Western Forest Products

Western Forest Products Inc.
2017 Annual Report

Financial Highlights

(millions of Canadian dollars except ratios, per share and share amounts)

Revenue

Net income

Cash flow from operating activities

Basic and diluted earnings per share

Price range per share

High

Low

Net book value per share
Adjusted EBITDA (1)

Adjusted EBITDA margin

Weighted average shares outstanding - Basic ('000's)

Weighted average shares outstanding - Diluted ('000's)

Net working capital

Total assets

Cash and cash equivalents

Debt
Net debt (2)
Net debt to capitalization (3)
Total liquidity (4)

Years ended December 31,

2017

2016

1,143.4

1,187.3

74.4

134.4

0.19

2.84

1.83

1.43

152.6

13.3%

395,589

399,663

184.7

799.6

35.3

-

-

-

269.3

94.2

127.9

0.24

2.40

1.77

1.32

148.2

12.5%

395,395

399,054

177.7

777.2

19.0

34.4

15.4

0.03

218.1

(1)

(2)

(3)

(4)

See page 5 for definition of adjusted EBITDA. A quantitative reconciliation between net income and adjusted EBITDA
can be found in Appendix A to the Management's Discussion and Analysis.
Net debt is defined as the sum of long-term debt, current portion of long-term debt, revolving credit facility, less cash
and cash equivalents.
Capitalization comprises net debt and shareholders' equity.
Total liquidity comprises cash and cash equivalents and available credit under the Company’s revolving credit facility
and revolving term loan.

1Letter to Shareholders

To Our Shareholders,

At Western, safety is our number one priority and fundamental to how we operate. While we are proud of the
progress we have made in improving the safety of our operations, we experienced a tragic train incident in our
Englewood forest operation in April 2017. The incident resulted in the death of three of our employees and
serious injuries to two other employees who are recovering. We are working cooperatively with the regulatory
agencies on the ongoing investigation while supporting the families, employees and communities impacted by
this terrible tragedy. We continue to work, each and every day, to improve safety in our workplaces.

Financially we delivered Company-record adjusted EBITDA and adjusted EBITDA margin in 2017. Our ability
to lead pricing for specialty products and increase sales to a growing lumber market in China largely offset the
negative impacts of US lumber duties and challenging operating conditions which reduced log harvest and log
supply to our mills. We grew adjusted EBITDA to $152.6 million and delivered an adjusted EBITDA margin of
13.3%, overcoming $15.8 million of export duties on lumber shipments to the United States.

On the strength of our operating cash flows, we continued our balanced approach to capital allocation,
distributing $31.7 million in dividends to our shareholders, investing $55.2 million in our asset base and
repurchasing $2.7 million in outstanding common shares. In addition, we repaid all debt and held a cash
balance of $35.3 million at year-end.

2017 financial highlights

• Achieved revenue of $1.1 billion despite challenging operating conditions which limited log harvest

• Grew adjusted EBITDA margin to 13.3% despite the application of export duties and weather-related

production shortfalls

• Achieved average lumber price of $1,001/mfbm1 through selling targeted products to selected customers

• Sold non-core assets for $7.7 million during the year

2017 operational achievements

• Optimized and consolidated our Vancouver Island remanufacturing operations

• We simplified and streamlined our log supply chain to lower costs and shorten delivery time to our mills

• We successfully increased log inventory by 12% year-over-year, including a 31% increase in mill sawlog

inventories, overcoming challenging harvesting conditions

• Strengthened our platform for growth by implementing new lumber sales, inventory and payroll systems

Western’s capital and growth initiatives

In 2017, we continued to reinvest in and consolidate our operating base to position our mills as the most cost
competitive facilities on the coast of British Columbia. Key strategic capital investment milestones included the:

• Completion of the Duke Point planer modernization with the auto-grading installation

1 per thousand board feet

2• Completion of the Chemainus sawmill timber handling upgrades

• Implementation of LiDAR technology to significantly improve the detail of our standing timber inventory

which supported the simplification and standardization of our harvest planning

• Subsequent to year end we acquired a distribution and processing facility in Washington State in support

of our lumber marketing strategy

Capital improvements to the Duke Point planer enabled us to consolidate volumes from our former South
Island Remanufacturing operation and our Saltair planer facility, which was closed in June 2017.

We continue to evaluate additional strategic capital projects that will position Western as the only company
capable of manufacturing the complete profile of the coastal forest and producing a diverse product mix.

In January 2018, we closed the purchase of the distribution and processing centre in Arlington, Washington
and commenced maintenance and modifications to bring the facility into production. We expect the facility to
be operational in 2018, supporting the distribution of targeted products to selected US customers.

Through our ongoing reinvestment in, and the consolidation of, our coastal operating base, the steady
improvements in our operating performance, and a strong balance sheet, we have positioned Western to
pursue additional growth opportunities. We continue to evaluate all options to leverage capital and
management expertise to increase shareholder value and grow our margin focused business.

Market outlook

We believe continued strong demand for lumber from both the US and China, will support lumber prices as we
move into the more active spring construction season. Duties on Canadian lumber shipments to the United
Stated will continue to influence market conditions and global fibre flows; however, our recent acquisition of a
distribution and processing centre in Arlington, Washington is expected to partially mitigate the damaging
effects of duties on our products destined for the US market. We will continue to utilize our recapitalized, flexible
operating platform to target the products and markets that offer the highest margins.

Demand for our Western Red Cedar (“WRC”) products remains strong despite unpredictable purchasing
behavior resulting from the application of US lumber duties. Looking to 2018, the combination of limited WRC
log supply, continued strong demand and recent clarity on US duty rates is expected to support pricing.

Demand for lumber in Japan was steady in 2017 however pricing lagged other markets. We believe pricing will
be forced higher over the next few months as Japanese customers compete for the imported lumber volumes
necessary to meet demand.

The imposition of US lumber duties has impacted sales volumes of our Niche products. US Customers have
been unwilling to pay higher prices for some product lines and as a result we have directed volume to other
markets. We project volumes and pricing to improve slightly in the US in 2018, as the market adjusts to the
new duty reality. We are focused on increasing our Niche product sales in China.

We expect our commodity lumber business to continue to benefit from increased consumption of lumber in
China and the US. Our targeted product offerings are well suited to the Chinese market where the use of
softwood lumber is expanding into a wider array of end uses including furniture, door and window components.
In the US, we will direct volumes to end uses or product segments that offer a superior margin.

Saw log pricing continues to rise on the strength of export and domestic demand. Log markets remain
undersupplied as production has not been sufficient to restock inventories. We expect pricing for pulp logs to
increase over the near term as demand outpaces supply.

3Softwood lumber trade dispute

We incurred $15.8 million of export duties in 2017 on a predominantly high-value, appearance grade mix of
lumber sold to our US customers. We successfully mitigated US duties and improved adjusted EBITDA margin
by shifting certain products to selected customers in other markets, including China.

Since the expiry of the Canada-US Softwood Lumber Agreement in October 2015, the Government of Canada
and US trade representatives have been unable to reach agreement on a new managed trade system. In 2017,
the US Department of Commerce and US International Trade Commission imposed countervailing and
antidumping duties on Canadian lumber shipments to the US. The final combined duty rate of 20.23% has
been effective since December 28, 2017 and is applied to all of Western’s lumber shipments to the United
States market. Critical circumstance was not found in either the countervailing or anti-dumping duty cases,
resulting in no retroactive application of duties. We will maintain a strong balance sheet and continue to
leverage our margin-focused sales strategy to limit the impacts of the Softwood lumber duty on our business.

First Nations partnerships

Western continues to foster collaborative relationships with First Nations. During 2017, Western established a
mutually beneficial relationship with the Huu-ay-aht First Nations through the sale of three properties, including
our former Sarita Bay dry land sort. Through a series of agreements, we established a long-term lease of the
dry land sort, concluded an agreement to harvest 200,000 cubic metres of timber from Huu-ay-aht Lands and
we created an employment and training agreement that seeks to increase the number of Huu-ay-aht citizens
participating in the forest sector.

Our joint interests and relationships with the Quatsino, Heiltsuk, Kitasoo, ‘Namgis and Nanwakolas First
Nations continue to deliver incremental
log volume necessary to support specialty lumber production at
Western’s manufacturing operations.

We continue to explore opportunities for long-term, mutually beneficial relationships with coastal First Nations.

Safety performance

Western continues to improve safety awareness amongst our employees, including providing extensive
training designed to enable our people to assess hazards before they become risks.

We launched a safety leadership program to support and reinforce the consistent application of our safety
procedures and standards. Our leaders have completed the first component of training with additional
programs scheduled for early 2018. We believe that safety is everyone’s responsibility and that by working
together we can deliver a zero incident workplace.

I would like to thank our shareholders, customers, employees and the communities where we work for your
continued support of Western Forest Products.

Sincerely,

Don Demens
President and CEO

4Management’s Discussion & Analysis

The following Management’s Discussion and Analysis (“MD&A”) reports and comments on the financial condition and results
of operations of Western Forest Products Inc. (the “Company”, “Western”, “us”, “we”, or “our”), on a consolidated basis, for the
three months and year ended December 31, 2017 to help security holders and other readers understand our Company and the
key factors underlying our financial results. This discussion and analysis should be read in conjunction with our audited annual
consolidated financial statements and notes thereto for the years ended December 31, 2017 and 2016, which can be found on
SEDAR at www.sedar.com.

The Company has prepared the consolidated financial statements for the years ended December 31, 2017 and 2016 in
accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards
Board. Amounts discussed herein are based on our audited annual consolidated financial statements and are presented in
millions of Canadian dollars (“CAD”) unless otherwise noted. Certain prior period comparative figures have been reclassified
to conform to the current period’s presentation.

Reference is made in this MD&A to adjusted EBITDA1 and adjusted EBITDA margin2. Adjusted EBITDA is defined as operating
income prior to operating restructuring items and other income (expenses), plus amortization of property, plant, and equipment
and intangible assets, impairment adjustments, and changes in fair value of biological assets. Adjusted EBITDA margin is
adjusted EBITDA as a proportion of revenue. Western uses adjusted EBITDA and adjusted EBITDA margin as benchmark
measurements of our own operating results and as benchmarks relative to our competitors. We consider adjusted EBITDA to
be a meaningful supplement to operating income as a performance measure primarily because amortization expense,
impairment adjustments and changes in the fair value of biological assets are non-cash costs, and vary widely from company
to company in a manner that we consider largely independent of the underlying cost efficiency of their operating facilities.
Further, the inclusion of operating restructuring items which are unpredictable in nature and timing may make comparisons of
our operating results between periods more difficult. We also believe adjusted EBITDA and adjusted EBITDA margin are
commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Adjusted EBITDA does not represent cash generated from operations as defined by IFRS and it is not necessarily indicative of
cash available to fund cash needs. Furthermore, adjusted EBITDA does not reflect the impact of a number of items that affect
our net income. Adjusted EBITDA and adjusted EBITDA margin are not measures of financial performance under IFRS, and
should not be considered as alternatives to measures of performance under IFRS. Moreover, because all companies do not
calculate adjusted EBITDA in the same manner, adjusted EBITDA and adjusted EBITDA margin calculated by Western may
differ from similar measures calculated by other companies. A reconciliation between the Company’s net income as reported
in accordance with IFRS and adjusted EBITDA is included in Appendix A to this report.

Also in this MD&A, management uses key performance indicators such as net debt, net debt to capitalization and current assets
to current liabilities. Net debt is defined as long-term debt less cash and cash equivalents. Net debt to capitalization is a ratio
defined as net debt divided by capitalization, with capitalization being the sum of net debt and shareholder’s equity. Current
assets to current liabilities is defined as total current assets divided by total current liabilities. These key performance indicators
are non-GAAP financial measures that do not have a standardized meaning and may not be comparable to similar measures
used by other issuers. They are not recognized by IFRS; however, they are meaningful in that they indicate the Company’s
ability to meet their obligations on an ongoing basis, and indicate whether the Company is more or less leveraged than in prior
periods.

This MD&A contains statements that may constitute forward-looking statements under the applicable securities laws. Readers
are cautioned against placing undue reliance on forward-looking statements. All statements herein, other than statements of
historical fact, may be forward-looking statements and can be identified by the use of words such as “estimate”, “project”,
“expect”, “anticipate”, “plan”, “intend”, “believe”, “seek”, “should”, “may”, “likely”, “pursue” and similar references to future
periods. Forward-looking statements in this MD&A include, but are not limited to, statements relating to: our current intent,
belief or expectations primarily with respect to market and general economic conditions, future costs, expenditures, available
harvest levels and our future operating performance, objectives, capital expenditures and strategies. Although such statements
reflect management’s current reasonable beliefs, expectations and assumptions as to, amongst other things, the future supply
and demand of forest products, global and regional economic activity and the consistency of the regulatory framework, there
can be no assurance that forward-looking statements are accurate, and actual results and performance may materially vary.
Many factors could cause our actual results or performance to be materially different including: general economic conditions,
international demand for lumber, competition and selling prices, international trade disputes, changes in foreign currency
exchange rates, labour disruptions, natural disasters, relations with First Nations groups, changes in laws, the availability of
allowable annual cut, regulations or public policy, changes in opportunities and other factors referenced under the “Risks and
Uncertainties” section herein. The foregoing list is not exhaustive, as other factors could adversely affect our actual results and
performance. Forward-looking statements are based only on information currently available to us and refer only as of the date
hereof. Except as required by law, we undertake no obligation to update forward-looking statements.

Unless otherwise noted, the information in this discussion and analysis is updated to February 15, 2018.

1 Earnings Before Interest, Tax, Depreciation and Amortization
2 Adjusted EBITDA as a proportion of Revenue

5Selected Annual Information (1)

(millions of dollars except per share amounts and where otherwise noted)

Revenue
Lumber
Logs
By-products
Total revenue

Operating income prior to restructuring items and other income
Net income

Adjusted EBITDA
Adjusted EBITDA margin
Basic and diluted earnings per share (in dollars)
Diluted earnings per share (in dollars)
Basic and diluted earnings per share (in dollars) - discontinued operations

Total Assets
Net Debt (2)

As at and for the years ended
December 31,

2017

2016

2015

$

$

$

$
$
$

$

858.2
214.8
70.4
1,143.4

117.0
74.4

152.6
13.3%
0.19
0.19
-

799.6

-

$

$

$

$
$
$

$

883.5
235.6
68.2
1,187.3

110.2
94.2

148.2
12.5%
0.24
0.24
-

777.2

15.4

$

$

$

$
$
$

$

770.0
243.1
68.8
1,081.9

83.0
73.7

58.8
10.8%
0.19
0.18
0.02

743.4

53.8

(1) Included in Appendix A is a table of selected results for the last eight quarters.

(2) Net debt is defined as the sum of long-term debt, current portion of long-term debt, revolving credit facility, less cash and cash equivalents.

Overview

We delivered another increase in annual adjusted EBITDA, margin and operating income prior to
restructuring and other income, despite the challenges of the softwood lumber dispute and difficult coastal
logging conditions in 2017. Our earnings reflect the outcome of a refined marketing strategy, managing
historically low inventory through the year, and continuing to consolidate and optimize our coastal
operations.

Included in our Company-record adjusted EBITDA of $152.6 million are export duties of $15.8 million.
Effective December 28, 2017, our lumber shipments to the US are subject to the “all other” combined
countervailing and anti-dumping duty rate of 20.23%.

On April 20, 2017, five Western employees were injured, three fatally, due to a train accident in our
Englewood forest operations. Immediately following the accident we shut all timberlands operations briefly
out of respect for those affected, and our Englewood operations remained partially curtailed until the second
half of 2017. The accident is still being investigated and we are cooperating with regulatory agency
investigations while supporting the families, employees and communities impacted by this tragedy. We
continue to work, each and every day, to improve safety in our workplaces.

Our timberlands production and market log availability were significantly impacted by prolonged winter
conditions in the first half of 2017 followed by hot, dry summer conditions thereafter. Log supply constraints
prompted downtime and reduced operating hours at several of our sawmills. Our log production declined by
9% as compared to 2016, while coastal log production declined by 11%. The combination of lower harvest
volume and reduced purchase log availability contributed to a 14% reduction in lumber production. The use
of LiDAR data in our timberlands, recent capital investments in our sawmills, and the implementation of our
simplified log sort initiative partially offset the impacts of these challenging operating conditions in 2017.

Revenue was $1,143.4 million in 2017, which was a 4% decrease from record highs in 2016. We executed
on our strategy of selling targeted products to selected customers which resulted in record realized pricing
for our specialty products, offsetting a weaker sales mix and reduced log and lumber shipments. Revenue
was impacted by a stronger average CAD, which increased 2% against the United States dollar (“USD”) and
5% against the Japanese Yen (“JPY”).

Our net income in 2017 was $74.4 million. The decrease in net income from 2016 was primarily due to higher
other income last year, and one-time severance and impairment charges in 2017 resulting from our coastal
operating consolidation and optimization initiatives. Included in other income in 2017 was $7.7 million in
proceeds related to non-core assets. Included in other income in 2016 was $14.1 million for the 2011 partial
tenure extinguishment in TFL 44 from the Maa-nulth First Nations Final Agreement Act, an $8.0 million

6increase in fair value of biological assets and a $3.8 million past service credit as a result of a pension plan
amendments.

Strong operating cash flows in 2017 were used to repay $35.0 million of debt, fund $55.2 million of capital,
return $31.7 million to shareholders in the form of regular, quarterly dividends and repurchase $2.7 million
of the Company’s common shares (the “Common Shares”) for cancelation, while growing our cash position
to $35.3 million at year end. Liquidity improved to $269.3 million at December 31, 2017.

Annual Operating Results

(millions of dollars except per share amounts and where otherwise noted)

Revenue
Lumber
Logs
By-products
Total revenue

Operating income prior to restructuring items and other income
Net income

Adjusted EBITDA
Adjusted EBITDA margin

As at and for the years ended
December 31,

2017

2016

$

$

$

858.2
214.8
70.4
1,143.4

117.0
74.4

152.6
13.3%

$

$

$

883.5
235.6
68.2
1,187.3

110.2
94.2

148.2
12.5%

We delivered a Company-record annual adjusted EBITDA of $152.6 million in 2017 and improved adjusted
EBITDA margin to 13.3%, despite the most difficult coastal log harvest conditions in recent history. We
continued to make progress in consolidating our operating platform and refining our sales and marketing
strategy. We increased our operating income prior to restructuring and other income by 6% year-over-year,
and achieved an average annualized lumber price above $1,000 per thousand board feet.

Lumber revenue declined by less than 3% in 2017 to $858.2 million, despite a 10% decline in sales volumes
and a weaker sales mix. Selling targeted products to selected customers and a strong price environment
drove an 8% increase in annual lumber price realization. Constrained log supply limited lumber production
and sales volumes. We grew shipments to China to capitalize on strong market demand and pricing, while
at the same time partially mitigating the impact of US duties.

Log revenue declined by 9% in 2017 to $214.8 million, despite a 21% decline in sales volumes and a weaker
sales mix. We achieved a 13% average increase in realized log pricing over 2016, despite a 25% reduction
in export log shipments and a lower grade domestic log mix. We prioritized internal saw log consumption
over external sales to mitigate the impact of constrained log supply on our sawmills in a record lumber price
environment. Log production improved in the fourth quarter of 2017 facilitating a year-end build of log
inventory.

Western exported less than 9% of our log availability in 2017, whereas the rest of the coastal industry
exported an estimated 36% of log production, including timber harvested from the Province of British
Columbia’s Timber Sales (“BCTS”) tenures.3

By-product revenue increased to $70.4 million in 2017, as compared to $68.2 million in 2016. Chip price
realizations increased 16% which offset reduced shipments resulting from lower sawmill production.

Lumber production for 2017 was 809 million board feet, down from 943 million board feet in 2016.
Constrained log supply impacted production, resulting in downtime and reduced operating hours at several
of our operations. In addition, we indefinitely curtailed our Somass sawmill in July 2017, following years of
land use planning decisions, which have resulted in an insufficient supply of logs to operate the facility
efficiently.

3 Peer results obtained from the Province of British Columbia’s Harvest Billing System.

7Coastal log production in 2017 was significantly impacted by poor weather. Our timberlands production
decreased 9% in 2017 to 4,009,000 cubic metres, while total coastal log production fell by 11% as reported
by the Province of BC’s Harvest Billing System. Log production was impacted by difficult weather-related
operating conditions, the aforementioned train accident, contractor challenges in our Port Alberni operation
and the expropriation of helicopter capacity by the Province of British Columbia (“BC”) to fight forest fires in
the interior of BC. Despite lower harvest volumes, we closed the year with 12% more log inventory than last
year.

