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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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
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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.
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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
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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
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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.
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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:
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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.
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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
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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-
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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
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West Fraser Timber Co. Ltd.
Tel: (604) 895-2700
WestFraser.com