West Fraser Timber Co. Ltd. |
Condensed Consolidated Balance Sheets |
(in mil ions of United States dol ars, except where indicated - unaudited) |
| June 30, | December 31, |
| | | 2022 | | | 2021 |
AssetsCurrent assets |
Cash and short-term investments | | | | | 1,281 $ | | | 1,568 |
Receivables | | | | | 554 | | | 508 |
Income taxes receivable | | | | | | 25 | 42 |
Inventories | | | 5 | | 1,088 | | | 1,061 |
Prepaid expenses | | | | | | 76 | 38 |
| | | | | 3,024 | | | 3,217 |
Property, plant and equipment | | | | | 3,965 | | | 4,100 |
Timber licences | | | | | 360 | | | 368 |
Goodwill and other intangible assets | | | | | 2,392 | | | 2,440 |
Export duty deposits | | | 16 | | 282 | | | 242 |
Other assets | | | | | 118 | | | 58 |
Deferred income tax assets | | | | | | 4 | 8 |
| | | | | 10,145 $ | | | 10,433 |
LiabilitiesCurrent liabilities |
Payables and accrued liabilities | | | | | 759 $ | | | 848 |
Current portion of reforestation and decommissioning obligations | | | | | | 46 | 46 |
Income taxes payable | | | | | | 38 | 312 |
| | | | | 843 | | | 1,206 |
Long-term debt | | | 6 | | 499 | | | 499 |
Other liabilities | | | 7 | | 207 | | | 360 |
Deferred income tax liabilities | | | | | 740 | | | 712 |
| | | | | 2,289 | | | 2,777 |
Shareholders’ Equity |
Share capital | | | 9 | | 2,791 | | | 3,402 |
Retained earnings | | | | | 5,385 | | | 4,503 |
Accumulated other comprehensive loss | | | | | (320) | | | (249) |
| | | | | 7,856 | | | 7,656 |
| | | | | 10,145 $ | | | 10,433 |
The number of Common shares and Class B Common shares outstanding at July 26, 2022 was 86,551,490. |
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West Fraser Timber Co. Ltd. |
Condensed Consolidated Statements of Earnings and Comprehensive Earnings |
(in mil ions of United States dol ars, except where indicated - unaudited) |
| Three Months Ended | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| | | | | 2022 | 2021 | 2022 | | 2021 |
Sales | $ | | 3,779 $ | 5,997 $ | | 6,122 |
Costs and expensesCost of products sold |
| | | 1,235 | 2,562 | | 2,274 |
Freight and other distribution costs | | | | | | 275 | 238 | 495 | | 419 |
Export duties, net | | | | | 16 | | | | | | 16 | 73 | 43 | 110 |
Amortization | | | | | | 144 | 162 | 301 | | 284 |
Sel ing, general and administration | | | | | | 87 | 73 | 181 | | 151 |
Equity-based compensation | | | | | | (1) | 12 | (6) | 19 |
Impairment charges | | | | | 10 | | | | | | — | — | 13 | — |
| | | 1,793 | 3,589 | | 3,257 |
Operating earnings | | | | | | 981 | 1,986 | 2,408 | | 2,865 |
Finance expense, net | | | | | 11 | | | | | | (3) | (20) | (10) | | (33) |
Other | | | | | 12 | | | | | | 24 | — | 24 | 4 |
Earnings before tax | | | 1,966 | 2,422 | | 2,836 |
Tax provision | | | | | 13 | | | (478) | (570) | | (683) |
Earnings | $ | | | | | 762 $ | 1,488 $ | 1,852 $ | | 2,153 |
Earnings per share (dol ars)Basic |
| | | | | 14 | $ | | 12.32 $ | 18.09 $ | | 19.90 |
Diluted | | | | | 14 | $ | | 12.32 $ | 17.91 $ | | 19.90 |
Comprehensive earningsEarnings |
| $ | | | | | 762 $ | 1,488 $ | 1,852 $ | | 2,153 |
Other comprehensive earningsItems that may be reclassified to earnings |
Translation (loss) gain on operations with different functional |
currency | | | | | | (51) | — | (71) | | | | | | | 1 |
Items that wil not be reclassified to earnings |
Actuarial gain (loss) on retirement benefits, net of tax | | | | | 8 | | | | | | 69 | (4) | 163 | | | | | | | 85 |
| | | | | | 18 | (4) | 92 | 86 |
Comprehensive earnings | $ | | | | | 780 $ | 1,484 $ | 1,944 $ | | 2,239 |
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West Fraser Timber Co. Ltd. |
Condensed Consolidated Statements of Changes in Shareholders' Equity |
(in mil ions of United States dol ars, except where indicated - unaudited) |
| Three Months Ended | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| | | | | 2022 | | 2021 | 2022 | | 2021 |
Share capitalBalance - beginning of period |
| 3,317 $ | | 3,917 $ | 3,402 $ | | 481 |
