VANCOUVER, BC
-- (Marketwired)
-- 04/25/16
West Fraser Timber Co. Ltd. reported earnings of $42 million or $0.51 basic earnings per share on sales of $1,077 million in the first quarter of 2016. These results compare with previous periods as shown in the table below.
Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS as described in this News Release reflect the adjustments described in the tables referred to in the section titled "Non-IFRS Measures" of our 2016 first quarter Management's Discussion & Analysis.
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($millions except earnings per share ("EPS")) Q1-16 Q4-15 Q1-15
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Sales 1,077 1,013 1,014
Adjusted EBITDA(1) 130 90 173
Operating earnings 79 18 125
Earnings 42 (15) 49
Basic EPS ($) 0.51 (0.18) 0.58
Adjusted earnings(1) 49 30 99
Adjusted basic EPS ($)(1) 0.60 0.38 1.17
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1. In this news release, reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted earnings per share (collectively "these measures"). We believe that, in addition to earnings, these measures are useful performance indicators. 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 none of these 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 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. Refer to the tables in the section titled "Non-IFRS Measures" of our 2016 first quarter Management's Discussion & Analysis of our first quarter 2016 results for details of these adjustments.
Operational Results
In the quarter our lumber operations generated operating earnings of $63 million (Q4-15 - $17 million) and Adjusted EBITDA of $100 million (Q4-15 - $55 million). Higher prices and shipments combined with a weaker Canadian dollar contributed to the improved results. Lumber markets improved slightly as generally milder weather conditions produced above normal home building activity in many parts of the U.S.
The panel segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $12 million (Q4-15 - $16 million) and Adjusted EBITDA of $15 million (Q4-15 - $19 million), mostly reflecting weakening plywood and MDF prices.
Pulp and paper operations generated operating earnings in the quarter of $5 million (Q4-15 - $8 million) and Adjusted EBITDA of $14 million (Q4-15 - $17 million). Pulp results benefitted from a weaker Canadian dollar as U.S. dollar-denominated pulp prices were relatively stable in the quarter. This benefit was offset by increased maintenance costs at our Hinton pulp mill, the result of a minor maintenance shutdown during the period.
Outlook
Discussions between Canada and the U.S. regarding a replacement of the Softwood Lumber Agreement are underway. West Fraser supports a reasonable negotiated settlement of this potential dispute but is prepared for alternative outcomes.
Ted Seraphim, our President and CEO, said "We have made significant investments in growth, capital and innovation, and we are starting to see the benefits of the most comprehensive five- year capital plan in our history. We are geographically diversified and have a modern and efficient group of assets which positions us well in addressing any trade sanctions arising from the dispute."
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.
The Company
West Fraser is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips and energy with facilities 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 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 2015 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 Call
Investors are invited to listen to the quarterly conference call on Tuesday, April 26, 2016 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-866-225-0198 (toll- free North America). The call may also be accessed through West Fraser's website at www.westfraser.com.
West Fraser Timber Co. Ltd.
Condensed Consolidated Balance Sheets
(in millions of Canadian dollars, except where indicated - unaudited)
March 31 December 31
2016 2015
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Assets
Current assets
Cash and short-term investments $ 19 $ 13
Receivables 332 298
Income taxes receivable 16 11
Inventories (note 3) 721 631
Prepaid expenses 22 18
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1,110 971
Property, plant and equipment 1,581 1,609
Timber licences 565 570
Goodwill and other intangibles 363 369
Other assets 18 36
Deferred income tax assets 70 80
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$ 3,707 $ 3,635
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Liabilities
Current liabilities
Cheques issued in excess of funds on deposit $ 40 $ 29
Operating loans (note 4) 294 178
Payables and accrued liabilities 354 351
Reforestation and decommissioning obligations 48 48
Current portion of long-term debt (note 4) 2 -
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738 606
Long-term debt (note 4) 395 423
Other liabilities (note 5) 366 269
Deferred income tax liabilities 167 190
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1,666 1,488
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Shareholders' Equity
Share capital (note 7) 571 579
Accumulated other comprehensive earnings 132 164
Retained earnings 1,338 1,404
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2,041 2,147
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$ 3,707 $ 3,635
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Number of Common shares and Class B Common shares outstanding at April 25,
2016 was 81,397,546.
