VANCOUVER, Feb. 15 /CNW/ - West Fraser Timber Co. Ltd. today reported earnings of $296 million or $6.87 per share on sales of $727 million in the fourth quarter of 2006 compared to a loss of $8 million or $0.19 per share on sales of $809 million in the third quarter of 2006 and earnings of $9 million or $0.20 per share on sales of $832 million in the fourth quarter of 2005.
For the full year, earnings were $398 million or $9.23 per share on sales of $3,326 million. This compares to earnings of $108 million or $2.49 per share on sales of $3,577 million for 2005.
West Fraser's fourth quarter and 2006 annual earnings reflect a duty refund of $387 million plus interest of $50 million that resulted from the settlement of the softwood lumber dispute. EBITDA(1), excluding the duty refund, would have been $40 million or 6% of sales for the fourth quarter of 2006 and $296 million or 9% of sales for 2006. This compares to EBITDA of $53 million or 7% of sales for the third quarter of 2006 and $95 million or 11% of sales for the fourth quarter of 2005. EBITDA for the full year of 2005 was $447 million or 12% of sales.
Fourth quarter 2006 earnings reflect the following after-tax items:
- A gain of $289 million or $6.70 per share including interest,
recorded as the result of the refunds generated from the settlement
of the softwood lumber dispute;
- A gain of $22 million or $0.50 per share related to the sale of West
Fraser's interest in the Burns Lake and Decker Lake sawmills and
associated harvesting rights;
- An expense of $4 million or $0.08 per share related to share option
compensation; and
- An expense of $12 million or $0.28 per share related to the
translation of U.S. denominated debt.
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
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.
Operational Results
Lumber EBITDA for the quarter was $388 million, including the $387 million duty refund. EBITDA, excluding the duty refund, would have been $1 million in the fourth quarter of 2006 compared to a loss of $10 million in the third quarter of 2006. This improvement was due primarily to lower log costs in the quarter partially offset by lower lumber prices. In addition, from October 12, 2006, the Company's lumber shipments to the U.S. have been subject to a 15% export tax compared to an approximate 9% duty charge in the third quarter of 2006. Benchmark SPF 2X4 lumber prices averaged US $245 per Mfbm in the quarter compared to US $278 per Mfbm in the third quarter of 2006.
Lumber production was 910 MMfbm in the quarter compared to 1,060 MMfbm in the third quarter of 2006. The decline was due primarily to the sale of the Burns Lake and Decker Lake sawmills on October 31, 2006. In addition, the transition of production from the old Quesnel sawmill to the new Quesnel sawmill reduced production.
Panel operations generated EBITDA of $5 million or 5% of sales in the quarter compared to $16 million or 13% of sales in the previous quarter. This decline was the result of lower shipment volumes and higher production costs due primarily to lower production levels. The plywood operations had various operating issues which resulted in lower production. MDF production was lower in the quarter due to market driven product mix changes.
The Company's pulp and paper operations generated EBITDA of $42 million or 16% of sales in the quarter compared to EBITDA of $51 million or 18% of sales in the third quarter of 2006. This decline was due primarily to higher furnish and natural gas costs and reduced pulp production and shipment volumes.
New Quesnel Sawmill
The new sawmill in Quesnel, BC commenced operations at the end of October 2006. This state-of-the art mill has an annual capacity of 600 MMfbm and is expected to achieve operating capacity by the end of 2007.
U.S. Sawmill Acquisition
"West Fraser had a busy and exciting year in 2006 as the Company took steps to continue the expansion of its wood products business," said Hank Ketcham, Chairman, President and Chief Executive Officer. "In November, we entered into an agreement to purchase 13 sawmills for approximately US $325 million. This acquisition is right on target with our objective of improving our geographic and product diversification and it is an important long-term strategic investment for our Company."
The acquisition is expected to close at the end of March 2007. The 13 sawmills to be acquired are located in North and South Carolina, Georgia, Florida, Alabama, Arkansas and Texas and employ approximately 2,200 people. In assessing the acquisition, West Fraser established US $23 million in annual pre-tax synergies as a target to be achieved by the end of the third year after closing. Synergies are expected to be achieved by implementing best practices and by centralizing U.S. sales and administrative offices.
