Weatherford International Ltd. Annual Report 2016

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FY2016 Annual Report · Weatherford International Ltd.

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WEST FRASER

ANNUAL REPORT 2016
Including Annual Information Form
Dated: February 16, 2017

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TABLE OF CONTENTS
1. Map of Operations
2. Financial & Operating Highlights
4. Report to Shareholders
6. Corporate Structure

7. ANNUAL INFORMATION FORM
7. Business Overview
8. Corporate Strategy
8. Corporate Structure
8. History and Development of Business
9. Fibre Supply
11. Capital Expenditures and Acquisitions
11. Human Resources
11. Markets
12. Research and Development
12. Lumber
12. Panels
13. Pulp & Paper
13. Newsprint
13. External Factors Affecting West Fraser’s Business in 2016
14. Risk Factors
14. Capital Structure
15 . Ratings
16. Experts
16. Directors and Ofﬁcers
18. Governance
18. Audit Committee
19. Fees Paid to Auditors
19. Material Contracts
19. Additional Information
20. Schedule 1 — Audit Committee Charter

22. MANAGEMENT’S DISCUSSION & ANALYSIS
23. Annual Results
23. Selected Quarterly Information
23. Adjusted Earnings and Adjusted Basic Earnings Per Share
25. Discussion & Analysis by Product Segment
28. 4th Quarter Results
28. Sales and Earnings Comparison
28. Adjusted Earnings and Adjusted Basic Earnings Per Share
28. Discussion & Analysis of Quarterly Non-operational Items
29. Discussion & Analysis by Product Segment 4th Quarter
31. Capital Expenditures
32. Business Outlook
33. Estimated Earnings Sensitivity to Key Variables
33. Capital Structure and Liquidity
34. Summary of Financial Position
34. Debt Ratings
34. Selected Cash Flow Items
35. Contractual Obligations
35. Signiﬁcant Management Judgments Affecting Financial Results
36. Accounting Standards Issued But Not Yet Applied
36. Non-IFRS Measures
38. Risks and Uncertainties
42. Disclosure Controls and Internal Controls Over Financial Reporting
43. Responsibility of Management
44. Independent Auditor’s Report
45. Financial Statements
70. Five-year Financial Review
71. Corporate Information
73. Glossary of Industry Terms

WEST FRASER
ANNUAL REPORT 2016

LUMBER
Canada
1. Quesnel
2. Williams Lake
3. Smithers
4. Chetwynd
5. Fraser Lake
6. Chasm
7. 100 Mile House
8. Blue Ridge
9. Hinton
10. Edson
11. Sundre
12. High Prairie
13. Manning

PULP & PAPER

29. Hinton
30. Quesnel (2)
31. Slave Lake
32. Whitecourt

PLYWOOD

33. Edmonton
34. Quesnel
35. Williams Lake

MDF
36. Blue Ridge
37. Quesnel

VENEER & LVL
38. Rocky Mountain House
39. Slave Lake

LUMBER
U.S.
14. Joyce
15. Huttig
16. Henderson
17. New Boston
18. Leola
19. Mansfield
20. Russellville
21. Maplesville
22. Opelika
23. McDavid
24. Whitehouse
25. Augusta
26. Newberry
27. Armour
28. Seaboard

A L B E R TA

EDMONTON

B R I T I S H

C O L U M B I A

QUESNEL

VANCOUVER

19 20

ARKANSAS

LOUISIANA

TEXAS

TENNESSEE

MEMPHIS

NORTH CAROLINA

SOUTH

CAROLINA

GEORGIA

ALABAMA

FLORIDA

OPERATIONS West Fraser is a North American wood products company. Its main product

is lumber (spruce/pine/fir (“SPF”) and southern yellow pine (“SYP”)), and
it also produces panels (plywood, MDF and LVL), pulp (NBSK and BCTMP),
newsprint, wood chips and energy. The operations located in western Canada
manufacture all of the products described above except SYP lumber.

The sawmills located in the southern United States produce SYP lumber and
wood chips.

B R I T I S H
C O L U M B I A
4

QUESNEL
34
1

30
2

35
7

VANCOUVER

A L B E R TA
13

32
8

EDMONTON
33

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19 20

ARKANSAS
18

LOUISIANA

TENNESSEE

MEMPHIS

22
ALABAMA

NORTH CAROLINA

26
SOUTH
CAROLINA
25
GEORGIA

FLORIDA

TEXAS

LUMBER

Canada

PULP & PAPER

29. Hinton

1. Quesnel

30. Quesnel (2)

2. Williams Lake

31. Slave Lake

3. Smithers

4. Chetwynd

5. Fraser Lake

6. Chasm

7. 100 Mile House

8. Blue Ridge

32. Whitecourt

PLYWOOD

33. Edmonton

34. Quesnel

35. Williams Lake

9. Hinton

10. Edson

11. Sundre

12. High Prairie

13. Manning

MDF

36. Blue Ridge

37. Quesnel

VENEER & LVL

38. Rocky Mountain House

39. Slave Lake

LUMBER

U.S.

14. Joyce

15. Huttig

16. Henderson

17. New Boston

18. Leola

19. Mansfield

20. Russellville

21. Maplesville

22. Opelika

23. McDavid

24. Whitehouse

25. Augusta

26. Newberry

27. Armour

28. Seaboard

Financial and Operating Highlights

Earnings ($millions)

Sales

Adjusted EBITDA1

Operating earnings

Earnings

Cash ﬂow from operating activities

Common Share Data (in dollars per share, except shares outstanding)

Shares outstanding (thousands)

– Weighted average (basic)

– Year-end

Earnings per share

– Basic

– Diluted

Cash dividends per share

Common shareholders’ equity

Price range

– High (2016 – Jun 27; 2015 – Feb 12)

– Low (2016 – Mar 30; 2015 – Oct 2)

– Close

Financial Position ($millions)

Working capital

Total assets

Long-term debt (includes current portion)

Shareholders’ equity

Analytical Data

Current ratio

Capital expenditures ($millions)

Net debt to capitalization (%)

Return on common shareholders’ equity (%)

2016

2015

4,450

4,100

674

482

326

689

417

249

104

301

80,236

78,163

83,104

82,457

4.06

3.90

0.28

28.67

54.18

35.35

48.01

479

3,600

413

2,241

2.0

273

1.25

0.89

0.28

26.04

78.55

40.56

52.53

365

3,635

423

2,147

1.6

220

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Lumber

Sales ($millions)2

Operating earnings ($millions)

SPF (MMfbm)

SYP (MMfbm)

Panels

Sales ($millions)2

Operating earnings ($millions)

Plywood (3/8” MMsf)

MDF (3/4” MMsf)

LVL (Mcf)

Pulp & Paper

Sales ($millions)

Operating earnings ($millions)

NBSK (Mtonnes)

BCTMP (Mtonnes)

Newsprint (Mtonnes)

2016

2015

3,145

362

3,796

3,878

2,139

2,126

529

826

160

167

2,215

2,226

887

527

526

665

653

128

129

2,764

105

3,599

3,614

2,008

2,014

554

797

803

220

212

1,627

1,728

900

497

499

645

673

133

136

Production

Shipments

Production

Shipments

Production

Shipments

Production

Shipments

Production

Shipments

Production

Shipments

Production

Shipments

Production

Shipments

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1. Adjusted EBITDA is described in the section titled “Non-IFRS Measures” of our 2016 Management’s Discussion & Analysis.
2. Includes intracompany ﬁbre sales.

Report to Shareholders

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Message from our President and Chief Executive Ofﬁcer

For more than 60 years, West Fraser’s business strategy has been

plywood, laminated veneer lumber (LVL) and medium density

straight-forward and consistently focused on three key drivers:

ﬁbreboard (MDF) products were relatively stable compared to 2015

to be the low-cost, high-margin producer in each of our product

and our panel business continues to be a meaningful and positive

lines and geographic regions; maintaining a conservative balance

contributor to our overall ﬁnancial results. We also improved

sheet to manage for the inherent cyclicality of our industry; and

production at our Hinton pulp mill in 2016. However, as we have

reinvesting in our business assets. We believe these three pillars

previously indicated, pulp markets are expected to be challenged

are the cornerstones to our success. Through the efforts of our

by increases in global pulp capacity over the next few years.

7,800 employees, we have made signiﬁcant progress on all three

fronts in 2016.

With our most signiﬁcant capital spending behind us, we see an

opportunity within our 40 mills to materially improve our operating

Improving lumber markets in 2016 helped us to achieve stronger

results in 2017. We aim to increase lumber production by a further

ﬁnancial performance. We delivered industry-leading margins

250 million feet and are optimistic about continued cost and margin

in our core lumber segment this year and improved operational

improvement in all three of our business segments.

performance in all segments of the business. We strengthened

our ﬁnancial position, reducing our debt to capital ratio from 22%

(2015) to 14% (2016) in the same year that we invested $190

million in purchasing our Common shares, a three-year total of

$361 million in Common share purchases. Since 2011, we have

reinvested in excess of $1.6 billion across the Company to equip

our facilities to be the most efﬁcient, modern mills in the industry.

Within our comprehensive capital program, we have completed 10

major sawmill rebuilds, upgraded 12 planers, added 28 continuous

kilns and built 6 major energy and bio-product projects.

What we achieve is important. How we achieve these results is

just as critical to sustain and build on our Company culture and

our values, and how our people deﬁne our success. Employee

safety and a safe work environment are priorities at every one

of our locations. Our health and safety goal is nothing less than

eliminating serious incidents and injuries in our operations with zero

tolerance for unsafe behaviour. We are working to improve safety

behaviors and activities through continuous attention to education

and training to better our performance, risk identiﬁcation and safety

awareness. We are making progress towards our objective and we

Despite U.S. housing construction at relatively modest levels

will continue to pursue safety performance improvement in 2017.

and continuing log cost escalation in the B.C. Interior, our capital

program combined with our dedicated and competitive group

of employees achieved a record Adjusted EBITDA in 2016 of

$674 million. Although we were challenged by difﬁcult weather

conditions in the fourth quarter, lumber shipments were 376

million feet higher in 2016 compared to 2015. Markets for our

We grew dramatically in 2005 with the acquisition of Weldwood and

again in 2007 with the purchase of U.S. sawmills from International

Paper. Beyond capital investment, it was equally important to knit

together a strong, cohesive organization that demonstrates the West

Fraser values and our long-standing culture of competitiveness,

teamwork, frugality and humility. Recruiting and developing our

people is a major area of focus for us and an area where we are

can help to address some of the opportunities in green construction

being acknowledged for our efforts. 2017 marks the fourth time we

because of their environmental beneﬁts over other materials like

have been recognized as one of Canada’s Top 100 Employers and

concrete or composites. West Fraser’s lumber products were

the ﬁrst time as one of Canada’s Top Employers for Young People.

part of the construction of one of the world’s tallest mass timber

We will continue to focus on operational excellence in all facets

hybrid structures, an 18-storey student residence at the University

of the Company and match it with an equal commitment to the

of British Columbia. Projects like these are demonstrating that

development of people who are critical to our long-term success.

wood is not only the smart choice for single-family homes, but

I am proud to be a part of a high-technology industry that

produces sustainable products from renewable resources. We are

increasingly can be the right ﬁt for multi-dwelling buildings and

high-rise towers.

innovating in our facilities and have embraced initiatives across

Overall, 2016 was a year of investment, improving ﬁnancial

the organization to reduce our energy consumption, to choose

performance, and preparation in anticipation of what may lie ahead

more energy efﬁcient equipment and, where possible, shift our

in 2017. The expiration of the Canada-U.S. Softwood Lumber

fuel sources towards carbon-neutral biomass. Today, 85% of

Agreement, the addition of signiﬁcant global pulp capacity, the

our mills generate energy from residual woody materials that

ongoing mountain pine beetle infestation in western Canada, and

are by-products of wood processing. We operate ﬁve bioenergy

continued volatility in global markets will be challenging. However,

generation facilities, including an organic biogas waste-to-energy

I am conﬁdent that our consistent business approach, diversiﬁed

plant at Slave Lake Pulp that uses the mill’s efﬂuent and biological

operating footprint and the successful capital investments carried

organisms to generate the power to operate 4,300 homes for a

out by our high-performing employees put us in a strong position to

year. We also initiated production at Canada’s ﬁrst commercial lignin

favourably compete in our sector and product markets.

recovery plant in 2016, capturing this adaptable material from our

pulp process. Lignin has potential as a natural, renewable green

alternative for fossil fuel-based compounds and for innovations in

renewable chemicals. We are excited to be exploring a wide range

of opportunities for this ﬂexible product.

With the support, dedication and the efforts of all of our employees,

their families, our Board of Directors, our customers and our

communities, I am optimistic about the opportunities for our

business to thrive in 2017. Our commitment to efﬁcient, modern

mill operations, supported by a low-cost culture and strong ﬁnancial

Our commitments to certiﬁed, sustainable forest management and

position sets us up well to compete in the years ahead.

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ﬁbre sourcing practices are entrenched in our operating actions.

Strong environmental practices are foundational to our ability

to proﬁtably and responsibly manufacture our products, to be a

sought after and stable employer, and to support healthy forest

Ted Seraphim

systems for current and future generations. I believe that we are

President and Chief Executive Ofﬁcer

only beginning to realize the opportunities where wood products

Corporate Structure

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West Fraser Timber Co. Ltd.
West Fraser Mills Ltd.

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LUMBER

Canada
Quesnel
Williams Lake
Smithers
Chetwynd
Fraser Lake
Chasm
100 Mile House
Blue Ridge1
Hinton
Edson
Sundre2
High Prairie
Manning3

U.S.
Joyce4
Huttig4
Henderson5
New Boston5
Leola4
Mansﬁ eld4
Russellville4
Maplesville4
Opelika4
McDavid4
Whitehouse4
Augusta4
Newberry4
Armour4
Seaboard4

PANELS

PULP & PAPER

Pulp
Hinton
Quesnel
Quesnel (50%)6
Slave Lake

Newsprint
Whitecourt (50%)7

Plywood
Edmonton
Quesnel
Williams Lake

MDF
Blue Ridge
Quesnel

Veneer & LVL
Rocky Mountain
House2
Slave Lake

1. Owned through Blue Ridge Lumber Inc., a wholly-owned subsidiary.
2. Owned through Sundre Forest Products Inc., a wholly-owned subsidiary.
3. Owned through Manning Forest Products Ltd., a wholly-owned subsidiary.
4. Owned through West Fraser, Inc., a wholly-owned subsidiary.
5. Owned through West Fraser Wood Products Inc., a wholly-owned subsidiary.
6. 50% interest in Cariboo Pulp & Paper Company.
7. 50% interest in Alberta Newsprint Company owned through West Fraser Newsprint Ltd., a wholly-owned subsidiary.

Annual Information Form

Date
This Annual Information Form of West Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us”, “our” or the “Company”) is dated as of February 16, 2017. Except
as otherwise indicated, the information contained in it is as of December 31, 2016.

Forward-looking Statements
This Annual Information Form, and the Annual Report of which it forms a part, contain 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 headings “Fibre Supply – Mountain Pine Beetle (the projected outcome of the infestation) and Aboriginal Matters (the potential effect of aboriginal
title or rights)” and “Capital Structure – Cash dividends” and “Risks and Uncertainties” in the 2016 Management’s Discussion & Analysis incorporated
herein. 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
the matters described in these sections and under “Risk Factors”, and may differ materially from those anticipated or projected. Accordingly, readers should
exercise caution in relying upon forward-looking statements which reﬂect management’s estimates, projections and views only as of the date hereof. The
Company undertakes no obligation to publicly revise these statements to reﬂect subsequent events or changes in circumstances except as required by
applicable securities laws.

Business Overview
We are a North American diversiﬁed wood products company which produces lumber (SPF and SYP), panels (plywood, MDF and LVL), pulp (NBSK and
BCTMP), newsprint, wood chips and energy. We hold rights to timber resources that are sufﬁcient to supply a signiﬁcant amount of the ﬁbre required by
our Canadian operations and have long-term agreements for the supply of a considerable amount of the ﬁbre required by our United States operations.
We carry on our operations through subsidiaries and joint operations in British Columbia, Alberta and the southern United States. Our operations located
in western Canada manufacture all of the products described above except SYP lumber. Our sawmills located in the southern U.S. produce SYP lumber
and wood chips.

The annual production capacities of our wholly-owned facilities and our share of the capacities of our 50%-owned operations are as follows:

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Lumber (MMfbm)
SPF
SYP
Total

Panels

Plywood (MMsf 3/8”)
MDF (MMsf 3/4”)
LVL (Mcf)

Pulp (Mtonnes)
BCTMP
NBSK

Newsprint (Mtonnes)

4,100
2,400
6,500

850
250
3,200

680
570

135

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Annual Information Form (continued)

Corporate Strategy
Our goal at West Fraser is to generate strong ﬁnancial results through the business cycle, relying on our committed work force, the quality of our assets and
our well-established corporate culture. This culture emphasizes cost control in all aspects of the business and internal and external competitiveness. In our
approach to employee relations, we emphasize employee involvement and favour internal promotions whenever possible.

We are a diversiﬁed producer of wood products with access to extensive timber resources. Our Canadian lumber, plywood, LVL and veneer operations are
directly or indirectly the primary source of raw material for our pulp & paper and MDF operations.

Acquisitions and expansions are considered with a view to extending our existing business lines, particularly in lumber operations, and to product and
geographic diversiﬁcation. Our earnings over the business cycle have enabled us to make signiﬁcant and ongoing capital investments in our facilities with
the goal of achieving, maintaining or improving an overall low-cost position.

We are committed to operating in a ﬁnancially conservative and prudent manner. The North American wood products industry is cyclical and periodically
faces very difﬁcult market conditions and serious challenges. During such cyclical downturns, we focus on ﬁnancial discipline, including reduction or
deferral of non-essential capital expenditures. As market conditions improve we will typically undertake an expanded capital investment program in order
to catch up on expenditures reduced or deferred during the downturn. We believe that maintaining a strong balance sheet provides the ability to react to
growth opportunities and is a key tool in managing our operations through a business cycle.

Corporate Structure
The chart on page 6 shows the relationship of West Fraser to the principal direct and indirect subsidiaries and the joint operations in which we participate
and, where less than 100%, the percentage of our direct or indirect ownership.

West Fraser assumed its present form in 1966 by the amalgamation of a group of companies under the laws of B.C. The principal operating subsidiary,
West Fraser Mills Ltd., assumed its present form on January 1, 2005 by amalgamation under those laws. West Fraser, Inc. and West Fraser Wood Products
Inc. are Delaware corporations, while Blue Ridge Lumber Inc., Manning Forest Products Ltd. and Sundre Forest Products Inc. are Alberta corporations. West
Fraser Newsprint Ltd. subsists under the laws of Canada. Alberta Newsprint Company (“ANC”) and Cariboo Pulp & Paper Company are unincorporated
50%-owned operations governed, respectively, by the laws of Alberta and B.C.

Our executive ofﬁce is located at 858 Beatty Street, Suite 501, Vancouver, B.C., Canada, V6B 1C1 and our registered ofﬁce is located at 1500 – 1055 West
Georgia Street, Vancouver, B.C., Canada, V6E 4N7.

History and Development of Business
West Fraser originated in 1955 when three brothers, Pete, Bill and Sam Ketcham, acquired a lumber planing mill located in Quesnel, B.C. (“Quesnel”).
From 1955 through 2016 the business expanded through the acquisition of a number of sawmills and related timber harvesting rights and the acquisition
or development of lumber, panel and pulp & paper businesses.

Major developments for West Fraser during the last ﬁve years include the following:

2012

2014

2015

2016

•
•

•
•
•

•

Acquired a sawmill at Edson, Alberta.
Completed a biomass electricity turbogeneration project at our 50%-owned Cariboo pulp mill with excess electricity sold under a long-term
contract.

Acquired two sawmills in Arkansas and one in High Prairie, Alberta.
Permanently closed our Houston, B.C., Slave Lake, Alberta and Folkston, Georgia sawmills.
Capital investment sets new annual record at $410 million.

Acquired a sawmill in Manning, Alberta.
Completed co-generation projects at two of our sawmills to generate electricity from wood waste to be sold under long-term contracts.
Completed biogas-electricity generation project at our Slave Lake, Alberta pulp mill. First electricity generated January 2016.

Terminated power purchase agreements that had provided us with a portion of the electricity generated from two power plants in Alberta
at substantially predetermined rates.

• MDF facility in Quesnel was closed for repairs following a ﬁre on March 9, 2016. Plant commissioning is expected to commence in the

second quarter of 2017.

Sales Revenue ($ millions)
Year ended December 31
Lumber
Panels
Pulp & Paper
Intracompany ﬁbre sales
Total

2016
3,145
529
887
(111 )
4,450

2015
2,764
554
900
(118 )
4,100

2014
2,622
526
812
(104 )
3,856

2013
2,315
467
780
(88 )
3,474

2012
1,855
448
775
(78 )
3,000

Fibre Supply
Our operations are dependent on the consistent supply of substantial quantities of wood ﬁbre in various forms. The primary manufacturing facilities,
which produce lumber, plywood and LVL, consume whole logs while the pulp & paper and MDF facilities mostly consume wood by-products in the form
of wood chips, shavings and sawdust resulting from the production of lumber, plywood or LVL. Many facilities also consume hog fuel and wood waste
in energy systems.

In B.C. and Alberta substantially all timberlands are publicly owned and the right to harvest timber is acquired through provincially-granted licences.
Licences grant the holder the right to harvest up to a speciﬁed quantity of timber annually and either have a term of 15 to 25 years and are replaceable or
renewable or have a shorter term but are not replaceable or renewable. Government objectives in granting licenses include responsible management of
timber, soils, wildlife, water and ﬁsh resources and the preservation of biodiversity and the protection of cultural values. The objectives also include achieving
the fullest possible economic utilization of the forest resources and employment in local communities.

We do not own or manage any timberlands in the U.S.

Timber tenures in B.C. and Alberta require the payment of a fee, commonly known as stumpage, for timber harvested pursuant to its terms. Currently,
stumpage in Alberta is product-price speciﬁc and varies with the sales price of the product into which the logs will be converted. Stumpage in B.C. is
substantially based on the results of certain publicly-auctioned timber harvesting rights.

Timber tenures in B.C. and Alberta require the holder to carry out reforestation to ensure re-establishment of the forest after harvesting. Reforestation
projects are planned and supervised by our woodlands staff and are subject to approval by relevant government authorities. Our timber harvesting
operations are carried out by independent contractors under the supervision of our woodlands staff.

The following table summarizes the timber tenures, as at December 31, 2016, which supply the Canadian mills that we own or in which we have an interest,
as well as our AAC for such tenures.

Timber Tenures (thousand m3)
Location

B.C.

Alberta

Tenure1

Coniferous Long-term
Coniferous Short-term

Coniferous Long-term
Deciduous Long-term

Expiry

2022 – 2035
2017

2017 – 2033
2019 – 2033

AAC

5,621
518

7,165
1,222

1. Long-term tenures include TFLs, FMAs, timber quotas and forest licences, which are renewable timber tenures. Short-term tenures include non-replaceable forest licences.

Log Supply
Annual log requirements for our Canadian sawmills, plywood facilities and LVL plant, all operating at the capacities described herein, would total approximately
16 million m3. Approximately 80% of these requirements can be obtained from the tenures described in the above table and the balance is typically acquired
from third parties holding short or long-term timber harvesting rights, including independent logging contractors, aboriginal groups, communities and
woodlot owners. We do not necessarily consume the maximum permitted volume of logs that may be harvested from our tenures annually but will adjust
between tenure and purchase logs depending on circumstances including the availability of purchase logs.

Our U.S. operations, which produce SYP lumber, would consume approximately 10 million tons of logs per year if operating at the capacity described herein.
Our U.S. operations as a whole have access to approximately 15% of their log requirements under certain long-term supply contracts, and the balance is
purchased on the open market.

Mountain Pine Beetle
The current mountain pine beetle infestation in the B.C. interior reached a peak a number of years ago in terms of the annual timber mortality rate according
to information published by B.C.’s Ministry of Forests, Lands and Natural Resource Operations. To date, the Ministry estimates that 740 million m3 of pine
has been attacked and killed and that approximately 55% of the mature pine within the province’s timber harvesting land base (“THLB”) will be killed by
2021. Approximately 40% of B.C.’s standing timber inventory is within the THLB and approximately 29% of this is pine. When only considering the THLB
of B.C.’s interior, approximately 37% is pine. The damage to the mature pine forests within our operating areas is signiﬁcant.

