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

 

    

Financial Performance

FIVE-YEAR FINANCIAL REVIEW

(in millions of U.S. dollars, except where indicated)

 

		2022				2021				2020				2019				2018
Earnings
Sales			9,701				10,518				4,373				3,673				4,722
Cost of product sold			(5,142)				(4,645)				(2,559)				(2,750)				(2,789)
Freight and other distribution costs			(963)				(846)				(529)				(538)				(565)
Export duties, net1			(18)				(146)				(57)				(122)				(156)
Amortization			(589)				(584)				(203)				(195)				(199)
Selling, general and administration			(365)				(312)				(185)				(159)				(178)
Equity-based compensation			(5)				(40)				(9)				(4)				(5)
Restructuring and impairment charges			(60)				–				–				(25)				–
Operating earnings			2,559				3,945				831				(120)				830
Finance expense, net			(3)				(45)				(27)				(37)				(29)
Other			37				(2)				(14)				(8)				29
Tax (provision) recovery			(618)				(951)				(202)				52				(203)
Earnings			1,975				2,947				588				(113)				627
Adjusted EBITDA2			3,212				4,569				1,043				104				1,034
Cash flows from operating activities			2,207				3,552				968				87				702
Capital expenditures			477				635				180				309				286
Financial position
Current assets			2,749				3,217				1,336				883				986
PPE & timber licenses			4,333				4,468				2,029				2,028				1,883
Goodwill & other intangibles			2,358				2,440				591				594				562
Export duty deposits3			354				242				178				61				55
Other assets			175				58				35				20				23
Deferred income tax assets			4				8				9				8				2
Total assets			9,973				10,433				4,178				3,594				3,511
Current liabilities			792				1,206				528				644				435
Long-term debt (including current portion)			499				499				500				500				508
Other liabilities			268				360				408				350				231
Deferred income tax liabilities			795				712				264				195				214
Shareholders’ equity			7,619				7,656				2,478				1,905				2,123
Total liabilities & equity			9,973				10,433				4,178				3,594				3,511

 

 

 

EPS		Adjusted EBITDA2		Cash flows from operating activities
per common share (dollars)		in millions of U.S. dollars		in millions of U.S. dollars

 

 

1.

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.

 

2.

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.

 

3.

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.

 

4.

Our common shares began trading on the NYSE under the symbol WFG on February 1, 2021.

 

5.

Return on capital employed is calculated as GAAP EBIT divided by total assets minus current liabilities.

 

6.

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		SYP Lumber shipments		NA OSB shipments		EU OSB shipments
		in MMfbm		in MMfbm		in MMsf 3/8” basis		in MMsf 3/8” basis

 

        

 

        

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

 

        

 

        

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.

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%.

 

        

 

        

ANNUAL RESULTS

 

 

Summary Annual Results   ($ millions, except as otherwise indicated)		2022				2021				2020
Earnings
Sales		$	9,701			$	10,518			$	4,373
Cost of products sold			(5,142)				(4,645)				(2,559)
Freight and other distribution costs			(963)				(846)				(529)
Export duties, net			(18)				(146)				(57)
Amortization			(589)				(584)				(203)
Selling, general and administration			(365)				(312)				(185)
Equity-based compensation			(5)				(40)				(9)
Restructuring and impairment charges			(60)				—				—
Operating earnings			2,559				3,945				831
Finance expense, net			(3)				(45)				(27)
Other			37				(2)				(14)
Tax provision			(618)				(951)				(202)
Earnings		$	1,975			$	2,947			$	588
Adjusted EBITDA1		$	3,212			$	4,569			$	1,043
Basic earnings per share ($)			21.06				27.03				8.56
Diluted earnings per share ($)			20.86				27.03				8.56
Cash dividends declared per share2 ($)			1.15				0.76				0.59
Total assets			9,973				10,433				4,178
Long-term debt, non-current			499				499				500
Long-term debt, total			499				499				507

 

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.

2.

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.

 

        

 

        

Discussion & Analysis of Annual Results by Product Segment

Lumber Segment

 

Lumber Segment Earnings   ($ millions unless otherwise indicated)		2022				2021
Sales
Lumber		$	4,077			$	4,520
Wood chips and other residuals			309				289
Logs and other			79				101
			4,465				4,910
Cost of products sold			(2,489	)			(2,241	)
Freight and other distribution costs			(435	)			(404	)
Export duties, net			(18	)			(146	)
Amortization			(186	)			(164	)
Selling, general and administration			(194	)			(146	)
Restructuring and impairment charges			(31	)			—
Operating earnings			1,111				1,809
Finance income (expense), net			1				(17	)
Other income			5				2
Earnings before tax		$	1,117			$	1,794
Adjusted EBITDA1		$	1,328			$	1,973
Capital expenditures		$	184			$	146
SPF (MMfbm)
Production			2,635				3,182
Shipments			2,705				3,176
SYP (MMfbm)
Production			3,018				2,675
Shipments			3,036				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.

