West Fraser Timber Co. Ltd. Including Annual Information Form dated March 22, 2012

Transcription

1 West Fraser Timber Co. Ltd. Annual Report 2011 Including Annual Information Form dated March 22, 2012

2 Bill Tribute Ketcham to Bill Ketcham Our Co-Founder and Long-Term Director 2 TRIBUTE TO BILL KETCHAM After 57 years of helping to guide the future of West Fraser as a co-founder, a major shareholder and an actively-engaged director, Bill Ketcham has decided not to stand for re-election to our Board of Directors. Bill has been an invaluable source of advice and guidance for both our Board and our management team over the years. Bill has helped establish and foster our culture and, in many ways, represents what we are all about. He is an inspiring example for all of us. In recognition of the significance of Bill s contribution to West Fraser, our Board has designated him Director Emeritus. Thanks Bill.

3 their lives, but more importantly making a living and making a life. Bill Ketcham The story of West Fraser started 57 years ago at the end of a dusty road leading to Quesnel, British Columbia. There, three pioneering and hardworking brothers veered off course from a fishing trip and saw their future in the people and the resources in the area. 3 The brothers Sam, Bill and Pete Ketcham While some would say I have played an important role, I consider my greatest contribution to have been behind the scenes. I ve shared my experience on the sales and business front when asked and supported the company without hesitation as it grew from a small one-mill operation to a major North American business. But mostly, I ve been incredibly proud to see people work side-by-side to make West Fraser the unique success that it is. We are all in this together, making the various wood products that people depend on in TRIBUTE TO BILL KETCHAM

4 West Fraser Timber Co. Ltd. Annual Report 2011 Including Annual Information Form dated March 22, Table of Contents Table of Contents 2. Tribute to Bill Ketcham 5. Map of Operations 6. Financial and Operating Highlights 8. Report to Shareholders 10. Corporate Structure 11. Annual Information Form 11. Business Overview 11. Corporate Strategy 12. History 12. Fibre Supply 14. Capital Expenditures and Acquisitions 14. Human Resources 14. Markets 15. Research and Development 15. Lumber 16. Panels 17. Pulp & Paper 17. External Factors Affecting West Fraser s Business in Risk Factors 18. Capital Structure 19. Experts 20. Directors and Officers 21. Governance 21. Audit Committee 22. Material Contracts 22. Additional Information 23. Schedule 1 Audit Committee Charter 25. Management s Discussion & Analysis 26. Annual Results 27. Annual Earnings Adjustments for Certain Non-Operational Items 28. Lumber Segment 30. Panels Segment 30. Pulp & Paper Segment 31. Discontinued Operations 32. 4th Quarter Results 33. Quarterly Earnings Adjustments for Certain Non-operational Items 33. Discussion & Analysis of Quarterly Non-operational Items 33. Discussion & Analysis by Product Segment 34. Business Outlook 35. Earnings Sensitivity to Key Variables 35. Capital Structure and Liquidity 37. Significant Management Judgments Affecting Financial Results 38. New Accounting Pronouncements 39. Risks and Uncertainties 41. Disclosure Controls and Internal Controls Over Financial Reporting 42. Responsibility of Management 43. Auditors Report 44. Financial Statements 72. Five-year Financial Review 73. Corporate Information 75. Glossary of Industry Terms

5 West Fraser Operations West Fraser is a North American wood products company. Its main product is lumber (spruce/pine/fir ( SPF ) and southern yellow pine ( SYP )), and it also produces panels (plywood, MDF and LVL), pulp (NBSK and BCTMP), newsprint and wood chips. Its linerboard and kraft paper mill in Kitimat was permanently shut down in January The operations located in western Canada manufacture all of the products described above except SYP lumber. The sawmills located in the southern United States produce SYP lumber and wood chips. PULP & PAPER 27. Hinton 28. Quesnel (2) 29. Slave Lake 30. Whitecourt PLYWOOD 31. Edmonton 32. Quesnel 33. Williams Lake MDF 34. Blue Ridge 35. Quesnel VENEER & LVL 36. Rocky Mountain House 37. Slave Lake 5 WEST FRASER OPERATIONS LUMBER Canada 1. Quesnel 2. Williams Lake 3. Smithers 4. Chetwynd 5. Fraser Lake 6. Chasm 7. Houston Mile House 9. Blue Ridge 10. Slave Lake 11. Hinton 12. Sundre U.S. 13. Joyce 14. Huttig 15. Henderson 16. New Boston 17. Leola 18. Maplesville 19. Opelika 20. McDavid 21. Seaboard 22. Armour 23. Newberry 24. Augusta 25. Folkston 26. Whitehouse LEGEND Lumber Pulp & Paper Plywood MDF LVL

6 Financial and Operating Highlights Earnings ($ millions) Sales 2,762 2,886 EBITDA Operating earnings Earnings from continuing operations Earnings after discontinued operations Cash flow from operating activities Common Share Data (in dollars per share, except shares outstanding) Shares outstanding (thousands) Weighted average (basic) 42,840 42,823 Year-end 42,846 42,835 Earnings per share Basic from continuing operations Diluted from continuing operations Basic after discontinued operations Diluted after discontinued operations Cash dividends declared Common shareholders equity Price range High (2011 Apr 4; 2010 Dec 9) Low (2011 Oct 4; 2010 Feb 8) Close FINAnCIAL AND Operating Highlights Financial Position ($ millions) Working capital Total assets 2,537 2,610 Long-term debt (excluding current portion) Shareholders equity 1,483 1,534 Analytical Data Current ratio Capital expenditures ($ millions) Net debt to capitalization (%) 14 9 Return on common shareholders equity (%)

