West Fraser Timber Co. Ltd.
TSX : WFT

West Fraser Timber Co. Ltd.

May 03, 2011 17:01 ET

West Fraser ("WFT") Announces First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 3, 2011) - West Fraser Timber Co. Ltd. (TSX:WFT) today reported earnings after discontinued operations of $19 million or $0.44 per share for the first quarter of 2011. Earnings from continuing operations were $20 million or $0.46 per share on sales of $687 million.

"We are pleased with our operating performance which produced another quarter of positive results despite a lack of recovery in U.S. housing and a strengthening Canadian dollar." said Hank Ketcham, the Company's Chairman, CEO and President. "We continue to focus on efficiency and cost control at every level of our business."

The results compare with previous periods as follows:

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($ millions except earnings per                  2011             2010
 share ("EPS"))                                    Q1         Q4         Q1
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Sales                                             687        719        688
EBITDA (1)                                         80         81        106
Operating earnings from continuing                                         
 operations                                        35         43         57
Earnings from continuing operations                20         28         38
Diluted EPS from continuing operations ($)       0.46       0.65       0.89
Earnings after discontinued operations             19         43         29
Diluted EPS after discontinued operations ($)    0.44       1.00       0.67
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(1) Throughout this News Release, reference is made to EBITDA (defined as  
operating earnings plus amortization). Management of the Company believes  
that, in addition to earnings, EBITDA is a useful performance indicator and
is a useful complementary measure of cash available prior to debt service, 
capital expenditures and income taxes. However, EBITDA is not a generally  
accepted earnings measure under International Financial Reporting Standards
("IFRS") and does not have a standardized meaning prescribed by IFRS.      
Investors are cautioned that EBITDA should not be considered as an         
alternative to earnings or cash flow, as determined in accordance with 
IFRS. As there is no standardized method of calculating EBITDA, the 
Company's method of calculating EBITDA may differ from the methods used by
other entities and, accordingly, the Company's use of that term may not be 
directly comparable to similarly titled measures used by other entities.   

Operational Results

The Company's lumber and pulp operations were significant contributors to earnings in the quarter. Current quarter earnings were adversely affected by the stronger Canadian dollar and a $27 million ($0.60 per share) charge for long-term equity-based compensation.

The lumber segment recorded operating earnings of $33 million and EBITDA of $55 million in the current quarter. SPF shipments were lower in the current quarter compared to the prior quarter as poor weather conditions affected truck and railcar availability.

The panel segment, which includes plywood, LVL and MDF, recorded break-even operating earnings and EBITDA of $4 million in the quarter. The MDF and LVL operations continue to operate on a curtailed basis while the three plywood mills ran at capacity.

Pulp & paper operations recorded operating earnings of $29 million and EBITDA of $47 million. Global inventory levels of NBSK are lower than normal which allowed for a price increase during the quarter. BCTMP prices have weakened during the quarter as new production in China adversely affected markets.

Outlook

SPF and SYP lumber prices have weakened dramatically since the end of the first quarter of 2011, likely the result of the restarting of some previously-curtailed production without a balancing increase in demand. Prices for the Company's construction products are expected to remain volatile until the U.S. housing industry experiences sustainable recovery. The strong NBSK pulp markets should continue as economic growth in the consuming regions continues to support a reasonable pulp price.

Mr. Ketcham noted: "We expected a slow and uneven recovery of the North American lumber industry, and that seems to be playing out. Fortunately, we continue to experience the benefits of strong NBSK pulp markets."

Normal Course Issuer Bid

The Company also announces that it intends to apply to the Toronto Stock Exchange (the "TSX") for approval to conduct a normal course issuer bid ("NCIB") for up to 5% of its issued and outstanding Common shares in accordance with the TSX rules. The NCIB will be subject to TSX acceptance. Full details of the NCIB will be announced upon receipt of TSX acceptance of the NCIB.

The Company

West Fraser is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint. The Company has operations in western Canada and the southern United States.

Forward-Looking Statements

This News Release contains historical information, descriptions of current circumstances and statements about potential future developments and anticipated financial results. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. Forward-looking statements are included under the heading "Outlook". Actual outcomes and results will depend on a number of factors that could affect the ability of the Company to execute its business plans, including those matters described in the 2010 annual Management's Discussion & Analysis under "Risks and Uncertainties" and may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances except as required by applicable securities laws.

Conference Call

Investors are invited to listen to the quarterly conference call on Wednesday, May 4, 2011 at 8:30 a.m. Pacific Time (11:30 a.m. Eastern Time) by dialing 1-877-440-9795 (toll free North America). The call may also be accessed through West Fraser's website at www.westfraser.com. A presentation summarizing the first quarter results will also be available on the Company's website.

Management's Discussion and Analysis

This discussion and analysis by West Fraser's management ("MD&A") of the Company's financial performance during the first quarter of 2011 should be read in conjunction with the unaudited interim condensed consolidated financial statements and accompanying notes included in this quarterly report and the 2010 annual MD&A included in the Company's 2010 Annual Report. Dollar amounts are expressed in Canadian currency, unless otherwise indicated.

This MD&A contains historical information, descriptions of current circumstances and statements about potential future developments and anticipated financial results. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. Forward-looking statements are included in the description of anticipated maintenance shutdowns and expectations relating to the Pulp and Paper Green Transformation Program under the heading "Discussion & Analysis by Product Segment - Pulp & Paper Segment" and under the heading "Business Outlook". Actual outcomes and results will depend on a number of factors that could affect the ability of the Company to execute its business plans, including those matters described under "Risks and Uncertainties" in the 2010 annual MD&A, and may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements and the Company undertakes no obligation to publicly revise them to reflect subsequent events or circumstances, except as required by applicable securities laws.

Throughout this MD&A reference is made to EBITDA (defined as operating earnings plus amortization). Management believes that, in addition to earnings, EBITDA is a useful performance indicator and is a useful complementary measure of cash available prior to debt service, capital expenditures and income taxes. EBITDA is not a generally accepted earnings measure under International Financial Reporting Standards ("IFRS") and does not have a standardized meaning prescribed by IFRS. Investors are cautioned that EBITDA should not be considered as an alternative to earnings or cash flow, as determined in accordance with IFRS. As there is no standardized method of calculating EBITDA, the Company's method of calculating EBITDA may differ from the methods used by other entities and, accordingly, the Company's use of that term may not be directly comparable to similarly titled measures used by other entities.

This MD&A includes references to benchmark prices over selected periods for products of the type produced by West Fraser. These benchmark prices do not necessarily reflect the prices obtained by West Fraser for those products during such period. The information in this interim MD&A is as at May 3, 2011 unless otherwise indicated.

Production, Shipments and Financial Comparisons

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                                               Q1-11      Q4-10      Q1-10
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Production                                                                
Lumber - MMfbm                                                            
 SPF                                             879        804        827
 SYP                                             382        355        274
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                                               1,261      1,159      1,101
Plywood - MMsf (3/8" basis)                      196        190        191
MDF - MMsf (3/4" basis)                           48         44         48
LVL - Mcf                                        405        382        580
BCTMP - Mtonnes                                  154        161        156
NBSK - Mtonnes                                   138        142        124
Newsprint - Mtonnes                               31         33         33
Linerboard and Kraft Paper - Mtonnes               -          -         29
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Shipments                                                                 
Lumber - MMfbm                                                            
 SPF                                             765        832        830
 SYP                                             347        355        270
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                                               1,112      1,187      1,100
Plywood - MMsf (3/8" basis)                      178        208        181
MDF - MMsf (3/4" basis)                           52         42         51
LVL - Mcf                                        383        387        564
BCTMP - Mtonnes                                  153        181        142
NBSK - Mtonnes                                   136        134        132
Newsprint - Mtonnes                               30         34         34
Linerboard and Kraft Paper - Mtonnes               -          -         89
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Financial Comparisons - $ millions                                        
Sales                                            687        719        688
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EBITDA                                            80         81        106
Amortization                                     (45)       (38)       (49)
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Operating earnings                                35         43         57
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Interest expense - net                            (5)        (6)        (8)
Exchange gain on long-term debt                    8         10         11
Other expense                                     (4)        (3)        (8)
Provision for income taxes                       (14)       (16)       (14)
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Earnings from continuing operations               20         28         38
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Earnings from discontinued operations             (1)        15         (9)
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Earnings                                          19         43         29
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Cdn. $1.00 converted to U.S. - average         1.015      0.987      0.961
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Selected Quarterly Information

Selected Quarterly Information                                            
($ millions, except earnings per share ("EPS") amounts which are in $)    
--------------------------------------------------------------------------
                                                       Q4-09  Q3-09  Q2-09
                        Q1-11 Q4-10 Q3-10 Q2-10 Q1-10     (2)    (2)    (2)
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Sales(1)                  687   719   707   772   688    570    612    612
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Earnings(1)                20    28    49    67    38      8   (100)   (23)
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 Earnings after                                                           
  discontinued                                                            
  operations               19    43    48    67    29    (20)  (199)   (39)
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Basic EPS(1)             0.46  0.65  1.15  1.56  0.89   0.18  (2.34) (0.53)
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Diluted EPS(1)           0.46  0.65  1.15  1.28  0.89   0.18  (2.34) (0.53)
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 Basic EPS after                                                          
  discontinued                                                            
  operations             0.44  1.00  1.12  1.56  0.67  (0.47) (4.64) (0.91)
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 Diluted EPS after                                                        
  discontinued                                                            
  operations             0.44  1.00  1.12  1.27  0.67  (0.47) (4.64) (0.91)
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1. From continuing operations.                                            
2. Prepared in accordance with Canadian generally accepted accounting     
   principles in place at December 31, 2009.                              