Market log supply was limited due to lower harvest volumes on the coast of BC. Our saw log purchases
amounted to 1,149,000 cubic metres in 2017, a 25% decline from the previous year. Improved coastal
harvest conditions late in 2017 led to increased fourth quarter log production, as compared to last year, and
facilitated higher mill saw log inventories at year-end.

Freight expense increased by 7% in 2017 to $103.2 million. We increased lumber sales volumes to China
by 6% and increased our direct to market China lumber sales volumes by 49%. Increased sales to China
helped to partially offset the impacts of US softwood lumber duties.

Selling and administration expenses were $32.8 million, as compared to $27.5 million in 2016. Appreciation
of our common share price and a greater outstanding share unit balance drove a relative increase of $2.2
million in share-based compensation expenses, including mark-to-market adjustments. Also reflected in
2017 are increased IT costs related to significant system infrastructure and related process improvements,
and an incremental $0.6 million in non-cash amortization expense relating to systems and infrastructure.

Operating Restructuring Items

Operating restructuring costs were $14.4 million in 2017, due primarily to the indefinite curtailment of our
Somass sawmill and closure of the Englewood train. Operating restructuring costs in 2016 were $3.4 million,
including $2.2 million arising from the permanent curtailment of the Nanaimo sawmill.

On July 27, 2017, we indefinitely curtailed our Somass sawmill in Port Alberni, BC. Somass was temporarily
curtailed in February 2017, prior to which it had operated on a single shift basis. Steady declines in the
area’s annual allowable cut due to land use decisions contributed to the Somass indefinite curtailment.

As a result of the indefinite curtailment of our Somass sawmill, we incurred $9.8 million in restructuring
expense including $6.2 million in voluntary severance payments and $3.6 million in asset impairment and
non-operating costs.

On November 7, 2017, we announced the closure of our Englewood logging train. The transition to
transporting logs by truck in our Englewood timberlands operation aligns with our commitment to strengthen
operating competitiveness, and resulted in $2.4 million of voluntary severance expense.

Other Income (Expense)

Other income of $1.2 million was reported in 2017, a decrease from the prior year income of $24.2 million.
A net gain on non-core asset disposals of $3.8 million in 2017 was partly offset by $1.7 million of non-
operating expenses arising from the Englewood train accident, and other expenses of $0.9 million.

The gains on non-core asset disposition in 2017 were led by the sale of our Sarita dry land sort operation to
the Huu-ay-aht First Nation on May 2017, and the sale of our former South Island Remanufacturing plant in
August 2017.

Other income in 2016 included $14.1 million in settlement compensation from the Provincial Government for
the April 2011 partial tenure extinguishment, as well as a gain on the revaluation of biological assets and
amendments to our legacy defined benefit pension plans.

8Finance Costs

Finance costs decreased by $1.9 million in 2017 to $2.5 million primarily due to significantly reduced interest
expense. All drawings on the Company’s debt facilities were repaid in the first quarter of 2017.

Income Taxes

In 2017, deferred income tax expense of $26.7 million was recognized through net income, primarily relating
to operating earnings. Also contributing to deferred income tax expense in 2017 was the impact of a 1%
increase in provincial corporate tax rate. Deferred income tax expense of $32.2 million in 2016 was higher
due to greater other income last year.

Deferred income tax recovery of $0.7 million was recognized through other comprehensive income as a
result of actuarial losses arising from our legacy defined benefit pension plans. In 2016, we recognized
deferred income tax expense of $0.8 million through other comprehensive income as a result of actuarial
gains arising from these pension plans.

At December 31, 2017, the Company and its subsidiaries had unused non-capital tax losses carried forward
totaling approximately $43.9 million, which expire between 2033 and 2037, and can be used to reduce
taxable income. In addition, the Company has unused capital losses carried forward of approximately $96.3
million, which are available indefinitely.

Net Income from Continuing Operations

Net income from continuing operations was $74.4 million, a decrease from the prior year result of $94.2
million. The reduction in net income from continuing operations was due primarily to a $23.0 million decrease
in other income, partly offset by a related decrease in deferred income tax expense.

Normal Course Issuer Bid

On August 2, 2017, we announced a normal course issuer bid permitting us to purchase and cancel up to
19,778,383 of our Common Shares or approximately 5% of our Common Shares issued and outstanding.
From August 2, 2017 to December 31, 2017, we repurchased 1,079,000 Common Shares for cancellation
at an average price of $2.50.

9Financial Position, Liquidity and Capital Resources

(millions of dollars except where noted)

Cash provided by operating activities, excluding non-cash working capital
Cash provided by operating activities
Cash used in investing activities
Cash provided by (used in) financing activities
Cash used in capital logging roads
Cash used to acquire property, plant and equipment

Total liquidity (1)
Cash and cash equivalents
Debt (3)
Net debt (3)

Financial ratios:

Current assets to current liabilities
Net debt to capitalization (4)

Years ended
December 31,

2017

2016

$

$

128.7
134.4
(48.1)
(70.0)
(13.5)
(41.7)

157.2
127.9
(55.6)
(62.7)
(13.1)
(43.0)

December 31,
2017

December 31,
2016

$

$

269.3
35.3
-
-

2.71
-

218.1
19.0
34.4
15.4

2.58
0.03

(1) Total liquidity comprises cash and cash equivalents, and available credit under the Company’s revolving credit facility and revolving term loan.
(2) Debt is defined as the sum of long-term debt, current portion of long-term debt and revolving credit facility.
(3) Net debt is defined as debt, less cash and cash equivalents.
(4) Capitalization comprises net debt and shareholders equity.

In 2017, we repaid all outstanding debt, returned $31.7 million to shareholders through quarterly dividends,
repurchased and cancelled Common Shares equivalent to $2.7 million, and increased our year-end cash
balance by $16.3 million to $35.3 million.

Cash provided by operating activities in 2017 was $134.4 million as compared to $127.9 million during 2016,
and was supplemented by a significant reduction in working capital attributed to trade and other receivables
at the end of the year.

Cash used in investing activities was $48.1 million in 2017, as compared to $55.6 million invested in 2016.
Through 2017 we focused on investing in high-return, low cost capital projects as we awaited clarity on the
softwood lumber trade dispute. Our strategic capital program is discussed in more detail under “Strategy
and Outlook”.

Cash used in financing activities increased to $70.0 million in 2017, as compared to $62.7 million in 2016.
We returned $31.7 million to our shareholders by way of regular quarterly dividends, repaid all outstanding
debt and invested $2.7 million to repurchase and cancel outstanding Common Shares.

As a result of year-to-date earnings and the reduction in working capital, total liquidity increased to $269.3
million at December 31, 2017 from $218.1 million at the end of 2016.

Liquidity is comprised of cash and cash equivalents of $35.3 million, unused availability under the secured
revolving credit facility of $124.0 million, and $110.0 million available under the revolving term loan facility.
Based on our current forecasts, we expect sufficient liquidity will be available to meet our operating and
capital requirements in 2018.

Subsequent to year-end, on January 17, 2018, we completed the acquisition of a distribution and processing
centre in Arlington, Washington for USD $9.0 million.

We continue to pursue margin focused growth opportunities that align with our special products business to
return incremental value to our shareholders.

10Fourth Quarter Results

(millions of dollars except per share amounts and where otherwise noted)

Revenue
Lumber

Logs

By-products

Total revenue

Operating income prior to restructuring items and other income
Net income

Adjusted EBITDA

Adjusted EBITDA margin

Basic and diluted earnings per share (in dollars)

Three months ended
December 31,

2017

2016

$

$

$

$

207.3

56.6

19.2

283.1

30.3
19.0

38.9

13.7%

0.05

$

$

$

$

220.7

55.1

17.2

293.0

24.0
36.2

33.8

11.5%

0.09

We generated adjusted EBITDA of $38.9 million, an increase of 15% from the fourth quarter of 2016. We
capitalized on a strong pricing environment for our products, improved harvesting conditions and recognized
an export tax recovery of $3.5 million resulting from the difference between preliminary and final softwood
lumber export duties. Improved harvesting conditions led to a 12% increase in year-end log inventory levels
compared to the same period last year.

Lumber revenue was $207.3 million in the fourth quarter of 2017, 6% less than the same period of 2016.
Average lumber price realization increased 8% quarter-over-quarter, partially offsetting the revenue impacts
of a 13% decrease in lumber shipments, a weaker sales mix and a stronger CAD relative to the USD.

Fourth quarter log revenue was $56.6 million, a 3% increase from the same period last year as significantly
improved pricing offset the impact of a weaker log sales mix. Log sales volumes in the fourth quarter of 2017
were similar to last year as increased sales of lower quality logs to the pulp industry offset a reduction in
export log sales volumes.

By-products revenue was $19.2 million in the fourth quarter of 2017, as compared to $17.2 million in the
same period in 2016. Higher realized chip pricing more than offset reduced by-product volumes.

Lumber production was 187 million board feet, 55 million board feet less than the fourth quarter of 2016. A
31% lower opening log inventory resulted in sub-optimal mill operations. Our Saltair, Ladysmith and Alberni
Pacific sawmills operated at reduced hours in the fourth quarter of 2017 due to constrained log supply.

Log harvest volumes were 180,000 cubic meters more than the same period last year and we supplemented
our production with saw log purchases of 343,000 cubic metres. Improved harvest conditions, our simplified
log sort initiative and market purchases supported a 23% increase in log inventory compared to the end of
the third quarter of 2017, including a 48% increase in our mill saw log inventory.

We are encouraged by the progress we have made with respect to our margin improvement initiative.
Despite the challenges of lower log availability and lumber production, we believe we have made gains in
streamlining our planning and engineering process, and simplifying our log supply chain through our
simplified log sort initiative. In addition, we have improved our mill operating performance and increased the
production of targeted products.

Fourth quarter freight costs, which are predominantly denominated in USD, were $23.0 million as compared
to $25.7 million in the same period of last year. Lower freight costs were driven by a 13% reduction in lumber
shipments, less export log volume, and a stronger Canadian dollar. The reduced freight costs were partly
offset by our strategy to increase delivered sales to China as we adjusted our customer base.

Selling and administration expense was $7.4 million in the fourth quarter of 2017, as compared to $6.7
million in the same period last year. We incurred $0.4 million of incremental compensation costs, including
share-based compensation and related mark-to-market adjustment expense. Fourth quarter selling and
administration expense reflects an incremental $0.2 million, as compared to the same period last year, of
non-cash amortization expense relating to systems and infrastructure.

Operating income in the fourth quarter of 2017 was comparatively less than the same period of 2016, which
included $26.0 million of non-routine items including the proceeds of a 2011 partial tenure extinguishment

11and significant gains from the revaluation of biological assets and amendments to legacy defined benefit
pension plans.

The funded position of our defined benefit and other retirement benefit plans is estimated quarterly, and a
full actuarial valuation is completed on a tri-annual basis. We realized a net actuarial loss of $1.2 million,
after tax, through other comprehensive income in the fourth quarter of 2017.

Strategy and Outlook

Western’s long-term business objective is to create superior value for shareholders by building a margin-
focused log and lumber business of scale to compete successfully in global softwood markets. We believe
this will be achieved by maximizing the sustainable utilization of our forest tenures, operating safe, efficient,
low-cost manufacturing facilities and producing and selling high-value specialty products for global markets.
We seek to manage our business with a focus on operating cash flow and maximizing the value of our fibre
resource through the production cycle, from the planning of our logging operations to the production,
marketing and sale of our log and lumber products. We routinely evaluate our performance using the
measure Return on Capital Employed.

Continuing to guide our actions are the strategic initiatives presented below, with recent accomplishments:

Strengthen the Foundation

 We have developed a track record of consistently delivering positive operating income and a

balanced approach to capital allocation.

 We have announced or implemented $102.7 million of strategic capital to strengthen our operating
platform. These investments have positioned Western as the only company on the coast of BC
capable of consuming the complete profile of the coastal forest and competitively manufacturing a
diverse product mix.



Strategic capital investment completed and activated within the last two years has facilitated the
consolidation of our coastal operations. By advancing the recapitalization and consolidation of our
coastal operating base, we have improved the financial performance and stability of our business.

 We continue to invest in people and systems to create a platform for growth in our existing

operations and to accelerate our pursuit of margin-focused growth opportunities.

Grow the Base

 We have grown annual revenue to $1.1 billion, nearly double the revenue reported in 2009.

 We continue to optimize our operations and invest in our mills and timberlands to improve margins

and position ourselves for growth.

 We have implemented a non-capital margin improvement program to optimize our supply chain and

further consolidate our business.



The success of our business relationships with First Nations continues to drive incremental log
volume and has enabled Western to grow specialty lumber production in recent years. We continue
to pursue opportunities for long-term, mutually beneficial relationships with coastal First Nations.

 We are delivering on a strategy that drives the production and sale of targeted, high-margin products

of scale to selected customers that value our product offerings.

Explore Opportunities

 Our ongoing reinvestment in and consolidation of our coastal operating base, steady improvements
in our operating performance and a strong balance sheet have positioned Western to actively pursue
external opportunities to grow our margin-focused business.

 We recently announced the acquisition of a distribution and processing centre in Arlington,

Washington, that will enable us to more effectively service our selected US customers.

 We continue to evaluate opportunities to grow shareholder value.

12Softwood Lumber Dispute and US Market Update

Western’s results for 2017 include $15.8 million of export duty expense, comprised of countervailing duty
(“CVD”) and anti-dumping duty (“AD”) expense of $19.3 million, offset by CVD and AD recovery of $3.5
million. We recorded an export tax recovery in the fourth quarter of 2017 resulting from the difference in
preliminary and final duty rates.

The US application of duties continues a long-standing pattern of US protectionist action against Canadian
lumber producers. We disagree with the US trade determination and the inclusion of specialty lumber
products in this commodity lumber focused dispute.

Our shipments to the US market are predominantly high-value, appearance grade lumber, representing less
than 25% of Western’s total revenue in 2017. Continued strong demand and a lack of supply has supported
ongoing improvements in our specialty lumber product pricing, partly offsetting the impact of duties.

Our recent acquisition of a distribution and processing centre in Arlington, Washington is expected to partially
mitigate the damaging effects of duties on our products destined for the US market while increasing US
market sales. We intend to preserve our strong balance sheet and leverage our flexible operating platform
to continue to overcome any challenges that arise from this trade dispute.

Refer to “Risks and Uncertainties - Softwood Lumber Duty” below for a more detailed softwood lumber
dispute timeline.

Market Outlook

We believe continued strong demand for lumber from both the US and China will support lumber prices as
we move into the more active spring construction season. Duties on Canadian lumber shipments to the US
will continue to influence market conditions and global fibre flows. We are well-positioned to continue to
utilize our recapitalized, flexible operating platform to target the products and markets that offer the highest
margins.

Demand for our WRC products remains strong despite unpredictable purchasing behavior resulting from the
application of US lumber duties. Looking to 2018, the combination of limited WRC log supply, continued
strong demand and recent clarity on US duty rates is expected to support pricing.

Demand for lumber in Japan was steady in 2017 however pricing lagged other markets. We believe pricing
will be forced higher over the next few months as Japanese customers compete for the imported lumber
volumes necessary to meet demand.

The imposition of US lumber duties has impacted sales volumes of our Niche products. US customers have
been unwilling to pay higher prices for some product lines and as a result we have directed volume to other
markets. We project volumes and pricing to improve slightly in the US in 2018, as the market adjusts to the
new duty reality. We are focused on increasing our Niche product sales in China.

We expect our commodity lumber business to continue to benefit from increased consumption of lumber in
China and the US. Our targeted product offerings are well suited to the Chinese market where the use of
softwood lumber is expanding into a wider array of end uses including furniture, door and window
components. In the US, we will direct volumes to end uses or product segments that offer a superior margin.

Saw log pricing continues to rise on the strength of export and domestic demand. Log markets remain
undersupplied as production has not been sufficient to restock inventories. We expect pricing for pulp logs
to increase over the near term as demand outpaces supply.

13Strategic Capital Program Update

We continue to implement a strategic capital program that is designed to position Western as the only
company capable of sustainably consuming the complete profile of the coastal forest and competitively
manufacturing a diverse product mix for global markets.

Our strategic capital program is focused on the installation of proven technology that will deliver top quartile
performance and improve our ability to manufacture targeted products that yield the best margin. In addition
to investments in our manufacturing assets, we also allocate capital to strategic, high-return projects
involving our information systems, timberlands assets, and forest inventories. We have announced plans for
or implemented $102.7 million of our $125.0 million strategic capital program.

In the fourth quarter of 2017, we completed the Chemainus sawmill timber handling upgrades which are
designed to position Chemainus as the leading WRC timber mill on the coast of BC. At Duke Point, ramp up
of the auto-grader has progressed well and we expect further productivity improvements in the first quarter
of 2018. The auto-grader installation completes the Duke Point planer modernization.

We completed the acquisition of a distribution and processing centre in Arlington, Washington on January
17, 2018. Our focus now shifts to planned capital upgrades to the facility. We expect to be utilizing the site
by mid-2018.

Scheduled for the first half of 2018 are a series of high-return, low-cost strategic capital projects at our Duke
Point, Ladysmith, Saltair and Cowichan Bay operations, and we will continue the modernization of our North
Island logging truck fleet. We have more capital projects in the late stages of planning or ready for
implementation in 2018.

Non-Core Assets Update

Total proceeds from non-core assets during 2017 was $7.7 million, delivering on our commitment to execute
$5 - 10 million dollars of non-core asset sales in the year.

On May 17, 2017 Western completed the sale of three properties, including Western’s dry land sort, located
in Sarita Bay, BC to the Huu-ay-aht First Nation for a gross purchase price of $3.0 million. The transaction
also involved a 99-year lease back of the dry land sort to Western, an agreement to harvest 200,000 cubic
metres of timber from Huu-ay-aht lands, and an employment and training agreement. On August 18, 2017,
we completed the sale of our former South Island Remanufacturing operation for a gross purchase price of
$3.2 million.

We received expressions of interest for our Northern Island Private Timberlands in 2017 that exceeded book
values reflected in our consolidated financial statements, but they were not at values that would warrant a
transaction. We continue to pursue the marketing and disposition of certain non-core assets.

Summary of Contractual Obligations

The following table summarizes our contractual obligations at December 31, 2017 and our payments due
for each of the next five years and thereafter, including estimated interest payments:

(millions of Canadian dollars)
Accounts payable and
accrued liabilities

Long-term debt
Revolving credit facility
Operating leases
Reforestation obligation
Defined benefit pension
plan funding obligation

Arlington acquisition

Total

2018

2019

2020

2021

2022

Thereafter

$

$

$

98.9
0.8
0.1
23.1
26.4

$

98.9
0.6
0.1
6.4
9.0

$

-
0.2
-
5.1
4.6

28.8
10.8
188.9

$

3.1
10.8
128.9

$

3.1
-
13.0

$

-
-
-
3.3
2.9

3.1
-
9.3

$

$

-
-
-
2.5
1.9

3.1
-
7.5

$

$

-
-
-
1.3
1.5

3.1
-
5.9

$

$

-
-
-
4.5
6.5

13.3
-
24.3

14Critical Accounting Estimates

Reforestation Obligation

Under BC law, we are responsible for reforesting areas that we harvest. These obligations are referred to
as reforestation obligations. We accrue our reforestation obligations based on estimates of future costs at
the time the timber is harvested. The estimate of future reforestation costs is based on a detailed analysis
for all areas that have been logged and includes estimates for the extent of reforestation versus natural
regeneration, the cost of planting including the cost of seedlings, the extent and cost of site preparation,
brushing, weeding, thinning and replanting and the cost of conducting surveys. Our registered professional
foresters conduct the analysis that is used to estimate these costs. However, these costs are difficult to
estimate and can be affected by weather patterns, forest fires and wildlife issues that could impact the actual
future costs incurred and thus result in material adjustments.

Valuation of Inventory

We value our log and lumber inventories at the lower of cost and net realizable value. We estimate net
realizable value by reviewing current market prices for the specific inventory items based on recent sales
prices and current sales orders. If the net realizable value is less than the cost amount, we will record a
write-down. The determination of net realizable value at a point in time is generally both objective and
verifiable. However, changes in product prices can occur suddenly, which could result in a material write-
down in inventories in future periods.

Valuation of Accounts Receivable

We record an allowance for the collection of doubtful accounts receivable based on our best estimate of
potentially uncollectible amounts. The best estimate considers past experience with our customer base and
a review of current economic conditions and specific customer issues. The Company’s general practice is
to insure substantially all North American lumber receivables for 90% of value with the Export Development
Corporation, while all export sales are sold on either a cash basis or with secured instruments, which reduces
the Company’s exposure to bad debts.

