##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
   FORM 10-Q x
    
    QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended June 30, 2004
 or o
    
    TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to Commission file number 1-31926 INTERNATIONAL STEEL GROUP INC. (Exact Name of Registrant as Specified in Its Charter)
 Delaware
    
    71-0871875(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification Number)4020 Kinross Lakes Parkway, Richfield, Ohio
    
    44286-9000(Address of Registrants Principal Executive Offices)
    
    (Zip Code)
 (330) 659-9100(Registrants telephone number including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirement for the past 90 days.   Yes
   þ    No   o Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
  Yes    o    No   þ Number of shares of Common Stock, par value $0.01 per share, outstanding as of June 30, 2004: 98,017,229




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TABLE OF CONTENTS PART I  FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    
    1ITEM 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    10ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    14ITEM 4. CONTROLS AND PROCEDURES
    
    
    15PART II  OTHER INFORMATIONITEM 1. LEGAL PROCEEDINGS
    
    
    16ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    20ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
    
    20SIGNATURE
    
    
    22Exhibit 10.3 Amendment No. 3 to Amended and Restated Asset Purchase AgreementEX-31.1 CERTIFICATIONEX-31.2 CERTIFICATIONEX-32.1 CERTIFICATION




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PART I 
 ITEM 1. FINANCIAL STATEMENTS INTERNATIONAL STEEL GROUP INC.
Consolidated Statements of Operations
(Unaudited)
(Dollars in millions, except per share data) Second quarter
    
    First half2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    2,083.8
    
    
    $
    1,005.1
    
    
    $
    3,854.1
    
    
    $
    1,466.8Costs and expenses:Cost of sales
    
    
    1,860.7
    
    
    
    982.4
    
    
    
    3,460.7
    
    
    
    1,433.9Marketing, administrative, and other expenses
    
    
    61.1
    
    
    
    39.4
    
    
    
    116.1
    
    
    
    43.8Depreciation and amortization
    
    
    32.5
    
    
    
    15.9
    
    
    
    61.3
    
    
    
    23.7Total costs and expenses
    
    
    1,954.3
    
    
    
    1,037.7
    
    
    
    3,638.1
    
    
    
    1,501.4Income (loss) from operations
    
    
    129.5
    
    
    
    (32.6
    )
    
    
    216.0
    
    
    
    (34.6
    )Interest and other financing expense, net
    
    
    24.5
    
    
    
    13.1
    
    
    
    34.9
    
    
    
    15.0Income (loss) before income taxes
    
    
    105.0
    
    
    
    (45.7
    )
    
    
    181.1
    
    
    
    (49.6
    )Provision (benefit) for income taxes (Note 4)
    
    
    10.9
    
    
    
    (18.2
    )
    
    
    16.1
    
    
    
    (19.8
    )Net income (loss)
    
    $
    94.1
    
    
    $
    (27.5
    )
    
    $
    165.0
    
    
    $
    (29.8
    )Income (loss) per common share:Basic
    
    $
    0.96
    
    
    $
    (0.37
    )
    
    $
    1.69
    
    
    $
    (0.41
    )Diluted
    
    $
    0.92
    
    
    $
    (0.37
    )
    
    $
    1.62
    
    
    $
    (0.41
    )
 See accompanying notes to consolidated financial statements. 1




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INTERNATIONAL STEEL GROUP INC.
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
(Dollars in millions, except share data) June 30,
    
    December 31,2004
    
    2003(Unaudited)AssetsCurrent assets:Cash and cash equivalents
    
    $
    362.2
    
    
    $
    193.6Receivables, less allowances of $51.9 and $36.6
    
    
    786.2
    
    
    
    553.9Inventories
    
    
    987.5
    
    
    
    866.8Assets held for sale
    
    
    58.1
    
    
    
    68.6Prepaid and other current assets
    
    
    89.0
    
    
    
    24.5Total current assets
    
    
    2,283.0
    
    
    
    1,707.4Property, plant and equipment, at cost
    
    
    1,117.0
    
    
    
    948.3Less: accumulated depreciation and amortization
    
    
    (147.4
    )
    
    
    (86.4
    )Property, plant and equipment, net
    
    
    969.6
    
    
    
    861.9Investments in joint ventures
    
    
    34.7
    
    
    
    27.0Other assets
    
    
    78.3
    
    
    
    38.7Total assets
    
    $
    3,365.6
    
    
    $
    2,635.0Liabilities and Stockholders EquityCurrent liabilities:Current portion of debt and capital leases
    
    $
    58.2
    
    
    $
    46.8Accounts payable
    
    
    612.1
    
    
    
    427.9Accrued compensation and benefits
    
    
    244.9
    
    
    
    212.9Other current liabilities
    
    
    210.8
    
    
    
    143.9Total current liabilities
    
    
    1,126.0
    
    
    
    831.5Long term liabilities:Debt
    
    
    637.6
    
    
    
    362.8Capital leases
    
    
    180.1
    
    
    
    212.7Accrued environmental
    
    
    181.0
    
    
    
    161.2Pensions and other retiree benefits
    
    
    119.4
    
    
    
    101.0Other obligations
    
    
    13.7
    
    
    
    16.6Total liabilities
    
    
    2,257.8
    
    
    
    1,685.8Stockholders equity:Preferred Stock, $0.01 par value per share,
authorized 10,000,000 shares, none issued
    
    
    
    
    
    
    Common Stock, $0.01 par value per share, authorized 350,000,000 shares,
98,017,229 and 97,470,609 issued and outstanding
    
    
    1.0
    
    
    
    1.0Additional paid-in capital
    
    
    973.9
    
    
    
    972.2Retained earnings (deficit)
    
    
    136.0
    
    
    
    (29.0
    )Accumulated other comprehensive (loss) income
    
    
    (3.1
    )
    
    
    5.0Total stockholders equity
    
    
    1,107.8
    
    
    
    949.2Total liabilities and stockholders equity
    
    $
    3,365.6
    
    
    $
    2,635.0
 See accompanying notes to consolidated financial statements. 2




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INTERNATIONAL STEEL GROUP INC.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions) First half2004
    
    2003Cash flows from operating activities:Net income (loss)
    
    $
    165.0
    
    
    $
    (29.8
    )Adjustments for items not affecting cash from
operating activities:Depreciation and amortization
    
    
    61.3
    
    
    
    23.7Deferred income taxes
    
    
    (18.8
    )
    
    
    Other
    
    
    14.6
    
    
    
    (1.1
    )Changes in working capital and other items:Receivables
    
    
    (147.0
    )
    
    
    35.4Inventories
    
    
    (35.9
    )
    
    
    119.3Prepaids and other current assets
    
    
    (62.1
    )
    
    
    (0.6
    )Accounts payable
    
    
    150.9
    
    
    
    (40.9
    )Income taxes
    
    
    76.4
    
    
    
    (49.0
    )Accrued compensation and benefits
    
    
    (1.6
    )
    
    
    50.2Other
    
    
    7.1
    
    
    
    72.6Net cash provided by operating activities
    
    
    209.9
    
    
    
    179.8Cash flows from investing activities:Capital expenditures and investments
    
    
    (86.0
    )
    
    
    (33.3
    )Acquisitions, net of cash received (Note 2)
    
    
    (187.0
    )
    
    
    (742.2
    )Proceeds from sales of assets
    
    
    12.1
    
    
    
    13.6Net cash used in investing activities
    
    
    (260.9
    )
    
    
    (761.9
    )Cash flows from financing activities:Borrowings under revolving credit facility
    
    
    
    
    
    
    864.6Payments under revolving credit facility
    
    
    
    
    
    
    (925.3
    )Proceeds from debt
    
    
    594.6
    
    
    
    650.0Payments on debt
    
    
    (347.8
    )
    
    
    (18.8
    )Payments on capital leases
    
    
    (17.8
    )
    
    
    (10.3
    )Issuance of common stock, net
    
    
    1.8
    
    
    
    156.7Deferred financing fees
    
    
    (11.2
    )
    
    
    (18.1
    )Net cash provided by financing activities
    
    
    219.6
    
    
    
    698.8Increase in cash and cash equivalents
    
    
    168.6
    
    
    
    116.7Cash and cash equivalents  beginning of period
    
    
    193.6
    
    
    
    9.8 end of period
    
    $
    362.2
    
    
    $
    126.5Other information:Interest paid
    
    $
    14.7
    
    
    $
    4.8Interest capitalized
    
    
    0.2
    
    
    
    0.1Income taxes (received) paid, net
    
    
    (39.6
    )
    
    
    29.3Capital lease obligation incurred
    
    
    3.9
    
    
    