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We continue to focus on the salvage and processing of dead pine in order to utilize as much of the resource as possible and to ensure that affected sites
are promptly reforested. The Province of B.C. increased the AAC on dead pine stands and limited the harvest of non-pine species until the salvage of
dead pine stands comes to a conclusion. The AAC will be reduced to reﬂect lower mature inventories as dead pine stands are harvested or when they are
no longer economic to harvest. The Province has reduced the AAC in the central Interior by approximately 21% in the past ﬁve years and we expect this
process to continue over the next several years. To date, B.C.’s Chief Forester has announced reductions of the AAC in six of our operating areas in the
Interior. Additional reductions in two of our interior operating areas are expected in 2017. As the timing of future reductions and the effect on our AACs
will depend on a variety of factors, including the amount of non-pine species available for harvest, the full effect on our operations cannot reasonably be
determined at this time.

In Alberta, the Minister and the forest industry continue to implement aggressive programs of early detection, single tree control and focused harvesting
activity. The mountain pine beetle infestation has declined signiﬁcantly in the southern part of the Province but a signiﬁcant population remains in the
northwest and west-central areas, including some pockets within our tenures. Of particular concern is the growing infestation of mountain pine beetle in
Jasper National Park, immediately west of our Hinton FMA. We, along with the Alberta government, are encouraging Parks Canada to develop effective
control mechanisms. There is also still a risk of further in-ﬂight of insects from northeastern B.C. We continue to work aggressively to reduce the number of
susceptible pine stands and conduct spread control activities across the region in concert with other forest industry participants and the Province of Alberta.

Forestry Certiﬁcation
We obtain external certiﬁcation from a number of accredited standard-setting certiﬁcation bodies which offer independent veriﬁcation of the measures that
we take to mitigate the effects of our activities on the environment.

All of the Canadian woodlands operations directly managed by us are independently certiﬁed by the Sustainable Forestry Initiative (“SFI”), an internationally-
recognized sustainable forest management certiﬁcation program. The woodlands are also certiﬁed to the International Organization for Standardization
(ISO) 14001 Environmental Management System standard.

We also subscribe to the chain-of-custody certiﬁcation Programme for Endorsement of Forest Certiﬁcation (“PEFC”) standard for our Canadian-produced
forest products. PEFC chain-of-custody assures customers that the ﬁbre in the supply chain comes from sources that comply with applicable laws,
regulations and sustainable resource standards. The standard also demonstrates avoidance of sourcing ﬁbre from controversial sources.

PEFC is a global organization that provides a mutual recognition framework for national certiﬁcation systems. PEFC recognizes more than 25 national
certiﬁcation systems, including SFI, and assures customers that differing systems provide a consistent level of sustainable forest management.

Our pulp operations and MDF mills are registered to the Forest Stewardship Council’s (“FSC”) Standard for Chain-of-Custody Certiﬁcation and the Standard
for Company Evaluation of FSC Controlled Wood. This standard independently veriﬁes that these operations do not source ﬁbre from wood harvested
(i) illegally, (ii) in violation of traditional and civil rights, (iii) in forests where high conservation values are threatened by management activities, (iv) in forests
being converted to plantations or non-forest use, (v) from forests in which genetically modiﬁed trees are planted, or (vi) in violation of any of the ILO Core
Conventions, as deﬁned in the ILO Declaration on Fundamental Principles and Rights at Work, 1988.

We do not own or manage any forestlands in the United States. However, our U.S. sawmills procure wood from a variety of sources normally within an
approximate 70-mile radius of each mill and are certiﬁed under the SFI Fiber Sourcing Standard.

For more information concerning our sustainable and environmentally sound forest practices see our Responsibility Report at www.westfraser.com.

Aboriginal Matters
Our continued access to the forest resource in Canada could be adversely affected by right and title (or claims thereto) and treaties involving various
aboriginal groups, including First Nations, Métis and others. The obligations of Canadian provincial governments to consult and accommodate aboriginal
groups regarding asserted and established rights, as well as their obligations under existing treaties and ongoing treaty negotiations, could affect the
issuance, validity, renewal and exercise and terms and conditions of Crown timber rights and authorizations to harvest, or the timeliness of obtaining such
rights. If aboriginal title is proven over any of the lands where we have interests or rights, it could result in aboriginal ownership of the resources on title lands.

To date there has been only one court case ﬁnding aboriginal title in B.C. where aboriginal title was found to be held by the Tsilhqot’in Nation in respect of
an area that is less than 0.2% of B.C., but where we do not hold cutting permits.

As the jurisprudence and government policies respecting aboriginal title and rights and the consultation process continue to evolve, we cannot at this time
predict whether aboriginal claims will have a material adverse effect on our timber harvesting rights or on our ability to exercise, renew or transfer them,
or secure other timber harvesting rights.

Residual Fibre Supply
In Canada substantially all our requirements for wood chips, shavings and sawdust and hog fuel are supplied from our own operations, either directly or
indirectly through trades. This reduces our exposure to risks associated with price ﬂuctuations and supply shortages of these products.

Our B.C. sawmills and plywood plants produce substantially all of the ﬁbre requirements of our B.C. pulp operations and MDF plant. The Alberta MDF
plant obtains its ﬁbre from the adjacent Blue Ridge sawmill and other sawmills in the area. The Hinton pulp mill obtains its ﬁbre from the adjacent Hinton
sawmill and other sawmills in the area owned by us. At times we produce whole log chips at the Hinton facility to supplement the supply of residual chips
from our various sawmills. The ﬁbre requirements of our newsprint mill are obtained from local sawmills, including our sawmill in Blue Ridge and the Slave
Lake veneer operation, through chip purchase agreements and log-for-chip trades using logs harvested from the newsprint mill’s tenures. The Slave Lake
deciduous FMA provides most of the ﬁbre requirements of the Slave Lake pulp mill, with the balance being obtained from logs purchased from local suppliers.

The majority of the wood chips produced by our U.S. operations are sold to pulp mills at market prices pursuant to long-term contracts.

Capital Expenditures and Acquisitions
We regularly invest in upgrading and expanding our facilities and operations. However, during periods when earnings are weak, we will reduce capital and
other expenditures in order to preserve liquidity. The following table shows the capital expenditures and acquisitions during the past ﬁve years.

Capital Expenditures and Acquisitions ($ millions)
Year ended December 31
Lumber
Panels
Pulp & Paper
Corporate & Other

Acquisitions
Total

2016
195
25
42
11
273
–
273

2015
172
5
32
11
220
76
296

2014
326
7
71
6
410
208
618

2013
281
5
71
1
358
–
358

2012
114
5
38
2
159
30
189

Human Resources
At December 31, 2016, we employed approximately 7,800 individuals, including our share of those in 50%-owned operations. Of these, approximately 5,300
are employed in our lumber segment, 1,320 in our panels segment, 850 in our pulp & paper segment and 330 in our corporate segment. Approximately 33%
of our employees are covered by collective agreements. In 2017, collective agreements covering approximately 390 employees will expire.

We provide ongoing safety training for our employees to minimize potential risks inherent in forestry-related manufacturing industries. Our Health and
Safety Policy and a description of external safety certiﬁcations obtained by us are described in our Responsibility Report on our website at www.westfraser.com.

Markets
The markets for our products are highly competitive. Our products are sold in markets open to a number of companies with similar products and we
compete with global producers. Our competitive position is affected by factors such as cost and availability of raw materials, energy and labour, the ability to
maintain high operating rates and low per-unit manufacturing costs, and the quality of our ﬁnal products. Some of our products may also compete with non-
ﬁbre based alternatives or with alternative products in certain market segments. Purchasing decisions by customers are generally based on price, quality
and service. However, because commodity products such as ours have few distinguishing properties from producer to producer, competition for these
products is based primarily on price. Prices and sales volumes are inﬂuenced by general economic conditions. The following table shows selected average
benchmark prices for the past ﬁve years for products of the type we produced, although these prices do not necessarily reﬂect the prices we obtained.

Average Benchmark Prices (In US$ except plywood)

SPF #2 & Better 2x4 (per Mfbm)1
SPF #3 Utility 2x4 (per Mfbm)1
SYP #2 West 2x4 (per Mfbm)2
Plywood (per Msf 3/8” basis)3 Cdn$
NBSK (per tonne)4
NBSK – China (per tonne)5
Newsprint (per tonne)6
US$/$Cdn7

2016
305
240
409
432
978
599
560
0.755

2015
278
209
376
430
972
644
538
0.782

2014
349
302
427
429
1,025
732
604
0.905

2013
356
295
414
392
941
700
608
0.971

2012
299
250
348
382
872
667
640
1.000

Sources: (refer to our 2016 Management’s Discussion & Analysis for Canadian dollar equivalent prices of the products described herein)
1. Random Lengths – Net FOB mill.
2. Random Lengths – Net FOB mill Westside.
3. Crow’s Market Report – Delivered Toronto.
4. Resource Information Systems, Inc. – U.S. list price, delivered U.S.
5. Resource Information Systems, Inc. – China list price, delivered China.
6. Resource Information Systems, Inc. – U.S. delivered 48.8 gram newsprint.
7. Bank of Canada.

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Research and Development
We support industry research and development organizations, and conduct research and development at several plants to improve processes, maximize
resource utilization and develop new products and environmental applications. In addition, in the previous ﬁve years we have focused on projects in bio-
energy generation and bio-products, including alternative uses for lignin recovered during the pulping process.

Lumber

Capacity and Production (both MMfbm)

Capacity (year-end)
B.C.
Alberta
U.S. South
Total Capacity

Production
B.C.
Alberta
U.S. South
Total Production

2016

2,465
1,635
2,400
6,500

2,303
1,493
2,139
5,935

2015

2,400
1,600
2,300
6,300

2,225
1,374
2,008
5,607

2014

2013

2,480
1,420
2,300
6,200

2,282
1,194
1,817
5,293

2,470
1,330
2,000
5,800

2,477
1,094
1,582
5,153

2012

2,600
1,200
2,000
5,800

2,461
1,005
1,488
4,954

Lumber capacity is generally based on our sawmills running on a ﬁve-day, two-shift basis with certain exceptions where logs may be available to
run a third shift.

Operations
We operate 28 sawmills and a wood-treating facility at the Sundre sawmill.

Sales
Lumber produced at our Canadian sawmills and sold to North American customers is marketed and sold from our sales ofﬁce in Quesnel, while sales to
offshore markets are made from our export sales ofﬁce in Vancouver, B.C. Offshore sales activities are complemented by a customer service ofﬁce in
Japan. Lumber produced at our U.S. sawmills is marketed by our sales group in Memphis, Tennessee. From time to time, we purchase lumber for resale
in order to meet requirements of customers.

In 2016, sales of lumber from our Canadian and U.S. operations were made to customers in the U.S. and Canada and to customers offshore, predominantly
in China and Japan. Most lumber shipments to North American customers by our Canadian operations were made by rail and the balance by truck. Most
lumber shipments to North American customers by our U.S. operations were delivered by truck and the balance by rail. Offshore shipments from both
Canada and the U.S. were made through various public terminals in bulk or container vessels.

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Panels

Capacity and Production

Plywood (MMsf 3/8” basis)
Capacity (year-end)
Production

MDF (MMsf 3/4” basis)
Capacity (year-end)
Production

LVL (Mcf)
Capacity (year-end)
Production

2016

2015

2014

2013

2012

850
826

250
160

3,200
2,215

830
797

250
220

3,200
1,627

830
771

300
206

830
781

300
204

3,200
1,796

3,200
1,848

830
793

300
195

3,200
1,964

Operations
Our panel operations include three plywood mills that primarily produce standard softwood sheathing plywood, two MDF mills, each with the ﬂexibility to
manufacture varying thicknesses and sizes, an LVL mill, and a veneer mill that produces veneer for use in the Edmonton plywood mill. A ﬁre at our MDF
plant in Quesnel on March 9, 2016 resulted in the closure of the plant for the balance of the year while repairs and reconstruction took place. This reduced
2016 MDF production compared to prior years.

Sales
Plywood, LVL and MDF are marketed from our sales ofﬁce in Quesnel to retail outlets, wholesale distributors, remanufacturers and treating businesses. MDF
is marketed under the names “Ranger”™, “WestPine”™, “Eco-Gold”™ and “Ecopremium”™ both from our sales ofﬁce and through distributors under
the direction of our sales personnel.

In 2016 the majority of our sales of plywood were made to customers in Canada and sales of MDF and LVL were to customers in the U.S. and Canada.
Shipments were by rail or truck.

Pulp & Paper

Pulp

Capacity and Production (Mtonnes)

BCTMP
Capacity (year-end)
Production
NBSK
Capacity (year-end)
Production1

2016

2015

2014

2013

2012

680
665

570
527

650
645

570
497

650
631

570
455

650
603

590
496

650
620

590
529

1. Reﬂects West Fraser’s 50% ownership of the Cariboo pulp mill.

Operations
BCTMP is produced at our Slave Lake pulp mill, primarily from hardwood aspen, and is also produced at our QRP mill, primarily from softwood species.
These pulps are used by paper manufacturers to produce paperboard products, printing and writing papers and a variety of other paper grades. NBSK is
produced at our Hinton and Cariboo pulp mills and is used by paper manufacturers to produce a variety of paper products, including tissues and printing
and writing papers.

Sales
Pulp is marketed out of our pulp sales ofﬁce in Vancouver. In 2016, sales of both NBSK and BCTMP were to customers in North America, Asia (predominantly
China) and to other offshore customers. Shipments within North America were primarily by rail and those to offshore customers were by rail and truck to
Vancouver and then by bulk or container vessels.

Newsprint

Capacity and Production1 (Mtonnes)

Capacity (year-end)
Production

1. Reﬂects West Fraser’s 50% ownership.

2016
135
128

2015
135
133

2014
135
132

2013
135
119

2012
135
128

Operations
Our 50%-owned newsprint mill at Whitecourt, Alberta produces standard newsprint in four basis weights: 40, 43, 45 and 48.8 grams per square metre.

Sales
Newsprint is sold to various publishers and printers in North America and delivered by rail and truck.

External Factors Affecting West Fraser’s Business in 2016

Economic Conditions
Our earnings are sensitive to changes in world economic conditions, primarily those in North America, Europe and Asia and particularly to the U.S. housing
market. Most of our revenues are from sales of commodities for which prices are sensitive to variations in supply and demand. Since most of these sales
are in U.S. dollars, exchange ﬂuctuations of the U.S. dollar against the Canadian dollar is a major source of earnings volatility for us.

Softwood Lumber Dispute
The Canada – U.S. Softwood Lumber Agreement (“SLA”) expired in October 2015 and on the expiry of that agreement a one year moratorium on trade
sanctions by the U.S. came into place. The Government of Canada and the U.S. Trade Representative have been unable to reach agreement on a new
managed trade agreement.

In November of 2016 a coalition of U.S. lumber producers petitioned the U.S. Department of Commerce and the U.S. International Trade Commission to
investigate alleged subsidies to Canadian producers and levy countervailing and anti-dumping duties against Canadian imports. The U.S. Department of
Commerce has initiated its investigation and is expected to make a preliminary determination regarding countervailing duties in April 2017, and in June
2017 for anti-dumping duties.

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Annual Information Form (continued)

A substantial portion of our products that are manufactured in Canada are exported for sale. Our ﬁnancial results are dependent on continued access to
the export markets and tariffs and other trade barriers that restrict or prevent access represent a continuing risk to us. The SLA had provided our Canadian
lumber operations with continued access to the U.S. market and the imposition of future trade barriers could impair that access.

Energy
Our pulp, paper and MDF operations consume substantial amounts of electricity. We have completed several projects to reduce our purchased energy
dependence by utilizing woodwaste to produce heat and steam to dry our wood products or to utilize woodwaste or pulp mill by-products or efﬂuent to
generate electricity. Such projects include those at our Hinton and Cariboo pulp mills, which have generating facilities which produce electricity to satisfy
most of their energy requirements and can contribute to earnings by selling any excess electricity. In addition, our Slave Lake pulp mill produces electricity
for its own use from bio-gas.

Co-generation projects at our Fraser Lake and Chetwynd, B.C. sawmills produce electricity from woodwaste. The electricity is sold under long-term contracts.

In B.C., electricity is purchased from the provincial utility at regulated prices based largely on generation costs. In Alberta, electricity is purchased at market
prices through the Alberta power pool.

In Alberta, we operate a natural gas-ﬁred peaking power price plant at our 50%-owned newsprint mill which provides a partial hedge for that mill against
high prices of electricity and transmission costs. Our exposure to energy costs includes the cost to purchase electricity, natural gas, gasoline, diesel fuels,
carbon taxes and fuel surcharges on purchased transportation.

Environment
Our manufacturing operations are subject to environmental protection laws and regulations. We have developed and apply internal programs and policies to
help ensure that our operations are in compliance with applicable laws and standards and to address any instances of non-compliance. We are committed
to responsible stewardship of the environment and to the continual improvement of our forest practices and manufacturing procedures so we can optimize
the use of resources and minimize the impact of our operations on the environment.

We have incurred, and will continue to incur, capital expenditures and operating costs to comply with environmental laws and regulations, which are not
expected to have material ﬁnancial or operational effects on us or our competitive position. We are required to carry out remediation activities, including site
decommissioning, under applicable environmental protection laws and regulations. In addition, we are required to carry out reforestation activities under
our various timber licenses. We maintain accruals in our ﬁnancial statements for certain environmental, reforestation and decommissioning obligations.

We have adopted and follow an Environmental Policy, a copy of which is available on our website at www.westfraser.com. Additional information is available
in our Responsibility Report, also available on our website at www.westfraser.com.

Risk Factors
A detailed discussion of risk factors is included in “Management’s Discussion & Analysis – Risks and Uncertainties”, which is incorporated herein by
reference. Our Management’s Discussion & Analysis is available on SEDAR at www.sedar.com.

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Capital Structure

Share Capital
Our authorized share capital consists of 430,000,000 shares divided into:

(a) 400,000,000 Common shares,

(b) 20,000,000 Class B Common shares, and

The Common shares and Class B Common shares are equal in all respects, including the right to dividends and the right to vote, except that each Class B
Common share may at any time be exchanged for one Common share. The Common shares are listed and traded on the Toronto Stock Exchange under
the symbol WFT while our Class B Common shares are not. Certain circumstances or corporate transactions may require the approval of the holders of our
Common shares and Class B Common shares on a separate class by class basis.

As at December 31, 2016, the issued share capital consisted of 75,881,090 Common shares and 2,281,478 Class B Common shares for a total of
78,162,568 shares (as at December 31, 2015 – 82,456,557 shares).

Credit Ratings
As shown in the table below, West Fraser is rated by three rating agencies. West Fraser pays annual fees to maintain its debt and corporate ratings. The
ratings are assigned both on a corporate level and speciﬁcally to our US$300 million notes maturing October 2024. The ratings are not a recommendation
to buy, sell or hold securities and may be subject to revision or withdrawal at any time by each rating agency.

Ratings

Agency
DBRS1
Moody’s2
Standard & Poor’s3

Rating
BBB(low)
Baa3
BBB-

Outlook
Stable
Stable
Stable

1. DBRS credit ratings for long-term obligations range from AAA to D. A rating of BBB is described by DBRS as “adequate credit quality. The capacity for the payment of

ﬁnancial obligations is considered acceptable. May be vulnerable to future events”. Additional information on the rating is available on DBRS’s website.

2. Moody’s credit ratings for long-term obligations range from Aaa to C. Moody’s describes obligations rated Baa as “subject to moderate credit risk. They are considered

medium-grade and as such may possess certain speculative characteristics”. Additional information on the rating is available on Moody’s website.

3. S&P credit ratings for long-term obligations range from AAA to D. A rating of BBB- is described by S&P as “considered lowest investment grade by market participants”.

Additional information on the rating is available on S&P’s website.

Market Prices
The following table sets forth adjusted market prices and trading volumes of our Common shares on the Toronto Stock Exchange for each month of 2016
and 2015.

2016

2015

January
February
March
April
May
June
July
August
September
October
November
December
Total

High
($ )
52.18
48.31
54.18
53.42
45.65
45.71
46.30
46.41
45.80
46.84
49.57
52.45

Low
($ )
39.54
38.08
41.46
39.86
38.45
35.35
35.92
40.45
39.44
38.18
43.01
47.26

Close
($)
48.15
41.83
52.11
41.34
44.80
37.77
44.86
44.15
40.43
45.92
47.89
48.01

Volume
(000’s )
4,555
4,355
6,941
5,977
6,067
7,231
7,754
5,816
5,428
6,165
7,517
4,468
72,274

Close
($ )
72.98
68.06
64.80
62.08
68.58
68.63
57.55
51.23
42.40
46.27
54.82
52.53

Volume
(000’s )
5,867
12,831
6,156
6,399
3,948
4,368
5,658
6,083
5,754
6,836
3,924
3,663
71,487

Source: http://tradingdata.tsx.com

Cash dividends
The declaration and payment of cash dividends is within the discretion of our Board of Directors. Historically, cash dividends have been declared on a
quarterly basis payable after the end of each quarter. On an annual basis, dividends of $0.28 per share were paid in 2016, 2015 and 2014. There can
be no assurance that cash dividends will continue to be declared and paid by us in the future, as the discretion of the Board of Directors will be exercised
from time to time taking into account our current circumstances.

Transfer Agent
Our transfer agent and registrar is CST Trust Company, with registers of transfers in Vancouver and Toronto.

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Experts
Our auditors are PricewaterhouseCoopers LLP (“PwC”), who prepared the Auditor’s Report included with our annual Consolidated Financial Statements for
the year ended December 31, 2016. PwC has conﬁrmed that it is independent with respect to us, within the meaning of the Rules of Professional Conduct
of the Institute of Chartered Accountants of B.C., as of February 16, 2017.

Directors and Ofﬁcers

Directors
The names and municipalities of residence of the directors of the Company, their principal occupations during the past ﬁve years and the periods during
which they have been directors of the Company are as follows:

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Name and Municipality
of Residence

Henry H. Ketcham
Vancouver, B.C.

Clark S. Binkley1, 3 & 4
Portland, Oregon

Reid E. Carter1, 3 & 4
West Vancouver, B.C.

John N. Floren2,3 & 4
Eastham, Massachusetts

J. Duncan Gibson1 & 4
Toronto, Ontario

John K. Ketcham3 & 4
Santa Monica, California

Harald H. Ludwig2 & 4
West Vancouver, B.C.

Gerald J. Miller1, 3 & 4
Lake Country, B.C.

Robert L. Phillips2, 4 & 5
West Vancouver, B.C.

Janice G. Rennie1, 2 & 4
Edmonton, Alberta

Ted Seraphim
North Vancouver, B.C.

Principal Occupation

Chairman

Chief Investment Ofﬁcer, GreenWood Resources, Inc.
(a timberland investment management organization)

Director Since

September 16, 1985

February 1, 1992

President, Brookﬁeld Timberlands Management LP.

April 19, 2016

President and Chief Executive Ofﬁcer, Methanex Corporation

April 19, 2016

Investor

Real Estate Developer

President, Macluan Capital Corporation
(diversiﬁed private equity investment company)

Corporate Director

President and Chief Executive Ofﬁcer

April 29, 1997

April 28, 2015

May 2, 1995

April 19, 2012

April 28, 2005

April 28, 2004

April 30, 2013

1. Member of the Audit Committee.
2. Member of the Compensation Committee.
3. Member of the Safety & Environment Committee.
4. Member of the Governance & Nominating Committee.
5. Lead Director.

Each director has held the same or a similar principal occupation with the organization indicated or a predecessor thereof for the last ﬁve years except for
Henry H. Ketcham who before April 19, 2016 was our Executive Chairman, before March 1, 2013 was our Chairman and Chief Executive Ofﬁcer and before
April 19, 2012 was also our President; Clark Binkley who before July 31, 2012 was Managing Director of International Forestry Investment Advisors LLC;
John Floren who before January 2013 was Senior Vice-President, Global Marketing and Logistics of Methanex Corporation; and Ted Seraphim who before
March 1, 2013 was President and Chief Operating Ofﬁcer, before April 19, 2012 was Executive Vice-President and Chief Operating Ofﬁcer. The term of
ofﬁce of each director will expire at the conclusion of the Company’s next annual general meeting.