Issuance of Common shares | | | | | 9 | | | | | | — | 3 | — | 3,490 |
Repurchase of Common shares for cancel ation | | | | | 9 | (526) | | (100) | (611) | | (151) |
Balance - end of period | 2,791 $ | | 3,820 $ | 2,791 $ | | 3,820 |
Contributed surplusBalance - beginning of period |
| $ | | | | | — $ | 15 $ | — $ | — |
Acquired equity-settled share option plan | | | | | | — | — | — | 14 |
Equity-settled share option expense | | | | | | — | — | — | 1 |
Convert equity-settled share option plan to cash-settled | | | | | 9 | | | | | | — | | | | | — | (15) |
Balance - end of period | $ | | | | | — $ | — $ | — $ | — |
Retained earningsBalance - beginning of period |
| 5,513 $ | | 2,921 $ | 4,503 $ | | 2,237 |
Actuarial gain (loss) on retirement benefits, net of tax | | | | | 8 | | | | | | 69 | (4) | 163 | | | | | | | 85 |
Repurchase of Common shares for cancel ation | | | | | 9 | (932) | | (123) | (1,080) | | (174) |
Earnings for the period | | | | | | 762 | 1,488 | 1,852 | | 2,153 |
Dividends declared | | | | | | (27) | (24) | (53) | | (43) |
Balance - end of period | 5,385 $ | | 4,258 $ | 5,385 $ | | 4,258 |
Accumulated other comprehensive lossBalance - beginning of period |
| (269) $ | | (239) $ | (249) $ | | (240) |
Translation (loss) gain on foreign operations | | | | | | (51) | — | (71) | | | | | | | 1 |
Balance - end of period | (320) $ | | (239) $ | (320) $ | | (239) |
Shareholders' Equity | 7,856 $ | | 7,839 $ | 7,856 $ | | 7,839 |
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West Fraser Timber Co. Ltd. |
Condensed Consolidated Statements of Cash Flows |
(in mil ions of United States dol ars, except where indicated - unaudited) |
| Three Months Ended | Six Months Ended |
| June 30, | | June 30, | June 30, | | June 30, |
| | | | | 2022 | | 2021 | 2022 | | 2021 |
Cash provided by operating activitiesEarnings |
| $ | | | | | 762 $ | 1,488 $ | 1,852 $ | | 2,153 |
Adjustments |
Amortization | | | | | | 144 | 162 | 301 | | 284 |
Impairment charges | | | | | | — | — | 13 | — |
Finance expense, net | | | | | 11 | | | | | | 3 | 20 | 10 | 33 |
Foreign exchange (gain) loss | | | | | | (19) | (4) | (12) | | | | | | | 2 |
Export duty | | | | | 16 | | | | | | (30) | 17 | (39) | | | | | | | 25 |
Retirement benefit expense | | | | | | 26 | 17 | 47 | 42 |
Contributions to retirement benefit plans | | | | | | (18) | (13) | (37) | | (26) |
Tax provision | | | | | | 240 | 478 | 570 | | 683 |
Income taxes paid | (388) | | (252) | (844) | | (498) |
Other | | | | | | (11) | 4 | (8) | 4 |
Changes in non-cash working capital |
Receivables | | | | | | 222 | (95) | (65) | | (267) |
Inventories | | | | | | 263 | 172 | (37) | | (49) |
Prepaid expenses | | | | | | (42) | (34) | (39) | | (38) |
Payables and accrued liabilities | | | | | | (88) | (74) | (85) | | | | | | | — |
| 1,064 | | 1,886 | 1,627 | | 2,348 |
Cash used for financing activities |
Repayment of long-term debt | | | | | | — | | | | | — | (667) |
Repayment of lease obligations | | | | | | (5) | (3) | (10) | | | | | | | (5) |
Make-whole premium paid | | | | | | — | | | | | — | (60) |
Finance expense paid | | | | | | (9) | (22) | (11) | | (25) |
Financing fees paid | | | | | | — | — | — | (3) |
Repurchase of Common shares for cancel ation | (1,475) | | (233) | (1,664) | | (326) |
Issuance of Common shares | | | | | | — | 2 | — | 7 |
Dividends paid | | | | | | (26) | (19) | (47) | | (30) |
| (1,515) | | (1,000) | (1,732) | | (1,109) |
Cash provided by (used for) investing activities |
Acquired cash and short-term investments from Norbord Acquisition1 | | | | | | — | — | — | 642 |
Additions to capital assets | | | | | | (88) | (66) | (181) | | (128) |
Other | | | | | | 2 | 2 | 3 | 4 |
| | | | | | (86) | (64) | (178) | | 518 |
Change in cash | (537) | | 822 | (283) | | 1,757 |
Foreign exchange effect on cash | | | | | | 2 | 9 | (4) | 13 |
Cash - beginning of period | 1,816 | | 1,400 | 1,568 | | 461 |
Cash - end of period | 1,281 $ | | 2,231 $ | 1,281 $ | | 2,231 |