    
 See accompanying notes to consolidated financial statements. 3




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INTERNATIONAL STEEL GROUP INC. Notes to Consolidated Financial Statements
(Unaudited) (Dollars and shares in millions, except per share data) (1) Basis of Presentation  These interim financial statements are unaudited and include only selected
notes. They do not contain all information required under accounting
principles generally accepted in the United States and should be read
together with the audited financial statements in ISGs Annual Report on Form
10-K for the year ended December 31, 2003 and all other reports filed with
the Securities and Exchange Commission during the year 2004. These interim
financial statements reflect all adjustments that are, in the opinion of
management, necessary to fairly present the results for the interim periods
presented. Certain prior period amounts have been reclassified to conform to
the current period presentation. (2) Acquisitions  ISG acquired substantially all of the assets and assumed certain liabilities
of Georgetown Steel Company in June 2004, Weirton Steel Corporation in May
2004, and Bethlehem Steel Corporation in May 2003. All three businesses were
in bankruptcy proceedings at the purchase date. The results of their
operations have been included in ISGs consolidated financial statements
since the dates of acquisition.  The amounts recorded for the net assets acquired follow: Georgetown
    
    Weirton
    
    BethlehemAcquired Assets:Receivables, net
    
    
    
    
    
    $
    124.8
    
    
    $
    379.2Inventories
    
    
    
    
    
    
    84.8
    
    
    
    730.3Prepaid and other current assets
    
    
    
    
    
    
    
    
    
    
    5.1Assets held for sale
    
    
    
    
    
    
    
    
    
    
    91.2Intangible assets
    
    
    
    
    
    
    
    
    
    
    26.4Property, plant & equipment and non-current assets
    
    $
    19.6
    
    
    
    85.0
    
    
    
    608.919.6
    
    
    
    294.6
    
    
    
    1,841.1Acquired Liabilities:Current portion of debt and capital leases
    
    
    
    
    
    
    
    
    
    
    32.7Accounts payable
    
    
    .7
    
    
    
    32.8
    
    
    
    251.3Other current liabilities
    
    
    .3
    
    
    
    56.4
    
    
    
    125.9Debt and capital leases (less current portion)
    
    
    
    
    
    
    17.1
    
    
    
    358.9Environmental and other long-term liabilities
    
    
    .2
    
    
    
    19.7
    
    
    
    234.61.2
    
    
    
    126.0
    
    
    
    1,003.4Value of stock issued
    
    
    
    
    
    
    
    
    
    
    (15.0
    )Net assets recorded
    
    
    18.4
    
    
    
    168.6
    
    
    
    822.7Cash paid in future periods, net
    
    
    
    
    
    
    
    
    
    
    (80.5
    )Cash paid, net of cash acquired
    
    $
    18.4
    
    
    $
    168.6
    
    
    $
    742.2
  The amounts assigned to the Weirton and Georgetown assets and
liabilities are preliminary and could change as more information as to values
is obtained.The following unaudited pro forma consolidated information includes the
results of operations of the Bethlehem and Weirton acquisitions as if they
had been consummated on January 1, 2003, including the effects of the new
labor agreement as it pertains to the former Bethlehem facilities and the
financings incurred to fund the Bethlehem acquisition. Because Georgetown
was winding down operations during 2003, ceased operations in October 2003
and is not expected to resume full operations until the fourth quarter 2004,
the following pro forma information does not include any amounts related to
the Georgetown operations. The following is based on historical information
and does not necessarily reflect the actual results that would have occurred. 4




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INTERNATIONAL STEEL GROUP INC.
Notes to Consolidated Financial Statements
(Unaudited) (Dollars and shares in millions, except per share data) Second Quarter
    
    First Half2004
    
    2003
    
    2004
    
    2003Net sales
    
    $
    2,243.9
    
    
    $
    1,579.3
    
    
    $
    4,310.8
    
    
    $
    3,208.5Net income
    
    $
    119.4
    
    
    $
    28.4
    
    
    $
    198.2
    
    
    $
    54.4Income per shareBasic
    
    $
    1.22
    
    
    $
    0.37
    
    
    $
    2.03
    
    
    $
    0.71Diluted
    
    $
    1.17
    
    
    $
    0.35
    
    
    $
    1.94
    
    
    $
    0.68
 (3) Inventories  Inventories are stated at the lower of cost or market. Cost was determined
using the last-in, first-out (LIFO) method of accounting for about 20% of
inventories at December 31, 2003 and the balance, principally the inventories
at the former Bethlehem facilities, was determined using the first-in,
first-out (FIFO) or average cost method.Effective January 1, 2004, we changed to the LIFO cost method of accounting

for substantially all inventories and we reduced the number of pools from a
pool for each manufacturing facility to a single pool. We believe that the
LIFO method of valuing inventories is preferable because it more closely
matches current costs and revenues in periods of increasing costs. We
believe that a single method and a single pool for substantially all
inventories is preferable because, in order to further achieve the operating
synergies from our acquisitions, we are reallocating the supply of
semi-finished materials to our finishing facilities among our steel producing
facilities and are reallocating the sources of certain raw materials among
our steel producing facilities in order to improve operating efficiencies.
Having a single LIFO pool for substantially all inventories eliminates the
potential for changes in inventory value solely because of this movement of
inventory among manufacturing facilities.Because of significant raw material cost increases in the first quarter 2004,
we changed our interim accounting for LIFO effective January 1, 2004, from an
allocation of the projected annual LIFO provision ratably over the year to an
estimated year-to-date calculation. We believe that the year-to-date
calculation method is preferable because it more closely matches current
costs with revenues in interim periods of rapidly rising costs.We are accounting for inventories at Weirton, which were $118.4 at June 30,
2004, under the FIFO or average cost method during 2004 and expect to include
these inventories in the single LIFO pool beginning January 1, 2005. This is
consistent with the accounting for inventories in the Bethlehem acquisition
during 2003 and 2004.The total LIFO provision for the second quarter and first half 2004 was about
$183 and $286. Because of the volatility of raw material costs expected for
the remainder of 2004, it is not possible to estimate the effect of the
accounting changes mentioned above on interim 2004 results. 5




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INTERNATIONAL STEEL GROUP INC. Notes to Consolidated Financial Statements
(Unaudited) (Dollars and shares in millions, except per share data)  The components of inventories follow: June 30,
    
    December 31,2004
    
    2003FIFO or average cost:Raw materials
    
    $
    517.3
    
    
    $
    291.0Finished and semi-finished goods
    
    
    792.7
    
    
    
    612.01,310.0
    
    
    
    903.0LIFO reserve
    
    
    (322.5
    )
    
    
    (36.2
    )Total
    
    $
    987.5
    
    
    $
    866.8
 (4) Income Taxes  At December 31, 2003, we recorded a full valuation allowance for our net
deferred tax asset as discussed below. As a result, our provision for income
taxes will typically reflect the amounts we expect to pay or recover for the
year until we reduce the valuation allowance. Based on our first half pretax
income and forecasted pretax income for the year 2004, we expect to pay
income taxes for the year after recognizing temporary differences that arise
during the year, the benefit of the net operating loss (NOL) carryforward
arising in 2003 and the benefit of NOL carryforwards available for the year
from the Bethlehem acquisition. In addition, generally accepted accounting
principles require that we recognize 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.
The net effect of all these items results in an estimated effective income
tax rate for 2004 of about 8.9%. The expected 2004 pretax income from
Weirton caused the effective tax rate for 2004 to increase to our current
estimate of 8.9% from the 6.9% used in the first quarter 2004. As a result,
the effective tax rate for the second quarter 2004 is 10.4% in order to bring
the first half 2004 effective tax rate to the 8.9% full year rate.The acquisition of the Bethlehem assets was structured as a tax-free
reorganization under Internal Revenue Code (IRC) Section 368(a)(1)(G). As a
result, the historic tax attributes of Bethlehem are carried over to the ISG
consolidated federal income tax return. These tax attributes are composed
principally of NOL carryforwards, alternative minimum tax (AMT) credit
carryforwards and temporary differences related to the tax basis of property,
plant and equipment. The net deferred tax assets acquired related to these
tax attributes were not recognized at the date of acquisition because there
were a number of required actions related to, among other matters,
Bethlehems plan of liquidation under federal bankruptcy law. During the
fourth quarter of 2003, among other events, the Bankruptcy Court confirmed
Bethlehems plan of liquidation, which subsequently became effective on
December 31, 2003. Accordingly, in the fourth quarter of 2003, we determined
that it was appropriate to recognize the acquired net deferred tax assets and
any related valuation allowance.SFAS No. 109, Accounting for Income Taxes, requires that we record a
valuation allowance when it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of sufficient future
taxable income during periods in which those temporary differences become
deductible and before the expiration of the NOL carryforwards. Because of
ISGs two-year existence, limited financial performance and cumulative tax
loss from inception, it was managements judgment at December 31, 2003, that
SFAS No. 109 required recording a full valuation allowance for the net
deferred tax asset. That resulted in a $5.3 provision for deferred income
taxes for the fourth quarter and year 2003 to provide a full valuation
allowance on the previously recorded net deferred tax asset. Generally
accepted accounting principles require that we recognize any tax benefits of
the Bethlehem acquisition realized in 2003 through the income statement only
after writing off any remaining intangible assets acquired from 6




