VANCOUVER, Feb. 16 /CNW/ - West Fraser Timber Co. Ltd. today reported
fourth quarter earnings of $9 million or $0.20 per share on sales of
$832 million compared to earnings of $41 million or $0.94 per share on sales
of $552 million in the fourth quarter of 2004.
For the full year, earnings were $108 million or $2.49 per share, on
sales of $3,577 million. This compares to earnings of $212 million or $5.36
per share, on sales of $2,400 million for 2004.
EBITDA(1) was $95 million or 11% of sales for the quarter compared to
EBITDA of $74 million or 13% of sales in the fourth quarter of 2004. For the
full year, EBITDA was $447 million or 12% of sales compared to $442 million or
18% of sales for 2004.
West Fraser's 2005 results include the earnings of the acquired Weldwood
operations, which are not reflected in reporting periods before 2005.
Fourth quarter 2005 earnings reflect the following after-tax items:
- A gain of $3 million or $0.07 per share related to share option
compensation;
- An expense of $3 million or $0.07 per share for costs related to the
previously-announced indefinite shutdown of a 50% owned sawmill in
Red Earth, Alberta; and
- A gain of $4 million or $0.09 per share related to the recognition of
prior years' scientific research and experimental development tax
credits.
Fourth quarter 2004 earnings include the following after-tax items:
- A gain of $3 million or $0.07 per share related to share option
compensation; and
- A gain of $23 million or $0.52 per share related to the translation
of U.S. dollar denominated debt.
"2005 was a very significant year for West Fraser," said Hank Ketcham,
Chairman, President and Chief Executive Officer. "The Company marked its
50 year anniversary and completed the integration of the acquired Weldwood
operations. Today we have a much larger and stronger West Fraser with proud
employees who share a common vision for success."
Operational Results
The Canadian dollar averaged US $0.85 in the fourth quarter of 2005
compared to US $0.83 in the third quarter of the year and US $0.82 in the
fourth quarter of last year. The Company estimates that every U.S. cent
increase or decrease relative to the Canadian dollar results in an approximate
$19 million(2) change to earnings on an annualized basis.
Fuel cost increases resulted in higher transportation costs during the
quarter for both outgoing products and incoming raw materials.
EBITDA in the lumber division for the quarter was $66 million or 14% of
sales compared to $52 million or 10% of sales in the preceding quarter and
$55 million or 17% of sales in the fourth quarter of 2004. The increase in
EBITDA margin compared to the previous quarter was due primarily to reduced
duties for part of the quarter and lower conversion costs resulting from
increased production efficiencies, which offset the negative impact of the
higher Canadian dollar.
Benchmark SPF 2X4 lumber prices averaged US $327 per Mfbm in both the
current and previous quarter compared to an average of US $336 per Mfbm in the
fourth quarter of 2004.
The ongoing softwood lumber dispute with the United States continued to
impact the Company. Lumber duties expensed in the quarter were $29 million
(last quarter - $39 million; fourth quarter 2004 - $31 million)(3).
Panel operations generated EBITDA of $13 million or 10% of sales in the
quarter compared to $14 million or 11% of sales in the previous quarter and
$15 million or 23% of sales in the comparable quarter of 2004. Plywood results
improved due to modest price increases while LVL results were affected by
maintenance downtime in the quarter. MDF results reflect lower selling prices
in the quarter.
The pulp and paper operations continued to record unsatisfactory results.
In the current period, EBITDA of $10 million or 4% of sales for the quarter
compared to EBITDA of $8 million or 3% of sales in the last quarter and EBITDA
of nil in the same quarter last year. The recognition of the benefit of tax
credits added $5 million to EBITDA in the quarter, which was partially offset
by lower Canadian dollar product prices at the Kitimat linerboard and kraft
paper mill compared to the third quarter.
Integration Activities and Synergies
On acquiring Weldwood, West Fraser projected achieving pre-tax synergies
at an annual rate of $80 million by the end of the third year after the
transaction closed. As at December 31, 2005, West Fraser has achieved almost
$70 million of the targeted synergies on a going forward basis, with the
remainder of the target expected to be realized by the end of 2006.
