation of our CEO and CFO, has conducted an evaluation of our disclosure controls and procedures as of December 31, 2022. Based on this evaluation, management, under the supervision of our CEO and CFO, have concluded that our disclosure controls and procedures are effective as of December 31, 2022. Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance with IFRS. Our management, under the supervision of the CEO and CFO, is required under NI 52-109 in Canada and under the Securities Exchange Act of 1934, as amended, in the United States to evaluate the effectiveness of our internal control over financial reporting as of December 31, 2022. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the criteria set forth in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management, including the CEO and CFO, has concluded that our internal control over financial reporting was effective as of December 31, 2022. The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, in accordance with the standards of the Public Company Accounting Oversight Board (United States). PricewaterhouseCoopers LLP have expressed their opinion in their attestation report included with our annual audited consolidated financial statements and accompanying notes for the year ended December 31, 2022. There has been no change in our internal control over financial reporting during the year ended December 31, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Additionally, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. - 51 - DEFINITIONS, RECONCILIATIONS, AND OTHER INFORMATION 59 Transactions Between Related Parties The Company has entered into executive compensation arrangements with key management personnel, consisting of our directors and officers. These individuals have the authority and responsibility for overseeing, planning, directing, and controlling our activities. Total compensation expense for key management personnel was $19 million in 2022, compared to $55 million in 2021. The decrease in compensation expense was due primarily to lower equity-based compensation, influenced by changes in the price of our Common shares, vesting of granted units, and changes in the expected payout multiple on our performance share units. See Note 20 to the Annual Financial Statements for additional details. Non-GAAP and Other Specified Financial Measures Throughout this MD&A, we make reference to (i) certain non-GAAP financial measures, including Adjusted EBITDA and Adjusted EBITDA by segment (our “Non-GAAP Financial Measures”), (ii) certain capital management measures, including available liquidity, total debt to capital ratio, and net debt to capital ratio (our “Capital Management Measures”), and (iii) certain supplementary financial measures, including our expected capital expenditures (our “Supplementary Financial Measures”). We believe that these Non-GAAP Financial Measures, Capital Management Measures, and Supplementary Financial Measures (collectively, our “Non-GAAP and other specified financial measures”) are useful performance indicators for investors to understand our operating and financial performance and our financial condition. These Non- GAAP and other specified financial measures are not generally accepted financial measures under IFRS and do not have standardized meanings prescribed by IFRS. Investors are cautioned that none of our Non-GAAP Financial Measures should be considered as an alternative to earnings or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating any of these Non-GAAP and other specified financial 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-GAAP and other specified financial measures may not be directly comparable to similarly titled measures used by other entities. Accordingly, these Non-GAAP and other specified financial 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-GAAP measures used and presented by the Company to the most directly comparable IFRS measures is provided in the tables set forth below. Adjusted EBITDA and Adjusted EBITDA by Segment 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, equity-based compensation, restructuring and impairment charges, and other. Adjusted EBITDA by segment is defined as earnings before tax determined for each reportable segment adding back the following line items from the consolidated statements of earnings and comprehensive earnings for that reportable segment: finance expense, amortization, equity-based compensation, restructuring and impairment charges, and other. EBITDA is commonly reported and widely used by investors and lending institutions as an indicator of a company’s operating performance, ability to incur and service debt, and as a valuation metric. We calculate Adjusted EBITDA and Adjusted EBITDA by segment to exclude items of an unusual nature that do not reflect our ongoing operations and that should not, in our opinion, be considered in a long-term valuation metric or included in an assessment of our ability to service or incur debt. We believe that disclosing these measures assists readers in measuring performance relative to other entities that operate in similar industries and understanding the ongoing cash generating potential of our business to provide liquidity to fund working capital needs, service outstanding debt, fund future capital expenditures and investment opportunities, and pay dividends. Adjusted EBITDA is used as an additional measure to evaluate the operating and financial performance of our reportable segments. The following tables reconcile Adjusted EBITDA to the most directly comparable IFRS measure, earnings. See Note 18 to the Annual Financial Statements for a breakdown of the items making up Other. Other is comprised primarily of foreign exchange revaluations and fair value adjustments on interest rate swap contracts. - 52 - 60 Annual Adjusted EBITDA ($ millions) Earnings Finance expense, net Tax provision Amortization Equity-based compensation Restructuring and impairment charges Other expense (income) Adjusted EBITDA Quarterly Adjusted EBITDA ($ millions) Earnings (loss) Finance (expense) income, net Tax provision (recovery) Amortization Equity-based compensation Restructuring and impairment charges Other expense (income) Adjusted EBITDA 2022 2021 2020 1,975 $ 3 618 589 5 60 (37) 3,212 $ 2,947 $ 45 951 584 40 — 2 4,569 $ 588 27 202 203 9 — 14 1,043 Q4-22 Q3-22 Q4-21 (94) $ (3) (31) 148 6 47 (2) 70 $ 216 $ (3) 80 140 5 — (12) 426 $ 334 1 104 153 12 — 11 615 $ $ $ $ The following tables reconcile Adjusted EBITDA by segment to the most directly comparable IFRS measures for each of our reportable segments. We consider that earnings before tax is the most directly comparable measure for Adjusted EBITDA by segment, given we do not allocate consolidated tax amounts across our reportable segments. Please refer to the “Adjusted EBITDA” section above for additional details concerning the composition of this measure and how it provides useful information to readers. Annual Adjusted EBITDA by Segment ($ millions) 2022 Lumber NA EWP Pulp & Paper Europe EWP Corporate & Other Total Earnings (loss) before tax $ 1,117 $ 1,383 $ (23) $ 118 $ — 53 — 15 — (2) $ (2) 9 5 — 2,593 3 589 5 60 (14) (37) 186 $ (5) $ 3,212 Finance expense (income), net Amortization Equity-based compensation Restructuring and impairment charges (1) 186 — 31 4 306 — — Other income (5) (16) Adjusted EBITDA by segment $ 1,328 $ 1,677 $ 2 35 — 13 (1) 26 $ - 53 - 2021 Lumber NA EWP Pulp & Paper Europe EWP 1,794 2,121 (22) Earnings (loss) before tax Finance expense, net Amortization Equity-based compensation Other expense (income) 17 164 — (2) 3 289 — 1 5 34 — (2) 15 $ Adjusted EBITDA by segment $ 1,973 $ 2,414 $ Quarterly Adjusted EBITDA by Segment ($ millions) Corporate & Other Total (107) 3,898 61 19 9 40 5 45 584 40 2 112 1 88 — — 201 $ (34) $ 4,569 Q4-22 Lumber NA EWP Pulp & Paper Europe EWP Corporate & Other Total Earnings (loss) before tax $ Finance (income) expense, net (161) $ (2) Amortization Equity-based compensation Restructuring and impairment charges Other expense (income) 51 — 31 2 Adjusted EBITDA by segment $ (77) $ 40 $ (1) 73 — — (3) 109 $ 1 $ 1 $ — 9 — — 5 — 12 — 15 2 15 $ 30 $ (6) $ (1) 2 6 — (8) (6) $ Q3-22 Lumber NA EWP Pulp & Paper Europe EWP Corporate & Other Total Earnings (loss) before tax $ Finance (income) expense, net Amortization Equity-based compensation Other expense (income) Adjusted EBITDA by segment $ 127 $ (5) 45 — (7) 160 $ 144 $ 22 $ 13 $ 2 71 — (2) 215 $ 1 9 — (3) 29 $ — 12 — (1) 24 $ (10) $ (1) 3 5 1 (2) $ Q4-21 Lumber NA EWP Pulp & Paper Europe EWP Corporate & Other Total Earnings (loss) before tax $ Finance expense (income), net Amortization Equity-based compensation Other expense 194 $ (1) 45 — 2 265 $ (25) $ 36 $ (32) $ — 73 — 5 — 9 — 2 1 24 — — 1 2 12 2 Adjusted EBITDA by segment $ 240 $ 343 $ (14) $ 61 $ (15) $ (125) (3) 148 6 47 (2) 70 296 (3) 140 5 (12) 426 438 1 153 12 11 615 - 54 - 62 Available liquidity Available liquidity is the sum of our cash and cash equivalents and funds available under our committed and uncommitted bank credit facilities. We believe disclosing this measure assists readers in understanding our ability to meet uses of cash resulting from contractual obligations and other commitments at a point in time. Available Liquidity ($ millions) Cash and cash equivalents Operating lines available (excluding newsprint operation)1 Cheques issued in excess of funds on deposit Borrowings on operating lines Available liquidity December 31, 2022 1,162 $ 1,053 2,215 — — 2,215 $ December 31, 2021 1,568 1,025 2,593 — — 2,593 $ $ 1. Excludes demand line of credit dedicated to our jointly-owned newsprint operation as West Fraser cannot draw on it. Total debt to total capital ratio Total debt to total capital ratio is total debt divided by total capital, expressed as a percentage. Total capital is defined as the sum of total debt plus total equity. This calculation is defined in certain of our bank covenant agreements. We believe disclosing this measure assists readers in understanding our capital structure, financial solvency, and degree of leverage at a point in time. The following table outlines the composition of the measure. Total Debt to Capital ($ millions) Debt Operating loans Current and long-term lease obligation Current and long-term debt Interest rate swaps1 Open letters of credit1 Total debt Shareholders’ equity Total capital Total debt to capital December 31, 2022 December 31, 2021 $ $ — $ 37 500 — 61 598 7,619 8,217 $ 7% — 28 501 1 65 595 7,656 8,251 7% 1. Letters of credit facilities and the fair value of interest rate swaps are part of our bank covenants’ total debt calculation. Net debt to capital ratio Net debt to capital ratio is net debt divided by total capital, expressed as a percentage. Net debt is calculated as total debt less cash and cash equivalents, open letters of credit, and the fair value of any interest rate swap liabilities. Total capital is defined as the sum of net debt plus total equity. We believe disclosing this measure assists readers in understanding our capital structure, financial solvency, and degree of leverage at a point in time. We believe that using net debt in the calculation is helpful because net debt represents the amount of debt obligations that are not covered by available cash and cash equivalents. - 55 - The following table outlines the composition of the measure. 63 Net Debt to Capital ($ millions) 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 cash equivalents Open letters of credit Interest rate swaps Cheques issued in excess of funds on deposit Net debt Shareholders’ equity Total capital Net debt to capital December 31, 2022 December 31, 2021 $ $ — 37 500 — 61 598 (1,162) (61) — — (625) 7,619 6,994 $ $ — 28 501 1 65 595 (1,568) (65) (1) — (1,039) 7,656 6,617 (9%) (16%) 1. Letters of credit facilities and the fair value of interest rate swaps are part of our bank covenants’ total debt calculation. Expected capital expenditures This measure represents our best estimate of the amount of cash outflows relating to additions to capital assets for the upcoming year based on our current outlook. This amount is comprised primarily of various improvement projects and maintenance-of-business expenditures, projects focused on optimization and automation of the manufacturing process, and projects targeted to reduce greenhouse gas emissions. This measure assumes no deterioration in market conditions during the year and that we are able to proceed with our plans on time and on budget. This estimate is subject to the risks and uncertainties identified in this MD&A. Glossary of Key Terms We use the following terms in this MD&A: Term AAC ADD Description Annual allowable cut Antidumping duty Angelina Angelina Forest Products LLC Angelina Acquisition Acquisition of Angelina Forest Products, LLC on December 1, 2021 AR B.C. BCTMP Administrative Review by the USDOC British Columbia Bleached chemithermomechanical pulp CAD or CAD$ Canadian dollars CEO CFO CGU COSO President and Chief Executive Officer Senior Vice-President, Finance and Chief Financial Officer Cash generating unit Committee of Sponsoring Organizations of the Treadway Commission Crown timber Timber harvested from lands owned by a provincial government CVD EDGAR ESG Countervailing duty Electronic Data Gathering, Analysis and Retrieval System Environmental, Social and Governance - 56 - 64 EWP GHG IFRS LVL MDF NA NA EWP NBSK NCIB 2021 NCIB 2022 NCIB NI 52-109 Norbord Engineered wood products Greenhouse gas International Financial Reporting Standards as issued by the International Accounting Standards Board Laminated veneer lumber Medium-density fibreboard North America North America Engineered Wood Products Northern bleached softwood kraft pulp Normal course issuer bid Normal course issuer bid - February 17, 2021 to February 16, 2022 Normal course issue bid - February 23, 2022 to February 22, 2023 National Instrument 52-109 - Certification of Disclosure in Issuers’ Annual and Interim Filings Norbord Inc. Norbord Acquisition Acquisition of Norbord completed February 1, 2021 NYSE OSB POI PPE New York Stock Exchange Oriented strand board Period of Investigation in respect of an USDOC administrative review Property, plant, and equipment Q1-22 or Q1-21 three months ended March 31, 2022 or 2021 and for balance sheet amounts as at March 31, 2022 or 2021 Q2-22 or Q2-21 three months ended June 30, 2022 or 2021 and for balance sheet amounts as at June 30, 2022 or 2021 Q3-22 or Q3-21 Q4-22 or Q4-21 SEDAR 2021 SIB 2022 SIB SOX SPF SYP TSX U.K. UKP U.S. three months ended September 30, 2022 or 2021 and for balance sheet amounts as at September 30, 2022 or 2021 three months ended December 31, 2022 or 2021 and for balance sheet amounts as at December 31, 2022 or 2021 System for Electronic Document Analysis and Retrieval Our substantial issuer bid completed in August 2021 Our substantial issuer bid completed in June 2022 Section 404 of the Sarbanes-Oxley Act Spruce/pine/balsam fir lumber Southern yellow pine lumber Toronto Stock Exchange United Kingdom Unbleached kraft pulp United States USD or $ or US$ United States Dollars USDOC USITC United States Department of Commerce United States International Trade Commission Forward-Looking Statements This MD&A includes statements and information that constitutes “forward-looking information” within the meaning