VANCOUVER, Oct. 21, 2019 /CNW/ - West Fraser Timber Co.
Ltd. reports third quarter 2019 results:
Third Quarter Highlights
- Completed closure of Chasm, British
Columbia ("B.C.") lumber facility sawmill and completed the
shipment of all site inventories.
- Implemented variable production schedule at remaining
British Columbia lumber
mills.
- U.S. South lumber production improved by 7% over second
quarter.
- NBSK production up 14% over prior quarter.
- Cash flow from operations of $116
million for the quarter.
- Lumber shipments exceed production by 179 million board feet
year to date.
- Quarter ending net debt to capital ratio of 28% and available
liquidity of $580 million.
Results Compared to Previous Periods
($ millions except
earnings per share ("EPS"))
|
Q3-19
|
Q2-19
|
YTD-19
|
Q3-18
|
YTD-18
|
Sales
|
1,190
|
1,317
|
3,748
|
1,646
|
4,844
|
Adjusted
EBITDA1
|
55
|
56
|
221
|
446
|
1,418
|
Operating
earnings
|
(54)
|
(84)
|
(128)
|
328
|
1,057
|
Earnings
|
(45)
|
(58)
|
238
|
238
|
781
|
Basic EPS
($)
|
(0.65)
|
(0.85)
|
(1.57)
|
3.25
|
10.30
|
Adjusted
Earnings1
|
(15)
|
(17)
|
(10)
|
275
|
901
|
Adjusted basic EPS
($)1
|
(0.22)
|
(0.25)
|
(0.15)
|
3.76
|
11.88
|
|
|
1.
|
In this News Release,
reference is made to Adjusted EBITDA, Adjusted earnings and
Adjusted basic EPS (collectively "these measures"). We believe
that, in addition to earnings, these measures are useful
performance indicators. None of these measures is a generally
accepted earnings measure under International Financial Reporting
Standards ("IFRS") and none has a standardized meaning prescribed
by IFRS. Investors are cautioned that these measures should
not be considered as an alternative to earnings, EPS or cash flow,
as determined in accordance with IFRS. As there is no
standardized method of calculating any of these measures, our
method of calculating each of them may differ from the methods used
by other entities and, accordingly, our use of any of these
measures may not be directly comparable to similarly titled
measures used by other entities. Refer to the tables in the
section titled "Non-IFRS Measures" in our third quarter 2019
Management's Discussion & Analysis for details of these
adjustments.
|
Recent Developments
In the third quarter we completed the permanent closure of our
Chasm, B.C. lumber facility and the elimination of the third
production shift at our 100 Mile House, B.C. facility. We also
implemented a variable production schedule at our remaining B.C.
mills given the difficult lumber market conditions and persistently
high purchase log costs.
Operational Results
Lumber production was down 3% over the second quarter as the
Chasm closure, 100 Mile House shift reduction and variable
operating schedules in B.C. were partially offset by increased
production at our U.S. South mills. Reduced schedules and
downtime in Alberta from temporary
weather‑related log shortages were also a factor in reduced SPF
production. Lumber shipments exceeded production by
approximately 48 MMfbm in the quarter due primarily to the Chasm
closure and 100 Mile House shift reduction. Adjusted EBITDA
for the lumber segment was $39
million, consistent with the previous quarter. For the
year lumber shipments have exceeded production by 179 million board
feet as inventories are aligned to shift reductions and mill
closures.
Although plywood production and shipments were slightly off the
prior quarter, panels segment Adjusted EBITDA increased to
$13 million from $10 million in the prior quarter.
NBSK production was 14% higher than the prior quarter as we
recovered from our major maintenance shut downs at both our NBSK
mills that occurred in the first half of the year. In
spite of higher NBSK shipments, softer pulp pricing reduced
Adjusted EBITDA for the pulp and paper segment to $3 million from $7
million for the quarter.
We generated cash flow from operations of $116 million in the quarter and net debt
increased only modestly by $41
million all while maintaining significant available
liquidity of $580 million.
Capital investment in the quarter was $133
million, most of which was committed to the modernization of
our U.S. South operating platform.
Outlook
Ray Ferris, CEO of West Fraser
stated, "Despite difficult forest product markets over the past
several quarters, we remain committed to executing our
strategy. We have taken significant action to right size our
B.C. lumber operations over the past year. We have also
completed a number of long lead time capital projects in the U.S.
South over the last two quarters. We are beginning to see the
benefits of these investments and remain convinced of additional
potential in our U.S. South operations. The combination of
grade and recovery improvements, reduced operating costs, increased
uptime and improvements to working conditions will have a long-term
impact on our returns."
