The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Marketwire

West Fraser ("WFT") Announces First Quarter Results

Monday, April 30, 2012

West Fraser ("WFT") Announces First Quarter Results17:01 EDT Monday, April 30, 2012VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 30, 2012) -West Fraser Timber Co. Ltd. (TSX:WFT) today reported a loss of $17 million or $0.39 per share on sales of $681 million in the first quarter of 2012. These results compare with previous periods as follows:($ millions except earnings per share ("EPS"))Q1-12Q4-11Q1-11Sales681650687EBITDA1181880Operating earnings(22)(22)35Earnings (loss) from continuing operations(17)(11)20Basic EPS from continuing operations ($)(0.39)(0.25)0.46Adjusted earnings (loss) from continuing operations2(11)(15)39Adjusted basic EPS from continuing operations ($)2(0.26)(0.35)0.91Earnings (loss) after discontinued operations(17)619Basic EPS after discontinued operations ($)(0.39)0.140.44Diluted EPS after discontinued operations ($)(0.39)0.140.441. In this News Release, reference is made to EBITDA (defined as operating earnings plus amortization). Our management 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 (loss) from continuing operations (calculated as set out in the tables described in footnote 2 and Adjusted basic EPS (collectively, with EBITDA, "these measures"). None of these measures is a generally accepted earnings measure under International Financial Reporting Standards ("IFRS") and none have 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 the Management's Discussion and Analysis of our first quarter 2012 results for details of adjustments.Operational ResultsIn the quarter our lumber operations generated an operating loss of $29 million and EBITDA of negative $6 million. The improvement over the prior quarter was smaller than anticipated due to continued weakness in offshore prices for low-grade SPF lumber.The panel segment, which includes plywood, LVL and MDF, generated $1 million of operating earnings and EBITDA of $5 million in the quarter, a marginal increase over the prior quarter.Pulp and paper operations generated operating earnings in the quarter of $17 million and EBITDA of $30 million. The improvement over the prior quarter occurred despite the decline in pulp prices as the previous quarter's results were negatively affected by the Hinton Pulp maintenance shutdown.OutlookLow-grade SPF lumber prices strengthened late in the quarter returning to a more normalized level compared to the SPF 2&Better benchmark price. Lumber productivity and cost improvements are expected to be realized over the next few quarters as various major capital projects are completed.Hank Ketcham said, "Although there are some improvements in our markets, we will continue to monitor capital spending and focus on maintaining a strong balance sheet as the North American and Asian economies remain fragile."Management's Discussion & Analysis ("MD&A")The Company's MD&A 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.Normal Course Issuer BidThe Company announced on May 20, 2011 a normal course issuer bid ("NCIB") under which it is authorized to acquire up to 2,002,879 Common shares for cancellation from June 1, 2011 until expiry of the bid on May 31, 2012. To date, no Common shares have been acquired under this NCIB. The Company announces that it intends to apply to the Toronto Stock Exchange (the "TSX") for approval to renew the NCIB for another year to purchase for cancellation up to 5% of its issued and outstanding Common shares. The renewal of the NCIB is subject to TSX approval and, if approved, will be conducted in accordance with the TSX rules. Full details of the renewed NCIB will be announced upon receipt of TSX approval.The CompanyWest 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 StatementsThis news release contains historical information, descriptions of current circumstances and statements about potential future developments. The latter, which are forward-looking statements and are included under the heading "Outlook", 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. 