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INTERNATIONAL STEEL GROUP INC. Notes to Consolidated Financial Statements
(Unaudited) (Dollars and shares in millions, except per share data)  Bethlehem. Accordingly, in the fourth quarter of 2003, we wrote off $15.2 of
intangible assets as a provision for deferred income taxes bringing the total
provision for deferred taxes in the fourth quarter and year 2003 to $20.5. (5) Income (Loss) per Share  The following table presents calculations of income (loss) per share of common
stock: Second Quarter
    
    First Half2004
    
    2003
    
    2004
    
    2003Net income (loss) applicable to common stock  Basic
    
    $
    94.1
    
    
    $
    (27.5
    )
    
    $
    165.0
    
    
    $
    (29.8
    )Add: Interest expense on convertible note-net of tax
    
    
    0.3
    
    
    
    *
    
    
    
    0.6
    
    
    
    *Net income (loss) applicable to common stock  Diluted
    
    $
    94.4
    
    
    $
    (27.5
    )
    
    $
    165.6
    
    
    $
    (29.8
    )Weighted average number of shares of common stock
outstanding  Basic
    
    
    97.9
    
    
    
    74.1
    
    
    
    97.9
    
    
    
    71.9Incremental shares issuable upon assumed conversion
of stock options
    
    
    3.3
    
    
    
    *
    
    
    
    3.4
    
    
    
    *Incremental shares issuable upon assumed conversion
of convertible note
    
    
    1.1
    
    
    
    *
    
    
    
    1.1
    
    
    
    *Total shares  Diluted
    
    
    102.3
    
    
    
    74.1
    
    
    
    102.4
    
    
    
    71.9Income (loss) per share:Basic
    
    $
    0.96
    
    
    $
    (0.37
    )
    
    $
    1.69
    
    
    $
    (0.41
    )Diluted
    
    $
    0.92
    
    
    $
    (0.37
    )
    
    $
    1.62
    
    
    $
    (0.41
    )
 * Antidilutive. (6) Pension and Other Postretirement Benefit Plans  Under certain of ISGs labor agreements with the United Steelworkers of
America (USWA), ISG has a defined benefit retiree medical and death benefit
plan (Plan), covering USWA employees who are eligible to retire under the
current labor agreements. ISG does not intend to provide similar retiree
medical benefits for employees who retire after the current labor agreement
expires in 2008. ISG is not required to pre-fund any benefits and expects any
benefits to be paid in 2004 to be minimal.The net periodic postretirement benefit costs presented below do not reflect
the effects of the recently passed legislation Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (Act). Detailed regulations
necessary to implement the Act have not been issued. Accordingly, we have
not been able to determine if the Plan meets the actuarial equivalent
requirement of the Act or if we will modify the Plan. 7




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INTERNATIONAL STEEL GROUP INC. Notes to Consolidated Financial Statements
(Unaudited) (Dollars and shares in millions, except per share data)  However, because the Plan requires that the Plan beneficiaries pay premiums
beginning in 2011 to cover any cost per capita increases after 2008, the Act
is not likely to have any significant effect on our accumulated
postretirement benefit obligation nor our future net periodic benefit costs.In the Bethlehem acquisition, ISG acquired a 62.3% interest in Hibbing
Taconite Company (Hibbing), an iron ore mining joint venture that is
consolidated on a pro rata basis in ISGs consolidated financial statements
because ISG does not have voting control of Hibbing. Hibbing maintains a
noncontributory defined benefit pension plan for hourly and salary employees
with benefits based on years of service and compensation. Hibbing funds the
pension plan within statutory guidelines and our share of expected 2004
funding is $3.2. Hibbing also provides retiree medical and death benefits to
most full-time employees with 30 years of service or employees who are 60
years of age with 15 years of service. The Hibbing plan is the only defined
benefit pension plan in these consolidated financial statements.ISGs consolidated components for net periodic pension and other
postemployment benefits costs for the second quarter and first half 2004 and
2003 follow: Second Quarter
    
    First HalfPension
    
    Other Benefits
    
    Pension
    
    Other Benefits2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Service cost
    
    $
    0.7
    
    
    $
    0.4
    
    
    $
    0.9
    
    
    $
    0.4
    
    
    $
    1.3
    
    
    $
    0.4
    
    
    $
    1.9
    
    
    $
    0.7Interest cost
    
    
    1.2
    
    
    
    0.8
    
    
    
    2.0
    
    
    
    0.9
    
    
    
    2.4
    
    
    
    0.8
    
    
    
    4.1
    
    
    
    1.4Expected return on plan assets
    
    

    (1.3
    )
    
    
    (0.7
    )
    
    
    (0.3
    )
    
    
    
    
    
    
    (2.5
    )
    
    
    (0.7
    )
    
    
    (0.5
    )
    
    
    Amortizations:Unrecognized prior service costs
    
    
    
    
    
    
    
    
    
    
    3.9
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    7.3
    
    
    
    3.8Net actuarial losses
    
    
    (0.4
    )
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.1
    
    
    
    
    
    
    
    Amortization of net (asset) obligations
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total cost
    
    $
    0.3
    
    
    $
    0.6
    
    
    $
    6.5
    
    
    $
    3.8
    
    
    $
    1.2
    
    
    $
    0.6
    
    
    $
    12.8
    
    
    $
    5.9
 (7) Contingencies  ISG is subject to various legal actions and contingencies in the normal
course of conducting business. ISG accrues liabilities for such matters when
a loss is likely and the amount can be reasonably estimated. The effect of
the ultimate outcome of these matters on future results of operations and
liquidity cannot be predicted with any certainty. While the resolution of
these matters may have a material effect on the results of operations of a
particular quarter or year, we believe that the ultimate resolution of such
matters in excess of liabilities recorded will not have a material adverse
effect on our competitive position or financial position.ISG is subject to changing and increasingly stringent environmental laws and
regulations concerning air emissions, water discharges and waste disposal, as
well as certain remediation activities that involve the clean up of
environmental media such as soils and groundwater. If, in the future, ISG is
required to investigate and remediate any currently unknown contamination and
wastes at plant sites, ISG could be required to record additional
liabilities.Environmental liabilities acquired in business combinations are recorded at
their fair value based on their net present value determined using a market
discount rate. 8




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##### Table of Contents



INTERNATIONAL STEEL GROUP INC. Notes to Consolidated Financial Statements
(Unaudited) (Dollars and shares in millions, except per share data)  The table below represents changes in the amounts recorded for environmental
liabilities: First Half
    
    Year Ended2004
    
    2003Balance  beginning of period
    
    $
    208.4
    
    
    $
    56.4Liabilities recognized at acquisition *
    
    
    11.9
    
    
    
    159.0Accretion and changes in estimates and timing of spending
    
    
    7.4
    
    
    
    1.0Liabilities related to properties sold
    
    
    (7.9
    )
    
    
    Spending for remediation
    
    
    (5.0
    )
    
    
    (8.0
    )Total
    
    
    214.8
    
    
    
    208.4Amount included in other current liabilities  end of period
    
    
    (33.8
    )
    
    
    (47.2
    )Long term balance  end of period
    
    $
    181.0
    
    
    $
    161.2
  *
    
    Includes revisions to amounts recorded for the Bethlehem
acquisition as a result of additional information and
analysis obtained during the period. (8) Subsequent Event  On July 23, 2004, we acquired a hot briquetted iron facility in Port of Spain,
Trinidad and Tobago for about $18 cash, including payment at closing of certain
assumed liabilities. The facility was not operating and we expect the facility
to begin production in the fourth quarter 2004. 9




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS ISG and its representatives may from time to time make forward-looking
statements in reports filed with the Securities and Exchange Commission,
reports to stockholders, press releases, other written documents and oral
presentations. These forward-looking statements may be identified by the use of
predictive, future-tense or forward-looking terminology, such as believes,
anticipates, expects, estimates, intends, may, will or similar
terms. These statements speak only as of the date of such statements and ISG
will undertake no ongoing obligation, other than that imposed by law, to update
these statements. These statements appear in a number of places in this report
and include statements regarding ISGs intent, belief or current expectations
of its directors, officers or advisors with respect to, among other things:  
    
    trends affecting ISGs financial condition, results of operations or future prospects;
    
    business and growth strategies;
    
    operating culture and philosophy;
    
    financing plans and forecasts; and
    
    the integration of the Weirton and Georgetown assets into our business. Any such forward-looking statements are not guarantees of future
performance and involve significant risks and uncertainties, and actual results
may differ materially from those contained in the forward-looking statements as
a result of various factors, some of which are unknown. The factors that could
adversely affect ISGs actual results and performance include, without
limitation:  
    
    negative overall economic conditions or conditions in the markets served;
    
    competition within the steel industry;
    
    changes in U.S. or foreign trade policy affecting steel imports or exports;
    
    changes in foreign currencies affecting the strength of the U.S. dollar;
    
    actions by domestic and foreign competitors;
    
    the inability to achieve our anticipated growth objectives;
    
    changes in availability or cost of raw materials, energy or other supplies;
    
    labor issues affecting ISGs workforce or the steel industry generally; and
    
    the inability to implement our operating culture and philosophy at the acquired facilities. Consolidated Results of Operations for the Second Quarter and First Half 2004
and 2003 The discussion below relates to the results of ISG for the second quarter
and first half 2004 and 2003. In May 2003, we acquired substantially all the
assets of the Bethlehem Steel Corporation. The Bethlehem acquisition more than
doubled our shipping capacity, substantially broadened our product mix with the
addition of plate, tin and rail products, and improved our product mix by
increasing the percentage of higher value-added cold rolled and coated
products. In May 2004, we acquired substantially all the assets of the Weirton
Steel Corporation. The Weirton acquisition is expected to increase our 2004
shipments on an annualized basis by about 15%. Accordingly, our 10