Discussion & Analysis

The Company's lower operating results in the quarter reflect a strong Canadian dollar and a higher long-term equity-based compensation expense. These negative factors were partially offset by higher lumber and NBSK prices.

U.S. housing starts remain at very low levels causing much of the North American lumber industry to continue to operate below capacity. However, with increased demand from Asia, specifically China, lumber prices have remained significantly above the extreme lows reached in 2009.

NBSK demand remains strong and prices began rising in the current quarter after falling in the second half of 2010. Conditions of oversupply in the BCTMP market have continued to put downward pressure on prices, although markets stabilized somewhat during the quarter.

Although the higher value of the Canadian dollar eroded earnings in the quarter, the lumber and pulp & paper segments achieved positive operating earnings. The panels segment was negatively affected by increased competition from U.S. plywood producers which more readily enter the Canadian market when the Canadian dollar is strong.

Selling, general and administrative expenses declined by approximately $2 million from the previous quarter but increased by $5 million from the first quarter of 2010. The increase from the first quarter of 2010 is due in part to an increase in employee compensation costs.

Long-term equity-based compensation expense of $27 million in the quarter compares to $18 million in the previous quarter and $15 million in the first quarter of 2010. An expense is recorded on the issuance of share options or phantom share units and a further expense or recovery is recorded each quarter based primarily on a Black-Scholes valuation model that considers various factors relating to outstanding options. The most significant of these factors is the change in the market value of the Company's shares from the beginning to the end of the particular period. In the first quarter of 2011 the market value of the Company's shares increased from $47.16 at the beginning of the quarter to $60.46 at the end of the quarter, representing a 28% increase in the quarter. In the previous quarter the market value increased by approximately 25% while in the first quarter of 2010 the market value increased by approximately 17%. The expense or recovery does not necessarily represent the actual amount which will ultimately be paid by the Company.

Interest expense decreased in the current quarter compared to both the previous quarter and the same period last year due to lower borrowings and lower interest rates.

The change in value of the Canadian dollar relative to the U.S. dollar during the periods presented resulted in the following foreign exchange gains and losses:

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                                               Q1-11      Q4-10      Q1-10
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Included in other income                                                  
Translation loss on current monetary items        (4)        (4)        (4)
Gain on foreign currency contracts                 -          -          1
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 Gain on U.S. dollar-denominated
 long-term debt                                    8         10         11
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 Translation loss on foreign operations           (5)        (6)        (7)
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The results of the current quarter include a $14 million provision for income taxes compared to provisions of $16 million for the preceding quarter and $14 million for the first quarter of 2010. Note 12 to the accompanying interim condensed consolidated financial statements provides a reconciliation of the statutory income tax rate to the effective income tax rate.

In the first quarter of 2011 the following significant items were included in earnings from continuing operations:

--  a charge for long-term equity-based compensation of $27 million (after
    tax $26 million or 0.60 per share); and 
--  the translation of U.S. dollar-denominated debt which resulted in a
    foreign exchange gain of $8 million (after tax $7 million or $0.15 per
    share). 

Discussion & Analysis by Product Segment

Lumber Segment

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                                                Q1-11      Q4-10      Q1-10
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Sales - $ millions                                411        418        409
EBITDA - $ millions                                55         41         66
EBITDA margin - %                                  13         10         16
Operating earnings - $ millions                    33         25         40
Benchmark prices (US$ per Mfbm)                                            
 SPF #2 & Better 2 x 4(1)                         296        269        269
 SYP #2 West 2 x 4(2)                             308        270        322
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1. Source: Random Lengths - 2 x 4, #2 & Better - Net FOB mill.             
2. Source: Random Lengths - 2 x 4 - Net FOB mill Westside.                 

Operating earnings increased in the quarter compared to the previous quarter on improved pricing for both SPF and SYP lumber and lower lumber production costs, which were only partially offset by the stronger Canadian dollar and lower SPF shipments in the current quarter.

Compared to the first quarter of the previous year, operating earnings were lower due mainly to lower shipments of SPF lumber, the effect of the stronger Canadian dollar on SPF sales realizations, lower SYP prices and higher lumber production costs. These factors were partially offset by higher SYP shipments in the current quarter.

Benchmark U.S.-dollar SPF prices were higher by 10% in the quarter compared to both the previous quarter and the first quarter of 2010. However, the continued strengthening of the Canadian dollar partially offset the benefit of the higher prices with the resulting Canadian dollar realizations up 7% from the previous quarter and up 4% from the first quarter of 2010. Benchmark prices for SYP lumber were 14% higher in the current quarter compared to the previous quarter and down 4% compared to the first quarter of 2010.

SPF lumber shipments were down in the current quarter compared to the previous quarter due to continuing poor demand in the United States and winter weather conditions which affected truck and railcar availability in Canada. SPF shipments to offshore markets declined compared to the previous quarter, reflecting a typical seasonal slow period in both China and Japan. SYP shipment volumes in the quarter were similar to the previous quarter reflecting the continued poor demand for building products in the U.S.

SPF shipment volumes were lower in the current quarter compared to the first quarter of 2010, despite a 32% increase in shipments to offshore markets, as North American truck and rail transportation was significantly affected by poor weather in the current quarter. SYP shipments were up 29% in the current quarter to more normal levels compared to the similar quarter in 2010 as shipments in 2010 were very restricted due to the severe wet weather that affected the southern U.S. in early 2010.

SPF production was higher by 9% from the previous quarter and by 6% from the first quarter of 2010. Although the Canadian sawmills ran at near capacity in the quarter as in the previous quarter, production was higher in the current quarter due to improved productivity and more available operating days. The higher production in the current quarter compared to the first quarter of 2010 was also the result of higher operating rates in the current quarter.

SYP production was 8% higher in the current quarter compared to the previous quarter and 39% higher compared to the first quarter of 2010. Additional operating shifts in many of the U.S. sawmills contributed to the increase. In addition, severe weather conditions in many of the operating areas in the first quarter of 2010 adversely affected log supply, resulting in production curtailments in many of the U.S. sawmills. In the current quarter the U.S sawmills operated at approximately 75% of capacity compared to 70% in the previous quarter and 55% of capacity in the first quarter of 2010.

Unit cash production costs in the current quarter were similar to the previous quarter. Log costs in both Canada and the U.S. were consistent with levels experienced in the previous quarter.

Compared to the first quarter of 2010 unit cash production costs were up marginally as a result of higher log costs driven principally by higher harvesting and hauling rates and higher fuel costs. These increases were offset in part by lower conversion costs which benefited from higher production levels in both the Canadian and U.S. operations.

Although SPF prices were higher in the quarter, average export tax charges under the Softwood Lumber Agreement were similar to the previous quarter and were 12% lower compared to the first quarter of 2010. This was due largely to higher volumes of SPF lumber being shipped to offshore markets compared to the first quarter of 2010. In addition, SPF lumber shipped from the Company's Alberta mills were subject to the 22.5% surge export tax rate for the months of January and March 2011 and the 15% export tax rate in the month of February 2011 whereas shipments from Alberta in the previous quarter and in the first quarter of 2010 were all subject to the 22.5% surge export tax rate.

Panels Segment

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                                                Q1-11      Q4-10      Q1-10
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Sales - $ millions                                 91         94        100
EBITDA - $ millions                                 4          6         11
EBITDA margin - %                                   4          7         11
Operating earnings - $ millions                     -          3          6
Benchmark price                                                            
 Plywood (per Msf 3/8" basis)(1) Cdn$             307        301        332
 MDF (per Msf 3/4" basis)(2) US$                  539        547        485
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1. Source: Crow's Market Report - Delivered Toronto.                       
2. Source: Resource Information Systems, Inc. - MDF Western U.S. - Net FOB 
   mill.                                                                   

The Company's panels segment is comprised of its plywood, MDF and LVL operations.

Operating earnings were lower than in the previous quarter. Marginally higher plywood prices were offset mainly by the stronger Canadian dollar and lower shipment volumes of plywood. As the Canadian dollar continues to strengthen, greater volumes of competing U.S.-produced plywood are being sold to customers in Canada, West Fraser's primary market. The increased plywood supply has put downward pressure on plywood prices for the past several quarters.