"In only 12 months we have fundamentally completed the integration of
Weldwood and achieved significant synergies," said Ketcham. "We remain focused
on identifying opportunities to capture additional synergies."
Lumber Trade Dispute
On August 10, 2005, a NAFTA Extraordinary Challenge Committee unanimously
upheld a NAFTA panel ruling that evidence relied upon by the U.S. did not
support the finding that Canadian imports threatened to injure the U.S.
industry. The Committee also confirmed the panel's specific instruction that
the U.S. find no threat of injury. This ruling was expected to result in the
withdrawal of the countervailing and antidumping cases, and the refund of cash
deposits with interest. The U.S. has so far refused to comply with the ruling.
Although the U.S. has asserted that it is not legally obligated to refund
the deposits, another NAFTA panel has ruled - in a West Fraser appeal of the
antidumping order - that the U.S. has no authority to keep deposits collected
pursuant to an invalid order.
Effective December 12, 2005 the Company's CVD and ADD deposit rates were
reduced to 8.70% from 16.37% and to 0.51% from 0.91% respectively, as a result
of the final determination in the second administrative review.
Dividends Declared
The Board of Directors declared a regular cash dividend of $0.14 per
share payable on April 7, 2006 to shareholders of record on March 24, 2006.
Officer Appointed
The Board of Directors has appointed Chris McIver, Vice-President, Lumber
Sales, effective January 1, 2006. McIver succeeds Ernie Thony, who retired
from West Fraser after 35 years of service.
Forward-Looking Statements
Some information contained in this release is prospective, including the
estimated effect of the U.S./Canadian dollar exchange rate and the potential
for capturing additional synergies, and may be affected by known or unknown
risks and uncertainties which are mostly outside the control of West Fraser.
The results or events mentioned in such prospective information may differ
substantially from actual results or events.
Conference Call
Investors are invited to listen to the quarterly conference call to be
held on February 16 at 3:00 p.m. Pacific Standard Time by dialing
1-888-575-8232 (toll-free North America). The call may also be accessed
through West Fraser's web site at www.westfraser.com.
Investor Conference
On February 17, 2005 at 8:00 a.m. Pacific Standard Time, Company
management will make a presentation at the CIBC World Markets Investor
Conference. The presentation can be viewed live on Webcast. The following is
the production link:
http://events.streamlogics.com/avwtelav/cibcwm/feb16-
06/sub/WestFraserTimber/index.asp
West Fraser is an integrated forest products company that produces
lumber, LVL, MDF, plywood, pulp, linerboard, kraft paper and newsprint. The
Company has manufacturing operations in British Columbia, Alberta and the
southern United States. West Fraser has approximately 6,900 employees and is
headquartered in Vancouver, British Columbia.
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(1) Throughout this news release reference is made to EBITDA (defined as
operating earnings plus amortization of property, plant, equipment
and timber), which the Company considers to be a key performance
indicator. EBITDA is not a generally accepted earnings measure and
should not be considered as an alternative to earnings or cash flows
as determined in accordance with Canadian generally accepted
accounting principles. As there is no standardized method of
calculating EBITDA, the Company's use of the term may not be directly
comparable with similarly titled measures used by other companies.
(2) Excludes the exchange impact on translation of U.S. dollar
denominated debt and other monetary items and on product prices.
(3) As at December 31, 2005, the total amount on deposit related to
duties is US $370 million, not including amounts deposited by
Weldwood prior to its acquisition by the Company, refunds of which
are for the account of the previous owner.
