2012 Annual Report

Transcription

2012 Annual Report
WEST FRASER
ANNUAL REPORT 2012
Including Annual Information Form dated April 2, 2013
WEST FRASER
Including Annual Information Form dated April 2, 2013
ANNUAL REPORT 2012
Table of Contents
1. Map of Operations
13.Panels
2. Financial & Operating Highlights 14. Pulp & Paper
4. Report to Shareholders
14. External Factors Affecting
West Fraser’s Business in 2012
7. Corporate Structure
15. Risk Factors
8. Annual Information Form
15. Capital Structure
8. Business Overview
17.Experts
8. Corporate Strategy
17. Directors and Officers
9.History
19.Governance
9. Fibre Supply
19. Audit Committee
11. Capital Expenditures
and Acquisitions
20. Material Contracts
11. Human Resources
20. Additional Information
11.Markets
20. Schedule 1 —
Audit Committee Charter
12. Research and Development
23. Management’s Discussion
12.Lumber
& Analysis
24. Annual Results
25. Annual Earnings Adjustments for
Certain Non-Operational Items
26. Lumber Segment
27. Panels Segment
28. Pulp & Paper Segment
30. 4th Quarter Results
31. Quarterly Earnings Adjustments
for Certain Non-operational
Items
31. Discussion & Analysis of Quarterly
Non-operational Items
31. Discussion & Analysis
by Product Segment
33. Business Outlook
34. Earnings Sensitivity
to Key Variables
34. Capital Structure and Liquidity
36. Significant Management
Judgments Affecting
Financial Results
37. Accounting Standards Issued
But Not Yet Applied
38. Risks and Uncertainties
40. Disclosure Controls and Internal
Controls Over Financial
Reporting
41. Responsibility of Management
42. Auditor’s Report
43. Financial Statements
66. Five-year Financial Review
67. Corporate Information
69. Glossary of Industry Terms
4
3
36
10 28
33
9 29 30
7
12
5
11 26 EDMONTON
31 QUESNEL
35 ALBERTA
34 27 1
2 32
13
8
6
NORTH 21
CAROLINA
TENNESSEE
SOUTH
MEMPHIS
ARKANSAS
CAROLINA 22
23
18
ALABAMAGEORGIA
17 15
24
20
19
16
14
25
TEXAS LOUISIANA
FLORIDA
WEST FRASER TIMBER CO. LTD.
VANCOUVER
OPERATIONS
West Fraser is a North American wood LUMBER
products company. Its main product is Canada
1.Quesnel
lumber (spruce/pine/fir (“SPF”) and southern 2. Williams Lake
yellow pine (“SYP”)), and it also produces 3.Smithers
4.Chetwynd
panels (plywood, MDF and LVL), pulp (NBSK 5. Fraser Lake
and BCTMP), newsprint and wood chips. 6.Chasm
7.Houston
The operations located in western Canada 8. 100 Mile House
manufacture all of the products described 9. Blue Ridge
10. Slave Lake
above except SYP lumber. The sawmills 11.Hinton
located in the southern United States produce 12.Edson
13.Sundre
SYP lumber and wood chips.
1
U.S.
14.Joyce
15.Huttig
16.Henderson
17. New Boston
18.Leola
19.Maplesville
20.Opelika
21.Seaboard
22.Armour
23.Newberry
24.Augusta
25.Whitehouse
PULP & PAPER MDF
33. Blue Ridge
26.Hinton
27. Quesnel (2)
28. Slave Lake
29.Whitecourt
PLYWOOD
34.Quesnel
VENEER & LVL
35.Rocky Mountain House
36. Slave Lake
30.Edmonton
31.Quesnel
32. Williams Lake
LEGEND
Lumber
Pulp & Paper
Plywood
MDF
LVL
OPERATIONS
BRITISH
COLUMBIA
FINANCIAL & OPERATING HIGHLIGHTS
Earnings ($ millions)
2012
2011
Sales
3,000 2,762
EBITDA
279 226
Operating earnings
127 58
Earnings from continuing operations
87 27
Earnings after discontinued operations
87 73
Cash flow from operating activities
195 85
WEST FRASER TIMBER CO. LTD.
Common Share Data (in dollars per share, except shares outstanding)
Shares outstanding (thousands)
— Weighted average (basic)
42,857 42,840
— Year-end
42,863 42,846
Earnings per share
— Basic from continuing operations
2.02 0.63
— Diluted from continuing operations
2.02 0.41
— Basic after discontinued operations
2.02 1.70
— Diluted after discontinued operations
2.02 1.47
Cash dividends per share
0.56 0.56
Common shareholders’ equity
34.81 34.61
Price range
— High (2012 — Dec 21; 2011 — Apr 4)
75.23 62.86
— Low (2012 — Apr 25; 2011 — Oct 4) 40.16 34.90
— Close 70.05 41.40
FINAnCIAL AND Operating Highlights
2
Financial Position ($ millions)
Working capital
438 Total assets
2,618 Long-term debt
300 Shareholders’ equity
1,492 430
2,518
306
1,483
Analytical Data
Current ratio
2.1 2.4
Capital expenditures and acquisition ($ millions)
180 213
Net debt to capitalization (%)
12 14
Return on common shareholders’ equity (%)
6.0 4.7
FINANCIAL & OPERATING HIG
378
(7)
780
778
186
192
1,634
1,596
Pulp & Paper
Sales ($ millions)
775 Operating earnings ($ millions) 61 NBSK (Mtonnes)Production
529 Shipments
531 BCTMP (Mtonnes)
Production
620 Shipments
626 Newsprint (Mtonnes)
Production 128 Shipments
127 813
83
509
489
623
642
122
122
1
Includes intercompany fibre sales
GHLIGHTS
3
FINAnCIAL AND Operating Highlights
Panels
Sales ($ millions)1
448 Operating earnings ($ millions)
39
Plywood (3/8” MMsf)Production
793 Shipments
798 MDF (3/4” MMsf)Production
195 Shipments
193 LVL (Mcf)
Production
1,964 Shipments
1,888 WEST FRASER TIMBER CO. LTD.
2012
2011
Lumber
Sales ($ millions)1
1,855 1,670
Operating earnings ($ millions)
94
(20)
SPF (MMfbm)
Production
3,466 3,408
Shipments
3,453 3,389
SYP (MMfbm)Production
1,488 1,503
Shipments
1,485 1,471
Report TO SHAREHOLDERS
After a five year depression in the U.S. During the year, we continued our aggressive capital spending program.
housing market, the fundamentals
We substantially completed major modernization projects at several of our
for a sustained improvement in
sawmills in Canada and the U.S. In addition, we invested heavily in energy
that sector appear to be taking reduction, environmental improvement and safety and dust control projects.
hold. Since the beginning of 2012,
U.S. housing starts have increased
by 37% driven by continuing low
interest rates, rising home prices
and a declining inventory of new
and existing homes for sale. The
We are encouraged by the improvement in safety metrics in the Company
as a result of the continued strengthening of the safety culture throughout
the organization. We remain focused on our goal of eliminating serious and
debilitating injuries at West Fraser.
Expenditures on environmental and energy projects during the year resulted
upswing in the housing market, combined with continuing strong demand in an overall improvement in our environmental footprint by increasing our
from Japan and China, has driven a steady increase in lumber and panel
production of bio-energy and reducing our reliance on fossil fuels. Today,
markets throughout the year. Lumber and plywood prices have strengthened 60% of our energy needs are internally generated from biomass.
by 46% and 37% respectively since the beginning of the year.
We continue to focus our efforts on environmental performance both in our
Pulp prices, on the other hand, declined by 10% from the previous year’s mills and in the forests we manage. We have a strong group of people
level due to continued weak paper demand in North America, Europe and dedicated to energy conservation and to bio-energy and bio-products
Japan as well as the addition of significant new pulp capacity in South development and innovation throughout our organization. In addition, all
WEST FRASER TIMBER CO. LTD.
America. Newsprint prices were flat during the year.
REPORT TO SHAREHOLDERS
4
Our lumber and panels businesses accounted for 74% of our annual sales in
2012 so the strong rebound in pricing for these products more than offset the
weaker results in our pulp & paper business resulting in adjusted earnings1
of our woodlands operations are certified to the independent Sustainable
Forestry Initiative standard and West Fraser continues to play a leading role
in working collaboratively with many environmental organizations on the
Canadian Boreal Accord initiative.
for the year of $138 million compared to $23 million in 2011. After capital
spending, acquisitions and dividend expenditures of over $200 million, we
ended the year with a debt to capital ratio of 12% and one of the strongest
balance sheets in the industry.
REPORT TO SHAREHOLDERS
1
Refer to the table titled “Annual Earnings Adjustments for Certain Non-operational Items” in Management’s Discussion and Analysis of our 2012 results for details
of adjustments.
The devastating effects of the mountain pine beetle continue to affect
We continue to invest in our U.S. sawmills to bring them, as a group, into
production and profitability at many of our British Columbia sawmills. the lower cost quartiles in the south. By the end of 2013 we will be about
Productivity, lumber recovery and grade outturn are all negatively affected
half way through our major modernization program which we expect to be
by the declining quality of timber we are harvesting from the beetle-infested substantially complete within three years. Our U.S. division contributed
forests. We have made significant investments in many of our mills but significantly to our profits in 2012 and we expect improving results in the
these modifications and improvements do not fully offset the effects of
the deteriorating timber quality. Over the next few years lumber capacity
throughout the interior of British Columbia may be reduced by up to 35% due
to the reduced availability of economically accessible timber. West Fraser will
continue to work diligently to mitigate the impact of reduced harvests on our
operations and our communities.
future as we work through our capital upgrade program.
In 2012 West Fraser was North America’s largest lumber producer with half
of our production coming from our mills in Alberta and the U.S. Over the
past decade we have substantially expanded our geographic base outside
of British Columbia which has reduced our concentration risk and greatly
improved our access to new timber baskets. A further benefit of this growth
In West Fraser’s case, the declining harvest levels in British Columbia will has been the many new and talented employees who have joined us and
be partially offset by our growing capacity in Alberta and the United States. who will help us continue to improve and build on our solid manufacturing
While the mountain pine beetle is also an issue in some parts of Alberta, we base. This is particularly important to our future development given the
are hopeful that existing efforts by government and industry to control its
fact that 35% of our employees are over the age of fifty and 20% of our
spread will prove more successful than in British Columbia.
employees are currently eligible to retire. These are typical demographics
acquisition for West Fraser as Sundance has a strong timber position that will
for us to attract, develop and retain talented young workers who will build
their careers with us.
integrate well with our existing operations. Following an extensive renovation
of the mill this year, we expect our new Edson mill will be a highly efficient and
low-cost facility that will be a positive addition to our asset base in Alberta.
A further benefit of this growth has been the many new and talented employees
who have joined us and who will help us continue to improve and build on our
solid manufacturing base.
WEST FRASER TIMBER CO. LTD.
from Sundance Forest Industries in Edson, Alberta. This is a very strategic
for the North American manufacturing sector and point to the crucial need
5
REPORT TO SHAREHOLDERS
In October 2012, West Fraser acquired a sawmill and related timber rights
REPORT TO SHAREHOLDERS (CONTINUED)
Skills training and management development are key areas of focus for our
On March 1, 2013 Ted Seraphim was appointed our new President and CEO.
Company today. Over the past couple of years we have invested a significant
Ted had been our President and Chief Operating Officer for the past year. At
amount of resources in all facets of training throughout the Company. We will
the same time I assumed the role of Executive Chairman and will work closely
be even more intensely focused on identifying and developing future leaders
with Ted and his very capable management team as we continue to build
for our Company in the years ahead as we are intent on maintaining and
West Fraser into one of North America’s premier forest companies.
increasing the competitive advantage our talented and committed work force
has given us over the years.
Today we look to the future with a great deal of optimism. We have emerged
West Fraser is fortunate to have an experienced, active and engaged Board of
Directors. Their advice and guidance have been an invaluable element in our
continuing growth and development. I want to thank them and our Director
from the worst industry downturn in 70 years as a larger and stronger Emeritus, Bill Ketcham, for their ongoing support.
company. We’re in the early stages of a housing rebound which should
support rising prices for our lumber and panel products. In addition, following
three years of significant capital investment, we believe we have positioned
our pulp & paper business as a low-cost producer in North America. This
business should now be profitable throughout the cycle.
In 2012, West Fraser achieved a total shareholder return of 71%. This is
one of the best returns in the industry and is a reflection not only on the
strengthening markets for our products but also on our many great employees
who work hard every day to keep West Fraser at the forefront of our industry.
I thank them for their continuing support and dedication to our Company.
Most importantly, the forest industry in North America is increasingly
being recognized as a “green” industry where sustainably managed and
independently certified forests are providing building products and bio-
WEST FRASER TIMBER CO. LTD.
products that are better for the environment than available alternatives. This
REPORT TO SHAREHOLDERS
6
is a fundamental change that will make our industry a more relevant and Henry H. Ketcham
sought-after career destination for our next generation of leaders. West
Executive Chairman
Fraser is proud of the leadership role we have played in enhancing the
environmental reputation of our industry.
Today we look to the future with a great deal of optimism. We have emerged
from the worst industry downturn in 70 years as a larger and stronger company.
We’re in the early stages of a housing rebound which should support rising
prices for our lumber and panel products.
WEST FRASER TIMBER CO. LTD.
WEST FRASER MILLS LTD.
LUMBER
PANELS
PULP & PAPER
Canada
U.S.3
Plywood
Pulp
QuesnelJoyce
EdmontonHinton
Williams Lake
Huttig
Quesnel
Quesnel
Smithers
Henderson
Williams Lake
Quesnel (50%)4
Chetwynd
New Boston
Slave Lake
Fraser Lake
Leola
MDF
Chasm
Maplesville
Blue RidgeNewsprint
Houston
Opelika
Quesnel
Whitecourt (50%)5
100 Mile House
McDavid
Blue Ridge1Seaboard Veneer & LVL
Slave Lake
Armour
Rocky Mountain House2
Hinton
Newberry
Slave Lake
Sundre2Augusta
EDSON Folkston
Whitehouse
1.
2.
3.
4.
5.
Owned through Blue Ridge Lumber Inc., a wholly-owned subsidiary.
Owned through Sundre Forest Products Inc., a wholly-owned subsidiary.
Owned through West Fraser, Inc., a wholly-owned subsidiary.
Joint venture interest in Cariboo Pulp & Paper Company.
Joint venture interest in Alberta Newsprint Company owned through West Fraser Newsprint Ltd., a wholly-owned subsidiary.
CORPORATE STRUCTURE
7
CORPORATE STRUCTURE
WEST FRASER TIMBER CO. LTD.
CORPORATE STRUCTURE
ANNUAL INFORMATION FORM
Date
This Annual Information Form of West Fraser Timber Co. Ltd. (“West Fraser” or the “Company”) is dated as of April 2, 2013. Except as otherwise indicated,
the information contained in it is as of December 31, 2012.
Business Overview
West Fraser is a North American integrated wood products company which produces lumber (spruce/pine/fir (“SPF”) and southern yellow pine (“SYP”)),
panels (plywood, MDF and LVL), pulp (NBSK and BCTMP), newsprint and wood chips. The operations located in western Canada manufacture all of the
products described above except SYP lumber. The sawmills located in the southern U.S. produce SYP lumber and wood chips.
The annual production capacities of our wholly-owned facilities and our share of the capacities of our joint venture facilities are as follows:
Lumber (MMfbm)
SPF
3,800
SYP
2,000
Total
5,800
Panels
Plywood (MMsf 3/8”)830
MDF (MMsf 3/4”)300
LVL (Mcf)3,200
WEST
WEST FRASER
FRASER TIMBER
TIMBER CO.
CO. LTD.
LTD.
Pulp (Mtonnes)
BCTMP
NBSK
Annual Information Form
8
650
590
Newsprint (Mtonnes)135
Corporate Strategy
Our goal at West Fraser is to generate strong financial results through the business cycle, relying on our committed work force, the quality of our assets,
and our well-established corporate culture. This culture emphasizes cost control in all aspects of the business and on competitiveness, both internally and
externally. In our approach to employee relations, we emphasize employee involvement and favour internal promotions whenever possible.
West Fraser is an integrated and diversified producer of wood products with access to extensive timber resources. Acquisitions and expansions are
considered with a view to extending our existing business lines, particularly in lumber operations, and to product and geographic diversification. Our
earnings over the business cycle have enabled us to make significant and ongoing capital investments in our facilities to maintain and improve our overall
low-cost position.
We are committed to operating in a financially conservative and prudent manner. The North American wood products industry is cyclical, and over the
last several years has faced very difficult market conditions and serious challenges. During such cyclical downturns, we focus on financial discipline,
including reduction or deferral of non-essential capital expenditures. We believe that maintaining a strong balance sheet provides the ability to react to
growth opportunities.
Corporate Structure
The chart on page 7 shows the relationship of West Fraser to the principal direct and indirect subsidiaries and the joint ventures in which we participate
and, where less than 100%, the percentage of our direct or indirect ownership.
Forward-looking Statements
This Annual Information Form, and the Annual Report of which it forms a part, contain historical information, descriptions of current circumstances and statements about
potential future developments. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader but their accuracy depends
on a number of assumptions and is subject to various risks and uncertainties. Forward-looking statements are included under the headings “Fibre Supply – First Nations
Issues” and “Capital Structure – Dividends” and in parts of the Management’s Discussion & Analysis incorporated herein. Actual outcomes and results will depend on a
number of factors that could affect the ability of the Company to execute its business plans, including the matters described in these sections and under “Risk Factors”,
and may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements which reflect
management’s estimates, projections and views only as of the date hereof. The Company undertakes no obligation to publicly revise these statements to reflect subsequent
events or changes in circumstances except as required by applicable securities laws.
West Fraser assumed its present form in 1966 by the amalgamation of a group of companies under the laws of B.C. The principal operating subsidiary,
West Fraser Mills Ltd., assumed its present form on January 1, 2005 by amalgamation under those laws. West Fraser, Inc. is a Delaware corporation, while
Blue Ridge Lumber Inc. and Sundre Forest Products Inc. are Alberta corporations. West Fraser Newsprint Ltd. subsists under the laws of Canada. Alberta
Newsprint Company (“ANC”) and Cariboo Pulp & Paper Company are unincorporated joint ventures governed, respectively, by the laws of Alberta and B.C.
Our executive office is located at 858 Beatty Street, Suite 501, Vancouver, B.C., Canada, V6B 1C1 and our registered office is located at 1500 – 1055 West
Georgia Street, Vancouver, B.C., Canada, V6E 4N7.
History and Development of Business
West Fraser originated in 1955 when three brothers, Pete, Bill and Sam Ketcham, acquired a lumber planing mill located in Quesnel, B.C. (“Quesnel”). From
1955 through 2012 the business expanded in western Canada through the acquisition of a number of sawmills and related timber harvesting rights and
the acquisition or development of lumber, panel and pulp & paper businesses. Expansion into the southern U.S. began in 2000, with the acquisition of two
sawmills. An additional 13 sawmills located in the southern U.S. were acquired in 2007.
Major developments for West Fraser during the last five years include the following:
2010 Closure of linerboard and kraft paper mill at Kitimat, B.C. in January 2010.
2011 Sale of Kitimat industrial site, deep-sea wharf and Terrace sawmill.
2012 Purchase of sawmill at Edson, Alberta.
Sales Revenue1 ($ millions)
Year ended December 31
2012
2011
2010
2009
Lumber
1,783
1,579
1,622
1,285
Panels
442
370
401
391
Pulp & Paper
775
813
863
677
Total
3,000
2,762
2,886
2,353
2008
1,645
428
789
2,862
Log Supply
Our U.S. operations, which produce SYP lumber, consume approximately 8 million tons of logs per year operating at capacities described in this Annual
Information Form. These operations obtain approximately 26% of their log requirements under certain long-term supply contracts, with the balance being
purchased on the open market.
In B.C. and Alberta substantially all timberlands are publicly owned and the right to harvest timber is acquired through provincially-granted licences.
Licences grant the holder the right to harvest up to a specified quantity of timber annually and either have a term of 15 to 25 years and are replaceable
or renewable or have a shorter term but are not replaceable or renewable. The following table summarizes the timber tenures, as at December 31, 2012,
which supply the Canadian mills that we own or in which we have an interest, as well as our Annual Allowable Cut (“AAC”) for such tenures.
Timber Tenures (thousand m3)
Location
Tenure1 Expiry
B.C.
Coniferous Long-term 2021 – 2035
Coniferous Short-term 2013 – 2017
Alberta
Coniferous Long-term
2018 – 2029
Deciduous Long-term
2021 – 2029
AAC
5,493
520
6,018
1,165
1. Long-term tenures include TFLs, FMAs, timber quotas and forest licences, which are renewable timber tenures. Short-term tenures include non-replaceable forest licences.
Annual log requirements for our Canadian sawmills, plywood facilities and LVL plant, all operating at the capacities described in this Annual Information
Form, total approximately 14 million m3. Approximately 75% of these requirements can be obtained from the tenures described in the above table and
the balance is acquired from third parties holding short or long-term timber harvesting rights, including independent logging contractors, First Nations,
communities and woodlot owners.
Timber tenures in B.C. and Alberta require the payment of a fee, commonly known as stumpage, for timber harvested under it. Currently, stumpage in
Alberta is product-price specific and varies with the sales price of the product into which the logs will be converted. Stumpage in B.C. is substantially based
on the results of certain publicly-auctioned timber harvesting rights.
9
Annual Information Form
Fibre Supply
Our operations are dependent on the consistent supply of substantial quantities of wood fibre in various forms. The primary manufacturing facilities,
which produce lumber, plywood and LVL, consume whole logs while the pulp & paper and MDF facilities mostly consume wood by-products in the form
of wood chips, shavings and sawdust resulting from the production of lumber, plywood or LVL. Many facilities also consume hog fuel and wood waste
in energy systems.