1. | The Norbord Acquisition was a non-cash share consideration transaction, and therefore, only the acquired cash is included in the above cash flow. Changes |
in Norbord’s cash position incurred subsequent to February 1, 2021 are incorporated into our cash flow statement. |
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West Fraser Timber Co. Ltd. |
Notes to Condensed Consolidated Interim Financial Statements |
(figures are in mil ions of United States dol ars, except where indicated - unaudited) |
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 remodel ing, industrial applications, papers, |
tissue, and box materials. Our executive office is located at 858 Beatty Street, Suite 501, 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 condensed consolidated financial statements have been prepared in accordance with International Accounting |
Standards (“IAS”) 34, Interim Financial Reporting as issued by the International Accounting Standards Board and use the |
same accounting policies as the most recent audited annual consolidated financial statements. These condensed |
consolidated interim financial statements were authorized for issue by the Audit Committee of the Company’s Board of |
Directors on July 27, 2022. These condensed consolidated interim financial statements should be read in conjunction with |
the Company's consolidated financial statements for the year ended December 31, 2021. Certain 2021 figures have been |
reclassified to conform with the current year’s presentation. |
3. | Business acquisitions |
Norbord acquisition |
On February 1, 2021, we acquired al of the outstanding shares of Norbord Inc. (“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 mil ion. |
Included in the Norbord Acquisition are five OSB mil s in Canada, seven OSB mil s in the U.S., one OSB mil , one MDF plant |
and two particleboard plants in the U.K., one OSB mil 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, profit margins and sales volumes. |
Angelina Forest Products acquisition |
On December 1, 2021, we acquired the Angelina Forest Products (“Angelina Acquisition” or “Angelina”) lumber mil |
located in Lufkin, Texas for cash consideration of $311 mil ion. This acquisition has been accounted for as an acquisition |
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of a business in accordance with IFRS 3, Business Combinations. We have al ocated the purchase price based on our |
estimated fair value of the assets acquired and the liabilities assumed as fol ows: |
West Fraser purchase consideration:Cash consideration |
| $ | 311 |
Fair value of net assets acquired:Cash |
| $ | 8 |
Accounts receivable | | 7 |
Inventories | | 11 |
Property, plant and equipment | | 213 |
Customer relationship intangible | | 21 |
Goodwil | | 58 |
Payables and accrued liabilities | | (7) |
| $ | 311 |
Through the process of finalizing the purchase price al ocation during the quarter ended March 31, 2022, we reclassified |
$21 mil ion from goodwil to customer relationship intangible asset. |
4. | | | Seasonality of operations |
Our operating results are subject to seasonal fluctuations that may impact quarter-to-quarter comparisons. |
Consequently, interim operating results may not proportionately reflect operating results for a ful year. |
Market demand varies seasonal y, as home building activity and repair-and-remodel ing work are general y stronger in |
the spring and summer months. Extreme weather conditions, including wildfires in Western Canada and hurricanes in the |
U.S. South, may periodical y affect operations, including logging, manufacturing and transportation. Log inventory is |
typical y built up in the Northern regions of North America and Europe during the winter to sustain our lumber and EWP |
production during the second quarter when logging is curtailed due to wet and inaccessible land conditions. This |
inventory is general y consumed in the spring and summer months. |
5. | | | Inventories |