7 Lumber Sales ($ millions) 1,670 1,715 Operating earnings ($ millions) (20) 138 SPF (MMfbm) production 3,408 3,318 Shipments 3,389 3,341 SYP (MMfbm) Production 1,503 1,365 Shipments 1,471 1,352 Panels Sales ($ millions) Operating earnings ($ millions) (8) 40 Plywood ( 3 /8 MMsf) Production Shipments MDF ( 3 /4 MMsf) Production Shipments LVL (Mcf) production 1,634 1,918 Shipments 1,596 1,894 Pulp & Paper Sales ($ millions) Operating earnings ($ millions) NBSK (Mtonnes) Production Shipments BCTMP (Mtonnes) production Shipments Newsprint (Mtonnes) production Shipments FINAnCIAL AND Operating Highlights

8 8 REPORT TO SHAREHOLDERS Report to Shareholders For five consecutive years the North American wood products business has operated in a depression-like environment. This has been the longest and deepest trough in U.S. homebuilding since World War II. Since 2006, North American lumber production has declined by approximately 30%. To match supply with demand, the equivalent of 110 large sawmills have had to close down. A similar scenario has played out in the structural and non-structural panel business. Not only has the wood products industry significantly downsized but many of the remaining players have not had strong enough cash flows or balance sheets to continually modernize their operations. Fortunately, at West Fraser our Canadian sawmilling assets were industry leaders in cost and efficiency going into this downturn and, due to our relatively strong cash flow and very strong balance sheet, we have been able to continue to invest in new equipment and technology to further enhance our operating advantage. Twenty-nine percent of our revenues are derived from our pulp and paper business and during this prolonged downturn we have benefited from strong pulp prices which have helped to offset the historically low lumber prices. As a fully integrated company in Canada we process 100% of our timber resource into products ranging from lumber and plywood to MDF and LVL to pulp, paper and energy. This strategy has paid off handsomely for us as lumber and pulp prices are generally countercyclical and, therefore, our overall results are less exposed to depressed prices in each of the commodities. Nonetheless, 2011 was another very difficult year in the forest products business. Lumber prices declined from moderately profitable levels earlier in the year to unsustainably low levels by year end. Prices for Southern Yellow Pine (SYP) lumber produced at our U.S. operations also declined significantly to the point that the traditional premium enjoyed by SYP over Canadian SPF lumber narrowed dramatically during the year. Plywood prices in Canada also sank to unprofitable levels as the strong Canadian dollar encouraged U.S. plywood producers to export more volume to Canada thereby destroying the tenuous balance of supply and demand in our home market. Finally, the historically high pulp prices we enjoyed early in 2011 encouraged higher cost producers to start up idled capacity which, combined with weak economic conditions in the western world, caused prices to decline by 14% by the end of the year. Fortunately our Asian markets have stayed relatively strong and are helping to offset the lack of demand for our products in North America. Since 2004 Canadian SPF shipments to China have grown from virtually nothing to approximately 3 billion board feet. This is a result of a concerted effort by our industry, with the help of our federal and provincial governments, to develop new markets for our lumber in order to reduce our exposure to our traditional U.S. market. In 2011 West Fraser shipped directly and through wholesalers roughly 30% of our SPF lumber to Japan, China and other Asian countries versus 6% five years ago. We anticipate further growth in these markets in the future. Our pulp business has also benefited from the growth in our Asian markets as more than 60% of our pulp is shipped there. With the emergence of China as the second largest economy in the world, West Fraser is well positioned to benefit from its growing demand for our lumber and pulp. While markets for our wood products were depressed during the year, our Canadian lumber and plywood operations continued to perform well on an operating basis. Our Canadian mills are generally large, efficient and technologically advanced versus most of our Canadian peers. As a result, we have a good cost structure that allows us to withstand difficult market conditions. Our U.S. mills, most of which were acquired in 2007, are generally not yet up to the same standards of efficiency, costs and technology as our Canadian mills. We embarked on an aggressive capital improvement program at our U.S. division in 2011 and will begin to see the results of this program in the second half of We will continue to apply significant capital to these mills in the future in order to position each of them at the lower end of the cost curve. In Canada we have embarked on an ambitious capital program at both our sawmill and pulp divisions. During the year we expanded and modernized our three sawmills in Alberta. When these projects are complete, we will have increased our production capacity in Alberta by almost 20% while significantly lowering our unit costs. In 2009 West Fraser was awarded $88 million of Green Transformation Funds from the federal government. These funds are provided by the government to promote energy efficiency and green energy production in the Canadian pulp and paper industry. We have fully utilized these funds on high payback projects at our four pulp mills. When these projects are completed in the second half of 2012, we will have increased energy efficiency at all of our pulp mills, expanded production at our Hinton, Alberta pulp mill and increased our production of green electricity at our Cariboo pulp mill. These projects will help position our pulp division as a very competitive North American producer. In addition to the green energy projects mentioned above, our Company continues to investigate profitable opportunities in the energy and bioproducts sector. In the latter half of 2011 we were awarded two projects through the B.C. Hydro Biomass Call for Power. We will spend $90 million on these projects which, when complete, will produce over 20 megawatts of wood-fired electricity at two of our B.C. sawmills. These are strong payback projects which will improve wood supply to the mills while allowing us to sell the green electricity on a long-term fixed contract basis. These projects, combined with the projects funded under the Green Transformation Program, will result in almost 45 megawatts of new power production, a 5% improvement in purchased energy efficiency and an 8% reduction in greenhouse gas emissions. When these projects are complete, we will have reduced our overall GHG emissions by 35% over the last ten years. We have many more opportunities to improve our energy efficiency and we will continue to pursue them vigorously.

