West Fraser Q1_2016.pdf · West Fraser supports a reasonable negotiated settlement of this...

West Fraser

1st Quarter 2016 For the period January 1 to March 31, 2016

West Fraser Timber Co. Ltd. reported earnings of $42 million or $0.51 basic earnings per share on sales of $1,077 million in the first quarter of

2016. These results compare with previous periods as shown in the table below.

Adjusted EBITDA, Adjusted earnings and Adjusted basic EPS as described in this report reflect the adjustments described in the tables referred to

in the section titled “Non-IFRS Measures” on page 11 of our 2016 first quarter Management’s Discussion & Analysis.

($millions except earnings per share (“EPS”)) Q1-16 Q4-15 Q1-15

Sales 1,077 1,013 1,014

Adjusted EBITDA1 130 90 173

Operating earnings 79 18 125

Earnings 42 (15 ) 49

Basic EPS ($) 0.51 (0.18 ) 0.58

Adjusted earnings1 49 30 99

Adjusted basic EPS ($)1 0.60 0.38 1.17

1. In this report, reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted earnings per share (collectively “these measures”). We believe that, in addition to earnings, these measures are useful performance indicators. None of these measures is a generally accepted earnings measure under International Financial Reporting Standards (“IFRS”) and none has a standardized meaning prescribed by IFRS. Investors are cautioned that none of these measures should be considered as an alternative to earnings, EPS or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating any of these measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of any of these measures may not be directly comparable to similarly titled measures used by other entities. Refer to the tables in the section titled “Non-IFRS Measures” on page 11 of our 2016 first quarter Management’s Discussion & Analysis of our first quarter 2016 results for details of these adjustments.

Operational Results

In the quarter our lumber operations generated operating earnings of $63 million (Q4-15 – $17 million) and Adjusted EBITDA of $100 million (Q4-15

– $55 million). Higher prices and shipments combined with a weaker Canadian dollar contributed to the improved results. Lumber markets improved

slightly as generally milder weather conditions produced above normal home building activity in many parts of the U.S.

The panel segment, which includes plywood, LVL and MDF, generated operating earnings in the quarter of $12 million (Q4-15 – $16 million)

and Adjusted EBITDA of $15 million (Q4-15 – $19 million), mostly reflecting weakening plywood and MDF prices.

Pulp and paper operations generated operating earnings in the quarter of $5 million (Q4-15 – $8 million) and Adjusted EBITDA of $14 million

(Q4-15 – $17 million). Pulp results benefitted from a weaker Canadian dollar as U.S. dollar-denominated pulp prices were relatively stable in

the quarter. This benefit was offset by increased maintenance costs at our Hinton pulp mill, the result of a minor maintenance shutdown during

the period.

Outlook

Discussions between Canada and the U.S. regarding a replacement of the Softwood Lumber Agreement are underway. West Fraser supports a

reasonable negotiated settlement of this potential dispute but is prepared for alternative outcomes.

Ted Seraphim, our President and CEO, said “We have made significant investments in growth, capital and innovation, and we are starting to see the

benefits of the most comprehensive five-year capital plan in our history. We are geographically diversified and have a modern and efficient group of

assets which positions us well in addressing any trade sanctions arising from the dispute.”

Report to Shareholders

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Management’s Discussion & Analysis (“MD&A”)

The Company’s MD&A is available on the Company’s website: www.westfraser.com and on the System for Electronic Document Analysis and

Retrieval at www.sedar.com under the Company’s profile.

The Company

West Fraser is a diversified wood products company producing lumber, LVL, MDF, plywood, pulp, newsprint, wood chips and energy with facilities in

western Canada and the southern United States.

Forward-Looking Statements

This report contains historical information, descriptions of current circumstances and statements about potential future developments. The

latter, which are forward-looking statements and are included under the heading “Outlook”, are presented to provide reasonable guidance to the

reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. Actual outcomes and results

will depend on a number of factors that could affect the ability of the Company to execute its business plans, including those matters described

in the 2015 annual Management’s Discussion & Analysis under “Risks and Uncertainties”, and may differ materially from those anticipated or

projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation

to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws.

On behalf of the Board of Directors,

Ted Seraphim

President and Chief Executive Officer

April 25, 2016

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Introduction and InterpretationThis discussion and analysis by West Fraser’s management (“MD&A”) of the Company’s financial performance during the first quarter of 2016

should be read in conjunction with the unaudited condensed consolidated interim financial statements and accompanying notes (“Financial

Statements”) included in this quarterly report and the 2015 annual MD&A included in the Company’s 2015 Annual Report. Dollar amounts are

expressed in Canadian currency, unless otherwise indicated.

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

as otherwise disclosed.

