VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 10/29/12 -- West Fraser Timber Co. Ltd. (TSX:WFT) today reported earnings for the third quarter of 2012 of $55 million and earnings per share of $1.27 on sales of $772 million. For the first nine months of 2012, earnings were $65 million and earnings per share were $1.51, on sales of $2.2 billion.
These results compare with previous periods as follows:
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($ million except earnings 2012 2011
per share ("EPS")) YTD Q3 Q2 YTD Q3
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Sales 2,227 772 774 2,112 705
EBITDA(1) 203 102 82 208 66
Operating earnings 90 66 46 80 23
Earnings from continuing
operations 65 55 27 37 6
Adjusted earnings from continuing
operations(2) 85 55 41 37 2
Adjusted basic EPS from continuing
operations(2) 1.97 1.27 0.96 0.87 0.05
Earnings after discontinued
operations 65 55 27 66 37
Basic EPS after discontinued
operations ($) 1.51 1.27 0.63 1.56 0.87
Diluted EPS after discontinued
operations ($) 1.51 1.27 0.63 1.26 0.44
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1. In this News Release, reference is made to EBITDA (defined as operating
earnings plus amortization). Management of the Company believes 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 from
continuing operations (calculated as set out in the table described in
footnote 2) and Adjusted basic EPS from continuing operations (collectively,
with EBITDA, "these measures"). None of these measures is a generally
accepted earnings measure under International Financial Reporting Standards
("IFRS") and none has a standardized meaning prescribed by IFRS. Investors
are cautioned that these measures should not 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.
2. Refer to the table titled "Earnings Adjustments for Certain Non-
Operational Items" in Management's Discussion and Analysis of the third
quarter 2012 results for details of adjustments.
Operational Results
In the quarter the lumber segment generated operating earnings of $37 million and EBITDA of $58 million. Lumber prices continued to reflect gradually improving U.S. demand combined with continuing steady demand for Canadian lumber from both Canada and Asia. Higher benchmark lumber prices triggered a reduction in duties charged on softwood lumber exported to the U.S. from B.C. and Alberta during the quarter.
The panels segment, which includes plywood, LVL and MDF, generated improved operating earnings in the quarter of $22 million and EBITDA of $25 million reflecting strong Canadian plywood prices.
Pulp and paper operations generated operating earnings of $17 million and EBITDA of $28 million, in line with the previous quarter. The average NBSK benchmark price for the quarter fell to US$853 per tonne from US$900 in the previous quarter but reduced costs resulted in a marginal improvement in operating earnings compared with the previous quarter.
Outlook
We expect results from our lumber and panels businesses to improve if U.S. housing construction continues to recover. Despite a continuing positive trend, the current recovery could be adversely affected by U.S. or global economic events.
NBSK pulp prices have seen a slight recovery recently but the current and anticipated supply imbalance is likely to lead to continuing soft markets.
Hank Ketcham, West Fraser's Chairman and Chief Executive Officer said, "We are encouraged by the signs of a recovery in the U.S. and we feel that we are well positioned to take advantage of the strengthening of the U.S. housing market."
Acquisition
West Fraser also announced that it has entered into an agreement to purchase the Sundance sawmilling and remanufacturing operations based in Edson, Alberta and related timber harvesting rights. 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 trees, including a temporary uplift of approximately 375,000 m3 until 2017.
"We are pleased to have an opportunity to grow our business in Alberta and we are excited to welcome the Sundance employees to the West Fraser team," said Hank Ketcham.
Completion of the transaction is scheduled for October 31, 2012.
The Company
West Fraser is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint. The Company has operations in western Canada and the southern United States.
Forward-Looking Statements
This news release contains historical information, descriptions of current circumstances and statements about potential future developments. The latter, which are forward-looking statements are included under the heading "Outlook", and are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions which are subject to various risks and uncertainties some of which are described under this heading. Actual outcomes and results will depend on a number of factors including those matters described in the 2011 annual Management's Discussion & Analysis under "Risks and Uncertainties", and may differ from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws.