Softwood Lumber Agreement
In October 2006, the Canadian and U.S. governments settled the recent softwood lumber dispute. "We believe the terms of settlement are deficient in a number of areas and we are discouraged that both the letter and intent of NAFTA were ignored by Canada's largest trading partner," said Hank Ketcham. "While the competitive landscape both within and outside of Canada has been significantly altered by this settlement, we believe that West Fraser's low cost structure continues to provide us with an advantage."
Transportation Issues
On February 10, 2007, the union representing train conductors and certain yard workers for Canadian National Railway Company ("CN"), West Fraser's primary rail carrier, went on strike. CN has announced a plan to maintain service levels at 65% of normal levels for the duration of the strike. The Company's ability to deliver product to its customers is expected to be impacted throughout the strike, although it is too soon to determine the extent of the affect. In addition, the rail car supply to the Company's sawmills in early 2007 has been adversely affected due to rail service issues related to winter operating conditions. The rail car supply issues have led to an increase in lumber inventory in early 2007.
Dividends Declared
The Board of Directors of the Company has declared a quarterly dividend of $0.14 per share on the Common shares and the Class B common shares in the capital of the Company, payable on April 5, 2007 to shareholders of record on March 23, 2007.
-------------------------------------------------------------------------
(1) Throughout this news release, reference is made to EBITDA (defined as
operating earnings plus amortization of property, plant, equipment and
timber, plus restructuring charges), 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.
Forward-Looking Statements
Some information contained in this release is prospective, such as statements about potential future developments, and may be affected by known or unknown risks and uncertainties, which are mostly outside the control of West Fraser. The results or outcomes of events mentioned in such prospective information may differ materially from actual results or outcomes. This prospective information and statements are not guaranteed by the Company and actual results and outcomes will depend on a number of factors including those described in the Company's MD&A under "Risks and Uncertainties." Readers should exercise caution in relying on such information and statements. The Company undertakes no obligation to publicly revise these forward looking statements to reflect subsequent events or circumstances.
Annual Financial Statements and Management's Discussion & Analysis
("MD&A")
The Company's consolidated financial statements for the year ended December 31, 2006 and related MD&A can be obtained on the Company's web site: www.westfraser.com and on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com under the Company's profile.
Conference Call
Investors are invited to listen to the quarterly conference call to be held on February 16, 2007 at 8:30 a.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 23, 2007 at 8:00 a.m. Pacific Standard Time, the Company's management will make a presentation at the CIBC World Markets Investor Conference. The presentation can be viewed live on Webcast by accessing the following link: http://events.startcast.com/events/118/B0013/code/eventframe.asp?part(equal sign)1
West Fraser is an integrated forest products company that produces lumber, wood chips, 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.
Consolidated Statements of Earnings and Retained Earnings
(in millions of Canadian dollars - unaudited)
October 1 to December 31 January 1 to December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Sales $ 727.2 $ 832.0 $ 3,325.8 $ 3,576.7
-----------------------------------------------------
Costs and expenses
Cost of products
sold 516.8 547.0 2,296.1 2,321.8
Freight and other
distribution costs 120.8 140.5 543.7 542.0
Export taxes 16.8 - 16.8 -
Amortization 68.6 64.4 251.9 255.4
Selling, general
and administration 27.3 25.1 113.9 120.3
Share option expense
(recovery) 5.3 (4.6) (1.3) (5.7)
