West Fraser ("WFT") Announces Third Quarter Results

Marketwired

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct. 29, 2012) - West Fraser Timber Co. Ltd. (WFT.TO) today reported earnings for the third quarter of 2012 of $55 million and earnings per share of $1.27 on sales of $772 million. For the first nine months of 2012, earnings were $65 million and earnings per share were $1.51, on sales of $2.2 billion.

These results compare with previous periods as follows:

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($ million except earnings 2012 2011

per share ("EPS")) YTD Q3 Q2 YTD Q3

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Sales 2,227 772 774 2,112 705

EBITDA(1) 203 102 82 208 66

Operating earnings 90 66 46 80 23

Earnings from continuing

operations 65 55 27 37 6

Adjusted earnings from continuing

operations(2) 85 55 41 37 2

Adjusted basic EPS from continuing

operations(2) 1.97 1.27 0.96 0.87 0.05

Earnings after discontinued

operations 65 55 27 66 37

Basic EPS after discontinued

operations ($) 1.51 1.27 0.63 1.56 0.87

Diluted EPS after discontinued

operations ($) 1.51 1.27 0.63 1.26 0.44

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1. In this News Release, reference is made to EBITDA (defined as operating

earnings plus amortization). Management of the Company believes that, in

addition to earnings, EBITDA is a useful performance indicator and is a

useful measure of cash available prior to debt service, capital expenditures

and income taxes. Reference is also made to Adjusted earnings from

continuing operations (calculated as set out in the table described in

footnote 2) and Adjusted basic EPS from continuing operations (collectively,

with EBITDA, "these measures"). None of these measures is a generally

accepted earnings measure under International Financial Reporting Standards

("IFRS") and none has a standardized meaning prescribed by IFRS. Investors

are cautioned that these measures should not be considered as an alternative

to earnings, earnings per share or cash flow, as determined in accordance

with IFRS. As there is no standardized method of calculating any of these

measures, our method of calculating each of them may differ from the methods

used by other entities and, accordingly, our use of any of these measures

may not be directly comparable to similarly titled measures used by other

entities.    

2. Refer to the table titled "Earnings Adjustments for Certain Non-

Operational Items" in Management's Discussion and Analysis of the third

quarter 2012 results for details of adjustments.    

Operational Results

In the quarter the lumber segment generated operating earnings of $37 million and EBITDA of $58 million. Lumber prices continued to reflect gradually improving U.S. demand combined with continuing steady demand for Canadian lumber from both Canada and Asia. Higher benchmark lumber prices triggered a reduction in duties charged on softwood lumber exported to the U.S. from B.C. and Alberta during the quarter.

The panels segment, which includes plywood, LVL and MDF, generated improved operating earnings in the quarter of $22 million and EBITDA of $25 million reflecting strong Canadian plywood prices.

Pulp and paper operations generated operating earnings of $17 million and EBITDA of $28 million, in line with the previous quarter. The average NBSK benchmark price for the quarter fell to US$853 per tonne from US$900 in the previous quarter but reduced costs resulted in a marginal improvement in operating earnings compared with the previous quarter.

Outlook

We expect results from our lumber and panels businesses to improve if U.S. housing construction continues to recover. Despite a continuing positive trend, the current recovery could be adversely affected by U.S. or global economic events.

NBSK pulp prices have seen a slight recovery recently but the current and anticipated supply imbalance is likely to lead to continuing soft markets.

Hank Ketcham, West Fraser's Chairman and Chief Executive Officer said, "We are encouraged by the signs of a recovery in the U.S. and we feel that we are well positioned to take advantage of the strengthening of the U.S. housing market."

Acquisition

West Fraser also announced that it has entered into an agreement to purchase the Sundance sawmilling and remanufacturing operations based in Edson, Alberta and related timber harvesting rights. The facilities have an operational capacity of approximately 150 million board feet and the annual allowable harvest is approximately 795,000 m3 of coniferous and 53,000 m3 of deciduous trees, including a temporary uplift of approximately 375,000 m3 until 2017.

"We are pleased to have an opportunity to grow our business in Alberta and we are excited to welcome the Sundance employees to the West Fraser team," said Hank Ketcham.

Completion of the transaction is scheduled for October 31, 2012.

The Company

West Fraser is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint. The Company has operations in western Canada and the southern United States.