Benchmark plywood prices increased only slightly in the current quarter compared to the previous quarter but were down 8% compared to the first quarter of 2010, largely due to the increase in U.S.-produced plywood sold in Canada. In addition, housing starts in Canada in the current quarter were down significantly from those recorded in the first quarter of the previous year.

MDF prices were down slightly from the previous quarter largely due to seasonal factors and up 11% compared to the corresponding quarter in 2010, or 5% on a Canadian dollar basis. LVL prices were down somewhat from the previous quarter but up slightly from the first quarter of 2010.

Wood costs for plywood were higher in the current quarter than in the previous quarter mainly due to higher harvesting and fuel-related hauling costs. Wood costs were also higher when compared to the first quarter of 2010, again due to higher harvesting and fuel-related hauling costs. Amortization was lower than in the first quarter of 2010 as certain assets became fully depreciated in 2010.

The two MDF plants and the LVL plant operated in the quarter on a curtailed basis at approximately 65% and 50% respectively for MDF and LVL to more closely match supply with demand.

Pulp & Paper Segment

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                                                Q1-11      Q4-10      Q1-10
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Sales - $ millions                                209        230        204
EBITDA - $ millions                                47         49         42
EBITDA margin - %                                  22         21         21
Operating earnings - $ millions                    29         30         26
Benchmark price                                                            
 NBSK (US$ per tonne)(1)                          970        967        880
 Newsprint (US$ per tonne)(2)                     640        640        553
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1. Source: Resource Information Systems, Inc. - U.S. list price delivered  
   U.S.                                                                    
2. Source: Resource Information Systems, Inc. - delivered 48.8 gram        
   newsprint.                                                              

The Company's pulp & paper segment is comprised of its NBSK, BCTMP and newsprint businesses. Results from the Eurocan business are included in discontinued operations.

Operating earnings were marginally lower from the previous quarter due to lower shipment volumes. The U.S.-dollar NBSK benchmark price was slightly up from the previous quarter but the stronger Canadian dollar and lower shipment volumes resulted in reduced sales revenues. However, lower production costs partially offset the negative effect of the higher Canadian dollar. Operating earnings were up from the first quarter of 2010 primarily due to higher production volumes in the NBSK operations, higher NBSK and newsprint prices and lower production costs, all of which more than offset lower BCTMP pricing and the stronger Canadian dollar.

Demand for pulp varies depending on the grade. Global inventories of softwood kraft pulp continue to be lower than normal while inventories of pulp grades such as hardwood kraft are above normal. This has resulted in an increasing price differential between NBSK and hardwood kraft, as well as BCTMP which tends to be priced relative to hardwood kraft pulp grades. In addition BCTMP prices have been under pressure due to the startup of new BCTMP capacity in China. The benchmark price for NBSK averaged US$970 in the quarter compared to US$967 in the previous quarter and US$880 in the first quarter of 2010.

Total pulp production was approximately 4% lower than the previous quarter due to fewer operating days and lower production at the Slave Lake BCTMP mill due to production curtailments related to high electricity prices. Production in the current quarter was 4% higher than in the first quarter of 2010 mainly due to the NBSK mills running at much higher rates this quarter which more than offset the reductions resulting from curtailments at the Slave Lake mill.

Although production was lower in the quarter compared to the previous quarter, average unit cash production costs were similar to the previous quarter and to the first quarter of 2010.

Benchmark U.S.-dollar newsprint prices were unchanged in the quarter from the previous quarter. However, due to the stronger Canadian dollar, mill nets realized in the current quarter were lower. Benchmark U.S.-dollar newsprint prices were higher by approximately 16% compared to the first quarter of 2010, or 10% on a Canadian dollar basis.

Pulp production is anticipated to be reduced in the second quarter by approximately 5,000 tonnes as a result of scheduled maintenance downtime at the Cariboo NBSK mill.

In 2009 the Government of Canada confirmed an allocation of credits totalling $88 million to West Fraser under the Pulp and Paper Green Transformation Program. The Company has received approval under this program for six projects that are expected to significantly reduce future energy costs with approval for a seventh project expected in the second quarter. The Company expects to utilize its full allocation under the Program.

Discontinued Operations

The Eurocan mill was closed in the first quarter of 2010. Total restructuring charges of approximately $50 million related to the closure of this facility have been recorded to date. We do not anticipate any further closure costs.

As at March 31, 2011 the assets and liabilities associated with the Eurocan business are as follows:

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                                                                     Q1-11
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Current assets                                                           2
Non-current assets                                                       1
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Total assets                                                             3
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Current liabilities                                                     (7)
Non-current liabilities                                                (10)
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Total liabilities                                                      (17)
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Business Outlook

For a detailed description of West Fraser's business outlook for 2011 see its 2010 annual MD&A under "Business Outlook", which is included in the Company's 2010 Annual Report.

Benchmark prices for both SPF and SYP lumber have weakened dramatically since the end of the first quarter of 2011, likely the result of the restarting of some previously-curtailed production without a balancing increase in demand. Unless demand levels increase or production curtailments occur, prices are likely to remain at depressed levels. Although the second quarter of the year typically reflects improved lumber pricing as a result of the start of the housing construction season, with the continuing very weak state of the U.S. new home construction industry and the current oversupply situation, this outcome becomes highly unpredictable. Prices for the Company's construction products are expected to remain volatile until the U.S. housing industry experiences sustainable recovery.

Pulp demand remains strong resulting in higher prices for NBSK. However, new supply of BCTMP entered the marketplace in the second half of 2010 and the resulting oversupply of that commodity has put downward pressure on prices. Pricing of BCTMP is likely to remain at current levels until the new supply volumes are absorbed into the market. Continued economic growth in China and other consuming regions should support a reasonable pulp price.

Capital Requirements and Liquidity

Summary of Financial Position ($ millions, except as otherwise indicated)  
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                                               Q1-11      Q4-10      Q1-10
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Cash(1)                                           81        161        (15)
Current assets                                   850        789        712
Current liabilities                              403        389        481
Ratio of current assets to current                                        
 liabilities                                     2.1        2.0        1.5
Net debt                                         216        148        452
Shareholders' equity                           1,573      1,534      1,458
Net debt to capitalization(2) - %                 12          9         24
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1. Cash consists of cash and short-term investments less cheques issued in
   excess of funds on deposit.                                            
2. Net debt (total debt less net cash) divided by net debt plus           
   shareholders' equity.                                                  

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

Selected Cash Flow Items ($ millions)

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                                               Q1-11      Q4-10      Q1-10
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Operating Activities                                                      
 Cash provided before working capital                                     
  changes                                         33         31        186
Non-cash working capital change                  (89)       (53)      (112)
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Cash provided (used) in operating                                         
 activities                                      (56)       (22)        74
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Financing Activities                                                      
Debt and operating loans                          (4)        (4)       (44)
Interest Paid                                     (2)       (10)        (2)
Dividends and other                               (6)        (5)        (5)
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Cash used in financing activities                (12)       (19)       (51)
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Investing Activities                                                      
Additions to capital assets                      (20)       (12)       (28)
Other - net                                        9          1          1
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Cash used in investing activities                (11)       (11)       (27)
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Change in cash from continuing operations        (79)       (52)        (4)
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Change in cash from discontinued                                          
 operations                                       (1)         -         (1)
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Change in cash                                   (80)       (52)        (5)
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Capital Structure and Debt Ratings

The capital structure of the Company consists of Common share equity and long-term debt. In addition, the Company maintains a committed revolving credit facility that is available to meet additional funding requirements. Additional information on the Company's capital structure can be found in the Company's 2010 Annual Report.

At April 28, 2011, the Common share equity of the Company consisted of 40,056,618 Common shares and 2,781,478 Class B Common shares for a total of 42,838,096 shares issued and outstanding.

In addition, as of April 28, 2011 there were 2,014,067 share purchase options outstanding with exercise prices ranging from $24.71 to $51.56 per Common share.

All of West Fraser's debt is secured and, with the exception of current borrowings incurred by its joint venture newsprint mill, ranks equally in right of payment.

The Company is rated by three rating agencies. Based on the approaches employed by these agencies, rating upgrades could occur after a sustained improvement in the Company's various markets occurs resulting in improved profitability for the Company. In April 2011 the Company's Outlook was changed from Stable to Positive by Standard & Poor's and from Negative to Positive by Moody's. The current rating by each of these agencies is as follows:

Debt Ratings

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Agency                                                  Rating     Outlook
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Dominion Bond Rating Service                            BB(high)   Stable
Moody's                                                 Ba1        Positive
Standard & Poor's                                       BB+        Positive
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These ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the rating agencies.

Risks and Uncertainties

For a review of the risks and uncertainties to which the Company is subject, see the 2010 annual MD&A which is included in the Company's 2010 Annual Report.