Restructuring charge
(note 8) - - 37.6 -
Duty (refund)
expense (note 9) (386.5) 28.9 (325.4) 151.4
-----------------------------------------------------
369.1 801.3 2,933.3 3,385.2
-----------------------------------------------------
Operating earnings 358.1 30.7 392.5 191.5
Other
Interest income on
duty refund (note 9) 50.0 - 50.0 -
Interest expense
- net (6.9) (10.1) (37.6) (48.4)
Exchange (loss) gain
on long-term debt (14.3) - (0.7) 13.9
Gain on sale of power
purchase agreement
(note 4) - - 61.8 -
Gain on assets held
for sale (note 3) 21.5 - 21.7 -
Gain on timber
take-back (note 10) - - 13.6 3.3
Other income
(expense) 25.0 (4.0) 21.0 (8.9)
-----------------------------------------------------
Earnings before
income taxes and
non-controlling
interest 433.4 16.6 522.3 151.4
(Provision for)
recovery of income
taxes (note 11) (137.3) (7.9) (123.9) (42.3)
-----------------------------------------------------
Earnings before
non-controlling
interest 296.1 8.7 398.4 109.1
Non-controlling
interest 0.1 - (0.4) (1.4)
-----------------------------------------------------
Earnings $ 296.2 $ 8.7 $ 398.0 $ 107.7
-----------------------------------------------------
-----------------------------------------------------
Earnings per share
(note 13)
Basic $ 6.93 $ 0.20 $ 9.31 $ 2.52
Diluted $ 6.87 $ 0.20 $ 9.23 $ 2.49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Retained earnings
-----------------
Balance - beginning
of period $ 1,352.7 $ 1,266.2 $ 1,268.8 $ 1,185.1
Change in accounting
policy (note 2) (1.5) - (1.5) -
Earnings 296.2 8.7 398.0 107.7
-----------------------------------------------------
1,647.4 1,274.9 1,665.3 1,292.8
Common share
dividends (6.1) (6.1) (24.0) (24.0)
-----------------------------------------------------
Balance - end
of period $ 1,641.3 $ 1,268.8 $ 1,641.3 $ 1,268.8
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Consolidated Statements of Cash Flows
(in millions of Canadian dollars - unaudited)
October 1 to December 31 January 1 to December 31
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash flows from operating activities
------------------------------------
Earnings $ 296.2 $ 8.7 $ 398.0 $ 107.7
Items not
affecting cash
Amortization 68.6 64.4 251.9 255.4
Write down of
pulp assets
(note 8) - - 34.8 -
Exchange loss
(gain) on
long-term debt 14.3 - 0.7 (13.9)
Change in
reforestation
obligations 5.7 3.5 (6.3) (2.1)
Change in other
long-term
liabilities 4.0 (68.4) 12.0 (67.1)
Change in
deferred
charges (4.9) 10.4 (14.6) 9.1
Future income
taxes 3.9 7.2 (59.0) (24.3)
(Gain) loss on
asset sales (23.0) 2.2 (98.3) (3.2)
Other (0.8) 1.0 2.8 4.2
-----------------------------------------------------
364.0 29.0 522.0 265.8
Net change in
non-cash working
capital items 259.8 (45.0) 358.2 (236.1)
-----------------------------------------------------
623.8 (16.0) 880.2 29.7
-----------------------------------------------------
Cash flows from financing activities
------------------------------------
Repayment of
long-term debt (0.6) (0.3) (1.2) (249.3)
(Repayment of) net
proceeds from
operating loans (65.3) 65.1 (165.1) 99.1
Common share
dividends (6.1) (6.1) (24.0) (24.0)
Other 0.2 0.4 0.7 0.8
-----------------------------------------------------
(71.8) 59.1 (189.6) (173.4)
-----------------------------------------------------
Cash flows from investing activities
------------------------------------
Additions to
property, plant,
equipment and timber (45.8) (63.5) (211.6) (224.4)
Proceeds from disposal
of property, plant,
equipment and timber 4.2 (0.8) 37.0 22.6
Net proceeds from
assets held for sale 80.8 - 81.4 -
Additions to power
purchase agreement
(note 4) - - (17.5) -
Decrease in other
assets 3.6 14.1 7.4 14.2
-----------------------------------------------------
42.8 (50.2) (103.3) (187.6)
-----------------------------------------------------
Increase (decrease)
in cash (x) 594.8 (7.1) 587.3 (331.3)
Net cash - beginning
of period 10.8 25.4 18.3 349.6
-----------------------------------------------------
Net cash - end of
period $ 605.6 $ 18.3 $ 605.6 $ 18.3
-----------------------------------------------------
-----------------------------------------------------
Supplemental information:
Interest paid $ 17.5 $ 18.9 $ 40.8 $ 50.2
