Slater Steel loses $45 million in quarter

Two months after applying for protection under Canada's Companies' Creditors Arrangement Act and Chapter 11 of the U.S. Bankruptcy Code, Slater Steel has reported a second-quarter loss of $44.5 million.

The Mississauga-based mini-mill specialty producer reported this morning that the loss was primarily caused by weak demand for stainless steel bar, soft product pricing, as well as increased costs of nickel, scrap, natural gas and electricity.

The following is from a news release issued by the company this morning:

**************************************************************** Slater Steel reports second-quarter financial results

MISSISSAUGA, ON, Aug. 25 - Slater Steel Inc. (SSI) today reported a loss from continuing operations of $44.5 million, or a loss of $2.95 per share, for the three months ended June 30, 2003, compared to earnings from continuing operations of $1.5 million, or $0.10 per share, in the second quarter of 2002.

The net loss for the second quarter 2003 was $44.5 million, or a loss of $2.95 per share, versus net earnings of $3.3 million, or $0.22 per share, in the corresponding quarter a year ago.

A number of factors contributed to the second quarter loss, which is primarily related to the Company's stainless steel segment, including weak demand for stainless steel bar and soft product pricing, as well as increased input costs, including nickel, scrap, natural gas and electricity.

These factors gave rise to a $9.0 million provision for stainless steel inventories which had manufactured costs in excess of net realizable values.

The Company's second quarter financial results include the following special charges: $3.9 million in fees and expenses related to the attempted financings prior to the filing for creditor protection and $3.1 million in restructuring costs subsequent to the filing for creditor protection. For the six months of 2003, the Company reported a loss from continuing operations of $53.3 million, or a loss of $3.53 per share, versus earnings from continuing operations of $0.8 million, or $0.05 per share, in the comparable period a year earlier.

The net loss for the six months ended June 30, 2003, was $53.3 million, or a loss of $3.53 per share, compared to net earnings of $3.9 million, or $0.27 per share, in the prior year period.

Second quarter and year-to-date 2002 earnings from discontinued operations is related to the results of Renown Steel, which was sold in the second quarter of 2002. Earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations, before special charges, for the three months ended June 30, 2003, was a loss of $28.2 million.

This compares to EBITDA from continuing operations of $8.6 million in the second quarter of 2002.

For the six months ended June 30, 2003, EBITDA from continuing operations, before special charges, was a loss of $28.9 million, compared to earnings of $17.0 million in the corresponding period in 2002.

"Slater is taking immediate action to stem the losses in its stainless bar operations," said Paul A. Kelly. "To improve the economics of the stainless bar business, we are downsizing the stainless bar operations to what we believe is a competitively and financially viable market position". Consolidated sales for the three months ended June 30, 2003 were $163.7 million, versus $182.1 million in the corresponding period a year earlier.

The year-over-year decline in sales is attributed to reduced shipments and lower base selling prices in the stainless steel segment.

Net sales in the specialty carbon segment were constant on a year-over-year basis.

As a result of the creditor protection proceedings, the Company concluded that the realization of the benefit of any tax assets was doubtful.

Therefore, an additional valuation allowance of $15.5 million against future tax assets arising from tax losses incurred in the second quarter of 2003 was recorded. For the three-month period ended June 30, 2003, operating cash flow from continuing operations, after changes in working capital, consumed $11.3 million.

Working capital provided cash of $23.9 million as a result of lower inventory levels, increased accounts payable and accrued liabilities.

In the comparable quarter of 2002, cash flow from continuing operations, after working capital changes, consumed $19.4 million.

At the end of the second quarter, the Company's net debt position was $184.1 million, including debtor-in-possession (DIP) financing of $18.4 million.

In the corresponding period a year earlier, net debt was $155.5 million.

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