Ofﬁcers

Name and Municipality of Residence Ofﬁce Held

Ted Seraphim
North Vancouver, B.C.

Raymond W. Ferris
Quesnel, B.C.

Brian A. Balkwill
Quesnel, B.C.

Keith D. Carter
Quesnel, B.C.

Larry E. Gardner
Quesnel, B.C.

James W. Gorman
Victoria, B.C.

Larry S. Hughes
Vancouver, B.C.

Rodger M. Hutchinson
West Vancouver, B.C.

Christopher D. McIver
Quesnel, B.C.

Sean P. McLaren
Collierville, Tennessee

Tom V. Theodorakis
Vancouver, B.C.

Chuck H. Watkins
Memphis, Tennessee

President and Chief Executive Ofﬁcer

Executive Vice-President and Chief Operating Ofﬁcer

Vice-President, Canadian Lumber

Vice-President, Pulp and Energy Operations

Vice-President, Canadian Woodlands

Vice-President, Corporate and Government Relations

Vice-President, Finance, Chief Financial Ofﬁcer and Secretary

Vice-President, Corporate Controller and Investor Relations

Vice-President, Sales and Marketing

Vice-President, U.S. Lumber

Assistant Secretary
Partner, McMillan LLP (lawyers)

Vice-President, U.S. Lumber Manufacturing

Each ofﬁcer has held the same or a similar ofﬁce with the organization indicated or a predecessor thereof for the last ﬁve years except for Ted Seraphim
(see disclosure under “Directors”); Raymond W. Ferris, who before February 15, 2016 was our Vice-President, Wood Products; Brian A. Balkwill, who before
February 15, 2016 was our General Manager, Canadian Lumber, before December 1, 2014 was our General Manager, Engineered Wood and before
April 1, 2012 was our General Manager, Sundre sawmill; Keith D. Carter, who before February 15, 2016 was our General Manager, Pulp Operations, before
September 1, 2014 was our Operations Manager, Mechanical Pulp and before February 1, 2014 was our General Manager, Quesnel River Pulp; Larry E.
Gardner, who before February 16, 2016 was our General Manager, Canadian Woodlands and before December 1, 2014 was our Chief Forester, British
Columbia; James W. Gorman, who before May 19, 2015 was President and Chief Executive Ofﬁcer of the Council of Forest Industries and before
September 16, 2013 served in a number of senior leadership roles with the Government of British Columbia; Rodger M. Hutchinson, who before
February 13, 2014 was our Vice-President, Corporate Controller; Christopher D. McIver, who before February 16, 2016 was our Vice-President,
Lumber Sales and Corporate Development; Sean P. McLaren, who before February 15, 2016 was our Vice-President, U.S. Lumber Operations; and Chuck
H. Watkins, who before February 15, 2016 was our General Manager, U.S. Lumber Manufacturing, before August 18, 2015 was our Regional Manager, U.S.
Lumber, before December 6, 2013 was our Engineering and Technical Manager, U.S. Lumber and before September 24, 2012 was Director of Operations
at Rex Lumber Corporation.

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Annual Information Form (continued)

Shareholdings of Directors and Ofﬁcers
The directors and ofﬁcers of the Company as a group, beneﬁcially owned or controlled or directed, directly or indirectly, the following shares of the Company:

Common shares
% of total Common shares
Class B Common shares
% of total Class B Common shares
% of all shares outstanding

December 31,
2016
1,461,762
2%
78,728
3%
2%

December 31,
2015
1,427,164
2%
78,728
3%
2%

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Governance
Corporate governance is guided by our Corporate Governance Policy, a copy of which may be viewed on our website: www.westfraser.com. The Board of
Directors has established a Governance & Nominating Committee comprised of all non-management directors. The Committee provides support for the
stewardship and governance role of the Board in reviewing and making recommendations on the composition of the Board, the functioning of the Board
and its committees, succession planning and all other corporate governance matters and practices. On the occasion of each regularly-scheduled meeting
of the Board in 2016, the Committee met without management representatives present and reviewed these and other issues.

The Corporate Governance Policy includes a Code of Conduct which sets out our policies and requirements relating to, among other categories, legal
compliance, safety, environmental stewardship, human rights, anti-corruption and whistleblowing. Additional information is available on our website
www.westfraser.com under Corporate Governance.

Audit Committee
The Audit Committee of our Board of Directors assists the Board in fulﬁlling its responsibility to oversee our ﬁnancial reporting and audit process. The full
text of the Audit Committee’s Charter is attached as Schedule 1.

Members
The following identiﬁes each current member of the Audit Committee, and the education and experience of each member that is relevant to the performance
of the member’s responsibilities as an Audit Committee member. All members of the Audit Committee are considered “independent” and “ﬁnancially
literate” within the meaning of NI 52-110.

Clark S. Binkley
Dr. Binkley holds a Bachelor of Arts in Applied Mathematics and a PhD in Forestry and Environmental Studies. He is the Chief Investment Ofﬁcer of a large
private equity timberland investment ﬁrm. He has served as a director of public and private forest products companies.

Reid E. Carter
Mr. Carter holds a combined undergraduate degree in Forestry and Biology and a master’s degree in Forest Services. He is president of a large timberlands
investment ﬁrm and has been involved with that ﬁrm and related ﬁrms in various senior roles for the last 13 years. Prior to that he served as National Bank
Financial’s Paper and Forest Products Analyst.

J. Duncan Gibson
Mr. Gibson holds a Bachelor of Commerce and a Masters of Business Administration. His career spanned 27 years with the Toronto-Dominion Bank,
including nine years in the Corporate Banking, U.S. Division, and as Vice Chairman with responsibility for the Commercial Banking Division.

Gerald J. Miller
Mr. Miller, who holds a Bachelor of Commerce, is a Chartered Professional Accountant, Chartered Accountant. He spent 25 years in various roles at West Fraser
until his retirement in 2011. While at West Fraser he served in a number of executive positions including Vice-President Finance and Chief Financial Ofﬁcer.

Janice G. Rennie
Mrs. Rennie, who holds a Bachelor of Commerce, is a Chartered Professional Accountant, Chartered Accountant. She was elected as Fellow of the
Chartered Accountants in 1998. Mrs. Rennie has chaired or been a member of several audit committees of public companies in the past and currently is
a member of the audit committees of Methanex Corporation, Major Drilling Group International Inc. and Westjet Airlines Ltd.

Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy that sets out the pre-approval requirements related to services to be performed by our independent auditors. The
policy provides that the Committee will annually review proposed audit, audit-related, tax and other services (to be submitted by the Chief Financial Ofﬁcer
and the independent auditor), and will provide general approval of described services, usually including speciﬁc maximum fee amounts.

Unless a service has received general pre-approval, it will require speciﬁc pre-approval by the Committee. The Committee is permitted to delegate pre-
approval authority to any of its members. The Committee reports on the pre-approval process to the full Board of Directors from time to time.

Fees Paid to Auditors ($ thousands)

Audit Fees1
Audit-Related Fees2
Tax Fees
Other

2016
799
160
326
85

2015
847
164
300
60

1. Represents actual and estimated fees related to ﬁscal year ends.
2. For assurance and related services that are reasonably related to the performance of the audit but are not reported as “Audit Fees”.

Material Contracts
On October 15, 2014, we issued US$300 million of ﬁxed-rate senior unsecured notes due October 15, 2024 pursuant to a private placement in the U.S.
The notes bear interest of 4.35% with semi-annual payments commencing on April 15, 2015 and are redeemable, in whole or in part, at our option at any
time. In the event of a change in control in respect of the Company which is followed within 60 days by ratings downgrades to below investment grade in
certain circumstances, unless we have exercised the right to redeem all of the notes, each holder will have the right to require us to repurchase all or any
part of such holder’s notes at a purchase price in cash equal to 101% of the principal amount of the notes plus any accrued and unpaid interest.

Additional Information
Additional information, including directors’ and ofﬁcers’ remuneration and indebtedness, principal holders of our securities and securities authorized for
issuance under equity compensation plans, will be contained in the Information Circular for the annual general meeting of the Company to be held on
April 19, 2017. Additional ﬁnancial information is provided in our annual consolidated ﬁnancial statements and Management’s Discussion & Analysis for
the year ended December 31, 2016.

Copies of our Annual Report, which will include this Annual Information Form and the documents incorporated by reference herein, our annual consolidated
ﬁnancial statements (including the auditor’s report) for the year ended December 31, 2016 and our Information Circular may be obtained at any time upon
request from us once these documents have been published, but we may require the payment of a reasonable charge if the request is made by a person
who is not a security holder of the Company.

This Annual Information Form, our Annual Report (once published) and additional information concerning the Company may also be obtained on our website
www.westfraser.com and on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com.

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Annual Information Form (continued)

Schedule 1
The Audit Committee Charter, which is set out below, was approved by the Board on December 8, 2010.

General Mandate
To assist the Board in fulﬁlling its responsibility to oversee the Company’s ﬁnancial reporting and audit processes, its system of internal controls and its
process for monitoring compliance with applicable ﬁnancial reporting and disclosure laws and its own policies.

Responsibilities
The Committee will carry out the following responsibilities:

Financial Statements

•

Review signiﬁcant accounting and ﬁnancial reporting issues, including complex or unusual transactions, signiﬁcant contingencies and highly judgmental areas, and

recent professional and regulatory pronouncements, and understand their impact on the Company’s ﬁnancial statements

• Review interim ﬁnancial reports (including ﬁnancial statements, management’s discussion and analysis and related news releases) with management and the auditors,

consider whether they are complete and consistent with the information known to Committee members and provide a recommendation to the Board with respect to

the approval of the interim ﬁnancial reports

• Understand how management develops interim ﬁnancial information, and the nature and extent of auditor involvement

• Review with management and the auditors the results of the audit, including any difﬁculties encountered

• Review the annual ﬁnancial statements, the annual management discussion and analysis and related news releases, and consider whether they are complete,

consistent with information known to Committee members, and reﬂect appropriate accounting principles, and provide a recommendation to the Board with respect to

the approval of the statements, the management discussion and analysis and the news release

• Review with management and the auditors all matters required to be communicated to the Committee under generally accepted auditing standards

•

Approve, if so delegated by the Board, the interim ﬁnancial reports and annual ﬁnancial statements and the ﬁling of the same together with all required documents

and information with regulators

Internal Control

• Require management of the Company to implement and maintain appropriate internal control procedures over annual and interim ﬁnancial reporting

• Review with management and auditors the adequacy and effectiveness of the Company’s internal control over annual and interim financial reporting,

including information technology security and control and controls related to the prevention and detection of fraud and improper or illegal transactions or payments,

the status of the remediation of any identiﬁed control deﬁciencies, and elicit recommendations for improvements

• Understand the scope of the auditors’ review of internal control over ﬁnancial reporting, and obtain and review reports on signiﬁcant ﬁndings and recommendations,

including respecting the Company’s accounting principles or changes to such principles or their application and the treatment of ﬁnancial information discussed with

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management, together with management’s responses

Audit

• Review the auditors’ proposed audit scope and approach

• Review the performance of the auditors, and provide a recommendation to the Board with respect to the nomination of the auditors for appointment and remuneration

•

Review and conﬁrm the independence of the auditors by obtaining statements from the auditors on relationships between the auditors and the Company, including

non-audit services, and discussing the relationships with the auditors

• Periodically evaluate the need for the establishment of an internal audit function and make appropriate recommendations to the Board

Compliance

• Review the effectiveness of the system for monitoring compliance with ﬁnancial reporting and disclosure laws and the results of management’s investigation and

follow-up (including disciplinary action) of any instances of non-compliance

• Review the ﬁndings of any examinations by regulatory agencies, and any auditor observations

• Obtain regular updates from management and Company legal counsel regarding compliance matters

Reporting Requirements

• Regularly report to the Board about Committee activities, issues and related recommendations

• Provide an open avenue of communication between the auditors and the Board

• Review any reports the Company issues that relate to Committee responsibilities

Other Responsibilities

•

Institute and oversee special investigations as needed

• Develop and implement a policy for the approval of the provision of non-audit services by the auditors and assessing the independence of the auditors in the context

of these engagements

•

Establish procedures for: (a) the receipt, retention and treatment of complaints received regarding non-compliance with the Company’s Code of Conduct, violations

of laws or regulations, or concerns regarding accounting, internal accounting controls or auditing matters; and (b) the conﬁdential, anonymous submission by ofﬁcers

or employees of the Company or by other persons of concerns regarding questionable accounting, auditing or ﬁnancial reporting and disclosure matters or non-

compliance with the Company’s Code of Conduct or other matters that are of a sensitive or “whistleblower” nature

• Perform other activities related to this charter as requested by the Board

• Review and assess the adequacy of this charter annually, requesting Board approval for proposed changes

• Review terms of any Code of Conduct established by the Board and respond to any related compliance issues

• Conﬁrm annually to the Board that all responsibilities outlined in this charter have been carried out

Qualiﬁcations and Procedures

• The composition of the Committee will comply with applicable laws including requirements for independence, unrelated to management, ﬁnancial literacy and

audit experience

• The Committee will meet at least four times annually, and more frequently as circumstances dictate, and the CFO and a representative of the auditors should be

available on request to attend all meetings

• The Committee should meet privately in executive session with representatives of each of management and of the auditors to discuss any matters of concern to the

Committee or such members, including any post-audit management letter

• Minutes of each meeting should be prepared, approved by the Committee and circulated to the full Board

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2016 Management’s Discussion & Analysis

Introduction and Interpretation
This discussion and analysis by West Fraser’s management (“MD&A”) of West Fraser’s ﬁnancial performance during 2016 and the fourth quarter of 2016
should be read in conjunction with the 2016 annual audited consolidated ﬁnancial statements and accompanying notes (the “Financial Statements”). Dollar
amounts are expressed in Canadian currency, unless otherwise indicated.

The ﬁnancial information contained in this MD&A has been prepared in accordance with International Financial Reporting Standards (“IFRS”).

This MD&A contains historical information, descriptions of current circumstances and statements about potential future developments and anticipated
ﬁnancial results. 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 “Capital
Expenditures” (expected completion of sawmill rebuild at our Newberry, South Carolina location) and “Business Outlook”. Actual outcomes and results of
these statements will depend on a number of factors including those matters described 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 we undertake no obligation to
publicly revise them to reﬂect subsequent events or circumstances except as required by applicable securities laws.

Throughout this MD&A reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted earnings per share and net debt to total capital ratio
(collectively “these measures”), calculated as shown under the heading “Non-IFRS 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 IFRS and none has a standardized meaning
prescribed by IFRS. Investors are cautioned that none of these measures should be considered as an alternative to earnings, earnings per share (“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.

This MD&A includes references to benchmark prices over selected periods for products of the type produced by West Fraser. These benchmark prices do
not necessarily reﬂect the prices obtained by West Fraser for those products during such period. The information in this MD&A is as at February 16, 2017
unless otherwise indicated.

For deﬁnitions of various abbreviations and technical terms used in this MD&A please see the Glossary of Industry Terms found in our most recent
Annual Report.

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Summary Information – Annual Results

Financial Comparisons ($millions, except as otherwise indicated)

Year ended December 31

Sales by segment
Lumber
Panels
Pulp & Paper
Intracompany ﬁbre sales
Total

Adjusted EBITDA
Amortization
Equity-based compensation
Operating earnings

Operating earnings by segment
Lumber
Panels
Pulp & Paper
Corporate & Other
Total

Earnings
Basic earnings per share ($)
Diluted earnings per share ($)
Cash dividends per share ($)
Total assets
Long-term debt1
Cdn$1.00 converted to US$ – average

Includes current portion of long-term debt.

Selected Quarterly Information
($millions, except earnings per share (“EPS”) amounts which are in $)
Q3-16
1,155
107
1.35
1.35

Sales
Earnings
Basic EPS
Diluted EPS

Q4-16
1,107
79
1.01
1.01

2016

2015

2014

3,145
529
887
(111 )
4,450

674
(197 )
5
482

362
77
42
1
482

326
4.06
3.90
0.28
3,600
413
0.755

2,764
554
900
(118 )
4,100

417
(191 )
23
249

105
82
41
21
249

104
1.25
0.89
0.28
3,635
423
0.782

2,622
526
812
(104 )
3,856

621
(170 )
(45 )
406

351
64
42
(51 )
406

259
3.06
3.06
0.28
3,397
354
0.905

Q2-16
1,111
98
1.22
0.86

Q1-16
1,077
42
0.51
0.50

Q4-15
1,013
(15 )
(0.18 )
(0.18 )

Q3-15
1,044
56
0.67
0.05

Q2-15
1,029
14
0.17
0.17

Q1-15
1,014
49
0.58
0.53

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Adjusted Earnings and Adjusted Basic Earnings Per Share
($millions, except EPS amounts which are in $)

Earnings
Add:

Equity-based compensation
Exchange loss (gain) on long-term ﬁnancing
Loss on power agreements
Insurance gain on disposal of equipment
Write-down of investment
Net tax effect on the above adjustments
Increase in Alberta provincial tax rate

Adjusted earnings
Adjusted basic EPS1

Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.

2016

326

(5 )
(4 )
27
(8 )
—
(6 )
—
330
4.11

2015

104

(23 )
58
32
—
7
(9 )
7
176
2.12

2016 Management’s Discussion & Analysis (continued)

Earnings in 2016 increased compared to results for 2015. Our results include several signiﬁcant non-operational items that are identiﬁed as adjustments
in the above table. After taking into account these adjustments, we generated Adjusted earnings of $330 million compared to $176 million in 2015. For
a description of operational results see “Discussion & Analysis by Product Segment” which follows this section.

In 2016 a recovery of $5 million was recorded related to equity-based compensation compared to a recovery of $23 million in 2015. An expense is
recorded on the issuance of share options or phantom or directors’ deferred share units and an additional expense or recovery is recorded each quarter
based primarily on valuation models that consider various factors relating to outstanding options and units. The most signiﬁcant of these factors is the
change in the market value of our shares from the beginning to the end of the particular period. The market value of the Company’s shares decreased by
9%, from $52.53 per share at the end of 2015 to $48.01 per share at the end of 2016. The expense or recovery does not necessarily represent the actual
amount that will ultimately be paid by the Company in respect of options and units.

Any change in the value of the Canadian dollar relative to the value of the U.S. dollar results in the revaluation of our U.S. dollar-denominated assets and
liabilities. The result of these revaluations is included in other income. The Canadian dollar was stronger against the U.S. dollar at the close of 2016
compared to the close of 2015 resulting in a foreign exchange gain of $4 million on long-term ﬁnancing and a $4 million loss on working capital (2015 –
$58 million loss and $28 million gain, respectively). The Canadian dollar strengthened by 3% from the beginning of 2016 compared to the end 2016. For
2015 the Canadian dollar weakened by 16% at the end of the year compared to the beginning of the year.

In March 2016 we negotiated the termination of our three-year power strip agreement and Capital Power Corporation gave notice of its intent to terminate its role
as buyer of the Sundance C Power Arrangement (“Sundance”). As a result of this termination, our role as a party to the Power Syndicate Agreement also
terminated. These agreements had provided us with a portion of the electricity generated from two power plants in Alberta at substantially predetermined
prices. In the ﬁrst quarter of the year we recorded a loss related to the power agreements of $19 million. In the fourth quarter Capital Power settled a
dispute with the Government of Alberta related to the termination of Sundance and as a result we recorded an additional loss of $8 million related to our
share of the settlement. In 2015 a charge of $32 million was recorded through earnings reﬂecting the change in the fair value of the agreements.

Our WestPine MDF facility experienced a ﬁre during the ﬁrst quarter of the year resulting in production being suspended until repairs can be completed. Estimated
insurance proceeds of $8 million related to replacement of equipment resulted in a gain on disposal being recorded in other income. In addition, business
interruption insurance proceeds related to lost operational proﬁt is recorded as a reduction of cost of products sold. The gain on disposal of $8 million is
included in adjusted earnings in the above table.

A write-down of our $7 million investment in a company developing alternative uses for by-products of the lumber manufacturing process was included
in other income in 2015.

Note 18 to the Financial Statements includes a reconciliation of income taxes calculated at the statutory rate to the income tax provision.

The funded position of our deﬁned beneﬁt pension plans and other retirement beneﬁt plans, whether surplus or deﬁcit, is estimated at the end of each
quarter. The funded position, as shown in Note 13 to the Financial Statements, is determined by subtracting plan assets from plan obligations. The after-tax
actuarial loss of $7 million included in other comprehensive earnings is due to a decrease in the discount rate of 0.25% at December 31, 2016 compared
to December 31, 2015 (decrease to 3.75% compared to 4.00%), substantially offset by investment returns in excess of the actuarially expected returns.

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Discussion & Analysis by Product Segment

Lumber Segment

SPF (MMfbm)

Production
Shipments

SYP (MMfbm)

Production
Shipments
Wood chip production
SPF (M ODTs)
SYP (M green tons)

Sales ($millions)

Lumber
Wood chips and other residuals
Logs and other

Adjusted EBITDA ($millions)
Amortization ($millions)
Operating earnings ($millions)
Adjusted EBITDA margin (%)
Capital expenditures ($millions)
Acquisition ($millions)
Benchmark prices (per Mfbm)

SPF #2 & Better 2x41 – US$
SPF #3 Utility 2x41 – US$
SYP #2 West 2x42 – US$
SPF #2 & Better 2x4 – Cdn$3
SPF #3 Utility 2x4 – Cdn$3
SYP #2 West 2x4 – Cdn$3

2016

3,796
3,878

2,139
2,126

1,895
2,669

2,731
319
95
3,145

508
(146 )
362
16
195
—

305
240
409
404
318
542

2015

3,599
3,614

2,008
2,014

1,753
2,557

2,369
298
97
2,764

243
(138 )
105
9
172
76

278
209
376
355
267
480

1. Source: Random Lengths – Net FOB mill.
2. Source: Random Lengths – Net FOB mill Westside.
3.

Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.

Production of SPF and SYP lumber increased a combined 328 MMfbm in 2016 over 2015 levels. Through the third quarter of the year we were on target
for achieving our goal of increasing production by 400 MMfbm but unusually cold weather in the fourth quarter resulted in reduced production, particularly
at some of our U.S. mills. The improved annual production was the result of the completion and start-up of several capital projects in both Canada and the
U.S. and the additional output from our Manning, Alberta sawmill which we acquired in the fourth quarter of 2015. Increased wood chip production was
the result of the increased lumber production.

Our SPF sales continue to be primarily to North American markets with the U.S. market being the most signiﬁcant destination. The percentage of SPF sales
by volume to the U.S. remained similar to 2015 levels although absolute volume has increased slightly as a result of our increased production. New housing
in the U.S. continues to increase slowly with single family starts improving in 2016. Single family starts are particularly important to lumber consumption
as each start uses approximately three times the lumber as a multi-family start. The percentage of single family starts, at 67% of total starts in 2016, is
still low by historical standards but has shown some improvement in 2016. SPF sales to offshore markets decreased slightly from 2015 levels due in part
to improving demand in North America. Russia continues to hold the dominant market position in China due in part to the weakening of the Russian ruble
in 2014. The table below sets out the proportion of our Canadian lumber by volume sold by destination in each of 2016 and 2015.

SPF Sales by Destination

U.S.
Canada
China
Other
Total

MMfbm
2,258
917
466
237
3,878

2016

2015

%
58
24
12
6

MMfbm
2,072
780
530
232
3,614

%
57
22
15
6

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2016 Management’s Discussion & Analysis (continued)

Operating earnings from our lumber segment were signiﬁcantly higher than 2015. Improved lumber pricing and a weaker Canadian dollar combined with
higher shipments drove much of the improved results. In addition, there were no softwood lumber duties applicable in 2016 compared to $29 million in
2015 and cash conversion costs were slightly lower in 2016. Canadian log costs were higher in 2016 but much of the impact on proﬁtability was offset
by lower log costs in our U.S. operations. Purchased log costs continued to increase in B.C., reﬂecting the gradual decrease of available logs in pine
beetle-affected areas.

