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Stelco reports new losses of $431 million

Once-mighty Stelco Inc. disclosed that it lost a staggering $431 million over two quarterly periods reported today.
Stelco2

Once-mighty Stelco Inc. disclosed that it lost a staggering $431 million over two quarterly periods reported today.

The Hamilton, Ontario steelmaker, currently undergoing restructuring under the Companies' Creditors Arrangement Act, expressed hope that it will once again emerge as a "strong industry player."

The following is from a company news release:

*************************** Stelco reports results for 2003, the fourth quarter 2003 and the first quarter 2004

HAMILTON, ON, May 6 - For the year ended December 31, 2003, Stelco reported a net loss of $563 million ($5.61 per common share) compared with restated net earnings of $1 million ($0.09 loss per common share) for the year ended December 31, 2002.

In respect to the fourth quarter 2003, the net loss was $395 million ($ 3.89 per common share) on production of 1,329,000 semi finished tons and shipments of 1,273,000 tons.

This compares to fourth quarter 2002 (restated) net earnings of $20 million ($0.17 per common share) on production of 1,205,000 tons and shipments of 1,083,000 tons.

In fourth quarter 2003, the Corporation recorded two significant non-cash items: $87 million pre-tax charge to write off the remaining net book value of the plate mill assets and a $304 million future income tax asset valuation allowance, reflecting the probability that, under the Corporation's existing cost structure, these future income tax assets will not be utilized.

As a result of a change in accounting policy with respect to blast furnace relines in 2003, the 2002 Financial Statements have been restated as necessary to make them comparative to the Financial Statements issued in 2003. Cash usage for the year 2003 amounted to $114 million and, as a result, the Corporation's net short-term debt increased from $78 million to $192 million. Major elements of the cash usage were:

- Cash losses before working capital changes - $69 million - Capital spending - $33 million - Long-term debt repayments - $52 million

Partly offsetting the above was $52 million provided by working capital changes with the two main contributing factors being a $188 million reduction in inventory and a $115 million reduction in accounts payable and accrued.

The significant reduction in accounts payable was mainly due to suppliers reducing or eliminating credit terms as a result of the Corporation's deteriorating financial condition.

As at December 31, 2003, net liquidity on a consolidated basis was $163 million, consisting of $355 million of available lines of credit plus $23 million of cash and cash equivalents, less $215 million of line of credit drawings.

Stelco Inc. on a parent company basis, had net liquidity of $125 million based on $325 million of the $350 million credit facility being available.

The $25 million reduction in credit availability was caused by $10 million of issued letters of credit and $15 million arising from insufficient eligible collateral caused by low year end accounts receivable.

Subsequent to the year-end 2003, eligible collateral increased, reinstating the $15 million. First Quarter 2004

Stelco Inc. today also reported a net loss of $36 million ($0.36 per common share) in first quarter 2004 compared with a loss of $44 million ($0.46 per common share) in first quarter 2003.

Included in the first quarter loss is $23 million related to accounting for "Reorganization items" as a result of the January 29, 2004 filing under CCAA, primarily consisting of an adjustment of the convertible debenture balance to the anticipated claim amount and professional fees.

Production in the first quarter 2004 was 1,366,000 semi-finished tons, up from the 1,329,000 tons for the previous quarter and 1,301,000 tons for the same period in 2003, primarily due to improved market demand, consolidation in the U.S. steel industry, and increased shipments to the automotive sector.

On a consolidated basis, cash usage in the first quarter 2004 amounted to $31 million bringing net short-term debt to $223 million.

This included a reclassification of $16 million related to the refinancing of the bank debt at Norambar Inc. (formerly Stelco McMaster).

The balance was mainly associated with the entities in protection under CCAA consisting of $4 million cash usage from operating activities (including working capital), $10 million for a Directors' and Officers' Trust, and $3 million of capital spending.

Working capital (included in the $4 million cash usage from operating activities) used $27 million of cash in the first quarter 2004 with notable items being $106 million increase in accounts receivable due to higher sales that were partly offset by a $65 million increase in accounts payable as the Corporation began to restore trade credit after its filing for CCAA.

At March 31, 2004, the Corporation's consolidated net liquidity was $243 million compared with $163 million as at December 31, 2003.

The main change in available credit was the $75 million DIP facility acquired as part of the Corporation's CCAA filing.

The net liquidity of the CCAA applicants at March 31, 2004, was $196 million, compared with $126 million as at December 31, 2003.

As a result of the restructuring under CCAA, the Corporation has and will continue to record reorganization and restructuring items directly associated with the restructuring.

These "reorganization and restructuring items" represent revenues, expenses, assets and liabilities that can be directly associated with the reorganization and restructuring of the business under CCAA, and do not relate to the normal operating activities of the Corporation. Courtney Pratt, President and Chief Executive Officer, stated, "The results for 2003 show clearly that the company had no choice but to seek protection under the Companies' Creditors Arrangement Act (CCAA). That does not mean, however, that Stelco can't emerge as a viable and competitive entity through this process." He also stated, "The Board and the newly constituted management group are committed to a successful restructuring. The elements of a restructuring plan will be determined through discussions to be held with all stakeholders. We intend to deal with these groups in a fair and responsible manner and regret the impact the Court-supervised restructuring has had on all constituencies. A successful restructuring offers the prospect of greater benefit than any other available alternative. We believe Stelco can emerge as a strong industry player. We recognize that everyone will be contributing to the restructuring through concessions and compromises that will be necessary. Perhaps shareholders will feel the impact of the restructuring most. Like many restructurings, shareholders of Stelco are unlikely to receive any real value for their shares at the end of the day." Stelco's 2003 Management's Discussion and Analysis and Audited Consolidated Financial Statements and Notes are available on Stelco's Web site www.stelco.com and will also be filed at SEDAR.com today.

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David Helwig

About the Author: David Helwig

David Helwig's journalism career spans seven decades beginning in the 1960s. His work has been recognized with national and international awards.
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