Stelco First Quarter Results - Q1 2006

HAMILTON, ON, May 11 /CNW/ - Stelco Inc.(TSX:STE) today reported a net loss of $122 million for the first quarter ended March 31, 2006, including the impacts of discontinued operations and reorganization costs. This compares to net earnings of $49 million in the first quarter of 2005, and a net loss of $120 million in the fourth quarter of 2005. The results reported today are related to Stelco prior to emerging from Court protection at the end of the day on March 31, 2006, and prior to implementing the Corporation's Plan of Arrangement and Reorganization. As such, the first quarter results are referred to as those of the "Predecessor" in the Consolidated Financial Statements. Any reference to Stelco after implementation of the CCAA Plan is referred to as the "Successor".
The results reported today include a $43 million after-tax loss on discontinued operations which represents the businesses of the Mini-mill and Manufactured Products segments, the sales of which were completed in the first quarter. As well, reorganization costs on a pre-tax basis in each of the first quarters of 2006 and 2005 amounted to $21 million compared to $29 million in the fourth quarter of 2005.
The following information excludes discontinued operations.
Net sales revenue in the first quarter of 2006 was $674 million compared to $728 million for the same period in 2005. This 7% decrease was mainly due to renewal of customer contracts at lower prices and lower spot market prices, a lower value-added mix as a result of the fourth quarter 2005 Lake Erie Steel's hot strip mill outage and the negative impact of the higher Canadian dollar.
Cost of sales for the first quarter of 2006 was $695 million compared to $593 million for the same quarter of 2005. This 17% increase was primarily due to higher spending for repairs and maintenance, purchased services and supplies; higher natural gas, coal, ore and zinc costs; the flow through of high cost inventories produced in the previous quarter; and the impact of the fourth quarter 2005 Lake Erie Steel's hot strip mill upgrade, which included the high cost of outside conversion of slabs to hot roll coils. These costs were partly offset by lower purchased coke, scrap and electricity costs; a lower value-added mix of sales, and reduced labour costs at Hamilton Steel, resulting from the continued attrition of the workforce.
Production in the first quarter of 2006 was 997,000 semi-finished net tons compared to 1,020,000 semi-finished net tons produced during the same period in 2005. Shipments during the first quarter of 2006 totaled 974,000 net tons compared to 907,000 net tons shipped during the first quarter of 2005, representing a 7% increase.
As of March 31, 2006, the net liquidity position of the "Predecessor" company was $250 million, consisting of $36 million of cash, cash equivalents and restricted cash, $396 million of available lines of credit, less $182 million of drawings on credit lines. This compares to net liquidity of $304 million for the same period of 2005, and $254 million for year-end 2005. The net liquidity position for the "Successor" company, as of March 31, 2006 was $555 million, consisting of $36 million of cash, cash equivalents and restricted cash, $946 million of available lines of credit, less $427 million of drawings on lines of credit.
The $305 million increase in net liquidity from the Predecessor company to the Successor company, is the result of the following events in connection with the implementation of the CCAA Plan.

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