New Accounting Pronouncements

International Financial Reporting Standards

The Company has adopted IFRS effective January 1, 2011. Prior to the adoption of IFRS the Company prepared its financial statements in accordance with Canada's previous Generally Accepted Accounting Principles for publicly accountable profit-oriented enterprises. For additional information on the conversion to IFRS, see the 2010 annual MD&A which is included in the Company's 2010 Annual Report and the unaudited interim condensed consolidated financial statements accompanying this MD&A.

Disclosure Controls and Procedures and Internal Control Over Financial Reporting

West Fraser's management, including the Chairman, President and Chief Executive Officer and the Executive Vice-President, Finance and Chief Financial Officer acknowledge responsibility for the design of disclosure controls and procedures (DC&P) and internal controls over financial reporting (ICFR) as those terms are defined in National Instrument 52-109.

There were no changes in internal controls over financial reporting that occurred during the quarter ended March 31, 2011 that have materially affected, or are reasonably likely to materially affect, West Fraser's internal control over financial reporting.

Additional Information

Additional information relating to the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.

West Fraser Timber Co. Ltd.                                               
Condensed Consolidated Balance Sheets                                     
(in millions of Canadian dollars - unaudited)                             
                                     As at           As at           As at
                                  March 31,    December 31,      January 1,
                                      2011            2010            2010
--------------------------------------------------------------------------
Assets                                                                    
Current assets                                                            
Cash and short-term                                                       
 investments                  $       81.8    $      163.1    $       12.0
Accounts receivable                  278.3           246.0           200.6
Income taxes receivable                  -               -            67.6
Inventories (note 4)                 477.6           372.4           407.7
Prepaid expenses                      12.3             7.6            11.2
--------------------------------------------------------------------------
                                     850.0           789.1           699.1
Property, plant, and                                                      
 equipment (note 5)                  895.3           924.7         1,031.9
Timber licences                      505.6           509.6           499.7
Goodwill and other                                                        
 intangibles (note 6)                342.6           345.4           354.0
Other assets                          57.1            41.5            29.1
--------------------------------------------------------------------------
                              $    2,650.6    $    2,610.3    $    2,613.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Liabilities                                                               
Current liabilities                                                       
Cheques issued in excess of                                               
 funds on deposit             $        0.8    $        2.4    $       21.8
Operating loans (note 8)               5.4             8.8            78.7
Accounts payable and                                                      
 accrued liabilities                 330.9           271.0           275.2
Income taxes payable                  17.8            58.3               -
Current portion of                                                        
 reforestation &                                                          
 decomissioning obligations           47.7            48.2            38.3
Current portion of long-                                                  
 term debt (note 8)                    0.3             0.3           100.3
--------------------------------------------------------------------------
                                     402.9           389.0           514.3
Long-term debt (note 8)              291.7           299.5           315.9
Other liabilities (note 9)           217.8           225.7           185.8
Deferred income taxes                165.4           162.3           174.8
--------------------------------------------------------------------------
                                   1,077.8         1,076.5         1,190.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Shareholders' equity                                                      
Share capital                        600.6           600.5           599.7
Accumulated other                                                         
 comprehensive earnings              (14.9)           (9.6)              -
Retained earnings                    987.1           942.9           823.3
--------------------------------------------------------------------------
                                   1,572.8         1,533.8         1,423.0
--------------------------------------------------------------------------
                              $    2,650.6    $    2,610.3    $    2,613.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Contingency (note 17)                                                     
Number of Common shares and Class B Common shares outstanding at April 28,
2011 was 42,838,096                                                       
West Fraser Timber Co. Ltd.                                               
Condensed Consolidated Statement of Changes in Equity                     
(in millions of Canadian dollars - unaudited)                             
                        Issued capital                                    
                 ------------------------                                 
                       Number           Translation                
                           of            of foreign    Retained      Total
                       shares    Amount  operations    earnings     equity
--------------------------------------------------------------------------
Balance -                                                               
 January 1, 2010   42,815,809  $  599.7  $        -  $    823.3  $ 1,423.0
Changes in                                                              
 equity for 2010                                                        
Translation                                                             
 loss on foreign                                                          
 operations                 -         -        (9.6)          -       (9.6)
Actuarial loss                                                         
 on employee                                                            
 future benefits            -         -           -       (59.1)     (59.1)
Issuance of                                                             
 Common shares         19,103       0.8           -           -        0.8
Earnings for                                                            
 the year                   -         -           -       186.4      186.4
Dividends                   -         -           -        (7.7)      (7.7)
--------------------------------------------------------------------------
Balance -                                                               
 December 31,
 2010              42,834,912     600.5        (9.6)      942.9    1,533.8
Changes in                                                              
 equity for 2011                                                          
Translation                                                             
 loss on foreign                                                         
 operations                 -         -        (5.3)          -       (5.3)
Actuarial gain                                                          
 on employee                                                            
 future benefits            -         -           -        31.3       31.3
Issuance of                                                             
 Common shares          2,484       0.1           -           -        0.1
Earnings for                                                            
 the period                 -         -           -        18.9       18.9
Dividends                   -         -           -        (6.0)      (6.0)
--------------------------------------------------------------------------
Balance -                                                               
 March 31, 2011    42,837,396  $  600.6  $    (14.9) $    987.1  $ 1,572.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
West Fraser Timber Co. Ltd.
Condensed Consolidated Statements of Earnings and Comprehensive Earnings
(in millions of Canadian dollars - unaudited)
                                                     January 1 to March 31
                                                      2011            2010
--------------------------------------------------------------------------
Sales                                          $     687.0     $     687.8
--------------------------------------------------------------------------
Costs and expenses                                                        
Cost of products sold                                432.3           415.3
Freight and other distribution costs                 105.6           109.6
Export taxes                                          15.6            19.2
Amortization                                          44.7            49.4
Selling, general and administration                   27.4            22.3
Long-term equity-based compensation                   26.5            14.8
--------------------------------------------------------------------------
                                                     652.1           630.6
--------------------------------------------------------------------------
Operating earnings                                    34.9            57.2
Other                                                                     
Interest expense - net                                (4.8)           (7.6)
Exchange gain on long-term debt                        7.5            10.6
Other expense (note 11)                               (3.6)           (7.9)
--------------------------------------------------------------------------
Earnings from continuing operations before                                
 income taxes                                         34.0            52.3
Provision for income taxes (note 12)                 (14.1)          (14.3)
--------------------------------------------------------------------------
Earnings from continuing operations                   19.9            38.0
Earnings from discontinued operations (note 13)       (1.0)           (9.1)
--------------------------------------------------------------------------
Earnings                                       $      18.9     $      28.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Actuarial gain on employee future benefits     $      41.5     $      20.0
Income tax on actuarial gain on employee                                  
 future benefits                                     (10.2)           (5.7)
Translation loss on foreign operations                (5.3)           (6.8)
--------------------------------------------------------------------------
Comprehensive earnings                         $      44.9     $      36.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings per share (dollars) (note 14)                                    
 Basic from continuing operations              $      0.46     $      0.89
 Diluted from continuing operations            $      0.46     $      0.89
 Basic after discontinued operations           $      0.44     $      0.67
 Diluted after discontinued operations         $      0.44     $      0.67
--------------------------------------------------------------------------
--------------------------------------------------------------------------
West Fraser Timber Co. Ltd.                                               
Condensed Consolidated Statements of Cash Flows                          
(in millions of Canadian dollars - unaudited)                             
                                                     January 1 to March 31
                                                      2011            2010
--------------------------------------------------------------------------
Cash flows from operating activities                                      
Earnings from continuing operations           $       19.9    $       38.0
 Adjustments for:                                                         
  Amortization                                        44.7            49.4
  Interest expense - net                               4.8             7.6
  Exchange gain on long-term debt                     (7.5)          (10.6)
  Tax expense                                         14.1            14.3
  Income taxes received (paid) - net                 (61.3)           62.7
  Change in reforestation obligations                 11.5            13.2
  Other                                                6.4            11.3
--------------------------------------------------------------------------
                                                      32.6           185.9
Net change in non-cash working capital items         (89.2)         (111.8)
--------------------------------------------------------------------------
                                                     (56.6)           74.1
--------------------------------------------------------------------------
Cash flows from financing activities                                      
Repayment of long-term debt                           (0.3)         (100.3)
Proceeds from (repayment of) operating loans          (3.7)            56.5
Interest paid                                         (1.6)           (2.2)
Dividends                                             (6.0)           (1.2)
Other                                                    -            (3.5)
--------------------------------------------------------------------------
                                                     (11.6)          (50.7)
--------------------------------------------------------------------------
Cash flows from investing activities                                      
Additions to capital assets                          (19.8)          (28.1)
Proceeds from disposal of capital assets               0.8             0.5
Proceeds from Green Transformation Program             7.5               -
Other                                                  0.4               -
--------------------------------------------------------------------------
                                                     (11.1)          (27.6)
--------------------------------------------------------------------------
Change in cash from continuing operations            (79.3)           (4.2)
Change in cash from discontinued operations                               
 (note 13)                                            (0.4)           (0.9)
Cash - beginning of period                           160.7            (9.8)
--------------------------------------------------------------------------
Cash - end of period                          $       81.0    $      (14.9)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash consists of                                                          
Cash and short-term investments               $       81.8    $       13.4
Cheques issued in excess of funds on                                      
 deposit                                              (0.8)          (28.3)
--------------------------------------------------------------------------
                                              $       81.0    $      (14.9)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

West Fraser Timber Co. Ltd.