 

        

 

        

		2022				2021
SPF Sales by Destination		MMfbm		%		MMfbm		%
U.S.		1,755		65%		2,098		66%
Canada		837		31%		753		24%
China		35		1%		189		6%
Other		78		3%		136		4%
		2,705				3,176

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.

 

        

 

        

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.

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)		2022				2021
Cash deposits paid1			(117	)			(132	)
Adjust to West Fraser Estimated ADD rate2			18				(69	)
Effective duty expense for period3			(99	)			(201	)
Duty recovery attributable to AR24			—				55
Duty recovery attributable to AR35			81				—
Export duty expense			(18	)			(146	)
Net interest income on duty deposits receivable			9				9

 

1.	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.

2.	Represents adjustment to West Fraser Estimated ADD rate of 4.52% for 2022 and 6.80% for 2021.

3.

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.

4.	$55 million represents the duty recovery attributable to the finalization of AR2 duty rates for the 2019 POI.

5.	$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.

 

        

 

        

Adjusted EBITDA ($ millions)		2021 to 2022
Adjusted EBITDA - comparative period		$	1,973
Price			(352	)
Volume			(33	)
Changes in export duties			127
Changes in costs			(307	)
Impact of inventory write-downs			(51	)
Other			(29	)
Adjusted EBITDA - current period		$	1,328

Softwood Lumber Dispute

On November 25, 2016, a coalition of U.S. lumber producers petitioned the USDOC and the USITC to investigate alleged subsidies to Canadian softwood lumber producers and levy CVD and ADD 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		Cash Deposit Rate				AR POI Final   Rate
AR1 POI1,2
April 28, 2017 - August 24, 2017			24.12%			6.76%
August 25, 2017 - December 27, 2017			—%			—%
December 28, 2017 - December 31, 20173			17.99%			6.76%
January 1, 2018 - December 31, 2018			17.99%			7.57%
AR2 POI4
January 1, 2019 - December 31, 2019			17.99%			5.08%
AR3 POI5
January 1, 2020 - November 30, 2020			17.99%			3.62%
December 1, 2020 - December 31, 20206			7.57%			3.62%
AR4 POI7
January 1, 2021 - December 1, 2021			7.57%			n/a
December 2, 2021 - December 31, 20218			5.06%			n/a
AR5 POI9
January 1, 2022 – January 9, 2022			5.06%			n/a
January 10, 2022 – August 8, 202210			5.08%			n/a
August 9, 2022 - December 31, 202211			3.62%			n/a

 

1.	On April 24, 2017, the USDOC issued its preliminary rate in the CVD investigation. The requirement that we make cash deposits for CVD was suspended on August 24, 2017, until the USDOC published the revised rate.

2.	On November 24, 2020, the USDOC issued the final CVD rate for the AR1 POI.

3.	On December 4, 2017, the USDOC revised our CVD Cash Deposit Rate effective December 28, 2017.

4.	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.

5.	On August 4, 2022, the USDOC issued the final CVD rate for the AR3 POI.

 

        

 

        

6.	On November 24, 2020, the USDOC revised our CVD Cash Deposit Rate effective December 1, 2020.

7.	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.

8.	On November 24, 2021, the USDOC revised our CVD Cash Deposit Rate effective December 2, 2021.

9.	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.

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.

 

Effective dates for ADD		Cash Deposit   Rate				AR POI Final   Rate				West Fraser     Estimated Rate
AR1 POI1,2
June 30, 2017 - December 3, 2017			6.76%				1.40%			1.46%
December 4, 2017 - December 31, 20173			5.57%				1.40%			1.46%
January 1, 2018 - December 31, 2018			5.57%				1.40%			1.46%
AR2 POI4
January 1, 2019 - December 31, 2019			5.57%				6.06%			4.65%
AR3 POI5
January 1, 2020 - November 29, 2020			5.57%				4.63%			3.40%
November 30, 2020 - December 31, 20206			1.40%				4.63%			3.40%
AR4 POI7
January 1, 2021 - December 1, 2021			1.40%				n/a			6.80%
December 2, 2021 - December 31, 20218			6.06%				n/a			6.80%
AR5 POI9
January 1, 2022 - August 8, 2022			6.06%				n/a			4.52%
August 9, 2022 - December 31, 202210			4.63%				n/a			4.52%

 

1.	On June 26, 2017, the USDOC issued its preliminary rate in the ADD investigation effective June 30, 2017.

2.	On November 24, 2020, the USDOC issued the final ADD rate for the AR1 POI.

3.	On December 4, 2017, the USDOC revised our ADD Cash Deposit Rate effective December 4, 2017.

4.	On November 24, 2021, the USDOC issued the final ADD rate for the AR2 POI.

5.	On August 4, 2022, the USDOC issued the final ADD rate for the AR3 POI.

6.	On November 24, 2020, the USDOC revised our ADD Cash Deposit Rate effective November 30, 2020.

7.	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.

