Stella-Jones Inc.
TSX : SJ

Stella-Jones Inc.

November 03, 2006 19:52 ET

Stella-Jones Refiles Q3 Financial Statements-Revisions Have No Impact on Financial Results

MONTREAL, QUEBEC--(CCNMatthews - Nov. 3, 2006) - Stella-Jones Inc. (TSX:SJ) advises that following an internal review of timely disclosure documentation, it has refiled on www.sedar.com its consolidated interim financial statements for the third quarter ended September 30, 2006. The revisions have no impact on the net earnings for the period, nor on the basic and diluted net earnings per share as these revisions are restricted solely to the consolidated statements of cash flow.

The consolidated statements of cash flows for the period were revised to correct and improve the presentation of cash flows related to the acquisition of Bell Pole Company on July 1, 2006. There is no impact on total net cash flows but only on cash flow presentation. The related Management's Discussion and Analysis and the CEO and CFO certificates were also refiled.

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.



INTERIM CONSOLIDATED FINANCIAL STATEMENTS - REVISED

The interim unaudited consolidated financial statements of Stella-
Jones Inc. for the third quarter ended September 30, 2006 have not
been reviewed by the Company's external auditors.

(Signed)

George Labelle

Senior Vice-President and Chief Financial Officer

CONSOLIDATED BALANCE SHEETS

September 30, December 31,
2006 2005
($) ($)
as at September 30, 2006 and December 31,
2005 unaudited
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ASSETS
CURRENT ASSETS
Accounts receivable 41,714,113 21,059,721
Inventories 100,092,426 77,316,420
Prepaid expenses 2,046,776 1,611,755
Future income taxes 570,000 550,000
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144,423,315 100,537,896

PROPERTY, PLANT AND EQUIPMENT 59,412,005 37,003,106
OTHER ASSETS 297,084 -
NOTE RECEIVABLE 279,425 -
FUTURE INCOME TAXES 375,000 350,000
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204,786,829 137,891,002
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LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 38,800,938 21,311,735
Accounts payable and accrued liabilities 21,785,771 17,452,438
Income taxes payable 2,698,768 2,227,785
Current portion of asset retirement
obligations 674,772 -
Current portion of long-term debt 3,693,003 4,061,370
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67,653,252 45,053,328

LONG-TERM DEBT 28,979,308 21,139,874
ASSET RETIREMENT OBLIGATIONS 1,498,726 -
FUTURE INCOME TAXES 5,349,000 5,089,000
EMPLOYEE FUTURE BENEFITS 1,109,896 978,649
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104,590,182 72,260,851
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SHAREHOLDERS' EQUITY
CAPITAL STOCK 44,708,776 26,228,300
CUMULATIVE TRANSLATION ADJUSTMENT (622,832) (201,646)
RETAINED EARNINGS 56,110,703 39,603,497
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100,196,647 65,630,151
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204,786,829 137,891,002
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See accompanying Notes to these interim consolidated financial
statements



CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited

three months ended nine months ended
Sept. 30, Sept. 30,
2006 2005 2006 2005
($) ($) ($) ($)
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SALES 68,072,607 42,845,299 174,340,725 119,765,278
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EXPENSES
Cost of sales 52,505,916 33,585,407 135,344,816 95,546,509
Selling and
administrative 3,112,421 2,389,127 8,296,633 6,639,651
Foreign exchange loss
(gain) (455,371) 206,027 (430,768) 151,198
Amortization of
property, plant and
equipment 871,754 846,421 2,457,886 2,403,872
Gain on disposal of
property, plant and
equipment - - (26,783) -
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56,034,720 37,026,982 145,641,784 104,741,230
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OPERATING EARNINGS 12,037,887 5,818,317 28,698,941 15,024,048
INTEREST ON LONG-TERM
DEBT 622,588 264,961 1,506,378 680,160
OTHER INTEREST 437,717 244,271 1,069,740 623,274
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EARNINGS BEFORE INCOME
TAXES 10,977,582 5,309,085 26,122,823 13,720,614
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PROVISION FOR INCOME
TAXES 3,728,283 1,788,311 8,960,812 4,564,311
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NET EARNINGS FOR THE
PERIOD 7,249,299 3,520,774 17,162,011 9,156,303
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NET EARNINGS PER COMMON
SHARE 0.60 0.34 1.52 0.89

DILUTED NET EARNINGS
PER COMMON SHARE 0.58 0.32 1.46 0.86
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See accompanying Notes to these interim consolidated financial
statements



