ST. LAWRENCE CEMENT GROUP INC.
TSX : ST.SV.A

ST. LAWRENCE CEMENT GROUP INC.

February 03, 2006 08:00 ET

St. Lawrence Cement Group Reports 2005 Results

MONTREAL, QUEBEC--(CCNMatthews - Feb. 3, 2006) - St. Lawrence Cement Group today reported its financial results for the fourth quarter and year ended December 31, 2005.

Operating profit in the fourth quarter of 2005 increased to $45.9 million compared to $36.9 million in the same 2004 period. This 24% increase resulted from higher prices for all construction materials and favorable product mix compared to the fourth quarter of 2004.

For the full year, operating profit was $128.0 million, or $3.4 million lower than the $131.4 million recorded in 2004. This decline mainly reflects a significant reduction of the output at the Catskill cement plant, higher energy and imported cement costs in 2005 and increased administrative expenses related to a major service and efficiency initiative, partly offset by higher selling prices for construction materials.

Operating cash flow remained strong in 2005, reaching $128.4 million compared to $136.8 million in 2004. The Company recorded a further reduction in long-term debt and ended 2005 with long-term debt representing 18% of total capitalization compared to 20% in 2004.

Fourth quarter results

Consolidated sales declined to $367.8 million in the fourth quarter of 2005 compared to $381.2 million in the same 2004 period. This decrease reflects lower construction services revenues which typically generate lower margins, a $3.2 million negative exchange rate impact on the translation of U.S. sales to Canadian dollars for reporting purposes and lower sales volumes of cement and concrete, partly offset by higher selling prices for construction materials in all markets.

Gross profit in the fourth quarter of 2005 was $86.5 million compared to $69.2 million in the same 2004 period. This increase is attributable mainly to a favorable product mix compared to the fourth quarter of 2004 and higher selling prices for construction materials.

Selling and administrative expenses rose to $25.4 million compared to $17.6 million in the fourth quarter of 2004. Approximately $1.5 million of expenses related to the establishment of a finance service centre were recorded in the quarter. The balance of the increase reflects mainly additional severance costs, as well as higher procurement and pension expenses. Depreciation and amortization of property, plant and equipment and other long-term assets was $15.2 million compared to $14.7 million in the fourth quarter of 2004.

Operating profit increased by 24% to $45.9 million compared to $36.9 million in the fourth quarter of 2004. Operating profit increased by $4.2 million in Ontario and $7.5 million in Quebec & Atlantic, partly offset by a $2.7 million decrease in the U.S.

The Company recorded an unusual expense of $6.5 million in the fourth quarter of 2005 related to the Greenport Project. Financial expenses increased to $4.6 million compared to $3.9 million in the same 2004 period due to higher interest rates.

Excluding the impact of the unusual expense, the tax rate in the fourth quarter was 49% compared to 39% in the fourth quarter of 2004. The increase in the rate reflects the impact on future income taxes of $3.9 million due to the increase in the corporate tax rate in Quebec, which will be gradually effective from 2006 onwards.

Net earnings were $17.2 million or $0.41 basic earnings per share compared to $19.7 million or $0.47 per share, in the fourth quarter of 2004. Excluding the unusual expense, basic earnings per share in the fourth quarter of 2005 were $0.51 per share.

Operating cash flow was $40.9 million compared to $36.4 million in the same 2004 period. Net cash provided by operations after net changes in working capital balances was $98.9 million compared to $128.8 million in the fourth quarter of 2004. The difference is explained mainly by higher accounts receivable and inventories. Receivables increased to $173.8 million compared to $127.4 million in the fourth quarter of 2004 mainly as a result of exceptionally weak sales of construction materials in December 2004 compared to normal seasonal patterns, as well as a $17.0 million reduction in receivables sold under a securitization agreement. The increase in inventories to $148.4 million compared to $105.5 million in the same 2004 period is primarily due to the timing of raw materials shipments in the two periods and higher work in process in construction services.

Full year results

For the full year 2005, consolidated sales increased to $1,317.8 million compared to $1,278.0 million in 2004. This increase reflects mainly improved selling prices for construction materials in all markets and a $15.5 million increase in construction services revenues, offset partly by lower sales volumes of construction materials. The negative exchange rate impact on US sales in 2005 was $21.8 million.

Gross profit in 2005 increased to $289.4 million compared to $280.0 million in 2004. This increase reflects mainly the higher selling prices for construction materials in all markets and internal efficiency gains, which offset cost pressures resulting mainly from higher energy costs due to the escalation of fuel and electricity prices, additional maintenance costs for unplanned repairs at the Catskill and Joliette cement plants and a higher proportion of imported cement in the sales mix resulting from a significant production shortfall at the Catskill plant.