<<
CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS
(in millions of Canadian dollars - unaudited)
October 1 to January 1 to
December 31 December 31
2005 2004 2005 2004
-------------------------------------------------------------------------
Sales $ 832.0 $ 552.4 $ 3,576.7 $ 2,400.0
--------------------------------------------
Costs and expenses
Cost of products sold 547.0 346.5 2,321.8 1,359.6
Freight and other
distribution costs 140.5 88.2 542.0 346.3
Countervailing and
antidumping duties 28.9 30.8 151.4 155.6
Amortization 64.4 46.9 255.4 153.9
Selling, general and
administration 25.1 18.1 120.3 71.9
Share option expense
(recovery) (4.6) (4.7) (5.7) 25.1
--------------------------------------------
801.3 525.8 3,385.2 2,112.4
--------------------------------------------
Operating earnings 30.7 26.6 191.5 287.6
Other
Interest expense - net (10.1) (4.7) (48.4) (16.0)
Exchange gain on long-term debt - 22.6 13.9 26.6
Other expense (4.0) (3.2) (5.6) (1.4)
--------------------------------------------
Earnings before income taxes
and non-controlling interest 16.6 41.3 151.4 296.8
Income tax expense (7.9) (0.7) (42.3) (84.8)
--------------------------------------------
Earnings before non-
controlling interest 8.7 40.6 109.1 212.0
Non-controlling interest - - $ (1.4) $ -
--------------------------------------------
Earnings $ 8.7 $ 40.6 $ 107.7 $ 212.0
--------------------------------------------
--------------------------------------------
Earnings per share (note 9)
Basic $ 0.20 $ 1.10 $ 2.52 $ 5.75
Diluted $ 0.20 $ 0.94 $ 2.49 $ 5.36
--------------------------------------------
--------------------------------------------
RETAINED EARNINGS
-----------------
Balance - beginning
of period $ 1,266.2 $ 1,149.7 $ 1,185.1 $ 993.8
Earnings 8.7 40.6 107.7 212.0
--------------------------------------------
1,274.9 1,190.3 1,292.8 1,205.8
Common share dividends (6.1) (5.2) (24.0) (20.7)
--------------------------------------------
Balance - end of period $ 1,268.8 $ 1,185.1 $ 1,268.8 $ 1,185.1
-------------------------------------------------------------------------
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of Canadian dollars - unaudited)
October 1 to January 1 to
December 31 December 31
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash Flows From Operating
-------------------------
Activities
----------
Earnings $ 8.7 $ 40.6 $ 107.7 $ 212.0
Items not affecting cash
Amortization 64.4 46.9 255.4 153.9
Exchange gain on
long-term debt - (22.6) (13.9) (26.6)
Change in reforestation
obligation 3.5 (5.6) (2.1) (11.0)
Change in other long-
term liabilities (68.4) 3.2 (67.1) 2.7
Change in deferred charges 10.4 (11.6) 9.1 (15.0)
Future income taxes 7.2 (8.8) (24.3) (25.4)
Loss (gain) on asset sales 2.2 (6.2) (3.2) (6.5)
Other 1.0 0.2 4.2 2.0
--------------------------------------------
29.0 36.1 265.8 286.1
Net change in non-cash
working capital items (45.0) 39.8 (236.1) 109.0
--------------------------------------------
(16.0) 75.9 29.7 395.1
--------------------------------------------
Cash Flows From Financing
-------------------------
Activities
----------
Repayment of long-term debt (0.3) - (249.3) (13.3)
Proceeds from long-term debt - 625.8 - 625.8
Net proceeds from bank
operating loans 65.1 66.0 99.1 66.0
Common share dividends (6.1) (5.2) (24.0) (20.7)
Proceeds from subscription
receipts issue - net (note 8) - (0.2) - 267.0
Issuance of Common shares
(note 8) 0.2 1.1 0.5 1.7
Other 0.2 0.1 0.3 0.3
--------------------------------------------
59.1 687.6 (173.4) 926.8
--------------------------------------------
Cash Flows From Investing
-------------------------
Activities
----------
Additions to property, plant,
equipment & timber (63.5) (41.4) (224.4) (140.1)
Proceeds from disposal of
property, plant, equipment
& timber (0.8) 23.9 22.6 27.7
Acquisition - net of cash
acquired (note 3) - (1,123.9) - (1,123.9)
Change in restricted cash - 275.0 - -
Decrease (increase) in
other assets 14.1 7.0 14.2 (1.9)
--------------------------------------------
(50.2) (859.4) (187.6) (1,238.2)
--------------------------------------------
(Decrease) increase in cash (7.1) (95.9) (331.3) 83.7
Net cash - beginning of
period 25.4 445.5 349.6 265.9
--------------------------------------------
Net cash - end of period $ 18.3 $ 349.6 $ 18.3 $ 349.6
--------------------------------------------
--------------------------------------------
Supplemental information:
Interest paid $ 18.9 $ 5.9 $ 50.2 $ 23.3
--------------------------------------------
--------------------------------------------
Income taxes paid $ 0.9 $ 9.4 $ 243.7 $ 35.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Net cash consists of cash and short-term investments and cheques issued
in excess of funds on deposit.
