WEIRTON STEEL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 2003.

or

[ ] 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 1-10244

WEIRTON STEEL CORPORATION
(Exact name of registrant as specified in its charter)

DELAWARE 06-1075442
(State or other jurisdiction of (IRS employer
incorporation or organization) Identification #)

400 THREE SPRINGS DRIVE, WEIRTON, WEST VIRGINIA 26062-4989
(Address of principal executive offices) (Zip Code)

(304) 797-2000
Registrant's telephone number, including area code:

Indicate by checkmark 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 requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

The number of shares of Common Stock ($.01 par value) of the registrant
outstanding as of July 31, 2003 was 42,077,327.

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TABLE OF CONTENTS

ITEM

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these statements.
2

WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)

The accompanying notes are an integral part of these statements.

3

WEIRTON STEEL CORPORATION
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

NONCASH FINANCING ACTIVITIES:

In the second quarter of 2002, the Company issued $118.2 million in face
amount of new Senior Secured Notes and 1.9 million shares of Series C Redeemable
Preferred Stock with a mandatory redemption of $48.4 million in 2013 in exchange
for $215.0 million in Senior Notes. In the second quarter of 2002, the City of
Weirton issued $27.3 million in principal amount of new Series 2002 Secured
Pollution Control Revenue Refunding Bonds in exchange for $45.6 million of
Series 1989 Bonds, which the Company is obligated to pay under the terms of a
related loan agreement.

The accompanying notes are an integral part of these statements.
4

NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS, OR IN MILLIONS OF DOLLARS
WHERE INDICATED)

NOTE 1

BASIS OF PRESENTATION

The Consolidated Condensed Financial Statements presented herein are
unaudited. The Consolidated Condensed Balance Sheet as of December 31, 2002 has
been derived from the audited balance sheet included in the Company's 2002
Annual Report on Form 10-K. Unless context otherwise requires, the terms
"Weirton Steel," "Weirton," the "Company," "we," "us" and "our" refer to Weirton
Steel Corporation and its consolidated subsidiaries. Entities of which the
Company owns a controlling interest are consolidated; entities of which the
Company owns a less than controlling interest are not consolidated and are
reflected in the consolidated condensed financial statements using the equity
method of accounting. All material intercompany accounts and transactions with
consolidated subsidiaries have been eliminated in consolidation.

Certain information and footnote disclosures normally prepared in
accordance with accounting principles generally accepted in the United States
have been either condensed or omitted pursuant to the rules and regulations of
the Securities and Exchange Commission. Although the Company believes that all
adjustments necessary for a fair presentation have been made, interim periods
are not necessarily indicative of the financial results of operations for a full
year. As such, these financial statements should be read in conjunction with the
audited financial statements and notes thereto included or incorporated by
reference in the Company's 2002 Annual Report on Form 10-K.

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Certain reclassifications have been made to prior year amounts to conform
with current year presentation.

NOTE 2

REORGANIZATION UNDER CHAPTER 11 BANKRUPTCY CODE

On May 19, 2003, Weirton Steel Corporation filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Northern District of West Virginia (the "Court"). The
circumstances leading up to the filing of the petition are discussed at greater
length in Item 2 of this report and in our Form 8-K filed on May 19, 2003.
Weirton continues to manage its business as a debtor-in-possession. As a
debtor-in-possession, management is authorized to operate the business, but may
not engage in transactions outside the ordinary course of business without Court
approval. In connection with the filing of the Chapter 11 petition, Weirton has
obtained several Court orders that authorize us to pay certain pre-petition
liabilities (such as employee wages and benefits and certain of the Company's
senior secured indebtedness) and take certain actions that will preserve the
going concern value of the business, thereby enhancing the prospects of
reorganization.

These financial statements have been prepared on a going concern basis,
which contemplates continuity of operations, realization of assets, and payment
of liabilities in the ordinary course of business. As a result of the Chapter 11
filing, there is no assurance that the carrying amounts of assets will be
realized or that liabilities will be settled for amounts recorded. In due course
and after negotiations with various parties in interest, Weirton expects to
present to the Court a plan of reorganization to reorganize the Company's
business and to restructure its obligations. This plan of reorganization could
change the amounts reported in the financial statements and cause a material
change in the carrying amount of assets and liabilities. These consolidated
financial statements have been prepared in accordance with the AICPA's Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires segregating pre-petition

5

liabilities that are subject to compromise, identifying all transactions and
events that are directly associated with the reorganization of the Company and
discontinuing interest accruals on any unsecured or undersecured debt.

Under the Bankruptcy Code and related rules, the Company is required to
file certain information and reports with the Court. On July 18, 2003, the
Company filed with the Court its first required Monthly Operating Report for the
period May 19, 2003 to June 30, 2003 in a form prescribed by the United States
Trustee for the Northern District of West Virginia. Monthly Operating Reports
are unaudited and prepared in a format prescribed by applicable bankruptcy
rules. Those rules are not necessarily in accordance with generally accepted
accounting principles or with requirements under Securities Exchange Act of
1934, as amended (the "Exchange Act").

Under bankruptcy law, actions by creditors to collect pre-petition
indebtedness owed by Weirton at the filing date are stayed, and other
pre-petition contractual obligations may not be enforced against Weirton. In
addition, Weirton has the right, subject to Court approval and other conditions,
to assume or reject any pre-petition executory contracts and unexpired leases.
Parties affected by these rejections may file claims with the Court. The amounts
of claims filed by creditors could be significantly different from their
recorded amounts. Due to material uncertainties, it is not possible to predict
the length of time Weirton will operate under Chapter 11 protection, the outcome
of the proceedings in general, whether Weirton will continue to operate under
its current organizational structure, the effect of the proceedings on Weirton's
business or the amount or nature of any recovery by creditors and equity holders
of Weirton.

Except for fully secured debt, the vendor financing obligation, all accrued
wages and related payroll taxes and withholdings, all recorded pre-petition
liabilities of the Company have been classified as liabilities subject to
compromise. The Court authorized payments of certain pre-petition wages,
employee benefits and other obligations. Net changes in pension, other
postretirement benefits and certain other accrued liabilities since May 19,
2003, are included in liabilities subject to compromise. As of June 30, 2003,
payments of approximately $3.3 million have been made on liabilities subject to
compromise. Liabilities subject to compromise at June 30, 2003 were as follows:

Net costs resulting from reorganization of the business have been reported
separately in the unaudited consolidated condensed statement of operations as
reorganization items. For the period May 19, 2003 to June 30, 2003, the
following have been incurred:

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NOTE 3

LIQUIDITY AND FINANCING ARRANGEMENTS

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(1) Included in the current portion of long-term debt at December 31, 2002, was
approximately $6.8 million in contingent interest payments. The contingent
payments were based on excess cash flow as defined in the indentures
governing the debt securities issued in connection with the 2002 exchange
offers. An extraordinary gain on early extinguishment of debt of $6.8
million was recorded for the six months ended June 30, 2003 for contingent
interest payments that were not required to be made. Extraordinary gains
will be recognized in the future for any future contingent interest payments
that are not required to be made.