Selling and administrative expenses increased to $103.1 million compared to $89.8 million in 2004. Approximately $7.2 million of the increase is attributable to the finance service centre initiative and the balance reflects mainly additional severance costs, increased procurement costs, higher pension expenses and expenses associated with a major health and safety initiative. Depreciation and amortization of property, plant and equipment and other long-term assets was $58.3 million compared to $58.8 million in 2004.

Operating profit increased in Ontario and declined in Quebec & Atlantic and the U.S. to reach $128.0 million compared to $131.4 million in 2004.

The Company recorded an unusual expense of $72.0 million in 2005 related to the Greenport Project. Financial expenses were $16.9 million compared to $17.7 million in 2004, reflecting lower average debt and foreign exchange losses.

Net earnings were $20.6 million or $0.49 cents basic earnings per share compared to $67.1 million or $1.61 per share in 2004. Excluding the unusual expense, basic earnings per share in 2005 were $1.50.

Liquidity and capital resources

Operating cash flow in 2005 was $128.4 million compared to $136.8 million in the same 2004 period. Net cash provided by operations after net changes in working capital balances was $85.0 million compared to $170.6 million in 2004. The difference is explained mainly by higher accounts receivable and inventories. Receivables increased to $173.8 million compared to $127.4 million at the end of 2004 mainly as a result of exceptionally weak sales of construction materials in December 2004 compared to normal seasonal patterns, as a well as a $17.0 million reduction in receivables sold under a securitization agreement. The increase in inventories to $148.4 million compared to $105.5 million at the end of 2004 is primarily due to the timing of raw materials shipments in the two periods and higher work in process in construction services.

Long-term debt (including the current portion) as of December 31, 2005 was $168.2 million compared to $193.8 million at the end of 2004. The Company's financial position improved further with a ratio of long-term debt to total capitalization of 18:82 compared to 20:80 at the end of 2004.

Greenport Project

In 2005, the Company decided to withdraw its proposed Greenport replacement cement plant ("Greenport Project") from the permitting process after receiving a negative determination from the New York Department of State (DOS) with respect to the project's impact on the State's coastal zone policies. As a result, the Company recorded a write-down of $65.5 million (approximately $37.8 million after-tax) of related capitalized development costs in the second quarter. In view of the land use restrictions implicit in the DOS ruling, which were confirmed by an appraisal performed by third-party evaluators, the Company recorded an additional write-down of $6.5 million (approximately $4.3 million after-tax) in the fourth quarter of 2005, representing the impairment in the net book value of the remaining Greenport assets. These write-downs, totaling $72.0 million (approximately $42.1 million after-tax), are recorded as an unusual expense in the 2005 consolidated statement of earnings and had no material impact on the Company's liquidity and capital resources.

Dividends

The Company paid dividends of $23.8 million in 2005 compared to $21.1 million in 2004, reflecting the 12% increase in the dividend rate to $0.56 per share compared to $0.50 per share in 2004.

Outlook

The Company is cautiously optimistic about its prospects for 2006. The anticipated softening in residential construction from the strong levels experienced in 2005 should be offset by increased activity in the non-residential and infrastructure sectors where cement intensity is higher. The latest Portland Cement Association forecast call for 1% to 2% growth in cement demand in the Company's markets in 2006.

The Company began 2006 with a strong backlog of construction work in Ontario and a very promising opportunity list. In Quebec & Atlantic, there is a good base of demand. Cement continues to be in short supply in the Company's U.S. markets and demand is forecast to remain steady. Firm global demand for cement and high ocean freight rates will limit imports to volumes needed to achieve market balance.

Based on this outlook, the Company expects to be able to offset anticipated increases in energy costs through continuing strong sales volumes and favourable prices. These factors, combined with further internal cost improvements, will be key in the Company's ability to match and surpass the operating profit levels of the past two years.

Annual MD&A and audited financial statements

The Company expects to file its 2005 annual Management's Discussion and Analysis, as well as its audited consolidated financial statements and notes for the year ended December 31, 2005, in mid-February.

About St. Lawrence Cement Group

St. Lawrence Cement Group is a leading producer and supplier of products and services for the construction industry, namely cement, concrete, aggregates and construction. The company operates in Canada and on the eastern seaboard of the United States, and employs a total of 3,200 people.