Pension and Other Post Retirement Benefits

Western has various defined benefit and defined contribution plans, and a group RRSP that provide
retirement benefits to most of its salaried employees. A group RRSP is provided to certain hourly employees
not covered by forest industry union plans. The Company also provides other post-retirement benefits and
pension bridging benefits to eligible retired employees. Our defined benefit plans were closed to new
entrants effective June 30, 2006. No further benefits accrue under these plans for years of service after
December 31, 2010, and no further benefits accrue under these plans for compensation increases effective
December 31, 2016. We retain independent actuarial consultants to perform actuarial valuations of plan
obligations and asset values, and advise on the amounts to be recorded in the financial statements. Actuarial
valuations include certain assumptions that directly affect the fair value of the assets and obligations and
expenses recorded in the financial statements. These assumptions include the discount rate used to
determine the net present value of obligations, the return on plan assets used to estimate the increase in
the plan assets available to fund obligations, and medical and health care costs used to estimate obligations.
Actual experience can vary materially from the estimates and impact the cost of our pension and post-
retirement medical and health plans and future cash flow requirements.

Environmental Provisions

We disclose environmental obligations when known and accrue costs associated with the obligations when
they are known and can be reasonably estimated. The Company owns a number of manufacturing sites that
have been in existence for significant periods of time and, as a result, we may have unknown environmental
obligations. However, until the sites are decommissioned and the plant and equipment are removed, a
complete environmental review cannot be undertaken.

15Contingencies

Provisions for liabilities relating to legal actions and claims require judgements using management’s best
estimates regarding projected outcomes and the range of
loss, based on such factors as historical
experience and recommendations of
legal counsel. Actual results may vary from estimates and the
differences are recorded when known.

Valuation of Biological Assets

The Company values its biological assets at fair value less costs to sell. Valuation analysis includes recent
comparatives of standing timber sales, direct and indirect costs of sustainable forest management, net
present value of future cash flows for standing timber and log pricing assumptions. Significant assumptions
are used in the preparation of the valuation and actual results may vary materially from estimates.

Impairments

to amortization are tested for impairment whenever events or changes in
Assets that are subject
circumstances indicate that the carrying amount may not be recoverable. Impairment losses are recognized
in net income for the period for the amount by which the asset’s carrying amount exceeds its recoverable
amount. An impairment analysis requires the use of significant assumptions, including management and
independent third party input.

Deferred Income Taxes

Deferred tax assets and liabilities comprise the tax effect of temporary differences between the carrying
amount and tax basis of assets and liabilities, as well as the tax effect of unused non-capital tax losses.
Assumptions underlying the composition of deferred tax assets and liabilities include estimates of future
results of operations and the timing of reversal of temporary differences as well as the substantively enacted
tax rates and laws at the time of the expected reversal. The composition of deferred tax assets and liabilities
is reasonably likely to change from period to period due to the uncertainties surrounding these assumptions
and changes in tax rates or tax policy could have a material effect on expected results.

New accounting policies: standards and interpretations not yet adopted

A number of new and amended IFRS standards are not yet effective for the year ended December 31, 2017
and have not been applied in preparing the Company’s consolidated financial statements for the year ended
December 31, 2017. The following pronouncements are considered by us to be the most significant of
several pronouncements that may affect future financial statements:

•

•

•

IFRS 9, Financial Instruments (“IFRS 9”) is effective for years commencing on or after January 1, 2018,
and will replace IAS 39, Financial Instruments: Recognition and Measurement. Under IFRS 9, financial
assets will be classified and measured based on the business model in which they are held and the
characteristics of the associated contractual cash flows. IFRS 9 also includes a new general hedge
accounting standard which will better align hedge accounting with risk management. We will adopt IFRS
9 in our financial statements for the annual period beginning on January 1, 2018. We have completed
our analysis and concluded that adoption of the standard will not have a material impact on our financial
statements.

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) is effective for years commencing on or
after January 1, 2018, and will replace IAS 18, Revenue, IAS 11, Construction Contracts, and a number
of revenue related interpretations. IFRS 15 provides a single, principles based five-step model to be
applied to all contracts with customers, except insurance contracts, financial instruments, and lease
contracts, which fall in the scope of other IFRS. We will adopt IFRS 15 and the clarifications in our
financial statements for the annual period beginning on January 1, 2018. We have completed our
analysis and concluded that adoption of the standard will not have a material impact on our financial
statements.

IFRS 16, Leases (“IFRS 16”) is effective for years commencing on or after January 1, 2019, and will
replace IAS 17, Leases (“IAS 17”). IFRS 16 provides a single lessee accounting model, requiring the
recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the
underlying asset has a low value, while lessor accounting remains largely unchanged from IAS 17 and
the distinction between operating and finance leases is retained. We intend to adopt IFRS 16 in our

16consolidated financial statements for the year commencing January 1, 2019. The extent of the impact
of adoption of the standard has not yet been determined.

Financial Instruments

Western has a program in place to reduce the impact of volatile foreign exchange rates on its net income.
The Company utilizes derivative financial instruments in the normal course of its operations as a means to
manage its foreign exchange risk. Therefore, Western may purchase foreign exchange forward contracts or
similar instruments to hedge anticipated sales to customers in the US and Japan. The Company does not
utilize derivative financial instruments for trading or speculative purposes. Western will consider whether to
apply hedge accounting on a case by case basis and if the instrument is not designated as a hedge, the
instrument is adjusted to fair value and marked to market each accounting period, with changes recorded in
net income.

During 2017, the Company entered into foreign exchange futures contracts to sell forward USD and JPY in
order to partially mitigate its foreign currency risk. At December 31, 2017, the Company had forward
contracts in place to sell an aggregate USD $43.0 million and JPY 325.0 million (2016: USD 48.0 million;
JPY 750.0 million). A net gain of $0.7 million was recognized on contracts which matured in the year (2016:
net loss of $0.3 million), which is included in sales in the consolidated statement of comprehensive income.

Other financial
elsewhere in this discussion and analysis.

instruments, which for Western consist primarily of debt

instruments, are discussed

Off-Balance Sheet Arrangements

Other than operating leases for vehicles, equipment and machinery, the Company does not have any off-
balance sheet arrangements as at December 31, 2017.

Related Party Transactions

Key personnel of the Company include the executive management team and members of the Board of
Directors. The compensation paid or payable to key personnel is shown below:

Salaries, directors' fees and short-term benefits
Post-employment benefits
Share-based compensation, including mark-to-market adjustment

Years ended December 31,
2016

2017

$

$

6.6
0.3
4.4
11.3

$

$

5.8
0.3
2.0
8.1

Risks and Uncertainties

The following risks and uncertainties may have a material adverse effect on our operations or our financial
condition:

Environmental Regulation

We are subject to extensive federal and provincial environmental laws and regulations. These laws and
regulations impose stringent standards on our operations and impose liability to remedy problems that we
are legally responsible regarding, among other things:

•

•

•

•

•

•

air emissions, and land and water discharges;

operations or activities affecting watercourses or the natural environment;

operations or activities affecting species at risk and critical habitats;

use and handling of hazardous materials;

use, handling, and disposal of waste; and

remediation of environmental contamination.

17We may incur substantial costs to comply with current or future requirements, to respond to orders or
directions made, to remedy or to compensate others for the cost to remedy problems for which we are legally
responsible or to comply with new environmental laws that may be adopted from time to time. In addition,
we may discover currently unknown environmental problems or conditions affecting our operations or
activities or for which we are otherwise legally responsible. Western has closed certain operations and
although we have engaged specialists to advise us of environmental problems and conditions, normal site
clean-up may identify additional problems or conditions. Any such event could have a material adverse effect
on our financial condition and results of operations.

Western is one of five founding members of the Coast Forest Conservation Initiative (the “CFCI”), a
collaborative effort amongst forest companies working in BC's Central and North Coast. Its purpose is to
define and support the development of an ecosystem-based management as part of 2003 Land and
Resource Management Plan recommendations. The CFCI Companies, along with major environmental
groups delivered a suite of recommendations for consideration by the Province and the First Nations who
live in the region. On January 28, 2016 the Province enacted, by Order in Council, the GBR Order. On May
19, 2016, the Great Bear Rainforest (“GBR”) (Forest Management) Act received Royal Assent in the BC
legislature and this Act was subsequently brought into force on December 20, 2016 with an Order in Council
(number 974). As a result of the GBR related legislation the Company’s Allowable Annual Cut (“AAC”) in the
GBR area was reduced from 522,774 m3 per year to 427,005 m3 per year, effective January 1, 2017. Further,
Forest Licence A19244 was subdivided by the Province into two forest licences to ensure timber harvest
attributed to the GBR area is wholly contained in licences that only include forest operations in the GBR
area.

Safety

The Company’s safety policy reflects its values and commitment to providing a healthy and safe workplace
for its people, while at
the same time ensuring compliance with our regulatory requirements under
WorkSafeBC and other applicable regulations. Workplace safety laws and regulations change over time and
may involve new methodologies and additional costs necessary to bring the Company into compliance.

Variable Operating Performance, Product Pricing and Demand Levels

A key factor affecting Western’s operating and financial performance is the price received for lumber, logs
and other products. Prices for these products are highly cyclical and have fluctuated significantly in the past
and may fluctuate significantly in the future. The markets for our products are also highly cyclical and are
characterized by periods of excess product supply due to many factors, including:

•

•

Additions/curtailments to industry capacity and production;

Periods of insufficient demand due to weak economic activity or other causes including weather;

• Customers experiencing reduced access to credit; and

•

Inventory de-stocking by customers.

Product demand is influenced to a significant degree by economic activity at the global level. Additionally,
although costs may increase, customers may not accept related price increases for those products. We are
not able to predict with certainty market conditions and prices for our products. Western’s results of
operations depend upon the prices we receive for lumber, logs and chips, and deterioration in prices of, or
demand for, these products could have a material adverse effect on our financial condition or results of
operations. We cannot provide any assurance or prediction as to the timing and extent of any price changes.
On an annualized basis and based on current operating metrics, we estimate that operating earnings would
increase or decrease by approximately $9 million for each incremental price increase or decrease,
respectively, of $10 per thousand board feet of lumber.

Western’s financial performance is also dependent on the rate at which production capacity is utilized. In
times of challenging conditions in any of our major markets the Company maintains inventory control by
aligning log supply and lumber production with anticipated sales volumes. When capacity utilization is
reduced in response to weak demand for products, the cost per unit of production may increase and
profitability decrease.

From time to time and in accordance with market influences, the Company will reduce production with
temporary logging and/or sawmilling curtailments. In extreme cases, such curtailments may become

18permanent closures. When Western undertakes significant market-related curtailments of sawmills, the
volume of chips produced is reduced and accordingly there is greater risk that the Company may not meet
minimum contractual obligations under long-term chip supply agreements without incurring additional cost.

International Business and Risks of Exchange Rate Fluctuations

Western’s products are sold in international markets. Economic conditions in those markets, the strength of
the housing markets in the US and Japan, the rate of development in China, fluctuations in foreign exchange
rates and international sensitivity to interest rates, can all have a significant effect on our financial condition
and results of operations. In general, our sales are subject to the risks of international business, including:

•

•

•

•

•

•

•

•

fluctuations in foreign currencies;

changes in the economic strength of the countries in which we conduct business;

trade disputes;

changes in regulatory requirements;

tariffs and other barriers;

quotas, duties, taxes and other charges or restrictions upon exports or imports;

transportation costs and the availability of carriers of any kind including those by land or sea; and

strikes or labour disputes in the transportation industry or related dock or container service industries.

Depending on product mix, destination and exchange rates, between 45% and 55% of our total product
sales are denominated in USD and between 5% and 10% in JPY, while most operating costs and expenses
are incurred in CAD, with small portions in USD and JPY. The Company’s functional currency is the CAD
and financial results are reported in CAD. Significant variations in relative currency values, particularly
significant changes in the value of the CAD relative to the USD, have had, and in the future could have, a
material impact on our operating earnings and cash flows. We estimate that an increase or decrease of 1%
in the value of the CAD compared to the USD and JPY would decrease or increase annual operating
earnings by approximately $5.0 million, and $0.5 million, respectively.

Softwood Lumber Dispute

The softwood lumber agreement (“SLA”) between Canada and the United States, under which the
Company’s exports to the US could be assessed an export tax by the Canadian Government, expired on
October 12, 2015, eliminating export tax measures on Canadian softwood lumber shipments to the US.

The twelve-month standstill period of the SLA, which precluded the US from bringing trade action against
Canadian softwood lumber producers, expired October 12, 2016. On November 25, 2016, the US Lumber
Coalition petitioned the US Department of Commerce (“DoC”) and the US International Trade Commission
(“ITC”) seeking CVD and AD on Canadian softwood lumber shipments to the US.

On January 6, 2017, the ITC concluded that there was “reasonable indication” that softwood lumber products
from Canada materially injured US producers; and, as a result, the DoC continued its ongoing CVD and AD
investigations on these products.

On April 24, 2017, the DoC announced a preliminary countervailing duty of 19.88% for “all other” Canadian
lumber producers including Western, effective April 28, 2017, and on June 26, 2017, the DoC announced a
preliminary “all other” anti-dumping duty rate of 6.87% effective June 30, 2017. The DoC also made
preliminary determinations on critical circumstances in April that resulted in 90-day retroactive application of
countervailing duty from January 28 to April 27, 2017, and anti-dumping duty from April 1 to June 29, 2017.

The preliminary countervailing duties were applicable through August 25, 2017, after which they were
suspended pending final determinations by the DoC and the ITC. On November 2, 2017, the DoC
announced final determinations in its countervailing duty and anti-dumping duty investigations, concluding
that critical circumstances did not exist for countervailing duty, but did exist for anti-dumping duty.

On December 7, 2017, the ITC announced a final injury determination, voting that exports of softwood lumber
from Canada injured US producers. Concurrently, the ITC lowered the final countervailing duty rate to
14.19% and lowered the final antidumping duty rate to 6.04%, for “all other” Canadian lumber producers
including Western, and concluded that critical circumstances did not exist for AD. The final rates are effective

19December 28, 2017. Due to the difference in preliminary and final rates applied for CVD and AD deposits,
Western recorded export tax recovery of $3.5 million in the fourth quarter of 2017.

Employees and Labour Relations

Hourly paid employees at our manufacturing facilities, timber harvesting operations and a small group of
clerical employees are unionized. The majority of the unionized employees are represented by the United
Steel Workers (“USW”), which holds two collective agreements with the Company. Approximately 1,400
Western employees represented by the USW are covered by a five-year collective agreement, expiring June
15, 2019. An agreement with the USW covering 4 office clerical employees was reached in 2017 and is in
effect until December 31, 2019. The Pulp, Paper & Woodworkers of Canada (“PPWC”) represents the
(74
remaining unionized employees. The PPWC collective agreement
employees), expires on December 31, 2019. A new five-year collective agreement for the Value-Added
Remanufacturing Operation (67 employees) expiring on October 14, 2021 was ratified by a majority of union
members in January 2017.

the Ladysmith Sawmill

for

Should the Company be unable to negotiate an acceptable contract after any of these collective agreements
expire with any of the unions, a strike or lockout could occur. A strike or lockout could involve significant
disruption of operations and/or an adverse material
impact on our financial condition. Furthermore, a
negotiated settlement could result in unplanned increases in wages or benefits payable to unionized
employees. In addition, the Company relies on certain third parties, such as logging contractors, stevedores,
trucking companies and railways, whose workforces are unionized, to provide the Company with services
necessary to operate the business. If those workers/employers engage in a strike or lockout, our operations
could be disrupted.

Long-Term Competition

The markets for our products are highly competitive on a domestic and international level, with a large
number of major companies competing in each market, some of which have substantially greater financial
resources than Western. We also compete indirectly with firms that manufacture substitutes for solid wood
products, including non-wood and engineered wood products. While the principal basis for competition is
price, we also compete to a lesser extent on the basis of quality and customer service. In addition, market
acceptance of the environmental sustainability of our products as compared with substitutes could be a
challenge in the future. Changes in the level of competition, industry capacity and the global economy have
had, and are expected to continue to have, a significant impact on the selling prices of the Company’s
products and the overall profitability of the Company. Our competitive position will be influenced by factors
including the availability, quality and cost of fibre, energy and labour, and plant efficiencies and productivity
in relation to our competitors. Our competitive position could be affected by fluctuations in the value of the
CAD relative to the USD and/or the JPY, and by changes in the treatment of softwood lumber shipments to
the US subsequent to the expiry of the SLA.

Forest Resource Risk, Natural Catastrophes and Climate Change

Our timber tenures are subject to the risks associated with all standing forests, in particular, forest fires, wind
storms, insect infestations and disease. Procedures and controls are in place to try and mitigate such risk
through prevention and early detection. Most of the timber that we harvest comes from Crown tenures and
insurance coverage is maintained only for loss of logs following harvesting due to fire and other occurrences.
However, this coverage does not extend to standing timber, and there is no assurance that this coverage
would be adequate to provide protection against all eventualities, including natural catastrophes. In 2016,
Western entered into a cost-sharing agreement with the Crown for our private timberlands to reduce
individual incident costs of mobilizing helicopters and aerial water tankers in the event of a fire on those
lands.

In addition, our operations may be adversely affected by severe weather including wind, snow and rain that
may result in our operations being unable to harvest or transport logs to our manufacturing facilities for
extended periods of time. Although we anticipate and factor in a certain period of down-time due to weather,
extended periods of severe or unusual weather may adversely impact our financial results due to higher
costs and missed sales opportunities arising from fibre shortages or the deterioration of logs remaining on
the ground or in the water for extended periods of time.

20Other than the sales offices in Japan and China, all of our business operations are located on the BC coast
or the US Pacific Northwest, which are geologically active and considered to be at risk from earthquakes.

Climate change over time is predicted to lead to changes in the frequency of storm events as well as their
severity. We also expect to see changes in the occurrence of wildfires and forest pest outbreaks. Long-term
climatic models are predicting that the optimum ranges of many species, including those of our major tree
species, will shift over time. While we are unable to predict the impact of all of these factors on our tenures
or on forest practices, we have incorporated considerations for climate change in our reforestation practices
as facilitated through Provincial policy and legislation.

While the Company maintains insurance coverage to the extent deemed prudent by us, we cannot guarantee
that all potential insurable risks have been foreseen or that adequate coverage is maintained against known
risks.

Impact of Mountain Pine Beetle Infestation

The north-central interior forests of BC and western parts of Alberta have been, and continue to be, seriously
damaged by North America’s largest recorded mountain pine beetle infestation. Western does not operate
in the affected area and lodgepole pine, the species most at risk from the infestation, is not a key source of
timber in the coastal forests. This natural disaster is causing widespread mortality of lodgepole pine. There
is growing evidence that, as the dead trees decay, they become more difficult and costly to manufacture into
lumber and that the quality of the residual wood chips may diminish. There may also be access issues over
time as developing second growth forests grow to a size that precludes efficient entry into remote pine beetle
damaged stands.

The mountain pine beetle has crossed into Alberta, and timber harvesting of lodgepole and jackpine in
Alberta may see an increase in Allowable Annual Cut AAC to promote salvage before decay, potentially
adding to downward price pressures as the lumber supply may increase. The Company is unable to predict
when or if the mountain pine beetle infestation will be halted or its impact on future lumber, chip and log
prices.

Pulp and Paper Market Variability

The selling price in CAD of our residual wood chips is tied by formula to published indices that reflect the
USD selling price of NBSK pulp. Fluctuations in pulp prices and foreign currencies will accordingly impact
the selling price of our residual wood chips. The price and demand for the pulp logs and other logs sold to
pulp and paper companies is also dependent on the market conditions for pulp and paper. If there is a
contraction in the coastal pulp and paper industry, we may need to find alternative customers for the pulp
logs and residual chips from our sawmills.

Dependency on Fibre Obtained from Government Timber Tenures

Currently, substantially all of
the timberlands in which we operate are owned by the Province and
administered by the Ministry of Forests, Lands and Natural Resource Operations and Rural Development
(the “MFLNRORD”). The Forest Act (British Columbia) (the “Forest Act”) empowers the MFLNRORD to grant
timber tenures, including Tree Farm Licences (“TFLs”), Forest Licences (“FLs”) and Timber Licences (“TLs”),
to producers, although no new TLs can be issued and the availability of extensions to expiring TLs is not
assured. The Provincial Chief Forester must conduct a review of the AAC for each Timber Supply Area and
each TFL in the Province on a periodic basis, at least once every ten years. This review is then used to
determine the AAC for licences issued by the Province under the Forest Act. Many factors affect the AAC
such as timber inventory, the amount of operable forest land, growth estimates of young forests, regulation
changes and environmental and social changes. Such assessments have in the past resulted and may in
the future result in reductions or increases to the AAC attributable to licences held by BC forest companies
(without compensation), including the licences that we hold. In addition, our AAC can be temporarily reduced
(without compensation for the first four years) in areas where logging has been suspended under Part 13 of
the Forest Act pending government decisions regarding the public interest in designated areas. Land use
planning, including critical habitat designations as well as new harvesting regulations, can constrain access
to timber and new parks can permanently remove land from the timber harvesting land base. There can be
no assurance that the amounts of such future reductions on our licences, if any, will not be material or the
amounts of compensation, if any, for such reductions will be fair and adequate.