8.	On November 24, 2021, the USDOC revised our ADD Cash Deposit Rate effective December 2, 2021.

9.	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.

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.

 

        

 

        

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)		2022				2021
Sales
OSB		$	3,004			$	3,450
Plywood, LVL and MDF			759				796
Wood chips, logs and other			26				27
			3,789				4,273
Cost of products sold			(1,677	)			(1,521	)
Freight and other distribution costs			(329	)			(262	)
Amortization			(306	)			(289	)
Selling, general and administration			(106	)			(76	)
Operating earnings			1,371				2,125
Finance expense, net			(4	)			(3	)
Other income (expense)			16				(1	)
Earnings before tax		$	1,383			$	2,121
Adjusted EBITDA1		$	1,677			$	2,414
Capital expenditures2		$	235			$	424
OSB (MMsf 3/8” basis)
Production			6,109				5,654
Shipments			6,006				5,674
Plywood (MMsf 3/8” basis)
Production			716				763
Shipments			707				756

 

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 $86 million related to inventory purchase price accounting.

2.	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,

 

        

 

        

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.

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.

 

        

 

        

Adjusted EBITDA ($ millions)		2021 to 2022
Adjusted EBITDA - comparative period		$	2,414
Price			(671	)
Volume			115
Changes in costs			(185	)
Other			4
Adjusted EBITDA - current period		$	1,677

Pulp & Paper Segment

 

Pulp & Paper Segment Earnings   ($ millions unless otherwise indicated)		2022				2021
Sales		$	807			$	727
Cost of products sold			(596	)			(541	)
Freight and other distribution costs			(153	)			(137	)
Amortization			(35	)			(34	)
Selling, general and administration			(32	)			(34	)
Restructuring and impairment charges			(13	)			—
Operating loss			(22	)			(19	)
Finance expense			(2	)			(5	)
Other income (expense)			1				2
Loss before tax		$	(23	)		$	(22	)
Adjusted EBITDA1		$	26			$	15
Capital expenditures		$	29			$	35
Pulp (Mtonnes)
Production			940				1,051
Shipments			968				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.

 

        

 

        

Amortization, selling, general, and administration costs, finance expense, and other were similar to 2021.

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)		2021 to 2022
Adjusted EBITDA - comparative period		$	15
Price			123
Volume			(8	)
Changes in costs			(90	)
Other			(14	)
Adjusted EBITDA - current period		$	26

Europe Engineered Wood Products Segment

 

Europe EWP Segment Earnings   ($ millions unless otherwise indicated)		2022				2021
Sales		$	738			$	723
Cost of products sold			(479	)			(457	)
Freight and other distribution costs			(46	)			(43	)
Amortization			(53	)			(88	)
Selling, general and administration			(28	)			(22	)
Restructuring and impairment charges			(15	)			—
Operating earnings			117				113
Finance expense			—				(1	)
Other income (expense)			—				—
Earnings before tax		$	118			$	112
Adjusted EBITDA1		$	186			$	201
Capital expenditures		$	20			$	28
OSB (MMsf 3/8” basis)
Production			954				1,035
Shipments			977				1,010
USD - GBP exchange rate
Closing rate			0.8298				0.7400
Average rate			0.8083				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.

 

        

 

        

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)		2021 to 2022
Adjusted EBITDA - comparative period		$	201
Price			136
Volume			(37	)
Changes in costs			(125	)
Other			11
Adjusted EBITDA - current period		$	186

 

        

 

        

Discussion & Analysis of Specific Items

Selling, general and administration

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.

 

        

 

        

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.

