West Fraser Announces 2020 Annual and Fourth Quarter Results, Initiates Normal Course Issuer Bid, Dividend Declared

VANCOUVER, BC, Feb. 11, 2021 /PRNewswire/ - West Fraser Timber Co. Ltd. ("West Fraser", "we", "us", "our", or the "Company") (TSX and NYSE both under the trading symbol WFG) today reported the fourth quarter and annual results of 2020.  All dollar amounts in this news release are expressed in Canadian dollars.

Despite a year filled with uncertainty, West Fraser maintained its strategy and delivered strong results.  We minimized COVID-19 related business disruptions, thanks to our focus on workplace safety and the agility of our people and operations, and benefitted from strong demand for our products.  The acquisition of Norbord Inc. ("Norbord") was completed on February 1, 2021.  Norbord's complementary products and operations expand West Fraser's geographic and product diversification and positions the Company as a leading wood-based building products producer.  Except where specifically noted, the financial information set out in this news release relates solely to West Fraser prior to giving effect to the acquisition of Norbord.

Fourth Quarter

• Sales of $1.689 billion in the quarter
• Earnings of $366 million or 22% of sales
• Adjusted EBITDA of $544 million
• A quarterly cash dividend of $0.20 declared
• Additional export duty recovery of $124 million for the finalization of the 2017 and 2018 administrative review

2020

• Sales of $5.850 billion in the year
• Earnings of $776 million or 13% of sales
• Adjusted EBITDA of $1.460 billion
• Cash provided by operating activities of $1.295 billion
• Invested $241 million in capital projects
• Year-end liquidity strong at $1.619 billion and net debt to capital ratio at 2%

Recent Developments

On February 1, 2021, we completed the acquisition of Norbord in an all-stock transaction.  Norbord's OSB production further diversifies West Fraser's product portfolio and expands our reach into the European market.  For additional information, refer to the section titled "Norbord Acquisition" in our 2020 Management's Discussion & Analysis ("2020 MD&A").

Concurrent with the completion of the Norbord acquisition, the Common shares of West Fraser commenced trading on the New York Stock Exchange ("NYSE") on February 1, 2021 under the symbol WFG.  In addition, the trading symbol for the Common shares on the Toronto Stock Exchange ("TSX") was changed to WFG on February 1, 2021.

On November 24, 2020, the U.S. Department of Commerce ("USDOC") issued its final duty rates for the first Administrative Review ("AR") Period of Investigation ("POI") dated April 28, 2017 to December 31, 2018.  The cash deposit rate for shipments is a combined 8.97%, which marks a significant decrease from the 23.56% deposit rate previously required by the USDOC.  The AR2 for the 2019 fiscal period is continuing, and the USDOC has initiated AR3 for the 2020 fiscal period.  Preliminary results for AR2 are expected in May 2021 and final results in November 2021.  For additional information, refer to the section titled "Discussion & Analysis of Annual Results by Product Segment - Lumber - Softwood Lumber Dispute" in our 2020 MD&A.

Results Compared to Previous Periods
($ millions except earnings per share ("EPS"))

Operational Results

Our lumber segment generated operating earnings in the quarter of $503 million (Q3-20 - $454 million) and Adjusted EBITDA of $508 million (Q3-20 - $552 million).  Current quarter operating earnings includes a $124 million duty recovery related to the AR1 duty rate finalization.  Adjusted EBITDA, which excludes duties, declined due to lower lumber prices, a stronger Canadian dollar relative to the U.S. dollar, and higher SPF log costs resulting from increased Alberta stumpage rates.  Higher SPF shipment volumes partially offset the decline.  We remain encouraged by the progress we have seen with the capital that we have invested in the U.S. south.

Our panels segment generated operating earnings in the quarter of $57 million (Q3-20 - $47 million) and Adjusted EBITDA of $62 million (Q3-20 - $51 million).  Increased plywood pricing and robust plywood demand positively impacted the panels segment earnings for the quarter, partially offset by a decrease in plywood, MDF, and LVL shipments and higher log costs from increased Alberta stumpage rates.  The positive price variance increased Adjusted EBITDA by $26 million compared to the previous quarter.

Our pulp & paper segment generated an operating loss in the quarter of $36 million (Q3-20 - loss of $5 million) and Adjusted EBITDA of negative $26 million (Q3-20 - positive $5 million).  Hinton pulp's annual major maintenance and Quesnel pulp's minor maintenance shutdowns occurred in the quarter resulting in significantly higher maintenance costs than the previous quarter.  Despite this challenging quarter, the reliability of our Hinton pulp mill improved in 2020.