9 In 2011 West Fraser personnel participated in extensive negotiations with our partners in the Canadian Boreal Accord. We are working hard to put specific plans in place to meet the broad principles which have been agreed to by the signatories to the Accord. We also continue to make progress in other aspects of environmental performance including water usage and quality, forest stewardship and reduced reliance on fossil fuels. We remain committed to continually reducing our environmental footprint. The devastating effects of the Mountain Pine Beetle in the B.C. Interior are becoming more obvious as timber quality and availability declines. At some of our B.C. mills lumber quality, lumber recovery and overall productivity has declined. We have invested heavily in these mills to help offset the effects of the pine beetle killed timber. Over the past several years the B.C. Interior industry has been harvesting at increased levels in order to salvage as much beetle killed timber as possible before it loses its saw-log value. In the coming years, the dead pine will reach the end of its economic shelf life and the harvest levels in the Central Interior will be significantly reduced. This will result in reduced milling capacity and lumber production in the Province. On a positive note, reduced production from B.C. in the future will tighten the supply/demand fundamentals in the lumber market which should result in increased prices for our products. In the 1990 s West Fraser embarked on a strategy to expand our Company beyond the borders of British Columbia. In the intervening years we have aggressively grown our manufacturing capabilities in Alberta and the southern United States. Today we are the largest lumber manufacturer in Alberta and one of the largest in the U.S. South. By pursuing this strategy we have significantly reduced our risks associated with the Mountain Pine Beetle, the ongoing softwood lumber dispute between Canada and the U.S. and the impact of U.S./ Canadian dollar currency fluctuations. At the same time we have created new platforms for growth in areas with stable or increasing timber supplies. We believe we will be generously rewarded for this strategy as the lumber market recovers. In early 2011, the U.S. Department of Commerce filed a Request for Arbitration under the Canada/U.S. Softwood Lumber Agreement. The U.S. claims that British Columbia has violated certain aspects of the Agreement relating to timber pricing in the B.C. Interior. We believe we have a very strong defence and the Government of Canada is vigorously defending our position. We expect a decision to be rendered by the Tribunal in the third or fourth quarter of West Fraser strives to be the most efficient, productive and cost conscious company in our industry. We also strive to be the safest. We have worked very hard over the past few years to improve and enhance all aspects of our safety programs. While our Company must provide the best leadership and safest working conditions we can, we must also continually reinforce a safety culture which encourages personal responsibility and accountability for safe work practices and behaviour. We continue to make great strides in reducing risk in the Company but the job is never finished. Our commitment to our employees and our stakeholders is to continuously improve our safety culture and performance so that serious and debilitating injuries become a thing of the past at West Fraser. In July Gerry Miller, our Executive Vice-President of Finance and CFO retired after 25 years of service with the Company and in March 2012 Wayne Clogg, our Senior Vice-President of Woodlands retired after a 32 year career with the Company. Gerry and Wayne were key members of our management team throughout their careers and were instrumental in building West Fraser into the company it is today. Brian MacNeill, who has been a director of the Company since 2000 will not be standing for re-election at this year s annual general meeting. Brian, who has had a distinguished career as a CEO and corporate director, has been an active director and a valued source of solid advice during his term on our Board. Finally Bill Ketcham, one of the original founders of the Company in 1955, has decided not to stand for re-election at this year s annual meeting. Bill has been actively involved in the Company since he and his two brothers bought a small planing mill in Quesnel, British Columbia in the mid 50 s. He has participated in every major decision involving the growth and development of the Company over the years and has encouraged and supported management to constantly strive to build a bigger and stronger company while staying true to our culture of cost control, prudent financial management and truly caring for our employees. Bill has been a source of sound advice for successive management teams throughout our history and a friend to many of the employees he has worked with over the years. While we will miss his regular participation at our Board meetings, Bill will continue as a valued adviser and friend to our Board and our management team and as an active participant in Company affairs. Given the economic environment we were working in, 2011 was another successful year for our Company. We believe that when the housing market begins to recover we will be extremely well positioned to take advantage of the scale and efficiency we have built into our Company. At West Fraser, our employees continue to be our key competitive advantage. They contribute to a strong, competitive cost conscious culture which is what has driven our success over the years. Through their continued support and commitment we will build a stronger and more profitable company in the future. Henry H. Ketcham Chairman, President and Chief Executive Officer 9 REPORT TO SHAREHOLDERS

10 Corporate Structure WEST FRASER MILLS LTD. LUMBER PANELS PULP & PAPER 10 Canada U.S. 3 Plywood Pulp Quesnel Joyce Edmonton Hinton Williams Lake Huttig Quesnel Quesnel Smithers Henderson Williams Lake Quesnel (50%) 4 Chetwynd new Boston Slave Lake Fraser Lake leola MDF Chasm Maplesville Blue Ridge Newsprint Houston opelika Quesnel Whitecourt (50%) Mile House McDavid Blue Ridge 1 Seaboard Veneer & LVL Slave Lake Armour Rocky Mountain House 2 Hinton newberry Slave Lake Sundre 2 Augusta Folkston Whitehouse CORPORATE STRUCTURE 1. Owned through Blue Ridge Lumber Inc., a wholly-owned subsidiary. 2. Owned through Sundre Forest Products Inc., a wholly-owned subsidiary. 3. Owned through West Fraser, Inc., a wholly-owned subsidiary. 4. Joint venture interest in Cariboo Pulp & Paper Company. 5. Joint venture interest in Alberta Newsprint Company owned through West Fraser Newsprint Ltd., a wholly-owned subsidiary.