Forward-Looking Statements

This news release contains historical information, descriptions of current circumstances and statements about potential future developments. The latter, which are forward-looking statements are included under the heading "Outlook", and are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions which are subject to various risks and uncertainties some of which are described under this heading. Actual outcomes and results will depend on a number of factors including those matters described in the 2011 annual Management's Discussion & Analysis under "Risks and Uncertainties", and may differ from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws.

Management's Discussion & Analysis

The Company's Management's Discussion & Analysis for the third quarter of 2012 is available on the Company's website: www.westfraser.com and on the System for Electronic Document Analysis and Retrieval at www.sedar.com under the Company's profile.

Conference Call

Investors are invited to listen to the quarterly conference call on Tuesday, October 30, 2012 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-800-952-6845 (toll- free North America). The call may also be accessed through West Fraser's website at www.westfraser.com.

West Fraser shares trade on the Toronto Stock Exchange under the symbol: "WFT".

West Fraser Timber Co. Ltd.    

Condensed Consolidated Balance Sheets

(in millions of Canadian dollars - unaudited)

September 30 December 31

2012 2011

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Assets

Current assets

Cash and short-term investments $ 164 $ 68

Receivables 255 266

Income taxes receivable - 4

Inventories (note 3) 417 398

Prepaid expenses 13 9

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849 745

Property, plant and equipment 935 936

Timber licences 478 490

Goodwill and other intangibles 330 336

Other assets 22 30

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$ 2,614 $ 2,537

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Liabilities

Current liabilities

Payables and accrued liabilities $ 308 $ 274

Income taxes payable 15 -

Reforestation and decommissioning 41 41

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364 315

Long-term debt (note 4) 296 306

Other liabilities (note 5) 418 289

Deferred income taxes 110 144

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1,188 1,054

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Shareholders' equity

Share capital 602 601

Accumulated other comprehensive earnings (12) (6)

Retained earnings 836 888

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1,426 1,483

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$ 2,614 $ 2,537

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West Fraser Timber Co. Ltd.    

Condensed Consolidated Statement of Changes in Shareholders' Equity

(in millions of Canadian dollars - unaudited)

July 1 to January 1 to

September 30 September 30

2012 2011 2012 2011

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Retained earnings

Balance - beginning of period $ 847 $ 953 $ 888 $ 943

Actuarial loss on employee

future benefits (net of tax) (60) (82) (99) (89)

Earnings for the period 55 37 65 66

Dividends (6) (6) (18) (18)

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Balance - end of period $ 836 $ 902 $ 836 $ 902

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Accumulated other comprehensive

earnings

Balance - beginning of period $ (5) $ (16) $ (6) $ (10)

Translation gain (loss) on

foreign operations (7) 17 (6) 11

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Balance - end of period $ (12) $ 1 $ (12) $ 1

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Share capital

Balance - beginning of period $ 601 $ 601 $ 601 $ 601

Issuance of Common shares 1 - 1 -

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Balance - end of period $ 602 $ 601 $ 602 $ 601

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Shareholders' equity $ 1,426 $ 1,504 $ 1,426 $ 1,504

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West Fraser Timber Co. Ltd.    

Condensed Consolidated Statements of Earnings and Comprehensive Earnings

(in millions of Canadian dollars - unaudited)

July 1 to January 1 to

September 30 September 30

2012 2011 2012 2011

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Sales $ 772 $ 705 $ 2,227 $ 2,112

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Costs and expenses

Cost of products sold 504 500 1,515 1,441

Freight and other distribution

costs 116 120 359 349

Export taxes 10 15 37 43

Amortization 36 43 113 128

Selling, general and

administration 30 24 82 78

Equity-based compensation 10 (20) 31 (7)

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706 682 2,137 2,032

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Operating earnings 66 23 90 80

Interest expense (4) (5) (14) (16)

Exchange gain (loss) on long-

term debt 10 (25) 10 (16)

Other income (expense) (note 7) (3) 17 (2) 13

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Earnings from continuing

operations before tax provision 69 10 84 61

Tax provision (note 8) (14) (4) (19) (24)

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Earnings from continuing

operations 55 6 65 37

Earnings from discontinued

operations (note 9) - 31 - 29

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Earnings $ 55 $ 37 $ 65 $ 66