Consolidated Statements of Earnings and Retained Earnings

For the For the For the For the
(in millions three month three month twelve month twelve month
of Canadian period period period period
dollars, except ended ended ended ended
per share data) December December December December
31, 2005 31, 2004 31, 2005 31, 2004
---------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

Sales 367.8 381.2 1,317.8 1,278.0
Cost of sales 281.3 312.0 1,028.4 998.0
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Gross profit 86.5 69.2 289.4 280.0
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Expenses
Selling and
administrative 25.4 17.6 103.1 89.8
Depreciation and
amortization of
property, plant
and equipment
and other long-term
assets 15.2 14.7 58.3 58.8
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40.6 32.3 161.4 148.6
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Operating profit 45.9 36.9 128.0 131.4

Other (income)
expenses (0.8) 0.3 2.3 5.5
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Earnings before
interest, taxes, and
unusual items 46.7 36.6 125.7 125.9

Unusual expense
(note 2) 6.5 - 72.0 -
Financial expenses 4.6 3.9 16.9 17.7
(Gain) loss on sale
of assets (0.3) 0.4 (1.3) 0.1
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Earnings before income
taxes 35.9 32.3 38.1 108.1

Income taxes
(recoveries)
Current 15.1 10.4 36.4 30.2
Future 3.6 2.2 (18.9) 10.8
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18.7 12.6 17.5 41.0
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Net earnings 17.2 19.7 20.6 67.1

Retained earnings
at beginning of period
As previously reported 494.0 494.2 508.4 474.2
Adoption of new
accounting standard
for asset retirement
obligations - 0.5 - (10.9)
Premium on acquired
class "A" shares - - - (0.2)
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As restated 494.0 494.7 508.4 463.1

Dividends (6.0) (6.0) (23.8) (21.8)
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Retained earnings
at end of period 505.2 508.4 505.2 508.4
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Basic earnings per
share 0.41 0.47 0.49 1.61
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Diluted earnings
per share 0.41 0.47 0.49 1.61
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Weighted average number
of outstanding shares
used in computing
basic earnings per
share (in millions) 41.9 41.7 41.8 41.6
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Weighted average number
of outstanding shares
used in computing
diluted earnings per
share (in millions) 42.0 41.9 42.0 41.8
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The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.



Consolidated Balance Sheets

As at As at
(in millions of Canadian dollars) December 31, December 31,
2005 2004
---------------------------------------------------------------------
(audited) (audited)

ASSETS

Current assets
Cash and cash equivalents 10.8 36.1
Accounts receivable 173.8 127.4
Inventories 148.4 105.5
Prepaid expenses and other 4.0 10.7
Income taxes recoverable - 10.6
Future income taxes 7.5 12.2
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344.5 302.5

Property, plant and equipment (note 2) 733.1 806.0
Goodwill 75.2 75.3
Investments and other long-term assets (note 2) 30.7 23.2
Employee future benefits 6.3 6.3
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1,189.8 1,213.3
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LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities 213.0 187.7
Dividend payable 5.9 6.0
Construction advances, net 12.9 8.5
Current portion of long-term debt 0.2 7.3
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232.0 209.5

Employee future benefits 4.2 3.8
Long-term provision (note 3) 27.5 29.6
Long-term debt 168.0 186.5
Future income taxes 151.1 173.4

Shareholders' equity
Share capital 136.7 133.8
Cumulative translation adjustments (35.9) (32.2)
Retained earnings 505.2 508.4
Contributed surplus 1.0 0.5
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607.0 610.5

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1,189.8 1,213.3
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Contingent liabilities (note 5)

The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.



Consolidated Statements of Cash Flows

For the For the For the For the
three month three month twelve month twelve month
period period period period
(in millions ended ended ended ended
of Canadian December December December December
dollars) 31, 2005 31, 2004 31, 2005 31, 2004
---------------------------------------------------------------------
(unaudited) (unaudited) (audited) (audited)

OPERATIONS
Net earnings 17.2 19.7 20.6 67.1
Depreciation and
amortization 15.2 14.7 58.3 58.8
Future income taxes 3.6 2.2 (18.9) 10.8
Unusual expense
(note 2) 6.5 - 72.0 -
(Gain) loss on sale
of assets (0.3) 0.4 (1.3) 0.1
Other (1.3) (0.6) (2.3) -
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Operating cash flow 40.9 36.4 128.4 136.8