-----------------------------------------------------
-----------------------------------------------------
Income taxes paid $ 7.2 $ 0.9 $ 73.3 $ 243.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(x) 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,
2006 2005
-------------------------------------------------------------------------
Assets
------
Current assets
Cash and short-term investments $ 605.6 $ 62.2
Accounts receivable 300.9 308.5
Inventories 531.9 572.0
Prepaid expenses 12.9 14.1
Current assets held for sale (note 3) - 30.7
----------------------------
1,451.3 987.5
Property, plant, equipment and timber 2,133.9 2,230.1
Deferred charges 41.8 27.1
Goodwill 263.7 263.7
Other assets (note 4) 127.7 61.6
Long-term assets held for sale (note 3) - 63.7
----------------------------
$ 4,018.4 $ 3,633.7
----------------------------
----------------------------
Liabilities and Shareholder's Equity
------------------------------------
Current liabilities
Cheques issued in excess of funds on deposit $ - $ 43.9
Operating loans (note 5) - 165.1
Accounts payable and accrued liabilities 468.4 333.1
Income taxes payable 178.9 4.6
Current portion of reforestation obligations 54.2 52.3
Current portion of long-term debt 128.3 4.5
Current liabilities held for sale (note 3) - 13.6
----------------------------
829.8 617.1
Long-term debt 499.6 623.9
Other liabilities 137.5 133.0
Future income taxes 312.4 377.6
Long-term liabilities held for sale (note 3) - 16.2
----------------------------
1,779.3 1,767.8
----------------------------
Shareholders' equity (note 7) 2,239.1 1,865.9
----------------------------
----------------------------
$ 4,018.4 $ 3,633.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Number of Common shares outstanding at February 14, 2007 was 42,773,813.
Quarterly Comparisons
January 1 to December 31
(in millions of Canadian dollars - unaudited)
2006 2005
-------------------------------------------------------------------------
Sales
First $ 902.0 $ 902.4
Second 887.9 952.8
Third 808.7 889.5
Fourth 727.2 832.0
-------------------------------------------------------------------------
$ 3,325.8 $ 3,576.7
-------------------------------------------------------------------------
Earnings (loss)
First $ 6.1 $ 42.9
Second 103.8 38.0
Third (8.1) 18.1
Fourth 296.2 8.7
-------------------------------------------------------------------------
$ 398.0 $ 107.7
-------------------------------------------------------------------------
Diluted Earnings Per Share (in dollars)
First $ 0.14 $ 0.99
Second $ 2.41 $ 0.88
Third $ (0.19) $ 0.42
Fourth $ 6.87 $ 0.20
Annual $ 9.23 $ 2.49
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Fourth Quarter Segmented Information
(in millions of Canadian dollars - unaudited)
Pulp & Corporate Consol-
Lumber Panels paper & other idated
October 1, 2006 to
December 31, 2006
Sales
To external customers $ 358.4 $ 102.1 $ 266.7 $ - $ 727.2
--------
--------
To other segments 21.4 1.8 - -
--------------------------------------
$ 379.8 $ 103.9 $ 266.7 $ -
--------------------------------------
--------------------------------------
EBITDA (1) $ 388.4 $ 5.3 $ 41.5 $ (8.5) $ 426.7
Amortization 34.6 10.4 22.6 1.0 68.6
------------------------------------------------
Operating earnings
(loss) 353.8 (5.1) 18.9 (9.5) 358.1
Interest income
(expense) - net 46.3 (1.3) (2.1) 0.2 43.1
Exchange loss on
long-term debt - - - (14.3) (14.3)
Gain (loss) on sale of
power purchase agreement 2.2 8.4 (10.6) - -
Gain on assets held for
sale 21.5 - - - 21.5
Other income 9.3 0.2 0.1 15.4 25.0
------------------------------------------------
Earnings (loss) before
income taxes and
non-controlling
interest $ 433.1 $ 2.2 $ 6.3 $ (8.2) $ 433.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 income
(expense) - net (4.1) 0.3 (2.5) (3.8) (10.1)
Other income (expense) (3.5) (0.1) 0.4 (0.8) (4.0)
------------------------------------------------
Earnings (loss) before
income taxes and
non-controlling
interest $ 27.4 $ 2.0 $ (13.6) $ 0.8 $ 16.6
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non GAAP measure:
EBITDA is defined as operating earnings plus amortization of
property, plant, equipment and timber plus restructuring charge.