| | | | June 30, December 31, |
| | | | 2022 | 2021 |
Manufactured products | | | | | $ | 500 $ | 446 |
Logs and other raw materials | | | | | | 374 | 412 |
Materials and supplies | | | | | | 214 | 203 |
| | | | | $ | 1,088 $ | 1,061 |
Inventories at June 30, 2022 were subject to a valuation reserve of $7 mil ion (December 31, 2021 - $6 mil ion) to reflect |
net realizable value being lower than cost. |
6. | | | Operating loans and long-term debt |
Operating loans |
As at June 30, 2022, our credit facilities consisted of a $1 bil ion committed revolving credit facility which matures July |
2026, $35 mil ion of uncommitted revolving credit facilities available to our U.S. subsidiaries, a $18 mil ion (£15 mil ion) |
credit facility dedicated to our European operations, and a $6 mil ion (CAD$8 mil ion) demand line of credit dedicated to |
our jointly | | | -owned newsprint operation. |
As at June 30, 2022, our revolving credit facilities were undrawn (December 31, 2021 - undrawn) and the associated |
deferred financing costs of $1 mil ion (December 31, 2021 - $1 mil ion) were recorded in other assets. Interest on the |
| | | | | | -6- |
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. |
In addition, we have credit facilities total ing $135 mil ion (December 31, 2021 - $137 mil ion) dedicated to letters of |
credit. Letters of credit in the amount of $61 mil ion (December 31, 2021 - $65 mil ion) were supported by these facilities. |
Al debt is unsecured except the $6 mil ion (CAD$8 mil ion) jointly-owned newsprint operation demand line of credit, |
which is secured by that joint operation’s current assets. |
Long-term debt |
| June 30, December 31, |
| 2022 | 2021 |
Senior notes due October 2024; interest at 4.35% | | | $ | 300 $ | 300 |
Term loan due August 2024; floating interest rate | | | | 200 | 200 |
Notes payable | | | | 1 | 1 |
| | | | 501 | 501 |
Less: deferred financing costs | | | | (2) | (2) |
Less: current portion | | | | — | — |
| | | $ | 499 $ | 499 |
The fair value of the long-term debt at June 30, 2022 was $502 mil ion (December 31, 2021 - $513 mil ion) based on rates |
available to us at the balance sheet date for long-term debt with similar terms and remaining maturities. |
Interest rate swap contracts |
At June 30, 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 mil ion notional principal amount of |
indebtedness. These interest rate swap agreements fix the interest rate on the $200 mil ion 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 condensed consolidated statements of earnings and comprehensive earnings. For the three and six months |
ended June 30, 2022, a gain of $2 mil ion and $9 mil ion (three and six months ended June 30, 2021 - nil and gain of $3 |
mil ion) was recognized in relation to the interest rate swap contracts. The fair value of the interest rate swap contracts at |
June 30, 2022 was an asset of $8 mil ion recorded in other assets (December 31, 2021 - liability of $1 mil ion). |
7. | | | | | Other liabilities |
| June 30, December 31, |
| | | | | | Note | 2022 | 2021 |
Retirement liabilities | | | 8 | $ | 15 $ | 168 |
Long-term portion of reforestation | | | | 57 | 59 |
Long-term portion of decommissioning | | | | 23 | 25 |
Export duties | | | 14 | | 71 | 69 |
Interest swap contracts | | | 6 | | — | 1 |
Other | | | | 41 | 38 |
| | | $ | 207 $ | 360 |
8. | | | | | Retirement benefits |
We maintain defined benefit and defined contribution pension plans covering most of our employees. The defined |
benefit plans general y 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 |
| | | | | | | -7- |
commencement of retirement. We also provide group life insurance, medical and extended health benefits to certain |
employee groups. |
The status of the defined benefit pension plans and other retirement benefit plans, in aggregate, is as fol ows: |
| June 30, December 31, |
| 2022 | 2021 |
Projected benefit obligations | | | $ | (991) $ | (1,378) |
