FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2001

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 1-12852

ROUGE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation) 38-3340770
(I.R.S. Employer Identification No.)

3001 Miller Road, P.O. Box 1699, Dearborn, MI 48121-1699
(Address of principal executive offices)

(313) 317-8900
(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 requirements for the past 90 days.

Yes    No   

The number of shares of common stock issued and outstanding as of July 20, 2001 was 22,244,239. This amount includes 15,103,839 shares of Class A Common Stock and 7,140,400 shares of Class B Common Stock.

TABLE OF CONTENTS

	Report of Independent Accountants
Part I. Financial Information
Item 1. Consolidated Financial Statements
	Consolidated Balance Sheets
	Consolidated Balance Sheets
	Consolidated Statements of Operations
	Consolidated Statements of Changes in Stockholders' Equity
	Consolidated Statements of Cash Flows
	Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
EX-15 PricewaterhouseCoopers LLP Awareness Letter

ROUGE INDUSTRIES, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED JUNE 30, 2001

INDEX

		Page
PART I — FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Report of Independent Accountants		3
	Consolidated Balance Sheets		4
	Consolidated Statements of Operations		6
	Consolidated Statements of Changes in Stockholders’ Equity		7
	Consolidated Statements of Cash Flows		8
	Notes to Consolidated Financial Statements		9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings		21
Item 4.	Submission of Matters to a Vote of Security Holders		21
Item 6.	Exhibits and Reports on Form 8-K		22

[PricewaterhouseCoopers LLP Letterhead]

Report of Independent Accountants

To the Board of Directors and
Stockholders of Rouge Industries, Inc.

We have reviewed the accompanying consolidated financial information of Rouge Industries, Inc. and its subsidiaries appearing on pages 4 through 11 of this report on Form 10-Q as of June 30, 2001, and for the three-month and six-month periods ended June 30, 2001 and 2000. This financial information is the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2000, and the related consolidated statements of operations, of changes in stockholders’ equity, and of cash flows for the year then ended (not presented herein), and in our report dated February 2, 2001, except as to Note 5 which is as of March 13, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2000, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived.

PricewaterhouseCoopers LLP
Detroit, Michigan
July 25, 2000

PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

ROUGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)

			June 30			December 31
			2001			2000
Assets
	Unaudited
Current Assets
	Cash and Cash Equivalents		$	1,725		$	2,733
	Restricted Cash			2,328			2,700
	Accounts Receivable
		Trade and Other (Net of Allowances of $12,705 and $9,823)		124,867			108,708
		Insurance Recovery		—			20,007
		Affiliates		1,142			1,822
	Inventories			171,578			269,245
	Other Current Assets			2,230			8,499
		Total Current Assets		303,870			413,714
Property, Plant, and Equipment
	Land			360			360
	Buildings and Improvements			23,122			23,122
	Machinery and Equipment			381,273			379,460
	Construction in Progress			25,410			18,338
		Subtotal		430,165			421,280
	Less: Accumulated Depreciation			(185,433	)		(176,912	)
		Net Property, Plant, and Equipment		244,732			244,368
Investment in Unconsolidated Subsidiaries				66,931			66,918
Deferred Charges and Other				30,386			16,018
		Total Assets	$	645,919		$	741,018

The accompanying notes are an integral part of the consolidated financial statements.

ROUGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)

Liabilities and Stockholders’ Equity

			June 30			December 31
			2001			2000
			Unaudited
Current Liabilities
	Accounts Payable
		Trade	$	148,189		$	188,626
		Affiliates		8,130			11,149
	Deferred Insurance Recovery			—			44,000
	Accrued Vacation Pay			10,649			10,087
	Taxes Other than Income			3,248			6,128
	Other Accrued Liabilities			60,339			35,964
		Total Current Liabilities		230,555			295,954
Long-Term Debt				75,971			66,500
Other Postretirement Benefits				78,332			73,288
Other Liabilities				20,181			12,430
Commitments and Contingencies (Notes 4 and 6)
Stockholders’ Equity
	Common Stock
	Class A, 80,000,000 shares authorized with 15,103,839 and 15,087,577 issued and outstanding as of June 30, 2001 and December 31, 2000, respectively			151			151
	Class B, 8,690,400 shares authorized with 7,140,400 shares issued and outstanding as of June 30, 2001 and December 31, 2000, respectively			72			72
	Capital in Excess of Par Value			130,245			130,233
	Retained Earnings			110,452			162,430
	Accumulated Other Comprehensive Income (Loss)			(40	)		(40	)
		Total Stockholders’ Equity		240,880			292,846
		Total Liabilities and Stockholders’ Equity	$	645,919		$	741,018

The accompanying notes are an integral part of the consolidated financial statements.

ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share amounts)
Unaudited

			For the Quarter Ended						For the Six Months Ended
			June 30						June 30
			2001			2000			2001			2000
Sales
	Unaffiliated Customers		$	248,419		$	277,353		$	473,824		$	587,382
	Affiliates			3,887			5,995			8,677			17,572
	Total Sales			252,306			283,348			482,501			604,954
Costs and Expenses
	Costs of Goods Sold			304,664			291,975			586,410			626,814
	Depreciation and Amortization			6,492			14,611			13,033			29,762
	Selling and Administrative Expenses			5,598			6,949			11,222			14,415
	Total Costs and Expenses			316,754			313,535			610,665			670,991
Operating Loss				(64,448	)		(30,187	)		(128,164	)		(66,037	)
Interest Income				151			510			245			701
Interest Expense				(1,980	)		(1,007	)		(4,786	)		(3,063	)
Insurance Recovery				75,140			40,083			81,533			55,678
Other — Net				(2,236	)		83			(1,247	)		983
Income (Loss) Before Income Taxes and Equity
	In Unconsolidated Subsidiaries			6,627			9,482			(52,419	)		(11,738	)
Income Tax (Provision) Benefit				—			(3,305	)		—			4,506
Income (Loss) Before Equity in
	Unconsolidated Subsidiaries			6,627			6,177			(52,419	)		(7,232	)
Equity in Unconsolidated Subsidiaries				2,041			684			1,331			1,196
		Net Income (Loss)	$	8,668		$	6,861		$	(51,088	)	$	(6,036	)
Per Share Amounts
Net Income (Loss) — Basic and Diluted			$	0.39		$	0.31		$	(2.30	)	$	(0.27	)
Cash Dividends Declared			$	0.02		$	0.03		$	0.04		$	0.06
Weighted Average Shares Outstanding				22,242,206			22,135,782			22,239,021			22,134,857

The accompanying notes are an integral part of the consolidated financial statements.

ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts in thousands)
Unaudited

			For the Quarter Ended				For the Six Months Ended
				June 30, 2001				June 30, 2001
Common Stock
	Beginning and Ending Balance			$	223			$	223
Capital in Excess of Par Value
	Beginning Balance				130,245				130,233
	Common Stock Issued for Benefit Plans				—				12
		Ending Balance			130,245				130,245
Retained Earnings
	Beginning Balance				102,229				162,430
	Net Income (Loss) and Comprehensive Income (Loss)				8,668				(51,088	)
	Cash Dividends Declared				(445	)			(890	)
		Ending Balance			110,452				110,452
Accumulated Other Comprehensive Income (Loss)
	Beginning and Ending Balance				(40	)			(40	)
		Total Stockholders’ Equity		$	240,880			$	240,880
Comprehensive Income (Loss)
	Net Income (Loss) and Comprehensive Income (Loss)			$	8,668			$	(51,088	)

The accompanying notes are an integral part of the consolidated financial statements.

ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Unaudited

				For the Six Months Ended
				June 30
				2001			2000
Cash Flows From Operating Activities
	Net Loss			$	(51,088	)	$	(6,036	)
	Adjustments to Reconcile Net Loss to Net Cash Provided By Operating Activities:
		Deferred Taxes			—			(1,385	)
		Depreciation and Amortization			13,033			29,762
		Amortization of Capitalized Debt Costs			30			—
		Equity in Unconsolidated Subsidiaries			(1,331	)		(1,196	)
		Environmental Remediation Recovery			(7,391	)		—
		Common Stock Issued for Benefit Plans			12			23
		Changes in Assets and Liabilities:
			Accounts Receivable		4,528			6,121
			Inventories		99,097			48,305
			Prepaid Expenses		5,202			(4,541	)
			Accounts Payable and Accrued Liabilities		(13,721	)		60,398
			Deferred Insurance Recovery		(44,000	)		(13,403	)
			Other — Net		14			—
			Net Cash Provided by Operating Activities		4,385			118,048
Cash Flows From Investing Activities
	Capital Expenditures				(14,233	)		(27,069	)
	Investment in Unconsolidated Subsidiaries				(334	)		1,188
	Distributions from Unconsolidated Subsidiaries				221			—
	Changes in Restricted Cash				372			—
	Other — Net				—			(56	)
			Net Cash Used for Investing Activities		(13,974	)		(25,937	)
Cash Flows From Financing Activities
	Drawdowns on Revolving Line				499,125			145,600
	Principal Payments on Revolving Line				(489,654	)		(196,100	)
	Cash Dividend Payments				(890	)		(1,328	)
			Net Cash Provided by (Used for) Financing Activities		8,581			(51,828	)
			Net Increase (Decrease) in Cash and Cash Equivalents		(1,008	)		40,283
	Cash and Cash Equivalents — Beginning of Period				2,733			1,861
	Cash and Cash Equivalents — End of Period			$	1,725		$	42,144

The accompanying notes are an integral part of the consolidated financial statements.

ROUGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — BASIS OF PRESENTATION

The interim consolidated financial statements are unaudited. However, in the opinion of the Company, the statements include all adjustments necessary for a fair statement of the results for the interim periods presented. Such adjustments include normal recurring adjustments as well as additional adjustments discussed in Note 4. The foregoing interim results are not necessarily indicative of the results of operations expected for the full fiscal year ending December 31, 2001.

These consolidated financial statements should be read together with the Company’s audited financial statements presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 filed with the Securities and Exchange Commission. For the purpose of these Notes to Consolidated Financial Statements, “Rouge Industries” or the “Company” refers to Rouge Industries, Inc. and its subsidiaries unless the context requires otherwise.

Certain amounts have been reclassified to conform to current period presentation.

NOTE 2 — INVENTORIES

The major classes of inventories are as follows (dollars in thousands):

			June 30			December 31
			2001			2000
			Unaudited
Production
	Raw Materials		$	31,222		$	86,182
	Semifinished and Finished Steel Products			142,568			180,688
	Total Production at FIFO		$	173,790			266,870
	LIFO Reserve			(16,991	)		(13,387	)
		Total Production at LIFO	$	156,799			253,483
Nonproduction and Sundry				14,779			15,762
		Total Inventories	$	171,578		$	269,245

NOTE 3 — DEBT

In the first quarter of 2001, the Company’s recent financial results caused it to seek amendments (the “Amendments”) to the $100,000,000 unsecured credit facility it had in place since 1997 (the “Original Credit Facility”). Among other things, the Amendments increased the commitment of the banks to $150,000,000.

On March 13, 2001, Rouge Steel and Rouge Industries entered into an agreement for a $250,000,000 revolving loan facility (the “Credit Agreement”) which replaced the Original Credit Facility. The Credit Agreement expires on March 13, 2004. Rouge Steel is the borrower under the Credit Agreement and Rouge Industries is a guarantor. The Credit Agreement is secured by substantially all the assets of the Company. Borrowings under the Credit Agreement are limited to specified percentages of receivables and inventories. At June 30, 2001, the Company’s receivables and inventories supported availability under the Credit Agreement of $180,111,000. There is one financial covenant in the Credit Agreement, Minimum Net Worth,

which is tested only when excess availability under the Credit Agreement is less than $25,000,000. The Credit Agreement bears an unused line fee of 0.375%. Interest on loans made under the Credit Agreement is calculated by one of two methods: (i) the prime rate plus a margin ranging from 0.25% to 1.00%, depending upon excess availability or (ii) the London Interbank Offered Rate plus a margin ranging from 2.25% to 3.00%, depending upon excess availability.

The Company believes that funds available under the Credit Agreement, along with cash flows from operations, should be adequate for its working capital and capital expenditure requirements through the remainder of 2001. However, if the current market conditions and resulting depressed steel prices fail to improve, the Company could be in violation of its debt covenant and liquidity would likely become an issue in early 2002.

