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Press release from Marketwire

West Fraser ("WFT") Announces Third Quarter Results

Monday, October 29, 2012

West Fraser ("WFT") Announces Third Quarter Results18:30 EDT Monday, October 29, 2012VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 29, 2012) -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 $2.2 billion.These results compare with previous periods as follows:($ million except earnings20122011per share ("EPS"))YTDQ3Q2YTDQ3Sales2,2277727742,112705EBITDA12031028220866Operating earnings9066468023Earnings from continuing operations655527376Adjusted earnings from continuing operations2855541372Adjusted basic EPS from continuing operations21.971.270.960.870.05Earnings after discontinued operations6555276637Basic EPS after discontinued operations ($)1.511.270.631.560.87Diluted EPS after discontinued operations ($)1.511.270.631.260.441. 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 ResultsIn 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.OutlookWe 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."AcquisitionWest 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 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 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 & AnalysisThe 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 CallInvestors 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 30December 3120122011AssetsCurrent assetsCash and short-term investments$164$68Receivables255266Income taxes receivable-4Inventories (note 3)417398Prepaid expenses139849745Property, plant and equipment935936Timber licences478490Goodwill and other intangibles330336Other assets2230$2,614$2,537LiabilitiesCurrent liabilitiesPayables and accrued liabilities$308$274Income taxes payable15-Reforestation and decommissioning4141364315Long-term debt (note 4)296306Other liabilities (note 5)418289Deferred income taxes1101441,1881,054Shareholders' equityShare capital602601Accumulated other comprehensive earnings(12)(6)Retained earnings8368881,4261,483$2,614$2,537West Fraser Timber Co. Ltd.Condensed Consolidated Statement of Changes in Shareholders' Equity(in millions of Canadian dollars - unaudited)July 1 to September 30January 1 to September 302012201120122011Retained earningsBalance - beginning of period$847$953$888$943Actuarial loss on employee future benefits (net of tax)(60)(82)(99)(89)Earnings for the period55376566Dividends(6)(6)(18)(18)Balance - end of period$836$902$836$902Accumulated other comprehensive earningsBalance - beginning of period$(5)$(16)$(6)$(10)Translation gain (loss) on foreign operations(7)17(6)11Balance - end of period$(12)$1$(12)$1Share capitalBalance - beginning of period$601$601$601$601Issuance of Common shares1-1-Balance - end of period$602$601$602$601Shareholders' equity$1,426$1,504$1,426$1,504West Fraser Timber Co. Ltd.Condensed Consolidated Statements of Earnings and Comprehensive Earnings(in millions of Canadian dollars - unaudited)July 1 to September 30January 1 to September 302012201120122011Sales$772$705$2,227$2,112Costs and expensesCost of products sold5045001,5151,441Freight and other distribution costs116120359349Export taxes10153743Amortization3643113128Selling, general and administration30248278Equity-based compensation10(20)31(7)7066822,1372,032Operating earnings66239080Interest expense(4)(5)(14)(16)Exchange gain (loss) on long-term debt10(25)10(16)Other income (expense) (note 7)(3)17(2)13Earnings from continuing operations before tax provision69108461Tax provision (note 8)(14)(4)(19)(24)Earnings from continuing operations5566537Earnings from discontinued operations (note 9)-31-29Earnings$55$37$65$66Earnings per share (dollars) (note 10)Basic from continuing operations$1.27$0.14$1.51$0.87Diluted from continuing operations$1.27$(0.29)$1.51$0.58Basic after discontinued operations$1.27$0.87$1.51$1.56Diluted after discontinued operations$1.27$0.44$1.51$1.26Comprehensive earningsEarnings$55$37$65$66Other comprehensive earningsTranslation gain (loss) on foreign operations(7)17(6)11Actuarial