21Forest Policy Changes in British Columbia

There have been significant legislative reforms in the BC Forest Industry over the last 40 years. One of the
more significant examples of this was seen in 2003 when the Province took back approximately 20% of the
AAC from major license holders, including Western, and provided monetary compensation in return. There
can be no assurance that the Province will not implement further policy changes, or that such changes will
not have a material adverse effect on our operations or our financial position.

First Nations Land Claims

First Nations groups have made claims of rights and title to substantial portions of land in British Columbia,
including areas where our timber tenures and operations are situated. These claims of rights and title have
created uncertainty as to the status of competing property rights and of legislation and Crown decisions that
may adversely affect such asserted rights and title. The Supreme Court of Canada has held that Aboriginal
groups may have a spectrum of constitutionally recognized and affirmed Aboriginal rights and title in lands
that have been traditionally used or occupied by their ancestors; however, such rights or title are not absolute
and may be infringed by government in furtherance of a valid legislative objective, including forestry, subject
to meeting a justification test. The effect on any particular lands will not be determinable until the nature of
historical use, occupancy and rights in any particular piece of property have been clarified. The Supreme
Court of Canada has also held that even before claims of rights and title are proven, the Crown has a legal
duty to consult with First Nations, which can become a duty to seek possible accommodations, when the
Crown has knowledge, real or constructive, of the potential existence of an Aboriginal right or title and
contemplates conduct that might adversely impact it. During the period before asserted claims are proven,
the Crown is required to consult in good faith with the intention of substantially addressing First Nation
concerns, but First Nations agreement is not required in these consultations.

First Nations are seeking compensation from governments (and in some instances from forest tenure
holders) with respect to these claims, and the effect of these claims on timber tenure rights, including our
timber tenures, cannot be estimated at this time. The Federal and Provincial Governments have been
seeking to negotiate treaty and/or other settlements with Aboriginal groups in British Columbia in order to
resolve these claims.

In June 2014, the Supreme Court of Canada (the “Court”) released its decision on the Aboriginal title claim
by the Tsilqhot’in Nation of British Columbia, regarding land outside their traditional reserve area. The Court
recognized Tsilqhot’in title to a portion of the area in dispute, including rights to decide how the land will be
used, occupancy and economic benefits of the land. The Court held that while the Provincial Government
had the constitutional authority to regulate forest activity on Aboriginal title lands, it had not adequately
consulted with the Tsilqhot’in. While the decision does not directly impact Western’s business as we do not
have tenure in this area, we do operate on Crown tenures elsewhere that are subject to claims of Aboriginal
title. The potential impact on Western’s tenure holdings is not ascertainable at this time.

On April 1, 2011, the first modern treaty affecting the Company’s tenures was brought into force. The
Maa’nulth Treaty extinguished the Company’s tenure rights on Maa’nulth Treaty Settlement lands within TFL
44 and permanently reduced the tenure’s AAC by 95,200 cubic metres. A treaty measure which created a
new Protected Area inside of TFL 44 permanently reduced the AAC by another 8,800 cubic metres.

The Company concluded discussions with the Province on the magnitude of the treaty impacts on AAC, soft
cost investments and downstream business in 2016. On October 21, 2016, the Company announced that
the Province of BC had agreed to compensate Western in the amount of $14.0 million for the partial tenure
extinguishment.

Other treaty and government-to-government processes involving the ‘Namgis, Ditidaht, Snuneymuxw,
Heiltsuk, Hupacasath, K’ómoks, Wuikinuxv and shíshálh First Nations are well advanced and may lead to
agreements impacting Western in 2018. It is expected that through these and other settlement processes
the Provincial Government will want to remove areas from the Company’s various forest tenures.

In January 2017, the Nuchatlaht First Nation filed a Notice of Civil Claim against Canada, the Province of
title to a claim area that
British Columbia and the Company, seeking a declaration of Aboriginal
encompasses the northern half of Nootka Island. The claim area encompasses WFP’s Forest Licence
A19231 and certain timber licences held by WFP. Each of the Province, Canada and the Company have
filed a response to the Notice of Civil Claim. A case management judge has been appointed to oversee the
proceedings, and there are ongoing discussions between Canada, the Province and Nuchatlaht with respect

22a number of substantive and procedural issues. In December 2017, the Nuchatlaht First Nation filed an
Amended Notice of Civil Claim that included significant changes to their original claim. Each of Canada, the
Province and the Company are in the process of filing an Amended Response to such Amended Notice of
Civil Claim.

In July 2013, the Ehattesaht First Nation filed a petition with the BC Supreme Court against the Province of
British Columbia regarding a decision of the Crown on the amount of unharvested volume in TFL 19 from
the 2007 to 2011 cut control period. The Ehattesaht claimed the Crown did not adequately consult them
about the decision and that additional volume must be made available to them based upon their asserted
territory, rights, and economic interests. In 2014, the court ruled in favor of the Ehattesaht requiring further
consultation on unharvested volume. In 2016, the Province advised Western that it would be awarding the
unharvested volume, through separate forest licences, to the Ehattesaht and Mowachaht/Muchalaht First
Nations. In order to minimize the potential impact of these new licences on its ongoing operations in TFL 19,
Western will seek to engage with the Ehattesaht and Mowachaht/Muchalaht First Nations to find mutually-
beneficial solutions.

In January 2008, the Ditidaht First Nation commenced litigation in the BC Supreme Court against the
Province of British Columbia, Canada, certain other First Nations and two forestry companies, including
Western, seeking amongst other things declarations of aboriginal title and rights in areas of Vancouver Island
that include areas covered by timber tenures held by the Company and declarations that provincial forestry
legislation and the Company's timber tenures are of no force or effect on the claimed aboriginal title lands.
In March 2013, Ditidaht and the BC Government entered an Incremental Treaty Agreement (the “ITA”) which
included Ditidaht agreement to not initiate or proceed with litigation against the Crown for land dispositions
and land use authorizations during the term of the ITA, subject to the Provincial Government complying with
consultation processes established under existing provincial policies and procedures. Consequently, unless
the ITA is terminated in accordance with its provisions, this litigation will not be further pursued by Ditidaht.

In April 2008, the Kwakiutl First Nation commenced litigation in the BC Supreme Court against the Province
of British Columbia, Western and Canada, seeking, amongst other things, orders to set aside the Province’s
decision to remove Western’s private lands from TFL 6 and the Province’s approval of the Company’s Forest
Stewardship Plan (“FSP”) on the Crown lands within their area of interest, based on alleged infringements
of their treaty rights and unextinguished aboriginal title and rights. This case was decided in June 2013, with
the court upholding the Private Land withdrawal from TFL 6 and also the decision to extend the term of our
FSP. The Crown was found to have an ongoing duty to consult the Kwakiutl in good faith and to seek
accommodations regarding their claim of unextinguished Aboriginal rights, title and interests in respect of
the Kwakiutl traditional territory. In 2015, the BC Court of Appeal ruled on the Crown’s appeal of the decision,
finding that the Province breached its duty to consult and owed Kwakiutl a meaningful consultation process
respecting its treaty rights and claims to Aboriginal rights and title.

In 2005, the Hupacasath First Nation obtained an order of the BC Supreme Court requiring the Province of
BC to consult with them regarding certain Crown decisions, including a 2004 decision of the Minister of
Forests, Mines and Lands to remove private lands from TFL 44, a TFL subsequently acquired by the
Company. In July 2012, the Hupacasath and BC Government executed a mediated agreement which
included the following accommodations within TFL 44 as a result of the 2004 decision to remove private
land from TFL 44: a Government Action Regulation Order for protection of a spiritual area at Thunder
Mountain, 400 hectares of new Old Growth Management Areas around Great Central Lake, a 20,000 cubic
metre non replaceable forest licence in the vicinity of Great Central Lake and a First Nations Woodland
Licence also at Great Central Lake as per the previous Forestry Revitalization Act timber volume allocation
to the Hupacasath.

The Company is currently unable to predict the outcome of these First Nation legal proceedings on Western’s
ongoing operations or on any sale of its non-core assets and private forestry lands.

Current Provincial Government policy requires that forest management and operating plans take into
account and not unreasonably infringe on Aboriginal rights and title, proven or unproven, and provide for
consultation with First Nations. This policy is reflected in the terms of our timber tenures, which provide that
the MFLNRO may vary or refuse to issue cutting permits in respect of a timber tenure if it is determined by
a court that the forestry operation would unreasonably interfere with aboriginal rights or title. First Nations
have, at times, sought to restrict the Provincial Government from granting or replacing forest tenures and
other operating authorizations or from approving forest management plans on Crown lands without full
consultation and accommodation or their consent if these decisions could affect lands claimed by them.
There can be no assurance that denial of required approvals for, or changes to the terms of our timber

23tenures, other operating authorizations or forest management plans as a consequence of such consultation
or action will not have an adverse effect on our financial condition or results of operations.

Indigenous People (UNDRIP),

The Provincial and Federal Governments have each pledged to implement the United Nations Declaration
on the Rights of
the Truth and Reconciliation
Commission, and, in the case of the Provincial Government, the Tsilqhot’in decision. Significant expectation
has been raised among Aboriginal groups in British Columbia and across the country as to the potential
impact these commitments may have on efforts to achieve true reconciliation with Aboriginal groups. To
date, neither the Provincial nor Federal Government have issued any formal statement as to how these
commitments will be implemented. At this time, the Company is unable to predict the outcome of the
implementation of these commitments on Western’s ongoing operations or on any sale of its non-core assets
and private lands.

the Calls to Action of

An unfavourable result in any of the First Nations consultation or litigation in which the Company is a party
or which involves assets of the Company could have a material adverse effect on our financial condition or
results of operations.

Stumpage Fees

Stumpage is the fee that the Province charges forest companies for timber harvested from Crown land in
British Columbia. Approximately 95% of the timber we harvest is from Crown land. Stumpage is set using
the Coast version of
the Market Pricing System (“MPS”). MPS uses the winning bids and stand
characteristics of timber sold through BCTS auctions to develop regression equations that predict the market
(i.e. auction) value of Crown timber harvested under long-term tenures. The auction value is then adjusted
to reflect costs that tenure holders incur that BCTS expends on behalf of bidders. These costs, like forest
planning and administration and silviculture, are referred to as ‘Tenure Obligation Adjustments’. Coastal
MPS has been updated every two to three years to reflect recent sale data and costs. The most recent
update occurred on December 15, 2017. Stumpage rates are also adjusted quarterly to reflect changes in
log prices.

There can be no assurance that future changes to the stumpage system or the Province’s administrative
policy will not have a material impact on the stumpage fees payable by us and consequently affect our
financial condition and results of operations.

Long-term Fibre Supply Agreements

The Company has a number of long-term commitments to supply chip fibre, saw logs and pulp logs to third
parties. Certain of these fibre supply agreements have minimum volume requirements. A failure to supply
the minimum volumes may result in additional costs or deferred obligations. In one case the failure to supply
the minimum volume could result in the loss of a TFL, but with a concurrent reduction in the future fibre
supply commitment under that agreement.

Regulatory Risks

Our forestry and sawmill operations are subject to extensive federal, provincial, municipal and other local
laws and regulations, including those governing forestry, exports, taxes, labour standards, occupational
health, safety, waste disposal, building structures/systems, environmental protection and remediation,
protection of endangered and protected species and land use and expropriation. Under certain laws and
regulations, we are also required to obtain permits, licences and other authorizations to conduct our
operations, which permits, licences and authorizations may impose additional conditions that must be
satisfied. Although we budget for expenditures to maintain compliance with such laws and permits, there
can be no assurance that these laws and regulations or government policy will not change in the future in a
manner that could have an adverse effect on our financial condition or results of operations or the manner
in which we operate. Nor can there be any assurance that administrative interpretation of existing laws and
regulation will not change or more stringent enforcement of existing laws will not occur, in response to
changes in the political or social environment in which we operate or otherwise, in a manner that could have
an adverse effect on our financial condition or results of operations or the manner in which we operate.

Log exports from our timber operations are subject to federal and provincial regulations. An export permit
must be obtained from the Canadian Federal Government to export any logs harvested in BC and generally
the logs must be surplus to the supply required for domestic manufacturers. Logs from private timberlands
that were granted by the Crown prior to March 12, 1906 are subject to the Federal surplus test and logs from

24private land granted after that date are subject to the Provincial surplus test. Logs harvested from Crown
land in BC are subject to the Provincial surplus test. The regulations also restrict the species and grade
permitted for export.

Under both the federal and provincial surplus tests, the logs must be advertised for local consumption. Logs
are declared surplus and may be exported if there are no offers on the advertised logs by domestic
manufacturers. In practice, domestic offers on export volume can satisfied with replacement volume to
minimize operational impacts. However, a substantial increase in domestic demand may adversely impact
timber operations as export pricing is generally at a premium to domestic pricing.

In addition, Western is subject to routine litigation incidental to our business, the outcome of which we do
not anticipate will have a materially adverse effect on our financial condition and results of operations.

Information Technology Security

Western relies on information technology systems to facilitate harvesting, log purchasing and silviculture
activities, operation of our manufacturing facilities, interactions with vendors, customers and employees and
reporting on our business. Interruption or failure of these systems could be due to a variety of causes, such
as cyber-based attacks, vandalism, power or service outages, corruption, fire or natural disaster, and could
result in operational disruption or the misappropriation of sensitive or proprietary data. Such events could
have a negative impact on Western’s reputation or subject the Company to potential liability, proceedings
by affected parties, civil or criminal penalties. Interruption or failure of these systems could result in material
adverse effect on Western’s business.

While the Company believes current security measures and disaster recovery plans to be adequate, we
continue to develop and enhance internal controls, policies and procedures designed to protect information
technology systems from attack, damage or unauthorized access.

Reliance on Directors, Management and Other Key Personnel

Western relies upon the experience and expertise of our personnel. No assurance can be given that we will
be able to retain our current personnel and attract additional personnel as necessary for the development
and operation of our business. Loss of or failure to attract and retain key personnel could have a material
adverse effect on Western’s business.

Continuation of the Dividend Program

We declared and paid total quarterly cash dividends of $0.08 per outstanding common share during the four
quarters ended December 31, 2017. Any decision to declare and pay dividends in the future will be made at
the discretion of our Board of Directors, after taking into account our operating results, financial condition,
cash requirements, financing agreement restrictions and other factors our Board may deem relevant. We
may be unable or may elect not to continue to declare and pay dividends, even if necessary financial
conditions are met and sufficient cash is available for distribution.

25Evaluation of Disclosure Controls and Procedures

As required by National Instrument 52-109, Certification of Disclosure in Issuers’ Annual and Interim Filings,
Western conducted an evaluation of the effectiveness of the disclosure controls and procedures and the
system of internal control over financial reporting based on the “Internal Control – Integrated Framework”
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
evaluation, management concluded that the Company’s system of internal control over financial reporting
was effective as at December 31, 2017. The evaluation was carried out under the supervision and with the
participation of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”). Based on the
evaluation, Western’s CEO and CFO concluded that the Company’s disclosure controls and procedures are
effective in providing reasonable assurance that material information relating to Western and its consolidated
subsidiaries is made known to them by others within those entities, particularly during the period in which
the annual filings are being prepared. In addition, Western’s CEO and CFO concluded that the Company’s
internal controls over financial reporting are effective in providing reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for Western and its consolidated
subsidiaries for the period in which the annual filings are being prepared.

The CEO and CFO confirm that there were no changes in the controls which materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting during the last
quarter of 2017.

In the year ended December 31, 2017, Western completed the implementation of sales, inventory and
payroll systems. The Company’s internal controls were maintained or supplemented by controls added
during these system implementations and related process improvements.

Outstanding Share Data

As of February 15, 2018, there were 395,036,092 Common Shares issued and outstanding.

Western has reserved 20,000,000 Common Shares for issuance upon the exercise of options granted under
the Company’s incentive stock option plan. During 2017, 426,226 previously granted options were exercised,
1,657,877 options were granted, and 748,753 options were forfeited. As of February 15, 2018, 11,458,483
options were outstanding under the Company’s incentive stock option plan.

Additional Information

Additional information relating to the Company and its operations, including the Company’s Annual
Information Form, may be obtained on our website at www.westernforest.com and can be found on
SEDAR at www.sedar.com.

26Management’s Discussion and Analysis – Appendix A

Summary of Selected Results for the Last Eight Quarters

(millions of dollars except per share
amounts and where noted)

2017

Q4

Q3

Q2

Q1

2016

Q4

Q3

Q2

Q1

Average USD to CAD Exchange Rate

1.298

1.271

1.253

1.345

1.323

1.325

1.334

1.305

1.288

1.372

Reve nue
Lumber
Logs
By-products
Total revenue

Lum be r (1)

Production
Shipments
Price

Logs (2)

Net production
Saw log purchases
Log availability
Total shipments
Export
Domestic
Pulp
Price (3)

mmf bm
mmf bm
$/mfbm

000 m3
000 m3
000 m3
000 m3
000 m3
000 m3
000 m3
$/m3

Selling and adm inistration

Adjusted EBITDA

Amortization

Changes in FV of biological assets

Operating restructuring items

Finance costs
Other income (expense) (4)

Def erred tax recovery (expense)

Current tax recovery (expense)

Net incom e

858.2
214.8
70.4
1,143.4

809
857
1,001

4,009
1,150
5,159
1,663
459
839
365
119

32.8

152.6

(36.3)

0.6

(14.4)

(2.5)

1.2

(26.7)

(0.2)

74.4

207.3
56.6
19.2
283.1

187
205
1,011

1,099
343
1,442
494
84
262
147
107

7.4

38.9

(9.4)

0.7

(3.1)

(0.5)

0.5

(8.2)

-

212.5
55.5
17.2
285.2

201
224
949

911
327
1,238
369
163
132
74
134

8.6

32.6

(9.0)

1.4

(7.1)

(0.6)

0.4

(4.1)

(0.1)

212.8
57.2
17.4
287.4

207
199
1,069

1,091
249
1,340
436
115
250
71
122

8.4

47.1

(9.3)

-

(3.7)

(0.7)

0.5

(8.3)

0.1

225.6
45.5
16.6
287.7

214
229
985

908
231
1,139
364
98
195
72
116

8.4

34.0

(8.6)

(1.5)

(0.5)

(0.7)

(0.2)

(6.1)

(0.2)

18.9

13.6

25.6

16.2

883.5
235.6
68.2
1,187.3

943
952
928

4,420
1,517
5,937
2,104
615
998
491
105

27.5

148.2

(33.8)

3.9

(3.4)

(4.4)

16.2

(32.2)

(0.2)

94.2

220.7
55.1
17.2
293.0

242
236
935

919
337
1,256
493
144
232
118
104

6.7

33.8

(8.7)

6.9

(1.3)

(1.0)

18.0

(11.5)

-

235.6
70.0
17.1
322.7

248
257
917

1,153
415
1,568
651
206
273
171
100

6.4

35.7

(8.8)

(0.7)

(0.6)

(1.2)

(1.4)

(6.1)

(0.1)

221.0
64.2
16.6
301.8

232
234
944

1,321
497
1,818
521
141
277
104
112

7.6

43.0

(8.8)

(0.4)

(0.8)

(1.1)

(0.2)

(7.8)

-

206.2
46.3
17.3
269.8

221
225
916

1,027
268
1,295
438
125
216
98
100

6.8

35.7

(7.5)

(1.9)

(0.7)

(1.1)

(0.3)

(6.8)

(0.1)

36.2

16.8

23.9

17.3

Adjusted EBITDA m argin

13.3% 13.7% 11.4% 16.4% 11.8%

12.5% 11.5% 11.1% 14.2% 13.2%

Earnings per share:

Net income, basic and diluted

0.19

0.05

0.04

0.06

0.04

0.24

0.09

0.04

0.06

0.04

(1)

"mmf bm" = millions of board feet; "mfbm" = thousand of board feet.

(2) Net production is sorted log production, net of residuals and w aste. Log availability is net production plus saw log purchases.
(3) Log revenue used to determine average price per m3 has been reduced by associated shipping costs to enable comparability.
(4) Other income (expense), net of changes in f air market value less cost to sell of biological assets.

Figures in the above table may not equal or sum to figures presented elsewhere due to rounding. The Company recognized the following
transactions in the above results:

• Q4 2017; $2.4 million of severance related to the closure of the Englewood train.

• Q3 2017; $6.2 million of severance related to the indefinite curtailment of the Somass sawmill and a $1.6 million gain on sale of

the former South Island Remanufacturing operation.