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Earnings per share (dollars)

(note 10)

Basic from continuing operations$ 1.27 $ 0.14 $ 1.51 $ 0.87

Diluted from continuing

operations $ 1.27 $ (0.29) $ 1.51 $ 0.58

Basic after discontinued

operations $ 1.27 $ 0.87 $ 1.51 $ 1.56

Diluted after discontinued

operations $ 1.27 $ 0.44 $ 1.51 $ 1.26

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Comprehensive earnings

Earnings $ 55 $ 37 $ 65 $ 66

Other comprehensive earnings

Translation gain (loss) on

foreign operations (7) 17 (6) 11

Actuarial loss on employee

future benefits (note 6) (79) (108) (131) (118)

Tax recovery on actuarial loss

on employee future benefits 19 26 32 29

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Comprehensive earnings $ (12) $ (28) $ (40) $ (12)

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West Fraser Timber Co. Ltd.    

Condensed Consolidated Statements of Cash Flows

(in millions of Canadian dollars - unaudited)

July 1 to January 1 to

September 30 September 30

2012 2011 2012 2011

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Operating activities

Earnings from continuing

operations $ 55 $ 6 $ 65 $ 37

Adjustments

Amortization 36 43 113 128

Interest expense 4 5 14 16

Exchange loss (gain) on long-

term debt (10) 25 (10) 16

Tax provision 14 4 19 24

Income taxes received (paid) 5 (7) 3 (75)

Reforestation and

decommissioning obligations (7) (2) 1 6

Employee future benefits

expense 10 9 29 28

Contributions to employee

future benefit plans (11) (20) (25) (29)

Other (8) (7) (9) (7)

Changes in non-cash working

capital

Receivables 11 6 (24) (24)

Inventories (26) (1) (22) 16

Prepaid expenses 9 5 (4) (5)

Payables and accrued

liabilities 26 11 24 5

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Cash flows from operating

activities 108 77 174 136

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Financing activities

Repayment of operating loans - - - (15)

Interest paid (1) (1) (10) (11)

Dividends (6) (6) (18) (18)

Other 1 - 1 -

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Cash flows from financing

activities (6) (7) (27) (44)

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Investing activities

Additions to capital assets (31) (55) (106) (124)

Proceeds from Green

Transformation Program (note

11) 5 11 45 32

Proceeds from disposal of

capital assets 7 9 9 10

Other 1 - 1 1

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Cash flows from investing

activities (18) (35) (51) (81)

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Change in cash from continuing

operations 84 35 96 11

Change in cash from discontinued

operations (note 9) - 39 - 36

Cash - beginning of period 80 134 68 161

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Cash - end of period $ 164 $ 208 $ 164 $ 208

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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. ("the Company") is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint and is listed on the Toronto Stock Exchange under the symbol "WFT". Its executive office is located at 858 Beatty Street, Suite 501, Vancouver, British Columbia. The Company was formed by articles of amalgamation under the Business Corporations Act (British Columbia) and is registered in British Columbia, Canada.

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, 2011 annual financial statements. These condensed consolidated interim financial statements should be read in conjunction with the Company's 2011 annual financial statements.

3. Inventories

Inventories at September 30, 2012 were written down by $6 million (June 30, 2012 - $4 million; December 31, 2011 - $15 million; September 30, 2011 - $11 million) to reflect net realizable value being lower than cost.

4. Long-term debt and operating loans

Long-term debt

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September 30, December 31,

2012 2011

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US$300 million senior notes due October

2014; interest at 5.2% $ 295 $ 305

Note payable due in installments to 2020;

interest at 5.5% 2 2

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297 307

Less:

Deferred financing costs (1) (1)

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$ 296 $ 306

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Operating loans

The Company has $530 million in revolving lines of credit, of which nil was drawn as at September 30, 2012 (December 31, 2011 - nil). Related deferred financing costs of $5 million are included in other assets at September 30, 2012 (December 31, 2011 - $6 million). As at September 30, 2012, letters of credit in the amount of $43 million have been issued under these facilities.