Management's Discussion & Analysis ("MD&A")
The Company's MD&A is available on the Company's
website: www.westfraser.com and on the System for Electronic
Document Analysis and Retrieval at www.sedar.com under the
Company's profile.
The Company
West Fraser is a diversified wood products company producing
lumber, LVL, MDF, plywood, pulp, newsprint, wood chips, other
residuals and energy with facilities in western Canada and the southern United States.
Forward‑Looking Statements
This Report contains historical information, descriptions of
current circumstances and statements about potential future
developments. The latter, which are forward‑looking
statements, are presented to provide reasonable guidance to the
reader but their accuracy depends on a number of assumptions and is
subject to various risks and uncertainties. Forward-looking
statements are included under the heading "Recent Developments" and
"Outlook". Actual outcomes and results will depend on a
number of factors that could affect the ability of the Company to
execute its business plans, including those matters described in
the 2018 annual Management's Discussion & Analysis under "Risks
and Uncertainties", and may differ materially from those
anticipated or projected. Accordingly, readers should
exercise caution in relying upon forward‑looking statements and the
Company undertakes no obligation to publicly revise them to reflect
subsequent events or circumstances, except as required by
applicable securities laws.
Conference Call
Investors are invited to listen to the quarterly conference call
on Tuesday, October 22, 2019 at
8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing
1-888-390-0546 (toll‑ free North
America). The call and an earnings presentation 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, except where indicated -
unaudited)
|
|
|
|
|
September
30
|
December
31
|
|
2019
|
2018
|
Assets
|
|
|
Current
assets
|
|
|
Cash and short-term
investments
|
$
|
17
|
$
|
160
|
Receivables
|
294
|
332
|
Income taxes
receivable
|
143
|
48
|
Inventories (note
5)
|
658
|
791
|
Prepaid
expenses
|
18
|
14
|
|
1,130
|
1,345
|
Property, plant
and equipment
|
2,183
|
2,056
|
Timber
licences
|
498
|
513
|
Goodwill and other
intangibles
|
740
|
767
|
Export duty
deposits (note 15)
|
77
|
75
|
Other
assets
|
37
|
32
|
Deferred income
tax assets
|
3
|
3
|
|
$
|
4,668
|
$
|
4,791
|
|
|
|
Liabilities
|
|
|
Current
liabilities
|
|
|
Cheques issued in
excess of funds on deposit
|
$
|
4
|
$
|
13
|
Operating loans (note
6)
|
312
|
61
|
Payables and accrued
liabilities
|
393
|
448
|
Income taxes
payable
|
-
|
34
|
Reforestation and
decommissioning obligations
|
41
|
39
|
|
750
|
595
|
Long-term debt
(note 6)
|
672
|
692
|
Other
liabilities (note 7)
|
412
|
316
|
Deferred income
tax liabilities
|
253
|
292
|
|
2,087
|
1,895
|
|
|
|
Shareholders'
Equity
|
|
|
Share
capital
|
483
|
491
|
Accumulated other
comprehensive earnings
|
146
|
170
|
Retained
earnings
|
1,952
|
2,235
|
|
2,581
|
2,896
|
|
$
|
4,668
|
$
|
4,791
|
Number of Common
shares and Class B Common shares outstanding at October 21, 2019
was 68,659,303.
|
West Fraser Timber
Co. Ltd.
|
Condensed
Consolidated Statements of Changes in Shareholders'
Equity
|
(in millions of
Canadian dollars, except where indicated -
unaudited)
|
|
|
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
Share
capital
|
|
|
|
|
Balance - beginning
of period
|
$
|
483
|
$
|
528
|
$
|
491
|
$
|
549
|
Issuance of Common
shares
|
-
|
-
|
1
|
-
|
Repurchase of Common
shares
|
-
|
(25)
|
(9)
|
(46)
|
Balance - end of
period
|
$
|
483
|
$
|
503
|
$
|
483
|
$
|
503
|
|
|
|
|
|
Accumulated other
comprehensive earnings
|
|
|
|
|
Balance - beginning
of period
|
$
|
137
|
$
|
145
|
$
|
170
|
$
|
108
|
Translation gain
(loss) on foreign operations
|
9
|
(16)
|
(24)
|
21
|
Balance - end of
period
|
$
|
146
|
$
|
129
|
$
|
146
|
$
|
129
|
|
|
|
|
|
Retained
earnings
|
|
|
|
|
Balance - beginning
of period
|
$
|
2,001
|
$
|
2,361
|
$
|
2,235
|
$
|
2,069
|
Actuarial gain (loss)
on post-retirement benefits
|
10
|
45
|
(62)
|
52
|
Repurchase of Common
shares
|
-
|
(276)
|
(72)
|
(511)
|
Earnings for the
period
|
(45)
|
238
|
(108)
|
781
|
Dividends
|
(14)
|
(14)
|
(41)
|
(37)
|
Balance - end of
period
|
$
|
1,952
|
$
|
2,354
|
$
|
1,952
|
$
|
2,354
|
|
|
|
|
|
Shareholders'
Equity
|
$
|
2,581
|
$
|
2,986
|
$
|
2,581
|
$
|
2,986
|
West Fraser Timber
Co. Ltd.