Notes to Condensed Consolidated Interim Financial Statements

(figures are in millions of dollars except where indicated - unaudited)

1. Nature of operations

The Company is an integrated wood products company producing lumber, wood chips, LVL, MDF, plywood, pulp and newsprint. The Company's executive office is located at 858 Beatty Street, Suite 501, Vancouver, British Columbia. The Company was formed by articles of amalgamation under the Business Corporations Act (British Columbia) and is registered in British Columbia, Canada. The Company is listed on the Toronto Stock Exchange under the symbol WFT.

2. Transition to International Financial Reporting Standards ("IFRS")

The Company adopted IFRS effective January 1, 2011. Prior to the adoption of IFRS the Company prepared its financial statements in accordance with Canadian generally accepted accounting principles ("CGAAP"). The Company's financial statements for the year ending December 31, 2011 will be the first annual financial statements that are prepared in accordance with IFRS. The Company's transition date is January 1, 2010 (the "Transition Date") and the Company has prepared its opening IFRS balance sheet at that date. The Company will ultimately prepare its opening balance sheet and financial statements for 2010 and 2011 by applying IFRS with an effective date of December 31, 2011 or earlier. Accordingly, the opening balance sheet and annual financial statements for 2010 and 2011 may differ from these statements.

3. Basis of presentation and statement of compliance

These condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board and using the accounting policies the Company expects to adopt in its consolidated financial statements for the year ended December 31, 2011. These policies can be found in Appendix A.

These condensed consolidated interim financial statements should be read in conjunction with the Company's 2010 annual financial statements with consideration of the IFRS transition disclosures included in Appendix B of these condensed consolidated interim financial statements.

4. Inventories

Inventories at March 31, 2011 were written down by $3.9 million (December 31, 2010 - $3.8 million; March 31, 2010 - $3.5 million, January 1, 2010 - $16.0 million) to reflect net realizable value being lower than cost.

5. Property, plant and equipment

--------------------------------------------------------------------------
                                  March 31,    December 31,      January 1,
                                      2011            2010            2010
--------------------------------------------------------------------------
Manufacturing plant,                                                      
 equipment & machinery         $     813.2     $     848.0     $     954.6
Construction-in-progress              20.8            12.8            13.3
Roads and bridges                     31.6            34.4            35.8
Other                                 29.7            29.5            28.2
--------------------------------------------------------------------------
                               $     895.3     $     924.7     $   1,031.9
--------------------------------------------------------------------------
--------------------------------------------------------------------------

6. Goodwill and other intangible assets

--------------------------------------------------------------------------
                                  March 31,    December 31,      January 1,
                                      2011            2010            2010
--------------------------------------------------------------------------
Goodwill                       $     263.7     $     263.7     $     263.7
Power purchase agreement              71.3            73.2            80.5
Timber deposits                        3.3             3.4             5.3
Other                                  4.3             5.1             4.5
--------------------------------------------------------------------------
                               $     342.6     $     345.4     $     354.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------

7. Restructuring charges

Restructuring charges relate to the closure of the Kitimat mill and certain indefinitely idled sawmills. A reconciliation of restructuring charges included in accounts payable and accrued liabilities is as follows:

--------------------------------------------------------------------------
                                                              January 1 to
                                              January 1 to     December 31,
                                            March 31, 2011            2010
--------------------------------------------------------------------------
Accrued liability - beginning of period     $          4.5   $        40.2
Paid during period                                    (0.9)          (35.1)
Change in accrual                                      0.3            (0.6)
--------------------------------------------------------------------------
Accrued liability - end of period           $          3.9   $         4.5
--------------------------------------------------------------------------
--------------------------------------------------------------------------

8. Long-term debt and operating loans

Long-term debt

------------------------------------------------------------------------
                                  March 31,   December 31,     January 1,
                                      2011           2010           2010
------------------------------------------------------------------------
US$300 million senior                                                   
 notes due October 2014;                                                
 interest at 5.2%              $     290.9    $     298.4    $     315.3
Term note due March 2010;                                               
 interest at floating                                                   
 rates                                   -              -          100.0
Note payable due in                                                     
 installments to 2020;                                                  
 interest at 5.5%                      2.4            2.7            2.7
------------------------------------------------------------------------
                                     293.3          301.1          418.0
Less:                                                                   
 Current portion                      (0.3)          (0.3)        (100.3)
 Deferred financing costs             (1.3)          (1.3)          (1.8)
------------------------------------------------------------------------
                               $     291.7    $     299.5    $     315.9
------------------------------------------------------------------------
------------------------------------------------------------------------

Operating loans

The Company has $505 million in revolving lines of credit, of which $5.4 million (net of deferred financing costs of $5.8 million) was drawn as at March 31, 2011 (December 31, 2010 - $8.8 million, net of deferred financing costs of $6.2 million). Interest is payable at floating rates based on Prime, US base, Bankers' Acceptances or LIBOR at the Company's option. The Company has also issued letters of credit in the amount of $35.8 million that are supported by this facility. The revolving lines of credit include a $500 million committed facility maturing in December 2014.

The $500 million committed facility and the US$300 million senior notes are secured by the Company's assets.

9. Other long-term liabilities

--------------------------------------------------------------------------
                                    March 31,   December 31,     January 1,
                                        2011           2010           2010
--------------------------------------------------------------------------
Post-retirement obligations      $     100.1    $     118.2    $      66.1
Reforestation obligations               76.4           64.4           64.2
Timber damage deposits                  13.1           13.9           15.6
Other decommissioning                                                     
 obligations                            18.6           19.6           32.1
Other long-term obligations              9.6            9.6            7.8
--------------------------------------------------------------------------
                                 $     217.8    $     225.7    $     185.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------

10. Employee future benefits

The Company maintains defined benefit and defined contribution pension plans covering a majority of its employees. The defined benefit plans provide pension benefits based either on length of service or on earnings and length of service. Total pension expense for the defined benefit plans is $8.4 million for the three months ended March 31, 2011 ($24.3 million for the year ended December 31, 2010). The Company also provides group life insurance, medical and extended health benefits to certain employee groups.

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

--------------------------------------------------------------------------
                                    March 31,   December 31,     January 1,
                                        2011           2010           2010
--------------------------------------------------------------------------
Projected benefit obligations    $    (965.0)   $    (983.6)   $    (845.4)
Fair value of plan assets              919.3          904.1          805.7
--------------------------------------------------------------------------
Deficit                          $     (45.7)   $     (79.5)   $     (39.7)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Represented by                                                            
Pension surplus (1)              $      54.4    $      38.7    $      26.4
Post-retirement obligations                                               
 (2)                                  (100.1)        (118.2)         (66.1)
--------------------------------------------------------------------------
                                 $     (45.7)   $     (79.5)   $     (39.7)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
1. Included in other assets.                                              
2. Included in other long-term liabilities.                               

The significant assumptions used to determine the period end benefit obligations are as follows:

--------------------------------------------------------------------------
                                    March 31,   December 31,     January 1,
                                        2011           2010           2010
--------------------------------------------------------------------------
Discount rate on obligation            5.75%          5.50%          6.50%
Expected rate of return on                                                
 plan assets                           6.50%          6.50%          7.00%
Rate of increase in future                                                
 compensation                          3.50%          3.50%          3.50%
--------------------------------------------------------------------------
--------------------------------------------------------------------------

11. Other income (expense)

--------------------------------------------------------------------------
                                                  March 31,       March 31,
                                                      2011            2010
--------------------------------------------------------------------------
Foreign exchange loss - net                    $      (4.4)    $      (3.9)
Loss on derivative financial instruments                 -            (4.0)
Other - net                                            0.8               -
--------------------------------------------------------------------------
                                               $      (3.6)    $      (7.9)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

12. Income taxes

The Company's effective tax rate on earnings from continuing operations is as follows:

--------------------------------------------------------------------------
                                           January 1 to March 31
                                        2011                    2010
                                 Amount          %       Amount          %
--------------------------------------------------------------------------
Income taxes at statutory                                                 
 rates                       $     (9.0)     (26.5)  $    (14.9)     (28.5)
Non taxable amounts                (5.1)     (14.9)         1.5        2.9
Rate differentials between                                                
 jurisdictions and on                                                     
 specified activities              (0.3)      (0.9)         0.4        0.8
Recognition of prior year's                                               
 tax losses                         0.4        1.1          1.2        2.3
Other                              (0.1)      (0.2)        (2.5)      (4.8)
--------------------------------------------------------------------------
Income tax provision         $    (14.1)     (41.4)  $    (14.3)     (27.3)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

13. Discontinued operation

The Company permanently closed its Kitimat linerboard and kraft paper mill in January 2010. The results of the discontinued operation are as follows:

                                              January 1 to    January 1 to
                                            March 31, 2011  March 31, 2010
--------------------------------------------------------------------------
Sales                                        $           -   $        51.1
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operating loss                               $        (1.3)  $       (11.9)
Other expense                                            -            (0.8)
--------------------------------------------------------------------------
Loss before income tax                                (1.3)          (12.7)
Income tax recovery                                    0.3             3.6
--------------------------------------------------------------------------
Loss                                         $        (1.0)  $        (9.1)
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Cash flows from operating activities         $        (0.2)           (0.9)
Cash flows from investing activities                  (0.2)              -
--------------------------------------------------------------------------
Decrease in cash                             $        (0.4)  $        (0.9)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

14. Earnings per share

Basic earnings per share is calculated based on earnings available to Common shareholders, as set out below, using the weighted average number of Common shares and Class B common shares outstanding.

