West Fraser Announces Second Quarter Results

VANCOUVER, July 20, 2017 /CNW/ - West Fraser Timber Co. Ltd. reports second quarter 2017 results:

Second Quarter Highlights

• Record sales and operating earnings for the quarter.
• Earnings up 19% from previous quarter and 49% from the second quarter of 2016.
• Strong product pricing across operating segments.
• Quarter ending net debt to capital ratio of 6%.

Results Compared to Previous Periods

Forest fires in British Columbia

The province of British Columbia has declared a provincial state of emergency due to a number of wildfires throughout the interior region of British Columbia.  We have temporarily suspended operations in 100 Mile House, Williams Lake and Chasm and these facilities will remain suspended until it is safe to resume operations.  Ted Seraphim, our President and CEO said, "Our foremost concern is for people's safety and the safeguarding of our communities.  I would like to personally thank our employees who are making extraordinary contributions including fighting fires, helping displaced employees and safeguarding our assets."

Operational results

Our lumber segment generated operating earnings of $171 million (Q1-17 - $152 million) and Adjusted EBITDA of $240 million (Q1-17 - $191 million).  Improved product pricing was the primary driver of improved results. Countervailing and antidumping duties commenced this quarter resulting in an expense of $34 million. 

Our panels segment generated operating earnings in the quarter of $23 million (Q1-17 - $12 million) and Adjusted EBITDA of $26 million (Q1-17 - $15 million).  Improved plywood pricing was offset by costs associated with our WestPine MDF plant restart.

Our pulp & paper segment generated operating earnings of $32 million (Q1-17 - $31 million) and Adjusted EBITDA of $42 million (Q1-17 - $40 million).  Higher pulp prices were offset by higher maintenance costs as our Cariboo pulp mill had a planned maintenance shutdown followed by non-related operational issues.  Our Hinton pulp mill struggled in the first part of the quarter, however performance improved to targeted levels over the balance of the quarter.

Softwood lumber dispute

The U.S. Department of Commerce's preliminary review resulted in a West Fraser specific countervailing duty rate of 24.12% effective April 28, 2017 and an antidumping duty rate of 6.76% effective June 30, 2017, resulting in an expense of $34 million for the quarter.

We continue to believe that the allegations of subsidy and dumping are groundless. Ted Seraphim, our President and CEO, said: "I want to thank all of our employees for their tremendous effort and dedication to operational excellence.  We are going into the softwood lumber dispute with a strong balance sheet which will enable us to sustain another round of this long-standing disagreement."

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 Report contains historical information, descriptions of current circumstances and statements about potential future developments.  The latter, which are forward‑looking statements, 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 2016 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 Friday, July 21, 2017 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-888-390-0546 (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.
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 use the same accounting policies and methods of their application as the December 31, 2016 annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with our 2016 annual consolidated financial statements.

3. Inventories

Inventories at June 30, 2017 were written down by $6 million (March 31, 2017 - $5 million; December 31, 2016 - $5 million; June 30, 2016 - $11 million) to reflect net realizable value being lower than cost.

4. Long-term debt and operating loans

Long-term debt

The fair value of the long-term debt is $389 million (December 31, 2016 - $391 million) based on rates available to us at the balance sheet date for long-term debt with similar terms and remaining maturities.

Operating loans

Our operating loans consist of a $500 million committed revolving credit facility which matures September 30, 2020, a $32 million (US$25 million) demand line of credit dedicated to our U.S. operations and an $8 million demand line of credit dedicated to our jointly-owned newsprint operation.  In addition, we have demand lines of credit totalling $59 million dedicated to letters of credit, of which US$7 million is committed to our U.S. operations.    

At June 30, 2017 there were no amounts outstanding under our revolving credit facility.  As a result, the associated deferred financing costs of $2 million were reported in other assets.  Letters of credit in the amount of $46 million were also supported by our facilities, leaving $553 million of credit available for further use. At December 31, 2016, our revolving credit facility was undrawn, deferred financing costs were $2 million and our outstanding letters of credit were $48 million.

Interest on these facilities is payable at floating rates based on Prime, U.S. base, Bankers' Acceptances or LIBOR at our option. 

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

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:

The significant actuarial assumptions used to determine our balance sheet date post-retirement assets and liabilities are as follows:

The actuarial loss on post-retirement benefits, included in other comprehensive earnings, is as follows:

7. Other 

8. 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:

9. 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.

10. Segmented information

The geographic distribution of external sales is as follows¹:

11. Softwood lumber dispute

On November 25, 2016 a coalition of U.S. lumber producers petitioned the U.S. Department of Commerce ("USDOC") and the U.S. International Trade Commission ("USITC") to investigate alleged subsidies to Canadian producers and levy countervailing and antidumping duties against Canadian imports.  We have been chosen by the USDOC as a "mandatory respondent" to both the countervailing and antidumping investigations and as a result have received unique company specific rates.

On April 24, 2017, the USDOC issued its preliminary determination in the countervailing duty investigation and imposed a company specific preliminary rate of 24.12% to be posted by cash deposits on the exports from Canada of softwood lumber to the U.S. on or after April 28, 2017.  On June 26, 2017, the USDOC issued its preliminary determination in the antidumping duty investigation and imposed a company specific preliminary rate of 6.76% to be posted by cash deposits on the exports from Canada of softwood lumber to the U.S. on or after June 30, 2017.  We have expensed $34 million for the period April 28, 2017 to June 30, 2017 representing duties at the preliminary rates determined by the USDOC.

Any adjustments resulting from a change in the final countervailing and antidumping duty rates will be made prospectively.

Together with other Canadian forest product companies, the federal government and Canadian provincial governments ("Canadian Interests") we categorically deny the U.S. allegations and disagree with the preliminary countervailing and antidumping determinations.  Canadian Interests continue to defend the Canadian industry in this U.S. trade dispute.  Depending on the outcome of the final phase of the investigation, Canadian Interests may appeal the decision of the USDOC and USITC to the appropriate courts, North America Free Trade Agreement panels and/or the World Trade Organization.  Notwithstanding the preliminary rates established in the investigations, the final liability for the assessment of countervailing and antidumping duties will not be determined until each annual administrative review process is complete.

SOURCE West Fraser Timber Co. Ltd.

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