|
|
|
|
|
Condensed
Consolidated Statements of Earnings and Comprehensive
Earnings
|
(in millions of
Canadian dollars, except where indicated -
unaudited)
|
|
|
|
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
Sales
|
$
|
1,190
|
$
|
1,646
|
$
|
3,748
|
$
|
4,844
|
|
|
|
|
|
Costs and
expenses
|
|
|
|
|
Cost of products
sold
|
906
|
943
|
2,822
|
2,700
|
Freight and other
distribution costs
|
181
|
201
|
547
|
558
|
Export duties (note
15)
|
44
|
54
|
127
|
165
|
Amortization
|
65
|
64
|
193
|
188
|
Selling, general and
administration
|
48
|
56
|
158
|
168
|
Equity-based
compensation
|
1
|
-
|
4
|
8
|
Restructuring and
impairment charges (note 10)
|
(1)
|
-
|
25
|
-
|
|
1,244
|
1,318
|
3,876
|
3,787
|
Operating
earnings
|
(54)
|
328
|
(128)
|
1,057
|
Finance
expense
|
(12)
|
(10)
|
(36)
|
(28)
|
Other (note
11)
|
2
|
(4)
|
(9)
|
15
|
Earnings before
tax
|
(64)
|
314
|
(173)
|
1,044
|
Tax recovery
(provision) (note 12)
|
19
|
(76)
|
65
|
(263)
|
Earnings
|
$
|
(45)
|
$
|
238
|
$
|
(108)
|
$
|
781
|
|
|
|
|
|
Earnings per
share (dollars) (note 13)
|
|
|
|
|
Basic
|
$
|
(0.65)
|
$
|
3.25
|
$
|
(1.57)
|
$
|
10.30
|
Diluted
|
$
|
(0.73)
|
$
|
2.99
|
$
|
(1.77)
|
$
|
10.16
|
|
|
|
|
|
Comprehensive
earnings
|
|
|
|
|
Earnings
|
$
|
(45)
|
$
|
238
|
$
|
(108)
|
$
|
781
|
Other
comprehensive earnings
|
|
|
|
|
Translation gain
(loss) on foreign operations
|
9
|
(16)
|
(24)
|
21
|
Actuarial gain (loss)
on post-retirement benefits (note 8)
|
10
|
45
|
(62)
|
52
|
Comprehensive
earnings
|
$
|
(26)
|
$
|
267
|
$
|
(194)
|
$
|
854
|
West Fraser Timber
Co. Ltd.
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
(in millions of
Canadian dollars, except where indicated -
unaudited)
|
|
|
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
Cash provided by
(used in)
|
2019
|
2018
|
2019
|
2018
|
Operating
activities
|
|
|
|
|
Earnings
|
$
|
(45)
|
$
|
238
|
$
|
(108)
|
$
|
781
|
Adjustments
|
|
|
|
|
Amortization
|
65
|
64
|
193
|
188
|
Restructuring and
impairment charges
|
(1)
|
-
|
25
|
-
|
Restructuring charges
paid
|
(6)
|
-
|
(6)
|
-
|
Finance
expense
|
12
|
10
|
36
|
28
|
Foreign exchange loss
(gain) on long-term financing
|
(1)
|
2
|
2
|
(4)
|
Foreign exchange loss
(gain) on export duty deposits
|
(1)
|
1
|
2
|
(1)
|
Export duty
deposits
|
2
|
(14)
|
(2)
|
(31)
|
Post-retirement
expense
|
19
|
20
|
60
|
60
|
Contributions to
post-retirement benefit plans
|
(23)
|
(28)
|
(61)
|
(79)
|
Tax provision
(recovery)
|
(19)
|
76
|
(65)
|
263
|
Income taxes received
(paid)
|
10
|
(65)
|
(85)
|
(275)
|
Other
|
(14)
|
(12)
|
(2)
|
(5)
|
Changes in non-cash
working capital
|
|
|
|
|
Receivables
|
55
|
89
|
32
|
(33)
|
Inventories
|
67
|
15
|
127
|
(28)
|
Prepaid
expenses
|
12
|
10
|
(4)
|
(10)
|
Payables and accrued
liabilities
|
(16)
|
(7)
|
(69)
|
43
|
|
116
|
399
|
75
|
897
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
Proceeds from
(repayment of) operating loans
|
68
|
-
|
253
|
-
|
Finance expense
paid
|
(6)
|
(5)
|
(27)
|
(20)
|
Repurchase of Common
shares
|
-
|
(301)
|
(81)
|
(557)
|
Dividends and
other
|
(17)
|
-
|
(46)
|
(23)
|
|
45
|
(306)
|
99
|
(600)
|
|
|
|
|
|
Investing
activities
|
|
|
|
|
Additions to capital
assets
|
(133)
|
(111)
|
(323)
|
(284)
|
Government
assistance
|
-
|
5
|
5
|
5
|
Proceeds from
disposal of capital assets
|
5
|
(1)
|
12
|
-
|
Other
|
1
|
(2)
|
2
|
1
|
|
(127)
|
(109)
|
(304)
|
(278)
|
|
|
|
|
|
Change in
cash
|
34
|
(16)
|
(130)
|
19
|
Foreign exchange
effect on cash
|