NOTE 4 — POWERHOUSE EXPLOSION AND INSURANCE CLAIMS

On February 1, 1999, an explosion and fire at the Rouge Complex Powerhouse (the “Powerhouse”) resulted in the interruption of the supply of electricity, process and heating steam, turbo air, mill water and other utilities to virtually all of the facilities of Rouge Steel, the Company’s wholly-owned subsidiary. The loss of power resulted in the temporary shutdown of Rouge Steel’s steel making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by Ford Motor Company (“Ford”). Ford was responsible for the day-to-day management, operation and maintenance of the Powerhouse.

During the second quarter of 2001, the Company received cash proceeds of $45,175,000 representing final settlement with its insurers regarding Rouge Steel’s insurable first-party and Powerhouse property damage and business interruption costs. As a result of the settlement, the Company recorded $75,140,000 as second quarter 2001 insurance recoveries, of which $63,151,000 represents gain on the net book value of the Powerhouse property destroyed. Other components of second quarter 2001 insurance recoveries include the reversal of previously established insurance recovery receivable reserves of $14,026,000 and net adjustment losses of $2,037,000. Total recoveries and final proceeds of the claim amount to $343,253,000.

Based on current engineering information and applicable legal requirements, the Company has evaluated the amount and probability of certain ancillary costs relating to the explosion, principally cleanup, demolition and abatement activities. As a result of these obligations, with respect to its share of expenditures required to mitigate safety and environmental risks associated with the final disposition of the Powerhouse, the Company recorded an accrual of $14,224,000 in the second quarter of 2001.

While the final settlement covers all property damage and business interruption aspects of the claim through June 30, 2001, two significant business interruption issues remain open without recourse to the Company’s insurers:

a) Excess utility costs — During the period of indemnity, the Company’s insurers had agreed to pay any excess utility costs above the costs that would have been incurred under the old Powerhouse configuration. Rouge Steel expects to incur excess utility costs until the new co-generation power plant, constructed by CMS Energy Corporation (“CMS”), is fully launched and begins to provide the Company with electricity and steam. The cost penalty associated with the delay in CMS utility service is approximately $2,500,000 per month.

b) Blast furnace gas — The Company’s blast furnaces produce a by-product (blast furnace gas) which, before the explosion, was used by the Powerhouse to produce steam and served to reduce the Company’s production costs. When the new co-generation power plant has been fully launched, it will be capable of consuming all of the Company’s blast furnace gas to produce steam. Until such time, however, the blast furnace gas, with a value of approximately $2,400,000 per month, is being flared.

The Company expects full utility service from CMS to commence in the third quarter of 2001.

NOTE 5 — EARNINGS PER SHARE

There was no difference between basic and diluted earnings per share in the three-month and six-month periods ended June 30, 2001 and 2000. The tables below present dilutive securities, which represent stock options granted to members of management or the board of directors with exercise prices lower than the average market price of the Company’s Class A Common Stock, and anti-dilutive securities, which represent stock options granted to members of management or the board of directors with exercise prices higher than average market price of the Company’s Class A Common Stock. All of these stock options will expire between 2004 and 2011.

			For the Quarter Ended June 30
	2001				2000
			Range of				Range of
	Securities		Exercise Prices		Securities		Exercise Prices
Dilutive Securities		—				—
Anti-dilutive Securities		897,975	$	2.05 - $28.88		656,450	$	7.88 - $28.88

			For the Six Months Ended June 30
	2001				2000
			Range of				Range of
	Securities		Exercise Prices		Securities		Exercise Prices
Dilutive Securities		—				—
Anti-dilutive Securities		897,975	$	2.05 - $28.88		656,450	$	7.88 - $28.88

NOTE 6 — COMMITMENTS AND CONTINGENCIES

Other than the matters discussed in Note 4, there have been no material changes to the commitments and contingencies discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Comparison of the Three — Month Periods Ended June 30, 2001 and 2000

      Total Sales.   Total sales for Rouge Industries, Inc. (together with its subsidiaries, “Rouge Industries” or the “Company”) decreased 11.0% in the second quarter of 2001 to $252.3 million from $283.3 million in the second quarter of 2000, a decrease of $31.0 million. The decrease in total sales was caused principally by price decreases, partially offset by an increase in steel product shipments. Average realized revenue per ton decreased in the second quarter of 2001 to $379 per ton from $444 per ton in the second quarter of 2000, a decrease of $65 per ton. The decrease in average realized revenue per ton was the result of dramatically lower steel selling prices combined with an unfavorable sales mix in the second quarter of 2001. The decrease in revenue caused by lower prices was partially offset by higher shipments. Shipments increased 4.2% in the second quarter of 2001 to 665,000 net tons from 638,000 net tons in the second quarter of 2000, an increase of 27,000 net tons.