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Unaudited

for the nine months ended Sept. 2006 2005
30, 2006 and 2005 ($) ($)
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BALANCE - BEGINNING OF YEAR 39,603,497 28,330,148
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Net earnings for the period 17,162,011 9,156,303
Dividends on common shares (654,805) (512,118)
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BALANCE - END OF PERIOD 56,110,703 36,974,333
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See accompanying Notes to these interim consolidated financial
statements



CONSOLIDATED STATEMENTS OF CASH FLOWS (REVISED SEE NOTE 6)
unaudited three months ended nine months ended
Sept. 30, Sept. 30,
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2006 2005 2006 2005
($) ($) ($) ($)
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CASH FLOWS FROM
OPERATING ACTIVITIES
Net earnings for the
period 7,249,299 3,520,774 17,162,011 9,156,303
Adjustments for
Amortization of
property, plant
and equipment 1,056,925 846,421 2,643,057 2,403,872
Loss (gain) on
disposal of
property, plant
and equipment - 2,961 (26,783) 32,081
Employee future
benefits 43,749 30,000 131,247 105,000
Stock-based
compensation 13,455 4,350 40,361 13,000
Future income taxes 67,000 (9,000) 215,000 (146,000)
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8,430,428 4,395,506 20,164,893 11,564,256
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CHANGE IN NON-CASH
WORKING CAPITAL
COMPONENTS
Decrease (increase)
in
Accounts
receivable 575,175 2,315,951 (13,613,232) (9,239,324)
Inventories 932,398 (5,209,271) 3,321,899 (6,244,032)
Prepaid expenses 895,548 273,962 (68,723) 476,200
Note receivable 1,675 - (282,750) -
Increase (decrease) in
Accounts payable and
Accrued
Liabilities 1,908,307 (457,591) 2,458,541 4,879,416
Income taxes 2,151,582 507,274 482,717 (240,503)
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6,464,685 (2,569,675) (7,701,548) (10,368,243)
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14,895,113 1,825,831 12,463,345 1,196,013
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FINANCING ACTIVITIES
Increase (decrease)
in bank
indebtedness (7,231,364) 8,070,095 10,099,341 13,958,649
Increase in
long-term debt 10,301,855 6,150,995 13,001,855 6,165,995
Repayment of
long-term debt (861,073) (868,253) (5,398,494) (2,801,309)
Dividends on common
shares - - (654,805) (512,118)
Proceeds from
issuance of
common shares 18,308,192 5,057,028 18,440,016 5,148,003
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20,517,610 18,409,865 35,487,913 21,959,220
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INVESTING ACTIVITIES
Business
acquisition (44,483,051)(16,960,441)(44,483,051) (16,960,441)
Purchase of
property,
plant and
equipment (932,382) (2,509,532) (3,521,923) (5,529,069)
Purchase of note
receivable - (872,025) - (872,025)
Proceeds from
disposal
of property,
plant and equipment - 106,302 49,230 206,302
Restricted cash 10,000,000 - - -
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(35,415,433)(20,235,696)(47,955,744) (23,155,233)
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EFFECT OF
TRANSLATION
ADJUSTMENT 2,710 - 4,486 -
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NET CHANGE IN CASH
AND CASH
EQUIVALENTS
DURING THE PERIOD - - - -
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CASH AND CASH
EQUIVALENTS
-- BEGINNING AND
END OF THE PERIOD - - - -
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SUPPLEMENTAL
DISCLOSURE
Interest paid 956,381 518,963 2,400,811 1,203,242
Income taxes paid 1,530,064 976,364 8,248,502 4,629,641
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See accompanying Notes to these interim consolidated financial statements


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

unaudited

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES

These unaudited interim consolidated financial statements have been prepared following the same accounting policies as the December 31, 2005 audited consolidated financial statements adjusted for the following changes resulting from the business acquisition described in Note 3 below. These unaudited interim consolidated financial statements and notes should be read in conjunction with the Company's latest annual consolidated financial statements.

Principles of consolidation

These unaudited interim consolidated financial statements include the accounts of the Company and its subsidiaries, Guelph Utility Pole Company Ltd., I.P.B.-W.P.I. International Inc., Stella-Jones Corporation (since August 31, 2005) and since July 1, 2006, the consolidated accounts of Bell Pole Canada Inc. ("Bell Pole") - see Note 3 below, using the purchase method. The consolidated accounts of Bell Pole include the accounts of Bell Pole's 50% interest in Kanaka Creek Pole Company Limited, a joint venture which is accounted for under the proportionate consolidation method of accounting.

Property, plant and equipment

Roads related to timberlands and cutting rights acquired in the Bell Pole acquisition are being amortized on the basis of timber cut.