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##### Table of Contents



financial results for the second quarter and first half 2004 are not
comparable to our results for the similar periods in 2003. The table below shows shipments by product and certain other data for the
periods shown. Pro forma information reflects the acquisitions of the
Bethlehem and Weirton assets as if they had occurred on January 1, 2003. Actual
    
    Pro formaSecond Quarter
    
    First half
    
    Second Quarter
    
    First half2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003
    
    2004
    
    2003Hot Rolled
    
    
    41
    %
    
    
    49
    %
    
    
    41
    %
    
    
    53
    %
    
    
    43
    %
    
    
    43
    %
    
    
    43
    %
    
    
    41
    %Cold Rolled
    
    
    19
    
    
    
    17
    
    
    
    20
    
    
    
    20
    
    
    
    18
    
    
    
    16
    
    
    
    18
    
    
    
    18Coated
    
    
    22
    
    
    
    19
    
    
    
    22
    
    
    
    17
    
    
    
    21
    
    
    
    21
    
    
    
    21
    
    
    
    21Plate
    
    
    10
    
    
    
    8
    
    
    
    10
    
    
    
    5
    
    
    
    9
    
    
    
    8
    
    
    
    9
    
    
    
    8Tin Plate
    
    
    5
    
    
    
    3
    
    
    
    4
    
    
    
    2
    
    
    
    6
    
    
    
    8
    
    
    
    6
    
    
    
    9Rail and other
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    4
    
    
    
    3
    
    
    
    3100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %Net sales (dollars
in millions)
    
    $
    2,083.8
    
    
    $
    1,005.1
    
    
    $
    3,854.1
    
    
    $
    1,466.8
    
    
    $
    2,243.9
    
    
    $
    1,579.3
    
    
    $
    4,310.8
    
    
    $
    3,208.5Average net sales
per ton shipped
    
    $
    546
    
    
    $
    378
    
    
    $
    502
    
    
    $
    368
    
    
    $
    551
    
    
    $
    404
    
    
    $
    505
    
    
    $
    414Shipments (tons in
thousands)
    
    
    3,814
    
    
    
    2,662
    
    
    
    7,676
    
    
    
    3,989
    
    
    
    4,071
    
    
    
    3,913
    
    
    
    8,529
    
    
    
    7,741Raw steel
production (tons in
thousands)
    
    
    4,333
    
    
    
    2,590
    
    
    
    8,381
    
    
    
    3,942
    
    
    
    4,557
    
    
    
    3,968
    
    
    
    9,091
    
    
    
    8,163Net income (loss)
(dollars in millions)
    
    $
    94.1
    
    
    $
    (27.5
    )
    
    $
    165.0
    
    
    $
    (29.8
    )
    
    $
    119.4
    
    
    $
    28.4
    
    
    $
    198.2
    
    
    $
    54.4Diluted income
(loss) per common
share
    
    $
    0.92
    
    
    $
    (0.37
    )
    
    $
    1.62
    
    
    $
    (0.41
    )
    
    $
    1.17
    
    
    $
    0.35
    
    
    $
    1.94
    
    
    $
    0.68
 For the second quarter 2004, we reported net income of $94.1 million on
net sales of $2,083.8 million and shipments of 3,814,000 net tons, compared to
a net loss of $27.5 million on net sales of $1,005.1 million and shipments of
2,662,000 net tons in the second quarter 2003. The Bethlehem and Weirton
acquisitions contributed about 87% of the increased shipments in the second
quarter 2004 over the comparable period in 2003. Our average net sales per ton
shipped was $546 for the second quarter 2004 compared to $378 in the second
quarter 2003. Realized prices were significantly higher as a result of strong
demand for steel products globally allowing the domestic industry to implement
price increases, including surcharges, to offset higher raw material costs.
Our product mix improved as value added cold rolled and coated shipments
increased to 41% of total shipments in the second quarter 2004 from 36% in the
second quarter 2003. For the first half 2004, we reported net income of $165.0 million on net
sales of $3,854.1 million and shipments of 7,676,000 net tons, compared to a
net loss of $29.8 million on net sales of $1,466.8 million and shipments of
3,989,000 net tons in the first half 2003. The Bethlehem and Weirton
acquisitions contributed about 84% of the increased shipments in the first half
2004 from the first half 2003. Our average net sales per ton shipped was $502
for the first half 2004 compared to $368 in the first half 2003. Prices were
higher as a result of strong demand and the industrys implementation of price
increases, including surcharges, to offset increased raw material costs. Our
product mix improved as value added cold rolled and coated shipments increased
to 42% in the first half 2004 from 37% in the first half 2003. Cost of sales for the second quarter and first half 2004 were about 89%
and 90% of sales compared to 98% in both the second quarter and first half 2003
reflecting the benefits of higher average selling prices, higher operating
rates and an improved product mix. During 2004, the cost of raw materials such
as coke, scrap and iron ore have increased significantly. Employment costs were
also higher as a 3% wage increase for our employees represented by the USWA was
effective as of the beginning of the second quarter 2004 and variable
compensation including profit sharing and contributions to the USWA VEBA
welfare benefit trust was higher in the second quarter and first half 2004. 11




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Inventory cost was determined using the last-in, first-out (LIFO) method
of accounting for about 20% of inventories at December 31, 2003 and the
balance, principally the inventories at the former Bethlehem facilities, was
determined using the first-in, first-out (FIFO) or average cost method.
Effective January 1, 2004, we changed to the LIFO cost method of accounting for
substantially all inventories and reduced the number of pools from a pool for
each manufacturing facility to a single pool. We believe that the LIFO method
of valuing inventories is preferable because it more closely matches current
costs and revenues in periods of increasing costs. We believe that a single
method and a single pool for substantially all inventories is preferable
because, in order to further achieve the operating synergies from our
acquisitions, we are reallocating the supply of semi-finished materials to our
finishing facilities among our steel producing facilities and are reallocating
the sources of certain raw materials among our steel producing facilities in
order to improve operating efficiencies. Having a single LIFO pool for
substantially all inventories eliminates the potential for changes in inventory
value solely because of this movement of inventory among manufacturing
facilities. Because of significant raw material cost increases in the first quarter
2004, we changed our interim accounting for LIFO effective January 1, 2004,
from an allocation of the projected annual LIFO provision ratably over the year
to an estimated year-to-date calculation. We believe that the year-to-date
calculation method is preferable because it more closely matches current costs
with revenues in interim periods of rapidly rising costs. Consistent with the
accounting for inventories in the Bethlehem business combination during 2003,
the inventories at Weirton, which were $118.4 million at June 30, 2004, are
being accounted for under the FIFO or average cost method during 2004. We
expect to include the Weirton inventories in the single LIFO pool beginning
January 1, 2005. The total LIFO provision for the second quarter and first half 2004 was
about $183 million and $286 million driven principally by the significant
increases in the cost of coke purchased in the international markets, scrap and
iron ore. Because of the volatility of raw material costs expected for the
remainder of 2004, it is not possible to estimate the effect of the accounting
changes mentioned above on interim 2004 results. The second quarter and first half 2004 net financing expense increased
from the comparable periods in 2003 because of higher average debt outstanding
in 2004, including the $600 million 6.5% Senior Notes due 2014 issued in April
2004. During the second quarter 2004, we wrote off $10.6 million of deferred
financing fees related to debt repaid with proceeds from the new Senior Notes.
In the second quarter 2003, we wrote off $3.7 million of deferred debt fees
relating to debt prepaid from the proceeds of a new credit facility obtained in
May 2003 in connection with the Bethlehem acquisition. At December 31, 2003, we had recorded a full valuation allowance for our
net deferred tax asset as discussed in our Annual Report on Form 10-K for the
year ended December 31, 2003. As a result, our provision for income taxes will
typically reflect the amounts we expect to pay or recover for the year until we
reduce the valuation allowance. Based on our first half 2004 pretax income and
forecasted pretax income for the year 2004, we expect to pay income taxes for
the year after recognizing temporary differences that arise during the year,
the benefit of the net operating loss (NOL) carryforward arising in 2003 and
the benefit of NOL carryforwards available from the Bethlehem acquisition. In
addition, generally accepted accounting principles require that we recognize 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. The net effect of all these items results in an
estimated effective income tax rate for 2004 of about 8.9% compared to a
normally expected rate of about 40% for federal and state income taxes. The
expected additional 2004 pretax income from Weirton caused the effective tax
rate to increase to our current estimate of 8.9% from the 6.9% used in the
first quarter 2004. As a result, the effective tax rate for the second quarter
2004 is 10.4% in order to bring the first half 2004 effective tax rate to the
8.9% full year rate. SFAS No. 109, Accounting for Income Taxes, requires that we record a
valuation allowance when it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of sufficient future
taxable income during periods in which those temporary differences become
deductible and before the expiration of the NOL carryforwards. Because of
ISGs two-year existence, limited financial performance and cumulative tax loss
from inception, it was managements judgment at December 31, 2003, that SFAS
No. 109 required recording a full valuation allowance for the net deferred tax
asset. That resulted in a $5.3 million provision for deferred income taxes for
the fourth quarter and year 2003 to provide a full valuation allowance on the
previously recorded net deferred tax asset. Generally accepted accounting
principles require that we recognize any tax benefits of the Bethlehem
acquisition realized in 2003 through the income statement only after writing
off any remaining intangible assets acquired from Bethlehem. 12




