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

ST. LAWRENCE CEMENT GROUP INC.

November 01, 2005 08:00 ET

St. Lawrence Cement Group Third Quarter Results

MONTREAL, QUEBEC--(CCNMatthews - Nov. 1, 2005) - St. Lawrence Cement Group Inc. (TSX:ST.SV.A) (the "Company") reported sales of $449.3 million for the third quarter ended September 30, 2005, compared to $428.6 million for the same period last year, an increase of 4.8%. The higher sales reflect strong activity in construction services, growth in cementitious products sales volumes and a price increase in the US market during the quarter. These factors more than offset declines in sales volumes of aggregates and ready-mixed concrete.

Gross profit for the third quarter was $114.7 million compared to $111.9 million for the same period in 2004. This increase is attributable to higher sales prices, partly offset by higher production costs resulting mainly from increased energy costs, including both electricity and coal, and unscheduled maintenance work.

Selling and administrative costs for the third quarter increased by $0.7 million to $25.2 million. The Company incurred $3.0 million of expenses during the third quarter related to the implementation of a finance service centre for North America with its sister company Holcim (US), which went successfully live in October 2005. Located in Vaughan, Ontario, this centre will improve service levels and drive cost efficiencies. As a percentage of sales, selling and administrative expenses were 5.6% compared to 5.7% for the third quarter last year, reflecting continued tight management of controllable expenses.

Depreciation expenses decreased by $2.5 million to $14.2 million compared to $16.7 million last year. Third quarter depreciation last year included adjustments as a result of the finalization of the business acquisitions made in the first quarter of 2004. Consequently, operating profit was $75.3 million compared to $70.7 million for the third quarter of 2004.

Net earnings for the third quarter were $42.5 million compared to $39.2 million for the same period in 2004.

Year-to-date results

For the first nine months of 2005, sales increased to $950.0 million compared to $896.8 million for the same period last year, an increase of 5.9%. The increase is mainly due to the strong activity in the construction services business.

Gross profit was $202.9 million, or $7.9 million lower than for the same period last year. This was due mainly to lower sales of construction materials, increased production costs, and a higher proportion of construction services revenues than in the first nine months of 2004. These revenues typically generate lower margins than sales of construction materials.

Selling and administrative expenses were $77.7 million, or $5.5 million higher than for the first nine months of 2004. This is due mainly to increased pension plan expenses, as well as $5.7 million of costs related to the implementation of the finance service centre. The Company expects to incur approximately $2.7 million of additional costs for this project in the fourth quarter of 2005, in line with the initial plan.

Depreciation expense for the first nine months of 2005 was $43.1 million, or $1.0 million lower than for the same period last year. The decrease is mainly due to the favourable foreign exchange impact on the depreciation of US assets resulting from the year-over-year appreciation of the Canadian dollar. Operating profit to September 30, 2005 stood at $82.1 million compared to $94.5 million last year.

In the second quarter, the Company announced its decision to withdraw the proposed Greenport replacement cement plant from the permitting process. 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. As a result the Company recorded a write-down of $65.5 million (approximately $37.5 million after tax) of related capitalized development costs in the second quarter.

Net earnings for the nine month period ended September 30, 2005 were $3.4 million ($0.08 basic earnings per share) compared to $47.4 million ($1.14 basic earnings per share) for the first nine months of 2004. Excluding the write-down related to the Greenport project, net earnings for the nine month period ended September 30, 2005 were $40.9 million ($0.98 basic earnings per share).

Results by segment

Despite weaker sales volume for construction materials, the Ontario division increased sales for the third quarter to $257.6 million compared to $245.8 million for the same period in 2004 as a result of increased prices and stronger construction services revenue. Operating profit was $47.6 million compared to $44.1 million for the third quarter of 2004, reflecting higher sales prices, partly offset by 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 nine months of 2005, sales reached $532.4 million, an increase of $40.2 million over the prior year, while operating profit was $59.1 million, or $0.5 million higher.

