VANCOUVER, BC -  West Fraser Timber Co. Ltd. /quotes/zigman/18339 CA:WFT +0.38% today reported earnings for the second quarter of 2012 of $27 million and earnings per share of $0.63 on sales of $774 million. For the first half of 2012, earnings were $10 million and earnings per share were $0.24, on sales of $1.5 billion.

These results compare with previous periods as follows:

        
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        ($ million except earnings                    2012                2011
        per share ("EPS"))                       YTD      Q2      Q1     YTD      Q2
        ----------------------------------------------------------------------------
        Sales                                  1,455     774     681   1,407     720
        EBITDA(1)                                101      82      19     142      62
        Operating earnings                        24      46    (22)      57      22
        Earnings from continuing operations       10      27    (17)      31      11
        Adjusted earnings from continuing
         operations(2)                            30      41    (11)      35     (5)
        Adjusted basic EPS from continuing
         operations(2)                          0.70    0.96  (0.26)    0.82  (0.12)
        Earnings after discontinued
         operations                               10      27    (17)      29      10
        Basic EPS after discontinued
         operations ($)                         0.24    0.63  (0.39)    0.68    0.24
        Diluted EPS after discontinued
         operations ($)                         0.24    0.63  (0.39)    0.68  (0.09)
        ----------------------------------------------------------------------------
        (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 (loss) from
        continuing operations (calculated as set out in the table described in
        footnote 2) and Adjusted basic EPS (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 second
        quarter 2012 results for details of adjustments.
        
        


Operational Results

In the quarter the lumber segment generated operating earnings of $34 million and EBITDA of $53 million. Lumber prices rallied strongly as improved U.S. demand combined with continuing Asian demand for Canadian lumber. Higher lumber prices also triggered a reduction in duties (from 15% to 10%) charged on softwood lumber exported to the U.S. from B.C. and Alberta for the month of June 2012.

The panels segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $8 million and EBITDA of $12 million. Improved plywood and MDF prices were the main contributors.

Pulp and paper operations generated operating earnings of $14 million and EBITDA of $26 million. The average NBSK benchmark price for the quarter increased to US$900 per tonne from US$870 in the previous quarter but reduced NBSK production and shipments and increased chemical costs resulted in a marginal decline in operating earnings compared with the previous quarter.

Outlook

We expect results from our lumber and panels businesses to improve if U.S. new home construction continues to recover. Despite some encouraging signs, the current recovery still appears to be fragile and could be set back by adverse global economic events.

The immediate outlook for our NBSK pulp business is negative as additional supply coming onstream will require market adjustments before prices will recover.

Hank Ketcham, West Fraser's Chairman and Chief Executive Officer, said, "We are encouraged by this quarter's results and we expect to see continuing operational improvements as a result of our extensive capital program and the efforts of all of our people. We are well positioned to take advantage of the anticipated recovery."

Softwood Lumber Agreement Dispute

In early 2011 the United States initiated an arbitration with Canada under the 2006 Softwood Lumber Agreement over its concern that British Columbia has misapplied or altered its timber pricing rules. An arbitration hearing took place in the first quarter. On July 18, 2012 the arbitration panel unanimously dismissed the U.S. claims in their entirety.

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 ("MD&A")

The Company's MD&A for the second 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 Friday, July 20, 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 . A presentation summarizing the second quarter results will also be available on the Company's website.

