Rouge Industries Posts Third Quarter Loss of $11.0 Million
27 October 1999
Rouge Industries Posts Third Quarter Loss of $11.0 Million
DEARBORN, Mich., Oct. 26 -- Rouge Industries, Inc.
reported a net loss of $11.0 million or $0.49 per share for the
third quarter of 1999 compared to net income of $5.5 million or $0.25 per
share in the third quarter of 1998. The loss in 1999 was due in part to the
continuing effects of the February 1, 1999 Rouge Complex Powerhouse explosion
and fire.
"I am pleased to report that we have returned our steelmaking operations
to the pre-explosion production levels during the third quarter, and we are
now producing and supplying our full range of high quality steel products to
our customers," said Carl L. Valdiserri, chairman and chief executive officer.
Steel product shipments totaled 671,000 tons, 73,000 tons or 12.2% higher
than the third quarter of 1998, which was impacted by the GM strike, and
299,000 tons higher than the second quarter of 1999. Raw steel production in
the third quarter totaled 778,000 tons, 34,000 tons or 4.6% higher than the
third quarter of 1998 and 437,000 tons higher than the second quarter of this
year. The Company took delivery during the third quarter of the last 37,000
tons of the slabs and coils purchased this year to ensure continued steel
supply to its customers. The Company's operating income in the third quarter
was adversely impacted by $33.1 million of direct and indirect costs
attributable to the powerhouse explosion. These costs include $32.6 million
of additional property damage and business interruption costs, and $500,000 of
professional service costs that are not covered by the insurance policy. The
property damage and business interruption costs have been partially offset by
$26.8 million of income for anticipated insurance recovery. This recovery
amount is net of a $5.8 million reserve, which the Company believes is
appropriate given the complexity of the issues surrounding the insurance claim
process.
"In addition to the powerhouse related costs, the Company's results were
also adversely affected during the quarter by electricity service
interruptions and prohibitive electricity rates at our ladle refining
facilities, the electrogalvanizing facility (Double Eagle Steel Coating
Company) and the hot dipped galvanizing line (Spartan Steel Coating) during
periods of extremely hot weather during the quarter," stated Gary P.
Latendresse, vice chairman and chief financial officer. "These three
facilities have always been supplied by the local public utility under an
interruptible supply contract. During periods of high demand, electricity
shortages caused the utility company to restrict supply to virtually all of
its interruptible supply customers in our geographic area or to pass through
exceedingly high purchased electricity cost premiums incurred by the utility
to maintain supply," added Mr. Latendresse.
Through September 30, the Company has recorded costs of $186.0 million
directly and indirectly attributable to the explosion. Insurance recoveries
of $149.2 million have been recorded through September for property damage and
business interruption losses of $182.4 million. The recovery amount is net of
a $33.2 million reserve. To date, the Company has been advanced $129.0
million against the business interruption and property damage costs. The
Company will continue to record explosion related costs and insurance recovery
amounts until the new powerhouse is completed and it is no longer dependent
upon the temporary electricity and steam facilities.
"Our order book continues to be reasonably strong, and we expect shipments
in the fourth quarter to be only slightly lower than the third quarter," said
Mr. Valdiserri. "Although we expect the fourth quarter steel price increases
to hold, we remain focused on our internal cost reduction efforts to improve
profitability and earn an acceptable margin. Productivity, yield and quality
throughout the steel making operations are improving, and we are concentrating
on additional spending controls and purchasing initiatives to further lower
our costs. We are also starting to see cost improvements coming from Spartan
Steel Coating, and we expect to see our new waste oxide facility contributing
to lower costs in the fourth quarter," concluded Mr. Valdiserri.
The Company expects that the new co-generation powerhouse, being
constructed on Rouge Steel property by an affiliate of CMS Energy Corporation
and scheduled to commence operation by mid 2000, will not only lower the
Company's costs but will greatly improve supply reliability. The new plant is
expected to provide Rouge Steel with a non-interruptible supply of lower cost
energy even during the hottest days of the year.
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)
September 30 December 31
1999 1998
Assets
Current Assets
Cash and Cash Equivalents $ 9,137 $ 2,418
Accounts Receivable 242,790 136,268
Inventories 257,418 275,811
Other Current Assets 28,666 7,075
Total Current Assets 538,011 421,572
Net Property, Plant, and Equipment 286,174 258,121
Investment in Unconsolidated Subsidiaries 64,613 64,646
Deferred Charges and Other 28,588 24,548
Total Assets $917,386 $768,887
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $241,819 $166,891
Accrued Liabilities 53,196 42,262
Total Current Liabilities 295,015 209,153
Long - Term Debt 87,000 29,000
Other Postretirement Benefits 61,792 54,301
Other Liabilities 11,745 11,327
Deferred Insurance Recovery 39,951 -
Excess of Net Assets Acquired Over Cost 1,137 5,484
Stockholders' Equity 420,746 459,622
Total Liabilities and Stockholders'
Equity $917,386 $768,887
ROUGE INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
Unaudited
For the For the
Quarter Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
Total Sales $261,153 $269,679 $668,303 $894,633
Costs and Expenses
Costs of Goods Sold 283,294 251,827 820,777 841,309
Depreciation and
Amortization 19,915 5,128 40,942 14,498
Selling and Administrative
Expenses 5,693 5,285 20,606 17,954
Amortization of Excess
of Net Assets Acquired
Over Cost (1,449) (1,449) (4,347) (4,347)
Total Costs and
Expenses 307,453 260,791 877,978 869,414
Operating Income
(Loss) (46,300) 8,888 (209,675) 25,219
Net Interest Income
(Expense) (980) (36) (1,121) 573
Insurance Recovery 26,841 - 149,249 -
Other - Net 1,407 (1,683) (1,189) (2,448)
Income (Loss) Before
Income Taxes and Equity in
Unconsolidated
Subsidiaries (19,032) 7,169 (62,736) 23,344
Income Tax (Provision)
Benefit 7,600 (1,211) 25,236 (5,659)
Equity in Unconsolidated
Subsidiaries 482 (415) 141 (1,921)
Net Income (Loss) $(10,950) $5,543 $(37,359) $15,764
Earnings Per Share $ (0.49) $ 0.25 $ (1.69) $ 0.72
Weighted Average Shares
Outstanding 22,130 22,031 22,118 22,011
Shipments (000)NT 671 598 1,584 2,018
Raw Steel Production
(000)NT 778 744 1,356 2,336