of Canadian securities laws and “forward-looking statements” within the meaning of United States securities laws (collectively, “forward-looking statements”). Forward-looking statements include statements that are forward-looking or predictive in nature and are dependent upon or refer to future events or conditions. We use 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” to identify these forward-looking statements. These forward-looking statements generally 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 - 57 - Fraser and its subsidiaries, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods. 65 Forward-looking statements included in this MD&A include references to: Discussion Corporate Strategy Recent Developments – Markets Recent Developments - CVD and ADD Duty Rates Discussion & Analysis of Annual Results by Product Segment - Lumber Segment - Softwood Lumber Dispute Business Outlook – Markets Business Outlook – Operations Business Outlook – Cash Flows Forward-Looking Statements our corporate strategy and objectives to generate strong financial results, maintain a strong balance sheet and liquidity profile along with an investment-grade debt rating, to maintain a leading cost position and to return capital to shareholders, reinvest in operations, renewable building materials, and achieve science-based targets to achieve near-term greenhouse gas reductions across all our operations impact of interest rates, housing demand, housing prices, inflationary pressures on demand for lumber and OSB, and expectations regarding near, medium and longer-term core demand estimates of potential recovery and combined cash deposit rate if preliminary results from the AR4 POI are confirmed administrative review commencement, adjustment of export duty rates, proceedings related to duty rates, and timing of finalization of duty rates market conditions, demand for our products over the near, medium and longer term, impacts of interest rates, Ukraine conflict, inflationary pressures, including increases in energy prices, transportation constraints, final AR4 and AR5 duty rates; and ability to capitalize on long-term opportunities production levels, demand expectations, projected SPF and SYP lumber shipments, projected OSB shipments, projected pulp and paper shipments, operating costs, B.C. and Alberta stumpage rates and U.S. South log costs, the impact of inflationary pressures and availability constraints for labour, transportation, raw materials such as resins and chemicals, and energy, expectations as to availability of transportation services, the timing, costs of restart, ramp up period to target production and contribution to shipments of Allendale OSB facility, and the overall OSB platform with modern Allendale facility projected cash flows from operations and available liquidity, projected capital expenditures (including with respect to the modernization of the Henderson, Texas lumber manufacturing facility), expected results of capital expenditures, including improvements, maintenance, optimization and automation projects and projects targeted to reduce greenhouse gas emissions, maintenance of our investment grade debt rating, strategic growth opportunities, expected continuity of dividends and share repurchases Liquidity and Capital Resources - Capital Management Framework capital management framework and objectives 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: • • • • • • • • assumptions in connection with the economic and financial conditions in the U.S., Canada, U.K., Europe and globally and consequential demand for our products, including the impact of the conflict in the Ukraine; continued increases in interest rates and inflation could impact housing affordability and repair and remodelling demand, which could reduce demand for our products; global supply chain issues may result in increases to our costs and may contribute to a reduction in near-term demand for our products; risks inherent to product concentration and cyclicality; effects of competition for logs and fibre resources and product pricing pressures, including continued access to log supply and fibre resources at competitive prices and the impact of third-party certification standards; effects of variations in the price and availability of manufacturing inputs, including energy, employee wages, resin and other input costs, and the impact of inflationary pressures on the costs of these manufacturing costs, including increases in stumpage fees and log costs; availability and costs of transportation services, including truck and rail services, and port facilities, the impacts on transportation services of wildfires and severe weather events, and the impact of increased energy prices on the costs of transportation services; transportation constraints may negatively impact our ability to meet projected shipment volumes; - 58 - 66 • • • • • • • • • • • • • • • • • • • • • • • • • • the timing of our planned capital investments may be delayed, the ultimate costs of these investments may be increased as a result of inflation, and the projected rates of return may not be achieved; various events that could disrupt operations, including natural, man-made or catastrophic events including wildfires and any state of emergency and/or evacuation orders issued by governments and ongoing relations with employees; risks inherent to customer dependence; impact of future cross border trade rulings or agreements; implementation of important strategic initiatives and identification, completion and integration of acquisitions; impact of changes to, or non-compliance with, environmental or other regulations; the impact of the COVID-19 pandemic on our operations and on customer demand, supply and distribution and other factors; government restrictions, standards or regulations intended to reduce greenhouse gas emissions; our inability to achieve our SBTi commitment for the reduction of greenhouse gases as planned; continued governmental approvals and authorizations to access timber supply; changes in government policy and regulation, including actions taken by the Government of British Columbia pursuant to recent amendments to forestry legislation and initiatives to defer logging of forests deemed “old growth” and the impact of these actions on our timber supply; impact of weather and climate change on our operations or the operations or demand of its suppliers and customers; ability to implement new or upgraded information technology infrastructure; impact of information technology service disruptions or failures; impact of any product liability claims in excess of insurance coverage; risks inherent to a capital intensive industry; impact of future outcomes of tax exposures; potential future changes in tax laws, including tax rates; investigations, claims and legal, regulatory and tax proceedings covering matters which if resolved unfavourably may result in a loss to the Company; effects of currency exposures and exchange rate fluctuations; future operating costs; availability of financing, bank lines, securitization programs and/or other means of liquidity; continued access to timber supply in the traditional territories of Indigenous Nations; our ability to continue to maintain effective internal control over financial reporting; the risks and uncertainties described in this 2022 Annual MD&A; and other risks detailed from time to time in our annual information forms, annual reports, MD&A, quarterly reports and material change reports filed with and furnished to securities regulators. 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. Additional Information Additional information on West Fraser, including our Annual Information Form and other publicly filed documents, is available on the Company’s website at www.westfraser.com, on SEDAR at www.sedar.com and on the EDGAR section of the SEC website at www.sec.gov/edgar.shtml. 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. - 59 - 67 West Fraser Timber Co. Ltd. Audited Consolidated Financial Statements December 31, 2022 and 2021 -1- 68 RESPONSIBILITY OF MANAGEMENT Management’s Report on the Consolidated Financial Statements The accompanying consolidated financial statements and related notes are the responsibility of the management of West Fraser Timber Co. Ltd. (the “Company”). They have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and include amounts based on estimates and judgments. Financial information included elsewhere in this report is consistent with the consolidated financial statements. The consolidated financial statements are approved by the Board of Directors on the recommendation of the Audit Committee. The Audit Committee, appointed by the Board of Directors, is composed entirely of independent directors. The Audit Committee reviews the Company’s consolidated financial statements and reports its findings to the Board of Directors for consideration before the consolidated financial statements are approved for issuance to shareholders and submitted to securities commissions or other regulatory authorities. The Audit Committee’s duties also include reviewing critical accounting policies and significant estimates and judgments underlying the consolidated financial statements as presented by management and approving the fees of the Company’s independent registered public accounting firm. The Company’s independent registered public accounting firm, PricewaterhouseCoopers LLP, performed an audit of the consolidated financial statements, the results of which are reflected in their Report of Independent Registered Public Accounting Firm for 2022. PricewaterhouseCoopers LLP has full and independent access to the Audit Committee to discuss their audit and related matters. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings and Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with IFRS. Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of any evaluation of its effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under our supervision, management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the criteria set forth in the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2022. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, the Company’s independent registered public accounting firm, as stated in their report which appears herein. /s/ Raymond Ferris /s/ Chris Virostek Raymond Ferris President and Chief Executive Officer Chris Virostek Senior Vice-President, Finance and Chief Financial Officer February 14, 2023 -2- 69 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of West Fraser Timber Co. Ltd. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of West Fraser Timber Co. Ltd. and its subsidiaries (together, the Company) as of December 31, 2022 and 2021, and the related consolidated statements of earnings and comprehensive earnings, of changes in shareholders’ equity and of cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits 70 also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill Impairment Assessments As described in Note 8 to the consolidated financial statements, the Company’s goodwill balance was $1,944 million as of December 31, 2022. Management conducts an impairment assessment as of December 31 of each year, or more frequently if an indicator of impairment is identified. Management assesses the recoverability of goodwill by comparing the carrying value of each cash generating unit (CGU) associated with the goodwill balance to its estimated recoverable amount, which is the higher of 71 its estimated fair value less costs of disposal and its value in use. An impairment charge is recorded if the carrying value exceeds the estimated recoverable amount of a CGU. Management has determined the recoverable amount of each applicable CGU based on its value in use through a discounted cash flow model. The key assumptions used in the discounted cash flow models include production volume, product pricing, raw material input cost, production cost, terminal multiple and the discount rates. The estimated recoverable amount of each applicable CGU exceeded its respective carrying amount in management’s goodwill impairment assessments, and as such, no impairment losses were recorded by management. The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments is a critical audit matter are (i) the significant judgment by management when determining the recoverable amount of each applicable CGU, including the development of key assumptions; (ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s key assumptions in the discounted cash flow models related to production volume, product pricing, raw material input cost, production cost, terminal multiple and the discount rates; and (iii) the audit effort involved the use of professionals with specialized skills and knowledge. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the determination of the recoverable amount of the applicable CGUs. These procedures also included, among others, testing management’s process for determining the recoverable amount of the applicable CGUs, including evaluating the appropriateness of the discounted cash flow models, testing the completeness and accuracy of underlying data used in the models and evaluating the reasonableness of the key assumptions used by management. Evaluating the reasonableness of the production volume, product pricing, raw material input cost and production cost involved considering the past performance of the CGUs, as well as economic and industry forecasts, as applicable. Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow models, and the reasonableness of the terminal multiple and the discount rates. /s/PricewaterhouseCoopers LLP Chartered Professional Accountants Vancouver, Canada February 14, 2023 We have served as the Company's auditor since 1973. 