<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                 FORM 10-K/A-1

(Mark One)

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
        ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1998
    
                                       OR

[  ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                      to     
                               -------------------      --------------------
    
                         Commission File Number 1-12852

                             ROUGE INDUSTRIES, INC.
                             ----------------------
             (Exact name of registrant as specified in its charter)

         DELAWARE                                             38-3340770
         --------                                             ----------

(State or other jurisdiction of                              (IRS Employer
incorporation or organization)                               Identification No.)


3001 MILLER ROAD, P.O. BOX 1699, DEARBORN, MICHIGAN            48121-1699    
---------------------------------------------------            ----------    
(Address of principal executive offices)                       (Zip Code)


                                 (313) 317-8900
                                 --------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

                                                           Name of each exchange
        Title of each class                                 on which registered
        -------------------                                 -------------------

Class A Common Stock, $0.01 par value                    New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

                                      None

      Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
                                       YES      X                       NO   
                                               ---                         ---

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]

      Based upon the closing price of the Class A Common Stock on February 26,
1999, as reported on the New York Stock Exchange composite tape (as reported by
the Wall Street Journal), the aggregate market value of registrant's Class A
Common Stock held by nonaffiliates of registrant as of such date was
$140,261,482.

      The number of shares of common stock issued and outstanding as of February
26, 1999 was 22,102,896. This amount includes 14,540,496 shares of Class A
Common Stock and 7,562,400 shares of Class B Common Stock.


                       DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the 1999 Proxy Statement of Rouge Industries, Inc. are
incorporated by reference into Part III of this Form 10-K to the extent provided
herein.
<PAGE>   2



                             ROUGE INDUSTRIES, INC.
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I                                                                                       PAGE

<S>           <C>                                                                            <C>
Item 1.       Business....................................................................    3

Item 2.       Properties..................................................................   13

PART II

Item 8.       Financial Statements and Supplementary Data.................................   14

</TABLE>





                                        2
<PAGE>   3





                                     PART I

Item 1.   Business.

GENERAL

       Rouge Steel Company ("Rouge Steel") is the primary operating subsidiary
of Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, "Rouge Industries" or the "Company"). Rouge Steel is an integrated
producer of high quality, flat rolled carbon steel products consisting of hot
rolled, cold rolled and galvanized steel. The Company's products generally
command higher margins than commodity flat rolled carbon steel products. The
Company's products generally, and its value-added products specifically, are
sold primarily to customers in the automotive industry which have exacting
quality, delivery and service requirements. The Company's ability to meet these
requirements and its participation in the development of new products designed
for automotive applications have enabled it to expand its sales to automotive
customers. The Company also sells its products to steel converters, service
centers and other end users.

       Other wholly-owned subsidiaries of Rouge Industries include QS Steel Inc.
("QS Steel") and Eveleth Taconite Company ("Eveleth"). QS Steel holds minority
ownership interests in five Michigan-based joint ventures. Eveleth holds a 45%
interest in Eveleth Mines LLC ("EVTAC"), a Minnesota-based iron ore mining and
pellet producing operation.

PRODUCTS

       The Company currently produces four finished sheet steel products: (i)
hot rolled, which is sold to automotive, converter and service center customers
and other end users; (ii) cold rolled, which is hot rolled steel that is
subsequently cold reduced in thickness, annealed and typically tempered to
enhance ductility and surface characteristics and is sold to automotive,
converter and service center customers and other end users; (iii)
electrogalvanized, which is cold rolled steel that is coated on one or both
sides with either pure zinc or a zinc/iron combination to make the steel more
corrosion resistant and is sold almost exclusively to automotive customers; and
(iv) hot dip galvanized, which is cold rolled steel that is coated on both sides
with zinc or a zinc/iron combination to make the steel more corrosion resistant
and is sold to automotive and service center customers and other end users.

       The following table sets forth the percentage of Rouge Industries' steel
product revenues from hot rolled, cold rolled, electrogalvanized and hot dip
galvanized steel for the years from 1996 through 1998.



<TABLE>
<CAPTION>
                                                                   Year Ended December 31         
                                                                   ----------------------         
                                                         1998               1997               1996
                                                         ----               ----               ----

<S>                                                     <C>                <C>                <C>
Hot Rolled                                               44.6 %             49.4 %             47.4 %
Cold Rolled                                              30.5               29.8               30.6
Electrogalvanized                                        21.0               20.2               22.0
Hot Dip Galvanized                                        3.9                0.6                  -
                                                        -----              -----              -----
       Total                                            100.0 %            100.0 %            100.0 %
                                                        =====              =====              =====
</TABLE>


                                        3
<PAGE>   4



       Approximately one-half of the Company's sales of hot rolled steel has
been to the automotive market for wheels and structural components such as
suspension arms, frames and seat frames. Rouge Steel also sells hot rolled steel
in the non-automotive end user markets for the manufacture of roof decking,
grating, guard rails and pipes and to converters and service centers to be
further processed or sold directly to other end users. Cold rolled steel is sold
by the Company for use in automotive parts, lighting fixtures, room dividers and
doors, and for unexposed applications such as the manufacture of floor pans and
tubing. Electrogalvanized products are sold to automotive customers for use as
major automotive body panels such as doors, quarter panels and fenders. Hot dip
galvanized products are presently sold to construction and service center
customers. In 1999, the Company will begin to sell hot dip galvanized products
to automotive customers.

       One of the Company's primary objectives is to increase its production and
sales of value-added higher margin products. In order to increase the Company's
capability to produce more sophisticated products as well as retain and add
customers, the Company has entered into five Michigan-based strategic joint
ventures:

       (i)   Shiloh of Michigan, L.L.C. ("Shiloh of Michigan"), a joint venture
             with Shiloh Industries, Inc. ("Shiloh") which produces engineered
             steel blanks that the Company sells to its automotive customers;

       (ii)  Spartan Steel Coating, L.L.C. ("Spartan Steel"), a joint venture
             with Worthington Industries, Inc. (together with its subsidiaries,
             "Worthington") which produces hot dip galvanized steel primarily
             for automotive applications;

       (iii) TWB Company, L.L.C. ("TWB"), a joint venture with Worthington,
             Thyssen Inc., Bethlehem Blank Welding, Inc. and LTV Steel Company,
             Inc. which produces laser welded blanks sold primarily for
             automotive applications;

       (iv)  Delaco Processing, L.L.C. ("Delaco Steel Processing"), a joint
             venture with Delaco Supreme Tool & Gear Co. which slits and
             warehouses steel coils to be sold to automotive customers and other
             end users; and

       (v)   Bing Blanking, L.L.C. ("Bing Blanking"), a joint venture with Bing
             Management II, L.L.C. which produces first operation blanks and
             rollformed parts primarily for the automotive industry.

       Spartan Steel and Bing Blanking began production in the second quarter of
1998 and Delaco Steel Processing began operating in the third quarter of 1998.
The Company has invested approximately $46.8 million in Spartan Steel and $6.5
million in TWB. Shiloh of Michigan has a $30 million credit facility, 20% of
which is guaranteed by the Company. Delaco Steel Processing and Bing Blanking
have credit facilities of $7.3 million and $5 million, respectively, both of
which are guaranteed by the Company. Rouge Industries' participation in these
joint ventures responds to the demand by end users for increasingly complex
products and is intended to mitigate the erosion in sales that might occur if
the Company were unable to provide these products to its current customers. In
addition, participation in these joint ventures may provide opportunities for
the Company to supply new customers.



                                        4
<PAGE>   5



MARKETS AND CUSTOMERS

       In light of the goal to strengthen long-term customer relationships,
customer service is a key component of Rouge Industries' strategy and
significant resources have been devoted toward that end. The Company has
approximately 200 steel customers, virtually all of which are located within 350
miles of Rouge Steel's integrated facility. The Company believes its proximity
to its customers allows it to provide focused customer service and resources.
The primary goal in this respect is to maintain and improve its responsiveness
to customer needs in a continually changing competitive environment.

       Ford Motor Company ("Ford") and DaimlerChrysler AG ("DaimlerChrysler"),
the Company's two largest customers, accounted for approximately 37% and 10%,
respectively, of total sales in 1998. Sales to Ford and Worthington were 32% and
12%, respectively, of total sales in 1997. While the loss of Ford as a customer
could have a materially adverse effect on the Company's business, the Company
believes that its relationship with Ford provides a stable sales base and the
ability to expand its product capability and concentrate on increasing margins
through more efficient production. No single customer, other than Ford,
DaimlerChrysler or Worthington, has accounted for more than 10% of the Company's
total sales over the past five years. The Company's ten largest customers in the
aggregate accounted for approximately 75% of total sales in 1998 and
approximately 77% of total sales in 1997. For 1998, the Company estimates that
its share of the domestic flat rolled steel market, as measured by shipments,
was approximately 5.2%.

       The Company's primary customers are in the automotive, converter, service
center and other end user markets. The following table sets forth the percentage
of the Company's steel product revenues from various markets for the years ended
December 31, 1996 through 1998.


<TABLE>
<CAPTION>
                                                           Year Ended December 31    
                                                           ----------------------
                                                      1998           1997         1996
                                                      ----           ----         ----
<S>                                                 <C>            <C>          <C>   
        Automotive                                    67.0 %         62.0 %       61.7 %
        Converters                                    13.5           19.0         18.6
        Service Centers                               16.7           15.8         16.3
        Other End Users                                2.8            3.2          3.4
                                                     -----          -----        -----
           Total                                     100.0 %        100.0 %      100.0 %
                                                     =====          =====        =====
</TABLE>


       Automotive. The Company is a significant supplier of hot rolled, cold
rolled and electrogalvanized steel to the automotive industry. Car and truck
manufacturers and their parts suppliers require sheet steel with exact
dimensions, enhanced formability and defect-free surfaces. The Company's steel
products have been used in a variety of automotive applications including
exposed and unexposed panels and high strength parts for safety applications and
to achieve weight reduction. The Company supplies sophisticated steel products
to meet the demand for lighter, safer and longer lasting vehicles such as bake
hardenable steel and steel for hot forming, which is used for high strength and
safety applications such as automotive door beams. The automotive market
comprised 67.0% of the Company's steel product revenues in 1998 up from 61.7% in
1996.