West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Changes in Shareholders' Equity
(in millions of Canadian dollars, except where indicated - unaudited)
January 1 to March 31
2016 2015
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Share capital
Balance - beginning of period $ 579 $ 587
Common share repurchases (8) -
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Balance - end of period $ 571 $ 587
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Accumulated other comprehensive earnings
Balance - beginning of period $ 164 $ 55
Translation gain (loss) on foreign operations (32) 51
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Balance - end of period $ 132 $ 106
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Retained earnings
Balance - beginning of period $ 1,404 $ 1,387
Actuarial loss on post-retirement benefits (60) (45)
Common share repurchases (42) -
Earnings for the period 42 49
Dividends (6) (6)
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Balance - end of period $ 1,338 $ 1,385
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Shareholders' Equity $ 2,041 $ 2,078
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West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(in millions of Canadian dollars, except where indicated - unaudited)
January 1 to March 31
2016 2015
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Sales $ 1,077 $ 1,014
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Costs and expenses
Cost of products sold 749 657
Freight and other distribution costs 159 144
Amortization 49 47
Selling, general and administration 39 40
Equity-based compensation 2 1
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998 889
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Operating earnings 79 125
Finance expense (8) (8)
Other (note 8) (16) (47)
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Earnings before tax 55 70
Tax provision (note 9) (13) (21)
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Earnings $ 42 $ 49
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Earnings per share (dollars) (note 10)
Basic $ 0.51 $ 0.58
Diluted $ 0.50 $ 0.53
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Comprehensive earnings
Earnings $ 42 $ 49
Other comprehensive earnings
Translation gain (loss) on foreign operations (32) 51
Actuarial loss on post-retirement benefits(1) (60) (45)
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Comprehensive earnings $ (50) $ 55
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1. Net of tax recovery of $21 million (three months ended March 31, 2015 -
$17 million).
West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Cash Flows
(in millions of Canadian dollars, except where indicated - unaudited)
January 1 to March 31
2016 2015
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Operating activities
Earnings $ 42 $ 49
Adjustments
Amortization 49 47
Finance expense 8 8
Foreign exchange loss (gain) on long-term debt (26) 32
Foreign exchange loss (gain) on intercompany
financing 17 (5)
Loss on power agreements, net of settlement costs 11 30
Post-retirement expense 17 13
Contributions to post-retirement benefit plans (12) (3)
Tax provision 13 21
Income taxes paid (9) (42)
Other (1) 10
Changes in non-cash working capital
Receivables (36) (54)
Inventories (96) (57)
Prepaid expenses (5) (1)
Payables and accrued liabilities 5 (2)
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Cash flows from operating activities (23) 46
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Financing activities
Proceeds from operating loans 116 49
Finance expense paid (1) (2)
Dividends (6) (6)
Common share repurchases (50) -
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Cash flows from financing activities 59 41
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Investing activities
Additions to capital assets (49) (69)
Government assistance 4 -
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Cash flows from investing activities (45) (69)
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Change in cash (9) 18
Foreign exchange effect on cash 4 5
Cash - beginning of period (16) (15)
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Cash - end of period $ (21) $ 8
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Cash consists of
Cash and short-term investments $ 19 $ 12
Cheques issued in excess of funds on deposit (40) (4)
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$ (21) $ 8
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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. ("West Fraser", "we", "us" or "our") is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips 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 under the symbol WFT.
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, 2015 annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with our 2015 annual consolidated financial statements.
3. Inventories
Inventories at March 31, 2016 were written down by $14 million (December 31, 2015 - $21 million; March 31, 2015 - $7 million) to reflect net realizable value being lower than cost.
4. Long-term debt and operating loans
Long-term debt
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March 31, December 31,
2016 2015
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US$300 million senior notes due October 2024;
interest at 4.35% $ 389 $ 415
US$8 million note payable due October 2020;
interest at 2% 10 10
Note payable due in installments; interest at
5.5% 2 2
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401 427
Current portion (2) -
Deferred financing costs (4) (4)
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$ 395 $ 423
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The fair value of the long-term debt is $381 million (December 31, 2015 - $406 million) based on rates available to us at the balance sheet date for long-term debt with similar terms and remaining maturities.
Operating loans
We have $583 million in revolving lines of credit of which $294 million (net of deferred financing costs of $3 million) were drawn as at March 31, 2016 (December 31, 2015 - $178 million, net of deferred financing costs of $3 million).
Our revolving lines of credit consist of a $500 million revolving credit facility, two demand lines of credit totalling $75 million dedicated to letters of credit, and an $8 million demand line of credit dedicated to our jointly owned newsprint operation. The revolving credit facility matures on September 30, 2020.
Interest on these facilities is payable at floating rates based on Prime, U.S. base, Bankers' Acceptances or LIBOR at our option. As at March 31, 2016, letters of credit in the amount of $51 million have been issued under these facilities.
All debt is unsecured except the $8 million joint operation demand line of credit, which is secured by that joint operation's current assets.
5.
Other liabilities
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March 31, December 31,
2016 2015
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Post-retirement (note 6) $ 227 $ 142
Reforestation 93 76
Decommissioning 29 29
Other 17 22
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$ 366 $ 269
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6. Post-retirement benefits
We maintain defined benefit and defined contribution pension plans covering a majority of our employees. The defined benefit plans generally do not require employee contributions and provide a guaranteed level of pension payable for life based either on length of service or on earnings and length of service, and in most cases do not increase after commencement of retirement. We also provide group life insurance, medical and extended health benefits to certain employee groups.
