Rouge Industries Records $14.8 Million Second Quarter Loss
3 August 1999
Rouge Industries Records $14.8 Million Second Quarter Loss
DEARBORN, Mich., Aug. 3 -- Rouge Industries, Inc.
reported a net loss of $14.8 million or $0.67 per share for the second quarter
of 1999 compared to net income of $6.2 million or $0.28 per share in the
second quarter of 1998. The loss in 1999 was due principally to the
continuing effect of the February 1, 1999 Rouge Complex Powerhouse explosion
and fire. "We are pleased to report that our steel making facilities have
resumed production, and we now have the capability to internally produce our
full product mix," said Mr. Carl L. Valdiserri, the Company's chairman and
chief executive officer.
Steel product shipments totaled 372,000 tons, 320,000 tons or 46.2% lower
than the second quarter of 1998 and 169,000 tons or 31.2% lower than the first
quarter of 1999. Raw steel production in the second quarter totaled 341,000
tons, 454,000 tons or 57.1% lower than the second quarter of 1998 but 104,000
tons or 43.9% higher than the first quarter of 1999. To offset the lost
production due to the powerhouse explosion, the Company purchased 523,000 tons
of slabs and coils, 480,000 tons of which were received by June 30, with the
balance received in July 1999. At this time, the Company does not plan to
purchase any additional slabs or coils for the balance of 1999.
Following the 93 day outage, "B" blast furnace was restarted on May 6, and
"C" blast furnace was restarted on May 19. To accomplish the restarts, the
Company was required to completely replace its steam making capacity, build a
temporary electrical distribution switchyard and repair damage to its steel
mill equipment resulting from the explosion and fire.
"The productivity and reliability of the operations have continued to
improve in July," said Mr. Valdiserri. "The progress made has been
outstanding, and we are grateful to our suppliers, customers and employees for
their extraordinary efforts and support during this very difficult period. We
have continued to move forward with two important facility start-ups that we
deem critical to the long-term success of Rouge Industries. Spartan Steel
Coating, the Company's hot dipped galvanizing joint venture, produced 76,000
tons in the second quarter, 16,000 tons or 26.6% higher than the first
quarter. In addition, we have commenced the launch of the Company's new waste
oxide facility. This facility will utilize a significant portion of the waste
materials generated by the steel making processes and convert them into a
usable product that will be consumed by the basic oxygen furnace. The
conversion of these waste materials into a reduced iron product will provide a
low cost material source, improve primary operations productivity and
substantially reduce disposal costs," concluded Valdiserri.
During the second quarter, the Company's operating income was adversely
impacted by $73.8 million due to the powerhouse explosion. This included
$26.6 million for property damage expenses and $47.2 million for business
interruption costs. These costs, which are recorded as costs of goods sold,
have been partially offset by $64.0 million of income for anticipated
insurance recovery. The recovery is net of a $9.8 million reserve, which the
Company believes is appropriate given the complexity of the issues surrounding
the insurance claim.
"Through June 30, the Company recorded costs of $149.8 million directly
attributable to the explosion," said Mr. Gary P. Latendresse, vice chairman
and chief financial officer. "In addition, the Company has capitalized $41.4
million for temporary electrical distribution and steam generating equipment
which was required to return the Company to operation. These costs are being
amortized through May 2000, the anticipated commissioning date of the new
powerhouse. We expect that these capitalized costs will be fully covered by
insurance. The new configuration has us completely reliant on electricity
from the Southeastern Michigan electrical grid for the next year and increases
our exposure to the effects of interruptible power during periods of peak
usage," continued Mr. Latendresse.
Insurance recoveries recorded through the end of June total $122.4
million, net of a $27.4 million reserve. The Company has been advanced $82.5
million or 81% of the identified business interruption costs. An additional
$7 million advance was received for property damage costs in early July. "We
are satisfied at this point with the progress being made toward full insurance
recovery and believe we are on track to reach an equitable settlement on all
facets of the business interruption and steel equipment related property
damage. However, it is too early in the process to speculate regarding the
potential recovery of the property damage claims related to the powerhouse,
60% of which is owned by Rouge Industries and 40% by Ford Motor Company,"
added Mr. Latendresse.
"For the second half of 1999, we are optimistic," said Mr. Valdiserri.
"Our order book has returned to pre-outage levels and product demand continues
to be good. Returning the Company to profitability during the second half of
1999 is our primary focus," concluded Mr. Valdiserri.
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
1999 1998 1999 1998
Total Sales $173,238 $306,001 $407,151 $624,953
Costs and Expenses
Costs of Goods Sold 239,159 288,240 537,529 589,478
Depreciation and
Amortization 15,469 4,240 20,986 9,370
Selling and
Administrative Expenses 8,488 6,744 14,908 12,670
Amortization of Excess
of Net Assets Acquired
Over Cost (1,449) (1,449) (2,898) (2,898)
Total Costs and
Expenses 261,667 297,775 570,525 608,620
Operating Income/
(Loss) (88,429) 8,226 (163,374) 16,333
Net Interest Income/
(Expense) 80 982 (142) 608
Insurance Recovery 64,006 - 122,408 -
Other - Net (478) (380) (2,597) (766)
Income/(Loss) Before
Income Taxes and
Equity in
Unconsolidated
Subsidiaries (24,821) 8,828 (43,705) 16,175
Income Tax (Provision)/
Benefit 10,444 (2,236) 17,636 (4,448)
Equity in Unconsolidated
Subsidiaries (450) (442) (340) (1,506)
Net Income/(Loss) $(14,827) $6,150 $(26,409) $10,221
Earnings Per Share $(0.67) $0.28 $(1.19) $0.46
Weighted Average Shares
Outstanding 22,126 22,005 22,112 22,001
Shipments (000)NT 372 692 913 1,420
Raw Steel Production
(000)NT 341 795 578 1,592
ROUGE INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(Unaudited)
June 30 December 31
1999 1998
Assets
Current Assets
Cash and Cash Equivalents $8,332 $2,418
Accounts Receivable 181,812 136,268
Inventories 244,320 275,811
Other Current Assets 27,770 7,075
Total Current Assets 462,234 421,572
Net Property, Plant, and Equipment 282,237 258,121
Investment in Unconsolidated Subsidiaries 64,080 64,646
Deferred Charges and Other 19,622 24,548
Total Assets $828,173 $768,887
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $226,614 $166,891
Accrued Liabilities 54,103 42,262
Total Current Liabilities 280,717 209,153
Long-Term Debt 10,000 29,000
Other Postretirement Benefits 59,295 54,301
Other Liabilities 11,601 11,327
Deferred Insurance Recovery 31,661 -
Excess of Net Assets Acquired Over Cost 2,591 5,484
Stockholders' Equity 432,308 459,622
Total Liabilities and Stockholders' Equity $828,173 $768,887