      Costs and Expenses.   Total costs and expenses increased 1.0% in the second quarter of 2001 to $316.8 million from $313.5 million in the second quarter of 2000, an increase of $3.3 million. Costs of goods sold increased 4.3% in the second quarter of 2001 to $304.7 million from $292.0 million in the second quarter of 2000, an increase of $12.7 million. The higher costs of goods sold was due to the higher shipments discussed above, higher costs related to the Powerhouse explosion and higher natural gas costs, partially offset by unfavorable mix and lower electricity costs. Costs of goods sold in the second quarter of 2001 was 120.8% of total sales, up from 103.0% of total sales in the second quarter of 2000. Depreciation and amortization decreased 55.6% in the second quarter of 2001 to $6.5 million from $14.6 million in the second quarter of 2000, a decrease of $8.1 million. The higher depreciation and amortization expense in 2000 reflects the amortization of the cost of the temporary steam boilers and electrical facilities that were installed to provide the Company with steam and electricity until the co-generation power plant, which is presently under construction, is placed into service. The temporary facilities, which were placed into service in the second quarter of 1999, were amortized over the period from the second quarter of 1999 through December 31, 2000.

      Operating Loss.   The operating loss in the second quarter of 2001 was $64.4 million compared to an operating loss of $30.2 million in the second quarter of 2000, an increase of $34.2 million. The increase in the operating loss was primarily due to the substantially lower selling prices discussed above.

      Insurance Recovery.   During the second quarter of 2001, the Company reached a final settlement with its insurers regarding Rouge Steel’s insurable property damage and business interruption costs related to the explosion and fire at the Rouge Complex Powerhouse (the “Powerhouse”). As a result of the settlement, the Company recorded $75.1 million as second quarter 2001 insurance recoveries compared to $40.1 million in the second quarter of 2000, an increase of $35.0 million. See “Powerhouse Explosion and Insurance Claim.”

      Income Tax Provision.   No income tax provision was recorded in the second quarter of 2001 based on the Company’s expected tax rate for the year. The income tax provision in the second quarter of 2000 was $3.3 million. The income tax provision in the second quarter of 2000 was a function of taxable income.

      Net Income.   Net income increased 26.3% in the second quarter of 2001 to $8.7 million from $6.9 million in the second quarter of 2000, an increase of $1.8 million. The increase was primarily due to the Powerhouse explosion insurance claim settlement during 2001, nearly offset by lower steel prices and other factors discussed above.

Comparison of the Six — Month Periods Ended June 30, 2001 and 2000

      Total Sales.   Total sales decreased 25.4% in the first half of 2001 to $482.5 million from $605.0 million in the first half of 2000, a decrease of $122.5 million. The decrease in total sales was caused by lower steel product shipments and pricing. Steel product shipments decreased 9.8% in the first half of 2001 to 1,246,000 net tons from 1,382,000 net tons in the first half of 2000, a decrease of 136,000 net tons. Rouge Steel’s shipments were lower in the first half of 2001 primarily because of weak demand for steel in the Company’s major markets. The Company idled its smaller blast furnace for 60 days in the first quarter of 2001 to balance production with lower shipments. Additionally, the steel product selling prices were lower in the

first half of 2001. The average realized selling price of the Company’s steel products decreased 11.5% in the first half of 2001 to $387 per ton from $438 per ton in the first half of 2000, a decrease of $51 per ton. The decrease in average realized selling prices is the result of several factors: (i) low priced steel imports which caused domestic producers to lower their prices to compete for orders, (ii) weak demand for the Company’s steel products and (iii) an unfavorable sales mix.