DIP Facility -- Senior Credit Facility

At June 30, 2003, the Company had outstanding $105.6 million under its
debtor-in-possession financing facility (the "DIP Facility"), which is presented
net of $12.7 million of all available cash from lockboxes. Additionally, the
Company utilized $0.2 million under its debtor-in-possession letter of credit
sub-facility at June 30, 2003. At December 31, 2002, the Company had outstanding
$115.1 million under its 2002 amended and restated revolving senior financing
credit facility with a syndicate of lenders (the "Senior Credit Facility"),
which is presented net of $5.8 million of all available cash from lockboxes. At
December 31, 2002, the Company also utilized an additional $0.5 million under
its letter of credit sub-facility. After consideration of amounts outstanding
under its letter of credit sub-facility, the Company had $63.1 million available
for additional borrowing under the DIP Facility at June 30, 2003 and $23.0
million available for additional borrowing under the Senior Credit Facility at
December 31, 2002. The Senior Credit Facility was terminated in connection with
our bankruptcy case and, as permitted by the Court, and outstanding obligations
under that facility were satisfied.

The DIP Facility has been structured to provide us with up to $225.0
million in financing during the course of our bankruptcy case. The DIP Facility
consists of a term loan of $25.0 million and a revolving loan facility of up to
$200.0 million. The borrowing base for the revolving loan facility is determined
by our levels of accounts receivable and inventory in a manner substantially
similar to the Senior Credit Facility. The DIP Facility also

7

includes a letter of credit subfacility of up to $5.0 million. The DIP Facility
revolving loan lenders consist of Fleet Capital Corporation, Foothill Capital
Corporation, The CIT Group/Business Credit, Inc., GMAC Commercial Finance LLC
and Transamerica Business Capital Corporation, all of whom were lenders to
Weirton under the Senior Credit Facility, and the DIP Facility term loan lender
is Manchester Securities Corporation. Fleet Capital Corporation acts as Agent
for the DIP Facility lenders. The DIP Facility is collateralized by a senior
lien on our inventories, accounts receivable, property, plant and equipment and
substantially all of our other tangible and intangible assets. Priority in the
plant, property and equipment collateral goes first to the term loan lender and
in all other collateral to the revolving loan lenders. Proceeds from permitted
sales of the respective types of collateral must be used to pay down the related
loan. In the case of revolving loans, amounts repaid may become available for
reborrowing. The DIP Facility has a term extending through the earliest to occur
of (i) November 20, 2004, (ii) the occurrence of a Default or Event of Default
(as defined in the DIP Facility), or (iii) confirmation of a final bankruptcy
reorganization plan, unless the facility is terminated earlier as provided by
its terms.

In the absence of default, we are required to pay interest on outstanding
amounts under the revolving portion of the DIP Facility of either (1) the prime
rate announced from time to time by Fleet Bank, plus 2.25 % or (2) LIBOR, plus
3.75%, at our option. The non-default interest rate applicable to the term
portion is 14.5% per annum. Default rates of interest on revolving loans and the
term loan under the DIP Facility are increased by 2.0% and 3.0% per annum,
respectively, over the non-default rates. To maintain the DIP Facility, we are
required to pay, from time to time, certain non-refundable fees, including a
facility fee, unused line fee, administrative fee and monitoring fee. In
addition, a deferred fee will be payable to the revolving lenders upon the
earliest to occur of (i) confirmation of a plan of reorganization, (ii) sale of
substantially all our assets or (iii) repayment in full of our obligations under
the DIP Facility. Optional prepayment of the term loan under the DIP Facility
also requires a prepayment fee, the size of which varies depending on the time
of payment.

The DIP Facility contains certain representations and warranties about
Weirton and its business, affirmative and negative covenants requiring or
restricting Weirton's ability to engage in specified transactions and
activities, and Events of Default, many of which have been derived from similar
provisions in our former Senior Credit Facility and others that we believe are
customary for a facility of this type. As under the prior Senior Credit
Facility, amounts available for revolving borrowings depend on Weirton's
borrowing base of eligible receivables and inventory and are subject to certain
limitations and reserves. However, availability has been increased from the
prior facility, which required a minimum availability block of $20.0 million at
all times; under the DIP Facility, we are required to maintain minimum initial
availability block of only $10.0 million. This "availability block" increases
over time to a $20.0 million level by July 31, 2004. The DIP Facility also
contains certain performance covenants focused on meeting financial objectives
and complying with budgetary limitations, and the failure to observe these
covenants could result in one or more Events of Default. Among other things,
these covenants require Weirton to attain increasing amounts of cumulative
EBITDAR (earnings before interest expense, income taxes, depreciation and
Restructuring Expenses, as defined in the DIP Facility) for specified periods
during the term of the DIP Facility and minimum monthly EBITDAR during the last
five months of the term. In addition, Weirton may not permit Restructuring
Expenses to exceed monthly budgeted amounts by more than 10% overall and by more
than 15% on a categorical basis. The Company is not permitted to allow
consolidated accounts payable at the end of any month to be less than 50% of the
projected budgeted amount for that date.

The DIP Facility Events of Default encompass a wide range of occurrences,
including, among other things: failure to pay obligations in a timely manner;
breaches of representations, warranties and covenants (subject, in some cases,
to cure periods); business disruptions and other factors producing a Material
Adverse Effect (as defined in the DIP Facility) on Weirton's business, assets,
financial condition or income (other than as contemplated in our budget);
material uninsured losses to collateral; changes in control and executive
management; defaults on other indebtedness in excess of $0.5 million in the
aggregate; and a number of events potentially affecting our bankruptcy case
adversely, including our failure to file a plan of reorganization within 270
days of the petition filing date, the filing of reorganization plans
unacceptable to any DIP Facility lender, the conversion of our case into a
Chapter 7 (liquidation) proceeding, the filing of certain bankruptcy pleadings,
the granting of authority to Weirton to incur certain impermissible liens or
impermissible debt, the appointment of a

8

bankruptcy trustee with enlarged powers, or the issuance of an order lifting the
automatic stay in bankruptcy to allow persons to proceed against any of
Weirton's material property.

The DIP Facility replaced the Senior Credit Facility, of which
approximately $154.6 million was outstanding on the petition filing date.
Subsequently, the DIP term loan facility of $25.0 million was drawn down to
repay a portion of the outstanding amounts under the revolving credit portion of
the DIP Facility.

The description of the DIP Facility provided in this report is qualified by
the full text of that document filed as Exhibit 10.1 to the Company's March 31,
2003 Form 10-Q.