11 Annual Information Form Date This Annual Information Form of West Fraser Timber Co. Ltd. ( West Fraser or the Company ) is dated as of March 22, Except as otherwise indicated, the information contained in it is as of December 31, Business Overview West Fraser is a North American integrated wood products company which produces lumber (spruce/pine/fir ( SPF ) and southern yellow pine ( SYP )), panels (plywood, MDF and LVL), pulp (NBSK and BCTMP), newsprint and wood chips. The operations located in western Canada manufacture all of the products described above except SYP lumber. The sawmills located in the southern U.S. produce SYP lumber and wood chips. The annual production capacities of our wholly-owned facilities and our share of the capacities of our joint venture facilities are as follows: Lumber (MMfbm) SPF 3,700 SYP 2,000 Total 5,700 Panels Plywood (MMsf 3 /8 ) 830 MDF (MMsf 3 /4 ) 300 LVL (Mcf) 3,200 Pulp (Mtonnes) BCTMP 640 NBSK 590 Newsprint (Mtonnes) 135 Corporate Strategy Our goal at West Fraser is to generate strong financial results through the business cycle, relying on our committed work force, the quality of our assets, and our well-established corporate culture. This culture emphasizes cost control in all aspects of the business and on competitiveness, both internally and externally. In our approach to employee relations, we emphasize employee involvement and favour internal promotions whenever possible. West Fraser is an integrated and diversified producer of wood products with access to extensive timber resources. Acquisitions and expansions are considered with a view to extending our existing business lines, particularly in lumber operations, and to product and geographic diversification. Our earnings over the business cycle have enabled us to make significant and ongoing capital investments in our facilities to maintain and improve our overall low-cost position. 11 ANNUAL INFORMATION FORM We are committed to operating in a financially conservative and prudent manner. The North American wood products industry is cyclical, and over the last several years has faced very difficult market conditions and serious challenges. During such cyclical downturns, we focus on financial discipline, including reduction or deferral of non-essential capital expenditures. We believe that maintaining a strong balance sheet provides the ability to react to growth opportunities. Corporate Structure The chart on page 10 shows the relationship of West Fraser to the principal direct and indirect subsidiaries and the joint ventures in which we participate and, where less than 100%, the percentage of our direct or indirect ownership. Forward-looking Statements This Annual Information Form, and the Annual Report of which it forms a part, contain historical information, descriptions of current circumstances and statements about potential future developments. The latter, which are forward-looking statements, are presented to provide reasonable guidance to the reader but their accuracy depends on a number of assumptions and is subject to various risks and uncertainties. Forward-looking statements are included under the headings Fibre Supply First Nations Issues, Capital Expenditures and Acquisitions and Capital Structure Dividends and in parts of the Management s Discussion & Analysis incorporated herein. Actual outcomes and results will depend on a number of factors that could affect the ability of the Company to execute its business plans, including the matters described in these sections and under Risk Factors, and may differ materially from those anticipated or projected. Accordingly, readers should exercise caution in relying upon forward-looking statements which reflect management s estimates, projections and views only as of the date hereof. The Company undertakes no obligation to publicly revise these statements to reflect subsequent events or changes in circumstances except as required by applicable securities laws.

12 Annual Information Form (continued) West Fraser assumed its present form in 1966 by the amalgamation of a group of companies under the laws of B.C. The principal operating subsidiary, West Fraser Mills Ltd., assumed its present form on January 1, 2005 by amalgamation under those laws. West Fraser, Inc. is a Delaware corporation, while Blue Ridge Lumber Inc. and Sundre Forest Products Inc. are Alberta corporations. West Fraser Newsprint Ltd. subsists under the laws of Canada. Alberta Newsprint Company ( ANC ) and Cariboo Pulp & Paper Company are unincorporated joint ventures governed, respectively, by the laws of Alberta and B.C. Our executive office is located at 858 Beatty Street, Suite 501, Vancouver, B.C., Canada, V6B 1C1 and our registered office is located at West Georgia Street, Vancouver, B.C., Canada, V6E 4N7. History West Fraser originated in 1955 when three brothers, Pete, Bill and Sam Ketcham, acquired a lumber planing mill located in Quesnel, B.C. ( Quesnel ). From 1955 through 2005 the business expanded in western Canada through the acquisition of a number of sawmills and related timber harvesting rights and the acquisition or development of lumber, panel and pulp & paper businesses. Expansion into the southern U.S. began in 2000, with the acquisition of two sawmills. 12 ANNUAL INFORMATION FORM Major developments for West Fraser during the last five years include the following: 2007 Acquisition of 13 sawmills in the southern U.S. (the U.S. Acquisition ) for $391 million Closure of linerboard and kraft paper mill at Kitimat, B.C. in January Sale of Kitimat industrial site, deep-sea wharf and Terrace sawmill. Sales Revenue 1 ($ millions) Year ended December Lumber 1,579 1,622 1,285 1,645 1,802 Panels Pulp & Paper Total 2,762 2,886 2,353 2,862 3, From continuing operations Fibre Supply Our operations are dependent on the consistent supply of substantial quantities of wood fibre in various forms. The primary manufacturing facilities, which produce lumber, plywood and LVL, consume whole logs while the pulp & paper and MDF facilities mostly consume wood by-products in the form of wood chips, shavings and sawdust resulting from the production of lumber, plywood or LVL. Many facilities also consume hog fuel and wood waste in energy systems. Log Supply Our U.S. operations, which produce SYP lumber, consume approximately 8 million tons of logs per year operating at capacity. These operations obtain approximately 25% of their log requirements under certain long-term supply contracts, with the balance being purchased on the open market. In B.C. and Alberta substantially all timberlands are publicly owned and the right to harvest timber is acquired through provinciallygranted licences. Licences grant the holder the right to harvest up to a specified quantity of timber annually and either have a term of 15 to 25 years and are replaceable or renewable or have a shorter term but are not replaceable or renewable. The following table summarizes the timber tenures, as at December 31, 2011, which supply the Canadian mills that we own or in which we have an interest, as well as our Annual Allowable Cut ( AAC ) for such tenures. Timber Tenures (thousand m 3 ) Location Tenure 1 Expiry AAC B.C. Coniferous Long-term ,694 Coniferous Short-term Alberta Coniferous Long-term ,314 Deciduous Long-term , Long-term tenures include TFLs, FMAs, timber quotas and forest licences, which are renewable timber tenures. Short-term tenures include non-replaceable forest licences.