Sales by the Quebec and Atlantic division decreased by $1.6 million to $104.1 million in the third quarter compared to $105.7 million for the same period last year mainly due to lower construction services revenue. The decrease is due to delays in the Highway 13 and Highway 40 projects. This revenue is expected to be recognized in the fourth quarter of this year. Operating profit was $18.2 million compared to $20.6 million as a result of lower sales volumes of aggregates, higher energy and freight costs as well as delays associated with the construction services projects. For the first nine months of 2005, sales increased by $0.8 million to $213.9 million. Operating profit was $21.3 million compared to $29.9 million for the same period last year, resulting mainly from higher cement production costs related to energy and lower sales volumes of construction materials.

U.S. division sales for the third quarter increased by 23.5% in local currency. On a reported basis, sales rose by 13.6% to $87.6 million compared to $77.1 million, reflecting an unfavourable currency exchange impact of $7.6 million. Operating profit increased from $6.0 million to $9.5 million on higher sales volumes and selling prices. For the first nine months of 2005, U.S. division sales amounted to $203.7 million compared to $191.5 million for the same period in 2004. Operating profit was $1.7 million compared to $6.0 million for the first nine months of last year as a result of a higher proportion of imported cement in the sales mix, significantly higher imported cement costs, increased energy costs, and higher maintenance expenses related to unplanned shutdowns at the Catskill cement plant.

Liquidity and capital resources

The Company continues to generate steady operating cash flow albeit at a lower level than last year. For the third quarter of 2005, operating cash flow was $62.5 million compared to $59.0 million for the same period last year. As a result of unfavourable working capital movements, net cash provided by operations for the third quarter was $56.4 million compared to $98.3 million for the same period last year. For the first nine months of 2005, operating cash flow was $87.5 million, or $12.9 million lower than for the same period last year. Primarily as a result of the unfavourable working capital movements in the third quarter, the Company utilized $13.9 million to fund its operations in the first nine months of 2005 compared with $41.8 million of cash generated by operations for the same period last year.

The Company ended the first nine months of the year in a comfortable financial position with a ratio of total long-term debt to total capitalization of 27:73 compared to 26:74 at the end of the third quarter of 2004. Long-term debt as of September 30, 2005 at $272.1 million is in line with the amount outstanding at the same time last year and the Company held cash and cash equivalents of $43.0 million compared to $17.2 million at September 30, 2004.

A dividend of $0.14 per share ($0.125 last year) was paid on August 1, 2005 to shareholders of record on July 15, 2005 bringing the year-to-date dividend to $0.42 per share compared to $0.375 for the first nine months ended September 30, 2004. In addition, a dividend of $0.14 per share was declared for payment on November 1, 2005 to shareholders of record on October 15, 2005.

Outlook

The latest forecasts of the Portland Cement Association (PCA) show a significant reversal of the trend for our Canadian markets, with an annual decline of 3.8% for Quebec and 2% for Ontario in 2005, as compared to growth rates of 1.9% and 1.1% respectively, in the spring forecasts. Our US markets, mainly New England and Middle Atlantic also show negative trends year to date. Despite the general softening of our markets for construction materials, high energy costs and continuing production issues at our Catskill plant, the Company is still cautiously optimistic that it will record a modest improvement in consolidated sales and operating profit in the fourth quarter as compared to 2004.

Looking ahead, early indications for the construction industry in 2006 are slightly positive overall. The Portland Cement Association (PCA) is forecasting a 1 to 2% demand growth for cement in our Canadian and U.S. markets.

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
(in millions three month three month nine month nine month
of Canadian period period period period
dollars, except ended ended ended ended
per share data) September September September September
30, 2005 30, 2004 30, 2005 30, 2004
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Sales 449.3 428.6 950.0 896.8
Cost of sales 334.6 316.7 747.1 686.0
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Gross profit 114.7 111.9 202.9 210.8
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Expenses
Selling and
administrative 25.2 24.5 77.7 72.2
Depreciation and
amortization of
property, plant
and equipment
and other
long-term assets 14.2 16.7 43.1 44.1
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39.4 41.2 120.8 116.3
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Operating profit 75.3 70.7 82.1 94.5

Other expenses 0.8 2.4 3.1 5.2
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Earnings before
interest, taxes, and
unusual items 74.5 68.3 79.0 89.3