Net change in working
capital balances 58.0 92.4 (43.4) 33.8
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Net cash provided
by operations 98.9 128.8 85.0 170.6
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INVESTMENTS
Additions to
property, plant and
equipment (24.1) (31.5) (72.1) (75.5)
Proceeds from sale
of assets 0.8 0.1 5.8 2.4
Business acquisitions
- net of cash - - - (64.8)
Increase in long-term
receivables 2.7 6.5 1.6 6.9
Other (6.5) (3.7) (3.6) (1.5)
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Net cash used for
investments (27.1) (28.6) (68.3) (132.5)
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FINANCING
Share capital issued 2.9 1.9 3.6 4.1
Redemption of shares - (0.2) - (0.2)
Increase in long-term
debt - - 79.1 124.0
Decrease in long-term
debt (100.9) (77.8) (100.9) (153.3)
Dividends paid (6.0) (5.2) (23.8) (21.1)
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Net cash used by
financing (104.0) (81.3) (42.0) (46.5)
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Net (decrease) increase
in cash and cash
equivalents (32.2) 18.9 (25.3) (8.4)
Cash and cash
equivalents, beginning
of period 43.0 17.2 36.1 44.5
Cash and cash
equivalents, end of
period 10.8 36.1 10.8 36.1
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The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.



Summary of Quarterly Net Earnings
(unaudited)

(in millions of Canadian dollars) 2005 2004 2003
---------------------------------------------------------------------

First quarter (23.6) (19.3) (13.7)
Second quarter (15.5) 27.5 22.0
Third quarter 42.5 39.2 35.3
Fourth quarter 17.2 19.7 21.8
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Net earnings 20.6 67.1 65.4
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Segmented Information
(unaudited)

FOR THE THREE MONTHS ENDED DECEMBER 31

(in millions Quebec United
of Canadian Ontario & Atlantic States Total
dollars) 2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
Sales to
external
customers 223.5 243.6 77.3 73.4 67.0 64.2 367.8 381.2
Intersegment
sales 3.7 5.4 0.8 0.9 - - 4.5 6.3
Operating
profit 30.1 25.9 12.6 5.1 3.2 5.9 45.9 36.9


FOR THE TWELVE MONTHS ENDED DECEMBER 31

(in millions Quebec United
of Canadian Ontario & Atlantic States Total
dollars) 2005 2004 2005 2004 2005 2004 2005 2004
---------------------------------------------------------------------
Sales to
external
customers 755.9 735.8 291.2 286.5 270.7 255.7 1,317.8 1,278.0
Intersegment
sales 19.3 20.5 2.2 4.6 - - 21.5 25.1
Operating
profit 89.2 84.5 33.9 35.0 4.9 11.9 128.0 131.4



Financial Summary
(unaudited)

For the year
(in millions of Canadian dollars) ended December 31
2005 2004 2003 2002
---------------------------------------------------------------------
Sales 1,317.8 1,278.0 1,149.2 1,189.2

Net earnings 20.6 67.1 65.4 85.3

Operating cash flow 128.4 136.8 120.2 155.0

Per share value
Basic earnings 0.49 1.61 1.58 2.07
Operating cash flow 3.07 3.29 2.91 3.75
Dividends 0.56 0.52 0.50 0.50

Total assets 1,189.8 1,213.3 1,143.1 1,170.5

Long-term debt 168.0 186.5 229.1 265.2

Future income taxes liabilities 151.1 173.4 165.7 160.8

Shareholders' equity 607.0 610.5 590.1 581.7

Long-term debt on total
capitalization 18:82 20:80 23:77 27:63

Return on average equity (%) 3.4 11.2 11.2 15.5



General Information


As at December 31, 2005

Stock listings
Toronto Stock Exchange

Trading symbol ST.SV.A

Stock price (last 12 months)
Closing $26.51
High $31.50
Low $23.75

Book value $14.49

Outstanding shares
Class "A"(1 vote) 26,646,554
Class "B" (3 votes) 15,252,848
Class "1" (1 vote) 578,860

Approximate "Float" (Class A) 15,520,240

Corporate Office
1945 Graham Boulevard
Mount Royal, Quebec H3R 1H1
Telephone : (514) 340-1881
Fax : (514) 342-8154
Web Site: www.stlawrencecement.com



NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2005
(tabular amounts are expressed in millions of Canadian dollars except
per share data) (unaudited)

1. Basis of presentation

The interim consolidated financial statements included in this
interim report are unaudited and reflect normal and recurring
adjustments which are, in the opinion of the Company, considered
necessary for fair presentation. These financial statements have
been prepared in conformity with Canadian generally accepted
accounting principles. The same accounting policies as described in
the Company's latest annual report have been used. These
consolidated financial statements, however, do not include all
disclosures required under Canadian generally accepted accounting
principles and accordingly should be read in conjunction with the
consolidated financial statements and the notes thereto included in
the Company's latest annual report. The Company's business is
seasonal, with slow construction activity generally resulting in net
losses during the first quarter of each year. As a result, earnings
of any one interim period should not be considered as indicative of
results for an entire year.