       Sales to Ford, the Company's largest customer, accounted for
approximately 37% of total sales in 1998, 32% of total sales in 1997 and 30% of
total sales in 1996. In addition to its relationship with Ford, the Company has
diversified its automotive customer base. Until the early








                                       5
<PAGE>   6

1990's, the Company sold only a small amount of steel to DaimlerChrysler and had
no direct sales to General Motors Corporation ("GM"). Sales to DaimlerChrysler,
the Company's second largest customer, were approximately 10% of total sales in
1998, 9% of total sales in 1997 and 8% of total sales in 1996. Currently, GM is
the Company's fourth largest customer. The Company believes that its ability to
provide the sophisticated grades of steel required for automotive applications
combined with its ability to provide competitive pricing, quality and delivery
prompted DaimlerChrysler and GM to begin purchasing significant quantities of
hot rolled, cold rolled and electrogalvanized steel from the Company.

       Converters. The Company sells hot rolled and cold rolled steel to the
converter market, which includes customers that process steel into a more
finished state such as pipes, tubing and cold rolled strip steel. Although the
converter market is typically more price sensitive than the end user market due
to its reliance on purchases at prevailing prices, it provides the Company with
some sales stability during downturns in the automotive market.

       Sales to Worthington, a major steel fabricator and processor and the
Company's third largest customer and second largest shareholder, were
approximately 7% of total sales in 1998 and 12% of total sales in each of 1997
and 1996. Worthington owns approximately 27.2% of the Company's Common Stock
which represents a voting interest of 19.8%.

       Service Centers. The Company sells hot rolled, cold rolled and hot dip
galvanized steel to service center customers that provide processing services
such as slitting, shearing and blanking for distribution primarily to automotive
end users. Due to the increased costs for processing services, steel service
centers have become a major factor in the distribution of flat rolled products
to end users.

       Direct Sales to Other End Users. The Company sells hot rolled steel to
manufacturers of roof decking, grating, guard rails and pipes. The Company sells
cold rolled steel to manufacturers of lighting fixtures, room dividers and
doors. Steel products are distributed by Rouge Steel principally through its own
sales organization.

       Order Status. The order load was 432,000 net tons at December 31, 1998,
compared to 583,000 net tons at December 31, 1997. All orders related to the
order load at December 31, 1998 are expected to be shipped during the first half
of 1999. The order load represents orders received but not yet filled.

RAW MATERIALS AND ENERGY SOURCES

       The principal raw materials and energy sources used by Rouge Steel in its
production process are coke, iron ore pellets, steel scrap, natural gas,
electricity, steam, oxygen and nitrogen. Coke, iron ore pellets, electricity,
steam, oxygen and nitrogen are predominantly purchased pursuant to long-term or
annual agreements. The other raw materials are generally purchased in the open
market from various sources. Certain of the purchased raw materials are not
covered by long-term contracts and, therefore, availability and price are
subject to world market conditions.

       Coke. Coke represents the Company's single largest raw material
expenditure. The Company does not produce coke and, as a consequence, relies
upon outside sources. In 1998, approximately 42% of the Company's coke was
provided by Bethlehem Steel Corporation ("Bethlehem"). The Company acquired
approximately 31% of its coke through a tolling agreement with New Boston Coke
Corporation ("New Boston"), whose total productive capacity








                                       6
<PAGE>   7

is dedicated to the Company. Under the tolling agreement, the Company provides
coal to New Boston for processing into coke. Approximately 27% of the Company's
coke was imported from China or was purchased in the open market. During the
past ten to fifteen years, coke production capacity in the United States has
been reduced. Due to the environmental issues associated with operating coke
ovens, the Company expects coke production capacity to be reduced further in the
next ten years. The coke shortage that may result from the reduction in capacity
may cause the price that the Company pays for coke to increase which may
adversely affect the Company's results of operations.

       Iron Ore Pellets. The Company has consumed an average of 3.0 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 1998. Approximately 75% of the Company's requirements for pellets
during this period was obtained under a trade arrangement with Stelco, Inc.
Under this arrangement, the Company exchanged acid pellets purchased from its
45% owned joint venture, EVTAC (or its predecessor Eveleth), for fluxed pellets
or acid pellets with a higher manganese content, which are used to enhance blast
furnace productivity. The Company is required to pay a cash premium indexed to
inflation factors in addition to providing the EVTAC acid pellets. The premium
is equal to the difference between the market price of the fluxed pellets and
the market price of EVTAC acid pellets. During the three-year period ended
December 31, 1998, the Company traded an average of 2.3 million gross tons of
Eveleth/EVTAC pellets annually, which constituted 100% of the Company's share of
the pellets produced by Eveleth/EVTAC. The balance of the Company's pellet
requirements was purchased pursuant to a contract with The Cleveland-Cliffs Iron
Company.

       The iron ore reserves of EVTAC are sufficient to provide the Company with
an estimated 25-year supply at the current level of production. The Company and
the other owners of EVTAC are currently in discussions regarding EVTAC's
operations and activities. These discussions and any subsequent resulting
actions may affect, among other things, the cost and availability of iron ore
pellets, the timing of EVTAC employee benefit liability recognition and funding
requirements and recognition of other obligations relating to the mining
operations.

       Scrap. The price of steel scrap dropped dramatically during 1998. The
price of #1 industrial bundles, the steel scrap which constitutes the largest
portion of the Company's scrap purchases, decreased by 56% between the end of
1997 and the end of 1998. The lower price reflects increased supply, primarily
resulting from the high level of steel imports that arrived in the U.S. in the
second half of 1998. The Company spent approximately $99 million to purchase
steel scrap in 1998 compared to $114 million in 1997.

       Other Raw Materials and Energy Sources. During 1998, natural gas,
electricity and steam constituted 46%, 40% and 14%, respectively, of the
Company's total energy costs. Natural gas is acquired at prevailing market
prices from various producers. The Company purchases electricity from DTE Energy
Company (together with its subsidiaries, "DTE") for its ladle refining and
electrogalvanizing facilities. The Company owns a 60% interest in a 345 megawatt
powerhouse (the "Powerhouse") that is managed and operated by Ford (which owns
the other 40%). Pursuant to an operating agreement with Ford (the "Powerhouse
Joint Operating Agreement") which expires December 31, 1999, the Powerhouse
provided the rest of the electricity consumed by the Company, as well as all of
its steam requirements. In December, 1998, Rouge Steel and Ford signed an
agreement for long-term energy services with CMS Energy Corporation (together
with its subsidaries, "CMS"), which will build and operate a co-generation power
plant. The new power plant is expected to be in operation by mid 2000. On
February 1, 1999, an explosion and fire at the Powerhouse curtailed the supply
of utilities which resulted in the











                                       7
<PAGE>   8

temporary idling of the Company's steel making facilities as well as the Ford
facilities in the Rouge complex. Restoration of most of the utilities that were
provided by the Powerhouse was accomplished through a combination of new lines
from DTE and temporary generators and package boilers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Powerhouse Explosion."

       The Company has a long-term contract for the supply of oxygen and
nitrogen with Praxair, Inc. which expires in 2005. The contract contains annual
minimum oxygen and nitrogen purchase levels of $8.3 million and $550,000,
respectively.

COMPETITION

       The Company competes directly with domestic and foreign flat rolled
carbon steel producers and producers of plastics, aluminum and other materials
which can be used in place of flat rolled carbon steel in manufactured products.
The Company competes principally on the basis of quality, price and the ability
to meet customers' product specifications and delivery schedules. The Company
believes, however, that its competitive position in the steel industry is
strengthened by, among other things, (i) substantially reduced postretirement
expenses resulting from certain agreements with Ford, (ii) environmental
indemnifications from Ford until 2009, (iii) substantial capital investments
during the past four years in steel-making equipment and downstream joint
ventures, (iv) a single-site, geographically strategic location, and (v)
financial flexibility.

       Imports. Domestic steel producers face significant competition from
foreign producers. Decisions by these foreign steel producers with respect to
production and sales may be influenced to a greater degree by political and
economic policy considerations than by prevailing market conditions.

       Steel imports in 1998 are estimated to be 41.3 million tons, a 32%
increase over 1997 levels. This import level results from the depressed economic
conditions in other parts of the world, particularly in the Pacific Basin and
Russia. Imports as a percentage of apparent domestic consumption, including
semifinished steel, averaged approximately 30% in 1998, an all time high. In the
previous five years (1993 through 1997), steel imports averaged 26.9 million
tons, or 22.5% of apparent domestic consumption. Antidumping and countervailing
duty petitions were filed in September 1998 by a group of domestic steel
companies on hot rolled steel against three countries. In November, the
International Trade Commission made a preliminary determination that injury did
occur and to proceed with the investigation. The investigation is presently
proceeding.

       Domestic Steel Industry. The domestic steel industry is a cyclical
business that is highly competitive. In the United States, the Company competes
with many domestic integrated steel companies. The Company also competes with
electric furnace based mini-mills, which generally target regional markets, have
reduced environmental maintenance costs and liabilities and derive certain
competitive advantages by utilizing less capital intensive steel-making
processes. The capability of electric furnace based, thin slab mini-mills to
produce flat rolled steel products is increasing. In the future, these
mini-mills may provide increased competition in the higher quality, value-added
product lines now dominated by the integrated steel producers. New mini-mills
that produce flat rolled steel and improvements in the production efficiencies
of integrated mills have increased overall production capacity in the United
States, which has caused downward price pressure. The ability of mini-mill
producers to capture a significant percentage










                                       8
<PAGE>   9


of the sheet steel markets, which represented approximately half of domestic
industry shipments in 1998, cannot presently be determined due to operating cost
and product quality issues associated with thin-slab technology. In addition,
the availability and fluctuations in the cost of scrap, the primary raw material
for mini-mill steel production, may influence the ability of mini-mills to
compete with domestic integrated producers.

       A number of integrated steel producers have gone through bankruptcy
reorganizations. These proceedings have resulted in reduced operating costs for
these producers and may permit them to price their steel products at levels
below those that could otherwise be maintained. The Company believes, however,
that due to its lower labor costs and reduced exposure to historical
environmental liabilities resulting from certain agreements with Ford, as well
as limited levels of indebtedness since the Company's initial public offering,
the Company is in a better position to compete with these companies than many of
its competitors.

       Steel Substitutes. In the case of many steel products, there is
substantial competition from other products, including plastics, aluminum,
ceramics, glass, wood and concrete. However, the Company, to a limited degree,
and certain other manufacturers of steel products have begun to compete in
recent years in markets not traditionally served by steel producers, including
the markets for steel construction studs and steel frames for houses.