The status of the defined benefit pension plans and other retirement benefit plans, in aggregate, is as follows:
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March 31, December 31,
2015 2015
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Projected benefit obligations $ (1,604) $ (1,532)
Fair value of plan assets 1,389 1,409
Impact of minimum funding requirement (6) (11)
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$ (221) $ (134)
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Represented by
Post-retirement assets $ 6 $ 8
Post-retirement liabilities (note 5) (227) (142)
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$ (221) $ (134)
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The significant actuarial assumptions used to determine our balance sheet date post-retirement assets and liabilities are as follows:
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March 31, 2016 December 31, 2015 March 31, 2015
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Discount rate 3.75% 4.00% 3.50%
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 discount rate on plan assets generated an actuarial loss on post-retirement benefits, included in other comprehensive earnings, as follows:
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January 1 to March 31
2016 2015
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Actuarial loss $ (81) $ (62)
Tax recovery on actuarial loss 21 17
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$ (60) $ (45)
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7. Share Capital
During the quarter we purchased 1,062,752 Common shares under our normal course issuer bid program, which expires on September 16, 2016, at an average price of $46.96 per share for a total of $50 million.
8. Other
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January 1 to March 31
2016 2015
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Foreign exchange gain (loss) on working capital $ (10) $ 12
Foreign exchange gain (loss) on intercompany
financing(1) (17) 5
Foreign exchange gain (loss) on long- term debt 26 (32)
Loss on power agreements (19) (30)
Other 4 (2)
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$ (16) $ (47)
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1. Relates to US$200 million of financing provided to our U.S. operations.
IAS 21 requires that the exchange gain or loss be recognized through
earnings as the financing is not considered part of our permanent investment
in our U.S. subsidiaries. The balance sheet amounts and related financing
expense are eliminated in these consolidated financial statements.
In March 2016 the termination of our three-year power strip agreement was negotiated. In addition, Capital Power Corporation gave notice of its intent to terminate its role as buyer of the Sundance C Power Arrangement effective March 24, 2016. As a result of this termination, our role as a party to the Power Syndicate Agreement (Sundance C) also terminated. These agreements had provided us with a portion of the electricity generated from two power plants in Alberta at substantially predetermined rates. The termination of these agreements resulted in a loss of $19 million in the current quarter.
9. 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:
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January 1 to March 31
2016 2015
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Income tax at statutory rate of 26% $ (14) $ (18)
Non-taxable amounts 2 1
Rate differentials between jurisdictions and on
specified activities (2) -
Unrecognized capital losses 1 (4)
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Tax provision $ (13) $ (21)
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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.
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January 1 to March 31
2016 2015
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Earnings
Basic $ 42 $ 49
Share option expense (recovery) 2 (2)
Equity-settled share option adjustment (2) (2)
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Diluted $ 42 $ 45
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Weighted average number of shares
(thousands)
Basic 82,281 83,528
Share options 955 1,418
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Diluted 83,236 84,946
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Earnings per share (dollars)
Basic $ 0.51 $ 0.58
Diluted $ 0.50 $ 0.53
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11. Segmented information
Pulp & Corporate
Lumber Panels paper & other Total
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January 1, 2016 to March 31, 2016
Sales
To external customers $ 729 $ 136 $ 212 $ - $1,077
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To other segments 29 2 - -
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$ 758 $ 138 $ 212 $ -
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Operating earnings before
amortization $ 100 $ 15 $ 14 $ (1) $ 128
Amortization (37) (3) (9) - (49)
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Operating earnings 63 12 5 (1) 79
Finance expense (5) (1) (2) - (8)
Other (5) (2) (23) 14 (16)
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Earnings before tax $ 53 $ 9 $ (20) $ 13 $ 55
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January 1, 2015 to March 31,
2015
Sales
To external customers $ 655 $ 129 $ 230 $ - $ 1,014
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To other segments 26 2 - -
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$ 681 $ 131 $ 230 $ -
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Operating earnings before
amortization $ 117 $ 26 $ 30 $ (1) $ 172
Amortization (33) (3) (10) (1) (47)
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Operating earnings 84 23 20 (2) $ 125
Finance expense (5) (1) (2) - (8)
Other 3 (3) (20) (27) (47)
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Earnings before tax $ 82 $ 19 $ (2) $ (29) $ 70
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The geographic distribution of external sales is as follows:
January 1 to March 31(1)
2016 2015
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Canada $ 247 $ 218
United States 620 533
China 116 164
Other Asia 77 80
Other 17 19
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$ 1,077 $ 1,014
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1. Sales distribution is based on the location of product delivery.
West Fraser shares trade on the Toronto Stock Exchange under the symbol: "WFT".
For more information
Larry Hughes
Vice-President, Finance and Chief Financial Officer
Rodger Hutchinson
Vice-President, Corporate Controller and Investor Relations
(604) 895-2700
www.westfraser.com
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