Weatherford International Ltd. Annual Report 2017

FY2017 Annual Report · Weatherford International Ltd.

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WEST FRASER

ANNUAL REPORT 2017
Including Annual Information Form
Dated: February 14, 2018

WEST FRASER ANNUAL REPORT 2017

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.

PULP & PAPER

35. Hinton
36. Quesnel (2)
37. Slave Lake
38. Whitecourt

PLYWOOD

39. Edmonton
40. Quesnel
41. Williams Lake

MDF
42. Blue Ridge
43. Quesnel

VENEER & LVL
44. Rocky Mountain House
45. Slave Lake

A L B E R T A
13

EDMONTON
39

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

QUESNEL
40
1

36
2

41
7

VANCOUVER

NORTH CAROLINA

TENNESSEE

MEMPHIS

GEORGIA

32
SOUTH
CAROLINA

19 20
ARKANSAS
18

TEXAS

LOUISIANA

21 22
ALABAMA

30
29 28

24 25

27
26

FLORIDA

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

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. Perry
25. Lake Butler
26. Maxville
27. Whitehouse
28. Blackshear
29. Fitzgerald
30. Dudley
31. Augusta
32. Newberry
33. Armour
34. Seaboard

FRONT COVER: A continuous dry kiln (CDK) dries lifts of lumber at our sawmill in Opelika, Alabama. We have constructed 33 CDKs across our Canadian and U.S. operations
in the last six years. Today’s CDK provides better quality drying, energy efficiency, and maximizes our value, producing high-grade lumber products.

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TABLE OF CONTENTS

FINANCIAL AND OPERATING HIGHLIGHTS ................................................................................................... 3

REPORT TO SHAREHOLDERS .............................................................................................................................. 5

ANNUAL INFORMATION FORM .......................................................................................................................... 8

BUSINESS OVERVIEW ............................................................................................................................................... 8
CORPORATE STRATEGY........................................................................................................................................... 9
CORPORATE STRUCTURE ...................................................................................................................................... 10
HISTORY AND DEVELOPMENT OF BUSINESS ......................................................................................................... 11
FIBRE SUPPLY ........................................................................................................................................................ 12
CAPITAL EXPENDITURES AND ACQUISITIONS ....................................................................................................... 16
HUMAN RESOURCES .............................................................................................................................................. 17
MARKETS ............................................................................................................................................................... 17
RESEARCH AND DEVELOPMENT ............................................................................................................................ 18
LUMBER .................................................................................................................................................................. 18
PANELS ................................................................................................................................................................... 19
PULP & PAPER ....................................................................................................................................................... 20
NEWSPRINT ............................................................................................................................................................ 20
EXTERNAL FACTORS AFFECTING WEST FRASER’S BUSINESS IN 2017 ................................................................ 21
RISK FACTORS ....................................................................................................................................................... 22
CAPITAL STRUCTURE ............................................................................................................................................ 23
RATINGS ................................................................................................................................................................. 23
EXPERTS ................................................................................................................................................................. 24
DIRECTORS AND OFFICERS.................................................................................................................................... 25
GOVERNANCE......................................................................................................................................................... 27
AUDIT COMMITTEE ............................................................................................................................................... 28
FEES PAID TO AUDITORS ....................................................................................................................................... 29
MATERIAL CONTRACTS ......................................................................................................................................... 29
ADDITIONAL INFORMATION .................................................................................................................................. 30
SCHEDULE 1 – AUDIT COMMITTEE CHARTER ...................................................................................................... 31

MANAGEMENT’S DISCUSSION & ANALYSIS ................................................................................................. 34

RECENT DEVELOPMENTS ...................................................................................................................................... 35
SUMMARY INFORMATION - ANNUAL RESULTS ..................................................................................................... 37
SELECTED QUARTERLY INFORMATION ................................................................................................................ 38
ADJUSTED EARNINGS AND ADJUSTED BASIC EARNINGS PER SHARE .................................................................. 38
DISCUSSION & ANALYSIS BY PRODUCT SEGMENT ............................................................................................... 40
4TH QUARTER RESULTS .......................................................................................................................................... 44
SALES AND EARNINGS COMPARISON .................................................................................................................... 44
ADJUSTED EARNINGS AND ADJUSTED BASIC EARNINGS PER SHARE .................................................................. 44
DISCUSSION & ANALYSIS OF QUARTERLY NON-OPERATIONAL ITEMS ............................................................... 45
DISCUSSION & ANALYSIS BY PRODUCT SEGMENT ............................................................................................... 46
CAPITAL EXPENDITURES ....................................................................................................................................... 49
BUSINESS OUTLOOK .............................................................................................................................................. 49
OPERATIONS .......................................................................................................................................................... 49
ESTIMATED EARNINGS SENSITIVITY TO KEY VARIABLES ................................................................................... 51
CAPITAL STRUCTURE AND LIQUIDITY .................................................................................................................. 51
SUMMARY OF FINANCIAL POSITION ..................................................................................................................... 52
DEBT RATINGS ....................................................................................................................................................... 52
SELECTED CASH FLOW ITEMS .............................................................................................................................. 53
CONTRACTUAL OBLIGATIONS ............................................................................................................................... 54
SIGNIFICANT MANAGEMENT JUDGMENTS AFFECTING FINANCIAL RESULTS ..................................................... 54
ACCOUNTING STANDARDS ISSUED BUT NOT YET APPLIED ................................................................................. 56
NON-IFRS MEASURES ........................................................................................................................................... 57

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RISKS AND UNCERTAINTIES .................................................................................................................................. 59
DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING......................................... 68

RESPONSIBILITY OF MANAGEMENT .............................................................................................................. 69

INDEPENDENT AUDITOR’S REPORT ............................................................................................................... 70

CONSOLIDATED BALANCE SHEETS ....................................................................................................................... 71
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE EARNINGS ................................................ 72
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ......................................................... 73
CONSOLIDATED STATEMENTS OF CASH FLOWS ................................................................................................... 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .......................................................................................... 75

FIVE-YEAR FINANCIAL REVIEW .................................................................................................................... 107

CORPORATE INFORMATION ........................................................................................................................... 109

GLOSSARY OF INDUSTRY TERMS .................................................................................................................. 112

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FINANCIAL AND OPERATING HIGHLIGHTS

2017

2016

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)

1,160
870
596
902

674
482
326
689

5,134

4,450

- Weighted average (basic)
- Year-end

78,097
77,946

80,236
78,163

Earnings per share

Basic
Diluted

Dividends declared per share
Common shareholders' equity
Price range

- High (2017 - Nov 22; 2016 - Jun 27)
- Low (2017 - Jan 23; 2016 - Mar 30)
- Close

Financial Position ($ millions)
Working capital
Total assets
Long-term debt (includes current portion)
Shareholders' equity
Analytical Data
Current ratio
Capital expenditures & acquisitions ($ millions)
Net debt to capitalization (%)
Return on common shareholders' equity (%)

7.63
7.63
0.36
34.97

83.50
42.98
77.57

708
4,517
636
2,726

2.2
862
12
24

4.06
3.90
0.28
28.67

54.18
35.35
48.01

479
3,600
413
2,241

2.0
273
14
15

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)

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2017

2016

3,671
681
3,809
3,714
2,424
2,387

600
100
838
826
191
182
2,676
2,601

988
132
498
497
674
670
122
123

Production
Shipments
Production
Shipments

Production
Shipments
Production
Shipments
Production
Shipments

3,145
362
3,796
3,878
2,139
2,126

529
77
826
826
160
167
2,215
2,226

887
42
527
526
665
653
128
129

1. Adjusted EBITDA is described in the section titled “Non IFRS
Measures” of our 2017 Management’s Discussion & Analysis.
2. Includes intracompany fibre sales.

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REPORT TO SHAREHOLDERS

Message from our President and Chief Executive Officer

For more than 60 years West Fraser has been guided by a straight forward business strategy, to
be the low-cost, high margin producer in each of our product lines and geographic regions,
maintain a conservative financial position to manage cyclical markets and continuously reinvest
in the business. We believe these three pillars are the cornerstones to our success.

In 2017 we saw the return of the softwood lumber dispute between Canada and the U.S. for the
fifth time in the last 30 years. We believe these duties are unwarranted and without merit and
along with our industry and government partners will defend our position. During the last ten
years of managed trade we have been preparing for the potential expiration of the Softwood
Lumber Agreement. Since the last dispute was settled in 2006, we have invested significant
capital in our Canadian facilities to ensure they are low-cost and a highly competitive source of
lumber. We have also expanded our presence in the U.S. South. Growing our presence in this
low cost timber region also acts as a hedge against trade actions. After our acquisition of six
additional sawmills in 2017, 42% of our capacity is now in the U.S.

The economic factors that drive demand for our solid wood products continue to indicate
favorable supply and demand fundamentals. New home inventories remain low and housing
starts have continued to grow in North America. Spending on repairs, renovation and
remodeling activities also has continued to perform well. Offshore lumber markets that have
been developed by the western Canadian lumber producers remain strong and will continue to be
important markets for West Fraser. With the exception of the U.S. South, most of the key
lumber producing regions in North America are approaching peak production levels and growth
in some of these regions may be constrained due to declining timber availability. Pulp markets
were particularly strong in the second half of 2017 due to significant demand growth in China.
We expect that new capacity will have an impact on the global supply-demand balance but we
continue to be positive about the long-term growth prospects from China and other Asian
markets.

Despite our strong results, we experienced a number of challenges in 2017. The fire season in
British Columbia was the worst in recorded history, destroying nearly a million hectares of
forests and causing us to curtail a number of our operations for a period of time. While a certain
amount of the timber lost due to the fires was mountain pine beetle killed timber that was already
beyond salvage, the loss of green timber is concerning and the impact of the fires will play out
over the next several years in reductions in the annual allowable cut after salvage operations are
complete. All of this is likely to continue to present headwinds on log costs in British Columbia.
Weather conditions at the start and end of the year along with a robust economy impacted the
availability of transportation resources to ship finished products by rail and truck to our end
customers.

I am proud of the achievements we have made with our focus on people who are the cornerstone
of our organization and what I believe sets us apart culturally. We continued to make
improvements in safety, with serious injuries declining by 12% compared to 2016. We still have
much more work to do to achieve our goal of eliminating serious incidents and injuries, and are

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targeting further improvements in 2018 through investments in our facilities along with training
and development activities. At West Fraser we work hard to create a positive work environment
in all our facilities and have been recognized again in 2017 with several awards, being named as
one of Canada’s Top 100 Employers, one of B.C.’s Top Employers, and one of Canada’s Top
Employers for Young People. In addition, West Fraser was recognized once again for having
one of Canada’s Most Admired Corporate Cultures.

Being responsible to our environment and the resources that we consume is important for our
long-term success. Following the fire season in B.C., we quickly mobilized our teams to begin
seeking ways to salvage as much burned timber as possible so the land base could be restored
and replanted. We are also partnering with Pinnacle Renewable energy on the construction of a
new pellet production facility in Smithers, B.C. as an alternative use for our sawmill residuals.
The pellets from this new facility will be used in the production of energy in overseas markets.

West Fraser is a strong supporter of the communities in which we operate. In 2017 our major
contributions were to the new ice arena at the West Fraser Centre in Quesnel, B.C., the
expansion of the West Fraser Aquatics Centre in Williams Lake, B.C., and the West Fraser
Guild, home to the Performing Arts Theatre of Hinton, Alberta. West Fraser also provided
building materials to a number of community projects including Habitat for Humanity’s Carter
Work Project in Edmonton, Alberta. We continue to award scholarships to post-secondary
students in more than 10 communities across western Canada and the southern U.S.

There were a number of milestone accomplishments for West Fraser in 2017. We increased our
lumber production by 298 mmfbm though improvement in our own operations and additions
through acquisitions in the U.S. South. We completed the rebuild and restart of our WestPine
MDF facility following a fire in 2016. We recorded the highest Adjusted EBITDA in company
history, growing Adjusted EBITDA by $486 million and 72% over 2016. In August we
completed the acquisition of six sawmills in Florida and Georgia, complementing our existing
U.S. South footprint and adding 700 mmfbm of high margin production to our base. Our teams
continued to execute well on significant capital projects that will benefit us in 2018 and years to
come. We commissioned a complete sawmill rebuild in High Prairie, Alberta, and made
significant upgrades at our Fraser Lake, B.C. planer mill and have several continuous drying
kilns under construction. In the U.S. among our more notable upgrades were major equipment
centres at our mills in Russellville, Arkansas; Newberry, South Carolina; and Seaboard, North
Carolina. We are also making good progress on the construction of a replacement sawmill at our
Opelika, Alabama facility which is expected to start operations in the third quarter of 2018. The
new facility will almost double our capacity at the site bringing it to 190 million board feet. This
is another step forward in our extensive capital program that will deploy the latest mill
technology and work environment improvements for our talented team at Opelika. We also had
strong contributions from our panels and pulp business as strong pricing and improved operating
performance over 2016 contributed to improved results.