CONSOLIDATED BALANCE SHEETS
(in millions of Canadian dollars - unaudited)
As at As at
December 31, December 31,
2005 2004
-------------------------------------------------------------------------
ASSETS
------
Current assets
Cash and short-term investments $ 62.2 $ 349.6
Accounts receivable 308.5 296.3
Inventories 572.0 541.1
Prepaid expenses 14.1 15.3
Current assets held for sale (note 4) 30.7 -
--------------------------
987.5 1,202.3
Property, plant, equipment & timber 2,230.1 2,344.5
Deferred charges 27.1 36.3
Goodwill 263.7 276.7
Other assets 61.6 67.6
Long term assets held for sale (note 4) 63.7 -
--------------------------
$ 3,633.7 $ 3,927.4
--------------------------
--------------------------
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current liabilities
Cheques issued in excess of funds on deposit $ 43.9 $ -
Operating loans (note 6) 165.1 66.0
Accounts payable and accrued liabilities 333.1 385.6
Income tax payable 4.6 147.3
Current portion of reforestation obligation 52.3 50.4
Current portion of long-term debt 4.5 150.2
Current liabilities held for sale (note 4) 13.6 -
--------------------------
617.1 799.5
Long-term debt 623.9 735.5
Other liabilities (note 7) 132.9 195.8
Future income taxes 377.7 409.5
Long-term liabilities held for sale (note 4) 16.2 -
Non-controlling interest (note 4) - 5.6
--------------------------
1,767.8 2,145.9
--------------------------
Shareholders' equity (note 8) 1,865.9 1,781.5
--------------------------
--------------------------
$ 3,633.7 $ 3,927.4
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Number of Common shares outstanding at February 15, 2005 was 42,759,345
QUARTERLY COMPARISONS
January 1 to December 31
(in millions of Canadian dollars - unaudited)
2005 2004
-------------------------------------------------------------------------
Sales
First $ 902.4 $ 541.1
Second 952.8 606.5
Third 889.5 700.0
Fourth 832.0 552.4
-------------------------------------------------------------------------
$ 3,576.7 $ 2,400.0
-------------------------------------------------------------------------
Earnings
First $ 42.9 $ 26.5
Second 38.0 66.9
Third 18.1 78.0
Fourth 8.7 40.6
-------------------------------------------------------------------------
$ 107.7 $ 212.0
-------------------------------------------------------------------------
Diluted Earnings Per Share (in dollars)
First $ 0.99 $ 0.71
Second $ 0.88 $ 1.79
Third $ 0.42 $ 1.95
Fourth $ 0.20 $ 0.94
Annual $ 2.49 $ 5.36
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FOURTH QUARTER SEGMENTED INFORMATION
(in millions of Canadian dollars - unaudited)
Pulp & Corporate Consol-
Lumber Panels paper & other idated
-------------------------------------------------------------------------
October 1, 2005 to
December 31, 2005
Sales
To external
customers $ 443.1 $ 120.0 $ 268.9 $ - $ 832.0
----------
----------
To other segments 21.7 2.2 - -
---------------------------------------
$ 464.8 $ 122.2 $ 268.9 $ -
---------------------------------------
---------------------------------------
EBITDA(1) $ 65.7 $ 12.8 $ 10.3 $ 6.3 $ 95.1
Amortization 30.7 11.0 21.8 0.9 64.4
-------------------------------------------------
Operating earnings
(loss) 35.0 1.8 (11.5) 5.4 30.7
Interest expense (4.1) 0.3 (2.5) (3.8) (10.1)
Exchange gain on
long-term debt - - - - -
Other income (expense) (3.5) (0.1) 0.4 (0.8) (4.0)
-------------------------------------------------
Earnings (loss) before
income taxes &
non-controlling
interest $ 27.4 $ 2.0 $ (13.6) $ 0.8 $ 16.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
October 1, 2004 to
December 31, 2004
Sales
To external
customers $ 325.7 $ 65.6 $ 161.1 $ - $ 552.4
----------
----------
To other segments 9.3 - - -
---------------------------------------
$ 335.0 $ 65.6 $ 161.1 $ -
---------------------------------------
---------------------------------------
EBITDA(1) $ 55.4 $ 15.4 $ 0.3 $ 2.4 $ 73.5
Amortization 17.9 12.1 16.3 0.6 46.9
-------------------------------------------------
Operating earnings
(loss) 37.5 3.3 (16.0) 1.8 26.6
Interest expense (1.5) (0.1) (0.9) (2.2) (4.7)
Exchange gain on
long-term debt - - - 22.6 22.6
Other income (expense) (0.3) (0.1) 0.9 (3.7) (3.2)
-------------------------------------------------
Earnings (loss) before
income taxes &
non-controlling
interest $ 35.7 $ 3.1 $ (16.0) $ 18.5 $ 41.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non GAAP measure:
EBITDA is defined as operating earnings plus amortization.
