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

ST. LAWRENCE CEMENT GROUP INC.

August 04, 2005 08:00 ET

St. Lawrence Cement Group Second Quarter Results

MONTREAL, QUEBEC--(CCNMatthews - Aug. 4, 2005) - St. Lawrence Cement Group (TSX:ST.SV.A) reported sales of $360.4 million for the second quarter ended June 30, 2005, compared to $326.8 million for the same period last year, an increase of 10.3%. The higher sales reflect strong activity in our construction business, growth in aggregates sales volumes and price increases in all markets and product lines during the second quarter. These factors more than offset a slight decline in sales volumes of cementitious products, as well as a negative impact of approximately $9.7 million on U.S. sales when reported in Canadian currency due to the year-over-year appreciation of the Canadian dollar.

Second quarter results

Primarily as a result of the previously announced decision to withdraw the proposed Greenport replacement cement plant from the permitting process, net loss for the second quarter was $15.5 million ($0.37 basic loss per share) compared to net earnings of $27.5 million ($0.67 basic earnings per share) for the same period last year. The net loss takes into account a write-down of $65.5 million (approximately $37.5 million after tax) of capitalized development costs related to the Greenport project recorded as an unusual expense on the consolidated statement of earnings. The Company decided to abandon the project after receiving a negative determination from the New York Department of State with respect to the proposed plant's impact on the State's Coastal Zone Policies. Excluding the write-down related to the Greenport project, basic earnings per share for the second quarter of 2005 are $0.53.

Gross profit for the second quarter was $82.7 million compared to $90.1 million for the same period in 2004. This decrease is explained mainly by higher cement production costs resulting from increased energy costs, including both electricity and coal, and unscheduled maintenance work. In addition, domestic cement production declined due mainly to unplanned maintenance work at our plant in Catskill, New York, resulting in higher than planned sales volumes of lower margin imported cement in our U.S. markets. Gross profit in the second quarter of 2005 also reflects a higher proportion of construction services revenues which typically generate lower margins than sales of construction materials.

Selling and administrative costs increased by $1.2 million to $26.8 million. We incurred $1.8 million of expenses during the second quarter related to the implementation of a finance service centre for North America with our sister company Holcim (US). Located in Vaughan, Ontario, this centre will improve service levels and internal efficiency. As a percentage of sales, selling and administrative expenses were 7.4% compared to 7.8% for the second quarter last year, reflecting continued tight management of controllable expenses. Depreciation expenses increased marginally to $15.3 million compared to $14.6 million last year. Consequently, operating profit was $40.6 million compared to $49.9 million for the second quarter of 2004.

Year-to-date results

For the first six months of 2005, sales increased to $500.7 million compared to $468.2 million for the same period last year, an increase of 6.9%. All of the sales increase was recorded during the second quarter.

Net loss amounted to $39.1 million ($0.94 basic loss per share) compared to net earnings of $8.2 million ($0.20 basic earnings per share) for the first six months of 2004. Excluding the write-down related to the Greenport project, basic loss per share for the six-month period ended June 30, 2005 was $0.04.

Gross profit was $88.2 million, or $10.7 million lower than for the same period last year. This was due mainly to lower sales volumes of domestic cement, increased production costs in our cement plants and a higher proportion of construction revenues than in the first six months of 2004.

Selling and administrative expenses were $52.5 million, or $4.8 million higher than for the first six months of 2004. This is due mainly to increased pension plan expenses, as well as $2.7 million of costs related to the implementation of the Vaughan service centre. We expect to incur approximately $5.7 million of additional costs for this project to be booked as incurred in the third and fourth quarters of 2005, in line with the initial plan.

Depreciation expenses amounted to $28.9 million compared to $27.4 million for the first six months of 2004. This increase reflects mainly the business acquisitions completed in late first quarter of 2004. Consequently, operating profit to June 30, 2005 stood at $6.8 million compared to $23.8 million last year.

Results by segment

With strong volumes and higher prices in all segments, the Ontario division increased sales for the second quarter to $194.7 million compared to $171.4 million for the same period in 2004. Operating profit was $28.0 million compared to $27.8 million for the second quarter of 2004, reflecting energy-related increases in cement production costs and a higher proportion of construction services revenues than in the same period last year. For the first six months of 2005, sales reached $274.8 million, an increase of $28.4 million over the prior year, while operating profit was $3.0 million lower. The decline in the division's operating profit for the first six months of 2005 also reflects the normal first quarter operating loss associated with the sizeable aggregates assets acquired last year.