While 2017 was a record year for the company in Adjusted EBITDA, we remain convinced of
the untapped potential for further improvement in all our operations. Our consistent business
approach, diversified operating footprint, focus on reinvesting in our business and development
of high-performance teams puts us in a strong position to compete in our sector and product
markets.

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With the support, dedication and effort of all our employees, their families, our Board of
Directors, our customers and communities, I am optimistic about the opportunities for continued
success in 2018. Our strong financial position backs our commitment to safe, modern, efficient
operations driven by a low-cost culture which positions us well for the years ahead.

Ted Seraphim
President and Chief Executive Officer

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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 14, 2018. Except as otherwise indicated, the
information contained in it is as of December 31, 2017.

All financial information in this Annual Information Form is presented in Canadian dollars,
unless otherwise indicated.

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
are subject to various risks and uncertainties. Forward-looking statements are included under the
headings “Fibre Supply – Mountain Pine Beetle and B.C. Wildfires” (the timing of AAC
reductions and the effect on our AACs), “Fibre Supply – Caribou Recovery Planning” (impact
on our access to timber supply), “Fibre Supply - Aboriginal Matters” (the potential effect of
aboriginal title or rights), “Capital Structure – Cash dividends” and “Risks and Uncertainties” in
the 2017 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
portion 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.

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

Lumber (MMfbm)
SPF
SYP
Total

Panels

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

Pulp (Mtonnes)
BCTMP
NBSK

Newsprint (Mtonnes)

Corporate Strategy

4,150
3,050
7,200

860
250
3,200

690
570

135

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, MDF and energy operations.

We are committed to operating in a financially conservative and prudent manner. The North
American wood products industry is cyclical and periodically faces difficult market conditions
and serious challenges. During such cyclical downturns, we focus on financial discipline, which
may include 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 that were 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.

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.

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Corporate Structure

The following chart 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 Timber Co. Ltd.
West Fraser Mills Ltd.

Henderson5
New Boston5
Leola4
Mansfield4

LUMBER
U.S.
Canada
Joyce4
Quesnel
Williams Lake Huttig4
Smithers
Chetwynd
Fraser Lake
Chasm
100 Mile House Russellville4
Maplesville4
Blue Ridge1
Opelika4
Hinton
McDavid4
Edson
Sundre2
Perry6
High Prairie
Manning3

PULP & PAPER
Pulp
Hinton
Quesnel
Quesnel (50%)7
Slave Lake

Newsprint
Whitecourt (50%)8

Lake Butler6
Whitehouse4
Maxville6
Blackshear6
Fitzgerald6
Dudley6
Augusta4
Newberry4
Armour4
Seaboard4

PANELS
Plywood
Edmonton
Quesnel
Williams Lake

MDF
Blue Ridge
Quesnel

Veneer & LVL
Rocky Mountain
House2
Slave Lake

SPECIALTY LUMBER
PRODUCTS
Sundre2
Edson
Blackshear6

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. Owned through West Fraser Southeast, Inc., a wholly-owned subsidiary.
7.
8.

50% interest in Cariboo Pulp & Paper Company.
50% interest in Alberta Newsprint Company owned through West Fraser Newsprint Ltd., a wholly-owned subsidiary.

- 11 -

West Fraser is organized under the Business Corporations Act (British Columbia) and 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., West Fraser Wood
Products Inc. and West Fraser Southeast, 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 2017 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 four years include the following:

2014

 Acquired two sawmills in Arkansas and one in High Prairie,

2015

Alberta.

 Permanently closed our Houston, B.C., Slave Lake, Alberta and

Folkston, Georgia sawmills.

 Capital investment sets new annual record at $410 million.
 Completed six continuous kilns, two planer projects and four major

sawmill upgrades.

 Completed a low consistency refiner project at our BCTMP mill in

Quesnel.

 Acquired a sawmill in Manning, Alberta.
 Completed co-generation projects at two of our B.C. 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.
 Completed three continuous kilns, two planer projects and one

major sawmill upgrade.

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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.

 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 duties against Canadian imports.

 Completed three continuous kilns.

2017

 MDF facility in Quesnel damaged by fire in 2016 was repaired and

began producing board on April 29.

 Acquired six sawmills and a finger-joint (specialty lumber) mill in

Florida and Georgia as well as an administrative office in St. Marys,
Georgia (the “Gilman Acquisition”).

 On December 4 the U.S. Department of Commerce determined final

duty rates for West Fraser of 23.56%.

 Completed four continuous kilns and two major sawmill upgrades.

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

Fibre Supply

2017
3,671
600
988
(125)
5,134

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

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 have a shorter term but are not replaceable. 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

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objectives also include achieving the fullest possible economic utilization of the forest resources
and employment in local communities.

Timber tenures in B.C. and Alberta require the payment of a fee, commonly known as stumpage,
for timber harvested pursuant to its terms. 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, 2017, 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.

AAC
5,621
200
6,910
1,301
Long-term tenures include TFLs, FMAs, timber quotas and forest licences, which are renewable timber tenures. Short-term tenures include

Tenure1
Coniferous Long-term
Coniferous Short-term
Coniferous Long-term
Deciduous Long-term

Expiry
2022 - 2035
2018
2018 - 2033
2019 - 2033

Alberta

1.
non-replaceable forest licences.

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

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 13 million tons
of logs per year if operating at the capacity described herein. Our U.S. operations as a whole
have access to approximately 17% of their log requirements under certain long-term supply
contracts, and the balance is purchased on the open market. Open market purchases come from
timber real estate investment trusts, timberland investment management organizations and
private land owners.

Mountain Pine Beetle and B.C. Wildfires

- 14 -

The mountain pine beetle infestation in the B.C. interior reached a peak, in terms of the annual
timber mortality rate, more than 12 years ago. Approximately 40% of B.C.’s crown forest is
within the timber harvesting land base (“THLB”), and approximately 29% of the THLB is pine.
When assessing the THLB of B.C.’s interior, approximately 37% is pine. The damage to the
mature pine forests within our operating areas is significant.

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 has been or 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 B.C.’s central interior by
approximately 32% 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. No reductions are expected in 2018.

Wildfires in B.C. burned nearly a million hectares of forest land in 2017. Our Cariboo region
operating areas were significantly impacted. Salvage of fire damaged trees has begun and is
expected to continue for 2-4 years.

As the timing of future AAC reductions and the effect on our AACs will depend on a variety of
factors, including the impact of wildfires and 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 mountain pine beetle detection, single tree control and focussed harvesting activity. The
mountain pine beetle infestation significantly expanded from Jasper National Park into our
Hinton forest management area (“FMA”) in 2017. 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.

Caribou Recovery Planning

Draft mountain caribou recovery plans were released by the Alberta government in December
2017. The AAC impact from these plans will depend on the final location of conservation areas
and the forest harvest regimes that are implemented. Plans are expected to be finalized in 2018.

A Draft Canada-British Columbia Conservation Agreement for Southern Mountain Caribou
recovery of the Central Group (three herds in south Peace area) is currently undergoing
consultation. This draft agreement is broad and involves identification of additional
conservation areas. We expect this will have some impact on our access to timber supply, but
we are unable to predict or quantify the impact at this stage in the planning process.

Forestry Certification

- 15 -

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.

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. All of our U.S. mills except those purchased with the Gilman Acquisition 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

- 16 -

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 and pellet
plants 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 may 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

Human Resources

- 17 -

2017
247
22
58
9
336
526
862

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

At December 31, 2017, we employed approximately 8,600 individuals, including our share of
those in 50%-owned operations. Of these, approximately 6,100 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 34% of our employees are covered by collective agreements. In 2018,
collective agreements covering approximately 1,550 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 the primary products of the type we produced, although these prices do not
necessarily reflect the prices we obtained.

Average Benchmark Prices (In US$ except plywood)

- 18 -

2017
401
323
433
509
1,105
712
584
0.771

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 – U.S. (per tonne)4
NBSK – China (per tonne)5
Newsprint (per tonne)6
US$/$Cad7
Sources: (refer to our 2017 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 annual average exchange rate.

2014
349
302
427
429
1,025
732
604
0.905

2016
305
240
409
432
978
599
560
0.755

2015
278
209
376
430
972
644
538
0.782

2013
356
295
414
392
941
700
608
0.971

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

Production
B.C.
Alberta
U.S. South

2017

2016

2015

2014

2013

2,460
1,690
3,050
7,200

2,257
1,552
2,424
6,233

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

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

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

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

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

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

- 19 -

We operate 34 sawmills, a wood-treating facility at the Sundre sawmill, a specialty
manufacturing plant at the Edson sawmill and a finger joint facility at the Blackshear sawmill.
Our Canadian sawmills, of which 7 are in B.C. and 6 are in Alberta, produce spruce, pine, fir
lumber of various grades and dimensions. Our 21 U.S. sawmills produce southern yellow pine
lumber of various grades and dimensions.

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 and St. Marys, Georgia. From time to time, we purchase lumber for resale
in order to meet requirements of customers.

In 2017, 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.

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

Operations

2017

2016

2015

2014

2013

860
838

250
191

850
826

250
160

830
797

250
220

830
771

300
206

830
781

300
204

3,200
2,676

3,200
2,215

3,200
1,627

3,200
1,796

3,200
1,848

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 our Edmonton plywood
mill. A fire at our MDF plant in Quesnel on March 9, 2016 resulted in the closure of the plant
while repairs and reconstruction took place. The plant began producing board April 29, 2017
and returned to normal production levels by year end. This reduced 2016 and 2017 MDF
production compared to prior years.

- 20 -

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.

In 2017 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)

2017

2016

2015

2014

2013

BCTMP
Capacity (year-end)
Production
NBSK
Capacity (year-end)
Production1
1. Reflects West Fraser's 50% ownership of the Cariboo pulp mill.

690
674

570
498

680
665

570
527

650
645

570
497

650
631

570
455

650
603

590
496

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 2017, 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.

2017
135
122

2016
135
128

2015
135
133

2014
135
132

2013
135
119

Operations

- 21 -

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 2017

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 (“USDOC”) and the U.S. International Trade Commission (“USITC”) to investigate
alleged subsidies to Canadian producers and levy countervailing and anti-dumping duties against
Canadian imports. The USDOC made its preliminary determination regarding countervailing
duties in April 2017, and in June 2017 for anti-dumping duties. In December of 2017 final
countervailing and anti-dumping rates for West Fraser of 17.99% and 5.57% respectively were
confirmed by the USITC.

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

- 22 -

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 reclaimed
from effluent treatment.

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 under the heading “Risks and Uncertainties” in
Management's Discussion & Analysis for the year ended December 31, 2017, which is
incorporated herein by reference. Our Management’s Discussion & Analysis is available on
SEDAR at www.sedar.com.

- 23 -

Capital Structure

Share Capital

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

(a)

(b)

(c)

400,000,000 Common shares,

20,000,000 Class B Common shares, and

10,000,000 Preferred shares, issuable in series.

The Common shares and Class B Common shares are equal in all respects, including the right to
dividends, rights upon dissolution or winding up 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, 2017, the issued share capital consisted of 75,664,558 Common shares and
2,281,478 Class B Common shares for a total of 77,946,036 shares (as at December 31, 2016 –
78,162,568 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

Outlook
Agency
DBRS1
Stable
Moody’s2
Stable
Standard & Poor’s3
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.
investment grade by market participants”. Additional information on the rating is available on S&P’s website.

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

Rating
BBB(low)
Baa3
BBB-

Market Prices

- 24 -

The following table sets forth adjusted market prices and trading volumes of our Common shares
on the Toronto Stock Exchange for each month of 2017 and 2016.

High
($)
48.38
55.82
58.89
62.28
62.50
63.32
67.61
69.66
73.30
81.51
83.50
82.32

January
February
March
April
May
June
July
August
September
October
November
December
Total
Source: http://tradingdata.tsx.com

Cash dividends

Low
($)
42.98
44.20
54.12
55.18
56.11
57.95
58.40
60.60
61.86
71.50
76.88
73.86

2017

2016

Close
($)
44.44
55.13
55.62
61.34
58.81
61.38
66.25
64.79
72.00
78.47
81.54
77.57

Volume
(000’s)
4,907
6,456
7,633
7,656
5,411
4,309
5,294
5,152
7,500
5,904
5,276
4,469
69,967

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

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 $0.36 per share were declared in 2017 and $0.28 per
share were declared in 2016 and 2015. There can be no assurance that 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 AST Trust Company (Canada), with registers of transfers in
Vancouver and Toronto.

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,
2017. 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 14, 2018.

- 25 -

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:

Name and Municipality
of Residence

Principal Occupation

Director Since

Henry H. Ketcham
Vancouver, B.C.

Chairman

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

President, Brookfield Timberlands
Management LP.

September 16,
1985

April 19, 2016

John N. Floren2, 3 & 4
Eastham, Massachusetts

President and Chief Executive Officer,
Methanex Corporation

April 19, 2016

Brian G. Kenning2 & 4
Vancouver, B.C.