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)
                                                         June 30         December 31
                                                            2012                2011
        ----------------------------------------------------------------------------
        Assets
        Current assets
        Cash and short-term investments      $              79.5 $              67.8
        Receivables                                        272.0               266.7
        Income taxes receivable                                -                 4.4
        Inventories (note 3)                               394.5               397.8
        Prepaid expenses                                    21.5                 8.6
        ----------------------------------------------------------------------------
                                                           767.5               745.3
        Property, plant and equipment                      941.5               935.7
        Timber licences                                    482.0               490.1
        Goodwill and other intangibles                     332.3               336.6
        Other assets                                        26.5                29.6
        ----------------------------------------------------------------------------
                                             $           2,549.8 $           2,537.3
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Liabilities
        Current liabilities
        Payables and accrued liabilities     $             276.2 $             273.9
        Income taxes payable                                 5.1                   -
        Reforestation and decommissioning                   40.9                41.0
        Current portion of long-term debt
         (note 4)                                            0.3                 0.3
        ----------------------------------------------------------------------------
                                                           322.5               315.2
        Long-term debt (note 4)                            306.6               306.3
        Other liabilities (note 5)                         352.4               289.0
        Deferred income taxes                              124.7               143.8
        ----------------------------------------------------------------------------
                                                         1,106.2             1,054.3
        ----------------------------------------------------------------------------
        Shareholders' equity
        Share capital                                      601.5               600.9
        Accumulated other comprehensive
         earnings                                          (4.5)               (5.5)
        Retained earnings                                  846.6               887.6
        ----------------------------------------------------------------------------
                                                         1,443.6             1,483.0
        ----------------------------------------------------------------------------
                                             $           2,549.8 $           2,537.3
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Number of Common shares and Class B Common shares outstanding at July 19,
         2012 was 42,859,155.
        West Fraser Timber Co. Ltd.
        Condensed Consolidated Statement of Changes in Equity
        (in millions of Canadian dollars - unaudited)
                                          April 1 to June 30    January 1 to June 30
                                            2012        2011        2012        2011
        ----------------------------------------------------------------------------
        Retained earnings
        Balance - beginning of
         period                      $     851.0 $     987.1 $     887.6 $     942.9
        Actuarial loss on employee
         future benefits                  (25.3)      (39.2)      (39.2)       (7.9)
        Earnings for the period             26.9        10.3        10.2        29.2
        Dividends                          (6.0)       (5.9)      (12.0)      (11.9)
        ----------------------------------------------------------------------------
        Balance - end of period      $     846.6 $     952.3 $     846.6 $     952.3
        ----------------------------------------------------------------------------
        Accumulated other
         comprehensive earnings
        Balance - beginning of
         period                      $    (10.4) $    (14.9) $     (5.5) $     (9.6)
        Translation gain (loss) on
         foreign operations                  5.9       (0.8)         1.0       (6.1)
        ----------------------------------------------------------------------------
        Balance - end of period      $     (4.5) $    (15.7) $     (4.5) $    (15.7)
        ----------------------------------------------------------------------------
        Share capital
        Balance - beginning of
         period                      $     601.4 $     600.6 $     600.9 $     600.5
        Issuance of Common shares            0.1         0.1         0.6         0.2
        ----------------------------------------------------------------------------
        Balance - end of period      $     601.5 $     600.7 $     601.5 $     600.7
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Shareholders' equity         $   1,443.6 $   1,537.3 $   1,443.6 $   1,537.3
        ----------------------------------------------------------------------------
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        West Fraser Timber Co. Ltd.
        Condensed Consolidated Statements of Earnings and Comprehensive Earnings
        (in millions of Canadian dollars - unaudited)
                                          April 1 to June 30    January 1 to June 30
                                            2012        2011        2012        2011
        ----------------------------------------------------------------------------
        Sales                        $     774.4 $     719.7 $   1,455.4 $   1,406.7
        ----------------------------------------------------------------------------
        Costs and expenses
        Cost of products sold              516.0       509.2     1,011.2       941.5
        Freight and other
         distribution costs                126.4       123.2       243.4       228.8
        Export taxes                        13.9        12.3        27.0        27.9
        Amortization                        36.2        40.4        76.5        85.1
        Selling, general and
         administration                     26.6        27.1        52.1        53.8
        Equity-based compensation            9.1      (14.1)        21.0        13.1
        ----------------------------------------------------------------------------
                                           728.2       698.1     1,431.2     1,350.2