This MD&A contains historical information, descriptions of current circumstances and statements about potential future developments and

anticipated financial results. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader but their

accuracy depends on a number of assumptions and are subject to various risks and uncertainties. Forward-looking statements are included under

the headings “Business Outlook” and “Operating Activities” (concerning reduction of inventories). Actual outcomes and results of these statements

will depend on a number of factors including those matters described under “Risks and Uncertainties” in the 2015 annual MD&A, and may differ

materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and we

undertake no obligation to publicly revise them to reflect subsequent events or circumstances except as required by applicable securities laws.

Throughout this MD&A reference is made to Adjusted EBITDA, Adjusted earnings and Adjusted basic earnings per share and net debt to total capital

ratio (collectively “these measures”), calculated as shown under the heading “Non-IFRS Measures” in this report. We believe that, in addition to

earnings, these measures are useful performance indicators. None of these measures is a generally accepted earnings measure under IFRS and

none has a standardized meaning prescribed by IFRS. Investors are cautioned that none of these measures should be considered as an alternative

to earnings, earnings per share or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating any of

these measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of any of

these measures may not be directly comparable to similarly titled measures used by other entities.

This MD&A uses the following terms that are defined in the Company’s 2015 Annual Report: “SPF” (spruce-pine-fir lumber), “SYP” (southern yellow

pine lumber), “MDF” (medium density fibreboard), “LVL” (laminated veneer lumber), “BCTMP” (bleached chemithermomechanical pulp) and “NBSK”

(northern bleached softwood kraft pulp).

This MD&A includes references to benchmark prices over selected periods for products of the type produced by West Fraser. These benchmark

prices do not necessarily reflect the prices obtained by West Fraser for those products during such period. The information in this interim MD&A is

as at April 25, 2016 unless otherwise indicated.

Summary Information($millions except as otherwise indicated) Q1-16 Q4-15 Q1-15

Sales 1,077 1,013 1,014

Adjusted EBITDA 130 90 173

Equity-based compensation (2 ) (22 ) (1 )

Amortization (49 ) (50 ) (47 )

Operating earnings 79 18 125

Finance expense (8 ) (6 ) (8 )

Other` (16 ) (16 ) (47 )

Tax provision (13 ) (11 ) (21 )


Cdn$1.00 converted to US$ – average 0.729 0.749 0.806

2016 Management’s Discussion & Analysis

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Selected Quarterly Information

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

Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14

Sales 1,077 1,013 1,044 1,029 1,014 964 1,030 1,053

Earnings 42 (15 ) 56 14 49 43 70 74

Basic EPS 0.51 (0.18 ) 0.67 0.17 0.58 0.51 0.83 0.87

Diluted EPS 0.50 (0.18 ) 0.05 0.17 0.53 0.51 0.83 0.87

Adjusted Earnings and Adjusted Basic Earnings Per Share($millions except EPS amounts which are in $) Q1-16 Q4-15 Q1-15


Add:

Equity-based compensation 2 22 1

Exchange loss (gain) on long-term debt (26 ) 15 32

Exchange loss (gain) on intercompany financing 17 (1 ) (5 )

Loss on power agreements 19 3 30

Write-down of investment — 7 —

Net tax effect on the above adjustments (5 ) (1 ) (8 )

Adjusted earnings 49 30 99

Adjusted basic EPS1 0.60 0.38 1.17

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

Discussion & Analysis of Non-Operational ItemsIn the current quarter we generated earnings of $42 million compared to a loss of $15 million in the previous quarter and earnings of $49 million in

the first quarter of 2015. For a description of operational results see “Discussion & Analysis by Product Segment” which follows this section. Our

results include several significant non-operational items which are identified as adjustments in the table above this section and shown under the

heading “Non-IFRS Measures” in this MD&A. After taking into account these adjustments, we generated Adjusted earnings of $49 million compared

to Adjusted earnings of $30 million in the previous quarter and $99 million in the first quarter of 2015.

Any change in the value of the Canadian dollar relative to the value of the U.S. dollar results in the revaluation of our U.S. dollar-denominated assets

and liabilities. The result of these revaluations is included in other income. The Canadian dollar was stronger against the U.S. dollar at the end of

the current quarter compared to the previous quarter resulting in a foreign exchange loss of $10 million on working capital, a $17 million loss on

intercompany financing (see Note 8 to the Financial Statements) and a $26 million gain on long-term debt (Q4-15 – $9 million gain, $1 million gain

and $15 million loss, respectively).

During the quarter we terminated our power purchase agreements that had provided us with a portion of the electricity generated from two power

plants in Alberta at substantially predetermined rates (see Note 8 to the Financial Statements). The termination of the agreements resulted in a loss

of $19 million recorded in other income.

In the current quarter an expense of $2 million was recorded related to equity-based compensation compared to $22 million in the previous quarter

and $1 million in the first quarter of 2015. An expense is recorded on the issuance of share options or phantom or directors’ deferred share units and

an additional expense or recovery is recorded each quarter based primarily on valuation models that consider various factors relating to outstanding

options and units. The most significant of these factors is the change in the market value of our shares from the beginning to the end of the particular

period. The expense or recovery does not necessarily represent the actual value which will ultimately be received by the holders of options and units.