      Costs and Expenses.   Total costs and expenses decreased 9.0% in the first half of 2001 to $610.7 million from $671.0 million in the first half of 2000, a decrease of $60.3 million. Costs of goods sold decreased 6.4% in the first half of 2001 to $586.4 million from $626.8 million in the first half of 2000, a decrease of $40.4 million. The lower costs of goods sold in 2001 was primarily due to the lower shipments discussed above partially offset by higher costs associated with the Powerhouse explosion, higher natural gas costs and higher costs related to the two-month shutdown of the Company’s smaller blast furnace in the first half of 2001. Costs of goods sold in the first half of 2001 was 121.5% of total sales, compared to 103.6% of total sales in the first half of 2000. Depreciation and amortization decreased in the first half of 2001 to $13.0 million from $29.8 million in the first half of 2000, a decrease of $16.8 million. The decrease in depreciation and amortization reflects completion of the amortization of the cost of the temporary steam and electrical distribution systems installed to provide the Company with steam and electricity until the new powerhouse is placed in service. The first half of 2000 included six months of the amortization ($17.7 million). See “Powerhouse Explosion and Insurance Claim.”

      Operating Loss.   The operating loss increased 94.1% in the first half of 2001 to $128.2 million from $66.0 million in the first half of 2000, an increase of $62.2 million. The increase in operating loss was primarily due to lower steel product prices, higher Powerhouse explosion related costs and higher costs associated with the temporary shutdown of a blast furnace.

      Insurance Recovery.   The Company recognized $81.5 million of income in the first half of 2001 for insurance recoveries compared to $55.7 million in the first half of 2000, an increase of $25.8 million. The Company reached a final settlement of the Powerhouse explosion insurance claim in the first half of 2001 and a partial settlement of its first-party claim in the first half of 2000.   See “Powerhouse Explosion and Insurance Claim.”

      Income Tax Benefit.   No income tax benefit was recorded in the first half of 2001 due to the Company’s decision to record a non-cash valuation reserve against its deferred tax assets. The income tax benefit in the first half of 2000 was $4.5 million. The income tax benefit was a function of the losses incurred.

      Net Loss.   The net loss increased in the first half of 2001 to $51.1 million from $6.0 million in the first half of 2000, an increase of $45.1 million. The increased net loss is due to substantially lower steel product prices and costs associated with the temporary shutdown of a blast furnace.

Liquidity and Capital Resources

      The Company is presently facing the most difficult market conditions since it became an independent steel producer in 1989. During 2000, there was intense downward pressure on steel prices caused by high levels of imports and a softening demand for steel by the Company’s customers. The lower steel prices along with the unprecedented increase in the cost of natural gas have resulted in considerable pressure on the Company’s liquidity. The Company has responded to the liquidity pressure in part by refinancing its long-term debt. Additionally, the Company has undertaken a cost reduction effort and reduced capital expenditures in order to help conserve cash.

      Cash and cash equivalents on June 30, 2001 totaled $1.7 million compared to $2.7 million on December 31, 2000, a decrease of $1.0 million. The Company also had restricted cash of $2.3 million on June 30, 2001 compared to $2.7 million on December 31, 2000.

      Cash Flows from Operating Activities.   Net cash provided by operating activities decreased in the first half of 2001 to $4.4 million from $118.0 million in the first half of 2000, a decrease of $113.6 million. The decrease in net cash provided by operating activities was primarily attributable to the higher net loss and a lower payables level partially offset by lower inventories and the Powerhouse insurance settlement. Many payments related to the Powerhouse explosion were made in the first half of 2001.

      Capital Expenditures.   Cash used for capital expenditures decreased 47.4% in the first half of 2001 to $14.2 million from $27.1 million in the first half of 2000, a decrease of $12.9 million.

During the remainder of 2001, it is anticipated that an additional $15 million will be paid or accrued for capital projects. The additional capital expenditures will be generally directed at improving plant efficiency and product quality.

      Credit Facility.   During the first quarter of 2001, while seeking refinancing of its debt, the Company was required to seek amendments to the $100 million, unsecured credit facility it had in place since 1997 (the “Original Credit Facility”). Among other things, these amendments increased the commitments of the banks from $100 million to $150 million.