NOTE 4

PENSIONS

During February 2003, the Company's unionized employees ratified new labor
agreements, which, among other things, provided for a freeze of further benefit
accruals under the Company's defined benefit pension plan as of April 30, 2003.
The Company applied the same freeze to its non-unionized workforce. In
accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits," the
Company recognized a pension curtailment charge of $38.8 million. The
curtailment charge reflects the full recognition of the unrecognized prior
service cost and transition obligation, since all benefit accrual associated
with expected future years of service has been eliminated. Because the pension
plan freeze constituted a significant event, the Company re-measured its pension
plan assets and liabilities as of February 28, 2003. The accounting rules
provide that if, at any plan measurement date, the fair value of plan assets is
less than the plan's accumulated benefit obligation ("ABO"), the sponsor must
establish a liability at least equal to the amount by which the ABO exceeds the
fair value of plan assets. The liability must be offset by the recognition of an
intangible asset and/or a charge against stockholders' deficit. Even though the
freeze operates to moderate the Company's long term funding burden with respect
to the plan, because the Company was required to recognize all prior service
cost and transition obligation with the pension curtailment, the difference
between the ABO and plan assets at February 28, 2003 was taken as a direct
charge of $15.3 million to stockholders' deficit.

During 2002, the Company applied to the Internal Revenue Service (the
"IRS") for waivers regarding its pension plan funding obligations for 2002 and
2003. In April 2003, the IRS granted the Company contingent funding waivers for
the 2002 plan year and the first quarterly 2003 plan year contributions. The
effect of the waivers would have been to allow Weirton to stretch out its
required funding for the plan over a five-year period. The waivers were granted
contingent upon the Company providing "adequate security" for its rescheduled
obligations within 90 days of issuance. The DIP Facility and Court orders
applicable to the Company in connection with its bankruptcy case prevented the
Company from providing security to the PBGC. As a result of the Company's
inability to satisfy the security requirements of the pension funding waivers
granted by the IRS in April 2003, an aggregate of $47.6 million in pension
obligations retroactively became due. As with all pension liabilities, the $47.6
million is classified as liabilities subject to compromise.

NOTE 5

INVENTORIES

Inventories consisted of the following:

9

NOTE 6

EARNINGS PER SHARE

For the three months ended June 30, 2003, basic and diluted earnings per
share were the same. Likewise, basic and diluted earnings per share for the
three months ended June 30, 2002 were the same. For the three months ended June
30, 2003 and 2002, securities totaling 1,463,774 and 1,491,825, respectively,
were excluded from both the basic and diluted earnings per share calculations
due to their anti-dilutive effect. For the six months ended June 30, 2003, basic
and diluted earnings per share were the same. Likewise, basic and diluted
earnings per share for the six months ended June 30, 2002 were the same. For the
six months ended June 30, 2003 and 2002, securities totaling 1,463,769 and
1,493,741, respectively, were excluded from both the basic and diluted earnings
per share calculations due to their anti-dilutive effect.

For the three months ended June 30, 2003 and 2002, there were an additional
1,599,416 and 1,852,750 options, respectively, outstanding for which the
exercise price was greater than the average market price. For the six months
ended June 30, 2003 and 2002, there were an additional 1,601,364 and 1,924,974
options, respectively, outstanding for which the exercise price was greater than
the average market price.

NOTE 7

STOCK BASED COMPENSATION

At June 30, 2003, the Company had two stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to
Employees." No stock-based employee compensation cost is reflected in the
Company's net loss, as all options granted under those plans had an exercise
price equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on the Company's net loss and
earnings per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation,"
to stock-based employee compensation.

NOTE 8

CLAIMS AND ALLOWANCES

The Company's policy is to fully reserve for claims that have been or may
be incurred on all products that have been shipped. The reserve is calculated
based on claims that have been submitted but not settled. The calculation also
considers anticipated claims based on historical performance. The reserve for
claims and allowances is netted against accounts receivable for financial
reporting purposes.

10

The following is a rollforward of the Company's claims and allowances
activity for the first half of 2003:

Beginning Balance at December 31, 2002:..................... $ 4,521
Additions to Reserve...................................... 8,310
Settled Claims............................................ (7,878)
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Ending Balance at June 30, 2003:............................ $ 4,953
=======

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

This discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with and is qualified in its
entirety by the unaudited consolidated condensed financial statements of the
Company and notes thereto. The unaudited consolidated condensed financial
statements of Weirton Steel Corporation include the accounts of its wholly and
majority owned subsidiaries. Unless context otherwise requires, the terms
"Weirton," "the Company," "we," "us" and "our" refer to Weirton Steel
Corporation and its consolidated subsidiaries.

INDUSTRY OVERVIEW

Since the beginning of the steel import crisis in 1998, domestic companies
and unions lobbied Congress and the White House for action to deal with the
record surge of foreign imports, especially those that violated U.S. trade laws.
Among these efforts, in January 2002, a steel industry executive group made
recommendations for governmental steps believed necessary to deal with the
continuing industry crisis and to encourage industry consolidation and capacity
rationalization. This included trade measures, such as tariffs, and legislative
and regulatory relief from the industry's legacy issues, specifically its
surging liabilities for accrued, unfunded pensions and retiree healthcare
benefits. In March 2002, the Bush Administration initiated a three-year, stepped
tariff program providing substantial trade relief. Subsequent to the imposition
of the tariffs, a large number of tariff exclusion applications were filed. The
tariff program is in the midst of a mid-term review with a report expected by
September 2003. Furthermore, no legislative changes have been implemented to
address the industry's legacy issues. As a result, the domestic steel industry
has been left to deal with consolidation prospects and legacy liabilities
primarily through a largely unpredictable bankruptcy process. The Pension
Benefit Guaranty Corporation (the "PBGC"), the federal agency insuring pension
benefits, generally has moved to terminate the underfunded plans of bankrupt
companies relieving them of future accruals for pension service.

Consolidations of production assets have continued to reshape the
competitive structure of the domestic steel industry. A pattern has emerged
whereby steelmaking assets of bankrupt producers are being acquired free of
legacy liabilities in connection with the liquidation, instead of
reorganization, of those bankrupt companies, with the result that the acquiror
can operate at a lower cost than other producers with on-going legacy costs. In
February 2002, a new entity, International Steel Group ("ISG"), purchased
substantially all the integrated production facilities of bankrupt LTV Steel
Corp. in a Chapter 7 liquidation auction. ISG subsequently restarted a portion
of those facilities, in addition to purchasing and restarting the idled assets
of another bankrupt company, Acme Steel. In addition to operating without the
burden of predecessor legacy costs, ISG forged an innovative agreement with the
United Steelworkers of America (the "USWA") that represents a significant
departure from the traditional USWA contract. The structure of this type of
agreement could leave steel companies with traditional contract language at a
significant competitive disadvantage. On March 13, 2003, ISG entered into a
definitive agreement to acquire substantially all the assets of Bethlehem Steel
Corporation ("Bethlehem"), the second largest integrated steelmaker, which had
filed for Chapter 11 bankruptcy protection in October 2001. After reaching a
similar labor agreement with the USWA covering the Bethlehem facilities, ISG
completed the acquisition on May 7, 2003.

