wfar18 final 020619 - west fraser timber · 2019-03-05 · steadily and now represents a larger...

WEST FRASERANNUAL REPORT 2018

Including Annual Information FormDated: February 12, 2019

LUMBER U.S.

14. Joyce 15. Huttig 16. Henderson 17. New Boston 18. Leola 19. Mansfield 20. Russellville 21. Maplesville 22. Opelika 23. McDavid 24. Perry 25. Lake Butler 26. Maxville 27. Whitehouse 28. Blackshear 29. Fitzgerald 30. Dudley 31. Augusta 32. Newberry 33. Armour 34. Seaboard

LUMBER Canada

1. Quesnel2. Williams Lake3. Smithers4. Chetwynd5. Fraser Lake6. Chasm7. 100 Mile House8. Blue Ridge9. Hinton

10. Edson11. Sundre12. High Prairie

13. Manning

0

0

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

PLYWOOD 39. Edmonton 40. Quesnel 41. Williams Lake

MDF 42. Blue Ridge 43. Quesnel

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

0

0

0

0

16

1718

15

14

27

21 22

31

32

34

TEXAS

ARKANSAS

LOUISIANA

TENNESSEENORTH CAROLINA

GEORGIA

ALABAMA

FLORIDA

MEMPHIS

23

19 20 33SOUTH

CAROLINA

24 2526

3029 28

39

B R I T I S HC O L U M B I A

A L B E R T A

VANCOUVER

QUESNEL1

2

34

5

374142

945

38

40

43

12

13

8

46

11

10

6

36

7

EDMONTON

44

WEST FRASERA N N U A L R E P O RT 2 0 1 8

OPERATIONS West Fraser is a North American wood products company. Its main product is lumber (spruce/pine/fir (“SPF”)

and southern yellow pine (“SYP”)). It also produces panels (plywood, MDF and LVL), pulp (NBSK and BCTMP), newsprint, wood

chips and energy. The operations located in western Canada manufacture all of the products described above except SYP lumber.

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

Thank you to our employees on the front cover of this report, from clockwise from left to right: Sarah (Quality Control), Zach (Electrician), Brandon (Sawfiler) and Dakota (Canter Operator).

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TABLEOFCONTENTS

REPORTTOSHAREHOLDERS........................................................................................................................................3

ANNUALINFORMATIONFORM...................................................................................................................................5

BUSINESSOVERVIEW.............................................................................................................................................................5CORPORATESTRATEGY..........................................................................................................................................................6CORPORATESTRUCTURE........................................................................................................................................................6HISTORYANDDEVELOPMENTOFBUSINESS................................................................................................................................7SALESREVENUE....................................................................................................................................................................8FIBRESUPPLY.......................................................................................................................................................................9CAPITALEXPENDITURESANDACQUISITIONS.............................................................................................................................12HUMANRESOURCES...........................................................................................................................................................12MARKETS..........................................................................................................................................................................12RESEARCHANDDEVELOPMENT..............................................................................................................................................13LUMBER............................................................................................................................................................................13PANELS.............................................................................................................................................................................14PULP&PAPER...................................................................................................................................................................15EXTERNALFACTORSAFFECTINGWESTFRASER’SBUSINESSIN2018.............................................................................................15RISKFACTORS....................................................................................................................................................................18CAPITALSTRUCTURE............................................................................................................................................................18TRANSFERAGENT...............................................................................................................................................................19EXPERTS...........................................................................................................................................................................19DIRECTORSANDOFFICERS....................................................................................................................................................20GOVERNANCE....................................................................................................................................................................22AUDITCOMMITTEE.............................................................................................................................................................22MATERIALCONTRACTS........................................................................................................................................................23ADDITIONALINFORMATION..................................................................................................................................................24SCHEDULE1–AUDITCOMMITTEECHARTER............................................................................................................................25

MANAGEMENT’SDISCUSSION&ANALYSIS...............................................................................................................28

INTRODUCTIONANDINTERPRETATION.....................................................................................................................................28RECENTDEVELOPMENTS......................................................................................................................................................29ANNUALRESULTS...............................................................................................................................................................29SELECTEDQUARTERLYINFORMATION.....................................................................................................................................30DISCUSSION&ANALYSISOFANNUALNON-OPERATIONALITEMS.................................................................................................30DISCUSSION&ANALYSISOFANNUALRESULTSBYPRODUCTSEGMENT.........................................................................................32FOURTHQUARTERRESULTS..................................................................................................................................................37DISCUSSION&ANALYSISOFFOURTHQUARTERNON-OPERATIONALITEMS...................................................................................37DISCUSSION&ANALYSISOFFOURTHQUARTERRESULTSBYPRODUCTSEGMENT............................................................................39CAPITALEXPENDITURES.......................................................................................................................................................42BUSINESSOUTLOOK............................................................................................................................................................42ESTIMATEDEARNINGSSENSITIVITYTOKEYVARIABLES...............................................................................................................43CAPITALSTRUCTUREANDLIQUIDITY.......................................................................................................................................43SUMMARYOFFINANCIALPOSITION........................................................................................................................................45DEBTRATINGS...................................................................................................................................................................45SELECTEDCASHFLOWITEMS................................................................................................................................................46CONTRACTUALOBLIGATIONS................................................................................................................................................47FINANCIALINSTRUMENTS.....................................................................................................................................................47SIGNIFICANTMANAGEMENTJUDGMENTSAFFECTINGFINANCIALRESULTS.....................................................................................47ACCOUNTINGSTANDARDSISSUEDBUTNOTYETAPPLIED...........................................................................................................49NEWACCOUNTINGPRONOUNCEMENTSADOPTED....................................................................................................................49NON-IFRSMEASURES.........................................................................................................................................................50RISKSANDUNCERTAINTIES...................................................................................................................................................52CONTROLSANDPROCEDURES...............................................................................................................................................60

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ADDITIONALINFORMATION..................................................................................................................................................60

RESPONSIBILITYOFMANAGEMENT..........................................................................................................................61

INDEPENDENTAUDITOR’SREPORT...........................................................................................................................62

CONSOLIDATEDBALANCESHEETS..........................................................................................................................................65CONSOLIDATEDSTATEMENTSOFEARNINGSANDCOMPREHENSIVEEARNINGS................................................................................66CONSOLIDATEDSTATEMENTSOFCHANGESINSHAREHOLDERS’EQUITY.........................................................................................67CONSOLIDATEDSTATEMENTSOFCASHFLOWS.........................................................................................................................68NOTESTOCONSOLIDATEDFINANCIALSTATEMENTS...................................................................................................................69

FIVEYEARFINANCIALREVIEW..................................................................................................................................98

DIRECTORSANDOFFICERS......................................................................................................................................100

CORPORATEINFORMATION....................................................................................................................................101

GLOSSARYOFINDUSTRYTERMS.............................................................................................................................103

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REPORTTOSHAREHOLDERS

MessagefromourChiefExecutiveOfficer

Formorethan60years,WestFraserhasbeenguidedbyastraightforwardbusinessstrategy,tobethelow-cost,highmarginproducerineachofourproductlinesandgeographicregions,maintainaconservativefinancialpositiontomanagecyclicalmarketsandcontinuouslyreinvestinthebusiness.Wemaintainourconvictioninthisstrategyasthecornerstonetooursuccess.

Theeconomicfactorsthatdrivedemandforoursolidwoodproductscontinuetoindicatefavorablesupplyanddemandfundamentals.Employmentandwagegrowthtrendsarepositiveforhousing,yethousingstartsremainathistoricallylowlevelsintheU.S.Spendingonrepairs,renovationandremodelingactivitieshascontinuedtogrowsteadilyandnowrepresentsalargerportionoflumberconsumptionthannewhomeconstruction.OffshorelumbermarketsthathavebeendevelopedbywesternCanadianlumberproducersremainimportanttoWestFraser.WiththeexceptionoftheU.S.South,growthinmostofthekeylumberproducingregionsinNorthAmericamaybeconstrainedduetodecliningtimberavailability.Duetohighersteelandotherconstructioncosts,sawmillcapacityadditionshavebecomecostlierand,inmanycases,delayed.Pulpmarketswereparticularlystronginrecentyears.Weexpectthatnewpulpcapacitywillhaveanimpactontheglobalsupply-demandbalance,butwecontinuetobepositiveaboutthelong-termgrowthprospectsfromChinaandotherAsianmarkets.

In2018weexperiencedsignificantvolatilityinourbusiness,mostnotablyinourlumbermarkets.Transportationchallengesearlyintheyear,coupledwithadverseweatherconditionsinouroperatingareasintheU.S.ledtoasignificantbacklogofinventoryatourmillsandasurgeinproductpricing.Wemanagedtoworkthroughtheinventorybacklogthroughthemiddlehalfoftheyearandrestoremorenormalinventorylevels.However,thevariabilityinshipments,coupledwithaslightsofteningofhousingconstructionmarketsledtoasignificantdeclineinlumberpricesinthesecondhalfoftheyear.CoupledwithhighlogpricesandfibreavailabilitychallengesinBritishColumbiafrommountainpinebeetleandrecordhectaresofforestsburnedin2017and2018,wemadethedifficultdecisiontopermanentlyreduceproductionattwoofourmillsintheB.C.interior.

Wecontinuedtoinvestinouroperatingplatformwiththecompletionofprojectsacrossalloursegments.WeaddednewcontinuousdrykilnsinwesternCanada,modernizedoursawmillinHighPrairie,Albertaandcompletedmajorinfrastructureupgradesattwoofourpulpmills.Notably,weinvestedsignificantlyintheconstructionofanewsawmillonthesiteofourexistingOpelika,Alabamafacility.ThisnewfacilityincorporatesthelatestsafetyandtechnologyavailableandincludessignificantadvancementsinoperatorergonomicsdesignedtoaddresschallengesinlabouravailabilityandretentionthatexistintheU.S.South.Aswestart2019,justover45%ofourproductioncapacityisnowbasedintheU.S.Southandweexpectittogrowaswecontinuetoinvestinourmills.

IamproudoftheachievementswehavemadewithourfocusonpeopleasacornerstoneofourorganizationandwhatIbelievesetsusapart.Ourprogressonimprovingsafetyfellshortofexpectationsasoursafetyperformanceplateauedin2018,afteranumberofyearsofsignificantimprovement.Weremainfocusedonfurtherimprovementsin2019throughinvestmentsinourfacilitiesalongwithtraininganddevelopmentactivities.AtWestFraserweworkhardtocreateapositiveworkenvironmentinallourfacilitiesandhavebeenrecognizedagainin2018withseveralawards,beingnamedasoneofCanada’sTop100Employers,oneofBC’sTopEmployers,andoneofCanada’sTopEmployersforYoungPeople.Inaddition,WestFraserwasrecognizedonceagainforhavingoneofCanada’sMostAdmiredCorporateCultures.

Wefocusourcharitableeffortstoenhancethecommunitieswhereweoperate.ThemajorityofouroperationsinCanadaandtheU.S.areinruralcommunitiesandinmanyoftheseplaces,wearethelargestemployer.Overthelastseveralyearsouroperationsandcorporatecharitablegiftshaveaddeduptomorethanfourmilliondollarsacross39communities.Weofferanumberofscholarships,donatewoodproductsandcontributetohundredsofcharitable,sport,educationandserviceorganizationsinthecommunitieswherewehavefacilities.

Despiteasecondyearofrecordresults,werecognizewestillhavemuchworktodo.In2019wewillbefocusedonbringingournewOpelikamilltofulloperatingrateandonrealizingthebenefitsofthecapitalweha0vespentoverthe

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pastseveralyearsmodernizingouroperatingplatform.Wehaveanambitiouscapitalplanfor2019.Mostimportantlyweneedtocontinueourrelentlessfocusonoperationalexcellence,improvingsafetyanddevelopingourpeople.

WerecordedthehighestAdjustedEBITDAinCompanyhistory,growingAdjustedEBITDAby$378millionand33%over2017.Ourteamscontinuedtoexecutewellonsignificantcapitalprojectsthatwillbenefitusin2019andyearstocome.Weraisedourdividendwhichisnow$0.80pershareonanannualbasisandoverthepastfiveyearshaverepurchased$1.1billionofshares.Weendedtheyearinastrongfinancialpositionwithnetdebttocapitalof17%andtotalavailableliquidityof$491million.

While2018wasarecordyearfortheCompanyinAdjustedEBITDA,weremainconvincedoftheuntappedpotentialforfurtherimprovementinallouroperations.Ourconsistentbusinessapproach,geographicallydiversifiedoperatingfootprint,focusonreinvestinginourbusinessanddevelopmentofhigh-performanceteamsputsusinastrongpositiontocompeteinoursectorandproductmarkets.

Withthesupport,dedicationandeffortofallouremployees,theirfamilies,ourBoardofDirectors,ourcustomersandcommunities,Iamoptimisticabouttheopportunitiesforcontinuedsuccessin2019.Ourstrongfinancialpositionbacksourcommitmenttosafe,modern,efficientoperationsdrivenbyalow-costculturewhichpositionsuswellfortheyearsahead.

OnJuly1,RayFerriswillsucceedmeasChiefExecutiveOfficer.IknowthatIspeakforourdirectors,managementandouremployeeswhenIsayhowdelightedwearethatRaywillleadtheCompanygoingforward.

TedSeraphimChiefExecutiveOfficer

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ANNUALINFORMATIONFORM

Date

ThisAnnualInformationFormofWestFraserTimberCo.Ltd.(“WestFraser”,“we”,“us”,“our”orthe“Company”)isdatedasofFebruary12,2019.Exceptasotherwiseindicated,theinformationcontainedinitisasofDecember31,2018.

AllfinancialinformationinthisAnnualInformationFormispresentedinCanadiandollars,unlessotherwiseindicated.

Forward-lookingStatements

ThisAnnualInformationForm,andtheAnnualReportofwhichitformsapart,containhistoricalinformation,descriptionsofcurrentcircumstancesandstatementsaboutpotentialfuturedevelopments.Thelatter,whichareforward-lookingstatements,arepresentedtoprovidereasonableguidancetothereaderbuttheiraccuracydependsonanumberofassumptionsandaresubjecttovariousrisksanduncertainties.Forward-lookingstatementsareincludedhereinundertheheadings“FibreSupply–MountainPineBeetleandB.C.Wildfires”(thetimingofAACreductionsandtheeffectonourAACs),“FibreSupply–CaribouRecoveryPlanning”(impactonouraccesstotimbersupply),“FibreSupply–AboriginalMatters”(thepotentialeffectofaboriginaltitleorrights)and“CapitalStructure–Cashdividends”,andareincludedinour2018Management’sDiscussion&Analysisincorporatedhereinundertheheading“RisksandUncertainties”and“IntroductionandInterpretation”.ActualoutcomesandresultswilldependonanumberoffactorsthatcouldaffecttheabilityoftheCompanytoexecuteitsbusinessplans,includingthemattersdescribedinthesesectionsandunder“RiskFactors”,andmaydiffermateriallyfromthoseanticipatedorprojected.Accordingly,readersshouldexercisecautioninrelyinguponforward-lookingstatementswhichreflectmanagement’sestimates,projectionsandviewsonlyasofthedatehereof.TheCompanyundertakesnoobligationtopubliclyrevisethesestatementstoreflectsubsequenteventsorchangesincircumstancesexceptasrequiredbyapplicablesecuritieslaws.

BusinessOverview

WeareaNorthAmericandiversifiedwoodproductscompanywhichproduceslumber(SPFandSYP),panels(plywood,MDFandLVL),pulp(NBSKandBCTMP),newsprint,woodchipsandotherresidualsandenergy.WeholdrightstotimberresourcesthataresufficienttosupplyasignificantamountofthefibrerequiredbyourCanadianoperationsandhavelong-termagreementsforthesupplyofaportionofthefibrerequiredbyourUnitedStatesoperations.WecarryonouroperationsthroughsubsidiariesandjointoperationsinBritishColumbia(“B.C.”),AlbertaandthesouthernUnitedStates.OuroperationslocatedinwesternCanadamanufacturealloftheproductsdescribedaboveexceptSYPlumber.OursawmillslocatedinthesouthernU.S.produceSYPlumber,woodchipsandotherresiduals.

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Theannualproductioncapacitiesofourwholly-ownedfacilitiesandourshareofthecapacitiesofour50%-ownedoperations,aftergivingeffecttotheannouncedproductioncurtailmentsatFraserLakeandQuesnel,BritishColumbia,areasfollows:

Lumber(MMfbm) SPF 3,870 SYP 3,200 Total 7,070 Panels Plywood(MMsf3/8”) 860 MDF(MMsf3/4") 250 LVL(Mcf) 2,600 Pulp(Mtonnes) BCTMP 690 NBSK 570 Newsprint(Mtonnes) 135

CorporateStrategy

OurgoalatWestFraseristogeneratestrongfinancialresultsthroughthebusinesscycle,relyingonourcommittedworkforce,thequalityofourassetsandourwell-establishedpeopleandoperatingculture.Thiscultureemphasizescostcontrolinallaspectsofthebusinessandinternalandexternalcompetitiveness.Inourapproachtoemployeerelations,weemphasizeemployeeinvolvementandfavourinternalpromotionswheneverpossible.

Weareadiversifiedproducerofwoodproductswithaccesstoextensivetimberresources.OurCanadianlumber,plywood,LVLandveneeroperationsaredirectlyorindirectlytheprimarysourceofrawmaterialforourpulp&paper,MDFandenergyoperations.

Wearecommittedtooperatinginafinanciallyconservativeandprudentmanner.TheNorthAmericanwoodproductsindustryiscyclicalandperiodicallyfacesdifficultmarketconditionsandseriouschallenges.Maintainingastrongbalancesheetandliquidityprofile,alongwithourinvestmentgradedebtratingenablesustoexecuteabalancedcapitalallocationstrategy.Ourgoalistocontinuallyreinvestinouroperations,acrossallmarketcyclestomaintainaleadingcostpositionandprudentlyreturncapitaltoshareholders.Webelievethatmaintainingastrongbalancesheetalsoprovidesthefinancialflexibilitytocapitalizeongrowthopportunitiesandisakeytoolinmanagingourbusinessoverthelongterm.

Acquisitionsandexpansionsareconsideredwithaviewtoextendingourexistingbusinesslines,particularlyinlumberoperations,andtoproductandgeographicdiversification.Ourearningsoverthebusinesscyclehaveenabledustomakesignificantandongoingcapitalinvestmentsinourfacilitieswiththegoalofachieving,maintainingorimprovinganoveralllow-costposition.

CorporateStructure

WestFraserisorganizedundertheBusinessCorporationsAct(BritishColumbia)andassumeditspresentformin1966bytheamalgamationofagroupofcompaniesunderthelawsofB.C.WestFraserownsWestFraserMillsLtd.,whointurnownsdirectlyorindirectly,whollyorpartially,ouroperatingfacilities,subsidiariesandjointly-ownedoperations.WestFraserMillsLtd.assumeditspresentformonJanuary1,2005byamalgamationunderthoselaws.WestFraser,Inc.,WestFraserWoodProductsInc.andWestFraserSoutheast,Inc.areDelawarecorporations,whileBlueRidgeLumberInc.,ManningForestProductsLtd.andSundreForestProductsInc.areAlbertacorporations.WestFraserNewsprintLtd.subsistsunderthelawsofCanada.AlbertaNewsprintCompany(“ANC”)andCaribooPulp&PaperCompanyareunincorporated50%-ownedoperationsgoverned,respectively,bythelawsofAlbertaandB.C.

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ThefollowingchartshowstherelationshipofWestFrasertotheprincipaldirectandindirectsubsidiariesandthejointoperationsinwhichweparticipateand,wherelessthan100%,thepercentageofourdirectorindirectownership.

WestFraserTimberCo.Ltd.

WestFraserMillsLtd.

LUMBER PANELS PULP&PAPERCanada U.S. Plywood PulpQuesnel Joyce4 LakeButler6 Edmonton HintonWilliamsLake Huttig4 Whitehouse Quesnel QuesnelSmithers Henderson5 Maxville6 WilliamsLake Quesnel(50%)7

Chetwynd NewBoston5 Blackshear6 SlaveLakeFraserLake Leola4 Fitzgerald6 MDF Chasm Mansfield4 Dudley6 BlueRidge Newsprint100MileHouse Russellville4 Augusta4 Quesnel Whitecourt(50%)8

BlueRidge1 Maplesville4 Newberry4 Hinton Opelika4 Armour4 Veneer&LVL Edson McDavid4 Seaboard4 RockyMountain Sundre2 Perry6 House2 HighPrairie SlaveLake Manning3 SPECIALTYLUMBERPRODUCTS

Sundre2

1. OwnedthroughBlueRidgeLumberInc.,awholly-ownedsubsidiary.2. OwnedthroughSundreForestProductsInc.,awholly-ownedsubsidiary.3. OwnedthroughManningForestProductsLtd.,awholly-ownedsubsidiary.4. OwnedthroughWestFraser,Inc.,awholly-ownedsubsidiary.5. OwnedthroughWestFraserWoodProductsInc.,awholly-ownedsubsidiary.6. OwnedthroughWestFraserSoutheast,Inc.,awholly-ownedsubsidiary.7. 50%interestinCaribooPulp&PaperCompany.8. 50%interestinAlbertaNewsprintCompanyownedthroughWestFraserNewsprintLtd.,awholly-ownedsubsidiary.

Ourexecutiveofficeislocatedat858BeattyStreet,Suite501,Vancouver,B.C.,Canada,V6B1C1andourregisteredofficeislocatedat1500–1055WestGeorgiaStreet,Vancouver,B.C.,Canada,V6E4N7.

HistoryandDevelopmentofBusiness

WestFraseroriginatedin1955whenthreebrothers,Pete,BillandSamKetcham,acquiredalumberplaningmilllocatedinQuesnel,B.C.From1955through2018thebusinessexpandedthroughtheacquisitionofanumberofsawmillsandrelatedtimberharvestingrightsandtheacquisitionordevelopmentoflumber,panelandpulp&paperbusinesses.

MajordevelopmentsforWestFraserduringthelastfiveyearsincludethefollowing:

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2014 • AcquiredtwosawmillsinArkansasandoneinHighPrairie,Alberta.• PermanentlyclosedourHouston,B.C.,SlaveLake,AlbertaandFolkston,Georgia

sawmills.• Capitalinvestmentsetsnewannualrecordat$410million.• Completedsixcontinuouskilns,twoplanerprojectsandfourmajorsawmill

upgrades.• CompletedalowconsistencyrefinerprojectatourBCTMPmillinQuesnel.

2015 • AcquiredasawmillinManning,Alberta.• Completedco-generationprojectsattwoofourB.C.sawmillstogenerate

electricityfromwoodwastetobesoldunderlong-termcontracts.• Completedbiogas-electricitygenerationprojectatourSlaveLake,Albertapulp

mill.FirstelectricitygeneratedJanuary2016.• Completedthreecontinuouskilns,twoplanerprojectsandonemajorsawmill

upgrade.

2016 • TerminatedpowerpurchaseagreementsthathadprovideduswithaportionoftheelectricitygeneratedfromtwopowerplantsinAlbertaatsubstantiallypredeterminedrates.

• MDFfacilityinQuesnelwasclosedforrepairsfollowingafireonMarch9.• AcoalitionofU.S.lumberproducerspetitionedtheU.S.Departmentof

Commerce(“USDOC”)andtheU.S.InternationalTradeCommission(“USITC”)toinvestigateallegedsubsidiestoCanadianlumberproducersandlevydutiesagainstCanadianimports.

• Completedthreecontinuouskilns.

2017 • MDFfacilityinQuesneldamagedbyfirein2016wasrepairedandbeganproducingboardonApril29.

• Acquiredsixsawmillsandafinger-joint(specialtylumber)millinFloridaandGeorgiaaswellasanadministrativeofficeinSt.Marys,Georgia(the“GilmanAcquisition”).

• OnDecember4theUSDOCdeterminedfinaldutyratesforWestFraserof23.56%.

• Completedfourcontinuouskilnsandtwomajorsawmillupgrades.

2018 • RebuildofsawmillinHighPrairie,Alberta.• CommissionedanentirelynewsawmillinOpelika,Alabamaonthesiteofthe

existingsawmill.• CompletedfivecontinuouskilnsacrossWesternCanada.• CompletedplanermillupgradesatfacilitiesinFraserLake,B.C.Smithers,B.C.

andSundre,Alberta.• ImplementedupgradedrefiningtechnologyatourQuesnelRiverPulpmilland

installedanadditionalconcentratoratourCaribooPulpmill.

SalesRevenue($millions)

YearendedDecember31 2018 2017 2016 2015 2014Lumber 4,456 3,671 3,145 2,764 2,622Panels 676 600 529 554 526Pulp&Paper 1,163 988 887 900 812Intracompanyfibresales (177) (125) (111) (118) (104) 6,118 5,134 4,450 4,100 3,856

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FibreSupply

Ouroperationsaredependentontheconsistentsupplyofsubstantialquantitiesofwoodfibreinvariousforms.Theprimarymanufacturingfacilities,whichproducelumber,plywoodandLVL,consumewholelogswhilethepulp,paperandMDFfacilitiesmostlyconsumewoodby-productsintheformofwoodchips(includingfromwhole-logchippingoperations),shavingsandsawdustresultingfromtheproductionoflumber,plywoodorLVL.Manyfacilitiesalsoconsumehogfuelandwoodwasteinenergysystems.

InB.C.andAlbertasubstantiallyalltimberlandsarepubliclyownedandtherighttoharvesttimberisacquiredthroughprovinciallygrantedlicences.Licencesgranttheholdertherighttoharvestuptoaspecifiedquantityoftimberannuallyandeitherhaveatermof15to25yearsandarereplaceableorhaveashortertermbutarenotreplaceable.Governmentobjectivesingrantinglicensesincluderesponsiblemanagementoftimber,soils,wildlife,waterandfishresourcesandthepreservationofbiodiversityandtheprotectionofculturalvalues.Theobjectivesalsoincludeachievingthefullestpossibleeconomicutilizationoftheforestresourcesandemploymentinlocalcommunities.

TimbertenuresinB.C.andAlbertarequirethepaymentofafee,commonlyknownasstumpage,fortimberharvestedpursuanttoitsterms.StumpageinAlbertaisproduct/pricespecificandvarieswiththesalespriceoftheproductintowhichthelogswillbeconverted.StumpageinB.C.issubstantiallybasedontheresultsofcertainpublicly-auctionedtimberharvestingrights.

TimbertenuresinB.C.andAlbertarequiretheholdertocarryoutreforestationtoensurere-establishmentoftheforestafterharvesting.Reforestationprojectsareplannedandsupervisedbyourwoodlandsstaffandaresubjecttoapprovalbyrelevantgovernmentauthorities.Ourtimberharvestingoperationsarecarriedoutbyindependentcontractorsunderthesupervisionofourwoodlandsstaff.

Thefollowingtablesummarizesthetimbertenures,asatDecember31,2018,whichsupplytheCanadianmillsthatweownorinwhichwehaveaninterest,aswellasourAACforsuchtenures.

TimberTenures(thousandm3)Location Tenure1 Expiry AAC

B.C. ConiferousLong-term 2022-2035 5,604 ConiferousShort-term 2019 200Alberta ConiferousLong-term 2019-2033 6,380 DeciduousLong-term 2019-2033 1,3191. Long-termtenuresincludeTFLs,FMAs,timberquotasandforestlicences,whicharerenewabletimbertenures.Short-termtenuresinclude

non-replaceableforestlicences.

WedonotownormanageanytimberlandsintheU.S.

LogSupply

AnnuallogrequirementsforourCanadiansawmills,plywoodfacilitiesandLVLplant,alloperatingatthecapacitiesdescribedherein,wouldtotalapproximately15millionm3.Recently,wehavebeenaccessingapproximately65%oftheserequirementsfromthequota-basedtenuresdescribedintheabovetableandthebalanceistypicallyacquiredfromthirdpartiesholdingshortorlong-termtimberharvestingrights,includingindependentloggingcontractors,aboriginalgroups,communitiesandwoodlotowners.Wedonotnecessarilyconsumethemaximumpermittedvolumeoflogsthatmaybeharvestedfromourtenuresannuallybutwilladjustbetweentenureandpurchaselogsdependingoncircumstancesincludingtheavailabilityofpurchaselogsandourabilitytosecureapprovalstoharvestineconomicallyviablestands.

OurU.S.operations,whichproduceSYPlumber,wouldconsumeapproximately14milliontonsoflogsperyearifoperatingatthecapacitydescribedherein.OurU.S.operationsasawholehaveaccesstoapproximately18%oftheirlogrequirementsundercertainlong-termsupplycontracts,andthebalanceispurchasedontheopenmarket.Open

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marketpurchasescomefromtimberrealestateinvestmenttrusts,timberlandinvestmentmanagementorganizationsandprivatelandowners.

MountainPineBeetleandB.C.Wildfires

ThemountainpinebeetleinfestationintheB.C.interiorreachedapeak,intermsoftheannualtimbermortalityrate,morethan13yearsago.Thedamagetothematurepineforestswithinouroperatingareasissignificant.

Wecontinuetosalvageandprocessdeadpineinordertoutilizeasmuchoftheresourceaspossibleandtoensurethataffectedsitesarepromptlyreforested.TheProvinceofB.C.previouslyincreasedtheAACondeadpinestandsandlimitedtheharvestofnon-pinespeciesuntilthesalvageofdeadpinestandsconcludes.TheAAChasbeenorwillbereducedtoreflectlowermatureinventoriesasdeadpinestandsareharvestedorwhentheyarenolongereconomictoharvest.TheProvincehasreducedtheAACinB.C.’scentralinteriorbyapproximately36%inthepastfiveyearsandweexpectthisprocesstocontinueoverthenextseveralyears.Todate,B.C.’sChiefForesterhasannouncedreductionsoftheAACinsixofouroperatingareasintheinterior.

WildfiresinB.C.burnedovertwomillionhectaresofforestlandin2017and2018.OurCaribooregionoperatingareasweresignificantlyimpacted.Salvageoffiredamagedtreeshasbegunandisexpectedtocontinuefor2-4years.

AsthetimingoffutureAACreductionsandtheeffectonourAACswilldependonavarietyoffactors,includingtheimpactofwildfiresandtheamountofnon-pinespeciesavailableforharvest,thefulleffectonouroperationscannotreasonablybedeterminedatthistime.

InAlberta,theMinisterandtheforestindustrycontinuetoimplementaggressiveprogramsofearlymountainpinebeetledetection,singletreecontrolandfocussedharvestingactivity.ThemountainpinebeetleinfestationsignificantlyexpandedfromJasperNationalParkintoourHintonforestmanagementarea(“FMA”)in2017andagainin2018.WecontinuetoworkaggressivelytoreducethenumberofsusceptiblepinestandsandconductspreadcontrolactivitiesacrosstheregioninconcertwithotherforestindustryparticipantsandtheProvinceofAlberta.

CaribouRecoveryPlanning

DraftwoodlandcaribourecoveryplanswerereleasedbytheAlbertagovernmentinDecember2017.WehavebeenworkingwiththeProvincetodevelopstrategiesthatsupportcaribourecoverywhilemaintainingouraccesstotheforestresource.TheAACimpactfromtheseplanswilldependonthefinallocationofpotentialconservationareasandtheforestharvestregimesthatareimplemented.Weanticipatethisworkwillcontinuein2019.

B.C.continuestoengagewithCanadaonthedevelopmentofaconservationagreementforallSouthernMountainCaribourangesintheProvince.ThecurrentfocusisontheCentralGroup,whichiscomprisedofthreeherdsintheSouthPeacearea.Weunderstandtheconservationagreementwillhavemultipleannexes,includinglinkedpartnershipagreementswithindigenouscommunities.InitialindicationsfromthedraftpartnershipagreementfortheCentralGroupareapotentialfornewprotectedareasandincreasedconservation.Weexpectthiswillhavesomeimpactonouraccesstotimbersupply,butweareunabletopredictorquantifytheimpactatthisdraftstageintheconservationagreementprocess.

ForestryCertification

Weobtainexternalcertificationfromanumberofaccreditedstandard-settingcertificationbodieswhichofferindependentverificationofthemeasuresthatwetaketomitigatetheeffectsofouractivitiesontheenvironment.

AlloftheCanadianwoodlandsoperationsdirectlymanagedbyusareindependentlycertifiedbytheSustainableForestryInitiative(“SFI”),aninternationallyrecognized-sustainableforestmanagementcertificationprogram.

WealsosubscribetothechainofcustodycertificationProgrammeforEndorsementofForestCertification(“PEFC”)standardforourCanadianproducedforestproducts.PEFCchainofcustodyassurescustomersthatthefibreinthesupplychaincomesfromsourcesthatcomplywithapplicablelaws,regulationsandsustainableresourcestandards.Thestandardalsodemonstratesavoidanceofsourcingfibrefromcontroversialsources.

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PEFCisaglobalorganizationthatprovidesamutualrecognitionframeworkfornationalcertificationsystems.PEFCrecognizesmorethan25nationalcertificationsystems,includingSFI,andassurescustomersthatdifferingsystemsprovideaconsistentlevelofsustainableforestmanagement.

OurpulpoperationsandMDFmillsareregisteredtotheForestStewardshipCouncil’s(“FSC”)StandardforChainofCustodyCertificationandtheStandardforCompanyEvaluationofFSCControlledWood.Thisstandardindependentlyverifiesthattheseoperationsdonotsourcefibrefromwoodharvested(i)illegally,(ii)inviolationoftraditionalandcivilrights,(iii)inforestswherehighconservationvaluesarethreatenedbymanagementactivities,(iv)inforestsbeingconvertedtoplantationsornon-forestuse,(v)fromforestsinwhichgeneticallymodifiedtreesareplanted,or(vi)inviolationofanyoftheILOCoreConventions,asdefinedintheILODeclarationonFundamentalPrinciplesandRightsatWork,1988.

WedonotownormanageanyforestlandsintheUnitedStates.However,ourU.S.sawmillsprocurewoodfromavarietyofsourcesnormallywithinanapproximate70-mileradiusofeachmill.AllofourU.S.millsexceptthosepurchasedwiththeGilmanAcquisitionarecertifiedundertheSFIFiberSourcingStandard.

Formoreinformationconcerningoursustainableandenvironmentallysoundforestpracticesseebelowundertheheading“ExternalFactorsAffectingWestFraser’sBusinessin2018–Environment”andourResponsibilityReportatwww.westfraser.com.

AboriginalMatters

OurcontinuedaccesstotheforestresourceinCanadacouldbeadverselyaffectedbyrightandtitle(orclaimsthereto)andtreatiesinvolvingvariousaboriginalgroups,includingFirstNations,Métisandothers.TheobligationsofCanadianprovincialgovernmentstoconsultandaccommodateaboriginalgroupsregardingassertedandestablishedrights,aswellastheirobligationsunderexistingtreatiesandongoingtreatynegotiations,couldaffecttheissuance,validity,renewalandexerciseandtermsandconditionsofCrowntimberrightsandauthorizationstoharvest,orthetimelinessofobtainingsuchrights.Ifaboriginaltitleisprovenoveranyofthelandswherewehaveinterestsorrights,itcouldresultinaboriginalownershipoftheresourcesontitlelands.

TodatetherehasbeenonlyonecourtcasefindingaboriginaltitleinB.C.whereaboriginaltitlewasfoundtobeheldbytheTsilhqot’inNationinrespectofanareathatislessthan0.2%ofB.C.,butwherewedonotholdcuttingpermits.

Asthejurisprudenceandgovernmentpoliciesrespectingaboriginaltitleandrightsandtheconsultationprocesscontinuetoevolve,wecannotatthistimepredictwhetheraboriginalclaimswillhaveamaterialadverseeffectonourtimberharvestingrightsoronourabilitytoexercise,renewortransferthem,orsecureothertimberharvestingrights.