WEST FRASER TIMBER CO. LTD.
1. From continuing operations and excludes intercompany fibre sales.
ANNUAL INFORMATION FORM (CONTINUED)
Timber tenures in B.C. and Alberta require the holder to carry out reforestation to ensure re-establishment of the forest after harvesting. Reforestation
requirements depend on climate, terrain, species and other factors affecting regeneration. Reforestation projects are planned and supervised by our
woodlands staff and are subject to approval by relevant government authorities. Our timber harvesting operations are carried out by independent contractors
under the supervision of our woodlands staff.
Mountain Pine Beetle
The current mountain pine beetle infestation in the B.C. interior reached a peak in terms of the annual timber mortality rate in 2004. To date, B.C.’s Ministry
of Forests, Lands and Natural Resource Operations estimates that 710 million m3 of pine has been attacked and killed and that approximately 58% of the
mature pine within the province’s timber harvesting land base will be killed by 2017. Although the ultimate effect of the infestation is less severe than
originally forecasted, the damage to the mature pine forests within our operating areas is significant.
WEST
WEST FRASER
FRASER TIMBER
TIMBER CO.
CO. LTD.
LTD.
We continue to focus on the salvage and processing of dead pine in order to utilize as much of the resource as possible and to ensure that affected sites are
promptly reforested. The Province of B.C. has also limited the harvest of non-pine species until the salvage of dead pine stands comes to a conclusion. The
AAC will be reduced to reflect lower mature inventories as dead pine stands are harvested or when they are no longer economic to harvest. The Province
has reduced the AAC in the central Interior by approximately 8% in the past two years and we expect this process to continue over the next several years.
To date, B.C.’s Chief Forester has announced reductions of the AAC in three of our operating areas in the Interior. As the timing of future reductions and
the effect on our AACs will depend on a variety of factors, including the amount of non-pine species available for harvest, the full effect on our operations
cannot reasonably be determined at this time.
Annual Information Form
10
In Alberta, the Ministry of Environment and Sustainable Resource Development and the forest industry continue to implement aggressive programs of
early detection, single tree control and focussed harvesting activity. Beetles have declined significantly in the southern part of the province but a significant
population remains in the northwest and west-central areas, including some pockets within our tenures. There is still risk of further in-flight of insects from
northwestern B.C. We continue to work aggressively to reduce the number of susceptible pine stands and conduct spread control activities across the
region in concert with other forest industry participants and the Province of Alberta.
Certification
Our Canadian woodlands operations, in addition to being subject to various environmental protection laws, are third-party certified to internationallyrecognized, sustainable forest management standards. For more information concerning our sustainable and environmentally sound forest practices see
our Sustainability Report and our Environmental Report at www.westfraser.com.
First Nations Issues
Issues relating to Canada’s aboriginal people (“First Nations”) have the potential to have a significant effect on resource industries in Canada, including wood
products. The main First Nations issues that are relevant to our operations relate to aboriginal rights and title, and consultation.
The potential existence of aboriginal title and rights over substantial portions of B.C., including areas where our timber tenures are located, has created
uncertainty with respect to property rights and natural resource development in the province. The Supreme Court of Canada (the “SCC”) determined in
1997 that First Nations may possess rights in respect of land used or occupied by their ancestors where treaties have not been concluded to deal with those
rights. Very few areas of B.C. are the subject of such treaties, although all of Alberta is covered by treaties. This uncertainty in B.C. may be alleviated by the
negotiation of treaties with First Nations and further judgments of the courts.
In 2004, the SCC confirmed that the Crown must consult with First Nations before authorizing activity that might infringe on their interests in certain
circumstances and, when appropriate to do so, seek to accommodate those interests by minimizing interference with them. In 2005 the SCC determined
that this Crown duty of consultation applies to treaty lands as well as non-treaty lands, so the duty of consultation applies to all of the lands in B.C. and
Alberta where our timber tenures are located. Authorizations requiring consultation may include approval of cutting permits and required ministerial action
relating to the transfer or renewal of Crown timber tenures. The process of consultation and, when appropriate, accommodation is currently not clearly
defined, creating some uncertainty with respect to Crown timber harvesting rights held by wood products companies, including West Fraser.
We participate as requested by the Crown in the consultation process, but rely on provincial governments to adequately discharge obligations to First Nations
in order to preserve the validity of actions dealing with public rights, including the granting of Crown timber harvesting rights. We also seek to develop good
relationships with the First Nations that may be affected by our business activities.
However, as the jurisprudence and government policies respecting aboriginal title and rights and the consultation process continue to evolve, we cannot
at this time predict whether First Nations claims will have a material adverse effect on our timber harvesting rights or on our ability to exercise or renew
them, or secure other timber harvesting rights.
Residual Fibre Supply
In Canada substantially all our requirements for wood chips, shavings and sawdust and hog fuel are supplied from our own operations, either directly or
indirectly through trades. This reduces our exposure to risks associated with price fluctuations and supply shortages. Our B.C. sawmills and plywood
plants fulfill substantially all of the fibre requirements of our B.C. pulp operations and MDF plant. The Alberta MDF plant obtains its fibre from the adjacent
Blue Ridge sawmill and other sawmills in the area. The Hinton pulp mill obtains its fibre from the adjacent Hinton sawmill and other sawmills in the area,
including those owned by us. At times we produce whole log chips to supplement the supply of residual chips from our various sawmills. Almost all of the
fibre requirements of ANC are obtained from local sawmills, including the Slave Lake sawmill and veneer operation, through log-for-chip trades using logs
harvested from ANC’s tenures. The balance is obtained from direct fibre purchases. The Slave Lake deciduous FMA provides most of the fibre requirements
of the Slave Lake pulp mill, with the balance being obtained from logs purchased from local suppliers.
The majority of the wood chips produced by our U.S. operations are sold to pulp mills at market prices pursuant to long-term contracts.
1. Includes reimbursable expenditures under the Pulp and Paper Green Transformation Program.
2. Amounts for years prior to 2010 have not been restated under IFRS and are prepared under previous Canadian generally accepted accounting principles.
Human Resources
At December 31, 2012, we employed approximately 7,200 individuals, including our share of those in joint venture operations. Approximately 39% of our
employees are covered by collective agreements. Certain agreements covering approximately 425 employees expired in 2012 and remain unresolved. In
2013, collective agreements covering approximately 1,600 employees will expire.
Markets
Our products are sold in markets open to a number of companies with similar products. Purchasing decisions by customers are generally based on price,
quality and service. Prices and sales volumes are influenced by general economic conditions. The following table shows selected average benchmark
prices for the past five years for products of the type we produced, although these prices do not necessarily reflect the prices we obtained.
Average Benchmark Prices (In US$ except plywood)
Year ended December 31
2012
2011
2010
2009
SPF 2x4 random length (per Mfbm)1
299
255
256
182
2
SYP #2 West 2x4 (per Mfbm) 348
279
304
242
Plywood (per Msf 3/8” basis)3 Cdn$
382
308
334
329
MDF (per Msf 3/4” basis)4
566
546
536
489
Newsprint (per tonne)5
640
640
607
560
6
NBSK (per tonne) 872
977
960
718
Sources:
1. Random Lengths – 2x4, #2 & Better – Net FOB mill.
2. Random Lengths – 2x4 – Net FOB mill Westside.
3. Crow’s Market Report – Delivered Toronto.
4. Resource Information Systems, Inc. – MDF Western U.S. – Net FOB mill.
5. Resource Information Systems, Inc. – U.S. delivered 48.8 gram newsprint.
6. Resource Information Systems, Inc. – U.S. list price, delivered U.S.
2008
221
297
337
530
695
856
11
Annual Information Form
Capital Expenditures and Acquisitions ($ millions)
Year ended December 31
2012
2011
2010
2009220082
Lumber
109
108
47
10
27
Panels
4
5
2
1
1
Pulp & Paper1
35
99
39
7
17
Corporate & Other
2
1
1
1
2
150
213
89
19
47
Acquisition
30
—
—
—
— Total
180
213
89
19
47
WEST FRASER TIMBER CO. LTD.
Capital Expenditures and Acquisitions
We regularly invest in upgrading and expanding our facilities and operations. However, during periods when earnings are weak, we will reduce capital and
other expenditures in order to preserve liquidity. The following table shows the capital expenditures and acquisitions during the past five years.
ANNUAL INFORMATION FORM (CONTINUED)
Research and Development
We support industry research and development organizations, and conduct research and development at several plants to improve processes, maximize
resource utilization and develop new products and environmental applications.
LUMBER
WEST FRASER
FRASER TIMBER
TIMBER CO.
CO. LTD.
LTD.
WEST
Capacity and Production (both MMfbm)
2012
2011
2010
2009
Capacity – year-end
5,800
5,700
5,500
5,500
Annual Information Form
12
Production:
B.C. Sawmills (SPF)
Quesnel
590
582
Williams Lake
244
248
Smithers
269
277
Chetwynd
242
252
Fraser Lake
373
400
Chasm
250
244
Houston
249
261
100 Mile House
244
233
Other 1
—
—
2,461
2,497
Alberta Sawmills (SPF)
Blue Ridge
392
360
Slave Lake
18
16
Hinton
306
272
Sundre
277
263
Edson3
12
—
1,005
911
U.S. Sawmills (SYP)
Joyce, LA
177
201
Huttig, AR
132
137
Henderson, TX
118
134
New Boston, TX
153
165
Leola, AR
138
121
Maplesville, AL
100
88
Opelika, AL
87
71
McDavid, FL2
—
—
Seaboard, NC
128
112
Armour, NC
158
174
Newberry, SC
126
123
Augusta, GA
116
108
2
Folkston, GA —
—
Whitehouse, FL
55
69
Other1
—
—
1,488
1,503
Total Production
4,954
4,911
2008
6,000
529
262
276
272
376
230
257
195
—
2,397
485
225
263
240
364
155
173
129
—
2,034
474
255
246
262
369
282
265
233
163
2,549
378
12
257
274
—
921
357
20
204
268
—
849
342
28
209
261
—
840
194
125
116
139
115
71
57
—
104
177
105
106
—
56
—
1,365
4,683
190
116
115
129
85
63
56
—
112
170
95
100
—
38
—
1,269
4,152
194
149
120
138
78
84
64
76
107
160
110
100
71
63
56
1,570
4,959
1. Includes production from mills shut or sold.
2. Indefinitely curtailed.
3. Purchased October 31, 2012.
Lumber capacity by region and species is approximately 66% SPF (68% B.C. and 32% Alberta) and 34% SYP (all U.S.).
Operations
We own 27 sawmills of which 2 are currently indefinitely curtailed. We also have a wood-treating facility at the Sundre sawmill.
Sales
Lumber produced at our Canadian sawmills and sold to North American customers is marketed and sold from our sales office in Quesnel, while sales to
offshore markets are made from our export sales office in Vancouver, B.C. Offshore sales activities are complemented by customer service offices in Japan
and China. Lumber produced at our U.S. sawmills is marketed by the sales group in Memphis, Tennessee. From time to time, we purchase lumber for
resale in order to meet requirements of customers.
In 2012 sales of lumber from Canadian and U.S. operations were made to customers in the U.S. and Canada and to customers offshore, predominantly in
China and Japan. Most lumber shipments to North American customers by the Canadian operations were made by rail and the rest by truck. Most lumber
shipments to North American customers by the U.S. operations were delivered by truck and the rest by rail. Offshore shipments from both Canada and the
U.S. were through various public terminals, mostly in container vessels and the rest by breakbulk carriers.
Panels
2008
820
299
267
248
814
112
112
224
3,200
1,264
Operations
Our panel operations include three plywood mills that primarily produce standard softwood sheathing plywood, two MDF mills, each with the flexibility to
manufacture varying thicknesses and sizes, an LVL mill, and a veneer mill that produces veneer for use in the Edmonton plywood mill.
Sales
Plywood and LVL are marketed from our sales office in Quesnel to retail outlets, wholesale distributors, remanufacturers and treating businesses. MDF
is marketed under the names “Ranger”™, “WestPine”™, “Eco-Gold”™ and “Ecopremium”™ from our Edmonton, Alberta sales office and through
distributors under the direction of our sales personnel.
In 2012 sales of plywood were made to customers in Canada, sales of MDF were to customers in the U.S., Canada and other areas and sales of LVL were
to customers in the U.S. and Canada. Shipments to North America were by rail or truck and offshore shipments were by bulk and container vessels.
WEST FRASER TIMBER CO. LTD.
300
13
Annual Information Form
Capacity and Production
2012
2011
2010
2009
3
Plywood (MMsf /8” basis)
Capacity – year-end
830
830
830
830
Production:
Alberta Plywood
296
293
301
290
Williams Lake
250
250
250
237
Quesnel
247
237
240
218
Total Production
793
780
791
745
MDF (MMsf 3/4” basis)
Capacity – year-end
300
300
300
300
Production:
Ranger Board
112
110
120
110
WestPine
83
76
72
85
Total Production
195
186
192
195
LVL (Mcf) Capacity – year-end
3,200
3,200
3,200
3,200
Production
1,964
1,634
1,918
1,643
ANNUAL INFORMATION FORM (CONTINUED)
Pulp & Paper
Pulp
Capacity and Production (Mtonnes)
2012
2011
2010
2009
BCTMP
Capacity – year-end
650
640
620
580
Production:
QRP
398
392
367
298
Slave Lake Pulp
222
231
249
203
Total Production
620
623
616
501
NBSK
Capacity – year-end
590
590
530
530
Production:
Hinton
370
337
354
361
1
Cariboo 159
172
171
162
Total Production
529
509
525
523
2008
580
354
205
559
510
325
158
483
WEST FRASER TIMBER CO. LTD.
1. Reflects West Fraser’s 50% share of ownership.
Annual Information Form
14
Operations
BCTMP is produced, primarily from hardwood aspen, at our Slave Lake pulp mill and also produced, primarily from softwood, at our Quesnel River pulp mill
(“QRP”). These pulps are used by paper manufacturers to produce paperboard products, printing and writing papers and a variety of other paper grades.
NBSK is produced at our Hinton and Cariboo pulp mills and is used by paper manufacturers to produce a variety of paper products, including tissues and
printing and writing papers.
Sales
Pulp is marketed out of our pulp sales office in Vancouver. In 2012, sales of both NBSK and BCTMP were to customers in North America, Asia, predominantly
China, and to other offshore customers. Shipments within North America were primarily by rail and those to offshore customers were by rail to Vancouver
and then by bulk or container vessels.
Newsprint
Capacity and Production1 (Mtonnes)
2012
2011
2010
2009
Capacity – year-end
135
135
135
135
Production
128
122
131
111
2008
135
125
1. Reflects West Fraser’s 50% share of ownership.
Operations
The ANC mill at Whitecourt, Alberta produces standard newsprint in two basis weights: 45 and 48.8 grams per square metre.
Sales
Newsprint is sold to various publishers in North America through a partnership owned indirectly by the ANC owners. In 2012, sales were to customers in
the U.S. and Canada. Shipments were by rail and truck.
External Factors Affecting West Fraser’s Business in 2012
Economic Conditions
Our earnings are sensitive to changes in world economic conditions, primarily those in North America, Europe and Asia and particularly to the U.S. housing
market. Most of our revenues are from sales of commodities for which prices are sensitive to variations in supply and demand. Since most of these sales
are in foreign currencies, mainly U.S. dollars, currency exchange fluctuations against the Canadian dollar are a major source of earnings volatility for us.
Softwood Lumber Agreement
Effective October 12, 2006 a Softwood Lumber Agreement between Canada and the U.S. (the “SLA 2006”) came into force. The SLA 2006 originally had
a term of seven years, but in January 2012 was extended and now expires in October 2015.
Under the SLA 2006 we are required to pay a tax to Canada on softwood lumber we export into the U.S. The basic tax may range up to 15% of the value
of the lumber for producers in B.C. and Alberta, and will vary depending on a reference lumber price. Subject to U.S. lumber consumption and the volume
of lumber shipments to the U.S. from either province, an additional 50% surcharge on the applicable basic tax may be levied. In certain circumstances,
exporters may be entitled to a refund of up to one-third of taxes paid.
Energy
Our pulp, paper and MDF operations consume substantial amounts of energy. The Hinton and Cariboo pulp mills have generating facilities which produce
electricity to satisfy much of their energy requirements.
In B.C., electricity is purchased from the provincial utility at regulated prices based largely on generation costs. In Alberta, electricity is purchased at market
prices through the Alberta power pool.
In Alberta, we are hedged against electricity market price fluctuations for a substantial volume of our electricity consumption through a long-term power
purchase agreement that provides electricity at prices based largely on generation costs and inflation. Our exposure to energy costs includes the cost to
purchase electricity, natural gas, gasoline, diesel fuels and fuel surcharges on purchased transportation.
Risk Factors
A detailed discussion of risk factors is included in “Management’s Discussion & Analysis – Risks and Uncertainties”, which is incorporated herein by
reference. Our Management’s Discussion & Analysis is available on SEDAR at www.sedar.com.
Capital Structure
Share Capital
Our authorized share capital consists of 230,000,000 shares divided into:
(a) 200,000,000 Common shares,
(b) 20,000,000 Class B Common shares, and
WEST FRASER TIMBER CO. LTD.
Environment
Our manufacturing operations are subject to environmental protection laws and regulations. We have developed internal programs to ensure that our
operations are in compliance with applicable laws and standards and to address any instances of non-compliance. We are committed to responsible
stewardship of the environment and the continual improvement of our forest practices and manufacturing procedures to optimize the use of resources
and minimize the impact of our operations on the environment. We have adopted an Environmental Policy, a copy of which is available on our website
at www.westfraser.com.
15
The Common shares and Class B Common shares are equal in all respects, including the right to dividends and the right to vote, except that each Class B
Common share may at any time be exchanged for one Common share. The Common shares are listed and traded on the Toronto Stock Exchange under
the symbol WFT while our Class B Common shares are not. Certain circumstances or corporate transactions may require the approval of the holders of
our Common shares and Class B Common shares on a separate class by class basis. As at December 31, 2012, the issued share capital consisted of
40,281,242 Common shares and 2,581,478 Class B Common shares for a total of 42,862,720 shares (December 31, 2011 – 42,846,113 shares).
Credit Ratings
As shown in the table below, West Fraser is rated by three rating agencies. West Fraser pays annual fees to maintain its debt and corporate ratings. No
rating changes occurred during 2012 but Standard & Poor’s changed its Outlook from Positive to Stable in October and Dominion Bond Rating Service
changed its Outlook from Stable to Positive in November. The ratings are assigned both on a corporate level and specifically to the US$300 million 144A
debentures maturing October 2014. At below investment grade levels, Moody’s assigns a corporate as well as debt-specific rating but at investment
grade levels, ratings apply to specific debt issues. During February 2013, Moody’s changed its Ba1 rating, a below investment grade rating, to Baa3, an
investment grade rating, and this rating specifically applies to our US$300 million 144A. The ratings are not a recommendation to buy, sell or hold securities
and may be subject to revision or withdrawal at any time by each rating agency.
Annual Information Form
(c) 10,000,000 Preferred shares, issuable in series.
ANNUAL INFORMATION FORM (CONTINUED)
Ratings
Agency
Dominion Bond Rating Service1
Moody’s2
Standard & Poor’s3
WEST FRASER TIMBER CO. LTD.
1.
2.
3.
Annual Information Form
16
Rating
BB(high)
Baa3
BB+
Outlook
Positive
Stable
Stable
DBRS credit ratings for long-term obligations range from AAA to D. A rating of BB is described by DBRS as “Speculative, non-investment grade credit quality. The
capacity for the payment of financial obligations is uncertain. Vulnerable to future events.” Additional information on the rating is available on DBRS’s website.
Moody’s credit ratings for long-term obligations range from Aaa to C. Moody’s describes obligations rated Baa as “subject to moderate credit risk. They are considered
medium-grade and as such may possess certain speculative characteristics”. Additional information on the rating is available on Moody’s website.
S&P credit ratings for long-term obligations range from AAA to D. A rating of BB is described by S&P as “less vulnerable in the near-term but faces major ongoing
uncertainties to adverse business, financial and economic conditions”. Additional information on the rating is available on S&P’s website.
Market Prices
The following table sets forth market prices and trading volumes of our Common shares on the Toronto Stock Exchange for each month of 2012 and 2011.
2012 2011
High
Low
Close
Volume
Close
Volume
($)
($)
($)
(000’s)
($)
(000’s)
January
49.99
41.53
48.31
1,077
50.46
1,202
February
50.32
45.34
47.92
1,456
46.50
1,061
March 51.50
45.12
46.11
1,213
60.43
2,021
April
46.54
40.16
43.43
1,075
53.80
1,815
May
47.70
41.86
46.89
1,136
49.95
1,202
June
51.83
44.47
51.36
1,194
52.57
1,732
July
53.90
50.38
53.10
999
45.71
2,149
August
56.74
51.94
55.59
1,385
42.51
2,011
September
58.30
55.16
55.94
2,227
39.85
1,163
October
63.21
55.39
60.49
1,618
43.00
1,748
November
69.67
60.77
69.67
2,389
46.76
1,199
December
75.23
68.25
70.05
3,132
41.40
1,249
Total
18,901
18,552
Source: http://tradingdata.tsx.com
Dividends
The declaration and payment of dividends is within the discretion of our Board of Directors. Historically, dividends have been declared on a quarterly basis
payable after the end of each quarter. On an annual basis, dividends of $0.56 per share were paid in both 2012 and 2011 while in 2010 the dividend per
share was $0.18. There can be no assurance that dividends will continue to be declared and paid by us in the future, as the discretion of the Board of
Directors will be exercised from time to time taking into account our current circumstances.
Transfer Agent
Our transfer agent and registrar is CIBC Mellon Trust Company, with registers of transfers in Vancouver and Toronto.