13 Annual log requirements for our Canadian sawmills, plywood facilities and LVL plant, all operating at capacities described in this Annual Information Form, total approximately 14 million m 3. Approximately 75% of these requirements can be obtained from the tenures described in the above table and the balance is acquired from third parties holding short or long-term timber harvesting rights, including independent logging contractors, First Nations, communities and woodlot owners. Timber tenures in B.C. and Alberta require the payment of a fee, commonly known as stumpage, for timber harvested under it. Currently, stumpage in Alberta is product-price specific and varies with the sales price of the product into which the logs will be converted. Stumpage in B.C. is substantially based on the results of certain publicly-auctioned timber harvesting rights. Timber tenures in B.C. and Alberta require the holder to carry out reforestation to ensure re-establishment of the forest after harvesting. Reforestation requirements depend on climate, terrain, species and other factors affecting regeneration. Reforestation projects are planned and supervised by our woodlands staff and are subject to approval by relevant government authorities. Our timber harvesting operations are carried out by independent contractors under the supervision of our woodlands staff. Mountain Pine Beetle The current mountain pine beetle infestation in the B.C. interior reached a peak in terms of the annual timber mortality rate in To date, the Chief Forester of B.C. estimates that 692 million m 3 of pine, representing approximately 51% of the total merchantable pine on the timber harvesting land base, has been attacked and killed and he projected that approximately 61% will be killed by the time the infestation ultimately runs its course over the next decade. Although the ultimate effect of the infestation is less severe than originally forecasted, the damage to the mature pine forests within our operating areas is significant. We continue to focus on the salvage and processing of dead pine in order to utilize as much of the resource as possible and to ensure that affected sites are promptly reforested. The Province of B.C. has also limited the harvest of non-pine species until the salvage of dead pine stands comes to a conclusion. As the stands of dead pine are salvaged or when they are no longer economic to manufacture into lumber, the AAC will be reduced to reflect lower mature inventories. The Province already started decreasing the AACs in the central interior in 2010 and we expect this process to continue over the next several years. To date, B.C. s Chief Forester has announced reductions in the AACs in three of our operating areas in the interior. As the timing of future reductions and the effect on our AACs will depend on a variety of factors, including the amount of non-pine species available for harvest, the full effect on our operations cannot reasonably be determined at this time. Alberta s Minister of Sustainable Resource Development reported that cold weather during the winter of 2010/2011 and summer of 2011 resulted in a significant mountain pine beetle population decrease in most areas of Alberta, including on all of our tenures in that province. However, a significant population of beetles remains stable in certain north central areas bordering our tenures. We, in concert with industry and the Province of Alberta, continue to aggressively reduce the level of susceptible pine stands and conduct spread control activities across our tenures. Certification Our Canadian woodlands operations, in addition to being subject to various environmental protection laws, are third party certified to internationally-recognized, sustainable forest management standards. For more information concerning our sustainable and environmentally sound forest practices see our Sustainability Report and our Environmental Report at 13 ANNUAL INFORMATION FORM First Nations Issues Issues relating to Canada s aboriginal people ( First Nations ) have the potential to have a significant effect on resource industries in Canada, including wood products. The main First Nations issues that are relevant to our operations relate to aboriginal rights and title, and consultation. The potential existence of aboriginal title and rights over substantial portions of B.C., including areas where our timber tenures are located, has created uncertainty with respect to property rights and natural resource development in the province. The Supreme Court of Canada (the SCC ) determined in 1997 that First Nations may possess rights in respect of land used or occupied by their ancestors where treaties have not been concluded to deal with those rights. Very few areas of B.C. are the subject of such treaties, although all of Alberta is covered by treaties. This uncertainty in B.C. may be alleviated by the negotiation of treaties with First Nations and further judgments of the courts. In 2004, the SCC confirmed that the Crown must consult with First Nations before authorizing activity that might infringe on their interests in certain circumstances and, when appropriate to do so, seek to accommodate those interests by minimizing interference with them. In 2005 the SCC determined that this Crown duty of consultation applies to treaty lands as well as non-treaty lands, so the duty of consultation applies to all of the lands in B.C. and Alberta where our timber tenures are located. Authorizations requiring consultation