ResidualFibreSupply

InCanadasubstantiallyallourrequirementsforwoodchips,shavings,sawdustandhogfuelaresuppliedfromourownoperations,eitherdirectlyorindirectlythroughtrades.Thisreducesourexposuretorisksassociatedwithpricefluctuationsandsupplyshortagesoftheseproducts.

OurB.C.sawmillsandplywoodplantsproducesubstantiallyallofthefibrerequirementsofourB.C.pulpoperationsandMDFplant.TheAlbertaMDFplantobtainsitsfibrefromtheadjacentBlueRidgesawmillandothersawmillsinthearea.TheHintonpulpmillobtainsitsfibrefromtheadjacentHintonsawmillandothersawmillsintheareaownedbyus.AttimesweproducewholelogchipsattheHintonfacilitytosupplementthesupplyofresidualchipsfromourvarioussawmills.Thefibrerequirementsofournewsprintmillareobtainedfromlocalsawmills,includingoursawmillinBlueRidgeandtheSlaveLakeveneeroperation,throughchippurchaseagreementsandlogforchiptradesusinglogsharvestedfromthenewsprintmill’stenures.TheSlaveLakedeciduousFMAprovidesmostofthefibrerequirementsoftheSlaveLakepulpmill,withthebalancebeingobtainedfromlogspurchasedfromlocalsuppliers.

ThemajorityofthewoodchipsproducedbyourU.S.operationsaresoldtopulpmillsatmarketpricespursuanttolong-termcontracts.

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CapitalExpendituresandAcquisitions

Weregularlyinvestinupgradingandexpandingourfacilitiesandoperations.However,duringperiodswhenearningsareweak,wemayreducecapitalandotherexpendituresinordertopreserveliquidity.Thefollowingtableshowsthecapitalexpendituresandacquisitionsduringthepastfiveyears.

CapitalExpendituresandAcquisitions($millions)YearendedDecember31 2018 2017 2016 2015 2014

Lumber 284 247 195 172 326Panels 16 22 25 5 7Pulp&Paper 60 58 42 32 71Corporate&Other 10 9 11 11 6 370 336 273 220 410Acquisitions - 526 - 76 208 370 862 273 296 618

HumanResources

AtDecember31,2018,weemployedapproximately8,570individuals,includingourshareofthosein50%-ownedoperations.Ofthese,approximately6,030areemployedinourlumbersegment,1,300inourpanelssegment,850inourpulp&papersegmentand390inourcorporatesegment.Approximately37%ofouremployeesarecoveredbycollectiveagreements.In2019,collectiveagreementscoveringapproximately242employeeswillexpire.Contractscoveringapproximately1,340ofouremployeesexpiredin2018andhavenotyetbeenrenewedasnegotiationsremainongoing.

Thesafetyofouremployeesisacorevalueandbusinesspriorityandoursafetygoalistoeliminateseriousincidentsandinjuries.Weprovideongoingsafetytrainingforouremployeestominimizepotentialrisksinherentinforestry-relatedmanufacturingindustries.OurHealthandSafetyPolicyandobjectivesandadescriptionofexternalsafetycertificationsobtainedbyusaredescribedinourResponsibilityReportonourwebsiteatwww.westfraser.com.

Markets

Themarketsforourproductsarehighlycompetitive.Ourproductsaresoldinmarketsopentoanumberofcompanieswithsimilarproductsandwecompetewithglobalproducers.Ourcompetitivepositionisaffectedbyfactorssuchascostandavailabilityofrawmaterials,energyandlabour,theabilitytomaintainhighoperatingratesandlowperunitmanufacturingcosts,andthequalityofourfinalproducts.Someofourproductsmayalsocompetewithnon-fibre-basedalternativesorwithalternativeproductsincertainmarketsegments.Purchasingdecisionsbycustomersaregenerallybasedonprice,qualityandservice.However,becausecommodityproductssuchasourshavefewdistinguishingpropertiesfromproducertoproducer,competitionfortheseproductsisbasedprimarilyonprice.Pricesandsalesvolumesareinfluencedbygeneraleconomicconditions.Thefollowingtableshowsselectedaveragebenchmarkpricesforthepastfiveyearsfortheprimaryproductsofthetypeweproduced,althoughthesepricesdonotnecessarilyreflectthepricesweobtained.

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AverageBenchmarkPrices(InUS$exceptplywood) 2018 2017 2016 2015 2014SPF#2&Better2x4(perMfbm)1 480 401 305 278 349SPF#3Utility2x4(perMfbm)1 372 323 240 209 302SYP#2West2x4(perMfbm)2 501 433 409 376 427Plywood(perMsf3/8”basis)3Cdn$ 548 509 432 430 429NBSK–U.S.(pertonne)4 1,337 1,105 978 972 1,025NBSK–China(pertonne)5 878 712 599 644 732Newsprint(pertonne)6 692 584 560 538 604US$/CAD$7 0.772 0.771 0.755 0.782 0.905Sources:refertoour2018Management’sDiscussion&AnalysisforCanadiandollarequivalentpricesoftheproductsdescribedherein1. RandomLengths–NetFOBmill.2. RandomLengths–NetFOBmillWestside.3. Crow’sMarketReport–DeliveredToronto.4. ResourceInformationSystems,Inc.–U.S.listprice,deliveredU.S.5. ResourceInformationSystems,Inc.–Chinalistprice,deliveredChina.6. ResourceInformationSystems,Inc.–U.S.delivered48.8gramnewsprint.7. BankofCanadaannualaverageexchangerate.

ResearchandDevelopment

Wesupportindustryresearchanddevelopmentorganizationsandconductresearchanddevelopmentatseveralplantstoimproveprocesses,maximizeresourceutilizationanddevelopnewproductsandenvironmentalapplications.Inaddition,inthepreviousfiveyearswehavefocusedonprojectsinbio-energygenerationandbio-products,includingalternativeusesforligninrecoveredduringthepulpingprocess.

Lumber

CapacityandProduction(MMfbm)

2018 2017 2016 2015 2014Capacity(year-end)

B.C. 2,170 2,460 2,465 2,400 2,480Alberta 1,700 1,690 1,635 1,600 1,420U.S.South 3,200 3,050 2,400 2,300 2,300

7,070 7,200 6,500 6,300 6,200 Production

B.C. 2,236 2,257 2,303 2,225 2,282Alberta 1,556 1,552 1,493 1,374 1,194U.S.South 2,817 2,424 2,139 2,008 1,817

6,609 6,233 5,935 5,607 5,293

Lumbercapacityisgenerallybasedonoursawmillsrunningonafive-day,two-shiftbasiswithcertainexceptionswherelogsmaybeavailabletorunathirdshift.Thecapacityfiguresabovefor2018giveeffecttotheannouncedpermanentshiftreductionsatourFraserLakeandQuesnel,B.C.sawmillsthattakewillaffectinthefirstquarterof2019.

Operations

Weoperate34sawmillsandawoodtreatingfacilityattheSundresawmill.OurCanadiansawmills,ofwhich7areinB.C.and6areinAlberta,producespruce,pine,firlumberofvariousgradesanddimensions.Our21U.S.sawmillsproducesouthernyellowpinelumberofvariousgradesanddimensions.

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Sales

LumberproducedatourCanadiansawmillsandsoldtoNorthAmericancustomersismarketedandsoldfromoursalesofficeinQuesnel,whilesalestooffshoremarketsaremadefromourexportsalesofficeinVancouver,B.C.OffshoresalesactivitiesarecomplementedbyacustomerserviceofficeinJapan.LumberproducedatourU.S.sawmillsismarketedandsoldbyoursalesgroupinMemphis,TennesseeandSt.Marys,Georgia.Fromtimetotime,wepurchaselumberforresaleinordertomeetrequirementsofcustomers.

In2018,salesoflumberfromourCanadianandU.S.operationsweremadetocustomersintheU.S.andCanadaandtocustomersoffshore,predominantlyinChinaandJapan.MostlumbershipmentstoNorthAmericancustomersbyourCanadianoperationsweremadebyrailandthebalancebytruck.MostlumbershipmentstoNorthAmericancustomersbyourU.S.operationsweredeliveredbytruckandthebalancebyrail.OffshoreshipmentsfrombothCanadaandtheU.S.weremadethroughvariouspublicterminalsinbulkorcontainervessels.

Salesofourlumberproductscanbeimpactedbyseasonalinfluences.ShipmentsfromourWesternCanadianmillscanbeaffectedbywinterweatherthataffectsrailandothertransportationservices.Inthesummermonths,duringfireseason,logging,manufacturingandtransportationcanallbeaffectedbywildfireactivityorbyevacuationalertsorordersinregionswhereweoperate.U.S.newhomeconstructionactivity,whichsignificantlyinfluencesthedemandforourlumberproducts,hashistoricallybeenhigherinthefirsthalfoftheyearandexperiencesaseasonalslowdownlateinthethirdquarter.AsignificantportionofourSYPproductsareusedintreatedwoodapplicationsanddemandfortheseproductsisoftenhighestinanticipationofspringandsummerconstructionactivity.

Panels

CapacityandProduction 2018 2017 2016 2015 2014Plywood(MMsf3/8”basis) Capacity(year-end) 860 860 850 830 830Production 833 838 826 797 771MDF(MMsf3/4”basis) Capacity(year-end) 250 250 250 250 300Production 224 191 160 220 206LVL(Mcf) Capacity(year-end) 2,600 3,200 3,200 3,200 3,200Production 2,251 2,676 2,215 1,627 1,796

Operations

Ourpaneloperationsincludethreeplywoodmillsthatprimarilyproducestandardsoftwoodsheathingplywood,twoMDFmills,eachwiththeflexibilitytomanufacturevaryingthicknessesandsizes,anLVLmill,andaveneermillthatproducesveneerforuseinourEdmontonplywoodmill.AfireatourMDFplantinQuesnelonMarch9,2016resultedintheclosureoftheplantwhilerepairsandreconstructiontookplace.TherebuiltplantbeganproducingboardonApril29,2017andreturnedtonormalproductionlevelsbytheendof2017.Thisreduced2016and2017MDFproductioncomparedtoprioryears.InSeptember2018,wereducedtheoperatingscheduleatourLVLmilltomorecloselymatchmarketconditionswhichresultedinreducedcapacity.

Sales

Plywood,LVLandMDFaremarketedandsoldfromoursalesofficeinQuesneltoretailoutlets,wholesaledistributors,remanufacturersandtreatingbusinesses.MDFismarketedunderthenames“Ranger”™,“WestPine”™,“Eco-Gold”™and“Ecopremium”™bothfromoursalesofficeandthroughdistributors.

In2018themajorityofoursalesofplywoodweremadetocustomersinCanadaandsalesofMDFandLVLweretocustomersintheU.S.andCanada.Shipmentswerebyrailortruck.Plywoodsalesisalsoseasonal,withthestrongestdemandbeingcentredinSeptemberandOctoberinCanada.

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Pulp&Paper

Pulp

CapacityandProduction(Mtonnes) 2018 2017 2016 2015 2014BCTMP Capacity(year-end) 690 690 680 650 650Production 652 674 665 645 631NBSK Capacity(year-end) 570 570 570 570 570Production1 499 498 527 497 4551. ReflectsWestFraser's50%ownershipoftheCariboopulpmill.

Operations

BCTMPisproducedatourSlaveLakepulpmill,primarilyfromhardwoodaspen,andourQuesnelRiverPulpmill,primarilyfromsoftwoodspecies.Thesepulpsareusedbypapermanufacturerstoproducepaperboardproducts,printingandwritingpapersandavarietyofotherpapergrades.NBSKisproducedatourHintonandCariboopulpmillsandisusedbypapermanufacturerstoproduceavarietyofpaperproducts,includingtissuesandprintingandwritingpapers.

Sales

PulpismarketedandsoldoutofourpulpsalesofficeinVancouver.In2018,salesofbothNBSKandBCTMPweretocustomersinNorthAmerica,Asia(predominantlyChina)andtootheroffshorecustomers.ShipmentswithinNorthAmericawereprimarilybyrailandthosetooffshorecustomerswerebyrailandtrucktoVancouverandthenbybulkorcontainervessels.

Newsprint

CapacityandProduction1

(Mtonnes) 2018 2017 2016 2015 2014Capacity(year-end) 135 135 135 135 135Production 119 122 128 133 1321. ReflectsWestFraser’s50%ownership.

Operations

Our50%-ownednewsprintmillatWhitecourt,Albertaproducesstandardnewsprintinfourbasisweights:40,43,45and48.8gramspersquaremetre.

Sales

NewsprintissoldtovariouspublishersandprintersinNorthAmericaanddeliveredbyrailandtruck.

ExternalFactorsAffectingWestFraser’sBusinessin2018

EconomicConditions

Ourearningsaresensitivetochangesinworldeconomicconditions,primarilythoseinNorthAmerica,AsiaandEuropeandparticularlytotheU.S.housingmarketforbothnewconstructionandrepairandrenovationspending.Mostofourrevenuesarefromsalesofcommoditiesforwhichpricesaresensitivetovariationsinsupplyanddemand.Sincemost

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ofthesesalesareinU.S.dollars,exchangefluctuationsoftheU.S.dollaragainsttheCanadiandollarisamajorsourceofearningsvolatilityforus.

SoftwoodLumberDispute

TheCanada–U.S.SoftwoodLumberAgreement(“SLA”)expiredinOctober2015andontheexpiryofthatagreementaone-yearmoratoriumontradesanctionsbytheU.S.cameintoplace.TheGovernmentofCanadaandtheU.S.TradeRepresentativehavebeenunabletoreachagreementonanewmanagedtradeagreement.

InNovemberof2016acoalitionofU.S.lumberproducerspetitionedtheUSDOCandtheUSITCtoinvestigateallegedsubsidiestoCanadianproducersandlevycountervailingandantidumpingdutiesagainstCanadianimports.TheUSDOCmadeitspreliminarydeterminationregardingcountervailingdutiesinApril2017,andinJune2017forantidumpingduties.InDecemberof2017finalcountervailingandantidumpingratesforWestFraserof17.99%and5.57%respectivelywereconfirmedbytheUSITC.

AsubstantialportionofourproductsthataremanufacturedinCanadaareexportedforsale.Ourfinancialresultsaredependentoncontinuedaccesstotheexportmarketsandtariffsandothertradebarriersthatrestrictorpreventaccessrepresentacontinuingrisktous.TheSLAhadprovidedourCanadianlumberoperationswithaccesstotheU.S.marketandtheimpositionoffuturetradebarrierscouldimpairthataccess.

Energy

Ourpulp,paperandMDFoperationsconsumesubstantialamountsofelectricity.Wehavecompletedseveralprojectstoreduceourpurchasedenergydependencebyutilizingsawmillresiduals,wastebiomassandpulpmilleffluentstreamstoproduceheatandsteamtodryourwoodproductsaswellasgenerateelectricity.SuchprojectsincludethoseatourHintonandCariboopulpmills,whichhavegeneratingfacilitieswhichproduceelectricitytosatisfymostoftheirenergyrequirementsandinsomecasessellexcesselectricitytotheprovincialutility.Inaddition,ourSlaveLakepulpmillproduceselectricityforitsownusefrombio-gasreclaimedfromeffluenttreatment.

Co-generationprojectsatourFraserLakeandChetwynd,B.C.sawmillsproduceelectricityfromresidualsandwastebiomass.Theelectricityissoldunderlong-termcontracts.

InB.C.,electricityispurchasedfromtheprovincialutilityatregulatedpricesbasedlargelyongenerationcosts.InAlberta,electricityispurchasedatmarketpricesthroughtheAlbertapowerpool.

InAlberta,weoperateanaturalgas-firedpowerplantatour50%-ownednewsprintmillwhichprovidesapartialhedgeagainsthighpricesofelectricityandtransmissioncosts.

Ourexposuretoenergycostsincludesthecosttopurchaseelectricity,naturalgas,gasoline,dieselfuels,carbontaxesandfuelsurchargesonpurchasedtransportation.

Environment

WestFraseriscommittedtoutilizingresourcesresponsiblyandtakingmeaningfulongoingstepstoreduceitsimpactontheenvironment.Thisincludesreducinggreenhousegasemissionsandchemicals,monitoringenergyandmaterialconsumption,recyclingoilproductsandothermaterialsaswellassustainable,responsibleforestmanagement.Weareproudofourexcellentreforestationrecord,andwecontinueexplorenewwaysimproveourreforestationandsilviculturepractices.Ourgoalistomovebeyondmereregulatorycompliancetofocusonconductingourbusinessinanenvironmentally,sociallyandeconomicallyresponsiblemanner.

RegulatoryRequirements

Ourmanufacturingoperationsaresubjecttoenvironmentalprotectionlawsandregulations.Wehavedevelopedandapplyinternalprogramsandpoliciestohelpensurethatouroperationsareincompliancewithapplicablelawsandstandardsandtoaddressanyinstancesofnon-compliance.Wehaveincurred,andwillcontinuetoincur,capitalexpendituresandoperatingcoststocomplywithenvironmentallawsandregulations,whicharenotexpectedtohave

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materialfinancialoroperationaleffectsonusorourcompetitiveposition.Wearerequiredtocarryoutremediationactivities,includingsitedecommissioning,underapplicableenvironmentalprotectionlawsandregulations.Inaddition,wearerequiredtocarryoutreforestationactivitiesunderourvarioustimberlicenses.Wemaintainaccrualsinourfinancialstatementsforcertainenvironmental,reforestationanddecommissioningobligations.

ResponsibleManagementofEnergy,Woodlands,andNaturalResources

Wearecommittedtoconsciouslymanagingourenergyuse,reducingourconsumptionanddevelopingsustainableenergysolutions.Currentlytwo-thirds(over60%)ofourenergyneedsaregeneratedwithrenewable,carbon-neutralbiomassfuelsourcesco-locatedwithourmills.From2000to2017,ourenergyinitiativeshaveresultedinadecreaseintheintensityofpurchasedenergybyapproximately41%foroursawmillandpaneloperationsandapproximately19%forourpulpandnewsprintoperations.Additionalinformationonourenergyinitiativesisincludedhereinundertheheading“ExternalFactorsAffectingWestFraser’sBusinessin2018–Energy”andinourResponsibilityReportonourwebsiteatwww.westfraser.com.

MostofCanada’sforestland(93%)ispubliclyownedandtherighttoharvesttimberisonlyallowedthroughgovernmentgrantedlicenses.WestFraserfollowsstrictforestmanagementrequirementstobeabletomaintainandrenewgovernment-grantedharvestingrightsinCanada.Weengageinsustainableforestmanagementandourharvestingpracticesaredesignedtoharvesttimbersafelyandefficientlywhileminimizingenvironmentalimpacts.Wereplantthetreesweharvestand,since1955,WestFraserhasplantedmorethan1.7billiontreestoensuretheforestswhereweoperateareconstantlyrenewed.Inaddition,allofourCanadianwoodlandsoperationsdirectlymanagedbyWestFraserareindependentlycertifiedbySFIandwesubscribetothePEFCchain-of-custodystandard.OurpulpandMDFmillsareregisteredtotheFSCStandardforChainofCustodyCertificationandtheStandardforCompanyEvaluationofFSCControlledWood.ForestcertificationisavoluntarytoolthatdemonstratesWestFraser’swoodproductsaresourcedfromsustainablymanagedforests.Thirdpartyindependentauditorsverifythatwehavemethighstandardsforanumberofkeycriteria,includingthesustainablegrowingandharvestingoftreeswiththeprotectionofhabitat,wildlife,plants,waterandsoilquality,andawiderangeofotherconservationgoals.Additionalinformationonoursustainabletimberharvestingoperationsandcertificationsisincludedhereinundertheheading“FibreSupply”andinourResponsibilityReportonourwebsiteatwww.westfraser.com.

Overthelastdecade,WestFraserhasmadesignificantinvestmentsinupgradingouroperationstoimprovetheairqualitycomingfromouroperationsandsignificantlyreducegreenhousegasemissions.Fossilfuelsareoneofthelargestcontributorstogreenhousegasemissions.Since2000,WestFraserhassignificantlyreducedourgreenhousegasemissions(GHG)bymorethan181,000tonnesannually.In2016,wesignedontothe“30by30”ClimateChangeChallenge,pledgingtocontributetoanindustry-wideefforttohelpCanadamovetoalow-carboneconomybyremoving30megatonnes(MT)ofCO2peryearby2030—morethan13%oftheCanadiangovernment’semissionstarget.

Wetreatwaterasanimportantandprotectedresourcethroughoutouroperations.Wespecificallyaddress,manageandmonitorstreamandwatercourseprotectionaspartofoursustainableforestmanagementactivities.Ourpulpoperationsuseandtreatlargevolumesofwaterandwehaveinvestedconsiderablyinimprovementstowatersystemsaimedatimprovingtheeffluent,includinganoveralldownwardtrendinkeyeffluentmeasurementssuchastotalsuspendedsolids(TSS)andbiochemicaloxygendemand(BOD).

CommunityandStakeholderEngagement

Stakeholderengagementandconsultationisacrucialpartofoursuccessasabusiness.Stakeholderengagementandconsultationisembeddedinourforestmanagementplanningprocessthroughoursustainableforestmanagementandfibresourcingcertifications.IdentificationandconsultationwithstakeholdersisalsorequiredbyCanadianlawtomeetthestandardsandprovincialregulationsgoverningthepermittingandapprovalofharvestingandforestmanagementplanningonpubliclands.

OurmillsandforestoperationsoftenworkinpartnershipwithIndigenousPeoplesintheregionswhereweoperate.ThroughourAboriginalCommunityEngagementFramework,weseektobuildrespectful,long-term,mutuallybeneficialworkingrelationshipswiththeIndigenouscommunitieslocatedneartheareasinwhichweoperate.In

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Canadawithinourforestplanning,engagementandconsultationprocessesaswellasseparateoutreach,weworkwithmorethan100Indigenouscommunitiesandorganizationsintheregionswhereweharvesttimberandmanagepublicforestlandundergovernmentlicences.

OversightandFurtherInformation

OurBoard,particularlytheEnvironmental,Health&SafetyCommittee,togetherwithourexecutiveandourseniorleadershipteams,setthepolicyandpracticeofourenvironmental,socialandgovernanceactivitieswithinourbusinessandareresponsibleformonitoringoursafetyandenvironmentalperformance.

Wearecommittedtoprovidingcomprehensiveandtransparentinformationregardingourenvironmental,socialandgovernance(ESG)matters,andhaveavailableontheResponsibilitypartofourwebsite(atwww.westfraser.com)additionalinformationincludingourResponsibilityReportpreparedundertheGlobalReportingInitiative(GRI),aglobalstandardforreportingonarangeofeconomic,environmentalandsocialimpacts.

RiskFactors

Adetaileddiscussionofriskfactorsisincludedundertheheading“RisksandUncertainties”inManagement'sDiscussion&AnalysisfortheyearendedDecember31,2018,whichisincorporatedhereinbyreference.OurManagement’sDiscussion&AnalysisisavailableonSEDARatwww.sedar.comandonourwebsiteatwww.westfraser.com.

CapitalStructure

ShareCapital

Ourauthorizedsharecapitalconsistsof430,000,000sharesdividedinto:

(a) 400,000,000Commonshares,

(b) 20,000,000ClassBCommonshares,and

(c) 10,000,000Preferredshares,issuableinseries.

TheCommonsharesandClassBCommonsharesareequalinallrespects,includingtherighttodividends,rightsupondissolutionorwindingupandtherighttovote,exceptthateachClassBCommonsharemayatanytimebeexchangedforoneCommonshare.TheCommonsharesarelistedandtradedontheTorontoStockExchangeunderthesymbolWFTwhileourClassBCommonsharesarenot.CertaincircumstancesorcorporatetransactionsmayrequiretheapprovaloftheholdersofourCommonsharesandClassBCommonsharesonaseparateclassbyclassbasis.

AsatDecember31,2018,theissuedsharecapitalconsistedof67,537,360Commonsharesand2,281,478ClassBCommonsharesforatotalof69,818,838shares(asatDecember31,2017–77,946,036shares).

CreditRatings

Asshowninthetablebelow,WestFraserisratedbythreeratingagencies.WestFraserpaysannualfeestomaintainitsdebtandcorporateratings.TheratingsareassignedbothonacorporatelevelandspecificallytoourUS$300millionnotesmaturingOctober2024.Theratingsarenotarecommendationtobuy,sellorholdsecuritiesandmaybesubjecttorevisionorwithdrawalatanytimebyeachratingagency.

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RatingsAgency Rating OutlookDBRS1 BBB(low) PositiveMoody’s2 Baa3 StableStandard&Poor’s3 BBB- Stable1. DBRScreditratingsforlong-termobligationsrangefromAAAtoD.AratingofBBBisdescribedbyDBRSas“adequatecreditquality.The

capacityforthepaymentoffinancialobligationsisconsideredacceptable.Maybevulnerabletofutureevents”.AdditionalinformationontheratingisavailableonDBRS’swebsite.

2. Moody’screditratingsforlong-termobligationsrangefromAaatoC.Moody’sdescribesobligationsratedBaaas“subjecttomoderatecreditrisk.Theyareconsideredmedium-gradeandassuchmaypossesscertainspeculativecharacteristics”.AdditionalinformationontheratingisavailableonMoody’swebsite.

3. S&Pcreditratingsforlong-termobligationsrangefromAAAtoD.AratingofBBB-isdescribedbyS&Pas“consideredlowestinvestmentgradebymarketparticipants”.AdditionalinformationontheratingisavailableonS&P’swebsite.

MarketPrices

ThefollowingtablesetsforthadjustedmarketpricesandtradingvolumesofourCommonsharesontheTorontoStockExchangeforeachmonthof2018and2017. 2018 2017 High Low Close Volume Close Volume ($) ($) ($) (000’s) ($) (000’s)January 88.98 76.57 86.06 5,048 44.44 4,907February 94.64 78.52 89.38 5,966 55.13 6,456March 92.69 81.44 85.61 7,030 55.62 7,633April 95.10 82.00 86.97 5,334 61.34 7,656May 96.03 85.88 94.23 9,196 58.81 5,411June 97.99 82.83 90.49 10,283 61.38 4,309July 95.85 76.81 80.80 12,100 66.25 5,294August 93.13 79.77 86.57 11,056 64.79 5,152September 89.52 72.31 73.51 10,576 72.00 7,500October 75.30 60.44 66.14 20,129 78.47 5,904November 75.90 63.51 69.35 10,141 81.54 5,276December 73.45 61.59 67.44 8,130 77.57 4,469Total 114,989 69,967Source:http://tradingdata.tsx.com

Cashdividends

ThedeclarationandpaymentofcashdividendsiswithinthediscretionofourBoardofDirectors.Historically,cashdividendshavebeendeclaredonaquarterlybasispayableaftertheendofeachquarter.Onanannualbasis,dividendsof$0.70pershareweredeclaredin2018,$0.36pershareweredeclaredin2017and$0.28pershareweredeclaredin2016and2015.Therecanbenoassurancethatdividendswillcontinuetobedeclaredandpaidbyusinthefuture,asthediscretionoftheBoardofDirectorswillbeexercisedfromtimetotimetakingintoaccountourcurrentcircumstances.

TransferAgent

OurtransferagentandregistrarisASTTrustCompany(Canada),withregistersoftransfersinVancouverandToronto.

Experts

OurauditorsarePricewaterhouseCoopersLLP(“PwC”),whopreparedtheAuditor’sReportincludedwithourannualConsolidatedFinancialStatementsfortheyearendedDecember31,2018.PwChasconfirmedthatitisindependentwithrespecttous,withinthemeaningoftheRulesofProfessionalConductoftheInstituteofCharteredAccountantsofB.C.,asofFebruary12,2019.

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DirectorsandOfficers

Directors

ThenamesandmunicipalitiesofresidenceofthedirectorsoftheCompany,theirprincipaloccupationsduringthepastfiveyearsandtheperiodsduringwhichtheyhavebeendirectorsoftheCompanyareasfollows:NameandMunicipalityofResidence PrincipalOccupation DirectorSince

HenryH.KetchamVancouver,B.C.

Chairman September16,1985

ReidE.Carter1&4WestVancouver,B.C.

CorporateDirector April19,2016

JohnN.Floren2,3&4Eastham,Massachusetts

PresidentandChiefExecutiveOfficer,MethanexCorporation

April19,2016

BrianG.Kenning2&4Vancouver,B.C.


JohnK.Ketcham3&4SantaMonica,California

RealEstateDeveloper April28,2015

GeraldJ.Miller1,3&4Kelowna,B.C.


RobertL.Phillips2,4&5WestVancouver,B.C.


JaniceG.Rennie1,2&4Edmonton,Alberta


TedSeraphimNorthVancouver,B.C.

ChiefExecutiveOfficer April30,2013

GillianD.Winckler1,3&4Vancouver,B.C.


1. MemberoftheAuditCommittee.2. MemberoftheHumanResources&CompensationCommittee.3. MemberoftheHealth,Safety&EnvironmentCommittee.4. MemberoftheGovernance&NominatingCommittee.5. LeadDirector.

EachdirectorhasheldthesameorasimilarprincipaloccupationwiththeorganizationindicatedorapredecessorthereofforthelastfiveyearsexceptforHenryH.KetchamwhobeforeApril19,2016wasourExecutiveChairman,andbeforeMarch1,2013wasourChairmanandChiefExecutiveOfficer;JohnFlorenwhobeforeJanuary2013wasSeniorVicePresident,GlobalMarketingandLogisticsofMethanexCorporation;TedSeraphimwhobeforeApril19,2018wasPresidentandChiefExecutiveOfficer,andbeforeMarch1,2013wasPresidentandChiefOperatingOfficer;GillianWincklerwhobeforeJune2015wasChiefExecutiveOfficerandPresident,aswellasChiefFinancialOfficerforabriefperiodofCoalspurLimited;ReidCarterwhobeforeDecember31,2018wasPresident,BrookfieldTimberlandsManagementLP.ThetermofofficeofeachdirectorwillexpireattheconclusionoftheCompany’snextannualgeneralmeeting.

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OfficersNameandMunicipalityofResidence OfficeHeld

TedSeraphimNorthVancouver,B.C.

ChiefExecutiveOfficer

RaymondW.FerrisVancouver,B.C.

PresidentandChiefOperatingOfficer

BrianA.BalkwillQuesnel,B.C.

Vice-President,CanadianWoodProducts

KeithD.CarterQuesnel,B.C.

Vice-President,PulpandEnergyOperations

LarryE.GardnerQuesnel,B.C.

Vice-President,CanadianWoodlands

JamesW.GormanVictoria,B.C.

Vice-President,CorporateandGovernmentRelations

ChristopherD.McIverNorthVancouver,B.C.

Vice-President,SalesandMarketing

SeanP.McLarenCollierville,Tennessee

Vice-President,U.S.Lumber

TomV.TheodorakisVancouver,B.C.

SecretaryPartner,McMillanLLP(lawyers)

ChristopherA.VirostekNorthVancouver,B.C.

Vice-President,FinanceandChiefFinancialOfficer

ChuckH.WatkinsMemphis,Tennessee

Vice-President,U.S.LumberManufacturing

EachofficerhasheldthesameorasimilarofficewiththeorganizationindicatedorapredecessorthereofforthelastfiveyearsexceptforTedSeraphim(seedisclosureunder“Directors”);RaymondW.Ferris,whobeforeApril19,2018wasourExecutiveVice-PresidentandChiefOperatingOfficerandbeforeFebruary15,2016wasourVice-President,WoodProducts;BrianA.Balkwill,whobeforeJuly1,2018wasourVice-President,CanadianLumber,beforeFebruary15,2016wasourGeneralManager,CanadianLumber,andbeforeDecember1,2014wasourGeneralManager,EngineeredWood;KeithD.Carter,whobeforeFebruary15,2016wasourGeneralManager,PulpOperations,beforeSeptember1,2014wasourOperationsManager,MechanicalPulpandbeforeFebruary1,2014wasourGeneralManager,QuesnelRiverPulp;LarryE.Gardner,whobeforeFebruary16,2016wasourGeneralManager,CanadianWoodlandsandbeforeDecember1,2014wasourChiefForester,B.C.;JamesW.Gorman,whobeforeMay19,2015wasPresidentandChiefExecutiveOfficeroftheCouncilofForestIndustriesandbeforeSeptember16,2013servedinanumberofseniorleadershiproleswiththeGovernmentofB.C.;ChristopherD.McIver,whobeforeFebruary16,2016wasourVice-President,LumberSalesandCorporateDevelopment;SeanP.McLaren,whobeforeFebruary15,2016wasourVice-President,U.S.LumberOperations;ChristopherA.Virostek,whobeforeApril1,2017wastheSeniorVice-PresidentofStrategyandCorporateDevelopmentofMasoniteInternationalCorporation;andChuckH.Watkins,whobeforeFebruary15,2016wasourGeneralManager,U.S.LumberManufacturing,beforeAugust18,2015wasourRegionalManager,U.S.LumberandbeforeDecember6,2013wasourEngineeringandTechnicalManager,U.S.Lumber.

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ShareholdingsofDirectorsandOfficers

ThedirectorsandofficersoftheCompanyasagroup,beneficiallyownedorcontrolledordirected,directlyorindirectly,thefollowingsharesoftheCompany: December31,2018 December31,2017Commonshares 1,414,601 1,395,821%oftotalCommonshares 2% 2%ClassBCommonshares 78,728 78,728%oftotalClassBCommonshares 3% 3%%ofallsharesoutstanding 2% 2%

CeaseTradeOrders,Bankruptcies,PenaltiesorSanctions

ChristopherVirostek,ourVicePresident,FinanceandChiefFinancialOfficer,wasadirectorofMasonite(Africa)Limited(“MAL”),amajorityownedsubsidiaryofMasoniteInternationalCorporation(“Masonite”),whenMALcommencedvoluntarybusinessrescueproceedingsinSouthAfricainDecember2015.Mr.VirostekservedasadirectorofMALinconnectionwithhisdutiesasanemployeeofMasonite.ThebusinessrescueplanofMALwassubstantiallyimplementedasprovidedunderitstermsandthebusinessrescueproceedingsendedinAugust2016,atwhichtimeMr.Virostekresignedasadirector.

Governance

CorporategovernanceisguidedbyourCorporateGovernancePolicy,acopyofwhichmaybeviewedonourwebsite:www.westfraser.com.TheBoardofDirectorshasestablishedaGovernance&NominatingCommitteecomprisedofallnon-managementdirectors.TheCommitteeprovidessupportforthestewardshipandgovernanceroleoftheBoardinreviewingandmakingrecommendationsonthecompositionoftheBoard,thefunctioningoftheBoardanditscommittees,successionplanningandallothercorporategovernancemattersandpractices.Ontheoccasionofeachregularly-scheduledmeetingoftheBoardin2018,theCommitteemetwithoutmanagementrepresentativespresentandreviewedtheseandotherissues.

TheCorporateGovernancePolicyincludesaCodeofConductwhichsetsoutourpoliciesandrequirementsrelatingto,amongothercategories,legalcompliance,safety,environmentalstewardship,humanrights,anti-corruptionandwhistleblowing.Additionalinformationisavailableonourwebsitewww.westfraser.comunderCorporateGovernance.

AuditCommittee

TheAuditCommitteeofourBoardofDirectorsassiststheBoardinfulfillingitsresponsibilitytooverseeourfinancialreportingandauditprocess.ThefulltextoftheAuditCommittee’sCharterisattachedasSchedule1.

Members

ThefollowingidentifieseachcurrentmemberoftheAuditCommittee,andtheeducationandexperienceofeachmemberthatisrelevanttotheperformanceofthemember’sresponsibilitiesasanAuditCommitteemember.AllmembersoftheAuditCommitteeareconsidered“independent”and“financiallyliterate”withinthemeaningofNI52-110.