Panels Segment

Plywood (MMsf 3/8” basis)
Production
Shipments
MDF (MMsf 3/4” basis)
Production
Shipments
LVL (Mcf)
Production
Shipments

Sales ($millions)

Finished products
Wood chips and other residuals
Logs and other

Adjusted EBITDA ($millions)
Amortization ($millions)
Operating earnings ($millions)
Adjusted EBITDA margin (%)
Capital expenditures ($millions)
Benchmark prices

Plywood (per Msf 3/8” basis)1 Cdn$

1. Source: Crow’s Market Report – Delivered Toronto.

2016

2015

826
826

160
167

2,215
2,226

505
18
6
529

89
(12 )
77
17
25

432

797
803

220
212

1,627
1,728

529
18
7
554

95
(13 )
82
17
5

430

The panels segment is comprised of our three plywood operations, two MDF operations and one LVL operation. All are located in western Canada.

Plywood production was slightly higher than 2015 reﬂecting strong operational performance. MDF production was reduced due to a ﬁre-related closure
of our WestPine mill during March 2016 while LVL production increased as a result of improving market demand. Despite strengthening demand our LVL
mill continues to operate on a partially-curtailed basis.

Operating earnings from our panels segment decreased slightly compared to 2015 levels. Despite this decline the segment achieved the same adjusted
EBITDA margin as in 2015 of 17% as a result of the WestPine business interruption insurance proceeds of $17 million being recorded as a reduction of
costs of production with no related sales impact.

Operating earnings from our plywood operations decreased slightly from 2015 levels due to the increased cost of peeler logs. The increased log costs were
partially offset by higher production and shipments which resulted in lower unit conversion costs. Most of the plywood we produce is sold to customers in
Canada where both the new home and renovation and repair markets remained relatively constant through 2016 and 2015.

Operating earnings from our MDF and LVL operations were similar to 2015. MDF demand is signiﬁcantly affected by new home construction which
continues to gradually strengthen in the U.S. LVL is used predominantly in single-family home construction which continues to lag construction of multi-
family housing units.

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Pulp & Paper Segment

BCTMP (Mtonnes)
Production
Shipments
NBSK (Mtonnes)
Production
Shipments
Newsprint (Mtonnes)
Production
Shipments

Sales ($millions)

Adjusted EBITDA ($millions)
Amortization ($millions)
Operating earnings ($millions)
Adjusted EBITDA margin (%)
Capital expenditures ($millions)
Benchmark prices (per tonne)

NBSK U.S. – US$1,3
NBSK China – US$2,3
Newsprint – US$4
NBSK U.S. – Cdn$5
NBSK China – Cdn$5
Newsprint – Cdn$5

2016

2015

665
653

527
526

128
129

887

79
(37 )
42
9
42

978
599
560
1,295
793
742

645
673

497
499

133
136

900

80
(39 )
41
9
32

972
644
538
1,242
823
688

1. Source: Resource Information Systems, Inc. – U.S. list price, delivered U.S.
2. Source: Resource Information Systems, Inc. – China list price, delivered China.
3. The differences between the U.S. and China NBSK list prices are largely attributable to the customary sales practice of applying material discounts from the U.S. list

price for North American sales compared to relatively small discounts from the China list price for sales into China.

4. Source: Resource Information Systems, Inc. – U.S. delivered 48.8 gram newsprint.
5. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.

The pulp & paper segment is comprised of our NBSK, BCTMP and newsprint businesses.

BCTMP and NBSK pulp production increased in 2016 compared to 2015. BCTMP production increased by 3% from 2015, reﬂecting a new annual
production record at our Slave Lake Pulp mill. NBSK production increased by 6% compared to 2015. Despite some operational issues at our Hinton pulp
mill in the fourth quarter, the mill achieved an annual production record in 2016. Major maintenance shutdowns are planned for our Hinton and our jointly
owned Cariboo NBSK mills in 2017 of 14 days in the third quarter and 12 days in the second quarter, respectively. Newsprint production was slightly lower
in the year compared to 2015.

During 2016 and 2015 Alberta power prices were relatively lower and less volatile compared to previous periods resulting in no signiﬁcant production
curtailments at our Slave Lake pulp mill and jointly owned newsprint mill.

Operating earnings for the segment were similar to the previous year with improvements in BCTMP and newsprint earnings offset by a decline in NBSK
earnings. Pulp prices were lower in 2016 compared to 2015, particularly for NBSK, while there was a signiﬁcant improvement in newsprint prices. BCTMP
unit conversion costs were lower in 2016 compared to 2015 due mainly to lower power costs in Alberta and lower depreciation costs due to assets
becoming fully depreciated. NBSK unit conversion costs also were lower in 2016 due to lower furnish and natural gas costs and lower chemical usage.

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2016 Management’s Discussion & Analysis (continued)

4th Quarter Results

Sales and Earnings Comparison
($millions, except as otherwise indicated)

Sales by Segment
Lumber
Panels
Pulp & Paper
Intracompany ﬁbre sales
Total

Operating Earnings by Segment
Lumber
Panels
Pulp & Paper
Corporate & Other

Operating earnings
Finance expense
Other
Tax provision
Earnings
Cdn$1.00 converted to US$ – average

Adjusted Earnings and Adjusted Basic Earnings Per Share

($millions except EPS amounts which are in $)

Earnings
Add:

Equity-based compensation
Exchange loss on long-term ﬁnancing
Loss on power agreements
Insurance gain on disposal of equipment
Write-down of investment
Net tax effect on the above adjustments

Adjusted earnings
Adjusted basic EPS

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Q4-16

Q3-16

Q4-15

778
124
231
(26 )
1,107

107
17
20
(17 )

127
(7 )
(1)
(40 )
79
0.749

Q4-16

16
4
8
(3 )
—
(3)
101
1.28

814
139
230
(28 )
1,155

114
30
22
(10 )

156
(7 )
1
(43 )
107
0.767

Q3-16

107

7
2
—
—
—
(1 )
115
1.45

684
139
220
(30 )
1,013

17
16
8
(23 )

18
(6 )
(16 )
(11 )
(15 )
0.749

Q4-15

(15 )

22
14
3
—
7
(1 )
30
0.38

Discussion & Analysis of Quarterly Non-operational Items
For a description of our quarterly operational results see “Discussion & Analysis by Product Segment” which follows this section.

Our results include several signiﬁcant non-operational items that are identiﬁed as adjustments in the table immediately above this section. After taking
into account the adjustments, we generated Adjusted earnings of $100 million in the current quarter compared to Adjusted earnings of $115 million in the
previous quarter and Adjusted earnings of $30 million in the fourth quarter of 2015.

In the fourth quarter of 2016 an expense of $16 million was recorded related to equity-based compensation compared to an expense of $7 million last
quarter and an expense of $22 million in the fourth quarter of 2015. An expense is recorded on the issuance of share options or phantom or directors’
deferred share units and an additional expense or recovery is recorded each quarter based primarily on valuation models that consider various factors
relating to outstanding options and units. The most signiﬁcant of these factors is the change in the market value of our shares from the beginning to the
end of the particular period. The market value of the Company’s shares increased by 19% in the fourth quarter, from $40.43 per share at the end of the
third quarter to $48.01 per share at the end of 2016. In November we entered into a derivative contract that effectively hedges the impact from changes
in value related to 1,000,000 equity units. For the quarter the hedge reduced the expense by $2 million compared to what it otherwise would have been.
This contract will reduce volatility going forward. The expense or recovery does not necessarily represent the actual amount that will ultimately be paid by
the Company in respect of options and units.

For a description of the other key adjustments, see the corresponding section under “Annual Results” in this MD&A.

Discussion & Analysis by Product Segment

Lumber Segment

SPF (MMfbm)
Production
Shipments
SYP (MMfbm)
Production
Shipments

Sales ($millions)

Lumber
Wood chips and other residuals
Logs and other

Adjusted EBITDA ($millions)
Amortization ($millions)
Operating earnings ($millions)

Adjusted EBITDA margin (%)
Benchmark prices (per Mfbm)

SPF #2 & Better 2x41 – US$
SPF #3 Utility 2x41 – US$
SYP #2 West 2x42 – US$
SPF #2 & Better 2x4 – Cdn$3
SPF #3 Utility 2x4 – Cdn$3
SYP #2 West 2x4 – Cdn$3

Q4-16

Q3-16

Q4-15

897
944

499
489

680
74
24
778

144
(37 )
107

315
261
432
420
348
576

954
986

541
546

709
81
24
814

151
(37 )
114

322
245
410
420
320
535

896
946

502
502

578
77
29
684

55
(38 )
17

263
189
395
351
252
527

1. Source: Random Lengths – Net FOB mill.
2. Source: Random Lengths – Net FOB mill Westside.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.

Operating earnings decreased slightly in the quarter compared to the previous quarter. Production and shipments both declined from the previous quarter
due to cold weather in many of our operating areas late in the quarter as well as fewer operating days. The negative effect of lower production and
shipments was partially offset by higher Canadian-dollar lumber prices. Log costs in our Canadian operations were higher than in the previous quarter
which also contributed to the lower operating earnings.

Operating earnings were signiﬁcantly higher in the quarter compared to the fourth quarter of 2015 mainly due to higher lumber prices, particularly for SPF
lumber. Production and shipments for the quarter were similar to the fourth quarter of 2015. Higher Canadian log costs in the quarter partially offset the
positive effect of higher lumber prices.

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2016 Management’s Discussion & Analysis (continued)

Panels Segment

Plywood (MMsf 3/8” basis)
Production
Shipments
MDF (MMsf 3/4” basis)
Production
Shipments
LVL (Mcf)
Production
Shipments

Sales ($millions)

Finished products
Wood chips and other residuals
Logs and other

Adjusted EBITDA ($millions)
Amortization ($millions)
Operating earnings ($millions)
Adjusted EBITDA margin (%)
Benchmark prices

Plywood (per Msf 3/8” basis)1 Cdn$

1. Source: Crow’s Market Report – Delivered Toronto.

Q4-16

Q3-16

Q4-15

207
207

35
34

584
556

119
4
1
124

20
(3 )
17
16

212
212

36
35

548
611

132
5
2
139

33
(3 )
30
24

197
203

56
53

456
485

131
5
3
139

19
(3 )
16
14

421

471

410

The decline in operating earnings for our panels segment compared to the previous quarter was primarily the result of lower plywood prices reﬂecting a
seasonal slowdown of the Canadian building industry. Lower log costs in the fourth quarter provided a partial positive offset to the effect of lower prices.
Results from our MDF business were also lower in the current quarter due to lower business interruption insurance booked compared to the third quarter
of 2016. LVL operating earnings were little changed quarter to quarter.

Operating earnings for the current quarter compared to the same quarter of 2015 were also little changed. Plywood earnings were higher in the current
quarter due to the combination of higher sales prices, higher shipments and slightly lower unit manufacturing costs. MDF and LVL results were both slightly
lower than in the fourth quarter of 2015, offsetting much of the increase in operating earnings provided by the plywood operations.

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Pulp & Paper Segment

BCTMP (Mtonnes)
Production
Shipments
NBSK (Mtonnes)
Production
Shipments
Newsprint (Mtonnes)
Production
Shipments

Sales ($millions)

Adjusted EBITDA ($millions)
Amortization ($millions)
Operating earnings ($millions)
Adjusted EBITDA margin (%)
Benchmark prices (per tonne)
NBSK U.S. – US$1,3
NBSK China – US$2,3
Newsprint – US$4
NBSK U.S. – Cdn$5
NBSK China – Cdn$5
Newsprint – Cdn$5

Q4-16

Q3-16

Q4-15

172
149

133
139

33
32

231

30
(10 )
20
13

992
595
575
1,324
794
767

169
181

137
127

31
31

230

31
(9 )
22
13

998
595
575
1,302
776
750

165
169

128
125

33
38

220

17
(9 )
8
8

945
600
505
1,262
801
674

1. Source: Resource Information Systems, Inc. – U.S. list price delivered U.S.
2. Source: Resource Information Systems, Inc. – China list price, delivered China.
3. The differences between the U.S. and China NBSK list prices are largely attributable to the customary sales practice of applying material discounts from the U.S. list price

for North American sales compared to relatively small discounts from the China list price for sales into China.

Operating earnings from our pulp & paper operations decreased slightly from the previous quarter. Our NBSK operations were negatively affected by cold
weather in December which resulted in higher chemical, natural gas and maintenance costs. These higher costs were only partially offset by the effect
of higher shipments compared to the previous quarter. BCTMP realized sales prices increased signiﬁcantly from the previous quarter due to substantially
improved demand from China. The improved prices coupled with some improvement in conversion costs more than offset the negative effect of reduced
BCTMP shipments in the quarter. Shipments were lower in the quarter due to transportation delays, mainly as port congestion caused a delay in planned
shipments. Operating earnings from our newsprint operations were similar to the last quarter.

Operating earnings for the segment were higher than in the fourth quarter of 2015 due to improved BCTMP and newsprint results partially offset by lower
NBSK results. The BCTMP and newsprint improvement in operating earnings was substantially due to signiﬁcantly higher product prices. The higher prices
together with some reduction in unit conversion costs more than offset the effect of lower shipments in the quarter compared to the fourth quarter of 2015.

Our NBSK business realized lower product prices and higher conversion costs, mainly due to higher maintenance costs, in the quarter compared to the
fourth quarter of 2015.

Capital Expenditures

During the year our capital expenditures totaled $273 million as set out in the following table.

($millions of dollars)

Segment
Lumber
Panels
Pulp & Paper
Corporate & Other
Total

Proﬁt
Improvement
127
2
16
—
145

Maintenance

of Business
68
23
26
11
128

Total
195
25
42
11
273

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2016 Management’s Discussion & Analysis (continued)

Capital expenditures of $273 million reﬂect our philosophy of continual reinvestment in our mills with signiﬁcant investments made in both our Canadian and
U.S. operations. In our lumber operations we invested in several continuous kilns and a number of smaller projects to improve grade recovery and output.
The single largest project is a sawmill rebuild at our Newberry, South Carolina operation which is expected to be completed in the ﬁrst quarter of 2017.

Maintenance of business expenditures are primarily for safety upgrades, roads, bridges, mobile equipment and major maintenance shutdowns.

Business Outlook

Operations
We expect continuing improved productivity from our lumber segment resulting in an increase in overall lumber production of approximately 250 MMfbm
compared to 2016. The increase reﬂects the completion of several major capital projects and start-ups in the segment through 2016 although production
gains will be partially offset by reductions resulting from anticipated capital projects in the segment to be undertaken during 2017. Anticipated production
gains assume improving demand and normal access to logs and could be adversely affected by abnormally severe weather conditions in any of our operating
areas and faster than anticipated log quality deterioration in the B.C. interior. We expect continuing log cost escalation in the B.C. interior as mountain pine
beetle-killed timber reaches the end of commercial viability and overall log supply decreases.

In our panels segment our plywood and LVL operations should perform generally consistently with 2016 operations. Our WestPine MDF plant experienced
a ﬁre in March, 2016 resulting in its closure for the balance of the year for repairs and reconstruction. Plant commissioning is expected to commence in
the second quarter with return to normal operations in the third quarter.

Because two of our plywood operations are in the B.C. interior, we expect log costs for those operations to continue to increase in 2017.

Both of our NBSK mills will undergo major maintenance shutdowns in 2017 (our jointly owned Cariboo mill in the second quarter and Hinton in the third
quarter). Improved productivity at these mills continues to be a key focus for 2017. Our BCTMP mills and our jointly owned newsprint mill continued to
operate well in 2016 and we expect generally similar operations in 2017, assuming adequate markets.

Markets
Our lumber segment’s most important market is the U.S. and particularly residential construction, repair and maintenance. Canadian softwood lumber
exports to the U.S. have been the subject of trade disputes and managed trade arrangements for the last several decades. During the period from October
2006 through October 2015 these exports were subject to a trade agreement between the U.S. and Canada and on the expiry of that agreement a one-year
moratorium on trade sanctions by the U.S. came into place. That moratorium has expired and a coalition of U.S. lumber producers has petitioned the U.S.
Department of Commerce and the U.S. International Trade Commission to impose trade sanctions against Canadian softwood lumber exports to the U.S. It
appears likely that some form of protectionist sanctions such as duties will be imposed on Canadian softwood lumber exports to the U.S. until and unless
some form of trade agreement can be reached between the U.S. and Canada or a ﬁnal, binding determination is made as a result of litigation. Unless the
additional costs imposed by duties can be passed along to lumber consumers, the duties will increase costs for Canadian producers and, in certain cases,
could result in some Canadian production becoming unproﬁtable. Whether and to what extent duties can be passed along to consumers will largely depend
on the strength of demand for softwood lumber, which is signiﬁcantly inﬂuenced by the levels of new residential construction in the U.S. which has been
gradually improving over the past several years. If duties can be passed through to consumers in whole or in part the price of Canadian softwood lumber
will increase (although the increase will not necessarily be for the beneﬁt of Canadian producers) which in turn could cause the price of SYP lumber, which
would not be subject to the duty, to increase as well.

U.S. trade laws permit, under certain circumstances, the imposition of duties retroactively for a period of up to 90 days. If this were to occur there would
be no ability for Canadian producers to pass along any portion of such duties and they would become entirely an increased cost to the Canadian producer.
It is difﬁcult to predict whether such retroactive duties will be imposed.

We are anticipating continued improvement in U.S. new residential construction and steady demand from China and Japan for Canadian softwood lumber,
but it is currently very difﬁcult to predict how and to what extent duties will be imposed, as well as how such duties will affect lumber prices and the cost
structure of our Canadian lumber business.

The major component of our panels segment is plywood which is sold mainly in Canada. Although demand for Canadian plywood has been strong over
the past several years, we anticipate some downward pressure on plywood prices in 2017 as the pace of Canadian housing construction slows. MDF and
LVL demand is heavily inﬂuenced by North American new home construction and we are expecting continuing improvement in U.S. residential construction
which should help maintain good price levels for these products.

We are anticipating that pulp markets will generally be ﬂat to slightly weaker as the market adjusts to announced new production. Pulp demand will be
heavily inﬂuenced by the pace of Chinese economic activity which may face headwinds as a result of anticipated U.S. protectionist actions although the
timing and nature of such actions is uncertain

Cash ﬂows
We are anticipating levels of cash ﬂows, even taking into account the potential imposition of duties on Canadian softwood lumber exports to the U.S., to
support approximately $300 million of capital spending in 2017 as well as to continue to support the current dividend. We have paid a dividend in every
quarter since we became a public company in 1986. We expect to maintain our investment grade rating and intend to preserve sufﬁcient liquidity to be
able to take advantage of strategic growth opportunities that may arise, although we believe that uncertainty concerning potential future trade sanctions
with respect to Canadian lumber exports to the U.S. could inhibit growth activities. We are authorized under our Normal Course Issuer Bid, which expires in
September of 2017, to purchase up to 5% of our outstanding shares and we will continue to consider share purchases with excess cash if we are satisﬁed
that this will enhance shareholder value.

Estimated Earnings Sensitivity to Key Variables1

(based on 2016 production – $millions)
Factor
Lumber price
Plywood price
NBSK price
BCTMP price
U.S. – Canadian $ exchange rate2

Variation
US$10 (per Mfbm)
Cdn$10 (per Msf)
US$10 (per tonne)
US$10 (per tonne)
US$0.01 (per Cdn $)

Change in pre-tax earnings
80
8
7
9
30

1. Each sensitivity has been calculated on the basis that all other variables remain constant and assumes year-end foreign exchange rates.
2. Excludes exchange impact of translation of U.S. dollar-denominated debt and other monetary items. Reﬂects the amount of the initial US$0.01 change; additional changes

are substantially, but not exactly, linear.

Capital Structure and Liquidity

The capital structure of the Company consists of Common share equity and long-term debt. In addition, the Company maintains a committed revolving
credit facility and lines of credit dedicated to letters of credit.

In September 2016 we announced approval for renewal of our normal course issuer bid expiring that month. The renewal allows us to acquire up to
3,834,226 Common shares for cancellation until expiry of the bid on September 18, 2017. From September 19, 2016 to December 31, 2016, under this
bid, we repurchased 391,853 Common shares for cancellation at an average price of $50.70. In 2016 we repurchased a total of 4,306,159 Common
shares for cancellation at an average price of $44.06 (2015 – 1,078,856 Common shares at an average price of $55.57).

Our outstanding Common share equity consists of 75,882,056 Common shares and 2,281,478 Class B Common shares for a total of 78,163,534 shares
issued and outstanding as at February 16, 2017.

Our Class B Common shares are equal in all respects to our Common shares and are exchangeable on a one-for-one basis for Common shares. Our
Common shares are listed for trading on the Toronto Stock Exchange while our Class B Common shares are not. Certain circumstances or corporate
transactions may require the approval of the holders of our Common shares and Class B Common shares on a separate class by class basis.

As of February 16, 2017 there were 2,119,886 share purchase options outstanding with exercise prices ranging from $12.36 to $73.99 per Common share.

In October 2014, we issued US$300 million of ﬁxed-rate senior unsecured notes, bearing interest at 4.35% and due October 2024, pursuant to a private
placement in the U.S. The notes are redeemable, in whole or in part, at our option at any time. Our revolving lines of credit consist of a $500 million
committed revolving credit facility, a US$25 million demand line to support our U.S. operations, demand lines of credit totalling $59 million (includes US$7
million) dedicated to letters of credit, and an $8 million demand line of credit dedicated to our jointly owned newsprint operation. The revolving credit
facility matures on September 30, 2020.

At December 31, 2016 there were no amounts outstanding under our revolving credit facility. Letters of credit in the amount of $48 million were supported
by our facilities, leaving approximately $553 million of credit available for further use.

Our cash requirements, other than for operating purposes, are primarily for interest payments, repayment of debt, additions to property, plant, equipment
and timber, acquisitions and payment of dividends. In normal business cycles and in years without a major acquisition or debt repayment, cash on hand
and cash provided by operations have been sufﬁcient to meet these requirements.

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2016 Management’s Discussion & Analysis (continued)

Summary of Financial Position ($millions, except as otherwise indicated)
As at December 31
Cash1
Current assets
Current liabilities
Ratio of current assets to current liabilities
Net debt2
Shareholders’ equity
Net debt to total capital3

1. Cash consists of cash and short-term investments.
2. Total debt less deferred ﬁnancing costs less cash plus cheques issued in excess of funds on deposit.
3. Non-IFRS measure. See “Non-IFRS Measures” below.

2016
50
938
459
2.0
376
2,241
14%

2015
13
971
606
1.6
617
2,147
22%

As shown in the table below, we are rated by three rating agencies. All three agencies maintained our investment grade ratings with a Stable Outlook.

Debt Ratings
Agency
DBRS
Moody’s
Standard & Poor’s

Rating
BBB(low)
Baa3
BBB-

Outlook
Stable
Stable
Stable

These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agencies.

Selected Cash Flow Items ($millions)
For the year ended December 31

Operating Activities
Earnings
Amortization
Foreign exchange loss (gain) on long-term ﬁnancing
Change in income taxes
Changes in non-cash working capital
Other
Cash provided by operating activities

Financing Activities
Proceeds from (repayment of) operating loan
Finance expense paid
Dividends
Common share repurchases
Other
Cash used in ﬁnancing activities

Investing Activities
Acquisition
Additions to capital assets
Other
Cash used in investing activities

Increase (decrease) in cash

2016

2015

326
197
(4 )
111
90
(31 )
689

(181 )
(23 )
(22 )
(190 )
2
(414 )

—
(273 )
10
(263 )

104
191
58
(15 )
(79 )
42
301

68
(22 )
(23 )
(60 )
(1 )
(38 )

(76 )
(220 )
8
(288 )

(25 )

Operating Activities
Cash provided by operating activities increased by $388 million from the previous year. The table above shows the main components of cash generation
for the year compared to 2015. Increased earnings accounted for $222 million of the increase with income taxes and working capital changes being the
other signiﬁcant factors. The cash generated from income taxes relates to current tax expense being higher than instalment payments in 2016 and the
impact of the change in deferred income tax balances. The main component of the working capital change relates to a decrease in inventories as we were
able to reduce both our ﬁnished product inventories and log inventories from the levels present at the beginning of the year.

Financing Activities
During the year we repaid $181 million outstanding from our operating lines and acquired 4,306,159 of our Common shares for a total purchase price of
$190 million.

Investing Activities
The cash used for investing activities was related to additions to capital assets of $273 million. Cash used in 2015 included $220 million related to capital
additions and an acquisition of a sawmill in Alberta for $76 million.