14 Annual Information Form (continued) may include approval of cutting permits and required ministerial action relating to the transfer or renewal of Crown timber tenures. The process of consultation and, when appropriate, accommodation is currently not clearly defined, creating some uncertainty with respect to Crown timber harvesting rights held by wood products companies, including West Fraser. We participate as requested by the Crown in the consultation process, but rely on provincial governments to adequately discharge obligations to First Nations in order to preserve the validity of actions dealing with public rights, including the granting of Crown timber harvesting rights. We also seek to develop good relationships with the First Nations that may be affected by our business activities. However, as the jurisprudence and government policies respecting aboriginal title and rights and the consultation process continue to evolve, we cannot at this time predict whether First Nations claims will have a material adverse affect on our timber harvesting rights or on our ability to exercise or renew them, or secure other timber harvesting rights. 14 ANNUAL INFORMATION FORM Residual Fibre Supply In Canada substantially all our requirements for wood chips, shavings and sawdust are supplied from our own operations, either directly or indirectly through trades. This reduces our exposure to risks associated with price fluctuations and supply shortages. Our B.C. sawmills and plywood plants fulfill substantially all of the fibre requirements of our B.C. pulp operations and MDF plant. The Alberta MDF plant obtains its fibre from the adjacent Blue Ridge sawmill and other sawmills in the area. The Hinton Pulp mill obtains its fibre from the adjacent Hinton sawmill and other sawmills in the area, including those owned by us. At times we produce whole log chips to supplement the supply of residual chips from our various sawmills. Almost all of the fibre requirements of ANC are obtained from local sawmills, including the Slave Lake sawmill and veneer operation, through log-for-chip trades using logs harvested from ANC s tenures. The balance is obtained from direct fibre purchases. The Slave Lake deciduous FMA provides most of the fibre requirements of the Slave Lake Pulp mill, with the balance being obtained from logs purchased from local suppliers. The majority of the wood chips produced by our U.S. operations are sold to pulp mills at market prices pursuant to long-term contracts. Capital Expenditures and Acquisitions We regularly invest in upgrading and expanding our facilities and operations. However, during periods when earnings are weak, we will reduce capital and other expenditures in order to preserve liquidity. The following table shows the capital expenditures and acquisitions during the past five years. Capital Expenditures and Acquisitions ($ millions) Year ended December Lumber Panels Pulp & Paper Corporate & Other Acquisitions 391 Total Includes reimbursable expenditures under the Pulp and Paper Green Transformation Program. 2. Amounts for years prior to 2010 have not been restated under IFRS and are prepared under previous Canadian generally accepted accounting principles. We completed the U.S. Acquisition in Human Resources At December 31, 2011, we employed approximately 6,850 individuals, including our share of those in joint venture operations. Of the employees, approximately 40% are covered by collective agreements. In 2012, collective agreements covering approximately 850 employees will expire. Markets Our products are sold in markets open to a number of companies with similar products. Purchasing decisions by customers are generally based on price, quality and service. Prices and sales volumes are influenced by general economic conditions. The following table shows selected average benchmark prices for the past five years for products of the type we produced, although these prices do not necessarily reflect the prices we obtained.

15 Average Benchmark Prices (in US$ except plywood) x4 random length SPF (per Mfbm) SYP #2 West 2x4 (per Mfbm) Plywood (per Msf 3 /8 basis) 3 Cdn$ MDF (per Msf 3 /4 basis) Newsprint (per tonne) NBSK (per tonne) Sources: 1. Random Lengths 2x4, #2 & Better Net FOB mill. 4. Resource Information Systems, Inc. MDF Western U.S. Net FOB mill. 2. Random Lengths 2x4 Net FOB mill Westside. 5. Resource Information Systems, Inc. U.S. delivered 48.8 gram newsprint. 3. Crow s Market Report Delivered Toronto. 6. Resource Information Systems, Inc. U.S. list price, delivered U.S. Research and Development We support industry research and development organizations, and conduct research and development at several plants to improve processes, maximize resource utilization and develop new products and environmental applications. Lumber Capacity and Production (MMfbm) Capacity year-end 5,700 5,500 5,500 6,000 6,000 Production: B.C. Sawmills (SPF) Quesnel Williams Lake Smithers Chetwynd Fraser Lake Chasm Houston Mile House Other ,497 2,397 2,034 2,549 2,659 Alberta Sawmills (SPF) Blue Ridge Slave Lake Hinton Sundre U.S. Sawmills (SYP) Joyce, LA Huttig, AR Henderson, TX New Boston, TX Leola, AR Maplesville, AL Opelika, AL McDavid, FL 2, Seaboard, NC Armour, NC Newberry, SC Augusta, GA Folkston, GA 2, Whitehouse, FL Other ,503 1,365 1,269 1,570 1,516 Total Production 4,911 4,683 4,152 4,959 5, Includes production from mills shut or sold. 2. Mills acquired on March 31, Indefinitely curtailed. 15 ANNUAL INFORMATION FORM