ReidE.Carter

Mr.CarterholdsacombinedundergraduatedegreeinForestryandBiologyandamaster’sdegreeinForestSoils.Hewaspresidentofalargetimberlandsinvestmentfirmandhasbeeninvolvedwiththatfirmandrelatedfirmsinvariousseniorrolesforthelast14years.PriortothatheservedasNationalBankFinancial’sPaperandForestProductsAnalyst.

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GeraldJ.Miller

Mr.Miller,whoholdsaBachelorofCommerce,isaCharteredProfessionalAccountant,CharteredAccountant.Hespent25yearsinvariousrolesatWestFraseruntilhisretirementin2011.WhileatWestFraserheservedinanumberofexecutivepositionsincludingVice-PresidentFinanceandChiefFinancialOfficer.Mr.MilleriscurrentlytheChairoftheauditcommitteeofGraniteRealEstateInvestmentTrust.

JaniceG.Rennie

Ms.Rennie,whoholdsaBachelorofCommerce,isaCharteredProfessionalAccountant,CharteredAccountant.ShewaselectedasFellowoftheCharteredAccountantsin1998.Ms.RenniehaschairedorbeenamemberofseveralauditcommitteesofpubliccompaniesinthepastandcurrentlyistheChairmanofEPCORUtilitiesInc.andamemberoftheauditcommitteesofMethanexCorporation,MajorDrillingGroupInternationalInc.andWestJetAirlinesLtd.

GillianD.Winckler

Ms.Winckler,whoholdsaBachelorofScienceandBachelorofCommerceobtainedinSouthAfrica,isaCharteredAccountant(SouthAfrica).Ms.Wincklerworkedintheauditprofessionforfiveyears,incorporatefinanceforfiveyears,andinanumberofexecutivepositionswithCoalspurLimitedandBHPBilliton.Ms.WinckleriscurrentlyamemberoftheauditcommitteeofPanAmericanSilverCorporation.

Pre-ApprovalPoliciesandProcedures

TheAuditCommitteehasadoptedapolicythatsetsoutthepre-approvalrequirementsrelatedtoservicestobeperformedbyourindependentauditors.ThepolicyprovidesthattheCommitteewillannuallyreviewproposedaudit,audit-related,taxandotherservices(tobesubmittedbytheVice-President,FinanceandChiefFinancialOfficerandtheindependentauditor),andwillprovidegeneralapprovalofdescribedservices,usuallyincludingspecificmaximumfeeamounts.

Unlessaservicehasreceivedgeneralpre-approval,itwillrequirespecificpre-approvalbytheCommittee.TheCommitteeispermittedtodelegatepre-approvalauthoritytoanyofitsmembers.TheCommitteereportsonthepre-approvalprocesstothefullBoardofDirectorsfromtimetotime.

FeesPaidtoAuditors($thousands) 2018 2017AuditFees1 878 854Audit-RelatedFees2 96 162TaxFees 323 548AllOtherFees3 80 501. Representsactualandestimatedfeesrelatedtofiscalyearends.2. Forassuranceandrelatedservicesthatarereasonablyrelatedtotheperformanceoftheauditbutarenotreportedas“AuditFees.”3. Includesfeesinconnectionwithfinancialandtaxduediligenceassignmentsandvariousothercompliancereportingmatters.

MaterialContracts

1. OnOctober15,2014,weissuedUS$300millionoffixed-rateseniorunsecurednotesdueOctober15,2024pursuanttoaprivateplacementintheU.S.Thenotesbearinterestof4.35%withsemi-annualpaymentscommencingonApril15,2015andareredeemable,inwholeorinpart,atouroptionatanytime.IntheeventofachangeincontrolinrespectoftheCompanywhichisfollowedwithin60daysbyratingsdowngradestobelowinvestmentgradeincertaincircumstances,unlesswehaveexercisedtherighttoredeemallofthenotes,eachholderwillhavetherighttorequireustorepurchasealloranypartofsuchholder’snotesatapurchasepriceincashequalto101%oftheprincipalamountofthenotesplusanyaccruedandunpaidinterest.

2. OnAugust25,2017,wereplacedourexisting2007CreditAgreementwithanew2017CreditAgreement.ThenewcreditagreementiscomprisedofaCDN$500millioncommittedrevolvingcreditfacilityandaUS$200million

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five-yearnon-revolvingtermacquisitionfacilitywhichexpiresonAugust25,2022.ThecommittedrevolvingcreditfacilityprovidesforfloatingratesofinterestbasedonPrime,BaseRateAdvances,Bankers’AcceptancesorLIBORAdvancesatouroption.Thefive-yearnon-revolvingtermfacilityprovidesforfloatingratesofinterestbasedonBaseRateAdvancesorLIBORAdvancesatouroption.OnAugust28,2017weborrowedUS$200millionunderthenon-revolvingtermfacilitytofundpartoftheGilmanAcquisition.Theseborrowingsarerepayableatanytime,inwholeorinpart,atouroptionandwithoutpenaltybutcannotberedrawnafterpayment.

AdditionalInformation

Additionalinformation,includingdirectors’andofficers’remunerationandindebtedness,principalholdersofoursecuritiesandsecuritiesauthorizedforissuanceunderequitycompensationplans,willbecontainedintheInformationCircularfortheannualgeneralmeetingoftheCompanytobeheldonApril23,2019.AdditionalfinancialinformationisprovidedinourannualauditedconsolidatedfinancialstatementsandManagement’sDiscussion&AnalysisfortheyearendedDecember31,2018,bothofwhichmaybefoundonourwebsiteatwww.westfraser.comandontheSystemforElectronicDocumentAnalysisandRetrieval(“SEDAR”)atwww.sedar.com.

CopiesofourAnnualReport,whichwillincludethisAnnualInformationFormandthedocumentsincorporatedbyreferenceherein,ourannualconsolidatedfinancialstatements(includingtheauditor’sreport)fortheyearendedDecember31,2018andourInformationCircularmaybeobtainedatanytimeuponrequestfromusoncethesedocumentshavebeenpublished,butwemayrequirethepaymentofareasonablechargeiftherequestismadebyapersonwhoisnotasecurityholderoftheCompany.

ThisAnnualInformationForm,ourAnnualReport(oncepublished)andadditionalinformationconcerningtheCompanymayalsobeobtainedonourwebsitewww.westfraser.comandonSEDARatwww.sedar.com.

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Schedule1–AuditCommitteeCharter

TheAuditCommitteeCharter,whichissetoutbelow,wasapprovedbytheBoardonSeptember12,2017.

GeneralMandate

ToassisttheBoardinfulfillingitsresponsibilitytooverseetheCompany’sfinancialreportingandauditprocesses,itssystemofinternalcontrolsanditsprocessformonitoringcompliancewithapplicablefinancialreportinganddisclosurelawsanditsownpolicies.

Responsibilities

TheCommitteewillcarryoutthefollowingresponsibilities:

FinancialStatements

• Reviewsignificantaccountingandfinancialreportingissues,includingcomplexorunusualtransactions,significantcontingenciesandhighlyjudgmentalareas,andrecentprofessionalandregulatorypronouncements,andunderstandtheirimpactontheCompany’sfinancialstatements.

• Reviewtheinterimfinancialreports(includingfinancialstatements,management’sdiscussionandanalysisandrelatednewsreleases)withmanagementandtheauditors,considerwhethertheyarecompleteandconsistentwiththeinformationknowntoCommitteemembersandeitherprovidearecommendationtotheBoardwithrespecttotheapprovaloftheinterimfinancialreportsor,ifsodelegatedbytheBoard,approvetheinterimfinancialreportsandthefilingofthesametogetherwithallrequireddocumentsandinformationwithregulators.

• Understandhowmanagementdevelopsinterimfinancialinformation,andthenatureandextentofauditorinvolvement.

• Reviewwithmanagementandtheauditorstheresultsoftheaudit,includinganydifficultiesencountered.

• Reviewtheannualfinancialstatements,theannualmanagementdiscussionandanalysisandrelatednewsreleases,andconsiderwhethertheyarecomplete,consistentwithinformationknowntoCommitteemembers,andreflectappropriateaccountingprinciples,andprovidearecommendationtotheBoardwithrespecttotheapprovalofthestatements,themanagementdiscussionandanalysisandthenewsrelease.

• ReviewwithmanagementandtheauditorsallmattersrequiredtobecommunicatedtotheCommitteeundergenerallyacceptedauditingstandards.

InternalControl

• RequiremanagementoftheCompanytoimplementandmaintainappropriateinternalcontrolproceduresoverannualandinterimfinancialreporting.

• ReviewwithmanagementandauditorstheadequacyandeffectivenessoftheCompany’sinternalcontroloverannualandinterimfinancialreporting,includinginformationtechnologysecurityandcontrolandcontrolsrelatedtothepreventionanddetectionoffraudandimproperorillegaltransactionsorpayments,thestatusoftheremediationofanyidentifiedcontroldeficiencies,andelicitrecommendationsforimprovements.

• Understandthescopeoftheauditors’reviewofinternalcontroloverfinancialreporting,andobtainandreviewreportsonsignificantfindingsandrecommendations,includingrespectingtheCompany’saccountingprinciplesorchangestosuchprinciplesortheirapplicationandthetreatmentoffinancialinformationdiscussedwithmanagement,togetherwithmanagement’sresponses.

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Audit

• Reviewtheauditors’proposedauditscopeandapproach.

• Reviewtheperformanceoftheauditors,andprovidearecommendationtotheBoardwithrespecttothenominationoftheauditorsforappointmentandremuneration.

• ReviewandconfirmtheindependenceoftheauditorsbyobtainingstatementsfromtheauditorsonrelationshipsbetweentheauditorsandtheCompany,includingnon-auditservices,anddiscussingtherelationshipswiththeauditors.

• PeriodicallyevaluatetheneedfortheestablishmentofaninternalauditfunctionandmakeappropriaterecommendationstotheBoard.

Compliance

• ReviewwithmanagementtheadequacyandeffectivenessoftheCompany’ssystemsformonitoringcompliancewithfinancialreportinganddisclosurelaws,includingtheCompany’sdisclosurecontrolsandprocedures,andtheresultsofmanagement’sinvestigationandfollow-up(includingdisciplinaryaction)ofanyinstancesofnon-compliance.

• Reviewthefindingsofanyexaminationsbyregulatoryagencies,andanyauditorobservations.

• ObtainregularupdatesfrommanagementandCompanylegalcounselregardingcompliancematters.

ReportingRequirements

• RegularlyreporttotheBoardaboutCommitteeactivities,issuesandrelatedrecommendations.

• ProvideanopenavenueofcommunicationbetweentheauditorsandtheBoard.

• ReviewanyreportstheCompanyissuesthatrelatetoCommitteeresponsibilities.

OtherResponsibilities

• Instituteandoverseespecialinvestigationsasneeded.

• Developandimplementapolicyfortheapprovaloftheprovisionofnon-auditservicesbytheauditorsandassessingtheindependenceoftheauditorsinthecontextoftheseengagements.

• Establishproceduresfor:(a)thereceipt,retentionandtreatmentofcomplaintsreceivedregardingnon-compliancewiththeCompany’sCodeofConduct,violationsoflawsorregulations,orconcernsregardingaccounting,internalaccountingcontrolsorauditingmatters;and(b)theconfidential,anonymoussubmissionbyofficersoremployeesoftheCompanyorbyotherpersonsofconcernsregardingquestionableaccounting,auditingorfinancialreportinganddisclosuremattersornon-compliancewiththeCompany’sCodeofConductorothermattersthatareofasensitiveor“whistleblower”nature.

• AssisttheBoardwithitsresponsibilityto,withtheadviceofmanagement,identifytheprincipalfinancialandauditrisksoftheCompanyandestablishsystemsandprocedurestoensuretheseprincipalfinancialandauditrisksaremonitored,andtomakerecommendationstotheBoard.

• AnnuallyreviewtheexpensesoftheChiefExecutiveOfficer.

• PerformotheractivitiesrelatedtothischarterasrequestedbytheBoard.

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• Reviewandassesstheadequacyofthischarterannually,requestingBoardapprovalforproposedchanges.

• ReviewtermsofanyCodeofConductestablishedbytheBoardandrespondtoanyrelatedcomplianceissues.

• ConfirmannuallytotheBoardthatallresponsibilitiesoutlinedinthischarterhavebeencarriedout.

QualificationsandProcedures

• ThecompositionoftheCommitteewillcomplywithapplicablelawsincludingrequirementsforindependence,unrelatedtomanagement,financialliteracyandauditexperience.

• TheChairoftheCommitteewillbedesignatedbytheBoard.

• TheCommitteewillmeetatleastfourtimesannually,andmorefrequentlyascircumstancesdictate,andtheCFOandarepresentativeoftheauditorsshouldbeavailableonrequesttoattendallmeetings.

• TheCommitteeshouldmeetprivatelyinexecutivesessionwithrepresentativesofeachofmanagementandoftheauditorstodiscussanymattersofconcerntotheCommitteeorsuchmembers,includinganypost-auditmanagementletter.

• TheCommitteemayretainanyoutsideadvisorattheexpenseoftheCompany,withouttheBoard’sapproval,atanytimeandhastheauthoritytodetermineanysuchadvisor’sfeesandotherretentionterms.

• Minutesofeachmeetingshouldbeprepared,approvedbytheCommitteeandcirculatedtothefullBoard.

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MANAGEMENT’SDISCUSSION&ANALYSIS

IntroductionandInterpretation

ThisdiscussionandanalysisbyWestFraser’smanagement(“MD&A”)ofWestFraser’sfinancialperformancefortheyearandthreemonthsendingDecember31,2018shouldbereadinconjunctionwithour2018annualauditedconsolidatedfinancialstatementsandaccompanyingnotes(the“FinancialStatements”)andourunauditedcondensedconsolidatedinterimfinancialstatementsandaccompanyingnotes.DollaramountsareexpressedinCanadiancurrency,unlessotherwiseindicatedandreferencestoUS$aretotheUnitedStates.

ThefinancialinformationcontainedinthisMD&AhasbeenpreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”).

ThisMD&Acontainshistoricalinformation,descriptionsofcurrentcircumstancesandstatementsaboutpotentialfuturedevelopmentsandanticipatedfinancialresults.Thelatter,whichareforward-lookingstatements,arepresentedtoprovidereasonableguidancetothereaderbuttheiraccuracydependsonanumberofassumptionsandissubjecttovariousrisksanduncertainties.Forward-lookingstatementsareincludedundertheheadings“RecentDevelopments–ProductionCurtailments”(productioncurtailmentestimate);“AdjustedEarningsandAdjustedBasicEarningsPerShare”(administrativereviewcommencementandadjustmentofexportdutyrates);“Discussion&AnalysisofAnnualResultsbyProductSegment-LumberSegment-SoftwoodLumberDispute”(administrativereviewcommencementandadjustmentofexportdutyrates);“Discussion&AnalysisofAnnualResultsbyProductSegment–Pulp&PaperSegment–OperatingEarnings”(refundofcollecteddutydeposits);“BusinessOutlook;”“EstimatedEarningsSensitivitytoKeyVariables;”“SelectedCashFlowItems–OperatingActivities"(estimatedtaxpaymentsforFebruary2019);“SignificantManagementJudgmentsAffectingFinancialResults–SoftwoodLumberDispute”(administrativereviewcommencementandadjustmentofexportdutyrates);and“ContractualObligations”.Bytheirnature,forward-lookingstatementsinvolvenumerousassumptions,inherentrisksanduncertainties,bothgeneralandspecific,whichcontributetothepossibilitythatthepredictions,forecastsandotherforward-lookingstatementswillnotoccur.Actualoutcomesandresultsofthesestatementswilldependonanumberoffactorsincludingthosemattersdescribedunder“RisksandUncertainties”andmaydiffermateriallyfromthoseanticipatedorprojected.Thislistofimportantfactorsaffectingforward-lookingstatementsisnotexhaustiveandreferenceshouldbemadetotheotherfactorsdiscussedinpublicfilingswithsecuritiesregulatoryauthorities.Accordingly,readersshouldexercisecautioninrelyinguponforward-looking-statementsandweundertakenoobligationtopubliclyupdateorreviseanyforward-lookingstatements,whetherwrittenororal,toreflectsubsequenteventsorcircumstancesexceptasrequiredbyapplicablesecuritieslaws.

ThroughoutthisMD&AreferenceismadetoAdjustedEBITDA,AdjustedEBITDAmargin,AdjustedearningsandAdjustedearningspershareandnetdebttototalcapitalratio(collectively“thesemeasures”),calculatedasshownundertheheading“Non-IFRSMeasures”.Webelievethat,inadditiontoearnings,thesemeasuresareusefulperformanceindicators.ThesemeasuresarenotgenerallyacceptedearningsmeasuresunderIFRSanddonothavestandardizedmeaningsprescribedbyIFRS.Investorsarecautionedthatnoneofthesemeasuresshouldbeconsideredasanalternativetoearnings,earningspershare(“EPS”)orcashflow,asdeterminedinaccordancewithIFRS.Asthereisnostandardizedmethodofcalculatinganyofthesemeasures,ourmethodofcalculatingeachofthemmaydifferfromthemethodsusedbyotherentitiesand,accordingly,ouruseofanyofthesemeasuresmaynotbedirectlycomparabletosimilarlytitledmeasuresusedbyotherentities.

ThisMD&AincludesreferencestobenchmarkpricesoverselectedperiodsforproductsofthetypeproducedbyWestFraser.Thesebenchmarkpricesareforspecificproducts,dimensionsorgradesanddonotnecessarilyreflectthepricesobtainedbyWestFraserduringthoseperiodsasweproduceandsellawideofferingofdimensions,gradesandspecies.TheinformationinthisMD&AisasatFebruary12,2019unlessotherwiseindicated.

FordefinitionsofvariousabbreviationsandtechnicaltermsusedinthisMD&A,pleaseseetheGlossaryofIndustryTermsfoundinourmostrecentAnnualReport.

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RecentDevelopments

ProductionCurtailments

OnNovember13,2018,weannouncedthepermanentcurtailmentofapproximately300millionboardfeetofcombinedannuallumberproductionatourFraserLakeandQuesnelsawmills.Thecurtailmentwillberealizedthroughtheeliminationofthethirdshiftateachmilloverthenextsixmonths.ThisdecisionwasmadeasaresultoflogsupplyconstraintsandhighlogcostsduetoimpactsfromthemountainpinebeetleinfestationandforestfiresinBritishColumbia.

OnNovember30,2018,weannouncedatemporaryproductioncurtailmentofapproximately25millionboardfeetovertheholidayperiod.OnJanuary14,2019,weannouncedadditionaltemporarycurtailmentsofapproximatelythreeweeksofproductionthroughoutthefirstquarterof2019ateachofthreeBritishColumbiasawmills:Chasm,100MileandChetwynd.ThedecisiontotemporarilyreduceproductionatChasm,100MileandChetwyndsawmillswasaresultofpricedeclinesinmarkets,highlogcostsandlogsupplyconstraints.Inaddition,theWilliamsLakesawmillwillbeshutdownforapproximatelyoneweektocompletecertaincapitalupgrades.

CanadianTaxReform

InNovember2018,theCanadiangovernmentannouncedandthentabledtheNoticeofWaysandMeansMotiontoamendtheCanadianIncomeTaxActandtheIncomeTaxRegulations.TheproposalintroducedanAcceleratedInvestmentIncentivetoallowbusinessesinCanadatoacceleratethetaxdepreciationdeductionofeligiblecapitalpropertyacquiredafterNovember20,2018.Thisincludesafullexpensingprovisionformanufacturingandprocessingmachineryequipmentintheyearofpurchase.Theproposalincludesaphase-outperiodovertheyears2023to2028.

TheproposalhasnotbeensubstantivelyenactedasofFebruary12,2019,thereforenoadjustmenthasbeenmadetoourdeferredtaxesorcurrenttaxprovisionatDecember31,2018.

AnnualResults

SummaryInformation-AnnualResults($millions,exceptasotherwiseindicated) 2018 2017 2016

Sales 6,118 5,134 4,450 AdjustedEBITDA 1,538 1,160 674Exportduties (202) (48) -Equity-basedcompensation (7) (32) 5Amortization (257) (210) (197)Operatingearnings 1,072 870 482Financeexpense (37) (31) (29)Other 37 7 (9)Taxprovision (262) (250) (118)Earnings 810 596 326 Basicearningspershare($) 10.88 7.63 4.06Dilutedearningspershare($) 10.62 7.63 3.90Cashdividendsdeclaredpershare($) 0.70 0.36 0.28Totalassets 4,791 4,517 3,600Long-termdebt 692 636 413Cdn$1.00convertedtoUS$–average 0.772 0.771 0.755

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SelectedQuarterlyInformation($millions,exceptearningspershare(“EPS”)amountswhicharein$) Q4-18 Q3-18 Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17Sales 1,274 1,646 1,834 1,364 1,376 1,247 1,322 1,189Earnings 29 238 346 197 207 120 146 123BasicEPS 0.42 3.25 4.52 2.53 2.66 1.53 1.86 1.58DilutedEPS 0.29 2.99 4.52 2.53 2.66 1.53 1.86 1.58

Discussion&AnalysisofAnnualNon-OperationalItems

AdjustedEarningsandAdjustedBasicEarningsPerShare($millions,exceptEPSamountswhicharein$) 2018 2017 Earnings 810 596Add(deduct): Exportduties 202 48 Interestrecognizedonexportdutydepositsreceivable (2) - Equity-basedcompensation 7 32 Exchangegainonlong-termfinancing (10) (10) Exchangegainonexportdutydepositsreceivable (5) (1) Insurancegainondisposalofequipment - (7) Nettaxeffectontheaboveadjustments (57) (5) Re-measurementofdeferredincometaxassetsandliabilities - 6Adjustedearnings 945 659AdjustedbasicEPS1 12.70 8.441. AdjustedbasicEPSiscalculatedbydividingAdjustedearningsbythebasicweightedaveragesharesoutstanding.

Exportdutiesof$202millionwereexpensedin2018relatedtoSPFlumbercomparedto$48millionin2017.2018alsoincludesinterestincomeof$2millionrelatedtothedutydepositreceivablebasedoninterestratespostedbytheU.S.government.Wewererequiredtopaydutiesforallof2018ascomparedto2017whendutieswereineffectforonlypartoftheyear.Dutieswerealsoimpactedin2018bytherelativelyhigherproductpricesthroughmuchof2018ascomparedto2017.Theadministrativereviewofdutiesforthefirstperiodofreviewisexpectedtocommencein2019andcontinueinto2020andlikely2021.IntheabsenceofasoftwoodlumberagreementwiththeU.S.,itisdifficulttoanticipatewhenanydutiesmaybereturnedtous.WebelievethattheU.S.allegationsrelatedtosoftwoodlumbersubsidiesanddumpingareunwarrantedandthattheratesappliedwillbeadjusteduponreview.See“SoftwoodLumberDispute”undertheheading“LumberSegment”and“SignificantManagementJudgmentsAffectingFinancialResults”inthisMD&Aforfurtherinformation.

Ourequity-basedcompensationincludesoursharepurchaseoption,phantomshareunit,anddirectors’deferredshareunitplans(collectively,the“Plans”),allofwhichhavebeenpartiallyhedgedbyanequityderivativecontract.ThePlansandequityderivativecontractarefairvaluedeachquarterandtheresultingexpenseorrecoveryisrecordedoverthevestingperiod.Ourfairvaluationmodelsconsidervariousfactorswiththemostsignificantbeingthechangeinthemarketvalueofoursharesfromthebeginningtotheendoftherelevantperiod.Theexpenseorrecoverydoesnotnecessarilyrepresenttheactualvaluewhichwillultimatelybereceivedbytheholdersofoptionsandunits.

AnychangeinthevalueoftheCanadiandollarrelativetothevalueoftheU.S.dollarresultsintherevaluationofourU.S.dollardenominatedassetsandliabilities.TherevaluationofourCanadianoperation’sU.S.dollarbalancesisincludedinotherincomeinearningswhiletherevaluationofourU.S.operation’sassetsandliabilitiesisincludedinothercomprehensiveearnings.ThevaluesinthetableaboveincorporatetheexchangegainsrecordedonourU.S.dollardenominatedlong-termfinancingandourlong-termdutydepositreceivableduringtheperiodspresented.ExchangegainsorlossesrealizedontheworkingcapitalbalancesofourCanadianoperationsareidentifiedunder“OtherNon-OperationalItems”below.

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Aninsurancegainof$7millionrelatedtoinvoluntarydisposalofequipmentwasrecordedin2017relatedtoequipmentatourjointly-ownedNBSKplantinQuesnel.

U.S.TaxReformlegislationandanincreaseintheprovinceofBritishColumbiataxratefrom11%to12%weresubstantivelyenactedin2017resultinginaone-timeincreasetodeferredincometaxexpenseof$6millionassociatedwiththere-measurementofdeferredincometaxassetsandliabilities.

OtherNon-OperationalItems

Otherincomeincludesanexchangegainonworkingcapitalof$13millionin2018comparedtoalossof$11millionin2017.

Theresultsofthecurrentyearincludeaprovisionforincometaxof$262millioncomparedto$250millionin2017.Theeffectivetaxratewas24%inthecurrentyearcomparedto30%in2017.The2018effectivetaxrateislowerthantheratein2017primarilyduetotheU.S.federalincometaxratereductionfrom34%to21%.Note19totheFinancialStatementsprovidesareconciliationofincometaxescalculatedattheBritishColumbiastatutoryratetotheincometaxexpense.

Thefundedpositionofourdefinedbenefitpensionplansandotherretirementbenefitplansisestimatedattheendofeachperiod.Thefundedposition,asshowninNote14toourFinancialStatements,isdeterminedbysubtractingthevalueoftheplanassetsfromtheplanobligations.In2018,werecordedinothercomprehensiveearningsanafter-taxactuarialgainof$24million,comparedtoanafter-taxlossof$26millionin2017.Thecurrentyeargainreflectedanincreaseinthediscountrateusedtocalculateplanliabilities,partiallyoffsetbyanactualrateofreturnonassetsthatwaslowerthantheexpectedreturn.

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Discussion&AnalysisofAnnualResultsbyProductSegment

LumberSegment 2018 2017SPF(MMfbm) Production 3,792 3,809 Shipments 3,790 3,714SYP(MMfbm) Production 2,817 2,424 Shipments 2,792 2,387Woodchipproduction SPF(MODTs) 1,784 1,765 SYP(Mgreentons) 3,785 3,113 Sales($millions)

Lumber 3,888 3,219Woodchipsandotherresiduals 456 344Logsandother 112 108

4,456 3,671 AdjustedEBITDA($millions) 1,156 884Exportduties($millions) (202) (48)Amortization($millions) (196) (155)Operatingearnings($millions) 758 681AdjustedEBITDAmargin(%) 26 24Capitalexpenditures($millions) 284 247Acquisition($millions) - 526Benchmarkprices(perMfbm) SPF#2&Better2x41–US$ 480 401 SPF#3Utility2x41–US$ 372 323 SYP#2West2x42–US$ 501 433 SPF#2&Better2x4–Cdn$3 622 521 SPF#3Utility2x4–Cdn$3 482 419 SYP#2West2x4–Cdn$3 649 5621. Source:RandomLengths–NetFOBmill.2. Source:RandomLengths–NetFOBmillWestside.3. CalculatedbyapplyingtheaverageCanadian/U.S.dollarexchangeratefortheperiodtotheU.S.dollarbenchmarkprice.

GilmanAcquisition

OnAugust31,2017,wecompletedtheacquisitionofsixsawmillsandafinger-jointmill(the“GilmanAcquisition”).Afullyearofproduction,shipmentsandoperatingresultsoftheGilmanAcquisitionisincludedinour2018resultscomparedtofourmonthspost-acquisitionin2017.IncomparisontoourotherSYPmills,theGilmanAcquisitionmillsgenerallypurchasesmallerlogs,produceproportionatelymoreSYP2x4,andoperatewithalowerlumberrecoverywhichhasledtoanincreaseinourwoodchipproduction.

InDecember2018,weceasedoperationsatthefinger-jointmillthatwasacquiredaspartoftheGilmanAcquisition.

OperatingEarnings

OperatingearningswerehighercomparedtolastyearduetohigherlumberandchippricesandtheinclusionoftheresultsofthemillsfromtheGilmanAcquisitionforafullyearcomparedtofourmonthsin2017.Canadianlumberalsorecognized$4millionofinsuranceclaimproceedsin2018asfinalsettlementforthe2017temporarysuspensionofthe100Mile,ChasmandWilliamsLakeoperationsduetoBritishColumbiaforestfires.Thesepositivefactorswerepartiallyoffsetbyhigherexportduties,increasedfreightcostsandhigherCanadianlogcosts.

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Thesalepriceforlumberwasveryvolatilein2018withthebenchmarkSPF#2&Better2x4pricehittingahighofUS$655perMFBMinJuneandalowofUS$298perMFBMinOctober.SYPfollowedasimilartrendtoSPFandinaddition,therewassignificantvolatilityinthepricedifferentialbetweennarrowandwidedimensionsofSYPwithintheyear.Webelievethehighpricesinthefirsthalfof2018wereduetoanindustrySPFsupplyshortfallwhicharoseinthefirstquarterasaresultofCanadiantransportationissuesasdiscussedunder“Shipments”below.Thepricesdeclinedinthesecondhalfof2018asindustryinventorybacklogswereclearedandtherewasaslightsofteningofU.S.housingmarkets.

Exportdutieswereineffectforallof2018andwereapplicableon2018’shigherSPFlumberprices.Exportdutiesfor2017wereapplicableintermittentlyin2017asdiscussedunder“SoftwoodLumberDispute”below.

OurCanadianlogcostswerehigherbyapproximately20%in2018comparedto2017asaresultofincreasedmarket-basedstumpageratesinBritishColumbiaandAlbertaaswellashigherpricesforpurchasedlogsinBritishColumbiaduetoincreasedcompetitionforashrinkingtimbersupply.U.S.logcostsremainedstableinmostofouroperatingareascomparedto2017.

Production

SPFproductionwasslightlylowerthan2017asmultiplefactorsimpactedouroperations.OurHighPrairie,Albertamillwasinstart-upafterasignificantcapitalrebuildandwetookmarketrelatedcurtailmentsinthefourthquarterof2018inseveralBritishColumbiasawmills.Wewerenotabletofullyrecapturethe55MMfbmofproductionthatwaslostin2017duetowildfirerelatedcurtailmentsaswildfiresin2018onceagainimpactedoperationsalbeitlesssignificantlythanin2017.

SYPproductionincreasedby393MMfbmdueprimarilytotheGilmanAcquisition,partiallyoffsetbytemporaryshutdownsatanumberofmillsduetohurricanes,andlogsupplyconstraintsasaresultofwetweatherinsomeoperatingareasinthelastfourmonthsof2018.Inaddition,productionwasaffectedbythestart-upofthenewOpelikasawmillonAugust2,2018.TheoldOpelikasawmillranuntilJuly27,2018andisintheprocessofbeingdismantled.

Shipments

ItwasavolatileshippingyearforSPFin2018,eventhoughonanannualbasiswewereabletoshipproduction.Firstquarter2018shipmentswerenegativelyimpactedbyweatherrelatedshortagesoftruckandrailresourcesresultinginaninventorybuildof112MMfbm.Canadiantransportationservicesrecoveredinthesecondquarterof2018allowingustocatchuponshipmentsinthesecondandthirdquarter.

IncreasedshipmentsofSYPlumberandchipproductionwereprimarilytheresultoftheGilmanAcquisition.

OurSPFsalesareprimarilytoNorthAmericanmarketswiththeU.S.marketbeingthemostsignificantdestination.ThepercentageofSPFsalesbyvolumetotheU.S.remainedsimilarto2017levels.HousingrelateddemandintheU.S.frombothnewhousingandrepairandrenovationcontinuestoslowlyincrease,withsinglefamilystartsannualaverageimprovingby4%in2018comparedto2017.SPFsalesbyvolumetooffshoremarketsalsoremainedsimilarto2017levels.ThetablebelowsetsouttheproportionofourCanadianlumberbyvolumesoldbydestinationineachof2018and2017.

SPFSalesbyDestination 2018 2017 MMfbm % MMfbm %U.S. 2,249 59 2,161 58Canada 871 23 895 24China 473 13 457 12Other 197 5 201 6Total 3,790 3,714

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OnNovember25,2016,acoalitionofU.S.lumberproducerspetitionedtheU.S.DepartmentofCommerce(“USDOC”)andtheU.S.InternationalTradeCommission(“USITC”)toinvestigateallegedsubsidiestoCanadiansoftwoodlumberproducersandlevycountervailingandantidumpingdutiesagainstCanadiansoftwoodlumberimports.WewerechosenbytheUSDOCasa“mandatoryrespondent”toboththecountervailingandantidumpinginvestigationsandasaresult,wehavereceiveduniquecompanyspecificrates.

OnApril24,2017,theUSDOCissueditspreliminarydeterminationinthecountervailingduty(“CVD”)investigationandimposedacompanyspecificpreliminaryrateof24.12%tobepostedbycashdepositsontheexportsfromCanadaofsoftwoodlumbertotheU.S.onorafterApril28,2017.OnJune26,2017,theUSDOCissueditspreliminarydeterminationintheantidumpingduty(“ADD”)investigationandimposedacompanyspecificpreliminaryrateof6.76%tobepostedbycashdepositsontheexportsfromCanadaofsoftwoodlumbertotheU.S.onorafterJune30,2017.TherequirementthatwedepositCVDwassuspendedonAugust24,2017untilfinaldeterminationwaspublishedbytheUSITC.OnDecember4,2017,theUSDOCamendedourCVDrateto17.99%andourADDrateto5.57%.EffectiveDecember28,2017,webeganpostingcashdepositsforCVDandeffectiveDecember4,2017,webeganpostingcashdepositsforADDattherevisedrates.TheCVDandADDratesaresubjecttofurtheradjustmentthroughadministrativereviewstobecompletedbytheUSDOC.TheadministrativereviewsforeachofCVDandADDareexpectedtocommenceinthespringof2019andcovertheperiodsfromApril28,2017toDecember31,2018forCVDandJune30,2017toDecember31,2018forADD.Thereviewsmaynotbefinalizeduntilmid-2020andtheresultsaresubjecttoappeals.

Dutiesof$202millionhavebeenexpensedfor2018comparedto$48millionin2017.WehavepostedcashdepositsforCVDat17.99%andforADData5.57%rate.WehaverecalculatedtheADDrateforthecurrentperiodofreviewusingourreportedresultsandthecalculationmethodologyprescribedbytheUSDOC.Basedonourcurrentdata,wedeterminedthattheexpectedADDratewillbe1.46%whichislowerthanthecurrentADDdepositrateof5.57%.Wehaverecordedalong-termdutydepositreceivablerelatedtotheCVDandADDof$75million($38millionfrom2018and$37millionfrom2017).DetailscanbefoundinNote27toourFinancialStatements.

We,togetherwithotherCanadianforestproductcompaniesandtheCanadianfederalandprovincialgovernments(the“CanadianInterests”)categoricallydenytheallegationsbythecoalitionofU.S.lumberproducersanddisagreewiththecountervailingandantidumpingdeterminationsbytheUSDOCandtheUSITC.TheCanadianInterestscontinuetoaggressivelydefendtheCanadianindustryinthistradedisputeandhaveappealedthedecisionstoNorthAmericaFreeTradeAgreementpanelsandtheWorldTradeOrganization.

Thedutyratesaresubjecttochangebasedonadministrativereviewsandappealsavailabletous.Notwithstandingthedepositratesassignedundertheinvestigations,ourfinalliabilityfortheassessmentofCVDandADDwillnotbedetermineduntileachannualadministrativereviewprocessiscompleteandrelatedappealprocessesareconcluded.