The results of the current quarter include a provision for income tax of $13 million compared to $11 million in the prior quarter and to $21 million

for the first quarter of 2015. Note 9 to the Financial Statements provides a reconciliation of income taxes calculated at the statutory rate to the

income tax expense.

The funded position of our defined benefit pension plans and other retirement benefit plans is estimated at the end of each quarter. The funded

position, as shown in Note 6 of the Financial Statements, is determined by subtracting the value of plan assets from the value of plan

obligations. A combination of a decrease in the discount rate used to calculate plan liabilities from the beginning of the current period and

the rate of return on assets held that was lower than the discount rate resulted in an after-tax actuarial loss of $60 million which is included

in other comprehensive earnings.

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DISCUSSION & ANALYSIS BY PRODUCT SEGMENTLumber Segment Q1-16 Q4-15 Q1-15

SPF (MMfbm)

Production 963 896 880

Shipments 952 946 813

SYP (MMfbm)



Sales ($millions)

Lumber 645 578 589

Wood chips and other residuals 84 77 67

Logs and other 29 29 25

758 684 681

Adjusted EBITDA ($millions) 100 55 117

Amortization ($millions) (37 ) (38 ) (33)

Operating earnings ($millions) 63 17 84

Adjusted EBITDA margin (%) 13 8 17

Benchmark prices (per Mfbm)

SPF #2 & Better 2 x 41 – US$ 271 263 309

SPF #3 Utility1 – US$ 208 189 262

SYP #2 West 2 x 42 – US$ 387 395 426

SPF #2 & Better 2 x 4 – Cdn$3 372 351 384

SPF #3 Utility – Cdn$3 285 252 325

SYP #2 West 2 x 4 – Cdn$3 531 527 529

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

Operating earnings increased in the quarter compared to the previous quarter, reflecting higher production and sales volumes, improved pricing and

a weaker Canadian dollar against the U.S. dollar on average over the quarter. In addition, no export tax was paid in the current quarter compared

to a 15% tax for 12 days in the previous quarter.

Production increased in the current quarter compared to the previous quarter, reflecting productivity improvements at a number of our Canadian

mills following the completion of capital improvements, the acquisition of our Manning, Alberta sawmill late in October 2015 and more

operating days.

Operating earnings were lower in the quarter compared to the first quarter of 2015, primarily due to significantly lower lumber prices. A weaker

Canadian dollar helped offset the price declines, as did increased production and sales volumes. Higher production compared to the first quarter

of the previous year reflected the acquisition of our Manning sawmill, production improvements at a number of mills following the completion of

capital projects and more operating days

2016 Management’s Discussion & Analysis (continued)

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Panels Segment Q1-16 Q4-15 Q1-15

Plywood (MMsf 3/8” basis)



MDF (MMsf 3/4” basis)

Production 52 56 54

Shipments 58 53 51

LVL (Mcf)



Sales ($millions)

Finished products 132 131 126

Wood chips and other residuals 4 5 4

Logs and other 2 3 1

138 139 131

Adjusted EBITDA ($millions)) 15 19 26

Amortization ($millions) (3 ) (3 ) (3 )



Benchmark prices

Plywood (per Msf 3/8” basis)1 – Cdn$ 405 410 444

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

Our panels segment is comprised of our plywood, MDF and LVL operations.

Operating earnings decreased in the quarter compared to the previous quarter, reflecting lower plywood shipments, lower plywood and MDF prices

and reduced MDF production, the result of a fire at our WestPine MDF plant on March 9, 2016. The plant will remain closed pending the completion

of a full investigation and the completion of repairs. Our insurance policy, less a minimal deductible, is available to cover the cost of repairs and

business interruption.

Operating earnings also decreased compared to the first quarter of 2015, primarily reflecting lower plywood prices. The majority of our plywood is

sold into eastern Canada and is used in new home construction and in the renovation and repair markets. These markets, notwithstanding normal

seasonal fluctuations, have remained steady over the past year.

Although we continue to operate our LVL mill on a curtailed basis, we have increased production in response to improving markets. LVL is primarily

used in new single family homes.

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Pulp & Paper Segment Q1-16 Q4-15 Q1-15

BCTMP (Mtonnes)



NBSK (Mtonnes)



Newsprint (Mtonnes)

Production 33 33 34

Shipments 34 38 31

Sales ($millions) 212 220 230

Adjusted EBITDA ($millions) 14 17 30

Amortization ($millions) (9 ) (9 ) (10 )



Benchmark price (per tonne)

NBSK U.S. – US$1, 3 943 945 995

NBSK China – US$2,3 590 600 663

Newsprint – US$4 538 505 580

NBSK – Cdn$5 1,294 1,262 1,235

NBSK China – Cdn$5 810 801 823

Newsprint – Cdn$5 738 674 720

1. Source: Resource Information Systems, Inc. – U.S. list price delivered U.S.2. Source: Resource Information Systems, Inc. – China list price delivered China.3. The differences between the U.S. and China NBSK list prices are largely attributable to the customary sales practice of applying material discounts from the U.S. list price for North American sales compared to relatively small discounts from the China list price for sales into China.4. Source: Resource Information Systems, Inc. – delivered 48.8 gram newsprint.5. Calculated by applying the average Canadian/U.S. dollar exchange rate for the period to the U.S. dollar benchmark price.