Timberlands and cutting rights acquired in the Bell Pole acquisition are being amortized on the basis of timber cut.

Asset retirement obligations

(i) Reforestation obligations:

The British Columbia Forest Act requires the industry to assume the costs of reforestation on certain harvest licences. Accordingly, the estimated present value of the cost of reforestation is recorded as timber is harvested. Reforestation costs are included in the cost of inventory and related cost of goods sold.

(ii) Site remediation obligations:

Site remediation obligations relate to the discounted present value of estimated future expenditures associated with the legal obligations of restoring the environmental integrity of certain properties acquired in the Bell Pole Company acquisition. The Company reviews estimates of future site remediation expenditures on an ongoing basis and records any revisions, along with accretion costs on existing obligations, in other expenses.

NOTE 2 -- EMPLOYEE FUTURE BENEFITS

For the three months ended September 30, 2006, the benefit cost recognized for employee future benefits was $47,790 (2005 - $34,546). For the nine months ended September 30, 2006, the benefit cost recognized for employee future benefits was $147,038 (2005 - $117,961).

NOTE 3-- BUSINESS ACQUISITION

Effective July 1, 2006, the Company, through a wholly-owned subsidiary, acquired substantially all of the assets and operations of Bell Pole Company, a Canadian manufacturer of wood utility poles based in western Canada. Bell Pole Company was also involved in the remanufacturing and treating of dimensional lumber in Alberta. Assets acquired include a treating plant located in Carseland, Alberta, several peeling facilities located throughout the province of British Columbia, as well as all inventories and accounts receivable. Assets acquired also include substantial cutting rights in British Columbia and Alberta.

The acquisition has been accounted for using the purchase method and accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on management's estimate of their fair value as of the acquisition date. The following fair value allocation is preliminary and is based on management's best estimates and information known at the time of preparing these interim unaudited consolidated financial statements. Subsequent revisions to this preliminary fair value allocation, if any, are expected to be accounted for by December 31, 2006. The results of operations of Bell Pole have been included in the consolidated financial statements from the acquisition date.



The following is a summary of the net assets acquired at fair values;

Assets acquired $
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Current assets 34,455,814
Property, plant and equipment 21,706,657
Other assets 297,089
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56,459,560

Liabilities assumed

Current liabilities 9,012,339
Long-term liabilities 1,436,560
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10,448,899

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46,010,661
Consideration

Bank debt paid at closing on behalf of Seller 8,126,152
Cash, including transaction costs of $2,050,967 36,356,899
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44,483,051
Reserve amount (including transaction costs of
$450,000),included in accounts payable 1,527,610
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46,010,661


Financing for the transaction was provided by the private placement of 1,060,000 subscription receipts issued on May 2, 2006 for a total consideration of $18.0 million. Following the closing of the acquisition, the subscription receipts were exchanged into common shares of the Company, on a one-for-one basis. The remainder of the purchase price was financed by the assumption of liabilities totalling $10.4 million, a $10.0 million debenture to the Fonds de solidarite des travailleurs du Quebec (F.T.Q.), as well as additional debt funding under existing and new bank facilities.

NOTE 4-- SHARE INFORMATION

As at October 30, 2006, the capital stock issued and outstanding consisted of 12,295,117 common shares (10,880,840 as at December 31, 2005). On July 1, 2006, the Company exchanged 1,060,000 previously issued subscription receipts for an equal number of common shares to partially fund the business acquisition described in Note 3 above. See Note 6 below.

NOTE 5-SEASONALITY

The Company's domestic operations follow a seasonal pattern, with pole, tie and industrial lumber shipments strongest in the second and third quarters to provide industrial end users with product for their summer maintenance projects. Consumer lumber treatment sales also follow the same seasonal pattern. Inventory levels of railway ties and utility poles are typically highest in the first quarter in advance of the summer shipping season. The first and fourth quarters usually generate similar sales.

NOTE 6-REVISION

The consolidated statements of cash flows were the only statements where revisions were made to correct and improve the presentation of cash flows related to the business acquisition described in Note 3 above. Additional disclosure was made in Note 3 in relation to liabilities assumed, cash paid on closing and the reserve amount. The revisions have no financial impact on total net cash flows, but only on cash flow presentation. There is no impact on the net earnings for the period, nor on the basic and diluted net earnings per share.

NOTE 7-- SUBSEQUENT EVENT

On October 18, 2006, the Fonds de solidarite des travailleurs du Quebec (F.T.Q.), exercised all of their outstanding warrants allowing them to subscribe to 190,000 common shares of the Company at an exercise price of $4.10 per share. The Company has no other warrants outstanding.

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