Sales by the Quebec and Atlantic division increased to $84.4 million in the second quarter compared to $77.7 million for the same period last year. Operating profit was $13.1 million compared to $15.8 million as a result of higher cement production costs related to energy and unplanned maintenance expenses at the Joliette plant, slightly lower sales volumes of cement and ready-mix concrete, and extensive maintenance work at our Laval quarry. For the first six months of 2005, sales were stable at $109.8 million and operating profit was $3.1 million compared to $9.3 million for the same period last year.

Our U.S. division posted a 13.5% sales increase in local currency for the second quarter; however, reported sales rose by 4.6% to $81.3 million compared to $77.7 million due to an unfavourable currency exchange impact of $9.7 million. As a result of a higher proportion of imported cement in the sales mix, increased energy costs, and higher maintenance expenses related to an unplanned shutdown to replace a key piece of equipment at the Catskill cement plant, operating loss was $0.5 million compared to an operating profit of $6.3 million for the second quarter of 2004. The successful maintenance work at Catskill is expected to improve reliability of this plant. For the first six months of 2005, U.S. division sales amounted to $116.1 million compared to $114.4 million in the same 2004 period while operating loss was $7.8 million compared to break-even for the first six months of last year.

Liquidity and capital resources

We continue to generate steady operating cash flow albeit at a lower level than last year. For the first six months of 2005, operating cash flow was $25.0 million compared to $41.4 million for the same period last year. We also improved our net working capital position with lower requirements compared to the first six months of 2004.

We ended the first half of the year in a comfortable financial position with a ratio of total long-term debt to total capitalization of 29:71 compared to 32:68 at the end of the second quarter of 2004. Long-term debt as of June 30, 2005 was $32.6 million lower than at the same time last year. In the first quarter of 2004, we acquired various assets in aggregates, construction and ready-mix concrete in Ontario for a total consideration of $61.5 million.

A dividend of $0.14 per share ($0.125 last year) was paid on May 1, 2005 to shareholders of record on April 15, 2005 bringing the year-to-date dividend to $0.28 per share compared to $0.25 for the six months ended June 30, 2004. In addition, a dividend of $0.14 per share was declared for payment on August 1, 2005 to shareholders of record on July 15, 2005.

Outlook

According to the Portland Cement Association (PCA), cement demand in the U.S. and Canada in the second half of 2005 is projected to be slightly above the strong levels of 2004. All three of our divisions have good backlogs, prices in all segments and markets are higher than in the second half of 2004 and our U.S. division has successfully implemented a price increase for cement deliveries effective July 1, 2005. Assuming a stable Canadian dollar and sustained production at our major facilities, the Company expects to increase sales and margins in the second half of 2005 compared to the same period in 2004.

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 2,900 people.



Consolidated Statements of Earnings and Retained Earnings
(unaudited)

For the For the For the For the
three month three month six month six month
(in millions of period period period period
Canadian dollars, ended ended ended ended
except June 30, June 30, June 30, June 30,
per share data) 2005 2004 2005 2004
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Sales 360.4 326.8 500.7 468.2
Cost of sales 277.7 236.7 412.5 369.3
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Gross profit 82.7 90.1 88.2 98.9
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Expenses
Selling and
administrative 26.8 25.6 52.5 47.7
Depreciation and
amortization of
property, plant
and equipment and
other long-term
assets 15.3 14.6 28.9 27.4
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42.1 40.2 81.4 75.1
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Operating profit 40.6 49.9 6.8 23.8

Other expenses 1.0 1.4 2.3 2.8
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Earnings before
interest, taxes. and
unusual items 39.6 48.5 4.5 21.0

Unusual expense
(note 2) 65.5 - 65.5 -
Financial expenses 4.6 4.4 7.9 7.9
Gain on sale of assets (0.4) - (0.9) -
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(Loss) earnings before
income taxes (30.1) 44.1 (68.0) 13.1

Income taxes
(recoveries)
Current 15.9 13.7 (0.8) (0.9)
Future (30.5) 2.9 (28.1) 5.8
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(14.6) 16.6 (28.9) 4.9
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Net (loss) earnings (15.5) 27.5 (39.1) 8.2

Retained earnings at
beginning of period
As previously
reported 478.8 438.2 508.4 474.2
Adoption of new
accounting standard
for asset
retirement
obligations - - - (11.4)
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As restated 478.8 438.2 508.4 462.8