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PanelsSegment 2018 2017Plywood(MMsf3/8”basis) Production 833 838Shipments 837 826MDF(MMsf3/4”basis) Production 224 191Shipments 224 182LVL(Mcf) Production 2,251 2,676Shipments 2,155 2,601 Sales($millions)

Finishedproducts 648 575Woodchipsandotherresiduals 22 17Logsandother 6 8

676 600 AdjustedEBITDA($millions) 127 113Amortization($millions) (15) (13)Operatingearnings($millions) 112 100AdjustedEBITDAmargin(%) 19 19Capitalexpenditures($millions) 16 22Benchmarkprices Plywood(perMsf3/8”basis)1Cdn$ 548 5091. Source:Crow’sMarketReport–DeliveredToronto.

Thepanelssegmentiscomprisedofourplywood,MDFandLVLoperations.

Operatingearnings

Operatingearningsincreasedcomparedto2017dueprimarilytohigherplywoodandchipprices.Thiswaspartiallyoffsetbyhigherlogandresidualcosts,andhigherMDFfreightcosts.MDFfreightcostsincreasedaswewererequiredtousehighercostalternativetransportationmethodstomitigatethefirstquartertransportationissues.Lastly,thepanelsegmentrecognized$3millionofinsuranceclaimproceedsin2018asfinalsettlementforthe2017temporarysuspensionoftheWilliamsLakeplywoodoperationduetoBritishColumbiaforestfires.

Thesalepriceforplywoodwasvolatilein2018withthebenchmarkpricehittingahighof$670perMsfinJuneandalowof$432perMsfinOctober.Theincreaseinprice,year-over-year,wasduetothecombinationoffirstquartertransportationissues,tariffsimplementedbytheCanadiangovernmentonplywoodimportsfromtheU.S.inJuneof2018,andastrongnewhousingmarketinCanada.

Production

Plywoodproductionwasconsistentwiththeprioryear.In2017,15MSFofproductionwaslostduetowildfirerelatedcurtailments.MDFproductionincreasedasWestPineranforthefullyearin2018comparedto8monthsin2017asitrecommencedproductionApril29,2017afterathirteen-monthfire-relatedclosure.LVLproductionwascurtailedinSeptember2018tomatchproductdemand.

Shipments

ShipmentsforplywoodandMDFwereconsistentwithproductiondespitethefirstquartertransportationdisruptions.LVLshipmentswerelowercomparedto2017duetoreducedproduction.DemandforourplywoodproductsisinfluencedbyCanadiannewhomeconstructionwhileMDFandLVLdemandisinfluencedbybothCanadaandU.S.newhomeconstruction.

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Pulp&PaperSegment 2018 2017BCTMP(Mtonnes) Production 652 674Shipments 642 670NBSK(Mtonnes) Production 499 498Shipments 496 497Newsprint(Mtonnes) Production 119 122Shipments 117 123 Sales($millions) 1,163 988 AdjustedEBITDA($millions) 258 172Amortization($millions) (44) (40)Operatingearnings($millions) 214 132AdjustedEBITDAmargin(%) 22 17Capitalexpenditures($millions) 60 58Benchmarkprices(pertonne) NBSKU.S.-US$1,3 1,337 1,105 NBSKChina-US$2,3 878 712 Newsprint-US$4 692 584 NBSKU.S.-Cdn$5 1,732 1,433 NBSKChina-Cdn$5 1,138 923 Newsprint-Cdn$5 897 7571. Source:ResourceInformationSystems,Inc.–U.S.listprice,deliveredU.S.2. Source:ResourceInformationSystems,Inc.–Chinalistprice,deliveredChina.3. ThedifferencesbetweentheU.S.andChinaNBSKlistpricesarelargelyattributabletothecustomarysalespracticeofapplyingmaterial

discountsfromtheU.S.listpriceforNorthAmericansalescomparedtorelativelysmalldiscountsfromtheChinalistpriceforsalesintoChina.4. Source:ResourceInformationSystems,Inc.–deliveredU.S.48.8gram.5. CalculatedbyapplyingtheaverageCanadian/U.S.dollarexchangeratefortheperiodtotheU.S.dollarbenchmarkprice.

Thepulp&papersegmentiscomprisedofourNBSK,BCTMPandnewsprintoperations.

OperatingEarnings

Operatingearningswerehighercomparedto2017primarilyduetohigherpulpandnewsprintprices.Thiswaspartiallyoffsetbyincreasedchipcosts,higherpowercostsatourAlbertaoperations,andhighermaintenancecostsatourHintonNBSKpulpandQuesnelBCTMPpulpmills.

Pulppricesincreasedthroughoutthefirsthalfof2018duetostrongdemandfundamentalscombinedwithseveralpulpsupplyshocks.Supplyshocksincluded,butwerenotlimitedto,unplanneddowntimeattwoWesternCanadianpulpmills,afibreshortageinEuropeduetowetwinterweatherandatruckingstrikeinBrazil.TradetensionsbetweenChinaandtheU.S.,includingtariffsimposedonChineseimports,begantoimpactpulpdemandinthesecondhalfof2018leadingtoincreasedinventorylevelsandlowerprices.PulpproductsarefrequentlyusedinthepackagingforproductsshippedtotheU.S.

Duringthefirstquarterof2018,theUSDOCandUSITCcompletedapreliminaryinvestigationandassignedourjointly-ownednewsprintmillaCVDrateof6.53%andanADDrateof22.16%.InSeptember2018,theUSITCreversedtheUSDOCdecisiontochargeCanadiannewsprintproducersCVDandADDonthebasisthatU.S.producerswerenotmateriallyinjuredorthreatenedwithmaterialinjury.Itisexpectedthatthefullamountofdutydepositscollectedwillberefunded.Asaresult,a$5millionreceivablewasrecordedonourbalancesheets.

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Production

TheHintonpulpmillcontinuedtohaveintermittentreliabilityissuesin2018whichnegativelyaffectedproduction.Despitenomajormaintenanceshutdownsin2018wewerenotabletogenerateanyadditionalproductionvolumeforNBSK.

OurQuesnelBCTMPpulpmill’sproductionwaslowercomparedto2017dueto2018havingplannedandunplannedmaintenanceandcapitalshutdowns,outagesduetoanaturalgassupplydisruptionandvariousoperationalissues.ThisresultedinlowerBCTMPproductioncomparedto2017.

Shipments

NBSKandnewsprintshipmentvolumeswerein-linewithproductionvolumesin2018whileBCTMPshipmentswerenegativelyaffectedbyamissedvesselsailingwhereby16,000tonnesofpulpsalesweredelayedintoJanuary2019.

FourthQuarterResults

SummaryInformation–QuarterlyResults($millions,exceptasotherwiseindicated) Q4-18 Q3-18 Q4-17 Sales 1,274 1,646 1,376 AdjustedEBITDA 120 446 341Exportduties (37) (54) 17Equity-basedcompensation 1 - (6)Amortization (69) (64) (59)Operatingearnings 15 328 293Financeexpense (9) (10) (8)Other 22 (4) 10Taxrecovery(provision) 1 (76) (88)Earnings 29 238 207 Cdn$1.00convertedtoUS$–average 0.758 0.765 0.787

Discussion&AnalysisofFourthQuarterNon-OperationalItems

AdjustedEarningsandAdjustedBasicEarningsPerShare($millionsexceptEPSamountswhicharein$) Q4-18 Q3-18 Q4-17 Earnings 29 238 207Add(deduct): Exportduties 37 54 (17) Interestrecognizedonexportdutydepositsreceivable (1) (1) - Equity-basedcompensation (1) - 6 Exchangeloss(gain)onlong-termfinancing (6) 2 (1) Exchangeloss(gain)onexportdutydepositsreceivable (4) 1 (1) Insurancegainondisposalofequipment - - (7) Nettaxeffectontheaboveadjustments (11) (19) 7

Re-measurementofdeferredincometaxassetsandliabilities - - 6Adjustedearnings 43 275 200AdjustedbasicEPS 0.63 3.77 2.57

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Exportdutiesof$37millionwereexpensedinthequarterrelatedtoSPFlumbercomparedto$54millioninthepreviousquarterandarecoveryof$17millioninthefourthquarterof2017.Duringthefourthquarterof2017dutydepositsof$20millionweremadeonaccountofCVDandADDandalong-termexportdutydepositreceivableof$37millionwasrecorded.ThereceivablereflectsthereductionintheCVDratefromthepreliminaryrateof24.12%toafinalrateof17.99%andanadjustmenttoreflectADDatourestimatedratebasedonapplyingtheUSDOCmethodologytoouractualfinancialresults.Thecombinationofthereceivablelessthedepositsresultedinarecoveryof$17millionbeingrecordedthroughincomeinthefourthquarterof2017.Inthefourthquarterof2018,lowerpricesresultedinaslightlyhigherexpectedADDrate.See“SoftwoodLumberDispute”underthesection“Discussion&AnalysisofAnnualResultsbyProductSegment–LumberSegment”and“SignificantManagementJudgmentsAffectingFinancialResults”inthisMD&Aforfurtherinformation.

Thecurrentquarteralsoincludesinterestincomeof$1millioncomparedto$1millioninthepreviousquarterrelatedtothedutydepositreceivable.Inaddition,werecordeda$4millionexchangegainonexportdutydepositsreceivablecomparedtoalossof$1millioninthepreviousquarterandagainof$1millioninthefourthquarterof2017.

Foradescriptionoftheotheradjustmentsintheabovetable,seethecorrespondingsectionunder“Discussion&AnalysisofAnnualNon-OperationalItems”inthisMD&A.

OtherNon-OperationalItems

Otherincomeincludesanexchangegainonworkingcapitalof$9millioncomparedtolossof$5millioninthepreviousquarterandagainof$1millioninthefourthquarterof2017.Amidfinancialmarketvolatility,theCanadiandollarweakenedfrom0.773to0.733fromtheendofthethirdquarter2018totheendofthefourthquarter.

Theresultsofthecurrentquarterincludeanincometaxrecoveryof$1millioncomparedtoaprovisionforincometaxof$76millioninthepreviousquarterandaprovisionof$88millioninthefourthquarterof2017.Note6tothefourthquarterunauditedcondensedconsolidatedinterimfinancialstatementsprovidesareconciliationofincometaxescalculatedattheBritishColumbiastatutoryratetotheincometaxexpense.

Thefundedpositionofourdefinedbenefitpensionplansandotherretirementbenefitplansisestimatedattheendofeachperiod.Thefundedpositionisdeterminedbysubtractingthevalueofplanassetsfromthevalueofplanobligations.Werecordedinothercomprehensiveearningsanafter-taxactuariallossof$28millioninthefourthquarterof2018comparedtoagainof$45millioninthepreviousquarterandalossof$32millioninthefourthquarterof2017.Thecurrentquarterlosswasduetotheactualrateofreturnonassetsbeinglowerthantheexpectedreturn.

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Discussion&AnalysisofFourthQuarterResultsbyProductSegment

LumberSegment Q4-18 Q3-18 Q4-17SPF(MMfbm)

Production 907 948 903Shipments 943 1,027 904

SYP(MMfbm) Production 652 694 707Shipments 626 722 694

Sales($millions)

Lumber 757 1,068 876Woodchipsandotherresiduals 111 116 97Logsandother 30 27 27

898 1,211 1,000 AdjustedEBITDA($millions) 68 339 258Exportduties($millions) (37) (58) 17Amortization($millions) (53) (48) (43)Operatingearnings($millions) (22) 233 232AdjustedEBITDAmargin(%) 8 28 26Benchmarkprices(perMfbm) SPF#2&Better2x41–US$ 327 482 462 SPF#3Utility2x41–US$ 268 388 346 SYP#2West2x42–US$ 419 469 438 SPF#2&Better2x4–Cdn$3 432 630 587 SPF#3Utility2x4–Cdn$3 354 507 440 SYP#2West2x4–Cdn$3 553 613 5571. Source:RandomLengths–NetFOBmill.2. Source:RandomLengths–NetFOBmillWestside.3. CalculatedbyapplyingtheaverageCanadian/U.S.dollarexchangeratefortheperiodtotheU.S.dollarbenchmarkprice.

OperatingEarnings

Operatingearningsweresignificantlylowercomparedtothepreviousquarterandthefourthquarterof2017primarilyduetothedeclineinlumberpricesandlowercombinedlumberproductionandshipmentvolumes.ThiswasfurtherexacerbatedintheU.S.marketwherethesellingpriceforSYP2x6through2x12declinedmoresignificantlythantheSYP2x4priceoverthesamecomparativeperiods.OurSYPmillsproducethefullcomplementofnarrowandwideproducts.Logandlumberinventorywrite-downstomarketvaluealsoaffectedoperatingearningsinthequarter.Inventorywrite-downswere$3millionhigherthanthethirdquarterof2018and$12millionhigherthanthefourthquarterof2017becauseofthesalespricedeclinesandhighlogcosts.

Comparedtothefourthquarterof2017,operatingearningswerealsonegativelyimpactedbyhigherCanadianlogcostsandexportduties.OurCanadianlogcostsincreasedbyapproximately20%asaresultofhighermarket-basedstumpageratesinBritishColumbiaandAlbertaaswellashigherpricesforpurchasedlogsinBritishColumbiaresultingfromincreasedcompetitionforashrinkingtimbersupply.Exportdutiesincreasedby$54millionasthefourthquarterof2017includedanadjustmentrelatedtoupdatingtheCVDratetothefinalrateandtheADDratetotheestimatedrate,resultinginarecoveryof$17million.Thisisdiscussedindetailunderthesection“Discussion&AnalysisofAnnualResultsbyProductSegment–LumberSegment–SoftwoodLumberDispute”above.

Production

SPFproductionwasreducedby25MMfbminDecemberof2018aswetemporarilycurtailedfourmillsinBritishColumbia.Thisdecisionwasmadeinresponsetologsupplyconstraints,highlogcostsandthedeclineinSPFprices.

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SYPproductionwaslowercomparedtothepreviousquarterduetofeweroperatingdays,theOpelikastart-up,weather-relatedlogshortagesanddowntimeforscheduledmaintenance.Similarissuesaffectedproductionascomparedtothefourthquarterof2017.

Shipments

SPFshipmentsinthesecondandthirdquarterof2018continuedtocleartheinventorybacklogcreatedbythefirstquarter2018weatherrelatedtransportationdelaysandweremorein-linewithproductioninthefourthquarterof2018.SYPshipmentsdeclinedcomparedtothepreviousquarterandfourthquarterof2017dueinparttolowerproductionbutmostlyduetolowerdemandaspersistentlywetweatherinthefourthquarterof2018affectedthepaceofconstruction.

PanelsSegment Q4-18 Q3-18 Q4-17Plywood(MMsf3/8”basis) Production 205 204 209Shipments 212 206 209MDF(MMsf3/4”basis) Production 55 58 55Shipments 52 56 51LVL(Mcf) Production 430 558 657Shipments 482 497 626 Sales($millions)

Finishedproducts 144 163 147Woodchipsandotherresiduals 5 6 4Logsandother 2 1 4

151 170 155 AdjustedEBITDA($millions) 9 34 24Amortization($millions) (5) (3) (4)Operatingearnings($millions) 4 31 20AdjustedEBITDAmargin(%) 6 20 15Benchmarkprices Plywood(perMsf3/8”basis)1Cdn$ 465 528 4741. Source:Crow’sMarketReport–DeliveredToronto.

OperatingEarnings

Operatingearningsdeclinedcomparedtothepreviousquarterandthefourthquarterof2017primarilyduetolowerplywoodprices,partiallyoffsetbyhigherMDFprices.PlywoodpricestypicallydeclineinNovemberandDecemberofeachyearreflectingsofterwinterdemandintheCanadianbuildingindustry.

Comparedtothefourthquarterof2017,operatingearningswerealsonegativelyimpactedbyhigherCanadianlogandresidualcostsaswasdiscussedunderthelumbersegmentabove.

ProductionandShipments

Plywoodproductionandshipmentsweresimilartoboththepreviousquarterandfourthquarterof2017.OneshiftofLVLproductionwascurtailedinSeptember2018tomatchexpecteddemandwhichaffectedLVLshipmentvolumes.

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Pulp&PaperSegment Q4-18 Q3-18 Q4-17BCTMP(Mtonnes) Production 157 171 171Shipments 139 176 167NBSK(Mtonnes) Production 121 139 122Shipments 118 128 107Newsprint(Mtonnes) Production 32 30 30Shipments 30 29 31 Sales($millions) 268 312 253 AdjustedEBITDA($millions) 47 73 60Exportduties - 4 -Amortization($millions) (11) (12) (12)Operatingearnings($millions) 36 65 48AdjustedEBITDAmargin(%) 18 23 24Benchmarkprices(pertonne) NBSKU.S.–US$1,3 1,428 1,377 1,183 NBSKChina–US$2,3 805 887 863 Newsprint–US$4 715 715 610 NBSKU.S.–Cdn$5 1,886 1,800 1,503 NBSKChina–Cdn$5 1,063 1,159 1,097 Newsprint–Cdn$5 944 935 7751. Source:ResourceInformationSystems,Inc.–U.S.listpricedeliveredU.S.2. Source:ResourceInformationSystems,Inc.–Chinalistprice,deliveredChina.3. ThedifferencesbetweentheU.S.andChinaNBSKlistpricesarelargelyattributabletothecustomarysalespracticeofapplyingmaterial

discountsfromtheU.S.listpriceforNorthAmericansalescomparedtorelativelysmalldiscountsfromtheChinalistpriceforsalesintoChina.4. Source:ResourceInformationSystems,Inc.–delivered48.8gramnewsprint.5. CalculatedbyapplyingtheaverageCanadian/U.S.dollarexchangeratefortheperiodtotheU.S.benchmarkprice.

OperatingEarnings

OperatingearningsdeclinedcomparedtothepreviousquarterprimarilyduetooperationalissuesatourHintonNBSKpulpmillandaplannedshutdownatourQuesnelBCTMPpulpmillallofwhichresultedinhighermanufacturingcostsperunit.Lowershipmentvolumesalsonegativelyaffectedoperatingearnings.

Operatingearningsdeclinedcomparedtothefourthquarterof2017despitetheincreasedsalepricesformostofourproductsduetohigherchipcostsandhighermaintenancecostsatourHintonNBSKandQuesnelBCTMPpulpmills.

Production

BCTMPproductionwaslowercomparedtothepreviousquarterandfourthquarterof2017duetoourQuesnelpulpmillwhichhadaplannedmaintenanceandcapitalshutdownandatwo-dayunplannedoutagecausedbythenaturalgaspipelinesupplydisruptionandvariousoperatingissues.Allofthesedisruptionsreducedthecurrentquarter’sproductionbyapproximately19,000tonnes.

NBSKproductionwassimilartothefourthquarterof2017butlowerthanthepreviousquarterprimarilyduetointermittentreliabilityatourHintonpulpmill.

Shipments

ShipmentsofNBSKreflectthechangesinproductionvolumes.BCTMP,ontheotherhand,wasnegativelyaffectedbyamissedvesselsailingwhereby16,000tonnesofpulpsalesweredelayedintoJanuary2019.

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CapitalExpenditures($millions)

Segment ProfitImprovement

MaintenanceofBusiness Safety Total

Lumber 204 69 11 284Panels 3 9 4 16Pulp&Paper 29 29 2 60Corporate - 10 - 10Total 236 117 17 370

Capitalexpendituresof$370millionreflectourphilosophyofcontinualreinvestmentinourmillswithsignificantinvestmentsmadeinbothourCanadianandU.S.operations.ThetwolargestprojectsarethecompletionoftheOpelika,AlabamaandHighPrairie,Albertasawmills.Ourlumbersegmentalsoinvestedinfivecontinuouskilns,threeplanerupgradesandanumberofotherprojectstoimprovegrade,recoveryandoutput.Inourpulpandpapersegment,ourQuesnelBCTMPmillupgradedtheirrefiningtechnologyandatourjointly-ownedCaribooNBSKmillweinstalledasecondconcentrator.

Maintenanceofbusinessexpendituresareprimarilyforroads,bridges,mobileequipmentandmajormaintenanceshutdowns.

BusinessOutlook

Operations

Weexpectproductionin2019tobeslightlybelow2018levels,comprisedofa300millionboardfootreductioninSPFproductionanda200millionboardfootincreaseinSYPproduction.WeanticipatetheimpactofreducedshiftsatourFraserLakeandQuesnelsawmillswillbepartiallyoffsetbyHighPrairiesawmillcompletingrampuptocapacityandminorproductivityimprovementsacrossourmillnetworkcoincidingwithcapitalprojectsthatarefullyoperationalized.Anticipatedproductiongainsassumeimprovingdemand,normalaccesstologsandtransportationresources,nofurthertemporarycurtailmentsandaresolutionofoutstandinglaborcontracts.Resultscouldbeadverselyaffectedbydelaysinaccessingsalvagetimberfromthefireaffectedregions,adverseweatherconditionsinanyofouroperatingareasandcontinuingintensecompetitionforlogsintheB.C.interior.WeexpectcontinuinglogcostescalationintheB.C.interiorasmountainpinebeetle-killedtimberreachestheendofcommercialviabilityandthelossoftimberfromfiresin2017and2018bothnegativelyaffectoveralllogsupply.WeexpectlogcostinflationintheU.S.Southtobelimited.

Inourpanelssegment,ourplywoodoperationsareexpectedtocontinuetooperateatfullcapacity.TwoofourplywoodoperationsareintheB.C.interior,andweexpectlogcostsforthoseoperationstocontinuetoincreasein2019.

WedidnothaveanymajormaintenanceshutdownsateitherofourNBSKmillsin2018.In2019,wewillundertakemaintenanceshutdownsatourHintonpulpmillandatourjointly-ownedCariboomillinMarchandMayrespectively.Improvedproductivityatthesemillscontinuestobeakeyfocusforus.OurBCTMPproductionisexpectedtogrowbyapproximately25thousandtonnesover2018.

Markets

Ourlumbersegment’smostimportantmarketistheU.S.,particularlyresidentialconstructionandrepairandremodelling.CanadiansoftwoodlumberexportstotheU.S.havebeenthesubjectoftradedisputesandmanagedtradearrangementsforthelastseveraldecades.CountervailingandantidumpingdutieshavebeeninplacesinceAprilof2017andwewererequiredtomakedepositsinrespectoftheseduties.Whetherandtowhatextentwecanrealizeasellingpricetofullyrecovertheimpactofdutiespayablewilllargelydependonthestrengthofdemandforsoftwoodlumber,whichissignificantlyinfluencedbythelevelsofnewresidentialconstructionintheU.S.Whileresidentialconstructionhasbeengraduallyimprovingoverthepastseveralyears,thepaceofimprovementslowedinthesecondhalfof2018.IfdutiescanbepassedthroughtoconsumersinwholeorinpartthepriceofCanadiansoftwoodlumber

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willincrease(althoughtheincreasewillnotnecessarilybeforthebenefitofCanadianproducers)whichinturncouldcausethepriceofSYPlumber,whichwouldnotbesubjecttotheduty,toincreaseaswell.Regardlessofthecommodityprice,exportdutiesonSPFshipmentstotheU.S.remainacosttoourCompany.

WeareanticipatingsteadydemandfromChinaandJapanforCanadiansoftwoodlumber,butitiscurrentlyverydifficulttopredicthowandtowhatextentdutieswillaffectlumberpricesandthecoststructureofourCanadianlumberbusinessoverthelongterm.

ThemajorcomponentofourpanelssegmentisplywoodwhichissoldmainlyinCanada.AlthoughdemandforCanadianplywoodhasbeenstrongoverthepastseveralyears,weanticipatemeasuresimplementedbyvariousgovernmentsacrossCanadatomoderatehousingmarketsmaydampendemand.MDFandLVLdemandisheavilyinfluencedbyNorthAmericannewhomeconstructionandweareexpectingmodestimprovementinU.S.residentialconstructionwhichshouldhelpmaintainpricelevelsfortheseproducts.

Weareanticipatingthatpulpmarketswillgenerallybeflattoslightlyweaker,influencedbytradetensions,aslowingChineseeconomyandgrowingchannelinventorylevels.

CashFlows

Weareanticipatinglevelsofcashflows,takingintoaccountdutiesonCanadiansoftwoodlumberexportstotheU.S.,tosupportbetween$350and$450millionofcapitalspendingin2019aswellastocontinuetosupportdividendpayments.Wehavepaidadividendineveryquartersincewebecameapubliccompanyin1986.Weexpecttomaintainourinvestmentgraderatingandintendtopreservesufficientliquiditytobeabletotakeadvantageofstrategicgrowthopportunitiesthatmayarise.Weareauthorizedunderournormalcourseissuerbid,whichexpiresinSeptemberof2019,topurchaseupto10%ofthepublicfloatofourCommonsharesandwewillcontinuetoconsidersharerepurchaseswithexcesscashifwearesatisfiedthatthiswillenhanceshareholdervalueanddoesnotcompromiseourfinancialflexibility.

EstimatedEarningsSensitivitytoKeyVariables1(basedon2019production-$millions)Factor Variation Changeinpre-taxearningsLumberprice US$10(perMfbm) 90Plywoodprice Cdn$10(perMsf) 8NBSKprice US$10(pertonne) 7BCTMPprice US$10(pertonne) 9U.S.–Canadian$exchangerate2 US$0.01(perCdn$) 291. Eachsensitivityhasbeencalculatedonthebasisthatallothervariablesremainconstantandassumesyear-endforeignexchangerates.2. ExcludesexchangeimpactoftranslationofU.S.dollar-denominateddebtandothermonetaryitems.ReflectstheamountoftheinitialUS$0.01

change;additionalchangesaresubstantially,butnotexactly,linear.

CapitalStructureandLiquidity

OurcapitalstructureconsistsofCommonshareequityandlong-termdebt.Inaddition,wemaintainacommittedrevolvingcreditfacilityandlinesofcreditdedicatedtolettersofcredit.

Ouroperatingfacilitiesincludea$500millioncommittedrevolvingcreditfacility,a$34million(US$25million)demandlineofcreditdedicatedtoourU.S.operationsandan$8milliondemandlineofcreditdedicatedtoourjointly-ownednewsprintoperation.Inaddition,wehavedemandlinesofcredittotalling$70milliondedicatedtolettersofcreditofwhichUS$15millioniscommittedtoourU.S.operations.Thesefacilitiesareavailabletomeetourfundingrequirements.

Alldebtisunsecuredexceptthe$8millionjointnewsprintoperationdemandlineofcredit,whichissecuredbythatjointoperation’scurrentassets.

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AtDecember31,2018$63millionwasoutstandingunderourrevolvingcreditfacilityandlettersofcreditintheamountof$58millionweresupportedbyourfacilities,leavingapproximately$491millionofcreditavailableforfurtheruse.

OnSeptember17,2018werenewedourNCIBwiththenewNCIBbidallowingustoacquireanadditional5,524,048CommonsharesforcancellationuntiltheexpiryofthebidonSeptember18,2019.ThefollowingtableshowsourpurchasesundervariousNCIBprograms,includingasummaryofallpurchasessincetheprogramwasstartedin2013.

ShareBuybacks(numberofcommonsharesandpricepershare)NCIBperiod CommonShares AveragePriceSeptember17,2017toSeptember18,2018

September19toDecember31,2017 85,094 $68.52January1toSeptember18,2018 5,905,360 $88.06

September19,2018toSeptember18,2019 September19toDecember31,2018 2,230,436 $70.05January1toFebruary11,2019 434,500 $73.16

September17,2013toFebruary11,2019 16,482,964 $66.08

OuroutstandingCommonshareequityconsistsof67,103,683Commonsharesand2,281,478ClassBCommonsharesforatotalof69,385,161sharesissuedandoutstandingasatFebruary11,2019.

OurClassBCommonsharesareequalinallrespectstoourCommonshares,includingtherighttodividendsandtherighttovote,andareexchangeableonaone-for-onebasisforCommonshares.OurCommonsharesarelistedfortradingontheTorontoStockExchangewhileourClassBCommonsharesarenot.CertaincircumstancesorcorporatetransactionsmayrequiretheapprovaloftheholdersofourCommonsharesandClassBCommonsharesonaseparateclassbyclassbasis.

AsofFebruary11,2019therewere1,202,448sharepurchaseoptionsoutstandingwithexercisepricesrangingfrom$12.36to$85.40perCommonshare.

InOctober2014,weissuedUS$300millionoffixed-rateseniorunsecurednotes,bearinginterestat4.35%anddueOctober2024,pursuanttoaprivateplacementintheU.S.Thenotesareredeemable,inwholeorinpart,atouroptionatanytime.

InAugust2017,wewereadvancedaUS$200million5-yeartermloanthatmaturesonAugust25,2022tofundtheGilmanAcquisition.InterestispayableatfloatingratesbasedonBaseRateAdvancesorLIBORAdvancesatouroption.Thisloanisrepayableatanytime,inwholeorinpart,atouroptionandwithoutpenaltybutcannotberedrawnafterpayment.

Ourcashrequirements,otherthanforoperatingpurposes,areprimarilyforinterestpayments,repaymentofdebt,additionstoproperty,plant,equipmentandtimber,acquisitionsandpaymentofdividends.Innormalbusinesscyclesandinyearswithoutamajoracquisitionordebtrepayment,cashonhandandcashprovidedbyoperationshavenormallybeensufficienttomeettheserequirements.

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SummaryofFinancialPosition($millions,exceptasotherwiseindicated)AsatDecember31 2018 2017Cash1 160 258Currentassets 1,345 1,291Currentliabilities 595 583Ratioofcurrentassetstocurrentliabilities 2.3 2.2Netdebt2 606 376Shareholders’equity 2,896 2,726Netdebttototalcapital3 17% 12%1. Cashconsistsofcashandshort-terminvestments.2. Totaldebtlessdeferredfinancingcostslesscashpluschequesissuedinexcessoffundsondeposit.3. Non-IFRSmeasure.See“Non-IFRSMeasures”below.

WeareratedbythreeratingagenciesandtheirratingsasofDecember31,2018areshowninthetablebelow.Allthreeratingsareconsideredinvestmentgrade.OnJuly10,2018,DominionBondRatingService(“DBRS”)changedouroutlookfromstabletopositive.

DebtRatingsAgency Rating OutlookDBRS BBB(low) PositiveMoody’s Baa3 StableStandard&Poor’s BBB- Stable

Theseratingsarenotarecommendationtobuy,sellorholdsecuritiesandmaybesubjecttorevisionorwithdrawalatanytimebytheratingagencies.

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SelectedCashFlowItems($millions–cashprovidedby(usedin))FortheyearendedDecember31 2018 2017OperatingActivities Earnings 810 596Amortization 257 210Exportdutydeposits (31) (36)Post-retirementexpense 84 82Contributionstopost-retirementplans (103) (69)TaxProvision 262 250Incometaxespaid (316) (73)Changesinnon-cashworkingcapital (74) (62)Other 20 4 909 902FinancingActivities Proceedsfromlong-termdebt - 250Proceedsfromoperatingloan 63 -Financeexpensepaid (32) (23)Dividends (37) (28)RepurchasesofCommonshares (675) (17)Other - (1) (681) 181InvestingActivities Acquisition - (526)Additionstocapitalassets (370) (336)Other 16 8 (354) (854) Increase(decrease)incash (126) 229

OperatingActivities

Cashprovidedbyoperatingactivitiesin2018was$909million.Thetableaboveshowsthemaincomponentsofcashflowfromoperationsfor2018comparedto2017.Thesignificantfactorsaffectingthecomparisonwereincreasedearningsoffsetbyhigherendingloginventorybalances,incometaxpaymentsandcontributionstopost-retirementbenefitplans.

Inventoryincreased$105millionprimarilyduetohigherCanadianlogvolumesandlogcostsatDecember31,2018comparedtoDecember31,2017.Loginventoryvolumesonhandattheendof2017werebelowtargetedlevelsduetoanumberoffactorsinparticular,the2017wildfireseason.

Wemadetaxpaymentsof$316millionduringtheyearcomparedto$73millionin2017.Cashpaymentsin2018includedthefinalCanadianincometaxpaymentofapproximately$104milliononaccountof2017income.Weestimatethatwehaveapproximately$34milliondueinFebruaryof2019onaccountoffiscal2018.U.S.incometaxinstalmentswerepaidquarterlybasedonforecastedtaxableearnings.

Certaindefinedbenefitpensionplancontributionsintheamountof$17millionthatordinarilywouldhavebeenmadein2017weredeferredinto2018asaresultofregulatoryreforminitiativesinB.C.andAlberta.

In2018,weenteredintoannuitypurchaseagreementstosettleapproximately$480millionofourdefinedbenefitpensionobligationsbypurchasingannuitiesusingourplanassets.Theseagreementstransferredthepensionobligationsofretiredemployeesundercertainpensionplanstofinancialinstitutions.Aspartoftheannuitypurchase,wecontributedanadditional$5milliontotheseplanswhichwasincludedinthe$103millioncontributionstopost-retirementplansdisclosedonthecashflowstatement.

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FinancingActivities

WecontinuetopurchaseCommonsharesunderourNCIBprogram.In2018,werepurchased8,135,796Commonsharesfor$675million(2017-$17million).Inaddition,weincreasedourdividendfrom$0.11to$0.15inthefirstquarterandthenagainto$0.20pershareinthethirdquarterresultinginanannualdividenddeclaredof$0.70persharecomparedto$0.36persharein2017.ThedividenddeclaredonDecember11,2018wasnotpaiduntilJanuary10,2019,resultinginadifferencebetweencashdividendspaidperourcondensedconsolidatedstatementofcashflowsandcashdividendsdeclaredperourcondensedconsolidatedstatementofchangesinshareholders’equity.

During2017weborrowed$250million(US$200million)topartiallyfinancetheGilmanAcquisition.Thiscontributedtotheincreaseinfinanceexpensepaidin2018comparedto2017.

InvestingActivities

2018additionstocapitalassetsinclude$284millionforthelumbersegment,$16millionforthepanelssegment,$60millionforthepulp&papersegmentand$10millionforourcorporatesegment.Additionaldetailsarefoundunderthesection“CapitalExpenditures”above.

The2017acquisitionof$526millionwastheGilmanAcquisition.

ContractualObligations1(atDecember31,2018in$millions) 2019 2020 2021 2022 Thereafter TotalLong-termdebt2 - 10 - 273 413 696Interestonlong-termdebt 31 30 30 26 32 149Operatingloan 63 - - - - 63Operatingleases 5 4 4 3 3 19Contributionstodefinedbenefit

pensionplans3 69 64 65 - - 198Assetpurchasecommitments 108 - - - - 108Total 276 108 99 302 448 1,2331. Contractualobligationsmeananagreementrelatedtodebt,leasesandenforceableagreementstopurchasegoodsorservicesonspecified

terms,butdoesnotincludepayrollobligations,reforestationanddecommissioningobligations,energypurchasesundervariousagreements,non-definedbenefitpost-retirementcontributionspayable,equity-basedcompensationincludingequityhedges,accountspayableintheordinarycourseofbusinessorcontingentamountspayable.

2. IncludesU.S.dollar-denominateddebtofUS$508million.3. Contributionstothedefinedbenefitpensionplansarebasedonthemostrecentactuarialvaluation.Futurecontributionswillbedeterminedat

thenextactuarialvaluationdate.

FinancialInstruments

Detailsofourfinancialinstrumentscanbefoundinnote24toourFinancialStatements.