TWELVE MONTH SEGMENTED INFORMATION
(in millions of Canadian dollars - unaudited)
Pulp & Corporate Consol-
Lumber Panels paper & other idated
-------------------------------------------------------------------------
January 1, 2005 to
December 31, 2005
Sales
To external
customers $2,020.9 $ 511.0 $1,044.8 $ - $3,576.7
----------
----------
To other segments 86.0 5.0 - -
---------------------------------------
$2,106.9 $ 516.0 $1,044.8 $ -
---------------------------------------
---------------------------------------
EBITDA(1) $ 327.8 $ 65.4 $ 62.2 $ (8.5) $ 446.9
Amortization 121.9 38.1 92.5 2.9 255.4
-------------------------------------------------
Operating earnings
(loss) 205.9 27.3 (30.3) (11.4) 191.5
Interest expense (28.0) (9.1) (10.1) (1.2) (48.4)
Exchange gain on
long-term debt - - - 13.9 13.9
Other income (expense) 2.9 (0.4) 0.8 (8.9) (5.6)
-------------------------------------------------
Earnings (loss) before
income taxes &
non-controlling
interest $ 180.8 $ 17.8 $ (39.6) $ (7.6) $ 151.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
January 1, 2004 to
December 31, 2004
Sales
To external
customers $1,474.9 $ 284.5 $ 640.6 $ - $2,400.0
----------
----------
To other segments 48.5 - - -
---------------------------------------
$1,523.4 $ 284.5 $ 640.6 $ -
---------------------------------------
---------------------------------------
EBITDA(1) $ 361.0 $ 74.2 $ 44.9 $ (38.6) $ 441.5
Amortization 63.2 29.4 59.5 1.8 153.9
-------------------------------------------------
Operating earnings
(loss) 297.8 44.8 (14.6) (40.4) 287.6
Interest expense (8.1) (1.0) (4.6) (2.3) (16.0)
Exchange gain on
long-term debt - - - 26.6 26.6
Other income (expense) 0.6 (0.1) 0.1 (2.0) (1.4)
-------------------------------------------------
Earnings (loss) before
income taxes &
non-controlling
interest $ 290.3 $ 43.7 $ (19.1) $ (18.1) $ 296.8
-------------------------------------------------------------------------
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(1) Non GAAP measure:
EBITDA is defined as operating earnings plus amortization.