EMPLOYEES

       At December 31, 1998, the work force of Rouge Steel was comprised of
2,463 hourly and 645 salaried personnel, including Rouge Steel employees working
at Double Eagle Steel Coating Company ("Double Eagle"). The Company's employment
cost per ton shipped in 1998 was $94, which the Company believes was one of the
lowest among domestic integrated steel producers, and tons shipped per employee
was approximately 850 in 1998, which the Company believes is one of the highest
in the steel industry.

       Hourly employees of Rouge Steel are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America, UAW (the "UAW"). Most of the hourly employees of the Company's
competitors are represented by the United Steelworkers of America (the "USWA")
and are subject to USWA-patterned agreements. In 1995, Rouge Steel and the UAW
executed a labor agreement with a five-year term and no provision to renegotiate
prior to expiration. The labor agreement includes provisions for employment
security and profit sharing. The Company believes that it continues to maintain
a good relationship with the UAW. EVTAC workers, who are employed by Thunderbird
Mining Company, a wholly-owned subsidiary of EVTAC, are represented by the USWA.
The agreement between the USWA and Thunderbird Mining Company will be in effect
through July 31, 1999.

ENVIRONMENTAL CONTROL AND CLEANUP EXPENDITURES

       The Company's operations are subject to many federal, state and local
laws, regulations, permits and consent agreements relating to the protection of
human health and the environment. The Company believes that its facilities are
in material compliance with these provisions and does not believe that future
compliance with such provisions will have a materially adverse effect on its
results of operations or financial position. The Company has incurred capital
expenditures in connection with matters relating to environmental control of
approximately $2 million during the past four years. In addition, the Company
has planned an aggregate of approximately $3 million in capital expenditures for
environmental compliance for the years 1999 through 2002. Since





                                       9
<PAGE>   10


environmental laws and regulations are becoming increasingly more stringent, the
Company's environmental capital expenditures and costs for environmental
compliance may increase in the future. In addition, due to the possibility of
unanticipated regulatory or other developments, the amount and timing of future
environmental expenditures may vary substantially from those currently
anticipated. The costs for current and future environmental compliance may also
place domestic steel producers at a competitive disadvantage with respect to
foreign steel producers, which may not be required to undertake equivalent costs
in their operations, and manufacturers of steel substitutes, which are subject
to less stringent environmental requirements.

       Under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), the U.S. Environmental Protection Agency
(the "U.S. EPA") has the authority to impose joint and several liability for the
remediation of contaminated properties on waste generators, current and former
site owners and operators, transporters and other potentially responsible
parties regardless of fault or the legality of the original disposal activity.
Many states have statues and other authorities similar to CERCLA. Domestic steel
producers have spent, and can be expected to spend in the future, substantial
amounts for compliance with these environmental laws and regulations.

       In connection with the acquisition of the Company from Ford in 1989 (the
"Acquisition"), Ford has agreed to indemnify the Company (the "Ford Indemnity")
for any liability arising out of an environmental condition existing prior to
the Acquisition or a subsequent change in law relating to such condition that
results in an environmental claim under any federal or state environmental law,
including CERCLA, the Resource Conservation and Recovery Act ("RCRA"), the Clean
Water Act, the Safe Drinking Water Act, the Clean Air Act and the Occupational
Safety and Health Act of 1970 or an environmental claim based upon a release of
a material of environmental concern. An environmental claim includes, among
other things, the costs associated with the release of any pollutants,
contaminants, toxic substances and hazardous substances into the environment.
The Ford Indemnity provides that Ford pay the Company's liabilities, including
any penalties and attorney's fees, in connection with any environmental claim
relating to a pre-Acquisition condition. The Ford Indemnity terminates on
December 15, 2009. In some instances, Ford has acted proactively; in others, it
has denied responsibility. The submitted claims include asbestos removal, CERCLA
liabilities, National Pollutant Discharge Elimination System permit violations,
underground storage tank removal, transformer replacement and transformer
removal and disposal. The Company does not believe the rejection by Ford of any
claims made under the Ford Indemnity will have a materially adverse effect on
the Company's results of operations or financial position.

       In late 1995, the existence of material containing polychlorinated
biphenyls ("PCBs") was noted within a containment area of an electrical
substation in the cold mills. Upon further investigation, the Company discovered
PCB contamination in the diked area surrounding one transformer, on the floor of
the substation, in the hydraulically isolated floor drain system in the
substation, at one sump servicing this floor drain system, and in four
electrical manholes. The sump and floor drains have been remediated. The
investigation and cleanup of PCB contamination in the manholes is proceeding. At
this point, management believes that the costs and projected costs associated
with this investigation will not have a materially adverse effect on the
Company's results of operations or financial position. As of December 31, 1998,
the Company had spent approximately $1.2 million for the investigation and
cleanup. The Company believes that these costs are subject to the Ford Indemnity
and has filed a claim with Ford. Negotiations with Ford continue regarding this
indemnity claim. The Company has not recorded an asset in anticipation of
recovery pursuant to the Ford Indemnity.










                                       10
<PAGE>   11
       In 1990, Congress passed amendments to the Clean Air Act which impose
more stringent standards on air emissions. Pursuant to Title V of the Clean Air
Act Amendments of 1990, the Company submitted an application for a facility
operating permit in 1997 with amendments in April, 1998. The Company was advised
that the application and the amendment were administratively complete. It is
expected to take approximately one year for final approval.

       In April 1998, the Company and the Wayne County Air Pollution Control
Division (the "Division") entered into a consent order resolving certain notices
of violation ("NOVs") and issues involving the basic oxygen furnace
electrostatic precipitator and the blast furnace flare stack. The settlement
agreement includes performance of a supplemental environmental project ("SEP")
for the installation of a waste oxide dryer, a project undertaken in connection
with the enforcement action for violations or applicable operating conditions
and emission standards at operations other than the waste oxide dryer. This
dryer is intended to secure significant additional environmental and public
health improvements. The settlement agreement imposed a $125,000 penalty,
stipulated penalties for future violations, a compliance program, and a
five-year term.

       In February 1999, the Company and the Division executed a settlement
agreement resolving certain NOVs for events which occurred in 1997 and 1998. The
penalty amount was $140,000, with an SEP for design improvements to the basic
oxygen furnace ("BOF") off-gas conditioning system, a project undertaken in
connection with the enforcement action for violations of applicable operating
conditions and emission standards at operations other than the BOF.

       During meetings with the Division, the Company voluntarily disclosed its
failure to obtain a construction and operating permit for an operational change
previously thought to be exempt from the air permitting requirements. A permit
application has been submitted for that change to both the Division and the
Michigan Department of Environmental Quality. The preliminary nature of the
discussions with the Division regarding this issue makes it difficult to predict
the outcome or its impact on the Company's results of operations or financial
position.

       In 1997, the Company received a notice from the Corporation Counsel of
the City of Melvindale (the "City") of the City's intention to sue the Company
for alleged release of particulates into the air and violations of the County of
Wayne permit. The Company is currently in discussions with the City in an
attempt to resolve this matter prior to the filing of any lawsuit. However, the
City has also made damage claims on behalf of approximately 50 residents who
claim to have incurred property damage as a result of dust fallout which
occurred during the second half of 1997. Each of these claims appear to be for
an amount of less than $2,000. In addition, two court actions are pending in the
State of Michigan 24th District Court seeking damages, in each instance of not
more than $50,000. The Company does not believe that it was the source of dust
which allegedly caused this property damage. The Company intends to vigorously
defend the property damage claims. Management believes that the potential impact
of this matter will not have a materially adverse impact on the Company's
results of operations or financial position.

       In September, 1998, U.S. EPA Region 5 commenced a multimedia
investigation of Rouge Steel's facility. U.S. EPA has discussed several issues
with the Company and, to date, has issued one Notice of Violation alleging
certain violations of the Clean Air Act. U.S. EPA requested that the Company
furnish information in accordance with Section 114(a) of the Clean Air Act. The
Company furnished information to the U.S. EPA in October, 1998. U.S. EPA then
requested that the Company furnish information in accordance with Section 3007
of RCRA which the Company excess of $100,000.








                                       11
<PAGE>   12



       Also in connection with the multimedia inspection, in January 1999, the
Company received a letter from U.S. EPA identifying several non-complying
conditions with respect to spill control requirements. Penalties may be
incurred, but none have been specified to date. Any penalties from the
non-complying spill control conditions are not expected to have a materially
adverse impact on the Company's results of operations or financial position.

       Rouge Steel has received a series of NOVs from the Wayne County Air
Quality Division spanning August 1, 1998 through September 18, 1998, alleging
violation of air rules, characterizing the facility's emission fallout as a
nuisance condition resulting in an unreasonable interference with the
comfortable enjoyment of life and property. Rouge Steel has denied the
allegations contained in the NOVs. The preliminary nature of the NOVs and Rouge
Steel's response make it difficult to predict the outcome or its impact on the
Company's results of operations and financial position.

RESEARCH AND DEVELOPMENT

       The Company does not incur material expenses in research and development
activities but does participate in various research and development programs.
The Company addresses research and development requirements and product
enhancement by maintaining a staff of technical support, quality assurance and
engineering personnel. The Company also participates in joint projects with the
American Iron and Steel Institute.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

       The matters discussed in this Annual Report on Form 10-K include certain
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include, among others, statements concerning
projected levels of production, sales, shipments and income, pricing trends,
cost reduction strategies, product mix, anticipated capital expenditures and
other future plans and strategies.

       As permitted by the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Rouge Industries is identifying in this Annual
Report on Form 10-K a number of factors which could cause the Company's actual
results to differ materially from those anticipated. These factors include, but
are not necessarily limited to, (i) changes in the general economic climate,
(ii) the supply of and demand for steel products in the Company's markets, (iii)
pricing of steel products in the Company's markets, (iv) potential environmental
liabilities, (v) the availability and prices associated with raw materials,
supplies, utilities and other services and items required by the Company's
operations, (vi) uncertainty related to the Powerhouse explosion (vii)
uncertainty related to Year-2000 readiness and (viii) higher than expected
operating costs.










                                       12
<PAGE>   13



Item 2.        Properties.

       Rouge Steel's integrated single-site facility is located on a 457-acre
industrial site adjacent to Ford's stamping, engine, glass, frame and assembly
plants in Dearborn, Michigan. The Rouge Steel facility is strategically located
in the heart of the automotive manufacturing region and in an area where many
customers of flat rolled steel are situated. The Company believes that Rouge
Steel's single-site location is a strategic advantage because it permits reduced
transportation costs, increased efficiencies and better management response
times.