Management's Discussion & Analysis
The Company's Management's Discussion & Analysis for the third quarter of 2012 is available on the Company's website: www.westfraser.com and on the System for Electronic Document Analysis and Retrieval at www.sedar.com under the Company's profile.
Conference Call
Investors are invited to listen to the quarterly conference call on Tuesday, October 30, 2012 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-800-952-6845 (toll- free North America). The call may also be accessed through West Fraser's website at www.westfraser.com.
West Fraser shares trade on the Toronto Stock Exchange under the symbol: "WFT".
West Fraser Timber Co. Ltd.
Condensed Consolidated Balance Sheets
(in millions of Canadian dollars - unaudited)
September 30 December 31
2012 2011
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Assets
Current assets
Cash and short-term investments $ 164 $ 68
Receivables 255 266
Income taxes receivable - 4
Inventories (note 3) 417 398
Prepaid expenses 13 9
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849 745
Property, plant and equipment 935 936
Timber licences 478 490
Goodwill and other intangibles 330 336
Other assets 22 30
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$ 2,614 $ 2,537
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Liabilities
Current liabilities
Payables and accrued liabilities $ 308 $ 274
Income taxes payable 15 -
Reforestation and decommissioning 41 41
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364 315
Long-term debt (note 4) 296 306
Other liabilities (note 5) 418 289
Deferred income taxes 110 144
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1,188 1,054
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Shareholders' equity
Share capital 602 601
Accumulated other comprehensive earnings (12) (6)
Retained earnings 836 888
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1,426 1,483
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$ 2,614 $ 2,537
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West Fraser Timber Co. Ltd.
Condensed Consolidated Statement of Changes in Shareholders' Equity
(in millions of Canadian dollars - unaudited)
July 1 to January 1 to
September 30 September 30
2012 2011 2012 2011
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Retained earnings
Balance - beginning of period $ 847 $ 953 $ 888 $ 943
Actuarial loss on employee
future benefits (net of tax) (60) (82) (99) (89)
Earnings for the period 55 37 65 66
Dividends (6) (6) (18) (18)
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Balance - end of period $ 836 $ 902 $ 836 $ 902
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Accumulated other comprehensive
earnings
Balance - beginning of period $ (5) $ (16) $ (6) $ (10)
Translation gain (loss) on
foreign operations (7) 17 (6) 11
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Balance - end of period $ (12) $ 1 $ (12) $ 1
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Share capital
Balance - beginning of period $ 601 $ 601 $ 601 $ 601
Issuance of Common shares 1 - 1 -
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Balance - end of period $ 602 $ 601 $ 602 $ 601
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Shareholders' equity $ 1,426 $ 1,504 $ 1,426 $ 1,504
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West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(in millions of Canadian dollars - unaudited)
July 1 to January 1 to
September 30 September 30
2012 2011 2012 2011
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Sales $ 772 $ 705 $ 2,227 $ 2,112
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Costs and expenses
Cost of products sold 504 500 1,515 1,441
Freight and other distribution
costs 116 120 359 349
Export taxes 10 15 37 43
Amortization 36 43 113 128
Selling, general and
administration 30 24 82 78
Equity-based compensation 10 (20) 31 (7)
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706 682 2,137 2,032
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Operating earnings 66 23 90 80
Interest expense (4) (5) (14) (16)
Exchange gain (loss) on long-
term debt 10 (25) 10 (16)
Other income (expense) (note 7) (3) 17 (2) 13
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Earnings from continuing
operations before tax provision 69 10 84 61
Tax provision (note 8) (14) (4) (19) (24)
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Earnings from continuing
operations 55 6 65 37
Earnings from discontinued
operations (note 9) - 31 - 29
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Earnings $ 55 $ 37 $ 65 $ 66
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Earnings per share (dollars)