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

Operating earnings decreased in the current quarter compared to the previous quarter. Although Canadian-dollar sales prices for NBSK were

higher, this benefit was offset by reduced NBSK shipments and higher maintenance costs incurred during a minor maintenance shutdown at our

Hinton NBSK mill. Production was also curtailed at our Quesnel BCTMP mill under an electricity load curtailment program with BC Hydro, but this

was offset by monthly cash payments received in return for participation in the program. The effect of reduced newsprint shipments was partially

offset by improved pricing and a weaker Canadian dollar.

Operating earnings decreased in the quarter compared to the first quarter of 2015, primarily due to lower BCTMP prices. BCTMP markets slowed

in China, where most of our product is sold, and global supply increased. Average discounts to the NBSK-U.S. list price also increased in the current

quarter, further reducing our sales realizations. Maintenance costs were higher in the current quarter, the result of the maintenance shutdown at

our Hinton mill. A weaker Canadian dollar offset the decline in U.S.-dollar prices for NBSK and newsprint. Despite a maintenance shutdown, overall

NBSK production improved over the first quarter of 2015 reflecting ongoing production improvements at our Hinton mill.


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BUSINESS OUTLOOK

Operations

Our first quarter operating results indicate that our lumber production is on track to exceed our 2015 production by approximately 400 MMfbm.

Our plywood production is expected to be similar to 2015 levels while our MDF production will reflect the suspension of operations at our WestPine

facility due to the fire that occurred in early March of 2016. It is still too early to reasonably predict when that facility will restart. Our LVL production

has increased compared to 2015 average production driven mainly by North American new home construction and we are optimistic that this trend

will continue.

Our Hinton NBSK pulp mill completed a minor shutdown in the first quarter and we are expecting improved production compared to 2015 levels

over the balance of the year. Our Cariboo jointly-owned NBSK pulp mill will have a five day maintenance shutdown in the second quarter but we

continue to expect higher overall annual production compared to 2015.

Log costs will continue to be a major concern for our lumber operations, particularly in regions of B.C. that have been heavily affected by the

mountain pine beetle infestation. Our plywood operations, which require larger and higher quality logs, are also expected to experience increasing

log costs.

Markets

In the first quarter lumber prices strengthened as North American demand reflected milder weather conditions than in immediately previous years

and Chinese demand stabilized. We expect to see continued gradual improvement in lumber prices as U.S. new home construction gradually

returns to average historical levels although there will be volatility as new production is absorbed by the market. We are encouraged by demand

from China while we recognize that the structure of the Chinese lumber market will continue to produce volatility in demand and pricing.

Discussions between Canada and the U.S. regarding a replacement of the Softwood Lumber Agreement are underway. The current standstill period

ends in October of this year. We support a reasonable negotiated settlement of this potential dispute but we are prepared for alternative outcomes.

Cash Flows

Current and anticipated cash flows are expected to support our capital investment program, the continuation of our dividend and, possibly,

additional share buybacks. In the first quarter our capital spending was $49 million and we project total spending in 2016 on capital improvements

to be approximately $300 million. In the first quarter we spent $50 million on share buybacks and we will continue to consider share buybacks

depending on both our cash flow expectations and our share valuation.

CAPITAL STRUCTURE AND LIQUIDITYOur capital structure consists of Common share equity and long-term debt. In addition, we maintain a $500 million committed revolving credit

facility, two demand letter of credit facilities totalling $75 million and an $8 million revolving line of credit available to our 50%-owned newsprint

operation. These facilities are available to meet our funding requirements.

The outstanding Common share equity consists of 79,116,068 Common shares and 2,281,478 Class B Common shares for a total of 81,397,546

shares issued and outstanding as at April 25, 2016.

During the quarter we repurchased 1,062,752 Common shares for cancellation under our normal course issuer bid that will expire in September

2016 for an average price of $46.96. Combined with the Common shares repurchased since the third quarter 2013 under our two previous normal

course issuer bids, we have purchased for cancellation a total of 4,359,062 Common shares.

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Each Class B Common share may at any time be exchanged for one Common share. The rights attached to the Common shares and Class B

Common shares are equal in all other respects, including the right to dividends and the right to vote. The Common shares are listed and traded on

the Toronto Stock Exchange under the symbol WFT while our Class B Common shares are not. Certain circumstances or corporate transactions

may require the approval of the holders of our Common shares and Class B Common shares on a separate class-by-class basis.

As of April 25, 2016 there were 2,266,870 share purchase options outstanding with exercise prices ranging from $12.36 to $73.99 per

Common share.