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 those matters described in the 2011 annual Management's Discussion & Analysis under "Risks and Uncertainties", and may differ materially 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.Conference CallInvestors are invited to listen to the quarterly conference call on Tuesday, May 1, 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)March 31December 3120122011AssetsCurrent assetsCash and short-term investments$ 29.7$ 67.8Receivables308.5266.7Income taxes receivable-4.4Inventories (note 3)476.4397.8Prepaid expenses12.18.6826.7745.3Property, plant and equipment942.4935.7Timber licences486.1490.1Goodwill and other intangibles333.9336.6Other assets22.729.6$ 2,611.8$ 2,537.3LiabilitiesCurrent liabilitiesCheques issued in excess of funds on deposit$ 13.6$ -Operating loans (note 4)51.2-Payables and accrued liabilities304.0273.9Income taxes payable2.0-Reforestation and decommissioning40.941.0Current portion of long-term debt (note 4)0.30.3412.0315.2Long-term debt (note 4)300.3306.3Other liabilities (note 5)324.0289.0Deferred income taxes133.5143.81,169.81,054.3Shareholders' equityShare capital601.4600.9Accumulated other comprehensive earnings(10.4)(5.5)Retained earnings851.0887.61,442.01,483.0$ 2,611.8$ 2,537.3Number of Common shares and Class B Common shares outstanding at April 30, 2012 was 42,855,911.West Fraser Timber Co. Ltd.Condensed Consolidated Statement of Changes in Equity(in millions of Canadian dollars - unaudited)January 1 to March 3120122011Retained earningsBalance - beginning of period$ 887.6$ 942.9Actuarial gain (loss) on employee future benefits(13.9)31.3Earnings for the period(16.7)18.9Dividends(6.0)(6.0)Balance - end of period$ 851.0$ 987.1Accumulated other comprehensive earningsBalance - beginning of period$ (5.5)$ (9.6)Translation loss on foreign operations(4.9)(5.3)Balance - end of period$ (10.4)$ (14.9)Share capitalBalance - beginning of period$ 600.9$ 600.5Issuance of Common shares0.50.1Balance - end of period$ 601.4$ 600.6Shareholders' equity$ 1,442.0$ 1,572.8West Fraser Timber Co. Ltd.Condensed Consolidated Statements of Earnings and Comprehensive Earnings(in millions of Canadian dollars - unaudited)January 1 to March 3120122011Sales$ 681.0$ 687.0Costs and expensesCost of products sold495.2432.3Freight and other distribution costs117.0105.6Export taxes13.115.6Amortization40.344.7Selling, general and administration25.526.7Equity-based compensation11.927.2703.0652.1Operating earnings(22.0)34.9Interest expense(4.8)(4.8)Exchange gain on long-term debt5.97.5Other income (expense) (note 7)0.4(3.6)Earnings from continuing operations before tax provision(20.5)34.0Tax recovery (provision) (note 8)3.8(14.1)Earnings from continuing operations(16.7)19.9Earnings from discontinued operations (note 9)-(1.0)Earnings$ (16.7)$ 18.9Earnings per share (dollars) (note 10)Basic from continuing operations$ (0.39)$ 0.46Diluted from continuing operations$ (0.39)$ 0.46Basic after discontinued operations$ (0.39)$ 0.44Diluted after discontinued operations$ (0.39)$ 0.44Comprehensive earningsEarnings$ (16.7)$ 18.9Other comprehensive earningsTranslation loss on foreign operations(4.9)(5.3)Actuarial gain (loss) on employee future benefits 1(13.9)31.3Comprehensive earnings$ (35.5)$ 44.91. Net of tax recovery of $4.6 (March 31, 2011 - provision of $10.2).West Fraser Timber Co. Ltd.Condensed Consolidated Statements of Cash Flows(in millions of Canadian dollars - unaudited)January 1 to March 3120122011Operating activitiesEarnings from continuing operations$ (16.7)$ 19.9AdjustmentsAmortization40.344.7Interest expense4.84.8Exchange gain on long-term debt(5.9)(7.5)Tax provision (recovery)(3.8)14.1Income taxes received (paid)4.3(61.3)Reforestation and decommissioning obligations12.011.3Employee future benefits expense9.512.9Contributions to employee future benefit plans(4.5)(5.2)Other(1.3)(1.1)Changes in non-cash working capitalReceivables(49.7)(29.5)Inventories(80.0)(107.8)Prepaid expenses(3.5)(4.6)Payables and