(1)
|
(4)
|
(4)
|
5
|
Cash - beginning
of period
|
(20)
|
302
|
147
|
258
|
Cash - end of
period
|
$
|
13
|
$
|
282
|
$
|
13
|
$
|
282
|
|
|
|
|
|
Cash consists
of
|
|
|
|
|
Cash and short-term
investments
|
|
|
$
|
17
|
$
|
282
|
Cheques issued in
excess of funds on deposit
|
|
|
(4)
|
-
|
|
|
|
$
|
13
|
$
|
282
|
West Fraser Timber Co. Ltd.
Notes to Condensed
Consolidated Interim Financial Statements
(figures are in millions of dollars, except where indicated -
unaudited)
1. Nature of operations
West Fraser Timber Co. Ltd. ("West Fraser", "we", "us" or "our")
is a diversified wood products company producing lumber, LVL, MDF,
plywood, pulp, newsprint, wood chips, other residuals and energy
with facilities in western Canada
and the southern United States. Our executive office is
located at 858 Beatty Street, Suite 501, Vancouver, British Columbia. West Fraser
was formed by articles of amalgamation under the Business
Corporations Act (British
Columbia) and is registered in British Columbia, Canada. Our Common
shares are listed for trading on the Toronto Stock Exchange under
the symbol WFT.
2. Basis of presentation and statement of
compliance
These condensed consolidated interim financial statements have
been prepared in accordance with International Accounting
Standard 34, Interim Financial Reporting as issued by
the International Accounting Standards Board and use the same
accounting policies and methods of their application as the
December 31, 2018 annual audited consolidated financial
statements. These condensed consolidated interim financial
statements should be read in conjunction with our 2018 annual
audited consolidated financial statements.
3. Changes in accounting standards
IFRS 16 – Leases
We have adopted IFRS 16 effective January
1, 2019 using the modified retrospective approach,
accordingly the information presented for 2018 has not been
restated. The new standard replaces IAS 17 - Leases
and the related interpretations. IFRS 16 provides a single
lessee accounting model and requires lessees to recognize assets
and liabilities for all major leases.
On initial application, we elected to record right-of-use assets
equal to the corresponding present value of the remaining lease
liability. Right-of-use assets and lease obligations of
$14 million were recorded as of
January 1, 2019 for leases related to
some of our office spaces and mobile
equipment.
During the nine months ended September
30, 2019, we recorded a $3
million amortization expense on the right-of-use assets and
we made a $2 million payment on the
lease obligations.
4. Seasonality of operations
Our operating results are subject to seasonal fluctuations that
impact quarter-to-quarter operating results. Log availability
has a direct impact on our operations. We build up log
inventory in Canada during the
winter to sustain our lumber and plywood production during the
second quarter when logging is curtailed due to wet land
conditions. Extreme weather conditions, wildfires in
Western Canada and hurricanes in
the U.S. South may periodically affect operations including
logging, manufacturing and transportation. Consequently,
interim operating results may not proportionately reflect operating
results for a full year.
5. Inventories
Inventories at September 30, 2019 were written down by
$46 million (June 30, 2019 -
$47 million; December 31, 2018 -
$30 million; September 30, 2018 - $14
million) to reflect net realizable value being lower than
cost.