      The difficult market conditions facing the Company, along with the cash strain caused by the Powerhouse explosion, have resulted in considerable pressure on the Company’s liquidity causing it to refinance the Original Credit Facility. Rouge Steel Company, the Company’s primary operating subsidiary, executed a $250 million Loan and Security Agreement (the “Credit Agreement”) on March 13, 2001. The Credit Agreement expires on March 13, 2004. Borrowings under the Credit Agreement are limited to specified percentages of receivables and inventories. At June 30, 2001, the Company’s receivables and inventories supported availability under the Credit Agreement of $180.1 million. The Company had borrowings of $76.0 million under the Credit Agreement on June 30, 2001. Interest on loans under the Credit Agreement will be 125 to 250 basis points higher than loans under the Original Credit Facility. Although the price of natural gas seems to be declining and the Company believes that the new power plant will begin to purchase the Company’s blast furnace gas to produce steam in the third quarter of 2001, if the current market conditions and the resulting depressed steel prices fail to improve, the Company could be in violation of its debt covenant and liquidity would likely become an issue early in 2002. The Company is pursuing financial and operating alternatives to mitigate the potential liquidity situation. At this time, the Company is unable to predict with any certainty when or if its profitability will improve. Improvement in the Company’s profitability will depend on a variety of factors, including the cost of raw materials and energy, the level of steel imports, the prices at which the Company is able to sell its products, both in the automotive market and the spot market, and the Company’s ability to continue to realize greater operating efficiencies. Many of these factors, such as the cost of raw materials and energy, import levels and steel prices generally, are beyond the Company’s control.

Powerhouse Explosion and Insurance Claim

      On February 1, 1999, an explosion and fire at the Powerhouse resulted in the interruption of the supply of electricity, process and heating steam, turbo air, mill water and other utilities to virtually all of the facilities of Rouge Steel, the Company’s wholly-owned subsidiary. The loss of power resulted in the temporary shutdown of Rouge Steel’s steel making facilities. The Powerhouse is owned 60% by Rouge Steel and 40% by Ford Motor Company (“Ford”). Ford was responsible for the day-to-day management, operation and maintenance of the Powerhouse.

      During the second quarter of 2001, the Company received cash proceeds of $45.2 million representing final settlement with its insurers regarding Rouge Steel’s insurable first-party and Powerhouse property damage and business interruption costs. As a result of the settlement, the Company recorded $75.1 million as second quarter 2001 insurance recoveries, of which $63.1 million represents gain on the net book value of the Powerhouse property destroyed. Other components of second quarter 2001 insurance recoveries include the reversal of previously established reserves of $14.0 million and net adjustment losses of $2.0 million. Total recoveries and final proceeds of the claim amount to $343.3 million.

      Based on current engineering information and applicable legal requirements, the Company has evaluated the amount and probability of certain ancillary costs relating to the explosion, principally cleanup, demolition and abatement activities. As a result of these obligations with respect to its share of expenditures required to mitigate safety and environmental risks associated with the final disposition of the Powerhouse, the Company recorded an accrual of $14.2 million in the second quarter of 2001.

      While the final settlement covers all property damage and business interruption aspects of the claim through June 30, 2001, two significant business interruption issues remain open without recourse to the Company’s insurers:

a) Excess utility costs — During the period of indemnity, the Company’s insurers had agreed to pay any excess utility costs above the costs that would have been incurred under the old Powerhouse configuration. Rouge Steel expects to incur excess utility costs until the new co-generation power plant, constructed by CMS Energy Corporation (“CMS”), is fully launched and begins to provide the Company with

electricity and steam. The cost penalty associated with the delay in CMS utility service is approximately $2.5 million per month.

b)

Blast furnace gas — The Company’s blast furnaces produce a by-product (blast furnace gas) which, before the explosion, was used by the Powerhouse to produce steam and served to reduce the Company’s production costs. When the new co-generation power plant has been fully launched, it will be capable of consuming all of the Company’s blast furnace gas to produce steam. Until such time, however, the blast furnace gas, with a value of approximately $2.4 million per month, is being flared.

      The Company expects full utility service from CMS to commence in the third quarter of 2001.

Recent Development

      The U.S. steel industry has been suffering financially, with marked declines in profits, returns on investment, and market share. As a result, many steel-related companies have sought bankruptcy protection. Many U.S. steel producers maintain that the import surge, which began four years ago, is responsible for the hardships within the industry.