        ----------------------------------------------------------------------------
        Operating earnings                  46.2        21.6        24.2        56.5
        Interest expense                   (5.1)       (5.4)       (9.9)      (10.2)
        Exchange gain (loss) on
         long-term debt                    (6.2)         1.5       (0.3)         9.0
        Other income (expense) (note
         7)                                  0.4           -         0.8       (3.6)
        ----------------------------------------------------------------------------
        Earnings from continuing
         operations before tax
         provision                          35.3        17.7        14.8        51.7
        Tax provision (note 8)             (8.4)       (6.3)       (4.6)      (20.4)
        ----------------------------------------------------------------------------
        Earnings from continuing
         operations                         26.9        11.4        10.2        31.3
        Earnings from discontinued
         operations (note 9)                   -       (1.1)           -       (2.1)
        ----------------------------------------------------------------------------
        Earnings                     $      26.9 $      10.3 $      10.2 $      29.2
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Earnings per share (dollars)
         (note 10)
        Basic from continuing
         operations                  $      0.63 $      0.27 $      0.24 $      0.73
        Diluted from continuing
         operations                  $      0.63 $    (0.07) $      0.24 $      0.73
        Basic after discontinued
         operations                  $      0.63 $      0.24 $      0.24 $      0.68
        Diluted after discontinued
         operations                  $      0.63 $    (0.09) $      0.24 $      0.68
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Comprehensive earnings
        Earnings                     $      26.9 $      10.3 $      10.2 $      29.2
        Other comprehensive earnings
        Translation gain (loss) on
         foreign operations                  5.9       (0.8)         1.0       (6.1)
        Actuarial loss on employee
         future benefits                  (33.5)      (52.0)      (52.0)      (10.5)
        Tax on actuarial loss on
         employee future benefits            8.2        12.8        12.8         2.6
        ----------------------------------------------------------------------------
        Comprehensive earnings       $       7.5 $    (29.7) $    (28.0) $      15.2
        ----------------------------------------------------------------------------
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        West Fraser Timber Co. Ltd.
        Condensed Consolidated Statements of Cash Flows
        (in millions of Canadian dollars - unaudited)
                                          April 1 to June 30    January 1 to June 30
                                            2012        2011        2012        2011
        ----------------------------------------------------------------------------
        Operating activities
        Earnings from continuing
         operations                  $      26.9 $      11.4 $      10.2 $      31.3
        Adjustments
         Amortization                       36.2        40.4        76.5        85.1
         Interest expense                    5.1         5.4         9.9        10.2
         Exchange loss (gain) on
          long-term debt                     6.2       (1.5)         0.3       (9.0)
         Tax provision                       8.4         6.3         4.6        20.4
         Income taxes paid                 (5.9)       (6.9)       (1.6)      (68.2)
         Reforestation and
          decommissioning
          obligations                      (3.9)       (3.7)         8.1         7.6
         Employee future benefits
          expense                            9.0         8.7        18.5        19.0
         Contributions to employee
          future benefit plans             (9.4)       (6.5)      (13.9)       (9.1)
         Other                                 -         0.7       (1.3)       (0.4)
        Changes in non-cash working
         capital
         Receivables                        15.2       (0.2)      (34.5)      (29.7)
         Inventories                        83.5       125.1         3.5        17.3
         Prepaid expenses                  (9.4)       (5.5)      (12.9)      (10.1)
         Payables and accrued
          liabilities                     (19.1)      (58.5)       (1.9)       (5.8)
        ----------------------------------------------------------------------------
        Cash flows from operating
         activities                        142.8       115.2        65.5        58.6
        ----------------------------------------------------------------------------
        Financing activities
        Repayment of long-term debt            -           -       (0.3)       (0.3)
        Proceeds from (repayment of)
         operating loans                  (56.1)      (10.9)         0.2      (14.6)
        Interest paid                      (8.7)       (8.3)       (9.3)       (9.9)
        Dividends                          (6.0)       (5.9)      (12.0)      (11.9)
        Other                                0.2           -         0.5           -
        ----------------------------------------------------------------------------
        Cash flows from financing
         activities                       (70.6)      (25.1)      (20.9)      (36.7)
        ----------------------------------------------------------------------------
        Investing activities
        Additions to capital assets       (33.4)      (48.7)      (75.2)      (68.5)
        Proceeds from Green
         Transformation Program
         (note 11)                          24.3        13.4        39.9        20.9
        Proceeds from disposal of
         capital assets                      0.2           -         1.7         0.8
        Other                                0.1         0.8         0.7         1.2
        ----------------------------------------------------------------------------
        Cash flows from investing
         activities                        (8.8)      (34.5)      (32.9)      (45.6)
        ----------------------------------------------------------------------------
        Change in cash from
         continuing operations              63.4        55.6        11.7      (23.7)
        Change in cash from
         discontinued operations
         (note 9)                              -       (2.6)           -       (3.0)
        Cash - beginning of period          16.1        81.0        67.8       160.7
        ----------------------------------------------------------------------------
        Cash - end of period         $      79.5 $     134.0 $      79.5 $     134.0
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