SignificantManagementJudgmentsAffectingFinancialResults

Thepreparationoffinancialstatementsrequiresmanagementtomakeestimatesandassumptions,andtoselectaccountingpolicies,thataffecttheamountsreported.ThesignificantaccountingpoliciesfollowedbyourCompanyaredisclosedinourFinancialStatements.Thefollowingjudgmentsareconsideredthemostsignificant:


Thecurrentsoftwoodlumberdisputeisthefifthsuchdisputesince1982.Inthecaseofpreviousdisputes,thepreliminarydutieswerereducedintheperiodsfollowingtheinitialapplication.

OnApril24,2017,theUSDOCissueditspreliminarydeterminationintheCVDinvestigationandimposedaCompanyspecificrateof24.12%tobepostedbycashdepositsontheexportsfromCanadaofsoftwoodlumbertotheU.S.onorafterApril28,2017.TherequirementthatwedepositCVDwassuspendedonAugust24,2017.OnDecember4,2017,

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theUSDOCamendedourCVDrateto17.99%andeffectiveDecember28,2017webeganpostingcashdepositsatthenewrate.Intheabsenceofadditionalinformation,wehaveexpensedCVDdepositsatthe17.99%finalrate.Thedifferencebetweendepositspaidat24.12%andthe17.99%finalratehasbeenrecordedasalong-termasset.TheadministrativereviewforCVDbytheUSDOC,coveringtheperiodApril28,2017toDecember31,2018,isexpectedtobecompletedsometimebetweenspringof2019andmid-2020.

OnJune26,2017,theUSDOCissueditspreliminarydeterminationintheADDinvestigationandimposedacompanyspecificrateof6.76%tobepostedbycashdepositsontheexportsfromCanadaofsoftwoodlumbertotheU.S.onorafterJune30,2017.OnDecember4,2017theUSDOCamendedourADDrateto5.57%andwebeganpostingcashdepositsatthenewrate.TheADDratedeterminedbytheUSDOCwasbasedontheirpreliminaryinvestigationcoveringtheperiodOctober1,2015toSeptember30,2016.ThispreliminaryrateisexpectedtoremaininplaceuntilouractualdataunderthereviewperiodcoveringJune30,2017toDecember31,2018isexaminedbytheUSDOC.WehavepreparedanestimateofourADDrateforthereviewperiodusingouractualdataandthemethodologyexpectedtobeusedbytheUSDOCanddeterminedourbestestimateofourratetobe1.46%.Intheabsenceofadditionalinformation,wehaveexpensedADDdepositsatourestimated1.46%rate.Thedifferencebetweendepositspaidat5.57%andourestimated1.46%ratehasbeenrecordedasalong-termasset.TheadministrativereviewbytheUSDOC,coveringtheperiodJune30,2017toDecember31,2018,isexpectedtobecompletedsometimebetweenspringof2019andmid-2020.

Thedutyratesaresubjecttochangebasedonadministrativereviewsandappealsavailabletous.Inaddition,wewillupdateourADDrateateachreportingdateconsideringouractualresultsforeachperiodofreview.Changestoestimatedratesmaybematerialandanychangeswillbereflectedthroughcurrentresultsintheperiodofthechange.

RecoverabilityofLong-livedAssets

Weassessthecarryingvalueofanassetwhenthereareindicatorsofimpairment.Theassessmentcomparestheasset’sestimateddiscountedfuturecashflowstothecarryingvalueoftheasset.Ifthecarryingvalueoftheassetexceedstheasset’sestimateddiscountedfuturecashflows,thecarryingvalueiswrittendowntothehigheroffairvaluelesscoststosellandvalue-in-use.

Wereviewtheamortizationperiodsforourmanufacturingequipmentandmachinerytoensurethattheperiodsappropriatelyreflectanticipatedobsolescenceandtechnologicalchange.Currentamortizationperiodsformanufacturingequipmentrangefrom6to20years.Timberlicencesareamortizedover40years.

Goodwillisnotamortized.Wecomparethecarryingvalueofgoodwillandrelatedassets,atleastonceayear,totheestimateddiscountedcashflowsthattheassetsareexpectedtogenerate.Ifitisdeterminedthatthecarryingvalueismorethantheestimateddiscountedcashflows,thenagoodwillimpairmentwillberecorded.Wetestedgoodwillforimpairmentin2018andconcludedthatitscarryingvalueisnotimpaired.Thetestingofgoodwillforimpairmentinvolvessignificantestimatesincludingfutureproductionandsalesvolumes,productsellingprices,U.S.dollarexchangerates,operatingcosts,capitalexpendituresandtheappropriatediscountratetoapply.Inallcases,wehaveusedourbestestimatesoftheseprojectedamountsandvalues.Giventhecurrentglobaleconomicuncertaintyandthevolatilityofthemarketsforourproducts,itispossiblethatourestimateswillbeadjustedinthefutureandthattheseadjustedestimatescouldresultinthefutureimpairmentofgoodwill.

Wealsoreviewthecarryingvalueofdeferredincometaxassetstoensurethatthecarryingvalueisappropriate.Thekeyfactorsconsideredareourhistoryofprofitability,futureexpectationsofprofitability,theexpectedreversaloftemporarydifferencesandthetimingofexpiryoftaxlosscarry-forwardsandlimitationsontheiruse.

ReforestationandDecommissioningObligations

InCanada,provincialregulationsrequiretimberquotaholderstocarryoutreforestationtoensurereestablishmentoftheforestafterharvesting.Reforestedareasmustbetendedforaperiodsufficienttoensurethattheyarewell-established.Thetimeneededtomeetregulatoryrequirementsdependsonavarietyoffactors.

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Inouroperatingareas,thetimetomeetreforestationstandardsusuallyspans12to15yearsfromthetimeofharvest.Werecordaliabilityfortheestimatedcostofthefuturereforestationactivitieswhentheharvestingtakesplace.Thisliabilityisreviewed,atleastannually,andisupdatedtoourcurrentestimateofthecoststocompletetheremainderofthereforestationactivities.In2018,thereviewofthereforestationobligationresultedinanincreasetotheobligationof$7million(2017–decreaseof$7million).

Werecordtheestimatedfairvalueofaliabilityfordecommissioningobligations,suchaslandfillclosures,intheperiodwhenareasonableestimateoffairvaluecanbemade.Wereviewtheseestimatesatleastannuallyandadjusttheobligationsasappropriate.In2018thereviewresultedinanincreasetotheobligationof$4million(2017–nochange).

DefinedBenefitPensionPlan(“D.B.Plan”)Assumptions

WemaintainseveralD.B.Plansformanyofouremployees.Theannualfundingrequirementsandpensionexpensesarebasedon(i)variousassumptionsthatwedetermineinconsultationwithouractuaries,(ii)actualinvestmentreturnsonthepensionfundassets,and(iii)changestotheemployeegroupsinthepensionplans.Note14totheFinancialStatementsprovidesthesensitivityofachangeinkeyassumptionstoourpost-retirementobligations.

AccountingStandardsIssuedbutNotYetApplied

TheInternationalAccountingStandardsBoardperiodicallyissuesnewstandardsandamendmentsorinterpretationstoexistingstandards.Thenewpronouncementslistedbelowareonesweconsidertobemostsignificant.

IFRS16–Leases

InJanuary2016IFRS16wasissued.Thisstandardrequires,amongotherthings,lesseestorecognizeleasestraditionallyrecordedasoperatingleasesinthesamemannerasfinancingleases.WewillapplythemodifiedretrospectivetransitionmethoduponapplicationofthenewstandardonJanuary1,2019.Wedonotexpectthisstandardtohaveasignificanteffectonourconsolidatedfinancialstatements.

NewAccountingPronouncementsAdopted

IFRS9–FinancialInstruments

WehaveadoptedIFRS9effectiveJanuary1,2018usingthefullretrospectivemethod.Thenewstandardforfinancialinstruments,IFRS9,replacesIAS39‘FinancialInstruments:RecognitionandMeasurement’.Itmakeschangestothepreviousguidanceontheclassificationandmeasurementoffinancialassetsandintroducesan‘expectedcreditloss’modelfortheimpairmentoffinancialassets.IFRS9alsocontainsnewrequirementsontheapplicationofhedgeaccounting.

Theadoptionofthisstandardhadnosignificantimpactonourconsolidatedfinancialstatementsandnoretrospectiveadjustmentswerenecessary.

IFRS15–RevenuefromContractswithCustomers

WehaveadoptedIFRS15effectiveJanuary1,2018usingthefullretrospectivemethod.Thenewrevenuestandard,IFRS15,replacesIAS18–Revenue,IAS11–ConstructionContractsandtherelatedinterpretations.Thisstandardaddressedrevenuerecognitionandestablishesprinciplesforreportinginformationaboutthenature,amount,timinganduncertaintyofrevenueandcashflowsarisingfromanentity’scontractswithcustomers.IFRS15requiresthatrevenueisrecognisedatthe‘transactionprice’whencertaincontractualobligationsaremetbutwithany‘variableconsideration’elementsofthepricerecognisedwhenitis‘highlyprobable’thattherewillbenoreversalofthatrevenue.


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Non-IFRSMeasures

Thefollowingsummarizesthenon-IFRSmeasuresweuseinthisMD&A.NoneofthesemeasuresisagenerallyacceptedmeasureunderIFRSandnonehasastandardizedmeaningprescribedbyIFRS.Investorsarecautionedthatnoneofthesemeasuresshouldbeconsideredasanalternativetoearnings,earningspershareorcashflow,asdeterminedinaccordancewithIFRS.Asthereisnostandardizedmethodofcalculatinganyofthesemeasures,ourmethodofcalculatingeachofthemmaydifferfromthemethodsusedbyotherentitiesand,accordingly,ouruseofanyofthesemeasuresmaynotbedirectlycomparabletosimilarlytitledmeasuresusedbyotherentities.

AdjustedEBITDA($millions) Q4-18 Q3-18 2018 Q4-17 2017Earnings 29 238 810 207 596Add: Amortization 69 64 257 59 210 Financeexpense 9 10 37 8 31 Taxprovision(recovery) (1) 76 262 88 250EBITDA 106 388 1,366 362 1,087Add: Equity-basedcompensation (1) - 7 6 32 Exportduties 37 54 202 (17) 48 Other (22) 4 (37) (10) (7)AdjustedEBITDA 120 446 1,538 341 1,160

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AdjustedEBITDAbySegment($millions) Q4-18 Q3-18 2018 Q4-17 2017Lumber Earningsbeforetax (18) 228 753 228 660 Add: Amortization 53 48 196 43 155 Financeexpense 6 7 25 6 20 EBITDA 41 283 974 277 835 Add: Exportduties 37 58 202 (17) 48 Other (10) (2) (20) (2) 1 AdjustedEBITDA 68 339 1,156 258 884Panels Earningsbeforetax 4 30 110 20 97 Add: Amortization 5 3 15 4 13 Financeexpense - 1 2 - 3 EBITDA 9 34 127 24 113 Add: Other - - - - - AdjustedEBITDA 9 34 127 24 113Pulp&Paper Earningsbeforetax 40 61 215 53 126 Add: Amortization 11 12 44 12 40 Financeexpense 3 3 10 2 8 EBITDA 54 76 269 67 174 Add: Exportduties - (4) - - - Other (7) 1 (11) (7) (2) AdjustedEBITDA 47 73 258 60 172CorporateandOther Earningsbeforetax 2 (5) (6) (6) (37) Add: Amortization - 1 2 - 2 Financeexpense - (1) - - - EBITDA 2 (5) (4) (6) (35) Add: Equity-basedcompensation (1) - 7 6 32 Other (5) 5 (6) (1) (6) AdjustedEBITDA (4) - (3) (1) (9) TotalAdjustedEBITDA 120 446 1,538 341 1,160

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AdjustedEarningsandAdjustedBasicEarningsPerShare($millionsexceptEPSamountswhicharein$) Q4-18 Q3-18 2018 Q4-17 2017Earnings 29 238 810 207 596Add: Exportduties 37 54 202 (17) 48 Interestrecognizedonexportduty

depositsreceivable (1) (1) (2) - - Equity-basedcompensation (1) - 7 6 32 Exchange(gain)lossonlong-term

financing (6) 2 (10) (1) (10) Exchange(gain)lossonexportduty

depositsreceivable (4) 1 (5) (1) (1) Insurancegainondisposalof

equipment - - - (7) (7) Nettaxeffectontheabove

adjustments (11) (19) (57) 7 (5)Re-measurementofdeferredincometaxassetsandliabilities - - - 6 6

Adjustedearnings 43 275 945 200 659AdjustedbasicEPS1 0.63 3.77 12.70 2.57 8.441. AdjustedbasicEPSiscalculatedbydividingAdjustedearningsbythebasicweightedaveragesharesoutstanding.

NetDebttoTotalCapitalRatio($millionsexceptwhereindicated) December31,

2018December31,

2017Netdebt Cashandshort-terminvestments (160) (258) Deferredfinancingcosts1 (6) (7) Chequesissuedinexcessoffundsondeposit 13 - Operatingloans 63 - Long-termdebt 696 641 606 376Shareholders’equity 2,896 2,726Totalcapital 3,502 3,102Netdebttototalcapital 17% 12%1. Forourbalancesheetpresentation,thesecostsareappliedtoreducetheassociateddebtor,ininstanceswhentheoperatingloanisundrawn,

thesecostsassociatedwiththeoperatingloanareincludedinotherassets.

RisksandUncertainties

Ourbusinessissubjecttoanumberofrisksanduncertaintiesthatcansignificantlyaffectouroperations,financialconditionandfutureperformance.Wehaveacomprehensiveprocesstoidentify,manage,andmitigaterisk,whereverpossible.Therisksanduncertaintiesdescribedbelowarenotnecessarilytheonlyrisksweface.Additionalrisksanduncertaintiesthatarepresentlyunknowntousordeemedimmaterialbyusmayadverselyaffectourbusiness.

ProductDemandandPriceFluctuations

Ourrevenuesandfinancialresultsareprimarilydependentonthedemandfor,andsellingpricesof,ourproducts,whicharesubjecttosignificantfluctuations.Thedemandandpricesforlumber,panels,pulp,newsprint,woodchipsandotherwoodproductsarehighlyvolatileandareaffectedbyfactorssuchas:(1)globaleconomicconditionsincludingthestrengthoftheU.S.,Canadian,Chinese,Japaneseandotherinternationaleconomies,particularlyU.S.andCanadianhousingmarketsandtheirthemixofsingleandmultifamilyconstruction,repair,renovationandremodelingspending;(2)alternativeproductstolumber;(3)changesinindustryproductioncapacity;(4)changesinworld

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inventorylevels;(5)increasedcompetitionfromotherconsumersoflogsandproducersoflumber;and(6)otherfactorsbeyondourcontrol.Inaddition,unemploymentlevels,interestrates,theavailabilityofmortgagecreditandtherateofmortgageforeclosureshaveasignificanteffectonresidentialconstructionandrenovationactivity,whichinturninfluencesthedemandfor,andpriceof,buildingmaterialssuchaslumberandpanelproducts.Declinesindemand,andcorrespondingreductionsinprices,forourproductsmayadverselyaffectourfinancialconditionandresultsofoperations.

Wecannotpredictwithanyreasonableaccuracyfuturemarketconditions,demandorpricingforanyofourproductsduetofactorsoutsideourcontrol.Prolongedorsevereweaknessinthemarketforanyofourprincipalproductswouldadverselyaffectourfinancialcondition.

AvailabilityofFibreandChangesinStumpageFees

SubstantiallyallofourCanadianlogrequirementsareharvestedfromlandsownedbyaprovincialgovernment(the“Crown”).Provincialgovernmentscontrolthevolumesthatcanbeharvestedunderprovincially-grantedtenuresandotherwiseregulatetheavailabilityofCrowntimberforharvest.Determinationsbyprovincialgovernmentstoreducethevolumeoftimber,theareasthatmaybeharvestedundertimbertenuresortoregulatetheprocessingoftimberoruseofharvestingcontractors,includingtoprotecttheenvironmentorendangeredspeciesandcriticalhabitatorasaresultofforestfiresorinresponsetojurisprudenceorgovernmentpoliciesrespectingaboriginalrightsandtitleortorestrictlogprocessingtolocalorappurtenantsawmillsortomandateamountsofworktobeprovidedorratestobepaidtoharvestingcontractors,mayreduceourabilitytosecurelogsupplyandmayincreaseourlogpurchasecosts.

Inaddition,provincialgovernmentsprescribethemethodologiesthatdeterminetheamountsofstumpagefeesthatarechargedinrespectofharvestingonCrownlands.Determinationsbyprovincialgovernmentstochangestumpagefeemethodologiesorratescouldincreaseourlogcosts.

Werelyonthirdpartyindependentcontractorstoharvesttimberinareasoverwhichweholdtimbertenures.Increasesinrateschargedbytheseindependentcontractorsorthelimitedavailabilityoftheseindependentcontractorsornewregulationsontheworktobeprovidedandratestobepaidtothesecontractorsmayincreaseourtimberharvestingcosts.

Wealsorelyonthepurchaseoflogsandincreasedcompetitionforlogs,orshortagesoflogsmayresultinincreasesinourlogpurchasecosts.

WerelyonlogsupplyagreementsintheU.S.whicharesubjecttologavailabilityandbasedonmarketprices.Approximately18%oftheaggregatelogrequirementsforourU.S.sawmillsmaybesuppliedunderlong-termagreementswiththebalancepurchasedontheopenmarket.Openmarketpurchasescomefromtimberrealestateinvestmenttrusts,timberlandinvestmentmanagementorganizationsandprivatelandowners.Changesinthelogmarketsinwhichweoperatemayreducethesupplyoflogsavailabletousandmayincreasethecostsoflogpurchases,eachofwhichcouldadverselyaffectourresults.

TradeRestrictions

AsubstantialportionofourproductsthataremanufacturedinCanadaareexportedforsale.Ourfinancialresultsaredependentoncontinuedaccesstotheexportmarketsandtariffsandothertradebarriersthatrestrictorpreventaccessrepresentacontinuingrisktous.CanadiansoftwoodlumberexportstotheU.S.havebeenthesubjectoftradedisputesandmanagedtradearrangementsforthelastseveraldecades.DuringtheperiodfromOctober2006throughOctober2015theseexportsweresubjecttoatradeagreementbetweentheU.S.andCanadaandontheexpiryofthatagreement,aone-yearmoratoriumontradesanctionsbytheU.S.cameintoplace.ThatmoratoriumhasexpiredandinNovember2016agroupofU.S.lumberproducerspetitionedtheUSDOCandtheUSITCtoimposetradesanctionsagainstCanadiansoftwoodlumberexportstotheU.S.In2017dutieswereimposedonCanadiansoftwoodlumberexportstotheU.S.ThedutiesarelikelytoremaininplaceuntilandunlesssomeformoftradeagreementcanbereachedbetweentheU.S.andCanadaorafinal,bindingdeterminationismadeasaresultoflitigation.Unlesstheadditionalcostsimposedbydutiescanbepassedalongtolumberconsumers,thedutieswillincreasecostsforCanadianproducersand,incertaincases,couldresultinsomeCanadianproductionbecomingunprofitable.Whether

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andtowhatextentdutiescanbepassedalongtoconsumerswilllargelydependonthestrengthofdemandforsoftwoodlumber,whichissignificantlyinfluencedbythelevelsofnewresidentialconstructionintheU.S.whichhasbeengraduallyimprovingoverthepastseveralyears.IfdutiescanbepassedthroughtoconsumersinwholeorinpartthepriceofCanadiansoftwoodlumberwillincrease(althoughtheincreasewillnotnecessarilybeforthebenefitofCanadianproducers)whichinturncouldcausethepriceofSYPlumber,whichwouldnotbesubjecttotheduty,toincreaseaswell.

TheapplicationofU.S.tradelawscould,incertaincircumstances,createsignificantburdensonus.WeareamandatoryrespondentincurrentinvestigationsbeingconductedbytheUSDOCintoallegedsubsidiesanddumpingofCanadiansoftwoodlumber.Inaddition,thecurrenttradedisputebetweentheU.S.andChinacouldnegativelyimpacteitherorboththeU.S.andChineseeconomieswhichcouldhaveanadverseeffectonthedemandforourproductsandcouldadverselyaffectourfinancialresults.

NaturalandMan-MadeDisastersandClimateChange

Ouroperationsaresubjecttoadversenaturalorman-madeeventssuchasforestfires,flooding,hurricanesandothersevereweatherconditions,climatechange,timberdiseasesandinsectinfestationsincludingthosethatmaybeassociatedwithwarmerclimateconditions,andearthquakeactivity.Overthepastseveralyears,changingweatherpatternsandclimaticconditionsduetonaturalandman-madecauseshaveaddedtotheunpredictabilityandfrequencyofnaturaleventssuchassevereweather,hurricanes,flooding,hailstorms,wildfires,snow,icestorms,andthespreadofdiseaseandinsectinfestations.Theseeventscoulddamageordestroyoradverselyaffecttheoperationsatourphysicalfacilitiesorourtimbersupplyorouraccesstooravailabilityoftimber,andsimilareventscouldalsoaffectthefacilitiesofoursuppliersorcustomers.Anysuchdamageordestructioncouldadverselyaffectourfinancialresultsasaresultofthereducedavailabilityoftimber,decreasedproductionoutput,increasedoperatingcostsorthereducedavailabilityoftransportation.Althoughwebelievewehavereasonableinsurancearrangementsinplacetocovercertainofsuchincidentsrelatedtodamageordestruction,therecanbenoassurancethatthesearrangementswillbesufficienttofullyprotectusagainstsuchlosses.Asiscommonintheindustry,wedonotinsurelossofstandingtimberforanycause.

MountainPineBeetleandBritishColumbiaWildfires

Thelong-termeffectofthemountainpinebeetleinfestationandthe2017and2018wildfireoutbreaksinBritishColumbiaonourCanadianoperationsisuncertain.ThepotentialeffectsincludeareductionoffutureAnnualAllowableCut(“AAC”)levelstobelowcurrentandpre-infestationAAClevels.ManyofourBritishColumbiaoperationsareexperiencingadiminishedgradeandvolumeoflumberrecoveredfrombeetle-killedandfiredamagedlogsaswellasincreasedproductioncosts.TheseeffectsarealsopresentinsomeofourAlbertaoperationswherethemountainpinebeetleinfestationhasexpanded.Thetimingandextentofthefutureeffectonourtimbersupply,lumbergradeandrecovery,andproductioncostswilldependonavarietyoffactorsandatthistimecannotbereasonablydetermined.Theeffectsofthedeteriorationofbeetle-killedandfiredamagedlogscouldincludeincreasedcosts,reducedoperatingratesduetoshortagesofcommerciallymerchantabletimberandmillclosures.

WoodDust

Ouroperationsgeneratewooddustwhichhasbeenrecognizedformanyyearsasapotentialhealthandsafetyhazardandoperationalissue.ThepotentialrisksassociatedwithwooddusthavebeenincreasedinthoseofourBritishColumbiaandAlbertafacilitiesthathavebeenprocessingmountainpinebeetle-killedlogsandfiredamagedlogsasthewooddustgeneratedfromtheselogstendstobedrier,lighterandfinerthanwooddusttypicallygenerated.Wehaveadoptedavarietyofmeasurestoreduceoreliminatetherisksandoperationalchallengesposedbythepresenceofwooddustinourfacilitiesandwecontinuetoworkwithindustryandregulatorstodevelopandadoptbestmitigationpractices.Anyexplosionorsimilareventatanyofourfacilitiesoranythird-partyfacilitycouldresultinsignificantloss,increasesinexpensesanddisruptionofoperations,eachofwhichwouldhaveamaterialadverseeffectonourbusiness.

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Financial

CapitalPlans

Ourcapitalplanswillinclude,fromtimetotime,expansion,productivityimprovement,technologyupgrades,operatingefficiencyoptimizationandmaintenance,repairorreplacementofourexistingfacilitiesandequipment.Inaddition,wemayundertaketheacquisitionoffacilitiesortherebuildingormodernizationofexistingfacilities.Ifthecapitalexpendituresassociatedwiththesecapitalprojectsaregreaterthanwehaveprojectedorifconstructiontimelinesarelongerthananticipated,orifwefailtoachievetheintendedefficiencies,ourfinancialcondition,resultsofoperationsandcashflowsmaybeadverselyaffected.Inaddition,ourabilitytoexpandproductionandimproveoperationalefficiencieswillbecontingentonourabilitytoexecuteonourcapitalplans.Ourcapitalplansandourabilitytoexecuteonsuchplansmaybeadverselyaffectedbyavailabilityof,andcompetitionfor,qualifiedworkersandcontractors,machineryandequipmentleadtimes,changesingovernmentregulations,unexpecteddelaysandincreasesincostsofcompletingcapitalprojectsincludingduetoincreasedmaterials,machineryandequipmentcostsresultingfromtradedisputesandincreasedtariffsandduties.

CapitalResources

Webelieveourcapitalresourceswillbeadequatetomeetourcurrentprojectedoperatingneeds,capitalexpendituresandothercashrequirements.Factorsthatcouldadverselyaffectourcapitalresourcesincludeprolongedandsustaineddeclinesinthedemandandpricesforourproducts,unanticipatedsignificantincreasesinouroperatingexpensesandunanticipatedcapitalexpenditures.Ifforanyreasonweareunabletoprovideforouroperatingneeds,capitalexpendituresandothercashrequirementsoncommerciallyreasonableterms,wecouldexperienceamaterialadverseeffecttoourbusiness,financialcondition,resultsofoperationsandcashflows.

AvailabilityofCredit

Werelyonlong-termborrowingsandaccesstorevolvingcreditinordertofinanceourongoingoperations.Anychangeinavailabilityofcreditinthemarket,ascouldhappenduringaneconomicdownturn,couldaffectourabilitytoaccesscreditmarketsoncommerciallyreasonableterms.Inthefuturewemayneedtoaccesspublicorprivatedebtmarketstoissuenewdebt.Deteriorationsorvolatilityinthecreditmarketscouldalsoadverselyaffect:

• ourabilitytosecurefinancingtoproceedwithcapitalexpendituresfortherepair,replacementorexpansionofourexistingfacilitiesandequipment;

• ourabilitytocomplywithcovenantsunderourexistingcreditordebtagreements;• theabilityofourcustomerstopurchaseourproducts;and• ourabilitytotakeadvantageofgrowth,expansionoracquisitionopportunities.

Inaddition,deteriorationsorvolatilityinthecreditmarketcouldresultinincreasesintheinterestratesthatwepayonouroutstandingnon-fixedratedebt,whichwouldincreaseourcostsofborrowingandadverselyaffectourresults.

CreditRatings

Creditratingagenciesrateourdebtsecuritiesbasedonfactorsthatincludeouroperatingresults,actionsthatwetake,theirviewofthegeneraloutlookforourindustryandtheirviewofthegeneraloutlookfortheeconomy.Actionstakenbytheratingagenciescanincludemaintaining,upgradingordowngradingthecurrentratingorplacingusonawatchlistforpossiblefuturedowngrading.Downgradingthecreditratingofourdebtsecuritiesorplacingusonawatchlistforpossiblefuturedowngradingcouldlimitouraccesstothecreditmarkets,increaseourcostoffinancingandhaveanadverseeffectonourfinancialcondition.

CostsofMaterialsandEnergy

Werelyheavilyoncertainrawmaterials,includinglogs,woodchipsandchemicals,andenergysources,includingnaturalgasandelectricity,inourmanufacturingprocesses.Increasesinthecostsoftheserawmaterialsandenergysourceswillincreaseouroperatingcostsandwillreduceouroperatingmargins.Thereisnoassurancethatwewillbe

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abletofullyoffsettheeffectsofhigherrawmaterialorenergycoststhroughhedgingarrangements,priceincreases,productivityimprovementsorcost-reductionprograms.

OperationalCurtailments

Fromtimetotime,wesuspendorcurtailoperationsatoneormoreofourfacilitiesinresponsetomarketconditions,environmentalrisks,orotheroperationalissues,including,butnotlimitedtoscheduledandunscheduledmaintenance,temporaryperiodsofhighelectricityprices,powerfailures,equipmentbreakdowns,adverseweatherconditions,labourdisruptions,firehazards,andtheavailabilityorcostofrawmaterialsincludinglogsandwoodchips.

Inaddition,ourabilitytooperateatfullcapacitymaybeaffectedbyongoingcapitalprojects.Asaresult,ourfacilitiesmayfromtimetotimeoperateatlessthanfullcapacity.Theseoperationalsuspensionscouldhaveamaterialadverseeffectonourfinancialconditionasaresultofdecreasedrevenuesandloweroperatingmargins.

InCanada,asubstantialportionofthewoodchiprequirementsofourCanadianpulpandpaperoperationsareprovidedbyourCanadiansawmillsandplywoodandLVLplants.Ifwoodchipproductionisreducedbecauseofproductioncurtailments,improvedmanufacturingefficienciesoranyotherreason,ourpulpandpaperoperationsmayincuradditionalcoststoacquireorproduceadditionalwoodchipsorbeforcedtoreduceproduction.Conversely,pulpandpapermillproductioncurtailmentsmayrequireoursawmillsandpanelmillstofindotherwaystodisposeofresidualwoodfibreandmayresultincurtailmentorsuspensionoflumber,plywoodorLVLproductionandincreasedcosts.

TransportationRequirements

Ourbusinessdependsonourabilitytotransportahighvolumeofproductsandrawmaterialstoandfromourproductionfacilitiesandontobothdomesticandinternationalmarkets.Werelyprimarilyonthird-partytransportationprovidersforboththedeliveryofrawmaterialstoourproductionfacilitiesandthetransportationofourproductstomarket.Thesethird-partytransportationprovidersincludetruckers,bulkandcontainershippersandrailways.Ourabilitytoobtaintransportationservicesfromthesetransportationserviceprovidersissubjecttoriskswhichinclude,withoutlimitation,availabilityofequipmentandoperators,disruptionsduetoweather,naturaldisastersandlabourdisputes.Transportationservicesmayalsobeimpactedbyseasonalfactors,whichcouldimpactthetimelydeliveryofrawmaterialsanddistributionofproductstocustomers.Asaresultofrailcapacityconstraints,accesstoadequatetransportationcapacityhasattimesbeenstrainedandcouldaffectourabilitytotransportlumberandpulptomarketsandcouldresultinincreasedproductinventories.Transportationcostsarealsosubjecttorisksthatinclude,withoutlimitation,increasedratesduetocompetitionandincreasedfuelcosts.Increasesintransportationcostswillincreaseouroperatingcosts.Ifweareunabletoobtaintransportationservicesorifourtransportationcostsincrease,ourrevenuesmaydecreaseduetoourinabilitytodeliverproductstomarketandouroperatingexpensesmayincrease,eachofwhichwouldadverselyaffectourresultsofoperations.

LabourandServices

Ouroperationsrelyonbothskilledandunskilledworkersaswellasthirdpartyservicessuchasloggingandtransportationandservicesforourcapitalprojects.Becauseouroperationsaregenerallylocatedawayfrommajorurbancentres,weoftenfacestrongcompetitionfromourindustryandotherssuchasoilandgasproductionandminingforlabourandservices,particularlyskilledtrades.Shortagesofkeyservicesorshortagesoflabour,includingthosecausedbyafailuretoattractandretainasufficientnumberofqualifiedemployeesandotherpersonnelorhighemployeeturnovercouldimpairouroperationsbyreducingproductionorincreasingcostsortheabilitytoexecuteonourcapitalprojectsincludingtimingandcosts.

Weemployaunionizedworkforceinanumberofouroperations.Walkoutsorstrikesbyemployeescouldresultinlostproductionandsales,highercostsandsupplyconstraintsthatcouldhaveamaterialadverseeffectonourbusiness.Also,wedependonavarietyofthirdpartiesthatemployunionizedworkerstoprovidecriticalservicestous.Labourdisputesexperiencedbythesethirdpartiescouldleadtodisruptionsatourfacilities.

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Environment

Wearesubjecttoregulationbyfederal,provincial,state,municipalandlocalenvironmentalauthorities,including,amongothermatters,environmentalregulationsrelatingtoairemissionsandpollutants,wastewater(effluent)discharges,solidandhazardouswaste,landfilloperations,forestrypractices,permittingobligations,siteremediationandtheprotectionofthreatenedorendangeredspeciesandcriticalhabitat.Wehaveincurred,andwillcontinuetoincur,capitalexpendituresandoperatingcoststocomplywithenvironmentallawsandregulations,includingtheU.S.EnvironmentalProtectionAgency’sBoilerMACT(maximumachievablecontroltechnology)regulations.Inaddition,changesintheregulatoryenvironmentrespectingclimatechangehaveandmayleadgovernmentsandregulatorybodiestoenactadditionalormorestringentlawsandregulationsandimposeoperationalrestrictionsorincrementalleviesandtaxesapplicabletoourCompany.

Noassurancecanbegiventhatchangesintheselawsandregulationsortheirapplicationwillnothaveamaterialadverseeffectonourbusiness,operations,financialconditionandoperationalresults.Similarly,noassurancecanbegiventhatcapitalexpendituresnecessaryforfuturecompliancewithexistingandnewenvironmentallawsandregulationscouldbefinancedfromouravailablecashflow.

Wemaydiscovercurrentlyunknownenvironmentalproblems,contamination,orconditionsrelatingtoourpastorpresentoperations.Thisoranyfailuretocomplywithenvironmentallawsandregulationsmayrequiresiteorotherremediationcostsorresultingovernmentalorprivateclaimsfordamagetoperson,property,naturalresourcesortheenvironmentorgovernmentalsanctions,includingfinesorthecurtailmentorsuspensionofouroperations,whichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandoperationalresults.

Wearecurrentlyinvolvedininvestigationandremediationactivitiesandmaintainaccrualsforcertainenvironmentalmattersorobligations,assetoutinthenotestoourFinancialStatementsfortheyearendedDecember31,2018.Therecanbenoassurancethatanycostsassociatedwithsuchobligationsorotherenvironmentalmatterswillnotexceedouraccruals.

OurCanadianwoodlandoperations,andtheharvestingoperationsofourmanykeyU.S.logsuppliers,inadditiontobeingsubjecttovariousenvironmentalprotectionlaws,aresubjecttothird-partycertificationastocompliancewithinternationallyrecognized,sustainableforestmanagementstandards.Demandforourproductsmaybereducedifweareunabletoachievecomplianceorareperceivedbythepublicasfailingtocomply,withtheseapplicableenvironmentalprotectionlawsandsustainableforestmanagementstandards,orifourcustomersrequirecompliancewithalternateforestmanagementstandardsforwhichouroperationsarenotcertified.Inaddition,changesinsustainableforestmanagementstandardsorourdeterminationtoseekcertificationforcompliancewithalternatesustainableforestmanagementstandardsmayincreaseourcostsofoperations.

AboriginalGroups

Issuesrelatingtoaboriginalgroups,includingFirstNations,Metisandothers,havethepotentialforasignificantadverseeffectonresourcecompaniesoperatinginCanadaincludingWestFraser.RisksincludepotentialdelaysoreffectsofgovernmentaldecisionsrelatingtoCanadianCrowntimberharvestingrights(includingtheirgrant,renewalortransferorauthorizationtoharvest)inlightofthegovernment’sdutytoconsultandaccommodateaboriginalgroupsinrespectofaboriginalrightsortreatyrights,relatedtermsandconditionsofauthorizationsandpotentialfindingsofaboriginaltitleoverland.Therequirementtoconsultwithaboriginalgroupshasalsoincreasedinrecentyears.

Weparticipate,asrequestedbygovernment,intheconsultationprocessinsupportofthegovernmentfulfillingitsdutytoconsult.Wealsoseektodevelopandmaintaingoodrelationshipswithaboriginalgroupsthatmaybeaffectedbyourbusinessactivities.However,asthejurisprudenceandgovernmentpoliciesrespectingaboriginalrightsandtitleandtheconsultationprocesscontinuetoevolve,andastreatynegotiationscontinue,wecannotassurethataboriginalclaimswillnotinthefuturehaveamaterialadverseeffectonourtimberharvestingrightsorourabilitytoexerciseorrenewthemorsecureothertimberharvestingrights.