On April 9, 2003, United States Steel Corporation ("US Steel"), the
industry's largest domestic producer, announced that it, too, had reached a
comprehensive labor agreement with the USWA, the implementation of which would
be subject to its successful acquisition of National Steel Corporation
("National"), which had filed for Chapter 11 bankruptcy protection in March
2002. On April 21, 2003, the court supervising National's

11

bankruptcy approved a bid for National by US Steel, and the parties signed a
definitive asset acquisition agreement. On May 20, 2003, US Steel completed the
acquisition of substantially all of National's integrated steel making assets.
Similar to the ISG situation, the acquired National assets apparently will
operate with no predecessor legacy liabilities, and US Steel may achieve greater
synergies not only from the acquired assets, but also from the application of
its broad USWA labor agreement to its other facilities. With the acquisition of
the National and Bethlehem assets, US Steel and ISG, respectively, have become
the largest and second-largest domestic producers and, together, account for an
estimated annual capacity of approximately 37 million tons of raw steel, or 30%
of the domestic market share. In tin mill products, where Weirton is a major
competitor with the second-largest market share of approximately 26%, US Steel's
acquisition of National's tin mill facilities (following its acquisition of the
former LTV Steel tin operations in 2001) will result in US Steel having an
estimated tin market share of approximately 41%.

On June 18, 2003, the Federal Bankruptcy Court approved Wheeling-Pittsburgh
Corporation's ("WPC") plan to emerge from Chapter 11 bankruptcy protection.
Previously, the Emergency Steel Loan Guarantee Board ("ESLGB") approved WPC's
application for a $250 million federal steel loan guarantee. WPC stated that the
loan would form part of its financing to be used to emerge from bankruptcy and
fund its strategic plan. Additionally, during June 2003, WPC reached agreement
with the USWA on a new labor contract consistent with recent industry trends,
which has since been approved by WPC's represented employees. In addition,
during July 2003, WPC reached an agreement with the Pension Benefit Guaranty
Corporation and others aimed at rescinding the termination of the defined
benefit pension plan covering WPC's employees and facilitating WPC's stand alone
reorganization.

RECENT DEVELOPMENTS

The Company is required to comply with certain financial covenants under
the DIP Facility. One of those covenants requires Weirton to attain increasing
amounts of cumulative EBITDAR (earnings before interest expense, income taxes,
depreciation and Restructuring Expenses, as defined in the DIP Facility) for
specified periods during the term of the DIP Facility and minimum monthly
EBITDAR during the last five months of the term. To comply with this covenant
the Company has expanded its cost saving plan from the $120 million set as a
goal in the first quarter 2003 to approximately $146 million on an annualized
basis. Savings under the expanded plan include active employees wage and benefit
reductions, more favorable vendor agreements, spending reductions, operational
improvements and reduced legacy costs. Under our current assumptions for our
near term operations and prospects, we believe that Weirton will not be able to
comply with the EBITDAR covenant in its current form by year end, unless we
achieve the savings from our revised plan, which will require new collective
bargaining agreements with our unions and concessions from our vendors.

During the first quarter of 2003, the Company's unionized employees
ratified new labor agreements which, among other things, provided for a freeze
of further benefit accruals under the Company's defined benefit pension plan and
a 5% wage reduction and other benefit reductions. The Company applied the same
freeze and wage reduction to its non-unionized work force. Effective July 1,
2003, exempt active employees began contributing to their health care costs. The
Company's plan calls for similar changes to the health care benefits programs
offered to represented employees. Implementation of these changes would require
a new collective bargaining agreements or orders from the Court or both,
depending on the parties affected. In addition, during the third quarter of
2003, the Company has initiated a planned layoff in its management workforce
that will exceed 10%.

On June 30, 2003, the Company applied to the ESLGB for guaranty relating to
financing in connection with its reorganization. To successfully qualify for the
guaranty, absent any modifications to the current program, the Company would
have to emerge from bankruptcy by December 31, 2003.

As a result of the Company's inability to satisfy the security requirements
of the pension funding waivers granted by the IRS in April 2003, an aggregate of
$47.6 million in pension obligations retroactively became due. The $47.6 million
is classified as liabilities subject to compromise.

Notwithstanding cost reduction and liquidity improvement steps, the
weakness in domestic markets for Weirton's products, in particular its commodity
sheet products, resulted in depressed product prices and shipment and order
levels. The weak domestic steel market adversely affected Weirton's operating
results and financial
12

position. However during the second quarter of 2003, positive signs from the
recent steel industry consolidation and signs that the manufacturing economy is
slowly recovering appear to be favorably influencing the sheet product pricing
outlook for the near term. Price increase announcements from major producers, if
implemented, could improve sheet product pricing by $20 to $40 per ton during
the second half of 2003.

On August 1, 2003 the Company announced the appointment of D. Leonard Wise
as chief executive officer and Mark E. Kaplan as president and chief financial
officer, and those appointments were confirmed by the Court on August 4, 2003.

REORGANIZATION UNDER CHAPTER 11 BANKRUPTCY CODE

On May 19, 2003, Weirton Steel Corporation filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code with the Court (see Note
2 in the accompanying financial statements). Although the petition was
"voluntary," the underlying causes leading to the filing stemmed from
circumstances which many others in our industry, who have also sought bankruptcy
protection, face. Despite having achieved nearly $115 million in net cost
reductions across a broad front from labor and employment concessions, outside
debt restructuring and production efficiencies since the beginning of 2001, we
have been unable to overcome the injury caused by record levels of unfairly
traded steel imports and a slowing economy that have severely reduced prices,
shipments and production, significantly higher natural gas prices and the
significant cost disadvantages that we face in the current environment. The
resulting sustained operating losses and negative cash flow heavily damaged our
financial condition to the point that we believed we had become unable to
recover outside of the bankruptcy system. Furthermore, the pattern of
consolidation of capacity by and into larger entities, in our industry has
frustrated our announced strategic objectives to grow our business through
targeted acquisitions. At the same time, these developments have presented us
with the prospect of competing against reorganized capacity that will be
operating, to a great extent, free of the heavy legacy costs that we have been
carrying and have been unable to reduce without bankruptcy intervention.

The Company continues to manage its business as a "debtor-in-possession."
As a debtor-in-possession, management is authorized to operate the business, but
may not engage in transactions outside the ordinary course of business without
Court approval. In connection with the filing of the Chapter 11 petition,
Weirton obtained several Court orders that authorized us to pay certain
pre-petition liabilities, which has allowed our business to continue without
significant interruption.

During the Chapter 11 process and subsequent to negotiations with parties
in interest, we intend to develop and submit to the Court a plan of
reorganization to return us to sustained profitability. Under our DIP Facility,
we are required to propose such a plan by February 13, 2004 and to achieve its
confirmation by November 19, 2004. We believe key objectives of the plan must
include: finding a responsible solution to our accrued legacy obligations;
restructuring burdensome contracts; working with our principal union, the
Independent Steelworkers Union (the "ISU"), to further increase productivity and
reduce costs (particularly employment and healthcare costs), so that we are not
disadvantaged relative to our reorganized competitors; simplifying and improving
our capital and governance structure; and financing the reorganized company upon
its emergence from bankruptcy. We also intend to continue working with
governmental sources to remedy unfair trade practices and promote efficient
domestic steel industry consolidation consistent with the best interests of our
stakeholders and the traditions of our Company as a steelmaker in the Upper Ohio
Valley for more than 90 years.