Fair value of plan assets | | | | 1,056 | 1,239 |
Impact of minimum funding requirements | | | | (2) | (2) |
| | | $ | 63 $ | (141) |
Represented by |
Retirement assets | | | $ | 78 $ | 27 |
Retirement liabilities | | | | (15) | (168) |
| | | $ | 63 $ | (141) |
The significant actuarial assumptions used to determine our balance sheet date retirement assets and liabilities are as |
fol ows: |
| June 30, December 31, |
| 2022 | 2021 |
Discount rate | 5.09% | 3.03% |
Future compensation rate increase | 3.60% | 3.60% |
The actuarial gain (loss) on retirement benefits, included in other comprehensive earnings, is as fol ows: |
| | | | | Three Months Ended | Six Months Ended |
| | | | | June 30, | June 30, | June 30, | June 30, |
| | | | | 2022 | 2021 | 2022 | 2021 |
Actuarial gain (loss) | | | | | $ | | 88 $ | (5) $ | 213 $ | 114 |
Tax recovery (provision) | | | | | | | (19) | 1 | (50) | (29) |
| | | | | $ | | 69 $ | (4) $ | 163 $ | 85 |
9. | | | | | | | | 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 |
| | | | | June 30, 2022 | December 31, 2021 |
| | | | | Number | | Amount | Number | | | | | | | | Amount |
Common | | | | | | | | | | 85,054,705 $ | 2,791 | 103,647,256 $ | 3,402 |
Class B Common | | | | | 2,281,478 | — | 2,281,478 | — |
Total Common | | | | | | | | | | 87,336,183 $ | 2,791 | 105,928,734 $ | 3,402 |
For the three and six months ended June 30, 2022, we issued no Common shares under our share option plans (three |
months ended June 30, 2021 - 50,829 Common shares; six months ended June 30, 2021 - 128,429 Common shares) and |
| | | | | | | | | | -8- |
no Common shares under our employee share purchase plan (three months ended June 30, 2021 - 630 Common shares; |
six months ended June 30, 2021 - 2,946 Common shares). |
Share repurchases |
Normal Course Issuer Bid |
On February 23, 2022, we renewed our normal course issuer bid (“NCIB”) al owing us to acquire up to 10,194,000 |
Common shares for cancel ation until the expiry of the bid on February 22, 2023. We have entered into an automatic |
share purchase plan with our broker, which enables us to provide standard instructions and purchase Common shares on |
the open market during self-imposed blackout periods. |
For the six months ended June 30, 2022, we repurchased 6,694,346 Common shares at an average price of $83.76 per |
share under our NCIB programs. |
Substantial Issuer Bid |
On April 20, 2022, we commenced a substantial issuer bid (“2022 SIB”) under which the Company offered to purchase |
from shareholders for cancel ation up to $1.25 bil ion of Common shares. The 2022 SIB was made by way of a “modified |
Dutch auction” procedure with a tender price range from $80.00 to $95.00 per share. |
We took up and purchased for cancel ation a total of 11,898,205 Common shares at a price of $95.00 per share for an |
aggregate purchase price of $1.13 bil ion under the 2022 SIB. The Common shares repurchased represented |
approximately 11.7% of the total number of West Fraser’s issued and outstanding Common shares and Class B Common |
shares at the time the 2022 SIB was announced in April 2022. For the duration of the 2022 SIB, we suspended share |
repurchases under our current NCIB, but resumed repurchases after the expiration of the 2022 SIB. |
10. | Impairment Charges |
During the quarter ended March 31, 2022, management approved a plan to permanently reduce the capacity at our pulp |
mil in Hinton, Alberta. One of Hinton pulp mil ’s two production lines wil shut, and the remaining line wil produce |
Unbleached Kraft Pulp rather than Northern Bleached Softwood Kraft Pulp. As a result, we recorded impairment charges |
of $13 mil ion during the quarter ended March 31, 2022 relating to equipment that wil be decommissioned permanently |
as part of the transition to Unbleached Kraft Pulp. |
11. | Finance expense, net |
| | Three Months Ended | Six Months Ended |
| | June 30, | | June 30, | June 30, | | June 30, |
| | 2022 | | 2021 | 2022 | | 2021 |
