WEST FRASER TIMBER CO., LTD

Lumber Segment

1. This is a non-GAAP financial measure. Refer to the “Non-GAAP and Other Specified Financial Measures” section of this document for more information on this measure. 2023 Adjusted EBITDA was impacted by a one-time charge of $1 million related to inventory purchase price accounting related to the Spray Lake lumber mill acquisition.

Lumber sales decreased compared to 2023 due primarily to lower SYP product pricing and lower SYP shipment volumes, offset in part by an increase in SPF shipment volumes and SPF product pricing. The price variance resulted in a decrease in operating earnings and Adjusted EBITDA of $104 million compared to 2023.

SPF shipment volumes increased from 2023 due primarily to the inclusion of our Spray Lake lumber mill in Cochrane, Alberta and our Western Canada operations being less impacted by wildfire curtailments in 2024 versus 2023. This was offset in part by the closure of our Fraser Lake, B.C. lumber mill in Q2-24.

SYP shipment volumes decreased compared to 2023 due primarily to reductions in production volumes resulting from production curtailments and mill closures, discussed further in the section below.

The volume variance resulted in an increase in operating earnings and Adjusted EBITDA of $22 million compared to 2023.

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We ship SPF to certain export markets, while our SYP sales are almost entirely within the U.S. The relative proportion of shipments of SPF to Canada increased versus 2023 due primarily to the inclusion of our Spray Lake lumber mill.

Wood chips and other residual sales decreased compared to 2023 due primarily to lower lumber production and decreases in the pricing of chips driven by pulp mill closures in the U.S. South. Logs and other sales decreased compared to 2023 due to reduced availability of logs.

SPF production volumes increased from 2023 due primarily to the inclusion of production from our Spray Lake lumber mill and the less significant impact from wildfire curtailments in our Western Canada operations in 2024 versus 2023, partially offset by the closure of our Fraser Lake, B.C. lumber mill in Q2-24.

SYP production volumes decreased compared to 2023. In Q1-24, we announced and promptly completed the indefinite curtailment of operations at our Huttig, Arkansas lumber mill and the permanent closure of our Maxville, Florida lumber mill. Further, in Q3-24, we announced the indefinite curtailment of operations at our lumber mill in Lake Butler, Florida. Together, these actions reduced our SYP capacity by approximately 390 million board feet on an annual basis, representing 11% of our capacity at December 31, 2023. In addition, we selectively reduced operating hours and shifts across our SYP manufacturing facilities during 2024. SYP production volumes decreased 11% versus 2023 due to the impacts of these reductions in operating schedules and curtailments and closures. Lower production from locations impacted by curtailments and closures was partially offset by the ramp up of output from our more modern lower cost facilities.

Costs of products sold decreased compared to 2023 due primarily to lower SYP shipment volumes, lower log costs, and lower SPF unit manufacturing costs. This was offset by an unfavourable $14 million variance relating to inventory valuation adjustments, higher SYP unit manufacturing costs, and higher SPF shipment volumes. The unfavourable impact relating to inventory valuation adjustments resulted from 2023 benefiting from a larger release of inventory valuation reserves.

Most of our SPF log requirements are harvested from crown lands owned by the provinces of B.C. or Alberta. B.C.’s stumpage system is tied to reported lumber prices, with a time lag, and publicly auctioned timber harvesting rights. Alberta’s stumpage system is correlated to published lumber prices with a shorter time lag.

SPF log costs decreased compared to 2023 due primarily to lower stumpage rates in B.C. and lower purchased log costs.

SPF unit manufacturing costs decreased compared to 2023 due primarily to lower energy costs, repairs and maintenance costs, the impact of replacing production volumes from Fraser Lake lumber mill with lower cost volumes from Spray Lake lumber mill, and the weakening of the CAD against the USD. This was offset in part by higher labour costs.

SYP log costs decreased compared to 2023 as demand for logs moderated. SYP unit manufacturing costs increased compared to 2023 due primarily to the impact of fixed costs incurred during periods of reduced operating schedules as well as higher labour and energy costs. Partially offsetting these cost headwinds were productivity improvements following the indefinite curtailment of operations at our Huttig, Arkansas and Lake Butler, Florida lumber mills and permanent closure of our Maxville, Florida lumber mill. Completing these curtailments and closures resulted in a cost improvement as we replaced higher-cost volumes at these locations with lower-cost production elsewhere in our manufacturing platform.

Freight and other distribution costs decreased compared to 2023 due primarily to lower shipment volumes, favourable changes in customer geography mix, and the weakening of the CAD against the USD.

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Export duty expense increased compared to 2023. As disclosed in the table below, prior to consideration of the impact of duty adjustments attributable to finalization of POIs, export duties for 2024 decreased compared to 2023 due primarily to a lower estimated ADD rate, offset in part by higher CVD cash deposit rates and higher pricing. Export duties in 2024 included an expense of $32 million related to the USDOC finalization of AR5 duty rates whereas export duties in 2023 included a recovery of $62 million related to the USDOC finalization of AR4 duty rates.

The following table reconciles our cash deposits paid during the year to the amount recorded in our statements of earnings:

1. Represents combined CVD and ADD cash deposit rate of 8.25% from January 1, 2023 to July 31, 2023, 9.25% from August 1, 2023 to December 31, 2023, 9.25% from January 1, 2024 to August 18, 2024 and 11.89% from August 19, 2024 to December 31, 2024.

2. Represents adjustment to the West Fraser Estimated ADD rate of 2.58% for 2024 and 8.84% for 2023.

3.$62 million represents the duty recovery attributable to the finalization of AR4 duty rates for the 2021 POI. The final CVD rate was 2.19% and the final ADD rate was 7.06% for AR4.

4.$32 million represents the duty expense attributable to the finalization of AR5 duty rates for the 2022 POI. The final CVD rate was 6.85% and the final ADD rate was 5.04% for AR5.

Amortization expense increased from 2023 due to the inclusion of our Spray Lake lumber mill and the completion of certain capital investments in our U.S. operations, offset by the impact of our lumber mill curtailments and closures.

Selling, general and administration costs decreased compared to 2023 due primarily to the impact of lumber mill curtailments and closures described above and changes in the amount of corporate shared service costs allocated to the segment compared to 2023.

Restructuring and impairment charges of $28 million in 2024 related to the permanent closure of our Fraser Lake, B.C. lumber mill and indefinite curtailment of our Lake Butler, Florida lumber mill. Restructuring and impairment charges of $137 million were recorded in 2023, relating primarily to facility closures and curtailments due to availability of economic fibre sources in the U.S. South and B.C.

Operating earnings for the Lumber Segment increased by $17 million compared to 2023 for the reasons explained above.

Adjusted EBITDA for the Lumber Segment decreased by $85 million compared to 2023. The following table shows the Adjusted EBITDA variance for the period. The impact of changes in chip, log, and other revenues is included under Other.

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