Twelve Month Segmented Information
(in millions of Canadian dollars - unaudited)
Pulp & Corporate Consol-
Lumber Panels paper & other idated
January 1, 2006 to
December 31, 2006
Sales
To external
customers $1,755.6 $ 475.1 $1,095.1 $ - $3,325.8
----------
----------
To other segments 83.4 7.6 - -
----------------------------------------
$1,839.0 $ 482.7 $1,095.1 $ -
----------------------------------------
----------------------------------------
EBITDA(1) $ 518.0 $ 52.8 $ 122.8 $ (11.6) $ 682.0
Amortization 117.6 39.7 91.0 3.6 251.9
Restructuring charge - - 37.6 - 37.6
--------------------------------------------------
Operating earnings
(loss) 400.4 13.1 (5.8) (15.2) 392.5
Interest income
(expense) - net 29.5 (6.3) (11.0) 0.2 12.4
Exchange loss on
long-term debt - - - (0.7) (0.7)
Gain on sale of power
purchase agreement 2.2 8.4 51.2 - 61.8
Gain on assets held
for sale 21.7 - - - 21.7
Gain on timber take-back 13.6 - - - 13.6
Other income (expense) 13.8 0.4 (0.2) 7.0 21.0
--------------------------------------------------
Earnings (loss) before
income taxes and
non-controlling
interest $ 481.2 $ 15.6 $ 34.2 $ (8.7) $ 522.3
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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 - net (28.0) (9.1) (10.1) (1.2) (48.4)
Exchange gain on
long-term debt - - - 13.9 13.9
Gain on timber take-back 3.3 - - - 3.3
Other income (expense) (0.4) (0.4) 0.8 (8.9) (8.9)
--------------------------------------------------
Earnings (loss) before
income taxes and
non-controlling
interest $ 180.8 $ 17.8 $ (39.6) $ (7.6) $ 151.4
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(1) Non GAAP measure:
EBITDA is defined as operating earnings plus amortization of
property, plant, equipment and timber plus restructuring charge.
Fourth Quarter Operating Highlights
October 1 to January 1 to
December 31 December 31
2006 2005 2006 2005
Lumber
Production (Mfbm) 910,384 1,011,107 4,185,929 4,212,267
Shipments (Mfbm) 1,000,146 1,004,135 4,275,374 4,189,626
Panels
MDF
Production (Msf - 3/4") 66,813 74,616 288,279 294,327
Shipments (Msf - 3/4") 55,362 74,246 280,979 289,845
Plywood
Production (Msf - 3/8") 171,512 175,510 728,257 721,130
Shipments (Msf - 3/8") 162,754 161,876 721,190 713,014
LVL
Production (cf) 654,755 737,093 3,000,203 3,178,813
Shipments (cf) 525,776 733,235 2,710,243 3,133,609
Pulp & Paper (tonnes)
Linerboard and Kraft paper
Production 117,058 113,399 459,215 449,176
Shipments 113,895 119,941 466,948 457,907
NBSK Pulp
Production 141,427 153,437 543,133 580,894
Shipments 135,786 149,412 564,593 570,306
BCTMP Pulp
Production 137,531 136,479 561,446 552,074
Shipments 107,669 164,915 571,529 549,861
Newsprint
Production 30,933 29,254 125,164 129,840
Shipments 29,292 29,098 123,008 128,510
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Notes to Interim Consolidated 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 annual financial statements for the
year ended December 31, 2006.
These interim consolidated financial statements follow the same
accounting policies and methods of their application as the
December 31, 2006 consolidated annual financial statements.
2. Change in accounting policy
Effective December 31, 2006 the Company adopted the new provision of
the Emerging Issue Committee pronouncement No.162 for share-based
compensation for directors, officers and employees eligible to retire
before the vesting date. Compensation expense is now recognized over
the earlier of the normal vesting period or the period from the grant
date to the date the employee becomes eligible to retire. Pursuant to
the transition provision, the company recorded an adjustment of
$1.5 million (net of tax of $0.8 million) to opening 2006 retained
earnings for the cumulative effect on prior years arising from this
change in accounting policy. The Company has not restated earnings of
any prior period as a result of adopting this accounting change as
the Company has concluded that such an impact is not material. The
fiscal 2006 income statement effect of adopting this change in policy
was an increase in earnings of $1.6 million (net of tax of
$0.8 million).
3. Assets held for sale
The Company sold its interest in two sawmills and the related timber
harvesting rights in the fourth quarter for net proceeds of
$79.2 million, resulting in a gain of $21.5 million. The Company also
sold road maintenance and logging operations located in Hinton,
Alberta for proceeds of $2.2 million, resulting in a gain of
$0.2 million.