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
Manufactured
products
|
$
|
333
|
$
|
421
|
Logs and other raw
materials
|
|
162
|
|
218
|
Processing materials
and supplies
|
|
163
|
|
152
|
|
$
|
658
|
$
|
791
|
6. Operating loans and long-term debt
Operating loans
Our revolving lines of credit consist of a $850 million committed revolving credit facility
which matures August 2024, a
$33 million (US$25 million) demand line of credit dedicated to
our U.S. operations and an $8 million
demand line of credit dedicated to our jointly-owned newsprint
operation. In addition, we have demand lines of credit
totalling $90 million dedicated to
letters of credit, of which US$15
million is dedicated to our U.S. operations.
At September 30, 2019,
$312 million (net of deferred
financing costs of $3 million) was
drawn under our revolving credit facility. Letters of credit
in the amount of $62 million were
also supported by our facilities.
Interest on the facilities is payable at floating rates based on
Prime, Base Rate Advances, Bankers' Acceptances or LIBOR Advances
at our option.
All debt is unsecured except the $8
million joint operation demand line of credit, which is
secured by that joint operation's current assets.
Long-term debt
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
US$300 million senior
notes due October 2024;
|
|
|
|
|
interest at
4.35%
|
$
|
397
|
$
|
409
|
US$200 million term
loan due August 2024;
|
|
|
|
|
floating interest
rate
|
|
265
|
|
273
|
US$8 million note
payable due October 2020;
|
|
|
|
|
interest at
2%
|
|
10
|
|
10
|
Notes
payable
|
|
3
|
|
4
|
|
|
675
|
|
696
|
Deferred financing
costs
|
|
(3)
|
|
(4)
|
|
$
|
672
|
$
|
692
|
On March 15, 2019, we entered into
a US$100 million floating to fixed
interest rate swap agreement. The agreement is accounted for
as a derivative. The gain or losses related to changes in the
fair value are included in other income on our consolidated
statements of earnings. For the nine months ended
September 30, 2019, a $4 million loss associated with the agreement was
recorded in other income.
The fair value of the long-term debt at September 30, 2019 was $688 million (December 31,
2018 - $689 million) based on
rates available to us at the balance sheet date for long-term debt
with similar terms and remaining maturities.
7. Other liabilities
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
Post-retirement (note
8)
|
$
|
277
|
$
|
189
|
Reforestation
|
|
65
|
|
76
|
Decommissioning
|
|
32
|
|
29
|
Lease (note
3)
|
|
10
|
|
-
|
Other
|
|
28
|
|
22
|
|
$
|
412
|
$
|
316
|
8. Post-retirement benefits
We maintain defined benefit and defined contribution pension
plans covering a majority of our employees. The defined
benefit plans generally do not require employee contributions and
provide a guaranteed level of pension payable for life based either
on length of service or on earnings and length of service, and in
most cases do not increase after commencement of retirement.
We also provide group life insurance, medical and extended health
benefits to certain employee groups.
On June 17, 2019, we announced our
intention to permanently close our Chasm, British Columbia lumber mill. This
resulted in the curtailment of the defined benefit pension plan for
the Chasm hourly employees. Included in restructuring and
impairment charges is a $4 million
curtailment gain related to the reduction in the post-retirement
obligation.
The status of the defined benefit pension plans and other
retirement benefit plans, in aggregate, is as follows:
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
Projected benefit
obligations
|
$
|
(1,618)
|
$
|
(1,381)
|
Fair value of plan
assets
|
|
1,359
|
|
1,204
|
|
$
|
(259)
|
$
|
(177)
|
Represented
by
|
|
|
|
|
Post-retirement
assets
|
$
|
18
|
$
|
12
|
Post-retirement
liabilities (note 7)
|
|
(277)
|
|
(189)
|
|
$
|
(259)
|
$
|
(177)
|
The significant actuarial assumptions used to determine our
balance sheet date post-retirement assets and liabilities are as
follows:
|
|
|
|
|
September 30,
2019
|
June 30,
2019
|
December 31,
2018
|
Discount
rate
|
3.00%
|
3.00%
|
3.75%
|
Future compensation
rate increase
|
3.50%
|
3.50%
|
3.50%
|
For the nine months ended September 30,
2019, we recognized in other comprehensive earnings a
$82 million loss (before tax) to
reflect the changes in the valuation of the post-retirement benefit
plans. The loss reflects the decrease in the discount rate
used to calculate plan liabilities from the beginning of the year,
partially offset by the return on plan assets.