loss on employee future benefits (note 6)(79)(108)(131)(118)Tax recovery on actuarial loss on employee future benefits19263229Comprehensive earnings$(12)$(28)$(40)$(12)West Fraser Timber Co. Ltd.Condensed Consolidated Statements of Cash Flows(in millions of Canadian dollars - unaudited)July 1 to September 30January 1 to September 302012201120122011Operating activitiesEarnings from continuing operations$55$6$65$37AdjustmentsAmortization3643113128Interest expense451416Exchange loss (gain) on long-term debt(10)25(10)16Tax provision1441924Income taxes received (paid)5(7)3(75)Reforestation and decommissioning obligations(7)(2)16Employee future benefits expense1092928Contributions to employee future benefit plans(11)(20)(25)(29)Other(8)(7)(9)(7)Changes in non-cash working capitalReceivables116(24)(24)Inventories(26)(1)(22)16Prepaid expenses95(4)(5)Payables and accrued liabilities2611245Cash flows from operating activities10877174136Financing activitiesRepayment of operating loans---(15)Interest paid(1)(1)(10)(11)Dividends(6)(6)(18)(18)Other1-1-Cash flows from financing activities(6)(7)(27)(44)Investing activitiesAdditions to capital assets(31)(55)(106)(124)Proceeds from Green Transformation Program (note 11)5114532Proceeds from disposal of capital assets79910Other1-11Cash flows from investing activities(18)(35)(51)(81)Change in cash from continuing operations84359611Change in cash from discontinued operations (note 9)-39-36Cash - beginning of period8013468161Cash - end of period$164$208$164$208West Fraser Timber Co. Ltd.Notes to Condensed Consolidated Interim Financial Statements(figures are in millions of dollars except where indicated - unaudited)Nature of operationsWest 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. 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.InventoriesInventories 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.Long-term debt and operating loansLong-term debtSeptember 30,December 31,2012 2011US$300 million senior notes due October 2014; interest at 5.2%$295$305Note payable due in installments to 2020; interest at 5.5%22297307Less:Deferred financing costs(1)(1)$296$306Operating loansThe 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.Other liabilitiesSeptember 30,December 31,20122011Post-retirement$306$178Reforestation7070Decommissioning1615Other2626$418$289Employee 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 $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 - $24 million). The Company also provides group life insurance, medical and extended health benefits to certain employee groups.The status of the defined benefit pension plans and other benefit plans, in aggregate, is as follows:September 30,December 31,20122011Projected benefit obligations$(1,265)$(1,098)Fair value of plan assets971939Deficit$(294)$(159)Represented byPension surplus1$12$19Post-retirement obligations2(306)(178)$(294)$(159)1. Included in other assets.2. Included in other liabilities.The significant assumptions used to determine the period-end benefit obligations are as follows:September 30, June 30, December 31, 2012 2012 2011Discount rate on obligation4.25%4.75%5.00%Expected rate of return on plan assets6.50%6.50%6.50%Future compensation rate increase3.50%3.50%3.50%The change in the discount rate on obligations and the difference between the actual rate of return and the expected rate of return on plan assets generated an actuarial loss on employee future benefits, included in comprehensive earnings, as follows:July 1 to September 30January 1 to September 302012201120122011Actuarial loss on employee future benefits$(79)$(108)$(131)$(118)Tax recovery on actuarial loss on employee future benefits19263229$(60)$(82)$(99)$(89)Other income (expense)July 1 to September 30January 1 to September 302012201120122011Foreign exchange gain (loss) - net$(6)$12$(7)$6Gain on asset sales3949Other - net-(4)1(2)$(3)$17$(2)$13Tax provisionThe tax provision differs from the amount that would have resulted from applying the Canadian statutory income tax rates to earnings before income taxes as follows:July 1 to September 30January 1 to September 302012201120122011Income tax expense at statutory rate of 25.0% (2011 - 26.5%)$(17)$(3)$(21)$(16)Non-taxable amounts-1(4)-Rate differentials between jurisdictions and on specified activities(1)3(1)5Recognized (unrecognized) tax assets4(6)8(11)Other-1(1)(2)Tax provision$(14)$(4)$(19)$(24)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. 