(note 10)
Basic from continuing operations$ 1.27 $ 0.14 $ 1.51 $ 0.87
Diluted from continuing
operations $ 1.27 $ (0.29) $ 1.51 $ 0.58
Basic after discontinued
operations $ 1.27 $ 0.87 $ 1.51 $ 1.56
Diluted after discontinued
operations $ 1.27 $ 0.44 $ 1.51 $ 1.26
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Comprehensive earnings
Earnings $ 55 $ 37 $ 65 $ 66
Other comprehensive earnings
Translation gain (loss) on
foreign operations (7) 17 (6) 11
Actuarial loss on employee
future benefits (note 6) (79) (108) (131) (118)
Tax recovery on actuarial loss
on employee future benefits 19 26 32 29
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Comprehensive earnings $ (12) $ (28) $ (40) $ (12)
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West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Cash Flows
(in millions of Canadian dollars - unaudited)
July 1 to January 1 to
September 30 September 30
2012 2011 2012 2011
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Operating activities
Earnings from continuing
operations $ 55 $ 6 $ 65 $ 37
Adjustments
Amortization 36 43 113 128
Interest expense 4 5 14 16
Exchange loss (gain) on long-
term debt (10) 25 (10) 16
Tax provision 14 4 19 24
Income taxes received (paid) 5 (7) 3 (75)
Reforestation and
decommissioning obligations (7) (2) 1 6
Employee future benefits
expense 10 9 29 28
Contributions to employee
future benefit plans (11) (20) (25) (29)
Other (8) (7) (9) (7)
Changes in non-cash working
capital
Receivables 11 6 (24) (24)
Inventories (26) (1) (22) 16
Prepaid expenses 9 5 (4) (5)
Payables and accrued
liabilities 26 11 24 5
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Cash flows from operating
activities 108 77 174 136
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Financing activities
Repayment of operating loans - - - (15)
Interest paid (1) (1) (10) (11)
Dividends (6) (6) (18) (18)
Other 1 - 1 -
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Cash flows from financing
activities (6) (7) (27) (44)
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Investing activities
Additions to capital assets (31) (55) (106) (124)
Proceeds from Green
Transformation Program (note
11) 5 11 45 32
Proceeds from disposal of
capital assets 7 9 9 10
Other 1 - 1 1
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Cash flows from investing
activities (18) (35) (51) (81)
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Change in cash from continuing
operations 84 35 96 11
Change in cash from discontinued
operations (note 9) - 39 - 36
Cash - beginning of period 80 134 68 161
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Cash - end of period $ 164 $ 208 $ 164 $ 208
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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. ("the Company") is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint and is listed on the Toronto Stock Exchange under the symbol "WFT". Its executive office is located at 858 Beatty Street, Suite 501, Vancouver, British Columbia. The Company was formed by articles of amalgamation under the Business Corporations Act (British Columbia) and is registered in British Columbia, Canada.
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 using the same accounting policies and methods of their application as the December 31, 2011 annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with the Company's 2011 annual financial statements.
3. Inventories
Inventories at September 30, 2012 were written down by $6 million (June 30, 2012 - $4 million; December 31, 2011 - $15 million; September 30, 2011 - $11 million) to reflect net realizable value being lower than cost.
4. Long-term debt and operating loans
Long-term debt
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September 30, December 31,
2012 2011
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US$300 million senior notes due October
2014; interest at 5.2% $ 295 $ 305
Note payable due in installments to 2020;
interest at 5.5% 2 2
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297 307
Less:
Deferred financing costs (1) (1)
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$ 296 $ 306
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Operating loans
The Company has $530 million in revolving lines of credit, of which nil was drawn as at September 30, 2012 (December 31, 2011 - nil). Related deferred financing costs of $5 million are included in other assets at September 30, 2012 (December 31, 2011 - $6 million). As at September 30, 2012, letters of credit in the amount of $43 million have been issued under these facilities.