On March 31, 2016, $297 million was owed under our credit facilities. Letters of credit in the amount of $51 million were supported by our

facilities, leaving $235 million of credit available for further use.

Our cash requirements, other than for operating purposes, are primarily for interest payments, repayment of debt, additions to property, plant,

equipment and timber, acquisitions and payment of dividends. In normal business cycles and in years without a major acquisition or debt

repayment, cash on hand and cash provided by operations have normally been sufficient to meet these requirements.

Summary of Financial Position($millions, except as otherwise indicated) Q1-16 Q4-15 Q1-15

Cash1 19 13 12

Current assets 1,110 971 1,029

Current liabilities 738 606 626

Ratio of current assets to current liabilities 1.5 1.6 1.6

Net debt2 712 617 534

Shareholders’ equity 2,041 2,147 2,078

Net debt to total capital3 26% 22% 20%

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

Debt RatingsAs shown in the table below, we are rated by three leading rating agencies. All three ratings are considered investment-grade.

Agency Rating OutlookDBRS BBB(low ) Stable

Moody’s Baa3 Stable

Standard & Poor’s BBB- Positive

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


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Selected Cash Flow Items($millions) Q1-16 Q4-15 Q1-15

Operating Activities


Amortization 49 50 47

Loss on power agreements, net of settlement costs 11 3 30

Contributions to benefit plans in excess of expense 5 (14 ) 10

Change in income tax 4 6 (21 )

Change in inventories (96 ) (68 ) (57 )

Other (38 ) 10 (12 )

Cash provided by (used in) operating activities (23 ) (28 ) 46

Financing Activities Debt and operating loans 116 137 49

Financing expense paid (1 ) (10 ) (2 )

Common share repurchases (50 ) — —

Dividends and other (6 ) (6 ) (6 )

Cash provided by financing activities 59 121 41

Investing Activities Acquisition — (76 ) —

Additions to capital assets (49 ) (51 ) (69 )

Other 4 3 —

Cash used in investing activities (45 ) (124 ) (69 )

Increase (decrease) in cash (9 ) (31 ) 18

Operating ActivitiesCash used in operating activities during the first quarter of each year generally increases as logging activity in Canada increases during the winter

season and log inventories are built to sustain production activities during the second quarter. Following a normal cycle, cash is generated during

the second quarter as logging is curtailed and the log inventory is consumed in operations.

Investing ActivitiesCash flows used for investing activities in the quarter amounted to $45 million. Additions to capital assets included $32 million for the lumber

segment, $1 million for the panels segment, $14 million for the pulp & paper segment and $2 million for our corporate segment.

NON-IFRS MEASURESThe following summarizes the non-IFRS measures we use in this MD&A. None of these measures is a generally accepted measure under IFRS and

none has a standardized meaning prescribed by IFRS. Investors are cautioned that none of these measures should be considered as an alternative

to earnings, earnings per share or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating any of

these measures, our method of calculating each of them may differ from the methods used by other entities and, accordingly, our use of any of

these measures may not be directly comparable to similarly titled measures used by other entities.

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Adjusted EBITDA($millions) Q1-16 Q4-15 Q1-15Earnings 42 (15 ) 49Add: Amortization 49 50 47 Finance expense 8 6 8 Tax provision 13 11 21EBITDA 112 52 125Add: Equity-based compensation 2 22 1 Other 16 16 47Adjusted EBITDA 130 90 173

Adjusted EBITDA by Segment($millions) Q1-16 Q4-15 Q1-15Lumber Earnings before tax 53 8 82Add: Amortization 37 38 33 Finance expense 5 4 5EBITDA 95 50 120Add: Other 5 5 (3 )Adjusted EBITDA 100 55 117Panels Earnings before tax 9 15 19Add: Amortization 3 3 3 Finance expense 1 — 1EBITDA 13 18 23Add: Other 2 1 3Adjusted EBITDA 15 19 26Pulp & Paper Earnings before tax (20 ) 8 (2 )Add: Amortization 9 9 10 Finance expense 2 2 2EBITDA (9 ) 19 10Add: Other 23 (2 ) 20Adjusted EBITDA 14 17 30Corporate and Other Earnings before tax 13 (35 ) (29 )Add: Amortization — — 1EBITDA 13 (35 ) (28 )Add: Equity-based compensation 2 22 1 Other (14 ) 12 27Adjusted EBITDA 1 (1 ) —

Total Adjusted EBITDA 130 90 173


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Adjusted Earnings and Adjusted Basic Earnings Per Share($millions except EPS amounts which are in $) Q1-16 Q4-15 Q1-15


Add:

Equity-based compensation 2 22 1

Exchange loss (gain) on long-term debt (26 ) 15 32

Exchange loss (gain) on intercompany financing 17 (1 ) (5 )

Loss on power agreements 19 3 30

Write-down of investment — 7 —

Net tax effect on the above adjustments (5 ) (1 ) (8 )