FOURTH QUARTER OPERATING HIGHLIGHTS
October 1 to January 1 to
December 31 December 31
2005 2004 2005 2004
Lumber
Production (Mfbm) 1,011,107 663,841 4,212,267 2,771,630
Shipments (Mfbm) 1,004,135 742,308 4,189,626 2,733,627
Panels
MDF
Production (Msf - 3/4") 74,616 73,957 294,327 285,432
Shipments (Msf - 3/4") 74,246 72,186 289,845 288,272
Plywood
Production (Msf - 3/8") 175,510 57,774 721,130 249,188
Shipments (Msf - 3/8") 161,876 55,772 713,014 256,021
LVL
Production (cf) 737,093 - 3,178,813 -
Shipments (cf) 733,235 - 3,133,609 -
Pulp & Paper (tonnes)
Linerboard and Kraft paper
Production 113,399 117,268 449,176 445,871
Shipments 119,941 117,203 457,907 444,553
NBSK
Production 153,437 - 580,894 -
Shipments 149,412 - 570,306 -
BCTMP
Production 135,177 130,129 550,772 521,707
Shipments 164,915 138,870 549,861 494,519
Newsprint
Production 29,254 32,450 129,840 134,731
Shipments 29,098 32,590 128,510 133,843
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NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(figures are in millions of dollars except where indicated - unaudited)
1. BASIS OF PRESENTATION
These interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
included in the Company's annual report for the year ended
December 31, 2004.
These interim consolidated financial statements follow the same
accounting policies and methods of their application as the
December 31, 2004 consolidated annual financial statements except as
described in note 2.
2. CHANGE IN ACCOUNTING POLICIES
Effective January 1, 2005, the Company adopted the new accounting
guidelines for consolidation of variable interest entities ("VIE")
per CICA accounting Guideline 15. This guideline requires the
consolidation of certain entities that are subject to control on a
basis other than the ownership of voting interest. Accordingly,
the Company began consolidating one of its joint-venture interests
that was previously proportionately consolidated. The effect on
assets was an increase of $7.0 and the effect on liabilities was an
increase of $5.4. There was no impact on earnings or equity from
applying this VIE guideline. The change in accounting policy was
applied prospectively with no restatement of prior periods in
accordance with the transitional provisions of the standard.
3. ACQUISITION
On December 31, 2004, the Company acquired the only issued share of
Weldwood of Canada Limited ("Weldwood"), an integrated forest
products company, for net cash consideration of $1,123.8. The terms
of the transaction also provide that the seller is entitled to the
net after-tax value of any refunds of softwood lumber duties paid by
Weldwood before December 31, 2004 and to further cash consideration,
not to exceed $50.0 in aggregate, if the average market price of
NBSK pulp per tonne exceeds the greater of US$710 dollars and
Cdn $950 dollars during any quarter ending on or before June 30,
2007. To date, the average pulp price has been below the levels that
would trigger additional consideration. Weldwood was amalgamated
with West Fraser Mills Ltd., the Company's principal operating
subsidiary, effective January 1, 2005.
The acquisition has been accounted for using the purchase method,
whereby the purchase consideration was allocated to the estimated
fair values of the assets acquired and liabilities assumed at the
effective date of the purchase. The finalized allocation of the
purchase cost for the acquisition is as follows:
Final Preliminary
December 31, December 31,
2005 2004
Net assets acquired $ 1,430.3 $ 1,430.4
Less: Cash acquired (306.5) (306.5)
------------ ------------
Net non-cash assets acquired $ 1,123.8 $ 1,123.9
------------ ------------
Allocation:
Current assets $ 347.5 $ 344.8
Current liabilities (210.5) (219.8)
Property, plant and equipment 692.7 698.1
Timber 432.3 432.3
Goodwill 263.7 276.7
Other assets - net 17.8 3.3
Reforestation obligation (53.3) (50.5)
Asset retirement obligation (3.8) (1.6)
Timber damage deposits (1.4) -
Employee future benefits (111.6) (108.6)
Future income taxes (244.0) (245.2)
Non-controlling interest (5.6) (5.6)
------------ ------------
Net cash consideration $ 1,123.8 $ 1,123.9
------------ ------------
The allocation above includes costs related to the acquisition of
$6.8 and estimated severance and other costs associated with the
integration of Weldwood of $13.4, a reduction from the original
estimate, as the Company finalized its integration plan. For the
year ended December 31, 2005, $5.3 was paid related to the estimated
severance and other restructuring costs ($1.7 for the three months
ended December 31, 2005).
The Company entered into a consent agreement (the "Consent
Agreement") on December 7, 2004 with the Canadian Commissioner of
Competition which requires the Company, among other things, to
divest an approximate 90% interest in two sawmills and their related
timber harvesting rights. The former Weldwood assets and liabilities
related to these operations are included in the allocation above,
and are classified as held for sale at December 31, 2005.
