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Ispat Inland Reports 1st Quarter Results

May 11, 2004 — Ispat Inland announced net income of $41.7 million on net sales of $665.6 million for the first quarter of 2004.

Net income of $41.7 million compares to $14.8 million in the first quarter of 2003 and to a net loss of $21.4 million in the fourth quarter of 2003. Results include the benefit of an after-tax gain of $22.5 million for the years 2002 and 2003 due to the reassessment of property taxes for the year 2002. The 2002 reassessment, which was conducted by an independent assessor, was not completed until the end of February 2004. Excluding this benefit, the first quarter net income was $19.2 million.

Net sales of $665.6 million represent an increase $111.7 million (20%) from first quarter 2003 sales of $553.9 million. Shipments of 1,432,700 tons reflect a 164,700 tons (13%) increase over billings of 1,268,000 tons a year ago. The significant improvement in revenue is the result of strong steel demand, base price increases, and the implementation of pricing surcharges designed to offset record escalation in the price and associated freight costs for such commodities as scrap, coke and natural gas. The 2004 first quarter average selling price per ton was $465, compared to $437 for the first quarter of 2003, and $420 for the fourth quarter of 2003.

The company recorded an operating profit of $80.6 million in the current quarter, compared to an operating profit of $44.4 million in the first quarter of 2003. Results include a pre-tax benefit of $35.0 million related to the previously mentioned 2002 reassessment of property taxes. First quarter 2004 results also include a charge of $4.0 million for the impact of an 8% salaried workforce reduction. The full benefit of the reduction will occur in the second quarter of 2004. The company set a quarterly slab production record following the successful reline of its No. 7 Blast Furnace, which was completed in the fourth quarter of 2003.

Comments—"All of us at Ispat Inland have worked hard to maintain high levels of production throughout this very challenging and volatile period. Consequently, we were able to meet increased customer demand and generate earnings," said Lou Schorsch, President and CEO.

The company said that its cash balance at March 31, 2004, was $28.2 million and that it had an additional $120.4 million of availability under its two credit facilities, for a total liquidity of approximately $149 million. During the first quarter, the company generated net cash of $52.5 million from financing activities. On March 25, 2004, the company received $794.9 million of gross proceeds ($775.5 million of net proceeds) from the issuance and sale of $800 million of Senior Secured Notes, comprised of $150 million of floating rate notes due April 1, 2010, and $650 million of fixed rate notes due April 1, 2014. These net proceeds were used to retire the entire balance outstanding of $661.5 million of Tranche B and Tranche C Loans under its credit agreement, and repay the entire balance outstanding of $105 million under its inventory revolving credit facility, with the remainder of the proceeds used to reduce the amount outstanding under its receivables revolving credit facility.

For the quarter ended March 31, 2004, net cash outflows from operations totaled $43.7 million, which included pension contributions of $31.5 million. Cash inflows from operations in the first quarter of 2003 were $23.7 million, which included a pension contribution of $54.5 million.

Changes in working capital, defined as the change in receivables, inventories and accounts payable, utilized cash of $78.3 million in the first quarter of 2004, predominantly due to a $63.3 million increase in receivables resulting from higher sales volumes and selling prices. In the first quarter of 2003, changes in working capital generated $23.6 million of cash largely attributable to a decrease in receivables.

Outlook—With respect to the second quarter, Mr. Schorsch commented, "We see no fundamental slackening in demand and no surge in supply. We are well positioned to continue to support our customers and to improve our financial performance into the second quarter." With a continuation of the strong demand for steel, the company expects the second quarter shipments to be in line with first quarter billings. Due to previously announced price increases, selling prices are expected to be higher in the second quarter. The price for coke purchases not under long-term contract will be significantly higher in the second quarter compared to the first quarter.

Ispat Inland Inc. is a subsidiary of Ispat International NV, one of the leading steel companies in the world, with steelmaking facilities in six countries and shipments of 15.2 million tons in 2003. Ispat Inland manufactures a broad range of semifinished and finished flat and bar steel products and is one of North America's lowest-cost integrated steel producers.

In addition to Ispat Inland in East Chicago, Ind., USA, Ispat International has major steelmaking facilities in Canada, Mexico, Trinidad, France and Germany. Ispat International is a member of the LNM Group, the world's second-largest and most global steel group, which also operates in Algeria, Czech Republic, Indonesia, Kazakhstan, Poland, Romania and South Africa.

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