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 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 June 30, 2012 were written down by $3.9 million (March 31, 2012 - $19.8 million; December 31, 2011 - $14.9 million; June 30, 2011 - $8.6 million) to reflect net realizable value being lower than cost.

4. Long-term debt and operating loans

Long-term debt

        
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                                                                        December 31,
                                                       June 30, 2012            2011
        ----------------------------------------------------------------------------
        US$300 million senior notes due October
         2014; interest at 5.2%                      $         305.4 $         305.1
        Note payable due in installments to 2020;
         interest at 5.5%                                        2.3             2.5
        ----------------------------------------------------------------------------
                                                               307.7           307.6
        Less:
         Current portion                                       (0.3)           (0.3)
         Deferred financing costs                              (0.8)           (1.0)
        ----------------------------------------------------------------------------
                                                     $         306.6 $         306.3
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


Operating loans

The Company has $530 million in revolving lines of credit, of which nil was drawn as at June 30, 2012 (December 31, 2011 - nil). Deferred financing costs of $5.1 million are included in other assets (December 31, 2011 - $5.7 million). As at June 30, 2012, letters of credit in the amount of $35.5 million have been issued under these facilities.

The $500 million committed facility, the $25 million demand line of credit facility dedicated to letters of credit and the US$300 million senior notes are secured by the Company's assets. A $5 million line of credit, which is available to a joint venture, is secured by the joint venture's current assets.

5. Other liabilities

        
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                                                                        December 31,
                                                       June 30, 2012            2011
        ----------------------------------------------------------------------------
        Post-retirement                              $         232.3 $         177.9
        Reforestation                                           77.8            70.5
        Decommissioning                                         15.8            14.6
        Other                                                   26.5            26.0
        ----------------------------------------------------------------------------
                                                     $         352.4 $         289.0
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


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 $7.9 million for the three months ended June 30, 2012 (three months ended June 30, 2011 - $7.3 million) and $16.9 million for the six months ended June 30, 2012 (six months ended June 30, 2011 - $15.6 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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                                                                        December 31,
                                                       June 30, 2012            2011
        ----------------------------------------------------------------------------
        Projected benefit obligations                $     (1,164.2) $     (1,097.8)
        Fair value of plan assets                              948.6           938.8
        ----------------------------------------------------------------------------
        Deficit                                      $       (215.6) $       (159.0)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Represented by
        Pension surplus(1)                           $          16.7 $          18.9
        Post-retirement obligations(2)                       (232.3)         (177.9)
        ----------------------------------------------------------------------------
                                                     $       (215.6) $       (159.0)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        (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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                                   June 30, 2012    March 31, 2012 December 31, 2011
        ----------------------------------------------------------------------------
        Discount rate on
         obligation                        4.75%             4.75%             5.00%
        Expected rate of
         return on plan assets             6.50%             6.50%             6.50%
        Rate of increase in
         future compensation               3.50%             3.50%             3.50%
        ----------------------------------------------------------------------------
        