John K. Ketcham3 & 4
Santa Monica, California

Gerald J. Miller1,3 & 4
Kelowna, B.C.

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

Janice G. Rennie1, 2 & 4
Edmonton, Alberta

Ted Seraphim
North Vancouver, B.C.

Corporate Director

April 19, 2017

Real Estate Developer

April 28, 2015

Corporate Director

April 19, 2012

Corporate Director

April 28, 2005

Corporate Director

April 28, 2004

President and Chief Executive Officer

April 30, 2013

Corporate Director

Gillian D. Winckler1, 3 & 4
Vancouver, B.C.
1. Member of the Audit Committee.
2. Member of the Human Resources & Compensation Committee.
3. Member of the Safety & Environment Committee.
4. Member of the Governance & Nominating Committee.
5.

Lead Director.

April 19, 2017

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; John Floren who before

- 26 -

January 2013 was Senior Vice President, Global Marketing and Logistics of Methanex
Corporation; 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; and
Gillian Winckler who before June 2015 was CEO and President, as well as CFO for a brief
period of Coalspur Limited. 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

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.

Rodger M. Hutchinson
West Vancouver, B.C.

Christopher D. McIver
North Vancouver, B.C.

Sean P. McLaren
Collierville, Tennessee

Tom V. Theodorakis
Vancouver, B.C.

Christopher A. Virostek
North Vancouver, B.C.

Chuck H. Watkins
Memphis, Tennessee

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, Corporate Controller and Investor
Relations

Vice-President, Sales and Marketing

Vice-President, U.S. Lumber

Secretary
Partner, McMillan LLP (lawyers)

Vice-President, Finance and Chief Financial Officer

Vice-President, U.S. Lumber Manufacturing

- 27 -

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; Christopher A. Virostek, who before April 1, 2017 was the Senior
Vice-President of Strategy and Corporate Development of Masonite International Corporation;
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.

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

Governance

December 31, 2017
1,395,821
2%
78,728
3%
2%

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

Corporate governance is guided by our Corporate Governance Policy, a copy of which may be
viewed on our web site: 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 2017, the Committee met
without management representatives present and reviewed these and other issues.

- 28 -

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.

Reid E. Carter

Mr. Carter holds a combined undergraduate degree in Forestry and Biology and a master’s
degree in Forest Soils. 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 14 years. Prior to
that he served as National Bank Financial’s Paper and Forest Products Analyst.

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. Mr. Miller is currently the Chair of the
audit committee of Granite Real Estate Investment Trust.

Janice G. Rennie

Ms. 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.
Ms. 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.

Gillian D. Winckler

Ms. Winckler, who holds a Bachelor of Science and Bachelor of Commerce obtained in South
Africa, is a Chartered Accountant (South Africa). Ms. Winckler worked in the audit profession
for five years, in corporate finance for five years, and in a number of executive positions with
Coalspur Limited and BHP Billiton. Ms. Winckler is currently a member of the audit committee
of Pan American Silver Corporation.

Pre-Approval Policies and Procedures

- 29 -

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
1. Represents actual and estimated fees related to fiscal year ends.
2.

2017
854
162
548
50

2016
833
160
326
85

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

1.
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.

On August 25, 2017, we replaced our existing 2007 Credit Agreement with a new 2017

2.
Credit Agreement. The new credit agreement is comprised of a CDN$500 million committed
revolving credit facility and a US$200 million five year non-revolving term acquisition facility
which expires on August 25, 2022. The committed revolving credit facility provides for floating
rates of interest based on Prime, Base Rate Advances, Bankers’ Acceptances or LIBOR
Advances at our option. The five year non-revolving term facility provides for floating rates of
interest based on Base Rate Advances or LIBOR Advances at our option. On August 28, 2017
we borrowed US$200 million under the non-revolving term facility to fund part of the Gilman
Acquisition. These borrowings are repayable at any time, in whole or in part, at our option and
without penalty but cannot be redrawn after payment.

On July 26, 2017, we entered into a share purchase agreement to acquire from the

3.
Howard Gilman Foundation and other shareholders, the Gilman Companies which owned six
sawmills and a finger joint mill in Florida and Georgia as well as an administrative office in St.

- 30 -

Marys, Georgia. The Gilman Acquisition was completed on August 31, 2017 for net cash
consideration of $526 million (US$419 million).

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, 2018. Additional financial information is provided in
our annual consolidated financial statements and Management’s Discussion & Analysis for the
year ended December 31, 2017.

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, 2017 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.

- 31 -

Schedule 1 – Audit Committee Charter

The Audit Committee Charter, which is set out below, was approved by the Board on September 12, 2017.

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 the 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 either provide a recommendation to the Board with
respect to the approval of the interim financial reports or, if so delegated by the Board, approve the interim
financial reports and the filing of the same together with all required documents and information with
regulators.

 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.

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
management, together with management’s responses.

- 32 -

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 with management the adequacy and effectiveness of the Company’s systems for monitoring compliance
with financial reporting and disclosure laws, including the Company’s disclosure controls and procedures, 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.

 Assist the Board with its responsibility to, with the advice of management, identify the principal financial and
audit risks of the Company and establish systems and procedures to ensure these principal financial and audit
risks are monitored, and to make recommendations to the Board.

 Annually review the expenses of the Chief Executive Officer.

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

- 33 -

 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 Chair of the Committee will be designated by the Board.

 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.

 The Committee may retain any outside advisor at the expense of the Company, without the Board’s approval, at

any time and has the authority to determine any such advisor’s fees and other retention terms.

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

- 34 -

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 2017 and the fourth quarter of 2017 should be read in conjunction
with the 2017 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 headings “Recent
Developments – Softwood lumber dispute” (administrative review and adjustments of duty
rates), “Recent Developments – U.S. Tax Reform” (expectations for U.S. federal income tax
payments and tax expense), “Capital Expenditures” (expected completion of sawmill rebuilds
and upgrades) 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. These measures are not generally
accepted earnings measures under IFRS and do not have standardized meanings 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 14, 2018 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.

- 35 -

Recent Developments

Softwood lumber dispute

On November 25, 2016 a coalition of U.S. lumber producers petitioned the U.S. Department of
Commerce (“USDOC”) and the U.S. International Trade Commission (“USITC”) to investigate
alleged subsidies to Canadian softwood lumber producers and levy countervailing and
antidumping duties against Canadian softwood lumber imports. We were chosen by the USDOC
as a “mandatory respondent” to both the countervailing and antidumping investigations and as a
result have received unique company specific rates.

On April 24, 2017, the USDOC issued its preliminary determination in the countervailing duty
(“CVD”) investigation and imposed a company specific preliminary rate of 24.12% to be posted
by cash deposits on the exports from Canada of softwood lumber to the U.S. on or after April 28,
2017. On June 26, 2017, the USDOC issued its preliminary determination in the antidumping
duty (“ADD”) investigation and imposed a company specific preliminary rate of 6.76% to be
posted by cash deposits on the exports from Canada of softwood lumber to the U.S. on or after
June 30, 2017. The requirement that we deposit CVD was suspended on August 24, 2017 until
final determination was published by the USITC. On December 4, 2017 the USDOC amended
our CVD rate to 17.99% and our ADD rate to 5.57%. Effective December 28, 2017 we began
posting cash deposits for CVD and effective December 4, 2017 we began posting cash deposits
for ADD at the revised rates. The CVD and ADD rates are subject to further adjustment through
administrative reviews to be completed by the USDOC. The administrative reviews for each of
CVD and ADD are expected to commence in January 2019 and cover the periods from initiation
of duties to December 31, 2017 for CVD and to November 30, 2018 for ADD. The reviews may
not be finalized until June 2020 or later and the results are subject to appeals.

Duties of $48 million have been expensed for 2017 with an additional $37 million of duty
deposits recorded as a long-term asset on our balance sheet. The expensed amount is comprised
of CVD at the final rate assigned of 17.99% and ADD at our estimated rate. Our estimated rate
was determined based on applying the USDOC methodology to our actual financial results for
June 30, 2017 to December 31, 2017.

We, together with other Canadian forest product companies and the Canadian federal and
provincial governments (the “Canadian Interests”) categorically deny the allegations by the
coalition of U.S. lumber producers and disagree with the countervailing and antidumping
determinations by the USDOC and the USITC. The Canadian Interests continue to aggressively
defend the Canadian industry in this trade dispute and have appealed the decisions to North
America Free Trade Agreement panels and the World Trade Organization.

The duty rates are subject to change based on administrative reviews and appeals available to us.
Notwithstanding the deposit rates assigned under the investigations, our final liability for the
assessment of CVD and ADD will not be determined until each annual administrative review
process is complete and related appeal processes are concluded.

Forest fires in British Columbia

- 36 -

The 2017 wildfire season is considered to have been the worst in British Columbia’s history with
the provincial state of emergency lasting from July 7 to September 15, 2017. Many communities
were evacuated including those where our 100 Mile House, Williams Lake and Chasm facilities
are located. We were fortunate that our facilities were undamaged but the disruption caused us
to lose 55 MMFBM of lumber production and 15 MSF of plywood production while the mills
were closed.

Throughout this period our British Columbia facilities faced logging restrictions, transportation
delays and many of our employees were displaced. As a result of the interruptions, log
inventories remain below target levels at many locations for this time of the year.

The province of British Columbia estimates that approximately 1 million hectares of timber has
been lost due to the forest fires. We are working with the government to revise our current and
long-term logging plans, including plans to access and salvage burned timber. At this time it is
too early to gauge the long-term impact on lumber operations in British Columbia.

Gilman Acquisition

On August 31, 2017 we completed the acquisition of six sawmills and a finger-joint mill (the
“Gilman Acquisition”) for net cash consideration of $526 million (US$419 million). These SYP
mills are located in Florida and Georgia and have an annual lumber production capacity of
approximately 700 million board feet. After considering estimated tax benefits, the purchase
price represents approximately six times trailing 12 months EBITDA of the acquired operations.

The Gilman Acquisition was financed with cash on hand, borrowings under our revolving credit
facility, and a new $250 million (US$200 million) acquisition term loan which matures on
August 25, 2022, and is pre-payable at our option without penalty.

This acquisition represents an important step in increasing our geographic diversification through
an expansion of our U.S. lumber operations. We are pleased to have acquired a group of high
quality sawmills in a good timber basket, with high operating margins, close to a large customer
base and with a strong management team that is excited to join West Fraser. Integration of the
acquired mills is well underway with the migration of information technology systems and
organizational alignment largely completed.

U.S. Tax Reform

On December 21, 2017 the U.S. federal government enacted the Tax Cuts and Jobs Act (“U.S.
Tax Reform”). The significant features that impact us are the following:

The federal corporate tax rate is permanently reduced from 35% to 21% for tax years

1.
beginning after 2017;

Businesses will be allowed to immediately expense the cost of qualified property

2.
acquired and placed in service after September 27, 2017 and before January 1, 2023 (to be
phased out thereafter); and

- 37 -

The deduction for certain related party payments will be denied.

U.S. Tax Reform is expected to be positive for us due to the tax rate reduction and our capital
expenditure plans for our U.S. operations. With the immediate deduction for qualified
expenditures and our remaining net operating loss carryforwards we expect federal income tax
payments to be minimal over the near term. In addition the tax expense related to our U.S.
operations will be reduced due to the lower tax rate. The benefit of the lower tax rate is offset in
part by the elimination of the deduction of certain interest expenses.

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

3,671
600
988
(125)
5,134

2017

Adjusted EBITDA
Export duties
Amortization
Equity-based compensation
Operating earnings

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

Earnings
Basic earnings per share ($)
Diluted earnings per share ($)
Cash dividends declared per share ($)
Total assets
Long-term debt1
Cdn$1.00 converted to US$ – average
1.

Includes current portion of long-term debt.

1,160
(48)
(210)
(32)
870

681
100
132
(43)
870

596
7.63
7.63
0.36
4,517
636
0.771

2016

2015

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

- 38 -

Selected Quarterly Information
($millions, except earnings per share (“EPS”) amounts which are in $)

Sales
Earnings
Basic EPS
Diluted EPS

Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16
1,077
1,376
42
207
0.51
2.66
0.50
2.66

1,247
120
1.53
1.53

1,155
107
1.35
1.35

1,111
98
1.22
0.86

1,322
146
1.86
1.86

1,107
79
1.01
1.01

1,189
123
1.58
1.58

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

Earnings
Add:

Export duties
Equity-based compensation
Exchange gain on long-term financing
Loss on power agreements
Insurance gain on disposal of equipment
Net tax effect on the above adjustments
Re-measurement of deferred income tax assets and

liabilities

2017

596

48
32
(10)
-
(7)
(6)

6
659
8.44

2016

326

-
(5)
(4)
27
(8)
(6)

-
330
4.11

Adjusted earnings
Adjusted basic EPS1
1. Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.

Earnings in 2017 increased compared to results for 2016. 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 $659 million compared to $330
million in 2016. For a description of operational results see “Discussion & Analysis by Product
Segment” which follows this section.