Unusual expense
(note 2) - - 65.5 -
Financial expenses 4.4 5.9 12.3 13.8
Gain on sale of assets (0.1) (0.3) (1.0) (0.3)
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Earnings before income
taxes 70.2 62.7 2.2 75.8

Income taxes
(recoveries)
Current 22.1 20.7 21.3 19.8
Future 5.6 2.8 (22.5) 8.6
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27.7 23.5 (1.2) 28.4
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Net earnings 42.5 39.2 3.4 47.4

Retained earnings at
beginning of period
As previously
reported 457.4 460.3 508.4 474.2
Adoption of new
accounting standard
for asset retirement
obligations - - - (11.4)
Premium on acquired
class "A" shares - (0.2) - (0.2)
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As restated 457.4 460.1 508.4 462.6

Dividends (5.9) (5.1) (17.8) (15.8)
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Retained earnings at
end of period 494.0 494.2 494.0 494.2
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Basic earnings per share 1.02 0.94 0.08 1.14
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Diluted earnings per
share 1.01 0.94 0.08 1.14
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Weighted average number
of outstanding shares
used in computing
basic 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 earnings per
share (in millions) 41.9 41.6 41.9 41.6
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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
(in millions of September 30, December 31, September 30,
Canadian dollars) 2005 2004 2004
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(unaudited) (audited) (unaudited)

ASSETS

Current assets
Cash and cash equivalents 43.0 36.1 17.2
Accounts receivable 175.9 127.4 182.5
Inventories 137.2 105.5 129.4
Prepaid expenses and other 16.1 10.7 17.1
Income taxes recoverable 12.4 10.6 13.4
Future income taxes 12.2 12.2 12.8
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396.8 302.5 372.4

Property, plant and equipment
(note 2) 721.7 806.0 807.4
Godwill 75.2 75.3 77.1
Investments and other long-term
assets (note 2) 42.9 23.2 23.8
Employee future benefits 4.3 6.3 5.8
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1,240.9 1,213.3 1,286.5
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LIABILITIES AND SHAREHOLDERS'
EQUITY

Current liabilities
Accounts payable and accrued
liabilities 179.1 187.6 181.2
Dividend payable 5.9 6.0 5.2
Construction advances, net 6.2 8.6 3.9
Current portion of long-term
debt 0.6 7.3 7.2
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191.8 209.5 197.5

Employee future benefits 3.3 3.8 3.2
Long-term provision (note 3) 25.9 29.6 35.0
Long-term debt 272.1 186.5 272.5
Future income taxes 151.9 173.4 168.9

Shareholders' equity
Share capital 135.5 133.8 131.9
Cumulative translation
adjustments (34.5) (32.2) (17.1)
Retained earnings 494.0 508.4 494.2
Contributed surplus 0.9 0.5 0.4
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595.9 610.5 609.4

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1,240.9 1,213.3 1,286.5
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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
(in millions three month three month nine month nine month
of Canadian period period period period
dollars, except ended ended ended ended
per share data) September September September September
30, 2005 30, 2004 30, 2005 30, 2004
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OPERATIONS
Net earnings 42.5 39.2 3.4 47.4
Depreciation and
amortization 14.2 16.7 43.1 44.1
Future income taxes 5.6 2.8 (22.5) 8.6
Unusual expense
(note 2) - - 65.5 -
Gain on sale of assets (0.1) (0.3) (1.0) (0.3)
Other 0.3 0.6 (1.0) 0.6
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Operating cash flow 62.5 59.0 87.5 100.4

Net change in working
capital balances (6.1) 39.3 (101.4) (58.6)
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Net cash provided
(used) by operations 56.4 98.3 (13.9) 41.8
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INVESTMENTS
Additions to property,
plant and equipment (10.7) (12.8) (48.0) (44.0)
Proceeds from sale of
assets 3.0 2.3 5.0 2.3
Business acquisitions
- net of cash - (3.3) - (64.8)
(Decrease) increase in
long-term receivables (2.3) - (1.1) 0.4
Other 4.0 (7.5) 2.9 2.2
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Net cash used for
investments (6.0) (21.3) (41.2) (103.9)
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FINANCING
Share capital issued 0.2 0.4 0.7 2.2
Increase in long-term
debt - - 79.1 124.0
Decrease in long-term
debt (15.3) (70.5) - (75.5)
Dividends paid (5.9) (5.3) (17.8) (15.9)
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Net cash (used)
provided by financing (21.0) (75.4) 62.0 34.8
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Net increase (decrease)
in cash and cash
equivalents 29.4 1.6 6.9 (27.3)
Cash and cash
equivalents, beginning
of period 13.6 15.6 36.1 44.5
Cash and cash
equivalents, end of
period 43.0 17.2 43.0 17.2
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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
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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 19.8 21.8
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Net earnings to date 3.4 67.2 65.4