72 West Fraser Timber Co. Ltd. Consolidated Balance Sheets (in millions of United States dollars, except where indicated) Note As at December 31, 2022 As at December 31, 2021 Assets Current assets Cash and cash equivalents Receivables Income taxes receivable Inventories Prepaid expenses Property, plant and equipment Timber licences Goodwill and other intangible assets Export duty deposits Other assets Deferred income tax assets Liabilities Current liabilities Payables and accrued liabilities Current portion of reforestation and decommissioning obligations Income taxes payable Long-term debt Other liabilities Deferred income tax liabilities Shareholders’ Equity Share capital Retained earnings Accumulated other comprehensive loss Approved by the Board of Directors /s/ Reid Carter Reid Carter Director 4 23 5 6 7 8 26 9 19 10 11 12 11 19 14 $ $ $ 1,162 $ 350 145 1,032 60 2,749 3,982 351 2,358 354 175 4 1,568 508 42 1,061 38 3,217 4,100 368 2,440 242 58 8 9,973 $ 10,433 722 $ 58 12 792 499 268 795 2,354 2,667 5,284 (332) 7,619 848 46 312 1,206 499 360 712 2,777 3,402 4,503 (249) 7,656 10,433 $ 9,973 $ /s/ Robert L. Phillips Robert L. Phillips Director -6- West Fraser Timber Co. Ltd. Consolidated Statements of Earnings and Comprehensive Earnings (in millions of United States dollars, except where indicated) Sales Costs and expenses 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 income (expense) Earnings before tax Tax provision Earnings Earnings per share (dollars) Basic Diluted Comprehensive earnings Earnings Other comprehensive earnings Items that may be reclassified to earnings 73 Years Ended December 31, December 31, 2022 2021 $ 9,701 $ 10,518 5,142 4,645 963 18 589 365 5 60 846 146 584 312 40 — 7,142 6,573 2,559 3,945 (3) 37 2,593 (618) 1,975 $ (45) (2) 3,898 (951) 2,947 21.06 $ 20.86 $ 27.03 27.03 1,975 $ 2,947 26 15 16 17 18 19 21 21 $ $ $ $ Translation loss on operations with different functional currencies (83) (9) Items that will not be reclassified to earnings Actuarial gain on retirement benefits, net of tax Comprehensive earnings 164 81 153 144 $ 2,056 $ 3,091 -7- 74 l a t o T y t i u q E l d e t a u m u c c A r e h t O e v i s n e h e r p m o C s s o L i d e n a t e R i s g n n r a E d e t u b i r t n o C l s u p r u S t n u o m A f o r e b m u N s e r a h s e t o N l a t i p a C e r a h S y t i u q E l ' s r e d o h e r a h S n i s e g n a h C f o s t n e m e t a t S d e t a d i l o s n o C ) d e t a c i d n i e r e h w t p e c x e , s r a l l o d s e t a t S d e t i n U f o s n o i l l i m n i ( . d t L . i o C r e b m T r e s a r F t s e W 8 7 4 2 , 7 4 9 2 , $ ) 0 4 2 ( — $ 7 3 2 2 , 7 4 9 2 , $ — — ) 9 ( 3 5 1 1 4 1 ) 5 1 ( ) 5 8 ( 1 9 4 3 , ) 9 1 3 1 ( , 6 5 6 7 , 5 7 9 1 , ) 3 8 ( 4 6 1 ) 0 9 9 1 ( , ) 3 0 1 ( 9 1 6 7 , ) 9 ( — — — — — — — — 3 5 1 — — — — ) 5 8 ( ) 9 4 7 ( $ ) 9 4 2 ( — 5 7 9 1 , $ 3 0 5 4 , $ ) 3 8 ( — — — — 4 6 1 ) 3 0 1 ( ) 5 5 2 1 ( , $ ) 2 3 3 ( $ 4 8 2 5 , $ — — 4 1 1 ) 5 1 ( — — — — — — — — — — — — — — — — — — — — — — $ 1 8 4 $ , 2 2 6 8 7 6 8 6 , — ) 0 7 5 ( 1 9 4 3 , $ 2 0 4 3 , $ — — — — ) 5 3 7 ( $ 7 6 6 2 , $ , 6 8 5 8 1 6 4 5 , — , ) 4 7 4 8 6 3 7 1 ( , , 4 3 7 8 2 9 5 0 1 , — — — , ) 0 2 3 3 7 3 2 2 ( , — , 4 1 4 5 5 5 3 8 , 4 1 , 3 4 1 n o i t a l l e c n a c r o f s e r a h s n o m m o C f o e s a h c r u p e R s e r a h s n o m m o C f o e c n a u s s I l d e l t t e s - h s a c o t n a p n o i t p o e r a h s d e l t t e s - y t i u q e f o n o i s r e v n o C l a n o i t c n u f t n e r e f f i d h t i w s n o i t a r e p o n o s s o l n o i t a l s n a r T s e i c n e r r u c x a t f o t e n , s t i f e n e b t n e m e r i t e r n o n a g i l a i r a u t c A l n a p n o i t p o e r a h s d e l t t e s - y t i u q e d e r i u q c A e s n e p x e n o i t p o e r a h s d e l t t e s - y t i u q E 0 2 0 2 , 1 3 r e b m e c e D t a e c n a a B l r a e y e h t r o f i s g n n r a E i : s g n n r a e e v i s n e h e r p m o c r e h t O 1 2 0 2 , 1 3 r e b m e c e D t a e c n a a B l r a e y e h t r o f i s g n n r a E i : s g n n r a e e v i s n e h e r p m o c r e h t O 1 d e r a l c e d s d n e d i v i D 4 1 n o i t a l l e c n a c r o f s e r a h s n o m m o C f o e s a h c r u p e R l a n o i t c n u f t n e r e f f i d h t i w s n o i t a r e p o n o s s o l n o i t a l s n a r T s e i c n e r r u c x a t f o t e n , s t i f e n e b t n e m e r i t e r n o n a g i l a i r a u t c A 2 2 0 2 , 1 3 r e b m e c e D t a e c n a a B l 1 d e r a l c e d s d n e d i v i D h s a C . r e t r a u q h t r u o f e h t r o f e r a h s . r e p 0 2 0 $ D S U d n a s r e t r a u q e e r h t t s r i f e h t r o f e t a g e r g g a n i e r a h s . r e p 0 7 0 $ D A C f o d e s i r p m o c 1 2 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t g n i r u d d e r a l c e d s d n e d i v i d h s a C . 1 . e r a h s . r e p 5 1 1 $ D S U e r e w 2 2 0 2 , 1 3 r e b m e c e D d e d n e r a e y e h t g n i r u d d e r a l c e d s d n e d i v i d - 8 - West Fraser Timber Co. Ltd. Consolidated Statements of Cash Flows (in millions of United States dollars, except where indicated) Cash provided by operating activities Earnings Adjustments Amortization Restructuring and impairment charges Finance expense, net Foreign exchange (gain) loss Export duty Retirement benefit expense Contributions to retirement benefit plans Tax provision Income taxes paid Other Changes in non-cash working capital Receivables Inventories Prepaid expenses Payables and accrued liabilities Cash used for financing activities Repayment of long-term debt Repayment of lease obligations Make-whole premium paid Finance expense paid Financing fees paid 75 Years Ended December 31, December 31, Note 2022 2021 $ 1,975 $ 2,947 16 17 26 13 13 19 589 60 3 (28) (99) 103 (76) 618 (982) (11) 140 20 (6) (99) 584 — 45 5 14 111 (77) 951 (946) (13) 5 (139) (14) 79 2,207 3,552 — (14) — (23) — (667) (9) (60) (37) (4) Repurchase of Common shares for cancellation 14 (1,990) (1,319) Issuance of Common shares Dividends paid Cash used for investing activities Acquired cash and cash equivalents from Norbord Acquisition1 Angelina Acquisition, net of cash acquired Additions to capital assets Interest received Other Change in cash and cash equivalents Foreign exchange effect on cash and cash equivalents Cash and cash equivalents - beginning of period Cash and cash equivalents - end of period — (99) 7 (75) (2,126) (2,164) 3 3 — — (477) 17 1 (459) (378) (28) 1,568 1,162 $ $ 642 (302) (635) 2 7 (286) 1,102 5 461 1,568 1. The Norbord Acquisition was a non-cash share consideration transaction and therefore only the acquired cash is included in the cash flow statement. Changes in Norbord’s cash position subsequent to February 1, 2021 are incorporated into the cash flow statement. -9- 76 West Fraser Timber Co. Ltd. Notes to Consolidated Financial Statements For the years ended December 31, 2022 and 2021 (figures are in millions of United States dollars, except where indicated) 1. Nature of operations West Fraser Timber Co. Ltd. ("West Fraser", the “Company”, "we", "us" or "our") is a diversified wood products company with more than 60 facilities in Canada, the United States (“U.S.”), the United Kingdom (“U.K.”), and Europe. From responsibly sourced and sustainably managed forest resources, the Company produces lumber, engineered wood products (OSB, LVL, MDF, plywood, and particleboard), pulp, newsprint, wood chips, other residuals and renewable energy. West Fraser’s products are used in home construction, repair and remodelling, industrial applications, papers, tissue, and box materials. Our executive office is located at 885 West Georgia Street, Suite 1500, Vancouver, British Columbia. West Fraser was formed by articles of amalgamation under the Business Corporations Act (British Columbia) and is registered in British Columbia, Canada. Our Common shares are listed for trading on the Toronto Stock Exchange (“TSX”) and on the New York Stock Exchange (“NYSE”) under the symbol WFG. 2. Basis of presentation These consolidated financial statements are prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) and were approved by our Board of Directors on February 14, 2023. Our consolidated financial statements have been prepared under the historical cost basis, except for certain items as discussed in the applicable accounting policies. Figures have been rounded to millions of dollars to reflect the accuracy of the underlying balances and as a result certain tables may not add due to rounding impacts. 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. 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. Our material subsidiaries are West Fraser Mills Ltd. and Norbord Inc. Our 50%-owned joint operations, Alberta Newsprint Company and Cariboo Pulp & Paper Company, are accounted for by recognizing our share of the assets, liabilities, revenues, and expenses related to these joint operations. Use of estimates and judgments The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual amounts could differ materially from these and other estimates, the impact of which would be recorded in future periods. Management is also required to exercise judgment in the process of applying accounting policies. Information about the significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes: • • • • • Note 2 – Determination of functional currency Note 3 – Fair value of PPE and intangible assets acquired in business combinations Note 5 – Valuation of inventories Note 6-8, 16 – Recoverability of PPE, timber licences, and other intangible assets Note 6 – Estimated useful lives of PPE • • • • • • Note 8 – Recoverability of goodwill Note 11 – Reforestation and decommissioning obligations Note 13 – Defined benefit pension plans Note 15 – Equity-based compensation Note 19 – Income taxes Note 26 – CVD and ADD duty dispute -10- Revenue recognition 77 Revenue is derived primarily from product sales and is recognized when a customer obtains control over the goods. The timing of transfer of control to customers varies depending on the individual terms of the sales contract and typically occurs when the product is loaded on a common carrier at our mill, loaded on an ocean carrier, or delivered to the customer. The amount of revenue recognized is net of our estimate for early payment discounts and volume rebates. Revenue includes charges for freight and handling. The costs related to these revenues are recorded in freight and other distribution costs. Reporting currency and foreign currency translation The consolidated financial statements are presented in USD, which is determined to be the functional currency of our U.S. operations and the majority of our Canadian operations. For these entities, all transactions not denominated in our U.S. functional currency are considered to be foreign currency transactions. Foreign currency denominated monetary assets and liabilities are translated using the rate of exchange prevailing at the reporting date. Gains or losses on translation of these items are included in earnings and reported as Other. Foreign currency denominated non-monetary assets and liabilities, measured at historic cost, are translated at the rate of exchange at the transaction date. Our European operations have British pound sterling and Euro functional currencies and our jointly-owned newsprint operation has a Canadian dollar functional currency. Assets and liabilities of these entities are translated at the rate of exchange prevailing at the reporting date, and revenues and expenses at average rates during the period. Gains or losses on translation are included as a component of shareholders’ equity in accumulated other comprehensive earnings. Impairment of capital assets We assess property, plant and equipment, timber licences, and other definite-lived intangible assets for indicators of impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Impairment testing is applied to individual assets or cash generating units (“CGUs”), the smallest group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets. We have identified each of our mills as a CGU for impairment testing unless there is economic interdependence of CGUs, in which case they are grouped for impairment testing. When a triggering event is identified, the recoverability of an asset or CGU is assessed by comparing the carrying amount of the asset or CGU to the estimated recoverable amount, which is the higher of its estimated fair value less costs of disposal and its value in use. Fair value less costs of disposal is determined by ascertaining the price that would be received to sell an asset in an orderly transaction between market participants under current market conditions, less incremental costs directly attributable to the disposal. Value in use is determined using a discounted cash flow model by measuring the pre-tax cash flows expected to be generated from the asset over its estimated useful life discounted by a pre-tax discount rate. Where an impairment loss for an asset or CGU 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. 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. 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. -11- 78 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 inputs other than quoted prices that are observable for the asset or liability, directly or indirectly. Level 3 Values based on valuation techniques that require inputs which are both unobservable and significant to the overall fair value measurement. Accounting standards, amendments and interpretations issued but not yet applied Amendments to IAS 1, Presentation of Financial Statements In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The amendments clarify that the classification of liabilities as current or non-current should be based on rights that exist at the end of the reporting period. The amendments also clarify the definition of a settlement and provide situations that would be considered as a settlement of a liability. In October 2022, the IASB issued Non-current Liabilities with Covenants (Amendments to IAS 1). These further amendments clarify how to address the effects on classification and disclosure of covenants that an entity is required to comply with on or before the reporting date and covenants that an entity must comply with only after the reporting date. The amendments are effective for reporting periods beginning on or after January 1, 2024. We have not yet determined the impact that these amendments will have on our consolidated 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. 3. Business acquisitions Accounting policies Business combinations are accounted for using the acquisition method. We measure goodwill at the acquisition date as the fair value of the consideration transferred less the fair value of the identifiable assets acquired and liabilities assumed. The determination of the fair value of the assets acquired and liabilities assumed requires management to use estimates that contain uncertainty and critical judgments. Transaction costs in connection with business combinations are expensed as incurred. Valuation techniques utilized We engaged a valuations expert to assist with the determination of estimated fair value for acquired working capital, property, plant and equipment, and certain intangible assets. We applied the market comparison technique and cost technique in determining the fair value of acquired property, plant, and equipment. We considered market prices for similar assets when they were available, and depreciated replacement cost in other circumstances. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence. The key assumptions used in the estimation of depreciated replacement cost are the asset’s estimated replacement cost at the time of acquisition and estimated useful life. We applied the multi-period excess earnings method in determining the fair value of the customer relationship intangible recognized in the Norbord Inc. (“Norbord”) and Angelina Forest Products acquisitions. The multi-period excess earnings method considers the present value of incremental after-tax cash flows expected to be generated by the customer relationship after deducting contributory asset charges. The key assumptions used in applying the valuation technique include: the forecasted revenues relating to the acquiree’s existing customers at the time of acquisition, the forecasted attrition rates relating to these customers, forecasted operating margins, and discount rate. -12- Supporting information Norbord acquisition 79 On February 1, 2021, we acquired all of the outstanding shares of Norbord. According to the terms of the Norbord acquisition, Norbord shareholders received 0.675 of a West Fraser share for each Norbord share held. The result was the issuance of 54,484,188 Common shares of West Fraser at a price of US$63.90 per share (CAD$81.94 per share) for $3,482 million. Included in the Norbord acquisition are five OSB mills in Canada, seven OSB mills in the U.S., one OSB mill, one MDF plant and two particleboard plants in the U.K., one OSB mill in Belgium, and their related corporate offices. We have incorporated the North American operations of Norbord into our Panels segment and renamed that segment North America (“NA”) Engineered Wood Products (“EWP”). This segment includes the results from North American operations for OSB, plywood, MDF, and LVL. In addition, we have identified a Europe EWP segment, which includes the results from the U.K. and Belgium operations for OSB, MDF and particleboard. The EWP segments have been separated due to differences in the operating region, customer base, operating margins and sales volumes. The Norbord Acquisition has been accounted for as an acquisition of a business in accordance with IFRS 3, Business Combinations. We have allocated the purchase price based on our estimated fair value of the assets acquired and the liabilities assumed as follows: West Fraser purchase consideration: Fair value of West Fraser shares issued Fair value of equity-based compensation instruments Fair value of net assets acquired: Cash and cash equivalents Accounts receivable Inventories Prepaid expenses Property, plant and equipment Timber licenses Other non-current assets Other intangibles Customer relationship intangible Goodwill Payables and accrued liabilities Income tax payable Current portion of reforestation and decommissioning obligations Long-term debt Other non-current liabilities Deferred income tax liabilities $ $ $ $ 3,482 24 3,506 642 232 334 12 2,088 10 6 17 470 1,339 (301) (155) (2) (720) (36) (430) 3,506 Balances that required significant fair value adjustments for purchase price accounting included inventory, property, plant and equipment, and customer relationship intangibles. The resulting goodwill and deferred income tax liabilities were also significant. -13- 80 Angelina Forest Products acquisition On December 1, 2021, we acquired the Angelina Forest Products (“Angelina Acquisition” or “Angelina”) lumber mill located in Lufkin, Texas for cash consideration of $311 million. This acquisition has been accounted for as an acquisition of a business in accordance with IFRS 3, Business Combinations. We have allocated the purchase price based on our estimated fair value of the assets acquired and the liabilities assumed as follows: West Fraser purchase consideration: Cash consideration Fair value of net assets acquired: Cash Accounts receivable Inventories Property, plant and equipment Customer relationship intangible Goodwill Payables and accrued liabilities $ $ $ 311 8 7 11 213 21 58 (7) 311 Through the process of finalizing the purchase price allocation during the quarter ended March 31, 2022, we reclassified $21 million from goodwill to customer relationship intangible asset. 4. Cash and cash equivalents Accounting policies Cash and cash equivalents consist of cash on deposit and short-term interest-bearing securities maturing within three months of the date of purchase. Supporting information As at Cash Cash equivalents 5. Inventories Accounting policies $ December 31, 2022 706 $ 456 1,162 $ December 31, 2021 847 721 1,568 $ Inventories are valued at the lower of cost and net realizable value, with cost determined on an average cost basis. The cost of finished goods inventories includes direct material, direct labour, and an allocation of overhead. Supporting information As at Manufactured products Logs and other raw materials Materials and supplies -14- December 31, 2022 428 $ 376 228 1,032 $ December 31, 2021 446 412 203 1,061 $ $ Inventories at December 31, 2022 were subject to a valuation reserve of $61 million (December 31, 2021 - $6 million) to reflect net realizable value being lower than cost. 81 The carrying amount of inventory recorded at net realizable value was $232 million at December 31, 2022 (December 31, 2021 - $42 million), with the remaining inventory recorded at cost. 6. Property, plant and equipment Accounting policies Property, plant and equipment are recorded 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 derecognized and any resulting 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 - 25 years 3 - 10 years Not exceeding 40 years 1 - 2 years 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 construction-in-progress balance is transferred to the appropriate category of property, plant and equipment, and depreciation commences. -15- 82 Supporting Information Manufacturing plant, equipment and machinery Construction- in-progress Roads and bridges Other Total As at December 31, 2020 Acquisitions (note 3) Additions2 Amortization1 Foreign exchange Disposals Transfers As at December 31, 2021 As at December 31, 2021 Cost Accumulated amortization Net As at December 31, 2021 Additions Amortization1 Impairment (note 16) Foreign exchange Disposals Transfers As at December 31, 2022 As at December 31, 2022 Cost Accumulated amortization Net $ $ $ $ $ $ $ $ 1,449 $ 2,163 472 (497) (8) (4) 176 3,751 $ 6,500 $ (2,749) 3,751 $ 3,751 $ 117 (494) (43) (37) (3) 229 3,520 $ 6,702 $ (3,182) 3,520 $ 138 $ 118 173 — (1) — (176) 252 $ 252 $ — 252 $ 252 $ 343 — (3) (2) (2) (229) 359 $ 359 $ — 359 $ 37 $ — 17 (13) — — — 41 $ 140 $ (99) 41 $ 41 $ 16 (13) — — — — 44 $ 157 $ (113) 44 $ 33 $ 20 3 — — — — 56 $ 62 $ (6) 56 $ 56 $ 6 — (2) (1) — — 59 $ 65 $ (6) 59 $ 1,657 2,301 665 (510) (9) (4) — 4,100 6,954 (2,854) 4,100 4,100 482 (507) (48) (40) (5) — 3,982 7,283 (3,301) 3,982 1. Amortization of $499 million relates to cost of products sold and $8 million relates to selling, general and administration expense (2021 - $506 million and $4 million, respectively). 2. Manufacturing plant, equipment and machinery additions for the year ended December 31, 2021 include $276 million relating to the acquisition of the idled OSB mill near Allendale, South Carolina. 7. Timber licences Accounting policies Timber licences, which are renewable or replaceable, are recorded at historical cost, less accumulated amortization and impairment losses. Timber licences are amortized on a straight-line basis over their estimated useful lives of 40 years. -16- Supporting information 83 As at December 31, 2020 Acquisitions (note 3) Additions Amortization1 As at December 31, 2021 As at December 31, 2021 Cost Accumulated amortization Net As at December 31, 2021 Amortization1 As at December 31, 2022 As at December 31, 2022 Cost Accumulated amortization Net 1. Amortization relates to cost of products sold. 8. Goodwill and other intangibles Accounting policies Timber licences 372 $ 10 2 (16) 368 $ $ $ $ $ $ $ 641 (273) 368 368 (17) 351 641 (290) 351 Goodwill represents the excess purchase price paid for a business acquisition over the fair value of the net assets acquired. Goodwill is tested annually for impairment at December 31, or more frequently if an indicator of impairment is identified. The customer relationship intangible asset relates to the Norbord and Angelina Forest Products acquisitions and are amortized straight-line over 3 - 10 years. Other intangibles are recorded 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 volumes are logged. Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination from which it arose. The allocation is based on the lowest level at which goodwill is monitored internally. Recoverability of goodwill is assessed by comparing the carrying value of the CGU or group of CGUs associated with the goodwill balance to its estimated recoverable amount, which is the higher of its estimated fair value less costs of disposal and its value in use. An impairment write-down is recorded if the carrying value exceeds the estimated recoverable amount. Goodwill impairment losses cannot be reversed. -17- 84 Supporting information As at December 31, 2020 Acquisitions (note 3) Additions Amortization1 Foreign exchange Disposals As at December 31, 2021 As at December 31, 2021 Cost Accumulated amortization Net As at December 31, 2021 Amortization1 Foreign exchange Finalization of purchase price allocation on Angelina acquisition (note 3) Other As at December 31, 2022 As at December 31, 2022 Cost Accumulated amortization Net Goodwill Customer Relationship Intangible Other Total $ $ $ $ $ $ $ $ 559 $ 1,417 — — (1) — 1,975 $ 1,975 $ — 1,975 $ 1,975 $ — (11) (20) — 1,944 $ 1,944 $ — 1,944 $ — $ 470 — (43) (1) — 426 $ 469 $ (43) 426 $ 426 $ (54) (3) 21 — 390 $ 486 $ (96) 390 $ 32 $ 17 7 (15) — (2) 39 $ 79 $ (40) 39 $ 39 $ (11) (1) — (3) 24 $ 74 $ (50) 24 $ 591 1,904 7 (58) (2) (2) 2,440 2,523 (83) 2,440 2,440 (65) (15) 1 (3) 2,358 2,504 (146) 2,358 1. Amortization of $65 million relates to selling, general and administration expense (2021 - amortization of $1 million relates to cost of products sold and amortization of $57 million relates to selling, general and administration expense). Goodwill For the purposes of impairment testing, goodwill has been allocated to the following CGU groups: As at Canadian lumber US lumber North America EWP Europe EWP Total $ December 31, 2022 171 $ 409 1,280 84 1,944 $ December 31, 2021 171 429 1,280 95 1,975 $ The recoverable amounts of the above CGU groups were determined based on their value in use using discounted cash flow models. Cash flow forecasts were based on internal estimates for 2023 and 2024 and estimated mid-cycle earnings for subsequent years. Key assumptions include production volume, product pricing, raw material input cost, production cost, terminal multiple, and discount rate. Key assumptions were determined using external sources and historical data from internal sources. Specifically, product pricing has been estimated by reference to average historical prices as well as third-party analyst projections of long-term product pricing. Pre-tax discount rates used ranged from 9.60% to 10.30% (2021 - 11.30% to 13.10%). -18- The estimated recoverable amounts of the CGU groups exceeded their respective carrying amounts and as such, no impairment losses were recognized for the year ended December 31, 2022 (2021 - nil). 85 9. Other assets As at Retirement assets Interest rate swap contracts Other 10. Payables and accrued liabilities As at Trade accounts Accruals on capital spending Customer rebates accruals Equity-based compensation Compensation Export duties Dividends Interest Current portion of lease obligations Accrued sales and city taxes Other 11. Other liabilities As at Retirement liabilities Long-term portion of reforestation Long-term portion of decommissioning Long-term portion of lease obligations Export duties Electricity swaps Interest rate swap contracts Other Note 13 12 Note 15 26 December 31, 2022 132 $ 12 31 175 $ December 31, 2021 27 — 31 58 $ $ December 31, 2022 359 $ 45 27 45 152 4 25 5 11 19 30 722 $ December 31, 2021 411 52 51 69 172 11 21 4 11 26 20 848 $ $ December 31, 2022 Note December 31, 2021 168 59 25 18 69 — 1 20 360 77 $ 55 15 26 73 4 — 18 268 $ 13 $ 26 23 12 $ Reforestation and decommissioning obligations 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. -19- 86 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 accreted over time through charges to finance expense and reduced by silviculture expenditures. Changes to estimates are credited or charged to earnings. We record a liability for decommissioning obligations in the period a reasonable estimate can be made. The liability is determined using estimated closure and/or remediation costs and discounted using an appropriate discount rate. On initial recognition, the carrying value of the liability is added to the carrying amount of the associated asset and amortized over its useful life or expensed when there is no related asset. The liability is accreted over time through charges to finance expense and reduced by actual costs of settlement. 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. Supporting information Beginning of year Norbord Acquisition Liabilities recognized Liabilities settled Foreign exchange End of year Less: current portion Note 3 $ $ Reforestation 2022 Decommissioning 2021 2022 97 $ — 51 (49) (6) 93 (38) 55 $ 88 $ 5 53 (49) — 97 (38) 59 $ 33 $ — 5 (1) (2) 35 (20) 15 $ 2021 28 — 5 (1) 1 33 (8) 25 The total undiscounted amount of the estimated cash flows required to satisfy these obligations is $159 million (December 31, 2021 - $133 million). The cash flows have been discounted using interest rates ranging from 3.27% to 5.51% (2021 - 0.95% to 1.25%). The timing of the reforestation payments is based on the estimated period required to ensure the associated areas are well established and attain free to grow status, 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 50 years. 12. Operating loans and long-term debt Accounting policies Transaction costs related to debt financing or refinancing are deferred and amortized over the life of the associated debt. When our operating loan is undrawn, the related deferred financing costs are recorded in other assets. Supporting information Operating loans As at December 31, 2022, our credit facilities consisted of a $1 billion committed revolving credit facility which matures July 2026, $35 million of uncommitted revolving credit facilities available to our U.S. subsidiaries, a $18 million (£15 million) credit facility dedicated to our European operations, and a $10 million (CAD$13 million) demand line of credit dedicated to our jointly-owned newsprint operation. As at December 31, 2022, our revolving credit facilities were undrawn (December 31, 2021 - undrawn) and the associated deferred financing costs of $1 million (December 31, 2021 - $1 million) were recorded in other assets. Interest on the facilities is payable at floating rates based on Prime, Base Rate Advances, Bankers’ Acceptances, or London Inter-Bank -20- Offered Rate (“LIBOR”) Advances at our option. Our $1 billion committed revolving credit facility contains transition provisions relating to the elimination of LIBOR whereby Secured Overnight Financing Rate (“SOFR”) can be elected by mutual consent with the lenders. 