Experts
Our auditors are PricewaterhouseCoopers LLP (“PwC”), who prepared the Auditor’s Report included with our Consolidated Financial Statements for the year
ended December 31, 2012. PwC has confirmed that it is independent with respect to us, within the meaning of the Rules of Professional Conduct of the
Institute of Chartered Accountants of B.C., as of February 14, 2013.
Directors and Officers
Principal Occupation
Executive Chairman
Director Since
September 16, 1985
Clark S. Binkley1, 3 & 4
Portland, Oregon
Managing Director, International Forestry Investment Advisors (advisory services)
February 13, 1992
J. Duncan Gibson1, 3 & 4
Toronto, Ontario
Investor
April 29, 1997
Samuel W. Ketcham3 & 4
Seattle, Washington
Investor
April 27, 2010
Harald H. Ludwig2 & 4
West Vancouver, B.C.
President, Macluan Capital Corporation (diversified private equity investments)
May 2, 1995
Gerald J. Miller3
Lake Country, B.C.
Corporate Director
April 19, 2012
Robert L. Phillips2, 4 & 5
Vancouver, B.C.
Corporate Director
April 28, 2005
Janice G. Rennie1, 2 & 4
Corporate Director
April 28, 2004
Edmonton, Alberta
1.
2.
3.
4.
5.
Member of the Audit Committee.
Member of the Compensation Committee.
Member of the Safety & Environment Committee.
Member of the Governance & Nominating Committee.
Lead Director.
Each director has held the same or a similar principal occupation with the organization indicated or a predecessor thereof for the last five years except for
Henry H. Ketcham who before March 1, 2013 was our Chairman and Chief Executive Officer and before April 19, 2012 was also our President; and Gerald
J. Miller who before July 31, 2011, was our Executive Vice-President, Finance and Chief Financial Officer and before January 1, 2009 was our Executive
Vice-President, Operations. The term of office of each director will expire at the conclusion of the Company’s next annual general meeting.
17
Annual Information Form
Name and
Municipality of Residence
Henry H. Ketcham
Vancouver, B.C.
WEST FRASER TIMBER CO. LTD.
Directors
The names and municipalities of residence of the directors of the Company, their principal occupations during the past five years and the periods during
which they have been directors of the Company are as follows:
ANNUAL INFORMATION FORM (CONTINUED)
WEST FRASER TIMBER CO. LTD.
Officers
Name and Municipality of Residence
Henry H. Ketcham
Vancouver, B.C.
Annual Information Form
18
Office Held
Executive Chairman
Ted Seraphim
North Vancouver, B.C.
President and Chief Executive Officer
Raymond W. Ferris
Quesnel, B.C.
Vice-President, Wood Products
Larry S. Hughes
Vancouver, B.C.
Vice-President, Finance and Chief Financial Officer
Secretary
Rodger M. Hutchinson
West Vancouver, B.C.
Vice-President, Corporate Controller
Maureen F. Kuper
Burnaby, B.C.
Treasurer
David P. Lehane
Quesnel, B.C.
Vice-President, Woodlands
Christopher D. McIver
Quesnel, B.C.
Vice-President, Lumber Sales and Corporate Development
Sean P. McLaren
Collierville, Tennessee
Vice-President, U.S. Lumber Operations
Peter A. Rippon
Vice-President, Pulp and Energy
Quesnel, B.C.
Each officer has held the same or a similar office with the organization indicated or a predecessor thereof for the last five years except for Henry H.
Ketcham (see disclosure under “Directors”); Ted Seraphim, who before March 1, 2013 was our President and Chief Operating Officer, before April 19, 2012
was our Executive Vice-President and Chief Operating Officer and before June 18, 2010 was our Vice-President, Pulp & Paper; Raymond W. Ferris, who
before January 1, 2009 was our Vice-President, Lumber Operations; Larry S. Hughes, who before August 1, 2011 was our Senior Vice-President and
Secretary; David P. Lehane, who before April 19, 2012 was Vice-President, Canadian Woodlands; Christopher D. McIver, who before October 1, 2010 was
our Vice-President, Lumber Sales; Sean P. McLaren, who before October 1, 2010 was our General Manager, Wood Products for the U.S. operations and
before August 11, 2010 was our Manufacturing Manager for the U.S. operations; and Peter A. Rippon, who before October 1, 2010 was our Operations
Manager, Mechanical Pulp and Energy and before May 14, 2008 was our Operations Manager, Mechanical Pulp.
Shareholdings of Directors and Officers
The directors and executive officers of the Company as a group, beneficially owned or controlled or directed, directly or indirectly, the following shares of
the Company:
Common shares
% of total Common shares
Class B Common shares
% of total Class B Common shares
% of all shares outstanding
December 31, 2012
December 31, 2011
982,462
2,716,763
2%7%
78,728911,794
3%
33%
2%
8%
Governance
Corporate governance is guided by our Corporate Governance Policy, a copy of which may be viewed on our website: www.westfraser.com. The Board of
Directors has established a Governance & Nominating Committee comprised of all non-management directors. The Committee provides support for the
stewardship and governance role of the Board in reviewing and making recommendations on the composition of the Board, the functioning of the Board
and its committees, succession planning and all other corporate governance matters and practices. On the occasion of each regularly-scheduled meeting
of the Board in 2012, the Committee met without management representatives present and reviewed these and other issues.
Audit Committee
The Audit Committee of our Board of Directors assists the Board in fulfilling its responsibility to oversee our financial reporting and audit process. The full
text of the Audit Committee’s Charter is attached as Schedule 1.
Clark S. Binkley
Dr. Binkley holds a Bachelor of Arts in Applied Mathematics and a PhD in Forestry and Environmental Studies. He was recently the Chief Investment Officer
of the world’s largest private equity timberland investment firm. He has served as a director of public and private forest products companies.
J. Duncan Gibson
Mr. Gibson holds a Bachelor of Commerce and a Masters of Business Administration. His career spanned 27 years with the Toronto-Dominion Bank,
including nine years in the Corporate Banking, U.S. Division, and as Vice Chairman with responsibility for the Commercial Banking Division.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that sets out the pre-approval requirements related to services to be performed by our independent auditors. The
policy provides that the Committee will annually review proposed audit, audit-related, tax and other services (to be submitted by the Chief Financial Officer
and the independent auditor), and will provide general approval of described services, usually including specific maximum fee amounts.
Unless a service has received general pre-approval, it will require specific pre-approval by the Committee. The Committee is permitted to delegate preapproval authority to any of its members. The Committee reports on the pre-approval process to the full Board of Directors from time to time.
19
Annual Information Form
Janice G. Rennie
Mrs. Rennie, who holds a Bachelor of Commerce, is a Chartered Accountant. She was elected as Fellow of the Chartered Accountants in 1998. Mrs.
Rennie has chaired or been a member of several audit committees of public companies, including Teck Resources Limited, Nova Chemicals Inc., Weldwood
of Canada Limited, Canadian Hotel Income Properties REIT, Capital Power Corporation, Methanex Corporation, Major Drilling Group International Inc. and
Matrikon Inc.
WEST FRASER TIMBER CO. LTD.
Members
The following identifies each current member of the Audit Committee, and the education and experience of each member that is relevant to the performance
of the member’s responsibilities as an Audit Committee member. All members of the Audit Committee are considered “independent” and “financially
literate” within the meaning of MI 52-110.
ANNUAL INFORMATION FORM (CONTINUED)
Fees Paid to Auditors ($ thousands)
2012
1
Audit Fees 920
Audit-Related Fees2
209
Tax Fees
529
2011
909
276
107
1. Represents actual and estimated fees related to fiscal year ends.
2. For assurance and related services that are reasonably related to the performance of the audit but are not reported as “Audit Fees”.
Material Contracts
On March 30, 2007, we entered into a committed revolving $600 million operating facility with an original maturity date of 2012. The facility has been
amended from time to time to extend the maturity date, to reflect certain covenant adjustments and for the granting of security. On December 13, 2010
we reduced the facility from $600 million to $500 million and on September 30, 2011, we extended the maturity date to September 2016. The facility
continues to include general floating security over our assets and, where required under applicable U.S. laws, mortgages on certain real properties in
the U.S.
WEST
WEST FRASER
FRASER TIMBER
TIMBER CO.
CO. LTD.
LTD.
Additional Information
Additional information, including directors’ and officers’ remuneration and indebtedness, principal holders of our securities and securities authorized for
issuance under equity compensation plans, is contained in the Information Circular for the annual general meeting of the Company to be held on April 30,
2013. Additional financial information is provided in our comparative consolidated financial statements and Management’s Discussion & Analysis for the
year ended December 31, 2012.
Annual Information Form
20
Copies of our Annual Report, which includes this Annual Information Form and the documents incorporated by reference herein, our comparative
consolidated financial statements (including the auditor’s report) for the year ended December 31, 2012, as well as each consolidated interim financial
statement prepared for a period after December 31, 2012, and our Information Circular may be obtained at any time upon request from us, but we may
require the payment of a reasonable charge if the request is made by a person who is not a security holder of the Company.
This Annual Information Form, our Annual Report and additional information concerning the Company may also be obtained on the website
www.westfraser.com and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.
Schedule 1
The Audit Committee Charter, which is set out below, was approved by the Board on December 8, 2010.
General Mandate
To assist the Board in fulfilling its responsibility to oversee the Company’s financial reporting and audit processes, its system of internal controls and its
process for monitoring compliance with applicable financial reporting and disclosure laws and its own policies.
Responsibilities
The Committee will carry out the following responsibilities:
Financial Statements
• Review significant accounting and financial reporting issues, including complex or unusual transactions, significant contingencies and highly
judgmental areas, and recent professional and regulatory pronouncements, and understand their impact on the Company’s financial statements
• Review interim financial reports (including financial statements, management’s discussion and analysis and related news releases) with
management and the auditors, consider whether they are complete and consistent with the information known to Committee members and
provide a recommendation to the Board with respect to the approval of the interim financial reports
• Understand how management develops interim financial information, and the nature and extent of auditor involvement
• Review with management and the auditors the results of the audit, including any difficulties encountered
• Review the annual financial statements, the annual management discussion and analysis and related news releases, and consider whether they are
complete, consistent with information known to Committee members, and reflect appropriate accounting principles, and provide a recommendation
to the Board with respect to the approval of the statements, the management discussion and analysis and the news release
• Review with management and the auditors all matters required to be communicated to the Committee under generally accepted auditing
standards
• Approve, if so delegated by the Board, the interim financial reports and annual financial statements and the filing of the same together with all
required documents and information with regulators
• Understand the scope of the auditors’ review of internal control over financial reporting, and obtain and review reports on significant findings and
recommendations, including respecting the Company’s accounting principles or changes to such principles or their application and the treatment
of financial information discussed with management, together with management’s responses
Audit
• Review the auditors’ proposed audit scope and approach
• Review the performance of the auditors, and provide a recommendation to the Board with respect to the nomination of the auditors for appointment
and remuneration
• Review and confirm the independence of the auditors by obtaining statements from the auditors on relationships between the auditors and
the Company, including non-audit services, and discussing the relationships with the auditors
• Periodically evaluate the need for the establishment of an internal audit function and make appropriate recommendations to the Board
Compliance
• Review the effectiveness of the system for monitoring compliance with financial reporting and disclosure laws and the results of management’s
investigation and follow-up (including disciplinary action) of any instances of non-compliance
• Review the findings of any examinations by regulatory agencies, and any auditor observations
• Obtain regular updates from management and Company legal counsel regarding compliance matters
Reporting Requirements
• Regularly report to the Board about Committee activities, issues and related recommendations
• Provide an open avenue of communication between the auditors and the Board
21
Annual Information Form
• Review with management and auditors the adequacy and effectiveness of the Company’s internal control over annual and interim financial
reporting, including information technology security and control and controls related to the prevention and detection of fraud and improper or
illegal transactions or payments, the status of the remediation of any identified control deficiencies, and elicit recommendations for improvements
WEST FRASER TIMBER CO. LTD.
Internal Control
• Require management of the Company to implement and maintain appropriate internal control procedures over annual and interim financial reporting
ANNUAL INFORMATION FORM (CONTINUED)
• Review any reports the Company issues that relate to Committee responsibilities
Other Responsibilities
• Institute and oversee special investigations as needed
• Develop and implement a policy for the approval of the provision of non-audit services by the auditors and assessing the independence of the
auditors in the context of these engagements
• Establish procedures for: (a) the receipt, retention and treatment of complaints received regarding non-compliance with the Company’s Code of
Conduct, violations of laws or regulations, or concerns regarding accounting, internal accounting controls or auditing matters; and (b) the
confidential, anonymous submission by officers or employees of the Company or by other persons of concerns regarding questionable accounting,
auditing or financial reporting and disclosure matters or non-compliance with the Company’s Code of Conduct or other matters that are of a
sensitive or “whistleblower” nature
• Perform other activities related to this charter as requested by the Board
• Review and assess the adequacy of this charter annually, requesting Board approval for proposed changes
• Review terms of any Code of Conduct established by the Board and respond to any related compliance issues
WEST FRASER TIMBER CO. LTD.
• Confirm annually to the Board that all responsibilities outlined in this charter have been carried out
Annual Information Form
22
Qualifications and Procedures
• The composition of the Committee will comply with applicable laws including requirements for independence, unrelated to management, financial
literacy and audit experience
• The Committee will meet at least four times annually, and more frequently as circumstances dictate, and the CFO and a representative of the
auditors should be available on request to attend all meetings
• The Committee should meet privately in executive session with representatives of each of management and of the auditors to discuss any matters
of concern to the Committee or such members, including any post-audit management letter
• Minutes of each meeting should be prepared, approved by the Committee and circulated to the full Board
2012 MANAGEMENT’S DISCUSSION & ANALYSIS
This discussion and analysis by West Fraser’s management (“MD&A”) of West Fraser’s financial performance during 2012 and the fourth quarter of 2012
should be read in conjunction with the 2012 annual audited consolidated financial statements and accompanying notes. Dollar amounts are expressed in
Canadian currency, unless otherwise indicated.
The financial information contained in this MD&A has been prepared in accordance with International Financial Reporting Standards (“IFRS”), which as of
January 1, 2011 is the required reporting framework for Canadian publicly accountable enterprises. Prior period comparative financial information for 2010
has been restated, and is shown in accordance with IFRS.
This MD&A includes references to benchmark prices over selected periods for products of the type produced by West Fraser. These benchmark prices do
not necessarily reflect the prices obtained by West Fraser for those products during such period. The information in this MD&A is as at February 14, 2013
unless otherwise indicated.
For definitions of various abbreviations and technical terms used in this MD&A please see the Glossary of Industry Terms found in our Annual Report.
23
MANAGEMENT’S DISCUSSION & ANALYSIS
Throughout this MD&A reference is made to EBITDA (defined as operating earnings plus amortization). We believe that, in addition to earnings, EBITDA is a
useful performance indicator and is a useful measure of cash available prior to debt service, capital expenditures and income taxes. Reference is also made
to Adjusted earnings (loss) from continuing operations and Adjusted basic EPS from continuing operations calculated as set out in the table titled “Annual
Earnings Adjustments for Certain Non-operational Items” (collectively, with EBITDA, “these measures”). None of these measures is a generally accepted
earnings measure under IFRS and none has a standardized meaning prescribed by IFRS. Investors are cautioned that none of these measures should be
considered as an alternative to earnings, earnings per share or cash flow, as determined in accordance with IFRS. As there is no standardized method of
calculating any of these measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of
any of these measures may not be directly comparable to similarly titled measures used by other entities.
WEST FRASER TIMBER CO. LTD.
This MD&A contains historical information, descriptions of current circumstances and statements about potential future developments and anticipated
financial results. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader but their accuracy depends
on a number of assumptions and is subject to various risks and uncertainties. Forward-looking statements are included under the headings “Annual Results
– Discussion & Analysis by Product Segment – Pulp & Paper Segment” concerning expected reduction in energy consumption and costs and “Business
Outlook”. As well, the table titled “Earnings Sensitivity to Key Variables” and descriptions of announced but not implemented actions such as projected
capital expenditures should be considered as forward-looking statements. Actual outcomes and results of these statements will depend on a number of
factors including those which are described under the heading “Risks and Uncertainties”; and may differ materially from those anticipated or projected.
Accordingly, readers should exercise caution in relying upon forward-looking statements and we undertake no obligation to publicly revise them to reflect
subsequent events or circumstances except as required by applicable securities laws.
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
Ann ual R e s ult s
Sales and Earnings Comparison ($ millions, except as otherwise indicated)
Year ended December 31
2012
2011
Sales by Segment
Lumber1
1,783
1,579
Panels1
442
370
Pulp & Paper
775
813
Total
3,000
2,762
1,622
401
863
2,886
279
226
460
(152)(168
)(185)
127
58
275
EBITDA
Amortization
Operating earnings
WEST
WEST FRASER
FRASER TIMBER
TIMBER CO.
CO. LTD.
LTD.
Operating Earnings by Segment
Lumber
94
Panels
39
Pulp & Paper
61
Corporate and Other
(67)
Total
127
Earnings – continuing operations
Earnings – after discontinued operations2
Diluted earnings per share – continuing operations ($)
Diluted earnings per share – after discontinued operations2 ($)
Cash dividends per share ($)
Total assets
Long-term debt
Cdn$1.00 converted to US$ – average
24
1. Excludes intercompany fibre sales.
2. The Company’s linerboard and kraft paper mill located in Kitimat, B.C. ceased operations in the first quarter of 2010.
MANAGEMENT’S DISCUSSION & ANALYSIS
2010
(20)
(7)
83
2
58
87
87
2.02
2.02
0.56
2,618
300
1.000
27
73
0.41
1.47
0.56
2,518
306
1.011
138
40
133
(36)
275
182
186
4.24
4.35
0.18
2,610
300
0.971
Selected Quarterly Information
($ millions, except earnings per share (“EPS”) amounts which are in $)
Sales1
Earnings (loss)1
Earnings after
discontinued operations
Basic EPS1
Diluted EPS1
Basic EPS after
discontinued operations
Diluted EPS after
discontinued operations
1. From continuing operations.
Q4-12
773
22
Q3-12
772
55
Q2-12
774
27
Q1-12
681
(17)
Q4-11
650
(11)
Q3-11
705
6
Q2-11
720
11
Q1-11
687
21
22
0.51
0.51
55
1.27
1.27
27
0.63
0.63
(17)
(0.39)
(0.39)
6
(0.25)
(0.25)
37
0.14
(0.29)
10
0.27
(0.07)
20
0.46
0.46
0.51
1.27
0.63
(0.39)
0.14
0.87
0.24
0.44
0.51
1.27
0.63
(0.39)
0.14
0.44
(0.09)
0.44
Annual Earnings Adjustments for Certain Non-operational Items
($ millions except EPS amounts which are in $)
2012
2011
Earnings from continuing operations
8727
Adjustments to earnings from continuing operations
Equity-based compensation
61
(3)
U.S. dollar-denominated long-term debt
(7)7
Sale of Terrace sawmill
—
(8)
Net tax effect on the above adjustments
(3)—
Net effect of above items
51(4
)
Adjusted earnings from continuing operations
Adjusted basic EPS from continuing operations
13823
3.220.54
Discussion & Analysis of Annual Non-operational Items
Earnings from continuing operations in 2012 improved significantly compared to results for 2011. For a description of operational results see “Discussion
& Analysis by Product Segment” which follows this section. Our results include several significant non-operational items that are identified as adjustments
in the table immediately above this section. After taking into account these adjustments, we generated adjusted earnings from continuing operations of
$138 million compared to $23 million in 2011.
In 2011 we completed the sale of the Terrace sawmill and the related Crown timber tenures and recorded an $8 million gain to other income. Also during
2011, we sold the remaining assets that had been part of our linerboard and kraft paper mill located at Kitimat, B.C. and included a gain of $49 million in
discontinued operations on the sale of these assets.
The difference between our statutory income tax rate and our effective rate is explained in note 19 to the accompanying annual consolidated
financial statements.
The funded position of our defined benefit pension plans and other post retirement plans, whether surplus or deficit, is estimated at the end of each quarter.
The funded position, as shown in note 14 to the accompanying annual consolidated financial statements, is determined by subtracting plan assets from plan
obligations. The decrease in the discount rate from the beginning of the year, partially offset by asset returns being greater than those anticipated during
the year, resulted in a net actuarial loss that increased net liabilities accrued on our balance sheet at December 31, 2012 by $69 million. The actuarial loss
for the year, net of taxes, of $52 million was charged to other comprehensive earnings.
25
MANAGEMENT’S DISCUSSION & ANALYSIS
Any change in the value of the Canadian dollar relative to the value of the U.S. dollar results in the revaluation of certain U.S. dollar-denominated liabilities
and assets. A $7 million gain on U.S. dollar-denominated long-term debt for 2012 reflects a modest strengthening of the Canadian dollar at the close of
2012 compared to the close of 2011. The $7 million loss in 2011 reflected a similar weakening of the Canadian dollar by the end of that year. Included in
other income is a translation loss on current monetary items of $5 million, compared to a gain of $3 million in 2011.
WEST FRASER TIMBER CO. LTD.
In 2012 an expense of $61 million was recorded related to equity-based compensation compared to a recovery of $3 million in 2011. An expense is
recorded on the issuance of share options or phantom or directors’ deferred share units and an additional expense or recovery is recorded each quarter
based primarily on valuation models that consider various factors relating to outstanding options and units. The most significant of these factors is the
change in the market value of our shares from the beginning to the end of the particular period. The market value of the Company’s shares increased over
69% from $41.40 per share at the end of 2011 to $70.05 per share at the end of 2012. The expense or recovery does not necessarily represent the actual
amount that will ultimately be paid by the Company in respect of options and units.
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
Discussion & Analysis by Product Segment
Lumber Segment
($ millions, except as otherwise indicated)
20122011
Production (MMfbm)
SPF
3,466
3,408
SYP
1,4881,503
Shipments (MMfbm)
SPF
3,4533,389
SYP
1,485
1,471
Wood chip production
SPF (M ODTs)
1,710
1,676
SYP (M green tons)
1,927
1,939
WEST FRASER TIMBER CO. LTD.