Diluted earnings per share is calculated based on earnings available to Common shareholders adjusted to remove the actual share option expense (recovery) charged to earnings and after deducting a notional charge for share option expense assuming the use of the equity settled method, as set out below. The diluted weighted average number of shares is calculated using the treasury stock method. When earnings available to shareholders for diluted earnings per share are greater than earnings available to shareholders for basic earnings per share, the calculation is anti-dilutive, therefore basic and diluted earnings per share are the same.

--------------------------------------------------------------------------
                                        January 1 to March 31             
                                    2011                      2010        
                                           After                     After
                               From       discon-        From       discon-
                         continuing       tinued   continuing       tinued
                         operations   operations   operations   operations
--------------------------------------------------------------------------
Earnings                                                                  
 Basic                     $   19.9    $    18.9     $   38.0    $    28.9
 Share option expense          22.9         22.9          9.9          9.9
 Equity settled share                                                    
  option adjustment            (2.3)        (2.3)        (0.3)        (0.3)
--------------------------------------------------------------------------
Diluted                     $  40.5     $   39.5     $   47.6     $   38.5
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Weighted average                                                          
 number of shares                                                         
 Basic                   42,836,143   42,836,143   42,817,733   42,817,733
 Share options              572,217      572,217      324,500      324,500
--------------------------------------------------------------------------
Diluted                  43,408,360   43,408,360   43,142,233   43,142,233
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Earnings per share                                                        
 (dollars)                                                                
 Basic                  $      0.46  $      0.44  $      0.89  $      0.67
 Diluted                $      0.46  $      0.44  $      0.89  $      0.67
--------------------------------------------------------------------------
--------------------------------------------------------------------------

15. Green transformation program

In 2009 the Government of Canada confirmed an allocation of credits totalling $88 million to the Company under the Pulp and Paper Green Transformation Program (the "Program"). The Program provides funding for capital projects that improve the energy efficiency or environmental performance of Canadian pulp and paper mills. Credits may be used until the Program end date of March 31, 2012. During the quarter, the Company received $7.5 million for eligible expenditures under the Program and has incurred a further $14.6 million of qualifying reimbursable expenditures.

16. Segmented information

                                                        Corpor-           
                                              Pulp &       ate      Consol-
                        Lumber     Panels      paper   & other      idated
--------------------------------------------------------------------------
January 1, 2011 to                                                        
 March 31, 2011                                                           
Sales at market                                                           
 prices                                                                   
 To external                                                              
  customers          $   389.7 $     88.6  $   208.7 $       -  $    687.0
                                                                ----------
                                                                ----------
 To other segments        21.5        2.3          -         -            
--------------------------------------------------------------            
                     $   411.2 $     90.9  $   208.7 $       -           
--------------------------------------------------------------           
--------------------------------------------------------------           
EBITDA (1)           $    55.2 $      3.6  $    46.9 $   (26.1) $     79.6
Amortization             (22.3)      (3.9)     (17.8)     (0.7)      (44.7)
--------------------------------------------------------------------------
Operating earnings        32.9       (0.3)      29.1     (26.8)       34.9
Interest expense -                                                        
 net                      (2.6)      (0.8)      (1.4)        -        (4.8)
Exchange gain on                                                          
 long-term debt              -          -          -       7.5         7.5
Other income                                                              
 (expense)                (2.5)      (0.2)      (1.8)      0.9        (3.6)
--------------------------------------------------------------------------
Earnings from                                                             
 continuing                                                               
 operations                                                               
before income taxes  $    27.8 $     (1.3) $    25.9 $   (18.4) $     34.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
January 1, 2010 to                                                        
 March 31, 2010                                                           
Sales at market                                                           
 prices                                                                   
 To external                                                              
  customers          $   386.4 $     97.7  $   203.7 $       -  $    687.8
                                                                ----------
 To other segments        23.0        1.8          -         -  ----------
--------------------------------------------------------------           
                     $   409.4 $     99.5  $   203.7 $       -            
--------------------------------------------------------------           
--------------------------------------------------------------           
EBITDA (1)           $    66.3 $     11.2  $    42.3 $   (13.2) $    106.6
Amortization             (26.8)      (5.1)     (16.7)     (0.8)     (49.4)
--------------------------------------------------------------------------
Operating earnings        39.5        6.1       25.6     (14.0)       57.2
Interest expense -                                                        
 net                      (4.6)      (0.8)      (1.9)     (0.3)      (7.6)
Exchange gain on                                                          
 long-term debt              -          -          -      10.6        10.6
Other income                                                              
 (expense)                (1.5)      (0.4)      (6.3)      0.3        (7.9)
--------------------------------------------------------------------------
Earnings from                                                             
 continuing                                                               
 operations                                                               
before income taxes  $    33.4 $      4.9  $    17.4 $   (3.4)  $     52.3
--------------------------------------------------------------------------
--------------------------------------------------------------------------
1.  Non GAAP measure:
    EBITDA is defined as operating earnings plus amortization.

The geographic distribution of external sales is as follows:

                                             Sales by geographic area(1)  
--------------------------------------------------------------------------
                                             January 1 to     January 1 to
                                           March 31, 2011   March 31, 2010
--------------------------------------------------------------------------
Canada                                     $        156.0   $        170.5
United States                                       340.4            349.1
China                                                84.7             51.6
Other Asia                                           73.9             84.2
Other                                                32.0             32.4
--------------------------------------------------------------------------
                                           $        687.0   $        687.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------
1. Sales are attributed to areas based on the location of product delivery
   by the Company.                                                        

17. Contingency

On January 18, 2011 the United States requested arbitration with Canada under the Softwood Lumber Agreement ("SLA") over its concern that the province of British Columbia ("B.C.") is charging too low a price for certain timber harvested on public lands in the B.C. interior.

The Company believes that Canada and B.C. are complying with their obligations under the SLA and intends to cooperate fully with the B.C. and Canadian governments in defending this claim. The results of the arbitration process are not determinable at this point in time and accordingly no provision has been recorded by the Company.

West Fraser Timber Co. Ltd.

Appendix A to Condensed Consolidated Interim Financial Statements

Significant Accounting Policies

Principles of consolidation

These condensed consolidated interim financial statements include the accounts of the Company and its subsidiaries after elimination of intercompany transactions and balances.

Investments in and operations of joint ventures are accounted for by the proportionate consolidation method.

Financial instruments

The following financial assets and financial liabilities are measured at fair value through profit and loss with changes reflected in other income (expense):

--  Cash and short-term investments 
--  Cheques issued in excess of funds on deposit 
--  Accounts payable and accrued liabilities 
--  Derivatives 

The following financial assets and financial liabilities are measured at amortized cost using the effective interest rate method:

--  Accounts receivable, net of provisions for impairment 
--  Loans receivable, net of provisions for impairment 
--  Operating loans, net of financing charges 
--  Long-term debt, net of financing charges 

Financing charges are netted against debt and amortized over the life of the debt.

Long-term investments are measured at fair value with changes in value recorded in other comprehensive income. When the asset is sold or impaired the effect is recognized immediately in earnings and recycled from accumulated other comprehensive earnings.

Use of estimates

The preparation of financial statements requires estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant areas requiring estimates are asset valuations, share based compensation, reforestation obligations, other decommissioning obligations, income taxes and employee future benefits. Actual amounts could differ materially from those estimates.

Revenue recognition

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

Foreign currency translation

The Company's functional and presentation currency is Canadian dollars.

Assets and liabilities of foreign operations that have a functional currency other than Canadian dollars are translated at the period-end exchange rate and revenues and expenses are translated at average exchange rates during the reporting period. The resulting unrealized gains or losses are included in other comprehensive earnings.