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##### Table of Contents



Accordingly, in the fourth quarter of 2003, we wrote off $15.2 million of
intangible assets as a provision for deferred income taxes bringing the total
provision for deferred taxes in the fourth quarter and year 2003 to $20.5
million. Liquidity and Cash Flow We define liquidity as our cash position and remaining availability under
our revolving credit facility. At June 30, 2004, we had liquidity of $559.7
million consisting of cash of $362.2 million and available borrowing capacity
of $197.5 million under our $350.0 million revolving credit facility. As of
December 31, 2003, we had liquidity of $432.7 million. We believe that our
liquidity will be adequate to meet our obligations for the foreseeable future. Cash provided by operating activities for the first half 2004 was $209.9
million. Receivables were higher as a result of higher sales in the current
period. Inventory quantities increased during the first half of 2004,
particularly coke purchased in international markets for use in the second half
2004, and the higher unit costs were included in cost of sales as a result of
the LIFO method of accounting for most of our inventories. We also made
advances to secure certain coke in the international market, increasing our
prepaid and other current assets during the first half 2004. Higher prices for
raw materials also resulted in higher accounts payable at June 30, 2004. We
also made certain required contributions to the United Steelworkers of America
(USWA) pension plan and continued to make payments under our transition
assistance program with the USWA. Cash provided by operations for the first
half 2003 was $179.8 million principally from lower inventories as we processed
and shipped semi-finished inventories acquired in late 2002. In the second quarter 2004, we acquired substantially all of the assets of
Weirton Steel Corporation and Georgetown Steel Corporation for a total of
$187.0 million cash plus assumed liabilities. In May 2003, we acquired
substantially all of the assets of Bethlehem Steel Corporation for $742.2
million net cash plus assumed liabilities. The amounts recorded for the net assets acquired follows: Georgetown
    
    Weirton
    
    BethlehemAcquired Assets:Receivables, net
    
    
    
    
    
    $
    124.8
    
    
    $
    379.2Inventories
    
    
    
    
    
    
    84.8
    
    
    
    730.3Prepaid and other current assets
    
    
    
    
    
    
    
    
    
    
    5.1Assets held for sale
    
    
    
    
    
    
    
    
    
    
    91.2Intangible assets
    
    
    
    
    
    
    
    
    
    
    26.4Property, plant & equipment and non-current
assets
    
    $
    19.6
    
    
    
    85.0
    
    
    
    608.919.6
    
    
    
    294.6
    
    
    
    1,841.1Acquired Liabilities:Current portion of long term debt and
capital leases
    
    
    
    
    
    
    
    
    
    
    32.7Accounts payable
    
    
    .7
    
    
    
    32.8
    
    
    
    251.3Other current liabilities
    
    
    .3
    
    
    
    56.4
    
    
    
    125.9Long-term debt and capital leases (less
current portion)
    
    
    
    
    
    
    17.1
    
    
    
    358.9Environmental and other long-term liabilities
    
    
    .2
    
    
    
    19.7
    
    
    
    234.61.2
    
    
    
    126.0
    
    
    
    1,003.4Value of stock issued
    
    
    
    
    
    
    
    
    
    
    (15.0
    )Net assets recorded
    
    
    18.4
    
    
    
    168.6
    
    
    
    822.7Cash paid in future periods, net
    
    
    
    
    
    
    
    
    
    
    (80.5
    )Cash paid, net of cash acquired
    
    $
    18.4
    
    
    $
    168.6
    
    
    $
    742.2
 The amounts assigned to the Weirton and Georgetown assets and liabilities
are preliminary and could change as more information as to values is obtained. We made capital expenditures and other investments of $86 million and
$33.3 million in the first half 2004 and 2003. We anticipate making capital
expenditures in 2004 of about $340 million of which about $110 million is for
strategic purposes excluding any future potential acquisitions and the
acquisition of the hot briquetted iron facility 13




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(see below). Proceeds from asset sales were $12.1 million in the first
half 2004 compared to $13.6 million in 2003. We expect proceeds of about $40
million in the remainder of 2004 from sales of surplus assets. On April 14, 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
paydown other debt, for strategic investments and for general corporate
purposes. In connection with the Bethlehem acquisition in May 2003, we entered into
a new $1.0 billion credit facility and issued 7,994,643 shares of Class B
common stock through a private equity placement for $156.7 million. The
proceeds from these two issues were used to finance the Bethlehem acquisition,
repay $60.7 million of the existing credit facility and for general corporate
purposes. We are currently in discussions with our lenders to replace our current credit
facilities with a new arrangement that provides more liquidity and fewer
covenants. We expect to complete these discussions prior to year-end. There
is no assurance that a new arrangement will be entered into or what the terms
of such arrangement will be. Subsequent Events On July 23, 2004, we acquired a hot briquetted iron facility in Port of
Spain, Trinidad and Tobago for about $18 million cash, including payment at
closing of certain assumed liabilities. The facility was not operating and we
expect the facility to begin production in the fourth quarter 2004. Outlook for the Third Quarter 2004 With the acquisition of Weirton completed in the second quarter, we expect
shipments to increase about 300,000 tons in the third quarter. Average selling
prices are expected to increase about $50 per ton as announced increases in
base prices and raw material surcharges take effect. Production costs are
expected to increase as scrap and other metallic costs increases are expected
to be greater than the decline in coke costs. The markets for steel remain
strong and we expect income from operations to increase about 50% in the third
quarter. We expect to have sufficient iron ore available for the third quarter if
production disruptions at our suppliers attributable to labor negotiations
continue or other disruptions occur. Depending of the length of any
disruptions, however, our steel production in late 2004 and early 2005 could be
reduced. 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to certain risks associated with the fluctuation in
interest rates and prices in consumable commodities, including natural gas,
heating oil, coal, coke, steel scrap and non-ferrous metals. We seek to
minimize the potential adverse impact of those market risks through the use of
appropriate management techniques that could include derivative financial
instruments. At June 30, 2004, we held cash flow hedges with respect to
natural gas and zinc with the effective portion of such instruments reflected
in accumulated other comprehensive income. We conduct the majority of our
business in the United States and all of our revenues and expenses are
transacted in U.S. dollars. As a result, our operations are not materially
affected directly by fluctuations in the foreign currencies. We currently have
no financial instruments in place for managing the exposure for foreign
currency exchange rates. Therefore, a hypothetical change in the exchange rate
of the U.S. dollar versus other major currencies would impact our future
earnings, fair values or cash flows, only to the extent it affects domestic
imports of, demand for and price of raw materials and steel products. Energy costs expose us to cost volatility particularly on natural gas
requirements. In an effort to manage the risks associated with price
fluctuations on natural gas and other commodities, from time to time, we use a
variety of hedging instruments including forward contracts, futures, swaps and
options. Financial instruments currently in effect hedge about 30% of our
expected natural gas consumption for the period of August 2004 through April
2005. We are also exposed to interest rate risk arising from the variable rate
financing on our revolving credit facility. A hypothetical increase or
decrease in interest rates of 1% on our credit facilities would have changed
interest expense by $0.7 million in the first half 2004. 14