Sales
MANAGEMENT’S DISCUSSION & ANALYSIS
26
1,855
1,670
EBITDA
180
65
Amortization
(86)(85)
Operating earnings
94
(20)
EBITDA margin (%)
10
4
Capital expenditures
109
108
Acquisition
30 —
Benchmark prices (per Mfbm)
SPF #2 & Better 2x41 – US$
299
255
SPF #3 Utility1 - US$
250217
SYP #2 West 2x42 – US$
348279
SPF #2 & Better 2x4 – Cdn$3
299
252
3
SPF #3 Utility - Cdn$ 250
215
SYP #2 West 2x4 – Cdn$3
348
276
1.
2.
3.
Source: Random Lengths – 2x4, #2 & Better – Net FOB mill.
Source: Random Lengths – 2x4 – Net FOB mill Westside.
Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
The lumber segment’s operating earnings were adversely affected early in the year by very weak low-grade SPF lumber pricing due to oversupplied Chinese
markets and by declining chip prices resulting from weakening pulp prices. As reflected in the graph below, by the second quarter, low-grade SPF lumber
pricing had improved to reach a more normal relationship with pricing for higher grades (2&Better) and the markets for both SPF and SYP lumber achieved
better balance. This reflected a gradual improvement in U.S. housing-related construction as well as continued steady Asian demand. Benchmark lumber
prices strengthened sufficiently to trigger a duty reduction under the Softwood Lumber Agreement (“SLA”) for June of 2012. These duties are reduced as
a reference composite lumber benchmark unit price reaches prescribed levels above US$315 and are eliminated at levels above US$355. In the second
half of the year lumber prices continued to strengthen reflecting continuing gradual improvement in U.S. housing-related construction and lower duty rates
prevailed as a result. Stronger pricing, lower duties and a slight increase in shipments, partially offset by higher log costs in Canada, resulted in a $114
million improvement in operating earnings for the segment in 2012 compared to 2011.
)LUJOTHYR3\TILY7YPJLZ
$450
SPF-2&Btr
$400
SYP W-#2 W
US$/Mfbm
$350
SPF-#3 Util
$300
$250
$200
$150
Q1-11
Q2-11
2011
Q3-11
Q4-11
Q1-12
Q2-12
Q3-12
2012
Q4-12
Source: Random Lengths
Early in 2012 the Canadian and U.S. governments agreed to extend the term of the SLA to October 2015. A dispute initiated by the U.S. under the SLA
concerning Grade 4 logs in British Columbia was dismissed by an arbitration panel in July 2012. As noted above, with the increase in lumber prices during
2012, SLA duty rates declined and our duty costs were reduced by nearly $10 million compared to 2011.
In 2011 we completed the sale of our sawmill located in Terrace, B.C. and related Crown timber tenures resulting in an $8 million gain included in other
income in that year. At the end of the third quarter of 2012 we completed the acquisition of a sawmill and remanufacturing facility located at Edson,
Alberta and related Crown timber tenures. The facilities have an operational capacity of approximately 150 million board feet and the annual allowable
harvest is approximately 795,000 m3 of coniferous and 53,000 m3 of deciduous timber, including a temporary uplift of approximately 375,000 m3
until 2017. The purchase price, including working capital, was $30 million. In addition to the lumber segment’s planned capital investment program,
approximately $7 million was spent on wood dust control measures in response to a heightened focus by regulators and industry on the safety hazard
represented by wood dust.
Panels Segment
WEST FRASER TIMBER CO. LTD.
Our Canadian sawmills continued to run at or near capacity with some production affected by ongoing capital projects in the first quarter of the year. Our
U.S. sawmills operated at approximately 75% of capacity, including two sawmills that continue to be indefinitely curtailed, with some production affected
by weather and ongoing capital projects.
Sales
448
378
EBITDA
55
8
Amortization
(16)(15)
Operating earnings
39(7)
EBITDA margin (%)
122
Capital expenditures
45
Benchmark prices
Plywood (per Msf 3/8” basis)1 Cdn$
382308
MDF (per Msf 3/4” basis)2 US$
566546
MDF (per Msf 3/4” basis) Cdn$3
566540
1. Source: Crow’s Market Report – Delivered Toronto.
2. Source: Resource Information Systems, Inc. – MDF Western U.S. – Net FOB mill.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
MANAGEMENT’S DISCUSSION & ANALYSIS
($ millions, except as otherwise indicated)
20122011
Plywood (MMsf 3/8” basis)
Production
793
780
Shipments
798
778
3
MDF (MMsf /4” basis)
27
Production
195
186
Shipments
193
192
LVL (Mcf)
Production
1,9641,634
Shipments
1,888
1,596
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
The panels segment is comprised of our three plywood operations, two MDF operations and one LVL operation. All are located in western Canada.
Virtually all of the plywood we produce is sold to customers in Canada. Because the Canadian housing market did not suffer a collapse similar to the U.S.
experience, our plywood business remained fairly strong throughout the 2006 to 2010 period. In the second half of 2010 the stronger Canadian dollar
against the U.S. dollar and continuing weak U.S. housing-related construction resulted in some U.S. plywood producers selling their product into Canada.
This resulted in significantly lower plywood prices in late 2010 and throughout 2011. In 2012 Canadian plywood prices rose steadily through the first
three quarters as the benchmark unit price reached a high of $450 before settling in the fourth quarter at an average of $390 – (see graph below). The
strength of Canadian plywood prices in 2012 appears to reflect very tight supply-chain inventories as well as a decline in U.S. plywood imports in the first
half of the year. As plywood prices rose in the second half of 2012 U.S. plywood imports increased. Improved operating earnings from plywood in 2012
compared to 2011 also reflected lower shipments in 2011. Our plywood segment’s 2012 operating earnings were adversely affected by higher log costs,
particularly in B.C.
)LUJOTHYR7S`^VVK7YPJL
$450
28
Cdn$ (per Msf 3/8” basis) Deliv. Tor.
WEST FRASER TIMBER CO. LTD.
$400
$350
$300
$250
Q1-11
Q2-11
2011
Q3-11
Q4-11
Q1-12
Q2-12
2012
Q3-12
Q4-12
Source: Crow’s Market Report
Operating earnings from our MDF operations also improved with prices rising in the second half of the year. MDF demand is significantly affected by new
home construction which has been gradually strengthening in the U.S. Our LVL operation struggled with increased log costs and continuing weak markets
and continues to operate on a partially curtailed basis.
Pulp & Paper Segment
MANAGEMENT’S DISCUSSION & ANALYSIS
($ millions, except as otherwise indicated)
(From continuing operations)
Sales
EBITDA
Amortization
Operating earnings
EBITDA margin (%)
Capital expenditures1
1. Includes reimbursable expenditures under the Pulp and Paper Green Transformation Program.
The pulp & paper segment is comprised of our NBSK, BCTMP and newsprint businesses.
2012
775
2011
813
109
148
(48)(65)
61
83
14
18
35
99
Pulp1
Production – NBSK (Mtonnes)
Shipments – NBSK (Mtonnes)
Production – BCTMP (Mtonnes)
Shipments – BCTMP (Mtonnes)
Benchmark price – NBSK (per tonne)2 US$
Benchmark price – NBSK (per tonne) Cdn$3
2012
529
531
620
626
872
872
2011
509
489
623
642
977
966
1. For Cariboo Pulp & Paper Company, represents West Fraser’s 50% share.
2. Source: Resource Information Systems, Inc. – U.S. list price, delivered U.S.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
An extended strong NBSK market came to an end in the second half of 2011, mainly as a result of new capacity coming into production. BCTMP markets
had declined several quarters earlier, again as a result of new capacity starting up. NBSK prices declined in 2012 with the Canadian dollar unit benchmark
averaging $872 for the year, down from $966 in 2011 and $989 in 2010. BCTMP prices appeared to reach a floor in 2012 remaining relatively flat
compared with prices in 2011.
The decline in NBSK prices was partially offset by improved NBSK production and shipments as well as lower fibre costs in 2012. Production at our Hinton
pulp mill was lower in 2011 due to a scheduled maintenance shutdown which was followed by a series of operational disruptions.
Depreciation expense for the segment was 26% lower in 2012 compared to 2011 mainly as a result of certain assets becoming fully amortized.
2012
128
127
640
640
2011
122
122
640
633
1. Represents West Fraser’s 50% share of ANC.
2. Source: Resource Information Systems, Inc. – delivered U.S. 48.8 gram.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
Newsprint operating earnings improved in 2012 compared to 2011, largely as a result of increased shipments made possible by increased production.
The production increase resulted from fewer curtailments related to high electricity prices as electricity prices were less volatile during 2012. This reduced
volatility lowered returns associated with the sale of electricity under ANC’s power purchase arrangements.
29
MANAGEMENT’S DISCUSSION & ANALYSIS
Newsprint1
Production (Mtonnes)
Shipments (Mtonnes)
Benchmark price – (per tonne)2 US$
Benchmark price – (per tonne) Cdn$3
WEST FRASER TIMBER CO. LTD.
In 2012 we completed the final projects that had qualified for the Canadian federal government’s Pulp and Paper Green Transformation Program and we
were reimbursed for the balance of the $88 million for which we received credits under the Program. The projects are expected to significantly reduce
future energy consumption and costs at our pulp facilities.
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
WEST FRASER TIMBER CO. LTD.
4th Quart er R e s u lt s
Q4 – 2012
Production
Lumber (MMfbm)
SPF
857
SYP
366
1,223
Plywood (MMsf 3/8” basis)
184
MDF (MMsf 3/4” basis)
51
LVL (Mcf) 498
BCTMP (Mtonnes)
150
NBSK (Mtonnes)
132
Newsprint (Mtonnes)
31
MANAGEMENT’S DISCUSSION & ANALYSIS
30
Shipments
Lumber (MMfbm)
SPF
891
SYP
355
1,246
Plywood (MMsf 3/8” basis)
189
3
MDF (MMsf /4” basis)
48
LVL (Mcf) 446
BCTMP (Mtonnes)
154
NBSK (Mtonnes)
132
Newsprint (Mtonnes)
30
Sales and Earnings Comparison ($ millions, except as otherwise indicated)
Sales by Segment
Lumber1 477
Panels1
109
Pulp & Paper
187
Total
773
Q3 – 2012
Q4 – 2011
842
377
1,219
203
46
445
155
129
31
802
359
1,161
191
42
426
155
100
29
882
392
1,274
193
45
513
147
126
31
829
339
1,168
198
42
366
160
103
29
473
118
181
772
370
93
187
650
1. Excludes intercompany fibre sales.
Operating Earnings by Segment
Lumber
52
37
(30)
Panels
7
22
—
Pulp & Paper
13
17
13
Corporate & Other
(35)
(10)
(5)
Operating earnings
37
66
(22)
Finance expense
(5)(4
)(5
)
Exchange gain (loss) on long-term debt
(3)
10
9
Other income (expense)
2
(3)
1
Recovery of (provision for) income taxes
(9)
(14)
6
Earnings (loss) from continuing operations
22
55
(11)
Earnings from discontinued operations
—
—
17
Earnings
22
55
6
Cdn$1.00 converted to US$ – average
1.0087
1.0046
0.9775
Quarterly Earnings Adjustments for Certain Non-operational Items
($ millions except EPS amounts which are in $)
Earnings (loss) from continuing operations
Adjustments to earnings from continuing operations
Equity-based compensation
U.S. dollar-denominated long-term debt
Net tax effect on the above adjustments
Net effect of above items
Adjusted earnings (loss) from continuing operations
Adjusted basic EPS from continuing operations
Q4 – 2012
22
30
3
(2)
31
Q3 – 2012
55
10
(10)
—
—
4
(9)
1
(4)
53
1.25
55
1.27
(15)
(0.35)
Q4 – 2011
(11)
Discussion & Analysis of Quarterly Non-operational Items
For a description of our operational results see “Discussion & Analysis by Product Segment” which follows this section. Our results include several significant
non-operational items that are identified as adjustments in the table immediately above this section. After taking into account the adjustments, we generated
adjusted earnings from continuing operations of $53 million in the current quarter compared to adjusted earnings of $55 million in the previous quarter
and an adjusted loss of $15 million in the fourth quarter of 2011. For a description of the key adjustments, see the corresponding section under “Annual
Results” in this MD&A.
Discussion & Analysis by Product Segment
Q4 – 2012
Q3 – 2012
Q4 – 2011
495
491
392
75
58
(8)
(23)(21
)(22)
52
37
(30)
15
12 —
335
281
398
332
279
395
300
257
351
299
256
349
238
165
282
243
169
288
1. Source: Random Lengths – Net FOB mill.
2. Source: Random Lengths – Net FOB mill Westside.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
Improved operating earnings reflect higher lumber prices which have increased as demand from the U.S. grows while Asian demand remains relatively
strong. Traditionally U.S. demand for lumber weakens late in the year as winter weather reduces building activities and distributors seek to manage inventory
levels but in the fourth quarter of 2012 demand strengthened lifting benchmark prices. Milder winter weather in the northern U.S. and tighter inventory
levels in the distribution system likely contributed to this unusual price momentum. Shipments of SPF lumber increased over the previous quarter while
shipments of SYP lumber declined compared to strong shipments in the third quarter of 2012. Log costs in the U.S. increased slightly compared to the
previous quarter.
The substantial improvement in operating earnings compared to the same quarter of 2011 mainly reflects price improvements and lower export duties
partially offset by increased log costs.
31
MANAGEMENT’S DISCUSSION & ANALYSIS
Sales
EBITDA
Amortization
Operating earnings
EBITDA margin (%)
Benchmark prices (per Mfbm)
SPF #2 & Better 2x41 – US$
SPF #3 Utility1 – US$
SYP #2 West 2x42 – US$
SPF #2 & Better 2x4 – Cdn$3
SPF #3 Utility – Cdn$3
SYP #2 West 2x4 – Cdn$3
WEST FRASER TIMBER CO. LTD.
Lumber Segment
($ millions, except as otherwise indicated)
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
Panels Segment
Q4 – 2012
Q3 – 2012
Q4 – 2011
Sales
110
119
95
EBITDA
12
25
4
Amortization
(5)(3
)(4)
Operating earnings
7
22
—
EBITDA margin (%)
11
21
4
Benchmark prices
Plywood (Cdn$ per Msf 3/8” basis)1
390
436
314
MDF (US$ per Msf 3/4” basis)2
579
576
549
MDF (Cdn$ per Msf 3/4” basis)3
574
573
562
($ millions, except as otherwise indicated)
1. Source: Crow’s Market Report – Delivered Toronto.
2. Source: Resource Information Systems, Inc. – MDF Western U.S. – Net FOB mill.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.
WEST FRASER TIMBER CO. LTD.
The decline in operating earnings for the panels segment compared to the previous quarter was largely the result of plywood prices which weakened after
peaking in the third quarter. Plywood prices had made a significant recovery during 2012 but demand typically weakens in the fourth quarter as Canadian
construction is affected by winter conditions. Plywood production was lower in the current quarter as a result of downtime due to holidays. Plywood
shipments were only slightly off.
MANAGEMENT’S DISCUSSION & ANALYSIS
32
We saw operating earnings for MDF improve in the current quarter compared to the previous quarter as prices strengthened with improved U.S. new home
construction. Costs for our MDF operations were down compared to the previous quarter due to fewer power-related curtailments at our Alberta facility.
Our LVL operation continues to run on a curtailed basis because of weak markets.
The improvement in operating earnings for the current quarter compared to the same quarter of 2011 reflects higher plywood and MDF prices only partially
offset by lower chip revenues and higher log costs for our plywood and LVL operations.
Pulp & Paper Segment
($ millions, except as otherwise indicated)
Q4 – 2012
Q3 – 2012
Q4 – 2011
Sales
187
181
187
EBITDA
24
28
26
Amortization
(11)(11
)(13
)
Operating earnings
13
17
13
EBITDA margin (%)
13
15
14
Benchmark prices
NBSK (US$ per tonne)1
863
853
920
Newsprint (US$ per tonne)2
640
640
640
NBSK (Cdn$ per tonne)3
856
849
941
3
Newsprint (Cdn$ per tonne) 634
637
655
1. Source: Resource Information Systems, Inc. – U.S. list price delivered U.S.
2. Source: Resource Information Systems, Inc. – delivered 48.8 gram newsprint.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. benchmark price.
Operating earnings for our NBSK operations improved compared to the previous quarter as energy revenues contributed to sales and costs were lower as a
result of lower chip prices and maintenance expenses. However, this improvement was offset by reduced operating earnings for our BCTMP and newsprint
operations. BCTMP prices declined in the fourth quarter and net power costs increased. BCTMP operating earnings in the third quarter benefitted from the
receipt of certain tax credits. Newsprint operating earnings were adversely affected by higher net power costs in the current quarter.
Operating earnings for the segment as a whole were substantially the same as the fourth quarter of 2011 despite lower Canadian dollar product prices and
chip costs as production interruptions at the Hinton pulp mill adversely affected fourth quarter 2011 results.
B us ines s Out look
In 2012 we continued to focus on maintaining a strong balance sheet, reinvesting in our operations, taking advantage of strategic growth opportunities and
generating competitive returns for our shareholders. We expect to do the same in 2013. Despite some promising signs of economic recovery, particularly in
U.S. new home construction, there are still significant uncertainties relating to the health of the broader global economy. Our products are sold mainly within
North America and Asia, particularly China and Japan, and the success of our businesses in 2013 will depend on the economic well-being of those regions.
At the end of the third quarter of 2012 we expressed guarded optimism concerning the recovery of U.S. housing construction and repair and renovation
activities. We continue to believe that this critical sector of the North American economy is on a positive trajectory although the strength and nature of
the recovery is still uncertain. Because of the severity and length of the U.S. housing collapse the supply chain for building products, from logging and
transportation through the distribution system, has contracted and will take time to respond to increased demand. This is likely to create temporary
shortages of product and create price fluctuations while the supply chain is rebuilt. In addition, the pace of the improvement in U.S. housing-related
construction may be uneven. As a result we expect to see volatility in the prices of lumber and other building products including MDF and LVL as U.S.
housing recovers to more traditional levels.
<:/V\ZPUN:[HY[Z
950
900
Thousands
850
800
750
700
650
600
550
Q1-11
Q2-11
2011
Q3-11
Q4-11
Q1-12
Q2-12
2012
Q3-12
Q4-12
If U.S housing continues to recover and Canadian and Asian demand for lumber and panels remains steady we expect that resulting product price increases
will be coupled with upward pressure on key costs, particularly log costs, which will adversely affect our lumber, plywood and LVL operating earnings. The
results of our B.C. lumber operations are likely to reflect the continuing deterioration of the pine forest as the mountain pine beetle infestation moves to its
late stages.
We expect operating earnings from our pulp & paper operations in 2013 to be similar to 2012 as the current excess supply of pulp is likely to persist. We
do not expect a material improvement in pulp markets in 2013. In 2012 we began to receive revenues from the sale of electricity generated by our Cariboo
joint venture pulp mill biomass turbogenerator and we expect that Cariboo’s results will benefit from that revenue stream in 2013 and beyond.
We expect to continue an aggressive capital expenditure program in 2013 which will include significant investments in previously-announced energy
projects including two biomass electricity and heat generation projects at our Chetwynd and Fraser Lake sawmills, a natural gas electricity generation
project at our Alberta Newsprint joint venture and a biomethanation project at our Slave Lake pulp mill. We are also planning to rebuild the recently-acquired
Edson sawmill during 2013. Upon completion of the rebuild in late 2013 the mill will have a lumber manufacturing capacity of approximately 180 MMfbm
per year.
33
MANAGEMENT’S DISCUSSION & ANALYSIS
As the U.S. housing market improves we expect that less U.S. plywood will be sold into Canada. However certain portions of the Canadian housing market
have slowed down, partly in response to government measures to restrict housing-related credit, and this trend may continue in 2013 which could put
downward pressure on plywood operating earnings.
WEST FRASER TIMBER CO. LTD.
Source: U.S. Census Bureau
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
Earnings Sens it i v i t y t o K e y Vari able s
(based on year-end capacities1 – $ millions, except as otherwise indicated)
Factor
Variation
Change in Earnings
Lumber price2,3US$10 (per Mfbm)49
Plywood price2,3Cdn$50 (per Msf)31
MDF price3US$50 (per Msf)
11
NBSK price3US$50 (per tonne)
21
BCTMP price3US$50 (per tonne)23
Newsprint price
US$50 (per tonne)5
4
U.S. – Canadian $ exchange rate US$0.01 (per Cdn $)14
Sawlog cost
Cdn$1 (per m3)
19
1.
2.
3.
4.
Assumes exchange rate of Cdn$1.00 per US$1.00 and an income tax rate of 25.0%.
Change does not include any potential change in log costs.
Change does not include any potential change in wood chip prices.
Excludes exchange impact on translation of U.S. dollar-denominated debt and other monetary items; assumes no change in commodity prices.
WEST FRASER TIMBER CO. LTD.
C ap ital S t r uc t ure and L i q u i d i t y
The capital structure of the Company consists of Common share equity and long-term debt. In addition, the Company maintains a committed revolving
credit facility that is available to meet additional funding requirements.
MANAGEMENT’S DISCUSSION & ANALYSIS
34
The outstanding Common share equity consists of 40,281,818 Common shares and 2,581,478 Class B Common shares for a total of 42,863,296 shares
issued and outstanding as at February 14, 2013.
Class B Common shares are equal in all respects to Common shares and are exchangeable on a one-for-one basis for Common shares. Common shares
are listed for trading on the Toronto Stock Exchange while Class B Common shares are not. Certain circumstances or corporate transactions may require
the approval of the holders of our Common shares and Class B Common shares on a separate class by class basis.
In addition, as of February 14, 2013 there were 1,473,892 share purchase options outstanding with exercise prices ranging from $24.71 to $51.56 per
Common share.