Contractual Obligations as at December 31, 2016 ($millions)1
2018
—
3
—
3

Long-term debt2
Operating leases
Asset purchase commitments
Total

2017
—
4
33
37

2019
—
2
—
2

2020
—
2
—
2

Thereafter
417
3
—
420

Total
417
14
33
464

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1. Contractual obligations means an agreement related to debt, leases and enforceable agreements to purchase goods or services on speciﬁed terms, but does not include
reforestation and decommissioning obligations, energy purchases under various agreements, pension contributions payable, accounts payable in the ordinary course of
business or contingent amounts payable.
Includes U.S. dollar-denominated debt of US$300 million.

Signiﬁcant Management Judgments Affecting Financial Results

The preparation of ﬁnancial statements requires management to make estimates and assumptions, and to select accounting policies, that affect the
amounts reported. The signiﬁcant accounting policies followed by our Company are disclosed in our Financial Statements. The following judgments are
considered the most signiﬁcant:

Fair value of Derivative Contracts
Prior to March 24, 2016 we had power contracts in place to reduce ﬁnancial risk from increasing Alberta power prices. These contracts were adjusted
to fair value at each balance sheet date and the change in fair value was recorded through earnings. To assess fair value, we discounted expected cash
ﬂows over the life of the agreements. Determining expected future cash ﬂows involves signiﬁcant estimates including future power prices, and electricity
generation and costs of producing electricity from power plants that our contracts were tied to.

Recoverability of Long-lived Assets
We assess the carrying value of an asset when there are indicators of impairment. The assessment compares the estimated discounted future cash ﬂows
of the asset to the carrying value of the asset. If the carrying value of the asset exceeds the estimated discounted future cash ﬂows relating to the asset,
the carrying value is written down to the higher of fair value less costs to sell and value-in-use.

We review the amortization periods for our manufacturing equipment and machinery to ensure that the periods appropriately reﬂect anticipated
obsolescence and technological change. Current amortization periods for manufacturing equipment range from 6 to 20 years. Timber licences are
amortized over 40 years.

Goodwill is not amortized. We compare the carrying value of goodwill and related assets, at least once a year, to the estimated discounted cash ﬂows
that the assets are expected to generate. If it is determined that the carrying value is more than the estimated discounted cash ﬂows, then a goodwill
impairment will be recorded. We tested goodwill for impairment in 2016 and concluded that its carrying value is not impaired. The testing of goodwill for
impairment involves signiﬁcant estimates including future production and sales volumes, product selling prices, foreign currency exchange rates, operating
costs, capital expenditures and the appropriate discount rate to apply. In all cases, we have used our best estimates of these projected amounts and values.
Given the current global economic uncertainty and the volatility of the markets for our products, it is possible that our estimates will be adjusted in the future
and that these adjusted estimates could result in the future impairment of goodwill.

We also review the carrying value of deferred income tax assets to ensure that the carrying value is appropriate. The key factors considered are the
Company’s history of proﬁtability, future expectations of proﬁtability and the timing of expiry of tax loss carry-forwards.

Reforestation and Decommissioning Obligations
In Canada, provincial regulations require timber quota holders to carry out reforestation to ensure re-establishment of the forest after harvesting. Reforested
areas must be tended for a period sufﬁcient to ensure that they are well-established. The time needed to meet regulatory requirements depends on a
variety of factors.

In our operating areas, the time to meet reforestation standards usually spans 12 to 15 years from the time of harvest. We record a liability for the estimated
cost of the future reforestation activities when the harvesting takes place. This liability is reviewed, at least annually, and adjusted to our current estimate of
the costs to complete the remainder of the reforestation activities. In 2016 the review of the reforestation obligation resulted in a decrease to the obligation
of $10 million (2015 – increase of $4 million).

2016 Management’s Discussion & Analysis (continued)

We record the estimated fair value of a liability for decommissioning obligations, such as landﬁll closures, in the period when a reasonable estimate of fair
value can be made. We review these estimates at least annually, and adjust the obligations as appropriate. In 2016 the review resulted in a decrease to
the obligation by $4 million (2015 – increase of $6 million).

Deﬁned Beneﬁt Pension Plan (“D.B. Plan”) Assumptions
We maintain several D.B. Plans for many of our employees. The annual funding requirements and pension expenses are based on (i) various assumptions
that we determine in consultation with our actuaries, (ii) actual investment returns on the pension fund assets, and (iii) changes to the employee groups in
the pension plans. Note 13 to the Financial Statements provides the sensitivity of a change in key assumptions to our post-retirement obligations.

Accounting Standards Issued But Not Yet Applied

The International Accounting Standards Board periodically issues new standards and amendments or interpretations to existing standards. The new
pronouncements listed below are ones we consider to be most signiﬁcant.

IFRS 9 – Financial Instruments
In November 2009, IFRS 9 was issued and in October 2010 was further amended. IFRS 9 addresses classiﬁcation and measurement of ﬁnancial assets
and replaces the multiple category and measurement models in International Accounting Standards (“IAS”) 39 - Financial Instruments: Recognition and
Measurement for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through proﬁt or loss.
IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through proﬁt or loss or at fair
value through other comprehensive earnings. This standard is effective for annual periods beginning on or after January 1, 2018. We do not expect this
standard to have a signiﬁcant effect on our consolidated ﬁnancial statements.

IFRS 15 – Revenue from Contracts with Customers
In May 2014, IFRS 15 was issued. This standard addresses revenue recognition and establishes principles for reporting information about the nature,
amount, timing and uncertainty of revenue and cash ﬂows arising from an entity’s contracts with customers. Revenue is recognized when a customer
obtains control of a good or service and thus has the ability to control its use and obtain the beneﬁts from the good or service. The standard replaces
IAS 18 – Revenue, IAS 11 – Construction Contracts and the related interpretations. The standard is effective for annual periods beginning on or after
January 1, 2018 with earlier application permitted. We do not expect this standard to have a signiﬁcant effect on our consolidated ﬁnancial statements.

IFRS 16 – Leases
In January 2016 IFRS 16 was issued. This standard requires, among other things, lessees to recognize leases traditionally recorded as operating leases in
the same manner as ﬁnancing leases. The standard is effective for annual periods beginning on or after January 1, 2019 with earlier application permitted.
We do not expect this standard to have a signiﬁcant effect on our consolidated ﬁnancial statements.

Non-IFRS Measures

The following summarizes the non-IFRS measures we use in this MD&A. None of these measures is a generally accepted measure under IFRS and none
has a standardized meaning prescribed by IFRS. Investors are cautioned that none of these measures should 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.

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Adjusted EBITDA
($millions)
Earnings
Add:

Amortization
Finance expense
Tax provision

EBITDA
Add:

Equity-based compensation

Other
Adjusted EBITDA

Q4-16
79

Q3-16
107

50
7
40
176

16
1
193

50
7
43
207

7
(1 )
213

2016
326

197
29
118
670

(5 )
9
674

Q4-15
(15 )

50
6
11
52

22
16
90

2015
104

191
29
52
376

(23 )
64
417

Adjusted EBITDA by Segment
($millions)
Lumber

Earnings before tax
Add:

Amortization
Finance expense

EBITDA
Add:
Other
Adjusted EBITDA

Panels

Earnings before tax
Add:

Amortization
Finance expense

EBITDA
Add:
Other
Adjusted EBITDA

Pulp & Paper

Earnings before tax
Add:

Amortization
Finance expense

EBITDA
Add:
Other
Adjusted EBITDA
Corporate & Other

Earnings before tax
Add:

Amortization

EBITDA
Add:

Equity-based compensation

Other
Adjusted EBITDA

Total Adjusted EBITDA

Q4-16

Q3-16

2016

Q4-15

2015

104

37
5
146

(2 )
144

3
—
22

(2 )
20

10
2
28

2
30

(20 )

—
(20 )

16
3
(1 )

193

111

37
4
152

(1 )
151

3
1
33

—
33

9
2
32

(1 )
31

(11 )

1
(10 )

7
1
(2 )

213

Q3-16
107

2
—
—
—
(1 )
—
115
1.45

344

146
18
508

—
508

12
3
94

(5 )
89

37
8
56

23
79

2
12

(5 )
(9 )
(2 )

674

2016
326

(5 )

(4 )
27
(8 )
—
(6 )
—
330
4.11

38
4
50

5
55

3
—
18

1
19

9
2
19

(2 )
17

(35 )

—
(35 )

22
12
(1 )

Q4-15
(15 )

14
3
—
7
(1 )
—
30
0.38

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138
18
243

—
243

13
3
92

3
95

39
8
75

5
80

(35 )

1
(34 )

(23 )
56
(1 )

417

2015
104

(23 )

58
32
—
7
(9 )
7
176
2.12

Adjusted Earnings and Adjusted Basic Earnings Per Share
Q4-16
($millions except EPS amounts which are in $)
Earnings
79
Add:

Equity-based compensation
Exchange loss (gain) on
long-term ﬁnancing
Loss on power agreements
Insurance gain on disposal of equipment

Write-down of investment

Net tax effect on the above adjustments
Increase in Alberta provincial tax rate

Adjusted earnings
Adjusted basic EPS1

4
8
(3 )
—
(3 )
—
101
1.28

1. Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.

2016 Management’s Discussion & Analysis (continued)

Net Debt to Total Capital Ratio

($millions except where indicated)
Net debt

Cash and short-term investments
Deferred ﬁnancing costs1
Cheques issued in excess of funds on deposit

Operating loan
Long-term debt

Shareholders’ equity
Total capital
Net debt to total capital

December 31,
2016

December 31,
2015

(50 )
(6 )
15
—
417
376
2,241
2,617
14%

(13 )
(7 )
29
181
427
617
2,147
2,764
22%

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1. For our balance sheet presentation, these costs are applied to reduce the associated debt or, in instances when the operating loan is undrawn, these costs associated

with the operating loan are included in other assets.

Risks and Uncertainties

Product Demand and Price Fluctuations
Our revenues and ﬁnancial results are primarily dependent on the demand for, and selling prices of, our products, which are subject to signiﬁcant
ﬂuctuations. The demand and prices for lumber, panels, pulp, newsprint, wood chips and other wood products are highly volatile and are affected
by factors such as global economic conditions including the strength of the U.S. housing market and of Asian markets, particularly China and Japan,
changes in industry production capacity, changes in world inventory levels, increased competition from other sources of supply of logs and lumber,
particularly from Russia, and other factors beyond our control. In addition, unemployment levels, interest rates and the rate of mortgage foreclosures
have a signiﬁcant effect on residential construction and renovation activity, which in turn inﬂuences the demand for, and price of, building materials
such as lumber and panel products. Declines in demand, and corresponding reductions in prices, for our products may adversely affect our ﬁnancial
condition and results of operations.

We cannot predict with any reasonable accuracy future market conditions, demand or pricing for any of our products due to factors outside our control.
Prolonged or severe weakness in the market for any of our principal products would adversely affect our ﬁnancial condition.

Availability of Fibre and Changes in Stumpage Fees
Substantially all of our Canadian log requirements are harvested from lands owned by a provincial government (the “Crown”). Provincial governments control
the volumes that can be harvested under provincially-granted tenures and otherwise regulate the availability of Crown timber for harvest. Determinations
by provincial governments to reduce the volume of timber or the areas that may be harvested under timber tenures, including to protect the environment
or endangered species and critical habitat, may reduce our ability to secure log supply and may increase our log purchase costs.

In addition, provincial governments prescribe the methodologies that determine the amounts of stumpage fees that are charged in respect of harvesting on
Crown lands. Determinations by provincial governments to change stumpage fee methodologies or rates could increase our log costs.

We rely on third-party independent contractors to harvest timber in areas over which we hold timber tenures. Increases in rates charged by these
independent contractors or the limited availability of these independent contractors may increase our timber harvesting costs.

We also rely on the purchase of logs and increased competition for, or shortages of, logs may result in increases in our log purchase costs.

We rely on log supply agreements in the United States which are subject to log availability and based on market prices. Approximately 15% of the aggregate
log requirements for our U.S. sawmills may be supplied under long-term agreements with the balance purchased on the open market. Changes in the U.S.
log market may reduce the supply of logs available to us and may increase the costs of log purchases, each of which could adversely affect our results.

Trade Restrictions
A substantial portion of our products that are manufactured in Canada are exported for sale. Our ﬁnancial results are dependent on continued access to the
export markets and tariffs and other trade barriers that restrict or prevent access represent a continuing risk to us. Canadian softwood lumber exports to the
U.S. have been the subject of trade disputes and managed trade arrangements for the last several decades. During the period from October 2006 through
October 2015 these exports were subject to a trade agreement between the U.S. and Canada and on the expiry of that agreement a one-year moratorium
on trade sanctions by the U.S. came into place. That moratorium has expired and a group of U.S. lumber producers has petitioned the U.S. Department of
Commerce and the U.S. International Trade Commission to impose trade sanctions against Canadian softwood lumber exports to the U.S. It appears likely
that some form of protectionist sanctions such as duties will be imposed on Canadian softwood lumber exports to the U.S. until and unless some form of

trade agreement can be reached between the U.S. and Canada or a ﬁnal, binding determination is made as a result of litigation. Unless the additional costs
imposed by duties can be passed along to lumber consumers, the duties will increase costs for Canadian producers and, in certain cases, could result
in some Canadian production becoming unproﬁtable. Whether and to what extent duties can be passed along to consumers will largely depend on the
strength of demand for softwood lumber, which is signiﬁcantly inﬂuenced by the levels of new residential construction in the U.S. which has been gradually
improving over the past several years. If duties can be passed through to consumers in whole or in part the price of Canadian softwood lumber will increase
(although the increase will not necessarily be for the beneﬁt of Canadian producers) which in turn could cause the price of SYP lumber, which would not be
subject to the duty, to increase as well.

The application of U.S. trade laws could, in certain circumstances, create signiﬁcant burdens on us. We are a mandatory respondent in current investigations
being conducted by the U.S. Department of Commerce into alleged subsidies and dumping. If the Department determines that we have failed to fully
cooperate with either investigation the Department may apply adverse facts which could result in a higher duty being imposed on our softwood lumber
exports to the U.S. In addition, under certain circumstances duties can be charged retroactively on a company by company basis which could adversely
affect our competitiveness with other Canadian softwood lumber producers.

Natural and Man-Made Disasters
Our operations are subject to adverse natural or man-made events such as forest ﬁres, severe weather conditions, climate change, timber diseases and
insect infestations including those that may be associated with warmer climate conditions, and earthquake activity. These events could damage or destroy
or adversely affect the operations at our physical facilities or our timber supply or our access to timber, and similar events could also affect the facilities
of our suppliers or customers. Any such damage or destruction could adversely affect our ﬁnancial results as a result of decreased production output or
increased operating costs. Although we believe we have reasonable insurance arrangements in place to cover certain of such incidents related to damage
or destruction, there can be no assurance that these arrangements will be sufﬁcient to fully protect us against such losses. As is common in the industry,
we do not insure loss of standing timber for any cause.

Mountain Pine Beetle
The long-term effect of the mountain pine beetle infestation on our Canadian operations is uncertain. The potential effects include a reduction of future
AAC levels to below current and pre-infestation AAC levels. Many of our British Columbia operations are experiencing a diminished grade and volume of
lumber recovered from beetle-killed logs and increased production costs, and these effects could spread to our Alberta operations as the mountain pine
beetle infestation expands. The timing and extent of the future effect on our timber supply, lumber grade and recovery, and production costs will depend
on a variety of factors and at this time cannot be reasonably determined. The effects of the deterioration of beetle-killed logs could include increased costs,
reduced operating rates due to shortages of commercially merchantable timber and mill closures.

Wood Dust
Our operations generate wood dust which has been recognized for many years as a potential health and safety hazard. The potential risks associated
with wood dust have been increased in those of our British Columbia and Alberta facilities that have been processing mountain pine beetle-killed logs as
the wood dust generated from these logs tends to be drier, lighter and ﬁner than wood dust typically generated. We have adopted a variety of measures
to reduce or eliminate the risks posed by the presence of wood dust in our facilities and we continue to work with industry and regulators to develop and
adopt best mitigation practices. Adoption of measures to reduce or eliminate risks associated with wood dust as a result of new government regulations
and best practices may require additional capital expenditures and increase our operating costs. Any explosion or similar event at any of our facilities or
any third-party facility could result in signiﬁcant loss, increases in expenses and disruption of operations, each of which would have a material adverse
effect on our business.

Financial
Our capital plans will include, from time to time, expansion, productivity improvement, technology upgrades, operating efﬁciency optimization and repair
or replacement of our existing facilities and equipment. In addition, we may undertake the acquisition of facilities or the rebuilding or modernization of
existing facilities. If the capital expenditures associated with these capital projects are greater than we have projected or if construction timelines are longer
than anticipated, our ﬁnancial condition, results of operations and cash ﬂows may be adversely affected. In addition, our ability to expand production and
improve operational efﬁciencies will be contingent on our ability to execute on our capital plans. Our capital plans may be adversely affected by availability
of, and competition for, qualiﬁed workers and contractors, changes in government regulations, unexpected delays and increases in costs of completing
capital projects.

We believe our capital resources will be adequate to meet our current projected operating needs, capital expenditures and other cash requirements.
Factors that could adversely affect our capital resources include prolonged and sustained declines in the demand and prices for our products, unanticipated
signiﬁcant increases in our operating expenses and unanticipated capital expenditures. If for any reason we are unable to provide for our operating needs,
capital expenditures and other cash requirements on commercially reasonable terms, we could experience a material adverse effect to our business,
ﬁnancial condition, results of operations and cash ﬂows.

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2016 Management’s Discussion & Analysis (continued)

We rely on long-term borrowings and access to revolving credit in order to ﬁnance our ongoing operations. Any change in availability of credit in the market,
as could happen during an economic downturn, could affect our ability to access credit markets on commercially reasonable terms. In the future we may
need to access public or private debt markets to issue new debt. Deteriorations or volatility in the credit markets could also adversely affect:

• our ability to secure ﬁnancing to proceed with capital expenditures for the repair, replacement or expansion of our existing facilities and equipment;
• our ability to comply with covenants under our existing credit or debt agreements;
•
• our ability to take advantage of growth, expansion or acquisition opportunities.

the ability of our customers to purchase our products; and

In addition, deteriorations or volatility in the credit market could result in increases in the interest rates that we pay on our outstanding non-ﬁxed rate debt,
which would increase our costs of borrowing and adversely affect our operating results.

Credit rating agencies rate our debt securities based on factors that include our operating results, actions that we take, their view of the general outlook for
our industry and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading or downgrading
the current rating or placing us on a watch list for possible future downgrading. Downgrading the credit rating of our debt securities or placing us on a
watch list for possible future downgrading could limit our access to the credit markets, increase our cost of ﬁnancing and have an adverse effect on our
ﬁnancial condition.

We rely heavily on certain raw materials, including logs, wood chips and chemicals, and energy sources, including natural gas and electricity, in our
manufacturing processes. Increases in the costs of these raw materials and energy sources will increase our operating costs and will reduce our operating
margins. There is no assurance that we will be able to fully offset the effects of higher raw material or energy costs through hedging arrangements, price
increases, productivity improvements or cost-reduction programs.

Operational Curtailments and Transportation Requirements
From time to time, we suspend or curtail operations at one or more of our facilities in response to market conditions, environmental risks, or other
operational issues, including, but not limited to scheduled and unscheduled maintenance, temporary periods of high electricity prices, power failures,
equipment breakdowns, adverse weather conditions, labour disruptions and ﬁre hazards.

In addition, our ability to operate at full capacity may be affected by ongoing capital projects. As a result, our facilities may from time to time operate at
less than full capacity. These operational suspensions could have a material adverse effect on our ﬁnancial condition as a result of decreased revenues
and lower operating margins.

In Canada, a substantial portion of the wood chip requirements of our Canadian pulp and paper operations are provided by our Canadian sawmills and
plywood and LVL plants. If wood chip production is reduced because of production curtailments, improved manufacturing efﬁciencies or any other reason,
our pulp and paper operations may incur additional costs to acquire or produce additional wood chips or be forced to reduce production. Conversely, pulp
and paper mill production curtailments may require our sawmills and panel mills to ﬁnd other ways to dispose of residual wood ﬁbre and may result in
curtailment or suspension of lumber, plywood or LVL production and increased costs.

Our business depends on our ability to transport a high volume of products from our production facilities to both domestic and international markets. We
rely primarily on third-party transportation providers for both the delivery of raw materials to our production facilities and the transportation of our products
to market. These third-party transportation providers include truckers, bulk and container shippers and railways. Our ability to obtain transportation
services from these transportation service providers is subject to risks which include, without limitation, unavailability due to competition and disruptions
due to weather, natural disasters and labour disputes. Transportation costs are also subject to risks that include, without limitation, increased rates due to
competition and increased fuel costs. Increases in transportation costs will increase our operating costs. If we are unable to obtain transportation services
or if our transportation costs increase, our revenues may decrease due to our inability to deliver products to market and our operating expenses may
increase, each of which would adversely affect our results of operations.

Labour and Services
Our operations rely on both skilled and unskilled workers as well as third-party services such as logging and transportation. Because our operations
are generally located away from major urban centres, we often face strong competition for workers, particularly skilled workers, and services from our
competitors and other industries such as oil and gas production and mining. Shortages of workers or key services could impair our operations by reducing
production or increasing costs.

We employ a unionized workforce in a number of our operations. Walkouts or strikes by employees could result in lost production and sales, higher costs
and supply constraints that could have a material adverse effect on our business. Also, we depend on a variety of third parties that employ unionized
workers to provide critical services to us. Labour disputes experienced by these third parties could lead to disruptions at our facilities.

Environment
We are subject to regulation by federal, provincial, state, municipal and local environmental authorities, including, among other matters, environmental
regulations relating to air emissions and pollutants, wastewater (efﬂuent) discharges, solid and hazardous waste, landﬁll operations, forestry practices,
permitting obligations, site remediation and the protection of threatened or endangered species and critical habitat. We have incurred, and will continue
to incur, capital expenditures and operating costs to comply with environmental laws and regulations, including the U.S. Environmental Protection Agency’s
Boiler MACT (maximum achievable control technology) regulations. No assurance can be given that changes in these laws and regulations or their
application will not have a material adverse effect on our business, operations, ﬁnancial condition and operational results. Similarly, no assurance can
be given that capital expenditures necessary for future compliance with existing and new environmental laws and regulations could be ﬁnanced from our
available cash ﬂow. We may discover currently unknown environmental problems, contamination, or conditions relating to our past or present operations.
This or any failure to comply with environmental laws and regulations may require site or other remediation costs or result in governmental or private claims
for damage to person, property, natural resources or the environment or governmental sanctions, including ﬁnes or the curtailment or suspension of our
operations, which could have a material adverse effect on our business, ﬁnancial condition and operational results.

We are currently involved in investigation and remediation activities and maintain accruals for certain environmental matters or obligations, as set out in the
notes to our Financial Statements for the year ended December 31, 2016. There can be no assurance that any costs associated with such obligations or
other environmental matters will not exceed our accruals.

Our Canadian woodland operations, and the harvesting operations of our many key U.S. suppliers, in addition to being subject to various environmental
protection laws, are subject to third-party certiﬁcation as to compliance with internationally recognized, sustainable forest management standards. Demand
for our products may be reduced if we are unable to achieve compliance, or are perceived by the public as failing to comply, with these applicable
environmental protection laws and sustainable forest management standards, or if our customers require compliance with alternate forest management
standards for which our operations are not certiﬁed. In addition, changes in sustainable forest management standards or our determination to seek
certiﬁcation for compliance with alternate sustainable forest management standards may increase our costs of operations.

Aboriginal Groups
Issues relating to aboriginal groups, including First Nations, Métis and others, have the potential for a signiﬁcant adverse effect on resource companies
operating in Canada including West Fraser. Risks include potential delays or effects of governmental decisions relating to Canadian Crown timber harvesting
rights (including their grant, renewal or transfer or authorization to harvest) in light of the government’s duty to consult and accommodate aboriginal groups
in respect of aboriginal rights or treaty rights, related terms and conditions of authorizations and potential ﬁndings of aboriginal title over land.