• Q2 2017; $2.5 million impairment charge related to the indefinite curtailment of the Somass sawmill, a $1.8 million gain on sale of
properties to the Huu-ay-aht First Nation and a $3.1 million reduction to cost of goods sold for WorkSafeBC Certification of
Recognition insurance premium rebates received for the 2014 and 2016 fiscal years.

• Q4 2016; $14.1 million in other income for the 2011 partial tenure extinguishment in TFL 44 from the Maa-nulth First Nations Final
Agreement Act, an $8.0 million increase in fair value less costs to sell of the Company’s biological assets and a $3.8 million past
service credit as a result of a pension plan amendment.

In a normal operating year there is seasonality to the Company’s operations with higher lumber sales in the second and third quarters
when construction activity, particularly in the US, has historically tended to be higher. Logging activity may also vary depending on
weather conditions such as rain, snow and ice in the winter and the threat of forest fire in the summer.

27CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The Management of Western Forest Products Inc. (“Western” or the “Company”) is responsible for the
accompanying Consolidated Financial Statements and all other information in the Management’s Discussion and
Analysis. The Consolidated Financial Statements have been prepared by Management in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board and,
where necessary, reflect Management’s best estimates and judgements at this time. The financial information
presented throughout the Management’s Discussion and Analysis dated February 15, 2018 is consistent with
that contained in the Consolidated Financial Statements.

Western maintains systems of internal accounting controls, policies and procedures to provide reasonable
assurances as to the reliability of the financial records and the safeguarding of its assets. Management meets
the objectives of internal accounting control on a cost-effective basis through the prudent selection and training
of personnel, adoption and communication of appropriate policies, and employment of an internal audit program.

The Board of Directors reviews through oversight of Management’s responsibilities with respect
to the
Consolidated Financial Statements primarily through the activities of its Audit Committee, which is composed
solely of independent directors of the Company. This Committee meets with Management and the Company’s
independent auditors, KPMG LLP, to review the Consolidated Financial Statements and recommend their
approval by the Board of Directors. The Audit Committee is also responsible for making recommendations with
respect to the appointment, remuneration and the terms of engagement of the Company’s auditors. The Audit
Committee also meets with the auditors, without the presence of Management, to discuss the results of the audit,
related findings and their suggestions.

The Consolidated Financial Statements have been audited by KPMG LLP, who were appointed by the
shareholders at the annual shareholders’ meeting. The auditors’ report follows.

Don Demens
President & Chief Executive Officer

Stephen Williams
Executive Vice President & Chief Financial Officer

February 15, 2018

28KPMG LLP 
PO Box 10426 777 Dunsmuir Street 
Vancouver BC V7Y 1K3 
Canada 
Telephone (604) 691-3000 
Fax (604) 691-3031 

INDEPENDENT AUDITORS’ REPORT 

To the Shareholders of Western Forest Products Inc.  

We  have  audited  the  accompanying  consolidated financial  statements  of  Western  Forest  Products  Inc.,  which 
comprise the consolidated statements of financial position as at December 31, 2017 and December 31, 2016, the 
consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for the years 
then ended, and notes, comprising 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. 

Auditors’ 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 our 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, we consider 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 

the  consolidated financial  statements  present 

In  our  opinion, 
the 
consolidated financial position of Western Forest Products Inc. as at December 31, 2017 and December 31, 2016, 
and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance 
with International Financial Reporting Standards. 

in  all  material 

respects, 

fairly, 

Chartered Professional Accountants 

February 15, 2018 
Vancouver, Canada 

KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent 
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. KPMG 
Canada provides services to KPMG LLP. 

29 
 
 
 
 
 
 
 
Western Forest Products Inc.
Consolidated Statements of Financial Position
(Expressed in millions of Canadian dollars)

Assets
Current assets:

Cash and cash equivalents
Trade and other receivables
Inventory (Note 4)
Prepaid expenses and other assets

Non-current assets:

Property, plant and equipment (Note 5)
Timber licenses (Note 6)
Biological assets (Note 7)
Other assets (Note 8)
Deferred income tax assets (Note 11)

Liabilities and Shareholders’ Equity
Current liabilities:

Accounts payable and accrued liabilities
Reforestation obligation (Note 13)

Non-current liabilities:

Long-term debt (Note 10)
Reforestation obligation (Note 13)
Deferred income tax liabilities (Note 11)
Other liabilities (Note 12)
Deferred revenue

Shareholders’ equity:
Share capital (Note 14)
Contributed surplus
Retained earnings

December 31,

December 31,

2017

2016

$

$

$

$

$

$

35.3
86.2
152.0
19.0
292.5

313.9
117.2
58.2
17.5
0.3

799.6

98.9
8.9
107.8

-
16.4
28.1
28.2
56.4
236.9

505.5
8.7
48.5

562.7

$

799.6

$

19.0
107.0
149.8
14.2
290.0

297.2
121.2
57.6
11.0
0.2

777.2

102.6
9.7
112.3

34.4
19.2
2.0
28.4
58.4
254.7

506.0
8.6
7.9

522.5

777.2

Commitments and Contingencies (Note 18)
Subsequent Event (Note 27)
See accompanying notes to these consolidated financial statements.

Approved on behalf of the Board:

Lee Doney, Chairman

James Arthurs, Director

30Western Forest Products Inc.
Consolidated Statements of Comprehensive Income
(Expressed in millions of Canadian dollars except for share and per share amounts)

Revenue

Costs and expenses:
Cost of goods sold
Freight
Export tax (Note 18)
Selling and administration

Operating income prior to restructuring items and other income

Operating restructuring items (Note 23)
Other income (Note 24)

Operating income

Finance costs (Note 22)

Income before income taxes

Current income tax expense (Note 11)
Deferred income tax expense (Note 11)

Net income

Other comprehensive income (loss)

Items that will not be reclassified to profit or loss:
Defined benefit plan actuarial gain (loss) (Note 20)
Income tax on other comprehensive gain (loss) (Note 11)

Total items that will not be reclassified to profit or loss

Other comprehensive income (loss) for the period

Total comprehensive income

Net income per share (in dollars)

Basic and diluted earnings per share

Years ended

December 31,

2017

2016

$

1,143.4

$

1,187.3

874.6
103.2
15.8
32.8
1,026.4

117.0

(14.4)
1.2

103.8

(2.5)

101.3

(0.2)
(26.7)
(26.9)

74.4

(1.5)
0.7

(0.8)
(0.8)

73.6

0.19

952.8
96.8
-
27.5
1,077.1

110.2

(3.4)
24.2

131.0

(4.4)

126.6

(0.2)
(32.2)
(32.4)

94.2

3.3
(0.8)

2.5
2.5

96.7

0.24

$

$

$

$

Weighted average number of common shares outstanding (thousands)

Basic
Diluted

395,589
399,663

395,395
399,054

See accompanying notes to these consolidated financial statements.

31Western Forest Products Inc.
Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in millions of Canadian dollars)

Balance at December 31, 2015

Net income
Other comprehensive income:

Defined benefit plan actuarial gain recognized
Income tax on other comprehensive income

Total comprehensive income

Share-based payment transactions recognized in equity
Exercise of stock options
Dividends

Total transactions with owners, recorded directly in equity

Balance at December 31, 2016

$

506.0

$

Balance at December 31, 2016

Net income
Other comprehensive loss:

Defined benefit plan actuarial loss recognized
Income tax recovery on other comprehensive income

Total comprehensive income

Share-based payment transactions recognized in equity (Note 15(a))
Exercise of stock options
Repurchase of shares (Note 14)
Dividends

Total transactions with owners, recorded directly in equity

Balance at December 31, 2017

$

505.5

$

See accompanying notes to these consolidated financial statements.

Share
Capital

Contributed
Surplus

Retained
Earnings
(Deficit)

Total Equity

$

505.5

$

7.6

$

(57.2)

$

455.9

-

-
-
-

-
0.5
-

0.5

-
-
-
-
0.9
(1.4)
-

(0.5)

-

-
-
-

1.2
(0.2)
-

1.0

8.6

94.2

94.2

3.3
(0.8)
96.7

-
-
(31.6)

(31.6)

3.3
(0.8)
96.7

1.2
0.3
(31.6)

(30.1)

$

7.9

$

522.5

522.5

74.4

(1.5)
0.7
73.6
0.4
0.6
(2.7)
(31.7)

(33.4)

-
-
-
0.4
(0.3)
-
-

0.1

8.7

(1.5)
0.7
73.6
-
-
(1.3)
(31.7)

(33.0)

$

48.5

$

562.7

$

506.0

$

8.6

$

7.9

$

-

-

74.4

32Western Forest Products Inc.
Consolidated Statements of Cash Flows
(Expressed in millions of Canadian dollars)

Cash provided by (used in):
Operating activities:

Net income from continuing operations

Items not involving cash:

Amortization of property, plant and equipment (Note 5)
Amortization of timber licenses (Note 6)
Gain on disposal of assets
Impairment of assets
Change in fair value of biological assets (Note 7)
Change in reforestation obligation (Note 13)
Amortization of deferred revenue
Share-based compensation, including mark-to-market adjustment
Net finance costs
Deferred income tax expense (Note 11)
Change in pension liability(Note 20)
Export tax receivable (Note 18(b))
Other

Changes in non-cash working capital items:

Trade and other receivables
Inventory
Prepaid expenses and other assets
Accounts payable and accrued liabilities

Investing activities:

Additions to property, plant and equipment (Note 5)
Proceeds on disposal of assets
Deposits (Note 27)

Financing activities:
Interest received
Interest paid
Repayment of long-term debt (Note 10)
Repurchase of shares (Note 14)
Dividends
Proceeds from exercise of stock options

Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year

See accompanying notes to these consolidated financial statements.

Years ended

December 31,

2017

2016

$

74.4

$

94.2

32.3
4.0
(3.8)
3.2
(0.6)
(3.6)
(2.0)
4.4
2.5
26.7
(3.2)
(3.5)
(2.0)
128.8

20.8
(2.7)
(4.8)
(7.7)
5.6
134.4

(55.2)
7.7
(0.6)
(48.1)

-
(1.2)

(35.0)
(2.7)
(31.7)
0.6
(70.0)

16.3
19.0

35.3

$

29.8
4.0
(0.1)
-
(3.9)
1.1
(2.0)
2.2
4.4
32.2
(2.5)
-
(2.2)
157.2

(32.0)
(1.3)
3.6
0.4
(29.3)
127.9

(56.1)
0.5
-
(55.6)

0.1
(2.5)

(29.0)
-
(31.6)
0.3
(62.7)

9.6
9.4

19.0

$

33Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

1. Reporting entity

Western Forest Products Inc. (“Western” or the “Company”) is an integrated Canadian forest products
company, incorporated and domiciled in Canada, operating in the coastal region of British Columbia. The
address of the Company’s head office is Suite 800 – 1055 West Georgia Street, Vancouver, British Columbia,
Canada. The consolidated financial statements as at and for the years ended December 31, 2017 and 2016
comprise the financial results of the Company and its subsidiaries. The Company’s primary business is the
sale of lumber and logs, which includes timber harvesting, sawmilling logs into specialty lumber and value-
added lumber remanufacturing. The Company is listed on the Toronto Stock Exchange, under the symbol
WEF.

2. Basis of preparation

(a) Statement of compliance

The consolidated financial statements of
the Company have been prepared in accordance with
International Financial Reporting Standards (“IFRS”), as issued by the International Accounting
Standards Board. Certain comparative figures in the Statements of Cash Flows have been reclassified
to conform to the current year’s presentation.

The consolidated financial statements were authorized for issue by the Board of Directors on February
15, 2018.

(b) Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis except for the
following material items in the statements of financial position:

• Biological assets are measured at fair value less costs to sell;
• Liabilities for cash-settled share-based payment transactions are measured at fair value at each

reporting date;

• Equity-settled share-based payments are measured at fair value at grant date;
• Derivative financial instruments are measured at fair value at each reporting date;
• The defined benefit pension liability is recognized as the net total of the fair value of the plan assets,

less the present value of the defined benefit obligation; and,

• Reforestation obligations are measured at the discounted value of expected future cash flows.

(c) Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars which is the Company’s
functional currency. All amounts are presented in millions of Canadian dollars, unless otherwise
indicated.

(d) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by Western. Western controls an entity when it is exposed to, or
has rights to, variable returns from its investment with the entity and has the ability to affect those
returns through its power over the entity. The financial statements of subsidiaries are included in the
consolidated financial statements from the date on which control commences until the date on which
it ceases.

The principal wholly-owned operating subsidiaries of the Company at December 31, 2017 are
Western Lumber Sales Limited, which sells into the United States (“US”), Western Forest Products
Japan Ltd., which sells into Japan and WFP Partnerships Ltd, which holds assets of the US
operation through indirect US subsidiaries.

(ii)

Interests in equity-accounted investees

Western’s interests in equity-accounted investees comprise interests in joint ventures. A joint
venture is an arrangement in which Western has joint control, whereby it has the rights to the net
assets of the arrangement, rather than rights to all of its assets and obligations for all of its liabilities.

34Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

2. Basis of preparation (continued)

(d) Basis of consolidation (continued)

(ii)

Interests in equity-accounted investees (continued)

Interests in the joint venture are accounted for using the equity method. They are recognized initially
at cost, including transaction costs. Subsequent to initial recognition, the consolidated financial
statements include Western’s share of the profit and loss and other comprehensive income of equity
accounted investees, until the date on which significant influence or joint control ceases.

(iii) Transactions eliminated on consolidation

Inter-company balances and transactions, and any unrealized income and expenses arising from
inter-company transactions, are eliminated. Unrealized gains arising from transactions with equity
accounted investees are eliminated against the investment to the extent of Western’s interest in the
investee. Unrealized losses are eliminated in the same way, except to the extent that there is
evidence of impairment.

(e) Foreign currency translation

Foreign currency transactions are translated into Canadian dollars using the exchange rates prevailing
at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the
reporting date are translated into Canadian dollars at the exchange rate on that date. Foreign currency
differences arising on translation are recognized in net income for the period. Non-monetary assets and
liabilities that are measured in terms of historical cost in a foreign currency are translated using the
exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign
currencies that are stated at fair value are translated into Canadian dollars at foreign exchange rates at
the date the fair value was determined.

(f) Use of estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS requires Management
to make judgements, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these
estimates. Estimates and assumptions are reviewed on an ongoing basis. Revisions to estimates are
recognized prospectively.

(i) Judgements

The determination of appropriate cash generating units as described in Note 3(c) is a judgement
made in applying accounting policy that has a significant effect on the amounts recognized in the
consolidated financial statements.

(ii) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting
in a material adjustment within the next financial year is included in the following notes:

Note 4
Note 7
Note 11

Note 13

Note 15
Note 18

Note 20

Measurement of net realizable value of inventories
Measurement of fair value less costs to sell of standing timber
Recognition of deferred income tax assets: availability of future taxable profit
against which carry forward tax losses can be used
Measurement of the present value of reforestation obligations: key
assumptions about the likelihood and magnitude of an outflow of resources
Measurement of share-based payment transactions
Recognition and measurement of provisions and contingencies: key
assumptions about the likelihood and magnitude of an outflow of resources
Measurement of defined benefit obligations, key actuarial assumptions,
recognition of termination benefits

Measurement of fair values – a number of Western’s accounting policies and disclosures require
the measurement of fair values for both financial and non-financial assets and liabilities. An
established framework is in place with respect to the measurement of fair values, including Level 3

35Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

2. Basis of preparation (continued)

(f) Use of estimates and judgements (continued)

(ii) Assumptions and estimation uncertainties (continued)

fair values, on which significant unobservable inputs and valuation adjustments are reviewed
regularly. third party information is used to measure fair values, Management assesses the evidence
obtained from the third parties to support the conclusion that such valuations meet the requirements
of IFRS, including the level in the fair value hierarchy in which such valuations would be classified.
Refer to Note 21 for more details.

When measuring the fair value of an asset or liability, Western uses market observable data as far
as is possible. Fair values are categorized into different levels in a fair value hierarchy based on the
inputs used in the valuation techniques as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities
• Level 2: inputs other than quoted prices included in Level 1 that are observable for the assets

or liability, either directly or indirectly

• Level 3: inputs for the asset or liability that are not based on observable market data

If the inputs to measure the fair value of the asset or liability might be categorized in different levels
of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same
level of the hierarchy as the lowest level input that is significant to the entire measurement. Transfers
between levels of the fair value hierarchy are recognized at the end of the period in which the change
occurred.

The Company does not include WorkSafeBC Certificate of Recognition (“COR”) rebates when
estimating its WorkSafeBC insurance premium expense, as the collectability of COR rebates cannot
be reasonably assured. During the year ended December 31, 2017, the Company recognized a
reduction to cost of goods sold of $3.1 million for the receipt of COR rebates arising from fiscal years
2014 and 2016.

(g) Accounting standards not yet adopted

The following amended IFRS standards are not yet effective for the year ended December 31, 2017 and
have not been applied in preparing these consolidated financial statements.

IFRS 9, Financial Instruments (“IFRS 9”)

IFRS 9 is effective for years commencing on or after January 1, 2018, and will replace IAS 39, Financial
Instruments: Recognition and Measurement. Under IFRS 9, financial assets will be classified and
measured based on the business model in which they are held and the characteristics of the associated
contractual cash flows. IFRS 9 also includes a new general hedge accounting standard which will better
align hedge accounting with risk management. The Company will adopt IFRS 9 in its financial statements
for the annual period beginning on January 1, 2018. The Company has completed its analysis and
concluded adoption of the standard will not have a material impact on the financial statements.

IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)

IFRS 15 is effective for years commencing on or after January 1, 2018, and will replace IAS 18, Revenue,
IAS 11, Construction Contracts, and a number of revenue related interpretations. IFRS 15 provides a
single, principles based five-step model to be applied to all contracts with customers, except insurance
contracts, financial instruments, and lease contracts, which fall in the scope of other IFRS. The Company
intends to adopt IFRS 15 in its consolidated financial statements for the year commencing January 1,
2018. The Company will adopt IFRS 15 and the clarifications in its financial statements for the annual
period beginning on January 1, 2018. The Company has completed its analysis and concluded adoption
of the standard will not have a material impact on the financial statements.

IFRS 16, Leases (“IFRS 16”)

IFRS 16 is effective for years commencing on or after January 1, 2019, and will replace IAS 17, Leases
(“IAS 17”). IFRS 16 provides a single lessee accounting model, requiring the recognition of assets and
liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low
value, while lessor accounting remains largely unchanged from IAS 17 and the distinction between

36Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

2. Basis of preparation (continued)

(g) Accounting standards not yet adopted (continued)

operating and finance leases is retained. The Company intends to adopt IFRS 16 in its consolidated
financial statements for the year commencing January 1, 2019. The extent of the impact of adoption of
the standard has not yet been determined. The Company’s future minimum lease payments at
December 31, 2017 under operating leases are disclosed in Note 18 (e).

3. Significant accounting policies

Significant accounting policies not described elsewhere in these consolidated financial statements include:

(a) Cash and cash equivalents

Cash and cash equivalents include cash in bank accounts and highly liquid money market instruments
with maturities of 90 days or less from the date of acquisition, and are carried at fair value.

(b) Revenue recognition

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable,
net of rebates and discounts, and after eliminating intercompany sales. Revenue is recognized as soon
as the substantial risks and rewards of ownership transfer from the Company to the customer. The timing
of the transfers of risks and rewards varies depending on the individual terms of the contract of sale.
Lumber and by-product sales are recorded at the time product is shipped and the collection of the
amount is reasonably assured. Consistent with industry practice, log sales are recorded when the
customer’s order is firm, the logs have been delivered to the transfer location and the collectability of the
amount is reasonably assured.

Amounts charged to customers for shipping and handling are recognized as revenue and shipping and
handling costs, lumber duties, and export taxes incurred by the Company are recorded in costs and
expenses.

(c)

Impairment of non-financial assets

At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than
biological assets, inventories, and deferred income tax assets) to determine whether there is any
indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

For impairment testing, assets are grouped together into the smallest group of assets that generates
cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash
generating units (“CGUs”). The recoverable amount of an asset or CGU is the greater of its value in use
and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or CGU.

Impairment losses are recognized in net income. They are allocated first to reduce the carrying amount
of goodwill (if any) to the CGU, and then to reduce the carrying amounts of the other assets in the CGU
on a pro-rata basis. An impairment loss in respect of goodwill is not reversed. For other assets, an
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment
loss had been recognized.

4.

Inventory

Accounting policy

Inventory, other than supplies which are valued at specific cost, are valued at the lower of cost and net
realizable value (“NRV”) as described below:

(i) Lumber by species (hemlock and balsam, douglas fir, and yellow and western red cedar) and facility;

(ii) Logs by sort by end use (saw logs and pulp logs).