In June and September 2011, West Fraser amended its $500 million committed revolving credit facility to, among other things, extend its maturity date to
September 2016. The facility allows for additional borrowings of up to $150 million, subject to sourcing new lenders for this additional amount. To date
the Company has not sought to access this additional facility. Security pledged to the banks and other lenders in early 2010 remains in place for as long
as the Company’s credit ratings by Standard & Poor’s and Moody’s remain below BBB- and Baa3 respectively. In May 2011, West Fraser entered into an
uncommitted $25 million line of credit for the purpose of establishing letters of credit. Security was also pledged to the lending bank of this facility on equal
terms to the committed revolving facility. Copies of the committed facility and the June and September 2011 amendments are available at www.sedar.com.
On December 31, 2012 there was no balance owing under the credit facilities (2011 – nil). Letters of credit in the amount of $45 million were supported
by both facilities, leaving approximately $485 million of credit available for further use.
West Fraser’s cash requirements, other than for operating purposes, are primarily for interest payments, repayment of debt, additions to property, plant,
equipment and timber, acquisitions and payment of dividends. In normal business cycles and in years without a major acquisition or debt repayment, cash
on hand and cash provided by operations have been sufficient to meet these requirements.
Summary of Financial Position ($ millions, except as otherwise indicated)
As at December 31
Cash1
Current assets
Current liabilities
Ratio of current assets to current liabilities
Net debt2
Shareholders’ equity
Net debt to capitalization3
2012
2011
102
68
823
745
385
315
2.1
2.4
194
232
1,4921,483
12%14
%
1. Cash consists of cash and short-term investments less cheques issued in excess of funds on deposit.
2. Total debt less deferred financing costs less cash.
3. Net debt divided by net debt plus shareholders’ equity.
As shown in the table below, West Fraser is rated by three leading rating agencies. There were no rating changes during 2012 but Standard & Poor’s changed
its Outlook from Positive to Stable while Dominion Bond Rating Service changed its Outlook from Stable to Positive.
Debt Ratings
Agency
Dominion Bond Rating Service
Moody’s
Standard & Poor’s
Rating
BB(high)
Ba1
BB+
Outlook
Positive
Positive
Stable
Change in cash
34
Contractual Obligations as at December 31, 2012 ($ millions)1
2013
2014
2015
2016
2017
Thereafter
Long-term debt
—
2992
—
—
— 2
Operating leases
2
2
2
1
1
5
Asset purchase commitments 90
—
—
—
—
— Total
92
301
2
1
1
7
(93)
Total
301
13
91
405
1. Contractual obligations means an agreement related to debt, leases and enforceable agreements to purchase goods or services on specified terms, but does not include
asset retirement obligations, energy purchases under various agreements, pension contributions payable, accounts payable in the ordinary course of business or
contingent amounts payable.
2. Represents U.S. dollar-denominated debt of US$300 million.
MANAGEMENT’S DISCUSSION & ANALYSIS
WEST FRASER TIMBER CO. LTD.
Selected Cash Flow Items ($ millions)
For the year ended December 31
2012
2011
Operating Activities
Earnings from continuing operations
87
27
Amortization
152
168
Change in income taxes
30
(57)
Contributions to benefit plans in excess of expense
(26)
(58)
Other
(48)5
Cash provided by operating activities
19585
Financing Activities
Debt and operating loans
—
(15)
Finance expense paid
(18)
(20)
Dividends
(24)(24)
Cash used in financing activities
(42)(59)
35
Investing Activities
Acquisition
(30)—
Additions to capital assets
(150)
(213)
Other
6149
Cash used in investing activities
(119)
(164)
Change in cash from continuing operations
34
(138)
Change in cash from discontinued operations
—
45
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
Sign if icant Managemen t Ju dgmen t s A ffec t i ng Fi nanc i al Results
The preparation of financial statements requires management to make estimates and assumptions, and to select accounting policies, that affect the
amounts reported. The significant accounting policies followed by our Company are disclosed in note 3 to the audited consolidated financial statements.
The following judgments are considered the most significant:
Recoverability of Long-lived Assets
As required by IFRS, we assess the carrying value of an asset when there are indicators of impairment. The assessment compares the estimated
discounted future cash flows of the asset to the carrying value of the asset. If the carrying value of the asset exceeds the estimated discounted future cash
flows relating to the asset, the carrying value is written down to the higher of fair value less costs to sell and value in use. No impairments were recorded
in 2011 or 2012.
WEST FRASER TIMBER CO. LTD.
We review the amortization periods for our manufacturing equipment and machinery to ensure that the periods appropriately reflect anticipated obsolescence
and technological change. Current amortization periods for manufacturing equipment range from 6 to 20 years with sawmill equipment amortized over a
maximum of 15 years. Timber rights are amortized over 40 years.
MANAGEMENT’S DISCUSSION & ANALYSIS
36
Goodwill is not amortized. We compare the carrying value of goodwill and related assets, at least once a year, to the estimated discounted cash flows
that the assets are expected to generate. If it is determined that the carrying value is more than the estimated discounted cash flows, then a goodwill
impairment will be recorded. We tested goodwill for impairment in 2012 and concluded that its carrying value is not impaired. The testing of goodwill for
impairment involves significant estimates including future production and sales volumes, product selling prices, foreign currency exchange rates, operating
costs, capital expenditures and the appropriate discount rate to apply. In all cases, we have used our best estimates of these projected amounts and values.
Given the current global economic uncertainty and the volatility of the markets for our products, it is possible that our estimates will be adjusted in the future
and that these adjusted estimates could result in the future impairment of goodwill.
We also review the carrying value of deferred income tax assets to ensure that the carrying value is appropriate. The key factors considered are the
Company’s history of profitability, future expectations of profitability and the timing of expiry of tax loss carry-forwards.
Reforestation and Decommissioning Obligations
In Canada, provincial regulations require timber quota holders to carry out reforestation to ensure re-establishment of the forest after harvesting. Reforested
areas must be tended for a period sufficient to ensure that they are well-established. The time needed to meet regulatory requirements depends on a
variety of factors.
In our operating areas, the time to meet reforestation standards usually spans 12 to 15 years from the time of harvest. We record a liability for the estimated
cost of the future reforestation activities when the harvesting takes place. This liability is reviewed, at least annually, and adjusted to our current estimate of
the costs to complete the remainder of the reforestation activities. In 2012 the review of the reforestation obligation resulted in an increase to the obligation
of $1 million (2011 – increase of $2 million).
We record the estimated fair value of a liability for decommissioning obligations, such as landfill closures, in the period when a reasonable estimate of fair
value can be made. We review these estimates at least annually, and adjust the obligations as appropriate. In 2012 the review resulted in an increase of
the obligation by $1 million (2011 – reduction of $11 million).
Defined Benefit Pension Plan (“D.B. Plan”) Assumptions
We maintain several D.B. Plans for many of our employees. The annual funding requirements and pension expenses are based on various assumptions
that we determine in consultation with our actuaries, as well as on actual investment returns on the pension fund assets and changes to the employee
groups in the pension plans.
D.B. Plan Obligation Assumptions
2012
2011
Discount rate
4.5%
5.0%
Rate of increase in future compensation
3.5%3.5%
Impact on D.B. Plan Obligations of a Change in Key Assumptions ($ millions)
Discount rate
Decrease in assumption from 4.5% to 4.0%
Increase in assumption from 4.5% to 5.0%
Rate of increase in future compensation
Decrease in assumption from 3.5% to 3.0%
Increase in assumption from 3.5% to 4.0%
Obligation
90
(83)
(18)
18
Accoun t ing S tandards I s s u ed B u t N o t Yet Appli ed
The International Accounting Standards Board periodically issues new standards and amendments or interpretations to existing standards. The new
pronouncements listed below are those that we consider most significant. They are not intended to be a complete list of new pronouncements that may
affect the consolidated financial statements.
IFRS 11 - Joint Arrangements
In May 2011 IFRS 11 was issued which provides guidance for determining if a joint arrangement is a joint venture or joint operation. The standard requires
that joint ventures be accounted for by the equity method as opposed to the choice, presently available under IAS 31 - Interests in Joint Ventures, of applying
the equity method or proportionate consolidation. Joint operations are required to be accounted for using the proportionate consolidation method. IFRS 11
is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect this standard to have a significant
effect on our consolidated financial statements.
IFRS 12 - Disclosure of Interests in Other Entities
In May 2011 IFRS 12 was issued which sets out the required disclosures for companies that have adopted IFRS 10 and 11 described above. It requires
disclosure of information that helps users to evaluate the nature, risks and financial effects associated with a company’s interests in subsidiaries, associates
and joint arrangements. IFRS 12 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect
this standard to have a significant effect on our consolidated financial statements.
IFRS 13 - Fair Value Measurement
In May 2011 IFRS 13 was issued which defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair
value measurements. Prior to the introduction of the standard there was no single source of guidance on fair value measurement. IFRS 13 is effective for
annual periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect this standard to have a significant effect on our
consolidated financial statements.
37
MANAGEMENT’S DISCUSSION & ANALYSIS
IFRS 10 - Consolidated Financial Statements
In May 2011 IFRS 10 was issued which provides a single model to be applied in the control analysis for all investees and supersedes IAS 27 - Consolidated
and Separate Financial Statements and Standing Interpretations Committee -12 Consolidation - Special Purpose Entities. IFRS 10 is effective for annual
periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect this standard to have a significant effect on our
consolidated financial statements.
WEST FRASER TIMBER CO. LTD.
IFRS 9 - Financial Instruments
In November 2009 IFRS 9 was issued and in October 2010 was further amended. IFRS 9 addresses classification and measurement of financial assets
and replaces the multiple category and measurement models in International Accounting Standards (“IAS”) 39 - Financial Instruments: Recognition and
Measurement for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss.
IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through profit or loss or at fair
value through other comprehensive earnings. In December 2009 IFRS 9 was deferred and is now effective for annual periods beginning on or after January
1, 2015 with earlier application permitted. We do not expect this standard to have a significant effect on our consolidated financial statements.
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
IAS 19 - Amendment, Employee Benefits
In June 2011 IAS 19 was amended. The amendment will result in significant changes to the recognition and measurement of defined benefit pension
expense and termination benefits, the most significant being the replacement of finance cost and expected plan return on plan assets with a net finance
amount that is calculated by applying the discount rate to the net liability (asset). Under the standard, the net finance amount can be classified with finance
expense or pension and benefit expense. The amendment is effective for annual periods beginning on or after January 1, 2013 with earlier application
permitted. In applying this standard it is our intent to classify the net finance amount related to pension and other benefit plans as finance expense with
a corresponding reduction to pension and benefit expense currently included in cost of products sold and selling, general and administrative expense.
The effect of adopting of this amended standard on January 1, 2013 on our consolidated financial statements for the year ended December 31, 2012 will
be as follows:
Pension and benefit expense increase
$
Finance expense increase Tax provision decrease
Decrease in earnings
$
Decrease in actuarial loss on employee future benefits
$
4
9
(3)
10
(10)
There is no impact on balance sheet amounts or cash flows resulting from the amended standard.
WEST FRASER TIMBER CO. LTD.
R isk s and Uncerta i n t i e s
MANAGEMENT’S DISCUSSION & ANALYSIS
38
Product Demand and Price Fluctuations
Our financial results are primarily dependent on the demand for, and selling prices of, our products, which are subject to significant fluctuations. The
demand and prices for lumber, panels, pulp, newsprint, wood chips and other wood products are highly volatile and are affected by factors such as global
economic conditions including the strength of the U.S. housing market and of Asian markets, particularly China and Japan, changes in industry production
capacity, changes in world inventory levels and other factors beyond our control. In addition, unemployment levels, interest rates and the rate of mortgage
foreclosures have a significant effect on residential construction and renovation activity, which in turn influences the demand for, and price of, building
materials such as lumber and panel products.
We cannot predict future market conditions, demand or pricing for any of our products due to factors outside our control. Prolonged or severe weakness
in the market for any of our principal products would adversely affect our financial condition. Our earnings sensitivity to changes in certain product prices
is set out in the table titled “Earnings Sensitivity to Key Variables”.
Operations
Availability of Fibre and Changes in Stumpage Fees
Substantially all of our Canadian log requirements are harvested from Crown lands. Provincial governments prescribe the methodologies that determine
the amounts of stumpage fees that are charged in respect of harvesting on Crown lands and changes to the methodologies or rates may adversely affect
our results.
We rely on log supply agreements in the U.S. which are subject to log availability and based on market prices. Based on year-end capacity, approximately
26% of the aggregate log requirements for our U.S. sawmills are supplied under long-term agreements with the balance purchased on the open market.
Changes in market conditions for these logs may adversely affect our results.
Natural Disasters
Our operations are subject to adverse natural events such as forest fires, severe weather conditions, timber disease and insect infestation, and earthquake
activity. These events could damage or destroy our physical facilities or our timber supply and similar events could also affect the facilities of our suppliers or
customers. Any such damage or destruction could adversely affect our financial results. Although we believe we have reasonable insurance arrangements
in place to cover certain of such incidents, there can be no assurance that these arrangements will be sufficient to fully protect us against such losses. As
is common in the industry, we do not insure loss of standing timber for any cause.
Mountain Pine Beetle
The long-term effect of the mountain pine beetle infestation on our Canadian operations is uncertain. The potential effects include a reduction of future AAC
levels to below current and pre-infestation AAC levels. Many of our B.C. operations are experiencing a diminished grade and volume of lumber recovered
from beetle-killed logs and increased production costs and these effects could spread to our Alberta operations as the mountain pine beetle infestation
expands. The timing and extent of the future effect on our timber supply, lumber grade and recovery, and production costs will depend on a variety of
factors and at this time cannot be reasonably determined. The effects of the deterioration of beetle-killed logs could include increased costs, reduced
operating rates due to shortages of commercially merchantable timber and mill closures.
Operational Curtailments and Transportation Limitations
From time to time, we suspend operations at one or more of our facilities in response to market conditions, environmental risks, or other operational
issues, including, but not limited to, power failures, equipment breakdowns, adverse weather conditions, labour disruptions and fire hazards. These
unscheduled operational suspensions could have a material adverse effect on our financial condition. If wood chip production is reduced because of
production curtailments, improved manufacturing efficiencies or any other reason, pulp and paper operations may incur additional costs to acquire or
produce additional wood chips or be forced to reduce production. Conversely, pulp and paper mill production curtailments may require sawmills and
panel mills to find other ways to dispose of residual wood fibre and may result in curtailment or suspension of lumber and panel production.
We rely primarily on third parties for the delivery of raw materials and the transportation of our products. From time to time, we must also respond to
rail car and truck shortages that limit raw material deliveries to us and product deliveries to our customers, which may have a material adverse effect
on our business.
Labour and Services
Our operations rely on both skilled and unskilled workers as well as third-party services such as logging and transportation. Because our operations
are generally located away from major urban centres, we often face strong competition for workers, particularly skilled workers, and services from our
competitors and other industries such as oil and gas production and mining. Shortages of workers or key services could impair our operations by reducing
production or increasing costs.
We have in place internal programs under which all our forestry and manufacturing operations are audited for compliance with laws and accepted
standards and with our management systems. Our woodlands operations in Canada, and the harvesting operations of many of our key U.S. suppliers, are
third-party certified to internationally-recognized sustainable forest management standards. Our operations and our ability to sell our products could be
adversely affected if those operations did not, or were perceived by the public as failing to, comply with applicable laws and standards, including responsible
environmental and sustainable forestry standards.
First Nations Claims
Issues relating to First Nations groups have the potential for a significant adverse effect on Canadian forest products companies including West Fraser. The
main First Nations’ issues that are relevant to West Fraser relate to aboriginal rights and title, and consultation. We participate as requested by government
in the consultation process, but rely on provincial governments to adequately discharge obligations to First Nations groups in order to preserve the validity
of actions dealing with public rights, including the granting or transfer of Crown timber harvesting rights. As the jurisprudence and government policies
respecting aboriginal rights and title and the consultation process continue to evolve, we cannot assure that First Nations claims will not in the future have
a material adverse effect on our timber harvesting rights or our ability to exercise or renew them or secure other timber harvesting rights.
Regulatory
Our operations are subject to extensive general and industry-specific federal, provincial, state, municipal and other local laws and regulations, including
those governing forestry, exports, taxes, employees, labour standards, occupational health and safety, waste disposal, environmental protection and
remediation, protection of endangered and protected species and land use and expropriation. We are required to obtain approvals, permits and licences for
our operations, which may impose conditions that must be complied with. If we are unable to extend or renew, or are delayed in extending or renewing, a
material approval, permit or licence, our operations or financial condition could be adversely affected. There is no assurance that these laws, regulations
39
MANAGEMENT’S DISCUSSION & ANALYSIS
Environment
Our operations are subject to regulation by federal, provincial, state and local environmental authorities, including industry-specific environmental
regulations relating to air emissions and pollutants, wastewater (effluent) discharges, solid waste, landfill operations, forestry practices, site remediation
and the protection of endangered species and critical habitat. We have incurred, and will continue to incur, capital expenditures and operating costs to
comply with environmental laws and regulations. No assurance can be given that changes in these laws and regulations or their application will not
have a material adverse effect on our business, operations, financial condition and operational results. Similarly, no assurance can be given that capital
expenditures necessary for future compliance with existing and new environmental laws and regulations could be financed from our available cash flow.
We may discover currently unknown environmental problems, contamination, or conditions relating to our past or present operations. This may require site
or other remediation costs to maintain compliance or correct violations or result in governmental or private claims for damage to person, property or the
environment, which could have a material adverse effect on our business, financial condition and operational results.
WEST FRASER TIMBER CO. LTD.
We employ a unionized workforce in a number of our operations. Walkouts or strikes by employees could result in lost production and sales, higher costs
and supply constraints that could have a material adverse effect on our business. Also, we depend on a variety of third parties that employ unionized
workers to provide critical services to us. Labour disputes experienced by these third parties could lead to disruptions at our facilities.
MANAGEMENT’S DISCUSSION & ANALYSIS (CONTINUED)
or government policy, or the administrative interpretation or enforcement of existing laws and regulations, will not change in the future in a manner that
may require us to incur significant capital expenditures, pay higher taxes or otherwise could adversely affect our operations or financial condition. Failure
to comply with applicable laws or regulations, including approvals, permits and licences, could result in fines, penalties or enforcement actions, including
orders suspending or curtailing our operations or requiring corrective measures or remedial actions.
Foreign Currency Exchange Rates
We sell the majority of our products at prices denominated in U.S. dollars or based on prevailing U.S. dollar prices. A significant portion of our operational
costs and expenses are incurred in Canadian dollars. Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the
revenue in Canadian dollar terms realized by us from sales made in U.S. dollars, which reduces operating margin and the cash flow available to fund
operations. We are also exposed to the risk of exchange rate fluctuations in the period between sale and payment. We also have a substantial amount of
long-term debt repayable in U.S. dollars which is valued in Canadian dollars at the end of each reporting period by applying the prevailing exchange rate.
Exchange rate fluctuations result in exchange gains or losses. This results in significant earnings sensitivity to changes in the Canadian/U.S. dollar exchange
rate as disclosed in the table titled “Earnings Sensitivity to Key Variables”. The Canadian/U.S. dollar exchange rate is affected by a broad range of factors
which makes future rates difficult to accurately predict.
WEST FRASER TIMBER CO. LTD.
Competition
Markets for our products are highly competitive. Our ability to maintain or improve the cost of producing and delivering products to those markets is crucial.
Factors such as cost and availability of raw materials, energy and labour, the ability to maintain high operating rates and low per-unit manufacturing costs,
and the quality of our final products and our customer service all affect our earnings.
MANAGEMENT’S DISCUSSION & ANALYSIS
40
Trade Restrictions
A substantial portion of our products that are manufactured in Canada are exported for sale. Our financial results are dependent on continued access to
the export markets and tariffs and other trade barriers that restrict or prevent access represent a continuing risk to us. Our Canadian softwood lumber
exports to the U.S. are currently subject to export duties imposed under the SLA which is currently scheduled to expire in October 2015. National economic
protectionist measures more commonly arise during periods of broad economic downturn and so a deterioration of global economic conditions could result
in the adoption of additional trade barriers.
Financial
We rely on long-term borrowings and access to revolving credit in order to finance our ongoing operations. Any change in availability of credit in the market,
as would happen during an economic downturn, could affect our ability to access credit markets on commercially reasonable terms. Although we have
no immediate needs for new credit, in the future we may need to access public or private debt markets to issue new debt to replace or partially replace
current borrowings.
Pension Plan Funding
We are the sponsor of several defined benefit pension plans which exposes us to market risks on plan assets. Funding requirements for these plans are
based on actuarial assumptions concerning expected return on plan assets, future salary increases, life expectancy and interest rates. If any of these
assumptions differ from actual outcomes such that a funding deficiency occurs or increases we would be required to increase cash funding contributions
which would in turn reduce the availability of capital for other purposes.
D isclos ure C ont rol s and Int ernal C ont rols Over Fi nanci al Reporti ng
West Fraser’s management, including the Chairman and Chief Executive Officer and the Vice-President, Finance and Chief Financial Officer, acknowledge
responsibility for the design and operation of disclosure controls and procedures and internal controls over financial reporting, and the requirement to
evaluate the effectiveness of these controls on an annual basis.
Management evaluated the effectiveness of these controls at the end of the reporting period and based on this evaluation concluded that our internal
controls over financial reporting and the disclosure controls and procedures were effective as at December 31, 2012.
No Changes in Internal Controls Over Financial Reporting
There has been no change in our internal controls over financial reporting during the year ended December 31, 2012 that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial reporting.
RESPONSIBILITY OF MANAGEMENT
The management of West Fraser Timber Co. Ltd. is responsible for the preparation, integrity and objectivity of the consolidated financial statements. The
consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards and necessarily
include amounts that represent the best estimates and judgments of management.