4. ASSETS HELD FOR SALE
The Company has commenced activities to sell its approximate 90%
interest in two sawmills and their related timber harvesting rights
pursuant to the Consent Agreement. The non-controlling interest of
$7.1 that relates to these operations is included in long-term
liabilities held for sale.
In addition, the Company is selling a harvesting and road
maintenance business and related equipment located in Alberta.
The sales of these operations are expected to occur in 2006. The
results of operations from these assets held for sale are included
in the consolidated statement of earnings. Effective January 1,
2006, amortization will not be charged on the assets held for sale.
5. IMPAIRMENT OF LONG-LIVED ASSETS
During the year, the Company expensed $7.7 related to the shut-down
of a 50% owned sawmill ($2.5 for the three months ended
December 31, 2005). Of this amount, $5.2 was charged to amortization
expense and $2.5 of other closure costs was charged to
administration expense.
6. BANK INDEBTEDNESS
The Company has approximately $530.0 in revolving lines of credit
available, $165.1 of which was drawn as at December 31, 2005. The
Company has also issued $14.4 under various letters of credit. All
lines of credit are unsecured except for a $5.0 joint-venture line
of credit, and bear interest at floating rates based on prime, US
base, bankers acceptances or LIBOR at the Company's option.
7. OTHER LIABILITIES
December 31, December 31,
2005 2004
---------------------------------------------------------------------
Post-retirement obligations $ 44.2 $ 111.2
Timber damage deposits 10.9 7.4
Reforestation obligation - long term 68.2 70.6
Other asset retirement obligations 9.6 6.6
---------------------------------------------------------------------
$ 132.9 $ 195.8
---------------------------------------------------------------------
8. SHAREHOLDERS' EQUITY
December 31, December 31,
2005 2004
Number of Number of
Shares Issued Amount Shares Issued Amount
---------------------------------------------------------------------
Common 37,871,786 $ 597.0 37,359,544 $ 596.5
Class B common 4,885,206 0.5 5,385,206 0.5
--------------------------------------------------------------------
Total Common 42,756,992 597.5 42,744,750 597.0
Retained Earnings 1,268.8 1,185.1
Share Purchase Loans (0.4) (0.6)
--------------------------------------------------------------------
Shareholders' Equity $ 1,865.9 $ 1,781.5
--------------------------------------------------------------------
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Share capital transactions during 2005
For the three months ended December 31, 2005, the Company issued
5,420 Common shares for cash of $0.2 and for the twelve months ended
December 31, 2005 the Company issued 12,242 common shares for cash
of $0.5.
Share capital transactions during 2004
The Company issued 5,852,000 share subscription receipts at
$47 dollars per receipt on August 12, 2004 pursuant to a short form
prospectus. The share subscription receipts were converted on a
one-for-one basis to Common shares of the Company on December 31,
2004 and proceeds of $267.0 (net of $8.0 of issuance costs) were
credited to Common share capital. In addition, the Company issued
36,036 Common shares for $1.7 during the year (three months ended
December 31, 2004 - issued 20,250 Common shares for cash of $1.1).
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 outstanding. Diluted earnings per share
assume the exercise of share options using the treasury stock method
and the conversion on the issuance date of subscription receipts to
Common shares. The diluted earnings per share calculation reflects
the weighted average number of subscription receipts outstanding
during 2004.
October 1 to January 1 to
December 31 December 31
2005 2004 2005 2004
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Earnings available to
shareholders $ 8.7 $ 40.6 $ 107.7 $ 212.0
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Weighted average number
of shares (thousands)
Weighted average shares
- basic 42,731 36,867 42,731 36,848
Share options - treasury
stock method 478 616 556 600
Subscription receipts - 5,852 - 2,079
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Weighted average shares
- diluted 43,209 43,335 43,287 39,527
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Earnings per share
(dollars)
Basic $ 0.20 $ 1.10 $ 2.52 $ 5.75
Diluted $ 0.20 $ 0.94 $ 2.49 $ 5.36
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10. EMPLOYEE FUTURE BENEFITS
The total benefit cost of the Company's defined benefit pension
plans was $4.0 for the quarter ($26.6 for the twelve months ended
December 31, 2005).