The cost of inventories includes expenditures incurred in acquiring the inventories, production or conversion
costs and other costs incurred in bringing them to their existing location and condition.

37Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

4.

Inventory (continued)

The costs of lumber produced carry an average cost of production based on the species and facility where
they were produced. The cost of logs produced carry an average cost of production based on the operation
where the logs are produced, determined by log production costs divided by production volumes.

NRV is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and selling expenses. The NRV for logs designated for lumber production is determined on the basis of the
logs being converted to lumber, and for the remaining logs it is based on market log prices.

The cost of logs transferred from biological assets (standing timber) is its fair value less costs to sell at the
date of harvest.

Supporting information

Gross value of inventory

Logs
Lumber
Supplies and other

Provisions
Logs
Lumber
Supplies and other

Total value of inventory

December 31,
2017

December 31,
2016

$

$

$

$

$

109.5
36.8
14.1
160.4

(5.7)
(2.2)
(0.5)
(8.4)

152.0

$

$

$

$

$

93.0
57.2
13.6
163.8

(6.8)
(7.2)
-
(14.0)

149.8

The carrying amount of inventory recorded at net realizable value was $51.3 million at December 31, 2017
(2016: $55.7 million), with the remaining inventory recorded at cost.

During 2017, $874.6 million (2016: $952.8 million) of inventory was charged to cost of sales which includes
a $5.6 million decrease (2016: $2.2 million decrease) to the provision relating to inventory value write-downs.

The Company’s logs and lumber inventory is pledged as security against the revolving credit facility.

5. Property, plant and equipment

Accounting policy

All items of property, plant and equipment are measured at cost, less accumulated depreciation and any
accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition
of the asset. When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment. Subsequent costs
are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Company and the cost of
the item can be measured reliably.

Depreciation is based on the depreciable amount of an item of property, plant and equipment, which is the
cost of an item, less its estimated residual value. Depreciation is calculated using the straight-line method
and is recognized in net income over the estimated useful life of each component of an item of property,
plant and equipment. Land is measured at cost and is not depreciated. The estimated useful lives for the
current and comparative periods are as follows:

• Buildings and equipment
• Long-term logging roads and bridges

5 - 20 years
9 - 20 years

Residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at each
reporting date.

38Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

5. Property, plant and equipment (continued)

Gains and losses on disposals are determined by comparing proceeds from disposal with the carrying
amount of the item of property, plant and equipment and are recognized in net income for the period in which
the disposal occurs.

Supporting information

Cost

Balance at January 1, 2016
Additions
Disposals

Balance at December 31, 2016

Additions
Disposals

Balance at December 31, 2017

Accumulated amortization and impairments

Balance at January 1, 2016
Amortization
Disposals

Balance at December 31, 2016

Amortization
Disposals
Impairments

Balance at December 31, 2017

Carrying amounts

At December 31, 2016

At December 31, 2017

6. Timber licences

Accounting policy

Buildings &
equipment
261.2
43.0
(1.4)
302.8
41.7
(2.6)
341.9

114.0
17.1
(1.0)
130.1
20.0
(2.0)
2.7
150.8

172.7

191.1

$

$

$

$

$

$

$

$

$

$

$

$

$

Logging
roads
165.3
13.1
-

178.4
13.5
-

191.9

$

$

131.8
12.7
-

144.5
12.3
-
-

156.8

$

Land
90.6
-
-
90.6
-
(2.8)
87.8

-
-
-
-
-
-
0.1
0.1

33.9

35.1

$

$

90.6

87.7

$

$

$

$

$

$

Total
517.1
56.1
(1.4)
571.8
55.2
(5.4)
621.6

245.8
29.8
(1.0)
274.6
32.3
(2.0)
2.8
307.7

297.2

313.9

Crown timber tenures are the contractual arrangements between the Company and the British Columbia
Provincial Government whereby the Company gains the right to harvest timber. All of the Company’s timber
licences are accounted for as acquired finite lived timber licences. Accordingly, these are valued at their
acquired cost less accumulated amortization and any accumulated impairment losses. Amortization is
recognized on a straight-line basis over 40 years, the estimated useful life of these crown timber tenures.
Amortization methods, useful lives and residual values are reviewed, and adjusted if appropriate, at each
reporting date.

Supporting information

Cost

Balance at December 31, 2016
Balance at December 31, 2017

Accumulated amortization
Balance at January 1, 2016
Amortization

Balance at December 31, 2016

Amortization

Balance at December 31, 2017

Carrying amounts

At December 31, 2016

At December 31, 2017

$
$

$

$

$

$

$

170.7
170.7

45.5
4.0

49.5
4.0
53.5

121.2

117.2

39Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

7. Biological assets

Accounting policy

Standing timber on privately held forest land that is managed for timber production is characterized as a
biological asset. Accordingly, at each reporting date, the biological asset is valued at its fair value less costs
to sell with any change therein, including the impact of growth and harvest, recognized in net income for the
period. Costs to sell include all costs that would be necessary to sell the assets. Land under the standing
timber is measured at cost and included in property, plant and equipment. Long-term roads and bridges on
the land underlying the standing timber are considered a component of property, plant and equipment and
are recorded at cost less accumulated amortization.

Supporting information

(a) Reconciliation of carrying amount

Carrying value, beginning of year

Change in fair value less costs to sell (Note 24)
Change in fair value due to growth and pricing
Harvested timber trans ferred to inventory

Carrying value, end of year

Years ended December 31,

2017

2016

$

$

57.6
-
5.6
(5.0)

58.2

$

$

53.7
8.0
4.5
(8.6)

57.6

At December 31, 2017, private timberlands comprised an area of approximately 23,293 hectares
(December 31, 2016: 23,293 hectares) of land owned by the Company; standing timber on these
timberlands ranged from newly planted cut-blocks to mature forests available for harvest. During the
year ended December 31, 2017, the Company harvested and scaled approximately 127,844 cubic
metres (“m3”) of logs from its private timberlands, which had a fair value less costs to sell of $112 per m3
at the date of harvest (2016: 284,928 m3 and $109 per m3, respectively).

(b) Measurement of fair values

The table above reconciles the opening balances to the closing balances for Level 3 fair values. The
change in fair value resulting from price and growth is reflected in cost of goods sold. The fair value
measurements for the Company’s standing timber of $58.2 million has been categorized as Level 3 fair
value based on the inputs to the valuation technique used as discussed below.

Valuation technique

Significant unobservable inputs

Inter-relationship between key
unobservable inputs and fair value
measurement

Discounted cash flows: The valuation model
considers the present value of the net cash
flows expected to be generated by the
individual private timberlands utilizing a
harvest optimization approach. The cash
flow projections include specific estimates
for 25 years. The expected net cash flows
are
risk-adjusted
using
discount rate.

discounted

a

•

•

•

•

Estimated future log prices per m3 ($74
- $152, weighted average $96).
Estimated harvest costs per m3 ($59 -
$81, weighted average $64).
Estimated harvest annual
volume
(11,000 - 108,000 m3, weighted
average 88,000 m3).
Risk-adjusted discount
rate (2017:
7.0% - 7.5%, weighted average 7.0%;
2016: 7.0%).

The estimated fair value would increase
(decrease) if:

•

•

•

•

The estimated log prices per m3
were higher (lower);
The estimated harvest costs per m3
were lower (higher);
The estimated harvest volumes
were higher (lower); or
The risk-adjusted discount
were lower (higher).

rates

(c) Risk management strategies related to biological assets

Western is exposed to the following risks relating to its private timberlands:

• The Company is exposed to risks arising from fluctuations in log prices and sales volumes. When
possible, Western aligns its harvest volumes to market supply and demand, and performs regular
industry trend analyses for projected harvest volumes and pricing in order to manage this risk.
• The standing timber is exposed to risk of damage as a result of severe weather conditions, forest
fires, insect infestation and disease. Western has processes and procedures in place to monitor and
mitigate these risks, including fire management strategies and regular inspection for pest infestation.

40Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

8. Other assets

Investments
Deferred transaction costs
Export tax receivable (Note 18(b))

9. Revolving credit facility

Available
Outstanding letters of credit
Unused portion of Facility

December 31,
2017

December 31,
2016

$

$

13.3
0.7
3.5
17.5

$

$

10.9
0.1
-
11.0

December 31,
2017

December 31,
2016

$

$

125.0
1.0
124.0

$

$

125.0
0.9
124.1

The Company’s revolving credit facility (the “Facility”) provides for a maximum borrowing amount of $125
million, subject to a borrowing base, which is primarily based on eligible accounts receivable and inventory
balances, and has a maturity date of December 14, 2018. The Facility bears interest at Canadian Prime rate
(if availability exceeds 35% of the borrowing base) or at the Canadian Prime rate plus 0.25% (if availability
is less than 35% of the borrowing base) or at the Company’s option, at rates for Bankers’ Acceptances (“BA”)
or London Interbank Offered Rate based loans plus 1.25% or 1.50%, dependent on the same availability
criteria. The interest rate for the Facility was 3.20% at December 31, 2017 (December 31, 2016: 2.70%).

The Facility is secured by a first lien interest over accounts receivable and inventory and includes financial
covenants (see Note 17). At December 31, 2017, the Facility was unutilized (December 31, 2016: unutilized)
and $124.0 million of the facility was available to the Company (December 31, 2016: $124.1 million). The
Company was in compliance with its financial covenants at December 31, 2017.

10. Long-term debt

Accounting policy

Long-term debt is recognized initially at fair value, net of transaction costs incurred. Long-term debt is
subsequently carried at amortized cost; any difference between the proceeds and the redemption value is
recognized in net income over the term of the long-term debt using the effective interest method.

Transaction costs are deferred and amortized to finance costs over the term of the long-term debt using the
effective interest rate method.

Supporting information

The Company’s revolving term loan facility (the “Term Loan”) provides for a maximum borrowing amount of
$110.0 million and has a maturity date of June 29, 2019. The Term Loan bears interest at an index rate,
determined as the higher of (i) the Canadian Prime rate plus 0.15%, and (ii) the 30 day BA rate plus 1.65%,
or at the election of the Company, the applicable BA rate plus 1.65%. The interest rate for the Term Loan
was 3.35% at December 31, 2017. (December 31, 2016: 2.60%).

The Term Loan is secured by a first lien interest over all of the Company’s properties and assets, excluding
those of the Englewood Logging Division and accounts receivable and inventory, over which it has second
lien interests, and includes financial covenants (see Note 17).

The Company was in compliance with its financial covenants at December 31, 2017. Transaction costs are
deferred and amortized to finance costs over the term of the Term Loan using the effective interest rate
method.

At December 31, 2017, there were no amounts outstanding under the Company’s Term Loan and as a result,
the associated deferred transaction costs of $0.3 million are included in other assets on the statement of
financial position.

41Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

10. Long-term debt (continued)

Long-term debt
Less transaction costs

11. Income taxes

Accounting policy

December 31,
2017

December 31,
2016

$

$

-
-
-

$

$

35.0
(0.6)
34.4

Income tax expense comprises current and deferred income tax. It is recognized in net income for the period
except to the extent that it relates to items recognized either in other comprehensive income or directly in
equity, in which case it is recognized in other comprehensive income or equity, respectively.

(a) Current tax

Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year
and any adjustment to tax payable or receivable in respect of the previous years. It is measured using
tax rates enacted or substantively enacted at the reporting date.

Current income tax assets and liabilities are offset only if certain criteria are met.

(b) Deferred income tax

Deferred income tax is recognized in respect of temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred
income tax is not recognized if it arises from initial recognition of an asset or liability in a transaction,
other than a business combination, that at the time of the transaction affects neither accounting profit
nor taxable profit.

Deferred income tax assets are recognized for unused tax losses, unused tax credits and deductible
temporary differences to the extent that it is probable that future taxable profits will be available against
which they can be used. Deferred income tax assets are reviewed at each reporting date and are
recognized to the extent that it is probable that the related tax benefit will be realized. Unrecognized
deferred income tax assets are reassessed at each reporting date and recognized to the extent that it is
probable that future taxable profits will be available against which they can be used.

Deferred income tax is measured at the rates that are expected to be applied to temporary differences
when they reverse, using rates enacted or substantively enacted at the reporting date. Deferred income
tax assets and liabilities are offset only if certain criteria are met.

Supporting information

Current tax expense
Current period

Deferred income tax expense

Origination and reversal of temporary differences
Change in tax rates
Change in unrecognized deductible temporary differences

Total income tax expense

Years ended December 31,

2017

2016

$
$

$

$

$

0.2
0.2

26.0
0.8
(0.1)
26.7

26.9

$
$

$

$

$

0.2
0.2

32.8
-
(0.6)
32.2

32.4

42Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

11. Income taxes (continued)

(b) Deferred income tax (continued)

Income tax expense (recovery) differs from the amount that would be computed by applying the Company’s
combined Federal and Provincial statutory rate as follows:

Years ended December 31,

2017

2016

Income tax expense at the statutory rate of 26.00% (2016 - 26.00%)

Difference in tax rates
Over (under) provided for in prior periods
Other permanent differences
Change in income tax rates
Change in unrecognized deductible temporary differences

Total income tax expense - 26.55% (2016 - 25.60%)

$

$

26.3
(0.3)
(0.3)
0.2
0.8
0.2
26.9

The statutory rate increased from 26% to 27% effective January 1, 2018.

The components of recognized deferred income tax assets and liabilities are as follows:

For the Year ended December 31, 2017

Deferred income tax assets
Tax loss carry-forwards
Employee future benefits obligation
Provisions and other

Deferred income tax liabilities

Intangible assets
Biological assets
Property, plant and equipment

For the Year ended December 31, 2016

Deferred income tax assets
Tax loss carry-forwards
Employee future benefits obligation
Provisions and other

Deferred income tax liabilities

Intangible assets
Biological assets
Property, plant and equipment

$

$

$

Opening
Balance

Recognized in
Profit or Loss

Recognized in
OCI

$

30.9
6.3
12.7
49.9

(31.5)
(7.9)
(12.3)
(51.7)

$

(19.0)
(1.0)
0.2
(19.8)

(0.1)
(0.6)
(6.2)
(6.9)

-
0.7
-
0.7

-
-
-
-

(1.8)

$

(26.7)

$

0.7

$

$

53.0
8.5
12.1
73.6

(31.0)
(7.3)
(4.0)
(42.3)

(22.1)
(1.3)
0.6
(22.8)

(0.5)
(0.6)
(8.3)
(9.4)

$

$

-
(0.8)
-
(0.8)

-
-
-
-

$

31.3

$

(32.2)

$

(0.8)

$

$

$

$

32.9
(0.5)
(0.1)
0.5
-
(0.4)
32.4

Ending
Balance

11.9
6.0
12.9
30.8

(31.6)
(8.5)
(18.5)
(58.6)

(27.8)

30.9
6.3
12.7
49.9

(31.5)
(7.9)
(12.3)
(51.7)

(1.8)

The Company has recognized deferred income tax assets in relation to unused tax losses that are available
to carry forward against future taxable income. At December 31, 2017, the Company and its subsidiaries
have unused non-capital tax losses carried forward of approximately $43.9 million (2016: $119.0 million),
which expire between 2033 and 2037, available to reduce taxable income. The Company has unrecognized
capital losses of approximately $96.3 million (2016: $101.9 million) available to be utilized against capital
gains.

43Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

11. Income taxes (continued)

(b) Deferred income tax (continued)

Deferred income tax assets have not been recognized in respect of the following loss carry-forwards and
other deductible temporary differences:

Temporary deductible differences

Capital loss carry-forwards

12. Other liabilities

Employee future benefits obligation (Note 20)
Environmental accruals
Performance share unit plan liabilities, non-current (Note 15(c))
Other

13. Reforestation obligation

Accounting policy

December 31,
2017

December 31,
2016

$

$

16.8

96.3

113.1

$

$

14.2

101.9

116.1

December 31,
2017

December 31,
2016

$

$

21.4
3.1
2.5
1.2
28.2

$

$

23.1
2.5
1.5
1.3
28.4

The Company’s provision for reforestation relates to the obligation for reforestation on Crown land and arises
as timber is harvested. Reforestation on private timberlands is expensed as incurred. The Company
recognizes a provision for reforestation at fair value in the period in which the legal obligation is incurred,
with the fair value of the liability at the reporting date determined with reference to the present value of
estimated future cash flows. The pre-tax discount rate used to determine the present value reflects current
market assessments of the time value of money and the risks specific to the liability. The actual discount rate
used reflects the current risk-free rate given that risks are incorporated into the future cash flow estimates.

In periods subsequent to the initial measurement, changes in the liability resulting from revisions to estimated
future costs are recognized in cost of sales within net income for the period as they occur. Reforestation
expense incurred on current production is included in production costs and the unwinding of discount, or
accretion cost, is included in finance costs for the year.

Supporting information

Changes in the reforestation obligation are as follows:

Reforestation obligation, beginning of year

Reforestation provision charged
Reforestation expenditures
Unwind of discount

Reforestation obligation, end of year

Less current portion

Years ended December 31,

2017

2016

$

$

28.9
5.4
(9.3)
0.3
25.3
8.9
16.4

$

$

30.8
7.5
(9.6)
0.2
28.9
9.7
19.2

The reforestation expenditures are expected to occur over the next one to ten years and have been
discounted at risk-free rates of 1.52% to 2.05% (2016: 0.63% to 1.72%). The total undiscounted amount of
the estimated future expenditures required to settle the reforestation obligation at December 31, 2017 is
$26.4 million (December 31, 2016: $29.6 million).

44Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

14. Share capital

Accounting policy

The Company’s authorized capital consists of an unlimited number of common shares and an unlimited
number of preferred shares. Common shares and preferred shares are classified as equity. Incremental
costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the
proceeds, net of any tax effects.

Supporting information

The Company has no outstanding preferred shares. The common shares entitle the holders thereof to one
vote per share.

Issued and outstanding common shares are as follows:

Balance at January 1, 2016
Exercise of stock options

Balance at December 31, 2016

Exercise of stock options
Repurchase of shares

Balance at December 31, 2017

Number of
Common Shares
395,245,407
202,256
395,447,663
407,429
(1,079,000)
394,776,092

$

$

$

Amount

505.5
0.5
506.0
0.9
(1.4)
505.5

During the year ended December 31, 2017, cash dividends of $0.02 per common share were paid for each
of the quarters ended March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017. An
aggregate of $31.7 million (2016: $31.6 million) in dividends was paid to shareholders in 2017.

On August 2, 2017, the Company announced a Normal Course Issuer Bid (“NCIB”) permitting the purchase
and cancellation up to 19,778,383 of the common shares or approximately 5% of the common shares issued
and outstanding as of August 1, 2017. The NCIB expires on August 7, 2018.

In 2017, the Company repurchased 1,079,000 common shares under the NCIB for $2.7 million at an average
price of $2.50 per common share, of which $1.4 million was charged to share capital and $1.3 million was
charged to retained earnings.

15. Share-based compensation plans

Accounting policy

Stock options

The Company has established an incentive stock option plan (the “Option Plan”) for eligible directors, officers
and employees and accounts for these plans using the fair value method. The grant-date fair value of options
is recognized as an employee expense, with a corresponding increase in contributed surplus, over the period
that the individual becomes unconditionally entitled to the awards. When stock options are exercised, the
cash consideration received from employees is credited to share capital, as is the previously calculated fair
value included in contributed surplus.

Determining the fair value of share-based compensation awards at the grant date requires judgement. The
fair value of the options is determined using either the Black-Scholes or the Hull-White option pricing models
which take into account, as of the grant date, the exercise price, the expected life of the options, the current
price of the underlying stock and its expected volatility, expected dividends on the shares, and the risk-free
interest rate over the expected life of the option. The Company bases its estimates of volatility on historical
share prices of the Company itself as well as those of comparable companies with longer trading histories.

The options are only exercisable when the share price exceeds a barrier price of $0.70 for 60 consecutive
days on a volume weighted average price basis. With this additional requirement for the share price to
exceed a minimum level before the options become exercisable, it is necessary to utilize the Hull-White
model as this model takes into account the barrier price factor.

45Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

15. Share-based compensation plans (continued)

Deferred share units and performance share units

The grant-date fair value of the amount payable to eligible directors, officers and employees in respect of
Deferred Share Units (“DSUs”), which are cash-settled, is recognized as an employee expense with a
corresponding increase in liabilities, over the period that the individuals become unconditionally entitled to
payment.

The grant-date fair value of the amount payable to eligible officers and employees in respect of Performance
Share Units (“PSUs”), which are cash-settled, is recognized as an employee expense with a corresponding
increase in liabilities, over a three year performance period.

The liabilities under the DSU and PSU Plans are re-measured at fair value at each reporting date and at
settlement date. For the PSU Plan, this includes re-measurement as the Company’s performance tracks
against the performance vesting targets. Any changes in the fair value of the liabilities are recognized in cost
of goods sold and selling and administration expense.