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.July 1 to September 3020122011FromAfterFromAftercontinuingdiscontinuedcontinuingdiscontinuedoperationsoperationsoperationsoperationsEarningsBasic$55$55$6$37Share option expense (recovery)77(18)(18)Diluted$62$62$(12)$19Weighted average number of shares(thousands)Basic42,86042,86042,84142,841Share options559559328328Diluted43,41943,41943,16943,169Earnings per share (dollars)Basic$1.27$1.27$0.14$0.87Diluted$1.27$1.27$(0.29)$0.44January 1 to September 3020122011FromAfterFromAftercontinuingdiscontinuedcontinuingdiscontinuedoperationsoperationsoperationsoperationsEarningsBasic$65$65$37$66Share option expense (recovery)2222(9)(9)Equity settled share optionadjustment(3)(3)(3)(3)Diluted$84$84$25$54Weighted average number of shares(thousands)Basic42,85542,85542,83942,839Share options453453480480Diluted43,30843,30843,31943,319Earnings per share (dollars)Basic$1.51$1.51$0.87$1.56Diluted$1.51$1.51$0.58$1.26Green 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. The credits were fully utilized by the Company. Segmented informationCorpo-Pulp &rateConsoli-LumberPanelspaper& otherdatedJuly 1, 2012 to September 30, 2012Sales at market pricesTo external customers$473$118$181$-$772To other segments181--$491$119$181$-EBITDA 1$58$25$28$(9)$102Amortization(21)(3)(11)(1)(36)Operating earnings372217(10)66Interest expense(3)-(1)-(4)Exchange gain on long-term debt---1010Other income (expense)(4)-(3)4(3)Earnings from continuing operationsbefore tax provision$30$22$13$4$691. Non GAAP measure:EBITDA is defined as operating earnings plus amortization.Corpo-Pulp &rateConsoli-LumberPanelspaper& otherdatedJuly 1, 2011 to September 30, 2011Sales at market pricesTo external customers$405$94$206$-$705To other segments243--$429$97$206$-EBITDA 1$6$1$37$22$66Amortization(22)(3)(17)(1)(43)Operating earnings(16)(2)202123Interest expense(2)-(3)-(5)Exchange loss on long-term debt---(25)(25)Other income (expense)11-10(4)17Earnings from continuing operationsbefore tax provision$(7)$(2)$27$(8)$10January 1, 2012 to September 30, 2012Sales at market pricesTo external customers$1,306$333$588$-$2,227To other segments545--$1,360$338$588$-EBITDA 1$105$43$85$(30)$203Amortization(63)(11)(37)(2)(113)Operating earnings423248(32)90Interest expense(8)(2)(4)-(14)Exchange gain on long-term debt---1010Other income (expense)(3)-(3)4(2)Earnings from continuing operationsbefore tax provision$31$30$41$(18)$841. Non GAAP measure:EBITDA is defined as operating earnings plus amortization.Corpo- Pulp &rateConsoli-LumberPanelspaper& otherdatedJanuary 1, 2011 to September 30, 2011Sales at market pricesTo external customers$1,209$277$626$-$2,112To other segments697--$1,278$284$626$-EBITDA 1$73$4$122$9$208Amortization(63)(11)(52)(2)(128)Operating earnings10(7)70780Interest expense(9)(2)(5)-(16)Exchange loss on long-term debt---(16)(16)Other income (expense)8-9(4)13Earnings from continuing operationsbefore tax provision$9$(9)$74$(13)$611. Non GAAP measure:EBITDA is defined as operating earnings plus amortization.The geographic distribution of external sales is as follows:July 1 to September 30January 1 to September 302012201120122011United States$374$326$1,067$986Canada204166553495China122125374360Other Asia4755154176Other25337995$772$705$2,227$2,112Sales distribution is based on the location of product delivery by the Company.FOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: West Fraser Timber Co. Ltd.Larry HughesVice-President, Finance and Chief Financial Officer(604) 895-2700West Fraser Timber Co. Ltd.Rodger HutchinsonVice-President, Corporate Controller(604) 895-2700(604) 681-6061 (FAX)www.westfraser.com