Export duties of $48 million were expensed in the year related to countervailing and antidumping
duties levied by the USDOC in respect of U.S. lumber producers’ allegations of subsidies and
dumping against Canadian softwood lumber imports. We believe the allegations are
unwarranted and that the rates applied will be adjusted. See “Softwood lumber dispute” under
the heading “Recent Developments” in this MD&A for further information.

In 2017 an expense of $32 million was recorded related to equity-based compensation compared
to a recovery of $5 million in 2016. Our equity-based compensation includes our share purchase
option, phantom share unit, and directors’ deferred share unit plans (the “Plans”), all of which
have been partially hedged by an equity derivatives contract. The equity derivatives contract had
the effect of hedging 1,000,000 equity-based securities at a share price of $46.02. The Plans are
fair valued each period end and the resulting expense or recovery is recorded over the related
vesting period. Our fair valuation models consider various factors with the most significant
being the change in the market value of our shares from the beginning to the end of the relevant

- 39 -

period. The market value of the Company’s shares increased by 62%, from $48.01 per share at
the end of 2016 to $77.57 per share at the end of 2017. The expense or recovery does not
necessarily represent the actual amount that will ultimately be paid 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 results of these
revaluations are included in other income. The Canadian dollar was stronger against the U.S.
dollar at the close of 2017 compared to the close of 2016 resulting in a foreign exchange gain on
long-term financing as shown in the above table. Exchange gains or losses on working capital
are identified under “Other Non-operational Items” below.

During 2016 we terminated and finalized the settlement for our three-year power strip agreement
and our Power Purchase Agreements. These agreements had provided us with a portion of the
electricity generated from two power plants in Alberta at substantially predetermined prices. The
termination resulted in a $27 million loss that was recorded in other income in 2016.

An insurance gain related to involuntary disposal of equipment was recorded in 2017 and 2016.
The 2017 gain relates to equipment at our jointly-owned NBSK plant in Quesnel and the 2016
gain related to our WestPine MDF facility.

U.S. Tax Reform and an increase in the province of British Columbia tax rate from 11% to 12%
were substantively enacted in 2017 resulting in a one-time increase to deferred income tax
expense of $6 million associated with the re-measurement of deferred income tax assets and
liabilities.

Other Non-operational Items

Other income includes an exchange loss on working capital of $10 million compared to $4
million in 2016.

The results of the current year include a provision for income tax of $250 million compared to
$118 million in 2016. The effective tax rate was 30% in the current year compared to 27% in
2016. Note 18 to the Financial Statements provides a reconciliation of income taxes calculated
at the British Columbia statutory rate to the income tax expense.

The funded position of our defined benefit pension plans and other retirement benefit plans is
estimated at the end of each period. The funded position, as shown in Note 13 to the Financial
Statements, is determined by subtracting the value of plan assets from the value of plan
obligations. The effect of a decrease in the discount rate used to calculate plan liabilities from
the beginning of the current year, partially offset by the actual rate of return on assets that was
higher than the discount rate, resulted in an after-tax actuarial loss of $26 million which is
included in other comprehensive earnings.

Discussion & Analysis by Product Segment

- 40 -

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 ($millions)
Export duties
Amortization ($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
Source: Random Lengths – Net FOB mill.
Source: Random Lengths – Net FOB mill Westside.

2017

2016

3,809
3,714

2,424
2,387

1,765
3,113

3,219
344
108
3,671

884
(48)
(155)
681
24
247
526

401
323
433
521
419
562

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

1.
2.
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 lumber in 2017 was similar to 2016 levels despite the 2017 B.C. wildfires
which reduced production by approximately 55 MMfbm. Shipments of SPF lumber were lower
than last year and lower than 2017 production as a result of transportation delays and temporary
production interruptions as we executed mill equipment upgrades. Production of SYP lumber
increased by 285 MMfbm over 2016 with the mills acquired on August 31, 2017 in the Gilman
Acquisition contributing 203 MMfbm of this total. Shipments of SYP lumber increased over
2016 levels due to the increased 2017 production. The increased SYP wood chip production was
primarily the result of the addition of the Gilman mills.

- 41 -

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 2016 levels. New housing in the U.S. continues to increase slowly with single family
starts improving in 2017. Single family home starts are particularly important to lumber
consumption as each such start uses approximately three times as much lumber as a multi-family
start. The percentage of single family starts to overall home starts increased to 70% in 2017
from 67% in 2016. SPF sales by volume to offshore markets also remained similar to 2016
levels. The table below sets out the proportion of our Canadian lumber by volume sold by
destination in each of 2017 and 2016.

SPF Sales by Destination

U.S.
Canada
China
Other
Total

2017

2016

MMfbm
2,161
895
457
201
3,714

%
58
24
12
6

MMfbm
2,258
917
466
237
3,878

%
58
24
12
6

As discussed previously, we completed the acquisition of six sawmills and a finger-joint mill on
August 31, 2017 for net cash consideration of $526 million. Purchase price accounting requires
that inventory is valued at fair value, which approximates selling prices. After accounting for the
increased value assigned to the acquired inventory and costs associated with the rapid integration
of systems, the acquired operations generated operating earnings of $15 million since
acquisition.

Operating earnings from our lumber segment were significantly higher than 2016. Improved
lumber pricing combined with higher shipments drove the improved results. This was partially
offset by export duties expense of $48 million in 2017 and higher Canadian log costs in 2017
compared to 2016. Purchased log costs continued to increase in B.C., reflecting increased
competition for the decreasing amount of available logs in pine beetle-affected areas and the
impact of the 2017 B.C. wildfires. U.S. log costs remained stable in most of our operating areas
compared to 2016.

- 42 -

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

2017

2016

838
826

191
182

826
826

160
167

2,676
2,601

2,215
2,226

575
17
8
600

113
(13)
100
19
22

509

505
18
6
529

89
(12)
77
17
25

432

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 2016 despite production losses of 15 MMsf in 2017
due to the B.C. wildfires. MDF production increased due to the re-start of our WestPine MDF
plant on April 29, 2017 after a fire-related closure in March 2016, while LVL production
increased as a result of improving market demand.

Operating earnings from our panels segment increased compared to 2016 levels due to the
significant increase in plywood prices on a year over year basis. The plywood market was strong
throughout the year with record prices being achieved in the third quarter due to strong Canadian
demand and fears of supply shortages caused by the B.C. fires. Most of the plywood we produce
is sold to customers in Canada where both new home construction and renovation and repair
markets remained strong.

Operating earnings from our MDF operations were reduced from 2016 levels while operating
earnings from LVL improved slightly from 2016 levels. MDF results were negatively impacted
by the start-up of our WestPine facility following the fire at this facility in 2016. LVL is used
predominantly in single-family home construction which continued to improve in 2017.

- 43 -

Pulp & Paper Segment

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

Sales ($millions)

2017

2016

674
670

498
497

122
123

988

665
653

527
526

128
129

887

79
(37)
42
9
42

172
(40)
132
17
58

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
1.
2.
3.
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.
5. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.

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

978
599
560
1,295
793
742

1,105
712
584
1,433
923
757

Source: Resource Information Systems, Inc. – delivered U.S. 48.8 gram.

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

BCTMP production was slightly higher than 2016 levels with our BCTMP mill in Slave Lake,
Alberta achieving record production. NBSK production decreased by 6% compared to 2016
mostly relating to major shutdowns that occurred at each of our NBSK facilities. Our Cariboo
Pulp jointly-owned mill took its major shutdown in the second quarter for 12 days resulting in
reduced production of 5,600 tonnes. Our Hinton mill took its major shutdown in the third
quarter with an extension into the beginning of the fourth quarter for some unforeseen work. In
all, the Hinton mill reduced production by 22,700 tonnes over the shutdown that lasted 21 days.
Newsprint production was slightly lower in the year compared to 2016.

Operating earnings for the segment improved significantly from 2016 levels. Our BCTMP
results made up the majority of the improvement while the NBSK improvement, while still
significant, was more muted due to the maintenance shutdowns. Pulp prices improved
significantly over 2016 due to strong demand predominantly from China. Improved results due
to pricing were partially offset by increased fibre costs and higher electricity costs. Newsprint

- 44 -

operating earnings were lower in 2017 compared to 2016 due to lower shipments combined with
lower realized prices and higher fibre and power costs.

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

Q4–17

Q3–17

Q4–16

1,000
155
253
(32)
1,376

232
20
48
(7)
293
(8)
10
(88)
207
0.787

889
168
221
(31)
1,247

126
45
21
(15)
177
(8)
(2)
(47)
120
0.798

778
124
231
(26)
1,107

107
17
20
(17)
127
(7)
(1)
(40)
79
0.749

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

Earnings
Add:

Export duties
Equity-based compensation

Exchange loss (gain) on long-term financing
Loss on power agreements

Insurance gain on disposal of equipment
Net tax effect on the above adjustments
Re-measurement of deferred income tax assets and
liabilities
Adjusted earnings
Adjusted basic EPS

Q4-17

Q3–17

Q4–16

207

120

(17)
6
(1)
-
(7)
7

6
201
2.58

31
10
(5)
-
-
(6)

-
150
1.93

-
16
4
8
(3)
(3)

-
101
1.28

- 45 -

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 preceding this section. After taking into account the adjustments, we
generated Adjusted earnings of $201 million in the fourth quarter of 2017 compared to Adjusted
earnings of $150 million in the previous quarter and Adjusted earnings of $101 million in the
fourth quarter of 2016.

During the fourth quarter of 2017 duty deposits of $20 million were made on account of CVD
and ADD and a long-term export duty deposit receivable of $37 million was recorded. The
combination of the receivable less the deposits resulted in a recovery of $17 million being
recorded through income. The receivable reflects the reduction in the CVD rate from the
preliminary rate of 24.12% to a final rate of 17.99% and an adjustment to reflect ADD at our
estimated rate based on applying the USDOC methodology to our actual financial results for
June 30, 2017 to December 31, 2017. See “Softwood lumber dispute” under the heading
“Recent Developments” in this MD&A for further information.

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

Discussion & Analysis by Product Segment

- 46 -

Lumber Segment

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

Sales ($millions)
Lumber
Wood chips and other residuals
Logs and other

Adjusted EBITDA ($millions)
Export duties ($millions)
Amortization ($millions)
Operating earnings ($millions)
Adjusted EBITDA margin (%)
Benchmark prices (per Mfbm)

Q4-17

Q3-17

Q4-16

903
904

707
694

876
97
27
1,000

258
17
(43)
232
26

462
346
438
587
440
557

924
934

602
621

782
84
23
889

195
(31)
(38)
126
22

406
326
382
509
408
479

897
944

499
489

680
74
24
778

144
-
(37)
107
19

315
261
432
420
348
576

1.
2.
3. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.

Operating earnings increased 84% compared to the previous quarter. SPF production and
shipments both declined from the previous quarter due primarily to fewer operating days. SYP
production and shipments were up due to the Gilman Acquisition but partially offset by the
effect of cold weather in some of our operating areas late in the quarter. The increase in
operating earnings was driven by higher product prices and the addition of the Gilman lumber
mills, slightly offset by higher Canadian log costs and manufacturing costs. Export duties
expense for the quarter was adjusted based on the final rates for CVD and estimated ADD rates.
The adjustment resulted in a recovery of duties of $17 million being recorded through income
compared to an expense of $31 million in the previous quarter.

Operating earnings were significantly higher in the quarter compared to the fourth quarter of
2016 mainly due to higher realized lumber prices, particularly for SPF lumber and the addition of
the Gilman lumber mills. An additional positive contributor was increased U.S. production and

- 47 -

shipments in the quarter due to the benefits of several completed capital projects compared to the
fourth quarter of 2016.

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

Q4-17

Q3-17

Q4-16

209
209

55
51

657
626

147
4
4
155

24
(4)
20
15

205
195

55
53

616
653

163
4
1
168

48
(3)
45
29

207
207

35
34

584
556

119
4
1
124

20
(3)
17
16

474

640

421

The decline in operating earnings for our panels segment compared to the previous quarter was
primarily the result of lower plywood prices reflecting seasonally weaker demand typical of the
Canadian building industry. Results from our MDF and LVL business were also lower in the
current quarter due to slightly higher manufacturing costs.

Operating earnings for the current quarter compared to the same quarter of 2016 were slightly
higher. Plywood earnings were higher in the current quarter due to higher sales prices partially
offset by higher log costs. MDF and LVL results were similar quarter to quarter.

Pulp & Paper Segment

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

Sales ($millions)

- 48 -

Q4-17

Q3-17

Q4-16

171
167

122
107

30
31

253

167
139

117
121

31
32

221

172
149

133
139

33
32

231

30
(9)
21
14

60
(12)
48
24

30
(10)
20
13

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
Source: Resource Information Systems, Inc. – U.S. list price delivered U.S.
1.
Source: Resource Information Systems, Inc. – China list price, delivered China.
2.
The differences between the U.S. and China NBSK list prices are largely attributable to the customary sales practice of applying material
3.
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.
5. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. benchmark price.