Segmented Information
(unaudited)

FOR THE THREE MONTHS ENDED SEPTEMBER 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 257.6 245.8 104.1 105.7 87.6 77.1 449.3 428.6
Intersegment
sales 6.7 8.4 0.7 0.8 - - 7.4 9.2
Operating
profit 47.6 44.1 18.2 20.6 9.5 6.0 75.3 70.7

FOR THE NINE MONTHS ENDED SEPTEMBER 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 532.4 492.2 213.9 213.1 203.7 191.5 950.0 896.8
Intersegment
sales 15.6 15.1 1.4 3.7 - - 17.0 18.8
Operating
profit 59.1 58.6 21.3 29.9 1.7 6.0 82.1 94.5

Financial Summary
(unaudited)
For the nine
(in millions of month period For the year
Canadian dollars) ended September 30 ended December 31
2005 2004 2004 2003 2002
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Sales 950.0 896.8 1,278.0 1,149.2 1,189.2

Net earnings 3.4 47.4 67.2 65.4 85.3

Operating cash flow 87.5 100.4 136.9 120.2 155.0

Per share value
Basic earnings 0.08 1.14 1.61 1.58 2.07
Operating cash
flow 2.09 2.41 3.29 2.91 3.75
Dividends 0.42 0.38 0.52 0.50 0.50
Total assets 1,240.9 1,286.5 1,213.3 1,143.1 1,170.5

Long-term debt 272.1 272.5 186.5 229.1 265.2

Future income taxes
liabilities 151.9 168.9 173.4 165.7 160.8

Shareholders' equity 595.9 609.4 610.5 590.1 581.7

Long-term debt on
total capitalization 27:73 26:74 20:80 23:77 27:63

Return on average
equity (%) 0.6 7.9 11.2 11.2 15.5



General Information

As at September 30, 2005

Stock listings
Toronto Stock Exchange

Trading symbol ST.SV.A

Stock price (last 9 months)
Closing $27.92
High $31.50
Low $23.75

Book value $14.25

Outstanding shares
Class A (1 vote) 26,586,331
Class B (3 votes) 15,252,848
Special 536,455

Approximate "Float" (Class A) 15,417,612

Corporate Office
1945 Graham Boulevard
Mount Royal, Quebec H3R 1H1
Telephone : (514) 340-1881
Fax : (514) 342-8154



NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
As at September 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 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
second quarter 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).

An amount of $18.5 million (US$ 15.8 million) representing the net
book value of assets not written off have been reclassified from
Property, plant and equipment to Investments and other-long term
assets as non-operating assets in the second quarter of this year.

3. Asset retirement obligations

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

Balance as at December 31, 2004 $29.6
Accretion expense 0.9
Payment of obligation (4.6)
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Balance as at September 30, 2005 $25.9

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 September 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 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
nine month period ended September 30 would have been as follows:

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2005 2004
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Reported net earnings $3.4 $47.4
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Adjustment using the fair market value method
for special shares incentive plan (0.2) (0.2)
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Pro forma net earnings $3.2 $47.2
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Basic earnings per share $0.08 $1.14
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Diluted earnings per share $0.08 $1.14
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Pro forma basic earnings per share $0.08 $1.13
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Pro forma diluted earnings per share $0.08 $1.13
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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 2.0
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Total $4.7
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6. Employee future benefits

The Company's total net benefit cost for the three and nine month
periods ended September 30, 2005 was $2.0 million and $6.1 million
respectively ($1.7 million and $5.0 million for the three and nine
month periods ended September 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