Rouge Industries Posts $105.0 Million Loss for Fourth Quarter
Including $69.7 Million Non-Cash Accounting Charge
DEARBORN, Mich., Feb. 7 Rouge Industries, Inc.
reported a net loss of $105.0 million, or $4.73 per share, for the fourth
quarter of 2000. The loss includes a non-cash charge of $69.7 million, or
$3.14 per share, to provide a 100% valuation reserve against previously
recorded net deferred tax assets. Excluding the reserve, the fourth quarter
net loss was $35.3 million, or $1.59 per share. Shipments in the fourth
quarter totaled 566,000 tons, 168,000 tons or 23% below the fourth quarter of
1999. Sales in the fourth quarter totaled $230.7 million, down $75.2 million
or 25% from a year ago.
The Company's pre-tax income in the fourth quarter was adversely impacted
by $23.7 million of direct and indirect costs attributable to the Powerhouse
explosion. This total includes $21.9 million of business interruption,
including temporary facility costs, $1.1 million of property damage and
$700,000 of other costs (professional services and estimated interest
expense). The business interruption and property damage costs were partially
offset by $22.1 million of anticipated insurance recovery.
"We are facing the most difficult market conditions since we became an
independent steel producer just over eleven years ago," said Carl L.
Valdiserri, chairman and chief executive officer of Rouge Industries. "The
cataclysmic drop in steel prices in the last half of 2000, related to surging
levels of imported steel and the unprecedented natural gas cost increases,
combined to make the fourth quarter of 2000 one of the worst for the steel
industry that we have ever witnessed. As a result, we have temporarily idled
our smaller blast furnace, cutting our raw steel making capacity by 30% to
align our inventories with our sales forecast and have instituted strict cost
control measures including reducing overtime and employment levels. We hope
that the worst of this is behind us and that the recently announced steel
price increase and the possibility of an improved automotive market in the
second half of the year will help us to recover," added Mr. Valdiserri.
Full Year 2000
The Company reported a net loss of $117.3 million, or $5.29 per share, for
the year ended December 31, 2000. The loss includes non-cash tax credits of
$6.7 million recorded in the nine months ended September 30, 2000 offset by
the fourth quarter non-cash charge of $69.7 million. The resulting non-cash
charge of $63.0 million, or $2.84 per share, for the full year 2000 provides a
full valuation reserve against previously recorded net deferred tax assets.
Excluding this non-cash charge, the net loss for the year was $54.3 million,
or $2.45 per share, $6.5 million and $0.29 per share higher than the net loss
in 1999. Shipments and sales in 2000 totaled 2.6 million tons and $1.1
billion, up 10.8% and 10.5%, respectively, from 1999.
Powerhouse Insurance Claim
For the full year of 2000, the Company recorded costs of $78.2 million
attributable to the 1999 Rouge Complex Powerhouse explosion and fire.
Insurance recoveries of $84.2 million were recorded in 2000 and reflect a
favorable partial settlement reached earlier in the year relative to certain
property damage and business interruption costs recorded in 1999 and the first
quarter of 2000. The Company was advanced $127.4 million by its insurers in
2000 bringing the total insurance advances to-date to $286.4 million.
Rouge Industries will continue to record Powerhouse-related costs and
insurance recovery amounts until the replacement power plant is able to
provide the Company its electricity and steam requirements and the final
disposition of the Powerhouse is complete. Rouge Industries anticipates the
new power plant to become operational in phases during the first six months of
2001. The Company's primary insurer has informed the Company that the period
of business interruption coverage related to the Powerhouse incident, ended as
of December 31, 2000, a position that the Company is vigorously contesting.
Until the new power plant becomes operational, the Company estimates that
continuing business interruption costs will average $3 to $4 million per month
depending on the cost of natural gas. Presently, the Company does not plan to
record any business interruption cost recovery in 2001.
Accounting Charge
In evaluating the need for a reserve against its deferred tax assets,
Rouge Industries, as prescribed by SFAS 109, considered the likelihood of the
Company's ability to realize the benefit of its deferred tax assets given the
continuing uncertainty of the domestic steel market. Factors contributing to
the decision to establish the reserve include the consequences of lower raw
steel production in the fourth quarter of 2000 and the first quarter of 2001
and the possibility of the current economic downturn continuing beyond the end
of the first half of the year. The necessity to reduce production rates by
30% in the first quarter is due to the continuing high levels of imports and
more recently, forecasted reductions in vehicle production and sales announced
by the Company's major automotive customers. These negative factors, along
with unprecedented increases in the cost of natural gas, present a major
challenge for Rouge Industries and the domestic steel industry in general.