Outlook

We expect lumber production for 2021 to increase by approximately 340 MMfbm over 2020 production and reach approximately 6,300 MMfbm.  Pulp production is expected to slightly improve in 2021.

Capital expenditures are expected to be roughly $550 million in 2021, including estimates for the acquired Norbord operations post-close.  With respect to the acquired North American facilities, production at the previously curtailed mill in Chambord, Quebec, will resume in spring 2021.  Our focus in 2021 is integrating our newly acquired OSB and panel operations and realizing gains from previous investments in capital.

The U.S. housing starts published in December 2020 remained strong and exceeded that of the previous two years.  Industry forecasts for housing in 2021 are for continued strength of which our diversified products are well-positioned to supply.  We expect continued improvement and sustainable growth as we execute on our capital improvement strategy.

Our results of operations for 2021 will incorporate the results of operations of Norbord effective February 1, 2021.  As part of the acquisition of Norbord, we have assumed Norbord's US$315 million senior notes due April 2023, bearing interest at 6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75% ("Norbord Bonds").  Pursuant to the terms of the Norbord Bonds, we are required to make an offer to repurchase them at 101% of their principal amount, plus accrued and unpaid interest.  Any Norbord Bonds not purchased under this offer will remain outstanding.  Details of the offer will be provided in a notice of the offer to be mailed to the holders of the Norbord Bonds.

Normal Course Issuer Bid

West Fraser also announced today that it is proceeding with a normal course issuer bid ("NCIB") for up to 6,044,000 Shares of the Company, representing approximately 5% of the issued and outstanding Shares.  The Company has received approval from the TSX to commence this bid on February 17, 2021.

All purchases of Shares under the NCIB may be made on the TSX, at the market price at the time of purchase in accordance with the rules and policies of the TSX or on the NYSE in compliance with Rule 10b-18 under the United States Securities Exchange Act of 1934 (the "Exchange Act").  Purchases may also be made through alternative trading systems in Canada and/or the United States, if eligible.  The rules and policies of the TSX contain restrictions on the number of Shares that can be purchased under the NCIB, based on the average daily trading volumes on the TSX.  Similarly, the safe harbor conditions of Rule 10b-18 under the Exchange Act impose certain limitations on the number of Shares that can be purchased on the NYSE per day.

As a result of the restrictions, subject to certain exceptions for block purchases, the maximum number of Shares which can be purchased per day during the NCIB on the TSX is 102,450 based on 25% of the average daily trading volume on the TSX for the prior six months (being 409,801 Shares on the TSX).  Subject to certain exceptions for block purchases, the maximum number of Shares which can be purchased per day on the NYSE will be 25% of the average daily trading volume on NYSE for the four calendar weeks preceding the date of purchase (which may not be commenced prior to March 1, 2021).  Subject to regulatory requirements, the actual number of Shares purchased and the timing of such purchases, if any, will be determined by the Company having regard to future price movements and other factors.  All Shares purchased by the Company under the NCIB will be cancelled.

The NCIB will terminate on February 16, 2022 or earlier if the maximum number of Shares authorized for repurchase under the NCIB have been purchased.  The Company reserves the right to terminate the NCIB earlier if it feels it is appropriate to do so.  The Company believes that the market price of its Shares at certain times may be attractive and that the repurchase of Shares at such market prices is an appropriate use of corporate funds and in the best interests of the Company.

Risks and Uncertainties

Risk and uncertainty disclosures are included under the heading "Risks and Uncertainties" in our 2020 MD&A.  These risks and uncertainties include risks and uncertainties related to the business of Norbord, and the integration of the business of Norbord into our business.

MD&A

Our 2020 MD&A is available on our website at  www.westfraser.com and the System for Electronic Document Analysis and Retrieval (''SEDAR'') at www.sedar.com and the Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") website at www.sec.gov/edgar.shtml under the Company's profile.

Financial Information regarding Norbord

Norbord will be filing its audited financial statements for the year ended December 31, 2020 ("Norbord 2020 Audited Financial Statements"), its annual MD&A for the year ended December 31, 2020 ("Norbord 2020 MD&A") and annual information form for the year ended December 31, 2020 ("Norbord 2020 AIF") (together, the "Norbord Annual Filings") on SEDAR and EDGAR concurrently or shortly following the dissemination of this news release.  The Norbord Annual Filings include important information regarding the business of Norbord and the financial results of Norbord on a stand-alone basis in United States dollars for the year ended December 31, 2020.  This news release does not include a discussion of the financial results or operations of Norbord for the year ended December 31, 2020, and investors are referred to Norbord's Annual MD&A for this discussion.  In addition, investors are referred to the Norbord 2020 AIF for information on Norbord's business.

