Gerdau Ameristeel Corp. reported net income of $66.4 million on net sales of $849 million for the fourth quarter, and net income of $337.7 million on net sales of $3.0 billion for the full year ended December 31, 2004.

Fourth Quarter Results—Net income of $66.4 million ($0.23 per share fully diluted) compares to a net loss of $3.4 million ($0.02 per share fully diluted) for the same quarter last year. Net sales of $849 million compare to net sales of $493 million for the same quarter last year. EBITDA of $130.9 million compares to EBITDA of $17.1 million for the same quarter of last year. Included in net income and EBITDA is a non-cash pretax expense of $12.5 million to mark to market outstanding stock appreciation rights and other equity-based compensation held by employees compared to $7.8 million for the year-ago quarter.

Including joint ventures, the company shipped 1.5 million tons of finished steel in the three months ended December 31, 2004, an increase of 4.0% over the fourth quarter of 2003. Average mill selling prices increased $246 per ton (74.9%) compared to the fourth quarter in 2003. Scrap raw material costs increased $95 per ton (73.8%) compared to the fourth quarter of 2003, partially offsetting the mill price increases. Metal spread, the difference between mill selling prices and scrap raw material cost, increased $151 per ton (75.6%) compared to the fourth quarter last year. Mill manufacturing costs were $238 per ton in the fourth quarter of 2004 compared to $181 per ton in the fourth quarter of 2003, reflecting increased yield costs due to higher scrap prices, higher energy prices, a higher number of scheduled annual maintenance and capital project shutdowns, and the stronger Canadian dollar. Fabricated steel prices increased $243 per ton compared to the fourth quarter of the prior year.

Income from operations was $74.3 million and joint venture operating income was $40.3 million. Based on 1.5 million tons of finished steel shipped, the composite operating income was $78 per ton for the fourth quarter of 2004. For the three months ended December 31, 2003, loss from operations was $1.7 million and joint venture operating income was $3.5 million. Based on 1.4 million tons of finished steel shipped, the composite operating income was $1 per ton for the fourth quarter of 2003.

Full Year Results—Net income of $337.7 million ($1.45 per share fully diluted) compares to a net loss of $26.7 million ($0.14 per share fully diluted) in 2003. Net sales of $3.0 billion compare to net sales of $1.8 billion in 2003. EBITDA of $527.3 million compares to EBITDA of $65.5 million in 2003.

Included in net income and EBITDA is a non-cash pretax expense of $21.8 million to mark to market outstanding stock appreciation rights and other equity-based compensation held by employees compared to $9.4 million for 2003. Also included in net income is a $48.6 million reduction in tax expense that resulted from the third and fourth quarter utilization of net operating losses related to U.S operations. The net operating losses are related to the U.S. operations of the former Co-Steel entity. At the time of the Co-Steel acquisition, tax assets were recorded at their estimated realization rate according to purchase accounting under U.S. GAAP. Due to the subsequent profitability of the company’s U.S. operations, more of these losses can now be utilized.

Including joint ventures, the company shipped 5.9 million tons of finished steel, an increase of 6.6% over the prior year, reflecting strong North American demand for steel products. Average mill selling prices increased $200 per ton (65.1%) compared to the year ended December 31, 2003. Scrap raw material costs increased $80 per ton (69.6%) compared to the year ended December 31, 2003. Metal spread increased $120 per ton (62.5%) compared to the previous year. Mill manufacturing costs were $209 per ton, compared to $174 per ton for the same period in the prior year. Fabricated steel prices increased $162 per ton compared to the year ended December 31, 2003.

For the year, income from operations was $373.3 million and joint venture operating income was $142.4 million. Based on 5.9 million tons of finished steel shipped, the composite operating income was $87 per ton for the year ended December 31, 2004. For the year ended December 31, 2003, loss from operations was $9.3 million and joint venture operating income was $9.7 million. Based on 5.6 million tons of finished steel shipped, the composite operating income was $0.06 per ton for the year ended December 31, 2003.

On November 1, 2004, the company completed its acquisition of the fixed assets and working capital of Cargill's four long steel product mills and four downstream steel processing facilities with annual manufacturing capacity of approximately 2.0 million tons. Consistent with current purchase price accounting requirements, the finished steel inventories, which were purchased at cost, were written up to market value. Approximately $24.0 million of the $28.5 million write-up was charged to cost of goods sold in the December quarter, and as a result, no significant margins were earned on shipments of this inventory.

On December 10, 2004, the company completed its acquisition of the fixed assets and working capital of Gate City's and RJ Rebar, Inc.'s rebar fabrication facilities in the Midwest with annual production capacity of approximately 150,000 tons.

Comments—Phillip Casey, president and CEO of Gerdau Ameristeel, commented, "Considering the unpredictable nature of the global steel market, fiscal year 2004 was a historic milestone for Gerdau Ameristeel in terms of financial performance, attractive growth opportunities from industry consolidation, and strengthening of our overall capital structure.

“Faced with an accelerated rate of change in market dynamics,” continued Casey, “the organization adapted to the growth demands seamlessly integrating three significant acquisitions without notable disruptions to our customers. The positive reactions of the new employees and the initial contributions from the acquired assets have been very encouraging. The next phase is to explore further operating cost savings, logistical synergies, economies of scale, and equipment modernization projects. Perhaps the most encouraging aspect of 2004 has been the demonstrated flexibility of the organization to adjust to these rapid changes. This acceptance of and adaptability to change will prove to be a competitive advantage as the domestic industry continues to restructure.

“Despite seasonal pressures and signs of an increase in steel imports, current prices and metal spreads have stabilized and appear to reflect improved market discipline from a less fragmented competitive environment. In the absence of major currency fluctuations or shifts in Chinese steel demand, domestic steel prices should reflect greater stability than the market turbulence of this past year.

“Inflationary pressures on manufacturing costs, particularly energy and other raw material costs, are increasing the resistance to price concessions and shifting the focus to volume supply side considerations. The industry appears to have adopted an increased awareness of margin preservation and greater flexibility in scheduling steel mill operations to curtail production volumes in response to import challenges."

Gerdau Ameristeel is the second largest minimill steel producer in North America with annual manufacturing capacity of over 8.4 million tons of mill finished steel products. Through its vertically integrated network of 15 minimills (including one 50%-owned minimill), 16 scrap recycling facilities and 42 downstream operations (including two 50%-owned joint ventures), Gerdau Ameristeel primarily serves customers in the eastern two-thirds of North America.