The results of operations from these assets to the sale dates are
included in earnings. Effective January 1, 2006, amortization was
discontinued on the assets held for sale.
4. Other assets
December 31, December 31,
2006 2005
---------------------------------------------------------------------
Power purchase agreements - net $ 102.4 $ 28.7
Investments 10.7 15.8
Advances for timber and timber deposits 14.6 17.1
---------------------------------------------------------------------
$ 127.7 $ 61.6
---------------------------------------------------------------------
---------------------------------------------------------------------
Power purchase agreements
Effective January 1, 2001, the Company entered into two power
purchase agreements to acquire a portion of the electricity generated
from two power plants in Alberta, at substantially predetermined
prices. The Company sells the electricity acquired under the power
purchase agreement at prevailing market prices. At the same time, the
Company's Alberta operations purchase electricity at prevailing
market prices. Effective May 1, 2006, the Company sold its interest
in one of the agreements for proceeds of $68.2 million while
concurrently acquiring a greater interest in the remaining agreement
for $85.7 million. The transactions were accounted for as a sale and
purchase respectively, resulting in a gain of $61.8 million.
Following the transactions, the Company's share of electricity
generated was approximately 120 megawatts for 2006 and is expected to
be 115 megawatts per year for the period 2007 to 2020. The power
purchase agreements are amortized over the life of the agreement.
5. Operating loans
The Company has approximately $516.7 million in revolving lines of
credit available, none of which was drawn as at December 31, 2006.
Interest is payable at floating rates based on Prime, US base,
Bankers' Acceptances or LIBOR at the Company's option. The Company
has also issued $14.9 million under various letters of credit.
6. Other liabilities
December 31, December 31,
2006 2005
---------------------------------------------------------------------
Post-retirement obligations $ 54.0 $ 44.2
Timber damage deposits 14.6 10.9
Reforestation obligations - long-term 60.1 68.2
Other asset retirement obligations 8.8 9.7
---------------------------------------------------------------------
$ 137.5 $ 133.0
---------------------------------------------------------------------
---------------------------------------------------------------------
7. Shareholders' equity
December 31, 2006 December 31, 2005
Number of Number of
Shares Issued Amount Shares Issued Amount
---------------------------------------------------------------------
Common 37,886,731 $ 597.6 37,871,786 $ 597.0
Class B common 4,885,206 0.5 4,885,206 0.5
---------------------------------------------------------------------
Total Common 42,771,937 598.1 42,756,992 597.5
Retained earnings 1,641.3 1,268.8
Share purchase loans (0.3) (0.4)
---------------------------------------------------------------------
Shareholders' equity $ 2,239.1 $ 1,865.9
---------------------------------------------------------------------
---------------------------------------------------------------------
Common shares
For the three months ended December 31, 2006, the Company issued
5,006 Common shares for cash of $0.1 million (for the twelve months
ended December 31, 2006 the Company issued 14,945 Common shares for
cash of $0.6 million).
8. Restructuring charge
In the first quarter of 2006, the Company expensed $37.6 million
related to a restructuring of the pulp mill in Hinton, Alberta. Of
this amount, $34.8 million was for the writedown of property, plant,
equipment and timber with the balance for other restructuring costs.
9. Countervailing and antidumping duties
On October 12, 2006, the Softwood Lumber Agreement ("SLA 2006")
between the Canadian and U.S. governments came into effect. The terms
include replacing the then existing countervailing and antidumping
duties with a Canadian-imposed export tax, or a combination of a
lower tax and quota, both of which may vary based on the price of
lumber and the volume of shipments to the United States. The
agreement required both parties to withdraw all litigation and the
U.S. industry to waive their rights to file another case while the
agreement is in effect. The SLA 2006 required the U.S. government to
refund with interest, all duties collected. The Company's share of
the US $1 billion to be paid to the U.S. government under the SLA
2006 is funded by a special charge of 18.06% on duties and interest
up to October 12, 2006. The following amounts have been recorded in
the financial statements related to duties and the SLA 2006:
2006 2005
---------------------------------------------------------------------
Duties and interest included in accounts
receivable $ 2.7 -
---------------------------------------------------------------------
Special charge included in accounts
payable $ 122.4 -
---------------------------------------------------------------------
Duties expensed prior to the SLA 2006
coming into effect $ 61.4 $ 151.4
Duty refund recorded in income - net of
related special charge $ (386.8) -
---------------------------------------------------------------------
Duty (refund) expense $ (325.4) $ 151.4
---------------------------------------------------------------------
Interest income $ (50.0) -
---------------------------------------------------------------------
The special charge payable includes amounts payable related to pre-
2005 duties paid to International Paper under the terms of the
agreement under which the Company acquired Weldwood of Canada
Limited.