2. Unusual expense

For the past several years, the Company was engaged in the process of
obtaining the necessary permits for a replacement cement plant in
Greenport, New York. Altogether, 17 federal, state and local permits
and approvals were needed before construction could begin. Among the
required permits, the New York State Department of State (DOS)
certification was key to qualify for other approvals. On April 19,
2005, the Company received a negative determination from the DOS,
which ruled that the proposed plant was inconsistent with the state's
Coastal Zone Policies.

Following careful review of the impacts of the DOS decision, the
Company's Board of Directors has decided not to appeal the DOS
decision and to withdraw the project from the permitting process.

Consequently, the Company has recorded, as an unusual expense, an
amount of $72.0 million before income taxes (US$ 58.7 million), of
which $6.5 million (US$ 5.4 million) was recorded in the fourth
quarter, reflecting the write-down of capitalized development costs
and fixed assets. This unusual expense amounts to $42.1 million on
an after tax basis (US$ 34.3 million).

A remaining amount of $12.2 million (US$ 10.5 million) representing
the net book value of assets not written off has been reclassified
from Property, plant and equipment to Investments and other-long term
assets as non-operating assets.

3. Asset retirement obligations

The analysis of the asset retirement obligation for the twelve months
ended December 31, 2005 is as follows:

Balance as at December 31, 2004 $29.6
Additional liability for 2005 2.2
Accretion expense 1.1
Payment of obligation (5.4)
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Balance as at December 31, 2005 $27.5

Included in depreciation and amortization of property, plant and
equipment and other long term assets, is a charge of $0.8 million for
the amortization of the asset retirement cost.

The following assumptions were used to estimate the fair values of
the obligation as at December 31, 2005:

Total undiscounted amount of the estimated cash flows $172.9
Expected timing of payment of the cash flows 2005 to 2060
Risk-free interest rate 3 % to 5.23 %

The estimate of the total liability for future asset retirement
obligation is subject to change based on amendments to laws and
regulations and as new information concerning the Company's
operations becomes available. Future changes, if any, to the
estimated total liability as a result of amended requirements, laws,
regulations and operating assumptions may be significant and would be
recognized prospectively as a change in estimate, when applicable.

4. Stock-based compensation and other stock-based payments

The Company applies the fair value based method to all employee stock
options granted on or after January 1, 2003. Under the fair value
based method, the compensation cost is measured at fair value at the
date of grant and is expensed over the award's vesting period.

Had compensation expense been determined based upon fair values at
the date of grant for awards issued in 2002 under all plans, the
Company's pro forma net earnings and basic earnings per share for the
twelve month period ended December 31 would have been as follows:

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2005 2004
---------------------------------------------------------------------
Reported net earnings $20.6 $67.1
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Adjustment using the fair market value method
for special shares incentive plan (0.2) (0.3)
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Pro forma net earnings $20.4 $66.8
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Basic and diluted earnings per share $0.49 $1.61
---------------------------------------------------------------------
Adjustment using fair market value method - (0.1)
---------------------------------------------------------------------
Pro forma basic and diluted earnings per share $0.49 $1.60
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The pro forma disclosure omits the effect of awards granted prior to
January 1, 2002.

5. Disclosure of guarantees

The Company has entered into various guarantee agreements that arose
out of transactions related to goods purchased from suppliers and to
borrowings of the Company's customers.

The following table provides the undiscounted maximum amount of
potential future payments for each major group of guarantees:


Standby letters of credit $ 3.0
Guarantees on customer debts 1.0
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Total $ 4.0
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6. Employee future benefits

The Company's total net benefit cost for the three and twelve month
periods ended December 31, 2005 was $2.6 million and $8.7 million
respectively ($2.8 million and $7.9 million for the three and twelve
month periods ended December 31, 2004).


Contact Information

  • St. Lawrence Cement Group Inc.
    Dean Bergmame
    Vice President and Chief Financial Officer
    (514) 340-1555, ext. 223
    or
    Source:
    Nicole Jarry
    Director, Corporate Communications
    (514) 340-1555, ext. 206
    stlawrencecement.com