LIQUIDITY AND CAPITAL RESOURCES

Total liquidity from cash and financing facilities amounted to $63.1
million at June 30, 2003, as compared to $29.0 million at December 31, 2002.
These calculations are based on our DIP Facility and the then-effective Senior
Credit Facility. Our liquidity has improved primarily as a result of the $25
million DIP term loan, the suspension of funding of prepetition payables and a
decrease of $10.0 million in the Dip Facility availability block. Under
bankruptcy law, actions by creditors to collect pre-petition indebtedness owed
by the Company are stayed while the Company continues to collect pre-petition
accounts receivable and operate the Company as a going-concern.

13

As of June 30, 2003, the Company had cash and equivalents of $0.4 million
compared to $0.2 million as of December 31, 2002.

The Company's statements of cash flows for the six months ended June 30 are
summarized below:

Net cash used by operating activities was $8.6 million and $18.3 million
during the six months ended June 30, 2003 and 2002, respectively. Although
adverse market conditions continue to prevail in the domestic steel industry, we
partially offset the difficult market conditions through the various measures we
undertook during 2001, 2002 and 2003 to enhance our operating cash flow by
reducing overall operating costs and net working capital investment.

Net cash used by investing activities primarily included $3.8 million and
$3.5 million of capital expenditures for the six months ended June 30, 2003 and
2002, respectively.

The $11.8 million in net cash provided by financing activities during the
first six months of 2003 primarily consisted of $130.6 million in borrowings
under our DIP Facility, which was offset by $115.1 million in net repayments on
the Senior Credit Facility. The $16.4 million in net cash provided by financing
activities during the first six months of 2002 consisted of $16.0 million in
cash received under vendor financing arrangements implemented in 2001 and net
borrowings of $5.3 million under the Senior Credit Facility, which was partially
offset by deferred financing fees of $4.9 million.

At June 30, 2003, the Company had outstanding borrowing of $105.6 million
under its DIP Facility, which is presented net of $12.7 million in all available
cash from lockboxes. Additionally, the Company utilized $0.2 million under its
debtor-in-possession letter of credit sub-facility, at June 30, 2003. At
December 31, 2002, the Company had borrowed $115.1 million, under its Senior
Credit Facility, which is presented net of $5.8 million in all available cash
from lockboxes. At December 31, 2002, the Company also utilized an additional
$0.5 million under its letter of credit sub-facility. After consideration of
amounts outstanding under its letter of credit sub-facility, the Company had
$63.1 million available for additional borrowing under the DIP Facility at June
30, 2003 and $23.0 million available for additional borrowing under the Senior
Credit Facility at December 31, 2002.

The DIP Facility replaced the Senior Credit Facility, of which
approximately $154.6 million was outstanding on the petition filing date. The
DIP term loan facility of $25.0 million was drawn down to repay a portion of the
initial revolving borrowings under the DIP Facility.

The DIP Facility is our exclusive source of outside financing during our
bankruptcy case. Depending upon anticipated pricing improvements during the
second half of 2003 and the Company's ability to implement its expanded cost
savings plan and build satisfactory trade credit, and assuming that we remain in
compliance with our covenants, we estimate that the DIP Facility should provide
sufficient liquidity for our planned operations for the duration of our current
fiscal year. See Note 3 to the Unaudited Consolidated Condensed Financial
Statements in this report for additional information concerning the terms of the
DIP Facility. However, we can make no assurance that we will be able to
effectively implement our expanded cost savings plan, the implementation of our
expanded cost savings plan will result in the savings contemplated by the plan,
that we will succeed in building satisfactory trade credit, that the DIP
Facility will be sufficient to meet our financing needs for the remainder of the
year or that we will be able to obtain any additional financing.

14

THREE MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS ENDED JUNE 30, 2002

In the second quarter of 2003, the Company recognized a net loss of $44.2
million or $1.05 per diluted share, which included an extraordinary gain related
to the early extinguishment of debt of $6.8 million, or $0.16 per diluted share.
Additionally, the second quarter of 2003 included a $2.1 million charge related
to the write-off of deferred financing fees, a $4.1 million charge due to the
write-down of certain fixed assets and $2.6 million in bankruptcy reorganization
expenses. The second quarter 2003 charges were partially offset by the reduction
in interest expense related to the debt exchange offer completed in 2002 and the
May 19, 2003 Chapter 11 bankruptcy filing. This compares with a net loss of
$35.8 million, or $0.85 per diluted share for the second quarter of 2002, which
included an extraordinary gain on the early extinguishment of debt of $0.2
million, the sale of the Company's excess nitrogen oxide (NOX) allowances for
$4.4 million and a tax refund of $3.5 million.

Net sales in the second quarter of 2003 were $243.1 million, a decrease of
$7.9 million, or 3%, from the second quarter of 2002. Total shipments in the
second quarter of 2003 were 523 thousand tons, a decrease of 56 thousand tons,
or 10%, from the second quarter of 2002 shipments of 579 thousand tons.

Tin mill product net sales for the second quarter of 2003 were $125.1
million, an increase of $9.2 million from the second quarter of 2002. Shipments
of tin mill product in the second quarter of 2003 were 209 thousand tons,
compared to 193 thousand tons in the second quarter of 2002. The increase in tin
mill product revenue is due to an increase in our market share in higher
value-added tin products.

Sheet product net sales for the second quarter of 2003 were $118.0 million,
an decrease of $17.1 million from the second quarter of 2002. Shipments of sheet
product in the second quarter of 2003 were 314 thousand tons compared to 386
thousand tons in the second quarter of 2002. The decrease in sheet product
revenue resulted from a decrease in volume, partially offset by an increase in
sheet product selling prices.

Cost of sales for the second quarter of 2003 were $258.1 million, or $493
per ton, compared to $260.8 million, or $450 per ton, for the second quarter of
2002. The increase in cost of sales per ton was primarily attributable to an
increase in the Company's raw material and energy costs in addition to pension
costs, partially offset by the Company's savings initiatives.

Selling, general and administrative expenses for the second quarter of 2003
were $5.9 million, a decrease of $0.5 million from the second quarter of 2002.
As part of its operating cost savings plan, the Company has continued to reduced
its management workforce, resulting in lower selling, general and administrative
expenses.

The Company uses production variable depreciation to calculate depreciation
expense. During the second quarter of 2003, the Company had a scheduled hot mill
furnace outage, which reduced the production of hot bands, resulting in a
decrease in the amount of depreciation expense, taken on a unit of production
basis, by $1.6 million compared to the second quarter of 2002. In addition, we
had assets that became fully depreciated in 2002 and we have reduced our
spending on capital additions.

The Company incurred reorganization costs of $2.6 million during the second
quarter of 2003 related to its on-going Chapter 11 reorganization. The costs
consisted primarily of professional fees.

The Company's loss from unconsolidated subsidiaries during the second
quarter of 2003 was attributable to WeBCo, which sells excess and secondary
sheet products.