The actuarial gain (loss) on post-retirement benefits, included
in other comprehensive earnings, is as follows:
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Actuarial gain
(loss)
|
$
|
13
|
$
|
62
|
$
|
(82)
|
$
|
72
|
Tax recovery
(provision)
|
|
(3)
|
|
(17)
|
|
20
|
|
(20)
|
|
$
|
10
|
$
|
45
|
$
|
(62)
|
$
|
52
|
9. Share Capital
On September 17, 2019 our Board of Directors authorized the
renewal of our normal course issuer bid ("NCIB") program to
repurchase for cancellation up to 3,318,823 Common shares,
representing approximately 5% of the issued and outstanding Common
shares. The NCIB will expire on September 19,
2020. Our previous NCIB expired on September 18,
2019.
During the nine months ended September
30, 2019, we repurchased 1,178,400 Common shares under our
normal course issuer bid at an average price of $68.30 per share for a cost of approximately
$81 million.
10. Restructuring and impairment charges
On June 17, 2019, we announced the
permanent closure of our Chasm, British
Columbia lumber mill. During the nine months ended
September 30, 2019, we recognized
charges of $25 million for the
restructuring and impairment costs as follows:
|
|
|
January 1 to
September 30, 2019
|
Severance
|
$
|
8
|
Lease obligation and
other commitments
|
|
3
|
Decommissioning
obligation
|
|
2
|
Restructuring
charges
|
$
|
13
|
|
|
|
Asset
impairment
|
|
16
|
Curtailment gain on
post-retirement obligation
|
|
(4)
|
Total restructuring
and impairment charges
|
$
|
25
|
A reconciliation of restructuring charges included in payables
and accrued liabilities is as follows:
|
|
|
January 1 to
September 30, 2019
|
Beginning of
period
|
$
|
-
|
Restructuring charges
recognized
|
|
14
|
Restructuring charges
paid
|
|
(6)
|
Change in
estimate
|
|
(1)
|
End of
period
|
$
|
7
|
11. Other
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Foreign exchange gain
(loss) on working
|
|
|
|
|
|
|
|
|
capital
|
$
|
1
|
$
|
(5)
|
$
|
(4)
|
$
|
4
|
Foreign exchange gain
(loss) on
|
|
|
|
|
|
|
|
|
intercompany
financing1
|
|
9
|
|
(13)
|
|
(22)
|
|
24
|
Foreign exchange gain
(loss) on long-term
|
|
|
|
|
|
|
|
|
debt
|
|
(8)
|
|
11
|
|
20
|
|
(20)
|
Foreign exchange gain
(loss) on export duty
|
|
|
|
|
|
|
|
|
deposits
receivable
|
|
1
|
|
(1)
|
|
(2)
|
|
1
|
Other
|
|
(1)
|
|
4
|
|
(1)
|
|
6
|
|
$
|
2
|
$
|
(4)
|
$
|
(9)
|
$
|
15
|
1.
|
Relates to US$550
million (2018 - US$600 million from January to mid - December and
US$550 million thereafter) of financing provided to our U.S.
operations. IAS 21 requires that the exchange gain or loss be
recognized through earnings as the financing is not considered part
of our permanent investment in our U.S. subsidiaries. The balance
sheet amounts and related financing expense are eliminated in these
consolidated financial statements.
|
12. Tax provision
The tax provision differs from the amount that would have
resulted from applying the British
Columbia statutory income tax rate to earnings before tax as
follows:
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Income tax recovery
(expense) at statutory rate of 27%
|
$
|
17
|
$
|
(85)
|
$
|
47
|
$
|
(282)
|
Non-taxable
amounts
|
|
2
|
|
4
|
|
3
|
|
-
|
Rate differentials
between jurisdictions and on specified activities
|
|
-
|
|
6
|
|
(2)
|
|
18
|
Decrease in Alberta
provincial tax rate1
|
|
-
|
|
-
|
|
17
|
|
-
|
Other
|
|
-
|
|
(1)
|
|
-
|
|
1
|
Tax recovery
(provision)
|
$
|
19
|
$
|
(76)
|
$
|
65
|
$
|
(263)
|
|
|
1.