Supporting information

(a) Stock-option plan

The Option Plan permits the granting of options to eligible participants to purchase up to an aggregate
of 20,000,000 common shares. Each option is exercisable, subject to vesting terms of 20% per year and
immediately upon a change in control of the Company, into one Common Share, subject to adjustments,
at a price of not less than the closing price of the common shares on the TSX on the day immediately
preceding the grant date. Options granted under the Option Plan expire a maximum of ten years from
the date of the grant. All outstanding options are only exercisable when the share price has been equal
to or exceeds $0.70 for the 60 consecutive days preceding the date of exercise on a volume weighted
average price basis.

During the year ended December 31, 2017, the Company granted 1,657,877 options with a fair value of
$0.8 million. Weighted average assumptions applied in the option pricing model included exercise price
of $2.09, risk-free interest rate of 1.35%, a volatility rate of 35.12%, and an expected life of seven years.

The following table summarizes the change in options outstanding during the years ending December
31, 2017 and 2016:

Outstanding, beginning of year

Granted
Exercised
Forfeited

Outstanding, end of year

Year ended December 31, 2017

Year ended December 31, 2016

Number of Options

Weighted average
exercise price

Number of Options

Weighted average
exercise price

11,235,585
1,657,877
(426,226)
(748,753)
11,718,483

$
$
$
$
$

1.50
2.09
1.40
1.99
1.56

10,158,667
1,330,918
(215,000)
(39,000)
11,235,585

$
$
$
$
$

1.44
1.97
1.48
2.61
1.50

Details of options outstanding under the Option Plan at December 31, 2017 are as follows:

Exercise
price
$0.22 - $0.96
$1.27 - $1.97
$2.09 - $2.61

Number outstanding
December 31, 2017
4,350,000
2,796,929
4,571,554
11,718,483

Weighted average
remaining option life
(years)

Weighted average
exercise price

3.8
6.5
7.5
5.9

$
$
$
$

0.77
1.58
2.29
1.56

Number exercisable
December 31, 2017
4,350,000
1,495,386
1,537,410
7,382,795

Weighted average
exercise price

$
$
$
$

0.77
1.39
2.43
1.24

In 2017, the Company recorded equity-based compensation expense for these options of $0.4 million
(2016: expense of $1.2 million), with a corresponding increase to contributed surplus.

46Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

15. Share-based compensation plans (continued)

(b) Deferred share unit plan

The Company has a DSU Plan for directors and designated executive officers. Directors may elect to
take a portion of their fees in the form of DSUs and prior to January 1, 2015 executive officers could
elect to take a portion of their annual incentive bonus in the form of DSUs. For directors, the number of
DSUs allotted is determined by dividing the dollar portion of the quarterly fees a director elects to take
in DSUs by the share price value on the fifth day following each quarter end. All DSU holders are entitled
to DSU dividends, equivalent to the dividend they would have received if they held their DSUs as
common shares. For dividends, the number of DSUs allotted is determined by dividing the total dollar
value of the dividend each DSU holder would have received, by the closing share price on the dividend
payment date.

Effective January 1, 2015, DSUs are only granted to non-executive directors per the amended DSU
Plan.

Outstanding, beginning of year

Granted
Redeemed

Outstanding, end of year

Year ended December 31, 2017

Year ended December 31, 2016

Number of DSU

Weighted average
unit value

Number of DSU

Weighted average
unit value

1,100,073
182,146
-
1,282,219

$
$
$
$

0.98
2.39
-
1.18

981,495
168,033
(49,455)
1,100,073

$
$
$
$

0.86
2.07
2.32
0.98

In 2017, the Company recorded equity-based compensation expense for these DSUs of $1.1 million
(2016: recovery of $0.2 million), with a corresponding increase to accounts payable and accrued
liabilities.

(c) Performance share unit plan

The Company has established a PSU Plan for designated officers and employees of the Company.
Under the terms of the PSU Plan, participants are granted a number of PSUs based on a target award
divided by the value of the Company’s common shares at the effective date of grant. All PSU holders
are entitled to PSU dividends, equivalent to the dividend they would have received if they held their
PSUs as common shares.

Performance targets are set by the Management Resource & Compensation Committee of
the
Company’s Board of Directors. The number of PSUs which will ultimately vest will be the original number
of PSUs granted plus PSUs equal to the value of accrued notional dividends over the performance
period. For dividends, the number of PSUs allotted is determined by dividing the total dollar value of the
dividend each PSU holder would have received, by the closing share price on the trading day
immediately after the dividend date of record. The redemption value of vested PSUs will be in a range
from 0% to 200% based on return on capital employed over a three year performance period.

Outstanding, beginning of year

Granted
Forfeited

Outstanding, end of year

Years ended December 31,

2017

952,236
630,049
-
1,582,285

2016

434,115
553,044
(34,923)
952,236

In 2017, the Company recorded equity-based compensation expense for these PSUs of $3.0 million
(2016: expense of $1.1 million), with a corresponding increase to accounts payable and accrued
liabilities and other liabilities.

16. Earnings per share

The Company presents basic and diluted earnings per share (“EPS”) data for its common shares. Basic EPS
is calculated by dividing the net income attributable to Common shareholders of the Company by the
weighted average number of shares outstanding during the period. Diluted EPS is determined by adjusting
the net income attributable to the shareholders and the weighted average number of shares outstanding, for
the effects of all dilutive potential shares, which comprise share options granted to employees and directors.

47Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

17. Capital requirements

The Company’s strategy for managing capital is to maintain a capital position that provides financial flexibility
and achieves growth with the objective of maximizing long-term shareholder value. Western’s capital
requirements typically include major new investments designed to increase net income and disbursements
for other new equipment and ongoing enhancements, efficiency improvements, safety, and protection or
extension of the life of equipment. Significant expenditures are also required to fund new capital roads
allowing access to timber stands for harvesting purposes.

As at December 31, 2017, the Company had no drawings in its debt facilities and a nil net debt to
capitalization ratio (2016: 3%). Net debt is defined as long-term debt plus amounts drawn on the revolving
credit facility, less cash and cash equivalents. Capitalization comprises net debt and shareholders’ equity.

Changes to the capital structure may be made as strategic opportunities arise. In order to maintain or adjust
the capital structure, the Company may buy back shares, issue new shares, source new debt, or sell assets.
The Company has internal controls to ensure changes to the capital structure are properly reviewed and
approved.

Beginning in 2013, the Company initiated a quarterly dividend program which is being paid from operating
cash flows, and is at the discretion of the Company’s Board of Directors.

Beginning in 2017,
the Company initiated a Normal Course Issuer Bid permitting the purchase and
cancellation up to 19,778,383 common shares prior to August 7, 2018, and is at the discretion of the
Company’s Board of Directors.

Under the financing agreements, the Company is subject to financial covenants. The Facility has a minimum
fixed charge coverage ratio of 1.1:1.0 should availability fall below 12.5% of the borrowing base or in the
event of default and, if applicable, a maximum leverage ratio of 1.5:1.0 until completion of the annual field
examination process. The Term Loan contains a maximum loan to value ratio financial covenant of 45%.
Loans for this covenant are defined as the total term loans outstanding and value is defined as the appraised
value of our Crown tenures and private timberlands; this financial covenant is measured on the last day of
each fiscal year and at the time of consummation of a sale or disposition of assets, with certain exceptions.

As at December 31, 2017, the Company is in compliance with all financial covenants, and expects to be in
compliance for the next 12 months.

The Company is not subject to any statutory capital requirements. Under the Company’s Option Plan,
commitments exist to issue common shares.

There were no changes to the Company’s approach to managing capital during the year.

18. Commitments and contingencies

(a) Key dates in the softwood lumber duty dispute

Under the softwood lumber agreement (“SLA”) between Canada and the United States (“US”), the
Company’s exports to the US were assessed an export tax by the Canadian Government. The SLA
expired on October 12, 2015, eliminating export tax measures on Canadian softwood lumber shipments
to the US.

The twelve-month standstill period of the SLA, which precluded the US lumber industry from petitioning
for trade relief against Canadian softwood lumber producers, expired on October 12, 2016.

On November 25, 2016, the US lumber industry petitioned the US Department of Commerce (“DoC”)
and the US International Trade Commission (“ITC”) seeking Countervailing (“CVD”) and Anti-dumping
duties (“AD”) on Canadian softwood lumber shipments to the US.

On January 6, 2017, the ITC concluded that there was “reasonable indication” that softwood lumber
products from Canada materially injured US producers, allowing the DoC to proceed with its ongoing
CVD and AD investigations on these products.

On April 24, 2017, the DoC announced a preliminary CVD rate of 19.88% for “all other” Canadian lumber
producers including Western. The DoC also made a preliminary determination on critical circumstances
that resulted in 90-day retroactive application of CVD. On June 26, 2017, the DoC announced an AD
rate of 6.87% for “all other” Canadian lumber producers including Western. The DoC also made a
preliminary determination on critical circumstances that resulted in 90-day retroactive application of AD.

48Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

18. Commitments and contingencies (continued)

(a) Key dates in the softwood lumber duty dispute (continued)

On November 2, 2017, the DoC announced reduced, final CVD and AD rates of 14.25% and 6.58%,
respectively,
the DoC
for “all other” Canadian lumber producers including Western.
concluded that critical circumstances did not exist for CVD but did exist for AD.

In addition,

On December 7, 2017, the ITC made an affirmative final determination that softwood lumber from
Canada materially injured the US lumber industry. The ITC also concluded that critical circumstances
did not exist for AD. The final rates communicated by the DoC on November 2, 2017 became effective
December 28, 2017.

On January 3, 2018, DoC published amended final determinations, resulting in reduced, final CVD and
AD rates of 14.19% and 6.04% respectively for “all other” Canadian lumber producers including Western.

(b) Lumber duties and export tax

Cash deposits for CVD were required for lumber imports to the US effective April 28, 2017 through
August 25, 2017, after which they were not applicable pending the ITC’s final CVD determination. Cash
deposits for CVD resumed on publication of ITC final affirmative CVD determination in the US Federal
Register on December 28, 2017.

Cash deposits for AD were required for lumber imports to the US effective June 30, 2017 until December
26, 2017, and resumed on publication of the ITC final affirmative injury determination on December 28,
2017.

The Company has recorded an export tax recovery of $3.5 million arising from the difference between
export duties paid at preliminary determination rates and the latest final duty rates, which is presented
net of export tax expense in the consolidated statement of comprehensive income. A corresponding
increase has been recognized in other assets in the consolidated statement of financial position.
Incremental export duty recoveries from any future change in CVD and AD rates will be netted against
export tax expense and included in other assets.

(c) Litigation and claims

In the normal course of its business activities, the Company may be subject to a number of claims and
legal actions that may be made by customers, unions, suppliers and others in respect of which either
provision has been made or for which no material liability is expected. Where the Company is not able
to determine the outcome of
these disputes no amounts have been accrued in these financial
statements.

(d) Long-term fibre supply agreements

Accounting policy

Deferred revenue is the result of the contractual obligations incurred upon the acquisition of the
Englewood Logging Operation in March 2006, and calls for Western to deliver a specified volume of
fibre (chips and pulp logs) over the term of the contract. Accordingly, the deferred revenue is amortized
into net income for the period on a straight-line basis over 40 years, being the term of the related fibre
supply contract.

Supporting information

The Company has a number of long-term commitments to supply fibre to third parties including a 40
year agreement, entered into on March 17, 2006 (“40 Year Agreement”). As consideration for entering
into the 40 Year Agreement, the Company received a price premium of $80.0 million that will be earned
as wood chips are delivered under the agreement. Upon execution, a non-refundable prepayment of the
price premium of $35.0 million was received with the balance of $45.0 million set-off against the
consideration due by the Company on its acquisition of the Englewood Logging Division from the same
party to the fibre supply agreement. The Company recorded the price premium as deferred revenue and
has granted a first charge over the acquired assets (including a tree farm license with an allowable
annual cut of 844,000 cubic metres, 4,771 hectares of private timberlands and other capital
improvements and equipment) to secure certain of these obligations.

49Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

18. Commitments and contingencies (continued)

(d) Long-term fibre supply agreements (continued)

In addition, certain of the Company’s long term fibre supply agreements with third parties have minimum
volume requirements and may, in the case of a failure to produce the minimum volume, require the
Company to conduct whole log chipping or sell saw logs, which could reduce log availability for our
sawmill, source the deficiency from third parties at additional cost to the Company or pay the party to
the fibre supply agreement a penalty calculated based on the provisions contained in the relevant
agreement. Should Western take significant market related curtailments in its sawmills, the volume of
chips produced is reduced and accordingly there is greater risk that the Company may not meet its
contractual obligations, if it is not possible to secure replacement chips on the open market during that
period.

The Company satisfied its annual fibre commitments for 2017.

(e) Operating leases

Accounting policy

Leases of property, plant and equipment that transfer to the Company substantially all of the risks and
rewards of ownership are classified as finance leases. The leased assets are measured initially at an
amount equal to the lower of their fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy
applicable to that asset.

Assets held under other leases are classified as operating leases and are not recognized in the
Company’s statement of financial position.

Payments made under operating leases are recognized in profit or loss on a straight-line basis over the
term of the lease. Lease incentives received are recognized as an integral part of the total lease expense,
over the term of the lease. Minimum lease payments made under finance leases are apportioned
between the finance expense and the reduction of the outstanding liability. The finance expense is
allocated to each period during the lease term so as to produce a constant periodic rate of interest on
the remaining balance of the liability.

Supporting information

Future minimum lease payments at December 31, 2017 under operating leases were as follows:

2018
2019
2020
2021
2022
Thereafter

$

$

6.4
5.1
3.3
2.5
1.3
4.5
23.1

(f) Pension funding commitments

The Company is committed to making estimated annual special payments in relation to its salaried
pension plans of $3.1 million for 2018 and approximately $2.0 million per year on average for 2019 to
2031, or until such time as a new funding valuation may lead to a change in the amount of payments
required.

19. Segmented information

Accounting policy

A business segment is a group of assets and operations engaged in providing products or services that are
subject to risks and returns that are different from those of other business segments. The Company is an
integrated forest products company operating in one business segment comprised of timber harvesting, log
sales and lumber manufacturing and sales in world-wide markets.

50Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

19. Segmented information (continued)

A geographical segment
is engaged in providing products or services within a particular economic
environment that is subject to risks and returns that are different from those of segments operating in other
economic environments. Western’s log and lumber products are sold worldwide. Substantially all of
Western’s property, plant and equipment, biological assets and timber licences are located in British
Columbia, Canada. The Company manages its business as a single operating segment. The Company
purchases and harvests logs which are then manufactured into lumber products at the Company’s sawmills,
or sold.

Supporting information

The Company’s sales, based on the known origin of the customer, were as follows:

Canada
United States
China
Japan
Other
Europe

20. Employee benefits

Accounting policy

(a) Termination benefits

Years ended December 31,

2017

2016

$

$

372.4
284.6
221.0
153.0
81.5
30.9
1,143.4

$

$

421.8
290.2
196.2
170.7
71.4
37.0
1,187.3

Termination benefits are expensed at the earlier of when the Company can no longer withdraw the offer
of those benefits and when the Company recognizes costs for a restructuring. If benefits are not
expected to be settled wholly within twelve months of the reporting date they are discounted.

(b) Short-term employee benefits

Short-term employee benefit obligations, including bonus plans, are measured on an undiscounted basis
and are expensed as the related service is provided. A liability is recognized for the amount expected to
be paid if the Company has a present legal or constructive obligation to pay this amount as a result of
past service provided by the employee and the obligation can be estimated reliably.

(c) Employee future benefits

The Company has various defined benefit and defined contribution plans that provide pension or other
retirement benefits to most of its salaried employees and certain hourly employees not covered by forest
industry union plans. The Company also provides other post-employment benefits and pension bridging
benefits to eligible retired employees.

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will
receive on retirement, usually dependent on one or more factors such as age, years of service and
compensation. The Company’s net obligation in respect of its defined benefit plans is calculated
separately for each plan by estimating the amount of future benefit that employees have earned in return
for their service in the current and prior periods; that benefit is discounted to determine its present value,
and the fair value of the plan assets is deducted in arriving at the obligation. The calculation is performed
annually by a qualified actuary using the actuarial cost projected unit credit method.

When the calculation results in a potential asset to the Company, the recognized asset is limited to the
present value of economic benefits available in the form of any future refunds from the defined benefit
plan or reductions in future contributions to the defined benefit plan. In order to calculate the present
value of economic benefits, consideration is given to any minimum funding requirements that apply to
any defined benefit plan.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the
return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest),
are recognized immediately in other comprehensive income. The Company determines the net interest

51Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

20. Employee benefits (continued)

(c) Employee future benefits (continued)

expense (income) on the net defined liability for the period by applying the discount rate used to measure
the defined benefit obligation at the beginning of the annual period to the then-net defined liability, taking
into account any changes in the net defined benefit liability during the period as a result of contributions
and benefit payments. Net interest expense and other expenses related to defined benefit plans are
recognized in net income.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that
relates to past service or the gain or loss on curtailment is recognized immediately in net income. The
Company recognizes gains and losses on settlement of a defined benefit plan when the settlement
occurs. A defined contribution plan is a retirement plan under which the Company pays fixed
contributions into a separate entity. For Western’s defined contribution plan, the Company makes
contributions to privately administered investment funds on behalf of the plan members. The Company
has no further payment obligations once the contributions have been paid. The contributions are
recognized as employee benefit expense in net income for the period during which services are rendered
by employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a
reduction in the future payments is available.

For hourly employees covered by forest industry union defined benefit pension plans, the Company’s
contributions as required under the collective agreements are charged to net income for the period.

Supporting information

Information about the Company's defined benefit salaried pension plans and other non-pension benefits, in
aggregate, is as follows:

December 31, 2017

December 31, 2016

Salaried
Pension Plans

Non-pension
Plans

Salaried
Pension Plans

Non-pension
Plans

Plan assets:

Fair value, beginning of year
Company contributions
Benefits and administrative expenses paid
Actual return on assets

Fair value, end of year

Accrued benefit obligation:

Balance, beginning of year

Current service costs and administrative expenses
Benefits and administrative expenses paid
Interest cost
Actuarial loss (gain)
Plan amendment (Note 24)

Balance, end of year

Deficit recognized in Statement of

Financial Position (Note 12)

Cumulative actuarial gains (losses), beginning of year
Actuarial (gains) losses recognized directly in OCI

Cumulative actuarial gains (losses), end of year

$

$

$

$

$

$

$

109.2
3.9
(8.9)
8.3
112.5

126.5
0.3
(8.9)
4.5
6.7
-

129.1

(16.6)

(32.3)
2.4
(29.9)

$

$

$

$

$

$

$

-
0.3
(0.3)
-
-

5.8
-
(0.3)
0.2
(0.9)
-
4.8

(4.8)

0.4
(0.9)
(0.5)

$

$

$

$

$

$

$

106.6
3.7
(9.0)
7.9
109.2

133.4
0.3
(9.0)
4.8
0.8
(3.8)
126.5

(17.3)

(35.6)
3.3
(32.3)

$

$

$

$

$

$

$

-
0.4
(0.4)
-
-

5.9
-
(0.4)
0.3
-
-
5.8

(5.8)

0.4
-
0.4

Experience gains (losses):

Experience gains (losses) on plan assets:

Amount
Percentage of plan assets

Experience gains (losses) on plan liabilities:

Amount
Percentage of plan assets

December 31, 2017

December 31, 2016

Salaried
Pension Plans

Non-pension
Plans

Salaried
Pension Plans

Non-pension
Plans

$

$

4.3
3.79%

(2.0)
(1.53)%

$

n/a
n/a

-
0.00%

$

$

4.1
(3.74)%

-

$

(0.07)%

n/a
n/a

-
0.00%

52Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

20. Employee benefits (continued)

The Company has several funded and unfunded defined benefit plans, a defined contribution pension plan
and a group RRSP that provide retirement benefits to substantially all salaried employees and certain hourly
employees. In addition, the Company provides other unfunded post-employment benefits to certain former
salaried and hourly employees.

The funded and unfunded defined benefit pension plans were closed to new entrants effective June 30,
2006. No further benefits accrue under these plans for years of service after December 31, 2010, and no
further benefits accrue under these plans for compensation increases effective December 31, 2016. The
Company’s other post-employment benefit plans are non-contributory and include a range of health care and
other benefits.

Total cash payments for employee future benefits for the year ended December 31, 2017 were $17.4 million
(December 31, 2016: $19.3 million), consisting of cash contributed by the Company to its funded pension
plans, cash payments directly to beneficiaries for its unfunded other benefit plans, and cash contributed to
the forest industry union defined benefit plans.