11. CONTINGENCIES
a) Countervailing and Antidumping Duties
In 2002, the U.S. Department of Commerce ("USDOC") issued its final
determination in the countervailing and antidumping investigations,
which resulted in a countervailing duty ("CVD") rate of 18.79% and
an antidumping duty ("ADD") rate specific to the Company of 2.18%,
both to be posted by cash deposits effective from May 22, 2002.
On April 21, 2004, the USDOC issued a response to an earlier North
American Free Trade Agreement ("NAFTA") ruling regarding specific
challenges made to the ADD rate calculation. The USDOC concluded
that West Fraser's ADD rate would be reduced from 2.18% to 1.79%
representing de minimus level, with the result that West Fraser
would be exempted from the ADD order. In response to a July 11, 2005
USDOC remand determination which did not revoke the antidumping
order against the Company, on July 21, 2005, a NAFTA panel affirmed
its prior instruction that the anti-dumping order against West
Fraser must be revoked.
On September 10, 2004, the U.S. International Trade Commission
("ITC") issued, in response to a NAFTA remand decision, a
determination finding that the U.S. lumber industry was not
threatened with material injury by reason of lumber imports from
Canada. On November 24, 2004, the U.S. government launched an
Extraordinary Challenge of the legality of the decision of the NAFTA
panel. On August 10, 2005, a NAFTA Extraordinary Challenge Committee
unanimously upheld a NAFTA panel ruling that evidence relied upon by
the U.S. did not support its finding that Canadian imports
threatened to injure the U.S. industry and further confirmed the
panel's specific instruction that the U.S. find no threat of injury.
This ruling was expected to result in the U.S. withdrawal of the CVD
and ADD cases, and the refund of cash deposits with interest. The
U.S. has so far refused to comply with the ruling.
Effective December 20, 2004 the Company's CVD and ADD deposit rates
were reduced to 17.18% and 0.92%, respectively, as a result of the
final determination in the first Administrative Review. These
deposits were further reduced due to a ministerial error and
recalculated to 16.37% for CVD on February 24, 2005 and to 0.91% for
ADD on January 17, 2005.
Effective December 12, 2005, the Company's CVD and ADD deposit rates
were reduced to 8.70% and 0.51% respectively, as a result of the
final determination in the second Administrative Review.
The Company has recorded an expense for CVD and ADD equal to the
amount paid as cash deposits throughout applicable periods. A refund
of deposits will be recorded as income when receipt is reasonably
certain. As at December 31, 2005, the total amount on deposit from
May 22, 2002 related to CVD and ADD was US$333.9 and US$36.5,
respectively. This amount does not include the amounts on deposit
from Weldwood prior to the acquisition by the Company (see note 3).
The Company and other Canadian forest products companies, the
Canadian federal and provincial governments (collectively the
"Canadian Interests") categorically deny the U.S. allegations and
strongly disagree with the final countervailing and dumping
determinations made by the ITC and the USDOC. The Canadian Interests
continue to aggressively defend the Canadian industry in this trade
dispute. The final amount of CVD and ADD duties that may be assessed
on Canadian softwood lumber exports to the U.S. cannot be determined
at this time.
b) The Forestry Revitalization Plan ("FRP")
In 2003, the Government of B.C. ("Crown") enacted the FRP that
provides for significant changes to Crown forest policy and to the
existing allocation of Crown timber tenures to licensees. Licensees,
including the Company, will be required to return 20% of their
replaceable tenures and related assets such as roads and bridges.
The effect of the timber take-back is a reduction of approximately
1,266,000 cubic meters of the Company's existing allowable annual
cut on replaceable tenures. Affected licensees are eligible for
compensation for both timber rights and certain other asset values.
Allocation of the reduction to specific licenses has been completed
but compensation has yet to be determined. The effect of the FRP on
the Company's financial position and results of operations cannot be
determined and will be recorded when the amounts can reasonably be
determined.
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For the use of CANADA NEWS WIRE SERVICE only
West Fraser shares trade on the Toronto Stock Exchange
under the symbol: "WFT".
>>
%SEDAR: 00002660E