We participate, as requested by government, in the consultation process in support of the government fulﬁlling its duty to consult. We also seek to develop
and maintain good relationships with aboriginal groups that may be affected by our business activities. However, as the jurisprudence and government
policies respecting aboriginal rights and title and the consultation process continue to evolve, and as treaty negotiations continue, we cannot assure that
aboriginal claims will not in the future have a material adverse effect on our timber harvesting rights or our ability to exercise or renew them or secure other
timber harvesting rights.

On June 26, 2014 the Supreme Court of Canada (the “SCC”) released its reasons for judgment in Tsilhqot’in Nation v. British Columbia. The SCC declared
that the Tsilhqot’in Nation had established aboriginal title over an area of British Columbia comprising approximately 1,750 square kilometres. The SCC also
held that the provisions of the Forest Act (British Columbia) dealing with the disposition or harvest of Crown timber, as presently drafted, no longer applied
to timber located on those lands, by virtue of the deﬁnition of “Crown Timber” in the Forest Act. But the SCC also conﬁrmed that provincial laws can apply
on aboriginal title lands but only if the legislature so intends, and if the government can justify any infringement of aboriginal title (according to tests set out
in the case law). It also conﬁrmed that the existing Forest Act continues to apply to lands unless and until title is established.

We do not have any cutting permits in the area that was the subject of the Tsilhqot’in case. However, claims of aboriginal title have been asserted by
many aboriginal groups throughout British Columbia (including lands in which we have interests or rights) and there is a risk that other aboriginal groups
may pursue further rights or title claims through litigation, or treaty negotiations with governments. It is difﬁcult to predict how quickly other claims will be
litigated or negotiated and in what manner our Crown timber harvesting rights and log supply arrangements will be affected.

Regulatory
Our operations are subject to extensive general and industry-speciﬁc federal, provincial, state, municipal and other local laws and regulations and other
requirements, including those governing forestry, exports, taxes, employees, labour standards, occupational health and safety, waste disposal, environmental
protection and remediation, protection of endangered and protected species and land use and expropriation. We are required to obtain approvals, permits
and licences for our operations, which may require advance consultation with potentially affected stakeholders including aboriginal groups and impose
conditions that must be complied with. If we are unable to obtain, maintain, extend or renew, or are delayed in extending or renewing, a material approval,
permit or licence, our operations or ﬁnancial condition could be adversely affected. There is no assurance that these laws, regulations or government
requirements, or the administrative interpretation or enforcement of existing laws and regulations, will not change in the future in a manner that may require
us to incur signiﬁcant capital expenditures, pay higher taxes or otherwise could adversely affect our operations or ﬁnancial condition. Failure to comply
with applicable laws or regulations, including approvals, permits and licences, could result in ﬁnes, penalties or enforcement actions, including orders
suspending or curtailing our operations or requiring corrective measures or remedial actions.

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2016 Management’s Discussion & Analysis (continued)

Foreign Currency Exchange Rates
We sell the majority of our products at prices denominated in U.S. dollars or based on prevailing U.S. dollar prices. A signiﬁcant portion of our operational
costs and expenses are incurred in Canadian dollars. Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the
revenue in Canadian dollar terms realized by us from sales made in U.S. dollars, which reduces operating margin and the cash ﬂow available to fund
operations. We are also exposed to the risk of exchange rate ﬂuctuations in the period between sale and payment. We also have a substantial amount of
long-term debt repayable in U.S. dollars which is valued in Canadian dollars at the end of each reporting period by applying the prevailing exchange rate.
Exchange rate ﬂuctuations result in exchange gains or losses. This results in signiﬁcant earnings sensitivity to changes in the Canadian/U.S. dollar exchange
rate. The Canadian/U.S. dollar exchange rate is affected by a broad range of factors which makes future rates difﬁcult to accurately predict.

Competition
We compete with global producers, some of which may have greater ﬁnancial resources and lower production costs than we do. Currency devaluations,
such as occurred in respect of the Russian ruble in the past few years, can have the effect of reducing our competitors’ costs and making our products
less competitive in certain markets. In addition, European lumber producers and South American panel producers may enter the North American market
during periods of peak prices. Markets for our products are highly competitive. Our ability to maintain or improve the cost of producing and delivering
products to those markets is crucial. Factors such as cost and availability of raw materials, energy and labour, the ability to maintain high operating rates
and low per-unit manufacturing costs, and the quality of our ﬁnal products and our customer service all affect our earnings. Some of our products are also
particularly sensitive to other factors including innovation, quality and service, with varying emphasis on these factors depending on the product. To the
extent that one or more of our competitors become more successful with respect to any key competitive factor, our ability to attract and retain customers
could be materially adversely affected. If we are unable to compete effectively, such failure could have a material adverse effect on our business, ﬁnancial
condition and results of operations.

Our products may compete with non-ﬁbre based alternatives or with alternative products in certain market segments. For example, plastic, wood/plastic or
composite materials may be used by builders as alternatives to the products produced by our wood products businesses such as lumber, veneer, plywood
and MDF products. Changes in prices for oil, chemicals and wood-based ﬁbre can change the competitive position of our products relative to available
alternatives and could increase substitution of those products for our products. As the use of these alternatives grows, demand for our products may
further decline.

Because commodity products have few distinguishing properties from producer to producer, competition for these products is based primarily on price,
which is determined by supply relative to demand and competition from substitute products. Prices for our products are affected by many factors outside
of our control, and we have no inﬂuence over the timing and extent of price changes, which often are volatile. Accordingly, our revenues may be negatively
affected by pricing decisions made by our competitors and by decisions of our customers to purchase products from our competitors.

Pension Plan Funding
We are the sponsor of several deﬁned beneﬁt pension plans which exposes us to market risks related to plan assets. Funding requirements for these plans
are based on actuarial assumptions concerning expected return on plan assets, future salary increases, life expectancy and interest rates. If any of these
assumptions differs from actual outcomes such that a funding deﬁciency occurs or increases, we would be required to increase cash funding contributions
which would in turn reduce the availability of capital for other purposes.

Disclosure Controls and Internal Controls Over Financial Reporting

West Fraser’s management, including our President and Chief Executive Ofﬁcer and our Vice-President, Finance and Chief Financial Ofﬁcer, acknowledge
responsibility for the design and operation of disclosure controls and procedures and internal controls over ﬁnancial reporting, and the requirement to
evaluate the effectiveness of these controls on an annual basis.

Management evaluated the effectiveness of these controls at the end of the reporting period and based on this evaluation concluded that our internal
controls over ﬁnancial reporting and the disclosure controls and procedures were effective as at December 31, 2016.

No Changes in Internal Controls Over Financial Reporting
There has been no change in our internal controls over ﬁnancial reporting during the year ended December 31, 2016 that has materially affected, or is
reasonably likely to materially affect, our internal controls over ﬁnancial reporting.

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Responsibility of Management

The management of West Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us” or “our”) is responsible for the preparation, integrity, objectivity and reliability
of the consolidated ﬁnancial statements. The consolidated ﬁnancial statements have been prepared in accordance with International Financial Reporting
Standards and necessarily include amounts that represent the best estimates and judgments of management.

We maintain a system of internal controls over ﬁnancial reporting that encompasses policies, procedures and controls to provide reasonable assurance
that assets are safeguarded against loss or unauthorized use, transactions are executed and recorded with appropriate authorization and ﬁnancial records
are accurate and reliable.

Our independent auditor, which is appointed by the shareholders upon the recommendation of the Audit Committee and the Board of Directors, has
completed its audit of the consolidated ﬁnancial statements in accordance with generally accepted auditing standards in Canada and its report follows.

The Board of Directors provides oversight to the ﬁnancial reporting process through its Audit Committee, which is comprised of ﬁve Directors, none of
whom is an ofﬁcer or employee of West Fraser. The Audit Committee meets regularly with representatives of management and of the auditor to review
the consolidated ﬁnancial statements and matters relating to the audit. The auditor has full and free access to the Audit Committee. The Audit Committee
reports its ﬁndings to the Board of Directors for consideration in approving the consolidated ﬁnancial statements for issuance to the shareholders.

Ted Seraphim
President and
Chief Executive Ofﬁcer

February 16, 2017

Larry Hughes
Vice-President, Finance
and Chief Financial Ofﬁcer

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Independent Auditor’s Report

To the Shareholders of West Fraser Timber Co. Ltd.

We have audited the accompanying consolidated ﬁnancial statements of West Fraser Timber Co. Ltd., which comprise the consolidated balance sheets
as at December 31, 2016 and December 31, 2015 and the consolidated statements of earnings and comprehensive earnings, changes in shareholders’
equity and cash ﬂows for the years then ended, and the related notes, which comprise a summary of signiﬁcant accounting policies and other explanatory
information.

Management’s responsibility for the consolidated ﬁnancial statements
Management is responsible for the preparation and fair presentation of these consolidated ﬁnancial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated ﬁnancial statements
that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated ﬁnancial statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated ﬁnancial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated ﬁnancial statements. The
procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated ﬁnancial
statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated ﬁnancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
ﬁnancial statements.

We believe that the audit evidence we have obtained in our audits is sufﬁcient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated ﬁnancial statements present fairly, in all material respects, the ﬁnancial position of West Fraser Timber Co. Ltd. as at
December 31, 2016 and December 31, 2015 and its ﬁnancial performance and its cash ﬂows for the years then ended in accordance with International
Financial Reporting Standards.

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Chartered Professional Accountants
Vancouver, British Columbia

February 16, 2017

Consolidated Balance Sheets
As at December 31, 2016 and 2015
(In millions of Canadian dollars, except where indicated)

Assets

Current assets
Cash and short-term investments
Receivables (note 23)
Income taxes receivable
Inventories (note 5)
Prepaid expenses

Property, plant and equipment (note 6)
Timber licences (note 7)
Goodwill and other intangibles (note 8)
Other assets (note 9)
Deferred income tax assets (note 18)

Liabilities

Current liabilities
Cheques issued in excess of funds on deposit
Operating loans (note 12)
Payables and accrued liabilities (note 10)
Income taxes payable
Reforestation and decommissioning obligations (note 11)

Long-term debt (note 12)
Other liabilities (note 11)
Deferred income tax liabilities (note 18)

Shareholders’ Equity

Share capital (note 14)
Accumulated other comprehensive earnings
Retained earnings

Approved by the Board of Directors

Janice G. Rennie
Director

J. Duncan Gibson
Director

2016

2015

50
297
—
581
10
938
1,685
551
371
20
35
3,600

15
—
379
21
44
459
413
272
215
1,359

549
150
1,542
2,241
3,600

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13
298
11
631
18
971
1,609
570
369
36
80
3,635

29
178
351
—
48
606
423
269
190
1,488

579
164
1,404
2,147
3,635

Consolidated Statements of Earnings
and Comprehensive Earnings
For the years ended December 31, 2016 and 2015
(In millions of Canadian dollars, except where indicated)

Sales

Costs and expenses
Cost of products sold
Freight and other distribution costs
Export taxes
Amortization
Selling, general and administration
Equity-based compensation (note 15)

Operating earnings
Finance expense (note 16)
Other (note 17)
Earnings before tax
Tax provision (note 18)
Earnings

Earnings per share (dollars) (note 20)
Basic
Diluted

Cash dividends per share (dollars)

Comprehensive earnings
Earnings
Other comprehensive earnings
Translation gain (loss) on foreign operations1
Actuarial loss on post-retirement beneﬁts2
Comprehensive earnings

1. Recycled through earnings in the event of a disposal in net investment in foreign operations.
2. Adjusted through retained earnings. Net of tax recovery of $3 million (2015 – $5 million).

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2016

2015

4,450

4,100

2,971
629
—
197
176
(5 )
3,968

482
(29 )
(9 )
444
(118 )
326

4.06
3.90

0.28

$
$

326

(14 )
(7 )
305

2,874
627
29
191
153
(23 )
3,851

249
(29 )
(64 )
156
(52 )
104

1.25
0.89

0.28

104

109
(12 )
201

$
$

Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2016 and 2015
(In millions of Canadian dollars, except where indicated)

Share capital

Number
of shares

Amount

Translation
of foreign
operations

Retained
earnings

Total
equity

Balance – December 31, 2014

83,527,135

587

1,387

2,029

Changes in Shareholders’ Equity for 2015
Translation gain on foreign operations
Actuarial loss on post-retirement beneﬁts
Issuance of Common shares
Common share repurchases
Earnings for the year
Dividends
Balance – December 31, 2015

Changes in Shareholders’ Equity for 2016
Translation loss on foreign operations
Actuarial loss on post-retirement beneﬁts
Issuance of Common shares
Common share repurchases
Earnings for the year
Dividends
Balance – December 31, 2016

—
—
8,278
(1,078,856 )
—
—
82,456,557

—
—
12,170
(4,306,159 )
—
—
78,162,568

—
—
—
( 8 )
—
—
579

—
—
1
(31 )
—
—
549

109
—
—
—
—
—
164

(14 )
—
—
—
—
—
150

—
(12 )
—
( 52 )
104
( 23 )
1,404

—
(7 )
—
(159 )
326
(22 )
1,542

109
(12 )
—
(60 )
104
(23 )
2,147

(14 )
(7 )
1
(190 )
326
(22 )
2,241

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Consolidated Statements of Cash Flows
For the years ended December 31, 2016 and 2015
(In millions of Canadian dollars, except where indicated)

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Cash provided by operations
Earnings
Adjustments

Amortization
Finance expense
Foreign exchange loss (gain) on long-term ﬁnancing
Loss on power agreements, net of settlement costs
Post-retirement expense
Contributions to post-retirement beneﬁt plans
Tax provision
Income taxes paid
Change in reforestation and decommissioning obligations
Gain on disposal of capital assets
Other

Changes in non-cash working capital

Receivables
Inventories
Prepaid expenses
Payables and accrued liabilities

Cash used for ﬁnancing
Proceeds from (repayment of) operating loans
Finance expense paid
Dividends
Common share repurchases
Other

Cash used for investing
Acquisition (note 4)
Additions to capital assets
Government assistance (note 22)
Other

Change in cash
Foreign exchange effect on cash
Cash – beginning of year
Cash – end of year

Cash consists of
Cash and short-term investments
Cheques issued in excess of funds on deposit

2016

2015

326

197
29
(4 )
11
71
(66 )
118
(7 )
(11 )
(9 )
(56 )

4
50
7
29
689

(181 )
(23 )
(22 )
(190 )
2
(414 )

—
(273 )
8
2
(263 )

12
39
(16 )
35

50
(15 )
35

104

191
29
58
32
71
(78 )
52
(67 )
12
(2 )
(22 )

1
(16 )
(4 )
(60 )
301

68
(22 )
(23 )
(60 )
(1 )
(38 )

(76 )
(220 )
4
4
(288 )

(25 )
24
(15 )
(16 )

13
(29 )
(16 )

Index of Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015

Description
Nature of operations
Basis of presentation
Accounting standards issued but not yet applied
Acquisition
Inventories
Property, plant and equipment
Timber licences
Goodwill and other intangibles
Other assets
Payables and accrued liabilities
Other liabilities
Long-term debt and operating loans
Post-retirement beneﬁts
Share capital
Equity-based compensation
Finance expense
Other
Tax provision
Employee compensation
Earnings per share
Commitments
Government assistance
Financial instruments
Capital disclosures
Segment and geographic information
Softwood lumber dispute

1
2
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9
10
11
12
13
14
15
16
17
18
19
20
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23
24
25
26

Page
50
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52
53
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56
57
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60
60
62
62
63
64
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65
65
67
68
69

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Notes to Consolidated Financial Statements
For the years ended December 31, 2016 and 2015
(In millions of Canadian dollars, except where indicated)

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 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
These consolidated ﬁnancial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) and were approved by our
Board of Directors on February 16, 2017.

Our consolidated ﬁnancial statements have been prepared under the historical cost basis, except for certain items not carried at historical cost as discussed
in the applicable accounting policies.

Accounting policies that relate to the consolidated ﬁnancial statements as a whole are incorporated in this note. Where an accounting policy is applicable
to a speciﬁc note disclosure, the policy is described within that note.

Accounting policies

Basis of consolidation
These consolidated ﬁnancial statements include the accounts of West Fraser and its wholly-owned subsidiaries after the elimination of intercompany
transactions and balances. Principal operating subsidiaries are West Fraser Mills Ltd., West Fraser, Inc., West Fraser Wood Products Inc., Blue Ridge
Lumber Inc., Sundre Forest Products Inc., Manning Forest Products Ltd. and West Fraser Newsprint Ltd.

Our 50% owned joint operations, Alberta Newsprint Company and Cariboo Pulp & Paper Company, are accounted for by the proportionate
consolidation method.

Use of estimates and judgements
The preparation of consolidated ﬁnancial statements requires management to make estimates and assumptions that affect the amounts reported in the
consolidated ﬁnancial statements and accompanying notes. It also requires management to exercise judgement in the process of applying accounting
policies. Signiﬁcant areas requiring estimates include recoverability of long-lived assets and goodwill, fair value of derivatives, reforestation and
decommissioning obligations, employee future beneﬁts, equity-based compensation, income taxes and litigation. Actual amounts could differ materially
from these and other estimates, the impact of which would be recorded in future periods. Management uses judgements and assumptions in assessing
potential indicators of impairment, determining the appropriate cash generating unit level used in impairment testing and determining the accounting
treatment for certain investments where the company owns less than 100% of the entity.

Revenue recognition
Revenues are derived from product sales and are recognized upon the transfer of signiﬁcant risks and rewards of ownership, provided collectibility is
reasonably assured.

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Foreign currency translation
Our functional and presentation currency is Canadian dollars.

U.S. operations
Assets and liabilities of our U.S. operations have a functional currency of U.S. dollars and are translated at the period-end exchange rate. Revenues and
expenses are translated at average exchange rates during the reporting period. The resulting unrealized translation gains or losses are included in other
comprehensive earnings.

Translation of other foreign currency balances and transactions
Monetary assets and liabilities denominated in foreign currencies, including long-term debt, are translated at the period-end exchange rate. Income and
expense items are translated at the average or transaction date exchange rates during the reporting period. The resulting translation gains or losses are
included in other income.

Cash and short-term investments
Cash and short-term investments consist of cash on deposit and short-term interest-bearing securities maturing within three months of the date of purchase.

Impairment of long-lived assets
We review property, plant, equipment, timber licences, goodwill and other intangibles for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be fully recoverable. Goodwill impairment testing is done at least once a year. For the purpose of impairment testing,
assets are separated into cash generating units (“CGUs”). We have identiﬁed each of our mills as a CGU for impairment testing of property, plant, equipment
and other intangibles unless there is economic interdependence of CGUs, in which case they are grouped for impairment testing. Timber licences and
goodwill are tested for impairment by combining CGUs within the economic area of the related assets.

Recoverability is assessed by comparing the carrying amount of the CGU or grouped CGUs to the discounted estimated net future cash ﬂows the assets
are expected to generate. If the carrying amount exceeds the discounted estimated net future cash ﬂows, the assets are written down to the higher of fair
value less costs to sell and value-in-use (being the present value of the estimated net future cash ﬂows of the relevant asset or CGU).

Goodwill impairment is assessed by comparing the fair value of its CGU to the underlying carrying amount of the CGU’s net assets, including goodwill. When
the carrying amount of the CGU exceeds its fair value, the fair value of the CGU’s goodwill is compared with its carrying amount. An impairment loss is
recognized for any excess of the carrying value of goodwill over its fair value.

Estimated net future cash ﬂows are based on several assumptions concerning future circumstances including selling prices of products, U.S./Canadian
dollar exchange rates, production rates, input costs and capital requirements. The estimated net future cash ﬂows are discounted at rates reﬂective of
market risk.

Where an impairment loss for long-lived assets other than goodwill subsequently reverses, the carrying amount of the asset or CGU is increased to the lesser
of the revised estimate of its recoverable amount and the carrying amount that would have been recorded had no impairment loss been previously recognized.

Fair value measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. For ﬁnancial reporting purposes,
fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurement are observable and the
signiﬁcance of the inputs. Our fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value.

The three levels of the fair value hierarchy are:

Level 1
Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2
Values based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term
of the asset or liability.

Level 3
Values based on prices or valuation techniques that require inputs which are both unobservable and signiﬁcant to the overall fair value measurement.

3. Accounting standards issued but not yet applied

IFRS 16 – Leases
In January 2016, IFRS 16 was issued. This standard requires, among other things, lessees to recognize leases traditionally recorded as operating leases in
the same manner as ﬁnancing leases. The standard is effective for annual periods beginning on or after January 1, 2019 with earlier application permitted.
We do not expect this standard to have a signiﬁcant effect on our consolidated ﬁnancial statements.

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Notes to Consolidated Financial Statements (continued)

There are no other standards or amendments or interpretations to existing standards issued but not yet effective which are expected to have a material
impact on our consolidated ﬁnancial statements.

4. Acquisition
During 2015 we made the following acquisition:

Location
Manning, Alberta

Business acquired
Lumber manufacturing facility and related timber tenures

Date
October 29, 2015

Consideration
76
$

We accounted for this transaction as an acquisition of a business and have allocated the purchase price based on the estimated fair value of the assets
acquired and the liabilities assumed. The purchase price allocation is as follows:

Current assets
Current liabilities
Property, plant and equipment
Timber licences
Reforestation obligations
Deferred income tax liabilities
Consideration

Inventories

2015
10
(1 )
28
59
(2 )
(18 )
76

Accounting policies
Inventories of logs, other raw materials and manufactured products are valued at the lower of average cost and net realizable value. Processing materials
and supplies are valued at the lower of average cost and replacement cost.

Supporting information

Logs and other raw materials
Manufactured products
Processing materials and supplies

2016
155
293
133
581

2015
215
290
126
631

Inventories at December 31, 2016 were written down by $5 million (December 31, 2015 – $21 million) to reﬂect net realizable value being lower than cost.

The carrying amount of inventory recorded at net realizable value was $26 million at December 31, 2016 (December 31, 2015 – $55 million), with the
remaining inventory recorded at cost.

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Property, plant and equipment

Accounting policies
Property, plant and equipment are stated at historical cost, less accumulated amortization and impairment losses. Expenditures for additions and
improvements are capitalized. Borrowing costs are capitalized when the asset construction period exceeds 12 months and the borrowing costs are directly
attributable to the asset. Expenditures for maintenance and repairs are charged to earnings. Upon retirement, disposal or destruction of an asset, the cost
and related amortization are removed from the accounts and any gain or loss is included in earnings.

Property, plant and equipment are amortized on a straight-line basis over their estimated useful lives as follows:

Buildings
Manufacturing equipment and machinery
Fixtures, mobile and other equipment
Roads and bridges
Major maintenance shutdowns

Supporting information

As at December 31, 2014
Additions
Amortization1
Acquisition
Foreign exchange
Transfers
As at December 31, 2015

As at December 31, 2015
Cost
Accumulated amortization
Net

As at December 31, 2015
Additions
Amortization1
Foreign exchange
Disposals
Transfers
As at December 31, 2016

As at December 31, 2016
Cost
Accumulated amortization
Net

Manufacturing
plant,

equipment &
machinery
1,146
144
(156 )
28
73
244
1,479

3,673
(2,194 )
1,479

1,479
111
(164 )
(14 )
(1 )
33
1,444

3,772
(2,328 )
1,444

10 – 30 years
6 – 20 years
3 – 10 years
Not exceeding 40 years
12 to 36 months

Roads and
bridges

34
17
(15 )
—
—
2
38

121
(83 )
38

38
14
(11 )
—
—
—
41

128
(87 )
41

Construction
-in-progress
256
$
45
—
—
2
(248 )
55

55
—
55

55
137
—
1
—
(33 )
160

160
—
160

Other
33
2
—
—
2
—
37

44
(7 )
37

37
3
—
—
—
—
40

47
(7 )
40

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Total
1,469
208
(171 )
28
77
(2 )
1,609

3,893
(2,284 )
1,609

1,609
265
(175 )
(13 )
(1 )
—
1,685

4,107
(2,422 )
1,685

1. Amortization of $173 million relates to cost of products sold and $2 million relates to selling, general and administration expense (2015 – $169 million and

$2 million, respectively).

Notes to Consolidated Financial Statements (continued)

Timber licences

Accounting policies
Timber licences, which are renewable or replaceable, are stated at historical cost, less accumulated amortization and impairment losses. Amortization is
provided on a straight-line basis over their estimated useful lives of 40 years.