        


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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                                          April 1 to June 30    January 1 to June 30
                                            2012        2011        2012        2011
        ----------------------------------------------------------------------------
        Actuarial loss on employee
         future benefits            $     (33.5)$     (52.0)$     (52.0)$     (10.5)
        Income tax on actuarial loss
         on employee future benefits         8.2        12.8        12.8         2.6
        ----------------------------------------------------------------------------
                                    $     (25.3)$     (39.2)$     (39.2)$      (7.9)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


7. Other income (expense)

        
        -----------------------------------------------------------------------
        -----
                                          April 1 to June 30    January 1 to June 30
                                            2012        2011        2012        2011
        ----------------------------------------------------------------------------
        Foreign exchange gain (loss)
         - net                      $        1.3$      (0.9)$      (1.1)$      (5.3)
        Gain on asset sales                  0.2           -         1.1         0.1
        Other - net                        (1.1)         0.9         0.8         1.6
        ----------------------------------------------------------------------------
                                    $        0.4$          -$        0.8$      (3.6)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


8. Tax provision

The Company's effective tax rate on earnings from continuing operations is as follows:

        
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                                                   April 1 to June 30
                                              2012                    2011
                                           Amount          %       Amount          %
        ----------------------------------------------------------------------------
        Income taxes at statutory
         rates                       $      (8.8)     (25.0) $      (4.7)     (26.5)
        Non-taxable amounts                 (2.6)      (7.3)          3.9       22.0
        Rate differentials between
         jurisdictions and on
         specified activities               (1.2)      (3.4)          1.9       10.7
        Recognized (unrecognized)
         tax assets                           5.2       14.8        (5.1)     (28.8)
        Other                               (1.0)      (2.8)        (2.3)     (13.0)
        ----------------------------------------------------------------------------
        Tax provision                $      (8.4)     (23.7) $      (6.3)     (35.6)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
                                                  January 1 to June 30
                                              2012                    2011
                                           Amount          %       Amount          %
        ----------------------------------------------------------------------------
        Income taxes at statutory
         rates                       $      (3.7)     (25.0) $     (13.7)     (26.5)
        Non-taxable amounts                 (3.4)     (22.9)        (1.2)      (2.4)
        Rate differentials between
         jurisdictions and on
         specified activities               (0.3)      (2.0)          1.6        3.2
        Recognized (unrecognized)
         tax assets                           3.7       25.0        (4.7)      (9.2)
        Other                               (0.9)      (6.1)        (2.4)      (4.6)
        ----------------------------------------------------------------------------
        Tax provision                $      (4.6)     (31.0) $     (20.4)     (39.5)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


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.

        
        -----------------------------------------------------------------------
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                                                 April 1 to June 30
                                           2012                      2011
                                         From        After         From       After
                                   continuing discontinued   continuing discontinued
                                   operations   operations   operations   operations
        ----------------------------------------------------------------------------
        Earnings
         Basic                   $       26.9 $       26.9 $       11.4 $       10.3
         Share option expense
          (recovery)                      7.7          7.7       (14.0)       (14.0)
         Equity settled share
          option adjustment             (0.2)        (0.2)        (0.3)        (0.3)
        ----------------------------------------------------------------------------
        Diluted                  $       34.4 $       34.4 $      (2.9) $      (4.0)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Weighted average number
         of shares
         Basic                     42,856,515   42,856,515   42,838,619   42,838,619
         Share options                340,593      340,593      534,216      534,216
        ----------------------------------------------------------------------------
         Diluted                   43,197,108   43,197,108   43,372,835   43,372,835
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Earnings per share
         (dollars)
         Basic                   $       0.63 $       0.63 $       0.27 $       0.24
         Diluted                 $       0.63 $       0.63 $     (0.07) $     (0.09)
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
                                                January 1 to June 30
                                           2012                      2011
                                         From        After         From        After
                                   continuing discontinued   continuing discontinued
                                   operations   operations   operations   operations
        ----------------------------------------------------------------------------
        Earnings
         Basic                   $       10.2 $       10.2 $       31.3 $       29.2
         Share option expense            14.9         14.9          8.8          8.8
         Equity settled share
          option adjustment             (2.2)        (2.2)        (2.5)        (2.5)
        ----------------------------------------------------------------------------
         Diluted                 $       22.9 $       22.9 $       37.6 $       35.5
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Weighted average number
         of shares
         Basic                     42,853,527   42,853,527   42,837,381   42,837,381
         Share options                377,296      377,296      555,526      555,526
        ----------------------------------------------------------------------------
         Diluted                   43,230,823   42,230,823   43,392,907   43,392,907
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        Earnings per share
         (dollars)
         Basic                   $       0.24 $       0.24 $       0.73 $       0.68
         Diluted                 $       0.24 $       0.24 $       0.73 $       0.68
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        
        