Management maintains a system of internal controls over financial reporting that encompasses policies, procedures and controls to provide reasonable
assurance that assets are safeguarded against loss or unauthorized use, transactions are executed and recorded in accordance with management’s
authorization and financial records are accurate and reliable.
West Fraser’s independent auditors, who are appointed by the shareholders upon the recommendation of the Audit Committee and the Board of Directors,
have completed their audit of the consolidated financial statements in accordance with approved auditing standards in Canada and their report follows.
February 14, 2013
Larry Hughes
Vice-President, Finance
and Chief Financial Officer
41
RESPONSIBILITY OF MANAGEMENT
Henry H. Ketcham
Chairman and
Chief Executive Officer
WEST FRASER TIMBER CO. LTD.
The Board of Directors provides oversight to the financial reporting process through its Audit Committee, comprised of three Directors, none of whom is an
officer or employee of West Fraser. The Audit Committee meets regularly with management and the auditors to review the consolidated financial statements
and matters relating to the audit. The auditors have full and free access to the Audit Committee. The Audit Committee reports its findings to the Board of
Directors for consideration in approving the consolidated financial statements for issuance to the shareholders.
INDEPENDENT AUDITOR’S REPORT
To the Shareholders of West Fraser Timber Co. Ltd.
We have audited the accompanying consolidated financial statements of West Fraser Timber Co. Ltd., which comprise the consolidated balance sheets
as at December 31, 2012 and December 31, 2011 and the consolidated statements of earnings and comprehensive earnings, changes in shareholders’
equity and cash flows for the years ended December 31, 2012 and December 31, 2011, and the related notes, which comprise a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
WEST FRASER TIMBER CO. LTD.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of West Fraser Timber Co. Ltd. as at
December 31, 2012 and December 31, 2011 and its financial performance and its cash flows for the years ended December 31, 2012 and December 31,
2011 in accordance with International Financial Reporting Standards.
INDEPENDENT AUDITOR’S REPORT
42
Chartered Accountants
February 14, 2013
Consolidated Balance Sheets
As at December 31, 2012 and 2011
(in millions of Canadian dollars, except where indicated)
Approved by the Board of Directors
Janice G. Rennie
J. Duncan Gibson
DirectorDirector
43
CONSOLIDATED BALANCE SHEETS
Long-term debt (note 12)
300
306
Other liabilities (note 13)
313
270
Deferred income taxes (note 19)
128
144
1,126
1,035
Shareholders’ Equity
Share capital (note 15)
602
601
Accumulated other comprehensive earnings
(9)
(6)
Retained earnings
899
888
1,4921,483
$2,618
$
2,518
WEST FRASER TIMBER CO. LTD.
2012
2011
Assets
Current assets
Cash and short-term investments
$102
$
68
Receivables (note 25)
251
266
Income taxes receivable
—
4
Inventories (note 7)
459
398
Prepaid expenses
11
9
823
745
Property, plant and equipment (note 8)
959
936
Timber licences (note 9)
496
490
Goodwill and other intangibles (note 10)
330
336
Other assets
10
11
$2,618
$2,518
Liabilities
Current liabilities
Payables and accrued liabilities (note 11)
$
322
$
274
Income taxes payable
20
—
Reforestation and decommissioning obligations (note 13)
43 41
385
315
Consolidated Statements of Earnings
& Comprehensive Earnings
For the years ended December 31, 2012 and 2011
(in millions of Canadian dollars, except where indicated)
2012
2011
Sales $
3,000
$
2,762
Costs and expenses
Cost of products sold
2,020
1,917
Freight and other distribution costs
477
460
Export taxes
48
58
Amortization 152168
Selling, general and administration 115
104
Equity-based compensation
61 (3
)
2,873
2,704
WEST FRASER TIMBER CO. LTD.
Operating earnings
127 58
CONSOLIDATED STATEMENTS OF EARNINGS & COMPREHENSIVE EARNINGS
44
Finance expense (note 17)
(19)
(20)
Exchange gain (loss) on long-term debt
7
(7)
Other income (note 18)
—
14
Earnings from continuing operations before tax provision
115 45
Tax provision (note 19)
(28) (18)
Earnings from continuing operations
87
27
Earnings from discontinued operations (note 21)
—
46
Earnings
$87
$ 73
Earnings per share (dollars) (note 22)
Basic from continuing operations
$2.02
Diluted from continuing operations
$2.02
Basic after discontinued operations
$2.02
Diluted after discontinued operations
$2.02
$
$
$
$
0.63
0.41
1.70
1.47
Cash dividends per share
$
0.56
$0.56
Comprehensive earnings
Earnings
$87
$
73
Other comprehensive earnings
Translation gain (loss) on foreign operations1
(3) 4
2
Actuarial loss on employee future benefits (52)(104
)
Comprehensive earnings
$32
$ (27
)
1. Recycled through earnings in the event of a reduction in net investment in foreign operations.
2. Adjusted through retained earnings. Net of income tax recovery of $17 million (2011 — $34 million).
Consolidated STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED December 31, 2012 and 2011
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
SHARE capital
Translation
Numberof foreign
Retained
Total
of shares
Amountoperationsearningsequity
$
601
$
(10)
$
943
$
Changes in equity for 2011
Translation gain on foreign operations
—
—
4
Actuarial loss on employee future benefits
—
—
—
Issuance of Common shares
11,201
—
—
Earnings for the year
—
—
—
Dividends
—
—
—
—
(104)
—
73
(24)
Balance – December 31, 2011
(6)
888
Changes in equity for 2012
Translation loss on foreign operations —
—
(3)
Actuarial loss on employee future benefits —
—
—
Issuance of Common shares
16,607
1
—
Earnings for the year
—
—
—
Dividends
—
—
—
—
(52)
—
87
(24)
Balance – December 31, 2012
899
42,846,113
42,862,720
$
601
602
$
(9)
$
$
1,534
4
(104)
—
73
(24)
1,483
(3)
(52)
1
87
(24)
1,492
WEST FRASER TIMBER CO. LTD.
42,834,912
45
CONSOLIDATED STATEMENTS FOF CHANGES IN SHAREHOLDERS’ EQUITY
Balance – December 31, 2010
Consolidated Statements of CASH FLOWS
For the years ended December 31, 2012 and 2011
(in millions of Canadian dollars, except where indicated)
2012
2011
WEST FRASER TIMBER CO. LTD.
Operating activities
Earnings from continuing operations
$87
$
27
Adjustments
Amortization 152168
Finance expense 19
20
Exchange loss (gain) on long-term debt
(7) 7
Tax provision
28
18
Income taxes received (paid) 2
(75)
Reforestation and decommissioning obligations
(2) 6
Employee future benefits expense
38
35
Contributions to employee future benefit plans
(64)
(93)
Other (8)
(9)
Changes in non-cash working capital Receivables (22) 8
Inventories (58)
(24)
Prepaid expenses
(2)
(1)
Payables and accrued liabilities
32 (2)
Cash flows from operating activities
195 85
CONSOLIDATED STATEMENTS OF CASH FLOWS
46
Financing activities
Repayment of operating loans
—
(15)
Finance expense paid
(18)
(20)
Dividends
(24) (24)
Cash flows from financing activities
(42) (59)
Investing activities
Acquisition (note 5)
(30) —
Additions to capital assets
(150)
(213)
Proceeds from Green Transformation Program (note 24)
49 37
Proceeds from disposal of capital assets
9 10
Other
3 2
Cash flows from investing activities
(119)(164
)
Change in cash from continuing operations
34
(138)
Change in cash from discontinued operations (note 21)
—
45
Cash — beginning of year
68
161
Cash — end of year
$102
$ 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED December 31, 2012 and 2011
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
1. Nature of operations
West Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us” or “our”) is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood,
pulp and newsprint with facilities in western Canada and the southern United States. 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. We are listed on the Toronto Stock Exchange under the symbol WFT.
2. Statement of compliance
These consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International
Accounting Standards Board (“IASB”) and were authorized for publication by our Board of Directors on February 14, 2013.
3.
Significant accounting policies
Basis of measurement
Our consolidated financial statements have been prepared on the historical cost basis, except for the following significant items:
• Derivative financial instruments which are measured at fair value;
• Share option liability which is measured using the Black-Scholes valuation model;
Basis of consolidation
These consolidated financial statements include the accounts of West Fraser and its wholly-owned subsidiaries after elimination of intercompany
transactions and balances. Principal operating subsidiaries are West Fraser Mills Ltd., West Fraser, Inc., Blue Ridge Lumber Inc., Sundre Forest Products
Inc. and West Fraser Newsprint Ltd..
Our joint ventures, Alberta Newsprint Company and Cariboo Pulp & Paper Company, are accounted for by the proportionate consolidation method.
Financial instruments
Our financial assets are categorized as Loans and Receivables and our financial liabilities are categorized as Other Financial Liabilities. All financial assets
and liabilities are initially measured at fair value and subsequently measured at amortized cost using the effective interest rate method except for derivatives.
Derivatives are measured at fair value through earnings with changes reflected in other income. A list of our financial assets and liabilities is included in
note 25.
Debt is shown net of deferred financing charges which are amortized over the life of the debt.
Use of estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Significant areas requiring estimates include recoverability of long-lived assets and goodwill, reforestation and
decommissioning obligations, employee future benefits, equity-based compensation, income taxes and litigation. Actual amounts could differ materially
from these and other estimates, the impact of which would be recorded in future periods.
Revenue recognition
Revenues are derived from product sales and are recognized upon the transfer of significant risks and rewards of ownership, provided collectibility is
reasonably assured.
Foreign currency translation
West Fraser’s functional and presentation currency is Canadian dollars.
U.S. operations
Assets and liabilities of our U.S. operations have a functional currency of U.S. dollars and are translated at the period-end exchange rate. Revenues
and expenses are translated at average exchange rates during the reporting period. The resulting unrealized gains or losses are included in other
comprehensive earnings.
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Post-retirement liabilities which are actuarially determined with the plan assets measured at fair value and the accrued benefit obligations
measured using the projected unit credit method.
WEST FRASER TIMBER CO. LTD.
• Reforestation and decommissioning obligations which are measured at the present value of expected future cash flows; and
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
Translation of other foreign currency balances and transactions
Monetary assets and liabilities denominated in foreign currencies, including long-term debt, are translated at the period-end exchange rate. Income and
expense items are translated at the average or transaction date exchange rates during the reporting period. The resulting gains or losses are included in
other income.
Cash and short-term investments
Cash and short-term investments consist of cash on deposit and short-term interest-bearing securities maturing within three months of the date of purchase.
Inventories
Inventories of logs, other raw materials and manufactured products are valued at the lower of average cost and net realizable value. Processing materials
and supplies are valued at the lower of average cost and replacement cost.
WEST FRASER TIMBER CO. LTD.
Property, plant and equipment
Property, plant and equipment are stated at historical cost, less accumulated amortization and impairment losses. Expenditures for additions and
improvements are capitalized. Borrowing costs are capitalized when the asset construction period exceeds 12 months and the borrowing costs are directly
attributable to the asset. Expenditures for maintenance and repairs are charged to earnings. Upon retirement, disposal or destruction of an asset, the cost
and related amortization are removed from the accounts and any gain or loss is included in earnings.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
48
Property, plant and equipment are amortized on a straight-line basis over their estimated useful lives as follows:
Buildings
10 – 30 years
Manufacturing equipment and machinery
6 – 20 years
Fixtures, mobile and other equipment
3 – 10 years
Roads
Not exceeding 40 years
Major maintenance shutdowns
12 to 36 months
Timber licences and other intangibles
Timber licences and other intangible assets are stated at historical cost, less accumulated amortization and impairment losses, and are amortized on a
straight-line basis over their estimated useful lives as follows:
Timber licences 40 years
Power purchase agreement
Over the life of the agreement
Software
3 – 5 years
Non-replaceable timber rights As timber is logged
Impairment of property, plant, equipment, timber licences and other intangibles
We review property, plant, equipment, timber licences and other intangible assets for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. For the purpose of impairment testing, property, plant, equipment, timber licences and other
intangible assets are separated into cash generating units (“CGU”). We have identified each of our mills as a CGU for impairment testing of property, plant,
equipment and other intangibles. Timber licences are tested for impairment by combining CGUs within the economic area of the related licence.
Recoverability is assessed by comparing the CGU carrying amount to the discounted estimated net future cash flows the assets are expected to generate.
If the carrying amount exceeds the discounted estimated net future cash flows, the assets of the CGU are written down to the higher of fair value less costs
to sell and value-in-use (being the present value of the estimated net future cash flows of the relevant asset or CGU).
Estimated net future cash flows are based on several assumptions concerning future circumstances including selling prices of products, U.S./Canadian
dollar exchange rates, production rates, input costs and capital requirements. The estimated net future cash flows are discounted at rates reflective of
market risk.
Where an impairment loss subsequently reverses, the carrying amount of the asset or CGU is increased to the lesser of the revised estimate of its
recoverable amount and the carrying amount that would have been recorded had no impairment loss been previously recognized.
Goodwill
Goodwill represents the excess of the purchase price paid for an acquisition over the fair value of the net assets acquired. Goodwill is not amortized, but is
subject to an impairment test annually or more frequently if events or circumstances indicate that it may be impaired.
Goodwill impairment is assessed by comparing the fair value of its CGU to the underlying carrying amount of the CGU’s net assets, including goodwill. When
the carrying amount of the CGU exceeds its fair value, the fair value of the CGU’s goodwill is compared with its carrying amount to measure the amount of
impairment loss, if any.
Reforestation and decommissioning obligations
Timber is harvested under various timber licences that require us to conduct reforestation. Future reforestation obligations are measured at the present
value of the expenditures expected to be required to settle the obligations and are accrued and charged to earnings when timber is harvested. The
reforestation obligation is reviewed periodically and changes to estimates are credited or charged to earnings.
We record the present value of a liability for decommissioning obligations in the period that a reasonable estimate of present value can be made. The
present value of the liability is added to the carrying amount of the associated asset and amortized over its useful life or, if there is no associated asset, it is
expensed. Decommissioning obligations are reviewed annually and changes to estimates result in an adjustment of the carrying amount of the associated
asset or, where there is no asset, they are credited or charged to earnings.
Reforestation and decommissioning obligations are discounted at the risk-free rate at the balance sheet date and accreted over time through periodic
charges to earnings. The liabilities are reduced by actual costs of settlement.
Government assistance
Government assistance received that relates to the construction of manufacturing assets is applied to reduce the cost of those assets. Government
assistance received that relates to operational expenses is applied to reduce the amount charged to earnings for the operating item.
Employee future benefits
We accrue for our obligations under employee pension and non-pension benefit plans and the related costs net of plan assets.
The following policies have been adopted:
• The measurement date used for accounting purposes is December 31.
• The cost of pensions and other retirement benefits earned by employees is determined using the projected unit credit method, pro-rated for
estimated service periods where appropriate, and management’s estimate of expected plan investment performance, discount rate, salary
escalation, retirement ages of employees, expected heath-care costs and other relevant factors.
• For the purpose of calculating the expected return, plan assets are valued at fair value.
• Past service costs arising from plan amendments are recognized immediately to the extent the benefits are vested, and otherwise are amortized
on a straight-line basis over the average period until the benefits become vested.
• Actuarial gains or losses arise from the difference between the actual rate of return on plan assets for a period and the expected rate of return on
plan assets for that period, or from changes in actuarial assumptions used to determine the accrued benefit obligation. Net actuarial gains or
losses are reported as part of other comprehensive earnings in the period incurred.
Pension and other post-retirement benefit expense includes management’s best estimate of the cost of benefits provided, finance cost of projected benefits
and expected return on plan assets.
For defined contribution plans, pension expense is the amount of contributions we are required to make in respect of services rendered by employees.
Income taxes
The tax expense for the period is comprised of current and deferred tax. Tax is recognized in the statement of earnings, except to the extent that it relates
to items recognized in other comprehensive earnings in which case it is recognized in other comprehensive earnings.
Deferred taxes are provided for using the liability method. Under this method, deferred taxes are recognized for temporary differences between the tax and
financial statement basis of assets, liabilities and certain carry-forward items.
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
If an option holder elects to purchase Common shares, both the exercise price and the accrued liability are credited to shareholders’ equity.
WEST FRASER TIMBER CO. LTD.
Equity-based compensation
West Fraser’s share option plan gives share option holders the right to elect to receive a cash payment in lieu of exercising an option to purchase Common
shares. We estimate the fair value of outstanding options using a Black-Scholes option pricing model at each balance sheet date and record the resulting
expense or recovery, over the vesting period, through a charge to earnings. The vesting period over which the expense or recovery is charged is the lesser
of five years from the date the option was granted and the time period until the option holder reaches the holder’s eligible retirement age. If the option
holder is eligible to retire, the expense or recovery is charged to earnings immediately.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
Deferred tax assets are recognized only to the extent that it is probable that they will be realized. Current and deferred income taxes relating to items
recognized directly in equity are also recognized directly in equity. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax
laws and rates on the date of substantive enactment.
4. Accounting standards issued but not yet applied
The IASB periodically issues new standards and amendments or interpretations to existing standards. The new pronouncements listed below are those that
we consider most significant. They are not intended to be a complete list of new pronouncements that may affect the consolidated financial statements.
WEST FRASER TIMBER CO. LTD.
IFRS 9 – Financial Instruments
In November 2009 IFRS 9 was issued and in October 2010 was further amended. IFRS 9 addresses classification and measurement of financial assets
and replaces the multiple category and measurement models in International Accounting Standards (“IAS”) 39 – Financial Instruments: Recognition and
Measurement for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss.
IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through profit or loss or at fair
value through other comprehensive earnings. In December 2009 IFRS 9 was deferred and is now effective for annual periods beginning on or after
January 1, 2015 with earlier application permitted. We do not expect this standard to have a significant effect on our consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
50
IFRS 10 – Consolidated Financial Statements
In May 2011 IFRS 10 was issued which provides a single model to be applied in the control analysis for all investees and supersedes IAS 27 – Consolidated
and Separate Financial Statements and Standing Interpretations Committee – 12 Consolidation – Special Purpose Entities. IFRS 10 is effective for annual
periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect this standard to have a significant effect on our
consolidated financial statements.
IFRS 11 – Joint Arrangements
In May 2011 IFRS 11 was issued which provides guidance for determining if a joint arrangement is a joint venture or joint operation. The standard requires
that joint ventures be accounted for by the equity method as opposed to the choice, presently available under IAS 31 – Interests in Joint Ventures, of
applying the equity method or proportionate consolidation. Joint operations are required to be accounted for using the proportionate consolidation method.
IFRS 11 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect this standard to have a
significant effect on our consolidated financial statements.
IFRS 12 – Disclosure of Interests in Other Entities
In May 2011 IFRS 12 was issued which sets out the required disclosures for companies that have adopted IFRS 10 and 11 described above. It requires
disclosure of information that helps users to evaluate the nature, risks and financial effects associated with a company’s interests in subsidiaries, associates
and joint arrangements. IFRS 12 is effective for annual periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect
this standard to have a significant effect on our consolidated financial statements.
IFRS 13 – Fair Value Measurement
In May 2011 IFRS 13 was issued which defines fair value, establishes a framework for measuring fair value and sets out disclosure requirements for fair
value measurements. Prior to the introduction of the standard there was no single source of guidance on fair value measurement. IFRS 13 is effective for
annual periods beginning on or after January 1, 2013 with earlier application permitted. We do not expect this standard to have a significant effect on our
consolidated financial statements.
IAS 19 - Amendment, Employee Benefits
In June 2011 IAS 19 was amended. The amendment will result in significant changes to the recognition and measurement of defined benefit pension
expense and termination benefits, the most significant being the replacement of finance cost and expected plan return on plan assets with a net finance
amount that is calculated by applying the discount rate to the net liability (asset). Under the standard, the net finance amount can be classified with finance
expense or pension and benefit expense. The amendment is effective for annual periods beginning on or after January 1, 2013 with earlier application
permitted. In applying this standard it is our intent to classify the net finance amount related to pension and other benefit plans as finance expense with
a corresponding reduction to pension and benefit expense currently included in cost of products sold and selling, general and administrative expense.
The effect of adopting of this amended standard on January 1, 2013 on our consolidated financial statements for the year ended December 31, 2012 will
be as follows:
Pension and benefit expense increase
$4
Finance expense increase 9
Tax provision decrease
(3)
Decrease in earnings
$10
Decrease in actuarial loss on employee future benefits
$(10)
There is no impact on balance sheet amounts or cash flows resulting from the amended standard.
5.Acquisition
On October 31, 2012 West Fraser acquired a sawmill and the associated timber licenses located in Alberta for $30 million. We accounted for the transaction
as an acquisition of a business and have allocated the purchase price based on the estimated fair value of the assets acquired and the liabilities assumed.
No goodwill arose on this transaction. The purchase price allocation is as follows:
Sales
$203
$
214
Costs and expenses
(178)(174)
Earnings before income taxes
$25
$
40
Cash flows from operating activities
Cash flows from investing activities
$36
$
48
$
(10)$ (15
)
7.Inventories
2012
Logs and other raw materials
$131
$
Manufactured products
235
Processing materials and supplies
93
$459
$
2011
105
203
90
398
Inventories at December 31, 2012 were written down by $3 million (December 31, 2011 – $15 million) to reflect net realizable value being lower than cost.
The carrying amount of inventory recorded at net realizable value was $22 million at December 31, 2012 (December 31, 2011 – $65 million), with the
remaining inventory recorded at cost.
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Investments in joint ventures
Our joint ventures are Alberta Newsprint Company (50%) and Cariboo Pulp & Paper Company (50%). The combined proportionate share of the joint
ventures is as follows:
2012
2011
Current assets
$73
$
74
Non-current assets
98
98
Current liabilities
(24)
(23)
Non-current liabilities
(31)
(25)
Equity
$116
$ 124
WEST FRASER TIMBER CO. LTD.