1,110
670
575
1,391
839
720

992
595
575
1,324
794
767

1,183
863
610
1,503
1,097
775

Source: Resource Information Systems, Inc. – delivered 48.8 gram newsprint.

Operating earnings from our pulp & paper operations increased by $27 million from the previous
quarter. Our NBSK and BCTMP operations had improved profitability while the operating
earnings of our jointly-owned newsprint operation were similar to the previous quarter. Realized
pulp sales prices increased significantly from the previous quarter due to substantially improved
demand from Asia. Maintenance costs were lower in the quarter compared to last quarter but the
benefit was offset by higher furnish, chemicals and power costs. BCTMP results improved due
to higher shipments early in the quarter due to vessel timing. We experienced transportation
delays late in the quarter due to cold weather which contributed to rail car shortages and port
congestion.

Operating earnings for the segment were higher than in the fourth quarter of 2016 due to
improved BCTMP and NBSK results partially offset by lower newsprint results. The
improvement in operating earnings from pulp was due to significantly higher product prices due
to improved demand. The newsprint results for the fourth quarter of 2016 were negatively
impacted by a $4 million charge related to the termination of power agreements.

Capital Expenditures

- 49 -

During the year our capital expenditures totaled $336 million as set out in the following table.

($millions)
Segment

Lumber
Panels
Pulp & Paper
Corporate
Total

Profit
Improvement

Maintenance of
Business

184
1
18
-
203

63
21
40
9
133

Total

247
22
58
9
336

Capital expenditures of $336 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 projects to improve grade,
recovery and output. The two largest projects are a sawmill rebuild at our Opelika, Alabama
operation which is expected to be completed in the third quarter of 2018 and a sawmill upgrade
at our High Prairie, Alberta operation which is expected to be completed in the first quarter of
2018.

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 700 MMfbm compared to 2017. The increase
reflects the acquisition of the six Gilman sawmills in the U.S. South on August 31, 2017, the
impact of several major capital projects completed in 2017 and recovery of production lost due
to curtailments during the 2017 wildfires in British Columbia. Anticipated production gains
assume improving demand and normal access to logs and transportation resources. Results could
be adversely affected by delays in accessing salvage timber from the fire affected regions,
abnormal weather conditions in any of our operating areas and increased competition for logs 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 the loss of timber from fires in
2017 both negatively affect overall log supply. We expect log cost inflation in the U.S. South to
be limited.

In our panels segment our plywood operations are not expected to repeat the record performance
of 2017 as plywood prices revert to more traditional levels. Operations were restored at our
WestPine MDF plant part way through 2017. Two of our plywood operations are in the B.C.
interior, and we expect log costs for those operations to continue to increase in 2018.

- 50 -

Both of our NBSK mills undertook major maintenance shutdowns in 2017 (our jointly-owned
Cariboo mill in the second quarter and Hinton in the third quarter) and will not have a similar
shutdown interruption in 2018. Improved productivity at these mills continues to be a key focus
for us. Our BCTMP mills and our jointly-owned newsprint mill continued to operate well in
2017 and we expect generally similar operations in 2018, assuming adequate markets.

Markets

Our lumber segment’s most important market is the U.S. and particularly residential construction
and repair and remodelling. In 2017, CVD and ADD were imposed on Canadian producers and
we were required to make deposits in respect of these duties. 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.

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 affect lumber prices and the cost structure of our
Canadian lumber business over the long term.

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 2018 as measures implemented by
various governments across Canada have taken steps to attempt to moderate housing markets.
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 price levels for these products.

We are anticipating that pulp markets will generally be flat to slightly weaker as the market
adjusts to new production coming on line. Pulp demand will be heavily influenced by the pace
of Chinese economic activity.

Cash flows

We are anticipating levels of cash flows, taking into account duties on Canadian softwood
lumber exports to the U.S., to support between $300 and $350 million of capital spending in
2018 as well as to continue to support dividend payments. 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. We are authorized under our normal course issuer bid, which
expires in September of 2018, to purchase up to 5% of our outstanding Common shares and we
will continue to consider share purchases with excess cash if we are satisfied that this will
enhance shareholder value.

Change in pre-tax earnings1
78
8
6
8
33

Estimated Earnings Sensitivity to Key Variables

- 51 -

Variation

(based on 2017 production - $millions)
Factor
Lumber price
Plywood price
NBSK price
BCTMP price
U.S. – Canadian $ exchange rate2
1.
2.
US$0.01 change; additional changes are substantially, but not exactly, linear.

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

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

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 2017 we announced approval for renewal of our normal course issuer bid expiring
that month. The renewal allows us to acquire up to 3,794,375 Common shares for cancellation
until expiry of the bid on September 18, 2018. From September 19, 2017 to February 14, 2018,
under this bid, we repurchased 149,084 Common shares for cancellation at an average price of
$73.27. In 2017 we repurchased a total of 245,645 Common shares for cancellation at an
average price of $68.45 (2016 – 4,306,159 Common shares at an average price of $44.06).

Our outstanding Common share equity consists of 75,601,226 Common shares and 2,281,478
Class B Common shares for a total of 77,882,704 shares issued and outstanding as at
February 14, 2018.

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 14, 2018 there were 1,435,938 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.

On August 28, 2017 we were advanced a US$200 million 5 year term loan that matures on
August 25, 2022 to fund the Gilman Acquisition. Interest is payable at floating rates based on
Base Rate Advances or LIBOR Advances at our option. This loan is repayable at any time, in
whole or in part, at our option and without penalty but cannot be redrawn after payment.

- 52 -

On August 28, 2017 we extended the maturity date of our $500 million committed operating
revolving credit facility to August 25, 2022. Our operating facilities include a $500 million
committed revolving credit facility, a $31 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 committed to our U.S. operations. These
facilities are available to meet our funding requirements.

All debt is unsecured except the $8 million joint newsprint operation demand line of credit,
which is secured by that joint operation’s current assets.

At December 31, 2017 there were no amounts outstanding under our revolving credit facility.
Letters of credit in the amount of $47 million were supported by our facilities, leaving
approximately $551 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 normally been sufficient to meet
these requirements.

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.
3. Non-IFRS measure. See “Non-IFRS Measures” below.

Total debt less deferred financing costs less cash plus cheques issued in excess of funds on deposit.

2017
258
1,291
583
2.2
376
2,726
12%

2016
50
938
459
2.0
376
2,241
14%

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.

- 53 -

Selected Cash Flow Items
($millions)
For the year ended December 31
Operating Activities
Earnings
Amortization
Foreign exchange 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 long-term debt
Repayment of operating loan
Finance expense paid
Dividends
Common share repurchases
Other
Cash provided by (used in) financing activities
Investing Activities
Acquisition
Additions to capital assets
Other
Cash used in investing activities

Increase in cash

Operating Activities

2017

2016

596
210
(10)
177
(62)
(9)
902

250
-
(23)
(28)
(17)
(1)
181

(526)
(336)
8
(854)

229

326
197
(4)
111
90
(31)
689

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

-
(273)
10
(263)

Cash provided by operating activities in 2017 was $902 million compared to $689 million in
2017. The table above shows the main components of cash generation for the year compared to
2016. Increased earnings combined with increased income taxes payable, partially offset by
higher working capital balances were the significant factors affecting comparison between years.
The cash generated from income taxes relates to current tax expense being higher than instalment
payments in 2017, the 2017 payment of the 2016 income tax balance due and the impact of the
change in deferred income tax balances. The main components of the working capital change
relates to increased inventories and receivables.

Financing Activities

During the year we borrowed $250 million to partially finance the Gilman Acquisition. The
significant uses of cash in 2016 were to repay operating loans and fund Common share
repurchases.

- 54 -

Investing Activities

The cash used for investing activities in 2017 was related to the Gilman Acquisition for $526
million and additions to capital assets of $336 million. The main use of cash in 2016 was for
capital asset additions of $273 million.

Contractual Obligations1
($millions, as at December 31, 2017)

2019
Long-term debt2
-
3
Operating leases
-
Asset purchase commitments
3
Total
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.
2.

2021 Thereafter
631
3
-
634

Total
641
16
53
710

2020
10
3
-
13

2018
-
4
53
57

Includes U.S. dollar-denominated debt of US$500 million.

-
3
-
3

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:

Softwood Lumber Dispute

The current softwood lumber dispute is the fifth such dispute since 1982. In the case of previous
disputes, the preliminary duties were subsequently reduced in the periods following the initial
application.

On April 24, 2017, the USDOC issued its preliminary determination in the CVD investigation
and imposed a Company specific rate of 24.12% to be posted by cash deposits on the exports
from Canada of softwood lumber to the U.S. on or after April 28, 2017. The requirement that we
deposit CVD was suspended on August 24, 2017. On December 4, 2017, the USDOC amended
our CVD rate to 17.99% and effective December 28, 2017 we began posting cash deposits at the
new rate. In the absence of additional information, we have expensed CVD deposits at the
17.99% final rate. The difference between deposits paid at 24.12% and the 17.99% final rate has
been recorded as a long-term asset.

On June 26, 2017, the USDOC issued its preliminary determination in the ADD investigation
and imposed a company specific rate of 6.76% to be posted by cash deposits on the exports from
Canada of softwood lumber to the U.S. on or after June 30, 2017. On December 4, 2017 the
USDOC amended our ADD rate to 5.57% and we began posting cash deposits at the new rate.
The ADD rate determined by the USDOC was based on their preliminary investigation covering
the period October 1, 2015 to September 30, 2016. This preliminary rate is expected to remain
in place until our actual data is reviewed by the USDOC. The initial review by the USDOC,
covering the period June 30, 2017 to November 30, 2018, is expected to be completed between
January 2019 and June 2020. We have prepared an estimate of our ADD rate for 2017 using our

- 55 -

actual data and the methodology expected to be used by the USDOC and determined our best
estimate of our rate to be 0.9%. In the absence of additional information, we have expensed
ADD deposits at our estimated 0.9% rate. The difference between deposits paid and the 0.9%
rate have been recorded as a long-term asset.

The duty rates are subject to change based on administrative reviews and appeals available to us.
In addition we will update our ADD rate at each reporting date considering our actual results for
each period of review. Changes to estimated rates may be material and any changes will be
reflected through current results in the period of the change.

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 2017 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, the expected reversal of temporary differences and the timing of
expiry of tax loss carry-forwards and limitations on their use.

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.

- 56 -

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 2017 the review of the reforestation obligation resulted in a decrease to the
obligation of $7 million (2016 – decrease of $10 million).

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 2017 the review resulted
in no change to the obligation (2016 – decrease of $4 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

- 57 -

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 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.

Adjusted EBITDA
($millions)

Earnings
Add:

Amortization
Finance expense
Tax provision

EBITDA
Add:

Equity-based compensation
Export duties
Other

Adjusted EBITDA

Q4-17
207

Q3-17
120

59
8
88
362

6
(17)
(10)
341

51
8
47
226

10
31
2
269

2017
596

210
31
250
1,087

32
48
(7)
1,160

Q4-16
79

2016
326

50
7
40
176

16
-
1
193

197
29
118
670

(5)
-
9
674

- 58 -

Adjusted EBITDA by Segment
($millions)

Q4-17

Q3-17

2017

Q4-16

2016

Lumber

Earnings before tax
Add:

Amortization
Finance expense

EBITDA
Add:

Export duties
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 and Other

Earnings before tax
Add:

Amortization

EBITDA
Add:

Equity-based compensation
Other

Adjusted EBITDA

228

43
6
277

(17)
(2)
258

4
-
24

-
24

12
2
67

(7)
60

(6)

-
(6)

6
(1)
(1)

118

38
5
161

31
3
195

3
1
48

-
48

9
2
27

3
30

(11)

1
(10)

10
(4)
(4)

660

155
20
835

48
1
884

13
3
113

-
113

126

40
8
174

(2)
172

(37)

2
(35)

32
(6)
(9)

104

37
5
146

-
(2)
144

3
-
22

(2)
20

10
2
28

2
30

(20)

-
(20)

16
3
(1)

344

146
18
508

-
-
508

12
3
94

(5)
89

37
8
56

23
79

2
12

(5)
(9)
(2)

Total Adjusted EBITDA

341

269

1,160

193

674

- 59 -

Adjusted Earnings and Adjusted Basic Earnings Per Share
($millions except EPS amounts which are in $)
Q4-17
207

Q3-17
120

Earnings
Add:

2017
596

Q4-16
79

2016
326

Export duties
Equity-based compensation
Exchange loss (gain) on long-term

financing

Loss on power agreements
Insurance gain on disposal of

equipment

Net tax effect on the above

adjustments

Re-measurement of deferred income

tax assets and liabilities

(17)
6

(1)
-

(7)

31
10

(5)
-

(6)

48
32

(10)
-

(7)

(6)

-
16

4
8

(3)

Adjusted earnings
Adjusted basic EPS1
1. Adjusted basic EPS is calculated by dividing Adjusted earnings by the basic weighted average shares outstanding.