Adjusted earnings 49 30 99

Adjusted basic EPS1 0.60 0.38 1.17

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

Net Debt to Total Capital Ratio($millions except where indicated) Q1-16 Q4-15 Q1-15

Net debt

Cash and short-term investments (19 ) (13 ) (12 )

Deferred financing costs1 (7 ) (7 ) (8 )

Cheques issued in excess of funds on deposit 40 29 4

Operating loan 297 181 159

Long-term debt, includes current portion 401 427 391

712 617 534

Shareholders’ equity 2,041 2,147 2,078

Total capital 2,753 2,764 2,612

Net debt to total capital 26% 22% 20%

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

RISKS AND UNCERTAINTIESFor a review of the risks and uncertainties to which our Company is subject, see the 2015 annual MD&A which is included in our 2015 Annual Report.

SIGNIFICANT MANAGEMENT JUDGMENTS AFFECTING FINANCIAL RESULTSFor a review of significant management judgments affecting financial results and critical accounting estimates, see the 2015 annual MD&A which

is included in our 2015 Annual Report.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTINGOur management, including the President and Chief Executive Officer and the Vice-President, Finance and Chief Financial Officer, acknowledge

responsibility for the design of disclosure controls and procedures and internal controls over financial reporting.

There has been no change in our internal controls over financial reporting during the three months ended March 31, 2016 that has materially

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

ADDITIONAL INFORMATIONAdditional information relating to our Company, including our Company’s Annual Information Form, is available on SEDAR at www.sedar.com.

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March 31 December 31 2016 2015

Assets

Current assets

Cash and short-term investments $ 19 $ 13

Receivables 332 298

Income taxes receivable 16 11

Inventories (note 3) 721 631

Prepaid expenses 22 18

1,110 971

Property, plant and equipment 1,581 1,609

Timber licences 565 570

Goodwill and other intangibles 363 369

Other assets 18 36

Deferred income tax assets 70 80

$ 3,707 $ 3,635

Liabilities

Current liabilities

Cheques issued in excess of funds on deposit $ 40 $ 29

Operating loans (note 4) 294 178

Payables and accrued liabilities 354 351

Reforestation and decommissioning obligations 48 48

Current portion of long-term debt (note 4) 2 —

738 606

Long-term debt (note 4) 395 423

Other liabilities (note 5) 366 269

Deferred income tax liabilities 167 190

1,666 1,488

Shareholders’ Equity

Share capital (note 7) 571 579

Accumulated other comprehensive earnings 132 164

Retained earnings 1,338 1,404

2,041 2,147

$ 3,707 $ 3,635

Number of Common shares and Class B Common shares outstanding at April 25, 2016 was 81,397,546.

Condensed Consolidated Balance Sheets(In millions of Canadian dollars, except where indicated – unaudited)

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January 1 to March 31

2016 2015

Share capital

Balance – beginning of period $ 579 $ 587

Common share repurchases (8 ) —

Balance – end of period $ 571 $ 587

Accumulated other comprehensive earnings

Balance – beginning of period $ 164 $ 55

Translation gain (loss) on foreign operations (32 ) 51

Balance – end of period $ 132 $ 106

Retained earnings

Balance – beginning of period $ 1,404 $ 1,387

Actuarial loss on post-retirement benefits (60 ) (45 )


Earnings for the period 42 49

Dividends (6 ) (6 )

Balance – end of period $ 1,338 $ 1,385

Shareholders’ Equity $ 2,041 $ 2,078

Condensed Consolidated Statements of Changesin Shareholders’ Equity(In millions of Canadian dollars, except where indicated – unaudited)

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2016 2015

Sales $ 1,077 $ 1,014

Costs and expenses Cost of products sold 749 657

Freight and other distribution costs 159 144

Amortization 49 47

Selling, general and administration 39 40

Equity-based compensation 2 1

998 889

Operating earnings 79 125

Finance expense (8 ) (8 )

Other (note 8) (16 ) (47 )

Earnings before tax 55 70

Tax provision (note 9) (13 ) (21 )

Earnings $ 42 $ 49

Earnings per share (dollars) (note 10)

Basic $ 0.51 $ 0.58

Diluted $ 0.50 $ 0.53

Comprehensive earnings Earnings $ 42 $ 49

Other comprehensive earnings

Translation gain (loss) on foreign operations (32 ) 51

Actuarial loss on post-retirement benefits1 (60 ) (45 )

Comprehensive earnings $ (50 ) $ 55

1. Net of tax recovery of $21 million (three months ended March 31, 2015 – $17 million).

Condensed Consolidated Statements of Earningsand Comprehensive Earnings(In millions of Canadian dollars, except where indicated – unaudited)

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2016 2015

Operating activities

Earnings $ 42 $ 49

Adjustments

Amortization 49 47

Finance expense 8 8

Foreign exchange loss (gain) on long-term debt (26 ) 32

Foreign exchange loss (gain) on intercompany financing 17 (5 )