|
Effective May 28,
2019, the government of Alberta enacted a change in the provincial
tax rate from 12% to 8% over the next four years. This new tax rate
increased our tax recovery by $17 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 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
|
January 1 to
September 30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Earnings
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(45)
|
$
|
238
|
$
|
(108)
|
$
|
781
|
Share option
recovery
|
|
(5)
|
|
(17)
|
|
(11)
|
|
-
|
Equity-settled share
option adjustment
|
|
-
|
|
-
|
|
(3)
|
|
(3)
|
Diluted
|
$
|
(50)
|
$
|
221
|
$
|
(122)
|
$
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of shares (thousands)
|
|
|
|
|
|
|
|
|
Basic
|
|
68,657
|
|
73,080
|
|
68,956
|
|
75,820
|
Share
options
|
|
186
|
|
653
|
|
306
|
|
723
|
Diluted
|
|
68,843
|
|
73,733
|
|
69,262
|
|
76,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per
share (dollars)
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.65)
|
$
|
3.25
|
$
|
(1.57)
|
$
|
10.30
|
Diluted
|
$
|
(0.73)
|
$
|
2.99
|
$
|
(1.77)
|
$
|
10.16
|
14. Segmented information
|
|
|
Pulp
&
|
Corporate
|
|
|
Lumber
|
Panels
|
paper
|
&
other
|
Total
|
July 1, 2019 to
September 30, 2019
|
|
|
|
|
|
Sales
|
|
|
|
|
|
To external
customers
|
$
|
820
|
$
|
146
|
$
|
224
|
$
|
-
|
$
|
1,190
|
To other
segments
|
28
|
3
|
-
|
-
|
|
|
$
|
848
|
$
|
149
|
$
|
224
|
$
|
-
|
|
|
|
|
|
|
|
Operating earnings
before amortization,
restructuring and impairment charges
|
$
|
(5)
|
$
|
13
|
$
|
3
|
$
|
(1)
|
$
|
10
|
Amortization
|
(49)
|
(4)
|
(11)
|
(1)
|
(65)
|
Restructuring and
impairment charges
|
1
|
-
|
-
|
-
|
1
|
Operating
earnings
|
(53)
|
9
|
(8)
|
(2)
|
(54)
|
Finance
expense
|
(9)
|
-
|
(2)
|
(1)
|
(12)
|
Other
|
3
|
-
|
1
|
(2)
|
2
|
Earnings before
tax
|
$
|
(59)
|
$
|
9
|
$
|
(9)
|
$
|
(5)
|
$
|
(64)
|
|
|
|
|
|
|
July 1, 2018 to
September 30, 2018
|
|
|
|
|
|
Sales
|
|
|
|
|
|
To external
customers
|
$
|
1,167
|
$
|
167
|
$
|
312
|
$
|
-
|
$
|
1,646
|
To other
segments
|
44
|
3
|
-
|
-
|
|
|
$
|
1,211
|
$
|
170
|
$
|
312
|
$
|
-
|
|
|
|
|
|
|
|
Operating earnings
before amortization
|
$
|
281
|
$
|
34
|
$
|
77
|
$
|
-
|
$
|
392
|
Amortization
|
(48)
|
(3)
|
(12)
|
(1)
|
(64)
|
Operating
earnings
|
233
|
31
|
65
|
(1)
|
328
|
Finance
expense
|
(7)
|
(1)
|
(3)
|
1
|
(10)
|
Other
|
2
|
-
|
(1)
|
(5)
|
(4)
|
Earnings before
tax
|
$
|
228
|
$
|
30
|
$
|
61
|
$
|
(5)
|
$
|
314
|
|
|
|
Pulp
&
|
Corporate
|
|
|
Lumber
|
Panels
|
paper
|
&
other
|
Total
|
January 1, 2019 to
September 30, 2019
|
|
|
|
|
|
Sales
|
|
|
|
|
|
To external
customers
|
$
|
2,560
|
$
|
454
|
$
|
734
|
$
|
-
|
$
|
3,748
|
To other
segments
|
97
|
9
|
-
|
-
|
|
|
$
|
2,657
|
$
|
463
|
$
|
734
|
$
|
-
|
|
|
|
|
|
|
|
Operating earnings
before amortization,
restructuring and impairment charges
|
$
|
35
|
$
|
38
|
$
|
21
|
$
|
(4)
|
$
|
90
|
Amortization
|
(147)
|
(11)
|
(32)
|
(3)
|
(193)
|
Restructuring and
impairment charges
|
(25)
|
-
|
-
|
-
|
(25)
|
Operating
earnings
|
(137)
|
27
|
(11)
|
(7)
|
(128)
|
Finance
expense
|
(25)
|
(3)
|
(7)
|
(1)
|
(36)
|
Other
|
(3)
|
-
|
1
|
(7)
|
(9)
|
Earnings before
tax
|
$
|
(165)
|
$
|
24
|
$
|
(17)
|
$
|
(15)
|
$
|
(173)
|
|
|
|
|
|
|
January 1, 2018 to
September 30, 2018
|
|
|
|
|
|
Sales
|
|
|
|
|
|
To external
customers
|
$
|
3,433
|
$
|
516
|
$
|
895
|
$
|
-
|
$
|
4,844
|
To other
segments
|
125
|
9
|
-
|
-
|
|
|
$
|
3,558
|
$
|
525
|
$
|
895
|
$
|
-
|
|
|
|
|
|
|
|
Operating earnings
before amortization
|
$
|
923
|
$
|
118
|
$
|
211
|
$
|
(7)
|
$
|
1,245
|
Amortization
|