6
201
2.58

-
150
1.93

6
659
8.44

-
101
1.28

-
(5)

(4)
27

(8)

(6)

-
330
4.11

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
Long-term debt

Shareholders’ equity
Total capital
Net debt to total capital

December 31,
2017

December 31,
2016

(258)
(7)
-
641
376
2,726
3,102
12%

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

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

1.
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.,
Canadian and international housing markets, particularly China and Japan, the mix of single and
multifamily construction, repair, renovation and remodeling spending, alternative uses for
lumber, changes in industry production capacity, changes in world inventory levels, increased
competition from other sources of supply of logs and lumber and other factors beyond our
control. In addition, unemployment levels, interest rates, the availability of mortgage credit 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

- 60 -

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 or as a result of forest fires or in response to jurisprudence
or government policies respecting aboriginal rights and title, 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 logs, 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 17% 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. Open market purchases come from timber real estate investment trusts, timberland
investment management organizations and private land owners. Changes in the log markets in
which we operate 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 in November 2016 a group of U.S. lumber producers

- 61 -

petitioned the USDOC and the USITC to impose trade sanctions against Canadian softwood
lumber exports to the U.S. In 2017 duties were imposed on Canadian softwood lumber exports
to the U.S. The duties are likely to remain in place 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 USDOC
into alleged subsidies and dumping of Canadian softwood lumber.

Natural and Man-Made Disasters

Our operations are subject to adverse natural or man-made events such as forest fires, flooding,
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 or availability of 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 the reduced availability of timber, 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 Annual Allowable Cut (“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. These effects are also present in some of our
Alberta operations where the mountain pine beetle infestation has expanded. 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

- 62 -

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. 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, or if we fail to achieve the intended efficiencies, 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, equipment lead times, 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.

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

- 63 -

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 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

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.

Transportation Requirements

Our business depends on our ability to transport a high volume of products to our production
facilities and on 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,

- 64 -

availability of equipment and operators, 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 from our industry and others such as oil and gas
production and mining for labour and services, particularly skilled trades. Shortages of key
services or shortages of labour, including those caused by a failure to attract and retain a
sufficient number of qualified employees and other personnel or high employee turnover 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

- 65 -

for the year ended December 31, 2017. 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, Metis 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. The requirement to consult with aboriginal
groups has also increased in recent years.

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.

In addition, the Canadian federal government and the provincial governments in Alberta and
British Columbia have made commitments to renew their relationships with aboriginal groups
and have expressed their support for the United Nations Declaration on the Rights of Indigenous
Peoples (“UNDRIP”) and their intent to adopt and implement UNDRIP. At this time, it is
unclear whether or how UNDRIP will be adopted into Canadian law and its impact on the
Crown’s duty to consult with and accommodate aboriginal groups. At this time, we are unable to
assess the effect, if any, that the adoption and implementation of UNDRIP by federal and
provincial governments may have on land claims or consultation requirements or on our
business, but the impact may be material.

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)

- 66 -

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 (including, but not limited to, income, sales and carbon 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.

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

- 67 -

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 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, steel, engineered wood products, 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, 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. We are also subject to regulatory
changes regarding these plans which may increase the funding requirements which would in turn
reduce the availability of capital for other purposes.

Information Technology

- 68 -

We are reliant on our information and operations technology systems to operate our
manufacturing facilities, access fibre, communicate internally and with suppliers and customers,
to sell our products and to process payments and payroll as well as for other corporate purposes
and financial reporting. An interruption or failure of our information and operations technology
systems could result in a material adverse effect on our business, financial condition and results
of operations.

In the ordinary course of our business, we collect and store sensitive data, including intellectual
property, proprietary business and confidential financial information and identifiable personal
information of our employees. We rely on industry accepted security measures and technology
to protect our information systems and confidential and proprietary information.

However, our information and operations technology systems, including process control systems,
are still subject to cyber security risks and are vulnerable to attacks by hackers or others or
breaches due to employee error or other disruptions. Any such attack on or breach of our
systems including through exposure to potential computer viruses or malware could compromise
our systems and stored information may be accessed, publicly disclosed, lost or compromised,
which could result in legal claims or proceedings, liability under laws that protect the privacy of
personal information, regulatory penalties, disruptions to our operations, decreased performance
and production, increased costs, and damage to our reputation, which could have a material
adverse effect on our business, financial condition and results of operations.

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, 2017.

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, 2017 that has materially affected, or is reasonably likely to materially affect, our
internal controls over financial reporting.

Additional information relating to West Fraser, including our Annual Information Form, can be
found on SEDAR at www.sedar.com.

RESPONSIBILITY OF MANAGEMENT

- 69 -

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 four 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 14, 2018

Chris Virostek
Vice-President, Finance
and Chief Financial Officer

- 70 -

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, 2017 and December 31,
2016 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, 2017 and December 31,
2016 and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards.

Chartered Professional Accountants
Vancouver, British Columbia
February 14, 2018

West Fraser Timber Co. Ltd.
Consolidated Balance Sheets
As at December 31, 2017 and 2016
(in millions of Canadian dollars, except where indicated)

- 71 -

Assets

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

Property, plant and equipment (note 6)
Timber licences (note 7)
Goodwill and other intangibles (note 8)
Export duty deposits (note 26)
Other assets (note 9)
Deferred income tax assets (note 18)

Liabilities

Current liabilities
Cheques issued in excess of funds on deposit
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

Robert L. Phillips
Lead Director

2017

2016

258
352
670
11
1,291
1,892
533
731
37
27
6
4,517

-
441
104
38
583
636
347
225
1,791

549
108
2,069
2,726
4,517

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

- 72 -

West Fraser Timber Co. Ltd.
Consolidated Statements of Earnings and Comprehensive Earnings
For the years ended December 31, 2017 and 2016
(in millions of Canadian dollars, except where indicated)

Sales

Costs and expenses
Cost of products sold
Freight and other distribution costs
Export duties (note 26)
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

Comprehensive earnings
Earnings
Other comprehensive earnings
Translation loss on foreign operations1
(42)
Actuarial loss on post-retirement benefits2
(26)
Comprehensive earnings
528
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 $7 million (2016 - $3 million).

596

2017

2016

5,134

4,450

3,124
653
48
210
197
32
4,264

870
(31)
7
846
(250)
596

7.63
7.63

$
$

2,971
629
-
197
176
(5)
3,968

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

4.06
3.90

326

(14)
(7)
305

$
$

- 73 -

West Fraser Timber Co. Ltd.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2017 and 2016
(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, 2015

82,456,557 $

579

164

$ 1,404

$ 2,147

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
Dividends1
Balance - December 31, 2016

(14)

-
12,170
(4,306,159)
-
-

78,162,568 $

-
1
(31)
-
-
549

-
-
-
-
-
150

(7)
-
(159)
326
(22)
$ 1,542

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

Changes in Shareholders’ Equity for 2017
Translation loss on foreign

operations

Actuarial loss on post-retirement

(42)

benefits

-
Issuance of Common shares
-
Common share repurchases
-
Earnings for the year
-
Dividends1
-
108
Balance - December 31, 2017
1. Represents dividends of $0.36 per share for 2017 and $0.28 per share for 2016.

-
29,113
(245,645)
-
-

-
2
(2)
-
-
549

77,946,036 $

(26)
-
(15)
596
(28)
$ 2,069

(26)
2
(17)
596
(28)
$ 2,726

- 74 -

West Fraser Timber Co. Ltd.
Consolidated Statements of Cash Flows
For the years ended December 31, 2017 and 2016
(in millions of Canadian dollars, except where indicated)

Cash provided by operations
Earnings
Adjustments

Amortization
Finance expense
Foreign exchange gain on long-term financing
Export duty deposits (note 26)
Post-retirement expense
Contributions to post-retirement benefit plans
Tax provision
Income taxes paid
Other

Changes in non-cash working capital

Receivables
Inventories
Prepaid expenses
Payables and accrued liabilities

Cash provided by (used for) financing
Proceeds from long-term debt
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

2017

2016

596

326

210
31
(10)
(37)
82
(69)
250
(73)
(16)

(34)
(64)
(1)
37
902

250
-
(23)
(28)
(17)
(1)
181

(526)
(336)
3
5
(854)

229
(6)
35
258

258
-
258

197
29
(4)
-
71
(66)
118
(7)
(65)

4
50
7
29
689

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

-
(273)
8
2
(263)

12
39
(16)
35

50
(15)
35

- 75 -

West Fraser Timber Co. Ltd.
Notes to Consolidated Financial Statements
For the years ended December 31, 2017 and 2016
(in millions of Canadian dollars, except where indicated)

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.

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 14,
2018.

Our consolidated financial statements have been prepared under the historical cost basis, except
for certain items 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 the respective 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., West Fraser Southeast, 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 judgments

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, duty deposits related to the softwood lumber dispute, fair value

- 76 -

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 judgments 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 we own 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 collectability is reasonably assured.

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 financing,
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.

- 77 -

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. Goodwill impairment is never reversed.

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.

- 78 -

Accounting standards issued but not yet applied

IFRS 9 - Financial Instruments

IFRS 15 - Revenue from Contracts with Customers

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.

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.

Acquisition

On August 31, 2017, we completed the acquisition of six sawmills that produce southern yellow
pine lumber and a finger-joint mill in Florida and Georgia as well as an administrative office in
Georgia (the “Gilman Acquisition”). The consideration paid, net of cash acquired, was $526
million (US$419 million) and the transaction was an acquisition of shares. The acquisition was
financed with cash on hand, borrowings on our revolving credit facility and a $250 million
(US$200 million) term loan.

- 79 -

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

Net assets acquired
Less: cash acquired
Net non-cash assets acquired
Allocation:
Current assets
Current liabilities
Property, plant and equipment
Goodwill
Employee future benefits
Deferred income tax asset, net

Preliminary
December 31, 2017
607
(81)
526

58
(12)
91
355
(11)
45
526

Factors contributing to goodwill include the Gilman workforce, assets that are geographically
complementary to our existing facilities and offer close access to large markets, the available
timber basket and multiple markets for residuals. This transaction strengthens our core lumber
business and gives us increased scale and geographic diversification. This was a rare
opportunity to acquire a U.S. lumber producer with meaningful capacity, high quality facilities
and a culture similar to our own. The goodwill of $355 million is not deductible for tax
purposes.

The deferred income tax asset estimate of $45 million includes an asset of $56 million related to
the estimated value of net operating losses acquired, partially offset by a liability of $11 million
related to temporary differences on other assets and liabilities. On December 21, 2017, the U.S.
federal government enacted the Tax Cuts and Jobs Act (“U.S. Tax Reform”), which among other
things reduced the federal corporate income tax rate. The result was a $16 million reduction in
the Gilman deferred tax asset and an increase in our deferred income tax expense in 2017.

The following table shows the results of the operations of the Gilman Acquisition since the
acquisition date and the estimated pro-forma West Fraser consolidated results as if we had
completed the Gilman Acquisition January 1, 2017:

- 80 -

Gilman
September 1 to
December 31, 2017
131
15
(6)
(16)
(7)

West Fraser
Pro-forma January 1 to
December 31, 2017

5,385
866
(255)
(3)
608

Sales
Earnings before tax
Income tax
Impact of U.S. Tax Reform
Earnings (loss)

Balances that required significant fair value adjustments for purchase price accounting included
inventory, property, plant and equipment, goodwill and deferred income tax assets.

Acquisition costs of $1 million have been expensed in selling, general and administration.

Inventories

Accounting policies

Inventories of manufactured products, logs and other raw materials 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

Manufactured products
Logs and other raw materials
Processing materials and supplies

2017
358
167
145
670

2016
283
165
133
581

Inventories at December 31, 2017 were written down by $9 million (December 31, 2016 - $5
million) to reflect net realizable value being lower than cost.

The carrying amount of inventory recorded at net realizable value was $33 million at
December 31, 2017 (December 31, 2016 - $26 million), with the remaining inventory recorded at
cost.

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.

- 81 -

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

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

Supporting information

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

As at December 31, 2016
Additions
Acquisition
Amortization1
Foreign exchange
Disposals
Transfers
As at December 31, 2017

As at December 31, 2017
Cost
Accumulated amortization
Net

Manufacturing
plant,
equipment &
machinery
1,479
111
(164)
(14)
(1)
33
1,444

3,772
(2,328)
1,444

1,444
164
85
(175)
(35)
(1)
128
1,610

4,047
(2,437)
1,610

Construction
in progress

55
137
-
1
-
(33)
160

160
-
160

160
165
3
-
(2)
-
(131)
195

195
-
195

Roads
&
bridges
38
14
(11)
-
-
-
41

Other
37
$
3
-
-
-
-
40

128
(87)
41

41
17
-
(14)
-
-
1
45

138
(93)
45

47
(7)
40

40
1
3
-
(2)
-
-
42

49
(7)
42

Total
1,609
265
(175)
(13)
(1)
-
1,685

4,107
(2,422)
1,685

1,685
347
91
(189)
(39)
(1)
(2)
1,892

4,429
(2,537)
1,892

1. Amortization of $186 million relates to cost of products sold and $3 million relates to selling, general and
administration expense (2016 - $173 million and $2 million, respectively).