Responsibility Report

West Fraser's full Environmental, Social, and Governance (ESG) Responsibility Report is available on the Company's website at www.westfraser.com.  This report reviews the Company's key ESG topics, opportunities and performance and includes information aligned with the Sustainable Accounting Standards Board (SASB), Global Reporting Initiative (GRI), and the recommendations of the Task Force on Climate-Related Disclosures (TFCD).

Dividend Declared

The Board of Directors of the Company has declared a dividend of $0.20 per share on the Common shares and the Class B Common shares in the capital of the Company, payable on April 1, 2021 to shareholders of record on March 18, 2021.

Dividends are designated to be eligible dividends pursuant to subsection 89(14) of the Income Tax Act (Canada) and any applicable provincial legislation pertaining to eligible dividends.

The Company

West Fraser is a diversified wood products company producing lumber, OSB, LVL, MDF, plywood, pulp, newsprint, wood chips, other residuals, and energy with facilities across Canada, in the southern United States and in Europe.

Conference Call

Representatives of West Fraser will hold a joint earnings call to discuss both West Fraser's and Norbord's 2020 fourth quarter and annual financial and operating results on Friday, February 12, 2021 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time).  To participate in the call, please dial: 1-888-390-0605 (toll-free North America) or 416-764-8609 (toll) or connect on the webcast.  The call and an earnings presentation may also be accessed through West Fraser's website at www.westfraser.com.  Please let the operator know you wish to participate in the joint West Fraser and Norbord earnings call chaired by Mr. Ray Ferris, President and Chief Executive Officer of the Company.

Following management's discussion of the quarterly and annual results, investors and the analyst community will be invited to ask questions.  The call will be recorded for webcasting purposes and will be available on the West Fraser website at www.westfraser.com and on the Norbord website at www.norbord.com.

Forward-Looking Statements

This news release contains "forward-looking information" and "forward-looking statements" within the meaning of Canadian provincial securities laws and "forward-looking statements" within the meaning of the U.S. Securities Act of 1933, the U.S. Securities Exchange Act of 1934, and the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995.  Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, include statements which reflect management's expectations regarding the operations, business, financial condition, expected financial results, performance, prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies and outlook of West Fraser and its subsidiaries, including Norbord, as well as the outlook for North American and international economies for the current fiscal year and subsequent periods, and include words such as "expects," "anticipates," "plans," "believes," "estimates," "seeks," "intends," "targets," "projects," "forecasts" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may," "will," "should," "would" and "could."  In particular, this news release contains forward-looking statements under the headings "Recent Developments" (regarding preliminary and finalization of AR2 duty rates), "Outlook" (regarding lumber and pulp production, capital expenditures, the integration of newly-acquired OSB and panel operations, resumption of production at the Chambord mill, U.S. housing starts and the benefits thereof, and the expansion of our operating footprint and global market reach), and "Normal Course Issuer Bid" (potential future purchases by West Fraser of its Shares pursuant to the NCIB).

By their nature, forward-looking statements involve numerous assumptions, inherent risks and uncertainties, both general and specific, which contribute to the possibility that the predictions, forecasts, and other forward-looking statements will not occur.  Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: (1) the impact of the COVID-19 pandemic on our operations and on customer demand, supply and distribution and other factors; (2) assumptions in connection with the economic and financial conditions in the U.S., Canada, Europe and globally and consequential demand for our products; (3) risks inherent in our product concentration and cyclicality; (4) effects of competition and product pricing pressures; (5) risks inherent to customer dependence; (6) effects of variations in the price and availability of manufacturing inputs, including continued access to fibre resources at competitive prices and the impact of third-party certification standards; (7) availability of transportation services, including truck and rail services, and port facilities; (8) various events that could disrupt operations, including natural, man-made or catastrophic events and ongoing relations with employees; (9) impact of changes to, or non-compliance with, environmental or other regulations; (10) government restrictions, standards or regulations intended to reduce greenhouse gas emissions; (11) impact of weather and climate change on our operations or the operations or demand of our suppliers and customers; (12) impact of any product liability claims in excess of insurance coverage; (13) risks inherent to a capital intensive industry; (14) impact of future outcomes of tax exposures; (15) potential future changes in tax laws, including tax rates; (16) effects of currency exposures and exchange rate fluctuations; (17) future operating costs; (18) availability of financing, bank lines, securitization programs and/or other means of liquidity; (19) impact of future cross border trade rulings or agreements; (20) implementation of important strategic initiatives and identification, completion and integration of acquisitions; (21) ability to implement new or upgraded information technology infrastructure; (22) impact of information technology service disruptions or failures; (23) changes in government policy and regulation; and (24) integration of the Norbord business.