       Rouge Steel's facilities include three blast furnaces (one of which has
been idle since 1988), two basic oxygen furnaces, two electric arc furnaces
(which have been idle since 1992), two ladle refining facilities, a vacuum
degassing facility, one three-strand continuous caster, one hot strip mill,
three pickle lines, one tandem mill, two annealing facilities (one of which is a
hydrogen annealing facility), two temper mills, two slitters and one recoil
welder. In addition, Rouge Steel owns a 50% interest in Double Eagle, the
world's largest electrogalvanizing facility and a 60% interest in the Powerhouse
that is managed by Ford (which owns the other 40%). On February 1, 1999, an
explosion and fire at the Powerhouse curtailed the supply of utilities which
resulted in the temporary idling of the Company's steel making facilities. It is
uncertain whether the Powerhouse will be operational in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Powerhouse Explosion". Prior to the Powerhouse explosion, Ford and
Rouge Steel had entered an agreement for long-term energy services with CMS,
which will build and operate a co-generation power plant to begin operating in
mid-2000. Along with Rouge Steel's properties, Rouge Industries owns (i) a 48%
interest in Spartan Steel, a cold rolled hot dipped galvanizing facility; (ii) a
20% interest in Shiloh of Michigan, an engineered steel blanking facility; (iii)
a 45% interest in EVTAC, an iron ore mining and pellet producing facility; (iv)
an 11.1% interest in TWB, a producer of laser welded blanks; (v) a 49% interest
in Delaco Steel Processing, a steel processor and (vi) a 40% interest in Bing
Blanking, a steel blanker and producer of roll formed parts.


               











                                       13
<PAGE>   14



Item 8.     Financial Statements and Supplementary Data.

  The following information is submitted pursuant to the requirements of Item 8:


<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                            <C>
Report of Independent Accountants............................................................   15

 Consolidated Balance Sheets as of December 31, 1998 and 1997................................   16

Consolidated Statements of Operations for the Years Ended
    December 31, 1998, 1997 and 1996.........................................................   18

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
    December 31, 1998, 1997 and 1996.........................................................   19

Consolidated Statements of Cash Flows for the Years Ended
    December 31, 1998, 1997 and 1996.........................................................   20

Notes to Consolidated Financial Statements...................................................   21

Schedule II - Valuation and Qualifying Accounts and Reserves.................................   35
</TABLE>





                                       14

<PAGE>   15


                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors
and Stockholders of
Rouge Industries, Inc.



In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Rouge
Industries, Inc. and its subsidiaries at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.



PricewaterhouseCoopers LLP
Bloomfield Hills, Michigan
February 3, 1999, except as to Note 11
   which is as of March 2, 1999
   and the second paragraph of Note 10
   which is as of March 25, 1999











                                       15

<PAGE>   16
                             ROUGE INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                             (amounts in thousands)


Assets
<TABLE>
<CAPTION>

                                                                       December 31         
                                                               -----------------------
                                                                   1998           1997
                                                                   ----           ----

Current Assets

<S>                                                              <C>          <C>      
   Cash and Cash Equivalents                                     $   2,418    $  12,570
   Accounts Receivable
     Trade and Other (Net of Allowances of $17,937 and $6,333)     130,624      101,590
     Affiliates                                                      5,644        9,876
   Inventories                                                     275,811      248,317
   Other Current Assets                                              7,075        8,562
                                                                 ---------    ---------
     Total Current Assets                                          421,572      380,915
                                                                 ---------    ---------

Property, Plant, and Equipment
   Land                                                                366           --
   Buildings and Improvements                                       23,018       24,718
   Machinery and Equipment                                         289,058      275,489
   Construction in Progress                                          4,525       10,517
                                                                 ---------    ---------
     Subtotal                                                      316,967      310,724
   Less:  Accumulated Depreciation                                 (58,846)     (42,162)
                                                                 ---------    ---------
     Net Property, Plant, and Equipment                            258,121      268,562
                                                                 ---------    ---------

Investment in Unconsolidated Subsidiaries                           64,646       50,936
                                                                 ---------    ---------

Deferred Charges and Other                                          24,548       28,096
                                                                 ---------    ---------

     Total Assets                                                $ 768,887    $ 728,509
                                                                 =========    =========
</TABLE>





The accompanying notes are an integral part of the consolidated financial
statements.




                                       16
<PAGE>   17



                             ROUGE INDUSTRIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                   (amounts in thousands except share amounts)

Liabilities and Stockholders' Equity

<TABLE>
<CAPTION>


                                                                                         December 31             
                                                                                    --------------------         
                                                                                     1998           1997
                                                                                     ----           ----


Current Liabilities
<S>                                                                                <C>          <C>      
   Accounts Payable
     Trade                                                                         $ 153,115    $ 152,917
     Affiliates                                                                       13,776       13,924
   Accrued Vacation Pay                                                               10,737       11,007
   Taxes Other than Income                                                             6,131        4,312
   Other Accrued Liabilities                                                          25,394       21,579
                                                                                   ---------    ---------
     Total Current Liabilities                                                       209,153      203,739
                                                                                   ---------    ---------

Long-Term Debt                                                                        29,000       17,900
                                                                                   ---------    ---------

Other Postretirement Benefits                                                         54,301       46,454
                                                                                   ---------    ---------

Other Liabilities                                                                     11,327       10,515
                                                                                   ---------    ---------

Excess of Net Assets Acquired Over Cost                                                5,484       11,280
                                                                                   ---------    ---------

Commitments and Contingencies (Note 10)

Stockholders' Equity
   Common Stock
     Class A, 80,000,000 shares authorized with 14,521,538 and 14,428,219 issued
       and outstanding as of December 31, 1998
       and 1997, respectively                                                            145          144
     Class B, 8,690,400 shares authorized with 7,562,400
       issued and outstanding                                                             76           76
   Capital in Excess of Par Value                                                    129,458      128,517
   Retained Earnings                                                                 332,876      312,130
   Accumulated Other Comprehensive Income                                             (2,933)      (2,246)
                                                                                   ---------    ---------
     Total Stockholders' Equity                                                      459,622      438,621
                                                                                   ---------    ---------
     Total Liabilities and Stockholders' Equity                                    $ 768,887    $ 728,509
                                                                                   =========    =========
</TABLE>





The accompanying notes are an integral part of the consolidated financial
statements.


                                       17

<PAGE>   18



                             ROUGE INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
            (amounts in thousands except share and per share amounts)

<TABLE>
<CAPTION>


                                                                         Years Ended December 31              
                                                             --------------------------------------------
                                                                  1998           1997             1996
                                                                  ----           ----             ----
Sales
<S>                                                          <C>             <C>             <C>         
   Unaffiliated Customers                                    $  1,050,144    $  1,158,218    $  1,125,722
   Affiliates                                                     113,045         183,342         181,676
                                                             ------------    ------------    ------------
      Total Sales                                               1,163,189       1,341,560       1,307,398
                                                             ------------    ------------    ------------

Costs and Expenses
   Costs of Goods Sold                                          1,090,032       1,278,351       1,251,114
   Depreciation and Amortization                                   19,993          15,563          13,056
   Selling and Administrative Expenses                             23,875          21,760          24,339
   Amortization of Excess of Net Assets Acquired Over Cost         (5,796)         (5,796)         (5,796)
                                                             ------------    ------------    ------------
      Total Costs and Expenses                                  1,128,104       1,309,878       1,282,713
                                                             ------------    ------------    ------------

Operating Income                                                   35,085          31,682          24,685

Interest Income                                                     1,473           1,418           5,136
Interest Expense                                                     (775)           (630)           (329)
Other - Net                                                        (2,722)         (1,244)            728
                                                             ------------    ------------    ------------
Income Before Income Taxes, Minority Interest
   and Equity in Unconsolidated Subsidiaries                       33,061          31,226          30,220
Income Tax Provision                                               (8,705)         (8,094)         (6,915)
                                                             ------------    ------------    ------------
Income Before Minority Interest and Equity in
   Unconsolidated Subsidiaries                                     24,356          23,132          23,305
Minority Interest in Consolidated Subsidiary                           --              --              37
Equity in Unconsolidated Subsidiaries                                (964)           (718)             50
                                                             ------------    ------------    ------------

Net Income                                                   $     23,392    $     22,414    $     23,392
                                                             ============    ============    ============

Net Income Per Share - Basic and Diluted                     $       1.06    $       1.02    $       1.07
                                                             ============    ============    ============

Weighted-Average Shares Outstanding                            22,025,430      21,938,743      21,844,864
                                                             ============    ============    ============
</TABLE>






The accompanying notes are an integral part of the consolidated financial
statements.



                                       18
<PAGE>   19



                             ROUGE INDUSTRIES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                             (amounts in thousands)
<TABLE>
<CAPTION>



                                                           Years Ended December 31           
                                                     -----------------------------------
                                                        1998         1997         1996
                                                        ----         ----          ----
<S>                                                  <C>          <C>          <C>      
Class A and Class B Common Stock
   Beginning Balance                                 $     220    $     219    $     218
   Common Stock Issued for Employee
     Benefit Plans                                           1            1            1
                                                     ---------    ---------    ---------
      Ending Balance                                       221          220          219
                                                     ---------    ---------    ---------

Capital in Excess of Par Value
   Beginning Balance                                   128,517      127,096      124,246
   Common Stock Issued for Employee
     Benefit Plans                                         932        1,405        2,811
   Common Stock Issued for ODEP                              9           16           39
                                                     ---------    ---------    ---------
      Ending Balance                                   129,458      128,517      127,096
                                                     ---------    ---------    ---------

Retained Earnings
   Beginning Balance                                   312,130      292,349      271,580
   Net Income                                           23,392       22,414       23,392
   Cash Dividends Declared                              (2,646)      (2,633)      (2,623)
                                                     ---------    ---------    ---------
      Ending Balance                                   332,876      312,130      292,349
                                                     ---------    ---------    ---------

Accumulated Other Comprehensive Income
   Beginning Balance                                    (2,246)      (2,399)      (2,190)
   Additional Minimum Pension Liability Adjustment        (687)         153         (209)
                                                     ---------    ---------    ---------
      Ending Balance                                    (2,933)      (2,246)      (2,399)
                                                     ---------    ---------    ---------

Total Stockholders' Equity                           $ 459,622    $ 438,621    $ 417,265
                                                     =========    =========    =========

Comprehensive Income
   Net Income                                        $  23,392    $  22,414    $  23,392
   Additional Minimum Pension Liability Adjustment        (687)         153         (209)
                                                     ---------    ---------    ---------
      Comprehensive Income                           $  22,705    $  22,567    $  23,183
                                                     =========    =========    =========
</TABLE>







The accompanying notes are an integral part of the consolidated financial
statements.