5. Other liabilities
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September 30, December 31,
2012 2011
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Post-retirement $ 306 $ 178
Reforestation 70 70
Decommissioning 16 15
Other 26 26
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$ 418 $ 289
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6. Employee future benefits
The Company maintains defined benefit and defined contribution pension plans covering a majority of its employees. The defined benefit plans provide pension benefits based either on length of service or on earnings and length of service. Total pension expense for the defined benefit plans is $8 million for the three months ended September 30, 2012 (three months ended September 30, 2011 - $8 million) and $25 million for the nine months ended September 30, 2012 (nine months ended September 30, 2011 - $24 million). The Company also provides group life insurance, medical and extended health benefits to certain employee groups.
The status of the defined benefit pension plans and other benefit plans, in aggregate, is as follows:
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September 30, December 31,
2012 2011
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Projected benefit obligations $ (1,265) $ (1,098)
Fair value of plan assets 971 939
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Deficit $ (294) $ (159)
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Represented by
Pension surplus(1) $ 12 $ 19
Post-retirement obligations(2) (306) (178)
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$ (294) $ (159)
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1. Included in other assets.
2. Included in other liabilities.
The significant assumptions used to determine the period-end benefit obligations are as follows:
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September 30, June 30, December 31,
2012 2012 2011
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Discount rate on obligation 4.25% 4.75% 5.00%
Expected rate of return on plan
assets 6.50% 6.50% 6.50%
Future compensation rate increase 3.50% 3.50% 3.50%
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The change in the discount rate on obligations and the difference between the actual rate of return and the expected rate of return on plan assets generated an actuarial loss on employee future benefits, included in comprehensive earnings, as follows:
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July 1 to January 1 to
September 30 September 30
2012 2011 2012 2011
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Actuarial loss on employee
future benefits $ (79) $ (108) $ (131) $ (118)
Tax recovery on actuarial loss
on employee future benefits 19 26 32 29
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$ (60) $ (82) $ (99) $ (89)
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7. Other income (expense)
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July 1 to January 1 to
September 30 September 30
2012 2011 2012 2011
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Foreign exchange gain
(loss) - net $ (6) $ 12 $ (7) $ 6
Gain on asset sales 3 9 4 9
Other - net - (4) 1 (2)
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$ (3) $ 17 $ (2) $ 13
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8. Tax provision
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:
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July 1 to January 1 to
September 30 September 30
2012 2011 2012 2011
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Income tax expense at statutory
rate of 25.0% (2011 - 26.5%) $ (17) $ (3) $ (21) $ (16)
Non-taxable amounts - 1 (4) -
Rate differentials between
jurisdictions and on specified
activities (1) 3 (1) 5
Recognized (unrecognized) tax
assets 4 (6) 8 (11)
Other - 1 (1) (2)
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Tax provision $ (14) $ (4) $ (19) $ (24)
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9. Discontinued operation
The Company permanently closed its linerboard and kraft paper mill, located in Kitimat, B.C. in January 2010 and the windup was substantially completed in December 2011.
10. 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.
July 1 to September 30
2012 2011
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From After From After
continuing discontinued continuing discontinued
operations operations operations operations
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Earnings
Basic $ 55 $ 55 $ 6 $ 37
Share option
expense
(recovery) 7 7 (18) (18)
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Diluted $ 62 $ 62 $ (12) $ 19
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Weighted
average number
of shares
(thousands)
Basic 42,860 42,860 42,841 42,841
Share options 559 559 328 328
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Diluted 43,419 43,419 43,169 43,169
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Earnings per
share
(dollars)
Basic $ 1.27 $ 1.27 $ 0.14 $ 0.87
Diluted $ 1.27 $ 1.27 $ (0.29) $ 0.44
January 1 to September 30
2012 2011
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From After From After
continuing discontinued continuing discontinued
operations operations operations operations
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Earnings
Basic $ 65 $ 65 $ 37 $ 66
Share option
expense
(recovery) 22 22 (9) (9)
Equity settled
share option
adjustment (3) (3) (3) (3)
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Diluted $ 84 $ 84 $ 25 $ 54
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Weighted
average number
of shares
(thousands)
Basic 42,855 42,855 42,839 42,839
Share options 453 453 480 480
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Diluted 43,308 43,308 43,319 43,319
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Earnings per
share
(dollars)
Basic $ 1.51 $ 1.51 $ 0.87 $ 1.56
Diluted $ 1.51 $ 1.51 $ 0.58 $ 1.26
11. Green Transformation Program
In 2009 the Government of Canada confirmed an allocation of credits totalling $88 million to the Company 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. The credits were fully utilized by the Company.