Loss on power agreements, net of settlement costs 11 30

Post-retirement expense 17 13

Contributions to post-retirement benefit plans (12 ) (3 )

Tax provision 13 21

Income taxes paid (9 ) (42 )

Other (1 ) 10

Changes in non-cash working capital

Receivables (36 ) (54 )

Inventories (96 ) (57 )

Prepaid expenses (5 ) (1 )

Payables and accrued liabilities 5 (2 )

Cash flows from operating activities (23 ) 46

Financing activities

Proceeds from operating loans 116 49

Finance expense paid (1 ) (2 )

Dividends (6 ) (6 )


Cash flows from financing activities 59 41

Investing activities

Additions to capital assets (49 ) (69 )

Government assistance 4 —

Cash flows from investing activities (45 ) (69 )

Change in cash (9 ) 18

Foreign exchange effect on cash 4 5

Cash – beginning of period (16 ) (15 )

Cash – end of period $ (21 ) $ 8

Cash consists of

Cash and short-term investments $ 19 $ 12

Cheques issued in excess of funds on deposit (40 ) (4 )

$ (21 ) $ 8

Condensed Consolidated Statements of Cash Flows(In millions of Canadian dollars, except where indicated – unaudited)

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1. Nature of operationsWest Fraser Timber Co. Ltd. (“West Fraser”, “we”, “us” or “our”) is a diversified wood products company producing lumber, LVL, MDF, plywood,

pulp, newsprint, wood chips and energy with facilities in western Canada and the southern United States. Our executive office is located

at 858 Beatty Street, Suite 501, Vancouver, British Columbia. West Fraser was formed by articles of amalgamation under the Business

Corporations Act (British Columbia) and is registered in British Columbia, Canada. Our Common shares are listed for trading on the Toronto

Stock Exchange under the symbol WFT.

2. Basis of presentation and statement of complianceThese condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, Interim

Financial Reporting as issued by the International Accounting Standards Board and using the same accounting policies and methods of their

application as the December 31, 2015 annual financial statements. These condensed consolidated interim financial statements should be read in

conjunction with our 2015 annual consolidated financial statements.

3. InventoriesInventories at March 31, 2016 were written down by $14 million (December 31, 2015 – $21 million; March 31, 2015 – $7 million) to reflect net

realizable value being lower than cost.

4. Long-term debt and operating loans

Long-term debt March 31, December 31, 2016 2015

US$300 million senior notes due October 2024; interest at 4.35% $ 389 $ 415

US$8 million note payable due October 2020; interest at 2% 10 10

Note payable due in installments; interest at 5.5% 2 2

401 427

Current portion (2 ) —

Deferred financing costs (4 ) (4 )

$ 395 $ 423

The fair value of the long-term debt is $381 million (December 31, 2015 – $406 million) based on rates available to us at the balance sheet date

for long-term debt with similar terms and remaining maturities.

Operating loansWe have $583 million in revolving lines of credit of which $294 million (net of deferred financing costs of $3 million) were drawn as at March 31,

2016 (December 31, 2015 – $178 million, net of deferred financing costs of $3 million).

Our revolving lines of credit consist of a $500 million revolving credit facility, two demand lines of credit totalling $75 million dedicated to letters

of credit, and an $8 million demand line of credit dedicated to our jointly owned newsprint operation. The revolving credit facility matures on

September 30, 2020.

Interest on these facilities is payable at floating rates based on Prime, U.S. base, Bankers’ Acceptances or LIBOR at our option. As at March 31,

2016, letters of credit in the amount of $51 million have been issued under these facilities.

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

Notes to Condensed Consolidated Interim Financial Statements(Figures are in millions of Canadian dollars, except where indicated – unaudited)

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5. Other liabilities March 31, December 31, 2016 2015

Post-retirement (note 6) $ 227 $ 142

Reforestation 93 76

Decommissioning 29 29

Other 17 22

$ 366 $ 269

6. Post-retirement benefitsWe maintain defined benefit and defined contribution pension plans covering a majority of our employees. The defined benefit plans generally do

not require employee contributions and provide a guaranteed level of pension payable for life based either on length of service or on earnings and

length of service, and in most cases do not increase after commencement of retirement. We also provide group life insurance, medical and extended

health benefits to certain employee groups.

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

March 31, December 31, 2016 2015

Projected benefit obligations $ (1,604 ) $ (1,532 )

Fair value of plan assets 1,389 1,409

Impact of minimum funding requirement (6 ) (11 )

$ (221 ) $ (134 )

Represented by

Post-retirement assets $ 6 $ 8

Post-retirement liabilities (note 5) (227 ) (142 )

$ (221 ) $ (134 )

The significant actuarial assumptions used to determine our balance sheet date post-retirement assets and liabilities are as follows:

March 31, 2016 December 31, 2015 March 31, 2015

Discount rate 3.75% 4.00% 3.50%

Future compensation rate increase 3.50% 3.50% 3.50%

The change in the discount rate on obligations and the difference between the actual rate of return and the discount rate on plan assets generated

an actuarial loss on post-retirement benefits, included in other comprehensive earnings, as follows:


2016 2015

Actuarial loss $ (81 ) $ (62 )

Tax recovery on actuarial loss 21 17

$ (60 ) $ (45 )

7. Share capitalDuring the quarter we purchased 1,062,752 Common shares under our normal course issuer bid program, which expires on September 16, 2016,

at an average price of $46.96 per share for a total of $50 million.