Interest expense decreased $4.4 million in the second quarter of 2003 when
compared to the same period in 2002. The decrease is a result of the exchange
offers that were completed in the second quarter of 2002 and after filing for
Chapter 11 protection during the second quarter of 2003, the Company no longer
accrues for interest expense on unsecured and under-secured debt. If the Company
continued to accrue contractual interest on unsecured and under-secured debt,
interest expense would have increased by $0.6 million.

Second quarter 2003 other income decreased $8.5 million when compared to
the same period in 2002. During the second quarter of 2003, the Company
recognized a $4.1 million charge due to the write-down of certain fixed assets.
During the second quarter of 2002, the Company sold excess nitrogen oxide (Nox)
allowances for $4.4 million.

15

The Company recorded no income tax benefit in the second quarter of either
2003 or 2002. Continuing losses and the Company's voluntary bankruptcy petition
have raised doubts about the Company's ability to continue to realize additional
deferred tax assets in the future, such as operating loss carryforwards, prior
to their expiration. Therefore, deferred tax assets generated in the second
quarter of 2003 and in the second quarter of 2002 were offset by valuation
allowances.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO SIX MONTHS ENDED JUNE 30, 2002

In the first half of 2003, the Company recognized a net loss of $119.0
million, or $2.83 per diluted share, which included an extraordinary gain
related to the early extinguishment of debt of $6.8 million, or $0.16 per
diluted share. Additionally, the first half of 2003 included a $2.1 million
charge related to the write-off of deferred financing fees, a $4.1 million
charge due to the write-down of certain fixed assets, $2.6 million of bankruptcy
reorganization expenses and a pension curtailment charge of $38.8 million
related to a freeze of further benefit accruals under the Company's defined
benefit pension plan. The first half 2003 charges were partially offset by the
sale of excess nitrogen oxide (NOX) allowances for $1.3 million, the reduction
in interest expense related to the debt exchange offers completed in 2002 and
the May 19, 2003 chapter 11 bankruptcy filing. The Company also incurred an
other comprehensive loss of $15.3 million in the first half of 2003 as a result
of the pension plan's accumulated benefit obligation exceeding plan assets. This
compares with a net loss of $80.4 million, or $1.92 per diluted share, for the
first half of 2002, which included an extraordinary gain on the early
extinguishment of debt of $0.2 million, the sale of excess nitrogen oxide (NOX)
allowances for $4.4 million, the sale of stock received upon the demutualization
of an insurer for $3.2 million and a tax refund of $3.5 million.

Net sales in the first half of 2003 were $503.0 million, a increase of
$16.0 million, or 3%, from the first half of 2002. Total shipments in the first
half of 2003 were 1,076 thousand tons, a decrease of 69 thousand tons, or 6%,
from the first half of 2002 shipments of 1,145 thousand tons.

Tin mill product net sales for the first half of 2003 were $253.4 million,
an increase of $17.1 million from the first half of 2002. Shipments of tin mill
product in the first half of 2003 were 426 thousand tons, compared to 394
thousand tons in the first half of 2002. The increase in tin mill product
revenue is due to an increase in our market share in higher value-added tin
products.

Sheet product net sales for the first half of 2003 were $249.6 million, a
decrease of $1.2 million from the first half of 2002. Shipments of sheet product
in the first half of 2003 were 650 thousand tons, compared to 751 thousand tons
in the first half of 2002. The decrease in sheet product revenue resulted from a
decrease in volume, partially offset by an increase in sheet product selling
prices.

Cost of sales for the first half of 2003 were $529.9 million, or $492 per
ton, compared to $511.1 million, or $446 per ton, for the first half of 2002.
The increase in cost of sales per ton was primarily attributable to an increase
in the Company's raw material and energy costs in addition to pension costs,
partially offset by the Company's savings initiatives.

Selling, general and administrative expenses for the first half of 2003
were $11.9 million, a decrease of $0.6 million from the first half of 2002. As
part of its operating cost savings plan, the Company has continued to reduced
its management workforce, resulting in lower selling, general and administrative
expenses.

The Company uses production variable depreciation to calculate depreciation
expense. During the first half of 2003, the Company had a scheduled hot mill
furnace outage, which reduced the production of hot bands, resulting in a
decrease in the amount of depreciation expense, taken on a unit of production
basis, by $3.0 million compared to the first half of 2002. In addition, we had
assets that became fully depreciated in 2002 and we have reduced our spending on
capital additions.

During February 2003, the Company's unionized employees ratified new labor
agreements which, among other things, provided for a freeze of further benefit
accruals under the Company's defined benefit pension plan. The Company applied
the same freeze to its non-unionized workforce. In accordance with SFAS No. 88,
"Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination

16

Benefits," the Company recognized a pension curtailment charge of $38.8 million.
The curtailment charge reflects the full recognition of the unrecognized prior
service cost and transition obligation, because all benefit accrual associated
with expected future years of service has been eliminated.

The Company incurred reorganization costs of $2.6 million, during the first
half of 2003, consisting primarily of professional fees related to its on-going
Chapter 11 reorganization.

The Company's loss from unconsolidated subsidiaries during the first half
of 2003 was attributable to WeBCo, which sells excess and secondary sheet
products.

Interest expense decreased $10.7 million in the first half of 2003,
compared to the same period in 2002. The decrease is a result of the exchange
offers that were completed in the second quarter of 2002 and after filing for
Chapter 11 protection during the second quarter of 2003, the Company no longer
accrues for interest expense on unsecured and under-secured debt. If the Company
continued to accrue contractual interest on unsecured and under-secured debt,
interest expense would have increased by $0.6 million.

During the first half of 2003 other income decreased $10.1 million,
compared to the same period in 2002. During the first half of 2003, the Company
recognized a $4.1 million charge due to the write-down of certain fixed assets.
During the first half of 2002, the Company sold excess nitrogen oxide (Nox)
allowances for $4.4 million and received approximately $3.2 million from the
sale of stock received as a result of demutualization of an insurer.

The Company recorded no income tax benefit in the first half of 2003.
Continuing losses and the Company's voluntary bankruptcy petition have raised
doubts about the Company's ability to continue to realize additional deferred
tax assets in the future, such as operating loss carryforwards, prior to their
expiration. During the first half of 2002, the Company received an income tax
refund of $3.5 million as a result of the Job Creation and Worker Assistance Act
of 2002.

Because the pension plan freeze constituted a significant event, the
Company re-measured its pension plan assets and liabilities as of February 28,
2003. The accounting rules provide that if, at any plan measurement date, the
fair value of plan assets is less than the plan's accumulated benefit obligation
("ABO"), the sponsor must establish a liability at least equal to the amount by
which the ABO exceeds the fair value of plan assets. The liability must be
offset by the recognition of an intangible asset and/or a charge against
stockholders' deficit. Because the Company was required to recognize all prior
service cost and transition obligation with the pension curtailment, the
difference between the ABO and plan assets at February 28, 2003 is a direct
charge to stockholders' deficit and is shown as a component of other
comprehensive income in the statement of operations and comprehensive loss.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Company believes that the accounting principles
chosen are appropriate under the circumstances, and that the estimates,
judgments and assumptions involved in its financial reporting are reasonable.
Actual results could differ from those estimates.