5. Other liabilities

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September 30, December 31,

2012 2011

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Post-retirement $ 306 $ 178

Reforestation 70 70

Decommissioning 16 15

Other 26 26

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$ 418 $ 289

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6. Employee future benefits

The Company maintains defined benefit and defined contribution pension plans covering a majority of its employees. The defined benefit plans provide pension benefits based either on length of service or on earnings and length of service. Total pension expense for the defined benefit plans is $8 million for the three months ended September 30, 2012 (three months ended September 30, 2011 - $8 million) and $25 million for the nine months ended September 30, 2012 (nine months ended September 30, 2011 - $24 million). The Company also provides group life insurance, medical and extended health benefits to certain employee groups.

The status of the defined benefit pension plans and other benefit plans, in aggregate, is as follows:

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September 30, December 31,

2012 2011

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Projected benefit obligations $ (1,265) $ (1,098)

Fair value of plan assets 971 939

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Deficit $ (294) $ (159)

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Represented by

Pension surplus(1) $ 12 $ 19

Post-retirement obligations(2) (306) (178)

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$ (294) $ (159)

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1. Included in other assets.    

2. Included in other liabilities.    

The significant assumptions used to determine the period-end benefit obligations are as follows:

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September 30, June 30, December 31,

2012 2012 2011

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Discount rate on obligation 4.25% 4.75% 5.00%

Expected rate of return on plan

assets 6.50% 6.50% 6.50%

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 expected rate of return on plan assets generated an actuarial loss on employee future benefits, included in comprehensive earnings, as follows:

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July 1 to January 1 to

September 30 September 30

2012 2011 2012 2011

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Actuarial loss on employee

future benefits $ (79) $ (108) $ (131) $ (118)

Tax recovery on actuarial loss

on employee future benefits 19 26 32 29

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$ (60) $ (82) $ (99) $ (89)

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7. Other income (expense)

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July 1 to January 1 to

September 30 September 30

2012 2011 2012 2011

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Foreign exchange gain

(loss) - net $ (6) $ 12 $ (7) $ 6

Gain on asset sales 3 9 4 9

Other - net - (4) 1 (2)

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$ (3) $ 17 $ (2) $ 13

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8. Tax provision

The tax provision differs from the amount that would have resulted from applying the Canadian statutory income tax rates to earnings before income taxes as follows:

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July 1 to January 1 to

September 30 September 30

2012 2011 2012 2011

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Income tax expense at statutory

rate of 25.0% (2011 - 26.5%) $ (17) $ (3) $ (21) $ (16)

Non-taxable amounts - 1 (4) -

Rate differentials between

jurisdictions and on specified

activities (1) 3 (1) 5

Recognized (unrecognized) tax

assets 4 (6) 8 (11)

Other - 1 (1) (2)

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Tax provision $ (14) $ (4) $ (19) $ (24)

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9. Discontinued operation

The Company permanently closed its linerboard and kraft paper mill, located in Kitimat, B.C. in January 2010 and the windup was substantially completed in December 2011.

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.

July 1 to September 30

2012 2011

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From After From After

continuing discontinued continuing discontinued

operations operations operations operations

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Earnings

Basic $ 55 $ 55 $ 6 $ 37

Share option

expense

(recovery) 7 7 (18) (18)

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Diluted $ 62 $ 62 $ (12) $ 19

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Weighted

average number

of shares

(thousands)

Basic 42,860 42,860 42,841 42,841

Share options 559 559 328 328

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Diluted 43,419 43,419 43,169 43,169

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Earnings per

share

(dollars)

Basic $ 1.27 $ 1.27 $ 0.14 $ 0.87

Diluted $ 1.27 $ 1.27 $ (0.29) $ 0.44

January 1 to September 30

2012 2011

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From After From After

continuing discontinued continuing discontinued

operations operations operations operations

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Earnings

Basic $ 65 $ 65 $ 37 $ 66

Share option

expense

(recovery) 22 22 (9) (9)

Equity settled

share option

adjustment (3) (3) (3) (3)

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Diluted $ 84 $ 84 $ 25 $ 54

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Weighted

average number

of shares

(thousands)

Basic 42,855 42,855 42,839 42,839

Share options 453 453 480 480

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Diluted 43,308 43,308 43,319 43,319

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Earnings per

share

(dollars)

Basic $ 1.51 $ 1.51 $ 0.87 $ 1.56

Diluted $ 1.51 $ 1.51 $ 0.58 $ 1.26

11. Green Transformation Program

In 2009 the Government of Canada confirmed an allocation of credits totalling $88 million to the Company under the Pulp and Paper Green Transformation Program (the "GT Program"). The GT Program provides funding for capital projects that improve the energy efficiency or environmental performance of Canadian pulp and paper mills. The credits were fully utilized by the Company.

