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Stella-Jones grows again in 2012

“2012 represented another record year for Stella-Jones in terms of sales and net income. It also marked our twelfth consecutive year of growth in net income, driven by constant efforts to further enhance operating efficiency and a methodical execution of our continental expansion strategy,” said Stella-Jones president and CEO Brian McManus. “These achievements reflect solid demand for our products, the strength of our business model, rigorous adherence to our core competencies and the dedication of the Stella-Jones team.”

2012 RESULTS

Sales reached $717.5 million, up 12.1% from $640.1 million a year earlier. The operating facilities acquired from McFarland Cascade Holdings, Inc. (“McFarland”) on November 30, 2012 contributed sales of $15.9 million over a one-month period, while the Russellville, Arkansas operating facility acquired from Thompson Industries in December 2011 (“Russellville facility”) contributed additional sales of $43.9 million in 2012. The conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones’ reporting currency, versus the U.S. dollar, increased the value of U.S. dollar denominated sales by about $8.6 million when compared with the previous year. Excluding these factors, 2012 sales increased approximately $9.0 million.

Railway tie sales amounted to $404.5 million in 2012, up 19.4% over sales of $338.8 million in 2011. This increase is attributable to solid market demand and additional tie sales of approximately $43.4 million from the Russellville facility. Utility pole sales reached $218.5 million in 2012, up 12.2% from $194.8 million in 2011. The increase reflects one month sales of $13.6 million from the McFarland operations and higher sales of distribution poles from solid maintenance demand, partially offset by slightly lower sales of transmission poles due to the year-over-year timing differences in orders. Industrial product sales were $59.0 million in 2012, versus $78.9 million in 2011. This decline is mainly due to an anticipated reduction in the tie recycling business, while demand held steady for the Company’s other principal products in this category. Residential lumber sales totalled $35.5 million in 2012, up from $27.7 million a year earlier, as a result of stronger demand in Western Canada and sales of $2.3 million from the McFarland operations in the U.S. Northwest.

Operating income amounted to $109.6 million, or 15.3% of sales, versus $88.0 million, or 13.7% of sales a year earlier. The increase in absolute dollars reflects higher business activity and acquisitions, while the increase as a percentage of sales is due to a better absorption of fixed costs from increased volume and greater efficiencies throughout Stella-Jones’ network. Results for 2012 include approximately $4.1 million in acquisition costs, of which $3.0 million are related to the McFarland transaction. Last year’s results included an asset impairment charge of $2.2 million and acquisition costs of $423,000 related to the purchase of the Russellville facility.

Net income for 2012 totalled $73.1 million, or $4.53 per share, fully diluted, versus $55.7 million, or $3.48 per share, fully diluted, in 2011, representing a year-over-year increase of 31.2%. Cash flow from operating activities before changes in non-cash working capital components and interest and income tax paid rose 21.2% to $120.8 million.

FOURTH QUARTER RESULTS

Sales totalled $159.3 million, up 8.0% from last year’s fourth-quarter sales of $147.5 million. This increase is attributable to a $15.9 million contribution from the McFarland operations and to an additional contribution of $12.0 million from the Russellville facility. The conversion effect from year-over-year fluctuations in the value of the Canadian dollar, versus the U.S. dollar, reduce the value of U.S. dollar denominated sales by $2.5 million. Excluding these factors, sales decreased approximately $13.6 million due to lower advanced railway tie deliveries in the fourth quarter of 2012, compared with last year, and to a reduction in the tie recycling business.

Fourth quarter sales of railway ties reached $73.7 million in 2012, versus $74.4 million in 2011. This slight decrease reflects lower year-over-year advanced deliveries, partially offset by the additional contribution from the Russellville facility. Utility pole sales rose $18.9 million to $70.2 million due to a $13.6 million contribution from the McFarland operations and higher sales of distribution poles. Industrial product sales were $10.4 million, versus $19.9 million a year ago, as a result of a planned reduction in the tie recycling business. Residential lumber sales reached $5.1 million, up from $2.0 million last year, mainly due to additional sales of $2.3 million from the McFarland operations.

Operating income was $21.1 million, or 13.3% of sales, compared with $20.4 million, or 13.8% of sales, last year. Results for the fourth quarter of 2012 include acquisition costs of $2.4 million related to the McFarland transaction, while results for the fourth quarter of 2011 included an asset impairment charge of $2.2 million and acquisition costs of $423,000 related to the purchase of the Russellville facility. Excluding these elements, operating income for the fourth quarter of 2012 was $23.5 million, or 14.8% of sales, compared with $23.0 million, or 15.6% of sales, a year earlier. The reduction as a percentage of sales mainly stems from lower margins at the McFarland operations.

Net income for the period reached $16.5 million, or $1.00 per share, fully diluted, up from $13.4 million, or $0.83 per share, fully diluted, last year. The Company’s effective tax rate for the fourth quarter of 2012 was reduced by tax benefits resulting from the donation to local economic development authorities of land located in Stanton, Kentucky and by the deductibility of acquisition costs related to the McFarland transaction. Cash flow from operating activities before changes in non-cash working capital components and interest and income tax paid was $22.4 million, compared with $24.8 million a year ago.