(143)
|
(10)
|
(33)
|
(2)
|
(188)
|
Operating
earnings
|
780
|
108
|
178
|
(9)
|
1,057
|
Finance
expense
|
(19)
|
(2)
|
(7)
|
-
|
(28)
|
Other
|
10
|
-
|
4
|
1
|
15
|
Earnings before
tax
|
$
|
771
|
$
|
106
|
$
|
175
|
$
|
(8)
|
$
|
1,044
|
The geographic distribution of external sales is as
follows1:
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Canada
|
$
|
235
|
$
|
305
|
$
|
766
|
$
|
970
|
United
States
|
|
720
|
|
1,005
|
|
2,206
|
|
2,938
|
China
|
|
155
|
|
204
|
|
497
|
|
542
|
Other Asia
|
|
74
|
|
121
|
|
250
|
|
360
|
Other
|
|
6
|
|
11
|
|
29
|
|
34
|
|
$
|
1,190
|
$
|
1,646
|
$
|
3,748
|
$
|
4,844
|
|
|
1.
|
Sales distribution is
based on the location of product delivery.
|
15. Countervailing ("CVD") and antidumping ("ADD") duty
dispute
In November 2016, a coalition of
U.S. lumber producers filed a CVD/ADD petition against Canadian
softwood lumber producers who import lumber into the United States. The petition alleged
that Canadian lumber producers are subsidized. CVD and ADD
duties have been imposed against Canadian softwood lumber imports
beginning in 2017. See Note 27 "Countervailing ("CVD")
and antidumping ("ADD") duty dispute" of our 2018 annual audited
consolidated financial statements.
During the nine months ended September
30, 2019, our lumber segment posted cash deposits for CVD at
a 17.99% rate and for ADD at a 5.57% rate. Starting
January 1, 2019, we moved into a new
period of review that ends December
31, 2019. Our estimate of the ADD rate for the 2019
review period, using our actual sales and cost data and the same
calculation methodology as the USDOC, is 5.05% which is lower than
the ADD deposit rate of 5.57%.
For the lumber segment, during the nine months ended
September 30, 2019, we incurred duty
deposits of $99 million related to
CVD (September 30, 2018 -
$145 million) and $30 million related to ADD (September 30, 2018 - $46
million) which were recorded as follows:
|
|
|
|
July 1 to September
30
|
January 1 to
September 30
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Export duties
recognized as expense in
consolidated statements of earnings
|
$
|
44
|
$
|
58
|
$
|
127
|
$
|
165
|
Export duties
recognized as export duty deposits
receivable in consolidated balance sheets
|
|
(2)
|
|
10
|
|
2
|
|
26
|
Total
|
$
|
42
|
$
|
68
|
$
|
129
|
$
|
191
|
Export duty deposits receivable included on our consolidated
balance sheets is as follows:
|
|
|
|
|
|
|
September 30,
2019
|
|
December 31,
2018
|
Beginning
balance
|
$
|
75
|
$
|
37
|
Export duties
recognized as export duty deposits
receivable in consolidated balance sheets
|
|
2
|
|
31
|
Interest recognized
on the export duty deposits receivable
|
|
2
|
|
2
|
Foreign exchange gain
(loss) on the export duty deposits
|
|
(2)
|
|
5
|
Ending
balance
|
$
|
77
|
$
|
75
|
As at September 30, 2019, export
duties paid and payable on deposit with the USDOC are US$253 million for CVD and US$91 million for ADD for a total of US$344 million.
The duty rates are subject to change based on administrative
reviews and appeals available to us. In addition, we will
update our ADD rate at each reporting date considering our actual
results for each period of review. Changes to estimated rates
may be material and any changes will be reflected through earnings
in the period of the change. Notwithstanding the deposit
rates assigned under the investigations, our final liability for
the assessment of CVD and ADD will not be determined until each
annual administrative review process is complete and related appeal
processes are concluded.
SOURCE West Fraser Timber Co. Ltd.