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##### Table of Contents



We estimate that our coke needs for 2004, excluding Weirton, will be about
5.1 million net tons. Weirtons coke requirements, up to 850,000 net tons
annually, are supplied under an agreement that provides for prices to be
negotiated annually through 2005. Within certain limits, we have the ability
to optimize fuel costs at our blast furnaces by switching among the fuels of
coke, natural gas, oil and, at the Burns Harbor and Sparrows Point facilities,
pulverized coal depending on their relative costs. We expect that our coke ovens in Warren, Ohio and Burns Harbor, Indiana
will supply approximately 2.2 million net tons in 2004. We also have various
multi-year contracts that we expect to supply about 1.3 million net tons of our
estimated 2004 coke requirements. For the remaining estimated 2004
requirements, we have been and expect to continue to be able to purchase coke
in the short-term international market. 2004 short-term coke prices have
surged from late 2003 levels because of strong international demand and rising
ocean freight rates. Excluding Weirton, we estimate that our 2004 coke costs
will average at least $75 per net ton higher than the average costs for the
fourth quarter 2003. In 2003, we signed an agreement to purchase 0.55 million
net tons annually beginning in 2005 from a coke oven currently being
constructed. In July 2004, we signed a letter of intent to double the size of
that coke oven which is expected to supply us an additional 0.55 million net
tons beginning in 2006. The agreement is contingent on execution of related
transportation agreements, granting of certain local and state incentives,
permits from various agencies and approval by the respective Boards of
Directors. In the second quarter 2004, we consummated a long-term coke supply
agreement with a subsidiary of DTE Energy Services for 0.7 million net tons in
2005 and almost 1.0 million net tons thereafter. However, adequate supplies of
coke may not be available to us beyond 2004, or prices of these supplies may
continue to increase significantly. If we are unable to obtain an adequate
supply of coke in the future we may have to use more costly alternative sources
of energy or reduce production, both of which actions would have a negative
impact on our earnings and cash flow from operations. 
 ITEM 4. CONTROLS AND PROCEDURES Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended, as of the end of the
period covered by this report (Evaluation Date). Based on this evaluation, our
principal executive officer and principal financial officer concluded as of the
Evaluation Date that our disclosure controls and procedures were effective such
that the information relating to ISG and consolidated subsidiaries, required to
be disclosed in our Securities and Exchange Commission (SEC) reports (i) is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms, and (ii) is accumulated and communicated to ISG
management, including our principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure. While our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures were effective as of the
Evaluation Date, the rapid growth we have experienced since we were established
in February 2002 has placed a significant strain on our internal controls over
financial reporting. As required by procedures established by the SEC and as
reported in our Quarterly Report on Form 10-Q for the quarter ended March 31,
2004, management informed our Audit Committee of the Board of Directors and
represented to KPMG, our independent auditors, that significant deficiencies in
documentation, consistency, review and information systems, among other issues,
when taken in the aggregate, amount to material weaknesses in internal controls
over financial reporting under definitions established by the SEC. KPMG issued to our Board of Directors and Audit Committee a management
letter in connection with their audit of our 2003 consolidated financial
statements. That letter identified certain matters involving internal controls
over financial reporting and its operation that KPMG considers to be reportable
conditions under standards established by the American Institute of Certified
Public Accountants. The reportable conditions identified by KPMG include:
Policies and Procedures; Workload of Accounting Staff; Segregation of Duties;
Closing and Consolidation Process; Interdepartmental Communication; Accounts
Payable Cutoff; Journal Entry Preparation, Review and Approval; Period-end
Accruals; Inventory at Outside Processors; Cost Accounting; Raw Material
Inventory; Environmental Liabilities; Litigation and Insurance Reserves.
Additionally, KPMG indicated that it believes these reportable conditions
combined with numerous other control deficiencies represent material weaknesses
in internal control over financial reporting in the areas of review,
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These material weaknesses, significant deficiencies and reportable
conditions in internal control over financial reporting have been discussed in
detail among management, our Audit Committee and KPMG. Management has adopted
a plan to resolve these issues and believes that the overriding issue is the
lack of documented accounting policies and procedures along with inadequate
accounting information technology and certain other accounting information
processes. During the second quarter 2004, we continued to implement changes to
improve our internal controls over financial reporting. These changes include,
among other matters, substantially completing our review of the accounting
information technology systems and the selection of a new general
ledger/consolidation system; engaging a consultant with substantial steel
industry experience to assist in developing and documenting our accounting
policies and procedures; implementing analytical review procedures, calendar
schedules and checklists for the preparation of consolidated financial
statements and other consolidated financial information; initiating in-depth
reviews to determine the adequacy of the accounting organization; and hiring a
new Director of Internal Audit. Management intends to continue to review,
revise and improve our internal controls over financial reporting until the
material weaknesses are eliminated. Section 404 of the Sarbanes-Oxley Act of 2002 requires that management
document and test the internal controls over financial reporting and to assert
in our Annual Report on Form 10-K for the year-ended December 31, 2004, whether
the internal controls over financial reporting at December 31, 2004 are
effective. Any material weakness in internal controls over financial reporting
existing at that date will preclude managements making a positive assertion.
At this time, there is significant uncertainty regarding whether management
will be able to implement the required changes to correct these material
weaknesses in internal controls over financial reporting and sufficiently
document and test the revised internal controls procedures in order to make a
positive assertion as to the effectiveness of internal controls over financial
reporting by December 31, 2004. Except as noted above and the acquisition of the new operating facilities
of Weirton Steel Corporation and Georgetown Steel Corporation, there were no
other changes in our internal controls over financial reporting that occurred
during the second quarter 2004 that have materially affected or are reasonably
likely to materially affect our internal controls over financial reporting. 
 PART II 
 ITEM 1. LEGAL PROCEEDINGS Environmental Matters Our operations are subject to a broad range of laws and regulations
relating to the protection of human health and the environment. The prior
owners of our facilities expended in the past, and we expect to expend in the
future, substantial amounts to achieve or maintain ongoing compliance with
federal, state, and local laws and regulations, including the Clean Air Act,
the Resource Conservation and Recovery Act (RCRA), and the Clean Water Act.
These environmental expenditures are not projected to have a material adverse
effect on our consolidated financial position or on our competitive position
with respect to other similarly situated domestic steelmakers subject to the
same environmental requirements. RCRA and Other Remediation Requirements Under RCRA and similar state programs, the owners of certain facilities
that manage hazardous wastes are required to investigate and, if appropriate,
remediate historic environmental contamination found at such facilities. All
our major operating and inactive facilities are or may be subject to a
corrective action program or other laws and regulations relating to
environmental remediation, including projects relating to the reclamation of
industrial properties, also known as brownfield projects. At our properties in Lackawanna, New York, a RCRA Facility Investigation
(RFI) is nearing completion. A report will be submitted to U.S. Environmental
Protection Agency (EPA) and the New York State Department of Environmental
Conservation for approval. We anticipate performing a Corrective Measures Study
(CMS) and then implementing likely required corrective measures. We have
estimated that the cost of performing anticipated 16