Current assets
$8
Current liabilities
(4)
Property, plant and equipment
8
Timber licences
22
Long-term liabilities
(4)
Cash consideration
$30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
8.
Property, plant and equipment
WEST FRASER TIMBER CO. LTD.
Manufacturing
plant, equipment Construction-
Roads and
& machineryin-progressbridges
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
52
Other
As at December 31, 2010
Cost
$
2,525
$
13
$
126
$
Accumulated amortization
(1,678)
—
(91)
Net
$
847
$
13
$
35
$
As at December 31, 2010
$
847
$
13
$
35
$
Additions
101
44
8
Disposals
—
—
—
1
Amortization (134
) — (8
)
Foreign exchange
2
—
—
Transfers
11
(12)
—
As at December 31, 2011
$
827
$
45
$
35
$
As at December 31, 2011
Cost
$
2,582
$
45
$
89
$
Accumulated amortization
(1,755)
—
(54)
Net
$
827
$
45
$
35
$
As at December 31, 2011
$
827
$
45
$
35
$
Additions
79
60
11
Acquisition
8
—
—
Disposals
—
—
—
1
Amortization (119)
—
(8)
Foreign exchange
(3)
—
—
Transfers
44
(44)
—
As at December 31, 2012
$
836
$
61
$
38
$
As at December 31, 2012
Cost
$
2,679
$
61
$
97
$
Accumulated amortization
(1,843)­—
(59)
Net
$
836
$
61
$
38
$
Total
36
$
2,700
(6)
(1,775)
30
$
925
30
$
925
—
153
(2)
(2)
—(142
)
—
2
1
—
29
$
936
35
$
(6)
29
$
29
$
—
—
(4)
(1)
—
—
24
$
2,751
(1,815)
936
936
150
8
(4)
(128)
(3)
—
959
31
$
(7)
24
$
2,868
(1,909)
959
1. Amortization of $126 million is included in cost of products sold and $2 million is included in selling, general and administration expense (2011 – $140 million and $2 million, respectively).
9.
Timber licences
Timber licences
As at December 31, 2010
Cost $
662
Accumulated amortization
(152)
Net $
510
As at December 31, 2010 $510
Amortization1
(17)
Adjustment
(3)
As at December 31, 2011 $
490
As at December 31, 2011
Cost $
651
Accumulated amortization
(161)
Net $
490
As at December 31, 2011 $
490
Acquisition
22
Amortization1
(16)
As at December 31, 2012 $496
As at December 31, 2012
Cost $673
Accumulated amortization
(177)
Net$
496
1. Amortization is included in cost of products sold.
As at December 31,2010
Cost
$
264
$
115
$
Accumulated amortization
—
(42)
Net
$
264
$
73
$
Other
Total
23
$
(15)
8
$
402
(57)
345
73
$
(7)
66
$
8
$
(2)
6
$
345
(9)
336
As at December 31, 2011
Cost
$
264
$
115
$
Accumulated amortization
—
(49)
Net
$
264
$
66
$
23
$
(17)
6
$
402
(66)
336
As at December 31, 2010
$
Amortization1
As at December 31, 2011
$
264
$
—
264
$
As at December 31, 2011
$
264
$
66
$
6
$
336
Additions
—
—
2
2
Amortization1
—
(7)
(1)
(8)
As at December 31, 2012
$
264
$
59
$
7
$
330
As at December 31, 2012
Cost
$
264
$
115
$
Accumulated amortization
—
(56)
Net
$
264
$
59
$
25
$
(18)
7
$
1. Amortization of $7 million is included in cost of products sold and $1 million is included in selling, general and administration expense (2011 – $7 million and $2 million, respectively).
404
(74)
330
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Power purchase
Goodwillagreement
WEST FRASER TIMBER CO. LTD.
10. Goodwill and other intangibles
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
Goodwill
We have attributed $218 million of goodwill to a CGU made up of our Canadian lumber operations and $46 million of goodwill to a CGU made up of our
plywood and LVL operations.
For the purpose of the annual impairment test of goodwill, the fair value of CGUs has been determined based on value-in-use calculations. These
calculations use pre-tax cash flow projections based on the 2013 operating plan, a forecast of 2014 and 2015 and trend level earnings for subsequent
years, all approved by management. Assumptions were developed by management based on industry sources, including Forest Economic Advisors, LLC,
Resource Information Systems, Inc., and other industry analysts, taking into account management’s best estimates.
WEST FRASER TIMBER CO. LTD.
Power purchase agreement
West Fraser has an interest in a power purchase agreement to acquire a portion of the electricity generated from a power plant in Alberta at substantially
predetermined prices. Our share of electricity capacity to 2020 is expected to be approximately 115 megawatts per year. We sell the electricity acquired
at prevailing market prices at the same time as our Alberta operations purchase electricity at prevailing market prices. The cost of the power purchase
agreement is amortized over its term.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
54
11. Payables and accrued liabilities
2012
2011
Trade accounts
$163
$
167
Accrued compensation
47
38
Accrued equity-based compensation
80
36
Dividends
— 6
Interest
4
4
Other 28
23
$322
$
274
12. Long-term debt and operating loans
Long-term debt
2012
2011
US$300 million senior notes due October 2014; interest at 5.2%
$299
$ 305
Note payable due in instalments to 2020; interest at 5.5%
2 2
301 307
Deferred financing costs
(1) (1)
$300
$ 306
Required principal repayments are disclosed in note 25.
Operating loans
We have $530 million in revolving lines of credit which were undrawn as at December 31, 2012 (December 31, 2011 - undrawn). Deferred financing costs
of $4 million are included in other assets at December 31, 2012 (December 31, 2011 – $6 million).
Our revolving lines of credit include a $500 million revolving credit facility which matures September 30, 2016, a $25 million demand line of credit dedicated
to letters of credit and a $5 million demand line of credit dedicated to a jointly owned newsprint operation. Interest on the three facilities is payable at
floating rates based on Prime, U.S. base, Bankers’ Acceptances or LIBOR at our option. As at December 31, 2012, letters of credit in the amount of $45
million have been issued under these facilities.
The $500 million revolving credit facility, the $25 million demand line of credit and the US$300 million senior notes are secured by West Fraser’s assets.
13. Other liabilities
2012
2011
Post-retirement (note 14)
$201
$
159
Reforestation 69
70
Decommissioning 16 15
Other 27 26
$313
$
270
The total undiscounted amount of the estimated cash flows required to satisfy these obligations is $136 million (2011 – $132 million). The cash flows have
been discounted using interest rates ranging from 1.14% to 1.38% (2011 – 0.95% to 1.27%).
The timing of the reforestation payments is based on the estimated period required to attain free to grow status in a given area, which is generally between
12 to 15 years. Payments relating to landfill closures and site remediation are expected to occur over periods ranging up to 35 years.
14. Employee future benefits
We maintain defined benefit and defined contribution pension plans covering a majority of our employees. The defined benefit plans provide pension
benefits based either on length of service or on earnings and length of service. The total pension expense for the defined benefit plans is $33 million
(2011 – $30 million) with total funding contributions of $59 million (2011 – $89 million). We also provide group life insurance, medical and extended health
benefits to certain employee groups for which we contributed $3 million (2011 – $3 million).
The total pension expense and funding contributions for the defined contribution pension plans is $2 million (2011 – $2 million).
Approximately $94 million is expected to be contributed by West Fraser to pension and other benefit plans during 2013.
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in reforestation and decommissioning obligations are as follows:
Reforestation
Decommissioning
2012
2011
2012
2011
Beginning of year
$111 $
106 $15
$
26
Liabilities recognized
42 41 —
—
Liabilities settled
(46) (39
) — —
Acquired obligation
4
—
— —
Accretion expense
—
1
—
—
Change in estimates
1
2
1 (11)
End of year
$112 $
111$ 16
$ 15
Less: current portion
(43) (41
) —
—
$69
$
70
$ 16
$
15
WEST FRASER TIMBER CO. LTD.
Reforestation and decommissioning obligations
Reforestation and decommissioning obligations relate to our responsibility for reforestation under various timber licences, landfill closures and other site
remediation costs.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
WEST FRASER TIMBER CO. LTD.
The status of the defined benefit pension plans and other benefit plans, in aggregate, is as follows:
Pension plans
Other benefit plans
2012
2011
2012
2011
Accrued benefit obligations
Projected benefit obligations – opening
$1,049
$
937
$49
$
46
Current service cost
38
34
1
1
Finance cost
53 52 2 2
Benefits paid
(52) (45
) (3)
(3)
Actuarial loss 80
70
2 3
Other
—
1 —
—
Projected benefit obligations – ending
$1,168
$ 1,049
$ 51
$
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
56
Plan assets
Fair value – opening
$939
$
904
$—
$
Expected return on plan assets
58
56
—
Actuarial investment gain (loss)
13 (66
) —
Employer contributions
59
89
3
Benefits paid
(52) (45
) (3)
Other
1
1 —
Fair value – ending
$1,018
$
939
$—
$
—
—
—
3
(3)
—
—
Unfunded obligation
Post-retirement liabilities (note 13)
$150
$
110
$51
$
49
Pension plans
Other benefit plans
2012
2011
20122011
Expense
Current service cost
$38
$
34
$1
$
1
Finance cost
53
52
2
2
Expected return on plan assets1
(58) (56
) —
—
$33
$
30
$3
$
3
1. The actual return on plan assets is a gain of $71 million for the year ended December 31, 2012 (2011 – loss of $10 million).
The cumulative actuarial losses recognized in other comprehensive earnings are as follows:
2012
Cumulative actuarial losses
$284
$
2011
215
The significant actuarial assumptions used to determine the period-ending benefit obligation and the annual benefit plan expense are as follows:
Pension plans
Other benefit plans
2012
2011
2012
2011
Benefit obligations:
Discount rate
4.5%
5.0%
4.5%
5.0%
Future compensation rate increase
3.5%3.5% n/a
n/a
Benefit expense:
Discount rate – beginning of year
5.0%
5.5%
5.0%
5.5%
Expected rate of return on plan assets
6.5%
6.5%
n/a n/a
Future compensation rate increase
3.5%
3.5%
n/a
n/a
The discount rate assumption used in determining the obligations for pension and other benefit plans reflects the market yields from high quality Canadian
corporate bonds with cash flows that approximate expected benefit payments at the balance sheet date.
The expected rate of return on plan assets is reviewed annually by management, in conjunction with our actuaries. The assumption is based on expected
returns for the various asset classes, weighted by the portfolio allocation.
Health care benefit costs, shown under other benefit plans, are funded on a pay-as-you-go basis. The actuarial assumptions for extended health care costs
are estimated to increase 10% per year for three years, grading down 0.5% per year for years four to thirteen, to 5% per year thereafter. The actuarial
assumptions for medical service plan costs are estimated to increase by 4% per year.
A 1% increase or decrease in the assumed health care cost trend rates would have the following effects for 2012:
Increase
Decrease
Total of service and interest cost
$
—
$
—
Accrued benefit obligations
$
3
$
(3)
Assets
The weighted average asset allocations of the defined benefit plans at the measurement date, by asset category, are as follows:
2012
2011
Equity investments
60%
57%
Fixed income investments
40%42%
Other investments
—
1%
100%
100%
Issued
20122011
Number Amount
Number
Amount
Common
40,281,242
$
60240,064,635
$
601
Class B Common
2,581,478
— 2,781,478
—
Total Common
42,862,720
$ 602
42,846,113
$
601
During 2012, 200,000 Class B Common shares were exchanged for Common shares.
Rights and restrictions of Common shares
Common shares and Class B Common shares are equal in all respects except that each Class B Common share may at any time be exchanged for one
Common share. Certain circumstances or corporate transactions may require the approval of the holders of our Common shares and Class B Common
shares on a separate class by class basis.
16. Equity-based compensation
West Fraser has a share option plan, a phantom share unit plan and a directors’ deferred share unit plan which are described below. The compensation
cost included in earnings for these plans in 2012 was a charge of $61 million (2011 – recovery of $3 million).
Share option plan
West Fraser has a share option plan for its directors, officers and employees under which options may be granted to purchase up to 5,005,506 Common
shares of which 387,023 remain available for issuance. Directors ceased to participate under the share option plan in 2004. The exercise price of a share
option is the closing price of a Common share on the trading day immediately preceding the grant date. Options vest at the earlier of the date of retirement
or death and 20% per year from the grant date, and expire after 10 years. We have recorded an expense of $45 million (2011 – recovery of $6 million)
related to the share option plan.
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Authorized
200,000,000 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
WEST FRASER TIMBER CO. LTD.
15. Share capital
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
A summary of the activity in the share option plan is presented below:
20122011
Number Amount Number Amount
Outstanding – beginning of year
1,956,967
$
37.92 2,319,372
$
37.49
Granted
168,470
47.35 163,450
51.50
Exercised
(628,285)
37.20 (522,855
)40.15
Expired/cancelled
—
—
(3,000
)51.56
Outstanding – end of year
1,497,152
$
39.29 1,956,967
$
37.92
Exercisable – end of year
1,051,286
$
38.64 1,423,336
$
38.62
The following table summarizes information about the share options outstanding at December 31, 2012:
WEST FRASER TIMBER CO. LTD.
Weighted
average Weighted Weighted
Number of remaining averageNumber of average
outstanding contractual exerciseexercisable exercise
Exercise price range options life
price options
price
(dollars) (number)
(years)
(dollars)
(number) (dollars)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
58
$24.71 324,500
$33.30 – $33.47 291,552
$37.65 – $41.19 188,900
$45.20 – $47.35 398,570
$51.50 – $51.56 293,630
1,497,152
6.1
5.0
2.9
6.2
5.5
5.4
$
$
$
$
$
$
24.71 207,500
33.30 240,428
40.14 188,900
46.11 230,100
51.53 184,358
39.291,051,286
$
$
$
$
$
$
24.71
33.30
40.14
45.20
51.54
38.64
The weighted average share price at the date of exercise for share options exercised during the year was $64.93 per share (2011 – $53.41 per share).
The accrued liability related to the share option plan, determined by applying the Black-Scholes valuation model, is $51 million at December 31, 2012
(December 31, 2011 – $23 million). The weighted average fair value of the options using the Black-Scholes valuation model was $33.90 per option at
December 31, 2012 (December 31, 2011 – $11.69 per option).
The inputs to the model are as follows:
2012
2011
Share price on balance sheet date
$70.58
$41.66
Weighted average exercise price
$39.29
$37.92
Expected dividend $0.56
$ 0.56
Expected volatility 38.22%37.91%
Weighted average interest rate 1.24% 1.06%
Expected life of options in years
3.7
3.5
The expected dividend on our shares was based on the annualized dividend rate at each period end. Expected volatility was based on five years of historical
data. The interest rate for the life of the options was based on the implied yield available on government bonds with an equivalent remaining term at each
period end. Historical data was used to estimate the expected life of the options and forfeiture rates.
The intrinsic value of options issued under the share option plan at December 31, 2012 was $46 million (December 31, 2011 – $12 million). The intrinsic
value is determined based on the difference between the period-end share price and the exercise price (for options in the money), multiplied by the sum of
the related vested options plus unvested options for those holders eligible to retire.
Phantom share unit plan
Our phantom share unit plan is intended to supplement or, in whole or in part, replace the granting of share options as long-term incentives for officers and
employees. The plan provides for two types of units which vest on the third anniversary of the grant date. A restricted share unit pays out based on the
Common share price over the 20 trading days immediately preceding its vesting date (the “vesting date value”). A performance share unit pays out at a
value between 0% and 200% of its vesting date value contingent upon West Fraser’s performance relative to a peer group of companies over the three-year
performance period. Officers and employees granted units under the plan are also entitled to additional units to reflect cash dividends paid on Common
shares from the applicable grant date until payout.
We record an expense or recovery through earnings over the vesting period based on the quoted market price of our Common shares at each balance sheet
date. The period over which the expense or recovery is charged is the lesser of three years from the issuance date and the time period until the unit holder
reaches eligible retirement age. If the unit holder is eligible to retire, the expense or recovery is charged to earnings immediately. We have recorded an
expense of $14 million (2011 – $4 million) related to the phantom share unit plan. The number of units outstanding as at December 31, 2012 was 337,765
(December 31, 2011 – 266,965), including performance share units totalling 72,390 (December 31, 2011 – 61,190).
18. Other income
2012
2011
Foreign exchange gain (loss) – net
$
(5)$
3
Gain on asset sales
4 9
Other – net
1
2
$
—
$
14
59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Finance expense
2012
2011
Interest expense
$
(20)
$
(21)
Interest income
1
2
Accretion on long-term liabilities
—
(1)
$
(19)$ (20)
WEST FRASER TIMBER CO. LTD.
Directors’ deferred share unit plan
We have a deferred share unit plan (“DSU Plan”) which provides a structure for non-employee directors to accumulate an equity-like holding in West Fraser.
The DSU Plan allows directors to participate in the growth of West Fraser by providing a deferred payment based on the value of a Common share at the
time of redemption. Each director receives deferred share units (“Units”) in payment of an annual equity retainer and may elect to receive Units in payment
of up to 100% of other fees earned. The Units are issued based on our Common share price at the time of issue. Additional Units are issued to take into
account the value of dividends paid on Common shares from the date of issue to the date of redemption. Units are redeemable only after a director retires,
resigns or otherwise leaves the board. The redemption value is equal to the Common share price at the date of redemption. A holder of Units may elect
to redeem Units in cash or receive Common shares having an equivalent value. The number of Units outstanding as at December 31, 2012 was 71,156
(December 31, 2011 – 59,224).
19. Tax provision
The major components of income tax included in comprehensive earnings are as follows:
2012
2011
Current tax for the year
$
(27)
$
(8)
Current tax for previous periods
—
(2)
Deferred tax for the year
—
(8)
Deferred tax for previous periods
(1) —
Tax provision on continuing operations
(28) (18
)
Current tax on discontinued operations
—
(3)
Deferred tax on discontinued operations
—
(8)
Tax provision on discontinued operations
—
(11)
Deferred tax on employee future benefits included in other comprehensive earnings
17
34
Tax recovery (provision) on comprehensive earnings
$
(11)$
5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
The tax provision differs from the amount that would have resulted from applying the Canadian statutory income tax rates to earnings before income taxes
as follows:
2012
2011
Income tax expense at statutory rate of 25% (2011 – 26.5%)1
$
(29)
$
(12)
Non-taxable amounts
(9) 2
Rate differentials between jurisdictions and on specified activities
(1) 6
Recognized (unrecognized) tax assets
11
(12)
Other
— (2)
Tax provision
$
(28)$ (18)
1. The statutory tax rate decreased by 1.5% from December 31, 2011 due to a federal corporate tax rate reduction.
WEST FRASER TIMBER CO. LTD.
Changes in the deferred income tax components are adjusted through deferred tax expense except for $17 million (2011 – $34 million) for employee
future benefits which is adjusted through other comprehensive earnings. Of the following components of deferred income taxes payable, $12 million of the
deferred tax assets and $15 million of the deferred tax liabilities are expected to be recovered within 12 months:
2012
2011
Property, plant, equipment and intangibles
$210
$ 217
Reforestation and decommissioning obligations
(28)
(28)
Employee future benefits
(55)
(48)
Other
1 3
$128
$
144
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
60
We have loss carry-forwards of $335 million not recognized for accounting purposes that expire in various amounts in the years 2023 to 2031.
20. Employee compensation
Our employee compensation expense includes salaries and wages, employee future benefits, termination costs and bonuses, where applicable. Total
compensation expense is $595 million (2011 – $570 million).
Salaries, benefits and incentive compensation expense for key management (directors and officers) is $6 million (2011 – $5 million). In addition, various
equity-based compensation plans are offered to key management. See note 16 for additional details.
21. Discontinued operations
We permanently closed our linerboard and kraft paper mill, located in Kitimat, B.C. in January 2010. The results of the discontinued operation are as follows:
2011
Earnings before tax provision
$
57
Tax provision
(11)
Earnings
$46
Cash flows from operating activities
$
Cash flows from investing activities
Increase in cash
$
(5)
50
45
During 2011, the remaining assets associated with the Kitimat mill were sold for proceeds of $50 million resulting in a gain of $49 million.
22. Earnings per share
Basic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using the weighted average number of
Common shares and Class B Common shares outstanding.
Diluted earnings per share is calculated based on earnings available to Common shareholders adjusted to remove the actual share option expense
(recovery) charged to earnings and after deducting a notional charge for share option expense assuming the use of the equity settled method, as set out
below. The diluted weighted average number of shares is calculated using the treasury stock method. When earnings available to Common shareholders
for diluted earnings per share are greater than earnings available to Common shareholders for basic earnings per share, the calculation is anti-dilutive and
diluted earnings per share are deemed to be the same as basic earnings per share.
2012
2011
From After
From
After
continuing discontinued continuing discontinued
operations operations
operations operations
Earnings
Basic
$
87
$
87$ 27$ 73
Share option expense (recovery) 45
45 (6
) (6
)
Equity settled share option adjustment
(3)
(3) (3
) (3
)
Diluted
$
129
$
129$ 18$ 64
Weighted average number of shares (thousands)
Basic
42,857 42,857
42,840
42,840
Share options
555
555 434 434
Diluted
43,412 43,412
43,274
43,274
Earnings per share (dollars)
Basic
$
2.02
$
2.02
$
0.63
$
1.70
Diluted
$
2.02
$
2.02$ 0.41$ 1.47
23.Commitments
Product purchase and sale commitments
We have long-term purchase and sale contracts with minimum annual volume commitments. All contracts are at market prices and on normal business
terms.
Capital expenditures
Capital commitments at December 31, 2012 are $90 million.
24. Government assistance
Construction of manufacturing assets
In 2009 the Government of Canada confirmed an allocation of credits totalling $88 million to West Fraser under the Pulp and Paper Green Transformation
Program (the “GT Program”). The GT Program provides funding for capital projects that improve the energy efficiency or environmental performance of
Canadian pulp and paper mills. As at December 31, 2012, we have fully utilized the granted credits.