87 In addition, we have credit facilities totalling $131 million (December 31, 2021 - $137 million) dedicated to letters of credit. Letters of credit in the amount of $61 million (December 31, 2021 - $65 million) were supported by these facilities. All debt is unsecured except the $10 million (CAD$13 million) jointly-owned newsprint operation demand line of credit, which is secured by that joint operation’s current assets. As at December 31, 2022, we were in compliance with the requirements of our credit facilities. Long-term debt As at Senior notes due October 2024; interest at 4.35% Term loan due August 2024; floating interest rate Notes payable Less: deferred financing costs Less: current portion December 31, 2022 300 $ 200 — 500 (1) — 499 $ December 31, 2021 300 200 1 501 (2) — 499 $ $ As part of the Norbord Acquisition, we assumed Norbord’s $315 million senior notes due April 2023 (the “2023 Notes”), bearing interest at 6.25% and $350 million senior notes due July 2027 (the “2027 Notes”), bearing interest at 5.75%. The purchase price fair value adjustment resulted in an increase of $55 million for these notes. On March 2, 2021, we made a mandatory change of control offer for 2023 Notes and 2027 Notes, which expired on April 1, 2021. As a result of the change of control offer, $1 million of the 2023 Notes and $1 million of the 2027 Notes were redeemed and were repaid in the second quarter of 2021. On April 6, 2021, we elected to redeem the remaining 2027 Notes, which redemption occurred on May 6, 2021. On May 6, 2021, we elected to redeem the remaining 2023 Notes, which redemption occurred on June 7, 2021. After the completion of the redemptions of the 2023 Notes and the 2027 Notes, the principal value of long-term debt was reduced by $665 million from the date of the Norbord Acquisition. An additional make-whole premium of $60 million was paid on redemption resulting in a $5 million loss on settlement of the debt recorded within finance expense as the carrying value of $720 million was derecognized. Required principal repayments are disclosed in note 23. Interest rate swap contracts At December 31, 2022, we had interest rate swap contracts to pay fixed interest rates (weighted average interest rate of 1.14%) and receive variable interest rates equal to 3-month LIBOR on $200 million notional principal amount of indebtedness. These interest rate swap agreements fix the interest rate on the $200 million term loan disclosed in the long-term debt table above. These agreements mature in August 2024. The interest rate swap contracts are accounted for as a derivative, with the related changes in the fair value included in Other on the consolidated statement of earnings. For the year ended December 31, 2022, a gain of $13 million (year ended December 31, 2021 - gain of $6 million) was recognized in relation to the interest rate swap contracts. The fair value of the interest rate swap contracts at December 31, 2022 was an asset of $12 million (December 31, 2021 - liability of $1 million). 13. Retirement benefits We maintain defined benefit and defined contribution pension plans covering most 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 -21- 88 commencement of retirement. We also provide group life insurance, medical and extended health benefits to certain employee groups. The defined benefit pension plans are operated in Canada, the U.S., and Europe under broadly similar regulatory frameworks. The majority are funded arrangements where benefit payments are made from plan assets that are held in trust. Responsibility for the governance of certain of the plans, including investment and contribution decisions, resides with our Retirement Committees, Human Resources & Compensation Committee of the Board of Directors, and 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. Starting January 1, 2022, defined benefit pension plans for certain employee groups were closed to new entrants and were replaced by defined contribution plans. Accounting policies We record a retirement asset or liability for our employee defined benefit pension and other retirement benefit plans by netting our plan assets with our plan obligations, on a plan-by-plan basis. The cost of defined benefit pensions and other retirement benefits earned by employees is actuarially determined using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using market yields from high quality corporate bonds with cash flows that approximate expected benefit payments at the balance sheet date. Plan assets are valued at fair value at each balance sheet date. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity through 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 retirement balances is classified as finance expense. A gain or loss on settlement is recognized in earnings, calculated as the difference between the present value of the defined benefit obligation being settled, as determined on the date of settlement, and the settlement amount. 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 2022 was a loss of $138 million (2021 - gain of $132 million). The total pension expense for the defined benefit pension plans was $71 million (2021 - $89 million). In 2022, we made contributions to our defined benefit pension plans of $39 million (2021 - $46 million). We expect to make cash contributions of approximately $36 million to our defined benefit pension plans during 2023 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 $1 million in 2022 (2021 - $1 million). In 2022, we entered into buy-out annuity purchase agreements to settle $82 million (2021 - $215 million) of our defined benefit obligations by purchasing annuities using our plan assets. These agreements transferred the pension obligations of retired employees under certain pension plans to financial institutions. The difference between the cost of the annuity purchase and the liabilities held for these pension plans was reflected as a settlement cost in other income (expense). In 2022, as part of the process related to the annuitization of our U.K. defined benefit pension plan, we entered into a $15 million (£13 million) investment contract with an insurer. Future cash inflows from the investment contract will match the cash flows of the outgoing benefit payments made by the pension plan, substantially mitigating the exposure to future volatility in the related pension obligations. We plan to complete the buy-out of the defined benefit obligations upon completion of certain normal-course administrative processes. -22- The status of the defined benefit pension plans and other retirement benefit plans, in aggregate, is as follows: 89 Defined benefit pension plans Other retirement benefit plans 2022 2021 2022 2021 Accrued benefit obligations Benefit obligations - opening Norbord Acquisition (note 3) Service cost Finance cost on obligation Benefits paid Actuarial (gain) loss due to change in financial assumptions Actuarial (gain) loss due to demography/experience Settlement Foreign exchange1 Benefit obligations - ending Plan assets Plan assets - opening Norbord Acquisition (note 3) Finance income on plan assets Actual return on plan assets, net of finance income Employer contributions Benefits paid Settlement Other Foreign exchange1 Plan assets - ending Funded status2 Retirement assets Impact of asset ceiling adjustments3 Retirement assets (note 9) Retirement liabilities (note 11) $ $ $ $ $ $ $ 1,355 $ — 59 41 (56) (408) 3 (82) (74) 838 $ 1,239 $ — 36 (174) 39 (56) (87) (2) (68) 927 $ 148 $ (16) 132 $ (59) 73 $ 1,443 $ 165 68 43 (54) (101) (2) (215) 8 1,355 $ 1,181 $ 155 36 96 46 (54) (227) (3) 9 1,239 $ 29 $ (2) 27 $ (145) (118) $ 23 $ — — 1 (1) (4) — — (1) 18 $ — $ — — — 1 (1) — — — — $ — $ — — $ (18) (18) $ 28 1 — 1 (1) (2) (4) — — 23 — — — — 1 (1) — — — — — — — (23) (23) 1. 2. 3. Foreign currency translation relates to the foreign exchange impact of translating assets and liabilities of certain plans to U.S. dollars. Plans in a surplus position are presented as assets and plans in a deficit position are presented as liabilities on the consolidated balance sheets. Other retirement benefit plans continue to be unfunded. Certain of our plans have a surplus that is not recognized on the basis that future economic benefits may not be available to us in the form of a reduction in future contributions or a cash refund. Expense Service cost Administration fees Settlement Net finance expense Defined benefit pension plans 2022 2021 Other retirement benefit plans 2022 2021 59 $ 3 5 4 71 $ 68 $ 2 12 7 89 $ — $ — — 1 1 $ — — — 1 1 $ $ -23- 90 Assumptions and sensitivities At December 31, 2022, the weighted average duration of the defined benefit pension obligations is 17 years (December 31, 2021 - 20 years). The projected future benefit payments for the defined benefit pension plans at December 31, 2022 are as follows: Defined benefit pension plans $ 37 $ 33 $ 111 $ 1,878 $ 2,059 2023 2024 2025 to 2027 Thereafter Total Key assumptions used in determining defined benefit pension and other retirement pension benefit obligations include assumed rates of increase for future employee compensation and discount rates. These estimates are determined with the assistance of independent actuarial specialists. The significant actuarial assumptions used to determine our balance sheet date retirement assets and liabilities and our retirement benefit plan expenses are as follows: Benefit obligations: Discount rate Future compensation rate increase Benefit expense: Discount rate - beginning of year Future compensation rate increase Defined benefit pension plans Other retirement benefit plans 2022 2021 2022 2021 5.17% 3.53% 3.03% 3.60% 3.03% 3.60% 2.69% 3.65% 5.10% n/a 3.08% n/a 3.08% n/a 2.70% n/a Health-care benefit costs, shown under other retirement benefit plans, are funded on a pay-as-you-go basis. The impact of a change in these assumptions on our retirement obligations as at December 31, 2022 is as follows: Discount rate - 0.50% change Compensation rate - 0.50% change Increase Decrease $ $ (72) $ 19 $ 72 (19) 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 determine the retirement assets and liabilities. Plan Assets The assets of the defined benefit 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 2022 26% 30% 30% 14% 100% 2021 16% 39% 33% 12% 100% Target range 2% - 30% 15% - 57% 20% - 55% 0% - 34% -24- Risk management practices 91 We are exposed to various risks related to our defined benefit pension and other retirement benefit plans: • • • Uncertainty in benefit payments: The value of the liability for 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 life expectancy. 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. Defined contribution plans The total pension expense and funding contributions for the defined contribution pension plans for 2022 was $36 million (2021 - $29 million). 14. Share capital Authorized 400,000,000 Common shares, without par value 20,000,000 Class B Common shares, without par value 10,000,000 Preferred shares, issuable in series, without par value Issued Common Class B Common Total Common December 31, 2022 December 31, 2021 Number 81,273,936 2,281,478 83,555,414 $ $ Amount 2,667 — 2,667 Number 103,647,256 2,281,478 105,928,734 $ $ Amount 3,402 — 3,402 For the year ended December 31, 2022, we issued no Common shares under our share option plans (2021 - 131,452 Common shares) and no Common shares under our employee share purchase plan (2021 - 2,946 Common shares). Rights and restrictions of Common shares 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. Our Common shares are listed for trading on the TSX and NYSE under the symbol WFG, 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. -25- 92 Share repurchases Normal Course Issuer Bid On February 23, 2022, we renewed our normal course issuer bid (“NCIB”) allowing us to acquire up to 10,194,000 Common shares for cancellation until the expiry of the bid on February 22, 2023. As of December 31, 2022, we had repurchased and cancelled all 10,194,000 Common shares available under the 2022 NCIB. For the year ended December 31, 2022, we repurchased 10,475,115 Common shares at an average price of $82.01 per share under our NCIB programs (year ended December 31, 2021 - 7,059,196 Common shares at an average price of $74.60). 2022 Substantial Issuer Bid On June 7, 2022, we completed a substantial issuer bid (“2022 SIB”) pursuant to which we purchased for cancellation a total of 11,898,205 Common shares at a price of $95.00 per share for an aggregate purchase price of $1.13 billion. 2021 Substantial Issuer Bid On August 20, 2021, we completed a substantial issuer bid (“2021 SIB”) pursuant to which we purchased for cancellation a total of 10,309,278 Common shares at a price of CAD$97.00 (US$76.84) per Common share for an aggregate purchase price of CAD$1.0 billion. 15. Equity-based compensation We have share option, phantom share unit (“PSU”) and directors’ deferred share unit (“DSU”) plans. The equity-based compensation expense included in the consolidated statement of earnings for the year ended December 31, 2022 was $5 million (2021 - $40 million). Accounting policies We estimate the fair value of outstanding share options using the Black-Scholes option-pricing 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 or recovery to earnings. Equity derivative contracts are sometimes used 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 8,295,940 Common shares, of which 910,424 remain available for issuance. Our share option plans include equity-based plans assumed from Norbord as part of the Norbord Acquisition. The assumed Norbord share purchase option plans (“Assumed Option Plans”) were fair valued at the Norbord Acquisition date. From February 1 to April 20, 2021, the Assumed Option Plans were accounted for as equity-settled plans. On April 20, 2021, our Board of Directors approved a change to allow the Assumed Option Plans holders the right to elect to receive a cash payment in lieu of exercising an option to purchase Common shares. The change required us to fair value the Assumed Option Plan on April 20, 2021 and convert from equity-settled accounting to cash-settled accounting for the Assumed Option Plans. Cash-settled accounting is consistent with the West Fraser option plan. Any changes in fair value from April 20, 2021 onwards resulted in an expense or recovery over the vesting period in the same manner as the rest of -26- our option plans. This change to the Assumed Option Plans did not in any way affect the value of the instruments to the holders. No additional options may be offered under the Assumed Option Plans. 93 The exercise price of a share option is determined in accordance with the plan and is generally the closing price of a Common share on the trading day immediately preceding the grant date. Our share option plans give the 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 20% per year from the grant date and expire after 10 years. In 2022, we have recorded a recovery of $4 million (2021 – expense of $47 million) related to the share option plans. The liability associated with the share option plan is tracked in Canadian dollars and is based on prices published by the TSX. A summary of the activity in the share option plans based on Canadian dollar prices is presented below: Outstanding - beginning of year Assumed in Norbord Acquisition (note 3) Granted Exercised Expired / Cancelled Outstanding - end of year Exercisable - end of year 2022 2021 Number Weighted average price (CAD$) Number Weighted average price (CAD$) 1,077,840 $ 66.64 — 124,566 (351,448) (9,653) 841,305 $ 408,115 $ — 123.63 62.83 108.40 76.19 62.71 1,316,994 $ 887,961 171,975 (1,284,284) (14,806) 1,077,840 $ 563,102 $ 53.64 51.85 92.79 46.43 92.79 66.64 61.50 The following table summarizes information about the share options outstanding and exercisable at December 31, 2022 in Canadian dollars: Exercise price range (CAD$) $38.95 - $56.00 $64.50 - $73.99 $85.40 - $92.79 $123.63 Number of outstanding options (number) 243,412 284,745 193,467 119,681 841,305 Weighted average remaining contractual life (years) 4.4 6.0 7.3 9.1 6.3 Weighted average exercise price Number of exercisable options Weighted average exercise price (CAD$) (number) (CAD$) $ $ 49.59 68.40 90.70 123.63 76.19 190,087 149,270 68,758 — 408,115 $ $ 48.00 69.71 88.16 n/a 62.71 The weighted average share price at the date of exercise for share options exercised during the year was CAD$120.95 per share (2021 - CAD$100.85 per share). The accrued liability related to the share option plan based on the Black-Scholes option-pricing model was $23 million at December 31, 2022 (December 31, 2021 - $44 million). The weighted average fair value of the options used in the calculation was CAD$35.59 per option at December 31, 2022 (December 31, 2021 - CAD$52.29 per option). The inputs to the option model are as follows: Weighted-average 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 -27- 2022 CAD$98.20 CAD$76.19 CAD$1.63 45.15% 3.77% 4.14 2021 CAD$120.68 CAD$66.64 CAD$1.01 42.94% 1.11% 6.44 94 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 plans at December 31, 2022 was CAD$14 million (December 31, 2021 - CAD$33 million). The intrinsic value is determined based on the difference between the weighted- average share price on the last business day of the month and the exercise price, multiplied by the sum of the related vested options. 