                                       19
<PAGE>   20



                             ROUGE INDUSTRIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (amounts in thousands)
<TABLE>
<CAPTION>


                                                                          Years Ended December 31          
                                                                  --------------------------------------
                                                                      1998          1997            1996
                                                                      ----          ----            ----
<S>                                                               <C>            <C>            <C>      
Cash Flows From Operating Activities
Net Income                                                        $  23,392      $  22,414      $  23,392
Adjustments to Reconcile Net Income to Net Cash
  Provided by Operating Activities:
    Deferred Taxes                                                    3,193          9,540          4,433
    Depreciation and Amortization                                    19,993         15,563         13,056
    Equity in Unconsolidated Subsidiaries                               964            718            (50)
    Amortization of Excess of Net Assets Acquired Over Cost          (5,796)        (5,796)        (5,796)
    Common Stock Issued for Benefit Plans                               942          1,422          2,851
    Changes in Assets and Liabilities:
      Accounts Receivable                                           (17,465)        (3,878)         3,692
      Inventories                                                   (25,108)        21,164        (42,802)
      Prepaid Expenses                                                 (288)           (47)         1,208
      Accounts Payable and Accrued Liabilities                       20,479         24,171         14,202
      Other - Net                                                        --            117           (183)
    Proceeds from Property Tax Settlement                                --          5,000          5,000
                                                                  ---------      ---------      ---------
         Net Cash Provided by Operating Activities                   20,306         90,388         19,003
                                                                  ---------      ---------      ---------

Cash Flows From Investing Activities
  Capital Expenditures                                              (21,226)       (82,359)       (80,339)
  Purchase of Marketable Securities                                      --         (6,310)       (30,276)
  Sale of Marketable Securities                                          --          8,349         71,561
  Investment in Unconsolidated Subsidiaries                         (17,959)       (37,538)        (9,222)
  Other - Net                                                           273           (142)          (229)
                                                                  ---------      ---------      ---------
         Net Cash Used for Investing Activities                     (38,912)      (118,000)       (48,505)
                                                                  ---------      ---------      ---------

Cash Flows From Financing Activities
  Drawdowns on Revolving Line                                       271,700        121,800             --
  Principal Payments on Revolving Line                             (260,600)      (103,900)            --
  Cash Dividend Payments                                             (2,646)        (2,632)        (2,620)
                                                                  ---------      ---------      ---------
         Net Cash Provided by (Used for) Financing Activities         8,454         15,268         (2,620)
                                                                  ---------      ---------      ---------

Net Decrease in Cash and Cash Equivalents                           (10,152)       (12,344)       (32,122)

Cash and Cash Equivalents - Beginning of Year                        12,570         24,914         57,036
                                                                  ---------      ---------      ---------

Cash and Cash Equivalents - End of Year                           $   2,418      $  12,570      $  24,914
                                                                  =========      =========      =========
</TABLE>







The accompanying notes are an integral part of the consolidated financial
statements.



                                       20
<PAGE>   21



                             ROUGE INDUSTRIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of the Company

Rouge Steel Company ("Rouge Steel") is the principal operating subsidiary of
Rouge Industries, Inc. (together with its subsidiaries, "Rouge Industries" or
the "Company"). Rouge Steel is engaged in the production and sale of flat rolled
steel products primarily to domestic automotive manufacturers and their
suppliers. Other wholly-owned subsidiaries of Rouge Industries include QS Steel
Inc. ("QS Steel") and Eveleth Taconite Company ("Eveleth"). QS Steel holds
minority ownership interests in five Michigan- based joint ventures. Eveleth
holds a 45 percent interest in Eveleth Mines LLC, a Minnesota-based iron ore
mining and pellet producing operation. For the purpose of these Notes to
Consolidated Financial Statements, "Rouge Industries" or the "Company" refers to
Rouge Industries, Inc. and its subsidiaries, unless the context requires
otherwise.

Principles of Consolidation

The consolidated financial statements include the accounts of Rouge Industries
and its subsidiaries. Intercompany transactions have been eliminated.
Investments in business entities in which the Company does not have control, but
has the ability to exercise significant influence over the operating and
financial policies, are accounted for under the equity method.

Comprehensive Income

Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
requires disclosure of total comprehensive income in interim periods and
additional disclosures of the components of comprehensive income on an annual
basis. Total comprehensive income includes all changes in equity during a period
except those resulting from investments by and distributions to the Company's
stockholders. The Company's total comprehensive income is comprised of net
income and minimum pension liability adjustments. Prior year comparative
information has been restated to conform to the current year presentation.

Segment Information

In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS No. 131 also requires disclosures about
products and services, geographic areas, and major customers. The adoption of
SFAS No. 131 did not affect the Company's results of operations or financial
position.

Rouge Industries has one operating segment that comprises its flat rolled steel
products. The Company's business is conducted entirely in the United States.
Significant customers are discussed elsewhere in this Note.



                                       21
<PAGE>   22



NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Internal Use Software Costs

Effective March 1, 1998, the Company adopted AICPA Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." SOP No. 98-1 requires, in certain cases, capitalization of
software costs that previously would have been expensed as incurred. Software
costs capitalized during the year ended December 31, 1998 were $4,669,000. These
capitalized software costs will be amortized over the lesser of 60 months or the
useful life of the software.

Costs not eligible for capitalization under SOP No. 98-1 and costs incurred to
remediate Year-2000 issues are expensed as incurred.

Financial Instruments

The carrying amount of the Company's financial instruments, which include cash
equivalents, marketable securities, accounts receivable, accounts payable and
long-term debt, approximates their fair value at December 31, 1998 and 1997. The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk are cash equivalents, marketable securities and accounts receivable.
The Company attempts to limit its credit risk associated with cash equivalents
and marketable securities by utilizing outside investment managers to place the
Company's investments with highly rated corporate and financial institutions.
With respect to accounts receivable, the Company limits its credit risk by
performing ongoing credit evaluations and, when deemed necessary, requiring
letters of credit, guarantees or collateral. The Company's customer base is
comprised principally of domestic automotive manufacturers and their suppliers.
Management does not believe significant risk exists in connection with the
Company's concentrations of credit at December 31, 1998.

Significant Customers

The Company's significant customers are Ford Motor Company ("Ford"),
DaimlerChrysler AG ("DaimlerChrysler") and Worthington Industries, Inc.
("Worthington"). Sales to Ford, which are primarily made pursuant to a ten-year
steel purchase agreement, totaled $429,230,000 in 1998, $434,898,000 in 1997 and
$397,723,000 in 1996. The steel purchase agreement expires after model-year
2000.

Sales to DaimlerChrysler totaled $120,061,000 in 1998, $116,013,000 in 1997 and
$109,312,000 in 1996.

Sales are made to Worthington, a stockholder of the Company, pursuant to a
seven-year steel purchase agreement which expires on December 15, 2003. Sales to
affiliates include $87,208,000, $157,307,000, and $159,030,000 to Worthington
for 1998, 1997 and 1996, respectively.


                                       22

<PAGE>   23



NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Inventories

Inventories are stated at the lower of cost or market with cost determined by
the last-in, first-out ("LIFO") method for raw materials, work-in-process and
finished goods and the first-in, first-out ("FIFO") method for nonproduction and
sundry. Costs in inventory include materials, direct labor, Double Eagle
electrogalvanizing and Spartan Steel hot dip galvanizing (see Note 4) and
applied manufacturing overhead.

Nonmonetary Transactions

The Company routinely exchanges iron ore inventory with other parties. Since the
exchanges involve similar productive assets and do not complete an earnings
process, the Company accounts for the exchanges on the cost basis of the
inventory relinquished without recognition of gain or loss.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Replacements and major
improvements are capitalized; maintenance and repairs are expensed as incurred.
Gains or losses on asset dispositions are included in the determination of net
income.

Depreciation and Amortization

Depreciation of the Company's property, plant, and equipment is computed using
the straight-line method. The average estimated useful lives are as follows:

                                                                       Years
                                                                       -----
           Buildings                                                     35
           Land Improvements                                             20
           Steel-Producing Machinery and Equipment                       18
           Power Equipment                                               28
           Office Furniture                                              12

The costs of relines to the blast furnaces and the refurbishment of turbo
generators are capitalized and amortized over their expected lives which are
eight to ten years and five years, respectively.

The excess of net assets acquired over cost, relating to the acquisition of the
Company from Ford (the "Acquisition") in 1989, is being amortized on a
straight-line basis over a ten-year period.

Environmental Accounting

Environmental expenditures are capitalized if the costs mitigate or prevent
future environmental contamination or if the costs improve existing assets'
environmental safety or efficiency. All other environmental expenditures are
expensed. Liabilities for environmental expenditures are accrued when it is
probable that such obligations have been incurred and the amounts can be
reasonably estimated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.



                                       23

<PAGE>   24



NOTE 2 - MARKETABLE SECURITIES

As of December 31, 1998 and 1997, marketable securities classified as cash
equivalents were $313,000 and $36,000, respectively. The Company's investments
in marketable securities are comprised entirely of money market funds.

NOTE 3 - INVENTORIES

The major classes of inventories are as follows (dollars in thousands):
<TABLE>
<CAPTION>

                                                        December 31            
                                                  ---------------------
                                                  1998             1997
                                                  ----             ----
<S>                                             <C>            <C>      
Production
   Raw Materials                                $  83,422      $  84,169
   Semifinished and Finished Steel Products       175,831        160,017
                                                ---------      ---------
     Total Production at FIFO                     259,253        244,186
   LIFO Reserves                                   (4,651)       (17,285)
                                                ---------      ---------
     Total Production at LIFO                     254,602        226,901
Nonproduction and Sundry                           21,209         21,416
                                                ---------      ---------
     Total Inventories                          $ 275,811      $ 248,317
                                                =========      =========
</TABLE>


During 1997, inventory quantities were reduced. This reduction resulted in a
liquidation of LIFO inventory quantities which were carried at costs that
prevailed in prior years which were lower than the cost of 1997 purchases. The
effect of the liquidation of LIFO inventories decreased costs of goods sold by
approximately $1,000,000 and increased net income by approximately $650,000 or
$0.03 per share.

