International Steel Group Inc. (ISG) reported net income of $606.0 million on net sales of $2,553.5 million for the fourth quarter and net income of $1,027.4 million on net sales of $9,015.9 million for the year ended December 31, 2004.

Fourth Quarter Results — Net income of $606.0 million ($5.87 per diluted share) compares to net income of $24.9 million for the fourth quarter of 2003. Current results include an unusual income tax benefit of about $390 million ($3.78 per diluted share). Excluding this unusual income tax benefit, net income was $216.1 million ($2.10 per diluted share) for the fourth quarter.

Operating income of $258.9 million ($68 per ton shipped) compares to $340.4 million ($84 per ton shipped) in the third quarter 2004. Net sales declined slightly to $2,553.5 million from $2,608.3 million in the third quarter, however they reflect a significant increase over net sales of $1,418.3 million in the fourth quarter of 2003. Shipments declined to 3,828,000 tons from 4,039,000 tons in the third quarter, principally as a result of a planned outage at the Burns Harbor steelmaking facilities. Average net sales per ton shipped was $667, which compares favorably to $646 in the third quarter.

Cost of sales was 86% of sales compared to 83% in the third quarter, largely due to increases in alloys, natural gas and scrap costs combined with higher maintenance spending and fixed costs being unabsorbed during the Burns Harbor production outages. The planned outages included 52 days at the caster, 13 days at the blast furnace and 6 days at the hot mill.

The fourth quarter LIFO provision of $52 million compares to $24 million in the third quarter. Profit sharing, VEBA costs and production bonuses for all employees declined to about $40 per ton shipped in the fourth quarter 2004 from about $44 per ton shipped in the third quarter.

Full Year Results — Net income of $1,027.4 million ($9.99 per diluted share) compares to a net loss of $23.5 million in 2003. Results include an unusual income tax benefit of about $390 million ($3.78 per diluted share). Excluding this unusual income tax benefit, net income was $637.5 million ($6.20 per diluted share) for 2004. ISG's management believes that ISG's net income excluding this unusual tax benefit is more indicative of ISG's results of operations. ISG's rapid growth through acquisitions makes comparisons to prior-year amounts not meaningful.

Selling, general and administrative expenses were higher in the fourth quarter 2004, principally as a result of expenses relating to the merger with Mittal Steel. Miscellaneous income of $17 million resulted from the company’s share of tariffs the United States government collected under antidumping laws for unfairly traded imports.

Income Taxes — As of December 31, 2003, ISG had incurred a cumulative tax loss from inception and, therefore, the estimated $1 billion of potential deferred tax asset acquired in the Bethlehem acquisition was fully offset by a valuation allowance. ISG's pre-tax income of $756 million during 2004 and probability of continued significant profitability, the strong global steel market and available tax planning strategies made it more likely than not that ISG will realize benefits from deferred taxes. Therefore, the valuation allowance was reduced, resulting in about $390 million of unusual non-cash, income tax benefits in the fourth quarter. Future adjustments to the valuation allowance are possible based on periodic reviews required under generally accepted accounting principles (GAAP).

ISG's effective tax rate before the valuation allowance reduction of about 15% for the year 2004 results in an effective rate of about 12% for fourth quarter. The 15% effective rate for the year 2004 takes into consideration the temporary differences that arose during the year, the benefit of the NOL carryforward arising in 2003 and the benefit of NOL carryforwards available for 2004 from the Bethlehem acquisition. In addition, as required by GAAP, ISG recognized in 2004 the benefit of temporary differences, principally depreciation, that are expected to be available in 2005 and 2006 to carryback against the current income taxes paid for 2004. In 2005, ISG expect its effective rate to be a more typical 38% to 39%.

Liquidity and Cash Flow from Operations — At December 31, 2004, ISG had liquidity of $848.1 million consisting of $606.7 million cash and available borrowing capacity of $241.4 million under the company’s revolving credit facility. Cash provided by operating activities was $694.7 million compared to $288.9 million for 2003.

Capital Expenditures — ISG made capital expenditures of $267.2 million and acquisitions of $223.9 million during 2004. Acquisitions included a Hot Briquetted Iron Facility and substantially all the assets of Georgetown Steel Corp. and Weirton Steel Corp. The company anticipates $425 million in capital expenditures for 2005.

Outlook — Underlying demand remains fairly good in most market segments. Order entry has increased somewhat from the seasonally slow fourth quarter. Customer inventories, especially at service centers, are relatively high, however they are being consumed. First quarter 2005 shipments are expected to be about 4.0 million tons and average sales per ton shipped is expected to increase modestly. Costs per ton shipped should be about the same as the fourth quarter because no major equipment outages are planned and the cost of natural gas and scrap are expected to diminish somewhat. These factors will, however, be offset somewhat by higher prices for iron ore and coal.

International Steel Group Inc. is one of the largest steel producers in North America. It manufactures a variety of steel products including hot-rolled, cold-rolled and coated sheets, tin mill products, carbon and alloy plates, wire rod and rail products and semi-finished shapes to serve the automotive, construction, pipe and tube, appliance, container and machinery markets.