11. Green Transformation Program

In 2009 the Government of Canada confirmed an allocation of credits totalling $88.4 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. For the six months ended June 30, 2012, the Company received $39.9 million under the GT Program (year ended December 31, 2011 - $36.9 million; year ended December 31, 2010 - $1.6 million). At June 30, 2012, $10.0 million is included in accounts receivable related to expenditures under the GT Program.

12. Segmented information

        
                                                     Pulp & Corporate
                                 Lumber    Panels     paper   & other   Consolidated
        ----------------------------------------------------------------------------
        April 1, 2012 to June
         30, 2012
        Sales at market
         prices
         To external
          customers           $   453.6 $   112.2 $   208.6 $       - $        774.4
                                                                       -------------
                                                                       -------------
         To other segments         17.9       1.7         -         -
        -------------------------------------------------------------
                              $   471.5 $   113.9 $   208.6 $       -
        -------------------------------------------------------------
        -------------------------------------------------------------
        EBITDA(1)             $    53.2 $    12.2 $    26.4 $   (9.4) $         82.4
        Amortization             (19.7)     (3.9)    (12.0)     (0.6)         (36.2)
        ----------------------------------------------------------------------------
        Operating earnings         33.5       8.3      14.4    (10.0)           46.2
        Interest expense          (2.9)     (0.8)     (1.4)         -          (5.1)
        Exchange loss on
         long-term debt               -         -         -     (6.2)          (6.2)
        Other income
         (expense)                (0.8)       0.2       1.7     (0.7)            0.4
        ----------------------------------------------------------------------------
        Earnings from
         continuing
         operations before
         tax provision        $    29.8 $     7.7 $    14.7 $  (16.9) $         35.3
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        April 1, 2011 to June
         30, 2011
        Sales at market
         prices
         To external
          customers           $   414.3 $    94.2 $   211.2 $       - $        719.7
                                                                       -------------
                                                                       -------------
         To other segments         23.5       2.2         -         -
        -------------------------------------------------------------
                              $   437.8 $    96.4 $   211.2 $       -
        -------------------------------------------------------------
        -------------------------------------------------------------
        EBITDA(1)             $    11.3 $   (1.0) $    38.2 $    13.5 $         62.0
        Amortization             (19.1)     (3.8)    (16.9)     (0.6)         (40.4)
        ----------------------------------------------------------------------------
        Operating earnings        (7.8)     (4.8)      21.3      12.9           21.6
        Interest income
         (expense)                (3.2)     (0.8)     (1.6)       0.2          (5.4)
        Exchange gain on
         long-term debt               -         -         -       1.5            1.5
        Other income
         (expense)                (0.9)         -       1.1     (0.2)              -
        ----------------------------------------------------------------------------
        Earnings from
         continuing
         operations before
         tax provision        $  (11.9) $   (5.6) $    20.8 $    14.4 $         17.7
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
                                                     Pulp & Corporate
                                 Lumber    Panels     paper   & other   Consolidated
        ----------------------------------------------------------------------------
        January 1, 2012 to
         June 30, 2012
        Sales at market
         prices
         To external
          customers           $   832.8 $   215.4 $   407.2 $       - $      1,455.4
                                                                     ---------------
                                                                     ---------------
         To other segments         36.5       3.4         -         -
        -------------------------------------------------------------
                              $   869.3 $   218.8 $   407.2 $       -
        -------------------------------------------------------------
        -------------------------------------------------------------
        EBITDA(1)             $    47.0 $    17.6 $    56.7 $  (20.6) $        100.7
        Amortization             (42.0)     (8.0)    (25.3)     (1.2)         (76.5)
        ----------------------------------------------------------------------------
        Operating earnings          5.0       9.6      31.4    (21.8)           24.2
        Interest expense          (5.4)     (1.6)     (2.9)         -          (9.9)
        Exchange loss on
         long-term debt               -         -         -     (0.3)          (0.3)
        Other income
         (expense)                  0.7       0.2       0.1     (0.2)            0.8
        ----------------------------------------------------------------------------
        Earnings from
         continuing
         operations before
         tax provision        $     0.3 $     8.2 $    28.6 $  (22.3) $         14.8
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        January 1, 2011 to
         June 30, 2011
        Sales at market
         prices
         To external
          customers           $   804.0 $   182.8 $   419.9 $       - $      1,406.7
                                                                     ---------------
                                                                     ---------------
         To other segments         45.0       4.5         -         -
        -------------------------------------------------------------
                              $   849.0 $   187.3 $   419.9 $       -
        -------------------------------------------------------------
        -------------------------------------------------------------
        EBITDA(1)             $    66.5 $     2.6 $    85.1 $  (12.6) $        141.6
        Amortization             (41.4)     (7.7)    (34.7)     (1.3)         (85.1)
        ----------------------------------------------------------------------------
        Operating earnings         25.1     (5.1)      50.4    (13.9)           56.5
        Interest income
         (expense)                (5.8)     (1.6)     (3.0)       0.2         (10.2)
        Exchange gain on
         long-term debt               -         -         -       9.0            9.0
        Other income
         (expense)                (3.4)     (0.2)     (0.7)       0.7          (3.6)
        ----------------------------------------------------------------------------
        Earnings from
         continuing
         operations before
         tax provision        $    15.9 $   (6.9) $    46.7 $   (4.0) $         51.7
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        (1) Non GAAP measure:
            EBITDA is defined as operating earnings plus amortization.
        
