For the financial year ended December 31, 2021
DATE OF ANNUAL INFORMATION FORM ...................................................................................... 3
GENERAL DEVELOPMENT OF THE BUSINESS ............................................................................. 3
3.1 T HREE Y EAR H ISTORY ....................................................................................................................... 3
4.2 D ESCRIPTION OF P RODUCT G ROUPS AND S ERVICES .......................................................................... 4
4.3 D ESCRIPTION OF M ANUFACTURING P ROCESS .................................................................................... 5
4.6 S ALES , M ARKETING AND C OMPETITIVE CONDITIONS ...................................................................... 16
4.8 E NVIRONMENT , H EALTH AND S AFETY P OLICY ................................................................................ 18
4.9 SHIELD - E NVIRONMENTAL , H EALTH AND S AFETY P OLICY C OMMITMENT S TATEMENT ............... 19
DIVIDENDS - THREE MOST RECENTLY COMPLETED FINANCIAL YEARS ....................... 25
5.1 D IVIDENDS - T HREE MOST RECENTLY COMPLETED FINANCIAL YEARS ............................................ 25
5.2 P OLICY AND R ESTRICTIONS ............................................................................................................. 25
7.1 T RADING P RICE AND V OLUME ......................................................................................................... 26
8.1 N AME , A DDRESS , O CCUPATION AND S ECURITY H OLDING ............................................................... 27
9.1 C OMPOSITION OF THE A UDIT C OMMITTEE AND R ELEVANT E DUCATION AND E XPERIENCE ............. 30
9.2 M ANDATE OF THE A UDIT C OMMITTEE ............................................................................................. 31
9.3 P RE - APPROVAL P OLICIES AND P ROCEDURES ................................................................................... 31
9.4 E XTERNAL A UDITOR S ERVICE F EES ................................................................................................ 32
12.1 N AMES OF E XPERTS ......................................................................................................................... 32
AP PENDIX "I" - AUDIT COMMITTEE MANDATE ....................................................................................... A-1
DATE OF ANNUAL INFORMATION FORM
This Annual Information Form ("AIF") is dated as of March 14, 2022. Unless otherwise indicated, the information contained in this AIF is stated as at December 31, 2021.
Stella- Jones Inc. ("SJI") was incorporated as 2865165 Canada Inc. on October 26, 1992 under the Canada Business Corporations Act and changed its name to Stella- Jones Inc. on February 19, 1993. SJI's Articles were amended on March 31, 1994 to delete private company restrictions. The Articles were again amended on June 13, 1994, subdividing all 100,001 common shares issued and outstanding into 6,200,000 common shares redesignated "Common Shares", creating Preferred Shares, issuable in series, cancelling all authorized but non-issued preferred shares and creating the Series 1 Preferred Shares. On May 27, 1996,
SJI's Articles were further amended to add a provision to the effect that the directors may appoint a limited number of additional directors to hold office until the close of the next annual meeting of shareholders. On January 1, 2014, SJI filed Articles of Amalgamation evidencing its amalgamation with its wholly-owned subsidiary, I.P.B. - W.P.I. International Inc. On January 1, 2015, SJI filed Articles of Amalgamation evidencing its amalgamation with its wholly owned subsidiaries, Stella-Jones Canada Inc. and Guelph Utility Pole Company Ltd. On January 1, 2016, SJI filed Articles of Amalgamation evidencing its amalgamation with its wholly owned subsidiaries, Ram Forest Group Inc., Ramfor Lumber Inc., Ram Forest Products Inc. and Trent Timber Treating Ltd. On May 12, 2017, Stella-Jones filed Articles of Amendment to increase the minimum and maximum number of directors to three and twelve, respectively.
The registered office of SJI is located at 3100 de la Côte-Vertu Blvd., Suite 300, Montréal, Québec, H4R 2J8.
As at December 31, 2021, Stella- Jones Corporation ("SJ Corporation") , Stella-Jones U.S. Holding Corporation ("SJ Holding"), Cahaba Pressure Treated Forest Products, Inc. ( "Cahaba Pressure") and Cahaba Timber, Inc. ("Cahaba Timber") were the principal subsidiaries of the Company.
Percentage of Voting Shares Owned by the Company
GENERAL DEVELOPMENT OF THE BUSINESS
Unless the context dictates otherwise, "Stella - Jones", "SJI" and "the Company" mean Stella -Jones Inc. and its subsidiarie s.
T HREE Y EAR H ISTORY
Stella-Jones Inc. (TSX: SJ) is North America's leading producer of pressure -treated wood products. It supplies all the continent's major electrical utilities and telecommunication companies with wood utility poles and North America's Class 1, short line and commercial railroad operators with railway ties and timbers. Stella-Jones also provides industrial products, which include wood for railway bridges and crossings, marine and foundation pilings, construction timbers and coal tar-based products. Approximately 70% of the Company's sales are derived from infrastructure -related product categories.
Additionally, the Company manufactures and distributes premium residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing the Canadian market through its national manufacturing and distribution network.