In addition, actual outcomes and results of these statements will depend on a number of factors, including those matters described under "Risks and Uncertainties" in our 2020 MD&A, and may differ materially from those anticipated or projected.  This list of important factors affecting forward-looking statements is not exhaustive, and reference should be made to the other factors discussed in public filings with securities regulatory authorities.  Accordingly, readers should exercise caution in relying upon forward-looking statements, and we undertake no obligation to update or revise any forward-looking statements publicly, whether written or oral, to reflect subsequent events or circumstances except as required by applicable securities laws.

Non-IFRS Measures

Throughout this news release, reference is made to Adjusted EBITDA, Adjusted earnings, Adjusted basic earnings per share, available liquidity, and total and net debt to total capital ratio (collectively "these Non-IFRS measures").  We believe that, in addition to earnings, these Non-IFRS measures are useful performance indicators for investors with regard to operating and financial performance.  Adjusted EBITDA is also used to evaluate the operating and financial performance of our operating segments, generate future operating plans, and make strategic decisions.  These Non-IFRS measures are not generally accepted financial measures under IFRS and do not have standardized meanings prescribed by IFRS.  Investors are cautioned that none of these Non-IFRS measures should be considered as an alternative to earnings, EPS, or cash flow, as determined in accordance with IFRS.  As there is no standardized method of calculating any of these Non-IFRS measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of any of these Non-IFRS measures may not be directly comparable to similarly titled measures used by other entities.  Accordingly, these Non-IFRS measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.  The reconciliation of the Non-IFRS measures used and presented by the Company to the most directly comparable IFRS measures is set out in our 2020 MD&A.

West Fraser Timber Co. Ltd.
Notes to Condensed Consolidated Interim Financial Statements
(figures are in millions of dollars, except where indicated - unaudited)

1. Nature of operations

West Fraser Timber Co. Ltd. ("West Fraser", "we", "us" or "our") is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips, other residuals and energy 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.  Our Common shares are listed for trading on the Toronto Stock Exchange ("TSX") under the symbol WFT.

As disclosed in the subsequent event note 11, on February 1, 2021, West Fraser completed the acquisition of Norbord Inc. (the "Acquisition"), listed its shares on the New York Stock Exchange ("NYSE") and began trading under the symbol WFG.  At the same time, the symbol on the TSX was also changed to WFG.

2. Basis of presentation and statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting as issued by the International Accounting Standards Board and use the same accounting policies and methods of their application as the December 31, 2020, annual audited consolidated financial statements.  These condensed consolidated interim financial statements should be read in conjunction with our 2020 annual audited consolidated financial statements.

3. Use of estimates and judgments and Coronavirus ("COVID-19")

Financial statement preparation requires management to use accounting estimates and make judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.  The estimates and underlying assumptions are based on historical experience and other factors, including expectations of future events that are considered to be reasonable under the circumstances.

Given the ongoing and dynamic nature of the COVID-19 outbreak, it is challenging to predict the impact on our Company.  The extent of such impact will depend on future developments, which are highly uncertain, including the resurgence of COVID-19 as restrictions are eased or lifted, new information that may emerge concerning the spread and severity of COVID-19, and actions taken to address its impact, among others.  It is difficult to predict how this virus may affect our business in the future, including its effect (positive or negative; long or short term) on the demand and price for our products.  It is possible that COVID-19, particularly if it has a prolonged duration, could have a material adverse effect on our supply chain, market pricing, customer demand, and distribution networks.  These factors may further impact our operating plans, business, financial condition, liquidity, and operating results, which would, in turn, affect our estimates, including the valuation of inventories, allowance for expected credit losses, fair value measurements, the valuation of long-lived assets, and cash flow projections used for impairment testing.  Actual results may materially differ from these estimates.

4. Seasonality of operations

Our operating results are subject to seasonal fluctuations that impact quarter-to-quarter comparisons.  Log availability has a direct impact on our operations.  We build up log inventory in Canada during the winter to sustain our lumber and plywood production during the second quarter when logging is curtailed due to wet and inaccessible land conditions.  Extreme weather conditions, wildfires in Western Canada and hurricanes in the U.S. south may periodically affect operations, including logging, manufacturing and transportation.  Consequently, interim operating results may not proportionately reflect operating results for a full year.