While the Company believes it can and will return to profitability, the
current economic factors affecting the domestic steel industry and Rouge
Industries warrant conservative treatment relative to the utilization of
deferred tax assets. The Company will continue to assess the valuation
reserve and to the extent it is determined that it is not necessary, the
reserve will be subsequently adjusted.
Liquidity
The Company successfully amended the loan agreement with its current bank
group to add another $50 million of liquidity bringing its total borrowing
capacity up to $150 million. This has been followed up by the approval of a
new $250 million facility with Congress Financial Corporation. The Company
expects to close on this new facility before the end of the first quarter.
"The greater borrowing capacity available under the proposed new Congress loan
facility should provide Rouge Industries adequate liquidity during this severe
economic period," said Mr. Valdiserri.
Rouge Industries, Inc., and its primary operating subsidiary Rouge Steel
Company, is the eighth largest integrated steel producer in the United States.
Its corporate offices, steel manufacturing facilities and approximately 2,800
employees are located in Dearborn, Michigan. Rouge Industries produces
premium quality flat rolled steel products primarily for the automotive,
service center and converter markets.
Safe Harbor Statement
This press release contains forward-looking information about the Company.
A number of factors could cause the Company's actual results to differ
materially from those anticipated, including changes in the general economic
climate, the supply of or demand for and the pricing of steel products in the
Company's markets, potential environmental liabilities and higher than
expected costs. For further information on these and other factors that could
impact the Company and the statements contained herein, reference should be
made to the Company's filings with the Securities and Exchange Commission.
ROUGE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
Unaudited
December 31 December 31
2000 1999
Assets
Current Assets
Cash and Cash Equivalents $ 5,433 $ 1,861
Accounts Receivable 130,537 181,316
Inventories 269,245 269,808
Other Current Assets 8,499 27,530
Total Current Assets 413,714 480,515
Net Property, Plant and Equipment 244,368 278,610
Investment in Unconsolidated
Subsidiaries 66,918 71,258
Deferred Taxes - 23,108
Deferred Charges and Other 16,018 14,115
Total Assets $741,018 $867,606
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $199,775 $201,627
Deferred Insurance Recovery 44,000 24,671
Current Portion of Long-Term Debt - 4,800
Accrued Liabilities 52,179 51,119
Total Current Liabilities 295,954 282,217
Long-Term Debt 66,500 100,000
Other Postretirement Benefits 73,288 63,936
Other Liabilities 12,430 11,678
Stockholders' Equity 292,846 409,775
Total Liabilities and
Stockholders' Equity $741,018 $867,606
ROUGE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
Unaudited
For the For the
Quarter Ended Twelve Months Ended
December 31 December 31
2000 1999 2000 1999
Total Sales $230,710 $305,889 $1,099,811 $995,582
Costs and Expenses
Costs of Goods Sold 282,470 322,924 1,183,215 1,165,091
Depreciation and Amortization 13,144 22,325 56,711 63,267
Selling and Administrative
Expenses 5,787 6,166 26,699 26,772
Amortization of Excess of Net
Assets Acquired Over Cost - (1,137) - (5,484)
Total Costs and Expenses 301,401 350,278 1,266,625 1,249,646
Operating Loss (70,691) (44,389) (166,814) (254,064)
Net Interest Expense (1,192) (972) (4,291) (2,093)
Insurance Recovery 22,095 28,165 91,006 177,414
Other - Net (3,219) (25) (1,905) (1,214)
Loss Before Income Taxes and
Equity In Unconsolidated
Subsidiaries (53,007) (17,221) (82,004) (79,957)
Income Tax Benefit 17,720 5,258 25,750 29,794
Valuation Reserve (69,727) - (63,012) 700
Net Income Tax Provision (52,007) 5,258 (37,262) 30,494
Equity in Unconsolidated
Subsidiaries 10 1,511 1,947 1,652
Net Loss $(105,004) $(10,452) $(117,319) $(47,811)
Earnings Per Share - Basic and
Diluted $(4.73) $(0.47) $(5.29) $(2.16)
Weighted Average Shares
Outstanding (000) 22,216 22,132 22,158 22,122
Shipments (000) NT 566 734 2,570 2,320
Raw Steel Production (000) NT 677 813 2,929 2,169