accrued liabilities17.252.7Cash flows from operating activities(77.3)(56.6)Financing activitiesRepayment of long-term debt(0.3)(0.3)Proceeds from (repayment of) operating loans56.3(3.7)Interest paid(0.6)(1.6)Dividends(6.0)(6.0)Other0.3-Cash flows from financing activities49.7(11.6)Investing activitiesAdditions to capital assets(41.8)(19.8)Proceeds from Green Transformation Program (note 11)15.67.5Proceeds from disposal of capital assets1.80.8Other0.30.4Cash flows from investing activities(24.1)(11.1)Change in cash from continuing operations(51.7)(79.3)Change in cash from discontinued operations (note 9)-(0.4)Cash - beginning of period67.8160.7Cash - end of period$ 16.1$ 81.0Cash consists ofCash and short-term investments$ 29.7$ 81.8Cheques issued in excess of funds on deposit(13.6)(0.8)$ 16.1$ 81.0West Fraser Timber Co. Ltd.Notes to Condensed Consolidated Interim Financial Statements(figures are in millions of dollars except where indicated - unaudited)1. Nature of operationsWest Fraser 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 complianceThese 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. InventoriesInventories at March 31, 2012 were written down by $19.8 million (December 31, 2011 - $14.9 million; March 31, 2011 - $3.9 million) to reflect net realizable value being lower than cost.4. Long-term debt and operating loansLong-term debtMarch 31, 2012December 31, 2011US$300 million senior notes due October 2014; interest at 5.2%$ 299.3$ 305.1Note payable due in installments to 2020; interest at 5.5%2.22.5301.5307.6Less:Current portion(0.3)(0.3)Deferred financing costs(0.9)(1.0)$ 300.3$ 306.3Operating loansThe Company has $530 million in revolving lines of credit, of which $51.2 million (net of deferred charges of $5.4 million) was drawn as at March 31, 2012 (December 31, 2011 - nil). Deferred financing costs of $5.7 million are included in other assets at December 31, 2011. As at March 31, 2012, letters of credit in the amount of $35.3 million have been issued under these facilities.The $500 million committed facility, the $25 million demand line of credit dedicated to letters of credit facility and the US$300 million senior notes are secured by the Company's assets. A $5 million line of credit, which is available to a joint venture, is secured by the joint venture's current assets.5. Other liabilitiesMarch 31, 2012December 31, 2011Post-retirement$ 200.3$ 177.9Reforestation82.570.5Decommissioning14.514.6Other26.726.0$ 324.0$ 289.06. Employee future benefitsThe 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 $9.0 million for the three months ended March 31, 2012 (three months ended March 31, 2011 - $8.4 million). The Company also provides group life insurance, medical and extended health benefits to certain employee groups.The status of the defined benefit pension plans and other benefit plans, in aggregate, is as follows:March 31, 2012December 31, 2011Projected benefit obligations$ (1,152.1)$ (1,097.8)Fair value of plan assets969.8938.8Deficit$ (182.3)$ (159.0)Represented byPension surplus1$ 18.0$ 18.9Post-retirement obligations2(200.3)(177.9)$ (182.3)$ (159.0)1. Included in other assets.2. Included in other liabilities.The significant assumptions used to determine the period end benefit obligations are as follows:March 31, 2012December 31, 2011Discount rate on obligation4.75%5.00%Expected rate of return on plan assets6.50%6.50%Rate of increase in future compensation3.50%3.50%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 gain (loss) on employee future benefits, included in comprehensive earnings, as follows:January 1 to March 3120122011Actuarial gain (loss)$ (18.5)$ 41.5Tax recovery (provision) on actuarial gain (loss)4.6(10.2)$ (13.9)$ 31.37. Other income (expense)January 1 to March 3120122011Foreign exchange loss - net$ (2.4)$ (4.4)Gain on asset sales0.9-Other - net1.90.8$ 0.4$ (3.6)8. Tax provisionThe Company's effective tax rate on earnings from continuing operations is as follows:January 1 to March 3120122011Amount%Amount%Income taxes at statutory rates$ 5.125.0$ (9.0)(26.5)Non