Dividends (5.9) (5.4) (11.9) (10.7)
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Retained earnings at
end of period 457.4 460.3 457.4 460.3
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Basic (loss) earnings
per share (0.37) 0.67 (0.94) 0.20
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Diluted (loss)
earnings per share (0.37) 0.67 (0.94) 0.20
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Weighted average
number of outstanding
shares used in
computing basic
(loss) earnings per
share (in millions) 41.8 41.6 41.8 41.6
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Weighted average
number of outstanding
shares used in
computing diluted
(loss) earnings per
share (in millions) 41.9 41.6 41.9 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 As at
June 30, December 31, June 30,
(in millions of Canadian dollars) 2005 2004 2004
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(unaudited) (audited)(unaudited)

ASSETS

Current assets
Cash and cash equivalents 13.6 36.1 15.6
Accounts receivable 138.1 127.4 145.1
Inventories 133.7 105.5 133.6
Prepaid expenses and other 21.0 10.7 21.3
Income taxes recoverable 32.2 10.6 26.1
Future income taxes 12.2 12.2 12.8
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350.8 302.5 354.5

Property, plant and equipment 736.3 806.0 830.5
Goodwill 75.3 75.3 77.5
Investments and other long-term
assets 41.5 23.2 19.0
Employee future benefits 5.0 6.3 6.4
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1,208.9 1,213.3 1,287.9
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LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued
liabilities 158.3 187.6 120.9
Dividend payable 5.9 6.0 5.3
Construction advances, net 7.9 8.6 3.8
Current portion of long-term debt 0.8 7.3 29.3
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172.9 209.5 159.3

Employee future benefits 3.2 3.8 3.2
Long-term provision (note 3) 27.1 29.6 33.7
Long-term debt 293.0 186.5 325.6
Future income taxes 145.8 173.4 174.0

Shareholders' equity
Share capital 135.0 133.8 131.9
Cumulative translation adjustments (26.2) (32.2) (0.3)
Retained earnings 457.4 508.4 460.3
Contributed surplus 0.7 0.5 0.2
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566.9 610.5 592.1

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1,208.9 1,213.3 1,287.9
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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
(unaudited)

For the For the For the For the
three month three month six month six month
period period period period
(in millions of ended ended ended ended
Canadian dollars) June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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OPERATIONS
Net (loss) earnings (15.5) 27.5 (39.1) 8.2
Depreciation and
amortization 15.3 14.6 28.9 27.4
Future income taxes (30.5) 2.9 (28.1) 5.8
Unusual expense
(note 2) 65.5 - 65.5 -
Gain on sale of assets (0.4) - (0.9) -
Other (1.2) (0.2) (1.3) -
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Operating cash flow 33.2 44.8 25.0 41.4

Net change in working
capital balances (9.6) (47.4) (95.3) (97.9)
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Net cash provided
(used) by operations 23.6 (2.6) (70.3) (56.5)
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INVESTMENTS
Additions to property,
plant and equipment (25.9) (19.5) (37.3) (31.2)
Proceeds from sale of
assets 0.5 - 2.0 -
Business acquisitions
- net of cash - - - (61.5)
Decrease in long-term
receivables 0.7 - 1.2 0.4
Other (2.3) 11.0 (1.1) 9.7
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Net cash used for
investments (27.0) (8.5) (35.2) (82.6)
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FINANCING
Share capital issued (0.2) 1.2 0.5 1.8
Increase in long-term
debt 15.7 21.9 94.4 124.0
Decrease in long-term
debt - (3.9) - (5.0)
Dividends paid (5.9) (5.4) (11.9) (10.6)
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Net cash provided by
financing 9.6 13.8 83.0 110.2
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Net increase (decrease)
in cash and cash
equivalents 6.2 2.7 (22.5) (28.9)
Cash and cash
equivalents, beginning
of period 7.4 12.9 36.1 44.5
Cash and cash
equivalents, end of
period 13.6 15.6 13.6 15.6
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The accompanying notes are an integral part of the Interim
Consolidated Financial Statements.