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 1998, the Company's investments in unconsolidated subsidiaries
consist of a 50 percent interest in Double Eagle Steel Coating Company ("Double
Eagle"), a 45 percent interest in Eveleth Mines LLC ("EVTAC"), a 20 percent
interest in Shiloh of Michigan, L.L.C. ("Shiloh of Michigan"), a 48 percent
interest in Spartan Steel Coating, L.L.C. ("Spartan Steel"), an 11.1 percent
interest in TWB Company, L.L.C. ("TWB"), a 40 percent interest in Bing Blanking,
L.L.C. ("Bing Blanking") and a 49 percent interest in Delaco Processing, L.L.C.
("Delaco Steel Processing"). All of the Company's investments in unconsolidated
subsidiaries are accounted for under the equity method.

Double Eagle is an electrolytic galvanizing facility which is operated as a cost
center. Accordingly, Double Eagle records neither sales nor income. Rouge
Industries' proportionate share of Double Eagle's production costs of
$40,432,000, $39,459,000 and $37,618,000 for 1998, 1997 and 1996, respectively,
is included in the Company's costs and expenses and inventory. The Company is
committed to pay 50 percent of the fixed costs incurred and a pro rata share of
variable costs based on coatings applied to the Company's products. At December
31, 1998, the Company's share of the underlying net assets of Double Eagle
exceeded its investment by $39,231,000. This excess results from purchase
accounting adjustments made on the consolidated accounts of the Company at the
time of the Acquisition and relates primarily to property, plant, and equipment.
This excess is being amortized as a reduction of Rouge Industries' share of
Double Eagle's costs over the remaining lives of the property.


                                       24

<PAGE>   25



NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (continued)

Until November 30, 1996, Eveleth was 85 percent owned by the Company and 15
percent owned by Oglebay Norton Company and produced iron ore pellets at Eveleth
Mines under collective operating agreements with Eveleth Expansion Company.
Effective December 1, 1996, under the terms of a restructuring agreement,
Eveleth became a wholly-owned subsidiary of the Company and, in exchange for a
45 percent ownership interest in EVTAC, Eveleth assigned substantially all of
its operating assets and liabilities to EVTAC. No gain or loss was recorded at
the time of the transaction and the impact of the transfer of approximately
$17,681,000 of assets and $30,253,000 of liabilities by Eveleth to EVTAC was
excluded from the Statement of Cash Flows. At December 31, 1998, the Company's
share of the underlying net assets of EVTAC exceeded its investment by
$9,605,000. This excess is being amortized into income over the estimated
remaining useful lives of the contributed assets.

Shiloh of Michigan produces engineered steel blanks, TWB produces laser welded
blanks, Spartan Steel is a cold rolled hot dip galvanizing facility, Bing
Blanking is a producer of first operation blanks and rollformed parts, and
Delaco Steel Processing is a steel processor and warehouser. Spartan Steel, Bing
Blanking and Delaco Steel Processing all began operation in 1998.

The table below sets forth summarized financial information for Rouge
Industries' unconsolidated subsidiaries (dollars in thousands):

<TABLE>
<CAPTION>

                                  December 31
                          ------------------------     
                             1998          1997
                             ----          ----

<S>                        <C>          <C>     
Current Assets             $ 97,468     $ 82,014
Noncurrent Assets           360,312      308,047
Current Liabilities          91,756       45,920
Noncurrent Liabilities      119,155      120,012
</TABLE>


<TABLE>
<CAPTION>
 

                                 Year Ended December 31          
                        --------------------------------------          
                          1998           1997            1996
                          ----           ----            ----

<S>                   <C>            <C>            <C>      
Net Sales             $ 258,779      $ 193,463      $  16,268
Gross Profit             18,422          2,960            446
Net Income (Loss)        (1,594)        (6,358)           498
</TABLE>


NOTE 5 - DEBT

The Company had borrowings of $29,000,000 outstanding as of December 31, 1998
and $17,900,000 outstanding as of December 31, 1997.

In 1997, Rouge Steel and Rouge Industries entered into an agreement for a
$100,000,000, unsecured revolving loan facility (the "Credit Agreement"). Rouge
Steel is the borrower under the Credit Agreement and Rouge Industries is the
guarantor. Interest is calculated using one of two methods. Loans under the base
rate option are charged interest equal to the higher of the prime rate or the
federal funds rate plus 0.5%. Loans under the LIBOR option are charged interest
at the London Interbank Offered Rate plus a margin ranging from 0.20% to 0.40%,
depending on the Company's debt to capitalization ratio at the time of
borrowing. The interest rate option is chosen by Rouge Steel at the time of each
borrowing and is thereafter changeable under certain specified conditions. The
facility bears a fixed annual fee of $20,000 and a fee on the entire amount of
the facility which can vary from 0.1% to 0.2%, depending on the

                                       25
<PAGE>   26



NOTE - 5 DEBT (continued)

Company's debt to capitalization ratio at the time. The Credit Agreement, which
expires on December 16, 2002, contains certain financial covenants, with which
the Company was in compliance on December 31, 1998.

Cash paid for interest was $926,000 in 1998, $462,000 in 1997 and $350,000 in
1996.

NOTE 6 - PENSION AND POSTRETIREMENT BENEFIT PLANS

In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 amends certain
provisions of SFAS No. 87, 88 and 106 and revises employers' disclosures about
pension and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. Prior year comparative information
has been restated to conform to the current year presentation.

The following table presents benefit obligation, asset value, funded status,
cash flow and weighted average assumptions for Rouge Steel's pension and
postretirement benefit plans (dollars in thousands):
<TABLE>
<CAPTION>
                                                             Pension Plans                    Postretirement Benefit Plans      
                                                     -----------------------------        ------------------------------------
                                                     1998         1997        1996        1998              1997          1996
                                                     ----         ----        ----        ----              ----          ----
Change in Benefit Obligation
<S>                                              <C>          <C>          <C>         <C>                <C>          <C>      
Benefit Obligation at Beginning of Year          $ 109,087    $  91,957    $  79,538    $  54,530    $  47,189    $  39,216
   Service Cost                                      8,116        8,047        8,143        3,649        3,287        2,992
   Interest Cost                                     8,425        7,531        6,541        4,211        3,781        3,163
   Plan Participants' Contributions                    337          305          373           --           --           --
   Plan Amendments                                      --        1,557           --           --           --           --
   Actuarial (Gain) Loss                             6,821          739       (1,945)       5,727          453        1,957
   Total Benefit Payments                           (2,023)      (1,049)        (693)        (238)        (180)        (139)
                                                 ---------    ---------    ---------    ---------    ---------    --------- 
     Benefit Obligation at End of Year           $ 130,763    $ 109,087    $  91,957    $  67,879    $  54,530    $  47,189
                                                 =========    =========    =========    =========    =========    =========
                                                 


Change in Plan Assets
Fair Value of Plan Assets at Beginning of Year   $ 121,360    $  87,729    $  77,998    $      --    $      --    $      --
   Actual Return on Plan Assets                      6,550       23,111        9,325           --           --           --
   Employer Contributions                            2,124       11,264        1,097          238          180          139
   Participants' Contributions                         337          305          373           --           --           --
   Total Benefit Payments                           (2,023)      (1,049)        (693)        (238)        (180)        (139)
   Other                                              (293)          --         (371)          --           --           --
                                                 ---------    ---------    ---------    ---------    ---------    ---------
     Fair Value of Plan Assets at End of Year    $ 128,055    $ 121,360    $  87,729    $      --    $      --    $      --
                                                 =========    =========    =========    =========    =========    =========


Funded Status                                    $  (2,708)   $  12,273    $  (4,228)     (67,879)     (54,530)     (47,189)
Unrecognized Actuarial (Gain) Loss                    (967)     (12,760)       1,386       13,273        7,743        7,672
Unrecognized Prior Service Cost                      8,600        9,707        9,257          237          284          331
Adjustment to Book Value                                --           --           --           68           49           27
Adjustment for Sept. 30th Measurement Date              --          (96)       6,120           --           --           --
                                                 ---------    ---------    ---------    ---------    ---------    ---------
     Net Amount Recognized                       $   4,925    $   9,124    $  12,535    $ (54,301)     (46,454)     (39,159
                                                 =========    =========    =========    =========    =========    =========


Amount Recognized in the Consolidated
 Balance Sheets Consists of
   Prepaid Benefit Cost                          $   6,837    $   9,498    $  12,535    $      --    $      --    $      --
   Accrued Benefit Liability                        (1,912)        (374)          --      (54,301)     (46,454)     (39,159)
   Additional Minimum Liability                     (5,878)      (3,462)      (2,399)          --           --           --
   Intangible Asset                                  1,366        1,216           --           --           --           --
   Accumulated Other Comprehensive Income            4,512        2,246        2,399           --           --           --
                                                 ---------    ---------    ---------    ---------    ---------    ---------
     Net Amount Recognized                       $   4,925    $   9,124    $  12,535    $ (54,301)     (46,454)     (39,159)
                                                 =========    =========    =========    =========    =========    ========= 
</TABLE>


                                       26

<PAGE>   27



NOTE 6 - PENSION AND POSTRETIREMENT BENEFIT PLANS (continued)

<TABLE>
<CAPTION>


<S>                                                <C>    <C>      <C>       <C>        <C>          <C>  
Weighted-Average Assumptions
   Discount Rate                                   6.75%  7.25%    7.50%     6.75%      7.25%        7.50%
   Expected Return on Plan Assets                  9.00   9.00     9.00      N/A        N/A          N/A
   Rate of Compensation Increase - Salaried         3.7%   3.7%     3.7%      3.7%       3.7%         3.7%
   Rate of Compensation Increase - Hourly          N/A    N/A       N/A       3.0%       3.0%         3.0%
</TABLE>



For measurement purposes, an assumed health care trend rate of 7.0% was used for
the postretirement benefit obligation in 1996, decreasing to 6.0% in 1997 and
remaining at that level thereafter. A measurement date of September 30 was used
for the pension plans. A measurement date of December 31 was used for the
postretirement benefit plans.