taxable amounts(0.8)(3.9)(5.1)(14.9)Rate differentials between jurisdictions and on specified activities0.94.3(0.3)(0.9)Recognized (unrecognized) tax assets(1.5)(7.3)0.41.1Other0.10.4(0.1)(0.2)Tax recovery (provision)$ 3.818.5$ (14.1)(41.4)9. Discontinued operationThe 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 shareBasic 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.January 1 to March 3120122011From continuing operationsAfter discontinued operationsFrom continuing operationsAfter discontinued operationsEarningsBasic$ (16.7)$ (16.7)$ 19.9$ 18.9Share option expense7.27.222.922.9Equity settled share option adjustment(2.0)(2.0)(2.3)(2.3)Diluted$ (11.5)$ (11.5)$ 40.5$ 39.5Weighted average number of sharesBasic42,850,53742,850,53742,836,14342,836,143Share options409,369409,369572,217572,217Diluted43,259,90643,259,90643,408,36043,408,360Earnings per share (dollars)Basic$ (0.39)$ (0.39)$ 0.46$ 0.44Diluted$ (0.39)$ (0.39)$ 0.46$ 0.4411. Green Transformation ProgramIn 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. Credits may be used until the GT Program end date of March 31, 2012. For the three months ended March 31, 2012, the Company received $15.6 million under the GT Program (year ended December 31, 2011 - $36.9 million; year ended December 31, 2010 - $1.6 million). At March 31, 2012, $34.3 million is included in accounts receivable related to expenditures under the GT Program.12. Segmented informationLumberPanelsPulp & paperCorporate & otherConsolidatedJanuary 1, 2012 to March 31, 2012Sales at market pricesTo external customers$ 379.2$ 103.2$ 198.6$ -$ 681.0To other segments18.61.7--$ 397.8$ 104.9$ 198.6$ -EBITDA 1$ (6.2)$ 5.4$ 30.3$ (11.2)$ 18.3Amortization(22.3)(4.1)(13.3)(0.6)(40.3)Operating earnings(28.5)1.317.0(11.8)(22.0)Interest expense(2.5)(0.8)(1.5)-(4.8)Exchange gain on long-term debt---5.95.9Other income (expense)1.5-(1.6)0.50.4Earnings from continuing operations before tax provision$ (29.5)$ 0.5$ 13.9$ (5.4)$ (20.5)January 1, 2011 to March 31, 2011Sales at market pricesTo external customers$ 389.7$ 88.6$ 208.7$ -$ 687.0To other segments21.52.3--$ 411.2$ 90.9$ 208.7$ -EBITDA 1$ 55.2$ 3.6$ 46.9$ (26.1)$ 79.6Amortization(22.3)(3.9)(17.8)(0.7)(44.7)Operating earnings32.9(0.3)29.1(26.8)34.9Interest expense(2.6)(0.8)(1.4)-(4.8)Exchange gain on long-term debt---7.57.5Other income (expense)(2.5)(0.2)(1.8)0.9(3.6)Earnings from continuing operations before tax provision$ 27.8$ (1.3)$ 25.9$ (18.4)$ 34.01. Non GAAP measure: EBITDA is defined as operating earnings plus amortization.The geographic distribution of external sales is as follows:January 1 to March 31120122011United States$ 317.7$ 340.4Canada169.5156.0China116.0103.9Other Asia48.954.7Other28.932.0$ 681.0$ 687.01. Sales distribution is based on the location of product delivery by the Company.13. ContingencyOn January 18, 2011 the United States initiated arbitration with Canada under the Softwood Lumber Agreement ("SLA") over its concern that the province of British Columbia ("B.C.") has misapplied or altered its timber pricing rules and as a result has charged too low a price for certain timber harvested on public lands in the B.C. interior. In August 2011 the United States filed a detailed statement of case with the arbitration panel and the parties exchanged pleadings in the fourth quarter of 2011. A hearing before the arbitration panel took place in February 2012 and a final decision is expected in the second half of 2012.The Company believes that Canada and B.C. are complying with their obligations under the SLA and intends to cooperate fully with the B.C. and Canadian governments in defending this claim. The results of the arbitration process are not determinable at this point in time and accordingly no provision has been recorded by the Company.FOR FURTHER INFORMATION PLEASE CONTACT: Larry HughesWest Fraser Timber Co. Ltd.Vice President, Finance and Chief Financial Officer(604) 895-2700ORRodger HutchinsonWest Fraser Timber Co. Ltd.Vice President, Corporate Controller(604) 895-2700(604) 681-6061 (FAX)www.westfraser.com