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 volume weighted average price per Common share on the trading day 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 $10 million (2021 - expense of $11 million) related to the PSU plan. The number of units outstanding as at December 31, 2022 was 184,207 (December 31, 2021 – 169,385), including performance share units totalling 167,156 (December 31, 2021 – 90,813). Directors’ deferred share unit plans We have DSU plans which provides a structure for directors, who are not employees of the Company, to accumulate an equity-like holding in West Fraser. The DSU plans allow directors to participate in the growth of West Fraser by providing a deferred payment based on market pricing of our Common shares 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 the market price of our Common shares 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 market price of our Common shares 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 a recovery of $1 million (2021 - expense of $5 million) related to the DSU plan. The number of units outstanding as at December 31, 2022 was 97,884 (December 31, 2021 - 92,120). Equity-based compensation hedge In 2021, we were party to an equity derivative contract providing an offset for 1,000,000 Common share equivalents against our exposure to fluctuations in equity-based compensation expense from our stock option, PSU and DSU plans. The equity derivative contract matured in December 2021 and was closed out. A recovery of $23 million was included in equity-based compensation expense related to our equity derivative contract for the year ended December 31, 2021. -28- 16. Restructuring and impairment charges 95 During the quarter ended March 31, 2022, management approved a plan to permanently reduce the capacity at our pulp mill in Hinton, Alberta. One of Hinton pulp mill’s two production lines has shut, and the remaining line produces Unbleached Kraft Pulp rather than Northern Bleached Softwood Kraft Pulp. As a result, we recorded impairment charges of $13 million relating to equipment that was decommissioned permanently as part of the transition to Unbleached Kraft Pulp. During the quarter ended December 31, 2022, we identified an impairment indicator for our Perry sawmill as a result of high fibre costs and softening lumber markets. We recorded associated restructuring and impairment charges of $31 million, of which $29 million related to asset impairment of manufacturing plant, equipment and machinery. On January 10, 2023, we announced the indefinite curtailment of our Perry sawmill. During the quarter ended December 31, 2022, we identified an impairment indicator for our South Molton, England location due to a decline in demand from a key customer for our kitchen cabinet products. We recorded associated restructuring and impairment charges of $15 million, of which $9 million related to asset impairment of manufacturing plant, equipment and machinery and related spares. We recorded restructuring and impairment charges of $60 million for the year ended December 31, 2022 as follows: Severance Other Restructuring charges Asset impairment related to Hinton pulp mill Asset impairment related to Perry lumber mill Asset impairment related to South Molton mill Total restructuring and impairment charges 17. Finance expense, net Interest expense Interest income on cash equivalents Net interest income on export duty deposits Finance expense on employee future benefits 18. Other Foreign exchange gain (loss) Settlement loss on defined benefit pension plan annuity purchase Gain on interest rate swap contracts Other -29- 2022 2021 $ $ $ $ $ $ 7 $ 2 9 $ 13 $ 29 $ 9 $ 60 $ 2022 $ (24) $ 18 9 (6) (3) $ 2022 28 $ (5) 13 1 37 $ $ $ $ — — — — — — — 2021 (48) 2 9 (8) (45) 2021 (5) (12) 6 9 (2) 96 19. Tax provision Accounting policies Tax expense for the year is comprised of current and deferred tax. Tax expense is recognized in the consolidated statement of earnings, except to the extent that it relates to items recognized in other comprehensive earnings in which case it is recognized in other comprehensive earnings. Deferred taxes are provided for using the liability method. Under this method, deferred taxes are recognized for temporary differences between the tax and financial statement basis of assets, liabilities and certain carry-forward items. Deferred tax assets are recognized only to the extent that it is probable that they will be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of substantive enactment. Supporting information The major components of income tax included in comprehensive earnings are as follows: Earnings: Current tax Deferred tax (provision) recovery Tax provision on earnings Other comprehensive earnings: Deferred tax provision on retirement benefit actuarial gain Tax provision on comprehensive earnings 2022 (581) $ (37) (618) $ 2021 (977) 26 (951) (56) $ (674) $ (52) (1,003) $ $ $ $ The tax provision differs from the amount that would have resulted from applying the British Columbia statutory income tax rate to earnings before tax as follows: Income tax expense at statutory rate of 27% Non-taxable amounts Rate differentials between jurisdictions and on specified activities Other Tax provision $ $ 2022 (700) $ 81 10 (9) (618) $ 2021 (1,052) (4) 116 (11) (951) -30- Deferred income tax liabilities (assets) are made up of the following components: 97 Property, plant, equipment and intangibles Reforestation and decommissioning obligations Employee benefits Export duty deposits Tax loss carry-forwards1 Other Represented by: Deferred income tax assets Deferred income tax liabilities $ $ $ $ 2022 783 $ (30) (12) 72 (11) (11) 791 $ (4) $ 795 791 $ 2021 781 (30) (64) 44 (10) (17) 704 (8) 712 704 1. Includes $61 million for net operating loss carry-forwards in various jurisdictions (December 31, 2021 - $68 million) and $345 million for U.S. state net operating loss carry-forwards (December 31, 2021 - $409 million). A portion of these losses expire over various periods starting in 2023. The net operating losses that have not been recognized as of December 31, 2022 are $35 million in various jurisdictions (December 31, 2021 - $53 million) and $272 million for U.S. states (December 31, 2021 - $287 million). 20. Employee compensation Our employee compensation expense includes salaries and wages, employee future benefits, bonuses and termination costs, but excludes restructuring charges. Total compensation expense is $1,133 million (2021 - $1,070 million). Key management includes directors and officers, and their compensation expense and balance sheet date payables are as follows: Expense Salary and short-term employee benefits Retirement benefits Equity-based compensation1 1. Amounts do not necessarily represent the actual value which will ultimately be paid. Payables and accrued liabilities Compensation Equity-based compensation1 1. Amounts do not necessarily represent the actual value which will ultimately be paid. 21. Earnings per share 2022 2021 13 $ 2 4 19 $ 17 2 36 55 2022 2021 6 $ 35 41 $ 7 46 53 $ $ $ $ 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. Certain of our equity-based compensation plans may be settled in cash or Common shares at the holder’s option and for the purposes of calculating diluted earnings per share, the more dilutive of the cash-settled and equity-settled method is used, regardless of how the plan is accounted for. Plans that are accounted for using the cash-settled method will require adjustments to the numerator and denominator if the equity-settled method is determined to have a dilutive effect as compared to the cash-settled method. -31- 98 The numerator under the equity-settled method is calculated based on earnings available to Common shareholders adjusted to remove the cash-settled equity-based compensation expense (recovery) charged to earnings and deducting a notional charge using the equity-settled method, as set out below. Adjustments to earnings are tax-effected as applicable. The denominator under the equity-settled method is calculated using the treasury stock method. Share options under the equity-settled method are considered dilutive when the average market price of our Common shares for the period exceeds the exercise price of the share option. The equity-settled method was more dilutive for the year ended December 31, 2022 and an adjustment was required for both the numerator and denominator. The cash-settled method was more dilutive for the year ended December 31, 2021. A reconciliation of the numerator and denominator used for the purposes of calculating diluted earnings per share is as follows: Earnings Numerator for basic EPS Cash-settled recovery included in earnings Equity-settled expense adjustment Numerator for diluted EPS Weighted average number of shares (thousands) Denominator for basic EPS Effect of dilutive equity-based compensation Denominator for diluted EPS Earnings per share (dollars) Basic Diluted 22. Government assistance Accounting policies 2022 2021 $ $ 1,975 $ (5) (5) 1,965 $ 2,947 — — 2,947 93,760 413 94,173 109,021 — 109,021 $ $ 21.06 $ 20.86 $ 27.03 27.03 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 nil (2021 - $5 million) was recorded as a reduction to property, plant and equipment and $9 million (2021 - $8 million) was recorded as a reduction to cost of products sold. The government assistance related primarily to research and development, apprenticeship tax credits, and renewable heat incentives. 23. 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”). -32- Supporting information 99 The following tables provide the carrying values 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”. The carrying value is a reasonable approximation of fair value for cash and cash equivalents, receivables, and payables and accrued liabilities due to their short-term nature. The carrying values of long-term debt include any current portions and exclude deferred financing costs. December 31, 2022 Financial assets Cash and cash equivalents Receivables 2 Interest rate swaps (note 9 & 12) Financial liabilities Payables and accrued liabilities 1 Long-term debt (note 12) Electricity swaps (note 11) Financial assets at amortized cost Level Financial assets or financial liabilities at FVTPL Financial liabilities at amortized cost Carrying value Fair value 2 3 2 3 2 3 $ $ $ $ $ 1,162 $ 350 — $ 1,512 $ — $ — — — $ — $ — 12 $ 12 $ — $ — 4 4 $ — $ — — $ — $ 722 $ 500 — 1,222 $ 1,162 $ 350 12 $ 1,524 $ 722 $ 500 4 1,226 $ 1,162 350 12 1,524 722 491 4 1,217 1. 2. The fair value of long-term debt is based on rates available to us at December 31, 2022 for long-term debt with similar terms and remaining maturities. The interest rate swap contracts are included in other assets in our consolidated balance sheets. December 31, 2021 Financial assets Cash and cash equivalents Receivables Financial liabilities Payables and accrued liabilities Long-term debt (note 12)1 2 Interest rate swaps (note 9 & 12) Financial assets at amortized cost Level Financial assets or financial liabilities at FVTPL Financial liabilities at amortized cost Carrying value Fair value 2 3 3 2 2 $ $ $ $ 1,568 $ 508 2,076 $ — $ — — — $ — $ — — $ — $ — 1 1 $ — $ — — $ 1,568 $ 508 2,076 $ 848 $ 501 — 1,349 $ 848 $ 501 1 1,350 $ 1,568 508 2,076 848 513 1 1,362 1. 2. The fair value of long-term debt is based on rates available to us at December 31, 2021 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. Financial risk management Our activities result in exposure to a variety of financial risks, and the main objectives of our risk management process are to ensure risks are properly identified and analyzed and establish appropriate risk limits and controls. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and our activities. We are exposed to credit risk, liquidity risk and market risk. A description of these risks and policies for managing these risks are summarized below. -33- 100 The sensitivities provided in this section 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. Credit risk Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations. We are exposed to credit risk with respect to cash and cash equivalents and accounts receivable from our customers. The carrying amounts of these accounts represent the maximum credit exposure. We manage credit risk by holding cash and cash equivalents with major banks of high creditworthiness. Credit risk for trade and other receivables is managed through established credit monitoring activities such as: • • • Establishing and monitoring customer credit limits; Performing ongoing evaluations of the financial conditions of key customers; and In certain market areas, undertaking additional measures to reduce credit risk including credit insurance, letters of credit and prepayments. At December 31, 2022, approximately 45% of trade accounts receivable was covered by at least some of these additional measures (December 31, 2021 - 35%). Given our credit monitoring activities, the low percentage of overdue accounts and our history of minimal customer defaults, we consider the credit quality of the trade accounts receivable at December 31, 2022 to be high and have recorded nominal expected credit losses on our trade accounts receivable. The aging analysis of trade accounts receivable is presented below: As at Trade accounts receivable Current Past due 1 to 30 days Past due 31 to 60 days Past due over 60 days Trade accounts receivable Insurance receivable Government assistance Sales taxes receivable Other Receivables Liquidity risk December 31, 2022 December 31, 2021 $ $ $ 256 $ 19 9 2 286 $ 3 — 22 39 350 $ 403 30 3 5 441 6 1 28 32 508 Liquidity risk is the risk we will encounter difficulty in meeting obligations associated with financial liabilities. We manage liquidity risk by maintaining adequate cash and cash equivalents balances and having lines of credit available. In addition, we regularly monitor forecasted and actual cash flows. Refinancing risks are managed by extending maturities through regular renewals and refinancing when market conditions are supportive. -34- The following table summarizes the maturity profile of our financial liabilities based on contractual undiscounted payments: 101 December 31, 2022 Long-term debt Interest on long-term debt1 Lease obligations Payables and accrued liabilities Electricity swaps Total Carrying value Total 2023 2024 2025 2026 $ 499 $ — 37 722 500 $ 33 42 722 4 $ 1,262 $ 7 $ 1,304 $ $ — $ 19 12 722 (1) $ 752 $ 500 $ 14 8 — (2) $ 520 $ — $ — 7 — (1) $ 6 $ Thereafter — — 12 — 10 22 — $ — 3 — 1 $ 4 $ 1. Assumes debt remains at December 31, 2022 levels and includes the impact of interest rate swaps