Summary of Quarterly Net (Losses) Earnings
(unaudited)

(in millions of Canadian dollars) 2005 2004 2003
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First quarter (23.6) (19.3) (13.7)
Second quarter (15.5) 27.5 22.0
Third quarter 39.2 35.3
Fourth quarter 19.8 21.8
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Net (losses) earnings to date (39.1) 67.2 65.4
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Segmented Information
(unaudited)

FOR THE THREE MONTHS ENDED JUNE 30

(in millions Quebec United
of Canadian Ontario & Atlantic States Total
dollars) 2005 2004 2005 2004 2005 2004 2005 2004
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Sales to
external
customers 194.7 171.4 84.4 77.7 81.3 77.7 360.4 326.8
Intersegment
sales 5.7 3.5 0.5 2.2 - - 6.2 5.7
Operating
profit (loss) 28.0 27.8 13.1 15.8 (0.5) 6.3 40.6 49.9


FOR THE SIX MONTHS ENDED JUNE 30

(in millions Quebec United
of Canadian Ontario & Atlantic States Total
dollars) 2005 2004 2005 2004 2005 2004 2005 2004
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Sales to
external
customers 274.8 246.4 109.8 107.4 116.1 114.4 500.7 468.2
Intersegment
sales 8.9 6.7 0.7 2.9 - - 9.6 9.6
Operating
profit
(loss) 11.5 14.5 3.1 9.3 (7.8) - 6.8 23.8



Financial Summary
(unaudited)
For the six
(in millions of month period For the year
Canadian dollars) ended June 30 ended December 31
2005 2004 2004 2003 2002
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Sales 500.7 468.2 1,278.0 1,149.2 1,189.2

Net (loss) earnings (39.1) 8.2 67.2 65.4 85.3

Operating cash flow 25.0 41.4 136.9 120.2 155.0

Per share value
Basic (loss)
earnings (0.94) 0.20 1.61 1.58 2.07
Operating cash
flow 0.60 1.00 3.29 2.91 3.75
Dividends 0.28 0.25 0.52 0.50 0.50

Total assets 1,208.9 1,287.9 1,213.3 1,143.1 1,170.5

Long-term debt 293.0 325.6 186.5 229.1 265.2

Future income
taxes 145.8 174.0 173.4 165.7 160.8

Shareholders'
equity 566.9 592.1 610.5 590.1 581.7

Long-term debt on
total
capitalization 29:71 32:68 20:80 23:77 27:63

Return on average
equity (%) (6.7) 1.4 11.2 11.2 15.5



General Information

As at June 30, 2005
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Stock listings
Toronto Stock Exchange

Trading symbol ST.SV.A

Stock price (last 6 months)
Closing $25.80
High $31.50
Low $23.75

Book value $13.56

Outstanding shares
Class "A" (1 vote) 26,562,104
Class "B" (3 votes) 15,252,848
Special, Class "1" 550,160

Approximate "Float" (Class "A") 15,407,090

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 June 30, 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 report
are unaudited and reflect normal and recurring adjustments which are,
in the opinion of the Company, considered necessary for a 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 have 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 $65.5 million before income taxes (US$ 53.3 million) in the
current period reflecting the write-down of capitalized development
costs related to this project. This unusual expense amounts to $37.5
million on an after tax basis (US$ 30.6 million).

3. Asset retirement obligations

The analysis of the asset retirement obligation for the six months
ended June 30, 2005 is as follows:

Balance as at December 31, 2004 $29.6
Accretion expense 0.6
Payment of obligation (3.1)
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Balance as at June 30, 2005 $27.1

Included in depreciation and amortization of property, plant and
equipment and other long term assets, is a charge of $0.4 million for
the amortization of the asset retirement cost.

The following assumptions were used to estimate the fair values of
the obligation as at June 30, 2005:

Total undiscounted amount of the estimated cash flows $ 168.8
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 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 (loss) earnings and basic (loss) earnings per
share for the six month period ended June 30 would have been as
follows:

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2005 2004
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Reported net (loss) earnings $(39.1) $8.2
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Adjustment using the fair market value method for
special shares incentive plan (0.1) (0.2)
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Pro forma net (loss) earnings $(39.2) $8.0
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Basic (loss) earnings per share $(0.94) $0.20
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Diluted (loss) earnings per share $(0.94) $0.20
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Pro forma basic (loss) earnings per share $(0.94) $0.20
Pro forma diluted (loss) earnings per share $(0.94) $0.20
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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 $2.7
Guarantees on customer debts 2.2
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Total $4.9
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6. Employee future benefits

The Company's total net benefit cost for the three and six month
periods ended June 30, 2005 was $1.8 million and $4.1 million
respectively ($1.6 million and $3.3 million for the three and six
month periods ended June 30, 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