On April 1, 2019, the Company completed the acquisition of substantially all of the assets of Shelburne Wood Protection Ltd. ("SWP"), located in Shelburne, Ontario. The SWP plant is specialized in the treatment of residential lumber. Total consideration for the acquisition was approximately $9.2 million, of which $8.5 million was financed through the Company's syndicated credit facilities and $0.7 million was recorded as a balance of purchase price. The balance of purchase price bared no interest, was paid to the seller in two equal amounts on the first and second anniversaries of the transaction and was recorded at fair value using an effective interest rate of 3.31 %. The SWP acquisition has been accounted for as an acquisition of a group of assets.
On November 19, 2021, the Company completed the acquisition of the shares of Cahaba Pressure. The purchase price totaled US$66 million, including working capital, which was estimated at US$8 million. Cahaba Pressure manufactures, distributes and sells treated and untreated wood poles, crossties and posts and provides custom treating services, primarily utilizing creosote, copper naphthenate ("CuNap") and pentachlorophenol at its wood treating facility in Brierfield, Alabama. The Company financed the acquisition through its existing credit facilities. As this was not a significant acquisition for the purposes of Part 8 of National Instrument 51-102, Form 51-102 F4 (Business Acquisition Report) was not filed with respect of this acquisition.
On November 19, 2021, the Company completed the acquisition of the shares of Cahaba Timber, a well-established producer of treated poles and pilings, primarily using CCA, CCA ET Clear and CCA ET Brown that also engages in raw material procurement at its treating operations in Brierfield, Alabama. The purchase price totaled US$36.5 million, including working capital estimated at US$4 million. The Cahaba Timber transaction was financed with the Company's existing credit facilities . As this was not a significant acquisition for the purposes of Part 8 of National Instrument 51-102, Form 51-102 F4 (Business Acquisition Report) was not filed in respect thereto.
The Company operates within two business segments, the production and sale of pressure treated wood for several different product groups (described below) and logs and lumber. Wood treating facilities are located in the Canadian provinces of Alberta, British Columbia, Manitoba, Nova Scotia, Ontario, Québec, and the states of Alabama, Arizona, Arkansas, Georgia, Indiana, Kentucky, Louisiana, Mississippi, Nevada, Oregon, Pennsylvania, South Carolina, Texas, Virginia, Washington, and Wisconsin in the United States. Additionally, the Company distills coal tar and distributes products from that process at its Memphis, Tennessee distillery.
D ESCRIPTION OF P RODUCT G ROUPS AND S ERVICES
Customers for transmission and distribution poles are predominantly regional telecommunication and electric utility companies. Although there exist alternative transmission methods, treated wood poles are the preferred method due to their durability (poles could typically last from 40 to 50 years or longer) and their relatively low cost of purchase, installation and maintenance. Furthermore, wood poles can be easily drilled and crosscut and allow greater ease for servicing by line workers. Steel, concrete and composite poles are more expensive than wood poles in most sizes and applications. Due to their higher cost and characteristics such as conductivity, potential for corrosion, as well as poor serviceability, flexibility and workability (drilling, machining, climbing), wood poles continue to be the preferred choice of most utilities.
Underground cabling is used mainly in urban centers where existing underground infrastructures exist but is less preferred in rural areas due to the higher cost and difficult accessibility. In 2020, the Company began to offer utility poles applied with an intumescent fire-resistant wrap. This provides added protection and prolonged service life to the product in areas prone to wildfires and has gained favour with utilities looking to harden their grid against the increase in severity and frequency of fires.
Since railway products must have a high resistance to wear and decay, a creosote-based treatment is required to provide the maximum protection.
Demand for railway ties is comprised primarily of replacement requirements with occasional activity in new track construction. Capital expenditures on track and infrastructure improvements should remain solid in the years to come.
A relatively stable volume of new ties is required for maintenance purposes, as management estimates that approximately 1.5% to 3.0% of all ties on active railway lines are in need of replacement every year. In addition to servicing the demands of the Class 1 railroads for railway ties and timbers, the Company also sells to many short line railroads, commercial railroad operators and to contractors that install and repair rail lines.
This category consists primarily of pressure treated consumer lumber for use in patios, decks, fences and other outdoor applications, as well as the distribution of wood and wood alternative accessories. The Company provides residential lumber throughout Canada as well as in the U.S. Pacific Northwest and Alaska.
These products include railway bridge and crossing timbers, foundation and marine piling construction timbers, crane mats, fence posts and highway guardrail posts.
The Company also manufactures the wood preservative, creosote, for use in its wood treating activities, as well as other coal tar-based products such as roof pitch and road tar, which are sold to third party customers.
In this segment, logs comprise the sale of logs harvested in the course of the Company's procurement process which are determined to be unsuitable for use as utility poles. Additionally, in the course of procuring sufficient competitively priced residential lumber volume, the Company engages in reselling excess lumber into local home-building markets.
D ESCRIPTION OF M ANUFACTURING P ROCESS
Preservation is the process by which wood is protected against decay and pests through controlled pressure impregnation with preservatives that are resistant to wood destroying organisms.
The manufacturing process involves at least two stages: drying and impregnation with preservatives through hydraulic pressure. The preservatives, all of which are approved by Health Canada and the United States Environmental Protection Agency, are either oil-based or water-based. The raw materials consist of wood and preservatives.
In the first phase of treatment, excessive moisture in the wood is reduced prior to impregnation with the preservative. This is accomplished by air- seasoning, kiln drying or through a "conditioning process" in the treatment cylinder itself.
Stella-Jones Inc. published this content on 28 March 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 March 2022 07:24:07 UTC.