Rouge Industries Posts $19.9 Million Second Quarter Loss
DEARBORN, Mich., July 29 -- Rouge Industries, Inc. (BULLETIN BOARD: RGID) reported a net loss of $19.9 million, or $0.90 per share, for the second quarter of 2003, compared to a net loss of $8.7 million, or $0.39 per share, for the second quarter of 2002. The second quarter 2003 results included a one-time gain of $14.3 million related to a powerhouse insurance claim settlement and a non-cash charge of $4.2 million related to the Company's 45% ownership of Eveleth Mines LLC ("EVTAC") which idled its iron ore production facilities during the quarter.
Shipments in the quarter totaled 680,000 tons, 21,000 tons or 3.1% lower than the second quarter of 2002. Sales in the quarter totaled $284 million, $5 million lower than the sales recorded for the same period last year. The second quarter of 2003 included both a planned and an unplanned outage of the Company's largest blast furnace. The planned outage was for ten days to change the furnace top equipment. The unplanned outage began on June 21 when the Company's "C" blast furnace sustained significant damage to its auxiliary mechanical equipment. The furnace was returned to operation on July 22, 2003 and is now operating at its rated capacity.
Chairman's Comments
"The second quarter was difficult and disappointing both operationally and financially. The sluggish U.S. economy caused spot market steel demand and pricing to further weaken during the quarter. In addition, automotive production was down and related steel product sales were off by 16.3% from the second quarter of last year. These factors contributed to the decision to pull ahead the planned ten-day outage to replace the top of 'C' blast furnace from August to early June. That effort went well but unfortunately, the unplanned 'C' blast furnace event subsequently idled the furnace again. The effect of the combined outages adversely impacted earnings," said Carl L. Valdiserri, chairman and chief executive officer.
"We have purchased 30,000 tons of semi-finished steel to partially offset the loss of 191,000 tons of production, but unfortunately the unplanned blast furnace outage required the Company to reduce shipments. We appreciate the patience and understanding that both our customers and suppliers have exhibited during this difficult period," continued Mr. Valdiserri.
"The third quarter will continue to be very challenging financially due to the carryover effects of the blast furnace outage, the annual two-week automotive vacation shutdown, the high cost of natural gas and the sluggish U.S. economy. On the positive side, spot market prices have firmed, imports continue at a moderate level and foreign currencies have strengthened relative to the dollar," concluded Mr. Valdiserri.
'C' Blast Furnace Insurance Claim
During the second quarter, the Company's operating income was adversely impacted by $4.8 million due to an unplanned outage at 'C' blast furnace to repair its damaged dust catcher and downcomer. This amount includes $1.4 million of property damage and $3.4 million of business interruption costs. These costs were included in costs of goods sold. No insurance recovery income was recorded in the second quarter.
The Company estimates that the total cost of this incident will approach $20 million. It is expected that the Company will record insurance recovery income in the third quarter once the $10 million deductible is exceeded.
Liquidity
"The Company's debt as of June 30, 2003 totaled $125.4 million, $24.9 million lower than the March 31, 2003 level," said Gary P. Latendresse, vice chairman and chief financial officer. "While the Company's excess availability under its principal credit facility of $55.2 million at the end of June has been reduced due to the effects of the 'C' blast furnace outages and the annual two-week automotive shutdown, with both blast furnaces operating at full production rates, we expect the borrowing base and availability to recover. To further assure sufficient operating cash flow going forward, the Company has retained Morgan Joseph & Co., a New York investment banking firm, to assist in refinancing the Company's credit facilities. The response to the Company's offering has been encouraging. Our objective is to close this refinancing by the end of the third quarter," concluded Mr. Latendresse.
Double Eagle Insurance Claim Settlement
As previously reported, the Company reached a final settlement with its insurers' representatives on the Double Eagle fire loss in April, 2003. The Company received $5.0 million in July and expects to receive the final $2.0 million later in the third quarter. The corresponding insurance recoveries will be recorded as the proceeds are received.
Eveleth Mines LLC
EVTAC, the Company's 45% owned pellet producing subsidiary, filed for Chapter 11 bankruptcy protection on May 1, 2003 and ceased production on May 14, 2003. The Company believes that it does not have any further obligations related to the funding of EVTAC's operation or liabilities. The Company has a long-term agreement with Cleveland-Cliffs Inc for all of its iron ore pellet requirements. As a result, EVTAC's situation will not affect the Company's supply or price of pellets.
Ethics and Compliance Hotline
To comply with the provisions of the Sarbanes-Oxley Act of 2002, the Company has established an Ethics and Compliance Hotline (1-888-270-5941). For information regarding the Hotline, visit Rouge Industries' web site at www.rougeindustries.com .
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
June 30 December 31
2003 2002
Assets
Current Assets
Cash, Cash Equivalents and Marketable
Securities $3,953 $2,620
Accounts Receivable 66,017 83,187
Inventories 166,118 220,568
Other Current Assets 5,473 16,600
Total Current Assets 241,561 322,975
Net Property, Plant and Equipment 206,680 215,008
Investment in Unconsolidated
Subsidiaries 78,133 77,521
Deferred Charges and Other 31,757 36,896
Total Assets $558,131 $652,400
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $146,867 $134,070
Deferred Insurance Recovery - 13,900
Short-Term Debt 40,431 101,181
Accrued Liabilities 36,473 50,425
Total Current Liabilities 223,771 299,576
Long-Term Debt 85,000 85,000
Pensions and Other Postretirement
Benefits 181,415 172,744
Other Liabilities 14,404 15,571
Stockholders' Equity 53,541 79,509
Total Liabilities and Stockholders'
Equity $558,131 $652,400
ROUGE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
Unaudited
For the For the
Quarter Ended Six Months Ended
June 30 June 30
2003 2002 2003 2002
Total Sales $284,287 $289,357 $580,741 $538,163
Costs and Expenses
Costs of Goods Sold 302,635 298,810 611,839 583,922
Depreciation and Amortization 6,060 6,047 12,100 12,685
Selling and Administrative
Expenses 4,500 4,825 9,173 8,211
Total Costs and Expenses 313,195 309,682 633,112 604,818
Operating Loss (28,908) (20,325) (52,371) (66,655)
Net Interest Expense (2,007) (2,440) (4,330) (4,816)
Insurance Recovery 14,406 12,130 28,323 18,110
Other - Net (47) (616) (227) (638)
Loss Before Income Taxes and
Equity
In Unconsolidated Subsidiaries (16,556) (11,251) (28,605) (53,999)
Equity in Unconsolidated
Subsidiaries (3,381) 2,511 (2,692) 3,760
Net Loss $(19,937) $(8,740) $(31,297) $(50,239)
Earnings Per Share - Basic and
Diluted $(0.90) $(0.39) $(1.41) $(2.26)
Weighted Average Shares
Outstanding (000) 22,248 22,248 22,248 22,247
Shipments (000) NT 680 701 1,355 1,366
Raw Steel Production (000) NT 735 804 1,433 1,543