Inaddition,theCanadianfederalgovernmentandtheprovincialgovernmentsinAlbertaandBritishColumbiahavemadecommitmentstorenewtheirrelationshipswithaboriginalgroupsandhaveexpressedtheirsupportforthe

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UnitedNationsDeclarationontheRightsofIndigenousPeoples(“UNDRIP”)andtheirintenttoadoptandimplementUNDRIP.Atthistime,itisunclearwhetherorhowUNDRIPwillbeadoptedintoCanadianlawanditsimpactontheCrown’sdutytoconsultwithandaccommodateaboriginalgroups.Atthistime,weareunabletoassesstheeffect,ifany,thattheadoptionandimplementationofUNDRIPbyfederalandprovincialgovernmentsmayhaveonlandclaimsorconsultationrequirementsoronourbusiness,buttheimpactmaybematerial.

OnJune26,2014theSupremeCourtofCanada(the“SCC”)releaseditsreasonsforjudgmentinTsilhqot’inNationv.BritishColumbia.TheSCCdeclaredthattheTsilhqot’inNationhadestablishedaboriginaltitleoveranareaofBritishColumbiacomprisingapproximately1,750squarekilometres.TheSCCalsoheldthattheprovisionsoftheForestAct(BritishColumbia)dealingwiththedispositionorharvestofCrowntimber,aspresentlydrafted,nolongerappliedtotimberlocatedonthoselands,byvirtueofthedefinitionof“CrownTimber”intheForestAct.ButtheSCCalsoconfirmedthatprovinciallawscanapplyonaboriginaltitlelandsbutonlyifthelegislaturesointends,andifthegovernmentcanjustifyanyinfringementofaboriginaltitle(accordingtotestssetoutinthecaselaw).ItalsoconfirmedthattheexistingForestActcontinuestoapplytolandsunlessanduntiltitleisestablished.

WedonothaveanycuttingpermitsintheareathatwasthesubjectoftheTsilhqot’incase.However,claimsofaboriginaltitlehavebeenassertedbymanyaboriginalgroupsthroughoutBritishColumbia(includinglandsinwhichwehaveinterestsorrights)andthereisariskthatotheraboriginalgroupsmaypursuefurtherrightsortitleclaimsthroughlitigation,ortreatynegotiationswithgovernments.ItisdifficulttopredicthowquicklyotherclaimswillbelitigatedornegotiatedandinwhatmannerourCrowntimberharvestingrightsandlogsupplyarrangementswillbeaffected.

Regulatory

Ouroperationsaresubjecttoextensivegeneralandindustry-specificfederal,provincial,state,municipalandotherlocallawsandregulationsandotherrequirements,includingthosegoverningforestry,exports,taxes(including,butnotlimitedto,income,salesandcarbontaxes),employees,labourstandards,occupationalhealthandsafety,wastedisposal,environmentalprotectionandremediation,protectionofendangeredandprotectedspeciesandlanduseandexpropriation.Wearerequiredtoobtainapprovals,permitsandlicencesforouroperations,whichmayrequireadvanceconsultationwithpotentiallyaffectedstakeholdersincludingaboriginalgroupsandimposeconditionsthatmustbecompliedwith.Ifweareunabletoobtain,maintain,extendorrenew,oraredelayedinextendingorrenewing,amaterialapproval,permitorlicence,ouroperationsorfinancialconditioncouldbeadverselyaffected.Thereisnoassurancethattheselaws,regulationsorgovernmentrequirements,ortheadministrativeinterpretationorenforcementofexistinglawsandregulations,willnotchangeinthefutureinamannerthatmayrequireustoincursignificantcapitalexpenditures,payhighertaxesorotherwisecouldadverselyaffectouroperationsorfinancialcondition.Failuretocomplywithapplicablelawsorregulations,includingapprovals,permitsandlicences,couldresultinfines,penaltiesorenforcementactions,includingorderssuspendingorcurtailingouroperationsorrequiringcorrectivemeasuresorremedialactions.

ForeignCurrencyExchangeRates

OurCanadianoperationssellthemajorityofitsproductsatpricesdenominatedinU.S.dollarsorbasedonprevailingU.S.dollarprices.AsignificantportionofitsoperationalcostsandexpensesareincurredinCanadiandollars.Therefore,anincreaseinthevalueoftheCanadiandollarrelativetotheU.S.dollarreducestherevenueinCanadiandollartermsrealizedbyourCanadianoperationsfromsalesmadeinU.S.dollars,whichreducesoperatingmarginandthecashflowavailabletofundoperations.Canadianoperationsarealsoexposedtotheriskofexchangeratefluctuationsintheperiodbetweensaleandpayment.TomitigatetheexposureofCanadianoperationstocurrencyfluctuations,wehavelong-termdebtrepayableinU.S.dollarswhichisvaluedinCanadiandollarsattheendofeachreportingperiodbyapplyingtheprevailingexchangerate.ThetranslationgainsorlossesforourCanadianoperationsarereportedinearningsintheFinancialStatements.

OurU.S.operationstransactandreportinU.S.dollars,buttheirresultsaretranslatedintoCanadiandollarsforFinancialStatementpurposeswiththeresultingtranslationgainsorlossesbeingreportedinothercomprehensiveearnings.

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Exchangeratefluctuationsresultinexchangegainsorlossesandchangesinothercomprehensiveearnings.ThisresultsinsignificantearningssensitivitytochangesintheCanadian/U.S.dollarexchangerate.TheCanadian/U.S.dollarexchangerateisaffectedbyabroadrangeoffactorswhichmakesfutureratesdifficulttoaccuratelypredict.

Competition

Wecompetewithglobalproducers,someofwhichmayhavegreaterfinancialresourcesandlowerproductioncoststhanwedo.Currencydevaluationscanhavetheeffectofreducingourcompetitors’costsandmakingourproductslesscompetitiveincertainmarkets.Inaddition,EuropeanlumberproducersandSouthAmericanpanelproducersmayentertheNorthAmericanmarketduringperiodsofpeakprices.Marketsforourproductsarehighlycompetitive.Ourabilitytomaintainorimprovethecostofproducinganddeliveringproductstothosemarketsiscrucial.Factorssuchascostandavailabilityofrawmaterials,energyandlabour,theabilitytomaintainhighoperatingratesandlowper-unitmanufacturingcosts,andthequalityofourfinalproductsandourcustomerserviceallaffectourearnings.Someofourproductsarealsoparticularlysensitivetootherfactorsincludinginnovation,qualityandservice,withvaryingemphasisonthesefactorsdependingontheproduct.Totheextentthatoneormoreofourcompetitorsbecomemoresuccessfulwithrespecttoanykeycompetitivefactor,ourabilitytoattractandretaincustomerscouldbemateriallyadverselyaffected.Ifweareunabletocompeteeffectively,suchfailurecouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.

Ourproductsmaycompetewithnon-fibrebasedalternativesorwithalternativeproductsincertainmarketsegments.Forexample,steel,engineeredwoodproducts,plastic,wood/plasticorcompositematerialsmaybeusedbybuildersasalternativestotheproductsproducedbyourwoodproductsbusinessessuchaslumber,plywoodandMDFproducts.Changesinpricesforoil,chemicalsandwood-basedfibrecanchangethecompetitivepositionofourproductsrelativetoavailablealternativesandcouldincreasesubstitutionofthoseproductsforourproducts.Astheuseofthesealternativesgrows,demandforourproductsmayfurtherdecline.

Becausecommodityproductshavefewdistinguishingpropertiesfromproducertoproducer,competitionfortheseproductsisbasedprimarilyonprice,whichisdeterminedbysupplyrelativetodemandandcompetitionfromsubstituteproducts.Pricesforourproductsareaffectedbymanyfactorsoutsideofourcontrol,andwehavenoinfluenceoverthetimingandextentofpricechanges,whichoftenarevolatile.Accordingly,ourrevenuesmaybenegativelyaffectedbypricingdecisionsmadebyourcompetitorsandbydecisionsofourcustomerstopurchaseproductsfromourcompetitors.

PensionPlanFunding

Wearethesponsorofseveraldefinedbenefitpensionplanswhichexposesustomarketrisksrelatedtoplanassets.Fundingrequirementsfortheseplansarebasedonactuarialassumptionsconcerningexpectedreturnonplanassets,futuresalaryincreases,lifeexpectancyandinterestrates.Ifanyoftheseassumptionsdiffersfromactualoutcomessuchthatafundingdeficiencyoccursorincreases,wewouldberequiredtoincreasecashfundingcontributionswhichwouldinturnreducetheavailabilityofcapitalforotherpurposes.Wearealsosubjecttoregulatorychangesregardingtheseplanswhichmayincreasethefundingrequirementswhichwouldinturnreducetheavailabilityofcapitalforotherpurposes.

InformationTechnology

Wearereliantonourinformationandoperationstechnologysystemstooperateourmanufacturingfacilities,accessfibre,communicateinternallyandwithsuppliersandcustomers,tosellourproductsandtoprocesspaymentsandpayrollaswellasforothercorporatepurposesandfinancialreporting.Aninterruptionorfailureorunsuccessfulimplementationandintegrationofourinformationandoperationstechnologysystemscouldresultinamaterialadverseeffectonouroperations,business,financialconditionandresultsofoperations.

Intheordinarycourseofourbusiness,wecollectandstoresensitivedata,includingintellectualproperty,proprietarybusinessandconfidentialfinancialinformationandidentifiablepersonalinformationofouremployees.Werelyonindustryacceptedsecuritymeasuresandtechnologytoprotectourinformationsystemsandconfidentialandproprietaryinformation.

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However,ourinformationandoperationstechnologysystems,includingprocesscontrolsystems,arestillsubjecttocybersecurityrisksandarevulnerabletonaturaldisasters,fires,poweroutages,vandalism,attacksbyhackersorothersorbreachesduetoemployeeerrororotherdisruptions.Anysuchattackonorbreachofoursystemsincludingthroughexposuretopotentialcomputervirusesormalwarecouldcompromiseoursystemsandstoredinformationmaybeaccessed,publiclydisclosed,lostorcompromised,whichcouldresultinlegalclaimsorproceedings,liabilityunderlawsthatprotecttheprivacyofpersonalinformation,regulatorypenalties,disruptionstoouroperations,decreasedperformanceandproduction,increasedcosts,anddamagetoourreputation,whichcouldhaveamaterialadverseeffectonourbusiness,financialconditionandresultsofoperations.Ascybersecuritythreatscontinuetoevolve,wemayberequiredtoexpendadditionalresourcestocontinuetomodifyorenhanceprotectivemeasuresortoinvestigateandremediateanysecurityvulnerabilities.However,ourexposuretotheseriskscannotbefullymitigatedduetothenatureofthesethreats.

ControlsandProcedures

DisclosureControlsandProcedures

WestFraser’smanagementisresponsibleforestablishingandmaintainingasystemofdisclosurecontrolsandprocedurestoprovidereasonableassurancethatallmaterialinformationrelatingtoWestFraserisgatheredandreportedtoseniormanagement,includingtheChiefExecutiveOfficerandtheVice-President,FinanceandChiefFinancialOfficer,onatimelybasissothatappropriatedecisionscanbemaderegardingpublicdisclosure.

InternalControloverFinancialReporting

WestFraser’smanagementisalsoresponsibleforestablishingandmaintainingadequateinternalcontroloverfinancialreportingtoprovidereasonableassuranceregardingthereliabilityoffinancialreportingandthepreparationofconsolidatedfinancialstatementsforexternalreportingpurposesinaccordancewithIFRS.

TherehasbeennochangeinthedesignofWestFraser’sinternalcontroloverfinancialreportingduringtheyearendedDecember31,2018thathasmateriallyaffected,orisreasonablylikelytomateriallyaffect,ourinternalcontroloverfinancialreporting.

EvaluationofEffectivenessofInternalControls

AsrequiredbyNationalInstrument52-109CertificationofDisclosureinIssuers’AnnualandInterimFilings(NI52-109),WestFraser’smanagement,underthesupervisionoftheChiefExecutiveOfficerandtheVice-President,FinanceandChiefFinancialOfficer,hascausedtheeffectivenessofthedisclosurecontrolsandproceduresandinternalcontroloverfinancialreportingtobeevaluatedasofDecember31,2018.Basedonthatevaluation,theChiefExecutiveOfficerandtheVice-President,FinanceandChiefFinancialOfficerhaveconcludedthatWestFraser’sdisclosurecontrolsandproceduresandinternalcontroloverfinancialreportingwereeffectiveasofDecember31,2018.

AdditionalInformation

AdditionalinformationrelatingtoWestFraser,includingourAnnualInformationForm,canbefoundonSEDARatwww.sedar.com.

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RESPONSIBILITYOFMANAGEMENT

ThemanagementofWestFraserTimberCo.Ltd.(“WestFraser”,“we”,“us”or“our”)isresponsibleforthepreparation,integrity,objectivityandreliabilityoftheconsolidatedfinancialstatements.TheconsolidatedfinancialstatementshavebeenpreparedinaccordancewithInternationalFinancialReportingStandardsandnecessarilyincludeamountsthatrepresentthebestestimatesandjudgmentsofmanagement.

Wemaintainasystemofinternalcontrolsoverfinancialreportingthatencompassespolicies,proceduresandcontrolstoprovidereasonableassurancethatassetsaresafeguardedagainstlossorunauthorizeduse,transactionsareexecutedandrecordedwithappropriateauthorizationandfinancialrecordsareaccurateandreliable.

Ourindependentauditor,whichisappointedbytheshareholdersupontherecommendationoftheAuditCommitteeandtheBoardofDirectors,hascompleteditsauditoftheconsolidatedfinancialstatementsinaccordancewithgenerallyacceptedauditingstandardsinCanadaanditsreportfollows.

TheBoardofDirectorsprovidesoversighttothefinancialreportingprocessthroughitsAuditCommittee,whichiscomprisedoffourDirectors,noneofwhomisanofficeroremployeeofWestFraser.TheAuditCommitteemeetsregularlywithrepresentativesofmanagementandoftheauditortoreviewtheconsolidatedfinancialstatementsandmattersrelatingtotheaudit.TheauditorhasfullandfreeaccesstotheAuditCommittee.TheAuditCommitteereportsitsfindingstotheBoardofDirectorsforconsiderationinapprovingtheconsolidatedfinancialstatementsforissuancetotheshareholders.

TedSeraphim ChrisVirostekChiefExecutiveOfficer Vice-President,Finance andChiefFinancialOfficerFebruary12,2019

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INDEPENDENTAUDITOR’SREPORT

TotheShareholdersofWestFraserTimberCo.Ltd.

Ouropinion

Inouropinion,theaccompanyingconsolidatedfinancialstatementspresentfairly,inallmaterialrespects,thefinancialpositionofWestFraserTimberCo.Ltd.anditssubsidiaries(together,theCompany)asatDecember31,2018and2017,anditsfinancialperformanceanditscashflowsfortheyearsthenendedinaccordancewithInternationalFinancialReportingStandards(IFRS).

Whatwehaveaudited

TheCompany’sconsolidatedfinancialstatementscomprise:

• theconsolidatedbalancesheetsasatDecember31,2018and2017;

• theconsolidatedstatementsofearningsandcomprehensiveearningsfortheyearsthenended;

• theconsolidatedstatementsofchangesinshareholders’equityfortheyearsthenended;

• theconsolidatedstatementsofcashflowsfortheyearsthenended;and

• thenotestotheconsolidatedfinancialstatements,whichincludeasummaryofsignificantaccountingpolicies.

Basisforopinion

WeconductedourauditinaccordancewithCanadiangenerallyacceptedauditingstandards.OurresponsibilitiesunderthosestandardsarefurtherdescribedintheAuditor’sresponsibilitiesfortheauditoftheconsolidatedfinancialstatementssectionofourreport.

Webelievethattheauditevidencewehaveobtainedissufficientandappropriatetoprovideabasisforouropinion.

Independence

WeareindependentoftheCompanyinaccordancewiththeethicalrequirementsthatarerelevanttoourauditoftheconsolidatedfinancialstatementsinCanada.Wehavefulfilledourotherethicalresponsibilitiesinaccordancewiththeserequirements.

Otherinformation

Managementisresponsiblefortheotherinformation.TheotherinformationcomprisestheManagement’sDiscussionandAnalysis,whichweobtainedpriortothedateofthisauditor’sreportandtheinformation,otherthantheconsolidatedfinancialstatementsandourauditor’sreportthereon,includedintheannualreport,whichisexpectedtobemadeavailabletousafterthatdate.

Ouropinionontheconsolidatedfinancialstatementsdoesnotcovertheotherinformationandwedonotandwillnotexpressanopinionoranyformofassuranceconclusionthereon.

Inconnectionwithourauditoftheconsolidatedfinancialstatements,ourresponsibilityistoreadtheotherinformationidentifiedaboveand,indoingso,considerwhethertheotherinformationismateriallyinconsistentwiththeconsolidatedfinancialstatementsorourknowledgeobtainedintheaudit,orotherwiseappearstobemateriallymisstated.

If,basedontheworkwehaveperformedontheotherinformationthatweobtainedpriortothedateofthisauditor’sreport,weconcludethatthereisamaterialmisstatementofthisotherinformation,wearerequiredtoreportthatfact.

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Wehavenothingtoreportinthisregard.Whenwereadtheinformation,otherthantheconsolidatedfinancialstatementsandourauditor’sreportthereon,includedintheannualreport,ifweconcludethatthereisamaterialmisstatementtherein,wearerequiredtocommunicatethemattertothosechargedwithgovernance.

Responsibilitiesofmanagementandthosechargedwithgovernancefortheconsolidatedfinancialstatements

ManagementisresponsibleforthepreparationandfairpresentationoftheconsolidatedfinancialstatementsinaccordancewithIFRS,andforsuchinternalcontrolasmanagementdeterminesisnecessarytoenablethepreparationofconsolidatedfinancialstatementsthatarefreefrommaterialmisstatement,whetherduetofraudorerror.

Inpreparingtheconsolidatedfinancialstatements,managementisresponsibleforassessingtheCompany’sabilitytocontinueasagoingconcern,disclosing,asapplicable,mattersrelatedtogoingconcernandusingthegoingconcernbasisofaccountingunlessmanagementeitherintendstoliquidatetheCompanyortoceaseoperations,orhasnorealisticalternativebuttodoso.

ThosechargedwithgovernanceareresponsibleforoverseeingtheCompany’sfinancialreportingprocess.

Auditor’sresponsibilitiesfortheauditoftheconsolidatedfinancialstatements

Ourobjectivesaretoobtainreasonableassuranceaboutwhethertheconsolidatedfinancialstatementsasawholearefreefrommaterialmisstatement,whetherduetofraudorerror,andtoissueanauditor’sreportthatincludesouropinion.Reasonableassuranceisahighlevelofassurance,butisnotaguaranteethatanauditconductedinaccordancewithCanadiangenerallyacceptedauditingstandardswillalwaysdetectamaterialmisstatementwhenitexists.Misstatementscanarisefromfraudorerrorandareconsideredmaterialif,individuallyorintheaggregate,theycouldreasonablybeexpectedtoinfluencetheeconomicdecisionsofuserstakenonthebasisoftheseconsolidatedfinancialstatements.

AspartofanauditinaccordancewithCanadiangenerallyacceptedauditingstandards,weexerciseprofessionaljudgmentandmaintainprofessionalskepticismthroughouttheaudit.Wealso:

• Identifyandassesstherisksofmaterialmisstatementoftheconsolidatedfinancialstatements,whetherduetofraudorerror,designandperformauditproceduresresponsivetothoserisks,andobtainauditevidencethatissufficientandappropriatetoprovideabasisforouropinion.Theriskofnotdetectingamaterialmisstatementresultingfromfraudishigherthanforoneresultingfromerror,asfraudmayinvolvecollusion,forgery,intentionalomissions,misrepresentations,ortheoverrideofinternalcontrol.

• Obtainanunderstandingofinternalcontrolrelevanttotheauditinordertodesignauditproceduresthatareappropriateinthecircumstances,butnotforthepurposeofexpressinganopinionontheeffectivenessoftheCompany’sinternalcontrol.

• Evaluatetheappropriatenessofaccountingpoliciesusedandthereasonablenessofaccountingestimatesandrelateddisclosuresmadebymanagement.

• Concludeontheappropriatenessofmanagement’suseofthegoingconcernbasisofaccountingand,basedontheauditevidenceobtained,whetheramaterialuncertaintyexistsrelatedtoeventsorconditionsthatmaycastsignificantdoubtontheCompany’sabilitytocontinueasagoingconcern.Ifweconcludethatamaterialuncertaintyexists,wearerequiredtodrawattentioninourauditor’sreporttotherelateddisclosuresintheconsolidatedfinancialstatementsor,ifsuchdisclosuresareinadequate,tomodifyouropinion.Ourconclusionsarebasedontheauditevidenceobtaineduptothedateofourauditor’sreport.However,futureeventsorconditionsmaycausetheCompanytoceasetocontinueasagoingconcern.

• Evaluatetheoverallpresentation,structureandcontentoftheconsolidatedfinancialstatements,includingthedisclosures,andwhethertheconsolidatedfinancialstatementsrepresenttheunderlyingtransactionsandeventsinamannerthatachievesfairpresentation.

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• ObtainsufficientappropriateauditevidenceregardingthefinancialinformationoftheentitiesorbusinessactivitieswithintheCompanytoexpressanopinionontheconsolidatedfinancialstatements.Weareresponsibleforthedirection,supervisionandperformanceofthegroupaudit.Weremainsolelyresponsibleforourauditopinion.

Wecommunicatewiththosechargedwithgovernanceregarding,amongothermatters,theplannedscopeandtimingoftheauditandsignificantauditfindings,includinganysignificantdeficienciesininternalcontrolthatweidentifyduringouraudit.

Wealsoprovidethosechargedwithgovernancewithastatementthatwehavecompliedwithrelevantethicalrequirementsregardingindependence,andtocommunicatewiththemallrelationshipsandothermattersthatmayreasonablybethoughttobearonourindependence,andwhereapplicable,relatedsafeguards.

Theengagementpartnerontheauditresultinginthisindependentauditor’sreportisJohnBunting.

CharteredProfessionalAccountantsVancouver,BritishColumbiaFebruary12,2019

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WestFraserTimberCo.Ltd.ConsolidatedBalanceSheetsAsatDecember31,2018and2017(inmillionsofCanadiandollars,exceptwhereindicated) 2018 2017 Assets

Currentassets

Cashandshort-terminvestments $ 160 $ 258Receivables(note24) 332 352Incometaxesreceivable 48 -Inventories(note6) 791 670Prepaidexpenses 14 11 1,345 1,291Property,plantandequipment(note7) 2,056 1,892Timberlicences(note8) 513 533Goodwillandotherintangibles(note9) 767 731Exportdutydeposits(note27) 75 37Otherassets(note10) 32 27Deferredincometaxassets(note19) 3 6 $ 4,791 $ 4,517

Liabilities Currentliabilities Chequesissuedinexcessoffundsondeposit $ 13 $ -Operatingloans(note13) 61 -Payablesandaccruedliabilities(note11) 448 441Incometaxespayable 34 104Reforestationanddecommissioningobligations(note12) 39 38 595 583Long-termdebt(note13) 692 636Otherliabilities(note12) 316 347Deferredincometaxliabilities(note19) 292 225 1,895 1,791 Shareholders’Equity Sharecapital(note15) 491 549Accumulatedothercomprehensiveearnings 170 108Retainedearnings 2,235 2,069 2,896 2,726 $ 4,791 $ 4,517

ApprovedbytheBoardofDirectors

ReidCarter RobertL.PhillipsDirector LeadDirector

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WestFraserTimberCo.Ltd.ConsolidatedStatementsofEarningsandComprehensiveEarningsFortheyearsendedDecember31,2018and2017(inmillionsofCanadiandollars,exceptwhereindicated)

2018 2017 Sales $ 6,118 $ 5,134 Costsandexpenses Costofproductssold 3,617 3,124Freightandotherdistributioncosts 732 633Exportduties(note27) 202 48Amortization 257 210Selling,generalandadministration 231 217Equity-basedcompensation(note16) 7 32 5,046 4,264 Operatingearnings 1,072 870 Financeexpense(note17) (37) (31)Other(note18) 37 7Earningsbeforetax 1,072 846Taxprovision(note19) (262) (250)Earnings $ 810 $ 596 Earningspershare(dollars)(note21) Basic $ 10.88 $ 7.63Diluted $ 10.62 $ 7.63 Comprehensiveearnings Earnings $ 810 $ 596Othercomprehensiveearnings Translationgain(loss)onforeignoperations1 62 (42)Actuarialgain(loss)onpost-retirementbenefits2 24 (26)Comprehensiveearnings $ 896 $ 5281. Recycledthroughearningsintheeventofadisposalinnetinvestmentinforeignoperations.2. Adjustedthroughretainedearnings.Netoftaxprovisionof$9million(2017-$7millionrecovery).

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WestFraserTimberCo.Ltd.ConsolidatedStatementsofChangesinShareholders’EquityFortheyearsendedDecember31,2018and2017(inmillionsofCanadiandollars,exceptwhereindicated)

Sharecapital Translation

Number

ofshares Amount offoreignoperations

Retainedearnings

Totalequity

Balance-December31,2016 78,162,568 $ 549 $ 150 $ 1,542 $ 2,241 ChangesinShareholders’Equityfor2017 Translationlossonforeignoperations - - (42) - (42)Actuariallossonpost-retirementbenefits - - - (26) (26)

IssuanceofCommonshares 29,113 2 - - 2RepurchaseofCommonshares (245,645) (2) - (15) (17)Earningsfortheyear - - - 596 596Dividends1 - - - (28) (28)Balance-December31,2017 77,946,036 $ 549 $ 108 $ 2,069 $ 2,726 ChangesinShareholders’Equityfor2018 Translationgainonforeignoperations - - 62 - 62Actuarialgainonpost-retirementbenefits - - - 24 24

IssuanceofCommonshares 8,598 1 - - 1RepurchaseofCommonshares (8,135,796) (59) - (617) (676)Earningsfortheyear - - - 810 810Dividends1 - - - (51) (51)Balance-December31,2018 69,818,838 $ 491 $ 170 $ 2,235 $ 2,8961. Representsdividendsdeclaredof$0.70persharefor2018and$0.36persharefor2017.

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WestFraserTimberCo.Ltd.ConsolidatedStatementsofCashFlowsFortheyearsendedDecember31,2018and2017(inmillionsofCanadiandollars,exceptwhereindicated)

2018 2017 Cashprovidedbyoperations Earnings $ 810 $ 596Adjustments

Amortization 257 210Financeexpense 37 31Foreignexchangegainonlong-termfinancing (10) (10)Foreignexchangegainonlong-termdutydeposits (5) (1)Exportdutydeposits(note27) (31) (36)Post-retirementexpense 84 82Contributionstopost-retirementbenefitplans (103) (69)Taxprovision 262 250Incometaxespaid (316) (73)Other (2) (16)

Changesinnon-cashworkingcapital Receivables 39 (34)Inventories (105) (64)Prepaidexpenses (3) (1)Payablesandaccruedliabilities (5) 37

909 902 Cashprovidedby(usedfor)financing Proceedsfromlong-termdebt - 250Proceedsfromoperatingloans 63 -Financeexpensepaid (32) (23)Dividends (37) (28)RepurchaseofCommonshares (675) (17)Other - (1) (681) 181 Cashusedforinvesting Acquisition(note5) - (526)Additionstocapitalassets (370) (336)Governmentassistance(note23) 6 3Other 10 5 (354) (854) Changeincash (126) 229Foreignexchangeeffectoncash 15 (6)Cash-beginningofyear 258 35Cash-endofyear $ 147 $ 258 Cashconsistsof Cashandshort-terminvestments $ 160 $ 258Chequesissuedinexcessoffundsondeposit (13) - $ 147 $ 258

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WestFraserTimberCo.Ltd.NotestoConsolidatedFinancialStatementsFortheyearsendedDecember31,2018and2017(figuresareinmillionsofCanadiandollars,exceptwhereindicated)

1. Natureofoperations

WestFraserTimberCo.Ltd.(“WestFraser”,“we”,“us”or“our”)isadiversifiedwoodproductscompanyproducinglumber,LVL,MDF,plywood,pulp,newsprint,woodchipsandenergywithfacilitiesinwesternCanadaandthesouthernUnitedStates.Ourexecutiveofficeislocatedat858BeattyStreet,Suite501,Vancouver,BritishColumbia.WestFraserwasformedbyarticlesofamalgamationundertheBusinessCorporationsAct(BritishColumbia)andisregisteredinBritishColumbia,Canada.OurCommonsharesarelistedfortradingontheTorontoStockExchangeunderthesymbolWFT.

2. Basisofpresentation

TheseconsolidatedfinancialstatementsarepreparedinaccordancewithInternationalFinancialReportingStandards(“IFRS”)andwereapprovedbyourBoardofDirectorsonFebruary12,2019.

Ourconsolidatedfinancialstatementshavebeenpreparedunderthehistoricalcostbasis,exceptforcertainitemsasdiscussedintheapplicableaccountingpolicies.

Accountingpoliciesthatrelatetotheconsolidatedfinancialstatementsasawholeareincorporatedinthisnote.Whereanaccountingpolicyisapplicabletoaspecificnotedisclosure,thepolicyisdescribedwithintherespectivenote.

Wehavereclassifiedcertainprior-yearamountstoconformtocurrent-year’spresentation.

Accountingpolicies

Basisofconsolidation

TheseconsolidatedfinancialstatementsincludetheaccountsofWestFraseranditswholly-ownedsubsidiariesaftertheeliminationofintercompanytransactionsandbalances.PrincipaloperatingsubsidiariesareWestFraserMillsLtd.,WestFraser,Inc.,WestFraserWoodProductsInc.,WestFraserSoutheast,Inc.,BlueRidgeLumberInc.,SundreForestProductsInc.,ManningForestProductsLtd.andWestFraserNewsprintLtd.

Our50%ownedjointoperations,AlbertaNewsprintCompanyandCaribooPulp&PaperCompany,areaccountedforbytheproportionateconsolidationmethod.

Useofestimatesandjudgments

Thepreparationofconsolidatedfinancialstatementsrequiresmanagementtomakeestimatesandassumptionsthataffecttheamountsreportedintheconsolidatedfinancialstatementsandaccompanyingnotes.Italsorequiresmanagementtoexercisejudgmentintheprocessofapplyingaccountingpolicies.Significantareasrequiringestimatesincluderecoverabilityoflong-livedassetsandgoodwill,dutydepositsrelatedtothesoftwoodlumberdispute,fairvalueofderivatives,reforestationanddecommissioningobligations,employeefuturebenefits,equity-basedcompensation,incometaxesandlitigation.Actualamountscoulddiffermateriallyfromtheseandotherestimates,theimpactofwhichwouldberecordedinfutureperiods.Managementusesjudgmentsandassumptionsinassessingpotentialindicatorsofimpairment,determiningtheappropriatecashgeneratingunitlevelusedinimpairmenttestinganddeterminingtheaccountingtreatmentforcertaininvestmentswhereweownlessthan100%oftheentity.

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Revenuerecognition

Revenueisderivedprimarilyfromproductsalesandisrecognizedwhenacustomerobtainscontroloverthegoods.Formostofoursales,controlisobtainedwhentheproductisloadedonacommoncarrieratourmill.Someofourrevenueisrecognizedwhentheproductisdeliveredtothecustomerorwhenitisloadedonanoceancarrier.Theamountofrevenuerecognizedisnetofourestimateforearlypaymentdiscountsandvolumerebates.

Revenueincludeschargesforfreight,handling,countervailingandantidumpingduties.Thecostsrelatedtotheserevenuesarerecordedinfreightandotherdistributioncostsandexportduties.

Foreigncurrencytranslation

OurfunctionalandpresentationcurrencyisCanadiandollars.

U.S.operations

AssetsandliabilitiesofourU.S.operationshaveafunctionalcurrencyofU.S.dollarsandaretranslatedattheperiod-endexchangerate.Revenuesandexpensesaretranslatedataverageexchangeratesduringthereportingperiod.Theresultingunrealizedtranslationgainsorlossesareincludedinothercomprehensiveearnings.

Translationofotherforeigncurrencybalancesandtransactions

Monetaryassetsandliabilitiesdenominatedinforeigncurrencies,includinglong-termfinancing,aretranslatedattheperiod-endexchangerate.Incomeandexpenseitemsaretranslatedattheaverageortransactiondateexchangeratesduringthereportingperiod.Theresultingtranslationgainsorlossesareincludedinotherincome.

Cashandshort-terminvestments

Cashandshort-terminvestmentsconsistofcashondepositandshort-terminterest-bearingsecuritiesmaturingwithinthreemonthsofthedateofpurchase.

Impairmentoflong-livedassets

Wereviewproperty,plant,equipment,timberlicences,goodwillandotherintangiblesforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotbefullyrecoverable.Forthepurposeofimpairmenttesting,assetsareseparatedintocashgeneratingunits(“CGUs”).WehaveidentifiedeachofourmillsasaCGUforimpairmenttestingofproperty,plant,equipmentandotherintangiblesunlessthereiseconomicinterdependenceofCGUs,inwhichcasetheyaregroupedforimpairmenttesting.TimberlicencesandgoodwillaretestedforimpairmentbycombiningCGUswithintheeconomicareaoftherelatedassets.Weperformanannualtestforgoodwillimpairment.

RecoverabilityisassessedbycomparingthecarryingamountoftheCGUorgroupedCGUstothediscountedestimatednetfuturecashflowstheassetsareexpectedtogenerate.Ifthecarryingamountexceedsthediscountedestimatednetfuturecashflows,theassetsarewrittendowntothehigheroffairvaluelesscoststosellandvalue-in-use(beingthepresentvalueoftheestimatednetfuturecashflowsoftherelevantassetorCGU).

GoodwillimpairmentisassessedbycomparingthefairvalueofitsCGUtotheunderlyingcarryingamountoftheCGU’snetassets,includinggoodwill.WhenthecarryingamountoftheCGUexceedsitsfairvalue,thefairvalueoftheCGU’sgoodwilliscomparedwithitscarryingamount.Animpairmentlossisrecognizedforanyexcessofthecarryingvalueofgoodwilloveritsfairvalue.

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Estimatednetfuturecashflowsarebasedonseveralassumptionsconcerningfuturecircumstancesincludingsellingpricesofproducts,U.S./Canadiandollarexchangerates,productionrates,inputcostsandcapitalrequirements.Theestimatednetfuturecashflowsarediscountedatratesreflectiveofmarketrisk.

Whereanimpairmentlossforlong-livedassets,otherthangoodwill,subsequentlyreverses,thecarryingamountoftheassetorCGUisincreasedtothelesseroftherevisedestimateofitsrecoverableamountandthecarryingamountthatwouldhavebeenrecordedhadnoimpairmentlossbeenpreviouslyrecognized.Goodwillimpairmentlossescannotbereversed.

Fairvaluemeasurements

Fairvalueisthepricethatwouldbereceivedtosellanassetorpaidtotransferaliabilityinanorderlytransactionbetweenmarketparticipantsatthemeasurementdate,regardlessofwhetherthatpriceisdirectlyobservableorestimatedusinganothervaluationtechnique.Forfinancialreportingpurposes,fairvaluemeasurementsarecategorizedintoLevel1,2or3basedonthedegreetowhichtheinputstothefairvaluemeasurementareobservableandthesignificanceoftheinputs.Ourfairvaluehierarchyprioritizestheinputstovaluationtechniquesusedtomeasurefairvalue.