 

        

 

        

  FOURTH QUARTER RESULTS

 

 

Summary Fourth Quarter Results   ($ millions)		Q4-22				Q3-22				Q4-21
Earnings
Sales		$	1,615			$	2,088			$	2,038
Cost of products sold			(1,209	)			(1,371	)			(1,158	)
Freight and other distribution costs			(209	)			(260	)			(207	)
Export duties, net			(29	)			53				30
Amortization			(148	)			(140	)			(153	)
Selling, general and administration			(98	)			(84	)			(88	)
Equity-based compensation			(6	)			(5	)			(12	)
Restructuring and impairment charges			(47	)			—				—
Operating earnings (loss)			(130	)			281				450
Finance income (expense), net			3				3				(1	)
Other			2				12				(11	)
Tax recovery (provision)			31				(80	)			(104	)
Earnings (loss)		$	(94	)		$	216			$	334
Adjusted EBITDA1		$	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)		Q4-22				Q3-22				Q2-22				Q1-22				Q4-21				Q3-21				Q2-21				Q1-21
Sales		$	1,615			$	2,088			$	2,887			$	3,110			$	2,038			$	2,358			$	3,779			$	2,343
Earnings (loss)			(94	)			216				762				1,090				334				460				1,488				665
Basic EPS (dollars)			(1.12	)			2.50				7.66				10.35				3.13				4.20				12.32				6.96
Diluted EPS (dollars)			(1.13	)			2.50				7.59				10.25				3.13				4.20				12.32				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.

 

        

 

        

Discussion & Analysis of Fourth Quarter Results by Product Segment

Lumber Segment

 

Lumber Segment Earnings   ($ millions unless otherwise indicated)		Q4-22				Q3-22				Q4-21
Sales
Lumber		$	611			$	831			$	796
Wood chips and other residuals			73				84				70
Logs and other			17				20				22
			701				935				888
Cost of products sold			(607	)			(665	)			(546	)
Freight and other distribution costs			(92	)			(118	)			(93	)
Export duties, net			(29	)			53				30
Amortization			(51	)			(45	)			(45	)
Selling, general and administration			(51	)			(45	)			(39	)
Restructuring and impairment charges			(31	)			—				—
Operating earnings (loss)			(160	)			115				195
Finance income, net			2				5				1
Other income (expense)			(2	)			7				(2	)
Earnings (loss) before tax		$	(161	)		$	127			$	194
Adjusted EBITDA1		$	(77	)		$	160			$	240
SPF (MMfbm)
Production			594				649				720
Shipments			582				714				673
SYP (MMfbm)
Production			707				765				659
Shipments			713				764				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.

 

        

 

        

		Q4-22				Q3-22				Q4-21
SPF Sales by Destination		MMfbm		%		MMfbm		%		MMfbm		%
U.S.		347		60%		481		67%		461		68%
Canada		213		37%		213		30%		128		19%
China		5		1%		—		—%		60		9%
Other		17		2%		20		3%		24		4%
		582				714				673

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.

 

        

 

        

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)		Q4-22				Q3-22				Q4-21
Cash deposits paid1			(12)				(23)				(20)
Adjust to West Fraser Estimated ADD rate2			(17)				(5)				(5)
Effective duty expense for period3			(29)				(28)				(25)
Duty recovery attributable to AR24			—				—				55
Duty recovery attributable to AR35			—				81				—
Export duty (expense) recovery			(29)				53				30
Net interest income on duty deposits receivable			3				7				7

 

1.	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.

2.	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.

3.

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.

4.	$55 million represents the duty recovery attributable to the finalization of AR2 duty rates for the 2019 POI.

5.	$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.

 

        

 

        

Adjusted EBITDA ($ millions)		Q3-22 to Q4-22				Q4-21 to Q4-22
Adjusted EBITDA - comparative period		$	160			$	240
Price			(132	)			(176	)
Volume			—				3
Changes in export duties			(83	)			(59	)
Changes in costs			20				(44	)
Impact of inventory write-downs			(32	)			(47	)
Other			(10	)			6
Adjusted EBITDA - current period		$	(77	)		$	(77	)

North America Engineered Wood Products Segment

 

NA EWP Segment Earnings   ($ millions unless otherwise indicated)		Q4-22				Q3-22				Q4-21
Sales
OSB		$	447			$	596			$	666
Plywood, LVL and MDF			157				194				162
Wood chips, logs and other			6				8				6
			610				798				834
Cost of products sold			(397	)			(468	)			(398	)
Freight and other distribution costs			(76	)			(92	)			(72	)
Amortization			(73	)			(71	)			(73	)
Selling, general and administration			(27	)			(23	)			(21	)
Operating earnings			35				144				270
Finance income (expense), net			1				(2	)			—
Other income (expense)			3				2				(5	)
Earnings before tax		$	40			$	144			$	265
Adjusted EBITDA1		$	109			$	215			$	343
OSB (MMsf 3/8” basis)
Production			1,442				1,560				1,469
Shipments			1,409				1,600				1,543
Plywood (MMsf 3/8” basis)
Production			162				194				175
Shipments			181				193				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.