In relation to defined benefit plans, the Company measures the fair value of plan assets and the accrued
benefit obligations for accounting purposes as at December 31 of each year. The most recent actuarial
valuations of the funded defined benefit pension plans were performed at December 31, 2016. The next
actuarial valuation for both the funded and unfunded defined benefit plans and other unfunded post-
employment benefit plans will be prepared for December 31, 2019.
Included in the accrued benefit
obligations and plan assets for salaried pension plans, presented above, are accrued benefit obligations of
$123.0 million at December 31, 2017 (December 31, 2016: $120.0 million) in respect of plans that are wholly
or partially funded.

The following is a breakdown of the defined benefit pension plan assets by nature of investment categories:

Equity securities
Debt securities
Other

December 31,
2017

December 31,
2016

32%
65%
3%
100%

33%
63%
4%
100%

The significant actuarial assumptions adopted in measuring the Company's accrued benefit obligations
(expressed as weighted averages) are as follows:

December 31,
2017

December 31,
2016

December 31, 2017
Increase (Decrease) of Accrued Benefit

Discount rate, beginning of year for:

Pension plans
Non-pension plans

Discount rate, end of year for:

Pension plans
Non-pension plans

Rate of compensation increase for all plans

Health care and medical cost trend rate

3.67%
3.55%

3.33%
3.25%

0.01%

3.73%
3.60%

3.67%
3.55%

3.48%

4.88% in 2018

5.52% in 2017
grading to 3.65% grading to 4.35%
in 2026

in 2026

Obligation w ith Change in Assumption
1% Decrease
1% Increase

n/a
n/a

n/a
n/a

13,003,600
394,700

(15,677,300)
(455,900)

(38,800)

36,000

(238,200)

235,200

Future mortality

n/a

n/a

344,300

(347,800)

53Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

20. Employee benefits (continued)

The Company's salaried employees’ pension and non-pension benefits expense is as follows:

December 31, 2017

December 31, 2016

Salaried
Pension Plans

Non-pension
Plans

Salaried
Pension Plans

Non-pension
Plans

Defined benefit plans:

Current service costs and administrative expenses
Net interest costs
Plan Amendment (Note 24)
Cost of defined benefit plans
Cost of defined contribution plans
Total cost of employee post-retirement benefits

$

$

0.3
0.5
-
0.8
3.7
4.5

$

$

-
0.2
-
0.2
-
0.2

$

$

0.3
0.9
(3.8)
(2.6)
3.2
0.6

$

$

-
0.2
-
0.2
-
0.2

The Company is committed to make funding contributions to its defined benefit plans of $3.1 million during
2018.

The Company’s unionized employees are members of industry-wide pension plans to which the Company
contributes a predetermined amount per hour worked by an employee. The Company’s liability is limited to
its contributions. The pension expense for these plans is equal to the Company’s contributions. For 2017,
such contributions amounted to $9.7 million (2016: $11.3 million).

21. Financial instruments – fair values and risk management

Accounting policy

(a) Non-derivative financial assets

The Company classifies its non-derivative financial assets in the following categories: at fair value
through profit and loss, loans and receivables, held-to-maturity and available-for-sale. The classification
depends on the purpose for which the financial assets were acquired.

The Company initially recognizes loans and receivables on the date that they are originated. All other
financial assets are recognized initially on the trade date at which the Company becomes a party to the
contractual provisions of the instrument.

The Company derecognizes a financial asset when the contractual cash flows from the asset expire, or
it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained by the Company is recognized as a separate asset
or liability.

A financial asset is classified at fair value through profit or loss if it is classified as held for trading or is
designated as such upon initial recognition. Upon initial recognition, directly attributable transaction costs
are recognized in net income as incurred. Financial assets at fair value through profit or loss are
measured at fair value, and changes therein are recognized in net income. Financial assets at fair value
through profit or loss are comprised of certain investments and forward exchange contracts.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in
an active market. Such assets are initially recognized at fair value plus any directly attributable
transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized
cost using the effective interest method, less any impairment losses.

Loans and receivables comprise cash and cash equivalents, trade and other receivables. Cash and cash
equivalents comprises cash balances and short-term investments with original maturities of 90 days or
less.

Held-to-maturity financial assets are debt securities for which the Company has the positive intent and
ability to hold to maturity. Held-to-maturity financial assets are recognized initially at fair value plus any
directly attributable transaction costs. Subsequent to initial recognition, held-to-maturity financial assets
are measured at amortized cost using the effective interest method, less any impairment losses. Held-
to-maturity financial assets include certain investments held by the Company.

54Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

21. Financial instruments – fair values and risk management (continued)

(a) Non-derivative financial assets (continued)

Available-for-sale financial assets are non-derivative financial assets that are designated as available-
for-sale and that are not classified in any of the previous categories. Available-for-sale financial assets
are measured at fair value and changes therein, other than impairment losses and foreign currency
differences on available-for-sale debt instruments, are recognized in other comprehensive income and
presented within equity in the fair value reserve. When an investment is derecognized, the cumulative
gain or loss in other comprehensive income is transferred to net income. The Company does not have
any financial assets classified as available-for-sale.

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to
determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective
evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash flows of that asset that can be estimated
reliably. The Company considers evidence of impairment for receivables and held-to-maturity financial
assets at both a specific asset and collective level. All individually significant receivables and held-to-
maturity financial assets are assessed for specific impairment. All individually significant receivables and
held-to-maturity financial assets found not to be specifically impaired are then collectively assessed for
any impairment that has been incurred but not yet identified. Receivables and held-to-maturity financial
assets that are not individually significant are collectively assessed for impairment by grouping together
receivables and held-to-maturity financial assets with similar risk characteristics.

In assessing for impairment at the collective level, the Company uses historical trends of the probability
of default, timing of recoveries and the amount of loss incurred, adjusted for Management’s judgement
for current economic and credit conditions.

An impairment loss is calculated as the difference between an asset’s carrying amount and the present
value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses
are recognized in net income for the period and reflected in an allowance against receivables. Interest
on impaired assets continues to be recognized through the unwinding of
the discount. When a
subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss
is reversed through net income.

Impairment losses on available-for-sale financial assets are recognized by transferring the cumulative
loss that has been recognized in other comprehensive income, and presented in unrealized gains/losses
on available-for-sale financial assets in equity, to net income. The cumulative loss that is removed from
other comprehensive income and recognized in net income is the difference between the acquisition
cost, net of any principal repayment and amortization, and the current fair value, less any impairment
loss previously recognized in net income. Changes in impairment provisions attributable to time value
are reflected as a component of interest income.

(b) Non-derivative financial liabilities

The Company classifies its financial liabilities as other financial liabilities.

The Company initially recognizes debt
is originated. The Company
derecognizes a financial liability when its contractual obligations are discharged, cancelled, or expire.
The Company’s non-derivative financial liabilities consist of long-term debt, the revolving credit facility
as well as accounts payable and accrued liabilities. These financial liabilities are recognized initially at
fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial
liabilities are measured at amortized cost using the effective interest method.

issued on the date that

it

(c) Derivative financial instruments

The Company may enter into derivative financial instruments (foreign currency forward contracts) in
order to mitigate its exposure to foreign exchange risk. The Company’s policy is not to use derivative
financial instruments for trading or speculative purposes. These instruments have not been designated
as hedges for accounting purposes, and they are carried on the statement of financial position at fair
value with changes in value being recognized as gains or losses within sales in net income for the period.

55Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

21. Financial instruments – fair values and risk management (continued)

(c) Derivative financial instruments (continued)

Embedded derivatives are separated from the host contract and accounted for separately if (i) the
economic characteristics and risks of the host contract and the embedded derivative are not closely
related, (ii) a separate instrument with the same terms as the embedded derivative would meet the
definition of a derivative, and (iii) the combined instrument is not measured at fair value through profit or
loss. Changes in the fair value of separable embedded derivatives are recognized immediately in net
income.

Financial assets and liabilities are offset and the net amount presented in the statement of financial
position when, and only when, the Company has a legal right to offset the amounts and intends either
to settle on a net basis or to realize the asset and settle the liability simultaneously.

Supporting information

(d) Accounting classifications and fair values

The following table shows the carrying amounts and fair values of financial assets and financial liabilities,
including their levels in the fair valuation hierarchy. It does not include fair value information for financial
assets or liabilities not measured at fair value if the carrying amount is a reasonable approximation of
fair value. There has been no movement between fair value levels since December 31, 2016.

Carrying Amount

Fair Value

December 31, 2017

Financial assets measured at fair value

Foreign currency forward contracts (Note 21(e)(iii))
Investments

Financial assets not measured at fair value

Cash and cash equivalents
Trade and other receivables

Financial liabilities not measured at fair value

Accounts payable and accrued liabilities

December 31, 2016

Financial assets measured at fair value

Investments

Financial assets not measured at fair value

Cash and cash equivalents
Trade and other receivables

Financial liabilities measured at fair value

Foreign currency forward contracts

Financial liabilities not measured at fair value

Accounts payable and accrued liabilities
Long-term debt (Note 10)

Other
Held to Designated Loans and
financial
maturity at fair value receivables liabilities

Total

$

$

$

$

$
$

$
$

$

$

$
$

$

$

-
5.1
5.1

-
-
-

-
-

4.9
4.9

-
-
-

-
-

-
-
-

$

$

$

$

$
$

$
$

$

$

$
$

$

$

0.7
-
0.7

-
-
-

-
-

-
-

-
-
-

0.3
0.3

-
-
-

$

$

$

$

$
$

$
$

$

$

$
$

$

$

-
-
-

35.3
85.5
120.8

-
-

-
-

19.0
107.0
126.0

-
-

-
-
-

$

$

$

$

$
$

$
$

$

$

$
$

$

$

-
-
-

-
-
-

98.9
98.9

-
-

-
-
-

-
-

102.3
34.4
136.7

$

$

$

$

$
$

$
$

$

$

$
$

$

$

0.7
5.1
5.8

35.3
85.5
120.8

98.9
98.9

4.9
4.9

19.0
107.0
126.0

0.3
0.3

102.3
34.4
136.7

Level Level Level
2

3

1

Total

-$
-

0.7$
5.1

-$
-

$

0.7
5.1

-$

4.9$

-$

$

4.9

-$

0.3$

-$

$

0.3

56Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

21. Financial instruments – fair values and risk management (continued)

(e) Financial risk management

The use of financial instruments exposes the Company to credit risk, liquidity risk, and market risk. Other
than as described below, Management does not consider the risks to be significant to the Company.

The Board of Directors has oversight responsibility for the Company’s risk management framework. The
Company identifies, analyzes and actively manages the financial market risks associated with changes
interest rates and commodity prices. Western has established risk
in foreign exchange rates,
management policies and controls to identify and analyze the risks faced by the Company, to set
appropriate risk limits and to monitor risks and adherence to limits. Currently, the Company is only
engaged in foreign exchange forward contract activities.

(i) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial
instrument fails to meet is contractual obligations and arises principally from the Company’s
receivable from customers, and cash and cash equivalents. The carrying amount of the Company’s
financial assets represents the maximum credit exposure.

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer. However, Management also considers the demographics of the Company’s customer
base, including the default risk of the industry and country in which customers operate, as these
factors may have an influence on credit risk. The Company has determined that there is no
concentration of credit risk either geographically or by counterparty.

Sales transactions are made through the extension of credit to customers and are recorded at the
point in time the sale is recognized. Accordingly, fluctuations in collectability may affect the carrying
value of the underlying accounts receivable. Management balances the credit risk through rigorously
and continually reviewing customer credit profiles. The Company has established policies and
controls to review the creditworthiness of new customers, including review of credit ratings. The
Company’s general practice is to insure substantially all North American lumber receivables for 90%
of value with the Export Development Corporation or Coface Canada, while substantially all sales
outside of North America are sold on either a cash basis or with secured instruments, which reduces
the Company’s exposure to bad debts.

The Company regularly reviews the collectability of accounts receivable and makes provisions
where the collectability is uncertain. Historically the Company’s bad debts have been minimal and
as at December 31, 2017, the Company had an allowance for doubtful customer accounts of nil
(December 31, 2016: nil).

The aging of trade and other receivables at the reporting date that were not impaired was as follows:

Not past due
Past due, 0 - 30 days
Past due, 31 - 120 days

December 31, 2017

December 31, 2016

Gross value

Impairment

Gross value

Impairment

$

$

73.6
12.5
0.1
86.2

$

$

-
-
-
-

$

$

98.3
6.9
1.8
107.0

$

$

-
-
-
-

The Company held cash and cash equivalents of $35.3 million at December 31, 2017 (December
31, 2016: $19.0 million), which represents its maximum credit exposure on these assets. The cash
and cash equivalents are held at highly rated financial institutions and as such, the Company does
not believe that these are exposed to significant credit risk.

(ii)

Interest rate risk

The Company is exposed to interest rate risk through its current financial assets and financial
obligations bearing variable interest rates. Based on the Company’s debt structure at December 31,
2017, a change of 1% in interest rates would result in an immaterial change to the annual net income
(2016: increase or decrease of $0.4 million). The Company does not currently use derivative
instruments to reduce its exposure to interest rate risk.

57Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

21. Financial instruments – fair values and risk management (continued)

(e) Financial risk management (continued)

(iii) Currency risk

Certain of the Company’s sales transactions are denominated in foreign currencies, principally, the
USD and Japanese Yen (“JPY”), and accordingly the Company is exposed to currency risk
associated with changes in foreign exchange rates. To assist in managing this exchange risk, the
Company sells forward contracts with a maximum term for each transaction of up to one year. The
Company does not consider the credit risk associated with the counterparty risk to be significant.

During 2017, the Company entered into forward contracts to sell USD and JPY in order to mitigate
a portion of the foreign currency risk. At December 31, 2017, the Company had outstanding
obligations to sell an aggregate USD$43.0 million at an average exchange rate of CAD$1.27 per
USD with maturities through February 27, 2018, and to sell JPY 325.0 million at a rate of JPY 88.42
per CAD with maturities through January 31, 2018.

All foreign currency gains and losses on forward contracts to December 31, 2017 have been
recognized in sales in the consolidated statement of comprehensive income and the fair value of
these instruments at December 31, 2017 was a net asset of $0.7 million which is included in trade
and other receivables on the consolidated statement of financial position (December 31, 2016: net
liability of $0.3 million). A net gain of $0.7 million (2016: net loss of $0.3 million) was recognized in
sales in the consolidated statement of comprehensive income on the change in fair values of the
foreign exchange contracts. An increase (decrease) of 1% in the value of the CAD as compared to
the JPY would result in a gain (loss) of approximately $0.1 million in relation to the JPY Yen/CAD
foreign exchange contracts held at December 31, 2017. An increase (decrease) of 1% in the value
of the CAD as compared to the USD would result in a gain (loss) of approximately $0.5 million in
relation to the USD foreign exchange contracts held at December 31, 2017.

Certain receivable balances at December 31, 2017 are denominated in foreign currencies,
principally, the USD. Accordingly, fluctuations in foreign exchange rates may affect the carrying
value of the underlying accounts receivable. As of December 31, 2017, the Company’s accounts
receivable denominated in USD totaled USD$28.6 million. An increase (decrease) in the value of
the Canadian dollar by USD$0.01 would result in a decrease (increase) in USD denominated
accounts receivable at year end of approximately $0.3 million. In addition, as at December 31, 2017,
the Company had a total of USD$3.7 million in USD denominated cash and cash equivalents. An
increase (decrease) in the value of the Canadian dollar by USD$0.01 would result in an immaterial
change to USD denominated cash and cash equivalents at year end.

(iv) Commodity price risk

The Company does not enter into commodity contracts other than to meet the Company’s expected
usage and sale requirements and such contracts are not settled net.

(v) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by delivering cash or another financial asset.
Management mitigates any liquidity risk associated with the subsequent payment of liabilities
through the continual monitoring of expenditures and forecasting of
liquidity resources. The
Company maintains a revolving credit facility that can be drawn down to meet short-term financing
and liquidity needs.

As at December 31, 2017, the Company had $234 million (December 31, 2016: $199.1 million)
available under its credit facility and revolving term loan. The following are the contractual maturities
of financial liabilities, including estimated interest payments:

Accounts payable and accrued liabilities
Revolving credit facility
Revolving term loan

Carrying
amount

$

$

98.9
-
-
98.9

Contractual
cash flows
$
98.9
0.8
0.1
99.8

$

6 months
or less

$

$

98.9
0.3
0.1
99.3

6 - 12
months
-
0.3
-
0.3

$

$
$

2 - 3 years
$
$
$
$

-
0.2
-
0.2

4 - 5 years
$
$
$
$

-
-
-
-

More than 5
years

$
$
$
$

-
-
-
-

58Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

22. Finance costs

Accounting policy

Finance costs comprise interest expense on long-term debt and the revolving credit facility, amortization of
deferred financing costs, unwinding of the discount on the reforestation obligation, changes in the fair value
of investments recognized immediately through net income and net interest on the net defined benefit plan
obligation. All finance costs are recognized in net income during the period using the effective interest method
with the exception of the net interest on the net defined benefit obligation, which is recognized as described
in Note 20.

Supporting information

Long-term debt
Net interest - defined benefit plan obligation
Revolving credit facility
Amortization of deferred financing costs
Unwinding of discount on provisions
Other

23. Operating restructuring items

Years ended December 31,

2017

2016

$

$

0.6
1.1
0.5
0.3
0.3
(0.3)
2.5

$

$

1.7
1.4
0.7
0.4
0.2
-
4.4

Operating restructuring expenses in 2017 were $14.4 million (2016: $3.4 million) incurred primarily in relation
to voluntary severance to certain salaried and all hourly employees of the Somass sawmill and impairment
charges after announcement of the indefinite curtailment of that operation in July 2017. Included in the
operating restructuring expenses in 2017 is $2.4 million of severance provision related to closure of the
Englewood train. Expenses incurred in 2016 related to additional ongoing costs associated with the closure
of the Company’s former Nanaimo sawmill and the restructuring and consolidation of timberlands operations.

24. Other income

Settlement on tenure extinguishment
Change in fair value of biological assets (Note 7)
Employee benefits - plan amendment (Note 20)
Other

Years ended December 31,

2017

2016

$

$

-
-
-
1.2
1.2

$

$

14.1
8.0
3.8
(1.7)
24.2

Included in the other income for the year ended December 31, 2017 are gains of $3.8 million on disposal of
non-core assets including Western’s dry land sort in Sarita Bay, BC and our South Island Remanufacturing
plant, non-operating costs of $1.7 million related to the Englewood train accident and $0.9 million of other
expenses.

On October 21, 2016, the Company received compensation of $14.4 million, inclusive of $0.1 million post-
judgement interest, from the Province of British Columbia in settlement for the partial tenure extinguishment
from the Maa’nulth First Nations Final Agreement Act (the “Treaty”). The creation of Treaty Settlement Lands
and associated protected area tied to the Treaty on April 1, 2011 resulted in the permanent harvesting rights
reduction of 104,000 cubic metres in Tree Farm Licence 44.

59Western Forest Products Inc.
Notes to the Consolidated Financial Statements
Years ended December 31, 2017 and 2016
(Tabular amounts expressed in millions of Canadian dollars except number of shares and per share amounts)

25. Related parties

Accounting policy

Key management personnel are the Company’s directors and executive officers as disclosed in its 2017 and
2016 Annual Reports as applicable.

Supporting information

Compensation of key management personnel

The key management personnel of the Company include the executive management team and members of
the Board of Directors. Key management personnel compensation comprised:

Salaries, directors' fees and short-term benefits
Post-employment benefits
Share-based compensation, including mark-to-market adjustment

Years ended December 31,

2017

2016

$

$

6.6
0.3
4.4
11.3

$

$

5.8
0.3
2.0
8.1

At December 31, 2017, $9.9 million of key management compensation costs were included in accounts
payable and accrued liabilities and other liabilities (December 31, 2016: $6.2 million).

26. Expense categorization

Expenses by function:

Administration
Distribution expenses
Cost of goods sold

Costs by nature:

Compensation costs
Amortization in cost of goods sold
Amortization in selling and administration

Years ended December 31,

2017

2016

21.9
129.9
874.6
1,026.4

$

$

18.3
106.0
952.8
1,077.1

Years ended December 31,

2017

2016

223.0
35.4
0.9
259.3

$

$

232.9
33.5
0.3
266.7

$

$

$

$

Compensation costs are included in cost of goods sold and selling and administration.

27. Subsequent event

On January 17, 2018, the Company completed the acquisition of the assets of a lumber distribution and
processing centre in Arlington, Washington for a purchase price of USD $9.0 million. A purchase deposit of
USD $0.5 million was recorded to other assets at December 31, 2017.

60Suite 800
1055 West Georgia Street
Royal Centre, PO Box 11122
Vancouver, British Columbia
Canada V6E 3P3
Telephone: 604 648 4500

www.westernforest.com
info@westernforest.com

Trading on the TSX as “WEF”