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remediation and post remediation activities will be about $71 million and will
be completed over a period of 15 years or more. Bethlehem, the U.S. EPA and the Maryland Department of the Environment
agreed to a phased RFI as part of a comprehensive multimedia pollution consent
decree with respect to our Sparrows Point, Maryland facility, which was entered
by the U.S. District Court for Maryland on October 8, 1997. We have assumed
Bethlehems ongoing obligations under the consent decree. The consent decree
requires us to address compliance, closure and post-closure care matters and
implement corrective measures associated with two onsite landfills (Grays
Landfill and Coke Point Landfill), perform a site-wide investigation required
by Section 3008(h) of RCRA, continue the operation and maintenance of a
remediation system at an idle rod and wire mill, and address several pollution
prevention items such as reducing the generation of iron kish, and recycling
blast furnace water treatment slurry and an onsite wastewater treatment plant
sludge. The potential costs, as well as the time frame for the complete
implementation of possible remediation activities at Sparrows Point, cannot be
reasonably estimated until more of the investigations required by the decree
have been completed and the data analyzed. Notwithstanding the above, it is
likely based on currently available data that remediation will be required at
the former coke plant. In addition, pursuant to the order of the U.S. District
Court for Maryland, we also must implement corrective measures at the Grays
Landfill, Coke Point Landfill, and post-closure care at the former Rod and Wire
Mill Area. The total cost of these related matters is estimated to be
approximately $43 million. We are required to prevent acid mine drainage from discharging to surface
waters at idled mining operations in western Pennsylvania. We entered into a
Consent Order and Agreement with the Pennsylvania Department of Environmental
Protection (PaDEP) in May 2003 addressing the transfer of required permits from
Bethlehem to us and financial assurance for long-term operation and maintenance
of the wastewater treatment facilities associated with these mines. In
accordance with this Consent Order and Agreement, we submitted an operational
improvement plan to improve treatment facility operations and lower long-term
wastewater treatment costs. The Consent Order and Agreement also required us to
propose a long-term financial assurance mechanism. Our cost reduction plan was
approved by PaDEP and on May 9, 2004 we entered into a revised Consent Order
and Agreement outlining a schedule for implementation of capital improvements
and requiring the establishment of a treatment trust. The treatment trust is
expected to be funded over a period up to 10 years at a current target value of
approximately $20 million dollars. It is expected that the trust will then be
utilized to fund the cost of treatment of acid mine drainage from the idled
mining operations. The total costs related to these matters are estimated to be
approximately $57 million. We own a large former integrated steelmaking site in Johnstown,
Pennsylvania. The site has been razed and there are a number of historic waste
disposal units located at the site that are subject to regulation by PaDEP.
There are also historic operating locations at the Johnstown site that may have
caused groundwater contamination. Although potentially subject to RCRA
corrective action or similar state authority, no comprehensive environmental
investigations have been performed at this site to date. We estimate the costs
associated with future investigations and likely remediation at this facility
that presently can be estimated to be approximately $23 million. Our facility at Indiana Harbor, Indiana is subject to a U.S. EPA 3013
Administrative Order requiring development of a monitoring program to assess
soil and groundwater conditions associated with 14 solid waste management
units. The order was received on June 30, 2003 and requires submission of an
investigation plan to U.S. EPA for approval. The plan was submitted to the U.S.
EPA in November 2003. Although localized remediation activities have been
conducted at this facility, additional remediation may be required after the
investigation of these solid waste management units has been completed. It is
not possible to estimate the cost of any required remediation or monitoring
that may result from this investigation at this time. An area of subsurface
fuel oil contamination exists and is currently the subject of remediation
actions. A solid waste landfill at Indiana Harbor will require closure and
post-closure care. The total cost related to these matters that can presently
be estimated is approximately $22 million. At our Burns Harbor, Indiana facility, an RFI was completed in accordance
with a U.S. EPA approved work plan. Based on the results of the investigation,
we do not believe there will be any substantial remediation required to
complete the corrective action process at the facility; however, it is likely
that we will incur future costs primarily related to long term post-closure
monitoring. In addition, Bethlehem managed approximately one million net tons
of air pollution control dusts and sludges in piles on the ground at the Burns
Harbor site. While an alternative means of handling this material continues to
be evaluated, it is likely that we will incur future costs to manage this
material. We also have a continuing obligation pursuant to a consent order
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operate a collection and treatment system to control contaminated groundwater
seeps from the face of a sea wall at the site. The total costs related to these
matters are estimated to be approximately $22 million. Our Cleveland, Ohio facilities may be subject to RCRA corrective action or
remediation under other environmental statutes. An integrated steel facility
has operated on the property since the early part of the 20th century. As a
result, soil and groundwater contamination may exist that might require
remediation pursuant to the RCRA corrective action program or similar state
programs. No RCRA corrective action has been demanded at any of the Cleveland
facilities by either federal or state authorities and no comprehensive
investigation of any of the facilities has been performed. However, certain
limited and localized remediation activities have been or will be conducted at
these sites. These remediation activities include a large permitted solid waste
landfill at the site that will require closure and post-closure in the future.
The cost of closure and post-closure care for this landfill is estimated to be
approximately $14 million. At a site of the former steelmaking facilities in Bethlehem, Pennsylvania,
a remedial investigation is being performed pursuant to the Pennsylvania Land
Recycling (Brownfield) Program in conjunction with comprehensive redevelopment
plans. These investigations are continuing to be performed with input and
oversight from both the PaDEP, and the EPA Region III corrective action staff
to ensure that the actions taken are acceptable to both state and federal
regulatory authorities. The majority of the site was sold by ISG in April 2004.
Pursuant to the sales agreement, the buyer assumed financial responsibility
for environmental obligations associated with the acquired property. The cost
associated with anticipated environmental remediation actions on property ISG
continues to own is estimated to be about $10 million. Our facility at Riverdale, Illinois may be subject to RCRA corrective
action or remediation under other environmental statutes. The facility has been
operated as an integrated steel facility since the early part of the 20th
century. As a result, soil and groundwater contamination may exist that might
require remediation pursuant to the RCRA corrective action program or similar
state programs. Certain localized remediation activities have been conducted at
this facility; however, there is no present federal or state demand for a RCRA
corrective action program at the facility. No comprehensive environmental
investigation of the facility has been performed. In January 2004, the State of
Illinois filed a proceeding alleging that ISG arranged for the transport of
slag waste to an off-site location without performing the necessary testing and
notification to the Illinois Environmental Protection Agency and the owner of
the land to which the material was sent. The matter was resolved through a
Consent Order and Agreement signed by the parties on May 4, 2004 which required
payment of an $80,000 civil penalty and removal of slag from the offsite
location. Our recently acquired Weirton, West Virginia facility has been subject to
a RCRA corrective action related consent decree since 1996. The Order requires
the facility to conduct investigative activities to determine the nature and
extent of hazardous substances that may be located on the facilitys property
and to evaluate and propose corrective measures needed to abate unacceptable
risks. Areas within the facilitys property have been prioritized.
Investigation of the two highest priority areas has been completed.
Investigation of the remaining areas is underway. In addition, we are required
to complete closure activities for a surface impoundment pursuant to the RCRA
corrective action and a 1996 consent decree. The cost of investigative and
closure activities at the site is estimated to be about $15 million. Clean Air Act Our facilities are subject to a variety of permitting requirements under
the Clean Air Act, which restricts the type and amount of air pollutants that
may be emitted from regulated emission sources. On February 28, 2003, the U.S.
EPA issued a final rule to reduce hazardous air pollutant (HAP) emissions from
integrated iron and steel manufacturing facilities. The final rule will require
affected facilities to meet standards reflecting the application of maximum
achievable control technology (MACT) standards. Many of our facilities are
subject to the new MACT standards, and compliance with such standards will be
required by May 20, 2006. We anticipate installing controls at facilities to
comply with the new MACT standards with capital expenditures of about $90
million through 2007. Other Clean Air Act requirements, such as revisions to national ambient
air quality standards for ozone and particulate matter, may have significant
impacts on us in the future, although whether and how we will be affected will
not be determined for many years. We also may be affected if the federal
government or the states in which we operate begin to regulate emissions of
greenhouse gases such as carbon dioxide. However, because we cannot predict
what requirements will be imposed on us or the timing of such requirements, we
are unable to evaluate the ultimate cost of compliance with respect to these
potential developments. 18




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The U.S. EPA has alleged that an acid fume scrubber at our Indiana Harbor
facility was not operated in compliance with federal hazardous air pollutant
standards for HCL emissions at the time we restarted the plant. We have
tentatively agreed to enter into a settlement with the U.S. EPA with respect to
this matter that would require us to pay a penalty of about $43,000 and to
undertake a supplemental environmental project in lieu of additional penalties
with an estimated cost of about $112,000. The supplemental project is underway
and is scheduled to be completed by December 15, 2004. On July 8, 2003, the Indiana Department of Environmental Management (IDEM)
issued a notice of violation to our Indiana Harbor plant. The notice of
violation alleges that the H3 and H4 blast furnaces violated specified opacity
limitations on January 2, 2003 and April 2, 2003, respectively. The notice of
violation also alleges operations at the basic oxygen furnace exceeded fugitive
emission and that on May 14, 2003 the basic oxygen furnace roof monitor
exceeded an opacity standard. We expect to discuss the notice of violation with
the IDEM. IDEM may attempt to impose a penalty on us in regard to these
allegations, which is not expected to be material. On June 2, 2004, the Illinois Environmental Protection Agency issued a
violation notice alleging that our Riverdale facility failed to obtain a
construction and operating permit for locating or modifying existing
operations. The agency may seek penalties and injunctive relief associated with
its allegations. Clean Water Act Our facilities also are subject to a variety of permitting requirements
under the Clean Water Act, which restricts the type and amount of pollutants
that may be discharged from regulatory sources into receiving bodies of waters,
such as rivers, lakes and oceans. On October 17, 2002, the U.S. EPA issued
regulations that require existing wastewater dischargers to comply with new
effluent limitations. Several of our facilities are subject to the new
regulations, and compliance with such regulations will be required as new
discharge permits are issued for continued operation. The Circuit Court for Baltimore County, Maryland entered into a consent
decree in March 2001, which requires the installation of improvements to our
Sparrow Points wastewater treatment plant. The improvements are underway and
we expect to spend about $16 million to complete the improvements during 2004. The U.S. EPA has alleged, among other things, that water discharged from a
wastewater lagoon at our Indiana Harbor facility is not permitted pursuant to
the facilitys national pollution discharge elimination system (NPDES) permit.
It is our position that this discharge is authorized by the NPDES permit. As a
result of a meeting with the U.S. EPA on February 5, 2004 and a revised order
issued on June 30, 2004, ISG believes that most of the U.S. EPAs concerns
raised in the original order have been resolved. On July 20, 2004, the Indiana
Department of Environmental Management issued a notice of violation to the
Indiana Harbor facility alleging violations of Indianas water pollution
control laws and regulations and the facilitys NPDES permit. The agency may
seek penalties and injunctive relief associated with its allegations. On June 29, 2004, the Indiana Department of Environmental Management
issued a violation letter to our Burns Harbor facility alleging violations of
the facilitys NPDES permit. The agency may seek penalties and injunctive
relief associated with its allegations. Our Weirton facility was formerly subject to a U.S. EPA Oil Removal Order
that recently has been terminated. However, we have agreed to continue oil
sheen abatement activities on an ongoing basis. In addition, the facility
expects to complete a tank diking program for groundwater protection and spill
prevention purposes at an estimated cost of $750,000. Other We anticipate spending approximately $57 million over the next 40 years,
including $5 million in 2004, to address the removal and disposal of PCB
equipment and asbestos material utilized in operations applications at our
facilities. There are a number of other facilities and properties, which ISG owns
across the United States, which may 19




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present incidental environmental liabilities. The estimated cost of future
investigations and likely remediation at these sites is estimated to be about
$15 million. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders was held May 26, 2004. In connection
with the meeting, proxies were solicited pursuant to the Securities Exchange
Act. The following are the voting results on proposals considered and voted
upon at the meeting, all of which were described in the proxy statement
relating to such meeting.  1.
    