Management believes that the following are the more significant judgments
and estimates used in the preparation of the financial statements.

Reserves and Valuation Allowances: The Company evaluates its significant
reserves and valuation allowances and makes revisions to the estimates as
required. The ultimate cost or loss to the Company changes as additional
information becomes available. The Company uses the following policies to
establish its reserves:

- Accounts Receivable -- Management analyzes accounts receivable
balances on an ongoing basis, including historical bad debt and
customer claims information, customer creditworthiness and current
economic trends, to evaluate the adequacy of the allowances for
accounts receivable. The

17

Company records appropriate provision for loss whenever reasonable
doubt exists as to the collectibility of customer accounts receivable.

- Deferred Tax Assets -- On a quarterly basis, the Company considers the
likelihood of its ability to realize the future benefit of its
deferred tax assets given the uncertainty of the domestic steel
market. The Company utilizes information regarding historical and
projected financial performance and other factors relating to the
generation of taxable income as a basis for its estimates. During
2001, the Company determined that a valuation allowance was necessary
for all of its net deferred tax assets. The Company will continue to
evaluate the need for a valuation allowance on a quarterly basis.

- Environmental Matters -- Environmental matters are evaluated on an
individual occurrence basis. The Company works closely with its
environmental consultants and government agencies to estimate the cost
of environmental matters. Estimates are adjusted as information
becomes available to support such changes.

Pensions and Other Postemployment Benefits: Pension and other
postemployment benefit ("OPEB") expenses are based on, among other things,
assumptions of the discount rate, estimated return on plan assets, wage and
salary increases, the mortality of participants, and the current level and
escalation of health care costs in the future. On an annual basis, management
determines the assumptions to be used to compute pension and OPEB expense and
pension contributions based on discussions with the Company's actuaries and
other advisors. Changes in the factors discussed above and differences between
actual and assumed changes in the present value of liabilities or assets could
cause annual expense or contributions to increase or decrease materially from
year to year.

Asset Impairments: Based on its recent operating losses, the Company has
made estimates of the undiscounted future cash flow over the remaining useful
lives of its operating assets to determine if the assets are impaired. As of
December 31, 2002, the Company determined that no impairment existed. Estimates
of future cash flows in volatile market conditions are inherently subjective and
these estimates of future expected cash flows may change by a material amount in
the future.

Inventory: Inventories are stated at the lower of cost or market, cost
being determined by the first-in, first-out method. The Company records an
appropriate provision for net realizable value which is based on, among other
things, estimated future selling prices.

The financial statements presented in this report have been prepared on a
going concern basis, which contemplates continuity of operations, realization of
assets, and payment of liabilities in the ordinary course of business. As a
result of the Chapter 11 filing, there is no assurance that the carrying amounts
of assets will be realized or that liabilities will be settled for amounts
recorded. In due course and after negotiations with various parties in interest,
Weirton expects to present a plan of reorganization to the Court to reorganize
the Company's business and to restructure its obligations. This plan of
reorganization could change the amounts reported in the financial statements and
cause a material change in the carrying amount of assets and liabilities. The
financial statements have be prepared in accordance with the AICPA's Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). SOP 90-7 requires segregating pre-petition
liabilities that are subject to compromise and identifying all transactions and
events that are directly associated with the reorganization of the Company. Also
in accordance with SOP 90-7, interest will no longer be accrued on any unsecured
or undersecured debt.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities," ("FIN
46"). FIN 46 requires the primary beneficiary to consolidate certain variable
interest entities ("VIEs"). The primary beneficiary is generally defined as one
having the majority of the risks and rewards arising from the VIE. For VIEs in
which a significant (but not majority) variable interest is held, certain
disclosures are required. The consolidation requirements of FIN 46 apply
immediately to VIEs created after January 31, 2003. The consolidation
requirements apply to older entities in the first fiscal year

18

or interim period beginning after June 15, 2003. The adoption of FIN 46 is not
applicable to the financial position or results of operations of the Company.

In December 2002, FASB issued Statement of Financial Accounting Standards
("SFAS") No. 148, "Accounting for Stock-Based Compensation -- Transition and
Disclosure; Amendment of FASB Statement No. 123." SFAS 148 provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS 123 to provide more frequent and more
prominent disclosure. The Company has adopted both the annual and interim
disclosure provisions of SFAS 148, and these disclosures are properly included
in the notes to these consolidated condensed financial statements. The Company
is not changing to the fair value based method of accounting for stock-based
employee compensation. Therefore, the transition provisions are not applicable.

In November 2002, FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Guarantees of
Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the disclosures and
clarifies the accounting related to a guarantor's obligation in issuing a
guarantee. The interim disclosures required by FIN 45 are included in Note 8 to
the consolidated condensed financial statements. The adoption of FIN 45 is not
expected to have a material effect on the financial position or results of
operations of the Company.

In June 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force ("EITF") issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." The adoption of
SFAS 146 could have a material effect on the Company's financial statements to
the extent that significant exit or disposal activities occur subsequent to
December 31, 2002.

In April 2002, SFAS No. 145, "Rescission of FASB Statements 4, 44, and 64,
Amendment of FASB Statement 13, and Technical Corrections," was issued. Among
other amendments to previous statements, which have already taken effect, a
provision in the Statement, requiring certain gains and losses from the
extinguishment of debt to be reclassified from extraordinary items, was
effective January 1, 2003. Certain of the Company's long-term debt instruments
contain provisions for the payment of contingent interest. To the extent these
contingent payments are not required to be made, a gain will be included as part
of other income, and it will be considered an extraordinary item.

In June 2001, FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a long-lived asset. The
Company's adoption of SFAS 143 in 2003 did not have a material effect on its
financial statements.

In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." The
Statement requires the Company to classify a financial instrument within its
scope as a liability (or an asset in some circumstances). These include certain
financial instruments that a) are mandatorily redeemable, b) embody an
obligation to repurchase the Company's equity shares or c) embody an obligation
that the Company must or may settle by issuing a variable number of its equity
shares. The Statement is effective as of July 1, 2003 or for financial
instruments entered into or modified after May 31, 2003. The Company will adopt
this Statement as required, but does not believe adoption will have a material
effect on its financial statements.

ACCESS TO INFORMATION

The Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and all amendments to those reports, as well as
proxy and information statements to our stockholders and certain other filings
are made available, free of charge, on our Web site at www.weirton.com, as soon
as

19

reasonably practicable after such reports have been filed with or furnished to
the Securities and Exchange Commission (the "SEC").

FORWARD LOOKING STATEMENTS

Certain statements in this report are forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Weirton from
time to time makes forward-looking statements in reports filed with SEC. These
forward-looking statements may extend to matters such as statements concerning
its projected levels of sales, shipments and income, cash flows, pricing trends,
anticipated cost-reductions, product mix, anticipated capital expenditures and
other future plans and strategies.