Supporting information

As at December 31, 2014
Amortization1
Acquisitions
As at December 31, 2015

As at December 31, 2015
Cost
Accumulated amortization
Net

As at December 31, 2015
Amortization1
Additions
As at December 31, 2016

As at December 31, 2016
Cost
Accumulated amortization
Net

1. Amortization relates to cost of products sold.

8. Goodwill and other intangibles

Timber
licences
530
(19 )
59
570

798
(228 )
570

570
(20 )
1
551

799
(248 )
551

Accounting policies
Goodwill represents the excess of the purchase price paid for an acquisition over the fair value of the net assets acquired. Goodwill is not amortized, but is
subject to an impairment test annually or more frequently if events or circumstances indicate that it may be impaired.

Other intangibles are stated at historical cost less accumulated amortization and impairments. Other intangibles include software which is amortized over
periods of up to ﬁve years and non-replaceable ﬁnite term timber rights which are amortized as the related timber is logged.

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Supporting information

As at December 31, 2014
Additions
Amortization1
Transfers
Foreign exchange
As at December 31, 2015

As at December 31, 2015
Cost
Accumulated amortization
Net

As at December 31, 2015
Additions
Amortization1
Foreign exchange
As at December 31, 2016

As at December 31, 2016
Cost
Accumulated amortization
Net

Goodwill
344
—
—
—
15
359

359
—
359

359
—
—
(3 )
356

356
—
356

Other

6
3
(1 )
2
—
10

32
(22 )
10

10
7
(2 )
—
15

38
(23 )
15

Total
350
3
(1 )
2
15
369

391
(22 )
369

369
7
(2 )
(3 )
371

394
(23 )
371

1. Amortization of $1 million relates to cost of products sold and $1 million relates to selling, general and administration expense (2015 – $1 million relates to selling,

general and administration expense).

Goodwill
We have attributed $218 million of goodwill to a CGU made up of our Canadian lumber operations, $92 million of goodwill to a CGU made up of our U.S.
lumber operations and $46 million of goodwill to a CGU made up of our plywood and LVL operations.

For the purpose of the 2016 impairment test of goodwill, the fair value of CGUs has been determined based on value-in-use calculations using a discount
rate of 8.5%. These calculations use cash ﬂow projections based on the 2017 operating plan, a forecast of 2018 and 2019 and trend level earnings for
subsequent years, all approved by management. Assumptions were developed by management based on industry sources, including Forest Economic
Advisors, LLC and other industry analysts, taking into account management’s best estimates.

9. Other assets

Post-retirement (note 13)
Deferred ﬁnancing costs on lines of credit (note 12)
Power agreements (note 17)
Other

10. Payables and accrued liabilities

Trade accounts
Equity-based compensation
Compensation
Dividends
Interest
Other

2016
8
2
—
10
20

2016
211
65
68
5
4
26
379

2015
8
—
16
12
36

2015
189
77
51
6
4
24
351

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Notes to Consolidated Financial Statements (continued)

11. Other liabilities

Post-retirement (note 13)
Reforestation
Decommissioning
Other

2016
162
69
25
16
272

2015
142
76
29
22
269

Reforestation and decommissioning obligations
Reforestation and decommissioning obligations relate to our responsibility for reforestation under various timber licences and our obligations related to
landﬁll closures and other site remediation costs.

Accounting policies
Future reforestation obligations are measured at the present value of the expenditures expected to be required to settle the obligations and are accrued
and charged to earnings when timber is harvested. The reforestation obligation is reviewed periodically and changes to estimates are credited or charged
to earnings.

We record the present value of a liability for decommissioning obligations in the period that a reasonable estimate can be made. The present value of
the liability is added to the carrying amount of the associated asset and amortized over its useful life or, if there is no associated asset, it is expensed.
Decommissioning obligations are reviewed annually and changes to estimates result in an adjustment of the carrying amount of the associated asset or,
where there is no asset, they are credited or charged to earnings.

Reforestation and decommissioning obligations are discounted at the risk-free rate at the balance sheet date and accreted over time through periodic
charges to earnings. The liabilities are reduced by actual costs of settlement.

Supporting information

Beginning of year
Liabilities recognized
Liabilities settled
Acquired obligation
Change in estimates
End of year
Less: current portion

Reforestation

Decommissioning

2016
124
46
(47 )
—
(10 )
113
(44 )
69

2015
111
50
(43 )
2
4
124
(48 )
76

2016
29
—
—
—
(4 )
25
—
25

2015
23
—
—
—
6
29
—
29

The total undiscounted amount of the estimated cash ﬂows required to satisfy these obligations is $148 million (2015 – $159 million). The cash ﬂows have
been discounted using interest rates ranging from 0.74% to 1.11% (2015 – 0.48% to 0.73%).

The timing of the reforestation payments is based on the estimated period required to attain free to grow status in a given area, which is generally between
12 to 15 years. Payments relating to landﬁll closures and site remediation are expected to occur over periods ranging up to 30 years.

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12. Long-term debt and operating loans

Accounting policies
Transaction costs related to debt reﬁnancing are deferred and amortized over the life of the associated debt. When our operating loan is undrawn, the
related deferred ﬁnancing costs are recorded in other assets.

Supporting information

Long-term debt

US$300 million senior notes due October 2024; interest at 4.35%
US$8 million note payable due October 2020; interest at 2%
Notes payable

Deferred ﬁnancing costs

Required principal repayments are disclosed in note 23.

2016
405
10
2
417
(4 )
413

2015
415
10
2
427
(4 )
423

Operating loans
Our revolving lines of credit consist of a $500 million committed revolving credit facility which matures September 30, 2020, a $34 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 $59 million dedicated to letters of credit, of which US$7 million is dedicated to our U.S. operations.

At December 31, 2016 there were no amounts outstanding under our revolving credit facility, as a result, the associated deferred ﬁnancing costs of $2
million is reported in other assets. Letters of credit in the amount of $48 million were also supported by our facilities, leaving $553 million of credit available
for further use. At December 31, 2015, our revolving credit facility was drawn by $181 million, deferred ﬁnancing costs were $3 million and our outstanding
letters of credit were $54 million.

Interest on the facilities is payable at ﬂoating rates based on Prime, U.S. base, Bankers’ Acceptances or LIBOR 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.

13. 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.

The deﬁned beneﬁt pension plans are operated in Canada and the U.S. under broadly similar regulatory frameworks. The majority are funded arrangements
where beneﬁt payments are made from plan assets which are held in trust. Responsibility for the governance of the plans, including investment and
contribution decisions, resides with our pension committee which reports to the Board of Directors. For the registered deﬁned beneﬁt pension plans,
regulations set minimum requirements for contributions for beneﬁt accruals and the funding of deﬁcits.

Accounting policies
We record a post-retirement asset or liability for our employee deﬁned beneﬁt pension and other retirement beneﬁt plans by netting our plan assets with
our plan obligations, on a plan-by-plan basis.

The cost of deﬁned beneﬁt pensions and other retirement beneﬁts earned by employees is actuarially determined using the projected unit credit method.
The present value of the deﬁned beneﬁt obligation is determined by discounting the estimated future cash outﬂows using market yields from high quality
Canadian corporate bonds with cash ﬂows that approximate expected beneﬁt payments at the balance sheet date. Plan assets are valued at fair value at
each balance sheet date.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other
comprehensive earnings in the period in which they arise.

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Past service costs arising from plan amendments are recognized immediately.

The ﬁnance amount on net post-retirement balances is classiﬁed as ﬁnance expense.

For deﬁned contribution plans, pension expense is the amount of contributions we are required to make in respect of services rendered by employees.

Notes to Consolidated Financial Statements (continued)

Supporting information
The actual return on plan assets for 2016 is a gain of $112 million (2015 – $42 million).

The total pension expense for the deﬁned beneﬁt plans is $61 million (2015 – $59 million). In 2016, we made contributions of $50 million (2015
– $61 million). We expect to contribute approximately $66 million to our deﬁned beneﬁt pension plans during 2017. We also provide group life insurance,
medical and extended health beneﬁts to certain employee groups, for which we contributed $3 million (2015 – $3 million).

The total pension expense and funding contributions for the deﬁned contribution pension plans is $13 million (2015 - $14 million).

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

Accrued beneﬁt obligations
Beneﬁt obligations – opening
Current service cost
Finance cost on obligation
Beneﬁts paid
Actuarial loss (gain) due to change in discount rate
Actuarial loss (gain) due to demography/experience
Other
Beneﬁt obligations – ending

Plan assets
Fair value – opening
Finance income on plan assets
Actuarial gain (loss) due to returns on plan assets
being higher or lower than ﬁnance income

Employer contributions
Beneﬁts paid
Other
Fair value – ending

Funded status1
Post-retirement assets
Impact of minimum funding requirement2
Post-retirement assets (note 9)
Post-retirement liabilities (note 11)

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Deﬁned beneﬁt
pension plans

Other retirement
beneﬁt plans

2016

2015

2016

2015

1,482
57
60
(62 )
62
2
(3 )
1,598

1,409
56

56
50
(62 )
(2 )
1,507

21
(13 )
8
(111 )
(103 )

1,411
56
57
(56 )
(3 )
6
11
1,482

1,354
54

(12 )
61
(56 )
8
1,409

19
(11 )
8
(92 )
(84 )

50
1
2
(3 )
—
1
—
51

—
—

—
3
(3 )
—
—

—
—
—
(51 )
(51 )

53
1
2
(3 )
—
(3 )
—
50

—
—

—
3
(3 )
—
—

—
—
—
(50 )
(50 )

1. Plans in a surplus position are classiﬁed as assets and plans in a deﬁcit position are shown as liabilities on the consolidated balance sheet. Other retirement beneﬁt plans

continue to be unfunded.

2. Some of our plans have a surplus that is not recognized on the basis that future economic beneﬁts may not be available to us in the form of a reduction in future

contributions or a cash refund.

Expense
Current service cost
Net ﬁnance expense

Deﬁned beneﬁt
pension plans

Other retirement
beneﬁt plans

2016

2015

2016

2015

57
4
61

56
3
59

1
2
3

Assumptions and sensitivities
The weighted average duration of the deﬁned beneﬁt pension obligations is 17 years. The expected maturity analysis of the undiscounted deﬁned beneﬁt
pension plans at December 31, 2016 is as follows:

Deﬁned beneﬁt pension plans

2017
62

2018
62

2019 to 2021
189
$

Thereafter
2,523
$

Total
2,836

The estimation of post-retirement beneﬁt obligations involves a high degree of judgment for matters such as discount rate, employee service periods,
compensation escalation rates, expected retirement ages of employees, mortality rates, expected health-care costs and other variable factors. These
estimates are reviewed annually with independent actuaries. The signiﬁcant actuarial assumptions used to determine our balance sheet date post-
retirement assets and liabilities and our post-retirement beneﬁt plan expenses are as follows:

Beneﬁt obligations:
Discount rate
Future compensation rate increase

Beneﬁt expense:

Discount rate – beginning of year
Future compensation rate increase

Deﬁned beneﬁt
pension plans

Other retirement
beneﬁt plans

2016

2015

2016

3.75%
3.50%

4.00%
3.50%

3.75%
n/a

4.00%
n/a

2015

4.00%
n/a

Health-care beneﬁt costs, shown under other retirement beneﬁt plans, are funded on a pay-as-you-go basis. The actuarial assumptions for extended
health-care costs are estimated to increase 9.0% per year for one year, grading down 0.5% per year for years two to eight, to 5.0% per year thereafter.
The actuarial assumptions for medical service plan costs are estimated to increase by 4.0% per year.

The impact of a change in these assumptions on our post-retirement obligations is as follows:

Discount rate

Decrease in assumption from 3.75% to 3.25%
Increase in assumption from 3.75% to 4.25%

Rate of increase in future compensation

Decrease in assumption from 3.50% to 3.00%
Increase in assumption from 3.50% to 4.00%

Health-care cost trend rates

Increase in assumption by 1.00%
Decrease in assumption by 1.00%

Obligations

$
$

134
(118 )

(24 )
25

4
(5 )

The sensitivities have been calculated on the basis that all other variables remain constant. When calculating the sensitivity of the deﬁned beneﬁt obligation,
the same methodology is applied as was used to generate the ﬁnancial statement asset/liability.

Assets
The weighted average asset allocations of the deﬁned beneﬁt plans at December 31, by asset category, are as follows:

Canadian equities
Foreign equities
Fixed income investments
Other investments

Target Range 1
9% – 25%
12% – 34%
36% – 60%
3% – 31%

2016
18%
25%
47%
10%
100%

2015
18%
26%
50%
6%
100%

1. The target range applies to our open plans comprising the majority of our pension assets. Our closed plans target a more conservative asset mix with a greater percentage

of ﬁxed income investments.

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Notes to Consolidated Financial Statements (continued)

Risk management practices
The deﬁned beneﬁt pension plans’ investments are exposed to various risks. These risks include market risk (including foreign currency risk, interest rate
risk and price risk), credit risk and liquidity risk. The pension committee manages these risks in accordance with a Statement of Investment Policies and
Procedures for each of the Pension Plans Master Investment Trusts. Separate Master Investment Trusts have been established to invest for longer duration
liabilities (Open Plans) and for shorter duration liabilities (Closed Plans). The following are some speciﬁc risk management practices employed:

• Retaining and monitoring professional advisors including an outsourced chief investment ofﬁcer (“OCIO”);

• Monitoring our OCIO’s adherence to asset allocation guidelines and permitted categories of investments; and

• Monitoring investment decisions and performance of the OCIO and asset performance against benchmarks using third-party performance
measurement professionals.

14. Share capital

Authorized
400,000,000 Common shares, without par value
20,000,000 Class B Common shares, without par value
10,000,000 Preferred shares, issuable in series, without par value

Issued

Common
Class B Common
Total Common

2016

2015

Number
75,881,090
2,281,478
78,162,568

Amount
549
—
549

Number
80,175,079
2,281,478
82,456,557

Amount
579
—
579

In 2016, we repurchased 4,306,159 Common shares for $190 million and in 2015, we repurchased 1,078,856 Common shares for $60 million.

On September 8, 2016, our Board of Directors authorized the renewal of our normal course issuer bid (“NCIB”) program to repurchase for cancellation up
to 3,834,226 Common shares or approximately 5% of our issued and outstanding Common shares. The NCIB will expire on September 18, 2017.

Rights and restrictions of Common shares
Common shares and Class B Common shares are equal in all respects except that each Class B Common share may at any time be exchanged for one
Common share. Certain circumstances or corporate transactions may require the approval of the holders of our Common shares and Class B Common
shares on a separate class-by-class basis.

15. Equity-based compensation
We have share option, phantom share unit (“PSU”) and directors’ deferred share unit (“DSU”) plans, all of which have been partially hedged by an equity
derivative contract. The equity-based compensation included in earnings was a recovery of $5 million (2015 – recovery of $23 million).

Accounting policies
We estimate the fair value of outstanding share options using the Black-Scholes valuation model and the fair value of our PSU plan and directors’ DSU
plan using an intrinsic valuation model at each balance sheet date and record the resulting expense or recovery, over the related vesting period, through
a charge to earnings.

From time to time, we enter into equity derivative contracts to provide a partial offset to our exposure to ﬂuctuations in equity-based compensation from our
stock option, PSU and DSU plans. These derivatives are fair valued at each balance sheet date using an intrinsic valuation model and the resulting expense
or recovery is offset against the related equity-based compensation.

If a share option holder elects to acquire Common shares, both the exercise price and the accrued liability are credited to shareholders’ equity.

Supporting information

Share option plan
Under our share option plan, ofﬁcers and employees may be granted options to purchase up to 7,295,940 Common shares, of which 776,546 remain
available for issuance. The exercise price of a share option is the closing price of a Common share on the trading day immediately preceding the grant
date. Our share option plan gives share option holders the right to elect to receive a cash payment in lieu of exercising an option to purchase Common
shares. Options vest at the earlier of the date of retirement or death and 20% per year from the grant date, and expire after 10 years. We have recorded
a recovery of $6 million (2015 – recovery of $26 million) related to the share option plan.

A summary of the activity in the share option plan is presented below:

2016

2015

Outstanding – beginning of year
Granted
Exercised
Outstanding – end of year
Exercisable – end of year

Number
2,211,951
246,285
(338,350 )
2,119,886
1,643,900

Weighted

average price

(dollars )
27.03
40.97
19.63
29.83
24.57

$
$
$
$
$

The following table summarizes information about the share options outstanding at December 31, 2016:

Exercise price range
(dollars)
$12.36
$16.65 – $19.50
$20.59 – $25.78
$40.82 – $53.96
$73.99

Number of
outstanding
options
(number )
388,000
335,180
658,492
598,794
139,420
2,119,886

Weighted

average

remaining
contractual
life
(years )
2.1
1.1
3.7
7.6
8.1
4.4

Weighted
average
exercise
price
(dollars )
12.36
16.91
24.13
44.39
73.99
29.83

$
$
$
$
$
$

Number
2,240,798
139,420
(168,267 )
2,211,951
1,664,481

Number of
exercisable
options
(number )
388,000
335,180
623,768
248,256
48,696
1,643,900

Weighted
average price
(dollars )
23.66
73.99
20.95
27.03
20.51

$
$
$
$
$

Weighted
average
exercise
price
(dollars )
12.36
16.91
24.15
45.37
73.99
24.57

$
$
$
$
$
$

The weighted average share price at the date of exercise for share options exercised during the year was $43.13 per share (2015 – $63.89 per share).

The accrued liability related to the share option plan is $52 million at December 31, 2016 (December 31, 2015 – $63 million). The weighted average fair
value of the options used in the calculation was $23.27 per option at December 31, 2016 (December 31, 2015 – $28.63 per option).

The inputs to the option model are as follows:

Share price on balance sheet date
Weighted average exercise price
Expected dividend
Expected volatility
Weighted average interest rate
Weighted average expected remaining life in years

2016
$47.95
$29.83
$0.28
33.17%
0.88%
2.8

2015
$52.12
$27.03
$0.28
32.71%
0.55%
2.9

The expected dividend on our shares was based on the annualized dividend rate at each period-end. Expected volatility was based on ﬁve years of historical
data. The interest rate for the life of the options was based on the implied yield available on government bonds with an equivalent remaining term at each
period-end. Historical data was used to estimate the expected life of the options and forfeiture rates.

The intrinsic value of options issued under the share option plan at December 31, 2016 was $43 million (December 31, 2015 – $59 million). The intrinsic
value is determined based on the difference between the period-end share price and the exercise price, multiplied by the sum of the related vested options
plus unvested options for those holders eligible to retire.

Phantom share unit plan
Our PSU plan is intended to supplement or, in whole or in part, replace the granting of share options as long-term incentives for ofﬁcers and employees. The
plan provides for two types of units which vest on the third anniversary of the grant date. A restricted share unit pays out based on the Common share price
over the 20 trading days immediately preceding its vesting date (the “vesting date value”). A performance share unit pays out at a value between 0% and
200% of its vesting date value contingent upon our performance relative to a peer group of companies over the three-year performance period. Ofﬁcers
and employees granted units under the plan are also entitled to additional units to reﬂect cash dividends paid on Common shares from the applicable grant
date until payout.

We have recorded an expense of $3 million (2015 – $3 million) related to the PSU plan. The number of units outstanding as at December 31, 2016
was 182,770 (December 31, 2015 – 173,312), including performance share units totalling 77,674 (December 31, 2015 – 66,210).

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Notes to Consolidated Financial Statements (continued)

Directors’ deferred share unit plan
We have a DSU plan which provides a structure for non-employee directors to accumulate an equity-like holding in West Fraser. The DSU plan allows
directors to participate in the growth of West Fraser by providing a deferred payment based on the value of a Common share at the time of redemption.
Each director receives deferred share units (“Units”) in payment of an annual equity retainer until a minimum equity holding is reached and may elect to
receive Units in payment of up to 100% of other fees earned. After a minimum equity holding is reached, directors may elect to receive the equity retainer
in Units or cash. The Units are issued based on our Common share price at the time of issue. Additional Units are issued to take into account the value of
dividends paid on Common shares from the date of issue to the date of redemption. Units are redeemable only after a director retires, resigns or otherwise
leaves the board. The redemption value is equal to the Common share price at the date of redemption. A holder of Units may elect to redeem Units in
cash or receive Common shares having an equivalent value. The number of Units outstanding as at December 31, 2016 was 155,593 (December 31,
2015 – 139,479).

Equity-based compensation hedge
During the year, we entered into an equity derivative contract to hedge 1,000,000 units at a $46.02 share price. A recovery of $2 million is included in
equity-based compensation related to the contract.

16. Finance expense

Interest expense
Finance expense on employee future beneﬁts
Accretion on long-term liabilities

17. Other

Foreign exchange gain (loss) on working capital
Foreign exchange gain (loss) on intercompany ﬁnancing1
Foreign exchange gain (loss) on long-term debt
Loss on power agreements
Gain on disposal of WestPine equipment
Write-down of investment
Other

2016
(24 )
(7 )
2
(29 )

2016
(4 )
(8 )
12
(27 )
8
—
10
(9 )

2015
(24 )
(6 )
1
(29 )

2015
28
9
(67 )
(32 )
—
(7 )
5
(64 )

1. Relates to US$200 million 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.

Power agreements
In March 2016, the termination of our three-year power strip agreement was negotiated. In addition, Capital Power Corporation gave notice of its intent
to terminate its role as buyer of the Sundance C Power Arrangement (“Sundance”) effective March 24, 2016. As a result of this termination, our role as
a party to the Power Syndicate Agreement also terminated. These agreements had provided us with a portion of the electricity generated from two power
plants in Alberta at substantially predetermined prices.

Prior to the termination, we recorded the agreements at fair value with the resulting gains or losses being recorded through other income. In the fourth
quarter of 2016, Capital Power Corporation settled a dispute with the Government of Alberta related to the termination of Sundance. As a result, we
recorded in other income an additional $8 million loss related to our share of the settlement.

Insurance proceeds
Our WestPine MDF mill, located in Quesnel, British Columbia, was closed due to a ﬁre on March 9, 2016 and will remain closed until repairs are complete.
The mill is insured for property damage and business interruption. The impact on pre-tax earnings is as follows:

Business interruption, less policy deductible
Gain on disposal of equipment

2016
17
8
25

Estimated business interruption insurance is recorded as a reduction of cost of products sold. Estimated insurance proceeds to be spent to replace
equipment are accounted for as proceeds of disposition, and the resulting gain has been included in other income.

The ﬁnal amount of the insurance claim will be determined after the mill reconstruction is complete and the mill returns to expected production rates.

18. Tax provision

Accounting policies
The tax expense for the period is comprised of current and deferred tax. Tax is recognized in the consolidated statement of earnings, except to the extent
that it relates to items recognized in other comprehensive earnings in which case it is recognized in other comprehensive earnings.

Deferred taxes are provided for using the liability method. Under this method, deferred taxes are recognized for temporary differences between the tax and
ﬁnancial statement basis of assets, liabilities and certain carry-forward items.

Deferred tax assets are recognized only to the extent that it is probable that they will be realized. Deferred income tax assets and liabilities are adjusted for
the effects of changes in tax laws and rates on the date of substantive enactment.

Supporting information
The major components of income tax included in comprehensive earnings are as follows:

Earnings
Current tax
Deferred tax
Tax provision on earnings

Other comprehensive earnings
Current tax on post-retirement actuarial gains and losses
Deferred tax on post-retirement actuarial gains and losses
Tax recovery on other comprehensive earnings

Tax provision on comprehensive earnings

2016

(47 )
(71 )
(118 )

—
3
3

(115 )

2015

(37 )
(15 )
(52 )

1
4
5

(47 )

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

Income tax expense at statutory rate of 26%
Non-taxable amounts
Rate differentials between jurisdictions and on speciﬁed activities
Unrecognized capital losses
Increase in Alberta statutory tax rate
Other
Tax provision

Deferred income taxes are made up of the following components:

Property, plant, equipment and intangibles
Reforestation and decommissioning obligations
Post-retirement beneﬁts
Tax loss carry-forwards
Other

Represented by:
Deferred income tax assets
Deferred income tax liabilities

2016
(115 )
6
(8 )
1
—
(2 )
(118 )

2016
351
(30 )
(39 )
(89 )
(13 )
180

(35 )
215
180

2015
(40 )
(1 )
5
(9 )
(7 )
—
(52 )

2015
324
(33 )
(36 )
(124 )
(21 )
110

(80 )
190
110

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Notes to Consolidated Financial Statements (continued)

19. Employee compensation
Our employee compensation expense includes salaries and wages, employee future beneﬁts, termination costs and bonuses. Total compensation expense
is $808 million (2015 – $756 million).