The following schedule sets forth the components of net periodic benefit cost
(dollars in thousands):
<TABLE>
<CAPTION>

                                                          Pension Plans                   Postretirement Benefit Plans     
                                            -----------------------------------        -------------------------------     
                                               1998         1997        1996              1998         1997        1996
                                               ----         ----        ----              ----         ----        ----
<S>                                        <C>           <C>           <C>           <C>          <C>          <C>     
Components of Net Periodic Benefit Cost
Service Cost                               $  8,116      $  8,077      $  8,143      $  3,649     $  3,287     $  2,992
Interest Cost                                 8,425         7,565         6,541         4,211        3,781        3,163
Expected Return on Plan Assets              (10,833)       (8,358)       (7,021)           --           --           --
Amortization of Prior Service Cost            1,108         1,140         1,012            47           47           47
Recognized Actuarial (Gain) Loss               (397)          131           261           197          382          385
                                           --------      --------      --------      --------     --------     --------
  Net Periodic Benefit Cost                $  6,419      $  8,555      $  8,936      $  8,104     $  7,497     $  6,587
                                           ========      ========      ========      ========     ========     ========
</TABLE>

                                           
                                           


The projected benefit obligation, accumulated benefit obligation, and fair value
of plan assets for the pension plans with accumulated benefit obligations in
excess of plan assets are set forth below (dollars in thousands):
<TABLE>
<CAPTION>

                                                           December 31 
                                                ---------------------------------                 
                                                1998         1997        1996
                                                ----         ----        ----

<S>                                             <C>         <C>           <C>    
Projected Benefit Obligation                    $18,577     $15,486       $67,309
Accumulated Benefit Obligation                   18,317      15,271        67,309
Fair Value of Plan Assets                        12,939      12,262        63,147
</TABLE>


Rouge Steel Company has two nonpension postretirement benefit plans. One plan is
noncontributory. The health care provision of the other plan has a contribution
requirement for eligible participants hired after November 1, 1988. The life
insurance provision of this plan is noncontributory.

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage-point change in assumed
health care cost trend rates would have the following effects for the year ended
and as of December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>


                                                                     One Percentage     One Percentage
                                                                     Point Increase     Point Decrease
                                                                     --------------     --------------

<S>                                                                      <C>          <C>         
Effect on Total of Service and Interest Cost Components                  $  2,377     $    (1,771)
Effect on Postretirement Benefit Obligation                                15,263         (11,584)
</TABLE>



                                       27


<PAGE>   28



NOTE 7 - INCOME TAXES

Rouge Industries' income tax provision, arising wholly from Federal taxation
since the Company neither has been nor is presently subject to state or foreign
income taxes, consists of the following components (dollars in thousands):


<TABLE>
<CAPTION>

                                 Year Ended December 31                 
                          -------------------------------
                          1998         1997          1996
                          ----         ----          ----

<S>                      <C>          <C>          <C>     
Current                  $(3,275)     $ 1,446      $(2,482)
Deferred                  (5,430)      (9,540)      (4,433)
                         -------      -------      -------
     Total Provision     $(8,705)     $(8,094)     $(6,915)
                         =======      =======      =======
</TABLE>


The Company's income tax provision is net of taxes related to the equity in the
income or loss of unconsolidated subsidiaries. The income tax benefit associated
with the loss of unconsolidated subsidiaries was $655,000 in 1998, which is
comprised of a current provision of $2,000 and a deferred benefit of $657,000.
The income tax benefit associated with the loss of unconsolidated subsidiaries
was $385,000 in 1997, which is comprised of a current provision of $513,000 and
a deferred benefit of $898,000. The income tax provision associated with the
income of unconsolidated subsidiaries was $27,000 in 1996. The additional
minimum pension liability adjustment of $4,512,000 is shown net of the deferred
tax impact of $1,579,000 at December 31, 1998.

The differences between the total provision and the provision computed using the
Federal statutory income tax rate were as follows (dollars in thousands):

<TABLE>
<CAPTION>

                                                Year Ended December 31                       
                                           --------------------------------
                                           1998          1997          1996
                                           ----          ----          ----

<S>                                      <C>           <C>           <C>     
Pre-Tax Income                           $ 33,061      $ 31,226      $ 30,220
                                         ========      ========      ========

Computed Provision                       $(11,571)     $(10,929)     $(10,577)
Source of Difference:
   Amortization of Negative Goodwill        2,029         2,029         2,029
   Change in Valuation Allowance            1,106           774         1,800
   Other                                     (269)           32          (167)
                                         --------      --------      --------
      Total Provision                    $ (8,705)     $ (8,094)     $ (6,915)
                                         ========      ========      ========
</TABLE>


                                        28


<PAGE>   29



NOTE 7 - INCOME TAXES (continued)

Deferred tax assets (liabilities) are comprised of the following (dollars in
thousands):
  
<TABLE>
<CAPTION>
                                                  December 31            
                                            --------------------   
                                            1998            1997
                                            ----            ----
              ASSETS
<S>                                       <C>           <C>     
Basis of Consolidated Subsidiary          $  7,033      $  8,964
Postretirement and Other Benefits           24,661        18,734
Other                                        9,991         6,854
Operating Loss and Alternative
     Minimum Tax Credit Carryforwards       30,065        31,693
                                          --------      --------
Gross Deferred Tax Assets                   71,750        66,245
Valuation Allowance                        (10,715)      (11,821)
                                          --------      --------
Gross Deferred Tax Assets
     After Valuation Allowance              61,035        54,424
                                          --------      --------

              LIABILITIES
Property, Plant, and Equipment             (36,637)      (25,939)
Inventories                                (11,495)      (12,388)
Other                                          (33)          (34)
                                          --------      --------
Gross Deferred Tax Liabilities             (48,165)      (38,361)
                                          --------      --------
     Total Net Deferred Tax Assets        $ 12,870      $ 16,063
                                          ========      ========
</TABLE>


Unused regular tax loss carryforwards were approximately $19,245,000 at December
31, 1997. Alternative minimum tax credit carryforwards amounted to $30,065,000
at December 31, 1998 and $24,957,000 at December 31, 1997. The alternative
minimum tax loss carryforwards may be carried forward indefinitely.

A valuation allowance is recorded for deferred tax assets if it is more likely
than not that some or all of the deferred tax assets will not be realized. The
Company previously recorded a partial valuation allowance on certain deferred
tax assets. The reduction of the valuation allowance was primarily the result of
the utilization of basis differences in fixed assets. Certain 1997 deferred tax
balances and the related valuation allowance pertaining to Eveleth were
reclassified to conform with the current year's presentation. Current deferred
tax assets of $45,000 and $1,819,000 in 1998 and 1997, respectively, are
recorded in Other Current Assets. The remaining deferred tax assets are included
in Deferred Charges and Other.

Net cash paid for income taxes was $6,557,000 in 1998. In 1997, the Company made
estimated tax payments of $2,000,000 and received a net cash refund of
$4,704,000. Net cash paid for income taxes was $5,325,000 in 1996.

NOTE 8 - COMMON STOCK

Class A shares have a par value of $0.01. Each Class A share has one vote.

Class B shares have a par value of $0.01.  Each Class B share has 2.5 votes.

The Company has an outside director equity plan ("ODEP"), a 1994 stock incentive
plan and a 1998 stock incentive plan (the 1994 stock incentive plan and the 1998
stock incentive plan together the "SIP"). The ODEP and the SIP provide for stock
option grants to the Company's directors and employees, respectively,

                                       29

<PAGE>   30



NOTE 8 - COMMON STOCK (continued)

at fair market value on the date of grant. Under the plans, the Company is
authorized to grant options to its directors and employees for up to 1,000,000
shares of common stock. Of this amount, options are outstanding for 383,950
shares at December 31, 1998. These stock options generally vest over a period of
three years and are exercisable for a period not exceeding ten years from the
date of grant. The stock options may be exercised subject to continued
employment and certain other conditions.

The Company applies Accounting Principles Board Opinion No. 25 in accounting for
its stock-based compensation plans. Accordingly, no compensation cost has been
recognized for the ODEP and the SIP. If compensation cost for the ODEP and the
SIP had been determined based upon the fair value at the grant dates for awards
under these plans consistent with the method set forth in SFAS No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and net
income per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>

                                                                                    Year Ended December 31          
                                                                          ------------------------------------------
                                                                          1998               1997               1996
                                                                          ----               ----               ----

<S>                                                                       <C>               <C>               <C>    
Net Income (dollars in thousands)          As Reported                  $  23,392        $   22,414         $  23,392
                                           Pro Forma                       22,880            21,523            22,357

Net Income Per Share                       As Reported                  $    1.06         $    1.02         $    1.07
                                           Pro Forma                         1.04              0.98              1.02
</TABLE>


The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                   1998                       1997                       1996
                                                   ----                       ----                       ----

<S>                                                <C>                        <C>                        <C>  
Dividend Yield                                     0.99%                      0.57%                      0.51%
Risk-Free Interest Rate                            5.77                       6.35                       5.56
Expected Volatility                               36.40                      33.26                      32.74
Expected Life                                   7 years                    7 years                    7 years
</TABLE>


A summary of the status of the Company's stock-based compensation plans as of
December 31, 1998, 1997 and 1996 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>

                                                    1998                           1997                         1996             
                                           ------------------------   ------------------------------   --------------------
                                                         Weighted-                    Weighted-                   Weighted-
                                                          Average                      Average                     Average
                                            Shares         Price           Shares       Price           Shares      Price   
                                           --------      ---------        --------    ---------        -------     --------
<S>                                         <C>           <C>              <C>          <C>            <C>          <C>   
Outstanding at January 1                    297,250       $24.29           207,325      $26.04         106,500      $28.33
Granted                                     109,300        12.16           105,800       20.92         109,200       23.70
Forfeited                                   (22,600)       20.00           (15,875)      24.69           (8,37)      24.77
                                            -------                       --------                    --------
Outstanding at December 31                  383,950       $21.09           297,250      $24.29         207,325      $26.04
                                            =======       ======           =======      ======         =======      ======

Options Exercisable at Year-End             309,425       $22.58           222,175      $25.11         130,694      $26.46
Weighted-Average Fair Value of
     Options Granted During the Year                      $ 5.41                       $  9.57                      $10.43
</TABLE>


                                       30

<PAGE>   31



NOTE 8 - COMMON STOCK (continued)

The following table presents summarized information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>


                                  Options Outstanding                                           Options Exercisable 
                     ----------------------------------------------------------     ----------------------------------             
                          Number           Weighted-Average         Weighted-             Number           Weighted-
Range of              Outstanding at           Remaining             Average          Exercisable at        Average
Exercise Prices      December 31, 1998     Contractual Life      Exercise Price      December 31, 1998  Exercise Price
---------------      -----------------     ----------------      --------------      -----------------  --------------

<S>       <C>                <C>             <C>                    <C>                   <C>             <C>   
$12.13 to 15.13              104,000         9.0 years              $12.20                52,375          $12.23
$21.00 to 23.00              98,350          7.9                     21.10                75,450           21.13
$23.01 to 24.00              95,600          7.0                     23.73                95,600           23.73
$28.88                       86,000          6.0                     28.88                86,000           28.88
</TABLE>


NOTE 9 - EARNINGS PER SHARE

The calculation of diluted net income per share for the years ended December 31,
1998, 1997 and 1996 did not require an adjustment to net income for the effect
of dilutive securities. The weighted-average shares outstanding were adjusted
for the effect of 0, 37 and 51 shares of dilutive securities which were
outstanding as of December 31, 1998, 1997 and 1996, respectively.