      On June 5, 2001, President George W. Bush announced a comprehensive initiative to respond to the challenges facing the U.S. steel industry. As part of that initiative, the U.S. International Trade Commission (the “ITC”) has commenced an investigation under section 201 of the Trade Act of 1974 regarding the effect of steel imports on the U.S. steel industry. The ITC has been requested to determine whether steel products are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or a threat of serious injury, to domestic steel manufacturers. An affirmative determination could lead to temporary relief from import competition, including tariffs or quotas. The temporary relief would provide a period of time for the industry to enhance its competitiveness, strengthen its balance sheets and, in the long run, restore equitable market forces and balance free and fair trade.

      Although any remedy from an affirmative ITC determination would probably not be in place until the fourth quarter of 2001, such remedy could cause the Company’s financial situation to improve, primarily by allowing steel product prices and shipment levels to recover to reasonable levels.

“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995

      The matters discussed in this Quarterly Report on Form 10-Q include certain forward-looking statements that involve risks and uncertainties. These forward-looking statements may include, among others, statements concerning projected levels of production, sales, shipments and income, pricing trends, cost reduction strategies, 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, Rouge Industries is identifying in this Quarterly Report on Form 10-Q a number of factors which could cause the Company’s actual results to differ materially from those anticipated. These factors include, but are not necessarily limited to, (i) changes in the general economic climate, (ii) the supply of and demand for steel products in the Company’s markets, (iii) pricing of steel products in the Company’s markets, (iv) potential environmental liabilities, (v) the availability and prices of raw materials, supplies, utilities and other services and items required by the Company’s operations, and (vi) higher than expected operating costs.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

      From time to time, Rouge Industries and its consolidated subsidiaries are defendants in routine lawsuits incidental to its business. The Company believes that such current proceedings, individually or in the aggregate, will not have a materially adverse effect on the Company.

Item 4. Submission of Matters to a Vote of Security Holders

      Rouge Industries’ Annual Meeting of Stockholders was held on May 10, 2001. In connection with the meeting, proxies were solicited. Set forth below are the voting results on proposals considered and voted upon:

1) All three nominees for Class I Director were elected by a plurality of the votes entitled to be cast by the stockholders who were present or represented by proxy.

	For	Withheld
Louis D. Camino	31,554,375	533,314
Peter J. Pestillo	31,765,814	321,875
Shamel T. Rushwin	31,768,922	318,767

2) The 2002 Stock Incentive Plan was adopted by a majority of the votes entitled to be cast by the stockholders who were present or represented by proxy.

	For		Against		Abstain
Adoption of the 2002 Stock Incentive Plan		31,298,858		677,591		111,240

3) Additional shares of Class A Common Stock for award pursuant to the Outside Director Equity Plan were authorized.

	For		Against		Abstain
Authorization of additional share of Class A Common Stock for award Pursuant to the Outside Director Equity Plan		31,124,377		838,762		124,550

4) The appointment of PricewaterhouseCoopers LLP as the Company’s independent public accountants for the fiscal year ending December 31, 2001 was ratified by a majority of the votes entitled to be cast by the stockholders who were present or represented by proxy.

	For		Against		Abstain
Ratification of the appointment of PricewaterhouseCoopers LLP as Rouge Industries’ independent public accountants for the fiscal year ending December 31, 2001		31,842,510		154,978		90,201

Item 6. Exhibits and Reports on Form 8-K

(a) The following exhibits are included in this report.

Exhibit Number	Description of Exhibit
15	PricewaterhouseCoopers LLP Awareness Letter

SIGNATURES

      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.

Date: August 9, 2001	ROUGE INDUSTRIES, INC.
	By:	/s/ Carl L. Valdiserri
	Name:	Carl L. Valdiserri
	Title:	Chairman of the Board and Chief Executive Officer
Date: August 9, 2001	By:	/s/ Gary P. Latendresse
	Name:	Gary P. Latendresse
	Title:	Vice Chairman and
		Chief Financial Officer

EXHIBIT INDEX

Exhibit Number	Description of Exhibit
15	PricewaterhouseCoopers LLP Awareness Letter