Interest expense | | $ | | | | (5) $ | (19) $ | | | (10) $ | (31) |
Interest income on short-term investments | | | | | | 3 | | — | 4 | | 1 |
Interest income (expense) on export duty deposits | | | | | | — | | 1 | (1) | | 2 |
Finance expense on employee future benefits | | | | | | (1) | | (2) | (3) | | (5) |
| | $ | | | | (3) $ | (20) $ | | | (10) $ | (33) |
| | | | | | | | | | -9- |
12. | Other |
| | Three Months Ended | Six Months Ended |
| | June 30, | | June 30, | June 30, | | June 30, |
| | 2022 | | 2021 | 2022 | | 2021 |
Foreign exchange gain (loss) | | $ | | | | 19 $ | 4 $ | 12 $ | (2) |
Gain on interest rate swap contracts | | | | | | 2 | — | 9 | 3 |
Other | | | | | | 3 | (4) | 3 | 3 |
| | $ | | | | 24 $ | — $ | 24 $ | 4 |
13. | Tax provision |
The tax provision differs from the amount that would have resulted from applying the B.C. statutory income tax rate to |
earnings before tax as fol ows: |
| | Three Months Ended | Six Months Ended |
| | June 30, | | June 30, | June 30, | | June 30, |
| | 2022 | | 2021 | 2022 | | 2021 |
Income tax expense at statutory rate of 27% | | $ | | | | (271) $ | (531) $ | (654) $ | | (766) |
Rate differentials between jurisdictions and on specified |
activities | | | | | | 30 | 56 | 78 | 84 |
Non-taxable (deductible) amounts | | | | | | (7) | — | 2 | (2) |
Other | | | | | | 8 | (3) | 4 | 1 |
Tax provision | | $ | | | | (240) $ | (478) $ | (570) $ | | (683) |
14. | Earnings per share |
Basic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using the |
weighted average number of Common shares and Class B Common shares outstanding. |
Certain of our equity-based compensation plans may be settled in cash or Common shares at the holder’s option and for |
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 wil 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. |
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. Al adjustments to earnings are tax-effected, when |
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 |
during the period disclosed exceeds the exercise price of the share option. |
The equity-settled method was more dilutive for the three and six months ended June 30, 2022 and an adjustment was |
required for both the numerator and denominator. The equity-settled method was more dilutive for the three and six |
months ended June 30, 2021 and an adjustment was required for both the numerator and denominator. |
| | | | | | | | | | | -10- |
16. | Countervailing (“CVD”) and antidumping (“ADD”) duty dispute |
Additional details can be found in note 25 - Countervailing (“CVD”) and antidumping (“ADD”) duty dispute of our |
consolidated financial statements for the year ended December 31, 2021. |
Developments in CVD and ADD rates |
We began paying CVD and ADD duties in 2017 based on the determination of duties payable by the United States |
Department of Commerce (“USDOC”). The CVD and ADD cash deposit rates are updated based on the USDOC’s |
Administrative Review (“AR”) for each Period of Investigation (“POI”), as summarized in the tables below. |
On January 31, 2022, the USDOC released the preliminary results from AR3 POI covering the 2020 calendar year, which |
indicated a rate of 8.46% for CVD and 4.63% for ADD for West Fraser. The duty rates are subject to an appeal process, |
and we wil record an adjustment once the rates are finalized. If the AR3 rates were to be confirmed, it would result in a |
U.S. dol ar recovery of $43 mil ion for the POI covered by AR3. This adjustment would be in addition to the amounts |
already recorded on our balance sheet. If these rates are finalized, our combined cash deposit rate would be revised to |
13.09%. |
On March 9, 2022, the USDOC initiated AR4 POI covering the 2021 calendar year. West Fraser was selected as a |
mandatory respondent, which wil 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 |
fol ows: |
| | Cash Deposit | AR POI Final |
Effective dates for CVD | | Rate | Rate |
AR1 POI |
April 28, 2017 - August 24, 2017 | | | | 24.12% | 6.76% |