As permitted by the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Weirton is identifying in this report important
factors that could cause Weirton's actual results to differ materially from
those projected in these forward-looking statements. These factors include, but
are not necessarily limited to:

Bankruptcy factors:

- our ability to continue as a going concern;

- our ability to operate pursuant to the terms of the DIP Facility;

- our ability to obtain Court approval with respect to motions in the
Chapter 11 proceeding from time to time;

- our ability to develop, negotiate, prosecute, confirm and consummate
one or more plans of reorganization with respect to our Chapter 11
case;

- risks associated with third parties seeking and obtaining court
approval to terminate or shorten the exclusivity period that we have
in order to propose and confirm one or more plans of reorganization,
for the appointment of a Chapter 11 trustee or to convert our case to
a Chapter 7 case;

- our ability to obtain and maintain normal terms with vendors and
service providers;

- our ability to maintain contracts that are critical to our operations;

- our ability to maintain the services of managers and other key
employees;

- our ability to maintain commercial position with strategic customers;

- the potential adverse impact of the Chapter 11 cases on our liquidity
or results of operations; and

- our ability to develop, fund and execute our revised business plan.

General factors:

- Weirton's highly leveraged capital structure and its ability to obtain
new capital at reasonable costs and terms;

- employment matters, including costs and uncertainties associated with
Weirton's collective bargaining agreements, and employee
post-employment and retirement obligations;

- the high capital requirements associated with integrated steel
facilities;

- availability, prices and terms associated with raw materials,
supplies, utilities and other services and items required by Weirton's
operations;

- the sensitivity of Weirton's results to relatively small changes in
the prices it obtains for its products;

- intense competition due to excess global steel capacity, low-cost
domestic steel producers, imports (especially unfairly-traded imports)
and substitute materials;

- whether Weirton will continue to operate under its current
organizational structure;

20

- the effects of the currently ongoing major steel industry
consolidation effort and how they will relate to Weirton;

- changes in customer spending patterns, supplier choices and demand for
steel products;

- the effect of planned and unplanned outages on Weirton's operations;

- the potential impact of strikes or work stoppages at facilities of
Weirton's customers and suppliers;

- the consolidation of many of Weirton's customers and suppliers;

- the significant costs associated with environmental controls and
remediation expenditures and the uncertainty of future environmental
control requirements;

- the effect of possible future closure or exit of businesses; and

- the effect of existing and possible future lawsuits filed against
Weirton.

The forward-looking statements included in this document are based on
information available to Weirton as of the date of this report. Weirton does not
undertake to update any forward-looking statements that may be made from time to
time by Weirton or its representatives.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our operations consume large amounts of natural gas and blast furnace coke.
Global demand for coke is high. China, the largest exporter of coke, is
producing less and consuming more coke, resulting in a 3.0 million ton reduction
in exports for 2003. Domestic coke has a 3.0 million ton deficit (demand is
greater than supply) for 2003, caused by recent blast furnace start-ups and coke
plant closures. Domestic coke prices rose over $10 per ton from 2002 to 2003. At
normal consumption levels, a $1.00 per ton change in our coke costs would result
in an estimated $0.3 million change in our quarterly operating costs.

Domestic natural gas prices increased from an average of $3.32 per mcf in
2002 to an average of $5.57 per mcf in the second quarter of 2003. At normal
consumption levels, a $1.00 per mcf change in domestic natural gas prices would
result in an estimated $4.1 million change in our normal operating costs for the
quarter. A hypothetical 10% change in the Company's natural gas prices would
result in a change in the Company's pretax loss of approximately $2.6 million.
The Company has entered into a number forward purchase contracts for natural gas
for delivery between September 2003 and March 2004. For those contracts, a $1.00
per mcf change in price could require the Company to provide approximately $7.6
million of collateral, based upon the provisions of the agreements with our
suppliers. For the quarters ended June 30, 2003 and 2002, the average price of
natural gas consumed by the Company was $6.40 per mcf and $3.71 per mcf,
respectively, for a total cost of $26.2 million and $16.0 million, respectively.

ITEM 4. CONTROLS AND PROCEDURES

An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures was performed, under the supervision and with
the participation of management, including our Chief Executive Officer and Chief
Financial Officer, as of the end of the period covered by this report. Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that these disclosure controls and procedures are effective.

Weirton's system of controls and procedures has been designed to provide
reasonable assurance as to the reliability of the disclosures included in this
report. In designing and evaluating disclosure controls and procedures,
management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurances of achieving the
desired control objective, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures. We believe that our disclosure controls and procedures provide such
reasonable assurance.

No changes were made to our internal control over financial reporting
during the last fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On May 19, 2003, Weirton filed a voluntary petition with the Court under
Chapter 11 of the Bankruptcy Code (Chapter 11 Case No. 03-1802). Weirton remains
in possession of its assets and properties, and continues to operate its
business and manage its properties as a debtor-in-possession, as permitted by
Sections 1107(a) and 1108 of the Bankruptcy Code. We are following normal
bankruptcy procedures with the Court.

Weirton, in the ordinary course of its business, is the subject of various
pending or threatened legal actions involving governmental agencies or private
interests. Prosecution of certain of these actions is subject to automatic stay
by Weirton's Chapter 11 filing. Weirton believes that any ultimate liability
arising from these actions should not have a material adverse effect on its
consolidated financial position at June 30, 2003 or the date of this report.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

On May 19, 2003, Weirton filed a voluntary petition for reorganization
under Chapter 11 of the Bankruptcy Code. This event constituted an Event of
Default under the then existing Senior Credit Facility and under the terms of
our other indebtedness reflected in Item 1, either independently or by reason of
cross-default provisions. In accordance with the order of the Court, the Senior
Credit Facility was re-financed with the proceeds of the DIP Facility. The
entitlements and claims of creditors under such other indebtedness are subject
to the resolution of the bankruptcy process.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable

ITEM 5. OTHER INFORMATION

Not applicable

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 10.1 -- Amendment No. 1 to the Debtor-in Possession Loan and
Security Agreement dated as of June 16, 2003

Exhibit 10.2 -- Amendment No. 2 to the Debtor-in Possession Loan and
Security Agreement dated as of August 6, 2003

Exhibit 31.1 -- Certification of Principal Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 -- Certification of Principal Financial Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1 -- Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

Weirton filed the following Current Reports on Form 8-K with the Securities
and Exchange Commission since the end of its first quarter:

1. July 8, 2003 -- Item 5, Press release relating to the resignation of
John H. Walker as President and Chief Executive Officer
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2. July 18, 2003 -- Item 5, Press release announcing Weirton's second
quarter and year to date results for 2003.

3. July 18, 2003 -- Item 9, Monthly Operating Report for the period May
19, 2003 to June 30, 2003, as filed with the Bankruptcy Court.

4. August 4, 2003 -- Item 5, Press release announcing appointment of D.
Leonard Wise as Chief Executive Officer and Mark E. Kaplan as
President and Chief Financial Officer.

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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.

WEIRTON STEEL CORPORATION
Registrant

/s/ MARK E. KAPLAN
--------------------------------------
Mark E. Kaplan
President and Chief Financial Officer

August 14, 2003

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