Thethreelevelsofthefairvaluehierarchyare:

Level1

Valuesbasedonunadjustedquotedpricesinactivemarketsthatareaccessibleatthemeasurementdateforidenticalassetsorliabilities.

Level2

Valuesbasedonquotedpricesinmarketsthatarenotactiveormodelinputsthatareobservableeitherdirectlyorindirectlyforsubstantiallythefulltermoftheassetorliability.

Level3

Valuesbasedonpricesorvaluationtechniquesthatrequireinputswhicharebothunobservableandsignificanttotheoverallfairvaluemeasurement.

3. Changesinaccountingstandards

IFRS9-FinancialInstruments

WehaveadoptedIFRS9effectiveJanuary1,2018usingthefullretrospectivemethod.Thenewstandardforfinancialinstruments,IFRS9,replacesIAS39-FinancialInstruments:RecognitionandMeasurement.Itmakeschangestothepreviousguidanceontheclassificationandmeasurementoffinancialassetsandintroducesan‘expectedcreditloss’modelfortheimpairmentoffinancialassets.IFRS9alsocontainsnewrequirementsontheapplicationofhedgeaccounting.


IFRS15-RevenuefromContractswithCustomers

WehaveadoptedIFRS15effectiveJanuary1,2018usingthefullretrospectivemethod.Thenewrevenuestandard,IFRS15,replacesIAS18-Revenue,IAS11-ConstructionContractsandtherelatedinterpretations.Thisstandardaddressesrevenuerecognitionandestablishesprinciplesforreportinginformationaboutthenature,

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amount,timinganduncertaintyofrevenueandcashflowsarisingfromanentity’scontractswithcustomers.IFRS15requiresthatrevenueisrecognizedatthe‘transactionprice’whencertaincontractualobligationsaremetbutwithany‘variableconsideration’elementsofthepricerecognizedwhenitis‘highlyprobable’thattherewillbenoreversalofthatrevenue.


4. Accountingstandards,amendmentsandinterpretationsissuedbutnotyetapplied

IFRS16-Leases

IFRS16wasissuedinJanuary2016.ThisstandardiseffectiveforannualperiodsbeginningonorafterJanuary1,2019withearlierapplicationpermitted.ThenewstandardreplacesIAS17-Leasesandtherelatedinterpretations.

IFRS16eliminatestheclassificationofleasesaseitheroperatingleasesorfinanceleasesforalessee.Thisstandardestablishesasingle,on-balancesheetaccountingmodelforallleaseswhichwillresultintherecognitionofaright-of-useassetandaleaseobligation.ThenatureofexpensesrelatedtothoseleaseswillchangeasIFRS16replacesthestraight-lineoperatingleaseexpense,currentlyreportedundercostofproductssoldonourconsolidatedstatementsofearnings,withadepreciationchargefortheright-of-useassetandaninterestexpenseontheleaseliabilitywhichwillbereportedunderfinanceexpense.Althoughthedepreciationchargeistypicallyeven,theinterestexpensereducesoverthelifeoftheleaseasleasepaymentsaremade.Thisresultsinareducingtotalexpenseasanindividualleasematures.

IFRS16allowstwoexemptionsforshort-termandlow-valueleasesforwhichthepaymentswillberecognizedasanexpense,typicallyonastraight-linebasisovertheleaseterm.

WewillapplyIFRS16initiallyonJanuary1,2019,usingthemodifiedretrospectiveapproach.Underthismethod,theright-of-useassetisrecognizedatthedateoftheinitialapplicationatanamountequaltotheleaseliability,usingthecompany’sincrementalborrowingrate.Comparativefiguresarenotrestated.

WecompletedtheassessmentforthepotentialimpactonourconsolidatedfinancialstatementsandanticipatethatIFRS16willnothaveasignificantimpactourconsolidatedfinancialstatements.Themostsignificantimpactidentifiedisthatwewillrecognizeapproximatively$17millioninright-of-useassetsunderproperty,plantandequipmentonourconsolidatedbalancesheetsandapproximatively$17millionlong-termliabilitiesfortheleasesrelatedtosomeofourofficespacesandvehicleswithminimalimpactonourconsolidatedstatementsofearnings.

IAS19-Amendments,EmployeeBenefits

InFebruary2018,IAS19wasamended.Theamendmentsspecifyhowcompaniesshouldcalculatepensionexpenseswhenchangestoadefinedbenefitpensionplanoccur.Thestandardrequiresupdatedactuarialassumptionsafteraplanamendment,curtailmentorsettlement.Theamendmentsalsorequireacompanytorecognizethroughearningsanyreductioninasurplus,evenifthatsurpluswasnotpreviouslyrecognizedduetoanassetceilinglimitation.

TheamendmentstoIAS19mustbeappliedprospectivelytoplanamendments,curtailmentsorsettlementsoccurringonorafterJanuary1,2019.Wedonotexpecttheseamendmentstohaveasignificanteffectonourconsolidatedfinancialstatements.

Therearenootherstandardsoramendmentsorinterpretationstoexistingstandardsissuedbutnotyeteffectivewhichareexpectedtohaveamaterialimpactonourconsolidatedfinancialstatements.

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5. Acquisition

OnAugust31,2017,wecompletedtheacquisitionofsixsawmillsthatproducesouthernyellowpinelumberandafinger-jointmillinFloridaandGeorgiaaswellasanadministrativeofficeinGeorgia(the“GilmanAcquisition”).Theconsiderationpaid,netofcashacquired,was$526million(US$419million)andthetransactionwasanacquisitionofshares.Theacquisitionwasfinancedwithcashonhand,borrowingsonourrevolvingcreditfacilityanda$250million(US$200million)termloan.InDecember2018,weceasedoperationsatthefinger-jointmill.

Thetransactionhasbeenaccountedforasanacquisitionofabusinessandthepurchasepricehasbeenallocatedovertheestimatedfairvalueoftheassetspurchasedandliabilitiesassumed.Wehaveallocatedthepurchasepriceasfollows: December31,2017Netassetsacquired $ 607Less:cashacquired (81)Netnon-cashassetsacquired 526Allocation: Currentassets 58Currentliabilities (12)Property,plantandequipment 91Goodwill 355Employeefuturebenefits (11)Deferredincometaxasset,net 45 $ 526

FactorscontributingtogoodwillincludetheGilmanworkforce,assetsthataregeographicallycomplementarytoourexistingfacilitiesandoffercloseaccesstolargemarkets,theavailabletimberbasketandmultiplemarketsforresiduals.Thistransactionstrengthensourcorelumberbusinessandgivesusincreasedscaleandgeographicdiversification.ThiswasarareopportunitytoacquireaU.S.lumberproducerwithmeaningfulcapacity,highqualityfacilitiesandaculturesimilartoourown.Thegoodwillof$355millionisnotdeductiblefortaxpurposes.

6. Inventories

Accountingpolicies

Inventoriesofmanufacturedproducts,logsandotherrawmaterialsarevaluedatthelowerofaveragecostandnetrealizablevalue.Processingmaterialsandsuppliesarevaluedatthelowerofaveragecostandreplacementcost.

Supportinginformation 2018 2017Manufacturedproducts $ 421 $ 358Logsandotherrawmaterials 218 167Processingmaterialsandsupplies 152 145 $ 791 $ 670

InventoriesatDecember31,2018werewrittendownby$30million(December31,2017-$9million)toreflectnetrealizablevaluebeinglowerthancost.

Thecarryingamountofinventoryrecordedatnetrealizablevaluewas$149millionatDecember31,2018(December31,2017-$33million),withtheremaininginventoryrecordedatcost.

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7. Property,plantandequipment

Accountingpolicies

Property,plantandequipmentarestatedathistoricalcost,lessaccumulatedamortizationandimpairmentlosses.Expendituresforadditionsandimprovementsarecapitalized.Borrowingcostsarecapitalizedwhentheassetconstructionperiodexceeds12monthsandtheborrowingcostsaredirectlyattributabletotheasset.Expendituresformaintenanceandrepairsarechargedtoearnings.Uponretirement,disposalordestructionofanasset,thecostandrelatedamortizationareremovedfromtheaccountsandanygainorlossisincludedinearnings.

Property,plantandequipmentareamortizedonastraight-linebasisovertheirestimatedusefullivesasfollows:

Buildings 10-30yearsManufacturingequipmentandmachinery 6-20yearsFixtures,mobileandotherequipment 3-10yearsRoadsandbridges Notexceeding40yearsMajormaintenanceshutdowns 12to36months

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SupportingInformation

Manufacturingplant,

equipment&machinery

Construction-in-progress

Roads&

bridges Other TotalAsatDecember31,2016 $ 1,444 $ 160 $ 41 $ 40 $ 1,685Additions 164 165 17 1 347Acquisition 85 3 - 3 91Amortization1 (175) - (14) - (189)Foreignexchange (35) (2) - (2) (39)Disposals (1) - - - (1)Transfers 128 (131) 1 - (2)AsatDecember31,2017 $ 1,610 $ 195 $ 45 $ 42 $ 1,892 AsatDecember31,2017 Cost $ 4,047 $ 195 $ 138 $ 49 $ 4,429Accumulatedamortization (2,437) - (93) (7) (2,537)Net $ 1,610 $ 195 $ 45 $ 42 $ 1,892 AsatDecember31,2017 $ 1,610 $ 195 $ 45 $ 42 $ 1,892Additions 168 151 17 1 337Amortization1 (218) - (15) - (233)Foreignexchange 54 10 - 1 65Disposals (5) - - - (5)Transfers 169 (169) - - -AsatDecember31,2018 $ 1,778 $ 187 $ 47 $ 44 $ 2,056 AsatDecember31,2018 Cost $ 4,444 $ 187 $ 148 $ 51 $ 4,830Accumulatedamortization (2,666) - (101) (7) (2,774)Net $ 1,778 $ 187 $ 47 $ 44 $ 2,0561. Amortizationof$230millionrelatestocostofproductssoldand$3millionrelatestoselling,generalandadministrationexpense(2017-

$186millionand$3million,respectively).

8. Timberlicences

Accountingpolicies

Timberlicences,whicharerenewableorreplaceable,arestatedathistoricalcost,lessaccumulatedamortizationandimpairmentlosses.Amortizationisprovidedonastraight-linebasisovertheirestimatedusefullivesof40years.

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Supportinginformation

Timberlicences

AsatDecember31,2016 $ 551Amortization1 (19)Acquisition 1AsatDecember31,2017 $ 533 AsatDecember31,2017 Cost $ 800Accumulatedamortization (267)Net $ 533 AsatDecember31,2017 $ 533Amortization1 (20)AsatDecember31,2018 $ 513 AsatDecember31,2018 Cost $ 800Accumulatedamortization (287)Net $ 5131. Amortizationrelatestocostofproductssold.

9. Goodwillandotherintangibles

Accountingpolicies

Goodwillrepresentstheexcessofthepurchasepricepaidforanacquisitionoverthefairvalueofthenetassetsacquired.Goodwillisnotamortizedbutissubjecttoanannualimpairmenttest.Anadditionalimpairmenttestisconductedifeventsorcircumstancesindicatethatgoodwillmaybeimpaired.

Otherintangiblesarestatedathistoricalcostlessaccumulatedamortizationandimpairments.Otherintangiblesincludesoftwarewhichisamortizedoverperiodsofupto10yearsandnon-replaceablefinitetermtimberrightswhichareamortizedastherelatedtimberislogged.

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Goodwill Other TotalAsatDecember31,2016 $ 356 $ 15 $ 371Additions - 11 11Acquisition 355 - 355Transfers - 2 2Amortization1 - (2) (2)Foreignexchange (6) - (6)AsatDecember31,2017 $ 705 $ 26 $ 731 AsatDecember31,2017 Cost $ 705 $ 47 $ 752Accumulatedamortization - (21) (21)Net $ 705 $ 26 $ 731 AsatDecember31,2017 $ 705 $ 26 $ 731Additions - 6 6Amortization1 - (4) (4)Foreignexchange 38 - 38Disposals - (4) (4)AsatDecember31,2018 $ 743 $ 24 $ 767 AsatDecember31,2018 Cost $ 743 $ 48 $ 791Accumulatedamortization - (24) (24)Net $ 743 $ 24 $ 7671. Amortizationof$2millionrelatestocostofproductssoldand$2millionrelatestoselling,generalandadministrationexpense(2017-$1

millionand$1million,respectively).

Goodwill

Wehaveattributed$218millionofgoodwilltoaCGUmadeupofourCanadianlumberoperations,$479millionofgoodwilltoaCGUmadeupofourU.S.lumberoperationsand$46millionofgoodwilltoaCGUmadeupofourplywoodandLVLoperations.

Forthepurposeofthe2018impairmenttestofgoodwill,thefairvalueofCGUshasbeendeterminedbasedonvalue-in-usecalculationsusingadiscountrateof8.5%.Thesecalculationsareapprovedbymanagementandusecashflowprojectionsbasedonthe2019operatingplan,aforecastof2020and2021andtrendlevelearningsforsubsequentyears.Assumptionsweredevelopedbymanagementbasedonindustrysourcesaftertakingintoaccountmanagement’sbestestimates.Noimpairmentongoodwillhasbeenrecognized.

10. Otherassets 2018 2017Post-retirement(note14) $ 12 $ 13Deferredfinancingcostsonlinesofcredit(note13) - 2Other 20 12 $ 32 $ 27

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11. Payablesandaccruedliabilities 2018 2017Tradeaccounts $ 260 $ 244Equity-basedcompensation 51 79Compensation 78 74Exportduties 17 8Dividends 14 8Interest 5 5Other 23 23 $ 448 $ 441

12. Otherliabilities 2018 2017Post-retirement(note14) $ 189 $ 231Reforestation 76 70Decommissioning 29 25Other 22 21 $ 316 $ 347

Reforestationanddecommissioningobligations

Reforestationanddecommissioningobligationsrelatetoourresponsibilityforreforestationundervarioustimberlicencesandourobligationsrelatedtolandfillclosuresandothersiteremediationcosts.

Accountingpolicies

Reforestationobligationsaremeasuredatthepresentvalueoftheexpendituresexpectedtoberequiredtosettletheobligationsandareaccruedandchargedtoearningswhentimberisharvested.Thereforestationobligationisreviewedperiodicallyandchangestoestimatesarecreditedorchargedtoearnings.

Werecordthepresentvalueofaliabilityfordecommissioningobligationsintheperiodthatareasonableestimatecanbemade.Thepresentvalueoftheliabilityisaddedtothecarryingamountoftheassociatedassetandamortizedoveritsusefullifeor,ifthereisnoassociatedasset,itisexpensed.Decommissioningobligationsarereviewedannuallyandchangestoestimatesresultinanadjustmentofthecarryingamountoftheassociatedassetor,wherethereisnoasset,theyarecreditedorchargedtoearnings.

Reforestationanddecommissioningobligationsarediscountedattherisk-freerateatthebalancesheetdateandaccretedovertimethroughperiodicchargestoearnings.Theliabilitiesarereducedbyactualcostsofsettlement.

Supportinginformation Reforestation Decommissioning 2018 2017 2018 2017Beginningofyear $ 108 $ 113 $ 25 $ 25Liabilitiesrecognized 46 47 - -Liabilitiessettled (46) (45) - -Changeinestimates 7 (7) 4 -Endofyear 115 108 29 25Less:currentportion (39) (38) - - $ 76 $ 70 $ 29 $ 25

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Thetotalundiscountedamountoftheestimatedcashflowsrequiredtosatisfytheseobligationsis$158million(2017-$147million).Thecashflowshavebeendiscountedusinginterestratesrangingfrom1.86%to1.88%(2017-1.68%to1.86%).

Thetimingofthereforestationpaymentsisbasedontheestimatedperiodrequiredtoattainfreetogrowstatusinagivenarea,whichisgenerallybetween12to15years.Paymentsrelatingtolandfillclosuresandsiteremediationareexpectedtooccuroverperiodsrangingupto47years.

13. Long-termdebtandoperatingloans

Accountingpolicies

Transactioncostsrelatedtodebtfinancingorrefinancingaredeferredandamortizedoverthelifeoftheassociateddebt.Whenouroperatingloanisundrawn,therelateddeferredfinancingcostsarerecordedinotherassets.


Long-termdebt 2018 2017US$300millionseniornotesdueOctober2024;interestat4.35% $ 409 $ 376US$200milliontermloandueAugust2022;floatinginterestrate 273 251US$8millionnotepayabledueOctober2020;interestat2% 10 10Notespayable 4 4 696 641Deferredfinancingcosts (4) (5) $ 692 $ 636

Requiredprincipalrepaymentsaredisclosedinnote24.

Operatingloans

Ourrevolvinglinesofcreditconsistofa$500millioncommittedrevolvingcreditfacilitywhichmaturesAugust25,2022,a$34million(US$25million)demandlineofcreditdedicatedtoourU.S.operationsandan$8milliondemandlineofcreditdedicatedtoourjointlyownednewsprintoperation.Inaddition,wehavedemandlinesofcredittotalling$70milliondedicatedtolettersofcredit,ofwhichUS$15millionisdedicatedtoourU.S.operations.

AtDecember31,2018,$61million(netofdeferredfinancingcostsof$2million)wasdrawnunderourrevolvingcreditfacility.Lettersofcreditintheamountof$58millionwerealsosupportedbyourfacilities,leaving$491millionofcreditavailableforfurtheruse.AtDecember31,2017,ourrevolvingcreditfacilitywasundrawn,deferredfinancingcostsof$2millionwererecordedinotherassetsandouroutstandinglettersofcreditwere$47million.

InterestonthefacilitiesispayableatfloatingratesbasedonPrime,BaseRateAdvances,Bankers’AcceptancesorLIBORAdvancesatouroption.

Alldebtisunsecuredexceptthe$8millionjointoperationdemandlineofcredit,whichissecuredbythatjointoperation’scurrentassets.

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14. Post-retirementbenefits

Wemaintaindefinedbenefitanddefinedcontributionpensionplanscoveringamajorityofouremployees.Thedefinedbenefitplansgenerallydonotrequireemployeecontributionsandprovideaguaranteedlevelofpensionpayableforlifebasedeitheronlengthofserviceoronearningsandlengthofservice,andinmostcasesdonotincreaseaftercommencementofretirement.

ThedefinedbenefitpensionplansareoperatedinCanadaandtheU.S.underbroadlysimilarregulatoryframeworks.Themajorityarefundedarrangementswherebenefitpaymentsaremadefromplanassetswhichareheldintrust.Responsibilityforthegovernanceoftheplans,includinginvestmentandcontributiondecisions,resideswithourRetirementCommitteeswhichreporttotheHumanResources&CompensationCommitteeoftheBoardofDirectors.Fortheregistereddefinedbenefitpensionplans,regulationssetminimumrequirementsforcontributionsforbenefitaccrualsandthefundingofdeficits.

Accountingpolicies

Werecordapost-retirementassetorliabilityforouremployeedefinedbenefitpensionandotherretirementbenefitplansbynettingourplanassetswithourplanobligations,onaplan-by-planbasis.

Thecostofdefinedbenefitpensionsandotherretirementbenefitsearnedbyemployeesisactuariallydeterminedusingtheprojectedunitcreditmethod.Thepresentvalueofthedefinedbenefitobligationisdeterminedbydiscountingtheestimatedfuturecashoutflowsusingmarketyieldsfromhighqualitycorporatebondswithcashflowsthatapproximateexpectedbenefitpaymentsatthebalancesheetdate.Planassetsarevaluedatfairvalueateachbalancesheetdate.

Actuarialgainsandlossesarisingfromexperienceadjustmentsandchangesinactuarialassumptionsarechargedorcreditedtoequityinothercomprehensiveearningsintheperiodinwhichtheyarise.

Pastservicecostsarisingfromplanamendmentsarerecognizedimmediately.

Thefinanceamountonnetpost-retirementbalancesisclassifiedasfinanceexpense.

Fordefinedcontributionplans,pensionexpenseistheamountofcontributionswearerequiredtomakeinrespectofservicesrenderedbyemployees.


Theactualreturnonplanassetsfor2018isalossof$4million(2017-$123milliongain).Thetotalpensionexpenseforthedefinedbenefitplansis$73million(2017-$72million).In2018,wemadecontributionsof$86million(2017-$52million).Weexpecttocontributeapproximately$69milliontoourdefinedbenefitpensionplansduring2019basedonthemostrecentvaluationreportforeachpensionplan.Wealsoprovidegrouplifeinsurance,medicalandextendedhealthbenefitstocertainemployeegroups,forwhichwecontributed$2millionin2018(2017-$3million).

Thetotalpensionexpenseandfundingcontributionsforthedefinedcontributionpensionplansis$15million(2017-$14million).

In2018,weenteredintoannuitypurchaseagreementstosettleapproximately$480millionofourdefinedbenefitobligationsbypurchasingannuitiesusingourplanassets.Theseagreementstransferredthepensionobligationsofretiredemployeesundercertainpensionplanstofinancialinstitutions.Thedifferencebetweenthecostoftheannuitypurchaseandtheliabilitiesheldforthesepensionplansisreflectedasasettlementcost.Aspartoftheannuitypurchase,wecontributed$5milliontotheseplans.

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Thestatusofthedefinedbenefitpensionplansandotherretirementbenefitplans,inaggregate,isasfollows:

Definedbenefitpensionplans

Otherretirementbenefitplans

2018 2017 2018 2017Accruedbenefitobligations Benefitobligations–opening $ 1,821 $ 1,598 $ 43 $ 51Acquisition - 68 - -Servicecost 66 67 3 1Financecostonobligation 61 61 2 2Benefitspaid (66) (66) (2) (3)Actuarialloss(gain)duetochangeinfinancialassumptions (83) 73 (5) (8)

Actuarialloss(gain)duetodemography/experience 16 36 (7) -

Settlement (480) (10) - -Other 12 (6) - -Benefitobligations-ending $ 1,347 $ 1,821 $ 34 $ 43Planassets Fairvalue-opening $ 1,658 $ 1,507 $ - $ -Acquisition - 57 - -Financeincomeonplanassets 54 56 - -Actuarialgain(loss)onplanassets (58) 67 - -Employercontributions 86 52 2 3Benefitspaid (66) (66) (2) (3)Settlement (479) (11) - -Other 9 (4) - -Fairvalue-ending $ 1,204 $ 1,658 $ - $ - Fundedstatus1 Post-retirementassets $ 12 $ 25 $ - $ -Impactofminimumfundingrequirement2 - (12) - -Post-retirementassets(note10) 12 13 - -Post-retirementliabilities(note12) (155) (188) (34) (43) $ (143) $ (175) $ (34) $ (43)

1. Plansinasurpluspositionareclassifiedasassetsandplansinadeficitpositionareshownasliabilitiesontheconsolidatedbalancesheets.Otherretirementbenefitplanscontinuetobeunfunded.

2. Someofourplanshaveasurplusthatisnotrecognizedonthebasisthatfutureeconomicbenefitsmaynotbeavailabletousintheformofareductioninfuturecontributionsoracashrefund.

Definedbenefitpensionplans

Otherretirementbenefitplans

2018 2017 2018 2017Expense Servicecost $ 66 $ 67 $ 3 $ 1Netfinanceexpense 7 5 2 2 $ 73 $ 72 $ 5 $ 3

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Assumptionsandsensitivities

Theweightedaveragedurationofthedefinedbenefitpensionobligationsis19years,whichincreasedbyapproximativelytwoyearscomparedto2017.TheprojectedfuturebenefitpaymentsforthedefinedbenefitpensionplansatDecember31,2018areasfollows:

2019 2020

2021to2023 Thereafter Total

Definedbenefitpensionplans $ 34 $ 38 $ 139 $ 2,457 $ 2,668

Theestimationofpost-retirementbenefitobligationsinvolvesahighdegreeofjudgmentformatterssuchasdiscountrate,employeeserviceperiods,compensationescalationrates,expectedretirementagesofemployees,mortalityrates,expectedhealth-carecostsandothervariablefactors.Theseestimatesarereviewedannuallywithindependentactuaries.Thesignificantactuarialassumptionsusedtodetermineourbalancesheetdatepost-retirementassetsandliabilitiesandourpost-retirementbenefitplanexpensesareasfollows: Definedbenefit

pensionplansOtherretirementbenefit

plans 2018 2017 2018 2017Benefitobligations: Discountrate 3.75% 3.50% 3.75% 3.50%Futurecompensationrateincrease 3.50% 3.50% n/a n/a

Benefitexpense: Discountrate-beginningofyear 3.50% 3.75% 3.50% 3.75%Futurecompensationrateincrease 3.50% 3.50% n/a n/a

Health-carebenefitcosts,shownunderotherretirementbenefitplans,arefundedonapay-as-you-gobasis.Theactuarialassumptionsforextendedhealth-carecostsareestimatedtoincrease7.0%inyearone,gradingdown0.25%peryearforyearstwototen,to4.5%peryearthereafter.

Theimpactofachangeintheseassumptionsonourpost-retirementobligationsasatDecember31,2018isasfollows: ObligationsDiscountrate Decreaseinassumptionfrom3.75%to3.25% $ 125Increaseinassumptionfrom3.75%to4.25% $ (106)

Rateofincreaseinfuturecompensation Decreaseinassumptionfrom3.50%to3.00% $ (20)Increaseinassumptionfrom3.50%to4.00% $ 20

Health-carecosttrendrates Increaseinassumptionby1.00% $ 1Decreaseinassumptionby1.00% $ (2)

Thesensitivitieshavebeencalculatedonthebasisthatallothervariablesremainconstant.Whencalculatingthesensitivityofthedefinedbenefitobligation,thesamemethodologyisappliedaswasusedtogeneratethefinancialstatementasset/liability.

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Assets

Theassetsofthepensionplansareinvestedpredominantlyinadiversifiedrangeofequitiesandbonds.TheweightedaverageassetallocationsofthedefinedbenefitplansatDecember31,byassetcategory,areasfollows: Targetrange1 2018 2017Canadianequities 9%-25% 10% 14%Foreignequities 12%-52% 24% 27%Fixedincomeinvestments 35%-45% 44% 48%Otherinvestments 5%-32% 22% 11% 100% 100%1. Thetargetrangeappliestoouropenplanscomprisingthemajorityofourpensionassets.Ourclosedplanstargetamoreconservative

assetmixwithagreaterpercentageoffixedincomeinvestments.

Riskmanagementpractices

Weareexposedtovariousrisksrelatedtoourdefinedbenefitpensionandotherpost-retirementbenefitplans:

• Uncertainty in benefit payments: The value of the liability for post-retirement benefitswill ultimatelydependontheamountofbenefitspaidandthisinturnwilldependontheleveloffuturecompensationincreaseandhowlongindividualslive.

• Volatility in asset value: We are exposed to changes in themarket value of pension plan investmentswhicharerequiredtofundfuturebenefitpayments.

• Uncertaintyincashfunding:Movementinthevalueoftheassetsandobligationsmayresultinincreasedlevels of cash funding, although changes in the level of cash funding required can be spread over anumberofyears.Wearealsoexposedtochangesinpensionregulationandlegislation.

OurretirementcommitteesmanagetheserisksinaccordancewithaStatementofInvestmentPoliciesandProceduresforeachpensionplanorgroupofplansadministeredundermastertrustagreements.Thefollowingaresomespecificriskmanagementpracticesemployed:

• Retainingandmonitoringprofessionaladvisorsincludinganoutsourcedchiefinvestmentofficer(“OCIO”);

• MonitoringourOCIO’sadherencetoassetallocationguidelinesandpermittedcategoriesofinvestments;and

• MonitoringinvestmentdecisionsandperformanceoftheOCIOandassetperformanceagainstbenchmarks.

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15. Sharecapital

Authorized

400,000,000Commonshares,withoutparvalue20,000,000ClassBCommonshares,withoutparvalue10,000,000Preferredshares,issuableinseries,withoutparvalue

Issued 2018 2017 Number Amount Number AmountCommon 67,537,360 $ 491 75,664,558 $ 549ClassBCommon 2,281,478 - 2,281,478 -TotalCommon 69,818,838 $ 491 77,946,036 $ 549

In2018werepurchased8,135,796Commonsharesfor$676millionandin2017werepurchased245,645Commonsharesfor$17million.

OnSeptember17,2018,ourBoardofDirectorsauthorizedtherenewalofournormalcourseissuerbid(“NCIB”)programtorepurchaseforcancellationupto5,524,048Commonsharesorapproximately10%ofthepublicfloatasatSeptember11,2018.TheNCIBwillexpireonSeptember18,2019andourpreviousNCIBexpiredonSeptember18,2018.

RightsandrestrictionsofCommonshares

CommonsharesandClassBCommonsharesareequalinallrespectsexceptthateachClassBCommonsharemayatanytimebeexchangedforoneCommonshare.CertaincircumstancesorcorporatetransactionsmayrequiretheapprovaloftheholdersofourCommonsharesandClassBCommonsharesonaseparateclass-by-classbasis.

16. Equity-basedcompensation

Wehaveshareoption,phantomshareunit(“PSU”)anddirectors’deferredshareunit(“DSU”)plans.Wehavepartiallyhedgedourexposureundertheseplanswithanequityderivativecontract.Theequity-basedcompensationexpenseincludedintheconsolidatedstatementofearningsis$7million(2017-$32million).

Accountingpolicies

WeestimatethefairvalueofoutstandingshareoptionsusingtheBlack-ScholesvaluationmodelandthefairvalueofourPSUplananddirectors’DSUplanusinganintrinsicvaluationmodelateachbalancesheetdate.Werecordtheresultingexpenseorrecovery,overtherelatedvestingperiod,throughachargetoearnings.

Fromtimetotime,weenterintoequityderivativecontractstoprovideapartialoffsettoourexposuretofluctuationsinequity-basedcompensationfromourstockoption,PSUandDSUplans.Thesederivativesarefairvaluedateachbalancesheetdateusinganintrinsicvaluationmodelandtheresultingexpenseorrecoveryisoffsetagainsttherelatedequity-basedcompensation.

IfashareoptionholderelectstoacquireCommonshares,boththeexercisepriceandtheaccruedliabilityarecreditedtoshareholders’equity.

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Shareoptionplan

Underourshareoptionplan,officersandemployeesmaybegrantedoptionstopurchaseupto7,295,940Commonshares,ofwhich483,705remainavailableforissuance.TheexercisepriceofashareoptionistheclosingpriceofaCommonshareonthetradingdayimmediatelyprecedingthegrantdate.OurshareoptionplangivesshareoptionholderstherighttoelecttoreceiveacashpaymentinlieuofexercisinganoptiontopurchaseCommonshares.Optionsvestattheearlierofthedateofretirementordeathand20%peryearfromthegrantdateandexpireafter10years.Wehaverecordedarecoveryof$9million(2017-expenseof$52million)relatedtotheshareoptionplan.

Asummaryoftheactivityintheshareoptionplanispresentedbelow: 2018 2017 Number Weighted

averageprice

(dollars)

Number Weightedaverageprice

(dollars)Outstanding-beginningofyear 1,435,938 $ 37.19 2,119,886 $ 29.83Granted 112,715 $ 85.40 192,255 $ 53.11Exercised (335,306) $ 25.16 (872,973) $ 22.77Expired/Cancelled (8,899) $ 51.88 (3,230) $ 55.13Outstanding-endofyear 1,204,448 $ 44.94 1,435,938 $ 37.19Exercisable-endofyear 809,740 $ 37.37 978,341 $ 30.68

ThefollowingtablesummarizesinformationabouttheshareoptionsoutstandingandexercisableatDecember31,2018:

Exercisepricerange

Numberofoutstandingoptions

Weightedaverageremainingcontractual

life

Weightedaverage

exerciseprice

Numberofexercisableoptions

Weightedaverageexerciseprice

(dollars) (number) (years) (dollars) (number) (dollars)$12.36 128,500 0.1 $ 12.36 128,500 $ 12.36$23.65-$25.75 235,466 2.7 $ 24.62 235,466 $ 24.62$40.82-$55.62 615,128 6.4 $ 46.79 360,413 $ 45.74$73.99-$85.40 225,354 7.6 $ 79.66 85,361 $ 74.82 1,204,448 5.2 $ 44.94 809,740 $ 37.37

Theweightedaveragesharepriceatthedateofexerciseforshareoptionsexercisedduringtheyearwas$83.43pershare(2017-$67.80pershare).

TheaccruedliabilityrelatedtotheshareoptionplanbasedonaBlack-Scholesvaluationmodelis$36millionatDecember31,2018(December31,2017-$63million).Theweightedaveragefairvalueoftheoptionsusedinthecalculationwas$30.15peroptionatDecember31,2018(December31,2017-$43.79peroption).

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Theinputstotheoptionmodelareasfollows: 2018 2017Sharepriceonbalancesheetdate $67.30 $77.33Weightedaverageexerciseprice $44.93 $37.19Expecteddividend $0.80 $0.44Expectedvolatility 35.19% 33.34%Weightedaverageinterestrate 1.87% 1.76%Weightedaverageexpectedremaininglifeinyears 3.4 3.5

Theexpecteddividendonourshareswasbasedontheannualizeddividendrateateachperiodend.Expectedvolatilitywasbasedonfiveyearsofhistoricaldata.Theinterestrateforthelifeoftheoptionswasbasedontheimpliedyieldavailableongovernmentbondswithanequivalentremainingtermateachperiod-end.Historicaldatawasusedtoestimatetheexpectedlifeoftheoptionsandforfeiturerates.

TheintrinsicvalueofoptionsissuedundertheshareoptionplanatDecember31,2018was$29million(December31,2017-$56million).Theintrinsicvalueisdeterminedbasedonthedifferencebetweentheperiodendsharepriceandtheexerciseprice,multipliedbythesumoftherelatedvestedoptionsplusunvestedoptionsforthoseholderseligibletoretire.

Phantomshareunitplan

OurPSUplanisintendedtosupplement,inwholeorinpart,orreplacethegrantingofshareoptionsaslong-termincentivesforofficersandemployees.Theplanprovidesfortwotypesofunitswhichvestonthethirdanniversaryofthegrantdate.ArestrictedshareunitpaysoutbasedontheCommonsharepriceoverthe20tradingdaysimmediatelyprecedingitsvestingdate(the“vestingdatevalue”).Aperformanceshareunitpaysoutatavaluebetween0%and200%ofitsvestingdatevaluecontingentuponourperformancerelativetoapeergroupofcompaniesoverthethree-yearperformanceperiod.OfficersandemployeesgrantedunitsundertheplanarealsoentitledtoadditionalunitstoreflectcashdividendspaidonCommonsharesfromtheapplicablegrantdateuntilpayout.

Wehaverecordedanexpenseof$5million(2017-$6million)relatedtothePSUplan.ThenumberofunitsoutstandingasatDecember31,2018was155,595(December31,2017-109,414),includingperformanceshareunitstotalling84,966(December31,2017-48,268).

Directors’deferredshareunitplan

WehaveaDSUplanwhichprovidesastructurefornon-employeedirectorstoaccumulateanequity-likeholdinginWestFraser.TheDSUplanallowsdirectorstoparticipateinthegrowthofWestFraserbyprovidingadeferredpaymentbasedonthevalueofaCommonshareatthetimeofredemption.Eachdirectorreceivesdeferredshareunits(“Units”)inpaymentofanannualequityretaineruntilaminimumequityholdingisreachedandmayelecttoreceiveUnitsinpaymentofupto100%ofotherfeesearned.Afteraminimumequityholdingisreached,directorsmayelecttoreceivetheequityretainerinUnitsorcash.TheUnitsareissuedbasedonourCommonsharepriceatthetimeofissue.AdditionalUnitsareissuedtotakeintoaccountthevalueofdividendspaidonCommonsharesfromthedateofissuetothedateofredemption.Unitsareredeemableonlyafteradirectorretires,resignsorotherwiseleavestheboard.TheredemptionvalueisequaltotheCommonsharepriceatthedateofredemption.AholderofUnitsmayelecttoredeemUnitsincashorreceiveCommonshareshavinganequivalentvalue.