    Both nominees for director listed in the proxy statement were elected. Name
    
    Votes For
    
    Votes Withheld
    
    Broker Non VotesWilbur L. Ross Jr.
    
    
    74,830,149
    
    
    
    34,756
    
    
    
    22,964,084Rodney B. Mott
    
    
    74,830,149
    
    
    
    34,756
    
    
    
    22,964,084
 In addition, each of Rand V. Araskog, William C. Bartholomay, James C.
Boland and Peter J. Powers continued to serve ISG as directors.  2.
    
    The proposal to ratify the selection of KPMG LLP as ISGs independent
certified accountants for the fiscal year ending December 31, 2004 passed.
(For  74,465,895; Against  397,945; Abstained  1,065;
Broker non votes  22,964,084) 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: ExhibitNumber
    
    Description of Document4.1
    
    Exchange and Registration Rights Agreement, dated as of April 14,
2004, by and among International Steel Group Inc. (the Company),
certain subsidiaries of International Steel Group Inc., Goldman,
Sachs & Co., UBS Securities LLC, Citigroup Global Markets Inc.,
and J.P. Morgan Securities Inc. (incorporated by reference to
Exhibit 4.5 of the Companys Report on Form 10-Q for the quarter
ended March 31, 2004, filed May 13, 2004 (the First Quarter 2004
10-Q))4.2
    
    Indenture, dated as of April 14, 2004, by and among International
Steel Group Inc., certain subsidiaries of International Steel
Group Inc., and The Bank of New York, as trustee, including the
Form of International Steel Group Inc.s 6.50% Senior Notes due
2014. (incorporated by reference to Exhibit 4.6 of the First
Quarter 2004 10-Q)10.1
    
    Fourth Amendment to Credit and Guaranty Agreement, dated as of
April 27, 2004, by and among International Steel Group Inc., as a
Guarantor, ISG Acquisition Inc., ISG Cleveland Inc., ISG Hennepin
Inc., ISG Indiana Harbor Inc., ISG Warren Inc., ISG Riverdale
Inc., ISG Plate LLC (f/k/a ISG Plate Inc.), ISG Piedmont LLC
(f/k/a ISG Piedmont Inc.), ISG Burns Harbor LLC (f/k/a ISG Burns
Harbor Inc.), ISG Sparrows Point LLC (f/k/a ISG Sparrows Point
Inc.), ISG Steelton LLC (f/k/a ISG Steelton Inc.), and ISG
Lackawanna LLC (f/k/a ISG Lackawanna Inc.), as Borrowers, certain
subsidiaries of the Registrant, as Guarantors, the Lenders party
thereto from time to time, UBS Securities LLC, as Joint Lead
Arranger and Joint Book runner, UBS AG, Stamford Branch, as
Administrative Agent, Goldman Sachs Credit Partners L.P., as Joint
Lead Arranger, Joint Book runner and Syndication Agent, The CIT
Group/Business Credit, Inc., as Collateral Agent, Fleet Capital
Corporation, as Co-Documentation Agent, and LaSalle Bank National
Association, as Co-Documentation Agent. (incorporated by reference
to Exhibit 10.1 of the First Quarter 2004 10-Q)10.2
    
    Amendment No. 2 to Amended and Restated Asset Purchase Agreement,
dated as of April 21, 2004,
 20




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ExhibitNumber
    
    Description of Documentby and among Weirton Steel
Corporation, FW Holdings Inc., Weirton Venture Holdings
Corporation, ISG Weirton Inc., and International Steel Group Inc.
(incorporated by reference to Exhibit 10.5 of the First Quarter
2004 10-Q)10.3
    
    Amendment No. 3 to Amended and Restated Asset Purchase Agreement,
dated as of May 5, 2004, by and among Weirton Steel Corporation,
FW Holdings Inc., Weirton Venture Holdings Corporation, ISG
Weirton Inc., and International Steel Group Inc.31.1
    
    Certification by the Chief Executive Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31.2
    
    Certification by the Chief Financial Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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(b) Reports on Form 8-K  1.
    
    On April 2, 2004 the Company filed a Current Report on Form
8-K under Item 5 disclosing International Steel Group Inc.s
intention to offer $600 million of its Senior Notes due 2014 in a
transaction exempt from the registration requirements of the
Securities Act of 1933.2.
    
    On April 2, 2004 the Company furnished a Current Report on
Form 8-K under Item 9 disclosing certain information regarding the
Company, including portions of the disclosure document used in
connection with the transaction exempt from the registration
requirements of the Securities Act of 1933.3.
    
    On April 13, 2004 the Company filed a Current Report on Form
8-K under Item 5 disclosing the pricing of $600 million of its
Senior Notes due 2014 in a transaction exempt from the registration
requirements of the Securities Act of 1933.4.
    
    On May 6, 2004 the Company filed a Current Report on Form 8-K
under Item 5 disclosing the execution of a Purchase Agreement for
International Steel Group Inc. to acquire substantially all of the
assets of Georgetown Steel Company.5.
    
    On June 17, 2004 the Company filed a Current Report on From
8-K under Item 5 disclosing International Steel Group Inc.s
agreement with the Commonwealth of Pennsylvania Department of
Environmental Protection to create a trust fund to finance continual
treatment of polluted mine pool discharges in certain counties in
the state of Pennsylvania.6.
    
    On June 23, 2004 the Company filed a Current Report on Form
8-K under Item 5 disclosing the completion of its acquisition of the
assets of the Georgetown Steel Company facility in Georgetown, South
Carolina. 
 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized. INTERNATIONAL STEEL GROUP INC.Date: July 30, 2004By:
    
    /s/ LONNIE A. ARNETTLonnie A. ArnettVice President, Controller and Chief Accounting Officer
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Exhibit Index ExhibitNumber
    
    Description of Document4.1
    
    Exchange and Registration Rights Agreement, dated as of April 14,
2004, by and among International Steel Group Inc. (the Company),
certain subsidiaries of International Steel Group Inc., Goldman,
Sachs & Co., UBS Securities LLC, Citigroup Global Markets Inc.,
and J.P. Morgan Securities Inc. (incorporated by reference to
Exhibit 4.5 of the Companys Report on Form 10-Q for the quarter
ended March 31, 2004, filed May 13, 2004 (the First Quarter 2004
10-Q))4.2
    
    Indenture, dated as of April 14, 2004, by and among International
Steel Group Inc., certain subsidiaries of International Steel
Group Inc., and The Bank of New York, as trustee, including the
Form of International Steel Group Inc.s 6.50% Senior Notes due
2014. (incorporated by reference to Exhibit 4.6 of the First
Quarter 2004 10-Q)10.1
    
    Fourth Amendment to Credit and Guaranty Agreement, dated as of
April 27, 2004, by and among International Steel Group Inc., as a
Guarantor, ISG Acquisition Inc., ISG Cleveland Inc., ISG Hennepin
Inc., ISG Indiana Harbor Inc., ISG Warren Inc., ISG Riverdale
Inc., ISG Plate LLC (f/k/a ISG Plate Inc.), ISG Piedmont LLC
(f/k/a ISG Piedmont Inc.), ISG Burns Harbor LLC (f/k/a ISG Burns
Harbor Inc.), ISG Sparrows Point LLC (f/k/a ISG Sparrows Point
Inc.), ISG Steelton LLC (f/k/a ISG Steelton Inc.), and ISG
Lackawanna LLC (f/k/a ISG Lackawanna Inc.), as Borrowers, certain
subsidiaries of the Registrant, as Guarantors, the Lenders party
thereto from time to time, UBS Securities LLC, as Joint Lead
Arranger and Joint Book runner, UBS AG, Stamford Branch, as
Administrative Agent, Goldman Sachs Credit Partners L.P., as Joint
Lead Arranger, Joint Book runner and Syndication Agent, The CIT
Group/Business Credit, Inc., as Collateral Agent, Fleet Capital
Corporation, as Co-Documentation Agent, and LaSalle Bank National
Association, as Co-Documentation Agent. (incorporated by reference
to Exhibit 10.1 of the First Quarter 2004 10-Q)10.2
    
    Amendment No. 2 to Amended and Restated Asset Purchase Agreement,
dated as of April 21, 2004, by and among Weirton Steel
Corporation, FW Holdings Inc., Weirton Venture Holdings
Corporation, ISG Weirton Inc., and International Steel Group Inc.
(incorporated by reference to Exhibit 10.5 of the First Quarter
2004 10-Q)10.3
    
    Amendment No. 3 to Amended and Restated Asset Purchase Agreement,
dated as of May 5, 2004, by and among Weirton Steel Corporation,
FW Holdings Inc., Weirton Venture Holdings Corporation, ISG
Weirton Inc., and International Steel Group Inc.31.1
    
    Certification by the Chief Executive Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.31.2
    
    Certification by the Chief Financial Officer pursuant to Rules
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.32.1
    
    Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 23