Operational expenses
Government assistance of $14 million (2011 – $9 million) was recorded as a reduction to cost of products sold. The government assistance related
primarily to research and development, bioenergy producer credits and apprentice tax credits.
61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2013
$2
20142
20152
20161
20171
Thereafter5
$13
WEST FRASER TIMBER CO. LTD.
Operating leases
We are committed to make payments under certain operating leases for equipment, land, buildings and office space. Operating lease costs expensed
during the year were $4 million (2011 – $3 million). The future payments required under operating leases are as follows:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
25. Financial instruments
a) Carrying and fair value of financial instruments by category
Other
Loans & financial Carrying
2012receivables liabilities
value Fair value
Financial assets
Cash and short-term investments
$
102 $
—
$
102 $
102
Receivables
251
—
251
251
$
353 $
—
$
353 $
353
Financial liabilities
Payables and accrued liabilities
$
— $
322
$
Long-term debt (note 12)1
—
301
$
— $
623
$
322 $
301
623 $
322
313
635
Other
financial Carrying
liabilities
value
Fair value
1. The fair value of the long-term debt is based on rates available to us at December 31, 2012 for long-term debt with similar terms and remaining maturities.
WEST FRASER TIMBER CO. LTD.
Loans & 2011receivables
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
62
Financial assets
Cash and short-term investments
$
68 $
—
$
Receivables
266
—
$
334 $
—
$
68 $
266
334 $
68
266
334
Financial liabilities
Payables and accrued liabilities
$
— $
274
$
1
Long-term debt (note 12) —
307
$
— $
581
$
274 $
307
581 $
274
308
582
1. The fair value of the long-term debt is based on rates available to us at December 31, 2011 for long-term debt with similar terms and remaining maturities.
b) Financial risk management
Our activities result in exposure to a variety of financial risks including risks related to commodity prices, currency fluctuation, credit, liquidity and interest
rates.
Commodity prices
Our financial performance is principally dependent on the demand for, and selling prices of, our products. Both are subject to significant fluctuations. The
markets for lumber, wood chips, LVL, MDF, plywood, pulp and newsprint are highly volatile and are affected by factors such as global economic conditions
including the strength of the U.S. housing market, changes in industry production capacity, changes in world inventory levels and other factors beyond
our control.
Currency fluctuation
Most of our products are sold at prices denominated in U.S. dollars or based on prevailing U.S. dollar prices, and a significant portion of operational costs
and expenses are incurred in Canadian dollars. Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the revenue in
Canadian dollar terms realized by us from sales made in U.S. dollars, which reduces operating margin and the cash flow available to fund operations. U.S.
dollar-denominated debt and operations in the U.S. provide a partial offset to exchange exposure.
From time to time, we use derivatives to manage our exposure to U.S. dollar exchange fluctuations and commodity prices. We do not utilize derivative
financial instruments for trading or speculative purposes.
Impact of U.S. dollar currency fluctuation on financial instruments
The U.S. dollar balance sheet exposure at December 31, 2012 was as follows:
Canadian operations
2012
Net working capital
US$200
Long-term debt
(300)
US$(100)
U.S. operations
Net investment
US$266
Liquidity
We manage liquidity by maintaining adequate cash and short-term investment balances and by having appropriate lines of credit available. In addition, we
regularly monitor and review both actual and forecasted cash flows. Refinancing risks are managed by ensuring long-term debt has a balanced maturity
schedule where possible.
The following table summarizes the aggregate amount of contractual future cash outflows for long-term debt:
Long-term debt (note 12)$
Interest on debt 1
$
2013
2014
2015
2016
—
$
16
16
$
299
$
12
311
$
—
$
—
—
$
—
$
—
—
$
2017 Thereafter
—
$
—
—
$
2
$
—
2
$
Total
301
28
329
1. Assumes debt level, foreign exchange rate and floating interest rates remain at December 31, 2012 levels and rates.
Interest rates
Interest rate risk relates mainly to cash and short-term investments and floating rate debt. Our general practice is to fund long-term capital with debt at
fixed rates and various maturities. In addition, we have revolving lines of credit available that bear interest at floating rates on amounts drawn.
At December 31, 2012, with other variables unchanged, a 1% change in interest rates would not have a significant impact on earnings or other
comprehensive earnings.
63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit
Credit risk arises from the non-performance by counterparties of contractual financial obligations. Investments in cash and short-term investments and
derivative contracts are primarily made using major banks and only made with counterparties meeting certain credit worthiness criteria. Credit risk for
trade and other receivables is managed through established credit monitoring activities. Customer credit limits are established and monitored. Ongoing
evaluations of key customer financial conditions are performed. In certain market areas we have undertaken additional measures to reduce credit risk
including credit insurance, letters of credit and prepayments. At December 31, 2012 approximately 62% of trade accounts receivable were covered by at
least some of these additional measures. We have historically experienced minimal customer defaults and, as a result, consider the credit quality of the
trade accounts receivable at December 31, 2012 to be high. Bad debt expense of $2 million (2011 – $nil) was recorded for the year. The aging analysis
of trade accounts receivable is presented below:
2012
2011
Trade accounts receivable – gross
Current
$171
$
149
Past due 1 to 30 days
31 38
Past due 31 to 60 days
1 2
Past due over 60 days
—
4
203
193
Allowance for doubtful accounts
(1) (1)
Trade accounts receivable – net
202 192
Green Transformation Program
1
40
Other 48 34
Receivables
$251
$
266
WEST FRASER TIMBER CO. LTD.
Based on these balances, with other variables unchanged, a $0.01 increase in the exchange rate for one U.S. dollar into Canadian currency would have
resulted in a $1 million increase in earnings and an increase of $3 million in the translation loss on foreign operations. A $0.01 decrease in this rate would
have resulted in a $1 million decrease in earnings and a decrease of $3 million in the translation loss on foreign operations.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in millions of Canadian dollars, EXCEPT WHERE INDICATED)
26. Capital disclosures
Our business is cyclical and is subject to significant changes in cash flow over the business cycle. In addition, financial performance can be materially
influenced by changes in product prices and the relative values of the Canadian and U.S. dollar. Our objective in managing capital is to ensure adequate
liquidity and financial flexibility at all times, particularly at the bottom of the business cycle and in a strong Canadian dollar environment.
Our main policy relating to capital management is to maintain a strong balance sheet and otherwise meet financial tests that are commonly applied by rating
agencies for investment grade issuers of public debt. Our debt is currently rated at below investment grade by major rating agencies primarily due to the
poor economic fundamentals of the North American forest products industry over the last few years. We believe that the goal of returning to an investment
grade rating is an appropriately conservative approach in the context of the cyclical nature of our business.
WEST FRASER TIMBER CO. LTD.
We monitor and assess our financial performance in order to ensure that net debt levels are prudent taking into account the anticipated direction of the
business cycle. When financing acquisitions, we combine debt and equity financing in a proportion that is intended to maintain an investment grade rating
for debt throughout the cycle. Long-term debt repayments are arranged, where possible, on a staggered basis that takes into account the uneven nature of
anticipated cash flows. We have also established committed revolving lines of credit that provide liquidity and flexibility when capital markets are restricted.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
64
One key measurement used to monitor our capital position is net debt to total capital, calculated as follows at December 31:
2012
2011
Net debt
Cash and short-term investments
$
(102)
$
(68)
Deferred financing fees
(4)
(6)
300 306
Long-term debt 1
194
232
Shareholders’ equity
1,492
1,483
Total capital
$1,686
$
1,715
Net debt to total capital 12%
14%
1. Balance sheet presentation is net of deferred financing fees, where applicable.
27. Segment and geographical information
The segmentation of manufacturing operations into lumber, panels and pulp and paper is based on a number of factors, including similarities in products,
production processes and economic characteristics. Transactions between segments are at market prices and on normal business terms. The accounting
policies of each segment are those described in note 3.
2012
Lumber
Panels
Pulp & Paper
Corporate
& Other
Total
Sales at market prices
To external customers
$
1,783
$
442
$
775
$
To other segments
72
6
—
$
1,855
$
448
$
775
$
—
—
—
$
180
$
55
$
109
$
EBITDA1
Amortization
(86)
(16)
(48)
Operating earnings
94
39
61
Finance expense
(10)
(3)
(6)
Exchange gain on long-term debt
—
—
—
Other income (expense)
(4)
—
1
Earnings from continuing operations before tax provision
$
80
$
36
$
56
$
(65)
$
(2)
(67)
—
7
3
(57)
$
$
1,572
$
270
$
520
$
Capital employed1
Total liabilities
$
279
$
46
$
110
$
Assets before goodwill
$
1,473
$
247
$
584
$
Goodwill
218
46
—
Total assets
$
1,691
$
293
$
584
$
Capital expenditures $
109
$
4
$
35
$
Acquisition
$
30
$
—
$
—
$
(86)
$
691
$
50
$
—
50
$
2
$
—
$
1. Non-IFRS measures:
a) EBITDA is defined as operating earnings plus amortization.
b) Capital employed is defined as total assets less current non-interest bearing liabilities at year-end.
$3,000
279
(152)
127
(19)
7
—
115
2,276
1,126
2,354
264
2,618
150
30
2011
Lumber
Panels
Pulp & Paper
Corporate
& Other
Sales at market prices
To external customers
$
1,579
$
370
$
813
$
To other segments
91
8
—
$
1,670
$
378
$
813
$
EBITDA1
$
65
$
8
$
148
$
Amortization
(85)
(15)
(65)
Operating earnings (20
) (7
) 83
Finance expense
(11)
(3)
(6)
Exchange loss on long-term debt
—
—
—
Other income 10
—
3
Earnings from continuing operations before tax provision
$
(21)
$
(10)
$
80
$
Capital employed1
$
Total liabilities
$
Assets before goodwill
$
Goodwill
Total assets
$
Capital expenditures $
1,400
$
271
$
1,302
$
218
1,520
$
108
$
277
$
47
$
252
$
46
298
$
5
$
576
$
112
$
648
$
—
648
$
99
$
—
—
—
Total
$
2,762
5
$
226
(3)
(168)
2 58
—
(20)
(7)
(7)
1
14
(4)
$
45
(9)
$
605
$
52
$
—
52
$
1
$
2,244
1,035
2,254
264
2,518
213
1. Non-IFRS measures:
a) EBITDA is defined as operating earnings plus amortization.
b) Capital employed is defined as total assets less current non-interest bearing liabilities at year-end.
Non-current assets 2012
Canada
$1,633
$
United States
162
China
—
Other Asia
—
Other
—
$1,795
$
1. Sales distribution is based on the location of product delivery.
Sales by geographic area1
2011
2012
2011
1,627 $747
$ 652
146
1,435
1,303
—
513 456
—
201 229
—
104
122
1,773 $3,000
$ 2,762
65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
WEST FRASER TIMBER CO. LTD.
The geographic distribution of non-current assets and external sales is as follows:
FIVE-YEAR FINANCIAL REVIEW
(in millions of Canadian dollars, except where indicated)
2012
2011
2010
WEST FRASER TIMBER CO. LTD.
Earnings
Sales 3,000 2,762 2,886 Cost of product sold
2,020 1,917 1,787 Freight and other distribution costs
477 460 441 Export taxes
48 58 60 Amortization
152 168 185 Selling, general and administration
115 104 107 Equity-based compensation
61 (3)
31 Asset impairments & restructuring charges
— — — Operating earnings
127 58 275 Finance expense
(19)
(20)
(28)
Exchange gain (loss) on long-term debt
7 (7)
17 Other income (expense)
— 14 (9)
Income tax recovery (expense)
(28)
(18)
(74)
Earnings from continuing operations 87 27 181 Earnings from discontinued operations
— 46 5 Earnings
87 73 186 FIVE-YEAR FINANCIAL REVIEW
66
1
200912008
2,353 1,725 396 47 245 95 3 22 (180)
(27)
50 (4)
(33)
(194)
(147)
(341)
2,863 2,117 477 54 254 104 (2)
— (141)
(34)
(68)
28 82 (133)
(4)
(137)
Cash flows from operating activities
195 85 421 96 186 Capital expenditures & acquisitions
180 213 89 18 42 Financial position
Current assets
823 745 789 PPE & timber licenses
1,455 1,426 1,434 Goodwill & other intangibles
330 336 345 Other assets
10 11 42 Total assets
2,618 2,518 2,610 Current liabilities
385 315 388 Long-term debt
300 306 300 Other liabilities
313 270 226 Deferred income taxes
128 144 162 Shareholders’ equity
1,492 1,483 1,534 Total liabilities & equity
2,618 2,518 2,610 704 1,624 350 135 2,813 495 316 167 217 1,618 2,813 841 2,041 361 83 3,326 483 465 168 180 2,030 3,326 Per common share (dollars) Basic EPS from continuing operations
2.02 0.63 4.24 Basic EPS after discontinued operations
2.02 1.70 4.35 Price range — high
75.23 62.86 48.96 — low
40.16 34.90 31.52 — close
70.05 41.40 46.84 Cash dividends per share
0.56 0.56 0.18 Shares outstanding at year-end (‘000s)
42,863 42,846 42,835 (4.54)
(7.96)
34.50 19.91 33.00 0.23 42,816 (3.12)
(3.20)
39.84 25.00 31.80 0.56 42,805 Ratios (before unusual items)
EBITDA margin
9.3%
8.2%
15.9%
Return on capital employed
4.4%
3.9%
9.1%
Return on common shareholders’ equity
6.0%
4.7%
12.5%
Net debt to capitalization
12.0%
14.0%
9.0%
3.4%
-11.4%
-18.7%
24.0%
4.0%
-3.6%
-6.7%
24.0%
6,740
7,300
8,500
Production
Lumber (MMfbm)
4,954 4,911 4,683 Pulp (Mtonnes)
1,149 1,132 1,141 Newsprint (Mtonnes)
128 122 131
Plywood (3/8” MMsf)
793 780 791 MDF (3/4” MMsf)
195 186 192 LVL (Mcf)
1,964 1,634 1,918 4,152 1,024 111 745 195 1,643 4,959 1,042 125 814 224 1,264 Number of employees at year-end2
7,200
6,850
1 Amounts for years prior to 2010 have not been restated under IFRS and are prepared under previous Canadian generally accepted accounting principles.
2 2008-2009 includes discontinued operation employees.
CORPORATE INFORMATION
Effective March 1, 2013
D IR E C T ORS
P R I N C I PA L O C C UPATION
Henry H. Ketcham Executive Chairman
Clark S. Binkley Managing Director, International Forestry Investment Advisors (advisory services)
J. Duncan Gibson Investor
Samuel W. KetchamInvestor
Harald H. Ludwig President, Macluan Capital Corporation (diversified private equity investments)
Gerald J. Miller Corporate Director
Robert L. Phillips Corporate Director
Janice G. Rennie Corporate Director
OFFIC E RS
O F F I C E H EL D
Henry H. Ketcham Executive Chairman
Ted Seraphim President and Chief Executive Officer
Raymond W. Ferris
Vice-President, Wood Products
Vice-President, Corporate Controller
Maureen F. KuperTreasurer
David P. Lehane
Vice-President, Woodlands
Christopher D. McIver Vice-President, Lumber Sales and Corporate Development
Sean P. McLaren
Vice-President, U.S. Lumber Operations
Peter A. Rippon
Vice-President, Pulp and Energy
67
CORPORATE INFORMATION
Rodger M. Hutchinson WEST FRASER TIMBER CO. LTD.
Larry S. Hughes Vice-President, Finance and Chief Financial Officer
Secretary
CORPORATE INFORMATION
ANNUAL GENERAL MEETING
The Annual General Meeting
of the shareholders of the
Company will be held on
April 30, 2013 at 11:30 a.m. at
Quesnel, British Columbia, Canada.
C O R P O R AT E O FFI C E
858 Beatty Street, Suite 501,
Vancouver, British Columbia,
Canada, V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061
Pulp & Paper
858 Beatty Street, Suite 501,
Vancouver, British Columbia,
Canada, V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061
AUD IT OR S
PricewaterhouseCoopers LLP
Vancouver, British Columbia,
Canada
SALES
SPF Lumber
1250 Brownmiller Road,
Quesnel, British Columbia,
Canada, V2J 6P5
Tel: (250) 992-9254
Fax: (250) 992-3034
Newsprint
2900-650 W Georgia Street,
Vancouver, British Columbia,
Canada, V6B 4N8
Tel: (604) 681-8817
Fax: (604) 681-8861
WEST FRASER TIMBER CO. LTD.
LEGAL C OU NS E L
McMillan LLP
Vancouver, British Columbia,
Canada
CORPORATE INFORMATION
68
TRA NSFE R AGE NT
CIBC Mellon Trust Company
Vancouver, Calgary, Regina,
Winnipeg, Toronto, Montreal and
Halifax, Canada
FILINGS
www.sedar.com
Shares are listed on the
Toronto Stock Exchange under the
symbol: WFT
IN VE STOR C ONTACTS
Larry S. Hughes
Vice-President, Finance
and Chief Financial Officer
Rodger M. Hutchinson
Vice-President, Corporate
Controller
Tel: (604) 895-2700
Fax: (604) 681-6061
Email Address
[email protected]
WEBSIT E
www.westfraser.com
SPF Export Lumber
858 Beatty Street, Suite 501,
Vancouver, British Columbia,
Canada, V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061
SYP Lumber
1900 Exeter Road, Suite 105,
Germantown, Tennessee,
USA, 38138
Tel: (901) 419-3800
Fax: (901) 419-0950
Laminated Veneer Lumber
1250 Brownmiller Road,
Quesnel, British Columbia,
Canada, V2J 6P5
Tel: (250) 992-9254
Fax: (250) 992-3034
MDF
9919 65 Avenue,
Edmonton, Alberta,
Canada, T6E 0L1
Tel: (780) 413-8900
Fax: (780) 413-8910
Plywood
1250 Brownmiller Road,
Quesnel, British Columbia,
Canada, V2J 6P5
Tel: (250) 992-9254
Fax: (250) 992-3034
Pulp & Paper
Cariboo Pulp & Paper
P.O. Box 7500,
50 North Star Road,
Quesnel, British Columbia,
Canada, V2J 3J6
Tel: (250) 992-0200
Fax: (250) 992-2164
OPERATION S
Lumber, Plywood and LVL
Quesnel River Pulp
1000 Finning Road,
Quesnel, British Columbia,
Canada, V2J 6A1
Tel: (250) 992-8919
Fax: (250) 992-2612
Canadian Operations
1250 Brownmiller Road,
Quesnel, British Columbia,
Canada, V2J 6P5
Tel: (250) 992-9244
Fax: (250) 992-9233
Hinton Pulp
760 Switzer Drive,
Hinton, Alberta,
Canada, T7V 1V7
Tel: (780) 865-2251
Fax: (780) 865-6666
US Operations
1900 Exeter Road, Suite 105,
Germantown, Tennessee,
USA, 38138
Tel: (901) 419-3800
Fax: (901) 419-0950
Slave Lake Pulp
P.O. Box 1790,
Slave Lake, Alberta,
Canada, T0G 2A0
Tel: (780) 849-7777
Fax: (780) 849-7725
MDF
Alberta Newsprint Company
Postal Bag 9000,
Whitecourt, Alberta,
Canada, T7S 1P9
Tel: (780) 778-7000
Fax: (780) 778-7070
WestPine
300 Carradice Road,
Quesnel, British Columbia,
Canada, V2J 5Z7
Tel: (250) 991-7100
Fax: (250) 991-7115
Ranger Board
Box 2000,
Whitecourt, Alberta,
Canada, T7S 1P9
Tel: (780) 648-6333
Fax: (780) 648-6397
Mfbm
One thousand board feet (equivalent to one thousand
square feet of lumber, one inch thick). MMfbm means
one million board feet.
Msf
A unit of measure for MDF and plywood equal to one
thousand square feet on a 3/4 inch basis for MDF and on
a 3/8 inch basis for plywood. MMsf means one million
square feet.
69
GLOSSARY OF INDUSTRY TERMS
AAC Annual Allowable Cut
Net Debt to Capitalization
The volume of timber that may be harvested annually Net debt (total debt less cash and short-term investments
from a specific timber tenure.
and less deferred financing costs) divided by net debt
plus shareholders’ equity.
BCTMP
Bleached Chemithermomechanical Pulp
NBSK
Northern Bleached Softwood Kraft Pulp
Dimension Lumber
Standard commodity lumber ranging in sizes from 1 x Return on Capital Employed
3’s to 2 x 12’s, in various lengths.
Earnings before after-tax financing expense divided
by average assets less average current non-interest
EBITDA
bearing liabilities.
Refers to operating earnings plus amortization and asset
impairment charges.
Return on Common Shareholders’ Equity
Earnings available to common shareholders divided by
FMA Forest Management Agreement
average shareholders’ equity.
An FMA is granted by the Alberta government and
entitles the holder to establish, grow and harvest timber SPF
on specified lands.
Dimension lumber produced from spruce/pine/balsam
fir species.
LVL Laminated Veneer Lumber
Large sheets of veneer bonded together with resin then SYP
cut to lumber equivalent sizes.
Dimension lumber produced from southern yellow pine
species.
m3
A solid cubic metre, a unit of measure for timber, equal Ton
to approximately 35 cubic feet.
A unit of weight equal to 2,000 pounds, generally known
as a U.S. ton.
Mcf
One thousand cubic feet. A unit of measure for laminated Tonne
veneer lumber.
A unit of weight in the metric system equal to one
thousand kilograms or approximately 2,204 pounds.
MDF Medium Density Fibreboard
Mtonne means one thousand tonnes.
A composite product made from wood fibre.
WEST FRASER TIMBER CO. LTD.
GLOSSARY OF INDUSTRY TERMS
West Fraser Timber Co. Ltd.
Tel: 604.895.2700
Fax: 604.681.6061
www.westfraser.com