CLEVELAND ISG reports a $49 million loss, cites start-up and pension costs

The steelmaker plans to reduce its debt by selling stock.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
International Steel Group, which intends to raise more than $300 million in a stock sale, reported a loss of nearly $49 million in the first nine months of the year.
The Cleveland-based steelmaker said, however, that its earnings were reduced by $65 million in one-time accounting charges.
The charge covered expenses related to the start-up of previously idled plants and payments to a pension plan run by the United Steelworkers of America.
ISG has released its financial details as it prepares to sell stock to the public for the first time. W.L. Ross, a specialist in buying troubled companies, formed ISG last year to buy most of the steel-making operations of LTV Steel. ISG has since grown with acquisitions of other distressed steelmakers.
ISG's plant in Warren produces about 25 percent of the coke that the company uses in its steel mills. The plant employs about 100.
Stock offering
ISG plans to issue 15 million shares at between $22 and $24 a share. No date has been set for the offering.
At $23 a share, net proceeds for ISG would be about $318 million. Underwriters are allowed to issue an extra 2.25 million shares, which would add about $52 million to the net proceeds.
Terms of a $228 million loan that ISG used to acquire Bethlehem Steel require it to use the proceeds from a stock sale to retire that debt. Remaining money may be used to retire other debt or to acquire other companies or equipment, ISG said.
At 15 million shares, new investors would own about 15 percent of the stock. The rest would be owned by existing stockholders. Ross, who is ISG chairman, would own 42 percent of the stock.
The top-paid executive is Rodney Mott, president and chief executive. His salary this year is $600,000. Last year, he was paid $333,000, plus a performance bonus of $633,000. He also received $1 million in other compensation last year, including a one-time bonus of $962,000.
Long-term advantage
ISG is trying to succeed by acquiring steelmakers in bankruptcy. It has avoided obligations for retirees, reduced management employees and negotiated new contracts with the United Steelworkers of America.
The company said these labor contracts give it a long-term advantage because they provide for a more self-directed work force and more flexibility in union work rules. Job classifications have been reduced from 30 to five.
The company said profit-sharing checks for all employees last year averaged 120 hours of pay. The steelmaker also said it paid production bonuses to hourly employees in every pay period this year. The company has 12,000 employees.
Among the problems facing the company is the possible elimination of steel tariffs enacted by President Bush last year, ISG said. The tariffs have made imported steel more expensive, so removal of the tariffs could lead to more imports, it said.
$2.7 billion in sales
ISG reported sales of $2.7 billion in the first nine months of this year. Its sales took a big jump when it acquired Bethlehem in May.
For the first four months of this year, Bethlehem reported sales of $1.2 billion and a loss of $66 million excluding special accounting charges. From 1999 to 2002, Bethlehem lost between $143 million and $965 million a year.
ISG said it plans to significantly reduce the costs of operating Bethlehem's mills. It expects to reduce employee costs by $250 million this year as the number of employees has been cut from 11,500 to 8,400. Other annual savings of $100 million are expected as the operations of the two companies are integrated, ISG said.
shilling@vindy.com