terminating August 2024. In addition, we have contractual commitments for the acquisition of of property, plant and equipment in the amount of $278 million in 2023. Market risk Market risk is the risk of loss that might arise from changes in market factors such as interest rates, foreign exchange rates, commodity, and energy prices. We aim to manage market risk within acceptable parameters and may, from time to time, use derivatives to manage market risk. Interest rates 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. As at December 31, 2022, we had the following floating rate financial instruments: Financial instrument Financial liability: Term loan Financial asset: Interest rate swap contracts Carrying value $ $ 200 12 We maintain a $200 million five-year term loan due August 2024 where the interest is payable at floating rates based on Prime, Base Rate Advances, Bankers’ Acceptances or LIBOR Advances at our option. We have interest rate swap agreements terminating August 2024 to pay fixed interest rates and receive variable interest rates equal to 3-month LIBOR on $200 million notional principal amount of indebtedness. These swap agreements fix the interest rate on the $200 million five-year term loan floating rate debt. In addition, interest on certain of our credit facilities is payable at floating rates including LIBOR at our option. At December 31, 2022, 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 (December 31, 2021 - no change). We adopted Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) (“The Phase 2 Amendments”) effective January 1, 2021. The Phase 2 Amendments provide practical relief from certain requirements in IFRS Standards relating to the modification of financial instruments, lease contracts, or hedging relationships triggered by a replacement of a benchmark interest rate in a contract with a new alternative benchmark rate. At December 31, 2022, these amendments did not affect our financial statements as we have not yet transitioned any agreements that are exposed to LIBOR or to an alternative benchmark interest rate. -35- 102 The above financial instruments are based on LIBOR settings that are currently scheduled to cease publication after June 30, 2023. We are working with the lenders associated with the term loan and the counterparties associated with the interest rate swap to assess the potential alternatives to the use of LIBOR. We will continue to monitor developments on alternative benchmark interest rates and expect to transition to alternative rates as widespread market practice is established. Energy We are party to arrangements with renewable power generators to purchase environmental attributes and receive settlements by reference to generation volumes and the spot price for power and pay settlements by reference to generation volumes and a fixed contractual price. These agreements act as a partial hedge against future electricity price increases in Alberta power rates and will provide us with access to renewable energy credits that we may surrender to achieve a reduction in our greenhouse gas emissions. While these arrangements economically hedge the risk of changes in cash flows due to fluctuations in Alberta power rates, hedge accounting has not been applied to these instruments. A contract to receive renewable energy credits and the associated floating-for-fixed electricity swap are distinct units of account. We have selected this method as we believe the receipt of the renewable energy credits is an executory contract and the electricity swap meets the definition of an embedded derivative. The electricity swaps are valued based on a discounted cash flow model, with the related changes in fair value included in other income (expense) on the consolidated statement of earnings. The valuation requires management to make certain assumptions about the model inputs, including future electricity prices, discount rates and expected generation volumes associated with the contracts. For the year ended December 31, 2022, a nominal gain was recognized in relation to the electricity swaps. The fair value of the electricity swaps at December 31, 2022 was a liability of $4 million. Currency risk We are exposed to foreign currency risk because our Canadian operations incur a portion of their operating expenses in Canadian dollars. Therefore, an increase in the value of the CAD relative to the USD increases the value of expenses in USD terms incurred by our Canadian operations, which reduces operating margin and the cash flow available to fund operations. In addition, foreign currency exposure arises from our net investment in our European operations, which have British pound sterling and Euro functional currencies, and our Canadian newsprint operation, which has a Canadian dollar functional currency. The risk arises from the fluctuation in spot rates between these currencies and the U.S. dollar, which causes the amount of the net investment to vary with the resulting translation gains or losses being reported in other comprehensive earnings. A $0.01 strengthening (weakening) of the USD against the CAD would increase (decrease) earnings by approximately $1 million. A $0.01 strengthening (weakening) of the USD against the CAD, British pound and Euro would result in an approximate $6 million translation loss (gain) on operations with different functional currencies included in other comprehensive earnings. These sensitivities assume that all other variables remain constant and ignores any impact of forecast sales and purchases. 24. 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 rating agencies commonly apply for investment-grade issuers of public debt. Our debt is currently rated as investment-grade by three major rating agencies. -36- We monitor and assess our financial performance to ensure that debt levels are prudent, taking into account the anticipated direction of the business cycle. When financing acquisitions, we combine cash on hand, 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. 103 A strong balance sheet and liquidity profile, along with our investment-grade debt rating, are key elements of our goal to maintain a balanced capital allocation strategy. Priorities within this strategy include reinvesting in our operations across all market cycles to strategically enhance productivity, product mix, and capacity; maintaining a leading cost position; maintaining financial flexibility to capitalize on growth opportunities, including the pursuit of acquisitions and larger-scale strategic growth initiatives; and returning capital to shareholders through dividends and share repurchases. Two key measurements used to monitor our capital position are total debt to total capital and net debt to total capital, calculated as follows: As at Debt Current and long-term lease obligation Long-term debt, excluding deferred financing costs Interest rate swaps1 Open letters of credit1 Total debt Shareholders’ equity Total capital Total debt to total capital Total debt Cash and cash equivalents Open letters of credit1 Interest rate swaps1 Net debt Shareholders’ equity Total capital, net of cash Net debt to total capital December 31, 2022 December 31, 2021 $ 37 $ 500 — 61 598 7,619 8,217 7% 598 (1,162) (61) — (625) $ 7,619 $ 6,994 (9%) $ $ 28 501 1 65 595 7,656 8,251 7% 595 (1,568) (65) (1) (1,039) 7,656 6,617 (16%) 1. Letters of credit facilities and the fair value of interest rate swaps are part of our bank covenants’ total debt calculation. -37- 104 25. Segment and geographical information The segmentation of manufacturing operations into lumber, NA EWP, pulp and paper and Europe EWP is based on a number of factors, including similarities in products, production processes and economic characteristics. The EWP segments have been separated due to differences in the operating region, customer base, profit margins and sales volumes. 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, and earnings before tax has been identified as the measure of segment profit and loss. Year ended December 31, 2022 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 income (expense), net Other income Earnings before tax Total assets Total liabilities Capital expenditures Lumber NA EWP Pulp & Paper Europe EWP Corporate & Other Total $ $ $ $ $ $ $ 4,381 $ 84 4,465 $ (2,489) (435) (18) (186) (194) — (31) 1,111 $ 1 5 1,117 $ 3,685 $ 553 $ 184 $ 3,780 $ 9 3,789 $ (1,677) (329) — (306) (106) — — 1,371 $ (4) 16 1,383 $ 4,637 $ 622 $ 235 $ 802 $ 5 807 $ (596) (153) — (35) (32) — (13) (22) $ (2) 1 (23) $ 456 $ 90 $ 29 $ 738 $ — 738 $ (479) (46) — (53) (28) — (15) 117 $ — — 118 $ 730 $ 170 $ 20 $ — $ (98) (98) $ 98 — — (9) (5) (5) — (18) $ 2 14 (2) $ 9,701 — 9,701 (5,142) (963) (18) (589) (365) (5) (60) 2,559 (3) 37 2,593 465 $ 919 $ 9 $ 9,973 2,354 477 -38- Year ended December 31, 2021 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 income (expense) Earnings before tax Total assets Total liabilities Capital expenditures Lumber NA EWP Pulp & Paper Europe EWP Corporate & Other Total 105 $ $ $ $ $ $ $ 4,804 $ 106 4,910 $ (2,241) (404) (146) (164) (146) — 1,809 $ (17) 2 1,794 $ 4,264 $ 9 4,273 $ (1,521) (262) — (289) (76) — 2,125 $ (3) (1) 2,121 $ 3,557 $ 668 $ 146 $ 4,154 $ 552 $ 424 $ 727 $ — 727 $ (541) (137) — (34) (34) — (19) $ (5) 2 (22) $ 448 $ 99 $ 35 $ 723 $ — 723 $ (457) (43) — (88) (22) — 113 $ (1) — 112 $ — $ (115) (115) $ 115 — — (9) (34) (40) (83) $ (19) (5) (107) $ 10,518 — 10,518 (4,645) (846) (146) (584) (312) (40) 3,945 (45) (2) 3,898 953 $ 223 $ 28 $ 1,321 $ 1,235 $ 2 $ 10,433 2,777 635 1. NA EWP capital expenditures for the year ended December 31, 2021 includes $276 million relating to the asset acquisition of the idled OSB mill near Allendale, South Carolina. The geographic distribution of non-current assets and external sales based on the location of product delivery is as follows: United States Canada U.K and Europe Asia Other Non-current assets Sales by geographic area 2022 2,625 $ 4,139 460 — — 7,224 $ 2021 2,838 $ 3,825 553 — — 7,216 $ 2022 6,659 $ 1,531 733 767 11 9,701 $ 2021 7,286 1,682 737 806 7 10,518 $ $ 26. Countervailing (“CVD”) and antidumping (“ADD”) duty dispute On November 25, 2016, a coalition of U.S. lumber producers petitioned the U.S. Department of Commerce (“USDOC”) and the U.S. International Trade Commission (“USITC”) to investigate alleged subsidies to Canadian softwood lumber producers and levy CVD and 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. Accounting policy 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 and a similar calculation methodology as the USDOC and adjust when an AR finalizes a new applicable rate for each POI. The -39- 106 difference between the cumulative cash deposits paid and cumulative export duty expense recognized for each POI is recorded on our balance sheet as export duty deposits receivable or payable. 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, net of any interest expense on our duty deposits payable, based on this rate. Developments in CVD and ADD rates We began paying CVD and ADD duties in 2017 based on the determination of duties payable by the USDOC. The CVD and ADD cash deposit rates are updated based on the USDOC’s AR for each POI, as summarized in the tables below. On March 9, 2022, the USDOC initiated AR4 POI covering the 2021 calendar year. West Fraser was selected as a mandatory respondent, which will result in West Fraser continuing to be subject to a company-specific rate. On August 4, 2022, the USDOC finalized the duty rate for AR3, resulting in the recording of an export duty recovery of $81 million and interest income in earnings and an increase in export duty deposits receivable. On January 24, 2023, the USDOC released the preliminary results from AR4 POI covering the 2021 calendar year, which indicated a rate of 2.48% for CVD and 6.90% for ADD for West Fraser. The duty rates are subject to an appeal process, and we will record an adjustment once the rates are finalized. If the AR4 rates were to be confirmed, it would result in a recovery of $62 million before the impact of interest for the POI covered by AR4. This adjustment would be in addition to the amounts already recorded on our balance sheet. If these rates were finalized, our combined cash deposit rate would be 9.38%. The respective Cash Deposit Rates, the AR POI Final Rate, and the West Fraser Estimated ADD Rate for each period are as follows: Effective dates for CVD AR1 POI1,2 April 28, 2017 - August 24, 2017 August 25, 2017 - December 27, 2017 December 28, 2017 - December 31, 20173 January 1, 2018 - December 31, 2018 AR2 POI4 January 1, 2019 - December 31, 2019 AR3 POI5 January 1, 2020 - November 30, 2020 December 1, 2020 - December 31, 20206 AR4 POI7 January 1, 2021 - December 1, 2021 December 2, 2021 - December 31, 20218 AR5 POI9 January 1, 2022 – January 9, 2022 January 10, 2022 – August 8, 202210 August 9, 2022 - December 31, 202211 Cash Deposit Rate AR POI Final Rate 24.12% —% 17.99% 17.99% 6.76% —% 6.76% 7.57% 17.99% 5.08% 17.99% 7.57% 3.62% 3.62% 7.57% 5.06% 5.06% 5.08% 3.62% n/a n/a n/a n/a n/a 1. 2. 3. 4. 5. 6. 7. 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. On November 24, 2020, the USDOC issued the final CVD rate for the AR1 POI. On December 4, 2017, the USDOC revised our CVD Cash Deposit Rate effective December 28, 2017. On November 24, 2021, the USDOC issued the final CVD rate for the AR2 POI. On January 10, 2022, the USDOC amended the final CVD rate for the AR2 POI from 5.06% to 5.08% for ministerial errors. This table only reflects the final rate. On August 4, 2022, the USDOC issued the final CVD rate for the AR3 POI. On November 24, 2020, the USDOC revised our CVD Cash Deposit Rate effective December 1, 2020. The CVD rate for the AR4 POI will be adjusted when AR4 is complete and the USDOC finalizes the rate, which is not expected until 2023. -40- On November 24, 2021, the USDOC revised our CVD Cash Deposit Rate effective December 2, 2021. The CVD rate for the AR5 POI will be adjusted when AR5 is complete and the USDOC finalizes the rate, which is not expected until 2024. 8. 9. 10. On January 6, 2022, the USDOC revised our CVD Cash Deposit Rate effective January 10, 2022. 11. On August 4, 2022, the USDOC revised our CVD Cash Deposit Rate effective August 9, 2022. 107 Effective dates for ADD AR1 POI1,2 June 30, 2017 - December 3, 2017 December 4, 2017 - December 31, 20173 January 1, 2018 - December 31, 2018 AR2 POI4 Cash Deposit Rate AR POI Final Rate West Fraser Estimated Rate 6.76% 5.57% 5.57% 1.40% 1.40% 1.40% 1.46% 1.46% 1.46% January 1, 2019 - December 31, 2019 5.57% 6.06% 4.65% AR3 POI5 January 1, 2020 - November 29, 2020 November 30, 2020 - December 31, 20206 AR4 POI7 January 1, 2021 - December 1, 2021 December 2, 2021 - December 31, 20218 AR5 POI9 January 1, 2022 - August 8, 2022 August 9, 2022 - December 31, 202210 5.57% 1.40% 1.40% 6.06% 6.06% 4.63% 4.63% 4.63% n/a n/a n/a n/a 3.40% 3.40% 6.80% 6.80% 4.52% 4.52% On June 26, 2017, the USDOC issued its preliminary rate in the ADD investigation effective June 30, 2017. On November 24, 2020, the USDOC issued the final ADD rate for the AR1 POI. On December 4, 2017, the USDOC revised our ADD Cash Deposit Rate effective December 4, 2017. On November 24, 2021, the USDOC issued the final ADD rate for the AR2 POI. On August 4, 2022, the USDOC issued the final ADD rate for the AR3 POI. On November 24, 2020, the USDOC revised our ADD Cash Deposit Rate effective November 30, 2020. The ADD rate for the AR4 POI will be adjusted when AR4 is complete and the USDOC finalizes the rate, which is not expected until 2023. On November 24, 2021, the USDOC revised our ADD Cash Deposit Rate effective December 2, 2021. The ADD rate for the AR5 POI will be adjusted when AR5 is complete and the USDOC finalizes the rate, which is not expected until 2024. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. On August 4, 2022, the USDOC revised our ADD Cash Deposit Rate effective August 9, 2022. Impact on results The following table reconciles our cash deposits paid during the year to the amount recorded in our statements of earnings: ($ millions) Cash deposits paid1 Adjust to West Fraser Estimated ADD rate2 Effective duty expense for period3 Duty recovery attributable to AR24 Duty recovery attributable to AR35 Net duty expense Net interest income on duty deposits receivable 2022 (117) $ 18 (99) — 81 (18) 9 $ 2021 (132) (69) (201) 55 — (146) 9 $ $ 1. 2. 3. 4. 5. Represents combined CVD and ADD cash deposit rate of 8.97% for January 1, 2021 to December 1, 2021, 11.12% from December 2, 2021 to January 9, 2022, 11.14% from January 10, 2022 to August 8, 2022, and 8.25% from August 9, 2022 to December 31, 2022. Represents adjustment to West Fraser Estimated ADD rate of 4.52% for 2022 and 6.80% for 2021. The total represents the combined CVD cash deposit rate and West Fraser Estimated ADD rate of 14.37% for January 1, 2021 to December 1, 2021, 11.86% for December 2, 2021 to December 31, 2021, 9.58% for January 1, 2022 to January 9, 2022, 9.60% from January 10, 2022 to August 8, 2022, and 8.14% from August 9, 2022 to December 31, 2022. $55 million represents the duty recovery attributable to the finalization of AR2 duty rates for the 2019 POI. $81 million represents the duty recovery attributable to the finalization of AR3 duty rates for the 2020 POI. As of December 31, 2022, export duties paid and payable on deposit with the USDOC were $784 million (December 31, 2021 - $662 million). -41- 108 Impact on balance sheet Each POI is subject to independent administrative review by the USDOC, and the results of each POI may not be offset. Export duty deposits receivable is represented by: Export duty deposits receivable Beginning of year Export duties recognized as duty deposits receivable Interest recognized on duty deposits receivable End of year Export duties payable is represented by: Export duties payable Beginning of year Export duties payable related to AR4 Interest recognized on the export duties payable End of year Appeals $ $ $ $ 2022 242 $ 97 15 354 $ 2022 (69) $ 2 (6) (73) $ 2021 178 55 9 242 2021 — (69) — (69) 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 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”), 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. 27. Contingencies We are subject to various investigations, claims and legal, regulatory and tax proceedings covering matters that arise in the ordinary course of business activities, including civil claims and lawsuits, regulatory examinations, investigations, audits and requests for information by governmental regulatory agencies and law enforcement authorities in various jurisdictions. Each of these matters is subject to uncertainties and it is possible that some of these matters may be resolved unfavourably. Certain conditions may exist as of the date the financial statements are issued, which may result in an additional loss. In the opinion of management none of these matters are expected to have a material effect on our results of operations or financial condition. -42- Directors & Officers 2022 ANNUAL REPORT 109 Effective February 14, 2023 DIRECTORS Henry H. Ketcham Reid E. Carter Raymond W. Ferris John N. Floren Brian G. Kenning Ellis Ketcham Johnson Marian Lawson Colleen M. McMorrow Robert L. Phillips Janice G. Rennie Gillian D. Winckler SENIOR EXECUTIVE OFFICERS Raymond W. Ferris Christopher A. Virostek Sean P. McLaren Kevin J. Burke Keith D. Carter Robin A. Lampard Christopher D. McIver Alan G. McMeekin James W. Gorman Principal Occupation Chair of the Board Corporate Director President and Chief Executive Officer Corporate Director Corporate Director President, Private Philanthropic Foundation Corporate Director Corporate Director Corporate Director Corporate Director Corporate Director Office Held President and Chief Executive Officer Senior Vice-President, Finance and Chief Financial Officer Chief Operating Officer Senior Vice-President, Wood Products Senior Vice-President, Western Canada Senior Vice-President, Finance Senior Vice-President, Marketing and Corporate Development Senior Vice-President, Europe Senior Vice-President, Corporate and Government Relations 110 WEST FRASER Glossary of Key Terms 2023 Notes Norbord’s 6.25% senior notes due April 2023 2027 Notes Norbord’s 5.75% senior notes due July 2027 AAC Annual allowable cut. The volume of timber that may be harvested annually from a specific timber tenure. ADD Antidumping duties ESG Environmental, social and governance EU Europe EU EWP Europe engineered wood products EWP Engineered wood products GHG Greenhouse gas Angelina Angelina Forest Products LLC HWP Harvested wood product Angelina Acquisition Acquisition of Angelina Forest Products LLC on December 1, 2021 AR Administrative Review by the USDOC B.C. British Columbia BCTMP Bleached chemithermomechanical pulp CAD or CAD$ Canadian dollars Crown timber Timber harvested from lands owned by a provincial government CVD Countervailing duties 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. MD&A Management’s Discussion & Analysis MDF Medium-density fibreboard. A panelboard produced by chemically bonding highly refined wood fibres of uniform size under heat and pressure. Dimension Lumber Standard commodity lumber ranging in sizes from 1 x 3’s to 4 x 12’s, in various lengths EBITDA Earnings before interest, taxes, depreciation and amortization EDGAR Electronic Data Gathering, Analysis and Retrieval System Mfbm One thousand board feet (equivalent to one thousand square feet of lumber, one inch thick) MMfbm One million board feet (equivalent to one million square feet of lumber, one inch thick) EPS Earnings Per Share MMBTU Million British Thermal Units Msf One thousand square feet. 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 One million square feet Mtonne One thousand tonnes NA North America NA EWP North America engineered wood products NBSK Northern bleached softwood kraft pulp NCIB Normal course issuer bid Norbord Norbord Inc. Norbord Acquisition Acquisition of Norbord completed February 1, 2021 NYSE New York Stock Exchange OSB Oriented strand board. An engineered structural wood panel produced by chemically bonding wood strands in a uniform direction under heat and pressure. Panelboard Oriented strand board, particleboard, medium-density fibreboard and plywood Particleboard A panelboard produced by chemically bonding clean sawdust, small wood particles and recycled wood fibre under heat and pressure Plywood A panelboard produced by chemically bonding thin layers of solid wood veneers ROCE Return on capital employed SEDAR System for Electronic Document Analysis and Retrieval SIB Substantial issuer bid SPF Spruce/pine/balsam fir lumber SPF Dimension Lumber produced from spruce/ pine/balsam fir species SYP Southern yellow pine lumber 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 TSX Toronto Stock Exchange U.K. United Kingdom UKP Unbleached kraft pulp U.S. United States USD or $ or US$ United States dollars USDOC United States Department of Commerce USITC United States International Trade Commission Corporate Information 2022 ANNUAL REPORT 111 Effective February 14, 2023 ANNUAL GENERAL AND SPECIAL MEETING The Annual General and Special Meeting of the shareholders of the Company will be held on April 18, 2023 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 Computershare Investor Services Inc. Tel: 1 (800) 564-6253 Canada/USA (514) 982-7555 International 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 Robert B. Winslow, CFA Director, Investor Relations & Corporate Development Tel: (416) 777-4426 E: shareholder@westfraser.com WEBSITE WestFraser.com CORPORATE OFFICES Corporate Headquarters 885 West Georgia Street, Suite 1500 Vancouver, British Columbia Canada V6C 3E8 Tel: (604) 895-2700 SALES OFFICES SPF Lumber, MDF, LVL 1250 Brownmiller Road Quesnel, British Columbia Canada V2J 6P5 Tel: (250) 992-9254 Fax: (250) 992-3034 US Operations Office 1900 Exeter Road, Suite 105 Germantown, Tennessee USA 38138 Tel: (901) 620-4200 Fax: (901) 620-4204 Canadian Operations Office 1250 Brownmiller Road Quesnel, British Columbia Canada V2J 6P5 Tel: (250) 992-9244 Fax: (250) 992-9233 Cowie Regional Office Station Road Cowie, Stirlingshire Scotland FK7 7BQ Tel: +44 (0) 1786 812921 Fax: +44 (0) 1786 817143 SPF Export Lumber & Pulp 885 West Georgia Street, Suite 1500 Vancouver, British Columbia Canada V6C 3E8 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 OSB & Plywood One Toronto Street, Suite 600 Toronto, Ontario Canada M5C 2W4 Tel: (416) 365-0705 Toronto Corporate Office One Toronto Street, Suite 600 Toronto, Ontario Canada M5C 2W4 Tel: (416) 365-0705 Newsprint 2900-650 W Georgia Street Vancouver, British Columbia Canada V6B 4N8 Tel: (604) 681-8817 OPERATIONS Canadian Operations SPF Lumber, Pulp, Plywood, MDF & LVL 1250 Brownmiller Road Quesnel, British Columbia Canada V2J 6P5 Tel: (250) 992-9244 Fax: (250) 992-9233 OSB One Toronto Street, Suite 600 Toronto, Ontario Canada M5C 2W4 Tel: (416) 365-0705 Fax: (416) 365-3292 US Operations SYP Lumber & OSB 1900 Exeter Road, Suite 105 Germantown, Tennessee USA 38138 Tel: (901) 620-4200 Fax: (901) 620-4204 European Operations Station Road Cowie, Stirlingshire Scotland FK7 7BQ Tel: +44 (0) 1786 812921 West Fraser Technology Centre 4960 Levy Street Ville St. Laurent, Quebec Canada H4R 2P1 Tel: (514) 832-3360 Fax: (514) 832-3388 112 WEST FRASER Memberships West Fraser actively participates in numerous forestry sector associations, local associations and external initiatives. We also belong to many local business organizations, such as the chambers of commerce, across our operating communities. Corporate association memberships include: American Wood Council represents America’s wood products manufacturing industry Forest Resources Association represents the U.S. wood products value chain by providing safety, technical and operating resources as well as wood supply chain expertise and guidance Southern Forest Products Association focuses on the Southern Pine lumber industry and promoting SYP products in domestic and international markets Canadian Wood Council represents Canada’s wood products manufacturing industry FPInnovations, a non-profit member organization that carries out scientific research and technology transfer for the Canadian forest industry Structural Building Components Association, a trade association representing manufacturers of structural building components The Embedding Project, a global research project helping companies embed sustainability across their operations and decision-making fRI Research, a non-profit research organization providing innovative science to support decisions and policy development for land and resource management Sustainable Forestry Initiative, an independent, non-profit organization dedicated to promoting sustainable forest management Federal Forest Resource Coalition, a national non-profit trade association dedicated to improving the management of federal forests National Council for Air and Stream Improvement, a non-profit research institute that focuses on environmental topics of interest to the forest products industry Treated Wood Council, a trade association for companies producing pressure-treated wood products Forest Products Association of Canada, Canada’s national forest sector association Softwood Lumber Board promotes the benefits and uses of softwood lumber products in outdoor, residential and non-residential construction Regional Forestry Association Memberships include: Circular Economy The linear economy model of production, consumption and disposal is not sustainable. West Fraser supports the circular economy, which is designed to eliminate waste and pollution through upstream interventions; to keep products and materials in use at the highest value possible throughout their lifetimes; and to regenerate natural systems. The trees we harvest and the products we make are balanced by protecting and regenerating the ecosystems where we work. This approach benefits the environment, society and the larger economy while addressing critical issues such as climate change, biodiversity, waste and pollution. Natural, renewable and sustainable, wood is the ultimate circular economy building material SUSTAINABLE HARVEST West Fraser manages 8.2 million hectares of forests, and harvests less than 1% of this area annually. GOING WHOLE LOG We use 99% of every harvested log. Lumber accounts for the largest use, but we also make products from wood chips and sawdust. Other innovative applications include mulch, animal bedding, road base, fertilizer, energy and soil improvement. REUSE AND RECYCLE Versatile, durable wood can be disassembled and reassembled into other products or buildings, and sequesters carbon throughout its working life. CARBON CAPTURE Trees naturally capture carbon, and that carbon can also be stored in wood products. ENERGY EFFICIENT Of all major building materials, wood requires less energy to harvest, transport, manufacture, install, maintain and recycle. RENEWABLE ENERGY Most of our mills generate renewable energy, which is used on-site, from biomass material recovered from our manufacturing. GROWING FORESTS, FOREVER We plant two seedlings for every harvested tree. Two additional trees usually grow naturally within 15 years. That’s four new trees for every one we harvest, which ensures healthy regenerating forests and ecosystems. CLIMATE-SMART CONSTRUCTION Wood products are a natural, renewable and sustainable material for building, and wood buildings store carbon over their lifetime. * Non-GAAP Financial Information: This Annual Report uses various Non-GAAP and other specified financial measures, including “Adjusted EBITDA”, “net debt to capital”, and expected capital expenditures. Additional information relating to the use of these Non-GAAP and other specified financial measures, including required reconciliations, is set out in the section of our 2022 Annual MD&A entitled “Non-GAAP and Other Specified Financial Measures”. ** Forward-Looking Statements: This Annual Report includes statements and information that constitutes “forward-looking information” within the meaning of Canadian securities laws and “forward-looking statements” within the meaning of United States securities laws (collectively, “forward-looking statements”). Please refer to the cautionary note entitled “Forward-Looking Statements” in our 2022 Annual MD&A for a discussion of these forward-looking statements and the risks that impact these forward-looking statements. Concept and design: worksdesign.com W E S T F R A S E R • 2 0 2 2 A N N U A L R E P O R T West Fraser Timber Co. Ltd. Tel: (604) 895-2700 WestFraser.com 

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