- 82 -

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, 2015
Amortization1
Acquisitions
As at December 31, 2016

As at December 31, 2016
Cost
Accumulated amortization
Net

As at December 31, 2016
Amortization1
Additions
As at December 31, 2017

As at December 31, 2017
Cost
Accumulated amortization
Net

1. Amortization relates to cost of products sold.

Goodwill and other intangibles

Accounting policies

Timber
licences
570
(20)
1
551

799
(248)
551

551
(19)
1
533

800
(267)
533

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 annual impairment test.
An additional impairment test is conducted if events or circumstances indicate that goodwill 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 ten years and
non-replaceable finite term timber rights which are amortized as the related timber is logged.

Supporting information

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

As at December 31, 2016
Cost
Accumulated amortization
Net

As at December 31, 2016
Additions
Acquisition
Transfers
Amortization1
Foreign exchange
As at December 31, 2017

As at December 31, 2017
Cost
Accumulated amortization
Net

- 83 -

Goodwill
359
$
-
-
(3)
356

356
-
356

356
-
355
-
-
(6)
705

705
-
705

Other
$

Total
369
7
(2)
(3)
371

394
(23)
371

371
11
355
2
(2)
(6)
731

752
(21)
731

10
7
(2)
-
15

38
(23)
15

15
11
-
2
(2)
-
26

47
(21)
26

1. Amortization of $1 million relates to cost of products sold and $1 million relates to selling, general and
administration expense (2016 - $1 million and $1 million, respectively).

Goodwill

We have attributed $218 million of goodwill to a CGU made up of our Canadian lumber
operations, $441 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 2017 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 2018 operating plan, a forecast of 2019 and 2020 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. No impairment on
goodwill has been recognized.

- 84 -

Other assets

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

10.

Payables and accrued liabilities

Trade accounts
Equity-based compensation
Compensation
Export duties
Dividends
Interest
Other

11. Other liabilities

Post-retirement (note 13)
Reforestation
Decommissioning
Other

2017
13
2
12
27

2017
244
79
74
8
8
5
23
441

2017
231
70
25
21
347

2016
7
2
11
20

2016
211
65
68
-
5
4
26
379

2016
162
69
25
16
272

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

- 85 -

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
Change in estimates
End of year
Less: current portion

Reforestation
2017
113
47
(45)
(7)
108
(38)
70

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

Decommissioning
2017
25
-
-
-
25
-
25

2016
29
-
-
(4)
25
-
25

The total undiscounted amount of the estimated cash flows required to satisfy these obligations is
$147 million (2016 - $148 million). The cash flows have been discounted using interest rates
ranging from 1.68% to 1.86% (2016 - 0.74% to 1.11%).

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 48 years.

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$200 million term loan due August 2022; floating interest rate
US$8 million note payable due October 2020; interest at 2%
Notes payable

Deferred financing costs

2017
376
251
10
4
641
(5)
636

2016
403
-
10
4
417
(4)
413

- 86 -

On August 28, 2017, we were advanced a $250 million (US$200 million) five-year
non-revolving term loan due on August 25, 2022. This loan was used to fund the Gilman
Acquisition. Interest is payable at floating rates based on Base Rate Advances or LIBOR
Advances at our option. The loan is repayable at any time, in whole or in part, at our option and
without penalty but cannot be redrawn after payment.

Required principal repayments are disclosed in note 23.

Operating loans

In August 2017, we extended our $500 million committed revolving credit facility to August 25,
2022. Our operating loans consist of a $500 million committed revolving credit facility, a $31
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 committed to our U.S. operations.

At December 31, 2017, there were no amounts outstanding under our revolving credit facility.
As a result, the associated deferred financing costs of $2 million are recorded in other assets.
Letters of credit in the amount of $47 million were also supported by our facilities, leaving $551
million of credit available for further use. At December 31, 2016, our revolving credit facility
was undrawn, deferred financing costs of $2 million were recorded in other assets and our
outstanding letters of credit were $48 million.

Interest on the facilities is payable at floating rates based on Prime, Base Rate Advances,
Bankers’ Acceptances or LIBOR Advances at our option.

All debt is unsecured except the $8 million joint operation demand line of credit, which is
secured by that joint operation’s current assets.

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 Retirement Committees which
report to the Human Resources and Compensation Committee of 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

- 87 -

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.

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.

Supporting information

The actual return on plan assets for 2017 is a gain of $123 million (2016 - $112 million).
The total pension expense for the defined benefit plans is $72 million (2016 - $61 million). In
2017, we made contributions of $52 million (2016 - $50 million). We expect to contribute
approximately $75 million to our defined benefit pension plans during 2018. We also provide
group life insurance, medical and extended health benefits to certain employee groups, for which
we contributed $3 million (2016 - $3 million).

The total pension expense and funding contributions for the defined contribution pension plans is
$14 million (2016 - $13 million).

In 2017, we settled the defined benefit obligation for two of our pension plans by purchasing
annuities for the remaining defined benefit members of these plans. The difference between the
cost of the annuity purchase and the liabilities held for these plans is reflected as a settlement
cost.

Subsequent to year-end, we settled approximately $143 million of our defined benefit obligation
by purchasing annuities using plan assets.

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

- 88 -

Defined benefit
pension plans
2017

2016

Other retirement
benefit plans
2017

2016

Accrued benefit obligations
Benefit obligations – opening
Acquisition (note 4)
Current service cost
Finance cost on obligation
Benefits paid
Actuarial loss (gain) due to change in

financial assumptions

Actuarial loss due to

demography/experience

Settlement cost
Other
Benefit obligations – ending

Plan assets
Fair value – opening
Acquisition (note 4)
Finance income on plan assets
Actuarial gain due to returns on plan

assets being higher than finance income

Employer contributions
Benefits paid
Settlement cost
Other
Fair value – ending

Funded status1
Post-retirement assets
Impact of minimum funding requirement 2
Post-retirement assets (note 9)
Post-retirement liabilities (note 11)

1,598
68
67
61
(66)

1,482
-
57
60
(62)

36
(10)
(6)
1,821

2
-
(3)
1,598

Defined benefit
pension plans
2017

2016

1,507
57
56

67
52
(66)
(11)
(4)
1,658

1,409
-
56

56
50
(62)
-
(2)
1,507

51
-
1
2
(3)

(8)

-
-
-
43

50
-
1
2
(3)

1
-
-
51

Other retirement
benefit plans
2017

2016

-
-
-

-
3
(3)
-
-
-

-
-
-

-
3
(3)
-
-
-

-
-
-
(51)
(51)

25
(12)
13
(188)
(175) $

20
(13)
7
(111)
(104) $

-
-
-
(43)
(43)

$
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.

- 89 -

Defined benefit
pension plans
2017

2016

Other retirement
benefit plans
2017

2016

67
5
72

57
4
61

1
2
3

Expense
Current service cost
Net finance expense

Assumptions and sensitivities

The weighted average duration of the defined benefit pension obligations is 17 years. The
projected future benefit payments for the defined benefit pension plans at December 31, 2017 are
as follows:

2018

2019

2020 to
2022

Thereafter

Total

Defined benefit
pension plans

227

2,984

3,345

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

2017

2016

2017

2016

3.50%
3.50%

3.75%
3.50%

4.00%
3.50%

3.50%
n/a

3.75%
n/a

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
8.5% in year one, grading down 0.5% per year for years two to seven, to 5.0% per year
thereafter. The estimated liability for the medical service plan costs was decreased as at
December 31, 2017 for the B.C. government rate reduction. It was assumed there would be no
future rate increases.

- 90 -

The impact of a change in these assumptions on our post-retirement obligations as at
December 31, 2017 is as follows:

Discount rate

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

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

$
$

155
(137)

(21)
22

2
(4)

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 assets of the pension plans are invested predominantly in a diversified range of equities and
bonds. 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 range1
9% - 25%
12% - 34%
36% - 60%
3% - 31%

2017
14%
27%
48%
11%
100%

2016
18%
25%
47%
10%
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.

Risk management practices

We are exposed to various risks related to our defined benefit pension and other post-retirement
benefit plans:

 Uncertainty in benefit payments: The value of the liability for post-retirement benefits will
ultimately depend on the amount of benefits paid and this in turn will depend on the level
of future compensation increase and how long individuals live.

 Volatility in asset value: We are exposed to changes in the market value of pension plan

investments which are required to fund future benefit payments.

 Uncertainty in cash funding: Movement in the value of the assets and obligations may
result in increased levels of cash funding; although changes in the level of cash funding

- 91 -

required can be spread over a number of years. We are also exposed to changes in pension
regulation and legislation.

The Retirement Committee manages these risks in accordance with a Statement of Investment
Policies and Procedures for each Pension Plan Master Investment Trust. 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.

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

2017

Number
75,664,558 $
2,281,478
77,946,036 $

Amount

2016

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

549
-
549

In 2017 we repurchased 245,645 Common shares for $17 million and in 2016 we repurchased
4,306,159 Common shares for $190 million.

On September 12, 2017, our Board of Directors authorized the renewal of our normal course
issuer bid (“NCIB”) program to repurchase for cancellation up to 3,794,375 Common shares or
approximately 5% of our issued and outstanding Common shares. The NCIB will expire on
September 18, 2018. Our previous NCIB expired 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.

- 92 -

15.

Equity-based compensation

We have share option, phantom share unit (“PSU”) and directors’ deferred share unit (“DSU”)
plans. We have partially hedged our exposure under these plans with an equity derivative
contract. The equity-based compensation expense included in earnings is $32 million (2016 -
recovery of $5 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 587,521 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 an expense of $52 million (2016 - recovery of $6 million)
related to the share option plan.

- 93 -

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

2017

2016

Outstanding - beginning of year
Granted
Exercised
Expired
Outstanding - end of year
Exercisable - end of year

Number

Weighted
average
price
(dollars)
29.83
53.11
22.77
55.13
37.19
30.68

2,119,886 $
192,255 $
(872,973) $
(3,230) $
1,435,938 $
978,341 $

Weighted
average
price
(dollars)
27.03
40.97
19.63
-
29.83
24.57

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

The following table summarizes information about the share options outstanding and exercisable
at December 31, 2017:

Weighted
average
remaining
contractual
life
(years)
1.1
3.7
7.4
7.1
5.2

Number of
outstanding
options
(number)
313,000
291,706
702,951
128,281
1,435,938

Weighted
average
exercise
price
(dollars)
12.47
24.57
46.72
73.99
37.19

Number of
exercisable
options
(number)
313,000
291,706
304,151
69,484
978,341

$
$
$
$
$

Weighted
average
exercise
price
(dollars)
12.47
24.57
45.41
73.99
30.68

$
$
$
$
$

Exercise price range
(dollars)
$12.36 - $16.50
$23.65 - $25.75
$40.82 - $55.62
$73.99

The weighted average share price at the date of exercise for share options exercised during the
year was $67.80 per share (2016 - $43.13 per share).

The accrued liability related to the share option plan based on a Black-Scholes valuation model
is $63 million at December 31, 2017 (December 31, 2016 - $52 million). The weighted average
fair value of the options used in the calculation was $43.79 per option at December 31, 2017
(December 31, 2016 - $23.27 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

2017
$77.33
$37.19
$0.44
33.34%
1.76%
3.5

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

- 94 -

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, 2017 was $56
million (December 31, 2016 - $43 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 $6 million (2016 - $3 million) related to the PSU plan. The
number of units outstanding as at December 31, 2017 was 109,414 (December 31, 2016 -
182,770), including performance share units totalling 48,268 (December 31, 2016 - 77,674).

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.

We have recorded an expense of $4 million (2016 - nil) related to the DSU plan. The number of
Units outstanding as at December 31, 2017 was 102,757 (December 31, 2016 - 155,593).

Equity-based compensation hedge

- 95 -

We have an equity derivative contract to hedge 1,000,000 units at a $46.02 share price. A
recovery of $30 million (2016 - $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

2017
(24)
(7)
-
(31)

2016
(24)
(7)
2
(29)

Foreign exchange loss on working capital
Foreign exchange loss on intercompany financing1
Foreign exchange gain on long-term debt
Loss on power agreements
Insurance gain on disposal of equipment
Other

2016
(4)
(8)
12
(27)
8
10
(9)
1. Relates to US$600 million (2016 - US$200 million) of financing provided to our U.S. operations. An additional
US$400 million of financing was provided to our U.S. operations at the end of August 2017 to fund the Gilman
Acquisition. 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.

2017
(10)
(15)
25
-
7
-
7

Insurance proceeds

The insurance gain of $7 million recognized in 2017 and $8 million in 2016 relates to
involuntary disposals of equipment. The 2017 gain relates to equipment damaged at our jointly-
owned NBSK plant in Quesnel and the 2016 gain related to the fire at our WestPine MDF
facility. Our WestPine MDF mill also has an insurance claim for business interruption.