16 Annual Information Form (continued) Lumber capacity by region and species is approximately 65% SPF (70% B.C. and 30% Alberta) and 35% SYP (all U.S.). Operations As of the date of this Annual Information Form, we own 26 sawmills of which 2 are currently indefinitely curtailed. We also have a woodtreating facility at the Sundre sawmill. Sales Lumber produced at our Canadian sawmills and sold to North American customers is marketed and sold from our sales office in Quesnel, while sales to offshore markets are made from our export sales office in Vancouver, B.C. Offshore sales activities are complemented by customer service offices in Japan and China. Lumber produced at our U.S. sawmills is marketed by the sales group in Memphis, Tennessee. From time to time, we purchase lumber for resale in order to meet requirements of customers. 16 ANNUAL INFORMATION FORM In 2011 sales of lumber from Canadian and U.S. operations were made to customers in the U.S. and Canada and to customers offshore, predominantly in China and Japan. Most lumber shipments to North American customers by the Canadian operations were made by rail and the rest by truck. Most lumber shipments to North American customers by the U.S. operations were delivered by truck and the rest by rail. Offshore shipments from both Canada and the U.S. were through various public terminals, mostly in container vessels and the rest by breakbulk carriers. Panels Capacity and Production Plywood (MMsf 3 /8 basis) Capacity year-end Production: Alberta Plywood Williams Lake Quesnel Total Production MDF (MMsf 3 /4 basis) Capacity year-end Production: Ranger Board WestPine Total Production LVL (Mcf) Capacity year-end 3,200 3,200 3,200 3,200 3,200 Production 1,634 1,918 1,643 1,264 2,291 Operations Our panel operations include three plywood mills that primarily produce standard softwood sheathing plywood, two MDF mills, each with the flexibility to manufacture varying thicknesses and sizes, an LVL mill, and a veneer mill that produces veneer for use in the Edmonton plywood mill. Sales Plywood and LVL are marketed from our sales office in Quesnel to retail outlets, wholesale distributors, remanufacturers and treating businesses. MDF is marketed under the names Ranger, WestPine, Eco-Gold and Ecopremium from our Edmonton, Alberta sales office and through distributors under the direction of our sales personnel. In 2011 sales of plywood were made to customers in Canada, sales of MDF were to customers in the U.S., Canada and other areas and sales of LVL were to customers in the U.S. and Canada. Shipments to North America were by rail or truck and offshore shipments were by bulk and container vessels.

17 Pulp & Paper Pulp Capacity and Production (Mtonnes) BCTMP Capacity year-end Production: QRp Slave Lake Pulp Total Production NBSK Capacity year-end Production: Hinton Cariboo Total Production Reflects West Fraser s 50% share of ownership. Operations BCTMP is produced, primarily from hardwood aspen, at our Slave Lake pulp mill and also produced, primarily from softwood, at our QRP mill. These pulps are used by paper manufacturers to produce paperboard products, printing and writing papers and a variety of other paper grades. NBSK is produced at our Hinton and Cariboo pulp mills and is used by paper manufacturers to produce a variety of paper products, including tissues and printing and writing papers. Sales Pulp is marketed out of our pulp sales office in Vancouver. In 2011, sales of both NBSK and BCTMP were to customers in North America, Asia, predominantly China, and to other offshore customers. Shipments within North America were primarily by rail and those to offshore customers were by rail to Vancouver and then by bulk or container vessels. Newsprint Capacity and Production 1 (Mtonnes) Capacity year-end Production Reflects West Fraser s 50% share of ownership. Operations The ANC mill at Whitecourt, Alberta produces standard newsprint in two basis weights: 45 and 48.8 grams per square metre. 17 ANNUAL INFORMATION FORM Sales Newsprint is sold to various publishers in North America through a partnership owned indirectly by the ANC owners. In 2011, sales were to customers in the U.S. and Canada. Shipments were by rail and truck. External Factors Affecting West Fraser s Business in 2011 Economic Conditions Our earnings are sensitive to changes in world economic conditions, primarily those in North America, Europe and Asia and particularly to the U.S. housing market. Most of our revenues are from sales of commodities for which prices are sensitive to variations in supply and demand. Since most of these sales are in foreign currencies, mainly U.S. dollars, currency exchange fluctuations against the Canadian dollar are a major source of earnings volatility for us. Softwood Lumber Agreement Effective October 12, 2006 a Softwood Lumber Agreement between Canada and the U.S. (the SLA 2006 ) came into force. The SLA 2006 originally had a term of seven years, but in January 2012 was extended and now expires in October 2015.

18 Annual Information Form (continued) Under the SLA 2006 we are required to pay a tax to the Government of Canada on softwood lumber we export into the U.S. The basic tax may range up to 15% of the value of the lumber for producers in B.C. and Alberta, and will vary depending on a reference lumber price. Subject to U.S. lumber consumption and the volume of lumber shipments to the U.S. from either province, an additional 50% surcharge on the applicable basic tax may be levied. In certain circumstances, exporters may be entitled to a refund of up to one-third of taxes paid. Energy Our pulp, paper and MDF operations consume substantial amounts of energy. The Hinton and Cariboo pulp mills have generating facilities which produce electricity to satisfy much of their energy requirements. In B.C., electricity is purchased from the provincial utility at regulated prices based largely on generation costs. In Alberta, electricity is purchased at market prices through the Alberta power pool. In Alberta, we are hedged against electricity market price fluctuations for a substantial volume of our electricity consumption through a long-term power purchase agreement that provides electricity at prices based largely on generation costs and inflation. Our exposure to energy costs includes the cost to purchase electricity, natural gas, gasoline, diesel fuels and fuel surcharges on purchased transportation. 18 ANNUAL INFORMATION FORM Environment Our manufacturing operations are subject to environmental protection laws and regulations. We have developed internal programs to ensure that our operations are in compliance with applicable laws and standards and to address any instances of non-compliance. We are committed to responsible stewardship of the environment and the continual improvement of our forest practices and manufacturing procedures to optimize the use of resources and minimize the impact of our operations on the environment. We have adopted an Environmental Policy, a copy of which is available on our website at Risk Factors A detailed discussion of risk factors related to the Company and its business is included in our Management s Discussion & Analysis for the year ended December 31, 2012 under the heading Risks and Uncertainties, which is incorporated herein by reference. Capital Structure Share Capital Our authorized share capital consists of 230,000,000 shares divided into: (a) 200,000,000 Common shares, (b) 20,000,000 Class B Common shares, and (c) 10,000,000 Preferred shares, issuable in series. The Common shares and Class B Common shares are equal in all respects, including the right to dividends, except that each Class B Common share may at any time be exchanged for one Common share. The Common shares are listed and traded on the Toronto Stock Exchange under the symbol WFT. As at December 31, 2011, the issued share capital consisted of 40,064,635 Common shares and 2,781,478 Class B Common shares for a total of 42,846,113 shares (December 31, ,834,912 shares).