5. Inventories

Inventories at December 31, 2020 were subject to a valuation reserve of $3 million (September 30, 2020 - $2 million; December 31, 2019 - $39 million) to reflect net realizable value being lower than cost.

6. Other

7. Tax provision

The tax provision differs from the amount that would have resulted from applying the British Columbia statutory income tax rate to earnings before tax as follows:

8. 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.

9. Segmented information

Adjusted EBITDA by segment

Adjusted EBITDA is used to evaluate the operating and financial performance of our operating segments, generate future operating plans, and make strategic decisions.  Adjusted EBITDA is defined as earnings determined in accordance with IFRS adding back the following line items from the statements of earnings and comprehensive earnings: finance expense, tax provision or recovery, amortization, export duties, equity-based compensation, restructuring and impairment charges, and other.

The following table reconciles Adjusted EBITDA by segment to the most directly comparable IFRS measures.

Quarterly Adjusted EBITDA by segment

Annual Adjusted EBITDA by segment

The geographic distribution of external sales is as follows¹:

10. Countervailing ("CVD") and antidumping ("ADD") duty dispute

Additional details can be found in note 25 "Countervailing ("CVD") and antidumping ("ADD") duty dispute" of our 2020 annual audited consolidated financial statements.

Developments in CVD and ADD rates

On April 24, 2017, the U.S. Department of Commerce ("USDOC") issued its preliminary determination in the CVD investigation, and on June 26, 2017, the USDOC issued its preliminary determination in the ADD investigation.  On December 4, 2017, the duty rates were revised.  On November 24, 2020, the USDOC finalized these rates based on its first Administrative Review ("AR") of the first Period of Investigation ("POI").

Effective November 30, 2020 for ADD and December 1, 2020 for CVD, shipments from Canada to the U.S. were subject to the new cash deposit rate of 7.57% for CVD and 1.40% for ADD.

Impact on earnings

The following table reconciles our cash deposits paid during the period to the amount recorded in our earnings statement.

Impact on the balance sheet

Export duty deposits receivable

11. Subsequent event

We completed the acquisition of 100% of the issued and outstanding shares of Norbord Inc. ("Norbord") on February 1, 2021 (the "Acquisition").  The Norbord shareholders received 0.675 of a Common share for each Norbord Common share held.  We issued 54,484,188 Common shares to the shareholders of Norbord in connection with this Acquisition, and Norbord is now a wholly owned subsidiary of West Fraser.  The value of the shares issued in consideration of the transaction is $4.5 billion, based on West Fraser's January 29, 2020 closing price of $81.94 per share multiplied by 54,484,188 Common shares issued.

On the completion of the Acquisition, we issued replacement share purchase options (the "Replacement Options") in exchange for share purchase options that were outstanding under Norbord's stock option plans.  In total, an additional 887,966 Common shares have become issuable on the exercise of these Replacement Options.  These Replacement Options continue with their original vesting schedule and exercise price (as adjusted in accordance with the exchange ratio under the Acquisition).

Concurrent with the closing of the Acquisition, we amended our $850 million revolving credit facility to accommodate the new subsidiaries acquired.  In addition, our $150 million revolving credit facility was replaced with a US$450 million revolving credit facility that matures on April 9, 2024.

At the closing of the Acquisition, Norbord terminated its revolving credit facilities and accounts receivable securitization facilities.  As part of the Acquisition, we assumed Norbord's US$315 million senior notes due April 2023, bearing interest at 6.25% and US$350 million senior notes due July 2027, bearing interest at 5.75% (the "Norbord Bonds").  Pursuant to the terms of the Norbord Bonds, we are required to make an offer to repurchase the Norbord Bonds at 101% of their principal amount, plus accrued and unpaid interest.  Any Norbord Bonds not purchased under this offer will remain outstanding.  Details of the offer will be provided in a notice of the offer to be mailed to the holders of the Norbord Bonds.

On February 1, 2021, our Common shares commenced trading on the NYSE and began trading under the symbol WFG.  At the same time, our stock symbol on the TSX was changed to WFG.  It was determined that as a result of the transaction, the functional currency of West Fraser's Canadian operations has become the U.S. dollar and West Fraser has also determined that a change in reporting currency to the U.S. dollar is appropriate.  Starting with first quarter 2021 results, West Fraser will report its results in U.S. dollars.  We began consolidating the operating results, cash flows and net assets of Norbord from February 1, 2021 onwards.  As the Acquisition closed on February 1, 2021, we will undertake to allocate the purchase price to the assets and liabilities acquired.  We will disclose a preliminary purchase price allocation in our first quarter 2021 interim financial statements.

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SOURCE West Fraser Timber Co. Ltd.