10. The Forestry Revitalization Plan ("FRP")
In 2003, the Government of B.C. ("Crown") enacted the FRP which
provided for changes to Crown forest policy and to the allocation of
Crown timber tenures to licensees. The harvesting rights associated
with replaceable tenures in excess of certain annual volumes were
reduced by 20% and assets, such as roads and bridges in the affected
areas, were also expropriated. The effect of the timber take-back was
a reduction of approximately 1,275,000 m3 of the Company's existing
allowable annual cut on replaceable tenures. The Company has
received $30.7 million for the tenure reduction and certain related
assets resulting in a gain of $13.6 million.
11. Income taxes
The Company's effective tax rate is as follows:
October 1 to October 1 to
December 31, 2006 December 31, 2005
Amount % Amount %
---------------------------------------------------------------------
Income taxes at statutory
rates $ (147.8) (34.1) $ (5.7) (34.9)
Large corporations tax - - (1.2) (7.2)
Non - taxable amounts 7.5 1.7 (6.2) (37.6)
Rate differentials between
jurisdictions and on
specified activities 4.5 1.0 3.4 20.7
Benefit of losses not
previously recognized 3.1 0.7 2.5 15.2
Other (4.6) (1.0) (0.7) (4.1)
---------------------------------------------------------------------
Income tax expense $ (137.3) (31.7) $ (7.9) (47.9)
---------------------------------------------------------------------
---------------------------------------------------------------------
January 1 to January 1 to
December 31, 2006 December 31, 2005
Amount % Amount %
---------------------------------------------------------------------
Income taxes at statutory
rates $ (178.1) (34.1) $ (52.3) (34.9)
Large corporations tax - - (3.5) (2.3)
Non - taxable amounts 20.6 4.0 (4.5) (3.0)
Rate differentials between
jurisdictions and on
specified activities 8.7 1.6 8.8 5.9
Reductions in statutory
income tax rates 33.1 6.4 9.5 6.4
Benefit of losses not
previously recognized 3.1 0.6 2.5 1.6
Other (11.3) (2.2) (2.8) (1.9)
---------------------------------------------------------------------
Income tax expense $ (123.9) (23.7) $ (42.3) (28.2)
---------------------------------------------------------------------
---------------------------------------------------------------------
12. Employee future benefits
The total benefit cost of the Company's defined benefit pension plans
was $10.6 million for the three months ended December 31, 2006
(three months ended December 31, 2005 - $3.7 million) and
$28.4 million for the twelve months ended December 31, 2006
(twelve months ended December 31, 2005 - $26.6 million).
13. 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.
October 1 to January 1 to
December 31 December 31
2006 2005 2006 2005
---------------------------------------------------------------------
Earnings $ 296.2 $ 8.7 $ 398.0 $ 107.7
---------------------------------------------------------------------
---------------------------------------------------------------------
Weighted average number
of shares (thousands)
Weighted average shares -
basic 42,757 42,731 42,751 42,731
Share options - treasury
stock method 356 478 376 556
---------------------------------------------------------------------
Weighted average shares -
diluted 43,113 43,209 43,127 43,287
---------------------------------------------------------------------
---------------------------------------------------------------------
Earnings per share
(dollars)
Basic $ 6.93 $ 0.20 $ 9.31 $ 2.52
Diluted $ 6.87 $ 0.20 $ 9.23 $ 2.49
---------------------------------------------------------------------
---------------------------------------------------------------------
-------------------------------------------------------------------------
For the use of CANADA NEWS WIRE SERVICE only
West Fraser shares trade on the Toronto Stock Exchange
under the symbol: "WFT"
%SEDAR: 00002660E