The dilutive securities represent stock options which were granted to members of
management or the board of directors and which had exercise prices lower than
the average market price of the Company's Class A Common Stock. Options to
purchase 383,950 shares at $12.13 to $28.88 per share in 1998, 295,750 shares at
$21.00 to $28.88 per share in 1997 and 204,325 shares at $22.88 to $28.88 per
share in 1996 were outstanding but were not included in the computation of
diluted earnings per share because the exercise prices of these options were
greater than the average market price of the Company's Class A Common Stock.
These options will expire between 2005 and 2008.

NOTE 10  -  COMMITMENTS AND CONTINGENCIES

Commitments to Ford

The Company purchases various services including environmental, heavy equipment
repair, construction and transportation from Ford. In addition, the Company
leases certain land, office space and production support facilities from Ford
under cancelable operating leases with terms ranging from 1 to 99 years. The
costs of these services were approximately $3,564,000 in 1998, $18,469,000 in
1997 and $25,643,000 in 1996. The Company has assumed some of the services which
had previously been provided by Ford resulting in the decline in payments to
Ford.

The Company also jointly owns a powerhouse facility (the "Powerhouse") with
Ford, under a renewable ten-year agreement expiring December 31, 1999. On
February 1, 1999, an explosion at the Powerhouse resulted in the interruption of
the supply of electricity, process and heating steam, turbo air, mill water and
other utilities to virtually all of the facilities of Rouge Steel. See Note 11
for a more detailed discussion of the Powerhouse explosion. Prior to the
explosion, the Powerhouse generated electricity, steam and other utilities. The
fixed assets of the Powerhouse are owned 60 percent by the Company and 40
percent by Ford, with each party receiving a portion of the power generated. The
costs of operating the facility are allocated between the Company and Ford based
on the consumption of utilities. The Company's share of the costs of this
facility was approximately $76,185,000 in 1998, $78,499,000 in 1997 and
$74,005,000 in 1996. In 1996, the Company provided written notice to Ford of its
intention to terminate the Powerhouse

                                       31


<PAGE>   32
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)

agreement on December 15, 1999. The Company and Ford have signed an agreement
for long-term energy services with CMS Energy Corporation, which will build and 
operate a co-generation power plant.

In connection with its operation of the Powerhouse, Ford purchases a portion of
the gas produced by the Company's blast furnaces for use at the Powerhouse based
on a negotiated formula. Ford purchased $27,046,000, $26,497,000 and $23,638,000
worth of blast furnace gas in 1998, 1997 and 1996, respectively. Of these
amounts, between 60 and 70 percent has been charged back to the Company for its
proportionate share of the cost of such gas.

During 1998, 1997 and 1996, the Company purchased scrap from Ford at a cost of
$31,774,000, $40,496,000 and $31,401,000, respectively. These purchases were
made under a supply agreement that expires in automotive model-year 2000.

Waste Oxide Reclamation Facility Lease

Rouge Steel has committed to a seven-year lease for a $52,500,000 waste oxide
reclamation facility. The facility is presently being constructed, and it is
expected to be completed in the second quarter of 1999.
Lease payments will commence at that time.

Other Commitments

Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC described in Note 4, Rouge Steel is required to purchase
45 percent of the first 5.0 million natural gross tons of pellets produced each
year by EVTAC at world market prices. The Company also has the right of first
refusal with respect to 45 percent of any pellets produced by EVTAC in excess of
5.0 million natural gross tons. The Company and the other owners of EVTAC are
currently in discussions regarding EVTAC's operations and activities. These
discussions and any subsequent resulting actions may affect, among other things,
the cost and availability of iron ore pellets, the timing of EVTAC employee
benefit liability recognition and funding requirements and recognition of other
obligations relating to the mining operations.

The Company has a ten-year contract for the supply of oxygen and nitrogen which
expires in 2005. The contract contains annual minimum oxygen and nitrogen
purchases of $8,300,000 and $550,000, respectively. Oxygen and nitrogen
purchases aggregated approximately $21,001,000 in 1998, $15,124,000 in 1997 and
$11,707,000 in 1996.

Shiloh of Michigan, L.L.C. Loan Guaranty

Rouge Industries guarantees 20 percent of a $30,000,000 line of credit for
Shiloh of Michigan, an engineered steel blanking joint venture between the
Company and Shiloh Industries, Inc. As of December 31, 1998, Shiloh of Michigan
had borrowings of $28,701,000 outstanding under its line of credit.


                                       32
<PAGE>   33
NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)

Delaco Processing, L.L.C. Loan Guaranty

Rouge Industries and Delaco Steel Corporation have agreed to jointly and
severally guarantee a $7,300,000 line of credit for Delaco Steel Processing, the
Company's 49 percent owned steel slitting joint venture with Delaco Supreme Tool
& Gear Co. As of December 31, 1998, Delaco Steel Processing had borrowings of
$3,036,000 outstanding under its line of credit.

Bing Blanking, L.L.C. Loan Guaranty

The Company guarantees a $4,000,000 term loan and a $1,000,000 line of credit
loan for Bing Blanking. As of December 31, 1998, Bing Blanking had $4,000,000
outstanding under its term loan and did not have any borrowings outstanding
under its line of credit. In addition, as of December 31, 1998, Bing Blanking
owes the Company $3,000,000.

Environmental Matters

The Company is indemnified by Ford through December 15, 2009 for environmental
obligations relating to conditions arising prior to the Acquisition on December
15, 1989. It is the Company's practice to coordinate the resolution of such
obligations with Ford. Management believes that disputed or unresolved
obligations are immaterial in relation to the Company's consolidated financial
position or results of operations.

The Company's operations are subject to many federal, state and local laws,
regulations, permits and consent agreements relating to the protection of human
health and the environment. Although the Company believes that its facilities
are in material compliance with these provisions, from time to time, the Company
is subject to investigations by an environmental agency. In management's
opinion, none of such current investigations, individually or in the aggregate,
will have a materially adverse effect on the Company's consolidated financial
position or results of operations.

Litigation

Residents of the City of Melvindale (a suburb in close proximity) have filed a
class action lawsuit against the Company. The lawsuit claims trespass, nuisance
and negligence as a result of alleged air pollution over an unspecified period 
of time including the period from March to June of 1997. Since damage 
calculations have not yet been performed, it is currently not possible to 
determine either the level of the Company's monetary exposure or the likely 
outcome of the lawsuit.

The Company is involved in routine litigation incidental to its business. Other
than the matter discussed above, in management's opinion, none of such current
proceedings, individually or in the aggregate, will have a materially adverse
effect on the Company's consolidated financial position or results of
operations.

NOTE 11 - SUBSEQUENT EVENT

On February 1, 1999, an explosion and fire at the Powerhouse resulted in the
interruption of the supply of electricity, process and heating steam, turbo air,
mill water and other utilities to virtually all of the facilities of Rouge
Steel. The loss of power resulted in a temporary shutdown of the Company's steel
making facilities and corporate offices. The Powerhouse is owned by Rouge Steel
(60%) and Ford (40%).









                                       33
<PAGE>   34



NOTE 11 - SUBSEQUENT EVENT (continued)

On February 4, 1999, partial electricity and steam service was restored to the
Rouge Steel facilities through a combination of new power lines from DTE Energy 
Company and temporary generators and package boilers.

On February 11, 1999, Rouge Steel resumed limited production at its hot strip
mill and cold mills. Primary operations, including the Company's two blast
furnaces, the basic oxygen furnace and continuous caster, will remain idle
pending the refurbishment and restart of the turbo air equipment, which is
integral to the operation of the blast furnaces and was housed in the
Powerhouse. The Company believes that its primary operations will return to
production by April 30, 1999. In advance of the resumption of full production
capacity, the Company has purchased an aggregate of 450,000 tons of
semi-finished steel to partially support its automotive order book.

Although the Company has a considerable insurance program that provides coverage
for damage to property destroyed, interruption of business operations and
expenses incurred to minimize the period of disruption to operations, the full
extent of the damage to the Powerhouse and the resulting financial effect have
not been determined.













                                       34
<PAGE>   35



SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Accounts Receivable Allowances (amounts in thousands):



<TABLE>
<CAPTION>
                                                   Charged
                              Balance           (Credited) to                                  Balance
   Year Ended              at Beginning           Cost and                                     at End
  December 31                of Period            Expenses             Write-Offs             of Period
  ------------               ---------            --------             ----------             ---------

<S>    <C>                     <C>                 <C>                  <C>                   <C>     
       1998                    $6,333              $11,604              $     --              $ 17,937
       1997                     7,294                 (815)                 (146)                6,333
       1996                     6,118                1,248                   (72)                7,294
</TABLE>













                                       35
<PAGE>   36



                                     PART IV


Item 14.       Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

               (a)   Documents filed as part of this Report:

               (1)   A list of the financial statements filed as part of this
                     report is submitted as a separate section, the index to
                     which is located on page 14.

               (2)   A list of financial statement schedules required to be
                     filed by Item 8 is located on page 14.

               (3)   Exhibits:

<PAGE>   37


     Exhibit
     Number                     Description of Exhibit
     ------                     ----------------------

         23+      Consent of PricewaterhouseCoopers LLP.

         27+      Financial Data Schedule


--------------------
+    Filed herewith.














                                       57
<PAGE>   38



                                   SIGNATURES

    Pursuant to the requirements of Section 13 of 15(a) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report on
Form 10-K/A-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 31st day of March 1999.

                                            ROUGE INDUSTRIES, INC.



                                            By: /s/ Gary P. Latendresse    
                                            ------------------------------
                                            Name:  Gary P. Latendresse
                                            Title: Executive Vice President
                                                   and Chief Financial Officer




                       



                            
<PAGE>   39
                                 EXHIBIT INDEX


     Exhibit
     Number                     Description of Exhibit
     ------                     ----------------------

         23+      Consent of PricewaterhouseCoopers LLP.

         27+      Financial Data Schedule


--------------------
+    Filed herewith.