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International Steel Group
Announces 1st Quarter Results

April 30, 2004 — International Steel Group Inc. reported first-quarter 2004 net income of $70.9 million on net sales of $1.8 billion.

Net income of $70.9 million ($0.68 per diluted share) compares to a net loss of $2.3 million reported in the first quarter of 2003. However, comparisons to that quarter are not meaningful because the acquisition of Bethlehem Steel Corp.'s assets in May 2003 more than doubled the size of ISG and significantly improved its product and customer mix.

First quarter net income was also a significant improvement compared to fourth-quarter 2003 net income of $24.9 million. The company had reported a loss of $0.57 per diluted share in the fourth quarter of 2003 after a "deemed dividend" related to its initial public offering.

Net sales, $1.8 billion, reflect a 25% increase compared to $1.4 billion in the previous quarter. Operating income improved 63% over the same period to $86.5 million. Shipments increased about 10% from the fourth quarter of 2003 as demand from all markets continued strong.

Average net sales per ton shipped was $458 for the first quarter compared with $405 in the fourth quarter. Prices have risen as a result of strong demand and surcharges to recover increased raw material costs. The company's product mix also continues to improve as value-added cold-rolled and coated shipments increased to 42% of total shipments in the first quarter of 2004 from 38% in the fourth quarter of 2003.

ISG's CEO Rodney B. Mott said, "We saw excellent market strength in the first quarter as increased demand, higher selling prices and improved product mix more than offset the rise in raw material costs. We continue to see the positive impact of the Bethlehem integration that will enable us to take advantage of the strong market going forward to improve our bottom line."

Inventory Valuation—Cost of sales for the first quarter of 2004 and the fourth quarter of 2003 was about 90% of sales. Effective January 1, 2004, ISG adopted the last-in, first-out (LIFO) cost method of accounting for substantially all inventories not previously accounted for on the LIFO method, including moving from LIFO pools for each operation to a single LIFO pool. The LIFO provision for the first quarter of 2004 was approximately $103 million, principally for higher costs of coke, iron ore, steel scrap and coal.

Financing Expense—Financing expense in the first quarter declined from the previous quarter following the payoff of certain debt with proceeds from ISG's December 2003 initial public equity offering. The fourth quarter of 2003 also included writing off deferred financing fees related to that debt.

Estimated Effective Tax Rate—The estimated effective tax rate for 2004 is about 7% of pretax income. The company provided a full valuation allowance on its net deferred tax asset in 2003. As a result, going forward, the provision for income taxes will typically reflect only what the company expects to pay until the valuation allowance is reduced. The estimated effective income tax rate for 2004 is lower than the expected rate of about 40% for federal and state income taxes because the company can recognize some of that deferred tax asset based on current and projected 2004 results.

Liquidity and Cash Flow—At March 31, 2004, ISG's liquidity, defined as its cash position and remaining availability under its revolving credit facility, was $405.2 million. This consisted of $201.0 million of cash and available borrowing capacity of $204.2 million. As of December 31, 2003, the company's liquidity was $432.7 million.

Cash provided by operating activities for the first quarter 2004 was $46.8 million. Receivables were higher as a result of higher sales in the current period. Inventory quantities declined during the first quarter of 2004 and the higher unit costs were included in cost of sales as a result of adopting the LIFO method of accounting for substantially all inventories. The company also made advances to secure certain coke in the international market, which increased prepaid and other current assets during the quarter. Higher prices for raw materials also resulted in higher accounts payable at the end of the quarter. During the quarter, the company also made certain required contributions to the United Steelworkers of America (USWA) pension plan and continued to make payments under the transition assistance program with the USWA.

Capital expenditures were $27.5 million in the first quarter of 2004. The company anticipates capital expenditures to total about $300 million for the full year, of which about $100 million is for strategic purposes excluding any potential acquisitions. Proceeds from asset sales were $5.8 million in the first quarter. The company expects proceeds of about $50 million in the remainder of 2004 from sales of surplus assets.

In April 2004, ISG issued $600 million aggregate principal amount of 6.5% Senior Notes due 2014 that were sold at 99.096% of par resulting in an effective yield to maturity of 6.625%. Certain proceeds were used to repay outstanding debt totaling $323.1 million. The remaining funds will be used to pay down other debt, for strategic investments and for general corporate purposes.

ISG is currently in discussions with lenders to replace its current credit facilities with a new arrangement that provides more liquidity and fewer covenants. These discussions are expected to be completed by the third quarter of this year.

Outlook—Production is expected to increase in the second quarter of 2004, however, shipments are expected to remain relatively unchanged due to a significant reduction in inventory that occurred in the first quarter 2004. Realized selling prices are expected to increase by approximately $50 per ton over the first quarter of 2004. ISG also believes there will be adequate availability of coke supplies. Although the full impact of the current spot coke prices will increase ISG's production costs in the second quarter of 2004, the company expects that the positive trends on realized selling prices due to previously announced price increases should more than offset the expected production cost increase. Therefore, the outlook remains positive, with income from operations expected to rise significantly in the second quarter of 2004.

International Steel Group Inc. is the second-largest integrated steel producer in North America, based on its capacity to cast more than 18 million tons of steel products annually. It ships a variety of steel products from 11 major steel producing and finishing facilities in six states, including hot-rolled, cold-rolled and coated sheets, tin mill products, carbon and alloy plates, rail products and semi-finished shapes serving the automotive, construction, pipe and tube, appliance, container and machinery markets.

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