Monetary assets and liabilities denominated in foreign currencies, including long-term debt, are translated into Canadian dollars at the period-end exchange rate. Income and expense items are translated at average exchange rates during the reporting period. The resulting gains or losses are included in other income (expense).

Cash and short-term investments

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

Inventories

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

Property, plant, and equipment

Property, plant, and equipment are stated at historical or deemed cost, less accumulated amortization and accumulated impairment losses. Expenditures for additions and improvements are capitalized. Government grants received that pertain to the construction of manufacturing assets are applied to reduce their cost. Expenditures for maintenance and repairs are charged to earnings. Upon retirement, disposal or destruction of an asset, the cost and related amortization are removed from the accounts and any gain or loss is included in earnings.

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

Buildings                               10 - 30 years                      
Manufacturing equipment and machinery   10 - 20 years                      
Fixtures and other equipment            3 - 10 years                       
Roads                                   Not exceeding 40 years             
Maintenance shutdowns                   Over the period to the next        
                                        maintenance shutdown               

Amortization expense relates primarily to cost of sales.

Timber licences and other intangible assets

Timber licences and other intangible assets are stated at historical cost, less accumulated amortization and accumulated impairment losses and are amortized on a straight-line basis over their estimated useful lives as follows:

Timber licences                         40 years                           
Power purchase agreement                Over the life of the agreement     
Software                                3 - 5 years                        
Timber deposits                         As timber is logged                

Amortization expense relates primarily to cost of sales.

Impairment of property, plant, equipment, timber licences and other intangibles

The Company reviews property, plant, equipment, timber licences and other intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. For the purpose of impairment testing property, plant, equipment, timber and other intangible assets are separated into cash generating units ("CGU"). The Company has identified each mill as a CGU for impairment testing of property, plant, equipment and other intangibles. Timber is tested for impairment by combining CGU's within the economic area of the related timber.

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

Estimated net future cash flows are based on several estimates including the future selling price of products, future US/Canadian dollar exchange rates, future production rates, future input costs and future capital requirements. The estimated net future cash flows are discounted at rates based on management's estimate of the Company's weighted average cost of capital.

Where an impairment loss subsequently reverses the carrying amount of the asset or cash generating unit is increased to the lesser of the revised estimate of recoverable amount and the carrying amount that would have been recorded had no impairment loss been recognized previously.

Goodwill

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

Goodwill impairment is assessed by comparing the fair value of its CGU to the underlying carrying amount of the CGU's net assets, including goodwill. When the carrying amount of the CGU exceeds its fair value, the fair value of the unit's goodwill is compared with its carrying amount to measure the amount of impairment loss, if any.

The Company has attributed $217.6 million of goodwill to a CGU made up of the Company's Canadian lumber operations and $46.1 million of goodwill to a CGU made up of the Company's plywood and LVL operations.

Reforestation and decommissioning obligations

The Company harvests timber under various timber rights that require the Company to conduct reforestation. Future reforestation obligations are measured at fair value and accrued and charged to earnings when timber is harvested. The reforestation obligation is reviewed periodically and changes to estimates are credited or charged to earnings.

The Company records the estimated fair value of a liability for other decommissioning obligations in the period a reasonable estimate of fair value can be made. The fair value is added to the carrying amount of the associated asset and amortized over its useful life, or if there is no associated asset it is expensed. Other decommissioning obligations are reviewed annually and changes to estimates are adjusted to the associated asset or where there is no asset it is expensed.

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

Long-term equity-based compensation

The Company's share option plan gives share option holders the right to elect to receive a cash payment in lieu of exercising an option to purchase Common shares. The Company estimates fair value using a Black Scholes option pricing model at each balance sheet date and records the resulting expense or recovery, over the vesting period, through a charge to earnings. If an option holder elects to purchase Common shares, both the exercise price and the accrued liability are credited to shareholders' equity.

The Company's phantom share unit plan provides for future cash payments to certain officers and employees based on the Company's share price at the vesting date and, in some cases, based on the Company's relative financial performance compared to a peer group of forest products companies. The Company records an expense or recovery through earnings over the vesting period based on the quoted market price of the Company's Common shares.

Employee future benefits

The Company accrues for its obligations under employee benefit plans and the related costs net of plan assets.

The Company has adopted the following policies:

--  The measurement date used for accounting purposes is December 31; 
--  The cost of pensions earned by employees is determined using the
    projected unit credit method, pro-rated for estimated service periods
    where appropriate, and management's estimate of expected plan investment
    performance, discount rate, salary escalation, retirement ages of
    employees and other relevant factors; 
--  For the purpose of calculating expected return, plan assets are valued
    at fair value; 
--  Past service costs arising from plan amendments are recognized
    immediately to the extent the benefits are vested, and otherwise are
    amortized straight-line over the average period until the benefits
    become vested; and 
--  Net actuarial gains or losses are reported as part of other
    comprehensive earnings in the period incurred. 

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

Income taxes

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

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

Accounting standards issued but not yet applied

IFRS 9 Financial Instruments was issued in November 2009. It addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit and loss. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive earnings. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company has not yet assessed the impact of the standard or determined whether it will adopt the standard early.

West Fraser Timber Co. Ltd.

Appendix B to Condensed Consolidated Interim Financial Statements

Transition to IFRS

(figures are in millions of dollars except where indicated - unaudited)

Transition to IFRS

The Company's transition date is January 1, 2010 (the "Transition Date") and the Company has prepared its opening IFRS balance sheet as at that date. The Company will ultimately prepare its opening balance sheet and financial statements for 2010 and 2011 by applying the existing IFRS with an effective date of December 31, 2011 or earlier. The standard setting body of IFRS has significant ongoing projects that could affect the ultimate differences between CGAAP and IFRS and these changes could have a material effect on the Company's financial statements. Accordingly, the opening balance sheet and reconciliations may differ from those presented.

The Company's 2010 annual management's discussion and analysis included a preliminary January 1, 2010 IFRS balance sheet that provided a line by line reconciliation of the changes from CGAAP. This report can be found on the Company's website at www.westfraser.com and on the System for Electronic Document Analysis and Retrieval at www.sedar.com under the Company's profile.

The following tables and their notes reconcile IFRS equity and comprehensive earnings to the CGAAP versions previously published.

Estimated adjustments to comprehensive earnings on adoption of IFRS
                         Earn-    Earn-                                    
                         ings     ings            Trans-                  
                         from     from            lation                  
For the                contin-  discon-               of    Actua-  Compre-
 3 months                uing   tinued           foreign     rial  hensive 
 ended March            opera-   opera-    Earn-   opera-    gain     earn-
 31, 2010       Notes   tions    tions     ings    tions    (loss)    ings
--------------------------------------------------------------------------
Earnings                                                                  
 reported under                                                           
 CGAAP                $  34.3  $ (14.9) $  19.4  $  (9.3) $     -  $  10.1
Earnings                                                                  
 adjustment                                                               
 PPE(1)
 amortization       2     3.6        -      3.6      2.4        -      6.0
 Employee future                                                          
  benefits          3     0.8      1.6      2.4      0.1     20.0     22.5
 Decommissioning                                                          
  obligations       4    (0.8)     0.4     (0.4)       -        -     (0.4)
 Share option                                                             
  expense           5     0.5        -      0.5        -        -      0.5
 Restructuring                                                            
  charges           6       -      6.0      6.0        -        -      6.0
 Deferred tax on                                                          
  above items       7    (0.4)    (2.2)    (2.6)       -     (5.7)    (8.3)
--------------------------------------------------------------------------
Earnings                                                                  
 adjustment               3.7      5.8      9.5      2.5     14.3     26.3
--------------------------------------------------------------------------
Earnings                                                                  
 reported under                                                           
 IFRS                 $  38.0  $  (9.1) $  28.9  $  (6.8) $  14.3  $  36.4
--------------------------------------------------------------------------
--------------------------------------------------------------------------
                         Earn-    Earn-                                    
                         ings     ings            Trans-                  
                         from     from            lation                  
For the year           contin-  discon-               of    Actua-  Compre-
 year ended              uing   tinued           foreign     rial  hensive 
 December               opera-   opera-    Earn-   opera-    gain     earn-
 31, 2010       Notes   tions    tions     ings    tions    (loss)    ings
--------------------------------------------------------------------------
Earnings                                                                  
 reported under                                                           
 CGAAP                $ 169.8  $  (3.6) $ 166.2  $ (12.3) $     -  $ 153.9
Earnings                                                                  
 adjustment                                                               
 PPE(1)
 amortization       2    13.6        -     13.6      2.6        -     16.2
 Employee future                                                          
  benefits          3     1.0      3.5      4.5      0.1    (77.6)   (73.0)
 Decommissioning                                                          
  obligations       4    (1.6)     1.9      0.3        -        -      0.3
 Share option                                                             
  expense           5     3.7        -      3.7        -        -      3.7
 Restructuring                                                            
  charges           6       -      6.0      6.0        -        -      6.0
 Deferred tax on                                                          
  above items       7    (4.7)    (3.2)    (7.9)       -     18.5     10.6
--------------------------------------------------------------------------
Earnings                                                                  
 adjustment              12.0      8.2     20.2      2.7    (59.1)   (36.2)
--------------------------------------------------------------------------
Earnings                                                                  
 reported under                                                           
 IFRS                 $ 181.8  $   4.6  $ 186.4  $  (9.6) $ (59.1) $ 117.7
--------------------------------------------------------------------------
--------------------------------------------------------------------------
1. PPE - property, plant and equipment                                    
Estimated adjustments to Shareholders' equity on adoption of IFRS
                                    Transition                            
                                          Date                            
                                         As at         As at         As at
                                     January 1,     March 31,  December 31,
                           Notes          2010          2010          2010
--------------------------------------------------------------------------
Equity reported under                                                     
 CGAAP                             $   1,618.2   $   1,627.3   $   1,765.2
Retained earnings                                                         
 adjustment                                                               
 Opening retained earnings                                                
  adjustment                                 -        (195.2)       (195.2)
 PPE - impairment              2         (94.8)            -             -
 PPE - decommissioning                                                    
  obligation                   4           1.8             -             -
 Employee future benefits      3        (106.8)            -             -
 Decommissioning                                                          
  obligation increase          4         (15.2)            -             -
 Share option liability        5         (16.6)            -             -
 Restructuring liability       6          (6.0)            -             -
 Deferred income tax on                                                   
  above items                  7          42.4             -             -
 Employee future 
  benefits - actuarial
  losses (net of tax)          3             -          14.3         (59.1)
 Earnings adjustments
  (see above)                                -           9.5          20.2
--------------------------------------------------------------------------
Retained earnings                                                         
 adjustment                             (195.2)       (171.4)       (234.1)
Cumulative translation                                                    
 adjustment                    8             -           2.5           2.7
--------------------------------------------------------------------------
Equity reported under IFRS         $   1,423.0   $   1,458.4   $   1,533.8
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Notes to Shareholders' equity and comprehensive earnings reconciliations