        


The geographic distribution of external sales is as follows:

        
        -----------------------------------------------------------------------
        -----
                                        April 1 to June 30      January 1 to June 30
                                         2012         2011         2012         2011
        ----------------------------------------------------------------------------
        United States            $      374.9 $      319.2 $      692.6 $      659.6
        Canada                          179.8        172.4        349.3        328.4
        China                           136.0        131.5        252.0        235.4
        Other Asia                       58.1         66.3        107.0        121.0
        Other                            25.6         30.3         54.5         62.3
        ----------------------------------------------------------------------------
                                 $      774.4 $      719.7 $    1,455.4 $    1,406.7
        ----------------------------------------------------------------------------
        ----------------------------------------------------------------------------
        1. Sales distribution is based on the location of product delivery by the
        Company.
        
        


13. Contingency

On January 18, 2011 the United States initiated arbitration with Canada under the Softwood Lumber Agreement ("SLA") over its concern that the province of British Columbia ("B.C.") has misapplied or altered its timber pricing rules and as a result has charged too low a price for certain timber harvested on public lands in the B.C. interior. In August 2011 the United States filed a detailed statement of case with the arbitration panel and the parties exchanged pleadings in the fourth quarter of 2011. A hearing before the arbitration panel took place in February 2012.

On July 18, 2012 the arbitration panel unanimously dismissed the U.S. claims in their entirety.

        
        
        


SOURCE: West Fraser Timber Co. Ltd.

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