Rouge Industries, Inc. Records $11.6 Million First Quarter Loss
4 May 1999
Rouge Industries, Inc. Records $11.6 Million First Quarter Loss
DEARBORN, Mich., May 4 -- Rouge Industries, Inc.
reported a net loss of $11.6 million or $0.52 per share for the first quarter
of 1999, which was significantly impacted by the February 1, 1999 Rouge
Complex Powerhouse explosion and fire that idled the company's primary
operations for the balance of the quarter. Steel product shipments totaled
541,000 tons, 187,000 tons or 26% lower than the first quarter of 1998. Raw
steel production totaled only 237,000 tons, 560,000 tons or 70% below last
year's first quarter level due to the inability to melt any steel after the
February 1 explosion. To offset the lost production, the company received
229,000 tons of purchased slabs and coils during the quarter. These
purchases, coupled with the depletion of its in-process and finished goods
inventories, allowed the company to supply critical orders to its customers
and thereby minimize their disruptions.
"Virtually every aspect of Rouge Industries' operating and financial
performance has been adversely impacted by the devastating explosion and fire
at the Rouge Complex Powerhouse," said Gary P. Latendresse, executive vice
president and chief financial officer. "The instantaneous loss of utilities
resulted in the complete shutdown of our facilities from February 1 through
February 11 when restoration efforts permitted the return of limited
production in the company's finishing operations. The response from the local
utility companies, suppliers, customers, and competitors was incredible and
second only to the efforts of our employees who literally worked day and night
to help the company recover from this catastrophe," continued Latendresse.
During the first quarter, the company's operating income was adversely
impacted by $76 million related to the explosion. This total is comprised of
$21 million for property damage and $55 million for business interruption
costs including temporary added expenses and continuing fixed costs. These
costs, which are included in the cost of goods sold, have been partially
offset by a $58 million insurance recovery receivable net of an $18 million
reserve. The company believes that a reserve is appropriate at this time
given the complexity of the insurance claim process. The company also
capitalized $40 million for a new electrical substation and steam system. All
such costs are expected to be fully covered by the insurance policy.
The total insurance receivable at March 31, 1999 of $98 million for
expense and capital does not include any provision for profit recovery, which
is another component of the insurance policy. The profit recovery portion of
the claim cannot be accrued or posted until the claim is fully settled.
The company previously reported that management believes that its
insurance program should be adequate to cover most of this loss. However, it
is expected that the claim adjustment process could extend into late 2000 or
early 2001. To date, Rouge Industries' insurers have advanced the company $35
million in recognition of the company's ongoing business interruption losses.
"I am pleased to report that we are now in the process of returning our
primary operations to production," said Carl L. Valdiserri, chairman and chief
executive officer. "The restoration of the blast furnace auxiliary systems is
nearly complete and our focus will soon turn to returning our primary
operations to full production in a safe and orderly fashion. This is a
complex task that will require considerable attention to detail. In my years
in the steel industry, I don't ever recall a complete restart of primary
operations from a cold state," added Mr. Valdiserri.
"To satisfy our original supply commitments to our customers following the
explosion, Rouge Steel has purchased over 500,000 tons of slabs and coils for
further processing in our finishing operations. As we ramp up our raw steel
production, we will be concentrating on critical orders that require specific
processing and chemistries, such as vacuum degassed products, where supply
alternatives for our customers are limited," said Mr. Valdiserri.
During the period of the outage, considerable explosion related repair and
maintenance work was accomplished to return the primary operations to
production. Both blast furnaces were emptied, repaired and prepped for
restart. The steam supply system was completely rebuilt through the
installation of package boilers in multiple locations that are capable of
producing an aggregate of over one million pounds of steam per hour to meet
the company's needs for processing steam.
The company also took the opportunity to perform a number of important
maintenance projects during the first quarter which were originally planned
for later in the year in order to assure maximum facility utilization going
forward. Many of the projects would have required additional outages and
would have been more difficult to perform in a normal operating mode. These
maintenance efforts, not recoverable under the company's insurance program,
impacted the first quarter earnings by approximately $3 million.
"I am profoundly appreciative of all the people and organizations that
have extended their support and expertise to help Rouge Steel Company get back
to full operation," concluded Mr. Valdiserri.
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)
March 31 December 31
1999 1998
Assets
Current Assets
Cash and Cash Equivalents $14,674 $2,418
Accounts Receivable 197,671 136,268
Inventories 211,995 275,811
Other Current Assets 29,386 7,075
Total Current Assets 453,726 421,572
Net Property, Plant, and Equipment 292,011 258,121
Investment in Unconsolidated
Subsidiaries 65,057 64,646
Deferred Charges and Other 7,473 24,548
Total Assets $818,267 $768,887
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $193,769 $166,891
Accrued Liabilities 45,320 42,262
Total Current Liabilities 239,089 209,153
Long - Term Debt 19,000 29,000
Other Postretirement Benefits 56,798 54,301
Other Liabilities 11,464 11,327
Deferred Insurance Recovery 40,215 -
Excess of Net Assets Acquired
Over Cost 4,037 5,484
Stockholders' Equity 447,664 459,622
Total Liabilities and
Stockholders' Equity $818,267 $768,887
ROUGE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(Unaudited)
For the Quarter Ended
March 31
1999 1998
Total Sales $233,912 $318,952
Costs and Expenses
Costs of Goods Sold 298,263 301,239
Depreciation and Amortization 5,624 5,130
Selling and Administrative Expenses 6,419 5,925
Amortization of Excess of Net Assets
Acquired Over Cost (1,449) (1,449)
Total Costs and Expenses 308,857 310,845
Operating Income/(Loss) (74,945) 8,107
Net Interest Expense (222) (374)
Insurance Recovery 58,402 -
Other - Net (2,119) (386)
Income/(Loss) Before Income Taxes and Equity
in Unconsolidated Subsidiaries (18,884) 7,347
Income Tax (Provision)/Benefit 7,192 (2,212)
Equity in Unconsolidated Subsidiaries 110 (1,064)
Net Income/(Loss) $(11,582) $4,071
Earnings Per Share - Basic and Diluted $(0.52) $0.19
Weighted Average Shares Outstanding 22,098 21,998
Shipments (000)NT 541 728
Raw Steel Production (000)NT 237 797