Key management includes directors and ofﬁcers. Their compensation expense (recovery) and balance sheet date payables are as follows:

Expense
Salary and short-term employee beneﬁts
Post-retirement beneﬁts
Equity-based compensation1

Payables and accrued liabilities
Compensation
Equity-based compensation1

2016

2015

9
2
(3 )
8

4
53
57

5
2
(24 )
(17 )

—
64
64

1. The expense or recovery does not necessarily represent the actual value which will ultimately be received.

20. 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 (recovery)
expense 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.

Earnings
Basic
Share option recovery
Equity settled share option adjustment
Diluted

Weighted average number of shares (thousands)

Basic
Share options
Diluted

Earnings per share (dollars)

Basic
Diluted

21. Commitments

2016

2015

326
(6 )
(4 )
316

104
(26 )
(3 )
75

80,236
860
81,096

83,104
1,295
84,399

$
$

4.06
3.90

$
$

1.25
0.89

Operating leases
We are committed to make payments under certain operating leases for equipment, land, buildings and ofﬁce space. Operating lease costs expensed
during the year were $7 million (2015 – $7 million). The future payments required under operating leases are as follows:

2017
2018
2019
2020
Thereafter

4
3
2
2
3
14

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Product purchase and sale commitments
We have long-term purchase and sale contracts with minimum annual volume commitments. All contracts are at market prices and on normal business terms.

Capital commitments
Capital commitments at December 31, 2016 are $33 million.

22. Government assistance

Accounting policies
Government assistance received that relates to the construction of manufacturing assets is applied to reduce the cost of those assets. Government
assistance received that relates to operational expenses is applied to reduce the amount charged to earnings for the operating item.

Supporting information
Government assistance of $8 million (2015 – $4 million) was received for capital projects and recorded as a reduction to property, plant and equipment.

Government assistance of $6 million (2015 – $14 million) was recorded as a reduction to cost of products sold. The government assistance related
primarily to bioenergy producer credits, research and development and apprentice tax credits.

23. Financial instruments

Accounting policies
Our ﬁnancial assets are categorized as loans and receivables, our ﬁnancial liabilities as other ﬁnancial liabilities, and our derivatives as held for trading. All
ﬁnancial assets and liabilities, except for derivatives, are initially measured at fair value and subsequently measured at amortized cost using the effective
interest rate method. Derivatives are measured at fair value through earnings.

Supporting information
The following tables provide the carrying and fair values of our ﬁnancial instruments by category, as well as the associated fair value hierarchy levels as
deﬁned in note 2 under “Fair value measurements”:

2016

Loans &
Level receivables

Held for
trading

Other
ﬁnancial
liabilities

Carrying
value

Fair
value

Financial assets
Cash & short-term investments
Receivables

1
3

Financial liabilities
Cheques issued in excess of funds on deposit 1
Payables and accrued liabilities1
2
Long-term debt (note 12)2
2

50
297
347

—
—
—
—

—
—
—

—
2
—
2

—
—
—

15
377
417
809

50
297
347

15
379
417
811

1. Payables and accrued liabilities include our equity derivative payable of $2 million.
2. The fair value of the long-term debt is based on rates available to us at December 31, 2016 for long-term debt with similar terms and remaining maturities.

2015

Financial assets
Cash & short-term investments
Receivables
Power agreement (note 9)

Financial liabilities
Cheques issued in excess of funds on deposit 1
Operating loans (note 12)
1
2
Payables and accrued liabilities
3
Power agreement
Long-term debt (note 12)1
2

Loans &
receivables

Level

Held for
trading

Other
ﬁnancial
liabilities

Carrying
value

1
3
3

13
298
—
311

—
—
—
—
—
—

—
—
16
16

—
—
—
5
—
5

—
—
—
—

29
181
351
—
427
988

13
298
16
327

29
181
351
5
427
993

1. The fair value of the long-term debt is based on rates available to us at December 31, 2015 for long-term debt with similar terms and remaining maturities.

50
297
347

15
379
391
785

Fair
value

13
298
16
327

29
181
351
5
406
972

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Notes to Consolidated Financial Statements (continued)

Financial risk management
Our activities result in exposure to a variety of ﬁnancial risks including risks related to derivative contracts, currency ﬂuctuation, credit, liquidity and
interest rates.

The sensitivities provided give the effect of possible changes in the relevant prices and rates on earnings. The sensitivities are hypothetical and should not
be considered to be predictive of future performance or earnings. Changes in fair values or cash ﬂows based on market variable ﬂuctuations cannot be
extrapolated since the relationship between the change in the market variable and the change in fair value or cash ﬂows may not be linear.

Derivative contracts
From time to time, we use derivatives to manage our exposure to U.S. dollar exchange ﬂuctuations, commodity prices and equity-based compensation.
Commodity contracts used by West Fraser include lumber futures and agreements related to Alberta electricity rates.

The fair value of our equity derivatives at December 31, 2016 is $2 million. Based on the equity contract as at December 31, 2016 and holding all other
variables constant, a $1.00 change in our share price would change its fair value by $1 million, which would partially offset the movement in our equity-
based compensation.

There were no energy related derivatives outstanding at December 31, 2016. The fair value adjustments and settlement costs recognized in 2016 totalled
a loss of $27 million (2015 – loss of $32 million).

There were no material lumber futures or foreign exchange contracts outstanding at December 31, 2016 or 2015.

Currency ﬂuctuation
Most of our products are sold at prices denominated in U.S. dollars or based on prevailing U.S. dollar prices, and signiﬁcant portions of operational costs
and expenses are incurred in Canadian dollars. Therefore, an increase in the value of the Canadian dollar relative to the U.S. dollar reduces the revenue
in Canadian dollar terms realized by us from sales made in U.S. dollars, which reduces operating margin and the cash ﬂow available to fund operations.

Impact of U.S. dollar currency ﬂuctuation

The U.S. dollar foreign currency balance sheet exposure at December 31, 2016 is as follows:

Canadian operations
Net working capital
Intercompany ﬁnancing1
Long-term debt

U.S. operations
Net investment

2016
104
200
(300)
4

US$

614

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.

Based on these balances, with other variables unchanged, a $0.01 increase (decrease) in the exchange rate for one U.S. dollar into Canadian currency
would result in an immaterial change in earnings and an increase (decrease) of $11 million in the translation gain on foreign operations.

Credit
Credit risk arises from the non-performance by counterparties of contractual ﬁnancial obligations. Investments in cash and short-term investments are
primarily made using major banks and only made with counterparties meeting certain credit-worthiness criteria. Credit risk for trade and other receivables
is managed through established credit monitoring activities. Customer credit limits are established and monitored. Ongoing evaluations of key customer
ﬁnancial conditions are performed. In certain market areas, we have undertaken additional measures to reduce credit risk including credit insurance, letters
of credit and prepayments. At December 31, 2016, approximately 40% of trade accounts receivable was covered by at least some of these additional
measures. We have historically experienced minimal customer defaults and, as a result, consider the credit quality of the trade accounts receivable at
December 31, 2016 to be high. There were no bad debts in 2016 or 2015. The aging analysis of trade accounts receivable is presented below:

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Trade accounts receivable – gross

Current
Past due 1 to 30 days
Past due 31 to 60 days
Past due over 60 days

Allowance for doubtful accounts
Trade accounts receivable – net
Insurance receivable
Other
Receivables

2016

2015

236
5
3
1
245
—
245
26
26
297

239
9
3
1
252
—
252
—
46
298

Liquidity
We manage liquidity by maintaining adequate cash and short-term investment balances and by having appropriate lines of credit available. In addition, we
regularly monitor and review both actual and forecasted cash ﬂows. Reﬁnancing risks are managed by ensuring debt has a balanced maturity schedule
where possible.

The following table summarizes the aggregate amount of contractual future cash outﬂows for long-term debt:
2017
—
18
18

Long-term debt (note 12)
Interest on long-term debt1,2

2018
—
18
18

2019
—
18
18

2020
—
18
18

Thereafter
417
$
67
484

Total
417
139
556

1. Assumes debt level, foreign exchange rate and interest rates remain at December 31, 2016 levels and rates.
2. At December 31, 2016, our revolving credit facility was undrawn.

Interest rates
Interest rate risk relates mainly to cash and short-term investments and ﬂoating rate debt. Our general practice is to fund long-term capital with debt at
ﬁxed rates. In addition, we have revolving lines of credit available that bear interest at ﬂoating rates on amounts drawn.

At December 31, 2016, with other variables unchanged, a 1% change in interest rates would not have a signiﬁcant impact on earnings or other
comprehensive earnings.

24. Capital disclosures
Our business is cyclical and is subject to signiﬁcant changes in cash ﬂow over the business cycle. In addition, ﬁnancial performance can be materially
inﬂuenced by changes in product prices and the relative values of the Canadian and U.S. dollars. Our objective in managing capital is to ensure adequate
liquidity and ﬁnancial ﬂexibility at all times, particularly at the bottom of the business cycle.

Our main policy relating to capital management is to maintain a strong balance sheet and otherwise meet ﬁnancial tests that are commonly applied by rating
agencies for investment grade issuers of public debt. Our debt is currently rated as investment grade by three major rating agencies.

We monitor and assess our ﬁnancial performance in order to ensure that net debt levels are prudent taking into account the anticipated direction of the
business cycle. When ﬁnancing acquisitions, we combine debt and equity ﬁnancing in a proportion that is intended to maintain an investment grade rating
for debt throughout the cycle. Debt repayments are arranged, where possible, on a staggered basis that takes into account the uneven nature of anticipated
cash ﬂows. We have established committed revolving lines of credit that provide liquidity and ﬂexibility when capital markets are restricted.

One key measurement used to monitor our capital position is net debt to total capital, calculated as follows at December 31:

Net debt

Cash and short-term investments
Deferred ﬁnancing costs1
Cheques issued in excess of funds on deposit
Operating loans
Long-term debt

Shareholders’ equity
Total capital
Net debt to total capital

2016

(50 )
(6 )
15
—
417
376
2,241
2,617
14%

2015

(13 )
(7 )
29
181
427
617
2,147
2,764
22%

1. For our balance sheet presentation, these costs are applied to reduce the associated debt or, in instances when the operating loan is undrawn, these costs are included

in other assets.

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Five-Year Financial Review

(In millions of Canadian dollars, except where indicated)

Notes to Consolidated Financial Statements (continued)

25. Segment and geographical information
The segmentation of manufacturing operations into lumber, panels and pulp and paper is based on a number of factors, including similarities in products,
production processes and economic characteristics. Transactions between segments are at market prices and on normal business terms. The segments
follow the accounting policies as described in these consolidated ﬁnancial statement notes, where applicable.

Lumber

Panels

Pulp &
Paper

Corporate
& Other

Total

2016
Sales

To external customers
To other segments

Operating earnings before amortization
Amortization
Operating earnings
Finance expense
Other
Earnings before tax

Total assets
Total liabilities
Capital expenditures

2015
Sales

To external customers
To other segments

Operating earnings before amortization
Amortization
Operating earnings
Finance expense
Other
Earnings before tax

Total assets
Total liabilities
Capital expenditures
Acquisition

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$
$
$

$
$
$
$

3,042
103
3,145

508
(146 )
362
(18 )
—
344

2,662
393
195

2,654
110
2,764

243
(138 )
105
(18 )
—
87

2,668
363
172
76

$
$
$

$
$
$
$

521
8
529

89
(12 )
77
(3 )
5
79

286
53
25

546
8
554

95
(13 )
82
(3 )
(3 )
76

261
51
5
—

$
$
$

$
$
$
$

887
—
887

79
(37 )
42
(8 )
(23 )
11

583
110
42

900
—
900

80
(39 )
41
(8 )
(5 )
28

622
121
32
—

$
$
$

$
$
$
$

—
—
—

3
(2 )
1
—
9
10

69
803
11

—
—
—

22
(1 )
21
—
(56 )
(35 )

84
953
11
—

4,450

$
$
$

679
(197 )
482
(29 )
(9 )
444

3,600
1,359
273

4,100

$
$
$
$

440
(191 )
249
(29 )
(64 )
156

3,635
1,488
220
76

The geographic distribution of non-current assets and external sales is as follows:

Canada
United States
China
Other Asia
Other

Non-current assets Sales by geographic area1

2016
1,987
675
—
—
—
2,662

2015
1,990
674
—
—
—
2,664

2016
994
2,583
486
317
70
4,450

2015
898
2,249
580
299
74
4,100

1. Sales distribution is based on the location of product delivery.

26. Softwood lumber dispute
The Canada – U.S. Softwood Lumber Agreement (“SLA”) expired in October 2015 and on the expiry of that agreement a one year moratorium on trade
sanctions by the U.S. came into place. The Government of Canada and the U.S. Trade Representative have been unable to reach agreement on a new
managed trade agreement.

On November 25, 2016 a coalition of U.S. lumber producers petitioned the U.S. Department of Commerce and the U.S. International Trade Commission to
investigate alleged subsidies to Canadian producers and levy countervailing and anti-dumping duties against Canadian imports. The U.S. Department of
Commerce has initiated its investigation and is expected to make a preliminary determination regarding countervailing duties in April 2017, and in June
2017 for anti-dumping duties. If the U.S. Department of Commerce determines that “critical circumstances” apply, duties could be applied retroactively up
to 90 days prior to the preliminary determinations. We have been chosen by the U.S. Department of Commerce as a “mandatory respondent” to both the
countervailing and anti-dumping investigations and as a result will receive unique company speciﬁc rates.

We categorically deny the U.S. allegations of subsidies and dumping and will vigorously defend ourselves and the Canadian industry against the
unfounded allegations.

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Five-Year Financial Review

(In millions of Canadian dollars, except where indicated)

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(In millions of Canadian dollars, except where indicated)
Earnings
Sales
Cost of product sold
Freight and other distribution costs
Export taxes
Amortization
Selling, general and administration
Equity-based compensation
Restructuring charges
Operating earnings
Finance expense
Other
Tax recovery (provision)

Earnings

Cash ﬂows from operating activities

Capital expenditures & acquisitions

Financial position
Current assets
PPE & timber licences
Goodwill & other intangibles
Other assets
Deferred income tax assets
Total assets
Current liabilities
Long-term debt (including current portion)
Other liabilities
Deferred income tax liabilities
Shareholders’ equity
Total liabilities & equity

Per common share (dollars)1
Basic EPS
Price range – high
– low
– close
Cash dividends per share
Shares outstanding at year-end (‘000s)

Ratios (before unusual items)
Adjusted EBITDA margin2
Return on capital employed
Return on common shareholders’ equity
Net debt to capitalization
Number of employees at year-end

2016

2015

2014

2013

4,450
2,971
629
—
197
176
(5 )
—
482
(29 )
(9 )
(118 )

326

689

273

938
2,236
371
20
35
3,600
459
413
272
215
2,241
3,600

4.06
54.18
35.35
48.01
0.28
78,163

15%
11%
15%
14%
7,800

4,100
2,874
627
29
191
153
(23 )
—
249
(29 )
(64 )
(52 )

104

301

296

971
2,179
369
36
80
3,635
606
423
269
190
2,147
3,635

1.25
78.55
40.56
52.53
0.28
82,457

10%
4%
5%
22%
7,900

3,856
2,538
548
—
170
149
45
—
406
(26 )
(5 )
(116 )

259

475

618

907
1,999
350
79
62
3,397
616
354
244
154
2,029
3,397

3.06
66.80
45.05
66.47
0.28
83,527

16%
10%
13%
19%
7,560

3,474
2,260
491
9
160
131
54
24
345
(29 )
1
32

349

419

358

971
1,633
321
83
96
3,104
454
328
197
178
1,947
3,104

4.07
52.67
36.25
51.80
0.28
85,672

17%
15%
21%
8%
7,300

Production
Lumber (MMfbm)
Pulp (Mtonnes)
Newsprint (Mtonnes)
Plywood (3/8” MMsf)
MDF (3/4” MMsf)3
LVL (Mcf)
1. Per share amounts prior to 2014 have been adjusted to take into account the 2014 stock dividend which had the same effect as a two-for-one stock split.
2. Adjusted EBITDA is described in the section titled “Non-IFRS Measures” of our 2016 Management’s Discussion & Analysis.
3. A ﬁre at our MDF plant in Quesnel on March 9, 2016 resulted in the closure of the plant for the balance of the year.

5,293
1,086
132
771
206
1,796

5,935
1,192
128
826
160
2,215

5,607
1,142
133
797
220
1,627

5,153
1,099
119
781
204
1,848

2012

3,000
2,024
477
48
152
115
61
—
123
(28 )
7
(25 )

204

189

823
1,455
330
24
—
2,632
385
300
327
128
1,492
2,632

0.90
37.62
20.08
35.03
0.28
85,726

11%
4%
5%
12%
7,200

4,954
1,149
128
793
195
1,964

Corporate Information

Effective February 16, 2017

DIRECTORS

Henry H. Ketcham

Clark S. Binkley

Reid E. Carter

John N. Floren

J. Duncan Gibson

John K. Ketcham

Harald H. Ludwig

Gerald J. Miller

Robert L. Phillips

Janice G. Rennie

Ted Seraphim

OFFICERS

Ted Seraphim

Raymond W. Ferris

Brian A Balkwill

Keith D. Carter

Larry E. Gardner

James W. Gorman

Larry S. Hughes

Rodger M. Hutchinson

Christopher D. McIver

Sean P. McLaren

Chuck H. Watkins

Tom V. Theodorakis

Principal Occupation

Chairman of the Board

Chief Investment Ofﬁcer, GreenWood Resources, Inc. (a timberland investment management organization)

President, Brookﬁeld Timberlands Management LP

President and Chief Executive Ofﬁcer, Methanex Corporation

Investor

Real Estate Developer

President, Macluan Capital Corporation (diversiﬁed private equity investment company)

Corporate Director

President and Chief Executive Ofﬁcer

Ofﬁce Held

President and Chief Executive Ofﬁcer

Executive Vice-President and Chief Operating Ofﬁcer

Vice-President, Canadian Lumber

Vice-President, Pulp and Energy Operations

Vice-President, Canadian Woodlands

Vice-President, Corporate and Government Relations

Vice-President, Finance, Chief Financial Ofﬁcer and Secretary

Vice-President, Corporate Controller and Investor Relations

Vice-President, Sales and Marketing

Vice-President, U.S. Lumber

Vice-President, U.S. Lumber Manufacturing

Assistant Secretary
Partner, McMillan LLP (lawyers)

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Corporate Information

Effective February 16, 2017

ANNUAL GENERAL MEETING
The Annual General Meeting of the shareholders
of the Company will be held on April 19, 2017 at
11:30 a.m. at Quesnel, British Columbia, Canada.

AUDITORS
PricewaterhouseCoopers LLP
Vancouver, British Columbia, Canada

LEGAL COUNSEL
McMillan LLP
Vancouver, British Columbia, Canada

TRANSFER AGENT
CST Trust Company
Vancouver, Calgary, Toronto and Montreal,
Canada

FILINGS
www.sedar.com

Shares are listed on the
Toronto Stock Exchange under the symbol: WFT

INVESTOR CONTACT
Rodger Hutchinson
Vice-President, Corporate Controller
and Investor Relations

Tel: (604) 895-2700
Fax: (604) 681-6061

E-mail Address:
shareholder@westfraser.com

WEBSITE
www.westfraser.com

CORPORATE OFFICE
858 Beatty Street, Suite 501,
Vancouver, British Columbia, Canada, V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061

SALES OFFICES

SPF LUMBER
PLYWOOD
MDF
LVL
1250 Brownmiller Road,
Quesnel, British Columbia,
Canada, V2J 6P5
Tel: (250) 992-9254
Fax: (250) 992-3034
SPF Export Lumber
858 Beatty Street, Suite 501,
Vancouver, British Columbia, Canada, V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061
SYP Lumber
1900 Exeter Road, Suite 105,
Germantown, Tennessee,
USA, 38138
Tel: (901) 620-4200
Fax: (901) 620-4204
Pulp
858 Beatty Street, Suite 501,
Vancouver, British Columbia,
Canada, V6B 1C1
Tel: (604) 895-2700
Fax: (604) 681-6061

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Newsprint
2900-650 W Georgia Street,
Vancouver, British Columbia,
Canada, V6B 4N8
Tel: (604) 681-8817
Fax: (604) 681-8861

OPERATIONS

LUMBER, PLYWOOD AND LVL
Canadian Operations
1250 Brownmiller Road,
Quesnel, British Columbia,
Canada, V2J 6P5
Tel: (250) 992-9244
Fax: (250) 992-9233
US Operations
1900 Exeter Road, Suite 105,
Germantown, Tennessee,
USA, 38138
Tel: (901) 620-4200
Fax: (901) 620-4204

MDF
WestPine
300 Carradice Road,
Quesnel, British Columbia,
Canada, V2J 5Z7
Tel: (250) 991-7100
Fax: (250) 991-7115
Ranger Board
P.O. Box 6,
Blue Ridge, Alberta,
Canada, T0E 0B0
Tel: (780) 648-6333
Fax: (780) 648-6397

PULP & PAPER
Cariboo Pulp & Paper
P.O. Box 7500,
50 North Star Road,
Quesnel, British Columbia,
Canada, V2J 3J6
Tel: (250) 992-0200
Fax: (250) 992-2164
Quesnel River Pulp
1000 Finning Road,
Quesnel, British Columbia,
Canada, V2J 6A1
Tel: (250) 992-8919
Fax: (250) 992-2612
Hinton Pulp
760 Switzer Drive,
Hinton, Alberta,
Canada, T7V 1V7
Tel: (780) 865-2251
Fax: (780) 865-6666
Slave Lake Pulp
P.O. Box 1790,
Slave Lake, Alberta,
Canada, T0G 2A0
Tel: (780) 849-7777
Fax: (780) 849-7725
Alberta Newsprint Company
Postal Bag 9000,
Whitecourt, Alberta,
Canada, T7S 1P9
Tel: (780) 778-7000
Fax: (780) 778-7070

Glossary of Industry Terms

Return on Common
Shareholders’ Equity
Earnings available to common
shareholders divided by average
shareholders’ equity.

SPF Dimension lumber produced from
spruce/pine/balsam ﬁr species.

SYP Dimension lumber produced from
southern yellow pine species.

Ton A unit of weight equal to 2,000
pounds, generally known as a U.S. ton

Tonne A unit of weight in the metric
system equal to one thousand kilograms
or approximately 2,204 pounds. Mtonne
means one thousand tonnes.

AAC Annual Allowable Cut
The volume of timber that may be
harvested annually from a speciﬁc
timber tenure.

BCTMP Bleached Chemi-
thermomechanical Pulp

Dimension Lumber Standard
commodity lumber ranging in sizes from
1 x 3’s to 4 x 12’s, in various lengths.

Mcf One thousand cubic feet. A unit of
measure for laminated veneer lumber.

MDF Medium Density Fibreboard
A composite product made from
wood ﬁbre.

Mfbm One thousand board feet
(equivalent to one thousand square
feet of lumber, one inch thick). MMfbm
means one million board feet.

FMA Forest Management Agreement
An FMA is granted by the Alberta
government and entitles the holder to
establish, grow and harvest timber on
speciﬁed lands.

Msf A unit of measure for MDF and
plywood equal to one thousand square
feet on a 3/4 inch basis for MDF and
on a 3/8 inch basis for plywood. MMsf
means one million square feet.

LVL Laminated Veneer Lumber
Large sheets of veneer bonded
together with resin then cut to lumber
equivalent sizes.

m3 A solid cubic metre, a unit of measure
for timber, equal to approximately 35
cubic feet.

NBSK Northern Bleached
Softwood Kraft Pulp

Return on
Capital Employed
Earnings before after-tax ﬁnancing
expense divided by average assets less
average current non-interest-bearing
liabilities.

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WEST FRASER TIMBER CO. LTD.
TEL: 604.895.2700
FAX: 604.681.6061
www.westfraser.com