19 Credit Ratings As shown in the table below, West Fraser is rated by three rating agencies. There were no rating changes during 2011 but Standard & Poor s changed its Outlook from Stable to Positive and Moody s changed its Outlook from Negative to Positive in April 2011 based on our low leverage and good operating performance. The ratings remain in the sub-investment grade range, as investment grade is one level higher than our current ratings. The ratings are assigned both on a corporate level and specifically to our US$300 million 144A notes maturing October The ratings are not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by each rating agency. Ratings Agency Rating Outlook Dominion Bond Rating Service ( DBRS ) 1 BB(high) Stable Moody s 2 Ba1 positive Standard & Poor s ( S&P ) 3 BB+ positive 1. DBRS credit ratings for long-term obligations range from AAA to D. A rating of BB is described by DBRS as Speculative, non investment-grade credit quality. The capacity for the payment of financial obligations is uncertain. Vulnerable to future events. Additional information on the rating is available on DBRS s website. 2. Moody s credit ratings for long-term obligations range from Aaa to C. Moody s describes obligations rated Ba as judged to have speculative elements and are subject to substantial credit risk. Additional information on the rating is available on Moody s website. 3. S&P credit ratings for long-term obligations range from AAA to D. A rating of BB is described by S&P as less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions. Additional information on the rating is available on S&P s website. Market Prices The following table sets forth market prices and trading volumes of our Common shares on the Toronto Stock Exchange for each month of 2011 and High Low Close Volume Close Volume ($) ($) ($) (000 s) ($) (000 s ) January , ,560 February , March , ,332 April , ,114 May , ,430 June , July , August , September , October , ,218 November , ,100 December , ,343 Total 18,552 14,538 Source: 19 ANNUAL INFORMATION FORM Dividends The declaration and payment of dividends is within the discretion of our Board of Directors. Historically, dividends have been declared on a quarterly basis payable after the end of each quarter. In 2009 we reduced the quarterly dividend starting in the second quarter from $0.14 to $0.03 but increased it to $0.06 starting in the third quarter of 2010 and to $0.14 starting in the first quarter of There can be no assurance that dividends will continue to be declared and paid by us in the future, as the discretion of the Board of Directors will be exercised from time to time taking into account our current circumstances. Transfer Agent Our transfer agent and registrar is CIBC Mellon Trust Company, with registers of transfers in Vancouver and Toronto. Experts Our auditors are PricewaterhouseCoopers LLP ( PwC ), who prepared the Auditors Report included with our Consolidated Financial Statements for the year ended December 31, PwC has confirmed that it is independent with respect to us, within the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of B.C., as of February 15, 2012.

20 Annual Information Form (continued) Directors and Officers 20 ANNUAL INFORMATION FORM Directors The names and municipalities of residence of the directors of the Company, their principal occupations during the past five years and the periods during which they have been directors of the Company are as follows: Name and Municipality of Residence Principal Occupation Director Since Henry H. Ketcham Chairman, President and Chief Executive Officer September 16, 1985 Vancouver, B.C. Clark S. Binkley 1, 3 & 4 Managing Director, International Forestry Investment February 13, 1992 Portland, Oregon Advisors (advisory services) J. Duncan Gibson 1, 2 & 4 Investor April 29, 1997 Toronto, Ontario William P. Ketcham 4 Chairman of the Board, Henry H. Ketcham Lumber Co., Inc. December 1, 1966 Seattle, Washington (private investment) Samuel W. Ketcham 3 & 4 Investor April 27, 2010 Seattle, Washington Harald H. Ludwig 2 & 4 President, Macluan Capital Corporation (diversified private equity investments) May 2, 1995 West Vancouver, B.C. Brian F. MacNeill, C.M. 2 & 4 Corporate Director September 19, 2000 Calgary, Alberta Robert L. Phillips 3, 4 & 5 Corporate Director April 28, 2005 Vancouver, B.C. Janice G. Rennie 1, 3 & 4 Corporate Director April 28, 2004 Edmonton, Alberta 1. Member of the Audit Committee. 4. Member of the Governance & Nominating Committee. 2. Member of the Compensation Committee. 5. Lead Director. 3. Member of the Safety & Environment Committee. Each director has held the same or a similar principal occupation with the organization indicated or a predecessor thereof for the last five years except for Brian F. MacNeill who, before August 1, 2009, was Chair of the Board of PetroCanada. The term of office of each director will expire at the conclusion of the Company s next annual general meeting. Officers Name and Municipality of Residence Office Held Henry H. Ketcham Chairman, President and Chief Executive Officer Vancouver, B.C. D. Wayne Clogg Senior Vice-President, Woodlands Victoria, B.C. Raymond W. Ferris Vice-President, Wood Products Quesnel, B.C. Larry S. Hughes Vice-President, Finance and Chief Financial Officer Vancouver, B.C. Rodger M. Hutchinson Vice-President, Corporate Controller West Vancouver, B.C. Maureen F. Kuper Treasurer Burnaby, B.C. David P. Lehane Vice-President, Canadian Woodlands Quesnel, B.C. Christopher D. McIver Vice-President, Lumber Sales and Corporate Development Quesnel, B.C. Sean P. McLaren Vice-President, U.S. Lumber Operations Collierville, Tennessee Peter A. Rippon Vice-President, Pulp and Energy Quesnel, B.C. Edward R. Seraphim Executive Vice-President and Chief Operating Officer North Vancouver, B.C.