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8. Other January 1 to March 31

2016 2015

Foreign exchange gain (loss) on working capital $ (10 ) $ 12

Foreign exchange gain (loss) on intercompany financing1 (17 ) 5

Foreign exchange gain (loss) on long-term debt 26 (32 )

Loss on power agreements (19 ) (30 )

Other 4 (2 )

$ (16 ) $ (47 )

1. Relates to US$200 million of financing provided to our U.S. operations. IAS 21 requires that the exchange gain or loss be recognized through earnings as the financing is not considered part of our permanent investment in our U.S. subsidiaries. The balance sheet amounts and related financing expense are eliminated in these consolidated financial statements.

In March 2016 the termination of our three-year power strip agreement was negotiated. In addition, Capital Power Corporation gave notice of

its intent to terminate its role as buyer of the Sundance C Power Arrangement effective March 24, 2016. As a result of this termination, our role

as a party to the Power Syndicate Agreement (Sundance C) also terminated. These agreements had provided us with a portion of the electricity

generated from two power plants in Alberta at substantially predetermined rates. The termination of these agreements resulted in a loss of $19

million in the current quarter.

9. Tax provisionThe tax provision differs from the amount that would have resulted from applying the British Columbia statutory income tax rate to earnings before

tax as follows:


2016 2015

Income tax at statutory rate of 26% $ (14 ) $ (18 )

Non-taxable amounts 2 1

Rate differentials between jurisdictions and on specified activities (2 ) —

Unrecognized capital losses 1 (4 )

Tax provision $ (13 ) $ (21 )

Notes to Consolidated Financial Statements (continued)

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10. Earnings per shareBasic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using the weighted average number

of Common shares and Class B Common shares outstanding.

Diluted earnings per share is calculated based on earnings available to Common shareholders adjusted to remove the actual share option expense

(recovery) charged to earnings and after deducting a notional charge for share option expense assuming the use of the equity-settled method,

as set out below. The diluted weighted average number of shares is calculated using the treasury stock method. When earnings available to

Common shareholders for diluted earnings per share are greater than earnings available to Common shareholders for basic earnings per share, the

calculation is anti-dilutive and diluted earnings per share are deemed to be the same as basic earnings per share. January 1 to March 31 2016 2015

Earnings Basic $ 42 $ 49 Share option expense (recovery) 2 (2 ) Equity-settled share option adjustment (2 ) (2 ) Diluted $ 42 $ 45 Weighted average number of shares (thousands) Basic 82,281 83,528 Share options 955 1,418 Diluted 83,236 84,946

Earnings per share (dollars) Basic $ 0.51 $ 0.58 Diluted $ 0.50 $ 0.53

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11. Segmented information Pulp & Corporate Lumber Panels Paper & Other TotalJanuary 1, 2016 to March 31, 2016

Sales

To external customers $ 729 $ 136 $ 212 $ — $ 1,077 To other segments 29 2 — — $ 758 $ 138 $ 212 $ —

Operating earnings before amortization $ 100 $ 15 $ 14 $ (1 ) $ 128Amortization (37 ) (3 ) (9) — (49 )Operating earnings 63 12 5 (1 ) 79Finance expense (5 ) (1 ) (2 ) — (8 )Other (5 ) (2 ) (23 ) 14 (16 )Earnings before tax $ 53 $ 9 $ (20 ) $ 13 $ 55

January 1, 2015 to March 31, 2015Sales

To external customers $ 655 $ 129 $ 230 $ — $ 1,014

To other segments 26 2 — —

$ 681 $ 131 $ 230 $ —

Operating earnings before amortization $ 117 $ 26 $ 30 $ (1 ) $ 172

Amortization (33 ) (3 ) (10 ) (1 ) (47 )

Operating earnings 84 23 20 (2 ) 125

Finance expense (5 ) (1 ) (2 ) — (8 )

Other 3 (3 ) (20 ) (27 ) (47 )

Earnings before tax $ 82 $ 19 $ (2 ) $ (29 ) $ 70

The geographic distribution of external sales is as follows: January 1 to March 311

2016 2015Canada $ 247 $ 218United States 620 533China 116 164Other Asia 77 80Other 17 19 $ 1,077 $ 1,0141. Sales distribution is based on the location of product delivery.

Notes to Consolidated Financial Statements (continued)

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WEST FRASER TIMBER CO. LTD.TEL: 604.895.2700

FAX: 604.681.6061

www.westfraser.com

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