12. Segmented information
Corpo-
Pulp & rate Consoli-
Lumber Panels paper & other dated
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July 1, 2012 to
September 30, 2012
Sales at market prices
To external customers $ 473 $ 118 $ 181 $ - $ 772
To other segments 18 1 - - -----------
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$ 491 $ 119 $ 181 $ -
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EBITDA (1) $ 58 $ 25 $ 28 $ (9) $ 102
Amortization (21) (3) (11) (1) (36)
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Operating earnings 37 22 17 (10) 66
Interest expense (3) - (1) - (4)
Exchange gain on long-
term debt - - - 10 10
Other income (expense) (4) - (3) 4 (3)
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Earnings from continuing
operations
before tax provision $ 30 $ 22 $ 13 $ 4 $ 69
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1. Non GAAP measure:
EBITDA is defined as operating earnings plus amortization.
Corpo-
Pulp & rate Consoli-
Lumber Panels paper & other dated
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July 1, 2011 to
September 30, 2011
Sales at market prices
To external customers $ 405 $ 94 $ 206 $ - $ 705
To other segments 24 3 - - -----------
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$ 429 $ 97 $ 206 $ -
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EBITDA (1) $ 6 $ 1 $ 37 $ 22 $ 66
Amortization (22) (3) (17) (1) (43)
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Operating earnings (16) (2) 20 21 23
Interest expense (2) - (3) - (5)
Exchange loss on long-
term debt - - - (25) (25)
Other income (expense) 11 - 10 (4) 17
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Earnings from continuing
operations
before tax provision $ (7)$ (2)$ 27 $ (8) $ 10
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January 1, 2012 to
September 30, 2012
Sales at market prices
To external customers $ 1,306 $ 333 $ 588 $ - $ 2,227
To other segments 54 5 - - -----------
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$ 1,360 $ 338 $ 588 $ -
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EBITDA (1) $ 105 $ 43 $ 85 $ (30)$ 203
Amortization (63) (11) (37) (2) (113)
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Operating earnings 42 32 48 (32) 90
Interest expense (8) (2) (4) - (14)
Exchange gain on long-
term debt - - - 10 10
Other income (expense) (3) - (3) 4 (2)
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Earnings from continuing
operations
before tax provision $ 31 $ 30 $ 41 $ (18)$ 84
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1. Non GAAP measure:
EBITDA is defined as operating earnings plus amortization.
Corpo-
Pulp & rate Consoli-
Lumber Panels paper & other dated
------------------------------------------------------------------------
January 1, 2011 to
September 30, 2011
Sales at market prices
To external customers $ 1,209 $ 277 $ 626 $ - $ 2,112
To other segments 69 7 - - -----------
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$ 1,278 $ 284 $ 626 $ -
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EBITDA (1) $ 73 $ 4 $ 122 $ 9 $ 208
Amortization (63) (11) (52) (2) (128)
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Operating earnings 10 (7) 70 7 80
Interest expense (9) (2) (5) - (16)
Exchange loss on long-
term debt - - - (16) (16)
Other income (expense) 8 - 9 (4) 13
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Earnings from continuing
operations
before tax provision $ 9 $ (9)$ 74 $ (13)$ 61
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1. Non GAAP measure:
EBITDA is defined as operating earnings plus amortization.
The geographic distribution of external sales is as follows:
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July 1 to September 30 January 1 to September 30
2012 2011 2012 2011
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United States $ 374 $ 326 $ 1,067 $ 986
Canada 204 166 553 495
China 122 125 374 360
Other Asia 47 55 154 176
Other 25 33 79 95
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$ 772 $ 705 $ 2,227 $ 2,112
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Sales distribution is based on the location of product delivery by the Company.