1. IFRS 1 - Elected exemptions

In accordance with IFRS 1 First-time Adoption of International Financial Reporting Standards ("IFRS 1"), the Company has elected to apply the following exemptions from full retrospective application of IFRS.

Business combinations

The Company has elected to apply the business combination exemption in IFRS 1 to business combinations that occurred before January 1, 2010. Accordingly, the CGAAP purchase cost accounting values carry forward under IFRS.

Fair value as deemed cost

The Company has elected to apply the fair value as deemed cost exemption to items of property, plant, and equipment that were impaired under IFRS at the transition date. The result is that the asset cost base is restated to fair value for the items on which the exemption was applied.

Employee future benefits

The Company has elected to recognize the January 1, 2010 cumulative unamortized actuarial gains and losses in opening retained earnings for the Company's employee benefit plans.

Cumulative translation differences

The Company has elected to set the cumulative translation balance, which was included in accumulated other comprehensive earnings, to zero at January 1, 2010 by absorbing it into opening retained earnings.

Decommissioning liabilities

The Company has elected to apply the IFRS 1 exemption to its decommissioning liabilities included in the cost of property, plant and equipment.

2. Property, plant, and equipment impairment

IFRS requires the assessment of asset impairment to be based on discounted cash flows while CGAAP only requires discounting if the carrying value of assets exceeds the undiscounted cash flows. The assumptions used to estimate cash flows are based on industry sources, including Forest Economic Advisors, LLC and Resource Information Systems, Inc., as well as industry analysts and management estimates. Future cash flows were then discounted using an interest rate of 10% to determine the net present value of future cash flows.

The difference in methodology resulted in asset impairment charges of $75.3 million related to certain U.S. sawmill assets and $19.5 million related to certain MDF assets being charged through Transition Date retained earnings. Depreciation expense under IFRS was reduced by $3.5 million for the three months ended March 31, 2010 and $13.6 million for the year ended December 31, 2010 due to the impairments.

Fair value for the impaired items of property, plant and equipment at January 1, 2010 was $105.7 million after the impairment charge of $94.8 million.

3. Employee future benefits

The significant differences between CGAAP and IFRS are as follows:

i. The Company elected to recognize the January 1, 2010 cumulative deferred actuarial gains and losses in opening retained earnings for the Company's defined benefit pension plans under IFRS 1.

ii. Under CGAAP the Company used an October 31st measurement date, while IFRS requires a December 31st measurement date.

iii. The Company has chosen to adjust actuarial gains and losses after the Transition Date to retained earnings via comprehensive earnings. Under CGAAP these amounts are deferred and amortized over the average remaining service period of the affected employees within certain limits.

The differences in methodology resulted in a reduction of deferred pension costs of $106.3 million and an increase in post retirement obligations of $0.5 million on the Transition Date. Under IFRS, employee future benefit expense was reduced by $2.4 million for the three months ended March 31, 2010 and by $4.5 million for the year ended December 31, 2010. A charge of $59.1 million (net of tax of $18.5 million) was recorded to comprehensive earnings for actuarial gains and losses related to the year ended December 31, 2010.

4. Reforestation and decommissioning obligations

Under CGAAP decommissioning obligations are discounted at the risk free rate in effect at the time the liability was recorded. IFRS requires asset retirement obligations to be discounted at each balance sheet date based on the discount rate in effect at that date.

The differences in methodology resulted in an increase to reforestation and other decommissioning obligations of $15.2 million and an increase in property, plant and equipment of $1.8 million on the Transition Date. The asset retirement obligation adjustment for the three months ended March 31, 2010 resulted in a $0.4 million increase in expenses and for the year ended December 31, 2010 a $0.3 million decrease in expenses.

5. Share option liability

The determination of fair value of the Company's share option liability under CGAAP is based on the intrinsic value method which uses the balance sheet date share price to calculate the liability. IFRS requires the use of a share option valuation model to fair value the share option liability.

The differences in methodology resulted in an increase to the liability of $16.6 million on the Transition Date. The share option expense was decreased by $0.5 million for the three months ended March 31, 2010 and by $3.7 million for the year ended December 31, 2010.

The following are the inputs used in the balance sheet date Black-Scholes share option valuation model:

--------------------------------------------------------------------------
                                   January 1,      March 31,   December 31,
                                        2010           2010           2010
--------------------------------------------------------------------------
Share price on balance sheet date      33.16          38.79          47.16
Weighted average exercise price        35.19          35.40          37.49
Expected weighted average                                                 
 years to exercise                      3.76           3.50           3.49
Share price volatility                 33.56%         33.71%         35.41%
Expected annual dividend                0.43           0.43           0.53
Weighted average risk-free rate         2.14%          2.25%          1.99%
Weighted average fair value                                               
 of unit                                7.99          11.44          16.22
--------------------------------------------------------------------------
--------------------------------------------------------------------------

6. Restructuring charges

Under CGAAP the company was required to record certain restructuring charges related to discontinued operations in the first quarter of 2010. IFRS required these charges to be recorded in the fourth quarter of 2009 upon the announcement of the mill closure.

The difference in methodology resulted in an increase to accounts payable and accrued liabilities of $6.0 million on the Transition Date. The restructuring charge adjustment for the three months ended March 31, 2010 and the year ended December 31, 2010 was a $6.0 million decrease in expenses.

7. Deferred income taxes

The deferred income tax adjustments reflect the change in temporary differences resulting from the effect of the IFRS adjustments described in these notes. The Transition Date adjustments resulted in a decrease in deferred taxes of $42.4 million. The deferred tax expense increase for the three months ended March 31, 2010 was $2.6 million and for the year ended December 31, 2010 was $7.9 million.

8. Cumulative translation adjustment

The Company elected to set the cumulative translation balance, which was included in accumulated other comprehensive earnings, to zero at January 1, 2010 by absorbing the $59.8 million into opening retained earnings. The foreign currency translation of IFRS adjustments to the Company's U.S. operations decreased the cumulative translation loss by $2.5 million for the three months ended March 31, 2010 and $2.7 million for the year ended December 31, 2010.

9. Cash flow statement

The cash flow statement presented under IFRS includes interest paid as part of cash flows from financing activities, interest received as part of cash flows from investing activities and expenditures on major planned maintenance shutdowns as cash flows from investing activities. Previously these items were included in cash flows from operating activities.

West Fraser shares trade on the Toronto Stock Exchange under the symbol: "WFT".

Contact Information

  • West Fraser Timber Co. Ltd.
    Gerry Miller
    Executive Vice-President, Finance & Chief Financial Officer
    (604) 895-2700

    West Fraser Timber Co. Ltd.
    Rodger Hutchinson
    Vice-President, Corporate Controller
    (604) 895-2700
    www.westfraser.com