12. Segmented information

Corpo-

Pulp & rate Consoli-

Lumber Panels paper & other dated

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July 1, 2012 to

September 30, 2012

Sales at market prices

To external customers $ 473 $ 118 $ 181 $ - $ 772

To other segments 18 1 - - -----------

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$ 491 $ 119 $ 181 $ -

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EBITDA (1) $ 58 $ 25 $ 28 $ (9) $ 102

Amortization (21) (3) (11) (1) (36)

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Operating earnings 37 22 17 (10) 66

Interest expense (3) - (1) - (4)

Exchange gain on long-

term debt - - - 10 10

Other income (expense) (4) - (3) 4 (3)

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Earnings from continuing

operations

before tax provision $ 30 $ 22 $ 13 $ 4 $ 69

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1. Non GAAP measure:

EBITDA is defined as operating earnings plus amortization.

Corpo-

Pulp & rate Consoli-

Lumber Panels paper & other dated

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July 1, 2011 to

September 30, 2011

Sales at market prices

To external customers $ 405 $ 94 $ 206 $ - $ 705

To other segments 24 3 - - -----------

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$ 429 $ 97 $ 206 $ -

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EBITDA (1) $ 6 $ 1 $ 37 $ 22 $ 66

Amortization (22) (3) (17) (1) (43)

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Operating earnings (16) (2) 20 21 23

Interest expense (2) - (3) - (5)

Exchange loss on long-

term debt - - - (25) (25)

Other income (expense) 11 - 10 (4) 17

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Earnings from continuing

operations

before tax provision $ (7)$ (2)$ 27 $ (8) $ 10

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January 1, 2012 to

September 30, 2012

Sales at market prices

To external customers $ 1,306 $ 333 $ 588 $ - $ 2,227

To other segments 54 5 - - -----------

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$ 1,360 $ 338 $ 588 $ -

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EBITDA (1) $ 105 $ 43 $ 85 $ (30)$ 203

Amortization (63) (11) (37) (2) (113)

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Operating earnings 42 32 48 (32) 90

Interest expense (8) (2) (4) - (14)

Exchange gain on long-

term debt - - - 10 10

Other income (expense) (3) - (3) 4 (2)

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Earnings from continuing

operations

before tax provision $ 31 $ 30 $ 41 $ (18)$ 84

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1. Non GAAP measure:

EBITDA is defined as operating earnings plus amortization.    

Corpo-

Pulp & rate Consoli-

Lumber Panels paper & other dated

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January 1, 2011 to

September 30, 2011

Sales at market prices

To external customers $ 1,209 $ 277 $ 626 $ - $ 2,112

To other segments 69 7 - - -----------

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$ 1,278 $ 284 $ 626 $ -

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EBITDA (1) $ 73 $ 4 $ 122 $ 9 $ 208

Amortization (63) (11) (52) (2) (128)

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Operating earnings 10 (7) 70 7 80

Interest expense (9) (2) (5) - (16)

Exchange loss on long-

term debt - - - (16) (16)

Other income (expense) 8 - 9 (4) 13

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Earnings from continuing

operations

before tax provision $ 9 $ (9)$ 74 $ (13)$ 61

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1. Non GAAP measure:

EBITDA is defined as operating earnings plus amortization.    

The geographic distribution of external sales is as follows:

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July 1 to September 30 January 1 to September 30

2012 2011 2012 2011

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United States $ 374 $ 326 $ 1,067 $ 986

Canada 204 166 553 495

China 122 125 374 360

Other Asia 47 55 154 176

Other 25 33 79 95

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$ 772 $ 705 $ 2,227 $ 2,112

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Sales distribution is based on the location of product delivery by the Company.

Contact:

West Fraser Timber Co. Ltd.

Larry Hughes

Vice-President, Finance and Chief Financial Officer

(604) 895-2700

West Fraser Timber Co. Ltd.

Rodger Hutchinson

Vice-President, Corporate Controller

(604) 895-2700

(604) 681-6061 (FAX)

www.westfraser.com

Contact:


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