The impact on pre-tax earnings is as follows:

Business interruption insurance proceeds
Gain on disposal of equipment

2017
$
-
7
$ 7

2016
17
8
25

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

The final amount of insurance claims will be adjusted once the claims have been settled.

- 96 -

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 following tables include the impact of the statutory changes for British Columbia and the
United States. 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
Deferred tax recovery on post-retirement actuarial losses

Tax provision on comprehensive earnings

2017

(158)
(92)
(250)

(243)

2016

(47)
(71)
(118)

(115)

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

- 97 -

Income tax expense at statutory rate of 26%
Non-taxable amounts
Rate differentials between jurisdictions and on specified activities
Unrecognized capital losses
Impact of statutory tax changes1
Other
Tax provision
1. Represents the re-measurement of deferred income tax assets and liabilities for the British Columbia tax rate
change from 11% to 12% and the impact of United States Tax Reform, both of which were substantively enacted as
at December 31, 2017.

2017
(220)
(6)
(20)
1
(6)
1
(250)

2016
(115)
6
(8)
1
-
(2)
(118)

Deferred income taxes are made up of the following components:

Property, plant, equipment and intangibles
Reforestation and decommissioning obligations
Employee future benefits
Tax loss carry-forwards1
Other

Represented by:
Deferred income tax assets
Deferred income tax liabilities

2017
371
(30)
(61)
(58)
(3)
219

(6)
225
219

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

(35)
215
180

Includes federal net operating loss (“NOL”) carry-forwards of $233 million expiring from 2022 to 2031. A

1.
portion of these NOL’s are subject to restrictions on use.

19.

Employee compensation

Our employee compensation expense includes salaries and wages, employee future benefits,
termination costs and bonuses. Total compensation expense is $872 million (2016 - $808
million).

- 98 -

Key management includes directors and officers for which compensation expense 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

$
1. Amounts do not necessarily represent the actual value which will ultimately be paid.

20.

Earnings per share

2017

2016

10
1
22
33

4
64
68

9
2
(3)
8

4
53
57

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 expense (recovery)
Equity settled share option adjustment
Diluted

Weighted average number of shares (thousands)

Basic
Share options
Diluted

Earnings per share (dollars)

Basic
Diluted

2017

2016

596
52
(4)
644

326
(6)
(4)
316

78,097
858
78,955

80,236
860
81,096

$
$

7.63 $
7.63 $

4.06
3.90

- 99 -

21.

Commitments

Operating leases

We are committed to make payments under certain operating leases for equipment, land,
building and office space. Operating lease costs expensed during the year were $6 million (2016
- $7 million). The future payments required under operating leases are as follows:

2018
2019
2020
2021
Thereafter

4
3
3
3
3
16

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, 2017 are $53 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 $3 million (2016 - $8 million) was received for capital projects and
recorded as a reduction to property, plant and equipment.

Government assistance of $14 million (2016 - $6 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

- 100 -

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”:

2017

Financial assets
Cash & short-term investments
Receivables1
Export duty deposits (note 26)

Loans &
receivables

Held for
trading

Level

Other
financial
liabilities

Carrying
value

Fair
value

1
3
3

258
351
37
646

-
1
-
1

- $
-
-
- $

258 $
352
37
647 $

258
352
37
647

Financial liabilities
Payables and accrued liabilities
Long-term debt (note 12)2

-
-
-
1. Receivables include our equity derivative receivable of $1 million.
2. The fair value of the long-term debt is based on rates available to us at December 31, 2017 for long-term debt
with similar terms and remaining maturities.

441
634
$ 1,082 $ 1,082 $ 1,075

441 $
641

-
-
-

2
2

2016

Financial assets
Cash & short-term investments
Receivables

Financial liabilities
Cheques issued in excess of

funds on deposit

Payables and accrued liabilities1
Long-term debt (note 12)2

Loans &
receivables

Held for
trading

Level

Other
financial
liabilities

Carrying
value

Fair
value

1
3

1
2
2

50
297
347

-
-
-
-

-
-
-

-
2
-
2

- $
-
- $

50 $
297
347 $

50
297
347

15 $
377
417
809 $

15 $
379
417
811 $

15
379
391
785

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.

Financial risk management

- 101 -

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.

Based on the equity contract as at December 31, 2017 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.

No energy related derivatives were outstanding at December 31, 2017 or 2016.

No material lumber futures or foreign exchange contracts were outstanding at December 31,
2017 or 2016.

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, 2017 is as follows:

- 102 -

Canadian operations
Net working capital
Export duty deposits
Intercompany financing1
Long-term debt

US$

2017
163
29
600
(500)
292

U.S. operations
Net investment
1.
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.

2017
1,127

US$

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 a $4 million decrease
(increase) in earnings and an increase (decrease) of $18 million in the translation loss 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, 2017, approximately 41% 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, 2017
to be high. There were no bad debts in 2017 or 2016. The aging analysis of trade accounts
receivable is presented below:

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

2017

2016

290
3
2
1
296
-
296
20
36
352

236
5
3
1
245
-
245
26
26
297

Liquidity

- 103 -

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:

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

-
25
25
1. Assumes debt level, foreign exchange rate and interest rates remain at December 31, 2017 levels and rates.
2. At December 31, 2017, our revolving credit facility was undrawn.

631
52
683

-
25
25

2019
$

2021
$

Thereafter
$

2018
-
25
25

2020
10
25
35

Total
641
152
793

Interest rates

Interest rate risk relates mainly to floating rate debt.

At December 31, 2017, a 100 basis point increase (decrease) in interest rates on floating rate debt
would result in a $2 million decrease (increase) in earnings. This analysis assumes that all other
variables remain constant.

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:

- 104 -

2017

2016

(258) $
(7)
-
641
376
2,726
3,102
12%

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

Net debt

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

Shareholders’ equity
Total capital
Net debt to total capital
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.

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

2017
Sales

To external customers
To other segments

$ 3,554
117
$ 3,671

Operating earnings

before amortization

Amortization
Operating earnings
Finance expense
Other
Earnings before tax

836
(155)
681
(20)
(1)
660

Total assets
Total liabilities
Capital expenditures
Acquisition

$ 3,404
467
$
247
$
526
$

$
$
$
$

592
8
600

113
(13)
100
(3)
-
97

314
57
22
-

$
$
$
$

988
-
988

172
(40)
132
(8)
2
126

627
156
58
-

-
-
-

(41)
(2)
(43)
-
6
(37)

$
172
$ 1,111
9
$
-
$

5,134

$
$
$
$

1,080
(210)
870
(31)
7
846

4,517
1,791
336
526

- 105 -

Lumber

Panels

Pulp &
Paper

Corporate
& Other

Total

2016
Sales

To external customers
To other segments

$ 3,042
103
$ 3,145

Operating earnings

before amortization

Amortization
Operating earnings
Finance expense
Other
Earnings before tax

508
(146)
362
(18)
-
344

Total assets
Total liabilities
Capital expenditures

$ 2,662
393
$
195
$

$
$
$

521
8
529

89
(12)
77
(3)
5
79

286
53
25

$
$
$

887
-
887

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

583
110
42

$
$
$

-
-
-

3
(2)
1
-
9
10

69
803
11

4,450

$
$
$

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

3,600
1,359
273

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

Canada
United States
China
Other Asia
Other

Non-current assets
2016
2017
$ 1,987
$ 2,096
675
1,130
-
-
-
-
-
-
$ 2,662
$ 3,226

Sales by geographic area1

2017
$ 1,129
2,973
627
357
48
$ 5,134

2016
$ 994
2,583
486
317
70
$ 4,450

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

26.

Softwood lumber dispute

- 106 -

duty (“ADD”) investigation and imposed a company specific preliminary rate of 6.76% to be
posted by cash deposits on the exports from Canada of softwood lumber to the U.S. on or after
June 30, 2017. The requirement that we deposit CVD was suspended on August 24, 2017 until
final determination was published by the USITC. On December 4, 2017 the USDOC amended
our CVD rate to 17.99% and our ADD rate to 5.57%. Effective December 28, 2017 we began
posting cash deposits for CVD and effective December 4, 2017 we began posting cash deposits
for ADD at the revised rates. The CVD and ADD rates are subject to further adjustment through
administrative reviews to be completed by the USDOC. The administrative reviews for each of
CVD and ADD are expected to commence in January 2019 and cover the periods from initiation
of duties to December 31, 2017 for CVD and to November 30, 2018 for ADD. The reviews may
not be finalized until June 2020 or later and the results are subject to appeals.

In 2017 we incurred deposits of $53 million related to CVD. We have recorded a long-term duty
deposit receivable related to CVD of $11 million representing the excess of deposits made at the
preliminary rate of 24.12% compared to the final rate of 17.99% as we believe this will be the
maximum rate determined in the administrative review.

In 2017 we incurred deposits of $32 million related to ADD. We have performed a calculation
of potential ADD based on the actual information that will be submitted for the administrative
review using the same calculation methodology as the USDOC and determined that the expected
ADD rate will be substantially lower than the rate estimated by the USDOC. We have recorded
a long-term duty deposit receivable for the difference between the deposit rate and our estimated
rate in the amount of $26 million.

- 107 -

FIVE-YEAR FINANCIAL REVIEW
(in millions of Canadian dollars, except where indicated)
2017

2016

2015

2014

2013

Earnings
Sales
Cost of product sold
Freight and other distribution costs
Export duties or 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 licenses
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

5,134
3,124
653
48
210
197
32
-
870
(31)
7
(250)
596

902

862

1,291
2,425
731
64
6
4,517
583
636
347
225
2,726
4,517

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

4,100
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

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

3,474
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

- 108 -

Per common share (dollars)1
Basic EPS
Price range - high
- low
- close
Dividends declared 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

2017

2016

2015

2014

2013

7.63
83.50
42.98
77.57
0.36
77,946

4.06
54.18
35.35
48.01
0.28
78,163

1.25
78.55
40.56
52.53
0.28
82,457

3.06
66.80
45.05
66.47
0.28
83,527

4.07
52.67
36.25
51.80
0.28
85,672

23%
17%
24%
12%

15%
11%
15%
14%

10%
4%
5%
22%

16%
10%
13%
19%

17%
15%
21%
8%

Number of employees at year-end

8,600

7,800

7,900

7,560

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
3. A fire at our MDF plant in Quesnel on March 9, 2016 resulted in the closure of the plant until April 29, 2017.

5,935
1,192
128
826

5,293
1,086
132
771

6,233
1,172
122
838

5,607
1,142
133
797

160
2,215

206
1,796

191
2,676

220
1,627

5,153
1,099
119
781

204
1,848

- 109 -

CORPORATE INFORMATION
Effective February 14, 2018

DIRECTORS

Henry H. Ketcham

Reid E. Carter

John N. Floren

Brian G. Kenning

John K. Ketcham

Gerald J. Miller

Robert L. Phillips

Janice G. Rennie

Ted Seraphim

Principal Occupation

Chairman of the Board

President, Brookfield Timberlands Management LP

President and Chief Executive Officer, Methanex
Corporation

Corporate Director

Real Estate Developer

Corporate Director

President and Chief Executive Officer

Gillian D. Winckler

Corporate Director

OFFICERS

Office Held

Ted Seraphim

President and Chief Executive Officer

Raymond W. Ferris

Executive Vice-President and Chief Operating Officer

Brian A. Balkwill

Keith D. Carter

Larry E. Gardner

James W. Gorman

Rodger M. Hutchinson

Vice-President, Canadian Lumber

Vice-President, Pulp and Energy Operations

Vice-President, Canadian Woodlands

Vice-President, Corporate and Government Relations

Vice-President, Corporate Controller and Investor
Relations

Christopher D. McIver

Vice-President, Sales and Marketing

Sean P. McLaren

Tom V. Theodorakis

Vice-President, U.S. Lumber

Secretary
Partner, McMillan LLP (lawyers)

Christopher A. Virostek

Vice-President, Finance and Chief Financial Officer

Chuck H. Watkins

Vice-President, U.S. Lumber Manufacturing

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Corporate Information
Effective February 14, 2018

ANNUAL GENERAL MEETING
The Annual General Meeting of the
shareholders of the Company will be held on
April 19, 2018 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
AST Trust Company (Canada)
Vancouver, Calgary, Toronto, and Montreal,
Canada

FILINGS
www.sedar.com

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

INVESTOR CONTACTS
Chris Virostek
Vice-President, Finance and
Chief Financial Officer

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

2500 Saint Marys Road
St. Marys, Georgia
USA 31558
Tel: (912) 576-0300
Fax: (912) 576-0322

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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

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

Newsprint
2900 – 650 West 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

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.

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GLOSSARY OF INDUSTRY TERMS

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

BCTMP Bleached
Chemithermomechanical
Pulp

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

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.

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.

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.

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.

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.

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

WEST FRASER TIMBER CO. LTD.
Tel: 604.895.2700
Fax: 604.681.6061
westfraser.com