August 25, 2017 - December 27, 2017 | | | | —% | —% |
December 28, 2017 - December 31, 2017 | | | | 17.99% | 6.76% |
January 1, 2018 - December 31, 2018 | | | | 17.99% | 7.57% |
AR2 POI |
January 1, 2019 - December 31, 2019 | | | | 17.99% | 5.08% |
AR3 POI1 |
January 1, 2020 - November 30, 2020 | | | | 17.99% | n/a |
December 1, 2020 - December 31, 2020 | | | | 7.57% | n/a |
AR4 POI2 |
January 1, 2021 - December 1, 2021 | | | | 7.57% | n/a |
December 2, 2021 - December 31, 2021 | | | | 5.06% | n/a |
AR5 POI3 |
January 1, 2022 – January 9, 2022 | | | | 5.06% | n/a |
January 10, 2022 – June 30, 2022 | | | | 5.08% | n/a |
1. | On January 31, 2022, the USDOC issued a preliminary CVD rate. The CVD rate for the AR3 POI wil be adjusted when AR3 is complete and the |
USDOC finalizes the rate, which is not expected until the third quarter of 2022. |
2. | The CVD rate for the AR4 POI wil be adjusted when AR4 is complete and the USDOC finalizes the rate, which is not expected until 2023. |
3. | The CVD rate for the AR5 POI wil be adjusted when AR5 is complete and the USDOC finalizes the rate, which is not expected until 2024. |
| | | | | | -14- |
| | | West Fraser |
| Cash Deposit | AR POI Final | Estimated |
Effective dates for ADD | Rate | Rate | Rate |
AR1 POI |
June 30, 2017 - December 3, 2017 | | | | 6.76% | 1.40% | 1.46% |
December 4, 2017 - December 31, 2017 | | | | 5.57% | 1.40% | 1.46% |
January 1, 2018 - December 31, 2018 | | | | 5.57% | 1.40% | 1.46% |
AR2 POI |
January 1, 2019 - December 31, 2019 | | | | 5.57% | 6.06% | 4.65% |
AR3 POI1 |
January 1, 2020 - November 29, 2020 | | | | 5.57% | n/a | 3.40% |
November 30, 2020 - December 31, 2020 | | | | 1.40% | n/a | 3.40% |
AR4 POI2 |
January 1, 2021 - December 1, 2021 | | | | 1.40% | n/a | 6.80% |
December 2, 2021 - December 31, 2021 | | | | 6.06% | n/a | 6.80% |
AR5 POI3 |
January 1, 2022 - June 30, 2022 | | | | 6.06% | n/a | 0.80% |
1. | On January 31, 2022, the USDOC issued a preliminary ADD rate. The ADD rate for the AR3 POI wil be adjusted when AR3 is complete and the |
USDOC finalizes the rate, which is not expected until the third quarter of 2022. |
2. | The ADD rate for the AR4 POI wil be adjusted when AR4 is complete and the USDOC finalizes the rate, which is not expected until 2023. |
3. | The ADD rate for the AR5 POI wil be adjusted when AR5 is complete and the USDOC finalizes the rate, which is not expected until 2024. |
Impact on results |
The fol owing table reconciles our cash deposits paid during the period to the amount recorded in our earnings |
statement: |
| | | | | | | Three Months Ended | Six Months Ended |
| | | | | | | June 30, | June 30, | June 30, | June 30, |
| 2022 | | | 2021 | 2022 | 2021 |
Cash deposits1 | | | | | | | $ | (46) $ | | | (55) $ | (82) $ | (84) |
Adjust to West Fraser Estimated ADD rate2 | | | | | | | | 30 | | | (18) | 39 | | | (26) |
Export duties, net | | | | | | | | (16) | | | (73) | (43) | (110) |
1. | Represents combined CVD and ADD cash deposit rate of 8.97% from January 1, 2021 to December 1, 2021, 11.12% from December 2, 2021 to |
January 9, 2022, and 11.14% from January 10, 2022 to June 30, 2022. |
2. | Represents adjustment to West Fraser Estimated ADD rate of 0.80% for Q2-22 and 4.09% for Q2-21. |
Notwithstanding the deposit rates assigned under the investigations, our final liability for CVD and ADD wil not be |
determined until each annual administrative review process is complete and related appeal processes are concluded. As |
of June 30, 2022, export duties paid and payable on deposit with the USDOC were $749 mil ion. |
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: |
| | | Six Months Ended |
| | | | | | June 30, |
| | | | | | 2022 |
Beginning of period | | | | | $ | 242 |
Export duties recognized as duty deposits receivable | | | | | | | | 37 |
Interest recognized on duty deposits receivable | | | | | | | | 3 |
End of period | | | | | $ | 282 |
| | | | | | | -15- |