Wehaverecordedanexpenseofnil(2017-$4million)relatedtotheDSUplan.ThenumberofUnitsoutstandingasatDecember31,2018was52,930(December31,2017-102,757).

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Equity-basedcompensationhedge

Duringthisyear,weterminatedourequityderivativecontractunderwhichwehedged1,000,000Commonshareequivalentunitsata$46.02shareprice.Thecontractwasclosedata$66.46pershare.Atthesametime,anewequityderivativecontracttohedge1,000,000Commonshareequivalentunitsata$66.46persharewasinitiated.Anexpenseof$10million(2017-recoveryof$30million)isincludedinequity-basedcompensationrelatedtothesecontracts.

17. Financeexpense,net 2018 2017Interestexpense $ (34) $ (25)Interestincomeonshort-terminvestments 5 1Interestincomeonlong-termdutydepositsreceivable(note27) 2 -Financeexpenseonemployeefuturebenefits (9) (7)Accretiononlong-termliabilities (1) - $ (37) $ (31)

18. Other 2018 2017Foreignexchangegain(loss)onworkingcapital $ 13 $ (11)Foreignexchangegain(loss)onintercompanyfinancing1 65 (15)Foreignexchangegain(loss)onlong-termdebt(note27) (55) 25Insurancegainondisposalofequipment2 - 7Foreignexchangegainonexportdutydepositsreceivable(note27) 5 1Other3 9 - $ 37 $ 71. RelatestoUS$600millionfromJanuarytomid-DecemberandUS$550millionthereafter(2017-US$600million)offinancingprovidedto

ourU.S.operations.IAS21requiresthattheexchangegainorlossberecognizedthroughearningsasthefinancingisnotconsideredpartofourpermanentinvestmentinourU.S.subsidiaries.Thebalancesheetamountsandrelatedfinancingexpenseareeliminatedintheseconsolidatedfinancialstatements.

2. Representstheinsurancegainof$7millionrecognizedin2017relatedtoequipmentdamagedatourjointly-ownedNBSKplantinQuesnel.Estimatedinsuranceproceedsforequipmentreplacementareaccountedforasproceedsondisposition,andtheresultinggainisincludedinotherincome.

3. Otherincludesgainondisposalofintangibleassetsandgainonsaleoflumberfutures.

19. Taxprovision

Accountingpolicies

Thetaxexpensefortheperiodiscomprisedofcurrentanddeferredtax.Taxisrecognizedintheconsolidatedstatementofearnings,excepttotheextentthatitrelatestoitemsrecognizedinothercomprehensiveearningsinwhichcaseitisrecognizedinothercomprehensiveearnings.

Deferredtaxesareprovidedforusingtheliabilitymethod.Underthismethod,deferredtaxesarerecognizedfortemporarydifferencesbetweenthetaxandfinancialstatementbasisofassets,liabilitiesandcertaincarry-forwarditems.

Deferredtaxassetsarerecognizedonlytotheextentthatitisprobablethattheywillberealized.Deferredincometaxassetsandliabilitiesareadjustedfortheeffectsofchangesintaxlawsandratesonthedateofsubstantiveenactment.

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Themajorcomponentsofincometaxincludedincomprehensiveearningsareasfollows: 2018 20171

Earnings Currenttax $ (207) $ (158)Deferredtax (55) (92)Taxprovisiononearnings $ (262) $ (250) Othercomprehensiveearnings Deferredtax(expense)recoveryonpost-retirementactuariallosses $ (9) $ 7 Taxprovisiononcomprehensiveearnings $ (271) $ (243)1. Includestheimpactofthe2017statutorychangesforBritishColumbiaandtheUnitedStates.

ThetaxprovisiondiffersfromtheamountthatwouldhaveresultedfromapplyingtheBritishColumbiastatutoryincometaxratetoearningsbeforetaxisasfollows: 2018 2017Incometaxexpenseatstatutoryrateof27%(2017-26%) $ (289) $ (220)Non-taxableamounts 2 (6)Ratedifferentialsbetweenjurisdictionsandonspecifiedactivities 20 (20)Unrecognizedcapitallosses 1 1Impactofstatutorytaxchanges1 - (6)Other 4 1Taxprovision $ (262) $ (250)1. Representsthere-measurementofdeferredincometaxassetsandliabilitiesfortheBritishColumbiataxratechangefrom11%to12%

andtheimpactofUnitedStatestaxreform,bothofwhichweresubstantivelyenactedasatDecember31,2017.

Deferredincometaxesaremadeupofthefollowingcomponents: 2018 2017Property,plant,equipmentandintangibles $ 402 $ 371Reforestationanddecommissioningobligations (33) (30)Employeefuturebenefits (50) (61)Taxlosscarry-forwards1 (38) (58)Other 8 (3) $ 289 $ 219 Representedby: Deferredincometaxassets $ (3) $ (6)Deferredincometaxliabilities 292 225 $ 289 $ 2191. Includesfederalnetoperatingloss(“NOL”)carry-forwardsof$116millionexpiringfrom2025to2030.AportionoftheseNOL’sare

subjecttorestrictionsonuse.

20. Employeecompensation

Ouremployeecompensationexpenseincludessalariesandwages,employeefuturebenefits,terminationcostsandbonuses.Totalcompensationexpenseis$933million(2017-$872million).

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Keymanagementincludesdirectorsandofficersandtheircompensationexpenseandbalancesheetdatepayablesareasfollows: 2018 2017Expense Salaryandshort-termemployeebenefits $ 10 $ 10Post-retirementbenefits 1 1Equity-basedcompensation1 (3) 48 $ 8 $ 59 Payablesandaccruedliabilities Compensation $ 4 $ 4Equity-basedcompensation1 42 64 $ 46 $ 681. Amountsdonotnecessarilyrepresenttheactualvaluewhichwillultimatelybepaid.

21. Earningspershare

BasicearningspershareiscalculatedbasedonearningsavailabletoCommonshareholders,assetoutbelow,usingtheweightedaveragenumberofCommonsharesandClassBCommonsharesoutstanding.

DilutedearningspershareiscalculatedbasedonearningsavailabletoCommonshareholdersadjustedtoremovetheactualshareoption(recovery)expensechargedtoearningsandafterdeductinganotionalchargeforshareoptionexpenseassumingtheuseoftheequity-settledmethod,assetoutbelow.Thedilutedweightedaveragenumberofsharesiscalculatedusingthetreasurystockmethod.WhenearningsavailabletoCommonshareholdersfordilutedearningspersharearegreaterthanearningsavailabletoCommonshareholdersforbasicearningspershare,thecalculationisanti-dilutiveanddilutedearningspersharearedeemedtobethesameasbasicearningspershare. 2018 2017Earnings

Basic $ 810 $ 596Shareoptionexpense(recovery) (9) 52Equitysettledshareoptionadjustment (3) (4)Diluted $ 798 $ 644

Weightedaveragenumberofshares(thousands) Basic 74,451 78,097Shareoptions 652 858Diluted 75,103 78,955

Earningspershare(dollars)

Basic $ 10.88 $ 7.63Diluted $ 10.62 $ 7.63

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22. Commitments

Operatingleases

Wearecommittedtomakepaymentsundercertainoperatingleasesforequipment,land,buildingandofficespace.Operatingleasecostsexpensedduringtheyearwere$6million(2017-$6million).Thefuturepaymentsrequiredunderoperatingleasesareasfollows:2019 $ 52020 42021 42022 3Thereafter 3 $ 19

Productpurchaseandsalecommitments

Wehavelong-termpurchaseandsalecontractswithminimumannualvolumecommitments.Allcontractsareatmarketpricesandonnormalbusinessterms.

Capitalcommitments

CapitalcommitmentsatDecember31,2018are$108million.

23. Governmentassistance

Accountingpolicies

Governmentassistancereceivedthatrelatestotheconstructionofmanufacturingassetsisappliedtoreducethecostofthoseassets.Governmentassistancereceivedthatrelatestooperationalexpensesisappliedtoreducetheamountchargedtoearningsfortheoperatingitem.


Governmentassistanceof$16million(2017-$3million)wasrecordedasareductiontoproperty,plantandequipment.Themajorityofthisrelatestoagrantforanenergyreductionproject.

Governmentassistanceof$5million(2017-$14million)wasrecordedasareductiontocostofproductssold.Thegovernmentassistancerelatedprimarilytoresearchanddevelopmentandapprenticetaxcredits

24. Financialinstruments

Accountingpolicies

Allfinancialassetsandliabilities,exceptforderivatives,areinitiallymeasuredatfairvalueandsubsequentlymeasuredatamortizedcostusingtheeffectiveinterestratemethod.Derivativesaremeasuredatfairvaluethroughprofitorloss(“FVTPL”).

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Thefollowingtablesprovidethecarryingandfairvaluesofourfinancialinstrumentsbycategory,aswellastheassociatedfairvaluehierarchylevelsasdefinedinnote2under“Fairvaluemeasurements”:

2018 LevelAmortized

cost FVTPL

Otherfinancialliabilities

Carryingvalue Fairvalue

Financialassets Cashandshort-terminvestments 1 $ 160 $ - $ - $ 160 $ 160Receivables1 3 331 1 - 332 332Exportdutydeposits(note27) 3 75 - - 75 75 $ 566 $ 1 $ - $ 567 $ 567 Financialliabilities Chequesissuedinexcessoffundsondeposit 1 $ - $ - $ 13 $ 13 $ 13

Operatingloans(note13) 1 - - 63 63 63Payablesandaccruedliabilities 2 - - 448 448 448Long-termdebt(note13)2 2 - - 696 696 689 $ - $ - $ 1,220 $ 1,220 $ 1,2131. Receivablesincludeourequityderivativereceivableof$1million.2. Thefairvalueofthelong-termdebtisbasedonratesavailabletousatDecember31,2018forlong-termdebtwithsimilartermsand

remainingmaturities.

2017 LevelAmortized

cost FVTPL

Otherfinancialliabilities Carryingvalue Fairvalue

Financialassets Cashandshort-terminvestments 1 $ 258 $ - $ - $ 258 $ 258Receivables1 3 351 1 - 352 352Exportdutydeposits(note27) 3 37 - - 37 37 $ 646 $ 1 $ - $ 647 $ 647 Financialliabilities Payablesandaccruedliabilities 2 $ - $ - $ 441 $ 441 $ 441Long-termdebt(note13)2 2 - - 641 641 634 $ - $ - $ 1,082 $ 1,082 $ 1,0751. Receivablesincludeourequityderivativereceivableof$1million.2. Thefairvalueofthelong-termdebtisbasedonratesavailabletousatDecember31,2017forlong-termdebtwithsimilartermsand

remainingmaturities.

Financialriskmanagement

Ouractivitiesresultinexposuretoavarietyoffinancialrisksincludingrisksrelatedtoderivativecontracts,currencyfluctuation,credit,liquidityandinterestrates.

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Thesensitivitiesprovidedgivetheeffectofpossiblechangesintherelevantpricesandratesonearnings.Thesensitivitiesarehypotheticalandshouldnotbeconsideredtobepredictiveoffutureperformanceorearnings.Changesinfairvaluesorcashflowsbasedonmarketvariablefluctuationscannotbeextrapolatedsincetherelationshipbetweenthechangeinthemarketvariableandthechangeinfairvalueorcashflowsmaynotbelinear.

Derivativecontracts

Fromtimetotime,weusederivativestomanageourexposuretoU.S.dollarexchangefluctuations,commoditypricesandequity-basedcompensation.CommoditycontractsusedbyWestFraserincludelumberfuturesandenergyrelatedagreements.

BasedontheequitycontractasatDecember31,2018andholdingallothervariablesconstant,a$1.00changeinoursharepricewouldchangeitsfairvalueby$1million,whichwouldpartiallyoffsetthemovementinourequity-basedcompensation.

NoenergyrelatedderivativeswereoutstandingatDecember31,2018or2017.

NomateriallumberfuturesorforeignexchangecontractswereoutstandingatDecember31,2018or2017.

Currencyfluctuation

OurCanadianoperationssellmostoftheirproductsatpricesdenominatedinU.S.dollarsorbasedonprevailingU.S.dollarprices.AsignificantportionoftheiroperationalcostsandexpensesareincurredinCanadiandollars.Therefore,anincreaseinthevalueoftheCanadiandollarrelativetotheU.S.dollarreducestherevenueinCanadiandollartermsrealizedbyourCanadianoperationsfromsalesmadeinU.S.dollars,whichreducesoperatingmarginandthecashflowavailabletofundoperations.

OurU.S.operationstransactandreportinU.S.dollars,buttheirresultsaretranslatedintoCanadiandollarsforfinancialstatementpurposeswiththeresultingtranslationgainsorlossesbeingreportedinothercomprehensiveearnings.

ImpactofU.S.dollarcurrencyfluctuation

TheU.S.dollarforeigncurrencybalancesheetexposureatDecember31,2018isasfollows:Canadianoperations 2018Networkingcapital US$ 83Exportdutydeposits 55Intercompanyfinancing1 550Long-termdebt (500) US$ 188 U.S.operations 2018Netinvestment US$ 1,1641. IAS21requiresthattheexchangegainorlossberecognizedthroughearningsasthefinancingisnotconsideredpartofourpermanent

investmentinourU.S.subsidiaries.Thebalancesheetamountsandrelatedfinancingexpenseareeliminatedintheseconsolidatedfinancialstatements.

Basedonthesebalances,withothervariablesunchanged,a$0.01increase(decrease)intheexchangerateforoneU.S.dollarintoCanadiancurrencywouldresultina$3milliondecrease(increase)inearningsandanincrease(decrease)of$21millioninthetranslationgainonforeignoperationsincludedinothercomprehensiveearnings.

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Credit

Creditriskarisesfromthenon-performancebycounterpartiesofcontractualfinancialobligations.Investmentsincashandshort-terminvestmentsareprimarilymadeusingmajorbanksandonlymadewithcounterpartiesmeetingcertaincredit-worthinesscriteria.Creditriskfortradeandotherreceivablesismanagedthroughestablishedcreditmonitoringactivitiessuchas:

• Customercreditlimitsareestablishedandmonitored;

• Ongoingevaluationsofkeycustomerfinancialconditionsareperformed;and

• Incertainmarketareas,wehaveundertakenadditionalmeasurestoreducecreditriskincludingcreditinsurance,lettersofcreditandprepayments.AtDecember31,2018,approximately45%oftradeaccountsreceivablewascoveredbyatleastsomeoftheseadditionalmeasures.

Givenourcreditmonitoringactivities,thelowpercentageofoverdueaccountsandourlowcustomerdefaultswithnobaddebtsin2018or2017,wehaverecordedminimalexpectedcreditlosses.WeconsiderthecreditqualityofthetradeaccountsreceivableatDecember31,2018tobehigh.Theaginganalysisoftradeaccountsreceivableispresentedbelow:

2018 2017Tradeaccountsreceivable–gross Current $ 260 $ 290Pastdue1to30days 7 3Pastdue31to60days 1 2Pastdueover60days - 1

268 296Allowancefordoubtfulaccounts - -Tradeaccountsreceivable–net 268 296Insurancereceivable 14 20Governmentassistance 10 -Other 40 36Receivables $ 332 $ 352

Liquidity

Wemanageliquiditybymaintainingadequatecashandshort-terminvestmentbalancesandbyhavingappropriatelinesofcreditavailable.Inaddition,weregularlymonitorandreviewbothactualandforecastedcashflows.Refinancingrisksaremanagedbyensuringdebthasabalancedmaturityschedulewherepossible.

Thefollowingtablesummarizestheaggregateamountofcontractualfuturecashoutflowsforlong-termdebt:

2019 2020 2021 2022 Thereafter TotalLong-termdebt(note13) $ - $ 10 $ - $ 273 $ 413 $ 696Interestonlong-debt1,2 31 30 30 26 32 149

$ 31 $ 40 $ 30 $ 299 $ 445 $ 8451. Assumesdebtlevel,foreignexchangerateandinterestratesremainatDecember31,2018levelsandrates.

2. AtDecember31,2018,wehaddrawn$63millionunderourrevolvingcreditfacility.Thepotentialinterestpayableonthisloanhasnotbeenincludedintheabovetable.

Interestrates

Interestrateriskrelatesmainlytofloatingratedebt.

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AtDecember31,2018,a100basispointincrease(decrease)ininterestratesonfloatingratedebtwouldresultina$2milliondecrease(increase)inearnings.Thisanalysisassumesthatallothervariablesremainconstant.

25. Capitaldisclosures

Ourbusinessiscyclicalandissubjecttosignificantchangesincashflowoverthebusinesscycle.Inaddition,financialperformancecanbemateriallyinfluencedbychangesinproductpricesandtherelativevaluesoftheCanadianandU.S.dollars.Ourobjectiveinmanagingcapitalistoensureadequateliquidityandfinancialflexibilityatalltimes,particularlyatthebottomofthebusinesscycle.

Ourmainpolicyrelatingtocapitalmanagementistomaintainastrongbalancesheetandotherwisemeetfinancialteststhatarecommonlyappliedbyratingagenciesforinvestmentgradeissuersofpublicdebt.Ourdebtiscurrentlyratedasinvestmentgradebythreemajorratingagencies.

Wemonitorandassessourfinancialperformanceinordertoensurethatnetdebtlevelsareprudenttakingintoaccounttheanticipateddirectionofthebusinesscycle.Whenfinancingacquisitions,wecombinedebtandequityfinancinginaproportionthatisintendedtomaintainaninvestmentgraderatingfordebtthroughoutthecycle.Debtrepaymentsarearranged,wherepossible,onastaggeredbasisthattakesintoaccounttheunevennatureofanticipatedcashflows.Wehaveestablishedcommittedrevolvinglinesofcreditthatprovideliquidityandflexibilitywhencapitalmarketsarerestricted.

Onekeymeasurementusedtomonitorourcapitalpositionisnetdebttototalcapital,calculatedasfollowsatDecember31:

2018 2017Netdebt Cashandshort-terminvestments $ (160) $ (258)Deferredfinancingcosts1 (6) (7)Chequesissuedinexcessoffundsondeposit 13 -Operatingloans 63 -Long-termdebt 696 641

606 376Shareholders’equity 2,896 2,726Totalcapital $ 3,502 $ 3,102Netdebttototalcapital 17% 12%1. Forourbalancesheetpresentation,thesecostsareappliedtoreducetheassociateddebtor,ininstanceswhentheoperatingloanis

undrawn,thesecostsareincludedinotherassets.

26. Segmentandgeographicalinformation

Thesegmentationofmanufacturingoperationsintolumber,panelsandpulpandpaperisbasedonanumberoffactors,includingsimilaritiesinproducts,productionprocessesandeconomiccharacteristics.Transactionsbetweensegmentsareatmarketpricesandonnormalbusinessterms.Thesegmentsfollowtheaccountingpoliciesasdescribedintheseconsolidatedfinancialstatementnotes,whereapplicable.

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Lumber Panels Pulp&Paper

Corporate&Other Total

2018 Sales Toexternalcustomers $ 4,291 $ 664 $ 1,163 $ - $ 6,118Toothersegments 165 12 - -

$ 4,456 $ 676 $ 1,163 $ - Operatingearningsbefore

amortization $ 954 $ 127 $ 258 $ (10) $ 1,329Amortization (196) (15) (44) (2) (257)Operatingearnings 758 112 214 (12) 1,072Financeexpense (25) (2) (10) - (37)Other 20 - 11 6 37Earningsbeforetax $ 753 $ 110 $ 215 $ (6) $ 1,072 Totalassets $ 3,739 $ 320 $ 659 $ 73 $ 4,791Totalliabilities $ 701 $ 62 $ 156 $ 976 $ 1,895Capitalexpenditures $ 284 $ 16 $ 60 $ 10 $ 370

Lumber Panels Pulp&Paper

Corporate&Other Total

2017 Sales Toexternalcustomers $ 3,554 $ 592 $ 988 $ - $ 5,134Toothersegments 117 8 - -

$ 3,671 $ 600 $ 988 $ - Operatingearningsbefore

amortization $ 836 $ 113 $ 172 $ (41) $ 1,080Amortization (155) (13) (40) (2) (210)Operatingearnings 681 100 132 (43) 870Financeexpense (20) (3) (8) - (31)Other (1) - 2 6 7Earningsbeforetax $ 660 $ 97 $ 126 $ (37) $ 846 Totalassets $ 3,404 $ 314 $ 627 $ 172 $ 4,517Totalliabilities $ 467 $ 57 $ 156 $ 1,111 $ 1,791Capitalexpenditures $ 247 $ 22 $ 58 $ 9 $ 336Acquisition $ 526 $ - $ - $ - $ 526

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Thegeographicdistributionofnon-currentassetsandexternalsalesisasfollows: Non-currentassets Salesbygeographicarea1 2018 2017 2018 2017Canada $ 2,121 $ 2,096 $ 1,239 $ 1,129UnitedStates 1,325 1,130 3,661 2,973China - - 734 627OtherAsia - - 442 357Other - - 42 48

$ 3,446 $ 3,226 $ 6,118 $ 5,1341. Salesdistributionisbasedonthelocationofproductdelivery.

27. Countervailing(“CVD”)andantidumping(“ADD”)dutydispute

OnNovember25,2016,acoalitionofU.S.lumberproducerspetitionedtheU.S.DepartmentofCommerce(“USDOC”)andtheU.S.InternationalTradeCommission(“USITC”)toinvestigateallegedsubsidiestoCanadiansoftwoodlumberproducersandlevycountervailingandantidumpingdutiesagainstCanadiansoftwoodlumberimports.WewerechosenbytheUSDOCasa“mandatoryrespondent”toboththecountervailingandantidumpinginvestigationsandasaresulthavereceiveduniquecompanyspecificrates.

OnApril24,2017,theUSDOCissueditspreliminarydeterminationinthecountervailingduty(“CVD”)investigationandimposedacompanyspecificpreliminaryrateof24.12%tobepostedbycashdepositsontheexportsfromCanadaofsoftwoodlumbertotheU.S.onorafterApril28,2017.OnJune26,2017,theUSDOCissueditspreliminarydeterminationintheantidumpingduty(“ADD”)investigationandimposedacompanyspecificpreliminaryrateof6.76%tobepostedbycashdepositsontheexportsfromCanadaofsoftwoodlumbertotheU.S.onorafterJune30,2017.TherequirementthatwedepositCVDwassuspendedonAugust24,2017untilfinaldeterminationwaspublishedbytheUSITC.OnDecember4,2017,theUSDOCamendedourCVDrateto17.99%andourADDrateto5.57%.EffectiveDecember28,2017,webeganpostingcashdepositsforCVDandeffectiveDecember4,2017,webeganpostingcashdepositsforADDattherevisedrates.TheCVDandADDratesaresubjecttofurtheradjustmentthroughadministrativereviewstobecompletedbytheUSDOC.TheadministrativereviewsforeachofCVDandADDareexpectedtocommenceinthespringof2019andcovertheperiodsfromApril28,2017toDecember31,2018forCVDandJune30,2017toDecember31,2018forADD.Thereviewsmaynotbefinalizeduntilmid-2020andtheresultsaresubjecttoappeals.

DuringtheyearendedDecember31,2018,ourlumbersegmentpostedcashdepositsforCVData17.99%rateandforADData5.57%rate.WerecalculatetheADDrateforthecurrentperiodofreviewusingourreportedresultsandthesamecalculationmethodologyastheUSDOC.Basedonourcurrentdata,wedeterminedthattheexpectedADDratewillbe1.46%whichislowerthantheADDdepositrateof5.57%.

FortheyearendedDecember31,2018weincurreddutydepositsof$178millionrelatedtoCVD(2017-$52million)and$55millionrelatedtoADD(2017-$32million)asfollows:

Exportdutiesincurredintheperiod 2018 2017Exportdutiesrecognizedasexpenseinconsolidatedstatementsofearnings $ 202 $ 48Exportdutiesrecognizedaslong-termdutydepositsreceivableinconsolidatedbalancesheets

31

36

Total $ 233 $ 84

Wehaverecordedlong-termdutydepositsreceivablerelatedtoCVDof$11millionrepresentingtheexcessofdepositsmadeatthepreliminaryrateof24.12%comparedtothefinalrateof17.99%.Inaddition,wehaverecordedlong-termdutydepositsreceivablerelatedtoADDof$62millionforthedifferencebetweenthe5.57%

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depositrateandour1.46%estimatedrate.Lastly,wehaverecognizedinterestof$2milliononthelong-termdutydepositsreceivablerelatedtobothCVDandADD.Thedetailsareasfollows:

Exportdutydepositsreceivable 2018 2017Beginningofyear $ 37 $ -Exportdutiesrecognizedaslong-termdutydepositsreceivableinconsolidatedbalancesheets

31

36

Interestrecognizedonthelong-termdutydepositsreceivable 2 -Foreignexchangeonthelong-termdutydeposits 5 1Endofyear $ 75 $ 37

AsatDecember31,2018,dutiespaidandpayablethatareondepositwiththeUSDOCtotalUS$244million.

Thedutyratesaresubjecttochangebasedonadministrativereviewsandappealsavailabletous.Inaddition,wewillupdateourADDrateateachreportingdateconsideringouractualresultsforeachperiodofreview.Changestoestimatedratesmaybematerialandanychangeswillbereflectedthroughearningsintheperiodofthechange.Notwithstandingthedepositratesassignedundertheinvestigations,ourfinalliabilityfortheassessmentofCVDandADDwillnotbedetermineduntileachannualadministrativereviewprocessiscompleteandrelatedappealprocessesareconcluded.

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FIVEYEARFINANCIALREVIEW(inmillionsofCanadiandollars,exceptwhereindicated)

2018 20171 20161 20151 20141

EarningsSales 6,118 5,134 4,450 4,100 3,856Costofproductsold 3,617 3,124 2,971 2,874 2,538Freightandotherdistributioncosts 1 732 633 629 627 548Exportdutiesortaxes 202 48 - 29 -Amortization 257 210 197 191 170Sell ing,generalandadministration1 231 217 176 153 149Equity-basedcompensation 7 32 (5) (23) 45Restructuringcharges - - - - -Operatingearnings 1,072 870 482 249 406Financeexpense (37) (31) (29) (29) (26)Other 37 7 (9) (64) (5)Taxprovision (262) (250) (118) (52) (116)Earnings 810 596 326 104 259

Cashflowsfromoperatingactivities 909 902 689 301 475

Capitalexpenditures&acquisitions 370 862 273 296 618

FinancialpositionCurrentassets 1,345 1,291 938 971 907PPE&timberl icenses 2,569 2,425 2,236 2,179 1,999Goodwill &otherintangibles 767 731 371 369 350Exportdutydeposits 75 37 - - -Otherassets 32 27 20 36 79Deferredincometaxassets 3 6 35 80 62Totalassets 4,791 4,517 3,600 3,635 3,397Currentl iabil ities 595 583 459 606 616Long-termdebt(includingcurrentportion) 692 636 413 423 354Otherl iabil ities 316 347 272 269 244Deferredincometaxl iabil ities 292 225 215 190 154Shareholders'equity 2,896 2,726 2,241 2,147 2,029Totalliabilities&equity 4,791 4,517 3,600 3,635 3,397

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2018 20171 20161 20151 20141

Percommonshare(dollars)BasicEPS 10.88 7.63 4.06 1.25 3.06Pricerange:

High 60.44 83.50 54.18 78.55 66.80Low 97.99 42.98 35.35 40.56 45.05Close 67.44 77.57 48.01 52.53 66.47

Dividendsdeclaredpershare 0.70 0.36 0.28 0.28 0.28Sharesoutstandingatyear-end('000s) 69,819 77,946 78,163 82,457 83,527

RatiosAdjustedEBITDAmargin2 25% 23% 15% 10% 16%Returnoncapitalemployed 20% 17% 11% 4% 10%Returnoncommonshareholders'equity 28% 24% 15% 5% 13%Netdebttocapitalization 17% 12% 14% 22% 19%

Numberofemployeesatyear-end 8,570 8,600 7,800 7,900 7,560

ProductionLumber(MMfbm) 6,609 6,233 5,935 5,607 5,293Pulp(Mtonnes) 1,151 1,172 1,192 1,142 1,086Newsprint(Mtonnes) 119 122 128 133 132Plywood(3/8"MMsf) 833 838 826 797 771MDF(3/4"MMsf)3 224 191 160 220 206LVL(Mcf) 2,251 2,676 2,215 1,627 1,7961.For2017,wehavereclassifiedapproximately$20millionfromfreightandotherdistributioncoststoselling,generaland

administrationtoconformto2018presentation.Figurespriorto2017havenotbeenrestatedforthisreclassification.2.AdjustedEBITDAisdescribedinthesectiontitled“NonIFRSMeasures”ofour2018Management’sDiscussion&Analysis.3.AfireatourMDFplantinQuesnelonMarch9,2016resultedintheclosureoftheplantuntilApril29,2017.

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DIRECTORSANDOFFICERSEffectiveFebruary12,2019

Directors PrincipalOccupationHenryH.Ketcham ChairmanoftheBoardReidE.Carter CorporateDirectorJohnN.Floren PresidentandChiefExecutiveOfficer,MethanexCorporationBrianG.Kenning CorporateDirectorJohnK.Ketcham RealEstateDeveloperGeraldJ.Miller CorporateDirectorRobertL.Phillips CorporateDirectorJaniceG.Rennie CorporateDirectorTedSeraphim ChiefExecutiveOfficerGillianD.Winckler CorporateDirector

Officers OfficeHeldTedSeraphim ChiefExecutiveOfficerRaymondW.Ferris PresidentandChiefOperatingOfficerBrianA.Balkwill Vice-President,CanadianWoodProductsKeithD.Carter Vice-President,PulpandEnergyOperationsLarryE.Gardner Vice-President,CanadianWoodlandsJamesW.Gorman Vice-President,CorporateandGovernmentRelationsChristopherD.McIver Vice-President,SalesandMarketingSeanP.McLaren Vice-President,U.S.LumberTomV.Theodorakis Secretary

Partner,McMillanLLP(lawyers)ChristopherA.Virostek Vice-President,FinanceandChiefFinancialOfficerChuckH.Watkins Vice-President,U.S.LumberManufacturing

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CORPORATEINFORMATIONEffectiveFebruary12,2019

ANNUALGENERALMEETINGTheAnnualGeneralMeetingoftheshareholdersoftheCompanywillbeheldonApril23,2019at11:30a.m.inQuesnel,BritishColumbia,Canada.

AUDITORSPricewaterhouseCoopersLLPVancouver,BritishColumbia,Canada

LEGALCOUNSELMcMillanLLPVancouver,BritishColumbia,Canada

TRANSFERAGENTASTTrustCompany(Canada)Vancouver,Calgary,Toronto,andMontreal,Canada

FILINGSwww.sedar.com

SharesarelistedontheTorontoStockExchangeunderthesymbol:WFT

INVESTORCONTACTChrisVirostekVice-President,FinanceandChiefFinancialOfficer

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

[email protected]

WEBSITEwww.westfraser.com

CORPORATEOFFICE858BeattyStreet,Suite501Vancouver,BritishColumbiaCanadaV6B1C1

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

SALESOFFICES

SPFLumber,Plywood,MDF,LVL1250BrownmillerRoadQuesnel,BritishColumbiaCanadaV2J6P5

Tel:(250)992-9254Fax:(250)992-3034

SPFExportLumber858BeattyStreet,Suite501Vancouver,BritishColumbiaCanadaV6B1C1

Tel:(604)895-2700Fax:(604)895-2976

SYPLumber1900ExeterRoad,Suite105Germantown,TennesseeUSA38138

Tel:(901)620-4200Fax:(901)620-4204

2500SaintMarysRoadSt.Marys,GeorgiaUSA31558

Tel:(912)576-0300Fax:(912)576-0322

Pulp858BeattyStreet,Suite501Vancouver,BritishColumbiaCanadaV6B1C1

Tel:(604)895-2700E:[email protected]

Newsprint2900-650WGeorgiaStreetVancouver,BritishColumbiaCanadaV6B4N8

Tel:(604)681-8817

OPERATIONS

Lumber,PlywoodandLVLCanadianOperations1250BrownmillerRoadQuesnel,BritishColumbiaCanadaV2J6P5

Tel:(250)992-9244Fax:(250)992-9233

USOperations1900ExeterRoad,Suite105Germantown,TennesseeUSA38138

Tel:(901)620-4200Fax:(901)620-4204

MDF

WestPineMDF300CarradiceRoadQuesnel,BritishColumbiaCanadaV2J5Z7

Tel:(250)991-7100Fax:(250)991-7115

RangerBoardP.O.Box6BlueRidge,AlbertaCanadaT0E0B0

Tel:(780)648-6333Fax:(780)648-6397

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Pulp&Paper

CaribooPulp&PaperP.O.Box750050NorthStarRoadQuesnel,BritishColumbiaCanadaV2J3J6

Tel:(250)992-0200Fax:(250)992-2164

QuesnelRiverPulp1000FinningRoadQuesnel,BritishColumbiaCanadaV2J6A1

Tel:(250)992-8919Fax:(250)992-2612

HintonPulp760SwitzerDriveHinton,AlbertaCanadaT7V1V7

Tel:(780)865-2251Fax:(780)865-6666

SlaveLakePulpP.O.Box1790SlaveLake,AlbertaCanadaT0G2A0

Tel:(780)849-7777Fax:(780)849-7725

AlbertaNewsprintCompanyPostalBag9000Whitecourt,AlbertaCanadaT7S1P9

Tel:(780)778-7000Fax:(780)778-7070

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GLOSSARYOFINDUSTRYTERMS

AACAnnualAllowableCutThevolumeoftimberthatmaybeharvestedannuallyfromaspecifictimbertenure.

BCTMPBleachedChemithermomechanicalPulp

DimensionLumberStandardcommoditylumberranginginsizesfrom1x3’sto4x12’s,invariouslengths.

FMAForestManagementAgreementAnFMAisgrantedbytheAlbertagovernmentandentitlestheholdertoestablish,growandharvesttimberonspecifiedlands.

LVLLaminatedVeneerLumberLargesheetsofveneerbondedtogetherwithresinthencuttolumberequivalentsizes.

m3Asolidcubicmetre,aunitofmeasurefortimber,equaltoapproximately35cubicfeet.

McfOnethousandcubicfeet.Aunitofmeasureforlaminatedveneerlumber.

MDFMediumDensityFibreboardAcompositeproductmadefromwoodfibre.

MfbmOnethousandboardfeet(equivalenttoonethousandsquarefeetoflumber,oneinchthick).MMfbmmeansonemillionboardfeet.

MsfAunitofmeasureforMDFandplywoodequaltoonethousandsquarefeetona3/4inchbasisforMDFandona3/8inchbasisforplywood.MMsfmeansonemillionsquarefeet.

NBSKNorthernBleachedSoftwoodKraftPulp

ReturnonCapitalEmployedEarningsbeforeafter-taxfinancingexpensedividedbyaverageassetslessaveragecurrentnon-interest-bearingliabilities.

ReturnonCommonShareholders'EquityEarningsavailabletocommonshareholdersdividedbyaverageshareholders’equity.

SPFDimensionlumberproducedfromspruce/pine/balsamfirspecies.

SYPDimensionlumberproducedfromsouthernyellowpinespecies.

TonAunitofweightequalto2,000pounds,generallyknownasaU.S.ton.

TonneAunitofweightinthemetricsystemequaltoonethousandkilogramsorapproximately2,204pounds.Mtonnemeansonethousandtonnes.

West Fraser Timber Co. Ltd.Tel: 604.895.2700Fax: 604.681.6061www.westfraser.com

wfar18 final 020619 - west fraser timber · 2019-03-05 · steadily and now represents a larger...

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